Managing Director Mulyani Indrawati said investors were holding off from committing to countries like Tunisia, Egypt and Libya, which are still recovering from violent overthrows of authoritarian leaders.
She said a weak global economy meant the region would face a more "complicated and challenging" transition period than other developing economies that benefited from more bullish external conditions in the 1970s, 80s and 90s.
"In episodes before like in Latin America and Asia the global economy was relatively healthy," she told Reuters in an interview.
"In the situation the Arab world is going through it is going to be much harder (to revive higher growth) because the environment of the global and regional (economy) is also weak ... creating additional risk in external demand, exports, weaker remittances and foreign direct investment."
In a report last month sharply cutting its world economic growth expectations, the World Bank said political tensions in the Middle East and North Africa could disrupt oil supplies and add another blow to global prospects.
The World Bank estimated that the GDP for Middle East and North Africa had increased 1.7 percent in 2011, down from 3.6 percent in 2010 with growth likely to remain subdued this year at about 2.3 percent.
The World Bank's report also said the political turmoil had "seriously and selectively disrupted growth in the region" with two sets of tensions that could surface if the unrest intensifies this and the European debt crisis pushes the region's import commodities bill higher, and hurts tourism receipts and exports.
"This year is not going to be much better than 2011 and there will be more possible muddle through," Indrawati said.
Unrest in Syria, a major economy, was an example of the downside risk that could spill over beyond its borders to its neighbors, Iraq, Lebanon and Jordan.
Higher food and fuel prices in a region where countries such as Jordan, Morocco and Egypt import grains and subsidize the poor would also add to pressures on economies suffering from lower tourism and remittances revenues, Indrawati said.
The region includes Gulf Arab states whose oil and gas reserves and small populations, make them some of the wealthiest countries in the world.
"In the Gulf they will try to minimize (the impact) by investing a lot in domestic spending using the oil money," Indrawati, said.
World Bank figures showed hydrocarbon revenues for the region totaled $785 billion last year, bolstered by high oil prices.
The mounting challenges that face the region come mostly from domestic pressures of less fiscal space and the need at the same time to spend to ease social tensions. Depleted foreign reserves would not help progress towards political stability, Indrawati said.
"When it is (a) transition into democracy like Tunisia then you have more the possibility in which people can see the process and they are participating in the process of change but don't have any illusion that this will even be easy," Indrawati said.
