CAIRO: The growth in economies of the region comprising the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) will gather momentum in 2010, but stay below pre-crisis levels, a recent report said.
“The timing of this report and this event is of utmost importance as the world is emerging from the economic crisis,” said Magda Kandil, executive director and director of research at the Egyptian Center for Economic Studies, at a roundtable discussion on the findings of the May 2010 Regional Economic Outlook (REO) of the International Monetary Fund.
“It is important to identify what lessons can be drawn from the crisis, the signs of recovery, and the main drivers and risks facing our economies in 2010 and in the upcoming period,” Kandil continued.
Main speaker, Saade Chami, the coordinator of the Middle East Technical Assistance Center (METAC), explained that recovery is proceeding but at differing speeds, with subdued growth prospects for many advanced economies and solid growth prospects for many emerging economies.
“The financial market conditions have improved in terms of global stock price indexes, and sovereign corporate bond spreads are recovering. But this hides another phenomenon, which is that bank credit remains low compared to pre-crisis levels,” said Chami.
“The horizon is clouded with regards to the latest developments in Europe. And bank credit remains hard to come by in many advanced economies, particularly the US and UK. In contrast, China, are experiencing significant increases in their bank credit,” Chami added.
Chami warned that with the waning of fiscal stimulus in many countries, growth will be lower in 2011. The IMF predictions for emerging economies are between 6.3 and 6.5 percent — nearly triple that of advanced economies.
Focusing on oil exporting countries, Chami said that recovery was underway, driven by rising oil demand and continued supportive policies. These countries should “continue stimulus where there is fiscal room, to boost non-oil sector activity,” he added.
“Algeria, for example, increased exports by 10 percent of GDP and this led to an increase of the non-oil GDP by 6-7 percent. The prospects for oil fueled recovery remain favorable as the IMF expects oil to remain at $80 throughout next year.”
“Barring signs of overheating, accommodative monetary policy is appropriate to mitigate the current credit bust,” said Chami, “Capital flows are recovering, but greater differentiation of sovereign risk can be expected, following Dubai World and Greece events.”
Shifting to oil importing countries, the section of the report which includes Egypt, the report describes a slow recovery. Chami explained that although there were increases in trade, subdued investment and bank credit has led to a more gradual recovery.
“Governments of these countries facing high debt will need to cut back on fiscal expansion and pursue structural reform to raise growth and improve competitiveness. Most importantly, they must increase employment,” he said.
Chami pointed out that external receipts, FDI remittances and tourism revenues were not drastically affected by the crisis, but export proceeds were the most hit.
He also cited the weakness in European demand from the region and increased competition from Asian emerging markets as a major cause of concern for a trade-fueled recovery.
Chami suggested that developing capital markets can help revive credit and investment.
“Bank credit growth rate in Egypt, Pakistan and Jordan is nearly zero and these countries represent nearly 70 percent of the region’s GDP,” he added.
Speaking about the challenges facing oil-importing countries regarding competitiveness, Chami sparked an informative debate on Egypt’s competitiveness and reform strategies for the future.
“Exports per capita for MENAP oil importing countries are way below other emerging markets,” said Chami, adding that the region needs a much higher growth rate for employment in light of weakened prospects for exports and remittances.
Heba Handoussa, director and lead author of the National Human Development Report for Egypt, noted the high unemployment rate among youth in Egypt.
She explained that Egypt needed balanced growth with financial and monetary reform on the one hand, and focusing on small and medium enterprises, training and education on the other.
“It is not sustainable that the spending on energy subsidies is larger than the entire expenditure on health and education,” said Handousa. “You can’t work on population without working on the education, particularly of young women, as they comprise a large percentage of the workforce.”
Nihal Hatem, a Cairo University student and part of an IMF dialogue program, said that the problem is that expectations for finding work are low, causing Egypt’s youth to lose hope.
“Our problem is that we don’t have hope. We are willing to work but it is hard to find jobs and we always look abroad for education and good jobs,” Hatem said.
“We need the government to make it easier for us to start SMEs or find well paying jobs”, she added, explaining that otherwise youth innovation in Egypt would be wasted.
“The plans and reform discussed here mostly affect the average Egyptian on the street,” said Taher Helmy, chairman of the ECES board of directors, stressing the importance of discussing Egypt’s recovery and reform plans in light of the global context and finding solutions to support these plans.
Abdel-Aziz Hegazy, former prime minister of Egypt, said that political stability and the upcoming election year, will determine the government’s strategy for reform over the next two years, affecting stimulus plans and macro-economic policies.
