Talal Abu-Ghazaleh
The newly-issued 2026 Global Economic Prospects report by the World Bank extended beyond the standard review of growth and inflation indicators, with warnings from the Bank experts concerning the repercussions of accelerating geopolitical shifts in light of the fragility of the global economy, and the growing risks threatening developing economies. Global growth is expected to slow to 2.5%, surpassing standard economic indicators of major countries. As for the Middle East and North Africa, however, the forecasts drop to 1.6%. This means that behind the decline in revenues or the slowdown in economic activity lies a direct threat to social stability, living standards, and future development opportunities.
Among the clearest messages in the report is its reference to the process of economic convergence between developing and developed nations. Since 2019, about half of developing economies have been unable to narrow the per capita income gap compared to advanced countries, with the outlook for coming years not suggesting any fundamental shift in this direction.
It is crucial to draw attention to the Arab situation, as these indicators signify widening social gaps, the persistence of high youth unemployment rates, and diminishing opportunities for economic mobility. Here, I emphasize further that development is not just numbers written by public relations officials in annual reports, but rather the capacity of societies to generate job opportunities, improve income levels, and enhance social sustainability.
A closer reading of the data points to far deeper consequences in the brain drain of talent and expertise, declining investment in human capital, and a growing sense among younger generations that opportunities for advancement are out of reach. Here, the loss is twofold, with missed economic opportunities and the loss of human resources, both of which form the foundation of any sustainable development strategy. I recall here the Arab Barometer survey conducted in its eighth round across the Middle East and North Africa two years ago, which revealed a significant rise in the proportion of people expressing a desire to leave their countries in pursuit of better living conditions elsewhere; indicating that economic motives top the list for those willing to emigrate in most of the surveyed countries.
Yes, the report also highlights the repercussions of ongoing war and geopolitical tensions in vital maritime corridors, especially the Strait of Hormuz. What was previously described as a temporary disruption in trade and energy flows has gradually transformed into a permanent pressure factor on the global economy. Even with the United States and Iran announcing a truce or a memorandum of understanding, it has not yet reached an agreement, but it is closer to a preliminary one. Even if negotiations over the next sixty days proceed smoothly, the recovery of the global economy's momentum, strength, and activity will require more time and greater effort.
With oil prices at high levels nearing $100 per barrel, the consequences seem to vary within the Arab region. While higher prices may offer temporary fiscal relief for some oil-exporting economies, they impose significant burdens on energy-importing countries, which face escalating inflationary waves and continuous increases in production and transport costs. However, the challenge extends beyond oil prices, and includes the rising prices of energy-linked fertilizers, resulting in additional pressures on food and basic commodity prices. Here, inflation transforms from a theoretical economic concept into a daily livelihood crisis touching the lives of millions, especially the most vulnerable groups who will find themselves once again facing a rapid erosion of their purchasing power, while the margin of food security declines alarmingly in several Arab countries.
In parallel with the crisis of routes and maritime corridors, the sovereign debt crisis highlights one of the most important challenges in the current economic landscape. The continued adoption of tight monetary policies by major central banks and keeping interest rates at higher levels has significantly increased borrowing costs, placing debt-burdened governments in difficult financial positions. The report underscores that the relationship between rising debt levels and higher interest rates is not a simple linear one. As the indebtedness increases in emerging economies, sovereign risks intensify, financing gaps widen, and pressure on domestic currencies accelerate. Over time, a government’s ability to access international financing markets becomes more complex and costly.
There is also something even more concerning, which the report described as "hidden debts", which are financial and contractual obligations that do not fully appear in official budgets or government disclosure statements. In times of crisis, the sudden exposure of such liabilities can lead to sharp disruptions in financial markets, rapidly increase sovereign risk, and the closure of external financing channels for financially distressed nations.
The picture grows darker when the repercussions of this phenomenon are not limited to financial indicators alone, as every increase in servicing debt means a decline in resources available for education, health, infrastructure, and social protection programs (which are already not in a good position). Thus, debts turn into a long-term burden whose cost will ultimately be borne by future generations.
In response to such challenges, the report suggests an alternative path based on boosting productivity and leveraging modern technological transformations, particularly AI, to support growth and improve economic efficiency if deployed within balanced developmental policies that strengthen human capabilities rather than replace them. This also requires long-term investment in requalifying the workforce, developing digital skills, and building regulatory and legal frameworks capable of managing technical shifts, protecting digital security, and promoting the responsible use of technology. It also requires, among other things, establishing local innovation hubs and ecosystems that enable AI to effectively serve national development priorities.
The main message conveyed in the report extends beyond warning against slowing growth or rising debt, being a clear call to shift from daily crisis management to building more sustainable and resilient economic policies against future shocks. Controlling inflation, enhancing fiscal transparency, managing debt efficiently, and developing economic governance tools are no longer deferred options, but rather fundamental prerequisites to protect Arab economies from falling into the trap of a new lost decade, the price of which societies will pay for decades to come.