Mideast Needs More Focus on Inclusive Growth—IMF

Popular protests could unleash greater long-term growth potential in region

More transparency, competition will help Egypt, Tunisia leverage their strengths and create jobs

Governments in region are increasing fiscal spending in response to unrest

In an interview with IMF Survey magazine, Ahmed said that the events in Egypt will clearly have a negative economic impact in the short run, but over the longer term they can position Egypt to better exploit its potential to achieve higher standards of living and employment for all sections of its population.

Speaking on events in Tunisia, Egypt, and across the Middle East, Ahmed said that, partly in response, authorities in the region have announced an increase in fiscal spending, in some cases preemptively and as large as 3 percent of GDP. These include higher food and fuel subsidies, social transfers, including to the unemployed, tax reductions on staple commodities, higher funding for private housing and an expansion of civil service employment or salaries. Following is the full text of the interview.

IMF Survey online: What is the economic outlook for Tunisia, and what can be done to promote inclusive growth and job creation?

Ahmed: The recent events brought into sharp focus the need for more inclusive growth and better governance, but it is important to recognize that the Tunisian society has enduring strengths. In the short run, tourism and foreign direct investment (FDI) will certainly decline and this will have negative spillovers on the rest of the economy, including on the financial sector. The government is well aware of these issues and is working towards mitigating the impact on the population. Going forward, however, and to recognize the full potential of the Tunisian economy, there will be a need for programs to enhance job-creating and inclusive growth, and to design a well-targeted social safety net that would protect the most needy, especially in difficult times.

IMF Survey online: How will the Egyptian economy be affected by recent developments?

Ahmed: Let me preface this by noting that while the economic and daily life of Egyptians is beginning to return to normality, events are still unfolding and it is very early to make any firm assessment of the economic impact.

The recent popular protests and the associated political uncertainty will have a negative economic impact in the short run, but over the longer term they can position Egypt to better exploit its...