Turmoil to have long-term impact

The current political upheaval sweeping the Arab world will have long-term effects on regional countries which should intensify reforms to ensure prosperity for all citizens, a top Arab economist has said.

 

Despite the willingness of Western countries to help revolt-hit Arab nations, regional governments should embark on measures to counter the adverse impacts of unrest and choose a suitable new economic system, said Jassim Al Manai, chairman of the Abu Dhabi-based Arab Monetary Fund (AMF).

 

During a lecture at the Jordanian society in the capital on Saturday, Manai believed such measures must include a revision of the government subsidy system, which he said benefited the rich more than the poor.

 

He said unrest is sweeping the Arab region at a time when most Arab nations are struggling to recover from the 2008 global fiscal crisis while many of them are still suffering from a downturn in stocks and real estate, a decline in remittances, reluctance of banks to provide credit and deterioration in financial deficits.

 

“The current unrest will affect all Arab countries…these effects will be in the short, medium and long run,” said Manai, a Bahraini.

 

“These events should prompt regional states to step up reforms and revise many of their fiscal and economic measures…I just wonder what economic system they would adopt this time after their experiences in communist, free and other types of economic systems failed…Arab countries need to take a host of measures to stimulate their economies, attract capital and facilitate business.”

 

Manai, whose institution is affiliated to the Cairo-based Arab League, said Arab countries were still far lagging behind in investment as they remain at the bottom of the “ease of doing business” index of the International Monetary Fund.

 

“They need to take several measures and procedures to upgrade themselves on global indices about investment and ease of doing business,” he said.

 

“As part of reforms in the long-term, Arab governments should also seriously consider revising their subsidy policies so they will be accessible only to those who deserve them…present subsidies theoretically target all citizens but they are actually reaching only those with high income.”

 

For example, he added, the biggest beneficiary from petrol subsidy are the rich on the grounds they have luxury cars which consume more petrol while the main beneficiary from power subsidies are the owners of big houses and farms not those who live in small housing units.

 

Manai said he hoped political changes in the Arab region would not negatively affect economic reforms, adding that without such reforms regional economies would continue to suffer from major problems, including unemployment, low growth, poverty, and poor investment.

 

He said that short-term effects on the region include the loss of jobs by hundreds of thousands of Arab citizens, the disruption of many public establishments, a sharp decline in tax and tourism revenue, widening budget deficits and a weakening in the local currency. He said this would normally push national central banks to use part of their reserves to support the local currency.

 

Another adverse impact is that many local companies suffer from losses and this means they will not be able to pay back debt, prompting banks to take more provisions at the expense of their net earnings, Manai said.

 

Some conflict-hit Arab countries have also been downgraded by global credit agencies and this makes it costlier for them to borrow, he added.

 

Manai criticized the IMF over what he described as the “very negative” role it had played in recent years by relying on GDP growth in its evaluation of the real economic and living standard situation in member states.

 

“The IMF has just discovered its mistaken policy and decided to take into consideration the social conditions in its assessment of economies…these former fixed laws have prevented the IMF from tackling economic problems.”