At a meeting in Marseille, France, the Deauville Partnership of industrial and Mideast countries welcomed two new partners—Jordan and Morocco—while Libya participated as an observer. In addition, Kuwait, Qatar, Saudi Arabia, Turkey, and United Arab Emirates joined the Partnership to support the region’s countries going through political and economic transformation. The partnership has also grown and now incorporates nine international and regional financial institutions, including the IMF.
Economic Challenges ahead
In a communiqué, the Deauville Partnership stressed that recent events in the Middle East and North Africa (MENA) region have challenged macroeconomic stability in the near term. In a difficult global environment with heightened financial risks and rising commodity prices, some countries have been experiencing a drop in economic activity, tourism, and investment flows, at a time when they were also faced with increased domestic social pressures due to chronically high unemployment—particularly among the young—and calls for greater freedom and fairer distribution of economic opportunities.
In a note prepared for the meeting, IMF staff projects that fiscal positions will deteriorate as governments continue to expand subsidies, transfers, and public-sector wages to meet higher social demands and reduce unemployment.
“The historical changes under way in the region are a unique opportunity for improved living standards and a more prosperous and inclusive future for the people of the region. But in the short term, they also imply challenging economic times for many MENA countries” IMF Managing Director Christine Lagarde told a press conference.
While increased public spending is necessary to preserve social cohesion, it is important that countries avoid measures that will have adverse long-term fiscal consequences or be difficult to unwind later, the IMF note stated. And better targeting of subsidies and transfers could help free up resources for investments in infrastructure and education and support for the neediest.
At the meeting, the finance ministers of Egypt, Jordan, Morocco and Tunisia each presented their country’s medium-term national strategies for...