April 17, 2024

Economix: Uneven Prospects for the Arab World

A May Day protest in Cairo on Sunday.Khalil Hamra/Associated PressA May Day protest in Cairo on Sunday.

The popular uprisings across the Arab world are defining a new order in the region. But as the transition continues, the area’s economies are diverging sharply, posing added challenges to leaders as they seek to cultivate greater stability.

A new report on Tuesday by the Institute of International Finance, whose members include the world’s largest commercial and investment banks, shows the magnitude of what lies ahead.

As the upheavals add to a jump in the price of oil, oil-producing Arab countries — including Iraq — are expected to experience double-digit growth this year, feeding an already significant fiscal surplus.

Economic growth among Gulf oil exporters is expected to expand by an average of more than 5 percent, elevated by higher oil production and a surge in government spending.

It’s little surprise, then, that countries that must import oil from their neighbors are faring worse. The study shows that Egypt, Tunisia and Syria in particular are all looking at deep contractions this year before returning to growth in 2012, assuming any new demonstrations do not lead to a downward spiral.

DESCRIPTIONInstitute of International Finance e = IIF estimate; f = IIF forecast. * Absence of projections for Libya due to lack of political certainty. ** Egypt growth rates have been adjusted to a calendar year basis to make them consistent with other countries, while figures for inflation and the fiscal and current accounts are on a fiscal year basis.

As leaders increase food and fuel subsidies, raise wages and pensions and try to expand public-sector employment, the fiscal deficits of these countries are expected to widen sharply. While the moves are aimed at anchoring social stability, the report says they will most likely mean a postponement of badly needed fiscal changes that would help restore financial stability and ward off the threat of further downgrades by ratings agencies.

Even if governments can make progress there, the separate scourge of inflation is proving harder to combat across the region. Surging costs for oil and food, together with sharp increases in government spending, mean that already high prices will keep soaring.

Consumer price inflation among oil importers is expected to rise to an average of 8.1 percent next year from 7.2 percent this year, with inflation in Egypt stuck around 11 percent, and doubling in countries like Morocco and Syria. The report shows that the figure is lower in oil-exporting countries, but the average is expected to rise sharply in 2011.

DESCRIPTIONInstitute of International Finance

Meanwhile, unemployment — one of the biggest sources of discontent — is expected to remain stubbornly high. The Arab world continues to suffer from the highest unemployment rates of any developing region, especially for young people and women. In 2009, the latest figures the institute had available, unemployment in these countries averaged 11.5 percent over all, and 25.2 percent among the young. Among oil importers, the averages were 11.1 percent and 26.5 percent, respectively.

Meeting the employment challenge, the report concludes, will require a major transformation of the region’s societies and economic structures.

Article source: http://feeds.nytimes.com/click.phdo?i=6381f57cbfd3d968adbdec655d8fc876

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