Ongoing regional tensions, coupled with a challenging external environment, have hit the MENA economies hard, the World Bank says in its MENA Quarterly Economic Brief published this week. Focusing on seven of the most vulnerable economies – Egypt, Tunisia, Iran, Lebanon, Jordan, Yemen and Libya – the World Bank says that following the Arab Spring “economic growth is slowing, fiscal buffers are depleting, unemployment is rising, and inflation is mounting,” adding that these countries should seize the opportunity to advance urgent structural reforms in order to break the vicious circle of slow growth and political instability.

The report argues that short-term policy actions such as increasing public sector wages and subsidies, which aim at reducing social tensions, exacerbate the situation, “which is driven by long-standing structural weaknesses, including labor market rigidities, complicated and opaque regulations, infrastructure deficiencies, regressive and inefficient subsidies, and inadequate social nets.” It adds that increases in wages and general subsidies will impose fiscal pressures on the government and reduce the space available for spending priorities on health, education and investment in infrastructure. (CONTINUED - 345 WORDS)