## _040914

## Source details

**Canonical URL:** [_040914](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_040914.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_040914.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_040914.pdf.json)

---

### Regional economic outlook and key challenges
- Early signs of improvement and macroeconomic stabilization in some Arab Countries in Transition (ACTs), but progress is uneven.
- Persistently weak growth and subdued private investment amid heightened regional insecurity continue to weigh on reducing unemployment.
- Mobilizing affordable external financing could help boost well-implemented public investment, provide short-term impetus to growth and employment, stabilize socio-political conditions, and create space for deeper structural reforms.

### A. Background and recent developments
- Macroeconomic stability improved in 2013 for most ACTs; financial sectors in most countries have remained stable.
- Regional spillovers from the conflict in Syria and protracted political instability have overshadowed positive external developments and continue to dampen investor sentiment.
- Growth:
  - Average growth (excluding Libya) is estimated to have inched up to 2.8 percent in 2013 from 2½ percent in 2012.
  - Libya experienced a recession of -9 percent real GDP growth in 2013 due to a sharp drop in oil production.
- Unemployment:
  - Number of unemployed climbed to 5.8 million by the end of 2013—an increase of 1.5 million since end-2010. (For Egypt, Jordan, Tunisia, and Morocco.)
- Policy buffers and public finances:
  - Morocco and Jordan reduced budget deficits through subsidy cuts and other fiscal reforms; Jordan strengthened reserves, Morocco stabilized reserves.
  - Egypt’s reserve cushion remained thin despite substantial external aid; deficit reduction in 2013/14 relied on sizeable grant assistance.
  - Libya and Yemen saw declines in foreign reserves and widening budget deficits due to political instability.
  - Average budget deficits in the ACTs remained elevated at 9 percent of GDP in 2013.
  - Public debt continued to rise in most countries, reaching very high levels in Egypt and Jordan (approaching 90 percent of GDP).

### B. Short-term outlook
- Growth projections:
  - Most ACTs likely to grow at only about 3 percent in 2014 absent strong progress with political transitions.
  - Growth could strengthen to 4½ percent in 2015, provided political stability improves, external conditions strengthen, and economic reforms accelerate.
  - Growth rates of 6 or more percent will require more time and a strong track record of structural reforms to meaningfully reduce unemployment.
- Other projections:
  - Inflation expected to remain relatively stable.
  - Current account and fiscal deficits expected to narrow at a slow pace.
  - Public debt and unemployment rates likely to climb in most countries, adding to social tensions.
- Downside risks:
  - Syrian crisis and regional violence could increase refugee numbers and damage trade, confidence, and growth.
  - Setbacks to political transitions could delay reforms and deter investment.
  - Disruptions to energy supplies in Jordan, Libya, Yemen, and Egypt would hurt fiscal and external positions.
  - Geopolitical risks in Eastern Europe could fuel commodity prices and impede trade.
  - Rapid normalization of U.S. monetary policy and renewed risk aversion could cause abrupt adjustments in some emerging market economies.
  - Weaker growth in Europe could slow recovery of exports and foreign inflows.

### C. Short-term policy issues
- Rebuilding policy buffers and maintaining macroeconomic stability:
  - Reduce budget deficits to maintain debt sustainability, ensure public service provision, and avoid private-sector crowding out.
  - Reallocate public expenditure toward capital investment; contain growth of the wage bill in line with productivity; improve public finance management.
  - Tax policy and administration reforms to shore up revenue and create a level playing field for business.
  - Maintain financial sector stability, improve access to finance, rebuild external reserve buffers, facilitate external adjustment, and contain inflation by avoiding monetization of budget deficits.
- Escaping the unemployment trap:
  - Restoring confidence and reviving job creation will take longer while the private sector remains largely on the sidelines, likely leading to increasing unemployment.
- Increased job-creating public investment (key elements of such a package):
  - Affordable and predictable external financing to preserve debt sustainability.
  - Continued fiscal consolidation with establishment of safety nets for the poor.
  - Strong measures to remove identified regulatory barriers to doing business.
  - Improved project selection and execution to overcome absorptive capacity constraints and target job creation in the private sector.
  - Requirements: substantial donor support, credible reform commitments by authorities, and significant capacity building assistance by external partners.
  - Medium-term efforts to maintain debt and fiscal sustainability must continue.
- Investment scale estimate:
  - Additional investment of about $25 billion spread over a five-year horizon could create between 0.4 and 0.8 million jobs across the ACTs.

### D. Medium-term challenges
- Structural reforms needed to ignite private sector-led growth:
  - Create better conditions for the large labor force and investors through enhanced business climates, deeper global integration, better education and training, improved access to finance, and appropriate social protection.
  - Some reforms have long lead times and should proceed without delay.
- Good starting points and feasible measures:
  - Increase transparency of the budget process, public hiring and procurement, and project selection for public investment.
  - Strengthen safety nets by improving targeting of social assistance and phasing out costly generalized subsidies to enable scaling up of means-tested social assistance; establish mechanisms to quickly and transparently reach those most in need.
  - Initiate dialogue with the business community to streamline cumbersome business regulations, including labor market regulations.
  - Foster partnerships with investors to reform vocational training and develop programs for women and youth; improve education curricula to deliver labor market-relevant skills.
  - Strengthen bankruptcy, provisioning, and collateral regulations; develop credit bureaus; improve market infrastructure to reduce risk premia and facilitate access to credit.
  - Decide on strategies for public banks and provide a more enabling environment for private financial institutions, including non-bank sectors such as microfinance.
  - Strengthen anti-monopoly regulations and institutions and seek deeper integration into global markets.

### E. Role of the international community
- National ownership:
  - Countries are in the drivers’ seat; a national consensus on an economic vision is emerging slowly in most countries.
  - Swift implementation of growth-promotion strategies through deep structural reforms and clear, realistic, and tangible policy commitments will be critical to enable reforms and shore up investor and donor support.
- Areas for external partner action:
  - Coordination: Close coordination among international partners and ACTs is critical if authorities decide to substantially increase externally financed public investment in infrastructure and basic services to create jobs.
  - Increased external financial support: External official disbursements since the Arab Spring (totaling around US$50 billion) have covered only part of transition financing needs despite significant GCC contributions. More financial support on affordable terms and better linked to reforms will be needed; countries must act to reverse rising public debt trends over the medium term.
  - Facilitation of trade and FDI: Deepening trade integration—most importantly with the EU—through tariff reduction, increased trade quotas, easier access for agricultural exports, and active implementation of existing agreements could help revitalize exports.
  - Technical assistance: ACTs will need further technical assistance and capacity building in public finance management, reform of social safety nets, civil service reforms, financial sector reforms for SME access to finance, tax and customs policy and administration, pension, education, and other social sector reforms. The Deauville Partnership’s Transition Fund is playing an important role.
- Arab Countries in Transition: Financing Needs (Billions of U.S. dollars)
  - Comprises: Egypt, Jordan, Morocco, Tunisia, and Yemen. Libya does not face financing needs.
  - Current account deficit (excl. official transfers): 26.434.126.733.734.3
  - External amortization: 14.314.315.722.732.8
  - External gross financing needs: 40.748.342.456.467.1
  - Budget deficit (excl. grants): 38.648.355.457.353.5
  - Public external amortization: 4.84.64.87.27.7
  - Fiscal financing needs: 43.352.960.264.461.2

### F. IMF engagement
- Financial program support:
  - Since the Arab Awakening, the Fund has approved about US$10 billion in financial support for the ACTs.
  - Current programs with Jordan, Morocco, and Tunisia are on track.
  - Discussions ongoing with Yemen on a new Extended Credit Facility.
  - The Fund stands ready to engage in program discussions with Egypt should the authorities request support.
- Mobilizing additional financing:
  - IMF and World Bank staff teams prepared a report on feasibility of increasing externally financed public investment for reforms and job creation; a platform for mobilizing such external financing (e.g., country conferences) could help advance the agenda.
- Analytical agenda and outreach:
  - Fund completed a comprehensive paper “Arab Economic Transformation amid Political Transitions” to inform medium-term reform agendas.
  - Co-hosting a conference “Building the Future: Jobs, Growth, and Fairness in the Arab World,” in Amman in May, to foster regional policy dialogue and share lessons from other economic transformations.
- Capacity development assistance:
  - IMF-Middle East Regional Technical Assistance Center and joint training institute in Kuwait continue programs; security concerns have affected delivery in some cases.
  - In the prior year, 60 technical assistance projects were implemented covering tax policy and administration, financial sector supervision, monetary policy, and public finance management.
  - Over three dozen training events and activities were held for participants from the ACTs, including courses for Parliamentarians and Journalists on economic policy issues.
  - The Fund stands ready to scale up capacity development in response to authorities’ requests.

### Box 1 — The Middle East and North Africa Transition Fund (TF)
- Overview and purpose:
  - Established in December 2012 by the Deauville Partnership as a joint venture among the G-8 countries, Gulf partner countries, Turkey, and Denmark, and IFIs.
  - The TF has an envisaged endowment of US $250 million.
  - Objective: support the ACTs in formulating policies and programs and implementing reforms to bring about sustainable, inclusive growth over the medium-term, while strengthening transparency and accountability in governance.
  - Designed to be rapid, flexible, and responsive in providing grant support for technical cooperation; facilitates coordination and prioritization across donors and ACTs governments and can stay involved long enough to help with implementation of reforms, not only design.
- Projects approved and thematic coverage:
  - The TF’s Steering Committee has approved 43 projects for all ACTs.
  - Project areas and country examples include support to micro, small, and medium enterprises (Egypt, Jordan, Libya, Morocco, Yemen); energy sector reform (Egypt, Tunisia); access to water (Jordan); targeted social assistance (Jordan, Tunisia); labor market policies (Jordan); public-private partnerships (Tunisia); private sector development (Libya, Tunisia); civil society dialogue (Yemen); leadership development and governance (Libya, Morocco, Tunisia, Yemen); regional integration through trade and transport (Egypt, Jordan, Morocco, Tunisia); affordable housing (Morocco, Tunisia).
- Strategic priorities and focal areas:
  - Building strong institutions: public financial management, public procurement, financial sector strengthening, and strengthening the quality of statistics.
  - Promoting trade integration: focus on measures with immediate effects to bridge time until FTAs are reached or upgraded.
  - Helping policies become more equitable and inclusive: reduce untargeted subsidies to create room for targeted social safety nets; put in place more efficient and fairer tax systems.
  - Lowering the cost of doing business: remove impediments to entry and exit and streamline business regulations.
- Financial status, demand, and operational implications:
  - Over the past 15 months, the TF has evolved into a key vehicle for support of the ACTs’ capacity-building efforts in the areas of structural reform identified in the main text.
  - Over the past year, $140.5 million has been committed.
  - The ACTs’ strong demand for TF support represents ample opportunity for donors to engage.
  - The impact of the TF on the ACTs’ reform efforts depends on the quality of its project pipeline and its capacity to meet strong project demand with adequate financial resources.

### Morocco — Recent developments and macroeconomic outcomes
- GDP growth in 2013: 4.5 percent. This performance was driven by an exceptionally strong harvest, while non-agricultural activity slowed down, reflecting the impact of weak activity in Europe, Morocco’s main economic partner.
- Unemployment rate: remained stable around 9 percent.
- Youth unemployment: 19.3 percent.
- Fiscal deficit: declined from 7.3 percent of GDP in 2012 to 5.4 percent of GDP in 2013.
  - Contributors to fiscal consolidation:
    - Reduction in the wage bill by 0.5 percent of GDP.
    - Reduction in subsidies by 2 percent of GDP.
  - Revenue impact: slowdown in non-agricultural activity reduced revenue.
- Subsidy policy changes:
  - Introduction of a partial indexation mechanism for domestic prices of some petroleum products in September.
  - In January 2014, the authorities removed subsidies on gasoline and industrial fuel and reduced the per-unit subsidy of diesel, and announced further reductions for the remainder of the year.
- Current account in 2013: improved owing to lower fuel and food imports despite weak Euro area demand for exports.
- International reserves: stabilized above four months of imports.

### Morocco — Short-term outlook
- Growth projection for 2014: expected to fall below 4 percent as agriculture production returns to normal levels following a bumper crop in 2013.
- Non-agricultural activity: expected to pick up, pulled by the recovery in Europe.
- Inflation projection for 2014-15: around 2½ percent.
- Current account: expected to contract further as a result of the reduction in the fiscal deficit, lower global energy prices, and exports from newly developed sectors (e.g., car and aeronautics industries) resulting from recent foreign investments.

### Morocco — Selected Economic Indicators, 2011 - 2015 (Percent of GDP, unless otherwise indicated)
- GDP growth, percent: 2011: 5.0, 2012: 2.7, 2013: 4.5, 2014: 3.9, 2015: 4.9
- CPI inflation, period average, percent: 2011: 0.9, 2012: 1.3, 2013: 1.9, 2014: 2.5, 2015: 2.5
- Central government balance, excl. grants: 2011: -6.9, 2012: -7.4, 2013: -6.1, 2014: -6.1, 2015: -5.3
- Current account balance, excl. grants: 2011: -8.4, 2012: -10.0, 2013: -8.0, 2014: -7.7, 2015: -6.8
- Fiscal financing needs, (excl. grants), US$ billion: 2011: 7.7, 2012: 8.0, 2013: 7.4, 2014: 8.0, 2015: 7.7
- External financing needs (excl. grants), US$ billion: 2011: 9.8, 2012: 11.2, 2013: 10.3, 2014: 10.8, 2015: 10.6
- Public debt: 2011: 54.4, 2012: 60.2, 2013: 61.9, 2014: 62.7, 2015: 62.5
- External debt: 2011: 25.1, 2012: 29.8, 2013: 30.9, 2014: 31.5, 2015: 31.6
- Reserves in months of imports: 2011: 5.0, 2012: 4.2, 2013: 4.0, 2014: 4.3, 2015: 4.3

### Morocco — Risks
- Downside risks:
  - Protracted period of slower growth in trading partners from advanced economies, especially in the euro area, could affect growth and the balance of payments.
  - Surge in global financial market volatility related to exit from unconventional monetary policies in large advanced economies could limit access to international capital markets, even though Morocco’s reliance on foreign financing is moderate.
  - Pressing social demands may slow implementation of the necessary reforms.
- Upside risk:
  - Better-than-expected agriculture production would have a positive impact on growth and the current account.

### Morocco — Short-term policy issues and recommendations
- Ensure macroeconomic stability by continuing to rebuild fiscal and external buffers and moving ahead with difficult but necessary reforms.
- Follow through on the authorities’ fiscal consolidation plan by:
  - Further containing the wage bill.
  - Reducing subsidies.
- Replace costly universal subsidies gradually with well-targeted social programs.
- Strengthen the fiscal framework:
  - A draft organic budget law (OBL) is progressing through Parliament; the OBL should reflect international best practice and enshrine recently introduced measures related to investment appropriations and wage policy.
  - Effective communication is important to adhere to the medium-term fiscal path and explain benefits to citizens.
- Pension reform: urgently needed to ensure viability and preserve fiscal sustainability.

### Morocco — Medium-term challenges and structural reform priorities
- Key objective: promoting stronger, more inclusive growth and higher employment.
- Preconditions: ensuring macroeconomic stability.
- Structural reform priorities:
  - Improve business climate and economic governance by enhancing transparency, accountability, and the rule of law.
  - Strengthen the judiciary.
  - Make the tax system more supportive of competitiveness and more equitable.
  - Facilitate access to credit.
  - Enhance the quality of education.
  - Move toward a more flexible exchange rate regime to enhance external competitiveness and strengthen shock absorption.
- External assistance opportunities:
  - Capacity building in taxation, budget monitoring, monetary policy framework strengthening, and exchange rate management.

*Source: _040914 - 1. The Middle East and North Africa (MENA) Transition Fund (TF) and IMF staff report content provided in the supplied PDF excerpt.*

### 1. The Middle East and North Africa (MENA) Transition Fund (TF)_______________________________ 9

### 1. The Middle East and North Africa (MENA) Transition Fund (TF)

### Regional economic outlook and key challenges
- Despite uneven progress, there are early signs of improvement and macroeconomic stabilization in some Arab Countries in Transition (ACTs).
- Persistently weak growth and subdued private investment amid heightened regional insecurity continue to weigh on reducing unemployment.
- Mobilizing affordable external financing could help boost well-implemented public investment and provide short-term impetus to growth and employment, stabilizing socio-political conditions and creating space for deeper structural reforms.

### A. Background and recent developments
- Macroeconomic stability improved in 2013 for most ACTs; financial sectors in most countries have remained stable.
- Regional spillovers from the conflict in Syria and protracted political instability have overshadowed positive external developments and continue to dampen investor sentiment.
- Growth:
  - Average growth (excluding Libya) is estimated to have inched up to 2.8 percent in 2013 from 2½ percent in 2012.
  - Libya experienced a recession of -9 percent real GDP growth in 2013 due to a sharp drop in oil production.
- Unemployment:
  - Number of unemployed climbed to 5.8 million by the end of 2013—an increase of 1.5 million since end-2010. (For Egypt, Jordan, Tunisia, and Morocco.)
- Policy buffers and public finances:
  - Morocco and Jordan reduced budget deficits through subsidy cuts and other fiscal reforms; Jordan strengthened reserves, Morocco stabilized reserves.
  - Egypt’s reserve cushion remained thin despite substantial external aid; deficit reduction in 2013/14 relied on sizeable grant assistance.
  - Libya and Yemen saw declines in foreign reserves and widening budget deficits due to political instability.
  - Average budget deficits in the ACTs remained elevated at 9 percent of GDP in 2013.
  - Public debt continued to rise in most countries, reaching very high levels in Egypt and Jordan (approaching 90 percent of GDP).

### B. Short-term outlook
- Growth projections:
  - Most ACTs likely to grow at only about 3 percent in 2014 absent strong progress with political transitions.
  - Growth could strengthen to 4½ percent in 2015, provided political stability improves, external conditions strengthen, and economic reforms accelerate.
  - Growth rates of 6 or more percent will require more time and a strong track record of structural reforms to meaningfully reduce unemployment.
- Other projections:
  - Inflation expected to remain relatively stable.
  - Current account and fiscal deficits expected to narrow at a slow pace.
  - Public debt and unemployment rates likely to climb in most countries, adding to social tensions.
- Downside risks:
  - Syrian crisis and regional violence could increase refugee numbers and damage trade, confidence, and growth.
  - Setbacks to political transitions could delay reforms and deter investment.
  - Disruptions to energy supplies in Jordan, Libya, Yemen, and Egypt would hurt fiscal and external positions.
  - Geopolitical risks in Eastern Europe could fuel commodity prices and impede trade.
  - Rapid normalization of U.S. monetary policy and renewed risk aversion could cause abrupt adjustments in some emerging market economies.
  - Weaker growth in Europe could slow recovery of exports and foreign inflows.

### C. Short-term policy issues
- Rebuilding policy buffers and maintaining macroeconomic stability:
  - Reduce budget deficits to maintain debt sustainability, ensure public service provision, and avoid private-sector crowding out.
  - Reallocate public expenditure toward capital investment; contain growth of the wage bill in line with productivity; improve public finance management.
  - Tax policy and administration reforms to shore up revenue and create a level playing field for business.
  - Maintain financial sector stability, improve access to finance, rebuild external reserve buffers, facilitate external adjustment, and contain inflation by avoiding monetization of budget deficits.
- Escaping the unemployment trap:
  - Restoring confidence and reviving job creation will take longer while the private sector remains largely on the sidelines, likely leading to increasing unemployment.
- Increased job-creating public investment (key elements of such a package):
  - Affordable and predictable external financing to preserve debt sustainability.
  - Continued fiscal consolidation with establishment of safety nets for the poor.
  - Strong measures to remove identified regulatory barriers to doing business.
  - Improved project selection and execution to overcome absorptive capacity constraints and target job creation in the private sector.
  - Requirements: substantial donor support, credible reform commitments by authorities, and significant capacity building assistance by external partners.
  - Medium-term efforts to maintain debt and fiscal sustainability must continue.
- Investment scale estimate (from separate analysis):
  - Additional investment of about $25 billion spread over a five-year horizon could create between 0.4 and 0.8 million jobs across the ACTs.

### D. Medium-term challenges
- Structural reforms needed to ignite private sector-led growth:
  - Create better conditions for the large labor force and investors through enhanced business climates, deeper global integration, better education and training, improved access to finance, and appropriate social protection.
  - Some reforms have long lead times and should proceed without delay.
- Good starting points and feasible measures:
  - Increase transparency of the budget process, public hiring and procurement, and project selection for public investment.
  - Strengthen safety nets by improving targeting of social assistance and phasing out costly generalized subsidies to enable scaling up of means-tested social assistance; establish mechanisms to quickly and transparently reach those most in need.
  - Initiate dialogue with the business community to streamline cumbersome business regulations, including labor market regulations.
  - Foster partnerships with investors to reform vocational training and develop programs for women and youth; improve education curricula to deliver labor market-relevant skills.
  - Strengthen bankruptcy, provisioning, and collateral regulations; develop credit bureaus; improve market infrastructure to reduce risk premia and facilitate access to credit.
  - Decide on strategies for public banks and provide a more enabling environment for private financial institutions, including non-bank sectors such as microfinance.
  - Strengthen anti-monopoly regulations and institutions and seek deeper integration into global markets.

### E. Role of the international community
- National ownership:
  - Countries are in the drivers’ seat; a national consensus on an economic vision is emerging slowly in most countries.
  - Swift implementation of growth-promotion strategies through deep structural reforms and clear, realistic, and tangible policy commitments will be critical to enable reforms and shore up investor and donor support.
- Areas for external partner action:
  - Coordination: Close coordination among international partners and ACTs is critical if authorities decide to substantially increase externally financed public investment in infrastructure and basic services to create jobs.
  - Increased external financial support: External official disbursements since the Arab Spring (totaling around US$50 billion) have covered only part of transition financing needs despite significant GCC contributions. More financial support on affordable terms and better linked to reforms will be needed; countries must act to reverse rising public debt trends over the medium term.
  - Facilitation of trade and FDI: Deepening trade integration—most importantly with the EU—through tariff reduction, increased trade quotas, easier access for agricultural exports, and active implementation of existing agreements could help revitalize exports.
  - Technical assistance: ACTs will need further technical assistance and capacity building in public finance management, reform of social safety nets, civil service reforms, financial sector reforms for SME access to finance, tax and customs policy and administration, pension, education, and other social sector reforms. The Deauville Partnership’s Transition Fund is playing an important role.

- Arab Countries in Transition: Financing Needs (Billions of U.S. dollars)
  - Comprises: Egypt, Jordan, Morocco, Tunisia, and Yemen. Libya does not face financing needs.
  - Current account deficit (excl. official transfers): 26.434.126.733.734.3
  - External amortization: 14.314.315.722.732.8
  - External gross financing needs: 40.748.342.456.467.1
  - Budget deficit (excl. grants): 38.648.355.457.353.5
  - Public external amortization: 4.84.64.87.27.7
  - Fiscal financing needs: 43.352.960.264.461.2

### F. IMF engagement
- Financial program support:
  - Since the Arab Awakening, the Fund has approved about US$10 billion in financial support for the ACTs.
  - Current programs with Jordan, Morocco, and Tunisia are on track.
  - Discussions ongoing with Yemen on a new Extended Credit Facility.
  - The Fund stands ready to engage in program discussions with Egypt should the authorities request support.
- Mobilizing additional financing:
  - IMF and World Bank staff teams prepared a report on feasibility of increasing externally financed public investment for reforms and job creation; a platform for mobilizing such external financing (e.g., country conferences) could help advance the agenda.
- Analytical agenda and outreach:
  - Fund completed a comprehensive paper “Arab Economic Transformation amid Political Transitions” to inform medium-term reform agendas.
  - Co-hosting a conference “Building the Future: Jobs, Growth, and Fairness in the Arab World,” in Amman in May, to foster regional policy dialogue and share lessons from other economic transformations.
- Capacity development assistance:
  - IMF-Middle East Regional Technical Assistance Center and joint training institute in Kuwait continue programs; security concerns have affected delivery in some cases.
  - In the prior year, 60 technical assistance projects were implemented covering tax policy and administration, financial sector supervision, monetary policy, and public finance management.
  - Over three dozen training events and activities were held for participants from the ACTs, including courses for Parliamentarians and Journalists on economic policy issues.
  - The Fund stands ready to scale up capacity development in response to authorities’ requests.

*Source: _040914 - 1. The Middle East and North Africa (MENA) Transition Fund (TF)_______________________________ 9*

### Box 1. The Middle East and North Africa Transition Fund

### Box 1. The Middle East and North Africa Transition Fund

### Overview and purpose
- The Middle East and North Africa (MENA) Transition Fund (TF) was established in December 2012 by the Deauville Partnership as a joint venture among the G-8 countries, Gulf partner countries, Turkey, and Denmark, and IFIs.
- The TF has an envisaged endowment of US $250 million.
- Objective: to support the ACTs in formulating policies and programs and implementing reforms to bring about sustainable, inclusive growth over the medium-term, while strengthening transparency and accountability in governance.
- Designed to be rapid, flexible, and responsive in providing grant support for technical cooperation; it facilitates coordination and prioritization across donors and the ACTs governments and can stay involved long enough to help with implementation of reforms, not only design.

### Projects approved and thematic coverage
- The TF’s Steering Committee has approved 43 projects for all ACTs.
- Project areas and country examples:
  - Support to micro, small, and medium enterprises: Egypt, Jordan, Libya, Morocco, Yemen
  - Energy sector reform: Egypt, Tunisia
  - Access to water: Jordan
  - Targeted social assistance: Jordan, Tunisia
  - Labor market policies: Jordan
  - Public-private partnerships: Tunisia
  - Private sector development: Libya, Tunisia
  - Civil society dialogue: Yemen
  - Leadership development and governance: Libya, Morocco, Tunisia, Yemen
  - Regional integration through trade and transport: Egypt, Jordan, Morocco, Tunisia
  - Affordable housing: Morocco, Tunisia

### Strategic priorities and focal areas
- Building strong institutions to establish improved accountability and governance:
  - Reforms expected to focus on public financial management (budgeting, budget execution and cash management, and reporting).
  - Public procurement (transparency in awards, increased competition, improved public service delivery and better public funds management).
  - Financial sector strengthening (banking supervision and financial sector stability and capital market development).
  - Strengthening the quality of statistics could become another key component.
- Promoting trade integration:
  - Focus on measures that produce immediate effects to bridge the time until the ACTs reach or upgrade free trade agreements with major trading partners.
- Helping policies become more equitable and inclusive:
  - Concentrate on reducing untargeted subsidies to create room for targeted social safety nets.
  - Put in place more efficient and fairer tax systems to ease distortions, improve revenue administration, and increase growth prospects.
- Lowering the cost of doing business:
  - Focus on removing impediments to entry and exit and streamlining business regulations.

### Financial status, demand, and operational implications
- Over the past 15 months, the TF has evolved into a key vehicle for support of the ACTs’ capacity-building efforts in the areas of structural reform identified in the main text.
- Over the past year, $140.5 million has been committed.
- The ACTs’ strong demand for TF support represents ample opportunity for donors to engage.
- The impact of the TF on the ACTs’ reform efforts depends on:
  - The quality of its project pipeline.
  - Its capacity to meet strong project demand with adequate financial resources.
- Efforts will continue to be made to generate sufficient funds to respond to demand.

*Source: Box 1. The Middle East and North Africa Transition Fund*

### 4.5 percent. This performance was driven by an exceptionally strong harvest, while non-agricultural

### _040914 - 4.5 percent. This performance was driven by an exceptionally strong harvest, while non-agricultural

### Recent developments and macroeconomic outcomes (Morocco)
- GDP growth in 2013: 4.5 percent. This performance was driven by an exceptionally strong harvest, while non-agricultural activity slowed down, reflecting the impact of weak activity in Europe, Morocco’s main economic partner.
- Unemployment rate: remained stable around 9 percent.
- Youth unemployment: 19.3 percent.
- Fiscal deficit: declined from 7.3 percent of GDP in 2012 to 5.4 percent of GDP in 2013.
  - Contributors to fiscal consolidation:
    - Reduction in the wage bill by 0.5 percent of GDP.
    - Reduction in subsidies by 2 percent of GDP.
  - Revenue impact: slowdown in non-agricultural activity reduced revenue.
- Subsidy policy changes:
  - Introduction of a partial indexation mechanism for domestic prices of some petroleum products in September (year implied by context).
  - In January 2014, the authorities removed subsidies on gasoline and industrial fuel and reduced the per-unit subsidy of diesel, and announced further reductions for the remainder of the year.
- Current account in 2013: improved owing to lower fuel and food imports despite weak Euro area demand for exports.
- International reserves: stabilized above four months of imports.

### Short-term outlook (Morocco)
- Growth projection for 2014: expected to fall below 4 percent as agriculture production returns to normal levels following a bumper crop in 2013.
- Non-agricultural activity: expected to pick up, pulled by the recovery in Europe.
- Inflation projection for 2014-15: around 2½ percent, notwithstanding recent increases in the prices of some energy products.
- Current account: expected to contract further as a result of the reduction in the fiscal deficit, lower global energy prices, and exports from newly developed sectors (e.g., car and aeronautics industries) resulting from recent foreign investments.

### Morocco: Selected Economic Indicators, 2011 - 2015 (Percent of GDP, unless otherwise indicated)
- Projections table (values shown as in source):
  - GDP growth, percent: 2011: 5.0, 2012: 2.7, 2013: 4.5, 2014: 3.9, 2015: 4.9
  - CPI inflation, period average, percent: 2011: 0.9, 2012: 1.3, 2013: 1.9, 2014: 2.5, 2015: 2.5
  - Central government balance, excl. grants: 2011: -6.9, 2012: -7.4, 2013: -6.1, 2014: -6.1, 2015: -5.3
  - Current account balance, excl. grants: 2011: -8.4, 2012: -10.0, 2013: -8.0, 2014: -7.7, 2015: -6.8
  - Fiscal financing needs, (excl. grants), US$ billion: 2011: 7.7, 2012: 8.0, 2013: 7.4, 2014: 8.0, 2015: 7.7
  - External financing needs (excl. grants), US$ billion: 2011: 9.8, 2012: 11.2, 2013: 10.3, 2014: 10.8, 2015: 10.6
  - Public debt: 2011: 54.4, 2012: 60.2, 2013: 61.9, 2014: 62.7, 2015: 62.5
  - External debt: 2011: 25.1, 2012: 29.8, 2013: 30.9, 2014: 31.5, 2015: 31.6
  - Reserves in months of imports: 2011: 5.0, 2012: 4.2, 2013: 4.0, 2014: 4.3, 2015: 4.3

### Risks (Morocco)
- Downside risks:
  - Protracted period of slower growth in trading partners from advanced economies, especially in the euro area, could affect growth and the balance of payments.
  - Surge in global financial market volatility related to exit from unconventional monetary policies in large advanced economies could limit access to international capital markets, even though Morocco’s reliance on foreign financing is moderate.
  - Pressing social demands may slow implementation of the necessary reforms.
- Upside risk:
  - Better-than-expected agriculture production would have a positive impact on growth and the current account.

### Short-term policy issues and recommendations (Morocco)
- Ensure macroeconomic stability by continuing to rebuild fiscal and external buffers and moving ahead with difficult but necessary reforms.
- Follow through on the authorities’ fiscal consolidation plan by:
  - Further containing the wage bill.
  - Reducing subsidies.
- Replace costly universal subsidies gradually with well-targeted social programs.
- Strengthen the fiscal framework:
  - A draft organic budget law (OBL) is progressing through Parliament; the OBL should:
    - Reflect international best practice.
    - Enshrine recently introduced measures related to investment appropriations and wage policy.
  - Effective communication is important to adhere to the medium-term fiscal path and explain benefits to citizens.
- Pension reform: urgently needed to ensure viability and preserve fiscal sustainability.

### Medium-term challenges and structural reform priorities (Morocco)
- Key objective: promoting stronger, more inclusive growth and higher employment.
- Preconditions: ensuring macroeconomic stability.
- Structural reform priorities:
  - Improve business climate and economic governance by enhancing transparency, accountability, and the rule of law.
  - Strengthen the judiciary.
  - Make the tax system more supportive of competitiveness and more equitable.
  - Facilitate access to credit.
  - Enhance the quality of education.
  - Move toward a more flexible exchange rate regime to enhance external competitiveness and strengthen shock absorption.
- External assistance opportunities:
  - Capacity building in taxation, budget monitoring, monetary policy framework strengthening, and exchange rate management.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2014/_040914.pdf_