Chal­lenges to Arab Spring economies

The Pak Banker - - Front Page -

MOST of economies hit by the Arab Spring up­ris­ings will re­cover slowly next year as they are grap­pling with high in­fla­tion and ris­ing un­em­ploy­ment due to poor global con­di­tions, the In­ter­na­tional Mone­tary Fund pre­dicted in a re­port on Sun­day.

In its twice-yearly out­look for the Mid­dle East and North Africa, the global lender said a par­tial re­turn of po­lit­i­cal sta­bil­ity could per­mit some­what faster growth in the com­bined out­put of Egypt, Jor­dan, Morocco, Libya, Tu­nisia and Ye­men dur­ing 2013. But weak de­mand in Europe and other re­gions will weigh on the Arab Spring states.

These new democ­ra­cies face shrink in ex­ports, their growth is expected to re­main be­low long-term trends and un­em­ploy­ment is expected to in­crease ow­ing to con­tin­ued anaemic ex­ter­nal de­mand, high food and fuel com­mod­ity prices, re­gional ten­sions and pol­icy un­cer­tainty. The GDP in the six coun­tries com­bined would ex­pand by 3.6 per­cent next year, ac­cel­er­at­ing from an es­ti­mated 2.0 per­cent this year and 1.2 per­cent in 2011. In 2010, the year be­fore the up­ris­ings, GDP grew 4.7 per­cent. Be­cause of slug­gish global de­mand, the group’s cur­rent ac­count bal­ance of trade in goods and ser­vices will im­prove only marginally next year, to a deficit of 4.6 per­cent of GDP from this year’s 5.4 per­cent deficit. How­ever some coun­tries con­sider al­low­ing greater flex­i­bil­ity in their ex­change rates in or­der to stim­u­late ex­ports, but did not spec­ify which coun­tries. The cur­rent un­der­stand­ing of gov­ern­ments’ un­der­ly­ing fis­cal po­si­tion and the risks to that po­si­tion re­mains in­ad­e­quate.

It was demon­strated by the emer­gence of pre­vi­ously un­re­ported fis­cal deficits and debts in the wake of the cri­sis in Greece and Por­tu­gal. It could also be seen in the US where fi­nan­cial prob­lems in quasi-pub­lic en­ter­prises, like Fannie Mae and Fred­die Mac, re­mained largely out of sight un­til gov­ern­ment bailouts. Else­where with large do­mes­tic bank­ing sec­tors such as Ice­land, Ire­land, and the United King­dom, the big­gest shock to the pub­lic fi­nances came from the crys­tal­liza­tion of large, mainly im­plicit, gov­ern­ment li­a­bil­i­ties to the fi­nan­cial sec­tor, it said. The these short­com­ings in fis­cal trans­parency were due to a com­bi­na­tion of gaps and in­con­sis­ten­cies in ex­ist­ing fis­cal re­port­ing stan­dards, de­lays and dis­crep­an­cies in coun­tries’ ad­her­ence to those stan­dards, and a lack of ef­fec­tive mul­ti­lat­eral mon­i­tor­ing of com­pli­ance with those stan­dards.

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