WASHINGTON, April 15 (KUNA) — The deteriorating public sector across the Middle East and North Africa (MENA) region is directly tied to government subsidies, and that has spurred high unemployment as well as a poorly developed private sector, a World Bank report has indicated.
While the public sector has traditionally been the largest employer across the Arab world, “the combination of high subsidies and large public-sector wage bills was too much for government budgets to bear,” the report said.
“Fiscal deficits started growing. To avoid their growing even higher, public sector employment slowed down, and the public sector’s share in total employment started to decline.” The report further points to an erosion of trust in energy service providers, because as long as the government subsidies are in place, the providers will not be answerable to the people.
“A new social contract [in the region] should be based on accountability and incentives,” stressed Merza Hasan, the World Bank’s Dean of the Board of Executive Directors, at a panel discussion on the institution’s findings and recommendations on Wednesday.
“The citizen should be the focus of this operation,” he added.
The way commodities are currently subsidized in the region is not sustainable, he warned, and recommended governments be “very strict” and redirect that investment into the population directly.
“This is the moment for the Arab countries, both the oil importers and the oil exporters, to finally reform those subsidies that have been weighing so heavily on the population over the past 10 to 15 years,” said the MENA Chief Economist behind the report, Shanta Devarajan.
“These fuel subsidies are actually hurting employment” because they go to capital-intensive industries and not labor-intensive ones, he explained.
The World Bank’s MENA Vice President, Hafez Ghanem, added: “If we lift the subsidy from fuel and give cash to people, it will lift them from poverty.” While “this may cause political problems in the region,” he said, it will “help really needy people.” Ghanem emphasized that education across the Arab world is widely accessible and affordable to both men and women, and Arabs are some of the most highly educated people in the world, but youth do not graduate ready to work in a competitive private sector.
“We have to improve and modernize the quality of education,” he said.
Devarajan cited Vietnam as a system to draw lessons from – it has one of “the best performing education systems in the world,” he said, because “free education is a myth.” In Vietnam, rich students must pay their way through school, and poor students are given scholarships, he explained. The result, as he put it, is that teachers are always paid to do their jobs well – something Devarajan hopes the Arab world can emulate.
Hasan said the World Bank is now “concentrating on the essentials” which include public services, education, health, and infrastructure, in order to promote development that will give Arab citizens “a dignified life.” And while the financial institution “does not have the power to tell governments what to do,” Devarajan said, “The people are demanding change .. [and] they’ve shown what they can do when they get upset.” The April report, entitled “Toward a Social Contract,” and the panel discussion were featured as part of the World Bank and International Monetary Fund’s (IMF) 2015 Spring Meetings in Washington. (end) ys.ibi