The director of the IMF’s Middle East and Central Asia Department, says that one of the lessons from recent upheavals in the Middle East is that governments should focus much more on inclusive growth and give better-targeted help to poorer households.
In an interview with IMF Survey magazine, Masood Ahmed said that the events in Egypt will have a negative economic impact in the short run, but over the longer term they may position Egypt to achieve higher standards of living and employment for all sections of society.
Ahmed added that, partly in response to events in Tunisia, Egypt and across the Middle East, authorities in the region have announced an increase in fiscal spending, in some cases preemptively and as much as three per cent of GDP. Measures include higher subsidies on food and fuel, tax reductions on staple commodities, higher funding for private housing and raises in civil service employment and salaries.
Ahmed expects Egypt's economic growth to take a hit this year as tourism and foreign investment decline and for the budget deficit to climb due to lower economic activity, higher food prices and interest rates and new spending initiatives. Unemployment -- already around 25 per cent among the young -- could also worsen, he warns.
But Ahmed also remarks that widespread reforms which bring about greater transparency and competition could tackle some of the constraints that have held back improvements in Egyptian living standards. This in turn could leverage the country’s inherent strengths: a young, dynamic population, large domestic market, a strong financial sector, and a comfortable level of reserves.
Ahmed says the IMF is already providing Egypt with technical and policy advice to confront short- and medium-term challenges to the economy and bring about more inclusive growth, and would be ready to give financial assistance based on an assessment of needs.