Modest Share for MENA in Global Economic Recovery

Economy

Cairo – The global economic recovery that has started mid-2016 is gaining mounting power with the accelerating growth in Europe, Japan, China and the US, a by the International Monetary Fund (IMF) has revealed.

IMF warned of possible discontinuity of the global recovery given that some states are not part of it.

Growth in all MENA countries was expected to drop significantly from 5.1 percent last year to 2.2 percent in 2017.

MENA’s economic growth is expected to rebound to 3.2 percent in 2018, according to the IMF.

In its report, IMF pointed that political tension is one of the prominent factors behind some states’ delay in economic recovery, and this tension is centered in several regions including MENA.

It added that if nearly 75% of world economies are growing, more than 25% are not, and this represents a burden on the global growth and a potential source of destabilizing political shocks.

Notwithstanding Libya, because its economic data is unreliable meanwhile, Djibouti is the highest growing since 2017 with up to 7 percent, followed by Morocco, Egypt, Mauritania, and Sudan.

IMF forecast that Kuwait, Yemen, and Iraq will undergo a recession in the annual growth, which reflects the impact of political tension in such countries and the effect of oil prices’ drop in Gulf markets.

Although inflation is usually a phenomenon that accompanies economic recovery, it is not the case in the MENA.

Despite its modest share in growth, it tops the list of high inflation regions according to IMF forecasts (an estimate of 7.1 percent of inflation in that region).

World Bank Vice President: Our Priorities are Education, Promoting the Private Sector

Interview

Washington – IMF and World Bank meetings come at a time when global growth rates are on the rise after almost 10 years of financial crisis, while growth in the Arab region is witnessing a decline due to the drop in oil prices, continuing conflicts, and geopolitical problems.

In his interview with Asharq Al-Awsat, Dr. Mahmoud Mohieldin, Senior Vice-President of the World Bank for Sustainable Development, reviews key issues raised at the 2017 Annual Meetings in Washington, new directions in financing and the means to stimulate the private sector to engage in projects traditionally undertaken by governments, as well as the association of funding with sustainable development goals.

“In 2016, the global growth rate was 3.2 percent and reached 3.6 percent in 2017; next year, it is expected to slightly improve to 3.7 percent,” according to Mohieldin.

However, he noted that international institutions have advised not to rush with optimism about a rising trend in growth rates for several factors, including the spread of “protectionist policies” in trade and investment.

“There are also non-economic factors that have been highlighted in some studies, including the impact of political disturbances and conflicts in some cities, the geopolitical dimensions of some areas and the high cost of fighting terrorism,” the World Bank official said.

As for the Middle East, a recent report by the IMF and the World Bank forecasts growth rates in the region at around 2.2 percent, Mohieldin noted.

He said that next year growth is expected to be close to 3 percent, which means that growth rates in the Arab region are below global growth rates.

“The reasons are varied, either because of issues related to the decline in oil prices of the oil-exporting countries, or to the Arab countries that made gains out of the decline in oil prices and did not compensate for the losses incurred by other countries, in addition to conflicts and crises in a number of Arab countries,” he explained.

Asked about this year’s focus on education, healthcare and the strengthening of the private sector, Mohieldin said that the World Bank has published the World Development Report, which includes a presentation on the education crisis.

He noted in this regard that the current crisis had three dimensions: “First, countries lose much when they do not measure well the outcomes of education. The old system of evaluation based on success and failure is a traditional method. There are international standards for measuring the quality of education and its degree of excellence in some fields, in particular when it comes to applied sciences.”

The second dimension, according to Mohieldin, is the means to make schools an adequate arena for learning.

He underlined the importance of going beyond school buildings by promoting the use of information technology, developing sciences to meet challenges of the present century, and competing with the digital economy that may reduce employment opportunities.

“The third dimension relates to the measures required by a country to invest in education. Not only in infrastructure, but also in human structure, health and nutrition, and there is evidence that malnutrition at early stages affects the child’s capacity to absorb, and thus his ability to work,” Mohliedin explained.

As for the strategy to reinforce the private sector, the World Bank official said: “The World Bank wants to encourage the private sector to undertake projects because any country has a ceiling in its financial portfolio. If the state runs out of funds in private sector projects, this will be at the expense of other vital projects that the private sector cannot or will not provide, such as rural girls’ education projects or rehabilitation projects for the poor. The World Bank will focus heavily on this area in the coming period.”

Asked whether Arab countries have moved towards the new era of technological intelligence and behavioral information and whether they had room for new investments, Mohieldin said: “In my view, Arab countries that were late to catch up with the old technology have a better chance of catching up with the new technology if good investment spending is made; it is important not to be a mere user or consumer, but to acquire the ideas behind this technology.”

IMF Commends Saudi Reforms within Vision 2030

Washington, Riyadh — Timothy Callen, IMF Mission Chief for Saudi Arabia, lauded the reforms implemented by Saudi authorities within Saudi Vision 2030 from “adjusting fiscal policy to the realities of lower oil prices,” enhancing the business environment and increasing transparency.

Callen also praised the kingdom’s permission for women to drive, noting that it is a great step in the field of encouraging recruiting, productivity and women participation in the labor force.

In a news conference on the outcomes of Article IV Consultations with Saudi Arabia and the issuance of Financial Sector Assessment Program (FSAP), lead researcher Mostafa El-Sayed and Timothy Callen asserted that the Saudi authorities succeeded in adopting reforms that led to the decline of the deficit in a high rate.

Saudi Finance Minister Mohammed al-Jadaan welcomed the report that clarifies the positive impact of economic reforms performed by the kingdom within Saudi Vision 2030.

IMF staff commended Saudi Arabia’ efforts to enhance non-oil revenue and welcomed its plan for further energy price reforms. They welcomed recent improvements in the fiscal framework and fiscal transparency, as well as the findings of the Financial System Stability Assessment report that showed banks are well regulated and supervised.

They also mentioned the good progress being made in identifying and removing obstacles to private sector growth, but stressed that increasing the employment of Saudi nationals in the private sector was essential.

According to the report, non-oil growth is projected to pick up to 1.7 percent in 2017. The fiscal deficit is projected to narrow substantially in the coming years. It is expected to decline from 17.2 percent of GDP in 2016 to 9.3 percent of GDP in 2017, and to just under 1 per cent of GDP by 2022.

IMF: Egypt Should Get its $2 Billion Loan Payment after Year-End Review

Egypt will be receiving its $2 billion IMF loan payment after the year-end review, the International Monetary Fund said, but inflation — running at just under 32 percent in August — remains the key risk for stability.

According to Reuters the Fund said in a Tuesday statement that Egypt has made a “good start” to its reform program despite seeking waivers for missing targets in June and a deeper-than-expected currency depreciation.

“Stabilization is already gaining a foothold, and we have seen positive trends,” Subir Lall, IMF mission chief for Egypt, Middle East and Central Asia, said in an online briefing.

“This is a very ambitious program. It takes time to work, but it’s well-calibrated and over the course of this economic program of three years, we should definitely be seeing the payoff.”

Egypt agreed a three-year, $12 billion IMF loan program in November that is tied to sweeping reforms such as spending cuts and tax increases.

They are designed to help revive an economy hard hit by a shortage of foreign currency and investment in the turmoil that followed its 2011 uprising.

In a review since the deal, the IMF said Egypt should receive a third loan installment of around $2 billion after a second check of progress at the end of this year, but indicators pointed to progress and consolidated economic growth.

The IMF has already approved $4 billion in loan installments, most recently releasing $1.25 billion for Egypt.

Inflation, however, reached three-decade highs in July after fuel price hikes under the IMF deal. It has since dipped a bit although high costs have hit many Egyptians hard in the import-dependent state. Since the Egyptian pound was floated last year, the currency has roughly halved in value.

IMF Urges China to Push Harder for More Steel, Coal Capacity Cuts

The International Monetary Fund (IMF) on Tuesday urged China to push for more ambitious targets for its coal and steel industries to cut excess production capacity as Beijing bids to steps up economic reforms.

According to Reuters, a total of 140 million tonnes of steel production capacity and 800 million tonnes of coal capacity – numbers roughly equal to about a tenth of the world’s total output in 2016 – are due to be eliminated over the coming three to five years under existing Beijing plans.

On a global front, the world’s top steel and coal producer, has vowed to launch a campaign to cut excess capacity in various industrial sectors, including coal-fueled power and the construction materials industry, in an effort to cut inefficiencies and tackle pollution.

“The reduction targets are appropriately front-loaded but could be more ambitious,” the IMF said in a statement on Tuesday. The fund’s comments came as part of a broader study of the world’s second-biggest economy.

“Under the current cut targets, crude steel capacity would still be close to 2013 levels and account for nearly half of global capacity by 2018-20 due to previously planned investment,” the IMF said.

The comments came after China released output data on Monday showing producers churned out a record 74.02 million tonnes of cured steel last month – even though July is seen as a low season month as high summer temperatures slow down the construction sector and its demand for steel goods.

Analysts say the output ramp-up at steel mills was likely driven by fat profit margins amid tighter supply and higher prices brought on by capacity cuts already imposed. Some 120 million tonnes of low-tech steel capacity has already been cut.

The US Is the Sick Man of the Developed World

Years Of Economic Decline Leave One Third Of Atlantic City's Resident In Poverty

What do the economists at the International Monetary Fund see when they look at the US? An economy in the midst of a long expansion (“its third longest expansion since 1850”), with “persistently strong” job growth, “subdued” inflation and something close to “full employment.” But also this:

For some time now there has been a general sense that household incomes are stagnating for a large share of the population, job opportunities are deteriorating, prospects for upward mobility are waning, and economic gains are increasingly accruing to those that are already wealthy. This sense is generally borne out by economic data and when comparing the US with other advanced economies.

The IMF then goes on to compare the US with 23 other advanced economies in the Organization for Economic Cooperation and Development.

The overall point is that the US has been losing ground relative to other OECD members in most measures of living standards. 1 And in the areas where the US hasn’t lost ground (poverty rates, high school graduation rates), it was at or near the bottom of the heap to begin with. The clear message is that the US — the richest nation on Earth, as is frequently proclaimed, although it’s actually not the richest per capita — is increasingly becoming the developed world’s poor relation as far as the actual living standards of most of its population go.

This analysis is contained in the staff report of the IMF’s annual “consultation” with the US, which was published last week. Another IMF report released last week, an update to its World Economic Outlook that downgraded short-term growth forecasts for the US and UK, got a lot more attention. But the consultation report is more interesting.

It is interesting not because the IMF economists have turned up shocking new information or have especially amazing ideas for improving the relative position of the US It’s just that as outsiders looking in (yes, outsiders who work in Washington, but still …), they at least offer a different perspective than one hears every day on Capitol Hill. For example:

Income polarization is suppressing consumption (see Alichi et al., 2016), weighing on labor supply and reducing the ability of households to adapt to shocks. High levels of poverty are creating disparities in the education system, hampering human capital formation and eating into future productivity.

What is to be done? Well, the IMF has suggestions, although they seem a little too sweeping to be helpful. Here are some comments on tax reform:

The US personal and business tax system needs to be simpler and less distortionary, with lower tax rates and fewer exemptions. The redesign of the tax system should aim to raise labor force participation, mitigate income polarization and support low- and middle-income households. Given the unfavorable debt dynamics and the resources needed to strengthen the supply side, tax reform ought to be designed to be revenue enhancing over the medium term.

On health care:

Health care policies should protect those gains in coverage that have been achieved since the financial crisis (particularly for those at the lower end of the income distribution). Doing so will have positive implications for well-being, productivity, and labor force participation. This, in turn, will strengthen growth and job creation, reduce economic insecurity associated with the lack of health coverage, and have positive effects for the medium-term fiscal position.

On one of the top priorities of the current US administration, deregulation:

In international comparisons, the US already scores favorably on regulatory barriers to entrepreneurship, trade, and investment. In addition, US-specific research on the evidence of negative economic implications of regulations is scant. Nonetheless, a simplification and streamlining of federal regulations as well as an effort to harmonize rules across states would likely boost efficiency and could stimulate job creation, productivity, and growth.

To sum up:

Reforms should include building a more efficient tax system; establishing a more effective regulatory system; raising infrastructure spending; improving education and developing skills; strengthening healthcare coverage while containing costs; offering family-friendly benefits; maintaining a free, fair, and mutually beneficial trade and investment regime; and reforming the immigration and welfare systems.

OK, right. We’ll take care of all that next week.

What’s interesting to me, though, is that most of these suggestions seem to come with the subtext that other affluent countries have devised approaches in these areas that the US would do well to emulate. I got into economic journalism in the mid-to-late 1990s, when the US was outperforming most other rich economies and policy makers in France, Germany, Japan and elsewhere were looking to New York, Washington and Silicon Valley for ideas on how to spur growth and dynamism.

The US still seems to hold a big advantage over the rest of the world (although China has made some inroads) in birthing and nurturing the global corporate titans of the digital age, which has to be worth something. It also, by the IMF’s reckoning, has a relatively healthy financial system. But on all sorts of other matters — taxation, labor markets, health care, education — the US has become more a cautionary tale than a shining example.

One major difference between the US and most of the rest of the developed world is ideological: People and politicians in the US are much more ambivalent about the modern welfare state than their peers in other wealthy nations and have been less willing to raise taxes to finance it. A report from the IMF or an opinion column by the likes of me isn’t going to change a lot of minds on that. Perhaps in part because otherwise their economies would have collapsed under the weight of all that welfare-state generosity, though, other wealthy countries also seem to have figured out better, more cost-effective ways of raising revenue, providing education, helping the jobless, fighting poverty, and keeping citizens healthy than the US has. This country has some catching up to do.

(Bloomberg)

IMF Says Japan Needs to Step Up Economic Reforms

Cherry blossoms are in full bloom in front of the Bank of Japan headquarters in Tokyo April 10, 2012.

The International Monetary Fund said on Tuesday that despite Japan’s accelerating economy, further structural reform is needed to finally leave behind years of on-off deflation

The IMF highlighted concerns over price movements and public debt as it noted the mixed record of Prime Minister Shinzo Abe’s growth plan dubbed Abenomics.

Abe swept back to power in late 2012 on a pledge to reignite the world’s third largest economy and the scheme’s mixture of huge monetary easing, government spending and reforms has stoked a stock market rally and fattened corporate profits.

But there has been growing criticism about the plan’s muted impact on the wider economy.

Consumer spending remains tepid and the Bank of Japan has struggled to lift inflation despite years of aggressive monetary easing, although Japan’s prospects have been boosted recently on the back of strong exports and investments linked to the Tokyo 2020 Olympics.

The IMF’s latest forecast published in July sees Japan’s economy growing 1.3 percent this year thanks to a continued pickup in trade and temporary fiscal support.

“The economy has expanded at a pace above potential the last five consecutive quarters, and unemployment has fallen to record low levels,” the IMF said in a summary of its annual review of Japan’s economy released Tuesday Tokyo time.

“However, inflation, public debt sustainability, and growth objectives remain to be secured,” it said.

“Abenomics has improved economic conditions and engendered structural reforms but has not yet achieved a durable exit from deflation,” it said.

The Bank of Japan last month once again delayed its timetable for hitting its target of two percent inflation. It now expects to achieve the objective in the year to March 2020.

Officials had in 2013 originally set a two-year timeline when unveiling the bank’s massive monetary easing program as part of Abe’s push to kickstart growth.

“The reform agenda should prioritize structural measures aimed at facilitating reflation (particularly labor market reforms to boost wages), followed by policies to lift potential growth,” the IMF said.

Trump, Hariri Tackle Lebanese, Regional Affairs

Prime Minister Saad al-Hariri meets with a delegation from the US Senate in Washington

Beirut – Lebanese Prime Minister Saad al-Hariri is scheduled to meet on Tuesday in Washington with US President Donald Trump to discuss a number of issues concerning Lebanon, including the fight against terrorism and the support to the Lebanese Army, in addition to the new financial sanctions that the US Administration intends to impose on Hezbollah and the means to avoid their impact on the country’s banking system.

On the second day of his visit to Washington, Hariri met with Administration officials and members of the Senate and Congress, with whom he tackled the situation in the country and the region, efforts to counter terrorism and Lebanon’s aspirations with regards to international and US support at this critical stage, which sees the Army fighting terrorist groups along the Lebanese borders.

Hariri also met on Monday with the Lebanese staff at the World Bank and the International Monetary Fund (IMF).

In remarks on the occasion, the prime minister said: “Lebanon, as you know, is living a small miracle in a burning region. We were able to reach a kind of agreement to preserve the country especially that we see what is happening in Syria, Iraq and other Arab countries.”

“My only concern is to preserve Lebanon, try our best to protect its stability and improve the economy”, he added.

He stressed the need to promote partnerships with the World Bank in order to create job opportunities and to work on investment plans for the country’s infrastructure.

Meanwhile, Future Bloc MP Amin Wehbi underlined the importance of Hariri’s visit to the US, noting that it “indicates Lebanon’s central position in all international policies”.

“We study objectively and responsibly the importance of the role of Lebanon, in light of chaos sweeping many countries around the world,” he stated.

Meanwhile, sources said that the US Congress would soon adopt a new legislation to impose sanctions against Hezbollah.

In this regard, Lebanese Minister of Social Affairs Pierre Bou Assi said that Hezbollah was part of the Iranian system.

“After a big absence of the administration of former President Barack Obama from the Lebanese arena and the Middle East, President Donald Trump’s Administration came to settle things,” he stated.

IMF Sees Firmer Global Economic Recovery

The global economic recovery is steadily moving to the better as improving growth in China, Europe and Japan offset downward revisions for the United States and Britain, the International Monetary Fund said Sunday.

“The recovery in global growth that we projected in April is on a firmer footing; there is now no question mark over the world economy’s gain in momentum,” IMF chief economist Maurice Obstfeld said.

However, wage growth remains sluggish which risks increasing tensions that have pushed some countries toward more anti-global policies, while efforts to erode financial regulations put in place since the 2008 crisis could erode stability, the IMF warned.

Presenting the latest update of the World Economic Outlook (WEO), he said “recent data point to the broadest synchronized upswing the world economy has experienced in the last decade.”

The fund still expects the global economy will grow by 3.5 percent in 2017 and 3.6 percent in 2018, the same as in the April WEO.

However, the unchanged forecast masks some significant revisions, including in the United States where the IMF downgraded its growth estimate last month after judging that spending plans promised by President Donald Trump that had been expected to provide a boost to the economy were stuck in limbo.

The US estimate was cut to 2.1 percent for this year and next, down 0.2 points and 0.4 points, respectively, from the more optimistic forecast in the last report.

The outlook for the British economy also was revised down by 0.3 points to 1.7 percent this year on weaker-than-expected activity in the first quarter, while the impact of Brexit “remains unclear.”

But those downward revisions were offset by the improving outlook in key economies, including the euro area where growth prospects have improved in France, Germany, Italy and Spain.

The euro area now is projected to see economic growth of 1.9 percent this year and 1.7 percent in 2018.

Japan also is seeing improved growth prospects, with an expansion of 1.3 percent this year expected, although that is seen slowing sharply to 0.6 percent in 2018.

Meanwhile, China continues to be a major engine of global growth, expanding by 6.7 percent this year, and 6.4 percent next, driven by economic policies in Beijing.

The forecast for 2017 was revised up by 0.1 percentage point, “reflecting the stronger than expected out turn in the first quarter” which the IMF said was underpinned by Beijing’s “supply-side reforms.”

The 0.2-point upward revision for 2018, however, was the result of the expected delay in the “needed fiscal adjustment,” which could cause risks down the road.

China’s “higher growth is coming at the cost of continuing rapid credit expansion and the resulting financial stability risks,” Obstfeld warned in his prepared statement.

But within the mostly upbeat forecasts, the IMF once again sounded the warning on the growing anti-global sentiment, which could leave all economies worse off.

That has been fueled in part by the fact the benefits of increased growth have not been broadly shared.

“Even as unemployment is falling, wage growth still remains weak,” Obstfeld said.

That “not only holds back the improvement of living standards, but also carries risks of exacerbating social tensions that have already pushed some electorates in the direction of more inward-looking economic policies.”

While the report does not specify any country, it comes amid Brexit talks and the Trump administration’s continuing focus on “America first” policies, including cutting bilateral trade deficits and backing away from free trade agreements.

Obstfeld said, “Strengthening multilateral cooperation is another key to prosperity.”

Tunisia Mulls to Restructure Banking Sector

Tunisia- The Tunisian Central Bank has focused on restructuring the country’s banking sector during a forum organized on reforms for public banks, restructuring them and guaranteeing their financial integrity without losing them to privatization.

The forum’s attendees discussed how to accelerate the pace of these reforms.

Over the past years, Tunisia has witnessed a growing debate concerning the government’s possession of three big banks suffering from financial crises.

A solution supported by international institutions like the World Bank and the International Monetary Fund (IMF) suggested to sell those banks to the private sector. However, the Tunisian government had a different view, as it has sought to pump funds of 900 million dinars ($360 million) to save those banks and restore their performance.

The three public banks have recaptured some of their financial glories, which was shown in last year’s figures.

However, their contribution in boosting the Tunisian economy was disappointing and didn’t reflect decisive results concerning the financial reform process.

In this context, a consultant to the finance ministry Moez Al-Obaidi, who attended the event organized by the Tunisia Central Bank, said that the acceleration of the reform pace aims to reduce the burdens of the government intervention to rescue banks who suffer from problems, and especially the public ones.

During its visit to Tunisia, the IMF recommended a structural reform of the national economy, along with the reform of the financial and banking sector by committing to privatization of public institutions and banks.

However, according to national experts in the financial field, the IMF tackled the reasons behind the deficit in public institutions and the growing deficit in the government’s budget.