Political unrest that swept the Middle East and North Africa (MENA) region paved the way for the long-delayed economic reforms but 2013 will be another difficult year for the countries hit by the upheaval, according to the IMF.
What aggravates the situation is the deteriorating political and social conditions in conflict-battered Syria as they could spill over to neighbouring Lebanon and Jordan, the Washington-based International Monetary Fund said.
“The change that swept through the Arab world in spring 2011 unleashed a new optimism in the region, but many are now asking where the transition is headed,” said Masood Ahmed, Director of the IMF’s Middle East and Central Asia Department.
In a study published in the IMF’s Finance and Development bulletin, he said the transformation in the Middle East presents a historic opportunity for the Arab countries in transition as they rethink not only their political but also their economic systems. While some of these countries have witnessed regime change (Egypt, Libya, Tunisia, Yemen), others are undertaking political reforms from within (Jordan, Morocco).
All of them, Ahmed said, can benefit from broad reforms to create more dynamic and inclusive economies that provide economic opportunity to all segments of society.
“The year 2013 will be another difficult one for the Arab countries in transition. Only moderate economic recovery is in the cards—not enough to generate the jobs needed to meaningfully tackle the region’s substantial unemployment. And the tragic conflict in Syria is leading to a serious humanitarian crisis that is having spillover effects on neighboring countries too, especially Jordan and Lebanon,” he said.
“Important as it is now to focus on maintaining economic stability, it is vital not to lose sight of the more fundamental medium-term challenge of modernizing and diversifying the region’s economies, creating more jobs, and providing fair and equitable opportunities for all. Restless populations’ growing impatience for quick results—in the form of new jobs and better incomes and social conditions—is an incentive for policymakers to proactively introduce changes to the existing economic systems.”
Ahmed said a comprehensive reform programme needs to provide clear goals for the economic transition. He noted that unlike the transformation of Eastern Europe more than 20 years ago, during which many countries turned toward the European Union and its economic model, today’s Arab countries in transition lack what he described as a clear role model for their final economic destination.
“But like oarsmen racing a rowboat, only if people act jointly, driven by a common goal, can they excel….comprehensive economic reforms are needed to change these economies from following a “rent-seeking” model—in which firms aim to prosper from special government privileges or monopoly rights—to one whose guiding principle is the creation of economic value and jobs,” he said.
“But while such transformations produce winners, they also create losers, many of them politically well connected. Such vested interests will fight reform. But during the political upheaval that accompanies the creation of a new order the influence of such interests could be reduced—opening a window to reform.”
Ahmed wrote that national policymakers in the region are clearly responsible for defining their reform agendas, but stressed that the international community can help by offering financing, policy advice, and better market access for the region’s exports.
He noted that the international community has already provided substantial financial assistance. Apart from sizable contributions from bilateral donors, especially the countries of the Gulf Cooperation Council, international financial institutions have committed $18.5 billion since the beginning of the transition, not counting the IMF’s commitment of more than $8 billion to support homegrown economic programs in Jordan, Morocco, and Yemen, he added.
Ahmed pointed out that the Arab countries in transition have long suffered from a “lack of dynamism,” with high unemployment and an inability to generate per capita growth on par with other emerging market and developing economies.
He said that the region’s labor force participation is low, and the responsiveness of employment to growth has been among the most sluggish in the world.
While many of these countries had moved over time to private sector–led systems, government jobs remain much more important than in other regions, he noted.
“The economic vitality that helped lead the transformation in emerging market and developing economies in other regions has been absent in many Arab countries.
To unlock the region’s vast potential, many factors come into play, and the recipe for reform will naturally vary across countries,” he said.
“No doubt, implementing a comprehensive economic reform agenda will be tough, and getting the political economy right will be critical. More than ever, policymakers’ success will depend on listening to all stakeholders’ views when formulating policy agendas—including those whose voices were not heard under previous regimes.”
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