 to our audience here and also to those joining us by live stream. My name is Michelle Dunn. I direct the Middle East program here at Carnegie in Washington. Our subject today is rethinking the public sector in the Middle East and Central Asia. And the occasion of our discussion is a new report on public wage bills in the Middle East and Central Asia by the International Monetary Fund, which is co-sponsoring this event. And I thank the IMF for choosing Carnegie to do this event today. Copies of the report are available here and I understand it's either up on the IMF website or will be shortly. So this report tackles a long running problem in the economies of the Middle East and the Central Asia regions. And the regions we're talking about today cover from Kazakhstan in the east to Morocco in the west. Now the situation regarding the public sector, public sector employment and wage bills differs, of course, from country to country. But the general picture is that governments are spending a lot on public sector wages without necessarily getting good results in terms of services provided to citizens. Moreover, changing world energy markets and changing revenues available, particularly to oil producers, make these wage bills unsustainable in some cases. So how can this situation be amended? Without, of course, causing widespread hardship and instability. So these issues are very controversial and today we're gonna hear a diversity of views about how they should be addressed. We're gonna hear new ideas from the IMF and then we're going to hear what others from civil society and so forth think about it as well. So here's our plan for the next 90 minutes. First we're gonna have some framing remarks by Mr. Dao Zhang, who is deputy managing director of the IMF. Then Mr. Jihad Azur, who is director for the Middle East and Central Asia, department of the IMF, is going to present the main findings of the report. And after that I'm gonna moderate a conversation about the report with Jihad as well as with two expert commentators, Ms. Teresa Ter-Manassian, who's a consultant and a former director of the Fiscal Affairs Department of the IMF, and Ms. Amy Akdawi, who's a consultant specializing in civil society and civic engagement, formerly of the Bank Information Center. And of course we'll reserve the last part of our event for questions from the audience for our panel. So Dr. Zhang, I welcome you to the podium to make your remarks. Thank you, Michelle. And good afternoon, everyone. I'm very pleased to be here. And of course I welcome you once again to today's event. I would also like to take these opportunities to express my appreciation to Carnegie for hosting this event. And particularly to Michelle for assembling such a wonderful panel and also for moderating later on today's discussion. So here at Carnegie today we are launching a paper. The paper examining the management of public rich barrels in the Middle East and Central Asia. As you know, the paper was prepared by the team of my IMF colleagues, led by Natalia Tamreza and Chris Duneward. So why we care about this subject? Globally, spending on public reaches absorbs around one-fifth of total government spending on average. So that's a skill. Clearly this has important physical and macroeconomic consequences. Moreover, the efficiencies of public rich spending as well as other public services is crucial for the economy of any kind of countries, being it advanced, emerging markets, or low income. So such a policy are essential to achieve strong, sustainable, and inclusive growth. I think that's the starting point. Our previous work has shown the process of reforming public rich barrels actually can be quite complicated and time-consuming. So it requires robust institutions and considerable political will. More importantly, reform in this regard have a better chance of achieving sustainable success when they are part of the longer-term, broad-based, structural reforms to the economy. So this will be more effective than just addressing short-term measures such as freezes on wages or higher. So this paper we're going to launch today looks at this topic through the length of Middle East and Central Asia. And this region, as you know, where policy makers are grappling with challenges related to public sectors, employment, and wages. And of course, addressing them here will also have important implications for economic welfare more broadly, not just confined to this region alone. So let me mention some of the challenges facing this region just briefly. First, some countries are experiencing weak growth and higher unemployment, with a large number of the young people entering the job market each year. This has put pressures on government to find ways to generate jobs. So that's the first challenge. Second, many countries are facing a difficult budget environment, partly due to low oil prices and foreign exchange remittances. And third, demands to improve the delivery of the public services are increasing. But these services have fallen short of public expectations, and you can see that in many countries in the regions. Finally, internal and regional conflicts have presented the challenges of managing unprecedented flows of refugees, migrants, and internally displaced people. So this placed immense burdens on government services across the regions and further strength budget resources. So this is now the issue just on public wage bill per se. This is a broader issue or as a part of the broader packages of reforms. So with that, what do we do? And we can reflect it in the papers. One of the key findings in this paper is that public wage bills in Middle East and Central Asia are high compared to other regions. In terms of the numbers, average public wage bills amount to 10% of GDP while others, if you compare with other regions, which is only 6% in the similar country circumstances outside the regions. So we can see that this carries even stronger significance in terms of the macroeconomic policy implications. Why is that? And this is partly a legacy in the past reflecting the prevalence of state-driven economic models in many of the countries in the regions. Government too often act as a employer of first resort and public sector jobs serve as social support. Of course, this strains resources that could have been put to more effective use elsewhere. For example, in oil exporting countries, we have seen governments attempting to maintain social cohesion by offering high levels of compensations compared to the private sector. Though obviously this has distorted labor markets and competitiveness. In addition, the political instabilities and conflict across the regions means that the security-related employment is on the rise. This clearly can have implications for public wage bills. So while we're talking about more on the Middle East, certainly the challenges of managing public wage bills also are difficult issues in the Caucasus and Central Asia. Public employment remains high in these countries despite slower government hiding during the transitions to the market-based economies during the last 25 years. So with all of these challenges, what are these policy responses? So this is a paper I'll try to look for. I will leave it for the moment to other speakers and panelists for discussions later on to details on the recommendations. But for now, allow me to offer into bigger pictures that is the governments need to pursue which bill policies that are physically sustainable and focused on providing effective and equitable public services. So that's the bottom line. Reforming, we believe, reforming public wage bills can make room for spending that enhanced inclusive growth, including enhanced social protections and, in the meanwhile, provide higher and fair growth in the Middle East and Central Asia. Of course, this requires a broader base of reforms that are sequenced and designed to work in synergies between each other. So I hope this paper and together the today's discussions will stimulate the debate on this important topic by all the parties. So as a matter of fact, we at the IMF, in the process of preparing the paper, have already benefited quite significantly from the dialogue with civil society and labor unions. Our fundamental objective is to motivate better public service deliveries and this in turn, of course, we believe can support the broader reform needed to increase private sector employment across the regions and of course, by doing that, boost sustainable and inclusive growth. So I look forward to our discussion later today and hope it will deepen our understanding on all of these important issues and with that, let me handle the floor to Jihad for the presentation of the paper. Thank you. Well, good afternoon. Also, I would like to thank you, Michel, as well as also Carnegie for hosting us this afternoon to present this paper. Also, I would like to seize this opportunity to thank Amy and Teresa for accepting to participate as a discussion of the paper and to thank my colleague who prepared this paper and reviewed the paper, Natalia Christoff and Asim who reviewed the paper. Amy, Michel, in her introductory remarks said that this is a long-standing issue. It's indeed a long-standing issue and the question is why we are considering that this is an important issue today and why now we believe that it's important to reform the wage bill and above all, how to do it, i.e. how to do it in a way that addresses the root cause of the problem as well as also achieve the objective of improving government functioning and create more inclusiveness in the way growth is being run. Therefore... Excuse me. Okay. Technology. Okay. Why? It's definitely a long-standing issue. It's been with the region despite the differences in countries in terms of size, in terms of geographical location for decades. It's one of the structural weaknesses that the region is facing in addition to low growth, lack of inclusiveness and high level of unemployment. Therefore, those structural weaknesses that have been here and led in some of the countries the recent developments that we saw over the last seven or eight years and those structural issues get exacerbated or aggravated by the shocks that the region has to face over the last decade, starting from the international financial crisis to the Arab uprising in 2011 and more recently to the sudden and sustainable drop in oil prices. Therefore, the region in the last 10 years was in addition to the structural issues subjected to some number of shocks. What the region was able to do is to sustain and this in fact was one of the strengths of the region, the ability to weather the storm and sustain the shocks, yet the region was not able to fastly recover, address inclusiveness issues, create enough growth to make it down to various groups in the society. Therefore, structural weaknesses in addition to the shocks are more and more requiring that some policies need to be adjusted in order to deal with those issues. Therefore, if we want to achieve inclusive growth, if we want to address the level of unemployment that in some of the countries is above 12% or the use above 20% to 30%, we need to do some changes. And those changes are at more than one level and need to be articulated together. Of course, addressing long-term issues requires structural reforms and also requires improving governance. But also, the fiscal can play. The fiscal can play by creating additional fiscal space, which means make some savings that will be used to address some of the social issues that could be used in order to invest in infrastructure to increase productivity in the economy and create additional jobs. Therefore, what this paper is about is to show that reforming the wage bill will definitely help create additional fiscal space that is needed for those countries, especially for those where the level of debt, for example, for the oil-important country, exceeds 80% of GDP, where they have very limited resources to deploy for social programs, but also it helps structurally. It helps structurally by increasing the competitiveness of the economy, as well as also it helps in terms of improving governance by modernizing the state and modernizing, in fact, the administration, especially as we are at a turning point with technology and its development that is going to reshape the way not only the private economy is functioning, but also the state and the state services are being delivered. Therefore, it's a timely paper that, in fact, try to look at the situation broadly, what are the issues, how these issues are interacting in terms of what are their implications, and how moving forward we can, through reforming the wage bill, improve inclusiveness in those countries. As Thao mentioned in his introductory remarks, definitely when you look at the region, compared to other similar countries, the wage bill is higher, and this is particular to MENA countries, and the wage bill is growing fast, which is the case for Central Asian and Caucasus countries. Therefore, we have really an issue here, and this issue is, in fact, exacerbated with the recent shocks, as I said, and the way government reacted to it. For some countries, especially oil exporting countries, it becomes unsustainable for them to keep this high level of wage bill. If we look more specifically to countries, we see in terms of the employment in the public sector compared to the rest of the world, most of the countries in the region are, in fact, have a level of public sector employment that is higher than the average of emerging markets. And for certain countries, it's two or three times higher than what is in equivalent countries. Therefore, clearly, you have high level of employment. And the question here, how this high level of employment is, in fact, affecting public policy? Is it creating better services in what the government is providing? Is it, in fact, improving social conditions? What is the impact of this level of employment in terms of the efficiency and the productivity of government? Therefore, another peculiarity in the region that, on average, the public wage bill compared to the private sector, salary and wages, show that there is, in fact, bias toward public sector employment. And here, most of the countries have higher wage relatively speaking, on average, compared to the private sector. And this doesn't include some of the other benefits and the non-monetary benefits that usually come with public sector employment. And if we add these elements into the equation, it's clearly showing that there is a bias toward getting employed in the public sector. That, hence, in fact, is limiting the productivity of the private sector because they need to catch up and increase wages and make the economies of those countries less and less competitive. High level of employment, relatively high level of wages. Therefore, the question is, is this, in fact, improving the service delivery? Clearly, when you look at the various indicators, and this is one that shows government effectiveness, the level of effectiveness in the service delivered by government in the region is not at par with the level of investment that is being made in the public sector employment. This is particularly the case for oil-important countries in MENA. Even with countries where the level of salaries are very generous, as we saw in the previous slide, for example, in oil-exporting countries, we don't see really differentiator here. Therefore, the level of salaries or employment in the public sector is not positively affecting the delivery of services in the public sector. The second thing is there is no evidence that could show that this high level of employment in the public sector is improving on the employment side, i.e. reducing the level of unemployment. And therefore, when we look at this graph, you cannot draw any correlation between employment in the public sector and also the level of unemployment. Therefore, clearly, it's not showing that increasing employment in the public sector or using employment in the public sector as a way to address a structural issue, which is the level of unemployment that needs to be addressed more through other type of policy. This policy is not, in fact, having the impact that is expected. Therefore, giving the weight of the wage bill and the budget, as I said, for oil-important countries where the level of debt is exceeding 80% on average and giving also the level of budget deficit that those countries are facing in the context of rapidly declining oil prices and that oil prices are still, in fact, at relatively low level. If you want to address social issues, if you want to invest in the productivity of the economy, you need to get some resources freed up. Otherwise, as we see here in this slide, what is being spent on social by government in oil-important countries is very, very low, as well as also what is being invested in infrastructure for a region that has been growing at a low pace. And if we look forward, for example, for men-up countries, we need to create in the next five years 25 to 25 million additional jobs to absorb those who are coming into the labor market. Therefore, addressing this issue is not only to address the level of weaknesses in social spending, as well as also in modernizing the infrastructure, but also to think the future. Because if we project ourselves five years from now, what is being required from government to be spent both on social programs as well as also on modernizing the infrastructure will be bigger if we want to, in fact, improve economic and social conditions. And if we want to achieve the objective that all the societies are claiming and asking for, which is more inclusiveness in the way growth is being shared. Therefore, clearly, freeing up some resources, what we call in our jargon, having a fiscal space, is needed in order to address needs on the social as well as also on the infrastructure front. The other thing that we have on the paper, and there are, in fact, few case studies, I would encourage the readers to look at them at the appendix. We have few case studies about what countries did in the region in terms of reforming the wage bill. Quickly, what one could see is we are seeing some attempts to address or to reform the wage bill. And, by the way, reforming the wage bill, it doesn't mean automatically cutting the wage bill as expenditure, but reforming it as a way to make sure that it's, in fact, relevant to the size of the economy, relevant to the quality of service that is being rendered, and also fiscally sustainable. Therefore, over the last few years, we saw some attempts. Most of them were around, you know, putting some short-term fixes to structural problem or to long-term problem, mainly by freezing hiring or by introducing some attrition, non-replacement of those who are going on retirement. This is good, but this is definitely a short-lived and short-term measure. It doesn't address the root cause of the problem, and it's something that has proven to be not sustainable if it's only the policy lever that is being used. The second attempt is to have to free salaries as a way, in fact, to address the fiscal unsustainable situation. This is, as I said, also another short-term measure, but it's not enough. Some countries have resorted to it. What we believe the wage bill reform is is very good introduction to broad reform of the public sector, whereby we link wages to productivity. We link wages to performance. We use wages as a way to attract the talented people into the public sector. We are able to measure the performance of the public services. We are able to embrace what is happening now as technological revolution, whereby in the next five to ten years, most of the public services, as well as also the private services, will be, in fact, rendered differently. Technology, digital, will be the main mean of providing services, and for those countries to be able to compete, they need also to embrace this technological revolution. And therefore, addressing, in fact, in a structural way, the wage bill, and reform it and put it part of broader public sector reform, or I would say even have it as the first step of the public sector reform. This is what we recommend for countries in Middle East and Central Asia. Very quickly, the key question is how? How to do it? And why now is going to be different from the past? This is, in fact, what the team tried to do, look at past experience, what has been done in the past, and the way to do it now, learning from past experience and the current challenges. And therefore, the first question was, what should be the purpose of those reforms? And there are, in fact, clearly four, as you see them in the slide, is how to make this key expenditure sustainable, especially in the context of growing public sector and the context of high wage bill. Is therefore how to anchor the growth of the wage bill going forward, especially with aging population, especially with additional needs in order to improve education in a region where education indicators are showing a lot of weaknesses. Therefore, how to anchor the wage bill growth and the expected outcome is to have a fiscal sustainability here. The second purpose is how to make, in fact, wage bill or public sector more efficient. And in fact, here, the main avenue for reform is, in fact, to review, to review sectoral, the various sectors that are run by government, and how to reform them. And the expected outcome is, in fact, to improve the service delivery and to make the government and the government services beneficial both to citizen and to private sector and health in improving competitiveness. The third one is how to strengthen institution and data, because clearly there are a lot of distortions in terms of how salary scale is set, the level of benefits and additional financial compensations, long-term sustainability, how this is going to have an impact on the pension. Therefore, there is a lot of work to be done to improve the quality of information, to have detailed information on the wage bill, on the employment, and to be able to strengthen the institution, service service agencies and board, et cetera, et cetera. The fourth one is, in fact, how to put the wage bill reform part of broader reform that will help inclusiveness. And how to make this wage bill reform interact with other public sector reform and other public policies. And here, the objective is much broader is, in fact, to use this as a way to make the economy more competitive and the state more conducive toward inclusiveness. Few recommendations, what we try to do in this paper, not to have it country-specific or not to have a kind of old recipes that will be applied for all, is more guiding principles. One is make public wage fiscally sustainable. This is easy to say, not easy to implement on the ground, especially when we integrate the political economy of reform, how difficult, in fact, to anchor the wage bill in a medium-term framework, usually our short-term in their approach, because they have short-term issues to address, how to reform the civil service and restructure the public sector in a sustainable medium-term framework. The second recommendation is focus policies on effective and efficient delivery of public service and also make the way we deliver public service equitable in terms of providing the same access to people for those services, no bias, no differentiation. Therefore, improving service delivery mechanisms and the digital revolution is an important way to achieve on that. Countries in the region have high level of mobile utilization in terms of mobile penetration, etc., etc. But the level of the delivery of public services on those new platforms is still very weak, and this is something that should be part of the equation in terms of reforming the wage bill is also to provide additional improvements in terms of services, additional resources to be used for inclusiveness, and also improve the way institutions function. And this is something that starts by having better quality of data on the wage bill, better quality of data on the public service, and goes to the extreme of having strong public sector institution where citizens have confidence in the way hiring, firing, promotion and the public sector is done, and have the public sector being in fact protected from any political interference. Last but not the least is as one of our key recommendations is not to look at the wage bill reform on a standalone basis. Put it in order context, put it as way in fact to allow the economy to diversify, to create more space for the private sector, to access quality labor, and also redirect some of those fiscal resources for a better social safety net. We believe that in parallel to this reform there will be some implications and therefore need to be addressed, plus a better utilization of public money that will achieve higher level of equity in the system and efficiency in use of public money could be reached by putting the wage bill part of broader public sector reform and part of broader economic reform. Let me quickly sum up. Yes, we believe that reforming the public wage bill is an opportunity today to modernize the economy, reform the public sector allow for better utilization of public resources and sustainability in terms of fiscal situation. Second, the wage bill reform is not on standalone. It is part of broader fiscal reforms. One of them is to have the tax system being more progressive and more equitable but also is to make sure that for example the money that is being spent on subsidy is redirected through better targeting to reach those who need it. Therefore this is a piece of broader fiscal puzzle and this is a piece of broader economic puzzle the way we see it and this is why we believe that using this as first step in modernizing public sector will contribute to improve service delivery will also help modernize government and make government in fact especially for countries that are ranking very low in terms of doing business and in terms of efficiency of government service delivery to improve on that and to make economies more competitive and conducive to create jobs. Last but not the least, those reforms are country specific. There is no size one size fit all and they have to be designed taken into consideration various factors political economy of reform the fiscal situation how acute is the need to do it how to benefit from best practices that we have and this is something that we at the fund we are ready to provide for countries in order to design a reform that is on one hand country specific and suitable to their issues but on the other hand benefits from what has been done in other places and also this is a long term transformation and it's not something that we consider as short term measure and this is why we believe that this is first in fact the first paper is to lay the ground show where are the weaknesses give some recommendations and then progress with countries on the way forward with that, thank you very much and I'm very happy with the discussion to answer any of your questions. Get into as you mentioned the political economy, the messy politics behind this why there hasn't been more done on this issue in these countries why some of the things that have been tried haven't worked particularly well and so forth so Teresa I'd like to invite you to comment on the report first first of all any overall comments you have I would welcome as well as your experience with the political economy aspects and the politics that goes behind the decision making regarding public sector and public sector wage bills and so forth so please the floor is yours. Thank you. Well first of all let me thank very much to the Carnegie Center and my friends in the Middle East and Central Asian Department of the fund for inviting me to comment on this interesting and really very topical paper. I mean Giada emphasized in his presentation I entirely agree the region faces a severe development and fiscal challenges that not only justify but really require a close look at public wages because these represent on average a substantial portion of current public expenditure in the region and because they are above the levels prevailing in comparator countries. I would like to say up front that I really like the paper. I thought it was highly relevant but also well researched and that it offered a series of thoughtful policy reform options for the considerations of the region's authorities. I particularly wish to commend the authors' efforts to collect such a wealth of information I can guarantee you it was not an easy task I'm sure because I know what goes into collecting all the data from countries that are you know still have a lot of lacuna in this respect and also to put the region's situation and trends in an international perspective. So my focus and my comments focus really on areas for further research and reflection. First of all I would like to see in the paper more analysis of the political economy of public wage reforms in the region. This is especially important because the evidence assembled in the paper shows that reform efforts have been generally short lived. This raises the question whether the obstacles were greater for are greater for short term or longer term structural reforms. And my impression from reading the paper is that the governments in the region have been more able to enact shorter measures such as hiring or wage freezes than to sustain less drastic structural reforms over the longer term. And I was wondering whether this has been the case because short term measures were introduced under condition of external or fiscal stress and therefore were reverse subsequently when the stress is and since the paper correctly I think emphasizes the costs of this stop go type of measures. Social costs efficiency costs distribution costs I'm wondering whether perhaps there shouldn't be more reflection of the tradeoffs between shorter whether there are tradeoffs between short term and longer term measures and how these tradeoffs should be taken into account in the design of programs including fund supported programs. The paper calls for a social impact analysis of the proposed public wages reform. I entirely agree with this I think this is very important to do but it should focus not only on the lower income groups but also on the middle class because it is the middle class that is more likely to be affected or be the loser of these reforms in the short term. And the middle class has more political clout than the poorer groups. So a careful identification of the likely losers from the reforms is crucial for designing appropriate, well-targeted and ultimately fiscally affordable compensatory measures. More generally the identification of the likely social costs of the reform is important for the overall design of the reform strategy and for its sequencing with the complementary reforms. For example trying to offset measures with high upfront costs such as restructuring of services that entail significant losses of public jobs with ones that have longer term payoffs such as increased spending on education or measures to improve the business climate may give rise to strong social opposition. In these cases for instance it would be more useful to increase or extend the duration of unemployment compensation schemes in some cases there may not even be an employment compensation scheme and this would have to be created then putting a lot of emphasis on longer term reforms. This may sound a little bit sort of heterodox to say but I think it is, these are the political realities and ultimately they are essential for the success of the reforms. In designing reform strategies it is also important to fully internalize institutional and legal constraints and to recognize the heterogeneity of the civil servants. For instance increasing geographic mobility of the civil servants which is in many countries an important component or should be an important component of reforms may be made more difficult by rigidities in the housing market and this obstacle may be addressed through appropriately generous relocation bonuses. Also one should consider that while some skills may be transferable across different sectors of the civil service others may not for example those of health workers or of engineers you cannot just shift people that are health workers to be teachers or people who are engineers to do health work for example. Training or retraining programs can work only partially to address such constraints. And finally it should be recognized that reforming pay scales and linking wages and career progressions to performance is not an easy task as in amply evidence by the literature and by international experiences in this area. The paper shows clearly that wage bill spending tends to be pro cyclical during economic upswings but it shows some downward rigidity during downswings at least until the financing constraints become binding. This argues for adopting a rule that limits the rate of real growth of public wage spending. However there is a press that such a rule would need to cover all the aspects of the civil service compensation and it should be accompanied by clear accounting regulations to avoid misclassifications of such compensation. Also a rule limiting the real wage public wage growth may have the disadvantage of the fact of setting a floor on the growth of the public wage bill and encouraging outsources not justified by efficiency consideration. To be effective over the longer term the rule should also be supported of course by any necessary changes in the relevant legislations for instance regarding the tenure of civil servants. There is no point in setting a rule that then when you don't have the institutional underpinnings to implement it effectively. The paper recognizes that there are significant data limitations and also limiting the depth of analysis of the structure of the public wage bill and the drivers of the development of the wage bill over time. I find particularly of concern the lack of reliable information on public employment and wages in local governments and extra budgetary institutions. This is likely to become even greater concern because the trend which is well established worldwide of moving services to the sub national levels of government is beginning to spread throughout the region. Remitting this shortcoming will require in most instances both strengthening public accounting regulations to ensure homogeneity of practices across levels of government and also assistance by the central government to the smaller local governments to strengthen their capacity to comply with the accounting regulations so as to generate statistics that are reliable and sufficiently detailed. Thank you, Teresa. Jihad, I see you taking notes. I think after Amy has spoken I'll give you a couple of minutes to respond because I think Teresa did raise a lot of important points. Thank you. So Amy one of the features of this report is a box summarizing input from civil society organizations and labor unions about public sector wage reform which is often the subject of a lot of concern due to the impact on social welfare and so forth. We're counting on you to sort of bring this perspective to the table and maybe also to dive in and I know you'd like to look at a couple of the countries in the report a little bit more specifically so please I welcome your remarks. Thanks a lot for inviting me. Thanks for my friends at Carnegie and I am after inviting me to sit on this panel. But first I like the report and yes it's overdue reform in public sector as an Egyptian citizen myself growing up in Egypt till now it's a nightmare when someone asked me to go to a public office to do any type of paper and it's something that we always make jokes at when we are in Egypt. So yes it's overdue but I also welcome that the report stressed on it's not one size fits all and it's different from one country to another and I want to when I want to talk about the civil society recommendations I want to dig more into that specific in each country and of course as you can expect I will use Egypt as an example because this is the country I came from and I still visit a lot of time. So in Egypt the report itself mentioned that the public wage, the load of public wage on the GDP is exceptionally lower than other countries in the region in the first year 2015 2016 it was 7.9 percent and even though it's lower than other countries it still the government promise to freeze the wages and to cut it to curb it more into like to six something. The other thing like the payments the wages in public sector unlike the other countries in the region is much much less than the wages in the private sector and this is part of the problem of the public sector in Egypt because employees in the public sector they have to do some bribery, corruption or even sign in the morning in the office and go and drive a taxi to make ends meet but it's like so this is part of the problem that the wages are really low and just to give an example from the education sector the wages for the teachers is really low so teachers there encourage students to take private lessons in order to succeed and like to to go to next level in school and this has become like a black market and it's a lot of resources that are untaxed for the government so it's revenue that is not tapped into from the government because of the very low wages for teachers and also this affects the education the quality of education which in also affect the jobs in the private sector because people are not equipped with the needed skills to qualify them for the private sector jobs so part of the problem there is a very low wages not the high wages there is many other problem it's not only fiscal there are corruption there is a lot of secrecy there is the off-budget funds that like a lot of allowances and salaries for senior officials and it's not accounted for so we don't know about how much those public funds of budget funds pay for senior officials also the sectoral it's like you will see security sector the police the military all of those wages are really high compared to the education and the health sector which are very needed services there especially if we want to meet the SDGs goals the other things that I want to look at is like all the other economic reforms that were introduced at the same time where is the public sector reform in Egypt and look at the how to free resources that the report claim if we free resources from the public wage this would go into investment and social protection so first in two years the local currency was flooded so from nine dollar nine Egyptian pounds for one dollar it went through in two months up to 20 Egyptian pounds for one dollar and now it went back to 17 even though the IMF expected it to go back to 14 but I don't think it will ever reach so 14 it's now in the range of 17 and 18 for a long time so inflation is really high it reached 32.2% as of March 2017 the VAT the value added tax was introduced electricity tariff was increased the subsidy gas subsidy was lifted and of course this all affected the purchasing power for Egyptians and of course this affected also the market so less production because we don't have enough buyer there so at all in this circle and now we are also freezing the wages and the public sector that were already low so well this is the cumulative impact of all the reform so we cannot look at the public sector in isolation from the other economic policies that were introduced at the same time so this is one thing in Egypt and speaking of how to free resources for the social protection or programs or for investment and look tapping into the public wage to free those resources let's talk about other untapped resources with the floating of the currency and one of the advice of the IMF was to increase the interest rate so this also to like to make sure that they can control the inflation so what happened is because the government had accumulated a lot of domestic debts so this increased the domestic debts for the government and now the government pay 34% of its expenditure towards domestic debts so this was money that could have freed for social protection and investment but also add to this now the wealthy people can buy bonds that would give them 20% interest so they accumulate more wealth so actually this policy worked for the wealthy and it's in a way indirectly the government is subsidizing the accumulation of wealth for the already rich people and taking away from money that could have been spent on social protection and investment and so this is all things that need to be considered in relation to each other the other example that I want to talk about is Tunisia and because it has a special place I guess in the heart of any citizen in this region as perceived by many it's the only hope left in the region and it needs all the support for this still fragile democratic model to succeed yes the public wage there is really high but there are many reasons of this and one of them is the security needs was after all the terrorist attacks and it's also because the revenues itself of the government went down after the terrorist attack and losing the resources from tourism and that's why the percentage of wages went higher so there are many reasons that should be taken into consideration but even if we say yes it's high it needs to be curbed I guess it's more important to protect the democratic process there and taking into consideration the voices of several societies of the labor unions the unions for the employers and the fact that the public wage there took long time to pass unlike in Egypt it's really very good sign because it shows that they have to come together at the table to reach some sort of solution and make negotiation and compromises from each party so it's a very good sign that should be encouraged and not criticized and should be flexibility should be made here because this is a country that needs it will be a good example of the region that is full of authoritarian regime so we all need this country to succeed and play this role model for the rest of the countries so this is more important than the fiscal problem here the social stability and all the support needed for the democratic process to succeed there Thank you Amy I think you've done a great job of putting this issue of public sector wages and wage bills into the context of other economic reforms as in Egypt and what the total effect is as well as in the political context in Tunisia. Jihad I want to give you a few minutes to respond I think that Teresa and Amy have put a lot out on the table here and meanwhile audience prepare your questions because it's your turn next so Jihad please just take a couple of minutes if you would to respond I don't expect you to respond to every point the big ones please and in fact it's not responding it's more engaging in the discussion I concur with what Teresa said that this is a complex exercise that requires a certain number of technical as well as institutional reform for it to produce the right result i.e. if you don't build the right institutions you can deal with human resource management in the public sector that creates the right mechanism for this reform to produce results in fact we will be in a situation where we will address part of the problem and not all of it. I totally concur with also the issue that political economy is an important dimension to take into consideration we are refraining from saying this is the solution we're giving in fact we're saying few important things one is this is the right time to address a problem that has been here for decades and by addressing it we will help achieve what Amy was looking at is how to make in fact the economy have a better distribution system has a better protection system if you don't address this as well as also other items it's very difficult to be able to reach that therefore the political economy is going to be an important element but I think what we wanted to show that what has been set as objectives for this policy proved not to be as effective as it was and therefore it's about time to look at it again and it's about time to look at it again at a time where globally the technology is going not only to change the way private sector work but also public sector work and in five years from now we will be forced to do certain number of things in terms of public service delivery that if we don't address issues now we will be faced with more difficult and challenging situation and I also concur with the point it's not short-term one-off it's a process and this process takes time with Amy I don't want to focus on these two countries and then the programs with these two countries but let me have three comments I think we need to differentiate between the service and and the quality of the service to the community and the cost of the service to the community you mentioned you took the example of education it's clear that people are moving from public education to private education not because their wealth has increased but because of the quality of education and the public sector has deteriorated at a time where employment in the public sector has grown up has grown therefore it's clear that we need also to look at those who are not in fact getting especially the taxpayers are not getting what they should expect in terms of return on those services and in the case of Egypt Egypt has in terms of employment in the public sector a higher level of employment with comparable countries yet maybe the salaries are not reflecting it but maybe also the statistics are not showing all the expenses last on Egypt is yes the adjustment over the last 12 months required a certain number of fiscal and monetary measures but clearly we saw that it allowed the government to redirect some of the funds to address the low income people issue and then 30% of the people today are benefiting from those social programs and etc etc and I concur that maybe in the next generation of those programs we need to see where the middle class is in it and maybe it's by using different type of instruments cash transfer works for low income people middle income it's mainly about improving access to quality of services because this is what matters for them at the end of the day in terms of income and also show them that there is in fact accountability by the state therefore I think collectively we need to think about how to cater for the middle income as for Tunisia in fact in December 2010 it was about a university graduate he was not able to find a job in the public in the private sector and the whole reform was to modernize the economy to grow faster to provide for highly educated people a way to get a job that the public sector was not able to provide at the time and what happened in between the size of the public sector went even bigger therefore for those who are currently graduating from universities entrepreneurs people who want to do their own in fact business or they want to find a job in a private company they don't have the ability because the state has exhausted the resources to pay for wage bill therefore I don't see all the time a positive correlation even in terms of political adjustment between using the tool of increasing employment in the public sector and also with the right level of communication and the right measures to accompany a reform like this you can achieve the objective of improving living conditions providing low income people access to better services and better opportunities for work especially for youth 20 to 5 to 30 percent of the youth of those countries are unemployed and the public sector cannot provide them giving the level of employment in the public sector therefore maybe the intention is good but the instruments clearly are showing that they're not efficient and I think in the case of Tunisia this is what the government is being pursuing now that having or redirecting some of the resources will allow them to focus more on what is needed in terms of economic policy to allow the economy to grow faster and to provide jobs for the youth okay thank you Jihad okay we'll take questions now here's the first one please give your name and your organizational affiliation I know if your question is for a specific panelist my name is Jomarie Grease-Grabber I'm with new rules for global finance and my question I presume is to Jihad I realize that every report can't be comprehensive can't be encyclopedic but this focus on the public wage sector really requires questions about sources of revenue for the government and tax policies that are progressive that take the wealth from the super rich from the corrupt to those in need and I'm wondering how you're going to counterbalance the wage policies with that issue okay let's go ahead and respond to that the fund has done a lot of work and the department that I'm in on this issue of fairness and taxation and how to make the tax system more equitable and be through progressivity better sharing of the burden last but not the least in the system in many of those countries with when we look at it you see that the level of revenues from non-natural resources is low compared to other countries and specifically you have a lot of talking of an expert on fiscal issues you have a lot of special schemes and exemptions that will introduce an additional layer of inequity in the system and in addition to the progressivity all these special schemes needs to be addressed in order to improve efficiency as well as also equity in the system and last on that we are working now more on issues related to governance corruption and the way to address capture of public resources and the way to reform that first Amy would either of you like to comment on the tax I mean other than to say that the fund has really worked a lot on how to improve both tax policy in terms of making it more progressive and more equitable and fair both horizontally and vertically but also on tax administration because let's face it a lot I mean you can have the best designed tax system in theory and then if there is a lot of evasion or tax avoidance or tax planning a scope for tax planning it's the laws are not relevant and ultimately the system becomes regressive the fact so I think that I mean a lot of the work of the department used to head in the fund and which works very closely with the Middle East and Central Asia department in the technical assistance is really devoted to improving not only tax policy but also tax administration and this is an issue in oil importing states as well as oil exporting right it's not only those governments that have big oil revenues that have been under taxing or unfairly taxing the population right yeah okay can I please yeah so what I noticed when I looked at all the economic policies that were introduced in different countries ironically the policies that have negative social impacts or economic impacts on the lower income people or the lower middle income people are the ones that are introduced the first ones and not the ones that will bring revenues from rich people or will affect their style of life so for example with this wage problem and like the quality of services even though we say that still with the high employment rate in public sectors this didn't solve the unemployment so one would think okay so this doesn't work the unemployment I wouldn't increase it by freezing hiring sorry I wouldn't increase it by freezing hiring in the public sector until I provide more jobs in the private sector to absorb the unemployment but the first thing was to go and curb the salaries from the public sector before introducing the investment laws that would facilitate the initiation of new businesses and new jobs and this is what happened in Egypt like the investment laws that was also recommended at the same time by the IMF was just past two months ago but the public wage because it's always easier to go under people and middle income but not and it's the same with the taxation. Yeah and this is a major theme of the report keeps coming up that there's been this quick fix of hiring and wage freezes that's been implemented many places you noted Teresa that that's been resorted to far more often than some of the bigger more structural things is that because it's easier to take these measures against people who are much less likely to push back people you know poorer people or just because it's something quick and easy the government can do or Teresa you also raised the thing that this is the thing maybe that governments have been asked to do by external institutions well I mean I think I should speak for I think GR is a much better position to answer this specifically in the region but I think that there are tradeoffs between you know short term and long term measures and where you know the IMF is always confronted with the need to make a judgment of where the balance should lie in a particular case clearly if a country is exhausted it's financing access and so on it has to privilege measures which may be short lived but are you know necessary to make the budget I mean to pay the bills basically of the budget in the short run where there is some more leeway for the the authorities in terms of possibility of as I said trading off short term measures for longer term sometimes the political economy argues more for you know going for the short term measures because perhaps they you know affect less vocal parts of the population but I don't think that's the case with wage bills because wage public wage bills are basically affect a very vocal part and a very powerful part of the population I mean with considerable political clout so I don't think that is necessarily the political economy necessarily argues for you know sort of putting all the burden on the public wages it's just that a lot of the measures have been taken when the country was really under very strong sort of external or or fiscal constraints anything to add? Well I think two comments one is we need to look at things and to put them in perspective taking for example the case of Egypt as a case as an example when you intervene in this case the first phase is to stabilize an economy address some short term economic issues that require some short term measures or some measures to stabilize the situation phase two is you look into more structural things in order to allow the economy to address its structural weaknesses or to be able to grow faster and create more growth and address some of the inclusiveness issues and if I take the medical metaphor which patient has different situation and therefore you have to administer a different mix of medicine but it doesn't mean that the medicine that you administer to stabilize should stay the difficulty we face in several countries and I would say in most of the countries in the region is as soon as you reach stabilization the drive and the appetite for reform especially both in government as well as also in the society gets or colder and therefore we are able to achieve stabilization that in some cases has side effects but for people to see the benefits ultimate benefits of the overall transformation sometimes it's difficult because of as I said it becomes more difficult to convince decision makers to look at the long term issues and this is why in the case of the wage bill we see government have easier way of for example freezing wages or freezing employment when it comes to restructure the public sector review the way they hire they attract the size of the government the missions of the state this is where in fact it becomes or their appetite for that is much less not because of the design of the reform program it's with time we see less engagement and this is something that it's important especially for the civil society to be a partner with that because there is always a cost for an adjustment but this cost is much lower than keeping things going into more open crisis and this is where in fact for those who have a long term horizon is to keep an eye on the reform agenda and to make sure that after stabilization we address the structural reform and clearly in the region the need is not to employ more in the public sector or to have the public sector become the engine of growth the public sector or the state has to be the enabler of growth and this is something that I think we need to shift our paradigm it's not by addressing creating jobs in the public sector that in the long run we address social issues but making the needed reform that the state only can do in order for the economy to be more productive and competitive we'll take a few questions my question is related to would you tell us who you are please Shankar and Namioka just the concerned citizens my question is still related to revenue government revenue is not limited to tax user fees many government originally they started railroad or electric grid or water system highway system etc it's relatively short term construction stage but afterwards like railroad provide very stable employment afterwards so how about that subject applied to those countries okay are there other questions I can take another one here please I want to say that wage bills are political regardless of where they are handled in the Middle East or the rest of the world these are very political issues and in the context of the Middle East if I understood what Jahad was saying it's not a question of loss of appetite after stabilization has been achieved it's the more serious political question of who is going to pay for the kind of restructuring that we are dealing with and that is not an easy answer sorry the answer to a very difficult question and therefore it seems to me that at least I haven't really looked carefully at the paper but one of the issues that I surmised in just looking at is that there's no distinction for instance in the discussion of the delivery of social services and the state sector and the role or what is expected of it in terms of the wage bill reform no discussion really of the productive sector of the public sector and which impacts on the working classes these are the kinds of issues that complicate the kinds of decisions that you are expecting now that stabilization has been achieved and of course there are not technical issues there are very political issues and therefore they are inevitably very difficult to make okay I'm going to not seeing another hand I'm going to throw another question of mine into the mix and then I'd like to give each of you just a couple of minutes to respond before we finish and I just wanted to raise Iran now looking at Iran I've heard in this report and from what I could tell had Iran was somehow in the middle of the pack in this region in terms of the size of its public sector the dependence on public sector employment and the size of the wage bill and so forth but maybe you can tell us better but you know I mean there's just a sense that I mean Iran despite its many differences with the international community on many issues economically that have you know that have that have been beneficial I mean it's controlled the size of its population it moved at least partially from supporting some commodity subsidies to cash transfer payments as I said its public sector doesn't seem to be too much out of control and yet we see all this unhappiness you know in Iran and on the part of Iranian citizens and especially it seems to be the middle and lower classes with their economic situation so I was just wondering if you had any comment on that whole situation and how it relates to the public sector in Iran but on those are any of the other points that have been raised I want to give each of you a moment or two Amy we can start with you any concluding remarks you'd like to make okay so I just like I would love to see the sequence of political or economic reform goes as this like encourage the private sector and the creation of jobs in the private sector first before curbing the public wage so people who would go out from the public wage can find employment so we don't like make the problem even bigger with unemployment I would like when we do the social impact of any economic reform to look as a cumulative social impact not only to look as a social impact of the public sector reform in isolation of the other economic reform that were introduced at the same times in the same package because we have to look at this together I would like to see more pressure to do governance policies it's like transparency is really important because there is a lot of corruption lot of resources that are untapped for the government that could have been used for social protection or even for investment to create more jobs and because of corruption now we are tapping into the public wage instead of tapping into those things this is a very fragile region in the world and we don't want to create any social instability any more social instability and dialogue is really important is a key here especially in countries like Tunisia where it's very nascent democracy and we want to give a good model in that region so dialogue is really important including civil society to bring everyone at the table for the government to listen to other parties not only to reach people so they would like not do any policies that would affect them for now and so for the government to sit with all parties because at all price we don't want to create more instability in the region here Well I think it would be nice if it were always possible to find the fiscal space to support a high wage bill and at the same time while the private sector is improves and creates more jobs the fact of the matter is that in many of the countries this sort of fiscal space justice not there and if you don't reduce the wage bill or sort of stem its growth which has been in many of the countries of the region still very high from a high base in the last few years you are simply not going to create the room for the private sector to grow so I think that you are and also you are going to contain or limit the scope for increasing expenditures for instance on infrastructure which are necessary for the public sector for the private sector to grow so I mean there are difficult choices to be made and I agree very much with the paper position that the judgment has to be sort of country specific taking into account a number of considerations that said one has to look at all the I mean this paper has been concentrating on the public sector wages but it's not to say that there aren't other issues in the public sector management that in terms of revenue mobilization in terms of cutting evasion, reducing corruption including transparency all of these issues are very much on the agenda and I'm sure that the staff of the Middle East department looks at this in individual countries circumstances and tries to make the best sort of judgment possible and the best combination is to recommend to the countries one should also not forget the effectiveness of the fund surveillance and is different in different countries I mean in some they have more leverage because the country is borrowing from the fund and there perhaps the responsibility of the department to make these trade-offs when necessary is greater in other cases it can provide the best advice but the authorities may choose for political reasons or ideological reasons in some cases to go another way so one shouldn't always put the blame at the door of the fund Fiyad well, two general remarks and then few specific ones this paper is part of several analytical work that we're doing in order to see how we can improve the inclusiveness and the level of growth to address issues of the region therefore it's not the one and only policy recommendation that we have it's part of a puzzle of or group of policies some of them are fiscal and I mentioned few of them are on the subsidy reform as well as also on the tax reform but also there are other policy work that we're doing and then the matter of fact at the end of the month we will have an important conference in Marrakesh about inclusive growth and how we can put in practice what people are aspiring and what we have been trying to achieve for years now since the last decade on this aspect this is part of a broader picture second, we look at this as a way to open in fact the reform agenda on the public sector role, functions cost, benefits and we believe that the wage bill is a good entry point and as I said we are at crossroad government services are going to change and the role of the state is going to change the needs for additional investment in education health are in a region where demography and where in fact social indicators are not as good would require to pay some more attention looking at the wage bill and as a financial reflection of the efficiency of the state is a good starting point to see are we doing well on education are we doing well on providing tax services therefore this is I think how also we need to look at this paper therefore we should not try away from looking at this paper as a first step into broader improvement in governance and have greater accountability on how we spend public money this is my first comment the second comment is there is a third player in the room that also we need to listen to and Teresa alluded to in the private sector those people need to create jobs and need to make sure that the state is in fact helping them creating the enabling environment for them to create jobs through infrastructure, good quality of services proper taxation etc etc and this is where in fact growth will come and part of the social inclusion will be those are my general comments specifically sequencing I agree sequencing is something has to be country specific in the wage bill reform and also on the urgency for those countries because we don't work in an absolute word okay there are constraints on the ground countries are different for a country that has wealth and buffers they have the chance of taking maybe more time countries where you have high level of demographic growth and the pressure is higher impact assessment I totally agree that the impact assessment could not be segmented in a way that doesn't take into consideration other policy implications and this is in fact something that we try to pay attention to is the right policy mix sometime one of the instruments is being giving maybe the highlight of the media and this makes us feel frustrated because we have many of policies that we are putting in the reform program and guess what one element is only picked and put out of context and this is I agree the impact assessment is important fragility of the region I think what the region has showed in the last 10 years is the resiliency in parallel to the fragility for a region to be subjected to a sequence high frequency of shocks financial crisis drop in oil price Arab spring impact in certain cases refugees the region was able to hold together and when you look at the level of growth for example in 2017 you would be surprised to see some of the non-oil producing countries oil importing countries are growing at four four and a half for the expectation to reach five which in fact is the level of growth that we used to have in the first decade of the two thousands therefore we need to strengthen this resiliency because in parallel with this resiliency there are fragilities and the issue is the fragilities are coming and I will go back to your question on Iran on those who are not part of the system those who have a public sector employment they have a safety net they have a salary at the end of the months they have social protection in fact are suffering most especially when you do adjustment are those who are not part of any protection system and those are the people that we need to look at and it's a trade-off resources are limited you need to distribute them in an efficient and in an equitable way and this is why I think it's very important to I know and we all know that public sector employment provides political weight because those are groups that are politically listened to but I think it's our role also to think of those who are not provided with the same level of protection they need it various reports are showing that the level of inequality is growing and therefore part of addressing those inequalities through fiscal measures and then we need to create the space for that otherwise it's becoming very difficult to have realistic ambition on addressing some of those social issues well Jad I think you summed it up when you said a couple of minutes ago that the role of the state in this region is going to change it's going to change and clearly the era in which public sector employment is a social welfare scheme or a scheme of political political control this is all passing away but of course the transition to something different where the public sector is about providing services to citizens and enabling the private sector rather than constraining it this is by no means an easy change so I want to thank you all Teresa Terminasian and Mieck Dowie for this great discussion congratulations on the report and thanks very much for launching it here thank you