The World Bank’s latest economic outlook for the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP) region paints a nuanced picture of progress and vulnerability. For 2025, the report projects a regional growth rate of 2.8%, a modest increase from the previously estimated 2.6%. This upward revision is primarily driven by strong performance in Gulf Cooperation Council (GCC) nations and a rebound in several oil-importing economies. Yet, the report underscores persistent geopolitical and structural challenges, with Iran facing a pronounced economic contraction and fragile states continuing to grapple with instability.
GCC Nations: Diversification and Oil Recovery Drive Growth
The Gulf economies including Saudi Arabia, the UAE, Qatar, Kuwait, Oman, and Bahrain remain the backbone of regional growth. The World Bank attributes the upward revision in part to the easing of oil production cuts, which has led to higher output and strengthened fiscal positions. However, non-oil sectors are increasingly pivotal. Saudi Arabia, leveraging Vision 2030 initiatives, has seen growth in tourism, entertainment, and technology-driven startups. Mega-projects in renewable energy, entertainment, and cultural infrastructure continue to attract both domestic and international investment. The UAE is benefiting from robust foreign direct investment inflows, a thriving logistics sector, and the expansion of fintech and digital services. Qatar and Kuwait have strengthened their non-oil industrial base, particularly in infrastructure, construction, and finance. These developments signal a shift toward economic diversification, helping buffer the region against oil price volatility. The World Bank expects GCC growth to remain robust, potentially exceeding 3% in 2025, driven by a combination of oil revenue recovery and non-oil sector expansion.
Oil-Importing Countries: Recovery Amid Modest Gains
For nations that import oil, including Egypt, Jordan, Morocco, and Pakistan, growth is improving as domestic consumption and investment rebound. The region has benefited from a recovery in agriculture after several poor harvests in 2023–2024, which had previously constrained food supply and domestic income. The tourism sector, particularly in Egypt and Morocco, has rebounded strongly as global travel demand returns to pre-pandemic levels, providing a crucial boost to services, employment, and foreign exchange inflows. Additionally, infrastructure investments, supported by multilateral funding and public-private partnerships, have stimulated construction and services, creating jobs and facilitating trade. These factors collectively have improved private consumption and industrial activity, contributing to moderate economic resilience, although these nations remain vulnerable to global commodity price swings and domestic policy challenges.
Iran: Geopolitical Sanctions Drive Contraction
Iran presents a stark contrast to regional trends. The World Bank forecasts a 1.7% contraction in 2025, deepening to 2.8% in 2026. This sharp reversal is primarily due to tightened U.S. and U.N. sanctions, which have severely restricted both oil exports and access to international financial systems. Non-oil sectors, particularly manufacturing, logistics, and exports, are also struggling under limited access to technology, financing, and foreign markets. Geopolitical tensions, including escalations with Israel and the United States, have further deterred foreign investment, leading to constrained fiscal space and currency instability. These combined factors suppress domestic demand and undermine Iran’s economic recovery prospects, with limited avenues for near-term improvement unless diplomatic solutions or policy adjustments are implemented.
Libya and North Africa: Instability Dampens Prospects
Libya continues to face significant economic challenges due to political fragmentation and recurring disruptions in oil production, which reduce government revenues and limit investment opportunities. Tunisia and Algeria, while more stable politically, are confronting structural challenges such as high unemployment, inflationary pressures, and dependence on commodity exports. Morocco and Egypt, by contrast, are showing more resilient economic performance, benefiting from tourism, exports, and domestic investment, though global commodity price volatility and fiscal pressures continue to pose risks.
Fragile States: Humanitarian and Economic Crises Persist
Several fragile states in the region, including Syria, Yemen, Lebanon, the West Bank, Gaza, and Afghanistan, continue to face protracted conflict and political instability. These conditions have severely undermined investment, infrastructure development, and growth prospects. Humanitarian crises remain pervasive, with millions experiencing food insecurity, displacement, and limited access to basic services. Spillover effects from these crises are felt in neighboring countries, disrupting trade, labor markets, and regional investment flows. The World Bank emphasizes that without international aid, governance reforms, and effective conflict resolution, these countries are likely to remain in economic stagnation or decline, creating persistent risks for the broader region.
Sectoral Trends: Energy, Technology, and Finance
Energy transition is emerging as a key driver of regional economic strategy, particularly among GCC nations. Investments in renewable energy including solar, wind, and hydrogen projects are expanding rapidly, reflecting a strategic effort to diversify revenue sources and reduce reliance on hydrocarbons. Simultaneously, the digital economy is accelerating across the region. Technology adoption, fintech innovation, and e-commerce growth are particularly notable in the UAE, Saudi Arabia, and Egypt. Governments are promoting digital infrastructure and AI-driven services as critical drivers of productivity and employment. The financial sector is also strengthening, with banking and capital markets showing improved liquidity and increased cross-border investment opportunities. Fintech integration, regulatory modernization, and enhanced digital banking platforms are enabling new avenues for trade and economic diversification.
Policy Recommendations and Outlook
The World Bank underscores that moderate regional growth in 2025 is achievable but remains vulnerable. Economic diversification is critical for oil-dependent economies to reduce exposure to commodity shocks. Fiscal and monetary policies should focus on stabilizing inflation and supporting private investment, while diplomatic and conflict-resolution efforts are essential in fragile states to reduce humanitarian crises and cross-border economic disruptions. Countries like Iran require innovative strategies to mitigate sanctions’ impact, including fostering domestic industrial activity and non-oil trade. Investment in infrastructure, human capital, and technology is also key to building resilience and enabling sustainable development.
Conclusion
The World Bank’s 2025 forecast paints a complex and mixed picture of the region. GCC countries and some oil-importing nations show resilience and moderate growth, while fragile states and conflict-affected regions continue to face severe economic and humanitarian challenges. Iran’s economy stands out for its contraction under the weight of sanctions and geopolitical tensions. Achieving sustainable regional growth will depend on policy reforms, strategic investment, diversification, and diplomatic progress to stabilize economies and ensure long-term development in the MENAAP region.
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