2021 was the beginning of economic recovery for the Arab region. Higher oil prices and increased demand for petroleum products, resumption of tourist activities and improvement in remittances and aid inflows are expected to drive growth. It will take until 2022 for regional GDP to return to pre-pandemic levels.

Following estimated 4.1 per cent growth in 2021, the Arab region is expected to grow by 3.7 per cent in 2022 and 3.6 per cent in 2023. Some risks to this outlook come from slow vaccination rates and fears of a new wave of COVID-19, with the latest Omicron variant expected to lead to slower growth, at 2.4 in 2022 and 3.2 per cent in 2023.

Economic recovery varies across subregions. It will take some countries up to 2023 to return to their pre-pandemic GDP levels. Following generous stimulus packages to contain fallout from the pandemic, many countries are expected to have more constrained fiscal space in 2022. The fiscal balance in the region is expected to show a deficit of around 6 per cent of GDP. A debt-to-GDP ratio of around 61 per cent is projected based on an estimated oil price of $60 per barrel.

Poverty increased across the Arab region in 2021. Based on national poverty lines, 26.94 per cent of people were poor, a share expected to decrease slightly to 26.23 per cent in 2023.

Even though the Arab region made a slight improvement in closing the gender gap in 2020, at current rates of change the region needs 142 years to reach gender parity.

The region has a low labour force participation rate caused mainly by the limited participation of women. An erosion of talent could occur, since 42 per cent of youth have considered emigrating to another country.

In 2021, the region’s total unemployment rate, at 11.8 per cent, remained the highest among world regions. The region has the highest rate of youth unemployment, more so among females. Even though the total unemployment rate is projected to decline to 10.7 per cent by 2023, the rate is expected to remain high in countries facing political and economic instability.

Education in many countries confronts multiple challenges: unequal access, poor infrastructure and outdated learning methodologies. An estimated one in every five children, adolescents and youth is not enrolled in school. The pandemic has imposed additional barriers to learning in countries that resorted to online education despite poor Internet access.

Social protection systems are plagued by severe shortcomings. Coverage and effectiveness are limited, particularly in countries with constrained fiscal space and persistent political instability. Only 35.1 per cent of people are covered by at least one social protection benefit, compared to 46.9 per cent on average globally.

The Arab region’s total revenue as a share of GDP has declined over the past decade and half, a trend exacerbated by the pandemic in 2020.

Sources of revenue differ widely across the region, but countries mainly rely on indirect taxes that impose greater burdens on the poor and middle class than on the rich. Prevailing tax schemes include personal income tax, corporate income tax, taxes on goods and services such as value added taxes, and other sales taxes.

Middle-income countries, which rely mostly on taxation for public revenue, have implemented tax reforms over the last decade. Yet their ratio of tax revenue to GDP remains low, highlighting inefficiencies in their tax systems. Improving efficiency, to the average level of the OECD, would boost revenue by as much as 45 per cent over what is currently collected in some countries.

Rethinking Arab tax policy is important given the scale of tax revenue leakages and abuses such as tax evasion, trade misinvoicing and tax avoidance.