LSE Public Lecture: "Middle East and North Africa Regional Economic Developments and Outlook" (28 June 2013)

Overview

This episode, hosted by the LSE Film and Audio Team, features Masood Ahmed (Director, Middle East and Central Asia Department, International Monetary Fund) presenting an in-depth analysis of the economic situation in the Middle East and North Africa (MENA) region, with a particular focus on Arab countries in transition post-Arab Spring. The lecture explores structural challenges, macroeconomic vulnerabilities, policy dilemmas, and the roles of both national and international actors in shaping recovery and growth.

Key Discussion Points and Insights

1. The MENA Region: Divergence Between Oil Exporters and Importers

• Oil Exporters:
  • Enjoy robust financial health, with current account surpluses and large reserves.
  • "Their challenges are more medium-term...how do you create jobs for nationals?" [02:40]
  • Dependency on expatriate labor and the need to diversify away from oil are highlighted as crucial issues.
• Oil Importers/Arab Transition Countries:
  • Countries such as Morocco, Tunisia, Egypt, Jordan, Yemen, and Syria are experiencing different forms of transition, from managed reforms to revolutions. [04:20]
  • "Two and a half years later, where are they? How do we see the economic situation facing these countries?" [05:30]

2. The "Basic Story": Challenges Faced by Transition Countries

• International Environment:

  • High commodity prices and European recession have hit key sectors: exports, remittances, investment, and tourism. [07:00]
  • "70% of Tunisia’s exports go to Europe...The slowdown in Europe had a big impact on them." [07:35]

• Rising Domestic Pressures:

  • Youth discontent following political change, lack of improvement in economic conditions.
  • Governments used increased spending to placate social unrest, depleting fiscal and reserve buffers. [09:00]
  • "They have responded by trying to spend to keep people, if not happy, at least less dissatisfied...these have resulted in a depletion of their economic cushions." [09:50]

• Private Sector Stagnation:

  • Weak confidence and investment; "private sector confidence and investment has stagnated..." [10:45]

3. Structural and Political Obstacles

• Governance and “Phase One” Governments:

  • Many countries remain in transitional government ("Phase One"), hesitant to take politically difficult decisions.
  • "They don't yet have the legitimacy to take the difficult decisions because they're in a contested society." [14:00]
  • Polarization and lack of experience in communicating difficult reforms to the public. [15:20]
  • Memorable: "There used to be a time when people attempted to make policy decisions on weekend evenings, thinking nobody would respond to it." [16:22]

• Spillover Effects:

  • Instability in Syria and Libya impacting neighbors with refugees, trade disruption, and social tensions.
  • "The real tragedy is what's happening inside Syria. But the spillovers are not just in terms of refugees..." [18:40]

4. Investor Confidence and the Legacy of the Past

• Capital Flows and Investment:

  • Uncertainty about future governments causes both domestic and foreign investors to delay engagement.
  • "All the people who've done well are almost by definition people who have links with the old regime...they are waiting for this process to be sorted out before they decide whether to go back in or not." [23:40]

• Restitution vs. Stability:

  • Tension between holding former elites accountable ("restitution") and avoiding paralyzing investment decisions.

5. Economic Indicators and Vulnerabilities

• Deteriorating Fiscal and External Positions:

  • Increased debt and budget deficits from unaddressed international price shocks and rising subsidies.
  • External reserves have dropped to precarious levels in some countries. [27:05]
  • Growth remains below 3%, insufficient for reducing high unemployment, especially among youth (already structurally high pre-Arab Spring). [29:50]

• Why People Protested:

  • Not macro mismanagement, but unemployment, unequal opportunity, perceived unfairness, and lack of voice.
  • "People...came out on the streets because unemployment was too high, because they had issues relating to unequal allocation of opportunities..." [31:40]

6. Policy Dilemmas: Short-Term Stabilization vs. Long-Term Reform

• Immediate Priority:

  • Stabilize economies by addressing fiscal imbalances, notably by reforming energy subsidies.
  • "There is a very nice little paper that's been done on energy subsidies by the IMF...the majority of the benefits...go to better off households." [34:10]
  • General subsidies are inefficient and crowd out critical investment in jobs, health, and education. [35:00]

• Political Constraints:

  • Subsidy reform is "an obvious thing to do and yet it's a very difficult thing to do politically because people don't fully comprehend the distribution of the benefits." [36:30]

• Beyond Stabilization:

  • Need for credible visions on growth, job creation, business environment, and transparency.
  • "If your focus is six months or less...very hard to get energized and motivated around some of the difficult structural issues going forward." [38:35]

• International Role:

  • Market access: Quick trade wins matter (e.g., easier exports to EU).
  • Finance: External financial support to smooth adjustment (IMF already active in Morocco, Jordan, Tunisia).
  • Peer learning: Institutional strengthening, capacity building—especially democratic, financial, and administrative institutions.

Q&A Highlights and Notable Quotes

1. Measuring Growth and IMF’s Role (41:25)

• Audience: Should measures of economic growth be rethought to focus on equitable development, not just fiscal or macro indicators? Isn’t this a central criticism of the IMF?
• Masood Ahmed: "Yes, we were [wrong]...to get a full sense of economic stability you have to look not just at the aggregate numbers, but go behind it in terms of looking at employment, in terms of looking at distribution, in terms of looking at fairness." [43:23]
  • Stresses shift within IMF towards emphasis on jobs, transparency, and program ownership.

2. Regional Integration in the Maghreb (41:40)

• Audience: Is regional integration possible given politics of the region?
• Masood Ahmed: "The impediments in many cases are political, not economic...Regional integration is necessary to become effectively integrated with the world, but it is not an alternative objective." [47:18]

3. The IMF and the Arab Spring (50:06)

• Audience: Are there political implications of IMF involvement in the region? Is there any correlation with the uprisings?
• Masood Ahmed: "The IMF is generally there when countries have a problem...it's not that there is a problem because we are there." [52:15]
  • Recognizes perception issues about IMF’s role, stresses need for better communication and accountability.

4. The Case of Jordan (49:10)

• Question: How do you assess Jordan’s prospects after external shocks and a recent downgrade?
• Masood Ahmed: "Jordan was one of the countries that actually was generating high growth rates and jobs...If you can get the confidence levels back, I think you should be able to get higher growth rates." [50:28]

5. Informal Economy & State Endorsement (49:34)

• Audience: Should government support existing informal cross-border trade?
• Masood Ahmed: "The reason why you have high level of informal sector in the region is partly...it is expensive for small businesses to get into the formal sector...we need to try and reduce that cost." [50:40]

Memorable Moments & Quotes

• On the challenge of reform communications: "Today you can't do so in these societies without explaining why it is important to do what needs to be done." [15:00]
• On subsidies and fairness: "Energy is not used by poor people. So the majority of the benefits of subsidized energy go to better off households." [34:10]
• On international help: "In the short run...market access...finance...sharing the experience of other countries...strengthening new institutions, particularly...public financial management..." [37:35]
• Summing up: "There's a lot of opportunities for people to provide support...and what I really welcome are not only your questions on this, but also any thoughts and advice you have on what we in the IMF could be doing to try and support this process which has many facets." [39:05]

Timestamps for Key Segments

• [00:00–05:30] Introduction; broad overview of MENA economies
• [05:31–14:30] Deep dive into challenges of transition economies: external shocks, social pressures, political instability
• [14:31–23:40] Issues with transitional governments; confidence and investment dilemmas
• [23:41–30:00] Details on fiscal/debt problems, growth, unemployment, and why protests happened
• [30:01–38:40] Policy prescriptions: subsidies, stabilization, the need for trust/communication
• [38:41–43:23] International support: market access, finance, capacity building
• [43:24–54:20] Q&A session: growth metrics, IMF credibility, integration, Jordan, informal economy, IMF’s political impact

Conclusion

Masood Ahmed provided a candid and nuanced overview of the dire economic straits faced by MENA oil-importing countries, highlighting both external and deeply-rooted local challenges. He acknowledged past missteps in how the IMF and others assessed growth and inclusion, stressed the importance of stabilization coupled with future-oriented reforms, and provided actionable suggestions for both domestic policymakers and international partners. The Q&A reflected ongoing concerns around the fairness and effectiveness of economic policy, transparency, and the evolving political landscape.

(Summary based on the lecture delivered by Masood Ahmed at LSE, 28 June 2013. Selected speaker quotes and timestamps included as per guidelines.)