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Cliccate per modificare il formato del testo della struttura Secondo livello struttura Terzo livello struttura Quarto livello struttura Quinto livello struttura Sesto livello struttura Settimo livello struttura Ottavo livello struttura Nono livello strutturaClick to edit Master text styles Second level IMF Regional Economic Outlook – The Levant Third level Dr. Fabio Fourth level Scacciavillani Director of Macroeconomics and Statistics DIFC Authority Fifth level 25th May 2010 Cliccate per modificare il formato del testo della struttura 11 A Rosier Picture • Not long ago, this region was typically associated with unrest, civil strife and outbursts of violence • In the economic area little was changing, as the countries were trapped in a cycle of suffocating government red tape, bureaucracy, low growth, poverty and chronic dependence on foreign aid • Awareness that the situation would not be sustainable and the emulation of other emerging markets led to a change of attitude in policy making The Common Thread The long wave of reforms Liberalization of key sectors Opening to foreign capital Scrapping of subsidies Financial sector reforms Security stabilization, notably in Lebanon Resilience to the global crisis despite weaker exports Fiscal woes Credit and FDI plunge Future challenges Further structural reforms Regional Integration Institutional Capital Impact from the global crisis • Contagion came through 3 channels: • Credit markets => credit crunch • Commodity prices • Trade disruption • None of these factors was powerful enough to derail the long term effects of reforms although the flight to quality after Lehman hit EM bonds (Lebanon was the exception) • Lebanon and Syria barely felt any impact, the former mostly through external trade, the latter benefited from the end of the political stalemate • Egypt and Jordan (the worst hit) through tourism, FDIs, remittances and donors’ grants Misty outlook: Reforms Cycle - Deepening and Widening • Productivity needs to be boosted while benefits from reforms need to be distributed evenly • Upgrading Hard Infrastructure Transport Electricity Sanitation • Improving Soft Infrastructure Health Education Social Security Fiscal Policy: Quantity and Quality • Fiscal prudence (except in Lebanon) in the past years left some room for maneuver in the face of the crisis, but this room is shrinking • In the Levant fiscal positions have been hit by the crisis • • Lower transfers form donors • Lower tax revenues • Lower FDI Structural shortcomings and the quality of expenditures • Between 2005 and 2009 Jordan doubled its defense expenditures, 50% increase in pension outlays and civil servant wages; 50% increase in infrastructure • Analogous story in Syria for pensions and wages (but defense budget subdued) • Over the same period, Egypt almost doubled wages and salaries, purchases of goods and interest payments • In Lebanon serious questions on the sustainability of the current fiscal burden might arise given that interest payments are almost half of expenditures Spreading the wave • One way to spread the benefits of growth is to swollen the ranks of government employees • Waste • Thicker red tape or worse if salaries are meager • Crowding out in labor market • A better way would be to improve productivity and attract investments => from current to capital outlays Capacity and Resources Constraints Institutional Capital The paradigm of capital and labor is outdated: Capital does not flow to economies with lower stock where its productivity would be higher (Lucas’ Paradox) Physical capital is attracted by higher return/risk ratio Risk is measured as a combination of economic risk and political risk i. protection of property rights, ii. enforcement of contracts, iii. independence of the judiciary, iv. protection against partial or total expropriation, v. clarity in the regulations which materially affect the return vi. labor market rigidity, regulatory clarity, vii. unambiguous decision making process, viii. last but not least, corruption among officials Stalled reforms can have dire effects Data weakness • In Lebanon data on GDP components for 2006 and 2007 were released in early 2009. GDP for 2009 is still not available • Public finance data in the region are generally opaque and not complying with international best practices • What can be done? • Leaving blank the tables in the Statistical Appendix as a signal that data are not reliable • Refusal to conclude the Art. IV consultation • Assigning a rating to statistical data quality (e.g. AAA, A+, BB-) • Restricting access to IMF and World Bank financing Thank You!