The Middle East and North Africa saw their levels of economic freedom decline over the last year, according to the 2006 “Index of Economic Freedom,” published annually by The Wall Street Journal and The Heritage Foundation.
The editors - Marc Miles, Kim Holmes and Mary Anastasia O’Grady - note that there have been mixed trends in the region over the last 10 years. Overall, the average Index score of its 17 countries has improved by 0.09 points, but the median score has worsened by 0.04. And the progress has come mainly from modest improvements by the region’s least-free economies.
The region hasn’t had an economy rated as “free” since 2001, but it does have two rated as “repressed” - Libya and Iran. Seven countries improved in this year’s Index, and 10 declined.
Bahrain and Israel retained their 1-2 rankings atop the region in economic freedom. Bahrain maintains a pro-business environment with an excellent banking and finance system, low regulation and low barriers to foreign investment. Yet it receives more than 80 percent of its revenues from state-owned enterprises, mostly oil and gas, which demonstrates an unhealthy level of government intervention in the economy. Declines of a full point in monetary policy and in property rights led to worsened Index rating.
Israel improved, thanks in part to a 2 percent decline in its tariff rates (weighted average), which led to a better score on trade policy. It continues, however, to maintain a high personal income tax - 50 percent.
Kuwait, Jordan, Saudi Arabia and the United Arab Emirates join Israel and Bahrain among the world’s “mostly free” economies. Lebanon sits just outside that category and is joined on the “mostly unfree” list by Oman, Qatar, Morocco, Tunisia, Algeria, Egypt, Yemen and Syria.
Libya, which registered the most improved score in the region, nevertheless remained in the “repressed” category at 4.16. It is joined there by Iran, which took the biggest step backwards in the world. Its score of 4.51 is 0.30 worse than last year and second-worst in the world, besting only North Korea. Once one of the more advanced in the Middle East, Iran’s economy is plagued with heavy regulation, high unemployment, inflation, corruption and government intervention.
As in previous years, the Index ratings reflect an analysis of 50 different economic variables, grouped into 10 categories: banking and finance; capital flows and foreign investment; monetary policy; fiscal burden of government; trade policy; wages and prices; government intervention in the economy; property rights; regulation; and informal (or black) market activity. Countries are rated one to five in each category, one being the best and five the worst. These ratings are then averaged to produce the overall Index score.
Worldwide, the scores of 99 countries improved, 51 declined and the scores of five are unchanged from last year’s Index. Of the 157 countries ranked, 20 are classified as “free,” 52 as “mostly free,” 73 as “mostly unfree,” and 12 as “repressed.” Four countries—Congo, Iraq, Serbia-Montenegro and Sudan—were not ranked because the data was not deemed reliable. Two that had been suspended from the rankings—Angola and Burundi—were again ranked this year because of returning stability.
This is the 12th consecutive year The Heritage Foundation and The Wall Street Journal have published the Index. Marc Miles is director of Heritage’s Center for International Trade and Economics, Kim Holmes is Heritage’s vice president for foreign affairs, and Mary Anastasia O’Grady, who is a member of the Journal’s editorial board and edits the “Americas” column.