Emerging Arab democracies face tough economic challenges

By Anthony Williams

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Countries in the southern and eastern Mediterranean, in which the EBRD is planning to invest this year, are continuing to face serious macroeconomic challenges amid a climate of increasing uncertainty.

The Bank, which has traditionally invested to support countries in central and eastern Europe and the former Soviet Union, is expanding into Egypt, Morocco, Tunisia and Jordan.

The EBRD’s latest Regional Economic Prospects (517KB - PDF) report said, “The economies of these four countries have taken a hit from declining tourism, FDI (Foreign Direct Investment) and trade, and investors have adopted a wait-and-see approach, at least in the short term.”

The report sees economies across the countries where the EBRD already invests growing more slowly in 2012 and 2013 than envisaged in May, mainly because of a downgrade of projections for growth in Russia. The region generally is continuing to be affected by the crisis in the Eurozone.

The report also said economic growth in the southern and eastern Mediterranean (SEMED) region remained generally very sluggish. All SEMED  countries had increased government spending on social benefits and subsidies in a response to social pressures which had exacerbated fiscal deficits across the board.

Unemployment, especially among the youth, remains a chronic problem in all four countries, the solution to this problem is likely to be protracted in light of the subdued economic activity.

The report said the economy in Egypt was being held back by weaknesses in the transport, manufacturing and tourism sectors. It added, “FDI has yet to recover and Egypt is still in a precarious external position”.

Jordan’s economy was expected to remain muted due to the country’s vulnerability to external shocks, despite surprising growth of 3 per cent in the first quarter of 2012. The current account deficit has widened significantly in the first quarter because  of  regional political instability and  energy price hikes.

In Morocco, the EBRD is expecting weaker growth in 2012 given the country’s close links to the Eurozone. Real GDP growth slowed to 2.8 per cent in the first quarter of 2012, leading to a widening of Morocco’s current account deficit in the first quarter.

Only Tunisia is showing signs of recovery in the first quarter of 2012 as real GDP grew by 4.8 per cent, year –on-year. The economic recovery seems to be broad based, and the report noted a rise in the first quarter of 2012 of 33 per cent in the tourism sector and of 29 per cent in foreign direct investments.

However, the report said fiscal pressures in Tunisia were continuing to mount because  of increased social spending.

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