Arab states look to institutional change to boost growth and jobs

• Author: Yasser Abdih/Ralph Chami
• Position: IMF Institute
• Pages: 30-31

Page 30

The Middle East and North Africa (MENA) region is facing a very rapid prospective increase in its labor force over the next decade and a half, dismal prospects for a large number of young unemployed workers unless the growth of output and jobs can be increased substantially, and the need for institutional reforms to boost growth. These issues were the focus of a high-level seminar entitled "Institutions and Economic Growth in the Arab Countries," organized by the IMF Institute, along with the Arab Monetary Fund, and held in Abu Dhabi, United Arab Emirates, on December 19-20, 2006 (see box). The event attracted high-level government participation- more than a dozen ministers, governors, and their deputies-and scholars and representatives from international institutions and the private sector.

Although economic growth in the MENA region has picked up over the past few years-supported in part by record-high oil prices-the longer-term growth record has been weak. Between 1980 and 2005, annual real per capita GDP growth in the region averaged only 0.5 percent, well below the average annual growth rate of 4 percent in East Asia, and was negative for oil-producing countries. Given the region's relatively strong labor force growth, such growth rates were not sufficient to prevent a sustained rise in unemployment.

A number of papers presented at the seminar argued that the constraints on longer-term growth in the region have been largely institutional. The discussion that followed focused on identifying the mechanisms that could spur a positive and sustained institutional change so that higher growth rates of output and employment could be achieved.

Jobs wanted

High on the to-do list of Arab policymakers is a solution to a demographic time bomb. The region's labor force, which is young and growing rapidly (see table), is forecast to reach 185 million in 2020, about 80 percent higher than in 2000. With current unemployment rates already very high, second only to those in sub-Saharan Africa, the region needs to create close to 100 million new jobs by 2020 to absorb the currently unemployed and the new labor force entrants. This is equivalent to creating as many jobs in the next 15 years as have been created over the past five decades; to achieve that goal would probably require sustained real GDP growth of...