IMF ME Center for Economics & Finance, AFESD hold symposium
KUWAIT CITY, Nov 1: The IMF Middle East Center for Economics and Finance (CEF) in Kuwait, jointly with the Arab Fund for Economic and Social Development (AFESD), held a high-level symposium on “The Economic Policy Challenges Faced by Kuwait and the Arab world” on Tuesday, Oct 31, 2017. The event was hosted at the Arab Fund’s Headquarters.
The panel discussion was chaired and moderated by His Excellency Dr Yousef Al-Ebraheem, Economic Advisor at Al-Diwan Al-Amiri. Aasim Husain, Deputy Director of the IMF’s Middle East and Central Asia Department and Stéphane Roudet, who leads the yearly IMF mission to appraise Kuwait’s economic situation (the IMF Article IV Consultation mission) started off the conversation with presentations on economic challenges in the Arab world and in Kuwait.
This was followed by a discussion with His Excellency Warren Hauck, Ambassador of Australia to Kuwait, and exchanges of views with the audience. In his introductory remarks, His Excellency Dr Yousef Al-Ebraheem indicated that the symposium was the seventh high-level forum organized by the CEF jointly with the AFESD, aimed at stimulating discussion on emerging economic issues that are of special interest to policymakers and scholars in Kuwait and the wider Arab community. He argued that the topic of economic and financial sector reforms was important in Arab countries, given pressures due to persistent conflicts, a refugee crisis, and, especially for GCC countries, the “lower-for-longer” oil price environment. A common challenge for many countries in the region has been to design and implement reform programs that help lower unemployment and poverty, achieve fiscal consolidation, and raise growth in a manner that is sustainable, inclusive and equitable. Husain’s presentation highlighted that the growth outlook was improving somewhat across the region.
Pointing to the recent release by the IMF of its Middle East and North Africa Regional Economic Outlook publication, which includes detailed forecasts for each country, he also noted that there was a diverging growth story between groups of countries. In oil exporters, notwithstanding an improvement in non-oil growth to 2.6 percent this year, overall growth was expected to drop below 2 percent due to the OPEC+ cuts in oil production.
In contrast, growth in oil importers was seen as recovering to over 4 percent this year, reflecting the global recovery, stronger exports and foreign investment, and more tourism receipts. Countries in conflict and their neighbours continued to be affected by a difficult security situation.
Husain also stressed the progress being made in adjusting fiscal positions in the region, particularly in oil exporters, where the sharp decline in oil prices had led to the emergence of large deficits.
Husain stressed that, in spite of these positive developments, medium- term growth prospects remained muted, especially in light of the job creation challenge in the region. He noted the IMF projections were pointing to some increase in growth over the medium-term for oil importers, but at a lower level than experienced in the past. Prospects for oil exporters were seen as relatively weaker in a “lower-for-longer” oil price environment that implied continued need for fiscal consolidation efforts. At the same time, however, 20 to 25 million youths were expected to enter the labor force by 2022. Husain stressed that absorbing this rapid increase necessitated much higher growth, driven by the private sector, and rich in jobs to ensure opportunities for all.
Husain flagged a number of reform areas he saw as critical to achieve these objectives. First, he highlighted the need to improve the quality of education. In particular, he explained training needed to cater to the needs of the private sector as opposed to that of governments. While in some countries, this requires more spending on education, in others, the key is to improve the quality of the education system by reorienting spending.
The second area of reforms was aimed at improving the business environment. While some progress has been made in some areas across the region, Husain made the point that countries outside the Arab world were making more rapid progress and Arab countries are at risk of falling behind in relative terms. Th at, in turn, could make it difficult to attract foreign investment, which flows to locations with the best business environment. He also highlighted the importance of strengthening access to finance, including in oil exporters, which in spite of having more developed financial markets would benefit from enhanced access to credit, particularly for SMEs. Finally, Husain explained how deeper integration in global value chains would help generate jobs, especially as global economic growth picks up.
Roudet started his remarks by stressing that, with the yearly IMF Article IV Consultation mission just starting, the event provided an early opportunity to reach out to a broad audience and seek views from various stakeholders on the economic situation and policy challenges in Kuwait. Building on Husain’s presentation, he highlighted that Kuwait, like other countries in the region, needed to boost growth and job creation for nationals. He noted that doing so in a more constrained budgetary environment required rethinking the economic growth model, moving away from public-sector and oil-led growth and towards a model based on private sector development and diversification.
He focused on a number of important impediments that needed to be addressed as a matter of priority. First, given the limited scope for public sector jobs going forward, he explained that labor market and civil service reforms should encourage Kuwaiti nationals to seek private sector jobs.
Roudet pointed to the large difference between compensation in the public and private sectors, and explained that better aligning public sector wages and benefits in the two sectors would provide more incentives for nationals to seek jobs in private sector firms.
This would also help limit wage costs in the private sector and, together with education reforms, aimed at better matching the skills of young graduates with the needs of the private sector, this would in turn encourage Kuwaiti firms to hire nationals, enhance competitiveness, and support higher and more inclusive growth. Roudet described other steps critical to private sector development, diversification, and job creation for nationals. Th is included enhanced reliance on privatization and PPPs, which he saw as important to reduce the influence of the State on the economy and level the playing field.