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Economic Reforms in Middle-East and North Africa - Term Paper Example

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The paper 'Economic Reforms in Middle-East and North Africa' presents the group of countries that constitutes MENA which includes the oil-rich countries of Gulf region and the as well as the countries like Morocco, Egypt, and Yemen which are highly resource-scarce…
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Economic Reforms in Middle-East and North Africa
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Table of Contents Table of Contents Overview of MENA countries Need for financial programs 2 Economic reforms in MENA 3 Fiscal Management 3 Development of Financial Market 3 Improving Transparency and Governance 3 Trade Liberalisation 4 Exchange Rate Management 5 Management of Post-Conflict Situation 5 Case history 5 Tunisia 5 Lebanon 7 Morocco 8 Conclusions 8 Overview of MENA countries The term MENA refers to the countries in the middle-east and North Africa. These countries are charecterised by high economic diversity among them. The group of countries that constitutes MENA includes the oil-rich countries of Gulf region and the as well as the countries like Morocco, Egypt and Yemen which are highly resource-scarce. The countries in this region are also marked with high rate of poverty since 23% of the population in these countries lives at an earning of less than $2 per day. The growth rate in these countries differs vastly because of the economic diversity. During the 1990s while some of the countries exhibited buoyant economic growth the others like Lebanon, Syria and Morocco displayed poor growth. Need for financial programs The economic milieu in these countries reflected the need for empowerment. World Bank and IMF took the initiative to address the economic issue of these countries and had has taken financial programs for assistance. The MENA conferences held every year aims at providing sound regional economic reforms for these countries in order to strengthen their economic potential. The chief objective of these conferences is to create a business-friendly climate through boosting of international and regional investment. IMF and World Bank strongly believe that the prime challenge faced by MENA countries is the improvement of economic environment for private sector investment. Hence all the programs are designed to boost the private investment in this region. The IMF reforms designed for the MENA region follows a well calculated road towards global integration of these countries. In the beginning the reforms will help to stabilize the macroeconomic conditions within the countries. The next step will be designing reforms that helps to enhance the efficiency of domestic economy. And finally the countries will be competent enough to compete in the global markets. Economic reforms in MENA Fiscal Management IMF has assisted the countries in MENA region with the ideas for improving the fiscal management of the countries. Some of the notable reforms implemented regarding this issue are implementation of Value Added Tax (VAT) in the countries like Lebanon, Sudan and Islamic Republic of Mauritania, implementing reforms for income taxation especially in the countries of Saudi Arabia, Yemen, and Pakistan. Development of Financial Market The financial market within the countries of this region needs a radical development. In order to address this issue, Financial Sector Assessment Programs (FSAP) has been launched in 1999 by World Bank and IMF. Building up a resilient and well-regulated economy is imperative in order to establish the macroeconomic stability. The FSAP which is a joint effort by IMF and World Bank was launched with the vision of boosting the efforts taken in these countries for financial soundness. According to the prescribed terms of FSAP, IMF conducts the financial assessments of these countries to gauge their macroeconomic stability. According to the Financial System Stability Assessment (FSSA), probable risks for the country's economy are found out and the nation's ability to absorb macroeconomic shocks is assessed. Improving Transparency and Governance The joint effort of IMF and World Bank to improve the economic conditions of the countries in MENA region included a considerable attention on the quality of governance that prevails there. The economic policies of these countries are examined by comparing them with the international set of standards. IMF publishes the reports after examining the countries on Observance of Standards and Codes (ROSC). There are several aspects of this assessment, countries in MENA region voluntarily participates in these assessments. The assessment not only includes examination of the fiscal and monetary transparency of the countries, it also includes legislation of anti-money laundering and policies to combat the terrorist financing. After the attack of 9/11, US passed the US Patriot Act which has given stress on designing legislation to avoid terrorist financing and money laundering. As per the reports of ROSC, the national authorities are advised and the country policies are shaped for betterment. Trade Liberalisation The trade policies within a nation are essential in building the national wealth. A sound trade policy will surely boosts a country's economic growth significantly. IMF has realized this fact and has made an attempt to modernise the trade in these countries. This attempt of IMF includes the strong establishment of the MENA countries with European Union. This is done through the Associate Agreements with the EU (AAEU). The integration with European Union helps these countries to diversify their economy, enhance the investment incentive and potential to compete with European Union countries. Apart from liberalizing trade through agreements, IMF has also executed necessary changes in the internal policies of the countries. This is done by reorganizing the tariff policies and reforming the custom administration. There are some notable achievements made by IMF in regard to the issue of trade liberalising. The AAEU by Tunisia has helped to improve Tunisia's internal macroeconomic standards. The Greater Arab Free Trade or GAFTA proves to be one of the greatest achievements in then line of economic consolidation in Arab countries. Exchange Rate Management The exchange market of these countries forms a vital factor of economic growth. To help this market flourish IMF offers policy advice and technical assistance. This assistance has helped the countries like Morocco and Tunisia through by establishing inter-bank exchange markets. Unification of exchange rates is also a mean of developing the exchange market which is observed in Republic of Yemen, Iran and Libyan Arab Jamahiriya. Management of Post-Conflict Situation Most of the MENA countries have encountered severe conflicts which has made their economy vulnerable. This is a serious issue that needs to be addressed. IMF has been contemplative regarding the post-conflict scenario in such countries and has rendered appropriate assistance in terms of technical advice to them. Some of the prominent examples in this line are found in Iraq and Afghanistan. In both of these countries IMF has shown active participation in improving the nation's economic potential significantly. Case history Tunisia Since the independence of Tunisia from France in 1956, it has steadily performed in strengthening its economic condition. Yet the country has confronted several economic challenges. Despite Tunisia's outstanding economic progress, it has bear burnt of external shocks in terms of debt. The country's ration of debt to GDP is comparatively, with U.S. dollar constituting 40% of this external debt. This high debt and its composition along with the deficit in the budget make the country vulnerable to external debt. The assistance by World Bank and IMF helped Tunisia in rejuvenating private investment, enhancing competitiveness and support for economic stability and growth. Focus was also made on the rural and human development of the nation. The strategy objective fixed for Tunisia was growth with equity. In 1995 Country Economic Memorandum organized for Bank programs to facilitate the economic integration with the world economy. The World Bank program aimed at emphasizing non-lending services and within the lending operation the program focused on granting loans for sector development with the aim to develop key sectors of Tunisia. The strategies chalked out in the World Bank Program were highly relevant with the development priorities outlined in the five year plans of Tunisia. Despite this high degree of relevance with the development priorities of Tunisia the country's internal strategies lack attention regarding the health and education. The commitment towards monitoring and evaluation has also found to be weak. The World Bank program also made outstanding analysis in the private sector. The recommendations for the private sector development wee sound as it called for the elimination of barriers in the domestic competition and emphasizing the need to strengthen the private sectors. (Hassan F.M.A. et al., 2005) In order to create the potential for competing in the international market Tunisia required a competitive-edge. For this purpose the agreement with European Union has been significantly helpful. This agreement helped Tunisia to develop its economic growth further and gain the potential to compete with its prospective trading partners. This agreement helped the country in reallocating the resources to the areas of comparative advantage. The agreement initiated the industrial restricting program $2.5 billion during 1996-2000. (Jbili A. and Enders K., 1996) Lebanon One of the most remarkable assistances of World Bank and IMF in MENA countries is observed in Lebanon. The country suffered greatly from the 16-year long civil war. The impact of the civil War was devastating as is common in any prolonged war. It drains off the nation's resources and the damage to the society and economy looms large even after several years of the war's end. But Lebanon has exceptionally carried forward its economic progress after the war. The reconstruction program launched with the assistance of IMF helped the nation rebuild its economy at an unimaginably fast pace. The reconstruction program began in 1992 through NERP (National Emergency and Reconstruction Program). This program was intensified and was made wider with the introduction of Horizon 2000 program. The program primarily focused on the investment plans within the country. The Horizon 2000 program goes beyond the emergency works initiated by NERP. The program aims at restoring the capital stock infrastructure and creating a foundation for future economic growth. In later part the program planned for further private sector activities so that government can reduce its deficit in budget. The achievement of the program is evident from the economic growth rate achieved by Lebanon. The growth rate amounted to 7.4% in 1993-96. The Phase I of the Horizon 200 program concentrated on the rehabilitation activities of the capital stock which was also successfully achieved. In the Phase II of the program public expenditure projects were undertaken which focused the areas like education, health, water supply etc. Morocco IMF has shown tremendous effort in uplifting the economic status of Morocco. The economic outcomes of Morocco in 2006 manifest the nation's steady and rapid progress. The non-agricultural sector has experienced a steady growth since 2003 and the GDP growth rate has reached 5.4 % since 2001. This figures show a substantial improvement over the previous years. Conclusions The above discussion shows that the several countries of MENA region are plaugued with the evils of poverty, illiteracy and poor health conditions. Although some of the countries in this region have progressed but their growth needs to be accelerated through modernizing their macroeconomic policies. There is an urgent need for the countries to be integrated into the global economy. The fundamental of improving the nation in this line is technical assistance via policy advice and implementation. An overarching growth policy needs to be undertaken for modernizing the economies of these countries. The initiatives taken by IMF and World Bank have high degree of effectiveness of bringing the necessary changes for these countries. The technical assistance provided by them has helped the countries to implement suitable policy frameworks that gears up the investment opportunities. With the private sector flourishing in these countries the government can be salvaged from the budget deficits. This dramatic shift of investment form public sector to private sector particularly in Maghreb countries is due to the assistance provided by IMF and World Bank. The sluggish flow of FDI (Foreign Direct Investment) observed in most MENA countries is expected to improve rapidly through the private sector development. The increased capital inflows within the nation like Egypt and Jordan is only because of the assistance form IMF and World Bank. In order to develop a country, it is essential that the social variables also experience improvement. The growth objectives taken for MENA countries are not just trade oriented as it also focused on the sectors like education and health. This shows that IMF and World Bank have taken appropriate steps to improve the economic status of these countries. The projects undertaken in these countries were hugely successful in taking the nations out of the evils like poverty, war devastation and fiscal deficits. Despite the appropriate advices and programs some of the countries experience lackluster growth. The reason for this is poor internal monitoring. There is a need to improve the monitoring and execution activities to extract the maximum benefit out of the economic and social programs. References: Hassan F.M.A. et al., 2005, World Bank Publications, [Online] Available: http://books.google.com/booksid=w_ZHXz6QaIIC&pg=PP4&dq=World+Bank+and+the+Islamic+Development+Bank+(2005),+Tunisia:+Understanding+Successful+Socioeconomic+Development.#PPA12,M1 [12th may 2009] Jbili A. and Enders K., 1996, IMF's Middle Eastern Department, [Online] Available: http://www.imf.org/external/pubs/ft/fandd/1996/09/pdf/jbili.pdf [12th may 2009] Read More
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