IMF's Lagarde Urges Urgent Action as Arab Discontent Bubbles

(Bloomberg) -- The Arab world must “take urgent action” to create jobs and increase social spending to contain simmering public discontent, IMF Managing Director Christine Lagarde said on Tuesday.

“The public dissatisfaction that is bubbling up in several countries is a reminder that even more urgent action is needed,” Lagarde told a two-day conference on inclusive growth, held in the Moroccan city of Marrakesh.

Governments in the region have struggled to meet popular expectations of more equitable economic growth and greater political freedom that were unleashed by the Arab Spring uprisings that swept the Middle East in 2011. While the global economy is growing at the fastest pace in a decade, according to International Monetary Fund projections, conflicts and lower commodity prices have taken their toll on Arab economies.

At 3.5 percent in 2018 and 2019, forecast annual growth in the Arab world is well below the average 5.6 percent achieved during 2000-2008, Lagarde said.

In Tunisia, the birthplace of the protest movement, violent demonstrations broke out again this month as anger mounts over IMF-backed measures that include subsidy cuts and tax increases.

After talks with Tunisian Prime Minister Youssef Chahed, Lagarde said the IMF “understands the frustration of the Tunisian people who have not yet felt the full economic benefits of their country’s political transformation,” but that reform was necessary.

‘Difficult Process’

“This process is difficult and takes time. Reforms are key for people to reach the point where they begin to see unemployment drop and growth pick up,” Lagarde said. “We support the government’s reforms and will continue to work closely with them to ensure the reforms are socially balanced.”

In Egypt, a move to liberalize the exchange rate pushed inflation to record highs above 30 percent last year, while growth has struggled to keep up with demands for jobs in the most populous Arab country.

Even in Morocco, often hailed as a haven of stability and growth in the region, protests have simmered in some remote areas for more than a year, with people demanding investment and jobs.

In comments to reporters, Lagarde also commended reforms undertaken by the Moroccan government as “very promising” and pledged to keep supporting the country in efforts to achieve inclusive growth.

While Arab countries have focused their reform agendas on job-creating growth, the progress is “not enough,” Lagarde said.  

Cash-strapped governments should develop “broader and more equitable” tax bases to help pay for more social services and infrastructure spending, in which the Arab region lags emerging Europe, she said. They should also encourage private-sector job creation to ease the burden on state budgets.

“The old model where the state is employer of first resort is no longer viable,” she said.

To contact the reporters on this story: Lin Noueihed in Cairo at lnoueihed@bloomberg.net, Souhail Karam in Cairo at skaram10@bloomberg.net.

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Stuart Biggs, Kevin Costelloe

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