A Time for Action Finance & Development, December 2017, Vol. 54, No. 4
Countries of the Middle East and North Africa have an opportunity to pursue the reforms needed to ensure prosperity for decades to come
The uprisings of 2011 ushered in a period of unprecedented change in the Middle East and North Africa. While demands for political transformation commanded the world’s attention, those calls were largely motivated by unresolved socioeconomic issues. Demonstrators in the streets of Cairo and Tunis demanding “bread, dignity, and social justice” expressed widely held aspirations for basic economic rights, along with greater prosperity and equity.
Almost seven years later, notable progress has been achieved in terms of public finance reforms. However, these reforms still have a long way to go to reduce disparities in the distribution of wealth within most countries of the region or narrow the development gaps between them. Protracted regional conflicts, low oil prices, weak productivity, and poor governance have inflicted a heavy toll. Growth has not been strong enough to reduce unemployment significantly; a staggering 25 percent of young people are jobless.
As a result, countries in the Middle East and North Africa now face a stark choice between short-term retrenchment and resolute pursuit of the long-term reforms needed to secure their future economic prosperity. Forsaking important economic adjustments needed to strengthen inclusive growth and modernize the state and private sectors would set the region back, possibly for decades. A healthy global economy provides a welcome opportunity to accelerate the pace of reform.
While countries in the region have maintained macroeconomic stability, growth has been far too slow to keep pace with an expanding population, with the result that unemployment is rising. Economic growth has averaged just 3.6 percent a year since 2011, a pace one-third below that of the previous decade (see Chart 1). The overall unemployment rate of 10 percent does not appear alarming, but it ranges from less than 1 percent in Qatar to more than 18 percent in Jordan, and women and youth are disproportionately affected. Maintaining the status quo will only make things worse. The IMF estimates that if growth continues at its post-2011 pace, average unemployment could rise above 14 percent by 2030.
Furthermore, conflicts in Afghanistan, Iraq, Libya, Syria, and Yemen have taken a tragic toll: half a million people are estimated to have died in these conflicts since 2011. In Syria alone, 12 million people have been displaced. The economic impact has been devastating: homes, hospitals, roads, and schools have been damaged or destroyed, with an estimated cost four times the countries’ preconflict GDP. The exodus of refugees from conflict areas is adding considerable pressure to budgets, infrastructure, and labor and housing markets in host countries, such as Lebanon and Jordan. The conflicts have also disrupted trade, tourism, and investment.
Oil-exporting countries, meanwhile, are...