IMF calls on Arab leaders to act or risk another ‘lost decade’

The IMF has warned that the Arab world risks another “lost decade” if governments do not invest in technology and implement reforms to speed up the recovery of economies that have been hit by the pandemic.

Jihad Azour, director of the Middle East fund, told the Financial Times that governments in the region, which are grappling with dwindling resources, rising debt and rampant youth unemployment, have had to “pull lessons from the past ”.

“After the global financial crisis, it took countries in the region much longer than the average for emerging economies to return to their previous level of growth,” said Mr. Azour, former finance minister of Lebanon. “The risk now is that there are countries that will not be able to return to their 2019 level [of output] until 2022, and some that will not reach it for five years.

Even before the coronavirus epidemic, the region’s poorest oil-importing countries had failed to tackle high poverty rates and unemployment in the decade since social and economic grievances fueled them. Arab uprisings. the the pandemic has exacerbated the problem by shutting down the tourism industry vital to employment and foreign exchange earnings, and damaging other sectors.

Thousands of Tunisians took to the streets last month in protests that echoed the 2011 revolution, as they expressed frustration with unemployment and lack of prospects.

Mr Azour warned: “To accelerate the recovery and avoid a lost decade, work should start now on high-quality investments in green infrastructure and digitization. ”

The short-term priority of governments should be to immunize populations against the coronavirus and to support fragile health systems, he said. Beyond that, governments had to deal with the heavy debt burden and stimulate growth by shifting public spending from unnecessary spending – such as subsidies – to health, education, technology and sectors that have leads to job creation and inclusive growth.

“When we say fiscal consolidation, it doesn’t necessarily mean austerity,” he said. “It can be done by revising the tax system and sharing the burden differently. It’s about focusing state support where it should go.

He continued: “With all the social spending [in the region] it’s still below the level of its competition, which tells you something – that you need to increase it in the right way by spending on education and health and giving it to those in need. ”

Jihad Azour: “When we say budgetary consolidation, it does not necessarily mean austerity” © Karim Sahib / AFP / Getty

Over the past year, public debt levels in the region rose by an average of 5% of gross domestic product for oil importing countries and 10-12% for oil exporters. This poses the challenge for governments to find ways to balance support for economic recovery and debt sustainability given limited fiscal space in their budgets, Azour said.

the pandemic impact has hit both oil importing countries and traditionally more affluent oil exporters who have faced falling crude prices. The economies of the Middle East and North Africa contracted 3.8% in 2020, according to the IMF.

Tunisia, the only Arab country considered to have experienced a successful democratic transition following the Arab uprisings, embodies many of the challenges of economic reform in the shadow of the health crisis.

Its economy contracted by 8.2% in 2020, with increasing poverty and unemployment. Youth unemployment has reached 36.5 percent according to an estimate by the International Labor Organization.

Tunisian officials have hinted they were seeking an IMF loan, but that it would require tough reforms to limit the public sector wage bill, cut energy subsidies and tackle loss-making state-owned enterprises seen as a drain on the budget. .

Analysts stressed that successive governments have been reluctant to implement these reforms and that new pressures from the virus would make the task more difficult.

Mr. Azour declared that the IMF “underlines” the need for a “national dialogue in Tunisia around a social pact to define the priorities of the country”.

He admitted it was more difficult in a constrained environment, but insisted that “the best way is to talk to people to create a national pact, then you share the responsibility and the decision.”

Comments are closed.