Why the Arab World Needs an Economic Spring
IMF Blog, May 18, 2012
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- Authors: Nemat Shafik
- Published: May 18, 2012
Political engagement contrasted with economic silence
- Political debate is widespread across the Middle East: "everyone is talking politics—all of the time."
- New political activity includes:
- Constitutions being rewritten.
- Political parties and youth groups becoming vibrant.
- Generational divide:
- Older generation: "worried by the uncertainty associated with change."
- Younger generation: "continues to be energized."
Need for an economic rethink
- Despite political transitions in 2011, economic outcomes in non-oil countries deteriorated:
- "Growth halved."
- "Unemployment rose."
- "Reserves came under pressure."
- "Deficits ballooned as governments responded to social pressures by increasing spending on wages and generalized subsidies."
- New governments face:
- High public expectations for jobs and justice.
- "Limited resources and powerful vested interests."
- Call for an "Economic Spring" to parallel the "Arab Spring" and rethink the region's economic future.
Key policy questions and priorities
- Move from generalized subsidies to targeted support:
- Aim: "free up resources to invest in improving the education system and infrastructure."
- Make tax systems fairer:
- Aim: "so that the poorest can be given a minimum standard of living."
- Boost private-sector job creation to address projected needs:
- Exact target cited: "50-75 million jobs needed in the next decade."
- Concern: "Unfortunately, there is not yet any real discourse about these issues."
External constraints and financing implications
- The region faces a tougher external environment than that faced by Eastern Europe after the fall of the Berlin Wall:
- Contrast with the 1990s: then the world economy was booming, Europe provided a policy anchor through EU membership, and external finance was readily available.
- For MENA today: "None of these conditions are the same" and "resources are limited."
- Implication: "Most of the economic transition in MENA will have to be financed through domestic resources and that means the numbers need to add up."
- Recommendation: "Launching such a debate in the months ahead is essential."
Role of youth, education, and transparency
- The debate "must be indigenous and engage the younger generation whose economic futures are at stake."
- Observations from engagement with students at the American University in Beirut (AUB):
- Students showed "obvious energy and talent" alongside worry about their futures.
- Student concerns included:
- "better access to education."
- "jobs."
- "protecting the environment."
- "the need for transparency in public finances."
- Students queried "how the IMF can help address the many challenges facing the region."
Conclusion and warning
- Without an "Economic Spring" to accompany the "Arab Spring" and ongoing political transitions, there is a risk of failure on both political and economic fronts: "without an 'Economic Spring' ... we risk failure on both fronts."
Why the Arab World Needs an Economic Spring — Nemat Shafik, May 18, 2012