Time for more—and more-concerted—support for the Middle East, By Christine Lagarde, Managing Director, International Monetary Fund

November 8, 2013

A Commentary by Christine Lagarde, Managing Director, International Monetary Fund
Published originally in Le Figaro
November 8, 2013

The Middle East is facing more difficult challenges than ever in 2013. Countries in the region and the international community cannot lose momentum now. Given the high global stakes in the financial and indeed political stability of the Middle East, the time for more—and more concerted—support is now. 

Over the past few months, the Middle East and North Africa regions have faced greater turmoil and economic pressures. Heightened security concerns, rising political uncertainty, and delays in important reforms continue to hurt economic confidence and hold back recovery. The devastating civil war in Syria has sparked concerns of wider destabilization across the region.

These developments pose particular challenges for those countries undergoing difficult political and economic transitions—Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen. Despite some tentative signs of improvement in tourism, exports, and foreign direct investment, most are facing slower growth, rising unemployment, worsening macroeconomic stability, and diminishing fiscal and external reserves.

Across much of the region, growth is not enough to raise incomes or to put a dent in chronically high and rising unemployment. It is disheartening that the number of people without jobs has increased by more than one million since 2010. Even worse, youth unemployment is at least twice as high as overall unemployment: on average, 1 out of 4 young people is out of work, and the youth unemployment rate is close to 30 percent in countries such as Jordan and Tunisia.

Clearly, if economic conditions do not improve, socio-political tensions could get worse, leading to further setbacks in the transitions to more inclusive societies and further delays in a return of confidence and private investment.

This challenging environment requires concerted action on several fronts.

The first priority is to raise growth that creates jobs. With private investment stalled, governments have a key role to play. This calls for a reorientation of spending toward productive public investment and away from unproductive current expenditure—such as poorly targeted general subsidies that often benefit the wealthy. Better targeted social safety nets will need to be put in place to protect the most vulnerable. Jordan, Morocco, and Tunisia have already made encouraging progress in these areas, and the IMF is helping in each case.

Second, governments should embark on the economic reforms needed to lay the foundation for lasting growth. This agenda includes ensuring simple, transparent, and evenhanded treatment for companies; greater transparency and accountability of public institutions; adequate skill-building and incentives for employment; access to finance to help spur entrepreneurship and private investment; and greater trade integration, both within the region and in the world economy.

The over-riding objective is to make these economies more dynamic, competitive, and fair—breaking down vested interests to harness the ingenuity of the private sector and open opportunity to all. Some of these reforms are complex and will take time to reap rewards, but it is critically important to start the process now, and to confirm the direction that the economy will take.

Third, rising concerns about debt sustainability must be addressed. With deficits averaging 10 percent of GDP and room for maneuver running low, most countries need to fix their fiscal problems—especially by reducing inefficient spending and improving revenue collection.

Early progress in each of these areas is vital for restoring confidence and propelling private-sector activity.

The ability to deliver on reforms is complicated by political situations and social pressures. As such, it is important to pace and sequence the reforms in a way that maintains social cohesion while preserving macroeconomic stability and promoting growth.

Getting this balance right depends crucially on higher levels of financial support from the international community—provided as part of a credible fiscal framework and tangible commitment to reform.

In this context, we join the call for scaled-up external assistance made by the Deauville Partnership in October to support countries’ continued reform efforts. We hope that all participants of this initiative, including the G-8 and regional partners, take up this call to increasing their assistance to the Arab countries in transition.

The IMF is closely engaged. We are partnering with Jordan, Morocco, and Tunisia through financing arrangements, and are in discussions with Yemen on a possible medium-term arrangement. We are also ready to continue to support Egypt through advice and, if desired, eventually through financial assistance. Across all transition countries, we are engaged through policy advice and capacity building—as in Libya—and remain committed to working with them to address the challenges ahead. To that end, our support has been flexible to adapt to difficult and changing circumstances.

Achieving growth and stability in the Arab countries in transition will help restore the belief of its people in a brighter future. It will also help the entire global community. A more determined, concerted and sustained drive to support these countries must begin now.


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