Toward Prosperity for All

• Author: Masood Ahmed
• Position: Director of the IMF's Middle East and Central Asia Department.

You can tell whether a man is clever by his answers. You can tell whether a man is wise by his questions.Â

The change that swept through the Arab world in spring 2011 unleashed a new optimism in the region, but many are now asking where the transition is headed.

The transformation in the Middle East presents a historic opportunity for the Arab countries in transition as they rethink not only their political but also their economic systems. Some of these countries have witnessed regime change (Egypt, Libya, Tunisia, Yemen) while others are undertaking political reforms from within (Jordan, Morocco). All of them can benefit from broad reforms to create more dynamic and inclusive economies that provide economic opportunity to all segments of society.

Toward a guiding vision

The year 2013 will be another difficult one for the Arab countries in transition. Only moderate economic recovery is in the cards—not enough to generate the jobs needed to meaningfully tackle the region’s substantial unemployment. And the tragic conflict in Syria is leading to a serious humanitarian crisis that is having spillover effects on neighboring countries too, especially Jordan and Lebanon.

Important as it is now to focus on maintaining economic stability, it is vital not to lose sight of the more fundamental medium-term challenge of modernizing and diversifying the region’s economies, creating more jobs, and providing fair and equitable opportunities for all. Restless populations’ growing impatience for quick results—in the form of new jobs and better incomes and social conditions—is an incentive for policymakers to proactively introduce changes to the existing economic systems (see “Freedom and Bread Go Together,” in this issue of F&D).

A comprehensive reform program needs to provide clear goals for the economic transition. Unlike the transformation of Eastern Europe more than 20 years ago, during which many countries turned toward the European Union (EU) and its economic model, today’s Arab countries in transition lack a clear role model for their final economic destination. But like oarsmen racing a rowboat, only if people act jointly, driven by a common goal, can they excel.

Comprehensive economic reforms are needed to change these economies from following a “rent-seeking” model—in which firms aim to prosper from special government privileges or monopoly rights—to one whose guiding principle is the creation of economic value and jobs. But while such transformations produce winners, they also create losers, many of them politically well connected. Such vested interests will fight reform. But during the political upheaval that accompanies the creation of a new order the influence of such interests could be reduced—opening a window to reform.

National policymakers are clearly responsible for defining their reform agendas, but the international community can help by offering financing, policy advice, and better market access for the region’s exports. The international community has already provided substantial financial assistance. Apart from sizable contributions from bilateral donors, especially the countries of the Gulf Cooperation Council, international financial institutions have committed $18.5 billion since the beginning of the transition, not counting the IMF’s commitment of more than $8 billion to support homegrown economic programs in Jordan, Morocco, and Yemen. The IMF is also engaged in discussions on financial support for Egypt and Tunisia. More financing is clearly needed, and beyond financing, better trade access and technical policy advice will also be crucial. The economic challenges in the Arab countries in transition extend well beyond the IMF’s expertise...