Reform spending for sustainable and inclusive growth in Arab countries

by **Rocky** Wed 14 Feb 2018, 2:10 am

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Reform spending for sustainable and inclusive growth in Arab countries

by Rocky Wed 14 Feb 2018, 2:10 am

Reform spending for sustainable and inclusive growth in Arab countries

14/2/2018 12:00 am

[rtl]Follow-up / morning

IMF Managing Director Christine Lagarde said: "This is the third finance forum I have brought, and I would like to welcome all of you, especially those who join us for the first time. I promise you that you will emerge from the dialogue with a rich outcome.
We recently joined with the Arab Monetary Fund, the Arab Fund for Economic and Social Development and the Government of Morocco to organize a major conference in Marrakesh focused on promoting growth, employment and containment in the Arab world - how to create an inclusive economy that works for everyone and provides opportunities for all. Many of you were present and participated in deliberations on the challenges and opportunities for the region. You are on a reformed reform agenda, but fiscal policy is a key pillar. The policy of spending specifically contributes to a vital role in supporting and promoting sustainable and inclusive growth that we all desire.
Against this background, allow me to briefly review with you the regional economic context before focusing on some of the basic spending challenges for the region and trying to propose paths for reform in the coming period. Economic context First, the context

You all know that the economic recovery has gained greater strength worldwide and that growth has returned by 3.9% in 2018 and 2019 to 75% of the global economy. But this wave does not make enough for this region. There are undoubtedly differences between countries.
For oil-exporting countries, oil prices have rebounded to the midpoint between their lowest and higher levels a few years ago, which still places considerable pressure on public finances and requires a different economic model.
The story is a bit different for oil-importing countries. It is expected to achieve higher growth but nowhere near the level necessary to provide adequate jobs for young people entering the labor market. The public debt in these countries has continued to rise, to over 50% of GDP in many of them. In addition, some countries suffer from conflicts, terrorism, large refugee flows and increased security risks.
So, the challenges are big everywhere. Stability is ultimately at risk. Youth unemployment is the highest in the world - an average of 25% and over 30% in nine countries. In addition, over 27 million young people are expected to enter the labor market over the next five years. But the aspirations of the region's youth have not yet materialized and their frustration with the concept is exacerbated by perceptions of inequity. Survey results indicate that more than 60% of respondents feel that links with influential people are far more important than the qualifications required for a job. This can easily lead to discontent, escalating social tensions and the breakdown of community confidence. The most important fiscal challenges

Against this background, I turn to talk about the fiscal dimension. The bottom line is that unless fiscal policy is on a sustainable path, rising indebtedness will become a burden on already overburdened young people and there will not be enough space to finance the spending needed for inclusive growth.
Revenue was the focus of last year's forum. Many countries have made important revenue reforms, including the recent introduction of VAT in Saudi Arabia and the United Arab Emirates. It is an important step towards diversifying revenues and building tax power.
There is room to do more - domestic revenues are very low at an average of only 10% of GDP. This must be done without neglecting considerations of equity and fairness - both a condition for ensuring tax acceptability.
This year we focus on the other side of the work, spending. The revenue policy and expenditure policy are complementary and should be evaluated as a single package to meet the fiscal and economic objectives
. Priorities for spending If we look at spending, we will find that it is dominated by a large rise in the region - which is true for the GCC countries in particular, where spending is well above the average in emerging economies and is close to 55% of GDP the countries. Although the size of the government depends on the preferences of the community, the high level of expenditure is easy to exceed the ability to generate revenue.

Many countries are already taking steps to contain spending. But often rely on comprehensive or exceptional reductions. The best approach is to adopt a more strategic approach that provides protection for the poor and maintains productive capacity in the economy. Let us now look at the components of spending: public investments are priorities for sustained growth and containment, but other areas are also priorities, such as health, education and social protection - areas where spending is often low in Arab countries.
On the other hand, we see a rise in spending in other areas such as energy subsidies and public sector wages.
Indeed, there is no justification for continuing to support energy.
It comes at a high cost - an average of 4.5% of GDP in oil-exporting countries and 3% of GDP in oil-importing countries, despite falling oil prices. This support also lacks transparency - often implicit and not included in the budget. It also has a high degree of inequality - giving preference to the most energy rich. Perhaps the worst of all is that it supports damage to the environment at a time when we need to go in the opposite direction - that is, to protect the planet, the lives of its inhabitants, their health and the future of their generations to
come.  What about the public sector wage bill?

I understand that government jobs can be a big "social safety valve". But when the public sector provides one-in-five jobs, it bears enormous costs - affecting the sustainability of public finances, the ability to create a dynamic private sector, and good governance. These challenges are not limited to the Middle East. The reform of the large or rapidly growing public sector wage bill was a necessity faced by many countries in the world. The careful design of the reforms allowed countries such as Ireland to reduce this bill by 4 percentage points of GDP. We look forward to the talk of Robert Watt, a senior reform engineer in Ireland, on lessons learned from her experience.
In the end, the public good can not be served through a care system that harms productivity and spreads discrimination through the corruption that arises from favoritism. This system destroys good talent and reduces incentives for investment in skills and knowledge - drivers of long  - term growth
. Finally, the current pattern of spending remains inefficient in various sectors, including health, education and public investment. High wage costs have not improved the quality of public services. The return on public investment does not live up to expectations, as many "public investment management assessments" suggest.
All this leads to mediocre social outcomes. Life expectancy in Arab countries is about ten years lower than the average among the members of the Organization for Economic Co-operation and Development (OECD). Access to education is still below universal coverage, and a large number of girls are still forced to stay at home, and students' performance on standardized tests is among the lowest in the world. In addition, the poverty rate is relatively high and inequality remains
a source of concern.[/rtl]

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Established in 2006 as a Community of Reality

Established in 2006 as a Community of Reality

Reform spending for sustainable and inclusive growth in Arab countries

Reform spending for sustainable and inclusive growth in Arab countries

Reform spending for sustainable and inclusive growth in Arab countries

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