Seven countries growth restrained from poor polices – WB

14 Aug '14

3 min read

Countries like Libya, Lebanon, Iran, Yemen, Jordan, Egypt and Tunisia are trapped in a ‘Poor Policy – Poor Growth’ cycle, which hampers these economies from moving to a sustainable growth path, says a latest report from the World Bank.

In a economic brief on the Middle East & North Africa region titled ‘Predictions, Perceptions and Economic Reality - Challenges of Seven Middle East and North Africa Countries Described in 14 Charts,” the report notes that the situation has worsened since the 2011 uprisings.

The report says that growth continues to be weak and does not generate enough jobs, despite recent signs of economic improvement in Egypt and Tunisia and fiscal deficits are still high and public debts are growing at a faster pace than before, leaving little space for growth-promoting investments.

The report goes on to add that private sector activity is sluggish, and the few jobs that are created in the public sector, are filled through connections. Many workers are moving to the informal sector, thereby creating a large vulnerable group exposed to external shocks.

“While the problem of high unemployment is especially pernicious in these countries, an even greater problem is that of those working in the informal sector”, says Shanta Devarajan, World Bank Chief Economist for the Middle East and North Africa region.

“These people, who are not part of the unemployment statistics, are in an even worse situation, since they lack security in their earnings and often live near the poverty line.”

These seven countries have the potential to move to a higher growth path but the sustainability of growth depends heavily on their government’s choice of economic policies.

“There is a risk of policy error if, by trusting economic forecasts that paint a positive outlook for their economies, policymakers resist needed reforms,” says Lili Mottaghi, World Bank MENA Economist and the author of the brief.

Studies have shown that there is an optimism bias in growth forecasts for developing regions and in particular for MENA, because these forecasts do not necessarily take into account new information that comes in at the last minute, nor the structural breaks that sometimes drive an economy, the report goes on to say.

The report recommends prompt actions, which are needed to promote economic activities that deliver sustainable well-being for all citizens, which include structural reforms - targeting of subsidies, strengthening the investment climate, improving governance, and removing rigidities in product and labour markets – that are well integrated with economic policies.

The report concludes by saying that these reforms are necessary whether the short-term economic prospects are rosy or gloomy, as without them, the private sector will struggle to become a growth driver and create jobs.

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