Middle-east Arab News Opinion | Asharq Al-awsat

Opinion: The Middle East needs growth and jobs now more than ever - ASHARQ AL-AWSAT English Archive
Select Page

This fall has brought yet another negative shift in sentiment about the Middle East and North Africa (MENA) region. As the world’s policymakers left Washington after the IMF and World Bank Annual Meetings earlier this month, a somber aftertaste remained. Discussions revolved around three broad themes that will have important ramifications for the MENA region, which call for more efforts to sew together societies that are being torn apart by conflict, social and political tensions, and lackluster economic growth.

The first theme is the changing global economic backdrop: projections for global growth were revised downwards and fresh doubts about the nascent recovery in Europe emerged. This environment does not bode well for many countries in the MENA region, to the extent they were counting on external drivers to lead their fragile economic recovery.

A second important theme for the region centered on oil prices, which have dropped by about 20 percent over the last two months. Higher than expected global oil supply—including from the fast expansion of North American shale oil and the recovery in Libyan oil production—along with renewed concerns about global economic growth and oil demand, have pushed oil prices down to levels not seen since the global financial crisis. This is a major factor for the region. It hurts oil exporters significantly, while only giving moderate relief to the region’s oil-importing countries, many of which are still running high budget deficits and are faced with rising debt levels.

But arguably the most important theme for the region is the prevailing sense that the intensification of conflict and security issues over the summer in places like Gaza, Iraq, Syria, Libya, and Yemen, could be a harbinger of even worse things to come. The conflicts have already taken a huge humanitarian, social and economic toll on the affected countries, and are impacting their neighbors through large numbers of refugees, setbacks to trade and tourism, and declining confidence, all of which weigh on economic activity. Furthermore, there is a sense that the conflicts in Syria and Iraq in particular could have much broader consequences for the region. Policymakers are already wondering whether these conflicts will impact their ability to launch tough but necessary reforms and policy decisions, as the progress of militant groups is affecting the sociopolitical climate throughout much of the region.

In this environment of new headwinds, a renewed focus is needed on policies to support growth and jobs. Medium-term growth prospects, particularly in the oil-importing countries, have been weakening faster than in other regions of the world and remain insufficient to make a dent in the region’s persistently high unemployment. This has to change in order to provide populations with access to economic opportunity, one element that will be key in helping to give hope for the younger generation and limit the further spread of extremism. We have recently released the Middle East and Central Asia Economic Outlook, which discusses key policy elements to support this change.

Particularly across many oil-importing countries, with little policy space for raising overall government spending, spending plans will need to be crafted carefully to support growth and jobs. Many countries have begun phasing out costly, inefficient and untargeted energy subsidies and putting in their place more effective means of social protection. This is a very encouraging trend, yet more progress is needed on both fronts in the period ahead, particularly in terms of building effective social safety nets. The savings from the reform of subsidies and safety nets can in part be applied to higher spending on infrastructure investment, health and education, which bodes well for growth and social inclusion. In part, savings will also need to be applied to rein in fiscal deficits, which among oil-importing countries still run at above 9 percent of GDP and constitute an important vulnerability.

But fiscal policies alone cannot deliver the necessary boost to growth and jobs. Deep economic reforms are needed to generate the jobs needed for a young and growing labor force. Improvements in the business environment, governance, and financial market development can support investment and productivity. Labor market reforms that facilitate hiring and skills-building can lead to more efficient labor allocation, higher compensation, and more rapid job creation. And deepening trade integration would help strengthen countries’ participation in global value chains.

Enacting the necessary reforms will not be easy in the prevailing circumstances. Yet these reforms are necessary to bring about a brighter economic future and ease sociopolitical strains. To support countries’ efforts, the international community needs to be closely involved as well. Scaled-up financing, enhanced trade access, policy advice, and capacity-building will be necessary to ease the burden of near-term adjustment and support countries’ reform agendas. The IMF continues to support the region’s countries both financially and through technical advice and support.

Masood Ahmed

Masood Ahmed

Masood Ahmed is the Director of the Middle East and Central Asia Department of the International Monetary Fund.

More Posts