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Arab Countries in Transition Economic Outlook, Key Challenges, Fund Engagement London School of Economics June 28, 2013 The bottom line The problems Weak global environment Political and social pressures Economic challenges at home Need for policy package Declining fiscal and foreign exchange buffers Short-term stabilization Growth that is too low to reduce unemployment Medium-term plan for jobs and growth Need for support from international community 2 Weak global environment Recession in the Euro area.... (Real GDP growth, percent) ...and continuation of high commodity prices (Index; 2005=100) 300 2012 2013 World Euro Area MENA 3.2 -0.6 4.8 3.3 -0.3 3.1 Food Crude oil 250 200 150 100 2014 4.0 1.1 3.7 50 2005 Sources: IMF, World Economic Outlook (April 2013). 3 2007 2009 2011 2013 2014 Political and social pressures Government stability is low... ...and uncertainties persist 12 EGY JOR LBY MAR TUN YMN 2013 Jan-13 Jul-12 Nov-11 Oct-13 Feb-14 <9 months 4 years <2 years 11 Elections 10 9 8 Higher risk Horizon of current government Egypt Morocco Planned constitutional reforms 7 6 5 2007 08 Jordan Tunisia 09 Libya Yemen 10 11 12 Source: The PRS Group, International. 4 ✔ 4 years <9 months <1 year ✔ ✔ Economic challenges at home ...and low levels of confidence¹ Spillovers from Syria... 150 Turkey: 325K Lebanon: 456K (Index, cross-country averages; 2008:Q4=100) Iraq: 142K Syria 125 Bond and loan issuance Net foreign direct investment Tourist arrivals 100 75 Jordan: 448K Egypt: 62K Total outside Syria: 1.4 million Internally Displaced: about 4 million 50 25 0 Dec-08 Dec-09 Dec-10 Sources: Dealogic; Haver Analytics; UNHCR, Internal Displacement Monitoring Centre; and UNWTO, World Tourism Barometer. ¹Includes Egypt, Jordan, and Tunisia. 5 Dec-11 Dec-12 Declining fiscal and foreign exchange buffers High and increasing fiscal deficit and debt... ...and low and declining foreign reserves (2010 vs. April 2013, or latest available) (Percent of GDP, 2010 vs. 2012) 12 50 Fiscal deficit Billions of U.S. dollars Egypt 9 6 Yemen Morocco 3 0 Jordan 40 50 30 Morocco 20 Jordan Tunisia 10 Yemen Tunisia 30 Egypt 40 0 60 70 80 90 Total government debt 2 3 4 5 Months of imports Sources: National authorities; and IMF staff calculations. 6 6 7 Growth that is too low to reduce unemployment ... but very high levels of (youth) unemployment Modest GDP growth... (Latest available date, percent) 6 35 Youth unemployment (percent) ACTs (excl. Libya), in percent 5 4 3 2 1 0 2010 Jordan 30 25 2012 2013 2014 Central and SouthEastern Europe (non-CIS) and CIS 20 South-East Asia 15 and the Pacific Egypt ACTs Developed economies and EU Morocco Latin America and the Caribbean Yemen Sub-Saharan Africa World 10 East Asia 5 2011 Tunisia Libya 4 6 8 10 12 14 Total unemployment rate (percent) Sources: ILO, national authorities; and IMF staff calculations. 7 16 The policy packages: short-term stabilization... Need for fiscal consolidation... ...means subsidy and safety net reforms ACTs: Already agreed reforms* Fiscal deficit 7 (Percent of GDP) 12 6 10 2012 1.6 2013 5 8 4 6 6.1 2 4 0.5 Net savings: 1.1% of GDP 5.0 1 2 0 (Impact on subsidy levels, percent of GDP, cross-country averages) 0 EGY JOR¹ MAR TUN Before reforms YMN Sources: National authorities; and IMF staff calculations. ¹Includes transfers to the electricity company. *Excluding Libya. 8 Reform effort Compensatory measures After reforms ...and medium-term plan for jobs and growth Financial sector soundness 1.1 million more people unemployed than in 2010 1.3 million new entrants into job market since 2010 Fiscal policy Strengthen statistical base Monetary policy Business climate/ governance Labor market/ education Access to finance 9 Better safety nets Socially inclusive growth and jobs Trade integration Need for support from international community Four priorities... ... and IMF involvement Trade access / FDI Calling on MENA’s partners to improve trade access and encourage FDI Financial support* (2013 gap ~ $42 billion) 3 programs in place; negotiations with Egypt and Yemen Policy advice Policy advice and outreach across the region Capacity building, including on public financial management, banking supervision, statistics Capacity building support * Total official disbursements between January 2011 - February 2013 were $31 billion, of which 39% came from the GCC and 21% from IFIs. 10 The bottom line The problems Weak global environment Political and social pressures Economic challenges at home Need for policy package Declining fiscal and foreign exchange buffers Short-term stabilization Growth that is too low to reduce unemployment Medium-term plan for jobs and growth Need for support from international community 11