The political transitions in the Arab world have created an opportunity for economic transformation. The political landscape is changing and new stakeholders have become active, while old vested interests standing in the way of reform may have been weakened. This setting provides a historic opportunity to rethink the economic reform agenda and tackle longstanding economic issues that were previously difficult to approach.
Nevertheless, three years after the onset of political transition in the Arab world, managing the transitions and implementing necessary economic policies has proven to be challenging. The Arab Countries in Transition (ACTs), including countries that have undergone regime change (Egypt, Libya, Tunisia, Yemen) and those that have engaged in transformation under existing regimes ( Jordan, Morocco), have progressed along their transition paths.
Governments with limited horizons and mandates, institutional uncertainty, and socioeconomic tensions have been hindering, to varying degrees across countries, the focus on the economic transformation agenda. At the same time, challenges in economic management have intensified, as external and domestic economic conditions have been complex, policy buffers are running low, and economic growth is insufficient to bring down the ACTs’ high unemployment. In this setting, countries are at a critical juncture: prudent economic management, paired with bold reform efforts to create an enabling environment for private sector–led growth, will be needed to safeguard the promise of the Arab transitions for better living conditions, higher and more inclusive growth, and job creation on a meaningful scale.
The ACTs have been facing a number of longstanding economic challenges.
Well before the beginning of the transitions in 2011 in economic growth per capita and integration into the world economy they were lagging behind other emerging market and developing countries (EMDCs), and there was a perceived lack of competition in domestic markets. Unemployment in the ACTs was high, running at more than double the average rate of EMDCs, and youth unemployment was among the highest in the world.
They were well-connected, while others felt marginalized. Many countries carried substantial public debt, and some were running high fiscal deficits. The ACTs’ tendency to limit movements in their exchange rates helped provide an anchor for inflation but also constituted an important source of vulnerability.
The private sector has lacked the dynamism needed for sustained job creating growth. It has been stifled by government intervention: complex and burdensome business regulation has constrained economic activity and enabled corruption; state-owned enterprises and public banks have often been dominant players in their sectors but have tended to operate inefficiently, leading to fiscal slippages and capital misallocation; and lack of a level playing field between public and private enterprises, as well as among private enterprises, has limited competition and innovation.
Source: IMF
