## 2. From Setbacks to Comebacks: Reforms to Build Resilience and Prosperity

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---

### Narrowing policy space and macroeconomic context
- Public debt in ME&CA EM&MIs rose to an average of 83.5 percent of GDP in 2022 (from 79 percent of GDP before the pandemic).
- Average headline inflation in EM&MIs jumped to double digits in 2022.
- Monetary policy tightening in major advanced economies led to tighter financial conditions in EMDEs and higher borrowing costs.
- Policy tradeoffs and limited policy space are especially acute in many MENA countries (excluding GCC) and Pakistan; several GCC and CCA economies saw some recent improvements because of higher oil prices in 2022 and financial flows to the CCA from Russia.
- Policy challenge: balance tighter monetary and fiscal policies to safeguard macroeconomic stability and debt sustainability while promoting economic growth.

### Reform gaps, development outcomes, and labor market challenges
- Progress in implementing structural reforms has been limited; many ME&CA countries fall well behind frontier emerging market economies across several indicators.
- GCC countries score relatively well on labor market, external sector, and credit market flexibility indicators compared with other EMDEs but lag on gender-related regulations.
- Governance reforms trail in a number of ME&CA countries across dimensions including voice and accountability, political stability, government effectiveness, the rule of law, and control of corruption.
- Governance weaknesses are particularly prevalent in LICs and FCS such as Afghanistan, Libya, Sudan, and Yemen; voice and accountability shortcomings are also evident in Algeria, the Islamic Republic of Iran, Turkmenistan, and several GCC countries (for example, Qatar and Saudi Arabia).
- Convergence and productivity:
  - Convergence toward advanced economy per capita income levels remains stalled overall, particularly in subregions such as the MENA (excluding the GCC) and Pakistan.
  - During the past two decades, labor productivity in ME&CA has stagnated, in contrast to upward trends in advanced economies and other emerging market economies.
  - GCC countries (and partially LICs and FCS) have driven developments where non-oil labor productivity has declined, linked to overreliance on the public sector, underdevelopment of the private sector, and lack of economic diversification.
  - The non-oil sector contributes less to aggregate labor productivity than in other oil-exporting countries such as Norway.
- Labor market and gender statistics:
  - Female labor force participation rates in 2022: 44.5 percent in the GCC and 18.2 percent in the MENA region—excluding the GCC—and Pakistan.
  - The region aligns with the EMDE average on the size of the financial sector and trade openness, but unemployment rates remain persistently high, particularly for women and youth.

### Analysis of reform impacts and methodology
- Sample and period: analysis covers 27 countries in the ME&CA regions and spans the period from 2000 to 2021 at annual frequency.
- Method: impacts of major structural reforms on output, investment, employment, and labor productivity were estimated using the local projection method developed by Jordà (2005).
- Definition of major reforms: episodes where an annual change in the relevant indicator is at least two standard deviations of the distribution (across the whole sample). Such major reforms would improve a country’s structural quality from the median to the top 5 percent in the sample.
- Caveats:
  - Precise impact estimates are difficult and subject to uncertainty; results provide direction, relative size, and importance of reforms rather than precise point forecasts.
  - The local projection method may yield biased estimates with small sample sizes on the time dimension (Herbst and Johannsen 2020).
  - Structural reforms related to gender are not covered in the analysis due to lack of variation in the reform series (ninety percent of observations are unchanged over time), though other work suggests reducing gender disparities could substantially boost GDP.

### Key empirical findings on reform effects
- General:
  - Major structural reforms are associated with higher economic output, with magnitudes that increase over time.
- Governance reforms:
  - Five years after implementation, governance reforms reap the largest output gains—about 6 percent.
  - Closing the governance gap with EMDEs could lead to sizable average output gains (magnitude implied by the governance result).
- Regulatory quality:
  - Reforms produce significant positive output effects (ranking below governance reforms in five-year output gains).
- Strategic sequencing and bundling:
  - Prioritizing governance reforms before other reforms can magnify overall growth dividends.
  - Strategic packaging of reforms—for example, combining external sector and credit market reforms—can amplify positive output effects.
- Policy implications:
  - Structural reforms can increase potential growth and accrue near-term growth benefits, helping offset negative impacts of fiscal consolidation in EM&MIs and LICs.
  - For oil exporters, reforms can accelerate economic diversification by lifting non-oil sector growth.
  - Strong institutions (including secure property rights, the rule of law, and accountable governments) support stability, predictability, investor confidence, and sustainable development.
  - Reform design must incorporate political economy considerations and distributional impacts to maximize feasibility and success.

### 1. Governance — Key empirical findings and policy implications
- Regional output gains from governance reforms:
  - About 1.3 percent in the medium term region-wide, ranging from 1 percent in the CCA to almost 3 percent for LICs and FCS.
  - Output gains in the GCC could be about 3 percent when closing governance gaps relative to advanced economies.
- Specific governance dimensions:
  - Enhancing government effectiveness has a strong positive effect in the short and medium terms.
  - Strengthening the rule of law has the potential to increase output by about 6 percent after five years.
  - Comprehensive governance reforms produce larger effects than narrower, single-dimension governance reforms.
- Regulatory quality and productivity:
  - Regulatory quality reforms contribute to a 4 percent increase in output after five years.
  - Regulatory quality reforms are associated with immediate positive impacts on investment and increasing returns in the subsequent year.
  - Regulatory quality reforms lead to significant labor productivity improvements by about 5.5 percent five years after reform.
- Credit market, external sector, and labor market reforms:
  - Credit market and labor market reforms in the ME&CA region have larger estimated impacts than those from the global EMDEs sample in Budina and others (2023), reflecting the region’s structural gaps relative to EMDEs.
  - External sector and credit market reforms gradually lift investment and output, contributing to about 2.5 percent output gains after five years and significant improvements in labor productivity over the medium term.
  - Labor market reforms have limited short-term impacts but positive effects on employment and output materialize over time.

### Reform performance under adverse scenarios
- Low growth (weak economic activity):
  - Increasing domestic credit market flexibility during weak growth can lead to 1.7 percent higher medium-term growth than the baseline after five years.
  - Improving regulatory quality during weak growth can lead to 1.2 percent higher medium-term growth than the baseline after five years.
  - Credit market reforms under low growth yield larger gains in investment and labor productivity (11 and 4 percentage points, respectively, in addition to baseline effects after five years).
  - Country examples: Kuwait and the Islamic Republic of Iran implemented credit market flexibilization in the early 2000s; during 2004–07, Kuwait and the Islamic Republic of Iran’s non-oil growth averaged above 10 and 6 percent, respectively.
  - External sector reforms tend to have more pronounced effects on output and investment when implemented during expansionary cycles.
- Limited policy space:
  - Credit market and regulatory quality reforms have significantly higher positive impacts on output when policy space is relatively lower.
  - Increasing credit market flexibility when policy space is limited is expected to raise output by 8 percent after five years, compared with just below 3 percent in the baseline.
  - Under limited policy space, larger output effects from credit market reforms are mainly achieved through significant increases in investment and substantial boosts in labor productivity.

### Sequencing and packaging of reforms
- Prioritize reforms in areas of relative weakness (for many countries, governance) to yield the largest gains.
- First-generation reform package (governance, regulatory quality, and external sector reforms):
  - Increases returns to subsequent reforms.
  - Credit market reforms implemented after first-generation reforms increase output by about 2 percent, surpassing the baseline of 1.4 percent; gains persist for several years.
  - Labor market reforms following first-generation reforms produce positive outcomes, with a more pronounced near-term impact on employment.
- Bundling effects:
  - The first-generation reform package could raise output by about 3 percent in the year of implementation, accumulating to more than 9 percent after five years—more than doubling total output gains compared with implementing components individually.
- Country examples of sequencing and packaging:
  - Jordan: trade liberalization and privatization in the early 2000s increased private sector participation; the share of credit to the private sector rose from 72 percent in 2000 to 88 percent in 2005.
  - Saudi Arabia (Vision 2030, launched 2016): improved government efficiency, upgraded trade infrastructure, and better labor market outcomes—female labor force participation rose from 23 percent in 2016 to 28 percent in 2022 (nearing the 2025 target of 30 percent); bank loans to small and medium enterprises increased from 2 percent to 7.7 percent.

### Policy recommendations and implementation priorities
- Prioritize governance reforms as they demonstrate a robust and substantial positive effect on growth and other macroeconomic indicators; government effectiveness and the rule of law are particularly influential.
- Target regulatory quality and credit market reforms to stimulate investment and reduce unnecessary state intervention and bureaucratic barriers; this supports younger and more innovative firms and aids diversification away from oil and gas dependence.
- Strategically sequence and package reforms:
  - Implement first-generation reforms (governance, external sector liberalization, regulatory quality) together to capture larger upfront gains and to raise the effectiveness of subsequent reforms (for example, credit market and labor market reforms).
- Address distributional effects and protect vulnerable groups:
  - Combine external sector liberalization with active labor market policies (training and reskilling) to offset negative employment effects and facilitate labor reallocation.
  - Enhance social safety nets for vulnerable populations.
- Complement reform agendas with measures that support resilience and inclusive growth:
  - Enhance labor market flexibility in good times while balancing worker protection and income security.
  - Promote regional and international trade to access larger markets and technologies.
  - Ensure broad access to finance to stimulate investment across society.
  - Invest in gender-specific reforms (equal access to education and vocational training for women, policies supporting work-life balance and parental leave, and measures encouraging women’s entrepreneurship and leadership).

### Box 2.1 — Transformative Tales: Structural Reforms in Georgia, Morocco, and Saudi Arabia
- Overarching theme: targeted governance, institutional, and policy reforms can unlock structural transformation, raise trust in public institutions, and support sustained private sector-led growth.

- Georgia: Anticorruption efforts as a gateway for structural transformation
  - Political commitment: A zero-tolerance policy toward corruption was enacted following the Rose Revolution of 2003; political commitment at the highest level and strict compliance were crucial.
  - Institutional reforms enacted in key public institutions: judiciary, tax, customs, electricity distribution, land and property rights registration, and higher education.
  - Public sector staffing and standards:
    - Public sector salaries increased in the reformed institutions.
    - Graduates who succeeded in those institutions’ qualification exams filled new vacancies.
    - Standardized university tests were administered in a unified manner to address problems in the university entrance process.
  - Tax and customs reform:
    - In 2005, Georgia enacted a new tax code that streamlined the system, lowered tax rates, and significantly broadened the tax base by rescinding most tax benefits.
    - In 2006, a comprehensive customs reform eliminated the 16 customs bands, replacing them with a zero rate for 86 percent of imports.
    - The expanded tax base, enhanced compliance, and rigorous enforcement offset the revenue loss caused by lowered tax rates.
  - Outcomes and caveats:
    - Indicators on corruption, government effectiveness, and regulatory quality jumped from lower worldwide ranks to the top 30th percentiles over five years.
    - Early successes fostered the population’s buy-in and increased trust in public institutions, and structural reform efforts continued for several years.
    - Governance reforms have been partially reversed in more recent years, demonstrating the importance of sustained, strong political will.

- Morocco: Multiple reform packages and the New Model of Development
  - Rationale: New reforms launched in the wake of the pandemic to address lower growth since the mid-2000s, still-high informality, elevated youth unemployment, and low female labor market participation.
  - Objectives of the New Model of Development:
    - Boost private sector investment.
    - Strengthen human capital accumulation.
    - Enhance women’s participation in economic life.
    - Improve the social protection system.
    - Reinforce the governance of public institutions.
  - Key reform areas:
    - Health care: expanding health insurance to all Moroccans and conducting a comprehensive overhaul.
    - Social protection: gradually reducing existing subsidies and extending conditional cash transfers based on the new Unified Social Registry.
    - Education: reduce the primary school dropout rate, increase primary school students’ skills acquisition, and expand access to extracurricular activities.
    - Private sector development: reforming state-owned enterprises, introducing a new charter of investment, establishing the new Mohammed VI Fund to finance large infrastructure projects and provide firms with equity or quasi-equity, and strengthening competition.

- Saudi Arabia: Vision 2030 is underway
  - Progress and policy focus:
    - Diversification across the external and real sectors, boosting female workforce participation, and enhancing digitalization since the 2016 launch of Vision 2030.
    - Improvements to the regulatory and business environment, new laws to promote entrepreneurship, reduce the cost of doing business, and streamline numerous fees for small and medium enterprises.
    - Enhancing the non-oil industrial base by attracting investment, boosting competitiveness, facilitating trade, and supporting climate policies under the Saudi Green Initiative.
    - Developing logistics infrastructure and improving the World Bank Logistics Performance Index score.
    - Labor market and human capital reforms, and a strategy for the information and communication technology sector launched in 2019.
  - Specific outcomes and targets:
    - Female workforce participation: In 2022, female workforce participation was already close to meeting the Vision 2030 target of 30 percent.
    - Share of Saudis in high-skilled jobs: increased from 32 percent in 2016 to 42 percent in 2022, surpassing the 40 percent midterm target for 2025.
    - Digital and cashless progress:
      - Cashless operations expanded from 18 percent in 2016 to 62 percent in 2022.
      - The digital economy has outperformed the primary targets set for 2023.
      - Improvements in the World Bank’s government effectiveness rankings and the United Nations E-Government Development Index since 2016.
    - Financial and macro outcomes:
      - Robust digital development has bolstered financial inclusion, strengthened the financial sector’s resilience, and enhanced government efficacy.
      - Non-oil growth averaged 5.3 percent in 2022 spurred by strong domestic demand.
      - Non-oil growth is expected to remain robust and above 4 percent in the medium term.
  - Policy implication: Continued sound macroeconomic policies and sustained reform momentum are central to maintaining non-oil growth and advancing Vision 2030 objectives.

*Source: 2. From Setbacks to Comebacks: Reforms to Build Resilience and Prosperity, October 2023 • INTERNATIONAL MONETARY FUND.*

### 2. From Setbacks to Comebacks: Reforms

### 2. From Setbacks to Comebacks: Reforms to Build Resilience and Prosperity

### Narrowing policy space and macroeconomic context
- Public debt in ME&CA EM&MIs rose to an average of 83.5 percent of GDP in 2022 (from 79 percent of GDP before the pandemic).
- Average headline inflation in EM&MIs jumped to double digits in 2022.
- Monetary policy tightening in major advanced economies led to tighter financial conditions in EMDEs and higher borrowing costs.
- Policy tradeoffs and limited policy space are especially acute in many MENA countries (excluding GCC) and Pakistan; several GCC and CCA economies saw some recent improvements because of higher oil prices in 2022 and financial flows to the CCA from Russia.
- Policy challenge: balance tighter monetary and fiscal policies to safeguard macroeconomic stability and debt sustainability while promoting economic growth.

### Reform gaps, development outcomes, and labor market challenges
- Progress in implementing structural reforms has been limited; many ME&CA countries fall well behind frontier emerging market economies across several indicators.
- GCC countries score relatively well on labor market, external sector, and credit market flexibility indicators compared with other EMDEs but lag on gender-related regulations.
- Governance reforms trail in a number of ME&CA countries across dimensions including voice and accountability, political stability, government effectiveness, the rule of law, and control of corruption.
- Governance weaknesses are particularly prevalent in LICs and FCS such as Afghanistan, Libya, Sudan, and Yemen; voice and accountability shortcomings are also evident in Algeria, the Islamic Republic of Iran, Turkmenistan, and several GCC countries (for example, Qatar and Saudi Arabia).
- Convergence and productivity:
  - Convergence toward advanced economy per capita income levels remains stalled overall, particularly in subregions such as the MENA (excluding the GCC) and Pakistan.
  - During the past two decades, labor productivity in ME&CA has stagnated, in contrast to upward trends in advanced economies and other emerging market economies.
  - GCC countries (and partially LICs and FCS) have driven developments where non-oil labor productivity has declined, linked to overreliance on the public sector, underdevelopment of the private sector, and lack of economic diversification.
  - The non-oil sector contributes less to aggregate labor productivity than in other oil-exporting countries such as Norway.
- Labor market and gender statistics:
  - Female labor force participation rates in 2022: 44.5 percent in the GCC and 18.2 percent in the MENA region—excluding the GCC—and Pakistan.
  - The region aligns with the EMDE average on the size of the financial sector and trade openness, but unemployment rates remain persistently high, particularly for women and youth.

### Analysis of reform impacts and methodology
- Sample and period: analysis covers 27 countries in the ME&CA regions and spans the period from 2000 to 2021 at annual frequency.
- Method: impacts of major structural reforms on output, investment, employment, and labor productivity were estimated using the local projection method developed by Jordà (2005).
- Definition of major reforms: episodes where an annual change in the relevant indicator is at least two standard deviations of the distribution (across the whole sample). Such major reforms would improve a country’s structural quality from the median to the top 5 percent in the sample.
- Caveats:
  - Precise impact estimates are difficult and subject to uncertainty; results provide direction, relative size, and importance of reforms rather than precise point forecasts.
  - The local projection method may yield biased estimates with small sample sizes on the time dimension (Herbst and Johannsen 2020).
  - Structural reforms related to gender are not covered in the analysis due to lack of variation in the reform series (ninety percent of observations are unchanged over time), though other work suggests reducing gender disparities could substantially boost GDP.

### Key empirical findings on reform effects
- General: Major structural reforms are associated with higher economic output, with magnitudes that increase over time.
- Governance reforms:
  - Five years after implementation, governance reforms reap the largest output gains—about 6 percent.
  - Closing the governance gap with EMDEs could lead to sizable average output gains (magnitude implied by the governance result).
- Regulatory quality reforms also produce significant positive output effects (ranking below governance reforms in five-year output gains).
- Strategic sequencing and bundling:
  - Prioritizing governance reforms before other reforms can magnify overall growth dividends.
  - Strategic packaging of reforms—for example, combining external sector and credit market reforms—can amplify positive output effects.
- Policy implications:
  - Structural reforms can increase potential growth and accrue near-term growth benefits, helping offset negative impacts of fiscal consolidation in EM&MIs and LICs.
  - For oil exporters, reforms can accelerate economic diversification by lifting non-oil sector growth.
  - Strong institutions (including secure property rights, the rule of law, and accountable governments) support stability, predictability, investor confidence, and sustainable development.
  - Reform design must incorporate political economy considerations and distributional impacts to maximize feasibility and success.

*Regional Economic Outlook—Middle East and Central Asia, INTERNATIONAL MONETARY FUND • October 2023*

### 1. Governance

### 1. Governance

### Key empirical findings on growth and governance reforms
- Regional output gain of about 1.3 percent in the medium term, ranging from 1 percent in the CCA to almost 3 percent for LICs and FCS.
- Output gains in the GCC could be about 3 percent when closing governance gaps relative to advanced economies.
- Enhancing government effectiveness has a strong positive effect in the short and medium terms.
- Strengthening the rule of law has the potential to increase output by about 6 percent after five years.
- Comprehensive governance reforms produce larger effects than narrower, single-dimension governance reforms.
- Regulatory quality reforms:
  - Contribute to a 4 percent increase in output after five years.
  - Are associated with immediate positive impacts on investment and increasing returns in the subsequent year.
  - Lead to significant labor productivity improvements by about 5.5 percent five years after reform.
- Credit market and labor market reforms in the ME&CA region have larger estimated impacts than those from the global EMDEs sample in Budina and others (2023), reflecting the region’s structural gaps relative to EMDEs.
- External sector and credit market reforms gradually lift investment and output, contributing to about 2.5 percent output gains after five years and significant improvements in labor productivity over the medium term.
- Labor market reforms have limited short-term impacts but positive effects on employment and output materialize over time.

### Reform performance under adverse scenarios
- Low growth (weak economic activity):
  - Increasing domestic credit market flexibility during weak growth can lead to 1.7 percent higher medium-term growth than the baseline after five years.
  - Improving regulatory quality during weak growth can lead to 1.2 percent higher medium-term growth than the baseline after five years.
  - Credit market reforms under low growth yield larger gains in investment and labor productivity (11 and 4 percentage points, respectively, in addition to baseline effects after five years).
  - Country examples: Kuwait and the Islamic Republic of Iran implemented credit market flexibilization in the early 2000s; during 2004–07, Kuwait and the Islamic Republic of Iran’s non-oil growth averaged above 10 and 6 percent, respectively.
  - External sector reforms tend to have more pronounced effects on output and investment when implemented during expansionary cycles.
- Limited policy space:
  - Credit market and regulatory quality reforms have significantly higher positive impacts on output when policy space is relatively lower.
  - Increasing credit market flexibility when policy space is limited is expected to raise output by 8 percent after five years, compared with just below 3 percent in the baseline.
  - Under limited policy space, larger output effects from credit market reforms are mainly achieved through significant increases in investment and substantial boosts in labor productivity.

### Sequencing and packaging of reforms
- Prioritizing reforms in areas of relative weakness (for many countries, governance) yields the largest gains.
- A “first-generation” reform package (governance, regulatory quality, and external sector reforms) increases returns to subsequent reforms:
  - Credit market reforms implemented after first-generation reforms increase output by about 2 percent, surpassing the baseline of 1.4 percent; gains persist for several years.
  - Labor market reforms following first-generation reforms produce positive outcomes, with a more pronounced near-term impact on employment.
- Bundling reforms can produce super-additive effects:
  - The first-generation reform package could raise output by about 3 percent in the year of implementation, accumulating to more than 9 percent after five years—more than doubling total output gains compared with implementing components individually.
- Country examples of successful sequencing and packaging:
  - Jordan: trade liberalization and privatization in the early 2000s increased private sector participation; the share of credit to the private sector rose from 72 percent in 2000 to 88 percent in 2005.
  - Saudi Arabia (Vision 2030, launched 2016): improved government efficiency, upgraded trade infrastructure, and better labor market outcomes—female labor force participation rose from 23 percent in 2016 to 28 percent in 2022 (nearing the 2025 target of 30 percent); bank loans to small and medium enterprises increased from 2 percent to 7.7 percent.

### Policy recommendations and implementation priorities
- Prioritize governance reforms as they demonstrate a robust and substantial positive effect on growth and other macroeconomic indicators; government effectiveness and the rule of law are particularly influential.
- Target regulatory quality and credit market reforms to stimulate investment and reduce unnecessary state intervention and bureaucratic barriers; this supports younger and more innovative firms and aids diversification away from oil and gas dependence.
- Strategically sequence and package reforms:
  - Implement first-generation reforms (governance, external sector liberalization, regulatory quality) together to capture larger upfront gains and to raise the effectiveness of subsequent reforms (for example, credit market and labor market reforms).
- Address distributional effects and protect vulnerable groups:
  - Combine external sector liberalization with active labor market policies (training and reskilling) to offset negative employment effects and facilitate labor reallocation.
  - Enhance social safety nets for vulnerable populations.
- Complement reform agendas with measures that support resilience and inclusive growth:
  - Enhance labor market flexibility in good times while balancing worker protection and income security.
  - Promote regional and international trade to access larger markets and technologies.
  - Ensure broad access to finance to stimulate investment across society.
  - Invest in gender-specific reforms (equal access to education and vocational training for women, policies supporting work-life balance and parental leave, and measures encouraging women’s entrepreneurship and leadership).

*Source: ch2 - 1. Governance, Regional Economic Outlook—Middle East and Central Asia, October 2023, International Monetary Fund*

### 2. From Setbacks to Comebacks: Reforms to Build Resilience and Prosperity

### 2. From Setbacks to Comebacks: Reforms to Build Resilience and Prosperity

### Box 2.1 — Transformative Tales: Structural Reforms in Georgia, Morocco, and Saudi Arabia
- Prepared by Anja Baum, Rodrigo Garcia-Verdu, and Karmen Naidoo, with inputs from country teams.

- Overarching theme: targeted governance, institutional, and policy reforms can unlock structural transformation, raise trust in public institutions, and support sustained private sector-led growth.

### Georgia: Anticorruption efforts as a gateway for structural transformation
- Political commitment: A zero-tolerance policy toward corruption was enacted following the Rose Revolution of 2003; political commitment at the highest level and strict compliance were crucial.
- Institutional reforms enacted in key public institutions: judiciary, tax, customs, electricity distribution, land and property rights registration, and higher education.
- Public sector staffing and standards:
  - Public sector salaries increased in the reformed institutions.
  - Graduates who succeeded in those institutions’ qualification exams filled new vacancies.
  - Standardized university tests were administered in a unified manner to address problems in the university entrance process.
- Tax and customs reform:
  - In 2005, Georgia enacted a new tax code that streamlined the system, lowered tax rates, and significantly broadened the tax base by rescinding most tax benefits.
  - In 2006, a comprehensive customs reform eliminated the 16 customs bands, replacing them with a zero rate for 86 percent of imports.
  - The expanded tax base, enhanced compliance, and rigorous enforcement offset the revenue loss caused by lowered tax rates.
- Outcomes and caveats:
  - Indicators on corruption, government effectiveness, and regulatory quality jumped from lower worldwide ranks to the top 30th percentiles over five years.
  - Early successes fostered the population’s buy-in and increased trust in public institutions, and structural reform efforts continued for several years.
  - Governance reforms have been partially reversed in more recent years, demonstrating the importance of sustained, strong political will.

### Morocco: Multiple reform packages and the New Model of Development
- Rationale: New reforms launched in the wake of the pandemic to address lower growth since the mid-2000s, still-high informality, elevated youth unemployment, and low female labor market participation.
- Objectives of the New Model of Development:
  - Boost private sector investment.
  - Strengthen human capital accumulation.
  - Enhance women’s participation in economic life.
  - Improve the social protection system.
  - Reinforce the governance of public institutions.
- Key reform areas:
  - Health care: expanding health insurance to all Moroccans and conducting a comprehensive overhaul.
  - Social protection: gradually reducing existing subsidies and extending conditional cash transfers based on the new Unified Social Registry.
  - Education: reduce the primary school dropout rate, increase primary school students’ skills acquisition, and expand access to extracurricular activities.
  - Private sector development: reforming state-owned enterprises, introducing a new charter of investment, establishing the new Mohammed VI Fund to finance large infrastructure projects and provide firms with equity or quasi-equity, and strengthening competition.

### Saudi Arabia: Vision 2030 is underway
- Progress and policy focus:
  - Diversification across the external and real sectors, boosting female workforce participation, and enhancing digitalization since the 2016 launch of Vision 2030.
  - Improvements to the regulatory and business environment, new laws to promote entrepreneurship, reduce the cost of doing business, and streamline numerous fees for small and medium enterprises.
  - Enhancing the non-oil industrial base by attracting investment, boosting competitiveness, facilitating trade, and supporting climate policies under the Saudi Green Initiative.
  - Developing logistics infrastructure and improving the World Bank Logistics Performance Index score.
  - Labor market and human capital reforms, and a strategy for the information and communication technology sector launched in 2019.
- Specific outcomes and targets:
  - Female workforce participation: In 2022, female workforce participation was already close to meeting the Vision 2030 target of 30 percent.
  - Share of Saudis in high-skilled jobs: increased from 32 percent in 2016 to 42 percent in 2022, surpassing the 40 percent midterm target for 2025.
  - Digital and cashless progress:
    - Cashless operations expanded from 18 percent in 2016 to 62 percent in 2022.
    - The digital economy has outperformed the primary targets set for 2023.
    - Improvements in the World Bank’s government effectiveness rankings and the United Nations E-Government Development Index since 2016.
  - Financial and macro outcomes:
    - Robust digital development has bolstered financial inclusion, strengthened the financial sector’s resilience, and enhanced government efficacy.
    - Non-oil growth averaged 5.3 percent in 2022 spurred by strong domestic demand.
    - Non-oil growth is expected to remain robust and above 4 percent in the medium term.
- Policy implication: Continued sound macroeconomic policies and sustained reform momentum are central to maintaining non-oil growth and advancing Vision 2030 objectives.

*Source: 2. From Setbacks to Comebacks: Reforms to Build Resilience and Prosperity, October 2023 • INTERNATIONAL MONETARY FUND.*

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_Source: https://www.imf.org/-/media/files/publications/reo/mcd-cca/2023/october/english/ch2.pdf_