A roadmap for post-conflict economic recovery in the Middle East

Rebuilding economies after conflict is a daunting challenge, especially in the Middle East, where decades of war have left lasting scars on economic structures and societies. Amid a shifting political landscape, a critical window of opportunity has emerged to support post-conflict recovery. International financial assistance will be crucial , yet the key question remains: how can reconstruction efforts and implementing policies deliver sustained economic performance and improve people’s lives? The high cost of inaction not only increases the risk of reverting to instability but also erodes the confidence of both international and regional stakeholders. Genuine recovery requires more than short-term financial injections; it demands a comprehensive approach that focuses on rebuilding institutions, implementing long-term reforms and fostering economic resilience. The economic devastation of conflict is immense, but the social consequences are even more profound. As of late 2023, the Middle East accounted for over 40 per cent of the world’s forcibly displaced population – a stark reminder of the human cost of conflict. War has also eroded human capital: in many conflict zones in the region, primary school enrolment has plummeted by up to 30 per cent, and life expectancy has declined by a decade in the hardest-hit areas. Fragile healthcare systems, already under strain, have collapsed under prolonged conflict, perpetuating generational setbacks that hinder both economic recovery and future growth. Extreme poverty and food insecurity have surged, impacting large segments of local populations. Conflicts in the region have also accelerated the degradation of physical and institutional infrastructure, worsening socioeconomic inequalities. Yemen has suffered infrastructure losses exceeding $20 billion, roughly half its pre-war GDP. Syria’s civil war has cost the country over $130 billion in lost physical capital – 230 per cent of its pre-war GDP; its GDP per capita has declined by two thirds since the onset of the war. A recent International Monetary Fund study shows that, in the Middle East, GDP per capita drops by an average of 2 per cent below its pre-war trend in the first year of fighting, with cumulative losses exceeding 13 per cent over the subsequent decade. Even a decade after hostilities end, countries in conflict in the region see their GDP per capita remain at least 10 per cent below pre-war trends. The negative effects extend beyond the conflict zones – neighbouring countries experience economic spillovers, with output per capita up to 6 per cent below trend after 10 years. According to new IMF research, every dollar invested in conflict prevention – through policy efforts to promote macroeconomic stability and growth, strengthen institutions and support local community development – can save between $26 and $103 in possible conflict-related costs, including humanitarian needs and post-war output losses. As stability gradually returns to parts of the region, the potential for economic recovery is emerging. Lebanon has formed a new government. Syria’s transitional administration, with a newly appointed government, is working to restore basic services. And Yemen, despite ongoing challenges, is advancing some reforms. Conflict, however, continues to weigh on the economies of Libya, Sudan and the West Bank and Gaza. For sustainable long-term recovery, it will be critical to restore human capital and to cultivate a business environment that encourages private sector growth. Most countries in the region have thriving diasporas with successful track records abroad, presenting a valuable opportunity to leverage their expertise and financial resources for domestic development. A recent high-level roundtable held in Al Ula, Saudi Arabia, brought together policymakers, financial institutions and development experts to discuss innovative strategies for rebuilding Middle Eastern economies. The consensus was clear: financial aid alone is not enough. Deep institutional rebuilding, effective policy co-ordination and investments in recovery and inclusion are essential. Participants proposed a strategic framework centred on conducting country-specific economic assessments, developing tailored economic rehabilitation programmes and mobilising international funds through co-ordinated reconstruction efforts. Establishing a dedicated co-ordination group among regional and international institutions could help ensure that recovery strategies and donors support are well-aligned. The international community must quickly develop its approach to support the region’s post-conflict recovery. To rebuild effectively, a collaborative and country-specific approach is vital. Recovery efforts by governments and global institutions – including the IMF, the World Bank, UN agencies and regional development funds – should focus on three core areas. First, comprehensive economic assessments will be critical to understanding the full extent of post-conflict economic challenges. Each country’s circumstance is unique. For instance, Syria will require substantial institutional rebuilding, while Lebanon, despite its economic crisis, retains some functional institutions that can support recovery . The IMF can provide policy guidance by collaborating with national authorities to develop a coherent macroeconomic framework that aligns with reconstruction needs and effective recovery strategies. Second, addressing institutional weaknesses is fundamental to sustainable recovery . Early efforts should prioritise fiscal, monetary and banking system reforms to restore confidence and stability. The IMF can provide support with institutional capacity building, restoring the ability to conduct essential fiscal operations, including budget formulation and execution, while also designing and implementing critical reforms. This process involves strengthening governance frameworks to absorb and manage international assistance effectively and revamping monetary institutions to restore credibility, enabling a faster economic recovery. Third, mobilising financial assistance is crucial . Substantial financial support is necessary for immediate humanitarian needs and to fund economic reform programmes and reconstruction projects. The IMF can provide targeted financial assistance through well-structured lending programmes and encouraging donor support. Co-ordination among global and regional partners is vital to prevent fragmentation. In some cases, debt relief may also be needed to ensure that countries can rebuild without increasing their fiscal burdens. The IMF can facilitate global co-ordination to enhance donor engagement and cross-border collaboration. Post-conflict recovery is not merely about short-term fixes; it requires long-term, sustainable rebuilding. The urgency of action cannot be ignored, as the international community must act decisively, working hand in hand with country authorities to invest in a future where these economies can achieve self-sufficiency, prosperity and regional stability. Each country in the Middle East faces unique challenges that require tailored, comprehensive strategies. Country authorities hold a critical responsibility to rebuild stronger economies that benefit all citizens. The cost of inaction is far too great. Only through sustained commitment can these nations emerge from the shadow of conflict and move toward a brighter, more prosperous future.