## EXECUTIVE SUMMARY

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---

### Introduction
- Enhancing public and private investment and ensuring that investment translates into higher growth and employment are long-standing policy challenges in Arab countries.
- Purpose: engage Arab finance ministers on investment and growth issues and the IMF’s role in supporting related policy work.

### Overall trends and diagnosis
- Investment rates in Arab countries have increased over the past couple of decades, reflecting improvements in policies and favorable global conditions.
- Key aggregate observations:
  - Total real investment rates are about "23 percent of GDP".
  - Investment rates have lagged other EMDCs by "about 2 percentage points over 2000–14".
- Recent external shocks raise downside risks to investment, including lower medium-term growth prospects in trade partners, China rebalancing, and possible higher funding costs associated with U.S. monetary policy normalization.
- Conflicts across the region add further investment and growth challenges for directly and indirectly affected countries.

### Private investment: performance and constraints
- Private investment, particularly FDI, has underperformed relative to peers.
- Key patterns and constraints:
  - Private investment rates are lower than in other EMDCs, reflecting high political and economic uncertainty and less conducive regulatory and institutional environments.
  - Firm entry density has been among the lowest globally; wide intra-regional variation with GCC countries featuring an average twice as high as other Arab countries.
  - FDI inflows picked up in the 2000s driven largely by GCC countries but retrenched during the global financial crisis and the Arab Spring; FDI is concentrated in extractive industries and real estate, sectors with limited job creation and productivity spillovers.

### Public investment: patterns and needs
- Public capital spending increased in resource-rich countries during the hydrocarbon price boom but has lagged in oil importers.
- Public investment rates are similar on average to other EMDCs but mask wide regional differences:
  - GCC countries have invested massively in infrastructure.
  - Many non-GCC countries still face large infrastructure gaps and need to scale up public investment.
- IMF staff estimated infrastructure investment gaps:
  - Non-GCC oil exporters: "some 6½ percent of GDP".
  - Oil importers: "about 3 percent of GDP".
- Government spending on education and health has generally lagged that of advanced countries and EMDCs; indicators point to weaknesses in quality of education and health systems relative to countries at similar income levels.

### Implications for growth and employment
- Investment in the region has been less effective at generating growth than in peers.
- Low total factor productivity (TFP) growth has weighed on overall growth performance despite sizable investment efforts.
- Private investment is critical to expanding productive capacity and raising productivity; FDI is important for technology and process diffusion.
- Public investment is highly complementary to private investment—particularly infrastructure and human capital investment—which can catalyze private-sector development and productivity growth.

### Policy and reform priorities (summary)
- Macroeconomic framework:
  - Maintain stable macroeconomic conditions, especially given a more challenging external environment.
  - Prevent crowding out of the private sector and excessive real exchange rate appreciation.
  - Encourage trade openness.
  - Improve access to finance while preserving financial stability.
- Structural reforms to bolster private investment:
  - Improve the business environment and refocus the role of government to bolster private sector dynamism.
  - Attract FDI and foster diversification away from hydrocarbon- and energy-intensive sectors toward sectors that promote sustainable growth and job creation.
- Public investment strategy:
  - Ensure adequate levels of public investment within constrained fiscal spaces and increase public investment efficiency to unlock private-sector growth.
  - In GCC countries, ring-fence critical investment outlays amid large fiscal adjustment needs.
  - Mobilize additional nonhydrocarbon domestic resources and rebalance government outlays away from subsidy and wage bills.
  - Strengthen public investment management to boost growth dividends.

### IMF engagement and proposed work agenda
- MCD proposes stepping up analysis and policy dialogue in two critical areas:
  - (i) Policies and reforms to boost private investment.
  - (ii) Options to generate fiscal space for public investment and reforms to enhance its efficiency.
- Enhanced focus to be reflected in regional surveillance and bilateral engagement, with potential technical assistance.

---

### Investment and growth (Appendix I highlights)
- The correlation between real GDP growth and investment during 2000-14 has been weaker in the Arab world than elsewhere.
- Low TFP growth has been a long-standing impediment to growth in the Arab world; further analysis is recommended on sectoral distribution of private investment to clarify causes.
- Example metric for conflict-affected transitions: In the Arab Countries in Transition (ACTs) alone, an annual average growth rate of well above 6 percent would be necessary to bring unemployment halfway to the average of emerging markets (of about 8½ percent) in five years.

### External environment and implications (scenarios)
- Both oil exporters and oil importers are likely to face less supportive external conditions ahead:
  - Advanced economies’ potential growth seen as durably weaker; doubts about prospects in China and other large EMs.
  - U.S. poised to raise interest rates, entailing higher financing costs in many Arab countries, particularly where exchange rates are linked to the U.S. dollar.
- Oil exporters:
  - Lower oil prices increase need for fiscal consolidation, making it harder for public sector to drive growth and provide jobs.
  - Protecting essential public investment programs and strengthening efficiency is challenging amid fiscal adjustment and rigid current spending.
- Oil importers:
  - Lower oil prices offer short-term relief and an opportunity to spend on growth-enhancing capital expenditures.
  - Slower growth in oil-exporting partners will affect importers via lower trade, remittance, and financial flows, increasing need for reforms to boost competitiveness and attract investment.

### Encouraging effective private investment (specific reforms)
- Reduce uncertainty:
  - Implement predictable policies and regulatory frameworks.
  - Maintain stable macroeconomic environment.
- Lower cost of doing business:
  - Address high inflation, borrowing costs, red tape, distortive tax systems, and compliance costs.
  - Reduce excessive regulations that encourage informal sector expansion.
- Foster competition and market-based pricing:
  - Promote level playing fields, competition, market-based prices (including exchange rate reforms), and institutions that channel resources to most productive uses.

### Financial sector development and trade reforms
- Improve access to finance and capital allocation:
  - Strengthen credit environment, promote financial inclusion (including expanding Islamic finance), develop domestic government debt markets and corporate financing sources.
- Reduce trade restrictions:
  - Tariff and non-tariff barriers remain significant, particularly outside the GCC.
  - Trade between Arab countries accounts for slightly above 10 percent of total trade by countries in the region (compared to some 65 and 25 percent for EU and ASEAN countries, respectively).

### Structural reforms and business climate (country-group priorities)
- GCC: sustain improvements, reduce government influence (SOEs), improve labor market efficiency and education-system capacity, change incentives for nationals to work in private sector.
- Oil-importing countries and other oil exporters: strengthen voice and accountability, government effectiveness, rule of law, anti-corruption; address rigid labor markets, workforce skills, access to credit, legal and regulatory barriers, and investor protections.

### The special case of conflict and post-conflict countries (Box 1)
- Immediate priorities in full-scale conflicts: prevent social and economic collapse by satisfying urgent spending needs (basic public services, infrastructure) while maintaining macroeconomic stability.
- Transition to recovery: restore public services, rebuild institutions, establish effective procurement systems for donor assistance, preserve macro stability, and create an environment conducive for private-sector engagement.
- Resource implications: recovery requires massive external assistance in financing and technical advice.

### Selected infrastructure endowments and human capital indicators (selected figures as reported)
- Density of paved road network, 2005-08 average (km per 1,000 km2 of arable land): 1,128 1,051 2,965 2,179 618 16,907 3,220 467 1,095
- Telephone density, 2014 (fixed and mobile subscribers per 100 people): 100 113 111 124 112 192 95 75 71
- Electricity generating capacity, 2005-08 average (millions of kWh per million people): 0.30 0.92 0.44 0.30 0.40 2.90 0.30 0.31 0.11
- Access to electricity, 2012 (percent of population with access): 96 100 96 84 87 98 75 78 35
- Improved water, 2015 (percent of population with access): 94 97 94 84 75 98 79 92 68
- Improved sanitation, 2015 (Percent of population with access): 75 94 81 78 82 99 67 45 30
- Literacy rate (total in percent of people aged 15 and above): 95 98 92 83 77 94 79 67 60
- Primary completion rate (total in percent of relevant age group) 1/: 105 100 101 89 81 10 68 39 169
- Tertiary school enrollment (percent): 30 55 38 27 20 34 26 21 9
- Life expectancy at birth (years): 74 72 75 71 70 77 68 67 57
- Infant mortality rate, 2014 (per 1,000 live births): 16 19 16 26 24 83 64 35 8
- Incidence of TB (per 100,000 people): 117 67 48 76 54 18 11 31 86

---

### Annex II — Selected country-specific IMF policy recommendations (high-level themes)
- Common macro recommendations:
  - Pursue fiscal consolidation while protecting growth-enhancing public investment; contain wage bills and reform subsidies; mobilize nonhydrocarbon revenues.
  - Where relevant, adopt more flexible exchange rate policies to restore competitiveness and improve foreign exchange availability.
- Public investment management:
  - Improve project selection, budgeting, implementation, monitoring, and ex-post evaluation.
  - Establish medium-term budget or public investment frameworks and strengthen PFM.
- Structural reforms and financial development:
  - Improve business climate (ease of starting a business, contract enforcement, bankruptcy frameworks).
  - Strengthen financial sector supervision, develop domestic debt markets, increase access to finance for SMEs, and enhance financial inclusion.
- Country-specific highlights include:
  - Algeria: contain wage bill; implement subsidy reform; mobilize nonhydrocarbon revenues; eliminate 51/49 ownership rule.
  - Bahrain: gradual fiscal adjustment; preserve capital expenditures; diversify fiscal revenue (introduce CIT and VAT).
  - Iraq: reduce non-oil primary balance; strengthen PFM; liberalize FX market; restructure public banks (Rasheed and Rafidain).
  - Kuwait/Oman/Qatar/Saudi Arabia/U.A.E.: contain current spending growth, strengthen budget and PIM frameworks, deepen fiscal transparency, and pursue diversification and financial-market development.
  - Yemen: reorient spending toward capital and development outlays; enhance transparency; introduce PPPs.
  - Comoros/Djibouti/Egypt/Jordan/Lebanon/Mauritania/Morocco/Sudan/Tunisia/West Bank and Gaza: tailored packages focusing on fiscal consolidation, PIM, monetary and FX arrangements, and comprehensive structural reforms to boost private investment and employment.

*Source: EXECUTIVE SUMMARY and Appendix I excerpt, INVESTMENT AND GROWTH IN THE ARAB WORLD, International Monetary Fund*

### EXECUTIVE SUMMARY __________________________________________________________________________ 3

### EXECUTIVE SUMMARY

### Introduction
- Enhancing public and private investment and ensuring that investment translates into higher growth and employment are long-standing policy challenges in Arab countries.
- The paper takes stock of progress, diagnoses key constraints—particularly in light of less favorable global economic conditions—and identifies areas for further analytical and policy work.
- Purpose: engage Arab finance ministers on investment and growth issues and the IMF’s role in supporting related policy work.

### Overall trends and diagnosis
- Investment rates in Arab countries have increased over the past couple of decades, reflecting improvements in policies and favorable global conditions (including a significant rise in hydrocarbon prices in the early 2000s).
- Nevertheless, on average:
  - Total real investment rates are about "23 percent of GDP".
  - Investment rates have lagged other EMDCs by "about 2 percentage points over 2000–14".
- Recent shocks that weaken the external environment—lower medium-term growth prospects in trade partners, China rebalancing, and possible higher funding costs associated with U.S. monetary policy normalization—raise downside risks to investment.
- Conflicts throughout the region have created additional investment and growth challenges for both directly and indirectly affected countries.

### Private investment: performance and constraints
- Private investment, particularly FDI, has underperformed significantly relative to peers.
- Key patterns and constraints:
  - Private investment rates are lower than in other EMDCs, reflecting high political and economic uncertainty and less conducive regulatory and institutional environments.
  - Firm entry density has been among the lowest globally; wide intra-regional variation with GCC countries featuring an average twice as high as other Arab countries.
  - FDI inflows picked up in the 2000s driven largely by GCC countries but retrenched during the global financial crisis and the Arab Spring; FDI is concentrated in extractive industries and real estate, sectors with limited job creation and productivity spillovers.

### Public investment: patterns and needs
- Public capital spending increased in resource-rich countries during the hydrocarbon price boom but has lagged in oil importers.
- Public investment rates are similar on average to other EMDCs but mask wide regional differences:
  - GCC countries have invested massively in infrastructure.
  - Many non-GCC countries still face large infrastructure gaps and need to scale up public investment.
- Estimated infrastructure investment gaps (IMF staff estimates cited):
  - Non-GCC oil exporters: "some 6½ percent of GDP".
  - Oil importers: "about 3 percent of GDP".
- Government spending on education and health has generally lagged that of advanced countries and EMDCs; indicators point to weaknesses in the quality of education and health systems relative to countries at similar income levels.

### Implications for growth and employment
- Investment in the region has been less effective at generating growth than in peers.
- Private investment is critical to expanding productive capacity and raising productivity (FDI is highlighted as important for technology and process diffusion).
- Public investment is highly complementary to private investment—particularly infrastructure and human capital investment—which can catalyze private-sector development and productivity growth.

### Policy and reform priorities (summary)
- Macroeconomic framework:
  - Maintain stable macroeconomic conditions, particularly given a more challenging external environment.
  - Prevent crowding out of the private sector and excessive real exchange rate appreciation.
  - Encourage trade openness.
  - Improve access to finance while preserving financial stability.
- Structural reforms to bolster private investment:
  - Improve the business environment and refocus the role of government to bolster private sector dynamism.
  - Attract FDI and foster diversification away from hydrocarbon- and energy-intensive sectors toward sectors that promote sustainable growth and job creation.
- Public investment strategy:
  - Ensure adequate levels of public investment within constrained fiscal spaces and increase public investment efficiency to unlock private-sector growth.
  - In GCC countries, ring-fence critical investment outlays amid large fiscal adjustment needs.
  - Mobilize additional nonhydrocarbon domestic resources and rebalance government outlays away from subsidy and wage bills.
  - Strengthen public investment management to boost growth dividends.

### IMF engagement and proposed work agenda
- The IMF’s Middle East and Central Asia Department (MCD) proposes stepping up analysis and policy dialogue in two critical areas:
  - (i) Policies and reforms to boost private investment.
  - (ii) Options to generate fiscal space for public investment and reforms to enhance its efficiency.
- This enhanced focus would be reflected in MCD’s regional surveillance and bilateral engagement, with potential technical assistance from other IMF departments.

*Source: EXECUTIVE SUMMARY, INVESTMENT AND GROWTH IN THE ARAB WORLD, International Monetary Fund*

### Appendix I, Table 2). Notwithstanding significant differences across Arab countries, the region

### _050216 - Appendix I, Table 2). Notwithstanding significant differences across Arab countries, the region

### Investment and growth
- Investment in Arab countries has been less effective in generating growth than in other EMDCs.
- The correlation between real GDP growth and investment during 2000-14 has been weaker than in other parts of the world.
- Relatively low contribution of total factor productivity to potential growth during 2000-14 weighed on overall growth performance despite sizable investment efforts, particularly in GCC countries.
- Low total factor productivity (TFP) growth has been a long-standing impediment to growth in the Arab world.
- Further analysis of the relationship between investment and growth, including of the sectoral distribution of private investment, is recommended to clarify underlying causes of low TFP growth.

### Key challenges ahead
- Enhancing investment and strengthening its impact on growth and employment is a high-priority objective to promote higher standards of living and provide jobs to young and rapidly growing populations.
- Arab countries need to achieve higher sustainable and inclusive growth:
  - Outside the GCC, standards of living have lagged compared to other EMDCs; closing the per-capita-income level gap will require significantly higher growth for several decades.
  - In oil-exporting countries, the challenge is to diversify away from capital-intensive energy sectors and promote sustainable non-oil private sector development.
  - Higher growth is necessary to create jobs across the region given large cohorts of unemployed young people and a large expansion in labor force in coming years.
- Example metric: In the Arab Countries in Transition (ACTs) alone, an annual average growth rate of well above 6 percent would be necessary to bring unemployment halfway to the average of emerging markets (of about 8½ percent) in five years.

### Recent investment and public investment observations
- Private investment levels have remained lower than in other EMDCs, despite some improvement over the past 15 years.
- Volume of (nonhydrocarbon) private investment and productivity gains have largely remained insufficient to address unemployment and sustainably raise standards of living.
- With exception of selected oil exporters, public investment levels have been lower than in other EMDCs.
- More effective and, in some cases, scaled up public investment is critical for encouraging private investment, raising human capital, and fostering higher medium-term growth.

### External environment and implications (scenarios)
- Both oil exporters and oil importers are likely to face less supportive external conditions in the years ahead:
  - Advanced economies’ potential growth is seen as durably weaker (IMF 2015b); doubts exist about prospects in China and other large EMs, dampening external demand.
  - U.S. poised to raise interest rates amid an ongoing recovery, entailing higher financing costs in many Arab countries, particularly where exchange rates are linked to the U.S. dollar.
- In oil exporters:
  - Lower oil prices enhance the need for fiscal consolidation, making it increasingly difficult for the public sector to drive growth and provide jobs.
  - Protecting essential public investment programs and strengthening efficiency is challenging amid significant fiscal adjustment needs and rigid current spending.
- In oil importers:
  - Windfall from lower oil prices offers short-term relief and opportunity to spend on growth-enhancing capital expenditures.
  - Projected slower growth in oil-exporting partners will affect importers through lower trade, remittance, and financial flows, increasing the need for reforms to boost competitiveness and attract investment.

### Policy and reform priorities (overview)
- Maintain stable macroeconomic conditions to raise the contribution of private investment to growth.
- Prevent crowding out of the private sector.
- Avoid excessive real exchange rate appreciation.
- Encourage trade openness.
- Promote development of financial sectors while preserving financial stability.
- Reforms to improve the business environment and refocus the role of government are essential to bolster private sector dynamism, attract FDI, and foster diversification.
- Ensure adequate levels of public investment despite limited or decreasing fiscal space by:
  - Mobilizing additional nonhydrocarbon domestic resources.
  - Rebalancing government outlays away from subsidy and wage bills.
  - Strengthening public investment management frameworks to boost growth payoffs and save financial resources.

### Encouraging effective private investment (specific reforms)
- Reduce uncertainty:
  - Implement predictable policies and regulatory frameworks.
  - Maintain a stable macroeconomic environment.
- Lower cost of doing business:
  - Address policy-related costs: high inflation, borrowing costs, red tape, distortive tax systems, compliance costs.
  - Reduce excessive regulations that encourage informal sector expansion.
- Foster competition:
  - Promote level playing fields and competition to spur efficiency, innovation, and productivity gains.
- Encourage market-based prices and better resource allocation:
  - Promote market-based prices, including exchange rate reforms.
  - Promote institutions that channel resources to the most productive uses.

### Particular areas of attention
- Maintain stable macroeconomic and financial conditions despite a less favorable global economic environment:
  - Overall macroeconomic conditions have improved over the past decade: declining and more stable inflation, lower and more predictable financing costs, steadier growth performance.
  - Some countries have strengthened fiscal frameworks; many oil exporters built up comfortable buffers.
- Avoid crowding out of private investment:
  - Large government financing needs and limited financial sector development have pushed domestic banks to take on significant government exposure, curtailing private sector credit—experienced mainly by oil importers to date.
  - Look out for similar risks in oil exporters if wider fiscal deficits and reliance on domestic financing increase.
  - Prevent payment delays by governments and ensure level playing field in public investment procurement vis-à-vis state-owned enterprises.
- Maintain external price competitiveness:
  - Preference for relatively fixed exchange rate regimes, unfavorable inflation differentials, and U.S. dollar appreciation have led to significant real appreciation and competitiveness erosion.
  - Greater exchange rate flexibility may help firms cope and encourage FDI and domestic private investment; structural reforms to enhance competitiveness remain essential.
- Preserve financial stability:
  - Lower oil prices warrant caution, particularly in oil exporters facing fiscal adjustment, drawdowns on government deposits in banking systems, and growth slowdowns.
  - Risks: lower liquidity and deterioration in asset quality.
  - Policy responses: increase supervisory oversight, strengthen prudential and crisis management frameworks, reduce bank vulnerabilities.

### Financial sector development and trade reforms
- Improve access to finance and capital allocation:
  - Limited financial infrastructure, instruments, and non-bank financial institutions contribute to higher costs of capital.
  - Ongoing reforms: strengthen credit environment, promote financial inclusion (for example by expanding Islamic finance), develop domestic government debt markets and corporate sector financing sources.
  - Deeper, more developed financial sectors are needed to channel savings to profitable investment projects.
- Reduce trade restrictions:
  - Facilitating cross-border trade enhances access to external markets and imported inputs.
  - Despite significant tariff reforms over two decades, tariff and non-tariff barriers remain significant, particularly outside the GCC.
  - Trade between Arab countries accounts for slightly above 10 percent of total trade by countries in the region (compared to some 65 and 25 percent for EU and ASEAN countries, respectively).
  - Facilitating cross-border trade would boost investment, notably FDI; attention needed to avoid marginalization amid large regional trade blocks globally.

### Structural reforms and business climate
- Structural reforms needed to improve business climate; past decade saw some improvements but significant gaps remain:
  - Enterprises face more costly regulatory processes, difficulty accessing credit, weaker investor and property rights protection, and less effective insolvency procedures than counterparts in other regions.
  - Accessing information needed to comply with regulations is challenging, creating an uneven playing field.
  - Governance indicators show room for improvement in voice and accountability, political stability and government effectiveness, regulatory quality, rule of law, and anti-corruption.
  - Labor market efficiency and education quality are concerns in many Arab countries.
  - Foreign investors consider ability to take substantial stakes and repatriate profits; lifting restrictions on foreign ownership and capital flows can significantly impact FDI.
- Reform priorities differ across country groups:
  - GCC:
    - Generally rank highly in business environment indicators; room for progress in enforcing contracts, protecting investors, ease of business registration.
    - Reduce government influence (for example through state-owned enterprises) to lower barriers to entry and increase competition.
    - Improve labor market efficiency and education-system capacity to match private sector skill demands.
    - Change incentives for GCC nationals to work in the private sector (e.g., adjust salary differentials and signal unsustainability of relying on public sector jobs).
  - Oil-importing countries and other oil exporters:
    - Lag in voice and accountability, government effectiveness, rule of law, and anti-corruption.
    - Competitiveness hampered by rigid labor markets, inadequate workforce skills, and regulatory environments less conducive to innovation.
    - Access to credit constraints, burdensome procedures to start businesses, resolve insolvencies, enforce contracts, and lack of investor rights protection.
    - Need to refocus government's role toward enabling private sector development and adopt multipronged business climate reform strategies addressing weaknesses comprehensively.

*Source: INVESTMENT AND GROWTH IN THE ARAB WORLD, INTERNATIONAL MONETARY FUND (Appendix I excerpt).*

### Box 1. The Special Case of Conflict and Post-Conflict Countries

### Box 1. The Special Case of Conflict and Post-Conflict Countries

### Major challenges faced by conflict-affected countries
- Conflicts (internal and interstate) have spread to a growing number of Arab countries in the past decade, with violence having increased substantially in Syria, Iraq, Libya, and Yemen.
- Direct consequences of conflicts include:
  - heavy death toll and dramatic humanitarian impact;
  - widespread damage to infrastructure;
  - large-scale displacement of populations;
  - weakened institutions and rule of law;
  - major losses in investor confidence;
  - sharp contractions in activity in affected areas;
  - depletions of policy buffers;
  - macroeconomic instability.
- Conflicts have significant repercussions on neighboring countries; Lebanon and Jordan, in particular, have faced massive inflows of refugees, creating additional needs for infrastructure and public services, particularly health and education.

### Immediate policy priority in full-scale conflicts
- Prevent social and economic collapse, a difficult balancing act that involves:
  - Satisfying urgent spending needs to maintain basic public services, safeguard infrastructure, and encourage economic activity—often in the face of large revenue and international reserve shortfalls.
  - Maintaining macroeconomic stability to avoid an economic collapse.

### Transition to recovery and reconstruction
- As violence abates and the political situation allows, authorities must shift attention toward recovery and reconstruction with priorities to:
  - Restore key public services, social safety nets, and infrastructure.
  - Rebuild institutions capable of transparently and effectively identifying priorities and implementing reconstruction projects.
  - Establish effective procurement systems to generate critical donor assistance.
  - Preserve—or re-establish—macroeconomic stability and rebuild policy buffers.
  - Create an environment conducive for the private sector given its potential role in reconstruction.

### Resource, capacity, and assistance implications
- Juggling urgent spending, institutional rebuilding, macroeconomic stability, and private-sector engagement in contexts of low capacity and minimal resources will require:
  - Massive external assistance both in terms of financing and technical advice. 

*Source: Box 1. The Special Case of Conflict and Post-Conflict Countries*

### References

### _050216 - References

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### Infrastructure endowments and human capital indicators (selected figures as reported)
- Density of paved road network, 2005-08 average (km per 1,000 km2 of arable land): 1,128 1,051 2,965 2,179 618 16,907 3,220 467 1,095
- Telephone density, 2014 (fixed and mobile subscribers per 100 people): 100 113 111 124 112 192 95 75 71
- Electricity generating capacity, 2005-08 average (millions of kWh per million people): 0.30 0.92 0.44 0.30 0.40 2.90 0.30 0.31 0.11
- Access to electricity, 2012 (percent of population with access): 96 100 96 84 87 98 75 78 35
- Improved water, 2015 (percent of population with access): 94 97 94 84 75 98 79 92 68
- Improved sanitation, 2015 (Percent of population with access): 75 94 81 78 82 99 67 45 30
- Literacy rate (total in percent of people aged 15 and above): 95 98 92 83 77 94 79 67 60
- Primary completion rate (total in percent of relevant age group) 1/: 105 100 101 89 81 10 68 39 169
- Tertiary school enrollment (percent): 30 55 38 27 20 34 26 21 9
- Life expectancy at birth (years): 74 72 75 71 70 77 68 67 57
- Infant mortality rate, 2014 (per 1,000 live births): 16 19 16 26 24 83 64 35 8
- Incidence of TB (per 100,000 people): 117 67 48 76 54 18 11 31 86

Note: Table sources reported as Ianchovichina et al., 2013; and World Bank, World Development Indicators. Footnote: 1/ Number of new entrants into the last year of primary school (regardless of age) divided by the population of children at entrance age for the last year of primary school.

### Macroeconomic environment for private investment (1990–2014) — thematic observations
- Inflation and volatility: Presented series for Inflation (year-on-year percent change) and Inflation standard deviation (normalized by sample average) for periods 1995, 2005, 2014 across aggregates: Arab World, GCC, Oil exporters excl. GCC, Oil importers.
- Real GDP Growth: Simple averages and ±1 standard deviation shown for subperiods 1990-2000, 2001-08, 2009-14 across regional groupings including GCC, Oil exporters excl. GCC, Oil importers, EMDCs.
- Fiscal balances: General Government Balance (Percent of GDP, PPP GDP weighted average) series for 2004–2014 for Arab world, GCC, Oil exporters excl. GCC, Oil importers, EMDCs.
- External debt: External Debt (Percent of GDP) time series 2004–2014 for Arab world, GCC, Oil exporters excl. GCC, Oil importers, EMDCs.
- Reserve assets: Reserve Assets (Months of imports) time series 2004–2014 for Arab world, GCC, Oil exporters excl. GCC, Oil importers, EMDCs.

Notes in charts:
- 1/ Oil importers excludes SOM. Data for IRQ from 2005. Data for SYR to 2010.
- 2/ Aggregates are sums of individual country data divided by sums of dollar-denominated GDP or sums of imports.
- 3/ SAU from 2007.
- 4/ MRT from 2006; excludes WBG.

### Annex II — Country-specific IMF policy recommendations to promote efficient investment in Arab countries (selected countries)
- Algeria
  - Macroeconomic policies: Implement gradual but sustained fiscal consolidation while preserving growth-enhancing public investment. Key components: (1) contain wage bill; (2) implement subsidy reform; and (3) mobilize more nonhydrocarbon revenues (by broadening the tax base, raising certain tax rates, and improving tax administration). Simplify the tax code; eliminate the tax on business turnover. Adopt a fiscal rule to better manage hydrocarbon revenues.
  - Monetary, FX, and financial (stability): Adapt monetary policy to new environment of lower liquidity brought on by the oil price shock. Bring overvalued exchange rate in line with its equilibrium value. Implement reforms to preserve the stability of the banking sector in the face of lower oil prices.
  - Public investment management: Enhance the efficiency of public investment by improving the selection and budgeting process, as well as the implementation and ex-post evaluation of investment projects.
  - Structural reforms — Business climate & Financial development: Streamline administrative procedures related to starting a business, conducting international trade, and paying taxes. Strengthen anti-corruption efforts. Eliminate or rationalizing the so-called 51/49 rule requiring majority Algerian ownership in all investments. Improve access to finance by strengthening competition, enhancing creditors’ rights, modernizing the bankruptcy framework, and improving debt enforcement procedures. Increase sovereign debt issuance to help develop local debt markets. Implement reforms to develop the foreign exchange market (spot and forward).

- Bahrain
  - Macroeconomic policies: Gradual fiscal adjustment to stabilize debt in the medium term; preserve capital expenditures to limit growth impact; retarget subsidies; control wage bill and other current spending; diversify fiscal revenue by introducing CIT and VAT.
  - Monetary, FX, and financial (stability): In context of fixed exchange rate, global interest rates and domestic liquidity supportive of growth. Financial sector in good health; continued vigilance including monitoring retail Islamic banking; enhance crisis preparedness (emergency liquidity assistance for wholesale banks) and keep wholesale banks in systemically important list.
  - Public investment management: Private investment levels need to be increased, including through strategic infrastructure provision and removing bottlenecks in the King Fahd Causeway. Implementation of GCC-funded projects should be accelerated.
  - Structural reforms: Improve competitiveness; eliminate red tape; broaden corporate financing sources by developing sovereign yield curve; enhance access to finance for SMEs (e.g., extending the credit bureau to SMEs).

- Iraq
  - Macroeconomic policies: Short term—adopt a cohesive macroeconomic framework under which there is no financing gap, requiring reduction of the non-oil primary balance. Medium term—strengthen PFM to rebuild fiscal buffers and raise capital spending for reconstruction needs. Continue prudent management of international reserves (including DFI). Maintain commitment to the exchange rate peg.
  - Monetary, FX, and financial (stability): Gradually liberalize foreign exchange market: (1) remove remaining restrictions on current international transactions; (2) abolish multiple currency practices whenever these arise; (3) accept obligations under Article VIII of the IMF’s Article of Agreement. Strengthen AML/CFT and anti-corruption frameworks.
  - Public investment management: Strengthen PIM (World Bank leading).
  - Structural reforms: Improve business environment—remove impediments to business startups, access to credit, enforcement of contracts, and resolution of insolvencies; improve governance and rule of law; amend Investment Law to remove limitations on transfers of investment proceeds; restructure SOEs; diversify the economy away from oil; promote private sector growth and job creation.
  - Financial development: Accelerate restructuring and, if necessary, recapitalization of public banks Rasheed and Rafidain. Deepen financial sector reforms: create level playing field for private banks; open government business to private banks; enact deposit insurance scheme. Improve legislative and institutional frameworks to address AML/CFT concerns.

- Kuwait
  - Macroeconomic policies: Contain current spending and reduce budget rigidities (subsidy and wage bills) to reduce fiscal risks and build buffers. Simplify tax system and introduce business profits tax on net profits of all companies and individuals’ business income (above an exempt threshold).
  - Monetary, FX, and financial (stability): Follow policies to ensure financial stability; establish macroprudential framework and coordinating mechanism; expand macroprudential toolkit; strengthen early warning systems; conduct macro stress tests of banks.
  - Public investment management: Strengthen budget framework, prioritize and improve efficiency of capital spending.
  - Structural reforms: Diversify economy, develop non-oil tradable sector, support employment of nationals in private sector, improve business climate, support SME development.
  - Financial development: Improve liquidity management framework and develop debt markets; modernize restructuring resolution; improve AML/CFT frameworks.

- Oman
  - Macroeconomic policies: Contain current spending growth including subsidies, public sector employment and wages, and defense; fiscal adjustment to reduce fiscal risks and build buffers.
  - Monetary, FX, and financial (stability): Maintain financial stability; deregulate interest rate ceiling on personal loans to increase financial intermediation efficiency.
  - Public investment management: Modernize current budget system, integrate the dual budget, establish medium-term budget framework, and improve PFM system.
  - Structural reforms: Further diversify economy including support to SME sector; enhance education quality; incentives for tradable production and private sector employment including through privatization; remove impediments to physical, legal and business infrastructure, including modernizing the Commercial Companies Law.
  - Financial development: Improve liquidity management framework and market development; development of local debt market.

- Qatar
  - Macroeconomic policies: Gradual reduction in subsidies as part of comprehensive strategy; formulate clear medium-term fiscal objectives aligned to binding annual budget; enhance fiscal transparency and contingency planning; sustained medium-term fiscal consolidation appropriate with sizeable buffers allowing gradual adjustment.
  - Monetary, FX, and financial (stability): Monitor risks of falling liquidity due to oil price drop and rapidly growing credit; enhance early warning system and improve availability of real estate statistics.
  - Public investment management: Public investments under greater scrutiny and subject to a 10-year spending cap; deepen cost-benefit analysis and conduct ex-post assessment of public investment projects.
  - Structural reforms: Simplify business registration; improve contract enforcement; enhance education quality; greater mobility for expatriates to increase productivity and inclusiveness.

- Saudi Arabia
  - Macroeconomic policies: Comprehensive energy price reform; firm control of public sector wage bill; greater efficiency in public sector investment; expand non-oil revenues including introducing VAT and a land tax; set annual budget and expenditure priorities from 5-year national development plan into medium-term budget framework.
  - Monetary, FX, and financial (stability): Current exchange rate peg remains appropriate; reforms to support future move to more flexible regime could include strengthening liquidity management, improving monetary transmission by developing money and debt markets, and improving data on foreign currency exposures of corporates. Formalize macroprudential policy framework and coordination; build on existing use of macroprudential tools in a countercyclical manner.
  - Public investment management: Review project selection, monitoring, and appraisal processes; review existing projects to ensure link to development goals and make additional savings in capital spending budget.
  - Structural reforms: Reorient public spending and strengthen private sector competition to incentivize tradable production; improve availability of finance and insurance for export-oriented firms; improve financial inclusion of expatriate workers; improve SME access to finance; develop domestic government debt market.

- U.A.E.
  - Macroeconomic policies: Gradual fiscal consolidation; rationalize spending (control public sector wage bill and reduce energy subsidies and capital and other transfers); preserve government investments for infrastructure; mobilize extra nonhydrocarbon revenues through new tax measures.
  - Monetary, FX, and financial (stability): Close oversight and continued strengthening of debt management frameworks; ease liquidity management to support credit growth; strengthen banking regulatory and supervisory frameworks; manage GRE balance sheets and upcoming debt repayments actively.
  - Public investment management: Gradual implementation of GRE megaprojects.
  - Structural reforms: Further opening up of foreign direct investment; improve selected areas of business environment; create incentives for entrepreneurship.
  - Financial development: Develop domestic debt markets; ease access to finance for startups and SMEs.

- Yemen (as per discussions under ECF)
  - Macroeconomic policies: Reorient spending in favor of capital and development outlays; facilitate private access to credit through fiscal consolidation.
  - Monetary, FX, and financial (stability): Manage liquidity to maintain moderate inflation; maintain FX stability; enhance confidence in banks through supervisory and regulatory reforms.
  - Public investment management & structural reforms: Enhance transparency and regulatory framework; introduce PPPs; improve public service and delivery; simplify customs and tax assessment and dispute resolution processes; strengthen property rights; address red tape and corruption; rationalize tax exemptions; open new sectors for private participation.
  - Financial development: Develop banking services to support credit.

*Italic: Content unit: _050216 - References (source PDF text provided).*

### Part II. Oil importers (Comoros, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Sudan, Tunisia, West Bank and Ga

### Part II. Oil importers (Comoros, Djibouti, Egypt, Jordan, Lebanon, Mauritania, Morocco, Sudan, Tunisia, West Bank and Gaza)

### Comoros
- Fiscal
  - Mobilize additional domestic revenue to increase fiscal space in support of development, including by freezing the granting of new tax exemptions and expanding the list of large tax payers.
  - Ensure that all revenue and expenditure transactions on behalf of the government are captured in the budget and treasury accounts.
  - Establish a single treasury account for the Union and the island governments.
- Monetary, FX, and financial (stability)
  - Continue to maintain the currency peg in the context of the monetary cooperation agreement with France.
  - Continue strengthening banking supervision, including risk-based supervision.
- Public investment management
  - Investments should focus on sectors with high growth potential (tourism, fisheries, agriculture) and on enhancing human development.
  - Development strategy should be based on realistic macroeconomic assumptions.
- Investment climate
  - Put in place measures to strengthen the business environment, especially in regard to ease of establishing a business and the enforcement of contracts.
  - Take urgent actions to improve the provision of electricity, which currently is an important impediment to doing business.
  - Improve competition in the telecoms sector by allowing a license for a second operator.
  - Develop a viable plan to address difficulties in the postal bank.
- Financial (development)
  - Strengthen the application of existing legislation with respect to relations between commercial banks and clients.

### Djibouti
- Fiscal
  - Implement fiscal reform including: (1)simplifying the fiscal regime; (2) enhancing fiscal equity; (3) improving tax efficiency; and (4) and securing fiscal revenues.
  - Reinforce and multiply fiscal revenue sources in the wake of debt reimbursement after the implementation of big investment projects by:
    - Reducing tax exemptions for the free zone.
    - Abolishing both the current investment codeand the domestic consumption tax on investment goods (and raw materials).
    - Raising the lump sum minimum tax from 1 percent to 1.5 percent.
    - Setting up a system of electronic tax filing and payment.
- Monetary, FX, and financial (stability)
  - The currency board arrangement has served Djibouti well and should be maintained.
  - Reserve buffers are sufficient but need further reinforcing.
  - The central bank’s banking supervision capacity and commercial banks’ risk management capacity require strengthening to enhance financial stability.
- Public investment management
  - The process of projects appraisal, selection, implementation, and valuation should be reinforced.
  - Public capacity to manage the scaling-up of investment requires strengthening.
  - Public debt management capacity requires strengthening.
- Investment climate
  - Improving the business environment by reforming the judicial system to enhance contract enforcement and property rights protection.
  - Lowering the cost of utilities and improving the quality of service delivery.
  - Investing in human capital.
- Financial (development)
  - Enhance financial inclusion and development.
  - Develop microfinance.
  - Strengthen and develop the credit information system.
  - Implementation of the credit guarantee fund for SMEs.

### Egypt
- Fiscal
  - Fiscal consolidation to: (1) support macroeconomic stability; (2) create fiscal space for public investment in a context of high public debt; and (3) stimulate private sector credit.
  - Specific measures: (1) continue energy subsidy reform; (2) implement the VAT; (3) contain the wage bill; and (4)prioritize investment spending.
- Monetary, FX, and financial (stability)
  - Focus monetary policy on containing inflation.
  - A more flexible exchange rate policy focused on achieving a market-clearing rate and avoiding real appreciation would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment.
  - Continue strengthening the regulatory and supervisory framework.
- Public investment management
  - Improve the delivery of public services to enhance the efficiency of investment.
  - Carefully design and monitor projects to limit potential fiscal risks.
  - Prioritize projects contributing to long-term growth, job creation and export potential.
- Investment climate
  - Improve the business climate (investment, bankruptcy, and corporate laws and regulations, as well as access to land).
  - Settle arrears to international oil companies to attract further investment in the hydrocarbon sector.
- Financial (development)
  - Develop the financial sector and enhance financial inclusion.
  - Enhance the secondary market for government securities.
  - Develop mobile payments.

### Jordan
- Fiscal
  - Pursue fiscal consolidation efforts, with a focus on equity-enhancing tax reform and the streamlining of non-priority current spending, while creating the fiscal space for a gradual increase in investment spending. These efforts will reduce the government’s financing needsand help to boost private sector credit.
- Monetary, FX, and financial (stability)
  - While monetary policy will remain anchored to the dollar, monetary policy decisions should be data-driven, taking into account U.S. rates and the risk premium, but also inflation, credit, and growth.
  - The financial sector’s regulatory and supervisory frameworks should be strengthened further, including through amendments to align the CBJ and banking laws with best practice.
- Public investment management
  - The new public investment framework (adopted in March 2015) should be fully implemented, including through the establishment of a public investment management unit at the MoF in charge of making sure that all projects are in line with the new standards set for design, prioritization, implementation, and monitoring.
- Investment climate
  - Fully implement the one-stop shop for investors and the roadmap for enhancing the business climate designed with the WB to specifically improve the doing-business indicators.
  - Adopt the pending by-laws to the investment law, specifically those related to FDI.
  - Implement labor market reforms to address skill mismatches, reform public sector hiring practices and compensation, and increase women’s labor force participation.
  - Improve the quality of public institutions by promoting transparency, accountability, and good governance.
  - Adopt a bankruptcy/insolvency law in line with best practices.
- Financial (development)
  - Fully license a credit bureau.
  - Adopt the secure lending law.
  - Transfer the supervision of the loss-making insurance sector to the central bank.

### Lebanon
- Fiscal
  - Restore primary fiscal surpluses, to place debt on a downward path and arrest an ever-growing interest burden.
  - Increase public investment, by shifting the composition of spending, and increasing taxes in a fair manner.
- Monetary, FX, and financial (stability)
  - The U.S. dollar peg continues to support investor confidence and serve the economy well; reserve buffers should be maintained.
  - Reduce the institutional burden on the central bank, allowing more flexible interest rates and the development of financial markets.
- Public investment management
  - Public investment is low by regional and historical standards, and can be accelerated most efficiently by executing the most productive projects from the existing pipeline of projects for which concessional financing has already been secured.
  - Governance should be improved through more robust PFM.
  - Address Lebanon’s chronic infrastructure deficit, with a particular focus on electricity reform.
  - Passing the framework law for Public Private Partnerships (PPPs) could help mobilize private sector resources for infrastructure investment, though with due attention to possible fiscal risks.
- Investment climate
  - Reform of capital markets should continue. Building on ongoing progress, the authorities should facilitate the transformation of the Beirut Stock Exchange into a joint-stock company, to pave the way for privatization.
- Financial (development)
  - Reform of capital markets and facilitation of Beirut Stock Exchange transformation.

### Mauritania
- Fiscal
  - Fiscal consolidation to: (1) support macroeconomic stability in the context of persistently negative terms-of-trade shocks; (2) create fiscal space to maintain as much as possible the public investment envelope in a context of high public debt; and (3) bolster private sector in investment.
  - Increase taxes on retail fuel prices and orient the windfall toward public investment.
  - Specific measures: (i) revenue measures; (ii) improve tax administration; (iii) energy subsidy reform; (iii) contain the wage bill; (iv) prioritize investment spending; and (v) enhance investment efficiency.
- Monetary, FX, and financial (stability)
  - Develop a monetary framework that focuses on containing inflation.
  - A more flexible exchange rate policy (currently a soft peg vis-a-vis the U.S. dollar) will restrain real appreciation in the context of weaker fundamentals and support competitiveness and private sector development.
  - Reforms in the FX market and elimination of direct sales will allow for a market-determined exchange rate and higher competition.
  - Strengthen financial supervision to enhance the efficiency and resilience of the financial sector to shocks. Incorporate the public development bank into banking supervision.
- Public investment management
  - Improve the efficiency of public investment.
  - Establish a medium-term public investment strategy that identifies infrastructure and social gaps, and priorities and opportunities for private investment.
  - Limit fiscal risks for investment projects executed by public institutions outside the central government.
  - Enhance monitoring of financing of investment projects, including debt.
  - Address shortcomings in the public procurement process to enhance accountability and governance.
- Investment climate
  - Improve the business climate (investment, bankruptcy, and corporate laws and regulations, as well as access to land).
  - Develop a framework for PPP to promote crowding in for private sector.
- Financial (development)
  - Develop the financial sector to more effectively channel savings in ways that promote economic diversification.
  - Mobilize long-term credit for the private sector (collateral policy, savings maturity).
  - Enhance financial inclusion by developing mobile payments and financial literacy.

### Morocco
- Fiscal
  - Gradual fiscal adjustment to anchor public debt ratio-to-GDP in the medium term should be a priority.
  - Broaden the tax revenue base.
  - Reform food and butane subsidies to create additional fiscal space for public investment.
  - Increase efficiency of public spending in education.
- Monetary, FX, and financial (stability)
  - A more diversified Moroccan economy would benefit from more exchange rate flexibility and domestically-focused monetary policy.
  - The adoption of a new central bank law would further strengthen the central bank’s independence.
  - Continue strengthening banking regulation and supervision. The central bank’s resources for banking supervision should be expanded.
- Public investment management
  - Greater efficiency in public sector investment.
  - Allocate adequate competencies to regions and decentralized entities.
  - Speed up payments to contractors and SMEs.
- Investment climate
  - Reduce workforce skill mismatches.
  - Reform restrictive labor regulations.
  - Reduce the inefficiency of government bureaucracy.
  - Improve transparency and address corruption.
  - Unlock the capacity for innovation.
- Financial (development)
  - Facilitate further SME access to finance.
  - Improve oversight of the securities market.
  - Continue to improve financial inclusion.

### Sudan
- Fiscal
  - Fiscal consolidation to restore macroeconomic stability and create space for social spending, including by reducing tax exemptions, improving tax administration, and gradually phasing out subsidies.
- Monetary, FX, and financial (stability)
  - Tightening monetary policy to help lower inflation while strengthening the monetary policy framework; for instance, by expanding Shari’a compliant policy instruments.
  - Greater flexibility in the official exchange rate to reduce the parallel market rate premium, improve the availability of foreign exchange, and eliminate distortions.
  - Strengthening banking supervision, upgrading the regulatory framework, and restructuring weak banks.
- Public investment management
  - Preparing a medium-term fiscal framework to help improve the planning and execution of government expenditure, including public investment.
- Investment climate
  - Improving the business climate by simplifying licensing procedures and cross-border trade (including customs operations).
  - Strengthening the judiciary and upgrading the AML-CFT framework.
- Financial (development)
  - Broadening access to financial services by simplifying procedures for opening accounts, developing and strengthening microcredit institutions, and setting up a credit registry system.

### Tunisia
- Fiscal
  - Growth-friendly fiscal consolidation to: (1) support macroeconomic stability; and (2) create fiscal space for public investment by improving tax collection, containing the wage bill—including through civil service reform—and reducing energy subsidies. That would need to be accompanied with a reorientation of budget composition toward public investment.
  - Specific measures on the tax front include rationalizing exemptions, tax deductions, and the number of tax rates, and ensuring a gradual convergence in onshore and offshore corporate taxation.
- Monetary, FX, and financial (stability)
  - Maintaining a prudent monetary policy to keep inflation low.
  - Increasing exchange rate flexibility through reduced CBT interventions in the FX market and through the introduction of FX auctions. This will help strengthen competitiveness, reduce the current currency overvaluation, and avoid further tightening dinar liquidity.
- Public investment management
  - Improve absorption capacity of public investment, particularly in the interior regions, by revising land rights, improving projects prioritization, and applying decrees of new public procurement law.
  - Improve the reallocation capacity of investment spending from one project to the other in order to maximize total capital spending.
- Investment climate
  - Reforms of the business environment aim at ensuring an even playing field for all investors, improving the transparency of regulations, the effectiveness of institutions for public accountability, and removing stringent regulations.
  - That requires an investment code, a flexible labor market reform, fair and simplified tax reform, and PPPs and bankruptcy laws.
- Financial (development)
  - Financial sector reforms aim at increasing credit access for the private sector, in particular domestic firms.
  - Reforms are focused on restructuring public banks, upgrading the resolution and supervision framework, solving the NPLs through an AMC, and developing a secondary market.

### West Bank and Gaza
- Fiscal
  - Fiscal consolidation to: (1) close fiscal financing gaps and avoid arrears to the private sector; (2) ensure public debt sustainability; and (3) create fiscal space for public investment. Additionally, seek additional donor aid.
  - Specific measures in the short run include: (1) containing the wage bill; (2) further reducing fuel subsidies; (3) increasing government fees; and (4) introducing a tax on dividends.
  - In the medium term: (1) civil service and pension reforms; (2) improve efficiency of health spending (health referrals); (3) exercise better control over payment discipline in the electricity sector, and strengthen generation and distribution systems; (4) improve tax administration; and (5) further reduce tax exemptions.
- Monetary, FX, and financial (stability)
  - Continue strengthening the regulatory and supervisory framework, including for shadow banking. Note that monetary policy in the WBG is influenced by the Bank of Israel, as the WBG does not issue its own currency and uses the new Israeli shekel extensively.
- Public investment management
  - Prioritize projects under the National Development Plan 2014–16.
  - Shift public spending away from consumption toward investment, particularly in infrastructure.
  - Strengthen PFM (improve accounting and reporting, including for arrears; introduce medium-term budgeting; and introduce organic budget law).
  - Seek additional aid based on multiyear commitments.
- Investment climate
  - Improve the business climate (enact secured transactions, competition and new companies laws; make progress with land registration).
- Financial (development)
  - Continue developing financial sector and enhancing financial inclusion, but watch for risks. Develop capital markets, including government securities, money markets, and insurance.

*International Monetary Fund — Part II. Oil importers*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2016/_050216.pdf_