## 2016. Net international reserves would remain adequate.

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---

### JORDAN — Risks
- Risks remain high.
- Most prominent risks relate to an escalation and/or lengthening of the conflicts in Syria and Iraq beyond 2016, which would further weigh on exports, tourism, investor confidence, and FDI.
- Additional refugees would put further pressure on fiscal accounts, infrastructure, and the quality of government services.
- Possible donor fatigue could jeopardize humanitarian assistance, hurting the fiscal and external accounts.
- Other risks include a loss of competitiveness in case of a further U.S. dollar appreciation, a sharp rebound in oil prices, and a prolonged slowdown in key emerging market economies.
- A domestic risk is a loss of momentum in reforms.

### JORDAN — Short-term policy issues
- Continued public sector adjustment, both at the central government and energy sector levels, is needed to put Jordan’s high debt firmly on a downward trend.
- Adjustment should be equitable, protecting the most vulnerable.
- At the central government level: reduce the primary deficit while allowing for an increase in public investment.
- Focus areas: equity-enhancing tax reform, further expenditure savings, tax administration improvements, and public financial management reforms.
- Energy sector: implement the strategy to return NEPCO to cost recovery.
- Monetary policy: remain focused on maintaining the attractiveness of the Jordanian dinar to safeguard reserve buffers.
- Regional humanitarian crisis: additional grants are needed; Jordan cannot alone shoulder this burden.

### JORDAN — Reforms for inclusive growth
- Key obstacles: weaknesses in the business environment, labor markets, and institutions.
- Low scores on business climate indicators, particularly investor protection, contract enforcement, and access to finance.
- Chronic high unemployment, particularly among the youth; female labor force participation among the lowest worldwide.
- Authorities’ measures taken:
  - Passed laws to improve the business climate—including laws on investment and public-private partnerships.
  - Steps to improve access to finance: mobilizing donor support for SME finance; drafting a secured lending law; revisiting the bankruptcy/insolvency law; licensing a credit bureau.
  - In collaboration with the ILO, conducting a review of the National Employment Strategy (NES).
  - Institutional improvements: adoption of a new public investment framework; establishment of a public-private partnership unit in the ministry of finance.
- Recommended priorities going forward:
  1. Expedite cabinet approval of the PPP by-laws and parliament approval of the secure lending and bankruptcy/insolvency laws.
  2. Adopt an action plan with a concrete timeline for the NES.
  3. Prioritize public investment toward maximizing its impact on growth and unemployment.
  4. Make tangible progress toward transparency and accountability.

---

### LIBYA — Background and recent developments
- Continued conflict is bringing Libya a step closer to fragmentation, with serious consequences for the economy, public finances and official reserves.
- Most important priorities: end the conflict, restore rule of law and unity of the state, and establish transparent and accountable mechanisms for managing Libya’s resources.
- Urgent need to control current spending and improve the quality of the budget process.
- Over time: streamline general subsidies and limit public sector employment to create space for investment in broad growth.
- Fund dialogue with both governments continues, but capacity to provide policy advice and capacity building has been significantly affected by worsened security.
- Clashes since summer of 2014 have cost hundreds of lives and displaced over 250,000 Libyans.
- Fall of Tripoli to militias and move of elected parliament to Tobruk left two competing authorities.
- Fighting has caused widespread damage to property and infrastructure, precipitated power, water, fuel and food shortages in Tripoli and across the country.
- Insecurity and lawlessness hamper delivery of cash to commercial banks across Libya.
- Ongoing blockade of oil facilities and infighting have reduced oil output to less than 400,000 barrels per day (bpd), from about 1.7 million bpd in peaceful times.
- GDP contracted by an estimated 24 percent in 2014.
- Prices remained largely unaffected due to predominance of imports in the consumer basket.
- Large fiscal and trade balances of 2012 turned into deficits, including due to the sharp drop in international oil prices.
- Government accounts expected to post a deficit of about 80 percent of GDP in 2015 with current account deficit exceeding 60 percent of GDP.
- Twin deficits expected to reduce official reserves by about US$25-30 billion in 2015 to about 31 months of imports by year’s end.

### LIBYA — Short-term outlook and risks
- Departure of most international oil company personnel and reduction of maintenance and capital investment expected to hurt economic activity this year and in the near-to-medium term.
- GDP projected to drop by another 6 percent this year and to grow by only 2 percent in 2016.
- Under baseline projections:
  - Fiscal deficit expected to remain large at over 60 percent of GDP.
  - Official reserves expected to decline to less than 20 months of imports.
- Government spending expected to decline due to security constraints and be limited to salaries and subsidies.
- Projected deficit expected to be financed from the central bank.
- Inflation, broad money and credit to the economy expected to remain broadly at their current levels due to the slowdown in government spending and non-oil economic activity.
- Worsened security places Libya’s resources, including official reserves and oil revenues, at great risk.
- A few oil facilities remain at the mercy of un-accountable militias.
- Further deterioration leading to state failure or fragmentation would have severe economic consequences for Libya and its neighbors.

### LIBYA — Short-term policy issues and reforms for inclusive growth
- Main priority: bring the ongoing conflict to an end.
- Urgent need to contain current spending and improve the quality of the budget process.
- Reorient public expenditure from wages and subsidies to service delivery, institution building, and investment.
- Improve public finance management, enhancing transparency and efficiency of public spending to restore fiscal sustainability and trust in government.
- Continue to strengthen central bank independence and build capacity at the central bank to improve management of reserves and facilitate financial sector development.
- Necessary to create conditions for diversified, private-sector led growth to move away from total dependency on oil.
- Despite turmoil, steps made to restrain current spending and create space for investment in infrastructure; several energy and transport projects completed in 2013.
- Going forward: focus on enhancing the business environment, upgrading workforce skills through better education and training, fostering financial intermediation, and investment in physical, regulatory and institutional infrastructure, including within a decentralized local framework.

### LIBYA — Selected Economic and Financial Indicators, 2012-16 (exact figures)
- GDP growth, percent: 2012: 10; 2013: 4.5; 2014: -13.6; 2015: -24.0; 2016: -6.1; Est./Proj. 2016: 2.0
- CPI inflation period average, percent: 2012: 6.1; 2013: 2.6; 2014: 2.8; 2015: 8.0; 2016: 9.2
- General government balance, excl. grants (percent of GDP): 2012: 27.8; 2013: -4.0; 2014: -43.5; 2015: -79.1; 2016: -63.4
- Current account balance, excl grants (percent of GDP): 2012: 29.1; 2013: 13.6; 2014: -30.1; 2015: -62.2; 2016: -49.1
- Fiscal financing needs (excl. grants), US$ billion: 2012: 0.0; 2013: 0.0; 2014: 4.0; 2015: 43.5; 2016: 79.1; (next) 63.4
- External financing needs (excl. grants), US$ billion: 2012: 0.0; 2013: 0.0; 2014: 0.3; 2015: 0.1; 2016: 62.2; (next) 49.1
- Public debt: ............
- External debt (percent of GDP): 2012: 6.8; 2013: 8.5; 2014: 13.5; 2015: 18.8; 2016: 20.6
- Reserves in months of imports: 2012: 39.8; 2013: 50.7; 2014: 43.3; 2015: 30.8; 2016: 18.9

---

### MOROCCO — Overview and recent developments
- Macroeconomic indicators have continued to improve.
- Outlook favorable for growth, inflation, fiscal deficit and the external current account, but subject to significant risks.
- Policy priorities: increase fiscal and external buffers; move ahead with reforms to boost competitiveness, growth, employment and inclusion.
- IMF approved in July 2014 a second two-year arrangement under its Precautionary and Liquidity Line (PLL).
- Regional and local elections took place on September 4, 2015. Justice and Development Party (PJD) won most seats in regional councils (25 percent of the total) and control of major cities including Casablanca, Rabat, and Fez. Party of Authenticity and Modernity (PAM) registered 21 percent of the seats in local councils. National parliamentary elections scheduled for 2016.
- Q1 2015 growth rose to 4.1 percent year-on-year, boosted by strong agricultural output and gradual acceleration in other sectors.
- Inflation remained low: 1.7 percent in August.
- Unemployment in Q2 2015 declined to 8.7 percent from 9.9 percent at end-2014.
- Authorities targeting in 2015 a further reduction in the fiscal deficit to 4.3 percent of GDP from 4.9 percent of GDP in 2014; budget execution through July 2015 broadly consistent with this target.
- Trade balance continued to improve through August 2015 largely driven by a lower energy bill.
- Second PLL approved July 2014 with access level US$5.0 billion (first PLL was US$6.2 billion). Authorities do not intend to draw upon PLL resources unless Morocco experiences actual BOP needs due to a significant deterioration in external conditions.

### MOROCCO — Short-term outlook, risks and policy issues
- Growth expected close to 5 percent in 2015, boosted by exceptional cereal production and acceleration in other sectors.
- Growth expected to decelerate in 2016 as cereal production returns to normal.
- Inflation projected to remain low at about 1.5 percent in 2015.
- Current account deficit should continue to improve due to lower global energy prices and rapid development of exports from newly developed sectors.
- Significant risks include:
  - Slower-than-expected growth in advanced country trading partners, lowering growth, export, FDI and remittances.
  - Renewed surge in oil prices could rapidly widen the current account.
  - Sharp increase in global financial market volatility affecting current and financial accounts.
  - Parliamentary elections in 2016 could delay reforms in a volatile regional environment.
- Short-term policy issues:
  - Authorities aim to consolidate gains and ensure continued macroeconomic stability by increasing fiscal and external buffers while advancing reforms to boost competitiveness, growth and employment.
  - Authorities’ plan for fiscal consolidation balances objectives and is supported by reforms (tax, subsidies, pension, and new organic budget law) to strengthen the fiscal framework and reduce fiscal risks.

### MOROCCO — Reforms for inclusive growth
- Employment and labor force participation rates have not increased substantially despite robust growth.
- Unemployment rate declined from more than 13 percent in 2000 to 8.7 percent in June 2015, but remains relatively high, especially among youth:
  - Youth unemployment: 20.5 percent.
  - Urban youth unemployment: 38.6 percent.
- Over the past decade about 1.7 million people moved out of poverty and the poverty rate decreased by more than 40 percent.
- Inequality in access to health services remains high, as does gender inequality.
- Authorities’ reform priorities:
  - Improve business environment, access to finance, governance and judicial system.
  - Implement new national strategy for employment adopted in February 2015 to enhance human capital and improve employment responsiveness to growth.
  - Continue initiatives such as the National Initiative for Human Development and education and health programs for the poorest.
  - Fiscal policies to reduce spending on generalized subsidies to create space for investment and social spending.
  - Recently-initiated decentralization reforms to help reduce disparities amongst regions.

---

### TUNISIA — Overview and recent developments
- Tunisia has maintained macroeconomic stability during the political transition but faces headwinds from increased security threats and social tensions.
- Policy priorities: address high external imbalances, high youth unemployment, and significant regional disparities by improving budget composition, reducing banking sector vulnerabilities, increasing exchange rate flexibility, and advancing reforms to improve the business climate.
- IMF supported Tunisia through a Stand-By Arrangement expected to conclude in December 2015; authorities expressed desire for continued IMF support.
- Over the past four years Tunisia adopted a new constitution and completed democratic transformation with free and fair elections.
- Terror attacks in Sousse and at the Bardo Museum are severely hurting tourism and investor confidence, may shift limited government resources to security and delay policy implementation.
- Growth momentum waned in early 2015: real GDP growth averaged 1.2 percent (y-o-y) for the first semester as manufacturing, tourism, and mining slowed significantly.
- Inflation declining: 4.2 percent (y-o-y) at end August 2015 following lower food and beverage prices.
- External imbalances remain high.
- Exceptional olive oil exports and declining energy imports helped compensate the drop in tourism receipts in H1 2015, narrowing the current account deficit to 4.6 percent of GDP in the first half of the year.

### TUNISIA — Fiscal situation and banking vulnerabilities
- Under-execution of capital spending led to record low public investment of 4.2 percent of GDP in 2014.
- Higher wage bill represented close to 12.7 percent of GDP in 2014.
- Banking system vulnerabilities:
  - NPLs above 15 percent of total loans.
  - Overall solvency ratio stood at 9.5 percent as of March 2015.
  - Solvency expected to improve following recapitalization of two public banks.

### TUNISIA — Short-term outlook, risks and policy issues
- Growth:
  - Projected to slow to 1 percent for 2015 (revised down from 3 percent).
  - Drivers: weak H1 2015 performance, work stoppages in phosphate sector, sharp decline in tourism.
- Inflation:
  - Expected to remain contained at 4.4 percent (y-o-y) at end 2015.
  - Supported by low food and energy prices.
- External sector:
  - Current account deficit expected to narrow marginally to 8.5 percent of GDP in 2015.
  - Factors: drop in tourism revenues and low phosphate exports offset gains from lower energy prices and exceptional olive oil exports.
  - Reserves expected to remain above four months of imports, helped by higher World Bank disbursements and renewed international market access.
- Fiscal:
  - Relief measures for the Sousse attack expected to increase the structural fiscal deficit in 2015 by 0.3 percent of GDP.
  - Wage bill increased to 13.3 percent of GDP in 2015 as a countercyclical measure to reduce social tensions and boost demand.
- Risks:
  - Continued dependence of economic confidence on security improvements; terrorist threats and Libya spillovers (including refugee inflows) are key challenges.
  - Vulnerabilities to a protracted period of slower global growth—particularly from Europe—and surges in global financial volatility.
  - Upside in risks from political instability or social tensions (including union pressures for further wage hikes) could worsen fiscal adjustment composition, delay structural reforms, exacerbate vulnerabilities and lower growth potential.
- Short-term policy issues:
  - Immediate challenge: maintain macroeconomic stability amid increased security threats, high social demands, and weaker growth.
  - Recommended actions:
    - Return to fiscal consolidation in 2016 to reduce financing constraints and contain external imbalances.
    - Prudent monetary policy and greater exchange rate flexibility.
    - Complete banking reforms to reduce external vulnerabilities and rebuild foreign exchange buffers.

### TUNISIA — Reforms for inclusive growth
- Government’s five year economic vision to be finalized ahead of a March 2016 international donor conference; aims to promote stronger and more inclusive growth.
- Key social and labor indicators:
  - Youth unemployment: 35 percent (as of June 2015).
  - Female unemployment: 22.2 percent (as of June 2015), twice the average for men.
  - Female labor force participation: 26.1 percent vs. 69.2 percent for men (as of March 2015).
- Steps already initiated:
  - Reduction of energy subsidies.
  - Finalizing a tax reform strategy promoting more equity and transparency.
  - Launch of public bank recapitalization in line with sound international practices.
  - Adoption of a new competition law.
- Additional recommended reforms:
  - Improve budget composition by containing the wage bill and creating space for higher capital and social spending.
  - Accelerate banking reforms to deepen financial intermediation.
  - Create a more transparent and competitive business climate via a revamped investment code, strengthened bankruptcy framework, and trade facilitation measures.
  - Enhance labor market functioning.
  - Improve governance of public enterprises.
- Technical assistance opportunities: banking, revenue administration, public financial management and expenditure policy.

---

### YEMEN — Background and humanitarian indicators
- Escalation of conflict since early 2015 has major economic impacts: deterioration in exports, reserves, inflation, and growing exchange rate pressures.
- Post-conflict priorities: restore public services, ensure efficient and transparent procurement to facilitate aid delivery, rebuild infrastructure.
- A three-year Extended Credit Facility agreed in 2014 has been put on hold due to security deterioration.
- Humanitarian and displacement indicators:
  - 21 million people estimated to be in need of assistance.
  - Six million deemed severely food insecure.
  - Over 1,439,000 internally displaced people (Internal Displacement Monitoring Center estimate).

### YEMEN — Recent developments and short-term outlook
- Macroeconomic weakening began in late 2014 following sabotage of oil pipelines and drop in investment.
- 2014 specifics:
  - Growth in 2014 estimated to have stagnated.
  - Inflation declined to 8 percent.
  - Reserves coverage about 5.8 months of imports.
  - Fiscal deficit narrowed to about 4 percent of GDP despite decline in oil revenue, reflecting reform progress and forced fiscal adjustment through under-execution of spending.
- First half of 2015 preliminary data:
  - Significant contraction of economic activity.
  - Mounting inflationary pressures due to severe shortages of food and fuel.
  - Exchange rate pressures and declining reserves.
  - Increased government borrowing from the central bank despite under-execution of fiscal spending.
- Unemployment: 17.4 percent as of end-2013 (most recent available data).
- Outlook depends on conflict duration.
- 2015 projection:
  - Economy projected to contract sharply in 2015 due to disruption of economic activity and virtual stop of oil production and exports.
  - Inflation expected to remain high.
  - International reserves coverage expected to drop well below 3 months of imports.
- Conditional recovery scenario:
  - Assuming cessation of conflict by end 2015, recovery of economic activity can start within a year with humanitarian relief and restoration of public services.
  - Fiscal and external positions expected to improve with sufficient international donor support and recovery of hydrocarbon production and exports.
- Donor support critical for budget support to reduce financing pressures and avoid crowding out private sector credit.
- Efficient and transparent procurement framework and coordination of donor and domestic efforts essential for effective external assistance.
- Resumption of pro-growth pro-poor reforms necessary for sustained growth, job creation, and poverty alleviation.

### YEMEN — Risks, post-conflict priorities and reforms
- Main downside risks:
  - Protraction of the conflict.
  - Continued decline in oil prices.
- Additional risks:
  - Difficulty in generating post-conflict reform momentum.
  - Delays in restoring government and financial services hindering economic restart and private sector investment.
- Upside scenarios:
  - Faster conflict resolution, strong donor support, and higher international oil prices would improve the outlook.
- Immediate post-conflict priorities:
  - Contain and begin reversing humanitarian and economic effects of conflict.
  - Restart the economy and restore key public services and government functions.
  - Rebuild infrastructure and rehabilitate oil facilities.
- Critical arrangements:
  - Coordination of donor reconstruction support.
  - Economic policies should build on pre-conflict achievements and target improving tax collection, wage bill containment, removal of ghost workers, and developing a capital spending plan aligned with reconstruction needs and available financing.
- Need for a fuller assessment of post-conflict economic situation to estimate reconstruction, technical assistance and capacity building needs and to design an appropriate macroeconomic framework and reform program.
- Recommended medium- and long-term reforms:
  - Fiscal reforms to reorient the budget to pro-growth pro-poor spending.
  - Rehabilitate the hydrocarbon sector and improve its regulatory framework.
  - Encourage FDI and increase compliance of large tax payers.
  - Put public finances on a sustainable footing to allow increases in Social Welfare Fund transfers to poor and vulnerable groups.
  - Reform the civil service to reduce corruption and enhance public service provision, efficiency, and fairness.
  - Improve the business environment and financial intermediation to spur private sector investment.
  - Strengthen governance and transparency.
  - Capacity building and coordinated technical assistance by external partners required.

### YEMEN — Selected Economic Indicators, 2011 - 2016 (Percent of GDP, unless otherwise indicated)
- GDP growth, percent: 2011 -12.7, 2012 2.4, 2013 4.8, 2014 -0.2, 2015 -28.1, 2016 11.6
- CPI inflation, period average, percent: 2011 19.5, 2012 9.9, 2013 11.0, 2014 8.2, 2015 30.0, 2016 15.0
- General government balance, excl. grants: 2011 -5.7, 2012 -12.4, 2013 -7.8, 2014 -6.8, 2015 -9.7, 2016 -10.1
- Current account balance, excl. grants: 2011 -5.4, 2012 -7.9, 2013 -4.0, 2014 -5.2, 2015 -6.5, 2016 -6.5
- Fiscal financing needs, (excl. grants), US$ billion: 2011 2, 2012 2.0, 2013 4.6, 2014 3.3, 2015 3.2, 2016 3.7, 2017 4.6
- External financing needs (excl. grants), US$ billion: 2011 3, 2012 2.0, 2013 3.0, 2014 1.8, 2015 2.5, 2016 2.6, 2017 3.0
- Public debt: 2011 45.7, 2012 47.3, 2013 48.2, 2014 48.8, 2015 67.0, 2016 60.6
- External debt: 2011 18.6, 2012 17.4, 2013 15.2, 2014 14.3, 2015 18.1, 2016 15.9
- Reserves in months of imports: 2011 3.7, 2012 5.5, 2013 4.8, 2014 5.8, 2015 2.6, 2016 1.3

*Sources: National authorities; and IMF staff calculations.*

### 2016. Net international reserves would remain adequate.

### 2016. Net international reserves would remain adequate.

### Risks
- Risks remain high.
- Most prominent risks relate to an escalation and/or lengthening of the conflicts in Syria and Iraq beyond 2016, which would further weigh on exports, tourism, investor confidence, and FDI.
- Additional refugees would put further pressure on fiscal accounts, infrastructure, and the quality of government services.
- Possible donor fatigue could jeopardize humanitarian assistance, hurting the fiscal and external accounts.
- Other risks include a loss of competitiveness in case of a further U.S. dollar appreciation, a sharp rebound in oil prices, and a prolonged slowdown in key emerging market economies.
- A domestic risk is a loss of momentum in reforms.

### Short-term policy issues
- Continued public sector adjustment, both at the central government and energy sector levels, is needed to put Jordan’s high debt firmly on a downward trend.
- Adjustment should be equitable, protecting the most vulnerable.
- At the central government level: reduce the primary deficit while allowing for an increase in public investment.
- Focus areas: equity-enhancing tax reform, further expenditure savings, tax administration improvements, and public financial management reforms.
- Energy sector: implement the strategy to return NEPCO to cost recovery.
- Monetary policy: remain focused on maintaining the attractiveness of the Jordanian dinar to safeguard reserve buffers.
- Regional humanitarian crisis: additional grants are needed; Jordan cannot alone shoulder this burden.

### Reforms for inclusive growth
- Key obstacles: weaknesses in the business environment, labor markets, and institutions.
- Low scores on business climate indicators, particularly investor protection, contract enforcement, and access to finance.
- Chronic high unemployment, particularly among the youth; female labor force participation among the lowest worldwide.
- Authorities’ measures taken:
  - Passed laws to improve the business climate—including laws on investment and public-private partnerships.
  - Steps to improve access to finance: mobilizing donor support for SME finance; drafting a secured lending law; revisiting the bankruptcy/insolvency law; licensing a credit bureau.
  - In collaboration with the ILO, conducting a review of the National Employment Strategy (NES).
  - Institutional improvements: adoption of a new public investment framework; establishment of a public-private partnership unit in the ministry of finance.
- Recommended priorities going forward:
  1. Expedite cabinet approval of the PPP by-laws and parliament approval of the secure lending and bankruptcy/insolvency laws.
  2. Adopt an action plan with a concrete timeline for the NES.
  3. Prioritize public investment toward maximizing its impact on growth and unemployment.
  4. Make tangible progress toward transparency and accountability.

---

### LIBYA — Background
- Continued conflict is bringing Libya a step closer to fragmentation, with serious consequences for the economy, public finances and official reserves.
- Most important priorities: end the conflict, restore rule of law and unity of the state, and establish transparent and accountable mechanisms for managing Libya’s resources.
- Urgent need to control current spending and improve the quality of the budget process.
- Over time: streamline general subsidies and limit public sector employment to create space for investment in broad growth.
- Fund dialogue with both governments continues, but capacity to provide policy advice and capacity building has been significantly affected by worsened security.
- Clashes since summer of 2014 have cost hundreds of lives and displaced over 250,000 Libyans.
- Fall of Tripoli to militias and move of elected parliament to Tobruk left two competing authorities.
- Fighting has caused widespread damage to property and infrastructure, precipitated power, water, fuel and food shortages in Tripoli and across the country.
- Insecurity and lawlessness hamper delivery of cash to commercial banks across Libya.

### Recent developments
- Ongoing blockade of oil facilities and infighting have reduced oil output to less than 400,000 barrels per day (bpd), from about 1.7 million bpd in peaceful times.
- GDP contracted by an estimated 24 percent in 2014.
- Prices remained largely unaffected due to predominance of imports in the consumer basket.
- Large fiscal and trade balances of 2012 turned into deficits, including due to the sharp drop in international oil prices.
- Government accounts expected to post a deficit of about 80 percent of GDP in 2015 with current account deficit exceeding 60 percent of GDP.
- Twin deficits expected to reduce official reserves by about US$25-30 billion in 2015 to about 31 months of imports by year’s end.

### Short-term outlook
- Departure of most international oil company personnel and reduction of maintenance and capital investment expected to hurt economic activity this year and in the near-to-medium term.
- GDP projected to drop by another 6 percent this year and to grow by only 2 percent in 2016.
- Under baseline projections:
  - Fiscal deficit expected to remain large at over 60 percent of GDP.
  - Official reserves expected to decline to less than 20 months of imports.
- Government spending expected to decline due to security constraints and be limited to salaries and subsidies.
- Projected deficit expected to be financed from the central bank.
- Inflation, broad money and credit to the economy expected to remain broadly at their current levels due to the slowdown in government spending and non-oil economic activity.

### Risks
- Worsened security places Libya’s resources, including official reserves and oil revenues, at great risk.
- A few oil facilities remain at the mercy of un-accountable militias.
- Further deterioration leading to state failure or fragmentation would have severe economic consequences for Libya and its neighbors.

### Short-term policy issues
- Main priority: bring the ongoing conflict to an end.
- Urgent need to contain current spending and improve the quality of the budget process.
- Reorient public expenditure from wages and subsidies to service delivery, institution building, and investment.
- Improve public finance management, enhancing transparency and efficiency of public spending to restore fiscal sustainability and trust in government.
- Continue to strengthen central bank independence and build capacity at the central bank to improve management of reserves and facilitate financial sector development.

### Reforms for inclusive growth
- Necessary to create conditions for diversified, private-sector led growth to move away from total dependency on oil.
- Despite turmoil, steps made to restrain current spending and create space for investment in infrastructure; several energy and transport projects completed in 2013.
- Going forward: focus on enhancing the business environment, upgrading workforce skills through better education and training, fostering financial intermediation, and investment in physical, regulatory and institutional infrastructure, including within a decentralized local framework.

### Libya: Selected Economic and Financial Indicators, 2012-16 (exact figures)
- GDP growth, percent: 2012: 10; 2013: 4.5; 2014: -13.6; 2015: -24.0; 2016: -6.1; Est./Proj. 2016: 2.0
- CPI inflation period average, percent: 2012: 6.1; 2013: 2.6; 2014: 2.8; 2015: 8.0; 2016: 9.2
- General government balance, excl. grants (percent of GDP): 2012: 27.8; 2013: -4.0; 2014: -43.5; 2015: -79.1; 2016: -63.4
- Current account balance, excl grants (percent of GDP): 2012: 29.1; 2013: 13.6; 2014: -30.1; 2015: -62.2; 2016: -49.1
- Fiscal financing needs (excl. grants), US$ billion: 2012: 0.0; 2013: 0.0; 2014: 4.0; 2015: 43.5; 2016: 79.1; (next) 63.4
- External financing needs (excl. grants), US$ billion: 2012: 0.0; 2013: 0.0; 2014: 0.3; 2015: 0.1; 2016: 62.2; (next) 49.1
- Public debt: ............
- External debt (percent of GDP): 2012: 6.8; 2013: 8.5; 2014: 13.5; 2015: 18.8; 2016: 20.6
- Reserves in months of imports: 2012: 39.8; 2013: 50.7; 2014: 43.3; 2015: 30.8; 2016: 18.9

*Sources: National authorities; and IMF staff calculations.*

---

### MOROCCO — Overview
- Macroeconomic indicators have continued to improve.
- Outlook favorable for growth, inflation, fiscal deficit and the external current account, but subject to significant risks.
- Policy priorities: increase fiscal and external buffers; move ahead with reforms to boost competitiveness, growth, employment and inclusion.
- IMF approved in July 2014 a second two-year arrangement under its Precautionary and Liquidity Line (PLL).

### Background
- Regional and local elections took place on September 4, 2015.
- Justice and Development Party (PJD) won most seats in regional councils (25 percent of the total) and control of major cities including Casablanca, Rabat, and Fez.
- Party of Authenticity and Modernity (PAM) registered 21 percent of the seats in local councils.
- National parliamentary elections scheduled for 2016.

### Recent developments
- Q1 2015 growth rose to 4.1 percent year-on-year, boosted by strong agricultural output and gradual acceleration in other sectors.
- Inflation remained low: 1.7 percent in August.
- Unemployment in Q2 2015 declined to 8.7 percent from 9.9 percent at end-2014.
- Authorities targeting in 2015 a further reduction in the fiscal deficit to 4.3 percent of GDP from 4.9 percent of GDP in 2014; budget execution through July 2015 broadly consistent with this target.
- Trade balance continued to improve through August 2015 largely driven by a lower energy bill.
- Second PLL approved July 2014 with access level US$5.0 billion (first PLL was US$6.2 billion). Authorities do not intend to draw upon PLL resources unless Morocco experiences actual BOP needs due to a significant deterioration in external conditions.

### Short-term outlook
- Growth expected close to 5 percent in 2015, boosted by exceptional cereal production and acceleration in other sectors.
- Growth expected to decelerate in 2016 as cereal production returns to normal.
- Inflation projected to remain low at about 1.5 percent in 2015.
- Current account deficit should continue to improve due to lower global energy prices and rapid development of exports from newly developed sectors.

### Risks
- Significant risks include:
  - Slower-than-expected growth in advanced country trading partners, lowering growth, export, FDI and remittances.
  - Renewed surge in oil prices could rapidly widen the current account.
  - Sharp increase in global financial market volatility affecting current and financial accounts.
  - Parliamentary elections in 2016 could delay reforms in a volatile regional environment.

### Short-term policy issues
- Authorities aim to consolidate gains and ensure continued macroeconomic stability by increasing fiscal and external buffers while advancing reforms to boost competitiveness, growth and employment.
- Authorities’ plan for fiscal consolidation balances objectives and is supported by reforms (tax, subsidies, pension, and new organic budget law) to strengthen the fiscal framework and reduce fiscal risks.

### Reforms for inclusive growth
- Employment and labor force participation rates have not increased substantially despite robust growth.
- Unemployment rate declined from more than 13 percent in 2000 to 8.7 percent in June 2015, but remains relatively high, especially among youth:
  - Youth unemployment: 20.5 percent.
  - Urban youth unemployment: 38.6 percent.
- Over the past decade about 1.7 million people moved out of poverty and the poverty rate decreased by more than 40 percent.
- Inequality in access to health services remains high, as does gender inequality.
- Authorities’ reform priorities:
  - Improve business environment, access to finance, governance and judicial system.
  - Implement new national strategy for employment adopted in February 2015 to enhance human capital and improve employment responsiveness to growth.
  - Continue initiatives such as the National Initiative for Human Development and education and health programs for the poorest.
  - Fiscal policies to reduce spending on generalized subsidies to create space for investment and social spending.
  - Recently-initiated decentralization reforms to help reduce disparities amongst regions.

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### TUNISIA — Overview
- Tunisia has maintained macroeconomic stability during the political transition but faces headwinds from increased security threats and social tensions.
- Policy priorities: address high external imbalances, high youth unemployment, and significant regional disparities by improving budget composition, reducing banking sector vulnerabilities, increasing exchange rate flexibility, and advancing reforms to improve the business climate.
- IMF supported Tunisia through a Stand-By Arrangement expected to conclude in December 2015; authorities expressed desire for continued IMF support.

### Background
- Over the past four years Tunisia adopted a new constitution and completed democratic transformation with free and fair elections.
- The country experienced uncertainty, social unrest, and militant attacks but preserved macroeconomic stability.
- Terror attacks in Sousse and at the Bardo Museum are severely hurting tourism and investor confidence, may shift limited government resources to security and delay policy implementation.
- Broad-based coalition provides opportunity to push ahead on reform implementation, aided by policy space from decline in international oil prices and a recovering Europe.

### Recent developments
- Growth momentum waned in early 2015: real GDP growth averaged 1.2 percent (y-o-y) for the first semester as manufacturing, tourism, and mining slowed significantly.
- Inflation declining: 4.2 percent (y-o-y) at end August 2015 following lower food and beverage prices.
- External imbalances remain high.
- Exceptional olive oil exports and declining energy imports helped compensate the drop in tourism receipts in H1 2015, narrowing the current account deficit to 4.6 percent of GDP in the first half of the year.

*Italic: IMF PDF chapter/section "2016. Net international reserves would remain adequate."*

### 5.3 percent of GDP in H1 2014). On the fiscal front, weak budget composition— through under-

### 5.3 percent of GDP in H1 2014). On the fiscal front, weak budget composition— through under-

### Fiscal situation and banking vulnerabilities
- Under-execution of capital spending led to record low public investment of 4.2 percent of GDP in 2014.
- Higher wage bill represented close to 12.7 percent of GDP in 2014.
- Banking system vulnerabilities:
  - NPLs above 15 percent of total loans.
  - Overall solvency ratio stood at 9.5 percent as of March 2015.
  - Solvency expected to improve following recapitalization of two public banks.

### Short-term outlook (Tunisia)
- Growth:
  - Projected to slow to 1 percent for 2015 (revised down from 3 percent).
  - Drivers: weak H1 2015 performance, work stoppages in phosphate sector, sharp decline in tourism.
- Inflation:
  - Expected to remain contained at 4.4 percent (y-o-y) at end 2015.
  - Supported by low food and energy prices.
- External sector:
  - Current account deficit expected to narrow marginally to 8.5 percent of GDP in 2015.
  - Factors: drop in tourism revenues and low phosphate exports offset gains from lower energy prices and exceptional olive oil exports.
  - Reserves expected to remain above four months of imports, helped by higher World Bank disbursements and renewed international market access.
- Fiscal:
  - Relief measures for the Sousse attack expected to increase the structural fiscal deficit in 2015 by 0.3 percent of GDP.
  - Wage bill increased to 13.3 percent of GDP in 2015 as a countercyclical measure to reduce social tensions and boost demand.

### Risks (Tunisia)
- Continued dependence of economic confidence on security improvements; terrorist threats and Libya spillovers (including refugee inflows) are key challenges.
- Vulnerabilities to a protracted period of slower global growth—particularly from Europe—and surges in global financial volatility.
- Upside in risks from political instability or social tensions (including union pressures for further wage hikes) could:
  - Worsen fiscal adjustment composition.
  - Delay structural reforms.
  - Exacerbate vulnerabilities and lower growth potential.

### Short-term policy issues (Tunisia)
- Immediate challenge: maintain macroeconomic stability amid increased security threats, high social demands, and weaker growth.
- Recommended actions:
  - Return to fiscal consolidation in 2016 to reduce financing constraints and contain external imbalances.
  - Prudent monetary policy and greater exchange rate flexibility.
  - Complete banking reforms to reduce external vulnerabilities and rebuild foreign exchange buffers.

### Reforms for Inclusive Growth (Tunisia)
- Government’s five year economic vision to be finalized ahead of a March 2016 international donor conference; aims to promote stronger and more inclusive growth.
- Key social and labor indicators:
  - Youth unemployment: 35 percent (as of June 2015).
  - Female unemployment: 22.2 percent (as of June 2015), twice the average for men.
  - Female labor force participation: 26.1 percent vs. 69.2 percent for men (as of March 2015).
- Steps already initiated:
  - Reduction of energy subsidies.
  - Finalizing a tax reform strategy promoting more equity and transparency.
  - Launch of public bank recapitalization in line with sound international practices.
  - Adoption of a new competition law.
- Additional recommended reforms:
  - Improve budget composition by containing the wage bill and creating space for higher capital and social spending.
  - Accelerate banking reforms to deepen financial intermediation.
  - Create a more transparent and competitive business climate via a revamped investment code, strengthened bankruptcy framework, and trade facilitation measures.
  - Enhance labor market functioning.
  - Improve governance of public enterprises.
- Technical assistance opportunities: banking, revenue administration, public financial management and expenditure policy.

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### VII. YEMEN

### Background
- Escalation of conflict since early 2015 has major economic impacts: deterioration in exports, reserves, inflation, and growing exchange rate pressures.
- Post-conflict priorities: restore public services, ensure efficient and transparent procurement to facilitate aid delivery, rebuild infrastructure.
- A three-year Extended Credit Facility agreed in 2014 has been put on hold due to security deterioration.
- Humanitarian and displacement indicators:
  - 21 million people estimated to be in need of assistance.
  - Six million deemed severely food insecure.
  - Over 1,439,000 internally displaced people (Internal Displacement Monitoring Center estimate).

### Recent developments
- Macroeconomic weakening began in late 2014 following sabotage of oil pipelines and drop in investment.
- 2014 specifics:
  - Growth in 2014 estimated to have stagnated.
  - Inflation declined to 8 percent.
  - Reserves coverage about 5.8 months of imports.
  - Fiscal deficit narrowed to about 4 percent of GDP despite decline in oil revenue, reflecting reform progress and forced fiscal adjustment through under-execution of spending.
- First half of 2015 preliminary data:
  - Significant contraction of economic activity.
  - Mounting inflationary pressures due to severe shortages of food and fuel.
  - Exchange rate pressures and declining reserves.
  - Increased government borrowing from the central bank despite under-execution of fiscal spending.
- Unemployment: 17.4 percent as of end-2013 (most recent available data).

### Short-term outlook (Yemen)
- Outlook depends on conflict duration.
- 2015 projection:
  - Economy projected to contract sharply in 2015 due to disruption of economic activity and virtual stop of oil production and exports.
  - Inflation expected to remain high.
  - International reserves coverage expected to drop well below 3 months of imports.
- Conditional recovery scenario:
  - Assuming cessation of conflict by end 2015, recovery of economic activity can start within a year with humanitarian relief and restoration of public services.
  - Fiscal and external positions expected to improve with sufficient international donor support and recovery of hydrocarbon production and exports.
- Donor support critical for budget support to reduce financing pressures and avoid crowding out private sector credit.
- Efficient and transparent procurement framework and coordination of donor and domestic efforts essential for effective external assistance.
- Resumption of pro-growth pro-poor reforms necessary for sustained growth, job creation, and poverty alleviation.

### Risks (Yemen)
- Main downside risks:
  - Protraction of the conflict.
  - Continued decline in oil prices.
- Additional risks:
  - Difficulty in generating post-conflict reform momentum.
  - Delays in restoring government and financial services hindering economic restart and private sector investment.
- Upside scenarios:
  - Faster conflict resolution, strong donor support, and higher international oil prices would improve the outlook.

### Post-conflict priorities (Yemen)
- Immediate priorities:
  - Contain and begin reversing humanitarian and economic effects of conflict.
  - Restart the economy and restore key public services and government functions.
  - Rebuild infrastructure and rehabilitate oil facilities.
- Critical arrangements:
  - Coordination of donor reconstruction support.
  - Economic policies should build on pre-conflict achievements and target:
    - Improving tax collection.
    - Wage bill containment.
    - Removal of ghost workers.
    - Developing a capital spending plan aligned with reconstruction needs and available financing.
- Need for a fuller assessment of post-conflict economic situation to estimate reconstruction, technical assistance and capacity building needs and to design an appropriate macroeconomic framework and reform program.

### Reforms for inclusive growth (Yemen)
- Medium- and long-term challenges:
  - Achieve and sustain higher inclusive growth.
  - Generate adequate job opportunities.
  - Address high poverty and inequality.
  - Reduce disparities in access to services.
  - Diversify production and export structure.
  - Strengthen institutions.
- Recommended reforms and priorities:
  - Fiscal reforms to reorient the budget to pro-growth pro-poor spending.
  - Rehabilitate the hydrocarbon sector and improve its regulatory framework.
  - Encourage FDI and increase compliance of large tax payers.
  - Put public finances on a sustainable footing to allow increases in Social Welfare Fund transfers to poor and vulnerable groups.
  - Reform the civil service to reduce corruption and enhance public service provision, efficiency, and fairness.
  - Improve the business environment and financial intermediation to spur private sector investment.
  - Strengthen governance and transparency.
- Capacity building and coordinated technical assistance by external partners required.

### Yemen: Selected Economic Indicators, 2011 - 2016 (Percent of GDP, unless otherwise indicated)
- GDP growth, percent: 2011 -12.7, 2012 2.4, 2013 4.8, 2014 -0.2, 2015 -28.1, 2016 11.6
- CPI inflation, period average, percent: 2011 19.5, 2012 9.9, 2013 11.0, 2014 8.2, 2015 30.0, 2016 15.0
- General government balance, excl. grants: 2011 -5.7, 2012 -12.4, 2013 -7.8, 2014 -6.8, 2015 -9.7, 2016 -10.1
- Current account balance, excl. grants: 2011 -5.4, 2012 -7.9, 2013 -4.0, 2014 -5.2, 2015 -6.5, 2016 -6.5
- Fiscal financing needs, (excl. grants), US$ billion: 2011 2, 2012 2.0, 2013 4.6, 2014 3.3, 2015 3.2, 2016 3.7, 2017 4.6
  - (Note: table lists "2 2.0 4.6 3.3 3.2 3.7 4.6" under Fiscal financing needs; presented here preserving the sequence.)
- External financing needs (excl. grants), US$ billion: 2011 3, 2012 2.0, 2013 3.0, 2014 1.8, 2015 2.5, 2016 2.6, 2017 3.0
  - (Note: table lists "3 2.0 3.0 1.8 2.5 2.6 3.0" under External financing needs; presented here preserving the sequence.)
- Public debt: 2011 45.7, 2012 47.3, 2013 48.2, 2014 48.8, 2015 67.0, 2016 60.6
- External debt: 2011 18.6, 2012 17.4, 2013 15.2, 2014 14.3, 2015 18.1, 2016 15.9
- Reserves in months of imports: 2011 3.7, 2012 5.5, 2013 4.8, 2014 5.8, 2015 2.6, 2016 1.3

*Source: National authorities; and IMF staff calculations.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2015/_100815a.pdf_