Bouazizi’s lament

Two years into the Arab uprisings, the economic situation in the Middle East remains challenging. This week Adnan Mazarei, Deputy Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF), presented the economic outlook for the MENAP region (Middle East, North Africa, Afghanistan, and Pakistan), based on an IMF report released in May.  Afshin Molavi, Senior Research Fellow at the New America Foundation, moderated the discussion. Leila Hilal, Director of the Middle East Task Force at New America, introduced the speakers.

Molavi started by reminding the audience that when Mohammed Bouazizi’s vegetable cart was confiscated, he did not ask for liberty or the downfall of the regime. Instead, Bouazizi wondered how he was supposed to make a living without his cart. Economics have been vital since the beginning of the Arab uprisings. It is essential to examine the future economic outlook in the region. The IMF report attempts to do just that.

Mazarei noted that the IMF predicts real GDP growth in MENAP to average around 3 percent in 2013. This represents a decline from the 2012 average of 4.7 percent. Most of the decline would originate from oil-exporting countries, whose average real GDP growth would decline from 5.7 percent in 2012 to 3.2 percent in 2013. A decline in oil exports, which is due to reduced demand, a growing number of producers, and decreasing investment in oil production would be responsible for diminishing real GDP growth. This would be partially offset by the growth in non-oil sectors among oil-exporters, supported by low global interest rates, consumer spending, and helpful fiscal stances in some countries.

Oil importers in the region are starting from a lower level of GDP growth. In 2012, growth among those countries averaged 2.7 percent. The IMF report claims that political uncertainty, social unrest and the external environment brought down investment and exports, which resulted in lower levels of growth. While those problems persist in 2013, the IMF still predicts an average GDP growth of 3 percent among oil importers. If that occurs, oil-importing and oil-exporting countries would have similar levels of growth this year.

Calling for “cushions” to protect regional populations from low levels of growth, Mazarei claimed that large subsidies have made matters worse in the region. The Middle East is the largest provider of energy subsidies, which reached around $200 billion in 2011, and have increased since. Egypt spends a large sum on subsidies, reaching about 12 percent of its GDP. Many MENAP countries spend more on subsidies than they do on vital programs, such as education. Not only are those subsidies unaffordable, they also disproportionately benefit the affluent members of society. While the IMF calls for reducing subsidies and increasing taxes in the region, Mazarei asserted that economic reforms would be sellable only once hardship is shared. Thus, he called on regional governments to implement comprehensive structural reforms.

During Q&A, Hilal asked whether the IMF recommendations are in fact conditions to provide countries with assistance. She wondered to what extent those conditions are trapping or liberating regional populations. Mazarei responded by saying that the IMF does not pretend its loans are not conditional. However, the IMF tries to tailor policy recommendations to each country based on agreements reached with their governments.

He also expanded on alternatives to the IMF-recommended cuts. Countries in the Middle East could continue with their current spending levels. This would lead to further financial pressure causing defaults, abrupt cuts in payments and subsidies, or printing money to cover deficits, thus leading to high levels of inflation. Instead, the IMF wants governments in the region to implement tailored and gradual reforms. According to Mazarei, the IMF provides remedies in agreement with governments, rather than forcing solutions “down their throats.”

The IMF report does not paint an optimistic picture of economic growth in the Middle East, making life difficult for their populations in the upcoming years. Mazarei asserted that the international community would do what it can to support these countries. But regional governments are the ones in the drivers’ seats. They need to reach consensual agreements with their populations to address corruption, unemployment, and access to opportunities in comprehensive economic reforms.