IMF Promotes Debate on Economic Change in the Middle East
April 16, 2014
- Mideast countries face challenges of low growth and unemployment
- Ambitious reforms needed for sustainable, job-rich growth
- IMF hosts high-level events in Amman, Kuwait to discuss reforms
Countries in the Middle East and North Africa (MENA) need resolute policy actions to lift growth, create jobs, promote fairness, and diversify their economies, says the IMF.
The global lender sponsors discussions among experts, policymakers, and other stakeholders on the necessary reforms.
Economic challenges facing the MENA region were high on the agenda of the 2014 IMF-World Bank Spring Meetings that took place in Washington D.C. last week. The meetings brought together ministers and top government officials, as well as journalists, academics, bloggers, and representatives of civil society and the private sector from all over the world to discuss the critical issues facing the world economy.
In addition to official meetings with country delegations, a number of seminars and briefings focused on the region. In a semiannual gathering, IMF Managing Director Christine Lagarde met with ministers of finance and central bank governors from the region to discuss pressing economic issues, listen to their perspectives and explore options for moving ahead.
IMF officials emphasized that the 188-member institution is ready to engage and committed to help all countries of the region, including the Arab Countries in Transition—Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen.
“The IMF has been engaged with all countries that wanted to have a partnership with us,” said Lagarde. She cited the IMF’s program engagement with Jordan, Morocco, and Tunisia; the technical assistance to Egypt and Libya; the program discussions with Yemen; and the upcoming regional conference in Amman. “We very much hope that we can continue those partnerships and relationships, those that exist and those to come,” she added.
Outlook and policy priorities
The economic situation remains difficult for the region’s oil-importing countries, especially those that started a political transition more than three years ago.
“These countries will see another year of tepid economic activity, with growth projected at around 3 percent,” IMF Middle East Department Director Masood Ahmed told reporters in Washington last week during a briefing on economic developments in the region. “The main reasons for this continued modest economic growth is the still-weak confidence, particularly in countries undergoing political transitions, in addition to spillovers from regional conflicts, especially in Syria,” he added.
Despite some cautiously positive signs—rising exports and investment—the recovery remains fragile.
“Unemployment is still running at about 13 percent in the Arab Countries in Transition. For young people, the rate is almost double that,” Ahmed told reporters. He outlined two policy priorities to address this problem:
• Increasing job-creating public investment with concessional external resources—e.g. grants and low-interest loans—and without the long-term liability of excessive employment in the public sector.
• Pursuing economic reforms that stimulate private investment, raise productivity, improve the business climate, reduce corruption and red tape, and thus help create permanent, well-paying jobs.
Looking at developments in the oil-exporting countries of the Middle East, Ahmed expects overall growth to strengthen to 3½ percent this year from 2 percent in 2013—driven by higher oil production in some countries and by continued private sector activity in others.
“Governments of the region’s oil-exporting countries will need to rein in hard-to-reverse spending on wages and subsidies while targeting high-quality capital investment and social programs,” Ahmed said. He noted that structural reforms that bolster economic diversification and private-sector job creation for nationals are also high on the agenda.
IMF study on economic change amid transition
To support governments’ efforts, the IMF released last week a new paper titled “Toward New Horizons—Arab Economic Transformation amid Political Transitions.” The paper makes the case for the urgency of launching economic policy reforms, beyond short-term macroeconomic management, to support economic stability and stronger, job-creating economic growth in the Arab Countries in Transition.
It looks at key structural reform areas that are likely to generate faster and more inclusive growth. The main elements of the reforms suggested in the paper include fiscal and monetary policies that support stability and growth, deepening trade integration, strengthening access to finance, improving the business environment to support entrepreneurship and address corruption, and reforming the labor market and educational systems to reduce the mismatch between the skill set of people coming out of universities and schools and the skills that the private sector requires.
The paper also looks at how to gradually replace the current system of untargeted price subsidies—proved to be inefficient and unfair as it benefits the rich more than the poor—with more targeted social safety nets to cover vulnerable groups.
The study argues that countries need to stay in the driver’s seat and plan their policy programs through wide national consultation to ensure broad support for these reforms. However, there is a need for the international community to support policy efforts through financing, access to trade, technical assistance, or policy advice, the paper says.
Seminar on reforms and consensus-building
To encourage debate about the policy agenda articulated in the study, the IMF hosted a high-level panel discussion on the sidelines of the Spring Meetings, bringing together policymakers from within the region as well as experts from other parts of the world.
Panelists agreed on the key areas for reforms, noted above, and stressed that countries need to ensure that reforms benefit the population widely. An increase in economic growth has to go hand in hand with an equal increase in opportunity and poverty reduction.
They also cited the value of learning from other country experiences.
“We are not going to reinvent the wheel—countries have diagnosed their economic problems and they know the solutions and the measures that need to be taken,” said Hany Dimian, Egypt’s Finance Minister. “The safest way to do economic reforms is to implement what has been tested elsewhere,” he added.
Eric Berglöf, Chief Economist at the European Bank for Reconstruction and Development, noted that Eastern European countries that managed to seize windows of opportunities by implementing economic reforms early on in their transition had much easier political paths.
But how to build a consensus for reforms? Here panelists had mixed views on the definition of consensus, and the way to achieve it.
“Reforms that can be framed in the context of a project can move relatively fast. Things that are framed as policy choices and reforms are much harder to implement,” said Homi Kharas, Senior Fellow and Deputy Director, Development Assistance and Governance Initiative.
Others recognized that this was a challenge, citing that more must be done to communicate with influential stakeholders in the society.
“It’s very important to talk with actors like the private sector, labor unions, and whoever would lose when reforms are done,” said Nizar Baraka, President of the Economic, Social, and Environmental Council in Morocco, and added that, according to the Moroccan constitution now, the civil society has the opportunity to propose laws to the parliament.
Upcoming conferences in the region
The IMF study will serve as an important input to the upcoming regional conference organized by the IMF, in collaboration with the Jordanian government and the Arab Fund for Economic and Social Development, in Amman, Jordan titled “Building the Future: Jobs, Growth, and Fairness in the Arab World,” during May 11–12.
The IMF will also co-host with the Government of Kuwait a conference in the oil-rich country during April 30–May 1. This high-level conference on “Economic Development, Diversification, and the Role of the State” will look at the global experiences of economic diversification in oil exporting countries, a critical policy issue for all the Gulf Cooperation Council countries.