Persistent Stagnation of Arab Economies

Last week a faint breath of optimism could be detected at the annual meeting in Washington of the International Monetary Fund (IMF) and the World Bank Group: nearly all the countries of Europe and North America have in fact recovered from the crisis. Not so our Middle-Eastern neighbours. In terms of growth and employment, 2017 was a bad year for the Middle East and North Africa (MENA). The causes are well-known: the more or less vigorous efforts undertaken by governments to reduce or at least contain their public deficit. But above all the fact that oil prices remain depressed despite a small recovery over the year. Nor are IMF experts very optimistic about the future, the price per barrel should remain at around 50 dollars until 2022. The present tensions due to climate change and warfare should not delude us, they will have only a momentary impact on prices.

Needless to say, the oil-producing countries are the hardest hit. Economic growth is anemic, far below the population surge. Kuwait’s GDP should drop by 2%, Saudi Arabia’s will be near 0. The only exception will be Iran. With the lifting of the sanctions it has taken its rightful place on the oil market and displays an impressive growth rate of 12%! But for how long?

The MENA countries which import their oil are better off, but not by all that much. Since the 2011 revolution, Tunisia has stagnated at around 2% while Egypt, in the middle of a stabilization phase, is scarcely doing better. Morocco is another exception, for while 2016 was an execrable year on account of drought, growth should be around 5% this year due to plentiful rainfall. And finally four war-torn countries in the region (Libya, Syria, Yemen and Iraq) have almost no economy to speak of.

Christine Lagarde, general director of the IMF, has put out a call for action in the North and in the South. Deficits must be reduced, direct taxes must be increased and above all made more progressive. In the MENA region, these play only a minor role in governments’ fiscal capacity, most of which comes from the taxation of household-related consumption and imports. Consequently, revenue and property inequalities are aggravated to an unexpected extent. Lydia Assouad, a student of economist Thomas Piketty (a specialist in these questions) has studied the case of Lebanon using data provided by the Finance Ministry of that country¹. The results are devastating: 1% of the population holds 25% of the country’s income and 40% of all private wealth. And Lebanon is by no means an exception, the distribution of wealth in the Gulf States is comparable if not worse.

The director of the IMF also called for structural measures to be undertaken without delay, for reforms of the institutional and judicial framework of business dealings and for the correction of macro-financial imbalances resulting from the crisis of 2008–2010. None of these recommendations can be put into practice without a multilateral accompaniment. How could the stabilizing program advocated by the IMF in five Arab countries be financed by costly indebtedness alone? This appeal to international solidarity did not have much impact, in any case. The media scarcely mentioned it and the US Secretary of the Treasury, Steven T. Mnuchin, publicly advised Lagarde to mind her own business and worry rather about the salaries of IMF executives, much too high in his view. . .