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De Rato advises Middle Eastern economies to diversify

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2004
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In late October, IMF Managing Director Rodrigo de Rato wound up a four-day visit to the Middle East after consulting with policymakers in Saudi Arabia, Lebanon, and Egypt. During the visit, he also inaugurated the Middle East Technical Assistance Center (METAC) in Beirut (see box below). The center has been set up by the IMF to facilitate technical assistance to the region, especially to help meet the massive institution-building needs of countries like Iraq, Afghanistan, Sudan, and the West Bank and Gaza that have been suffering from conflict. Throughout the visit, he urged Middle East leaders to seize the opportunity provided by the global economic recovery and higher oil prices “to build stronger macroeconomic foundations and enlarge savings for the future generations, while at the same time creating an environment that promotes sustained economic growth and job creation by the private sector to meet the rapidly rising employment needs.” He pledged the IMF’s readiness to work closely with all countries in the region to achieve these goals.

During the first leg of his trip, de Rato consulted with ministers of the six-nation Gulf Cooperation Council (GCC) in Jeddah, Saudi Arabia, where he welcomed the GCC’s firm commitment to help maintain stability in the oil market by increasing production in response to growing demand—a move, he said, that will help sustain the current global economic expansion.

In recent decades, the GCC countries have witnessed unprecedented economic and social transformation. Their improved financial positions, relatively low external debt levels, and modernized infrastructure, he said, “reflect positively on management of oil wealth and show the fruits of opening borders to trade, capital, and labor.” The Middle East region—particularly the GCC countries—has also benefited from the recent global rebound, which has contributed to higher demand for oil and other exports.

“New challenges, however, are emerging,” de Rato cautioned. To deal with intensifying unemployment pressures, the GCC countries will need to achieve higher sustained growth in their non-oil sectors and reduce their financial dependence on volatile oil export receipts. He welcomed the authorities’ efforts to address these challenges by accelerating reforms. Increased regional integration, culminating in an efficient monetary union, would also strengthen the region’s economic prospects. Significant progress toward regional integration has already been achieved, he said, but “the road to monetary union will require intensified efforts to ensure political consensus on critical economic issues and development of relevant convergence criteria, common data standards, and development of relevant institutions.” GCC nations set up a unified customs union early last year, and plan a common market by 2007 and a single currency three years later.

Saudi Arabia: critical for region

Meeting with Saudi Arabia’s Crown Prince Abdullah in Riyadh on October 24, de Rato noted the important role that Saudi Arabia plays in ensuring oil market stability and in furthering economic progress in the region. He commended Saudi Arabia’s decision to increase oil production, take steps to boost capacity, and enhance coordination between producers and consumers.

De Rato also lauded Saudi Arabia’s role in providing economic and financial support to Iraq and other countries in the region. “The Kingdom’s support has been critical,” he said, “in achieving substantial progress toward regional integration, including the elimination of most barriers to the free movement of goods, services, capital, and national labor, and in fostering economic liberalization policies in other non-GCC countries, thus contributing to the sustained growth and stability in the entire area.” He encouraged Saudi Arabia to continue to play a leadership role in easing regional tensions, promoting policies that foster liberalization and integration, and helping Iraq strengthen its financial position and restore its place in the regional economy. “The Saudi government’s decision to consider debt relief for Iraq,” de Rato said,“would go a long way in improving that country’s economic viability.”

The Saudi government’s decision to consider debt relief for Iraq would go a long way in improving that country’s economic viability.

—Rodrigo de Rato

On the domestic front, Saudi Arabia has witnessed unprecedented economic and social transformation in recent decades. To help tackle rising unemployment, the authorities have taken steps to diversify the economy and improve private sector participation. But that strategy needs to be reinforced, de Rato said. “There is a need now to focus on the development of the private sector, particularly the growth of the small and medium-sized enterprise sector to provide job opportunities for the growing Saudi workforce.”

Lebanon: reducing vulnerabilities

On October 25, de Rato traveled to Lebanon to inaugurate METAC, where he said that Lebanon had come a long way to reestablish itself as a thriving economy and as an important regional hub. In meetings with President Emile Lahoud, Speaker of Parliament Nabih Berri, Prime Minister-designate Omar Karameh, and outgoing Finance Minister Fouad Siniora, he underscored the IMF’s support for the significant fiscal adjustment achieved in recent years. But de Rato also underlined the need for further reforms to reduce the country’s public debt—which currently exceeds $35 billion—mainly through further fiscal consolidation. “Efforts have to continue on the path of reforms,” he said, primarily with respect to long-awaited privatization projects.

Egypt: improving the business climate

De Rato visited Egypt on October 26 for the final leg of his trip, where he met with President Hosni Mubarak, Prime Minister Ahmed Nazif, Minister of Finance Youssef Boutros-Ghali, Central Bank Governor Farouk El Okdah, parliamentarians, and other senior officials. De Rato said he was greatly encouraged by their renewed commitment to liberalizing Egypt’s economy and to removing impediments to private sector growth (such as recent decisions to lower tariffs, cut taxes, and privatize public enterprises) and by their plan to restructure the country’s financial sector.

At the same time, de Rato encouraged Egypt to press forward with measures to spur growth and reduce unemployment. Sustained higher growth, he said, will require close integration into the global trading and investment community through continued opening up under Egypt’s multilateral and bilateral trade agreements. “Additional efforts,” he suggested, will be needed to “strengthen the climate for business and eliminate remaining impediments and restrictions.” Encouraging a further expansion of the private sector will, in turn, help meet the needs of Egypt’s rapidly growing labor force, where faster job creation will be necessary to reduce unemployment, particularly among youth. Among Egypt’s main challenges will be to contain the fiscal deficit and arrest the growth of public debt; to this end, de Rato urged the authorities to maintain a prudent fiscal policy in the short and medium term.

The full text of the Managing Director’s statements made during this trip to the Middle East are available on the IMF’s website (www.imf.org).

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