Table of Contents

The economies of the Arab region are directly shaped by anemic global economic growth and uncertainties around disruptions including inflation trends, China’s economic future after its pandemic-related slowdown and reopening, rising debt levels, capital outflow from emerging market economies to advanced economies, and the trajectory of commodity and energy prices. Global political pressures are just as ominous: multilateralism and the liberal international order are eroding from within, making it infinitely more difficult to find international compromises and solutions to impending economic challenges. Without strong global political will to find solutions to the growing number of collective action problems, the world will see fewer compromises, more protectionism, and increasing insularity, which are all dangerous headwinds for the health of the global economy and the Arab region.

Oil prices have a large determining factor on the Arab region’s economic health and are often correlated with investors’ confidence in the future health of the global economy. Short-term fluctuations in oil prices do not just impact resource-rich countries but also resource-poor countries that are dependent on workers’ remittances from Arab Gulf states. From tourism, trade, investment, and food prices, the potential positive spillover into Arab economies from a healthy global economy are clear.

While many Arab countries are still experiencing economic growth and projections remain positive, distribution of wealth has not improved: the Middle East and North Africa holds the unenviable record of being the most unequal region. The impact of these global challenges on Arab economies and societies, particularly on resource-poor countries and the most vulnerable people within them, will be significant. Unemployment levels have continued to rise since the onset of the COVID-19 pandemic, particularly for Arab youth. In the Arab region, Egypt, Jordan, Lebanon, Sudan, and Tunisia are all likely to experience challenges arising from an anemic global economy.

Bessma Momani
Bessma Momani is a full professor in the Department of Political Science and the assistant vice president of research and international at the University of Waterloo in Canada. She is a governor on the board of the International Development Research Centre and member of the board of the Pierre Elliott Trudeau Foundation.

The young demographic profile of the region means that more youth are entering the labor market every year with increasingly weak employment prospects. Despite progress over the past two decades in tackling poverty and inequality, the economic pressures of both the pandemic and the Russian war against Ukraine are likely to reverse some of these gains. These global economic uncertainties will only further negatively impact the poorest and most vulnerable people in the Arab region and aggravate internal political dynamics in Arab countries.

How Global Uncertainties Affect Arab Economies

The health of the global economy is often a key factor impacting oil prices and investors’ confidence in emerging market economies; prosperity in both can positively impact the Arab region either through oil revenue and workers’ remittances from oil-rich countries or through positive catalytic effects on domestic economies. Arab economies are also strongly tied by trade and investment with China, the European Union, and the United States, such that a slowdown in any of these economic heavyweights can negatively impact the Arab region through decreased exports of oil and non-oil products and decreased foreign investment in domestic projects. Tourism, for example—which had accounted for nearly 10 percent of GDP in Egypt before the pandemic—is a vital source of hard currency for the region and employs almost 7 million people. Undoubtedly, the economies of the Arab region are impacted by the gyrations currently being experienced in the global economy.

The projected health of the global economy today is uncertain. Based on estimates from the International Monetary Fund (IMF), global economic growth is expected to increase by 2.9 percent in 2023 and rebound to 3.1 percent in 2024. The IMF revised its estimates to be slightly more optimistic, although growth levels were relatively weaker compared to previous years. The more optimistic revision reflects both China’s reopening from its COVID-19 lockdowns and successful global adjustments to reduced oil supplies in Europe after Russian invaded Ukraine. Western stock markets have surged in line with optimistic expectations of countries battling inflation, but then struggled again as a result of technology company layoffs and bank liquidity scares in the United States and Europe. A strong policy response in advanced economies to tackle inflation helped enhance confidence in their corrective measures, aided by the eventual clearing of supply chain bottlenecks that were created during the pandemic as Western disposable incomes increased and remote work increased demand for consumer goods. Hence, it appears that peak inflation may have passed in most advanced economies, although the same cannot be said for developing and emerging economies, particularly in Arab countries dependent on food imports where prices are already quite high. This all suggests that fears of a global economic slowdown remain prevalent but perhaps the feared global recession will not be as ferocious as once thought.

The state of capital flows is also adding uncertainty about the global economy and, in turn, affecting the health of Arab economies. For example, to cool its own inflationary economy, the U.S. government raised its interest rate, causing capital that is invested for speculative as opposed to productive purposes (also known as hot money) to leave emerging market economies, including many Arab countries. A weakening of the U.S. dollar from a November 2022 peak will help to reverse the outflow of capital from some emerging market economies in the Arab region. Nevertheless, the outflow of capital did result in many states accruing high levels of debt. Unsurprisingly, many emerging market economies and developing country governments sought external financing to cushion the impact of broader economic slowdowns and rising costs of mitigating the pandemic. Market studies suggest global debt is at $300 trillion, and debt-to-GDP ratios have increased significantly over the pandemic years. Many Arab governments have indeed accrued a great deal of public debt to manage the impacts of the pandemic. As interest rates rise, debt service payments have also increased, raising fears that debt sustainability will be a serious challenge for many countries, particularly developing countries and resource-poor Arab countries. This will be a potential reckoning and may hence dampen expectations of high global and regional growth.

The Role of China’s Economic Future

Given China’s significant economic footprint in the Arab world as the largest trading partner to almost all Arab countries, a significant investor in oil and gas and critical infrastructure developments throughout the region, and the leading consumer of oil from Saudi Arabia, what happens in China will invariably ripple across Arab economies (see figure 1). Indeed, China remains one of the largest engines of global economic growth. China is a key consumer of a significant share of global oil supply, and China’s potential for an economic recovery will be an important variable in the future oil prices and therefore also in the economic health of the Arab region. Yet, China’s pace of economic recovery is uncertain.

On the one hand, the end of China’s Zero COVID policy and subsequent economic reopening in late 2022 could eventually provide a stimulus to the global economy and a boost to oil exporters. However, despite China’s reopening, production and supply cuts by the Organization of the Petroleum Exporting Countries since fall 2022, combined with the overall decreased global oil supplies owing to the Russian war on Ukraine and European sanctions on Russian oil, have meant that oil prices have not significantly rebounded or increased.

On the other hand, some analysts say that China’s challenges are more structural and that it faces both the middle-income trap while facing a declining population. In this line of thinking, lower economic growth rates since well before the pandemic mean that China will fail to return to pre-pandemic economic growth levels. China will not be able to sufficiently boost the world out of anemic economic growth.

China’s potential boost and positive impact on the global economy and the Arab region will be tempered by the broader geopolitical rifts that seem to be escalating between China and the West. This risk of fragmentation into geoeconomic blocs is slowly materializing in how countries are raising trade barriers, foreign direct investment barriers, and subsidies to domestic industries. This geopolitical rift is not yet to a cold-war level, but several developments point toward further fragmentation: the China-U.S. technological war over standards; the U.S. CHIPS and Science Act; the U.S. Inflation Reduction Act, which introduces subsidies for clean energy initiatives that will try to push China out of high-value-added manufacturing; and the prevention of access to Western markets for Chinese technology champions.

Fragmentation is about unstructured great power competition, principally coming from China and to a lesser extent from Russia, that challenge the existing distribution of international political power. Specifically, it is the U.S.-backed liberal international order that is being challenged as the distribution of international power has fundamentally changed. It is not surprising then that fragmentation is accompanied by regional powers, like Iran, Saudi Arabia, Türkiye, and the UAE, exhibiting more assertive foreign and economic policies. These countries are demanding more voice and input into regional affairs while challenging U.S. leadership. The rapprochement deal brokered by China between Iran and Saudi Arabia is exemplary of this type of rejection of the liberal international order. Fragmentation is less about disagreements over the legitimacy and role of global economic institutions—like, say, the IMF, World Bank, or the World Trade Organization—and more about what norms ought to underpin the international economic system.

No wonder then that many countries are resorting to more introverted economic policies that have a clear protectionist tone. This is not the death of globalization as some have sounded, but whether it is called decoupling, friendshoring, or deglobalization, this is a serious policy concern that will have negative global economic ramifications. Undoubtedly, the lurking of populist leaders in the background of many countries, including France, Germany, Italy, and the United States, has further contributed to a political discourse that favors nationalist economic policies and criticizes enhanced globalization. These are all troubling headwinds for the global economy and can result in less foreign direct investment and trade with the Arab world. An introverted West is not good for economic engagement in the Arab region and can invariably impact trade and investment flows with the region. These broader political trends cannot be ignored and continue to add to uncertainty and disruptions in the global economy.

Indeed, it has been suggested that trade, finance, and technology rules and standards may become an arena of further global contestation, which does not bode well for coordinating efforts to reverse anemic global growth. Where G20 coordination was a key political factor that got the global economy out of the doldrum of the 2008 international financial crisis, today’s geoeconomic fragmentation portends the lack of political will to coordinate around finding solutions to low growth and productivity challenges. Economic challenges will only be aggravated by climate change, migration crises, and rising tides of populism. The future needs more coordination to address growing collective action problems. The Arab region benefits from strong linkages with a prosperous world economy and an international political system that can work amicably to find solutions to these forces pushing for economic fragmentation.

Oil Exporters Are More Likely to Be Insulated From Global Economic Disruptions Than Oil Importers

The future of oil prices is an important, albeit not the sole, determinant of the region’s economic prospects. But it is unclear where oil prices are headed. Some have suggested that Gulf countries, and the oil and gas sector broadly, are poised to benefit from a return of capital and direct investment to the Arab region, but it is not clear that this will return to pre-pandemic levels. At the moment, oil prices are currently lower than they were when Russia invaded Ukraine in February 2022. Europe had effectively met its oil and gas needs for 2022–2023 despite the sanctioning of Russian oil into Europe. It is not clear if the same could be said for 2023–2024

Fragmentation of the Global Economic Order

If Europe is unable to meet its energy needs this upcoming winter and overall global supplies continue to contract, this could cause an increase in global oil prices, which would benefit many oil exporters and Arab economies. On the other hand, Europe may quickly move to replenish its oil and gas storage over the summer months, continue to develop terminals to receive liquefied natural gas (LNG) from international suppliers such as the United States and Qatar, and continue to move toward renewable energy and conservation.

Low demand for oil and a sputtering global economy does not bode well for the Arab region and will have a domino effect. However, the impact of these uncertainties on Arab economies and societies will be felt unequally both across the region and within countries. The Arab region can be divided into two broad types: resource-rich and resource-poor countries. Resource-rich countries include those of the Gulf Cooperation Council—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. They are labor-importing countries and will be the least hurt by both global economic disruptions and potential short-term drops in oil prices. Resource-poor countries are often labor-exporting countries like Egypt, Jordan, Lebanon, Morocco, Sudan, and Tunisia, and they will hurt the most. Undoubtedly, the impact on countries that are already affected by natural disasters and conflict will be significant. Due to civil wars and the near demise of state institutions, Libya, Syria, and Yemen will continue to face severe challenges to reestablishing their economies.

Resource-Rich, Labor-Poor Countries

In the short to medium term, resource-rich, labor-importing countries are expected to generally fare better than other countries in the region despite low oil prices or global economic gyrations. These countries have decent levels of foreign exchange reserves, which will serve as an important defense against potential economic shocks. Moreover, they are among the world’s wealthiest countries in terms of per capita income, and they have amassed sovereign wealth funds to weather global economic uncertainties. In response to the pandemic, for example, a number of these resource-rich Gulf countries had mitigated possible economic downturns by injecting capital into their economies and providing relief policies to their public and private sectors. Indeed, Kuwait, Qatar, Saudi Arabia, and the UAE have provided fiscal stimulus packages, although Bahrain and Oman have had less fiscal space to inject money into their economies. Nevertheless, resource-rich countries’ relatively small populations allow them to have strong welfare policies, including free education, free healthcare, and high levels of public sector employment, which provide crucial social safety nets in the short to medium term to weather global economic storms and periodic drops in oil prices.

That said, while these resource-rich, labor-importing countries are on solid footing today, if oil supply and demand plateau as some suspect, the diversification away from oil remains illusory in these countries and they will face significant challenges in the long term if they continue to depend on oil for state revenue. Beyond ambitious government plans, such as Saudi Arabia’s Vision 2030 and We the UAE 2031, Arab Gulf states have not successfully found ways to diversify away from oil, because the quality of their non-oil goods and services are often not competitive in international markets. Agriculture is not easy to stimulate in the Gulf’s arid temperature, hence the region is still very dependent on food imports. Manufacturing has not been successful as Gulf countries tend to have small populations that are generally not skilled laborers, and labor prices are high. Tourism is also a widely used strategy in resource-rich countries including Oman, Saudi Arabia, and the UAE as they attempt to find new sources of revenue, and it is an engine for economic development domestically. This in part has also motivated countries to invest in their national airline carriers to act as a hub and spoke for air travel, both internationally and to spur domestic tourism with mega-events like the 2022 FIFA World Cup in Qatar. But when global economic growth sputters, international tourism and travel will also suffer because tourism depends on high disposable incomes and business travel to initiate and promote business ties and development. Lastly, despite attempts and ambitious plans to create high-tech knowledge economies through direct support of research and development in universities and state-owned companies, the Gulf region does not have strong indigenous skilled workers and researchers to make this turn to knowledge economies.

Resource-poor, labor-abundant countries are also highly impacted by the price of oil. Though they do not export oil, they receive workers’ remittances from their nationals living in oil-exporting countries. Egypt has among the largest number of individuals working and living abroad, returning home approximately $31.5 billion in 2021, and the vast majority of these expatriate workers live and work in the oil-rich Arab Gulf region. These workers’ remittances are usually sent in hard currency such as U.S. dollars into the Egyptian banking system and are counted toward the country’s foreign reserves. Other Arab countries have far fewer workers than Egypt in the Gulf, but their workers’ remittances from the Gulf make up a significant share of their countries’ GDP. Averaging the past thirty years, for example, these workers’ remittances accounted for 17 percent of Jordan’s GDP, 14 percent of Lebanon’s, and 7 percent of Morocco’s.

Workers’ remittances are valuable to these resource-poor Arab countries’ banking and financial systems, not only because they inject hard currency but also because they stimulate financial services in the receiving country. There is some academic evidence to suggest that workers’ remittances can promote local development, investment, stock market activities, and GDP growth. Early studies suggested workers’ remittances mainly met the consumption needs of workers’ families, but lately there has been greater recognition that these financial transfers can often be used to spur investment in receiving countries. While a high proportion of workers’ remittances are still used to meet household expenses, an increased amount is being diverted to invest in education, real estate, and small enterprise. If oil prices decline significantly and if the global economy takes a significant downturn, these workers’ remittances will decline with negative impacts for the resource-poor Arab countries. So, not only will oil exporting countries be negatively affected, but their partner countries will be as well­—albeit to different extents.

Many resource-poor Arab countries, such as Egypt, Morocco, and Tunisia, are also prime international tourist destinations. Egypt’s antiquities, Morocco’s cultural heritage, and Tunisian beaches are great attractions for international tourists. These countries heavily rely on Western tourists, particularly from Europe, which further subjects them to broader gyrations in the global economy. In fact, one of the largest dips in tourism in the Middle East and North Africa throughout the past twenty years was during the 2008 international financial crisis, reinforcing the point that tourism in this region is highly associated with broader global economic health. Of course, regional conflict and insecurity can also have important impacts on tourism. Lastly, rising populism in Western countries and the potential for growing global fragmentation can also have a negative effect on country branding and dissuade tourists from visiting the region.

Another challenge facing many Arab countries, both resource-rich and resource-poor, is their overall fiscal mix with shallow tax bases. Other than resorting to value-added taxes levied on consumption of goods and services, there is relatively less government revenue coming from income taxes or corporate taxes. Relying heavily on consumption taxes is a regressive policy that greatly impacts the poor more than the wealthy. Reliance on taxes on consumption goods when the region may already be suffering from global economic slowdowns or gyrations and when oil prices are low will only add to people’s household bills and increase their ire of governments for perceived economic mismanagement, corruption, and lack of economic opportunities. As the global economic situation worsens, the inequity within countries will be revealed and aggravate already weak social contracts throughout the Arab region. The impact of global economic disruptions on the most vulnerable people within the Arab region cannot be ignored.

Vulnerable Communities Will Be Hurt Most

Within Arab countries, global economic uncertainty and anemic growth disproportionately hurts the most vulnerable. The distribution of wealth has not improved enough to rid the Middle East and North Africa of the unenviable record of being the most unequal of all other regions. In fact, in the past decade, youth unemployment in the MENA region has been nearly double the world average and is increasing at a pace 2.5 times faster than the rest of the world. Unemployment levels in the Arab region have continued to rise since the onset of the pandemic. In 2021, the unemployment rate in the Arab region, excluding high-income, resource-rich countries, was 11.4 percent for the overall population and 29.4 percent for youth (aged fifteen to twenty-four). Both indicators are worse in Arab countries than in any other region.

People working in the informal sector are highly vulnerable, particularly those who benefit from tourism and other economic activities that would be deterred if economies collapse. The demographic reality in the region means that more youth are entering the labor market every year with increasingly weak employment prospects, among the lowest in the world. Youth in the Arab region are three times more likely to be unemployed compared to adults, making them highly vulnerable to economic shocks. Youth (under thirty years old) account for 55 percent of the Arab region’s population, compared to 36 percent in the OECD, making this a larger segment of the population than in many other countries. The young demographic profile is a political issue because youth often have high expectations to start their adult lives with job opportunities. Yet, when these opportunities are not available and they lose hope, their societal frustrations can lead to political and social protests. Indeed, polling in the region shows that Arab youth are among the most frustrated with the political and economic situations in their countries and more often want to emigrate. It is often the youngest and most educated who want to emigrate, which has a negative impact on the preservation of talented people in the region and contributes to the region’s brain drain. Women in the region surpass men in post-secondary education and yet are more likely to be unemployed, representing yet another loss of human capital, talent, and ingenuity to Arab economies.

Resource-Poor, Labor-Abundant Countries

In addition to unemployment, the Arab region has a serious food insecurity issue due to high wheat and fertilizer prices because of Russia’s war against Ukraine. Egypt, Lebanon, and Yemen are especially dependent on wheat imports from Russia and Ukraine. Türkiye had brokered a temporary deal to allow grain shipments through, but the deal is set to expire in May 2023. And as Russian President Vladimir Putin’s regime is expected to double down on war against Ukraine, there may be less room for compromise and a return to restricted shipment of food grains. This will increase the number of people affected by food insecurity in Egypt and Lebanon, where food costs are soaring. Unsurprisingly, both countries signed agreements with the IMF, as have Jordan, Sudan, and Tunisia. Moreover, many Arab governments’ fiscal capacity has been limited, sovereign debt levels are high, and IMF agreements often add restrictions on government spending as the terms of receiving funding. All of these factors further limit governments’ abilities to spend on food and energy subsidies and to provide other social safety nets. Without targeted social protections, social inequality will worsen and the prospect of social unrest will increase.

Egypt, with a population over 100 million, is especially troubled since previous instances of soaring debt and economic hardship have produced protests in the streets. Under President Abdel Fattah el-Sisi, Egypt has undergone significant building of and investment in large infrastructure projects, although many are unproductive vanity projects. The government financed these projects through debt and loans, and when money left the region to Western capital markets that offered higher interest rate returns, Egypt was saddled with a large debt load. Egypt has had to devalue its currency, in some cases upon the insistence of the IMF, making it very difficult for consumers reliant on imported food and other items. The impact on the poorest Egyptians is significant, since bread, a staple food that accounts for a large portion of their nutritional intake, is too expensive for them.

Similarly, Lebanon was in economic distress before the pandemic, and its situation has continued to worsen as the banking system and its currency have nearly collapsed while its debt load has increased beyond manageable levels. Today, the average Lebanese person has seen their bank savings, pensions, and local wages dwindle in purchasing value as the Lebanese pound plummets, despite an IMF agreement in 2022. In a country that imports 80 percent of its basic needs, prices have skyrocketed beyond the Lebanese people’s reach. Many imported food items depended on government subsidies that the state can no longer afford to provide. Global inflation of food prices has worsened Lebanon’s food security. In addition to food, Lebanon imports the fuel needed to generate its electricity, and the international volatility in oil prices has worsened the public provision of energy, making the domestic economic situation worse and unpredictable.

Both Egypt and Lebanon’s short-to-medium-term economic prospects are quite worrisome. In the past, they have both leaned on foreign backers for financial support, both in the West and in the Arab Gulf, but these countries are currently facing their own economic challenges and have been less willing to shore up ailing regional laggards. Arab Gulf countries have a growing sense of nationalism to advance their own economies and do not feel the same obligation to financially back and support fellow Arab countries that they once did. Moreover, many Arab Gulf countries are undergoing ambitious national projects, such as Saudi Arabia’s new smart cities called NEOM and THE LINE, as well as the skyscraper-like supercity Mukaab. Such projects require significant financial resources, and there is less political and public appetite to sacrifice these projects in the name of Arab nationalism or sympathy with resource-poor Arab governments. This is not good for Egypt and Lebanon, and to a lesser extent Jordan, which have expected their pivotal role in regional politics to garner them more support.


The future of the Arab region is uncertain, and there are many worrying trends, such as the potential decline in oil prices and tourism, as well as rising food prices, that will impact the economic well-being of the average Arab citizen. No country will be spared, but some countries will be better able to withstand the potential for anemic economic growth and global economic disruptions. Resource-poor countries in the Arab world will likely feel the global and regional economic challenges most negatively. There will be a huge need for external financial support for many countries, be it from the international community or resource-rich Arab countries. Unfortunately, however, the global and regional appetite to coordinate to fire up the global economic engines and to help poorer Arab countries with financial assistance will be low, which will ultimately harm the most vulnerable people in the Arab region—its youth, women, and the poor. As the past has shown, this is a recipe for sociopolitical unrest.