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Introductory Remarks for Long-Term Growth Prospects in the Middle East and Central Asia, By Mitsuhiro Furusawa, Deputy Managing Director, International Monetary Fund
March 22, 2016
As Prepared for Delivery
Good afternoon. I am pleased to welcome you to today’s event. I also would like to express my appreciation of SAIS, particularly Dean Vali Nasr and John Lipsky, for hosting the event and for assembling such an impressive panel of experts.
Today we are launching a paper prepared by staff of the IMF’s Middle East and Central Asia Department on how to raise long-term growth prospects in the region.
This is a very topical issue. A better quality of life, more jobs, opportunities, and inclusiveness were at the heart of the Arab Spring movements, which spread across the Middle East and North Africa in 2011. These issues are also among the underlying causes of conflicts in the region.
Improving long-term growth prospects and living standards in the region has become even more important in recent years, as the region is facing unprecedented challenges.
Conflicts in the region have intensified. They are undermining its long-term economic prospects through a devastating loss of life, massive economic damage, and by forcing large portions of the population to flee abroad. Conflicts are also spilling over across borders, including through refugee flows and by heightening security tensions and damaging economic confidence in the neighboring countries.
The slump in oil prices is also putting at risk the high living standards in the Middle East and North Africa’s oil rich economies. Their growth models have historically relied on oil revenues and government spending as the main drivers of economic activity. As the new oil market reality hit, these models have become untenable. In the coming years, oil revenues will no longer be sufficient for governments to continue to fuel non-oil economic growth and act as the employer of first resort for fast-growing populations. Oil-importing economies are also experiencing negative spillovers from low oil prices, through lower trade, remittances, investment, and financing from their oil-rich neighbors. These spillovers partially offset oil importers’ gains from lower oil prices.
The Caucasus and Central Asia are facing even greater challenges, perhaps the biggest in a generation. The effects of lower oil prices are compounded by spillovers from the recession in Russia, an important trading partner and a source of remittances for many of these countries. As a result, the Caucasus and Central Asia countries are experiencing the most severe economic slowdown since gaining independence 25 years ago.
These recent shocks are taking place against a backdrop of sluggish global growth. Long-term economic prospects in the region’s trading partners have worsened in recent years. In advanced economies, legacies from the global financial crisis, low productivity growth, and unfavorable demographic trends are hampering a more robust pick-up in activity. In addition, the slowdown in China—combined with increasing financial turbulence—is weakening growth prospects, especially for emerging market and developing economies that are connected to China in the global supply chains.
The headwinds to long-term growth prospects of the Middle East and Central Asia region are unlikely to disappear soon. Improving economic prospects has become an urgent priority for the region. This is essential for creating jobs and improving the quality of life and would go a long way to addressing populations’ frustrations.
Governments have already responded by pursuing multifaceted reform agendas. In many countries, political and constitutional reforms have created a foundation for large-scale structural reforms. Large and inefficient energy subsidies across the Middle East and Central Asia are being reduced or eliminated. This is not only helping reduce macroeconomic vulnerabilities, but also freeing up resources. Aware of the need to boost growth, many governments are directing these resources toward growth-enhancing areas, such as infrastructure, education, healthcare, and targeted social assistance.
The IMF and other institutions have been supporting countries in the pursuit of this agenda.
As a strong economic partner for the region, the IMF has been working with countries toward ensuring macroeconomic stability, while fostering sustainable growth and improving living standards. In recent years, we have placed greater emphasis on more inclusive and better distributed growth, as this is critical to achieving these goals.
We have stepped up engagement with the Middle East and Central Asia, providing policy advice, capacity building support, and financing to help countries transform their economies and address negative spillovers from conflicts. These activities have contributed to maintaining macroeconomic stability and avoiding recessions in a challenging economic and political environment. We have also brought together policymakers and stakeholders from across the region to share ideas on topical issues, such as Islamic finance and fairer taxation. Working through these multiple channels, we are supporting the region’s efforts to strengthen policy frameworks and implement the needed adjustment, while catalyzing support from the international community.
The IMF and other international institutions have suggested a wide range of structural reforms to lift long-term economic prospects. We are pleased to report that many countries have already begun moving in this direction. However, in the environment of heightened macroeconomic vulnerabilities, sociopolitical tensions, and security challenges, implementing reforms is often difficult. Careful prioritization is needed to focus efforts on the most critical areas.
The paper we are discussing today attempts to help countries identify the most important reforms—at this juncture—for improving their economic prospects. Advice is tailored to the unique characteristics of various sub-groups of countries within the Middle East and Central Asia. Mr. Ahmed will elaborate on the key messages of the paper shortly.
I hope today’s discussion will help policymakers and other stakeholders across the region in setting out their reform agendas in a way that improves economic prospects for all.
Thank you very much.
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