Arab spring countries face rising social tensions that could thwart an early economic recovery from over two years of political turmoil that has worsened fiscal pressures and threatens macroeconomic stability, a senior IMF official said on Saturday.
Masood Ahmed, International Monetary Fund (IMF) Director for the Middle East and North Africa, said oil importers Morocco, Tunisia, Egypt and Jordan faced the double shocks of high energy and food import bills and the impact of a global economic downturn along with growing popular disaffection since the wave of Arab revolts over two years ago.
“The big challenge this year is to manage the expectation of an increasingly impatient population to undertake the measures that will stabilize the economy and would begin to lay the foundations of an economic transformation that would generate more job creating and inclusive growth,” Ahmed said.
“Those political transitions are turning to be more prolonged and in some cases more contentious and unemployment is higher and social unrest is rising,” Ahmed told Reuters in an interview on the sidelines of a World Economic Forum (WEF) conference on the Middle East and North Africa.
Ahmed said the plight of these countries hit by protests was worsened by extra spending on food and energy subsidies that forced governments to draw on foreign reserves and expand domestic borrowing at high interest rates that raised public debt.
Political turmoil was hurting much needed private investments in the meantime, the IMF official said.
“In a number of these countries, private confidence has not yet taken hold so the recovery such as it was in 2012 was driven by continued government spending rather than a recovery in private activity,” Ahmed added.
Two years of higher spending on wages and food and fuel subsidies will push budget deficit deficits even higher to an average eight percent in 2013. In Egypt, for example the budget deficit was expected to rise to between 10 to 12 percent of GDP this year, the IMF official said.
“The cost of that is that budget deficits have begun to rise and in some cases have risen to levels that are progressively unsustainable,” Ahmed said.
SLUMPING RESERVES
Egypt’s foreign exchange reserves have slumped since the revolution that toppled president Hosni Mubarak in 2011 due to falling revenues from tourism and foreign investment. Jordan’s foreign reserves had also fallen sharply but have since recovered this year with an infusion of Gulf Arab capital.
Growth levels that are forecast to average around three percent this year for oil importing countries were insufficient to absorb more job entrants in a region with traditionally high unemployment that has increased since the wave of unrest that swept the region since 2011.
“Already young people are suffering unemployment levels of close to 30 percent and in last two years there have been further increase in some countries,” the IMF official added.
Governments had to grapple sooner than later with the politically sensitive subsidies that topped $240 billion in 2011 for the Middle East North Africa (MENA) region and accounted for about one half of global energy subsidies.
This was equivalent to about 8.5 percent of regional GDP, IMF figures show.
Universal energy subsidies were benefiting the top 30 percent income bracket among consumers and although Morocco, Jordan and Tunisia had begun to move towards targeted subsidies, more was needed to help reduce hefty subsidies that diverted much needed funds to spur growth.
“In the middle of political and social transition, it is even more difficult to undertake necessary reforms to reduce budget imbalances or try to take action to protect your reserves but the option of postponing these actions much longer really is not there for many countries,” the IMF official said.
“The margin for maneuver is much more limited and today their cushions have been used up a lot and today they find they have the ability to borrow more from domestic markets constrained and their reserves positions are such they really cannot afford to let reserves run down much further,” Ahmed said.
Lifting fuel subsidies had triggered civil unrest in Jordan last November and some analysts say the government’s move to raise prices of heavily subsidized electricity in June under an IMF standby deal was fraught with risks.
