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NS4053 Winter Term 2014 Economics of the Arab Spring


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Title: NS4053 Winter Term 2014 Economics of the Arab Spring

NS4053 Winter Term 2014 Economics of the Arab
  • Part I Economics of the Arab Spring
  • Overview
  • Economic Impacts
  • Challenges Ahead
  • Part II The Arab Spring Transition Countries
  • Patterns of Governance, Economic Reforms
  • Country Case Studies
  • Tunisia
  • Libya
  • Egypt
  • Yemen
  • Syria
  • Jordan
  • Part III Lessons Learned/Overall Assessment

Arab Spring Overview
  • Arab spring resulted in increased political
    pluralism and new democratic institutions but led
  • Instability
  • Setbacks in the transition towards democracy
  • Mass protests
  • Clashes among former revolutionary allies and
  • The rise of political Islam
  • Instability taken a toll on the regions
  • Sharp slowdown in economic activity
  • Deteriorating external and fiscal accounts
  • Decreasing reserves
  • Inflationary pressures in some countries

Economic Impact of Arab Spring
Arab Spring Impacts I
  • Long term challenges remain as pressing as ever
  • High unemployment (especially among youth)
  • Inefficient subsidy regimes
  • Low trade diversification
  • Main impacts of Arab Spring
  • Sharp drop in growth, slow recovery underway
  • Average real growth in region fell from 4.2 in
    2010 to 2.2 in 2011 lowest in a decade
  • Making matters worse,
  • global economy sluggish
  • Eurozone crisis hit region hard given tight
    economic links

Effects of Domestic and External Shocks
Arab Spring Impacts II
  • Slowdown affected all countries
  • Hardest hit initially were those countries at
    center of the Arab Spring
  • Libya
  • Tunisia
  • Egypt
  • Syria, and
  • Yemen
  • Morocco was only country were GDP strengthened in
  • Economic recovery subdued in 2012
  • Average real GDP growth increased slightly to
  • In 2013 should increase to 3.5 but remain below
    pre-revolutionary growth rates.

Political Turmoil/External Pressures Take Toll
Arab Spring Impacts III
  • Production stoppages caused by political upheaval
    were severe.
  • In Libya oil production decreased from 1.65 m bpd
    in 2010 to only 0.47 m bpd in 2011
  • In Egypt widespread demonstrations and strickes
    paralyzed production process and deterred
    investments for months
  • In Tunisia labor unrest lead to a substantial
    decline in mining sector (-40 va) and oil and
    phosphate production.
  • In Syria oil production declined by 60 from
    level at end of 2010 to 0.16 m bpd in September
    2012 sanctions and ongoing civil war
  • In Yemen economic activity hit by attacks on
    electricity facilities and pipeline sabotage
    led to severe energy shortages.

Arab Spring Impacts IV
  • Sharp drop in tourism
  • Have recovered but remain well below pre
    revolution levels
  • Given tourism accounts for 20GDP in Lebanon, 12
    in Jordan and between 5 and 8 in Morocco
    Tunisia and Egypt, decline had a significant
    effect on growth.

Arab Spring Impacts V
  • Foreign direct investment (FDI) flows down
  • Accelerates a trend that started with financial
    crisis 2008-09
  • Between 2010 and 2011 FDI inflows fell by 46

Arab Spring Impacts VI
  • Weakening of currencies
  • Strongest depreciation experienced by Tunisian

Arab Spring Impacts VII
  • Foreign exchange reserves (FX)
  • Stronger depreciation in many cases could only be
    averted by substantial interventions of national
    central banks sold FX and bought local currency
  • Relative stability in FX came at the expense of
  • Fall most dramatic in Egypt

Arab Spring Impacts VIII
  • Aid-Assistance
  • To avoid a balance of payments crisis,
    international community stepped in to support the
  • G8 and the international financial organizations
    founded the Deauville Partnership in May 2011
    to coordinate aid to afflicted countries
  • Members pledged up to USD 70 billion
  • To date only a fraction of promised aid has been
  • IMF has also committed to provide loans to
    Morocco (6.2bn), Jordan (2bn), Yemen(93mn) and
    Egypt (4.8bn).

Arab Spring Impacts IX
  • Governments in region responded to political
    unrest and weakening of economic performance by
    increasing public spending
  • Highest increases in government expenditures
    relative to GDP Tunisia and Algeria
  • Most fiscal measures aimed at sustaining social
    cohesion and mitigating effects of high food and
    fuel prices
  • Popular steps
  • Increase subsidies on energy and food
  • Raise public sector wages and pensions
  • Expand unemployment benefits

Arab Spring Impacts X
  • With flat revenues, the result was rapidly
    growing fiscal deficits and associated debt

Effects of Arab Spring 2010-2013
Official Unemployment Rates
External Current Account and Fiscal Balance
Arab Spring Challenges Ahead I
  • Youth unemployment, skills mismatch
  • MENA region faces structural employment gap
    especially among younger workers
  • Regional unemployment rates around 10
  • Youth unemployment closer to 30

Arab Spring Challenges Ahead II
  • Labor market inefficiencies a key problem in the
  • MENA lowest score in the WEF Global
    Competitiveness Index for labor market efficiency
  • Region also faces widespread skill mismatches
    inefficient education systems produce unprepared
    market entrants
  • Firms operating in region regularly list
    insufficient labor skills as a major constraint
  • Public sector accounts for an outsized portion of
    employment in region
  • (9.8 compared to global average of 5.4
  • Taking only non-agricultural employment in 2010,
    public sector accounted for 70 of labor force in

Arab Spring Challenges Ahead III
  • On average public sector salaries accounted for
    35.5 of government expenses in 2009 for regional
  • Expanded government has crowded out the private
  • Most youth find a public sector job prefereable
    that in the private sector

Arab Spring Challenges Ahead IV
  • Large public sector has bred a lack of economic
    dynamism in region further setting back
  • World Bank found (2010) that MENA has some of
    the lowest firm entry density rates in the world
  • Suggests a lack of entrepreneurship with rate
    almost four times lower than of Europe and
    Central Asia

Arab Spring Challenges Ahead V
  • Region generally scores very low on World Bank
    Ease of Doing Business Index even lower after
    2011 yet the private sector will have to create
    most of the jobs.

Governance Patterns Voice and Accountability
Governance Patterns Political Stability
Governance Patterns Government Effectiveness
Governance Patterns Regulatory Quality
Governance Patterns Rule of Law
Governance Patterns Control of Corruption
Overall Index of Economic Freedom
Trade Freedom
Social Capital
  • There are a number of interesting patterns
    associated with the regions governance.
  • An often neglected aspect is social capital which
  • Social networks and
  • The cohesion a society experiences when people
    trust one another
  • Empirical studies on social capital have found
    that societies with lower levels of social
    capital have experienced lower rates of economic
  • Unlike physical capital, social capital may take
    years to show significant increases
  • For the MENA region, low levels of social capital
    are closely associated with low levels of
    governance and entrepreneurship

Patterns of Governance/Social Capital
Patterns of Social Capital/Entrepreneurship
Country Assessments
  • Countries With Regime Change
  • Tunisia
  • Libya
  • Egypt
  • Yemen
  • Countries in Regime Transition
  • Syria
  • Monarchies
  • Jordan

Tunisia I
  • The economic crisis following the January 2011
    revolution and a variety of external shocks
    increased the vulnerability of the Tunisian
  • Real GDP contracted by more that 2 in 2011
  • Foreign direct investment (FDI) and tourism
    receipts declining by more than 30
  • Economic downturn
  • Together with return of Tunisians from Libya
    brought unemployment to record levels and
  • Weakened an already fragile financial sector.
  • In response the authorities implemented an
    expansionary monetary and fiscal policy
  • Higher wages and subsidies,
  • Lower interest rates and bank reserve
  • Relaxed regulatory measures

Tunisia II
  • Policies resulted in
  • Wider current account deficit
  • Instability in exchange rate
  • Loss of 20 reserves in 2011 alone despite
    important bilateral and multilateral budget
  • Widespread social and economic disparities and
    high youth unemployment remain key challenges
  • Tunisias pursuit of relatively prudent fiscal
    and monetary policies and open trade regime
    produced the highest per capita GDP growth among
    MENA oil importers
  • Its macroeconomic management relied on extensive
    state intervention and fostered the development
    of an export-oriented low value added industry
    intensive in unskilled labor

Tunisia III
  • The countrys economic model also characterized
  • An inefficient banking sector
  • Pervasive price and capital controls
  • Directed lending
  • Weak governance, and
  • Rigid labor markets
  • The result was
  • High structural unemployment particularly among
    the youth where it averaged 30 percent in 2010
  • Unfair distribution of economic gains among the
    population and
  • Widespread disparities across regions
  • The countrys pursuit of reforms in the middle of
    a political transition process faces important

Tunisia IV
  • Comprehensive economic reforms needed in the
    immediate future to overcome Tunisias structural
    rigidities and promote inclusive growth
  • Many reforms will generate resistance from vested
  • Will require time and effort for building broad
    political support
  • Reforms may not yield benefits immediately
    despite high aspirations of the population
  • As a result reform process faces both risk of
    delayed implementation and social tensions
  • Other sources of risk
  • Escalation of domestic tensions from political
  • Security concerns

Tunisia V
  • In past two years the country has experienced
  • A slowing economy (although a modest recovery is
  • Continued unemployment and periodic labor
  • However opportunities are emerging in select
    sectors of the economy as a result of
  • Increased transparency and
  • Improving legal frameworks which will attract
    interest from foreign and local investors
  • Still investors may opt to stay away at least
    until the elections looking for increased
    political stability
  • The sale of assets from the Ben Ali family, could
    provide the state with some important financial
  • However weak economic conditions in Europe a
  • Normally accounts for 80 of Tunisian exports and
  • Is an important source of foreign investment and
    workers remittances

Tunisia VI
  • Main opportunities
  • Due to location, good scope for near shoring
    arising as European companies seek to limit the
    size of their inventories
  • Tourism sector picking up although revenues have
    yet to reach 2010 levels
  • Reconstruction in Libia could generate contracts
    and employment for Tunisians although these have
    been slow to materialize
  • Main challenges ahead
  • 1. Fiscal Pressures 2012 fiscal deficit around
    7 of GDP increased public sector wage bill
  • Current account widening into double digits
    modest recovery in tourism and continued weakness
    in Europe.
  • Options financing from IMF, Islamic bonds,
    bilateral financing from the Gulf

Tunisia VII
  • 2. Unemployment high and still rising
    unemployment main risk to economic and political
  • Immediate outcome of 2010 revolution increase
    in unemployment to 19 due to downturn in economy
  • Declined to 17.6 in 2012 but job creation still
    a major challenge
  • Government hoping improvements in investor
    climate will create jobs also expanding number
    of public sector jobs
  • 3. Underdevelopment big problem in te interior
    reions given most of Tunisias wealth and jobs
    are on he coast.
  • Government focus in more on regional development
    with infrastructure and schools
  • Main question how long can the government
    maintain stability without delivering significant
    economic and employment gains? Unions
    increasingly impatient.

Tunisia Drop in Creditworthiness
Tunisia High Twin-Deficits
Libya I
  • Libya is at a crossroads. Decisions taken today
    will have profound implications for the future.
  • The country could follow
  • A roadmap for sustainable inclusive growth or
  • Face deepening hydrocarbon dependency
  • In the short term sustainable growth would
  • Managing the political transition and addressing
    security challenges while
  • Maintaining budget discipline and macroeconomic
  • Severe institutional capacity constraints need to
    be addressed, particularly in the areas of
    economic management and statistics

Libya II
  • Over the medium term, structural challenges
    include improving
  • The quality of education
  • Rebuilding infrastructure
  • Putting in place an efficient social safety net
  • Developing domestic financial markets
  • Private sector-led growth is a precondition for
    sustainable job creation
  • Reducing regulatory uncertainty and establishing
    a well-functioning financial sector are essential
    to foster private sector development

Libya III
  • Outlook and Risks
  • Hydrocarbon output should reach pre-conflict
    levels in 2013 while
  • Reconstruction and private demand should
    facilitate an improvement in the non-hydrocarbon
  • Oil price volatility makes economic performance
    vulnerable and complements fiscal management
  • Necessary reconstruction and development spending
    will eventually push the budget into deficit in
    the absence of a curb on current spending
  • The hasty legislation prohibiting interest poses
    risks to the financial sector
  • Until Libya generates private employment and
    makes progress in curbing corruption it will not
    address the key causes of the revolution

Libya IV
  • On-Going Issues
  • 1. Energy exploration and supply
  • After the 2011 conflict oil and gas production
    resumed and returned rapidly to pre-revolution
  • However various militias and groups have been
    using oil installations to manipulate
    negotiations with central authorities
  • Causes significant disruptions
  • 2. Mobility and migration
  • Government is eager to enhance Libyan mobility
    through visa facilitation and exchange programs
  • However EU with Italy and Malta in the lead
    wants to curb (irregular) migration from Libya
  • 3. Trade and investment
  • Around 70 of Libyas oil and gas exports go to
    Europe and around 35 of its imports are from
  • Some European companies are seeking payment for
    pre-2011 contracts in Libya that they claim not
    to have been paid for.

Libya V
  • 4. Constitutional delays hurting business climate
  • The uncertainty surrounding the political process
    and the rule of law is impacting negatively on
    the economy
  • A particular concern for foreign investors.
  • The inability or unwillingness of the Libyan
    General National Congress (GNC) to review old
    laws and pass new legislation means investment
    climate not likely to improve for a year or two
    (until after elections)
  • GNC has yet to revoke a law inherited from
    Gadhafi regime which limits foreign ownership in
    a Libyan company to 49.
  • Recent government efforts to induce foreign
    contractors to resume work by threatening to void
    old contracts without offering security and
    investment guarantees very unattractive to

Egypt I
  • Deteriorating economic conditions contributed to
    the 2011 uprising and remain an important element
    in the current political upheaval.
  • Widespread frustration with the governments
    failure to create jobs, revive growth and address
    gaping inequalities
  • Led to overthrow of governments in 2011 and July
  • The risk of further disappointment remains high.
  • Several developments already likely
  • Markets are very likely to remain on edge despite
    aid offers from several Gulf countries
  • Egypts credit rating unlikely to improve so long
    as external financing remains dependent on oil
    rich neighbors
  • A scarcity of foreign exchange is likely to lead
    to further fuel and electricity shortages

Egypt II
  • Toxic combination of economic distress and
    frustration with leaders inability to address
    poor living standards continues to be at heart of
    protest movements around world
  • Nowhere more evident than Egypt
  • While many of oppositions complaints centered on
    Morsis perceived undemocratic governing style,
    the deteriorating economy has shared some of the
  • Power cuts, fuel shortages, and soaring food
    prices put pressure on the population
  • Tentative prospects for faster growth that had
    emerged earlier in the year now appear endangered
  • Morsi government had been predicting growth of 2
    -- now looks overly ambitious.

Egypt III
  • Economy struggling
  • Power cuts still affecting production
  • Investment plans for both domestic and
    international players likely to remain on hold
  • Weak consumer confidence and hesitant tourists
    also factor into weaker growth outlook
  • Economy will have a hard time remaining in above
    zero growth.
  • At the same time
  • Unemployment a major challenge with jobless rate
    at 13
  • New leaders will be challenged to provide support
    for the neediest
  • With a budget deficit that has not reached 12 of
    GDP little room for improving social safety nets

Egypt IV
  • External accounts which have been under pressure
    since 2011 uprising also likely to suffer
  • Capital flight likely to continue, draining
    international reserves.
  • Current account deficit had actually begun to
    show some improvement in early 2013
  • However some of the improved tourism revenues
    could weaken once again if instability persists
  • International reserves dropped to 14.9 billion
    dollars in June less than half their
    pre-uprising level
  • Continued downward pressure on reserves from
    capital flight may be mitigated by financial
    assistance from the Gulf States
  • Still Egypts continued reliance on one-off
    solutions is likely to continue to make markets
    nervous about the countrys debt servicing

Egypt V
  • Many of Egypts current financial difficulties
    can be traced to subsidies
  • The country devotes around 10 of its GDP to
    subsidies for food and fuel both of which it
    must import.
  • The subsidies as constructed are inefficient do
    not just help the poor but also the middle class
    and businesses
  • Country has tried to remove subsidies before.
    Sadat tried and the result was riots in which 160
    people died.
  • Subsidy reforms are also critical for attracting
    back private investment
  • Will not happen unless IMF gives country a seal
    of approval which they insist require reforms
  • There are successful models Iran substituted
    directed cash payments to the poor and let prices
  • Egypt cant afford cash payments, but ration
    coupons to the poor to purchase food at the
    subsidy price would be a good alternative

Egypt VI
  • Assessment
  • Selection of Beblawi as interim prime minister
    signals the militarys understanding of the
    urgency of economic policy making
  • Beblawi is a strong component of phasing out
    subsidies and more free market policies
  • Progress in these areas could accelerate Egypts
    negotiations with the IMF
  • The proposed 4.8 billion dollar loan (and further
    10.0 billion dollars in assistance contingent on
    the deal) remains on hold
  • The IMF will need to judge the governments
    ability to implement and stick to subsidy reform
  • With an IMF program in place, the country would
    have the credibility and financing to begin
    reviving growth and job creation.

Egypt RGE Forecast June 2013
RGE Risk Assessment June 2013
Yemen I
  • In 2011 Yemen experienced a serious political
    crisis that resulted in shortages of basic
  • With the help of the GCC a national unity
    government was formed in December 2011
  • Unlike other post-uprising countries, Yemen had
    no clear break with the former regime.
  • Instead of being overthrown, President Saleh
    agreed to step down in a transitional agreement
  • Effectively reduced his faction to same level as
    political rivals.
  • His continued presence and the political elites
    inability to settle long-standing grievances have
    created an atmosphere of uncertainty and crisis
  • Still, the IMF along with donor assistance from
    Saudi Arabia helped the authorities achieve
    macroeconomic stabilization

Yemen II
  • After contracting by more than 10 percent in
    2011, the economy regained growth in 2012 (2.4)
  • Inflation decelerated sharply, foreign exchange
    reserves increase and the exchange rate
  • However fiscal deficit increased to 6.3 of GDP
    due to revenue loss caused by frequent sabotage
    of oil pipelines.
  • Despite progress made in macroeconomic
    stabilization Yemen continues to face serious
  • The political consensus and security situation
    remain fragile
  • Poverty, malnutrition and unemployment are very
  • Social and environmental problems, notably water
    scarcity and food security will become more
    pressing in the next three to five years.
  • A failure to address these issues adequately and
    swiftly will shackle the governments attempts to
    build a stable and secure Yemen
  • International aid organizations will face
    increased security problems risk of kidnappings
    in delivering aid to local communities.

Yemen III
  • Complicating matters, as part of their
    Saudization process, 200,000 Yemeni workers were
    forced to leave the Kingdom in early July 2013
  • Under Saleh, development was used as a political
    favor to be distributed to his allies and
    withheld from his foes
  • Created a policy of permanent crisis
  • Opened up space for alternative sources of
    authority to build up their own support networks
  • Government failure to provide adequate services
    has also exacerbated numerous problems
  • 1. Refugees
  • Rise of rebel groups has created hundreds of
    displaced persons (IDPs) with many moving toward
    Sanaa and others toward Aden
  • Both cities are incapable of withstanding the
  • Many IDPs housed in Aden schools preventing
    classes from being held

Yemen IV
  • 2. Power Outages
  • Capitals residence continually frustrated by
    repeated electricity outages
  • Often stemming from attacks on power lines by
  • Government appears powerless to bring the tribes
    under control
  • 3. Water scarcity
  • Yemens water situation, critical for years is
    growing more serious
  • Depletion has been gradual and people have been
    able to adapt to now.
  • Will be increasingly difficult in medium term
  • Already private companies and charitable
    organizing are providing water more frequently
    than the central government.
  • Water and land-related disputes result in about
    4,000 deaths a year

Yemen V
  • 4. Food Security
  • Food security along with rising prices major
    problem across the country
  • Cost of basic foodstuffs such as flour and sugar
    rapidly pushing many Yemenis below poverty line
  • Malnutrition is further complicated by lack of
    adequate healthcare in most parts of country
  • 5. Fragile Economy
  • Underlying many of these problems is Yemens
    fragile economy
  • Economy has struggled to recover from protests
    that forced Saleh to step down in 2012
  • Protests artificially inflated expectations to
    point that many in Yemen expected Salehs removal
    with a renewed economy
  • Disappointing of those hopes over past year has
    resulted in a growing disillusionment with the
    current government

Yemen VI
  • Assessment
  • Clearly the government will not be able to govern
    the country if it is unable to deal with these
  • Likely to grow more acute the longer they are
    left untreated
  • Already drift has set in as different regions of
    the country slip beyond government control
  • Even as the government attempts to reclaim
    territory its legitimacy is being undermined by
    its inability to provide and act as a sole source
    of authority.
  • Concerned with establishing itself politically
    government unlikely to adequately respond to
    challenges prior to parliamentary and
    presidential elections scheduled for February

Yemen VII
  • To help overcome the countrys economic problems
    donors have pledged about 8 billion over the
    2012-2014 period, including a 1 billion Saudi
    deposit at the Central Bank of Yemen
  • Main downside risks include
  • Deterioration in the political and security
  • Heightened social unrest, and
  • An unraveling in the countrys macroeconomic
  • While the upside risks --
  • Further progress made in terms of a national
  • An acceleration of donor disbursements including
    budget support to assist economic policies and
  • Possible that an improvement in the oil and gas
    sectors could eventually boost production above
    projected rates

Syria I
  • Destruction of the Economy
  • UN Estimates that 23,000 people have been killed
  • Economic losses estimated at 84.4 billion
  • Economy contracted by 31.4 in 2012 Unemployment
    more than 37.5
  • Syrian economy traditionally been based on oil
    and agriculture
  • Both sectors seriously crippled and in disarray
  • The Syrian economy has been reliant for years on
    the state for coordination and economic
  • All produce, both oil and agriculture is sold by
    individuals or companies to the state.
  • The State then exports or redistributes it
    amongst the Syrian people
  • With the on-going war, the Syrian government no
    longer fulfilling its distributional role
  • The distribution system has completely broken

Syria II
  • Uncertainty rife and the population no longer
    trust the state to supply sufficient food
  • Hoarding of food is increasing
  • Caused food shortages
  • Significant inflation Alepppo hyper inflation
    of 327
  • Wide-spread starvation and deprivation amongst
    non-food producing element of the population
  • Oil industry also drastically affected by war
  • Western countries imposed sanctions on oil
  • Traditionally oil and gas revenues account for
    20 of GDP and 25 of government revenues
  • Sanctions have dramatically reduced both
  • Estimates are the sanctions have cost the
    government 4 billion in low revenue

Syria III
  • Has led to a severe foreign currency crisis and
    suspension of debt servicing
  • The macroeconomic environment has essentially
    broken down
  • Sanctions also impacted economy by reducing
  • Syria net importer of gas and energy
  • Energy shortage worsened by destruction of
  • Electricity and heating blackouts common
  • Taking a heavy toll on economic activity
  • While massive destruction of physical capital has
    occurred, greater loss may be in human capital
  • In addition to massive deaths, 311,000 have left
    the country UN estimates this could increase to
    710,000 by the end of 2013
  • All this leaves Syrias long-term economic future
    very bleak even if Assad is removed in the near

Syria IV
  • As for the future
  • More than half of the population will be
    dependent on aid by the end of 2013
  • Increased government management of the war
    economy will have an adverse impact on the
    private sector
  • The regime will be forced to introduce more
    unpopular economic policies to reduce its
    increasing expenditure
  • The Syrian pound will keep declining rapidly
  • Financial support from Iran and other allies will
    provide life support to the economy in government
    controlled areas
  • Growing economic dependence on allies will
  • Improve economys ability to withstand further
    major shocks
  • Become a necessity for the regimes survival

Syria V
Jordan I
  • In contrast to the other countries discussed
    above, Jordan has not had a regime change
  • In part, the countrys stability has been linked
    to the economys good performance
  • Jordan experienced a period of robust growth
    during 2000-09 (averaging about 6.5 per annum)
  • The economy is among the most open in the Middle
  • Tourism receipts, remittances, FDI flows and
    external grants play an important role
  • Still there are problems
  • While the authorities have implemented structural
    reforms to develop the private sector,
    unemployment remains persistently high (13.7
    over 2000-2012)
  • Unemployment is concentrated among the youth
    ages 15-24
  • This group accounts for about half the unemployed
    and their rate of unemployment reached 29 percent
    in 2012

Jordan II
  • As elsewhere in the region discontent about the
    economy has contributed to protests in Jordan
    since the start of Arab Spring uprising
  • In 2011, King Abdullah responded by offering
    handouts and promising political reform
  • Since then several changes in prime minister but
    political reforms have made little progress.
  • The economy does have a number of vulnerabilities
    which create considerable uncertainty and
  • Remittances 600,000 Jordanian working abroad
    bring in about 3.3 billion dollars a year (13 of
    GDP). -- Dependent largely on external
  • Aid Jordan depends heavily on budget support from
    Saudi Arabia and the Gulf. Starting in a billion
    dollars a year for five years. U.S. aid about
    660 million annually

Jordan III
  • Discontent amplified by anger about widening
    inequlity and perception privitaziations have
    enriched a few at expense of the many
  • Increasing doubt aboutgovernments sincerity over
    reform as it holds back from addressing core
  • Corruption. Although the country compares
    favorably with most regional countries, public
    discontent has increased
  • Unemployment. Official data putit at 12.9 but
    the true level may be twice as high.
  • Public discontent about unemployment grown
    especially in rural areas where levels are higher
    and public sector salaries have stagnated
    relative to rising prices.
  • Dominance and success of Jordanian Palestinians
    in some parts of private sectors resented by some
    other Jordanians

Jordan IV
  • Assessment
  • Public discontent about the economy may feed into
    discontent about politics
  • The government will try to keep public attention
    on political reforms but it may also promise new
    increases in public sector salaries or spending
    if protests escalate.
  • However these are only sustainable with Gulf aid
  • May not suffice to head off protests in the
    absence of credible reforms.
  • Main problems
  • Country lacks the domestic revenue to sustain its
    institutions and has become entirely economically
    dependent on foreign aid.
  • Without any method of self sustaining growth,
    Jordan often forced to make unpopular decisions
    (subsidy reform) imposed by creditors (IMF).
  • Bouts of protests and uprisings show how
    vulnerable the state has become

Jordan III
  • Other Vulnerabilities
  • Energy Jordan imports almost all of its oil and
    gas needs. Gas imports from Egypt have been
    disrupted by attacks on the Siani pipeline
  • Forces Jordan to import more oil, country had to
    raise electricity prices
  • Syria Although Jordan has not imposed sanctions
    on Syria conflict causing problems by increasing
    cost of goods normally transited through Syria
    from Turkey
  • Country has been flooded with Syrian refugees
  • Discontent
  • Public discontent about economy and limited
    degree of democracy has caused protests from
    time to time along with demands for reform

Overall Assessment I
  • At this point in time a number of generalizations
    are possible concerning the Arab Spring
  • 1. The Arab Spring was caused in part by economic
    underperformance and exclusion
  • 2. The uprisings ushered in new hope that
  • The economies of the region could be transformed
  • In ways that would provide greater and more
    widely shared opportunities for their people
  • Economic Performance
  • 3. Most transition countries have experienced a
    deterioration or stagnation in economic
  • 4. The extent and duration of such deterioration
    has varied by country
  • Libya recovered more rapidly due to oil revenues
  • Yemen supported by grants from Saudi Arabia
    stabilized quickly, but with many problems

Overall Assessment II
  • 5. The economic conditions in transition
    countries have been and will continue to be
    affected to different degrees by combination of
    domestic and external factors
  • Political uncertainties and tensions
    investment, tourism
  • Weak global growth and Eurozone crisis --
  • Increases in global commodity prices -- food
  • Regional spillovers -- refugees
  • Reform Agenda
  • 6. A number of reforms needed to stabilize
    economies and deliver grater economic
  • Progress in the critical governance area slow or
  • More progress in macroeconomic stabilization but
    wealth created at micro level and little reforms
    in areas like labor markets, business environment

Overall Assessment III
  • 7. Progress on economic reforms needed to
    stabilize transition economies has been limited
    in view of challenging political conditions
  • Political rather than economic reforms have
    tended to dominate
  • Lack of focus on the urgency of economic
    challenges faced Egypt
  • Where to go from here
  • 8. Influencing reform agenda remains main lever
    available to U.S. and international community.
    Priority areas
  • Support and encourage IMF Stabilization Reforms
  • Strengthen investment climate (Doing Business)and
    inclusive private sector development
  • Focus on social protection as component of any
  • Encourage subsidy reforms
  • Governance reforms critical anti-corruption,
    increased transparency critical to stronger

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