1. Page 1 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
April 20, 2014
IMF Programs Restore Investor Confidence in Several MENA Countries
The International Monetary Fund (IMF) has been
successful in recent years in restoring confidence
in several Middle East and North Africa (MENA)
countries. Since 2011, it has pledged about
USD10.0bn in financial support to Jordan,
Morocco and Tunisia to implement their
adjustment programs and restore investor
confidence. Despite their individual differences,
the ongoing programs share three common
causes, namely large domestic subsidies,
regional instability and unfavorable global
economic conditions. The plan to tackle the
corresponding economic domestic and external
imbalances in the three countries has been
successful, although more work needs to be done
to reduce wasteful spending, spur economic
growth and reduce the high unemployment
rates.
Jordan, Morocco and Tunisia shared three causes
for their crises: large expenditure on subsidies,
regional political instability and unfavorable
global economic conditions. First, each of them
suffered from a structurally large bill on
domestic subsidies, ranging in 2011 from about
4% of GDP in Tunisia to around 6% of GDP in
each of Jordan and Morocco. This resulted in a
significant economic and fiscal drag on its own. It
also meant that these economies were
particularly vulnerable to the two other shocks
that hit them. The second cause or shock was the
wave of political instability which has swept the
region since 2011. In the case of Jordan, this led
to a disruption of gas supplies from Egypt, a
breakdown of trade channels and a large inflow
of Syrian refugees. The instability also caused a
slowdown in economic activity in the case of
Tunisia and a rise in popular demands in all
three countries, which put more pressure on
public finances. The third common cause was the
challenging global economic environment
exemplified by the crisis in the Eurozone—
Tunisia and Morocco’s largest trading partner—
and the high global energy and food prices which
affected the three oil-importing countries.
The resulting negative shocks manifested
themselves through three common symptoms:
larger fiscal deficits, wider current account
deficits and depletion of international reserves.
The slowdown in economic activity lowered tax
receipts which, together with the large subsidy
costs, resulted in larger fiscal deficits. Similarly,
the current account deficits widened as the
weakness in the economies of trading partners
and the breakdown of trade channels adversely
impacted exports while the imports bill rose due
to higher international energy and food prices.
This led to a depletion in international reserves
which declined to levels close to three-months of
prospective import cover, generally considered
the minimum safety level for fixed exchange rate
regimes.
Gross International Reserves
(in months of prospective imports)
Sources: IMF estimates and QNB Group analysis and forecasts
The IMF-supported programs in Jordan, Morocco
and Tunisia designed to tackle these negative
shocks have common elements centered around
three axes: subsidy reforms, mobilization of
external funds and prudent monetary policy. A
thorough and well-planned program of subsidy
reforms was needed to tackle the inefficient and
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Jordan
Morocco
Tunisia

2. Page 2 of 2
Economic Commentary
QNB Economics
economics@qnb.com.qa
April 20, 2014
structurally large subsidy bill without breaking
down social safety nets. In principle, this should
involve the removal of price support provided by
the government, the benefit of which has been
mostly captured by higher-income groups.
Inevitably, this would also hurt the poor by
raising their cost of living as domestic food and
energy prices go up, so the reforms should also
involve protection for lower-income groups
through targeted cash transfers or more-focused
subsidy systems.
The second axis involved the mobilization of
funds in the form of additional loans and grants
not just from other countries or international
organizations but also from financial markets.
Both Morocco and Jordan have managed to
successfully issue US dollar-denominated bonds,
signaling investor confidence in the two
economies against the assurances provided by
the IMF support.
The final axis is prudent monetary policy which
involves raising interest rates, where
appropriate, to restore market confidence,
reduce dollarization of deposits and build up
reserves.
While the stabilization of the macroeconomic
environment and the restoration of market
confidence helped avert an immediate crisis, the
three economies still face other challenges.
Growth remains tepid: Jordan, Morocco and
Tunisia are all forecast to grow by 3-4% in real
terms in 2014. Unemployment remains
stubbornly high: it is expected to be 12.5% in
Jordan, 9.1% in Morocco and 16.0% in Tunisia in
2014. In addition, despite the progress made on
reducing the subsidy bills, more needs to be
done to further cut wasteful spending.
Overall, the stabilization effects of the IMF-
supported programs have restored investor
confidence in Jordan, Morocco and Tunisia. The
adjustment policies put in place in all three
countries have reduced subsidies, mobilized
financial resources and reversed the negative
trends in foreign reserves. This is certainly a
welcome development but more work is needed
to further reduce inefficient spending on
subsidies, boost economic growth and reduce the
persistently high unemployment levels that
plague not just these countries but most of the
MENA region as well.
Contacts
Joannes Mongardini
Head of Economics
Tel. (+974) 4453-4412
Rory Fyfe
Senior Economist
Tel. (+974) 4453-4643
Ehsan Khoman
Economist
Tel. (+974) 4453-4423
Hamda Al-Thani
Economist
Tel. (+974) 4453-4646
Ziad Daoud
Economist
Tel. (+974) 4453-4642
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