Preexisting Structural Problems

unhappiness have exposed structural issues that require policy attention both immediately and in the medium to long run. Building back better should offer the poorest and most vulnerable the opportunity to regain what they have lost. Labor market, social protection, and health and education policies should be (re)considered through a lens of equity and inclusion, and designed in a way that productivity and welfare are improved in a progressive way. In a sense, this crisis offers MENA a rare opportunity to correct previous structural imbalances while battling a pandemic.

Preexisting Structural Problems

To better deal with these COVID-19-induced shocks, it is important to understand the long-standing structural issues that have faced MENA: low GDP growth; low employment, especially among youth and women; low human capital index; large state-owned enterprises; a large informal sector; poor foreign direct investment (FDI) inflows; a weak investment climate; and poor participation in global value chains. These problems have amplified the various impacts of COVID-19 and are impediments to a long-term growth path.

So far, the growth rate in MENA has been modest when compared

with other regions. From 2000 to 2019, MENA (excluding high-income countries) registered annualized GDP per capita growth of 1.4 percent, a little above the growth rate of 1.2 percent in Latin America and the Caribbean (figure 1.5). East Asia and Pacific (EAP) ranked the highest with 7.2 percent, followed by South Asia and Europe and Central Asia. However, MENA had a GDP per capita of US$4,174, more than double South Asia’s US$1,933 and Sub-Saharan Africa’s US$1,645. But with widening inequality and growing poverty during the pandemic, the economic outlook is grim. In October 2020, the International Monetary Fund projected MENA’s real GDP to drop by 4.1 percent in 2020, 1.3 percentage points more than expected in April of that year (IMF 2020).

Employment among MENA’s working-age population remains low,

with more than half unemployed. Although rising labor productivity has been driving economic growth in the region, MENA’s employment levels are dismal. In terms of output per worker, the region was third in 2017, at US$15,812, after Latin America and the Caribbean (US$18,684) and Europe and Central Asia ($19,219) (figure 1.6, panel a). However, it ranked the lowest in employing its working-age population, at 39 percent, behind South Asia at 49 percent (figure 1.6, panel b). In the lead were East Asia and Pacific and Sub-Saharan Africa, at more than 60 percent. In addition, MENA suffers from a low human capital index, with an average of 0.57 (relative to 0.48 in Sub-Saharan Africa, 0.59 in East Asia and