 Welcome everyone. We were expecting quite a large number of people who had RSVP'd but apparently the government has made today an optional work day and that is we expect impacting attendance but also the early morning hour means we'll have people trickling in but we're gonna go ahead and start. I'm gonna introduce the speakers. I'm Leila Halal, the director of the Middle East program here at the New America Foundation and we're very pleased to have this opportunity to have the IMF with us and to have a discussion on the economic outlook for the Middle East and North Africa. Adnan Mazarahi is deputy director of the Middle East and Central Asia Department at the International Monetary Fund. He will be leading us in the discussion today and you can see he has a very nice PowerPoint presentation to share with us. Adnan has extensive policy experience in the Middle East and has worked on numerous countries in the region including Egypt, Iran, Jordan, Lebanon and Syria. He also served as mission chief for Pakistan, one of IMF's key crisis countries and then was awarded the departmental excellence award for his work in that field. So Adnan has also was also involved in the resolution of financial crises in Russia and the Philippines in the 1990s and has an expertise in debt sustainability for low income countries and sovereign wealth funds. So we are pleased to welcome him to the stage. Afshin Mollavi is going to moderate the session. Afshin is author, writer and currently senior advisor at Oxford Atlantica and a senior fellow here at the New America Foundation. He's a former director of the economic ground table. He has a column, regular column on global geopolitics and economics for the national which is out of Abu Dhabi. He is a regular writer on economic affairs for the financial times, foreign affairs, the Washington Post, Newsweek, Businessweek, the Journal of Commerce and National Geographic. So he has also served as an analyst for the International Finance Corporation which is the private sector development arm of the World Bank and as a Middle East risk specialist for Fortune 100 companies. So we have great expertise in the matters under discussion here today. I'll welcome Adnan and Afshin to the stage. Thank you. Thank you Leila. It's great to be back at the New America Foundation. I think the shows the power of the IMF, Adnan. I think what we're witnessing in the region is the economic storms and you've brought a storm to Washington to underscore those economic storms in the region. So it's great to be back at New America as I said. Leila, I think you're doing great work here, particularly in these turbulent times. When I look around the region, when I think about the events that have taken place in the past few days, the past few months, the past few years, I'm reminded of that great line by Lenin when he said sometimes decades pass and nothing happens and then suddenly weeks pass and decades happen. It does feel like over the past few years we've been experiencing decades, but the reality is that it's not as if nothing has happened. The underlying economic structures in the region, the underlying political structures in the region have been gradually shifting. The geoeconomic tectonic plates have been moving and ultimately there was this boom known as the Arab Spring. I prefer to call it the Arab uprisings. It certainly doesn't feel like the Arab Spring in Damascus right now. Let's remember what Muhammad Bouazizi said, the Tunisian fruit and vegetable vendor who, as you recall, lit himself on fire and literally to some extent lit the region on fire. When he was booted out of the municipality, when he had his permit taken away from him, when his means of living were taken away from him, what did he say? He didn't say give me liberty or give me death. He didn't say shab, yurid, isqat al-Nizam, the slogan of the Arab Spring, the people want the downfall of the regime. He didn't say bread, freedom, social justice. He said how am I supposed to make a living? How am I supposed to make a living is what Muhammad Bouazizi said. When you think about it, that question has become sharper now. When you look at Egypt today, before the revolutions, one in five Egyptians lived in poverty. Now one in four live in poverty. Across the region, unemployment is up. Underemployment is up. Currencies are facing serious pressure. If you were to give the Arab uprisings a grade, in terms of their economies, maybe, how about a D? What do you think? I'll let you speak. A D plus, maybe. I'm an optimist. And the D would stand for downgrades. Take a look at Egypt. Six credit downgrades by Moody's since the uprisings. Ahmad Haikal, who is the chairman of Citadel Capital, a major investor in Egypt, he said something very interesting in the very beginning of the Egyptian revolution. He said that if this goes right, Egypt could become turkey within a decade. If it goes wrong, Egypt could become Pakistan in 18 months. Egypt's credit rating is on par with Pakistan's credit rating right now. These are dangerous times. The old adage, the old is dying and the new has not yet been born. And in the interim, we are facing dangerous morbidities. This is a time of dangerous morbidities in the region. Now, we have someone who will take us through these dangerous morbidities. Adnan has traveled the highways and the Middle East, North Africa region for many years. He has a PowerPoint presentation. There are ground rules here. And so this will not be death by PowerPoint as we agreed. First of all, it won't be death by PowerPoint because A, it's really good. It's a really good PowerPoint. I've seen it. Great charts, great graphs. B, we've got a great presenter. But C, the ground rules are that if a particular chart captures your fancy, a particular graph, a particular slide, raise your hand. Shoot it up with your questions, thoughts, comments, vigorous objections. So I'm going to hand it over to you now, Adnan. Thank you very much. Thank you very much. And thank you all for weathering the storms. The IMF is also supposed to provide umbrellas against storms. But I have only brought one today. The fund every year does what is known as a regional economic outlook for the Middle East. And we update it every six months. So if you agree, I will walk you through what our views are of the Middle East economies this year. The presentation will have three parts. First, a discussion of the global economic outlook and where the Middle East will fit in it, as discussed in section two, divided between oil exporters and oil importers. And finally, the medium-term challenges and structural reforms which were the core of the Arab Spring issues. You would call them rebellions, I may call them. First, the Middle East in the past year has been working in the context of a global economic slowdown. The red areas are countries which had growth of more than 6%. As you see, most of the industrial world has been doing not so well. The world essentially breaks down into, in the 2013, in what we call a three-speed economy, a three-speed world. The emerging and developing countries growing the fastest by about 5.3. The U.S. by 1.9. And the euro area declining somewhat. And as you see MENA P, which stands for Middle East North Africa, but also in our business includes Afghanistan and Pakistan, will probably grow at about 3%. In the same vein, these countries will be operating in a world where global commodity prices are coming down a bit but remain very high. Oil prices are projected to come down, but the risks are mainly to the upside. Portfolio capital to the emerging markets has improved. But again, as an exception, you will see the oil importers of the region who are not benefiting from great market confidence have had their outflows go down. But MENA P oil exporters are also having a net outflows because, but that is because investments in oil production have reached a level where now, and there have been major investments in the previous year. So that is less worrisome. Slow economic growth in Europe will have a particularly bad effect on the macroeve countries. If Europe grows by in a bad scenario by about two percentage points less, you will see that growth in the macroeve countries who are very dependent on tourism, especially in trade relations with Europe, will have a declining output of about 1%. The Maeshreq countries, Egypt, Libya, Lebanon, Jordan will do slightly less as badly as the macroeve countries. In the past several years, the Middle East North Africa has grown from about 4.7%. Overall, we expect growth to come down this year. But the differences in growth rates between the oil producers and the oil importers is disappearing a bit because the oil importers are doing badly, improving slightly, but the oil exporters are going to do a little bit less, particularly because their oil exports are coming down then. Let's break down this now to oil importers and oil exporters. First oil exporters, and these are the countries that I will cover. Sure. Could we argue that you could even break down the oil exporters into the GCC, the Gulf Cooperation Council oil exporters, and the rest in the sense that when you look at the structure of their economies, their fiscal positions, they look a lot different than say Iran or Algeria or Libya or Iraq does. Would you say that's fair? You could even break it down a little bit further than that. That is absolutely fair, and some of the charts will do that. But if people feel like stopping and discussing the differences furthermore, I'll be very happy to. Overall, the near-term outlook for the oil exporters is not bad. It's positive. Oil production will be rebalanced, as we will I'll explain in a second, and non-oil exports in these countries will be relatively stable. However, these countries will have considerable vulnerabilities and risks. They will, their budgets and balance of payments have become increasingly reliant on oil exports and high oil prices. In the past few years, they have raised spending to meet social demands and also to more spurter economies. As a result, budget deficits have gone up, and they will soon be cutting into their savings. And for various reasons, as we will discuss, private sector employment remains low. And the fund's policy advice generally has been that these countries need to sooner than later stabilize the amount of spending they've done and they're doing. Make sure that capital spending, meaning investment in projects, etc., is productive investment, not simply to spend money and meet political pressures, take steps to move away from oil export as the main and as the only real feature in economic production, and invest a lot more in education. Let's start with a broad picture. The oil exports of many countries is going down. In the past several years, as I mentioned, they've been investing significantly in oil output, especially in Libya, which if you remember during the civil war, oil output went down considerably and now it's researched. So there isn't going to be that much improvement in the oil output at an aggregate level in the oil exporters. But non-oil output will remain stable at around four to five percent. I'm sorry, what do you attribute the decline in oil exports to? Is it just the presence of more oil on the market? Is it a weakening in demand? Is it shale oil having an effect? Please remember, this is real output, so it's not taking into account price variations. The issue is that there is some market softening on the demand side. At the same time, some new countries, as I will discuss, are coming more online, so some others have to go offline. That production number is also affected by Iran. But also, as we can see, there has been some considerable investment in the previous years, in oil output, in the OPEC countries, but they don't need to make those investments anymore. So oil output does not need to go up as much. So that is not necessarily a very negative sign. This is that discussion of the oil output. Overall, oil output in the region is going to stay stable, but as you see, Iraq is coming more online, Libya is coming more online, but Iran is facing sanctions and Saudi Arabia is particularly lowering output as a swing producer. But Saudi Arabia is of course able to rack its production if the market situation improves. Consumer prices are very different now going back to the point that you made the distinction between the GCC and then the other oil producers. The non-GCC countries, each of them is affected by a particular problem. Iran sanctions, Yemen, issues of civil war, Algeria, considerable spending, Iraq coming online of more oil output, more spending, and Libya inflation going down considerably as you see as the effect of the civil war, the shortages go away. In the GCC however, so overall in the non-GCC countries, inflation is coming down. The red bars being all lower than the yellow bars. In the GCC countries, inflation is going up a little bit because of high spending and the impact especially on rents and housing prices in the GCC countries. Now although the near-term picture for the oil exporters is not bad especially for the GCC countries, here is where the situation gets a little bit difficult. The GCC external balances and this is the current account balance. We are roughly around here as you see over time the current accounts are pluses. We'll be going down. This is because while oil exports because of lower output growth in the future will go down because of high population growth and the economies having done so well recently imports will still stay up. Fiscal balances in the region as a whole will be deteriorating considerably. The GCC has been doing very nicely with high oil prices recently but with lower output and lower projected oil prices their situation is going to be any worse. The non GCC ones are moving down even worse and their fiscal balances are going to be well in the negative territory by 2018 and this is the average. So the bottom line is while the oil exporters are not as a group with considerable variation among them not doing too badly in the near term the prospects in the future are not very good. And this doesn't this also suggest that it's certainly in the interest of the oil exporters particularly Saudi Arabia which has the only country with significant meaningful spare capacity to ensure that the price does stay high right because their break-even price of oil where their domestic budget goes into deficit has also gone up dramatically right and you know the question is do you think Saudi Arabia can still meaningfully swing the oil market with you know with the introduction of shale new oil resources in East Africa new oil coming from Iraq is Saudi Arabia the central bank of oil the way it used to be. Essentially what you're referring to is this issue that there's an increase in shale production down the line which will lower the growth of oil prices and importance of supply from OPEC the Middle East and within that Saudi Arabia may be lowered that is a considerable possibility but not in the next couple years and obviously it will affect any particular country's ability to affect oil prices. Now moving to the oil importers and these are the oil importers in our broad region considerably varied from Afghanistan all the way to Mauritania these countries are facing a very very different outlook and set of problems they face complex political transition especially in the Arab Spring countries large social pressures to respond to the aspirations of the revolutions they've had but at the same time they face a low or tepid international economic situation the stars between the Arab countries in transition and the global economy are obviously not very well aligned the political pressures and the transitions obviously led to weaker private investment and private confidence and private investment which has led to considerably lower growth what are the implications this is a very very different growth picture than you see in much of the rest of the world part of particular note are countries like Egypt Jordan and Pakistan for instance what growth rates are very low compared to the levels that are needed to create jobs for the unemployed and this population bomb is a major issue for each of these countries economic outlook in these countries is also very much weighed down by the political transitions and the upcoming election calendars which will reduce the ability of governments to implement economic policies to be able to reach consensus on economic policies and of course these political transitions means that now economic policy making in these countries needs to be somewhat more consensual if not much more and many of these governments and many of the policymakers in the region are not used to reaching broad political consensus on economic reforms and we'll go over some of these as Afshin mentioned rightly this is the region in the world with the largest unemployment problem and these are the considerable and as you see in many countries there is no movement in except probably Sudan a bit much improvement in the unemployment outlook and things are actually getting worse this is the middle this region compared to the rest of the world the acts or the Arab countries in transition as you see are among the worse in terms of youth unemployment Jordan for instance has youth unemployment of about 30 percent Tunisia roughly the same and Morocco and Yemen pre-high numbers confidence and the euro area are having a major impact on economic prospects of these countries consumer confidence although it's improved a bit since the days of the revolutions when they started they're still very low and declining compared to what they were in 2009 exports slightly better but also declining tourism completely down and this as you see consumer confidence is just pretty stable and not improving in addition to these problems there is a major issue of the tragic situation in Syria which has obvious implications for Syria itself but it's having major spillovers in terms of refugees decline in remittances decline in trade and general political uncertainty and investment concerns in Iraq Jordan and Lebanon these numbers of the refugees and the internally displaced obviously get dated very quickly and the numbers are rising while their growth situation is getting worse their macroeconomic situation is getting worse the cushions these countries have to deal with pressures are going down the budget deficits in all of these countries as you see is getting worse with the worst budget deficit being about 11 percent in Egypt compared to about eight and something last year at the same time by the way that budget deficit increases in good part because revenues are lower because of recessions but they've also increased spending on subsidies and wages to deal with the impact of the revolution on the international on the international side the central banks of these countries are having very low budget excuse me foreign reserve coverage this chart which shows the amounts of months of number of months of imports that their foreign exchange reserves cover as you see is particularly low except for Lebanon Jordan has come down considerably because and in the case of Jordan this is particularly because of the explosions in the gas pipeline from Egypt which has forced them to shift from gas using electricity generation to other fuels which has been much more significant and this has been the source of the budgetary and the external pressures in Jordan Egypt the decline is in good measure due to higher imports of food materials but also declining tourism and foreign receipts how much does that concern you I mean that's low it says a two-thirds decline in Egypt's reserves more important than what I think is what the Egyptians think right and they're very concerned yeah that and their reserves have been improved a little bit recently by contributions from others in the region but that's also why they're as we'll discuss in a few minutes they're trying to have a program with IMF by the way one reason those reserves are going down which is a very important has a very important policy implication is that these countries in general in the past few years have refused to let their exchange rates go what do we recommend to these countries the IMF recently did a paper on energy subsidies globally our region in the Middle East we are the providers of the largest amounts of energy subsidies of all the energy subsidies in the world this is the menopere region this is sub-Saharan Africa Eastern Europe and these are the Asian countries and Latin America and of course advanced countries about 200 billion dollars in 2011 these subsidies were high in the past but they've also increased considerably in the past few years as governments have tried to allay social pressures by allowing for greater subsidies and these subsidies underlie some of the major budgetary problems and solving this problem is the key is a key political problem for each of these countries because reducing these subsidies it has to be a part of a package of reforms these countries do but this Arab Spring cannot be a tale of reducing subsidies alone these increase decreases in subsidies will be only sellable to countries and their populations if they feel their governments are taking a broad look at reform broad and different social groups are paying for example less spending on things that go to the rich more taxes for corporations by the way our work in this area shows that much of the energy subsidies in this region as in most other countries go to the affluent to that go to the affluent right who do not need it and these energy subsidy reforms need to be going hand in hand with social safety nets the policy dilemma they face is that reforming subsidy systems putting in smart cards etc in countries like Egypt take very long time and very difficult but the countries at the same time face considerable pressures to lower these because if you remember the previous chart the budget deficit in Egypt is about 11-12 percent very few countries can finance those kind of budget deficits going on domestic resources won't be enough foreign resources will not be enough and when governments go domestically to borrow that means basically they starve the private sector and then longer-term growth from any kind of financing we have a question here i'm sure that this will be a major point of discussion in the question answer period but just quickly adnan these figures are from 2011 yes have they changed substantially in the past year and a half they've gone up there are some countries that have improved things for example Jordan Jordan last year decided to remove subsidies but they at the same time in put compensatory measures in the form of transfers to 70 of the population so while subsidies have come down their total net cost has been less to the extent they've been doing transfers our recommendation is that some of these subsidies on energy need to be moving for instance toward education here compare how much countries spend on energy subsidies versus on education the most difficult case being Egypt where they spend about 300 percent on education and about 10 11 percent of GDP on subsidies and it could be spending more on investments which could provide longer-term growth and employment possibilities also these countries need to raise their reserve build-up to cushion against foreign exchange pressures balance of payments pressures in their in support of their efforts to build their reserves the fund has had programs with a number of countries Afghanistan Djibouti Jordan Mauritania Morocco and as of last Friday Tunisia which may mean they by now have probably withdrawn about 150 million dollars or about a hundred million sdrs so this should be about 0.8 percent by the way these amounts are in sdrs if you want to get the dollar numbers multiply them by 1.5 so overall the fund has agreed to programs by about 10 billion dollars for these countries okay of particular note is that the one in Morocco is a sort of an insurance mechanism it's for more than six billion dollars but the country doesn't draw it until they feel like it they're greater pressures so we try to tailor a bit the mechanisms and the financing facilities depending on the country why don't i let you well obviously missing from here of course is Egypt so maybe that'll be uh you know a good lead-in to talk about you know where we stand with Egypt and the IMF loan as you know Egyptian newspapers have started calling this the the IMF Egypt soap opera right the back and forth that's going on between Egypt and the IMF over the the loan senior advisor to Muhammad Morsi recently blamed the IMF saying there's been foot dragging and what's going on every time we do something they come up with another excuse the the prime minister of Egypt said no no everything is fine we're all in agreement and it'll just take a few months to uh for us to you know hammer this out so you can tell us here first which part part of the Egyptian authorities do you want me to agree with that's right and where are we Egypt and the fun have been negotiating programs apart the program for a long while we reached agreement on a program with them last november but with the ups and downs of Egypt's political scene they asked us to change that program so we had to go back to the drawing board and we've been negotiating a new program the new program the issues that need to be resolved are putting in place a safety net that yields with any F some of the consequences of remaining removing some of these subsidies at the same time in order to make these resource reforms palatable to the entire population and also to be able to change the actual situation it is important for Egypt to put in some new taxes on those who can afford it again reforms in Egypt and in other countries cannot become a story of subsidy reductions these reforms need to be done in a way more members of society feel as a group they're paying for it especially those who can afford it so that is something else we're working on with them there is a we are in technical discussions with authorities and there are a few more steps that the authorities need to take and we will we are committed to going back to Egypt as soon as those are done and have a program okay all right all right let me open it up to the floor there might be some follow-up on that on the Egypt question but on any other issues please over there in the back I wonder if you'd I'm Michael Higgins I wonder if you'd comment some more about the form that these subsidies take in different countries and the relative size of them I think I'm not quite sure what you are talking about when you talk about subsidies being the main problem in some of these countries and how easy will it be to to manage these changes so I'd like a little more expiation on the subject of subsidies sure first and foremost I'll be happy to give you some references to this study that we just did which is available publicly the subsidies that you've seen the ones I just mentioned were mostly fuel subsidies but also food subsidies okay the problem these subsidies occur because governments have to hire import high oil at higher prices then they can sell to domestic users both consumers and companies okay this has several problems and implications first they can afford it to the extent that you see 12% of the GDP of Egypt is a lot of money two it is leading to over consumption of energy three many of these subsidies are going to the affluent for example if they are going to subsidize the use of gasoline for a car in a country where you have to be relatively better off to you have a car obviously this is not something that's going to the poor now it is very important to lower these subsidies but it's also equally important to do them in a way that minimizes the impact on vulnerable groups but also makes them sustainable the history of subsidy reform in this region and others is littered with failed efforts where people don't make adequate provisions for safety nets now the problem in this region is that the reforms to the social safety nets and protections for the poor take a long while to put in place the budgetary pressures from these countries from subsidies are too high one arguing for quick removal one arguing for a gradual one the fund's recommendation is to do it gradually the speed of course in each country will have to depend on the relative weight of these two concerns right in Egypt you cannot sustain 12% of GDP for too long right the amount of financing from domestic markets and from the external sources is just not there okay now you cannot go to the population in Egypt or any other country right now and say that the economic reforms will be focusing on limited to removal of subsidies in times of economic difficulties and crises reforms are only sellable if hardship is shared you cannot go although much of these subsidies go to the more affluent there are still low-income people who get affected by the removal of these subsidies those need to be protected but eventually this is never going to be easy right but the situation cannot be one where the vulnerable groups are the real pairs of the burdens of fiscal and external adjustments countries that succeed in doing these are the ones that have packages that include improvements in subsidies in terms of lowering them and putting in nets safety nets but at the same time cutting spending on other areas that affect the more favored parts of the population but also increases in revenues on those people and also what is new to many of the policy makers in this region is they have to go out and sell these to their populations leaders in these countries like the rest of us the media in those countries are now having to face in some countries for the first time political systems that are now becoming multi-stakeholder in the past fund programs were discussed between the fund and governments now that obviously has had its major shortfalls both us and more important in the government need to be able to communicate these packages to people and sell and they cannot be done without multi-stakeholder support but i'll be able to be happy to give you a reference this paper is a major study of subsidies around the globe with a lot of details okay we've got Jean Abinader here please there's a microphone coming your way yeah looking specifically at almost a vicious cycle when it comes to creating employment or bringing more of the informal economy into the formal economy it's very hard to see a scenario where particularly with the lack of fdi and increased domestic investment in productive capacity with a decreasing ability for countries to provide educational reforms or at least targeted technical vocational programs in the short term in other words training people for jobs that don't exist is no longer a valuable approach but given the global economy and given the domestic economic situations and the lack of as you said you don't want to keep subsidizing away yet most of the training programs that governments espouse are based on subsidies to the students so they stay in the programs to the potential employees so they stay in the programs but it seems with the lack of growth in the overall economy is that you're facing a real conundrum because in some areas there are no jobs for people even if you train them number one but number two the whole workforce development issue has to do a lot with having both the short term strategy which is the response to Arab uprisings we want jobs meaningful jobs but at the same time that requires as you already have up here financial sector issues it requires access to finance it requires subsidies in terms of the educational program it requires I mean how do you get how do you move out of this dilemma of on the one hand creating more skilled employees but at the same time trying to create jobs for those employees if you don't mind I'll try to answer that question in the discussion of this and then we can just follow up more no no go ahead go ahead and an excellent introduction to this slide the Arab uprisings were about many things but they were also centrally about employment economic opportunities corruption creating a level playing field for people who are not politically well connected allowing financing for small companies from banks in a situation where bank credit goes in large parts to large families and the well connected the educational system produces a large number of people with degrees but rightly or wrongly these are not the skills that the market needs and good or bad we live in a global economy and countries that succeed need to find one way or another to respond to domestic demand but also to insert themselves into the global supply chain of production there needs to be trade not only between this region and outside but within the region right now this region suffers tremendously from self-imposed barriers among themselves which need to be removed many are for political reasons obviously but they retard economic economic development of this region business climates are marred by regulation over regulation of the worst order which are meant to protect the rents of bureaucrats and promote considerable corruption but above all the economic model in many of these countries has been the following the government or the state is the largest producer or a major producer the most important employer the provider of subsidies in exchange they have great control over the political and the social life of their country populations in the past several years these models have not worked very well they cannot provide economic growth they cannot provide employment and problems of corruption income distribution problems have become increasingly unbearable for the populations which together with a whole set of other factors in the political and social realms have led to their spring rebellions and other pressures in a lot of other countries okay over here oh sorry did you want to get that what we need now are broad visions that are debated in each of these countries adjusted and determined by their individual country circumstances which offer a pathway to improvements in economic life but also not too far down the road but with some gains and quick winners right now for example there are a number of steps people have suggested that could be taken to improve governance quickly and increase government transparency and accountability there are a large number of restrictions on private sector activity that could be removed very quickly some labor training programs that could be put in quickly again people may put up with the burdens of adjustment in the short run if parallel to it not down the road significantly there is a prospect for hope there's a debate about this among reasonable people some people say given the major economic problems right now given the major economic political transitions right now we cannot do structural reforms that are deep etc it's not a completely unreasonable point our view is that they need to be done to the extent possible simultaneously to provide some hope for these countries and some early achievements you cannot just go as i mentioned repeatedly the story of the arab spring cannot be economic struggle against budget deficits high subsidies there it also has to include a program not just hopes a program and a vision for moving forward on structural reforms and that deal with exactly the problems that you mentioned so far there's some progress in some of these countries for example in tunisia but by and large the politicians and the policy makers have been focusing extremely forcefully on the political dilemmas of today and perhaps not even tomorrow save these kind of visions the more these the formation and implementation of these programs are delayed the problems will continue okay we had one over here and i'll come back over i'm actually done like if you permit i will please do please do land and yeah have a seat take the questions please do okay over here hello i'm gabrielle johnson from the world affairs council dc i'm glad you sat down this time you can actually see me before i'm like hidden by this wall you brought up a lot of interesting topics about things that we can look at internally in this region but are there any suggestions that you have for well-meaning countries outside the region like the u.s. who would like to bring some of these social changes and reforms do the should they just stay back and let the region figure out their internal cock well and issues or should they try to take a more aggressive approach to helping bring these changes well-meaning outsiders can help in several ways one is to remove barriers to trade encourage more exchange of ideas technology but this region also needs financing in the past several years the world has provided considerable amounts of money with a lot of that coming from the region itself but there is need perhaps for more predictable multi-year financial assistance to cushion the impact of these transitions these transitions and these adjustments will need to be made countries cannot afford for long 12 percent of GDP in deficits but the speed with which we traverse to a sustainable situation could be helped if there is financial assistance over here and then we'll go back Jim Fippard having lived through the egypt riots of the 70s and the Tunisian bread riots of the 80s all as a result of massive subsidy cuts i came up with the theory of the salami cut of subsidies that they're thinly cut and gradually uh i'm not sure whether that fits in with what your discussion of of gradualism uh but i think the political side and the security side are really important and uh some people some people's memories may have may not include some of the histories i'm wondering how that's uh factored into the decisions in the imf as i mentioned this study that we've done the bottom line is very much in sync with your bottom line subsidy reforms need to be done gradually one can debate the thickness of the slices and reasonable people can differ and the situation will differ based on the fiscal space these countries have in general what you said is absolutely correct subsidy reforms if they are done abruptly without preparation without communication without some considerable backup for the poor and also inclusion of subsidy reforms in broader reforms there are many many examples of failed subsidy reforms in our region which did not go with this and having looked at this set of experiences what you said comes out as the reasonable conclusion do do them gradually do them in slices okay in the back over there hi i'm matar brahim a former MP from Bahrain visiting fellow at ned last last year there was a report by senate for foreign relation committee about security of the gulf part of the recommendation in this report they were encouraging us government to provide the right advices for the gcc countries to deal with the coming challenges in labor market and the economic challenges how do you see the chances for this strategy to to work with with the region obviously i'm not the one who's going to speak for the various third parties on labor market reform or their advices our advice has been these countries need to i'm speaking about the gcc countries need to diversify their economies they need to erase more employment opportunities how do you go about doing those the main issue is helping people through education and work programs to get the right skills there are a lot of job opportunities in these countries but they're taken by foreign migrant and migrant labor such that they cut into the demand for foreign labor but at the same time reforms in these areas need to be coordinated with other policies such that do not lower the incentives of people to work for example in some countries there have been increases in incentives for and protection for labor who is unemployed that is very good but if those incentives and protections are too high they raise the labor cost or rewards from working that is done in the by every individual and in their decision whether to become employed or not overall the solution to the problem in the gcc is becoming more education the solution to those problems is becoming more education and more skills to meet the demands of the markets which are now being fed met by outside labor please here and then we'll go back first i have a question about the the other subsidies again so i was wondering if those figures are taken based on per capita terms so considering the population difference between the regions and also is gdp playing gdp taken into calculation of the differences between the region spending in subsidies second question is about the impact of let's say removing subsidies on the prices would that actually impact negatively impact the new political leaders in the region on your first question these are calculations for each country okay obviously in the decision of policy makers to provide subsidies they take into account what countries are doing in the region too removal of subsidies will lead to an increase in prices no debate hopefully though this these will be a one-shot increase in prices with some second smaller second round effects on the price of other goods what to the extent you maintain good policies in other areas such as monetary policy this one-time impact will be small okay please my name is ala and i'm from jordan i work at the middle east institute thank you for a great presentation what what you seem to be saying sounds good reducing subsidy would have some impact but the governments could could reduce this impact on the poor reducing trade barriers make sense and so on maybe making currencies also more freely tradeable what's stopping governments from doing that why why aren't we seeing this happening thank you you're going into this very complicated but enjoyable discussion of why don't people do the right thing first of all there's genuine difference of opinion about what is the right this was what i presented to you is the funds view of the way the things could be done reasonable people could differ so let's just give them the benefit of the doubt that you know reasonable people will differ with us secondly policies especially and policy corrections will have losers and winners it is very difficult to put in place where the loser new policies where the losers are very clear and very vocal or have legitimate concerns for example the poor when they face subsidy reforms one should not dismiss their concerns and they will be worried whether the safety nets will be in place or not so that's one set of retarding or slowing reforms but there's also another set of reforms that cut into the rents and the privileges of affluent people well connected people and bureaucrats right small groups of affluent people who benefit from the current situation or from some bureaucrats who take particular returns and power from controls over the way the private sector works are sometimes very able to re to slow reforms another big issue is many of the policy makers in the region are new to the business of making policy let's remember many of these people were in prison for many years and that is not necessarily the best place for learning how to do economic policy okay and that's where the rest of us come in and it is also a major responsibility of people like us at the fund to be able to provide technical assistance and policy support but this discussion as you this particular question is endless so let's start back there and then we'll come here and then over to Layla so right there thank you so much hi mats one of the more interesting parts of your presentation to me was your discussion in the transitioning states of the new fund dynamic about policy makers needing to be consensual in their decisions and i was wondering if you could elaborate a little bit more based on your experience over the last couple years in your interactions with these states about how you're seeing that manifest itself in terms of detailed discussions in many countries in the decades past the fund or other outside advisors would go into a country and their interlock you know we would talk to various groups we would talk to various academics etc what our interlocutor was mainly the government okay and with the government's high level of control over the political system they had to do their own calculations about the feasibility of reforms but then they could sit down and discuss with outsiders like us what could be done what could not be done or what would be done or what would not be done nowadays they don't have the same freedom to do that they have much more conscious organized and vocal social groups not just political parties right so they have to take into account the public sentiments and public's concerns more into account i'm not trying to say that excuse me that my region is reached democratic nirvana okay far from that but in many countries a few steps have been taken forward now what are the implications for us the implications for us are we need to know what various stakeholders think we need to justify and explain our recommendations of course this is essentially and primarily the responsibility of the authorities we in the fund are learning to do that better but the authorities are also learning and there's a very far to go in it is not just to function the view us and the authorities that are learning just think of the media and the press in each of these countries they are learning how to do their work they are testing and finding out new technologies and discovering boundaries every day in this state of flux policymaking is very difficult but it has to be done please uh we're marrying you so i blog is peter policy i just had a question regarding what you were saying imf and the cell i was wondering i know imf does its business government to government but you mentioned multilateral institutions need to be a part of selling that is that part of the imf's job or is that part of the receiving government's job and how do you reach out to other multilateral institutions if a lot of these countries are in flux with their civil society maybe maybe it's different ngos that need to be reached out to but i don't know i mean it i guess it's a perception on there and too if they need to do that if you could just comment on it is that really the imf's job to reach out and sell to these other groups that are not part of the government to accept these recommendations to be effective the imf has to do it okay we've taken steps to learn this business better but we also have to do a much much work on this issue as i said the world is changing and we have to change with it too and there are approaches and skills we need to change for example we are we discuss issues and concerns with ngos but both we feel and certainly they feel we need to do a much better job at it and we have people from our external relations department whose job is to coach us and also help us and reach out to the ngos a lot more and to the non-state actors okay leila please you had a question in fact we had some ngos here with us during the world bank imf meetings that happened in october or what now october april this year they're happening in october and they were making the point that that the loan conditions associated with the imf lending straps future generations and they are trying to argue for less foreign dependency they're also very concerned about about the conditions and and so i i'd like to understand a bit better you say you know this is what we recommend and you're saying in that context we're learned we're having we're learning lessons of what went wrong in the past and how to correct it and how to protect the vulnerable populations but are your recommendations actually conditions and what what is that what is that long-term impact on these countries in terms of being able to conduct economic reforms that they may not understand they want now but they you know will hopefully be able to reach consensus on in the future if will they be able to change their economic systems and processes if they enter into a loan with you now and you know agree to certain structural reforms now will they actually be able to to actually change substantially how they they do economic work in their countries i mean to what degree is an imf loan trapping populations and to what degree is it liberating them well the best the answer to your question the very last one i would like to leave it to the populations of those countries what i'm also asking the technical question of what is a condition versus a recommendation sure countries come to us when they're not healthy you try to analyze those problems you try to tailor your policy advice to those countries so you don't have a one-size-fits-all package you sit down with authorities to have a shared understanding of what is the problem and therefore and then discuss what are the components of direct solutions to these problems sometimes some problems are so glaring and so large that there it is almost impossible to touch without dealing with the problem for example some of these countries have some small subsidies and they can live with them if you raise your taxes by one percent of gdp you can take care of the major when they're 12 percent of gdp any solution technically will need to cut into some of that now reasonable people could differ among themselves how much that adjustment can be but the international community when they offer financial assistance including through the fund they want to see financial assistance going but for the government in a reason measured way hopefully take steps to remedy the sources of the problem for as we discussed in the case of egypt if these subsidies are about 12 percentage points of gdp there is no way on earth anybody is going to give to egypt 12 percent of gdp year after year after year to do this removing it is costly removing is pain now the fund sits down and reaches understandings and policy packages once the authorities agree that these will be part of the remedies they will become part of the fund's agreement with these countries they become part of the fund's conditionality on these countries therefore going ahead those amounts of the financial assistance from the fund and from many others will become tied to the implementation the fund does have conditionality if you however try to force things down the throat of unwilling governments they will not do it and programs don't last we have done this in the past it doesn't work but some things are also while difficult need to be done the alternative to egypt is other countries in this region is very very simple continue with this and the financial pressures that they face in a way that things become considerably more difficult in a hypothetical country when you have large budget deficits you essentially end up in many countries either defaulting on your payments cutting those payments abruptly including for subsidies or what they often do which is in ways more pernicious for the poor is then print money to cover these deficits the fund tries to do this in a reasonable way but i don't want to pretend to you the fund doesn't have conditionality what these conditions are agreed with they are hopefully not not or not seem to be forced down the throat of governments subsidy reforms need to be done in some countries depend and the level and the speed will need to depend on a number of factors but once the governments agreed to do this it is like agreeing to steps that brings a patient to normal health the support from the international community and the fund therefore becomes tied to those countries also doing things now just as hopefully as in other areas when some path to say health is not working or needs to be adjusted because external circumstances change we become flexible or sometimes because of political issues some things cannot be done right away you become flexible for instance i believe we've been very flexible in a number of these countries reasonable people could differ with me on that of course now let me ask you this you've been traveling the highways and byways of this region for shall we say many years we won't we won't date you but uh but i think the face speaks where itself face of wisdom i have been beaten up repeatedly no uh and so you know let's take a historical perspective for a moment uh you know when you look back at the past three years or so you know and you know putting on your hat of you know traveling this region for more than a couple of decades what is it that has struck you the most what has surprised you the most about what has happened in the past three years and what is what is different most different about today than it was maybe you know five years ago ten years ago when you're dealing with governments dealing with the region people are speaking up especially the young have a mind of their own and a life of their own and many times it is difficult for others to understand them but they've become the big players they're also using technology that is alien to me i don't tweet for instance i'm willing to plead to being a dinosaur on that so people like me who need want to communicate with these people need to upgrade themselves but there is also hope considerable hope in in the populations but what i hope was one of the key messages in my presentation was that life is going to be difficult in the next few years because of the global situation the uncertainties in these economies for economic activity so the international community also braces itself and supports these country countries second countries themselves and they're the ones in the driver's seat and we can help them need to put together programs for addressing the key issues in these revolutions and uprisings especially corruption unemployment and more access to opportunities okay well with what 400 million tweets being sent per day 72 hours of video being uploaded on youtube per minute certainly has you know changed dramatically so let me just let's just we have just a couple minutes left here your hopeful signs i mean let's put on you know let's just take your imf hat on for a second let's say you were a private equity investor you know and you were looking at this region would you stay away or would you would you see some opportunities there that are worth pursuing under no circumstances am i going to give you advice on private investment i tried but generally look things are going to be hard things are going to be hard but they should not cut into hope they should just make it more imperative that we need to work harder and do something about it i mean when you see hardship in front of you the easiest thing is to pack up and go home the hardest part of our job and many of my colleagues some of them are in the room is to not let these things affect you and have a sense that as difficult as things seem to be that difficulty itself is the catalyst for you to do more now private advice that will be another day all right well thank you well thank you so much adnan please join me in a round of a round of applause really insightful presentation thank you all thank you very much thank you