The current fiscal imbalances and fragilities in the Southern and Eastern Mediterranean countries (SEMC) are the result of decades of instability, but have become more visible since 2008, when a combination of adverse economic and political shocks (the global and European financial crises, Arab Spring) hit the region. In an environment of slower growth and higher public expenditure pressures, fiscal deficits and public debts have increased rapidly. This has led to the deterioration of current accounts, a depletion of official reserves, the depreciation of some currencies and higher inflationary pressure.
To avoid the danger of public debt and a balance-of-payment crisis, comprehensive economic reforms, including fiscal adjustment, are urgently needed. These reforms should involve eliminating energy and food subsidies and replacing them with targeted social assistance, reducing the oversized public administration and privatizing public sector enterprises, improving the business climate, increasing trade and investment openness, and sector diversification. The SEMC may also benefit from a peace dividend if the numerous internal and regional conflicts are resolved.
However, the success of economic reforms will depend on the results of the political transition, i.e., the ability to build stable democratic regimes which can resist populist temptations and rally political support for more rational economic policies.
Authored by: Marek Dąbrowski
Published in 2014
This paper analyses the public finance performance and the dynamics of government expenditures on education and health in the Kyrgyz Republic in 2007-2010, when the country was hit by the global economic crisis and then by an internal political crisis in 2010. Despite these crisis conditions, public health expenditures have increased substantially. In education, recurrent expenditures have been protected, while capital investments have been cut dramatically. Both sectors suffer from chronic under-financing, which results in an insufficient quality of services. The country's fiscal situation in the medium-term is going to be difficult, so efficiency-oriented reforms need to be implemented in health care and especially in education in order to sustain the development of these critical services in Kyrgyzstan.
Authored by: Roman Mogilevsky
Published in 2011
This paper provides an overview of public expenditures on education and healthcare in Belarus, Georgia, Kyrgyzstan, Moldova, Russia, Ukraine and some other countries of the former Soviet Union before and during the global financial crisis. Before the crisis, the governments of these countries were substantially increasing spending on education and health. The crisis adversely affected the FSU countries and worsened their fiscal situation. The analysis indicates that during the crisis, despite the fiscal constraints, public education and health expenditures have mostly been maintained or increased in almost all of these countries. However, the crisis situation was not taken as an opportunity to address these countries' key education and healthcare problems related to demographic changes, insufficient per capita expenditure levels, the low efficiency of public spending and the insufficient quality of services. These issues form an ambitious reform agenda for these countries in the medium- and long-term.
Authored by: Alexander Chubrik, Marek Dabrowski, Roman Mogilevsky, Irina Sinitsina
Published in 2011
This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2015-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.
Authored by: Maciej Krzak and Grzegorz Poniatowski
Published in 2014
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Authored by: Camilla Jensen
Published in 2014
The paper builds predictive scenarios for the agricultural sector of eleven Mediterranean countries (Med 11), namely Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and Turkey. First, it assesses the performance trends of the Med 11 agricultural sector with a focus on production, consumption and trade patterns, incentives, trade protection policies and trade relations with the EU and productivity dynamics and their determinants. Secondly, it presents four scenarios based on the main value chains of the agriculture sector of Med 11: animal products, fruits and vegetables, sugar and edible oil, cereals and fish and other sea products. The four scenarios are: business as usual, Mediterranean One global Player, the Euro Mediterranean Area under threat and the EU and Med 11 as Regional Player.
Written by Saad Belghazi. Published in August 2012.
PDF available on our website at: http://www.case-research.eu/en/node/57764
The paper deals with the impact of the global financial crisis on public service delivery - mainly education and healthcare - in Belarus. The pre-crisis period of 2003-2008 was the most prosperous in recent history. These trends resulted in a pretty good fiscal performance. Nevertheless, the share of expenditures on education and healthcare in GDP was decreasing during the 2000s, which was a consequence of demographic trends and a number of reforms in these sectors. The global crisis hurt the Belarusian economy considerably. However, macro-indicators of the Belarusian economy looked pretty good in comparison to other countries, and the deterioration of public finance was limited. Thus, expenditures on both education and healthcare were mainly part of long-term trends and were able to avoid shock adjustments during the crisis. However, there are a number of medium and long-term threats to these public service sectors associated with the crisis agenda. This paper provides a number of policy recommendations to stave off these threats.
This paper analyses the public finance performance and the dynamics of government expenditures on education and health in the Kyrgyz Republic in 2007-2010, when the country was hit by the global economic crisis and then by an internal political crisis in 2010. Despite these crisis conditions, public health expenditures have increased substantially. In education, recurrent expenditures have been protected, while capital investments have been cut dramatically. Both sectors suffer from chronic under-financing, which results in an insufficient quality of services. The country's fiscal situation in the medium-term is going to be difficult, so efficiency-oriented reforms need to be implemented in health care and especially in education in order to sustain the development of these critical services in Kyrgyzstan.
Authored by: Roman Mogilevsky
Published in 2011
This paper provides an overview of public expenditures on education and healthcare in Belarus, Georgia, Kyrgyzstan, Moldova, Russia, Ukraine and some other countries of the former Soviet Union before and during the global financial crisis. Before the crisis, the governments of these countries were substantially increasing spending on education and health. The crisis adversely affected the FSU countries and worsened their fiscal situation. The analysis indicates that during the crisis, despite the fiscal constraints, public education and health expenditures have mostly been maintained or increased in almost all of these countries. However, the crisis situation was not taken as an opportunity to address these countries' key education and healthcare problems related to demographic changes, insufficient per capita expenditure levels, the low efficiency of public spending and the insufficient quality of services. These issues form an ambitious reform agenda for these countries in the medium- and long-term.
Authored by: Alexander Chubrik, Marek Dabrowski, Roman Mogilevsky, Irina Sinitsina
Published in 2011
This paper presents forecasts for the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) for the period 2015-2015 for six countries in the region, namely the Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland. It is a continuation of the endeavor to construct synthetic indices measuring financial stress and economic sensitivity for twelve Central and East European countries using the Principal Component Analysis. In order to obtain forecasts of the FSI, we estimated Vector Autoregression (VAR) models on monthly data for the period 2001-2012 separately for all the countries. Using quarterly historical values of ESI and FSI, we estimated Dynamic Panel Data Model for the complete sample of countries. Parameters of the model were later used for forecasting the ESI. Obtained results suggest that the FSI will start to rise in 2014 in the Czech Republic, Lithuania, and Estonia. For Latvia and Hungary, we observed a conversion in the trend, i.e. at the beginning of 2015, when the index should start to fall. According to our forecasts, the ESI will be rising in the next two years, except for Hungary, where we predict a continuous decrease in economic sensitivity.
Authored by: Maciej Krzak and Grzegorz Poniatowski
Published in 2014
In this paper the authors undertake an ex-post evaluation of whether the special economic zones (SEZs) introduced in Poland in 1994 have been successful in meeting regional development objectives. They evaluate the policy of as many of its objectives as possible: employment creation, business creation (which includes attracting foreign direct investment), income or wage effects, and environmental sustainability. They use different panel data methods to investigate this question at the powiat and gmina levels in Poland during the 1995-2011 period. It is also possible to include numerous controls to reduce the problem of the omitted variables bias such as education level, dependency rates, state ownership, general subsidies and whether the area is urban or rural. The results indicate that SEZs in Poland have been successful in a number of their objectives such as private business creation. The positive effect of the policy however mainly comes through foreign direct investment (FDI), whereas the effects on e.g. investment and employment are small or insignificant. In other areas, such as securing higher income levels and locking firms into the sustainability agenda through the adoption of green technologies and reduced air pollution, the authors find only a small positively moderating effect of the policy on what are traditionally economically disadvantaged areas in Poland that used to be dependent on the socialist production model. Hence, despite high levels of FDI, the zones policy has not managed to overcome the legacy of backwardness or lagging regions. The main policy implication of the paper is that SEZs may be successful in stimulating activity in the short run but the policy must be seen as one of necessary temporality and can therefore not stand alone. Before launching SEZs, policymakers must have plans in place for follow up measures to ensure the longer term competitiveness and sustainability implications of such an initiative. There is a need to understand the connection between the specific incentive schemes used (in this particular case tax incentives were used) and the kinds of firms and activities they attract, including the behavioral models that those incentives promote.
Authored by: Camilla Jensen
Published in 2014
The paper builds predictive scenarios for the agricultural sector of eleven Mediterranean countries (Med 11), namely Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and Turkey. First, it assesses the performance trends of the Med 11 agricultural sector with a focus on production, consumption and trade patterns, incentives, trade protection policies and trade relations with the EU and productivity dynamics and their determinants. Secondly, it presents four scenarios based on the main value chains of the agriculture sector of Med 11: animal products, fruits and vegetables, sugar and edible oil, cereals and fish and other sea products. The four scenarios are: business as usual, Mediterranean One global Player, the Euro Mediterranean Area under threat and the EU and Med 11 as Regional Player.
Written by Saad Belghazi. Published in August 2012.
PDF available on our website at: http://www.case-research.eu/en/node/57764
The paper deals with the impact of the global financial crisis on public service delivery - mainly education and healthcare - in Belarus. The pre-crisis period of 2003-2008 was the most prosperous in recent history. These trends resulted in a pretty good fiscal performance. Nevertheless, the share of expenditures on education and healthcare in GDP was decreasing during the 2000s, which was a consequence of demographic trends and a number of reforms in these sectors. The global crisis hurt the Belarusian economy considerably. However, macro-indicators of the Belarusian economy looked pretty good in comparison to other countries, and the deterioration of public finance was limited. Thus, expenditures on both education and healthcare were mainly part of long-term trends and were able to avoid shock adjustments during the crisis. However, there are a number of medium and long-term threats to these public service sectors associated with the crisis agenda. This paper provides a number of policy recommendations to stave off these threats.
Despite its many advantages, the Eastern and Southern Mediterranean region remains relatively backward in economic and social terms and is rightly considered a potential source of social and political instability. Its average GDP per capita lags behind the global average and is increasing slowly due to weak economic policies, poor governance and rapid population growth. The region suffers from high unemployment (especially among women and youth), poor education, high levels of income inequality, gender discrimination, underdeveloped infrastructure, continuous trade protectionism, and a poor business climate. To overcome these development obstacles, MED countries should conduct comprehensive reforms of their economic, social and political systems with the aim of ensuring macroeconomic stability, increasing trade and investment openness, improving the business climate and governance system, and upgrading infrastructure and human capital.
The main economic and political partners of the MED countries, especially the EU, can actively support this modernization agenda through liberalizing trade in some sensitive sectors (like agriculture and services), adopting a more flexible approach to MED labor migration, and cooperating in mitigating climate changes, improving educational outcomes, and promoting science and culture. This will require renewed initiatives with dedicated technical assistance and continued and enhanced financial assistance, particularly to improve infrastructure. There is also a lot of room for improvement in intra-MED cooperation but this requires resolving the protracted political conflicts in the region and taking bolder steps to remove trade and investment barriers.
Written by Marek Dąbrowski and Luc De Wulf. Published in January 2013.
PDF available on our website: http://www.case-research.eu/en/node/57925
The CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
This report presents the methodology for the construction of the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) and investigates the economic situation in twelve Central and East European Countries (CEECs) between 2001 and 2012. The objective of this paper was to capture key features of financial and economic vulnerability and examine the co-movement of economic turmoil and financial disturbances that strongly affected the CEECs in the last decade. The main finding is that the FSI can be used as a leading indicator and can be used to recognize changing trends in the index. A shift in the value of the index proves that EU accession has a positive, but minor influence on financial stability in the CEECs. On the other hand, the impact of the introduction of the euro in Estonia, Slovakia and Slovenia is ambiguous.
For most of the countries in our sample, the FSI started to grow rapidly in 2007, reaching its peak around the third quarter of 2008. Consequently, financial stress remained high for a few quarters and started to fall gradually. For a number of countries, we observe higher financial stress in the latest period of our analysis, i.e. 2010-2012. However, the value of the FSI was significantly lower than three years earlier.
The results show that indices might be helpful in predicting future recessions. Consequently, the model will be expanded by adding a forecasting module, the launch of which is planned for April 2014.
Written by Maciej Krzak and Grzegorz Poniatowski. Published in January 2014
PDF available on our website at: http://www.case-research.eu/en/node/58411
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
The The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.
Authored by: Marek Dąbrowski
Published in 2009
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
This paper employs a standard Tobin-Markowitz framework to analyse the determinants of capital flows into the CIS countries. Using data from 1996-2006, we find that the Russian financial crisis of 1998 has had a profound impact on capital flows into the CIS (both directly and indirectly). Firstly, it introduced a structural shift in the investors' behaviour by shifting the focus from the external factors to the internal ones, e.g. domestic interest and GDP growth rates. Secondly, it also drastically changed the impact of a number of explanatory variables on capital flows into the CIS. Political risk was found to be the second most important determinant of capital flows into the CIS. Additionally, we report some strong evidence of co-movement between portfolio flows into the CIS and CEEC, coupled with strong complementarity between global stock market activity and portfolio inflows into the CIS. Interestingly, external factors tend to be of a higher significance than internal factors for the largest members (Russia, Ukraine and Kazakhstan) of the CIS; whereas domestic variables tend to have a greater impact on the capital flows into the smaller CIS countries.
Authored by: Oleksandr Lozovyi
Published in 2007
Current report aims to identify major existing gaps in the four socio-economic dimensions (economic, human, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina, Michael Tokmazishvili
Published in 2007
Ukraine belongs to the group of countries which are known for the widespread phenomenon of subsistence and semi-subsistence farming. Individual farmers are not obliged to produce financial reports and their incomes belong to the category of unobservable incomes. When checking the eligibility for social assistance the level of their incomes needs to be estimated. In a country, where poverty rate is quite high, the coverage of the poor with financial aid is relatively low and public finances under constant control, the importance of a fair and justified methodology for income imputation is particularly strong. In this situation, an outdated and unfair current system of agriculture income estimation in Ukraine calls for immediate changes. This paper presents recommendations for the Ukrainian government in the area of agriculture income imputation, where several methods of estimating farm income were proposed (including the one based on Household Budget Survey). The recommendations were preceded with the analysis of five countries' practices in this area: Kazakhstan, Kyrgyzstan, Moldova, Russia, and Poland. A review of different means testing methods, including direct means testing and proxy means testing, served as an introduction to the topic.
Authored by: Dmytro Boyarchuk, Liudmyla Kotusenko, Katarzyna Pietka-Kosinska, Roman Semko, Irina Sinitsina
Published in 2009
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
Demographic change (driven by the second demographic transition) led to an uncontrolled increase in scale of various social expenditure in the OECD area, especially in continental Europe. Costs of social transfers created fiscal pressure leading to the necessity of tax increases all over Europe, including the New Member States. Employment consequences of emerging higher tax wedge has become the topic of large body of research. However, surprisingly little evidence is known on distribution of that problem across workers. Is the effect of high tax wedge equally spread or certain groups of workers suffer more than others? More specifically, are low productivity workers exposed more to the problems caused by high tax wedge?
Authored by: Marek Gora, Artur Radziwill, Agnieszka Sowa, Mateusz Walewski
Published in 2006
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
This study is part of the project entitled “Costs and Benefits of Labour Mobility between the EU and the Eastern Partnership Countries” for the European Commission1. The study was written by Luca Barbone (CASE) Mikhail Bonch- Osmolovskiy (CASE) and Matthias Luecke (CASE, Kiel). It is based on the six country studies for the Eastern Partnership countries commissioned under this project and prepared by Mihran Galstyan and Gagik Makaryan (Armenia), Azer Allahveranov and Emin Huseynov (Azerbaijan), Aleksander Chubrik and Aliaksei Kazlou (Belarus), Lasha Labadze and Mirjan Tukhashvili (Georgia), Vasile Cantarji and Georgeta Mincu (Moldova), Tom Coupé and Hanna Vakhitova (Ukraine). The authors would like to thank for their comments and suggestions Kathryn Anderson, Martin Kahanec, Costanza Biavaschi, Lucia Kurekova, Monica Bucurenciu, Borbala Szegeli, Giovanni Cremonini and Ummuhan Bardak, as well as the dbaretailed review provided by IOM. The views in this study are those of the authors’ only, and should not be interpreted as representing the official position of the European Commission and its institutions.
Written by Luca Barbone, Mikhail Bonch-Osmolovsky and Matthias Luecke. Published in September 2013.
PDF available on our website at: http://www.case-research.eu/en/node/58264
The Journal of Scientific Papers “VUZF REVIEW” published from the year 2016, is issued 4 times a year and is a scientific publication on topical problems of science in various areas of economic theory and practice, management, marketing and applied research methods. The journal is international in the essence and scope. All articles pass through the procedure of reviewing by the editorial board. Editorial Board consist of well-known scientists whose activities contributes to the integration of the global scientific community. OUR AUTHORS ARE: Leading scientists; University professors; Graduate students; Students; Foreign researchers; Scientists; Applicants for degrees.
The Scientific journal “VUZF REVIEW” published from the year 2016, is issued 4 times a year and is a scientific publication on topical problems of science in various areas of economic theory and practice, management, marketing and applied research methods. The journal is international in the essence and scope. All articles pass through the procedure of reviewing by the editorial board. Editorial Board consist of well-known scientists whose activities contributes to the integration of the global scientific community. OUR AUTHORS ARE: Leading scientists; University professors; Graduate students; Students; Foreign researchers; Scientists; Applicants for degrees
The Scientific journal “VUZF REVIEW” published from the year 2016, is issued 4 times a year and is a scientific publication on topical problems of science in various areas of economic theory and practice, management, marketing and applied research methods. The journal is international in the essence and scope. All articles pass through the procedure of reviewing by the editorial board. Editorial Board consist of well-known scientists whose activities contributes to the integration of the global scientific community. OUR AUTHORS ARE: Leading scientists; University professors; Graduate students; Students; Foreign researchers; Scientists; Applicants for degrees
This paper describes the general framework of the EU’s emerging relationship with its new neighbours and investigates the potential economic impact of the European Neighbourhood Policy (ENP), both for the EU itself and for its neighbours. In particular, it seeks to develop an answer to the question of whether the ENP is sufficiently attractive so as to induce the governments in neighbourhood countries to adopt (or accelerate the adoption of) the types of economic and governance reforms that were implemented in the new member states during their accession processes. Although the specifics of the ENP are still being developed, the lack of incentives as regards to unclear accession to the EU is identified as the main weakness of the ENP.
Economically, the ENP seeks to ease trade restrictions through the implementation of legislative approximation and convergence with EU standards, before accessing the EU’s single market can become a reality. Positively though, is that the access to the single market could improve significantly under the ENP. As experienced by the Central European states, FDI is instrumental to transform the economies of the Western CIS and the Caucasus. The ENP can be a supportive framework for improving investor confidence. Likewise, the new European Neighbourhood Instrument can add more coherence in technical assistance, and provide more financial support for creating capacities for trade infrastructures and institutional and private sector development. Finally, measures to promote increased labour migration between the new neighbours and the enlarged EU may be worth to put on the agenda for the future development and impact of the ENP.
Authored by: Susanne Milcher, Ben Slay
Published in 2005
The paper focuses on the social safety nets in Russian Federation and Ukraine in the view of changes on the labour market since the beginning of economic transition. The authors showed that many past phenomena (e.g. restructuring of the economy, wage and pension arrears, new groups at-risk-of-poverty, demographic transition) caused a need to change an old type social safety net (SSN) into the new one, better adapted to emerging more liberal economy problems.
Additionally, the authors analysed some gender specific issues related to social security that are caused mainly by inequalities in the labour market. Differences of earnings between men and women in Russia caused by sector segregation account for seem to be more important than the gap between gender earnings attributed to the position. In Ukraine the main contributors to gross gender differential of log earnings (that equals to 32%) explained by our model are sector segregation and occupation.
The authors also pointed out to future policy challenges in the area of social security systems in both countries. The retirement reforms introduced recently are a step in the right direction, although their impact will not be felt for a number of years. Other reforms, with more immediate results, are necessary. Social safety nets should be made more efficient and social benefits should be better targeted.
Authored by: Marek Gora, Grzegorz Kula, Oleksandr Rohozynsky, Magdalena Rokicka, Anna Ruzik-Sierdzinska
Published in 2009
The recent wave of financial innovation, particularly innovation related to the application of information and communication technologies, poses a serious challenge to the financial industry’s business model in both its banking and non-banking components. It has already revolutionised financial services and, most likely, will continue to do so in the future. If not responded to adequately and timely by regulators, it may create new risks to financial stability, as occurred before the global financial crisis of 2007-2009. However, financial innovation will not seriously affect the process of monetary policymaking and is unlikely to undermine the ability of central banks to perform their price stability mission. The recent wave of financial innovation, particularly innovation related to the application of information and communication technologies, poses a serious challenge to the financial industry’s business model in both its banking and non-banking components. It has already revolutionised financial services and, most likely, will continue to do so in the future. If not responded to adequately and timely by regulators, it may create new risks to financial stability, as occurred before the global financial crisis of 2007-2009. However, financial innovation will not seriously affect the process of monetary policymaking and is unlikely to undermine the ability of central banks to perform their price stability mission.
This report aims to identify, explain and detail the links and interactions in Southern and Eastern Mediterranean countries (SEMCs) between energy supply and demand and socio-economic development, as well as the potential role of energy supply and demand policies on both. Another related aim is to identify and analyse, in a quantitative and qualitative way, the changing role of energy (both demand and supply) in southern Mediterranean economies, focusing on its positive and negative impact on socio-economic development.
This report investigates in particular:
The most important channels through which resource wealth can contribute to or hamper economic and social development in the analysed region;
Mechanisms and channels of relations between energy supply and demand policies and economic and social development.
The burdens of energy subsidies and ‘oil syndrome’ are of particular relevance for the region. An integrated socio-economic development and energy policy scenario approach showing the potential benefits and synergies within countries and the region is developed in the final part of the report.
Written by Emmanuel Bergasse, Wojciech Paczynski, Marek Dabrowski and Luc De Wulf. Published in March 2013.
PDF available on our website at: http://www.case-research.eu/en/node/57975
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
Since May 1, 2004 the European Union's new member states (NMS) have been subject to the same fiscal rules established in the Treaty on the European Union and Stability and Growth Pact (SGP) as the old member states (OMS). The NMS entered the EU running structural fiscal deficits. More than half of them (including the biggest ones) breach the Treaty's actual deficit limits and are already the subject of the excessive deficit procedure. A high rate of economic growth makes the fiscal situation of most NMS reasonably manageable in the short- to medium-term, but the long term fiscal outlook, mostly connected with the consequences of an aging population, is dramatic. The NMS should therefore prepare themselves now to be able to meet this challenge over the next decades (the same goes for the OMS). In addition, the perspective of EMU entry should provide the NMS with a strong incentive to reduce their deficits now because waiting (and postponing both fiscal adjustment and the adoption of the Euro) will only result in higher cumulative fiscal costs. The additional financial burden connected with EU accession cannot serve as excuse in delaying fiscal consolidation.
In spite of the growing debate on the relevance of the EU's fiscal surveillance rules and not excluding the possibility of their limited modification, they should not be relaxed. Frequent breaching of these rules cannot serve as an argument that they are irrelevant from the point of view of safeguarding fiscal prudence and avoiding fiscal 'free riding' under the umbrella of monetary union. Any version of fiscal surveillance rules (either current or modified) must be solidly anchored in an effective enforcement mechanism (including automatic sanctions) at the EU and national levels.
Authored by: Malgorzata Antczak, Marek Dabrowski, Michal Gorzelak
Published in 2005
Despite its many advantages, the Eastern and Southern Mediterranean region remains relatively backward in economic and social terms and is rightly considered a potential source of social and political instability. Its average GDP per capita lags behind the global average and is increasing slowly due to weak economic policies, poor governance and rapid population growth. The region suffers from high unemployment (especially among women and youth), poor education, high levels of income inequality, gender discrimination, underdeveloped infrastructure, continuous trade protectionism, and a poor business climate. To overcome these development obstacles, MED countries should conduct comprehensive reforms of their economic, social and political systems with the aim of ensuring macroeconomic stability, increasing trade and investment openness, improving the business climate and governance system, and upgrading infrastructure and human capital.
The main economic and political partners of the MED countries, especially the EU, can actively support this modernization agenda through liberalizing trade in some sensitive sectors (like agriculture and services), adopting a more flexible approach to MED labor migration, and cooperating in mitigating climate changes, improving educational outcomes, and promoting science and culture. This will require renewed initiatives with dedicated technical assistance and continued and enhanced financial assistance, particularly to improve infrastructure. There is also a lot of room for improvement in intra-MED cooperation but this requires resolving the protracted political conflicts in the region and taking bolder steps to remove trade and investment barriers.
Written by Marek Dąbrowski and Luc De Wulf. Published in January 2013.
PDF available on our website: http://www.case-research.eu/en/node/57925
The CIS region is of vital importance for the EU countries considering that both are interconnected through cooperation or membership in supranational political and economic institutions (OSCE, WTO, OECD, NATO, etc.), through transport and energy corridors, through investment, trade and migration trends.
The interests of EU member states in the region are very diverse and are sometimes pursued in contradiction to one another. The overarching interest is of an economic nature, given the large reserves of natural resources (particularly gas and oil) and due to the size of the CIS market of 277 million consumers. Security and immigration issues also rank high on the list, whereas EU countries are less concerned with democratisation trends in the CIS. Russia is the most important CIS partner for a majority of EU countries. Energy plays a disproportionally high role in EU member states (MS) - Russia relations and is also a strong determinant of the overall heterogeneity of EU MS policies towards Russia. The type of bilateral relations which the EU MS maintain with one sub-region of the CIS (particularly the EENP, but increasingly also Central Asia) also affects their relations with Russia. Cultural closeness and a common history still play a large part in the development of bilateral relations. The accession to the EU of Central and Eastern European states has altered the existing relations between them and their eastern CIS neighbours, thereby also modifying their interests in the region. Regrettably, the EU's policies towards Russia and the EENP region have not yet been able to provide a playing field able to compensate for this alteration.
Thus, the present report studies the various interests (political, security, economic, cultural) which underpin relations between the EU member states and the CIS countries and also discusses the latest developments in EU policies towards a specific CIS sub-region (Russia, the Eastern ENP and Central Asia), thereby providing a broad picture of the type of interests, how they are pursued by the EU member states and where these intersect or clash.
Authored by: George Dura
Published in 2008
This report presents the methodology for the construction of the Financial Stress Index (FSI) and the Economic Sensitivity Index (ESI) and investigates the economic situation in twelve Central and East European Countries (CEECs) between 2001 and 2012. The objective of this paper was to capture key features of financial and economic vulnerability and examine the co-movement of economic turmoil and financial disturbances that strongly affected the CEECs in the last decade. The main finding is that the FSI can be used as a leading indicator and can be used to recognize changing trends in the index. A shift in the value of the index proves that EU accession has a positive, but minor influence on financial stability in the CEECs. On the other hand, the impact of the introduction of the euro in Estonia, Slovakia and Slovenia is ambiguous.
For most of the countries in our sample, the FSI started to grow rapidly in 2007, reaching its peak around the third quarter of 2008. Consequently, financial stress remained high for a few quarters and started to fall gradually. For a number of countries, we observe higher financial stress in the latest period of our analysis, i.e. 2010-2012. However, the value of the FSI was significantly lower than three years earlier.
The results show that indices might be helpful in predicting future recessions. Consequently, the model will be expanded by adding a forecasting module, the launch of which is planned for April 2014.
Written by Maciej Krzak and Grzegorz Poniatowski. Published in January 2014
PDF available on our website at: http://www.case-research.eu/en/node/58411
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
The The purpose of this paper is to analyze the various challenges facing European integration and the EU institutional architecture as result of the global financial crisis. The European integration process is not yet complete, both in terms of its content and geographical coverage. It can be viewed as a kind of intermediate hybrid between an international organization and a federation, subject to further evolution. This is also true of the Single European Market and the Economic and Monetary Union, which form the core of the EU economic architecture. Certain policy prerogatives (such as external trade, competition, and the Common Agriculture Policy) are delegated to the supranational level while others (such as financial supervision or fiscal policy) remain largely in the hands of national authorities.
Authored by: Marek Dąbrowski
Published in 2009
The purpose of this paper is to examine the economic aspects of EU policy towards its Eastern neighbors in the former Soviet Union. For a long period of time, this region was considered as less important for the EU, as compared to Central and Eastern Europe, which was the subject of a far-reaching economic and political integration offer materialized in two rounds of EU Eastern Enlargements (2004, 2007). However, moving the EU's geographical frontier further to the East and Southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy a new EU external policy framework also addressed to the Southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.
A general weakness of the ENP is that there is a lack of balance between farreaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for a more complex package-type approach to economic integration rather than just limiting cooperation to some narrow fields.
Authored by: Marek Dąbrowski
Published in 2007
This paper employs a standard Tobin-Markowitz framework to analyse the determinants of capital flows into the CIS countries. Using data from 1996-2006, we find that the Russian financial crisis of 1998 has had a profound impact on capital flows into the CIS (both directly and indirectly). Firstly, it introduced a structural shift in the investors' behaviour by shifting the focus from the external factors to the internal ones, e.g. domestic interest and GDP growth rates. Secondly, it also drastically changed the impact of a number of explanatory variables on capital flows into the CIS. Political risk was found to be the second most important determinant of capital flows into the CIS. Additionally, we report some strong evidence of co-movement between portfolio flows into the CIS and CEEC, coupled with strong complementarity between global stock market activity and portfolio inflows into the CIS. Interestingly, external factors tend to be of a higher significance than internal factors for the largest members (Russia, Ukraine and Kazakhstan) of the CIS; whereas domestic variables tend to have a greater impact on the capital flows into the smaller CIS countries.
Authored by: Oleksandr Lozovyi
Published in 2007
Current report aims to identify major existing gaps in the four socio-economic dimensions (economic, human, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina, Michael Tokmazishvili
Published in 2007
Ukraine belongs to the group of countries which are known for the widespread phenomenon of subsistence and semi-subsistence farming. Individual farmers are not obliged to produce financial reports and their incomes belong to the category of unobservable incomes. When checking the eligibility for social assistance the level of their incomes needs to be estimated. In a country, where poverty rate is quite high, the coverage of the poor with financial aid is relatively low and public finances under constant control, the importance of a fair and justified methodology for income imputation is particularly strong. In this situation, an outdated and unfair current system of agriculture income estimation in Ukraine calls for immediate changes. This paper presents recommendations for the Ukrainian government in the area of agriculture income imputation, where several methods of estimating farm income were proposed (including the one based on Household Budget Survey). The recommendations were preceded with the analysis of five countries' practices in this area: Kazakhstan, Kyrgyzstan, Moldova, Russia, and Poland. A review of different means testing methods, including direct means testing and proxy means testing, served as an introduction to the topic.
Authored by: Dmytro Boyarchuk, Liudmyla Kotusenko, Katarzyna Pietka-Kosinska, Roman Semko, Irina Sinitsina
Published in 2009
The objective of this paper has been to experiment diverse economic indicators in order to help equip Ukrainian policymakers with a relatively simple tool, which could deliver warning signals about the possibility of upcoming economic problems and thereby assist the Government in designing policy instruments which would help prevent or soften a slowdown or recession.
Authored by: Vladimir Dubrovskiy, Inna Golodniuk, Janusz Szyrmer
Demographic change (driven by the second demographic transition) led to an uncontrolled increase in scale of various social expenditure in the OECD area, especially in continental Europe. Costs of social transfers created fiscal pressure leading to the necessity of tax increases all over Europe, including the New Member States. Employment consequences of emerging higher tax wedge has become the topic of large body of research. However, surprisingly little evidence is known on distribution of that problem across workers. Is the effect of high tax wedge equally spread or certain groups of workers suffer more than others? More specifically, are low productivity workers exposed more to the problems caused by high tax wedge?
Authored by: Marek Gora, Artur Radziwill, Agnieszka Sowa, Mateusz Walewski
Published in 2006
This paper analyzes the direct and indirect income effects of international labor migration and remittances in selected CIS countries. The analysis is based on computable general equilibrium (CGE) models for Moldova, Ukraine, Georgia, Kyrgyzstan, and Russia. All net emigration countries would experience a sharp contraction of private consumption in the absence of remittances. In Russia, the main effect of immigration has been to hold down the real wage (as potential capital stock adjustments in response to immigration are not reflected in the authors comparative-static modeling framework). The paper concludes that because of the important contribution of migration and remittances to stabilizing and sustaining incomes in many CIS countries, enhanced opportunities for legal labor migration should figure prominently in any deepening of bilateral relations between CIS countries and the European Union under the European Neighborhood Policy.
Authored by: Aziz Atamanov, Toman Omar Mahmoud, Roman Mogilevsky, Kseniya Tereshchenko, Natalia Tourdyeva
Published in 2009
Ainura Uzagalieva
Vitaly Vavryschuk
This study is part of the project entitled “Costs and Benefits of Labour Mobility between the EU and the Eastern Partnership Countries” for the European Commission1. The study was written by Luca Barbone (CASE) Mikhail Bonch- Osmolovskiy (CASE) and Matthias Luecke (CASE, Kiel). It is based on the six country studies for the Eastern Partnership countries commissioned under this project and prepared by Mihran Galstyan and Gagik Makaryan (Armenia), Azer Allahveranov and Emin Huseynov (Azerbaijan), Aleksander Chubrik and Aliaksei Kazlou (Belarus), Lasha Labadze and Mirjan Tukhashvili (Georgia), Vasile Cantarji and Georgeta Mincu (Moldova), Tom Coupé and Hanna Vakhitova (Ukraine). The authors would like to thank for their comments and suggestions Kathryn Anderson, Martin Kahanec, Costanza Biavaschi, Lucia Kurekova, Monica Bucurenciu, Borbala Szegeli, Giovanni Cremonini and Ummuhan Bardak, as well as the dbaretailed review provided by IOM. The views in this study are those of the authors’ only, and should not be interpreted as representing the official position of the European Commission and its institutions.
Written by Luca Barbone, Mikhail Bonch-Osmolovsky and Matthias Luecke. Published in September 2013.
PDF available on our website at: http://www.case-research.eu/en/node/58264
The Journal of Scientific Papers “VUZF REVIEW” published from the year 2016, is issued 4 times a year and is a scientific publication on topical problems of science in various areas of economic theory and practice, management, marketing and applied research methods. The journal is international in the essence and scope. All articles pass through the procedure of reviewing by the editorial board. Editorial Board consist of well-known scientists whose activities contributes to the integration of the global scientific community. OUR AUTHORS ARE: Leading scientists; University professors; Graduate students; Students; Foreign researchers; Scientists; Applicants for degrees.
The Scientific journal “VUZF REVIEW” published from the year 2016, is issued 4 times a year and is a scientific publication on topical problems of science in various areas of economic theory and practice, management, marketing and applied research methods. The journal is international in the essence and scope. All articles pass through the procedure of reviewing by the editorial board. Editorial Board consist of well-known scientists whose activities contributes to the integration of the global scientific community. OUR AUTHORS ARE: Leading scientists; University professors; Graduate students; Students; Foreign researchers; Scientists; Applicants for degrees
The Scientific journal “VUZF REVIEW” published from the year 2016, is issued 4 times a year and is a scientific publication on topical problems of science in various areas of economic theory and practice, management, marketing and applied research methods. The journal is international in the essence and scope. All articles pass through the procedure of reviewing by the editorial board. Editorial Board consist of well-known scientists whose activities contributes to the integration of the global scientific community. OUR AUTHORS ARE: Leading scientists; University professors; Graduate students; Students; Foreign researchers; Scientists; Applicants for degrees
This paper describes the general framework of the EU’s emerging relationship with its new neighbours and investigates the potential economic impact of the European Neighbourhood Policy (ENP), both for the EU itself and for its neighbours. In particular, it seeks to develop an answer to the question of whether the ENP is sufficiently attractive so as to induce the governments in neighbourhood countries to adopt (or accelerate the adoption of) the types of economic and governance reforms that were implemented in the new member states during their accession processes. Although the specifics of the ENP are still being developed, the lack of incentives as regards to unclear accession to the EU is identified as the main weakness of the ENP.
Economically, the ENP seeks to ease trade restrictions through the implementation of legislative approximation and convergence with EU standards, before accessing the EU’s single market can become a reality. Positively though, is that the access to the single market could improve significantly under the ENP. As experienced by the Central European states, FDI is instrumental to transform the economies of the Western CIS and the Caucasus. The ENP can be a supportive framework for improving investor confidence. Likewise, the new European Neighbourhood Instrument can add more coherence in technical assistance, and provide more financial support for creating capacities for trade infrastructures and institutional and private sector development. Finally, measures to promote increased labour migration between the new neighbours and the enlarged EU may be worth to put on the agenda for the future development and impact of the ENP.
Authored by: Susanne Milcher, Ben Slay
Published in 2005
The paper focuses on the social safety nets in Russian Federation and Ukraine in the view of changes on the labour market since the beginning of economic transition. The authors showed that many past phenomena (e.g. restructuring of the economy, wage and pension arrears, new groups at-risk-of-poverty, demographic transition) caused a need to change an old type social safety net (SSN) into the new one, better adapted to emerging more liberal economy problems.
Additionally, the authors analysed some gender specific issues related to social security that are caused mainly by inequalities in the labour market. Differences of earnings between men and women in Russia caused by sector segregation account for seem to be more important than the gap between gender earnings attributed to the position. In Ukraine the main contributors to gross gender differential of log earnings (that equals to 32%) explained by our model are sector segregation and occupation.
The authors also pointed out to future policy challenges in the area of social security systems in both countries. The retirement reforms introduced recently are a step in the right direction, although their impact will not be felt for a number of years. Other reforms, with more immediate results, are necessary. Social safety nets should be made more efficient and social benefits should be better targeted.
Authored by: Marek Gora, Grzegorz Kula, Oleksandr Rohozynsky, Magdalena Rokicka, Anna Ruzik-Sierdzinska
Published in 2009
The recent wave of financial innovation, particularly innovation related to the application of information and communication technologies, poses a serious challenge to the financial industry’s business model in both its banking and non-banking components. It has already revolutionised financial services and, most likely, will continue to do so in the future. If not responded to adequately and timely by regulators, it may create new risks to financial stability, as occurred before the global financial crisis of 2007-2009. However, financial innovation will not seriously affect the process of monetary policymaking and is unlikely to undermine the ability of central banks to perform their price stability mission. The recent wave of financial innovation, particularly innovation related to the application of information and communication technologies, poses a serious challenge to the financial industry’s business model in both its banking and non-banking components. It has already revolutionised financial services and, most likely, will continue to do so in the future. If not responded to adequately and timely by regulators, it may create new risks to financial stability, as occurred before the global financial crisis of 2007-2009. However, financial innovation will not seriously affect the process of monetary policymaking and is unlikely to undermine the ability of central banks to perform their price stability mission.
This report aims to identify, explain and detail the links and interactions in Southern and Eastern Mediterranean countries (SEMCs) between energy supply and demand and socio-economic development, as well as the potential role of energy supply and demand policies on both. Another related aim is to identify and analyse, in a quantitative and qualitative way, the changing role of energy (both demand and supply) in southern Mediterranean economies, focusing on its positive and negative impact on socio-economic development.
This report investigates in particular:
The most important channels through which resource wealth can contribute to or hamper economic and social development in the analysed region;
Mechanisms and channels of relations between energy supply and demand policies and economic and social development.
The burdens of energy subsidies and ‘oil syndrome’ are of particular relevance for the region. An integrated socio-economic development and energy policy scenario approach showing the potential benefits and synergies within countries and the region is developed in the final part of the report.
Written by Emmanuel Bergasse, Wojciech Paczynski, Marek Dabrowski and Luc De Wulf. Published in March 2013.
PDF available on our website at: http://www.case-research.eu/en/node/57975
In the 1990s, the CIS region experienced a painful transformation following the collapse of the USSR and the command economy. For the less developed republics of the former USSR, this process was even more dramatic as they lost subsidies from the Union's budget and some of them suffered devastating conflicts.
In the 2000s, after overcoming the adaptation output decline and the consequences of the 1998-1999 financial crises, these economies started to grow rapidly, reducing poverty and macroeconomic imbalances. However, their future growth prospects are increasingly vulnerable due to their strong dependence on commodity exports, a poor business and investment climate, endemic corruption and weak governance. Quite recently, fighting high inflation has returned to the policy agenda.
The modernization and diversification of the low-income CIS economies requires further market and institutional reforms aimed at overcoming the Soviet legacy of a repressive and inefficient state. The international community can help by resolving regional conflicts, assisting with trade and economic integration, and offering well-targeted development assistance.
Authored by: Marek Dąbrowski
Published in 2008
Since May 1, 2004 the European Union's new member states (NMS) have been subject to the same fiscal rules established in the Treaty on the European Union and Stability and Growth Pact (SGP) as the old member states (OMS). The NMS entered the EU running structural fiscal deficits. More than half of them (including the biggest ones) breach the Treaty's actual deficit limits and are already the subject of the excessive deficit procedure. A high rate of economic growth makes the fiscal situation of most NMS reasonably manageable in the short- to medium-term, but the long term fiscal outlook, mostly connected with the consequences of an aging population, is dramatic. The NMS should therefore prepare themselves now to be able to meet this challenge over the next decades (the same goes for the OMS). In addition, the perspective of EMU entry should provide the NMS with a strong incentive to reduce their deficits now because waiting (and postponing both fiscal adjustment and the adoption of the Euro) will only result in higher cumulative fiscal costs. The additional financial burden connected with EU accession cannot serve as excuse in delaying fiscal consolidation.
In spite of the growing debate on the relevance of the EU's fiscal surveillance rules and not excluding the possibility of their limited modification, they should not be relaxed. Frequent breaching of these rules cannot serve as an argument that they are irrelevant from the point of view of safeguarding fiscal prudence and avoiding fiscal 'free riding' under the umbrella of monetary union. Any version of fiscal surveillance rules (either current or modified) must be solidly anchored in an effective enforcement mechanism (including automatic sanctions) at the EU and national levels.
Authored by: Malgorzata Antczak, Marek Dabrowski, Michal Gorzelak
Published in 2005
In this study the author analyzes the experience of the European Union in cooperation with non-member neighboring countries, to which the EU’s integration process and institutions are both available. On the one hand, several non-member countries are interested in close cooperation or integration with the organization because of their future membership aspirations or simply because they consider the EU an important economic and political partner. On the other hand, the EU itself is also interested in building such close relations, for economic but often also for geopolitical and security reasons.
Written by Marek Dąbrowski. Published in September 2014.
PDF available on our website at: http://www.case-research.eu/en/node/58671
For the last two decades, MED11 counties (Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestinian Autonomy, Syria, Tunisia and Turkey) have recorded the highest growth rate in inbound world tourism. In the same time, domestic tourism in these countries was growing very fast. MED 11 tourism performances have been astonishing in light of the security risks, natural disasters, oil prices rises and economic uncertainties of the region. The last financial crisis had no severe consequences on this development, which confirmed the resilience of tourism and the huge potential of the MED 11 countries in this sector. This trend was abruptly halted in early 2011 during the Arab Spring, but could resume when the situation stabilizes. This paper questions whether this trend will continue in the period up to 2030 and, for that, provides four different possible scenarios for the development of the tourism sector in MED11 for 2030: (i) reference scenario, (ii) common sustainable development scenario, (iii) polarized (regional) development scenario and (iv) failed development - decline and conflict - scenario. In all cases, international and domestic tourism arrivals will grow. However, security and adjustment to climate change remain the main factors that will strongly influence the development of the tourism sector in MED11 countries.
Authored by: Robert Lanquar
Published in 2011
The report aims to identify major existing gaps in the five socio-economic dimensions (economic, human, openness, environmental, and institutional) and to reveal those gaps which could potentially hinder social and economic integration of neighbor states with the EU. To achieve this, the authors aim to assess the existing trends in the size of the gaps across countries and problem areas, taking into consideration the specific origin of the gap between EU15/EU12, on the one hand, and FSU republics, EU candidates and West Balkan countries, on the other hand.
Authored by: Aziz Atamanov, Alexander Chubrik, Irina Denisova, Vladimir Dubrovskiy, Marina Kartseva, Irina Lukashova, Irina Makenbaeva, Magdalena Rokicka, Irina Sinitsina
Published in 2008
Michael Tokmazishvili
During the last two decades the CIS countries have received very significant amounts of technical assistance from international development organizations and bilateral donors. While this has played a positive and important role in the transformation of these societies, practically all stakeholders currently share the opinion that many problems have accumulated in the area of technical cooperation with CIS countries. This paper intends to outline these problems, analyze their underlying reasons - including the changing environment for technical cooperation in the CIS - and the interaction of the interests of beneficiaries, donors and providers in the process of implementing technical cooperation projects. The analysis suggests that a good understanding, recognition and coordination of the interests of all TC stakeholders and a reduction in the information gap between the various participants in the technical cooperation process are necessary for improving the effectiveness of technical cooperation.
Authored by: Aziz Atamanov, Roman Mogilevsky
Published in 2008
The paper discusses possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. The first section presents a summary of the economic and institutional background for development of the current size and structure of the socially driven tax wedge in both countries. The second section presents some theoretical considerations on the relationship between the social protection system, tax wedge, non-employment and finally, shadow employment. The third section contains an attempt to econometrically estimate the magnitude of the possible relationship between the tax wedge and total employment rates in both countries. In the fourth section, the authors try to discover the mechanism of influence of the last reform of the Ukrainian payroll tax system on the structure and size of shadow employment in the country. The last analytical section closes the circle leading the reader back from shadow employment to wages and finally to the issue of access to social security institutions. The last section concludes.
Authored by: Marek Gora, Oleksandr Rohozynsky, Irina Sinitsina, Mateusz Walewski
Published in 2009
The paper discusses possible directions and magnitudes of the relationship between the social security driven tax wedge, employment and shadow employment in Russia and Ukraine. The first section presents a summary of the economic and institutional background for development of the current size and structure of the socially driven tax wedge in both countries. The second section presents some theoretical considerations on the relationship between the social protection system, tax wedge, non-employment and finally, shadow employment. The third section contains an attempt to econometrically estimate the magnitude of the possible relationship between the tax wedge and total employment rates in both countries. In the fourth section, the authors try to discover the mechanism of influence of the last reform of the Ukrainian payroll tax system on the structure and size of shadow employment in the country. The last analytical section closes the circle leading the reader back from shadow employment to wages and finally to the issue of access to social security institutions. The last section concludes.
Authored by: Marek Gora, Oleksandr Rohozynsky, Irina Sinitsina, Mateusz Walewski
Published in 2009
The paper discusses the role of regional public goods vs. global goods in influencing postcommunist transition in Central and Eastern Europe and former USSR with special attention given to three particular factors: (i) external anchoring of national reform process; (ii) international trade arrangements and (iii) international financial stability.
Authored by: Marek Dabrowski, Artur Radziwill
Published in 2007
Labor migration from Eastern Europe and the member countries of Commonwealth of Independent States (CIS) to the Western countries became an important socio-economic issue. Since political systems and the nature of border management in these regions, migrations turned out to be a very complex and unpredictable issue. The purpose of this study is to analyze the region specific actors, practices and policies of migration in the Eastern countries, the possible scenarios and demographic consequences of the future migration flows. In order to address this issue properly, some of the complexities of labor migration phenomenon in the region are uncovered.
Authored by: Xavier Chojnicki, Ainura Uzagalieva
Published in 2008
Until the early 1990s, the discussions on fiscal policy primarily centered on the functions of economic stabilization, income redistribution and resource allocation. Long-term growth was not usually viewed as an end itself, and fiscal policy was often not sufficiently tailored to the different circumstances and priorities of countries at different stages of development. It is only relatively recently that the discussion has gradually focused on the links between different dimensions of quality of public finances and economic growth.
Based on the conceptual framework for linking the quality of public finances and economic growth that has been developed by the European Commission and applied to the EU Member States, this study examines the conditions under which the budgetary policy, and more specifically expenditure, revenue and financing design would be supportive of growth in the Mediterranean partner countries of the European Union. The study also highlights some of the interlinkages between fiscal policy and growth and summarises empirical findings found in the literature with particular focus on Mediterranean partner countries of the European Union.
The study concludes by highlighting possible areas in the planning and execution of fiscal policy and governance where growth enhancing interventions can be applied.
Authored by: Leonor Coutinho, Luc De Wulf, Santiago Florez, Cyrus Sassanpour
Published in 2010
The euro is the second most important global currency after the US dollar. However, its international role has not increased since its inception in 1999. The private sector prefers using the US dollar rather than the euro because the financial market for US dollar-denominated assets is larger and deeper; network externalities and inertia also play a role. Increasing the attractiveness of the euro outside the euro area requires, among others, a proactive role for the European Central Bank and completing the Banking Union and Capital Market Union.
In the report, the authors present an insight of the socio-economic drivers of economic and noneconomic activity of persons 50+, as well as their ability to adopt to SET. Not only the labour market participation, but also social engagement, beliefs, education, religious activities and housework are studied. With the use of European Social Survey data they investigate the general level of the activity among people aged 50+ in Europe as well as the relation between various aspects of activity and general labour market performance. They obtain mixed results on the concomitance of non-market and labour-market activities. At the same time they check the role of personal traits as well as pull and push factors on prematurely leaving labour market in European countries. The differences among countries in terms of the results are confronted with the institutional characteristics of the countries. Finally, selected case studies of successful activation policies are presented.
The report was released within a project NEUJOBS- “The Impact of Service Sector Innovation and Internationalisation on Growth and Productivity”, funded by the European Commission, Research Directorate General as part of the 7th Framework Programme.
Written by Izabela Styczynska, Maciej Lis, Aart Jan Riekhoff and Agnieszka Kaminska. Published in October 2013.
PDF available on our website at: http://www.case-research.eu/en/node/58346
The aim of this paper is to examine the issues of gender disparities in the Commonwealth of Independent States (CIS) region, with a special focus given to countries covered by the European Neighbourhood Policy (ENP). The analysis is conducted in several dimensions: labour participation, economic opportunity, political empowerment, educational attainment, and health and demography. Beside the comparative study of "in region differentials" done for the CIS, I analyze the trends in gender disparities in comparison to EU-12 and EU-15, using data for the period 1985-2005.
The study confirms the existence of slightly different paths in which gender disparities have evolved over time. While in EU-15 women participation in labour market, their remuneration, and position in public life have significantly increased, in majority of the CIS countries a gradual decrease of female labour activity was reported. In addition female representation in politics and public life has shrunken after and during the transition period. On the other hand in such fields as secondary and tertiary education attainment, health, and demography male population in the CIS region has became more disadvantaged, which also leads to enlarging gender gap.
Authored by: Magdalena Rokicka
Published in 2008
The EU-Russia Partnership and Cooperation Agreement, which entered into force in 1997 foresees the possible establishment of a free trade area (FTA) between the parties. The aim of our study is to evaluate the possible economic, social and environmental impact of such a free trade agreement between the European Union and Russia.
The results of the analysis indicate that an EU-Russia FTA will be beneficial to the Russian Federation and the EU27. Some sectors are expected to contract in the medium term, but their importance in total output is small. Over the long run, the majority of sectors in Russia are expected to expand, while only a few sectors in the EU27 are expected to register negligible decreases in output. We estimate that welfare losses from the environmental damages would be very small for Russia (possibly even smaller due to the implementation of greener technologies), and negligible for the EU. Despite some significant negative medium-term social implications in selected sectors in Russia, the overall increase in economic activity and wages, coupled with likely domestic policies aiming at easing the impact of transitional unemployment, are expected to allow for the overall reduction in poverty rates. Overall, the results show that significant welfare gains (2.24% of GDP for Russia) would accrue from the deep FTA scenario involving a significant reduction of NTBs along with additional flanking measures, particularly on competition, IPR protection and corruption, which would help re-branding of Russia as a safe and attractive investment location. Also a number of countries such as Finland, Ireland, Netherlands, Denmark, Estonia, Slovakia, Slovenia and Sweden are expected to see their welfare increase by around 0.5% of GDP.
Authored by: Elena Jarocinska, Maryla Maliszewska, Milan Scasny
Published in 2010
The aim of this study is to estimate the impact of the removal of NTBs in trade between the EU and its selected CIS partners: Russia, Ukraine, Georgia, Armenia and Azerbaijan (CIS5). The report includes a discussion of methodologies of measurement of non-tariff barriers and the impact of their removal, including a review of previous studies focusing on CEE and CIS regions. Further, we employ a computable general equilibrium model encompassing the following three pillars of trade facilitation: legislative and regulatory approximation, reform of customs rules and procedures and liberalization of the access of foreign providers of services. We conclude that a reduction of NTBs and improved access to the EU market would bring significant benefits to the CIS5 countries in terms of welfare gains, GDP growth, increases in real wages and expansion of international trade. The possible welfare implications of deep integration with the EU range from 5.8% of GDP in Ukraine to sizeable expected gains in Armenia (3.1%), Russia (2.8%), Azerbaijan (1.8%) and Georgia (1.7%).
Authored by: Maryla Maliszewska, Irina Orlova, Svitlana Taran
Published in 2009
Similar to CASE Network Studies and Analyses 471 - Macroeconomic and fiscal challenges faced by the Southern and Eastern Mediterranean region (20)
The report examines the social and economic drivers and impact of circular migration between Belarus and Poland, Slovakia, and the Czech Republic. The core question the authors sought to address was how managing circular migration could, in the long term, help to optimise labour resources in both the country of origin and the destination countries. In the pages that follow, the authors of the report present the current and forecasted labour market and demographic situation in their respective countries as well as the dynamics and characteristics of short-term labour migration flows between Belarus and Poland, Slovakia, and the Czech Republic, concentrating on the period since 2010. They also outline and discuss related policy responses and evaluate prospects for cooperation on circular migration.
Podręcznik został opracowany w celu przekazania trenerom i nauczycielom podstawowej wiedzy, która może być przydatna w prowadzeniu szkoleń promujących pracę rejestrowaną. Prezentuje on z jednej strony korzyści z pracy rejestrowanej, z drugiej – potencjalne koszty związane z pracą nierejestrowaną. W pierwszej kolejności informacje te przedstawiono w odniesieniu do pracowników najemnych (rozdział 2), podkreślając w sposób szczególny to, że negatywne konsekwencje pracy nierejestrowanej są ponoszone przez całe życie. Ze względu na specyficzną sytuację cudzoziemców pracujących w Polsce konsekwencje ponoszone przez tę grupę opisano oddzielnie (rozdział 3). Ponadto zaprezentowano skutki dotyczące pracodawców z szarej strefy z wyodrębnieniem tych, którzy zatrudniają cudzoziemców (rozdział 4). Uzupełnieniem przedstawionych informacji jest opis działań podejmowanych przez państwo w celu ograniczenia zjawiska pracy nierejestrowanej w Polsce (rozdział 5) oraz prowadzonych w Wielkiej Brytanii, czyli w kraju będącym liderem w walce z szarą strefą (rozdział 6).
European countries face a challenge related to the economic and social consequences of their societies’ aging. Specifically, pension systems must adjust to the coming changes, maintaining both financial stability, connected with equalizing inflows from premiums and spending on pensions, and simultaneously the sufficiency of benefits, protecting retirees against poverty and smoothing consumption over their lives, i.e. ensuring the ability to pay for consumption needs at each stage of life, regardless of income from labor.
One of the key instruments applied toward these goals is the retirement age. Formally it is a legally established boundary: once people have crossed it – on average – they significantly lose their ability to perform work (the so-called old-age risk). But since the 1970s, in many developed countries the retirement age has become an instrument of social and labor-market policy. Specifically, in the 1970s and ‘80s, an early retirement age was perceived as a solution allowing a reduction in the supply of labor, particularly among people with relatively low competencies who were approaching retirement age, which is called the lump of labor fallacy. It was often believed that people taking early retirement freed up jobs for the young. But a range of economic evidence shows that the number of jobs is not fixed, and those who retire don’t in fact free up jobs. On the contrary, because of higher spending by pension systems, labor costs rise, which limits the supply of jobs. In general, a good situation on the labor market supports employment of both the youngest and the oldest labor force participants. Additionally, a lower retirement age for women was maintained, which resulted to a high degree from cultural conditions and norms that are typical for traditional societies.
Until now, the banking sector has been one of the strong points of Poland’s economy. In contrast to banks in the U.S. and leading Western European economies, lenders in Poland came through the 2008 global financial crisis without a scratch, without needing state financial support. But in recent years the industry’s problems have been growing, creating a threat to economic growth and gains in living standards.
For an economy’s productivity to increase, funds can’t go to all companies evenly, and definitely shouldn’t go to those that are most lacking in funds, but to those that will use them most efficiently. This is true of total external financing, and thus funding both from the banking sector and from parabanks, the capital market and funds from public institutions. In Poland, in light of the relatively modest scale of the capital market, banks play a clearly dominant role in external financing of companies. This is why the author of this text focuses on the bank credit allocation efficiency.
The author points out that in the very near future, conditions will emerge in Poland which – as the experience of other countries shows – create a risk of reduced efficiency of credit allocation to business. Additionally, in Poland today, bank lending to companies is to a high degree being replaced by funds from state aid, which reduces the efficiency of allocation of external funds to companies (both loans and subsidies), as allocation of government subsidies is not usually based on efficiency. This decline in external financing allocation efficiency may slow, halt or even reverse the process, that has been uninterrupted for 28 years, of Poland’s convergence, i.e. the narrowing of the gap in living standards between Poland and the West.
The economic characteristics of the COVID-19 crisis differ from those of previous crises. It is a combination of demand- and supply-side constraints which led to the formation of a monetary overhang that will be unfrozen once the pandemic ends. Monetary policy must take this effect into consideration, along with other pro-inflationary factors, in the post-pandemic era. It must also think in advance about how to avoid a policy trap coming from fiscal dominance.
This paper is organized as follows: Chapter 2 deals with the economic characteristics of the COVID-19 pandemic and its impact on the effectiveness of the monetary policy response measures undertaken. In Chapter 3, we analyse the monetary policy decisions of the ECB (and other major CBs for comparison) and their effectiveness in achieving the declared policy goals in the short term. Chapter 4 is devoted to an analysis of the policy challenges which may be faced by the ECB and other major CBs once the pandemic emergency comes to its end. Chapter 5 contains a summary and the conclusions of our analysis.
Purpose: This paper tries to identify the wage gap between informal and formal workers and tests for the two-tier structure of the informal labour market in Poland.
Design/methodology/approach: I employ the propensity score matching (PSM) technique and use data from the Polish Labour Force Survey (LFS) for the period 2009–2017 to estimate the wage gap between informal and formal workers, both at the means and along the wage distribution. I use two definitions of informal employment: a) employment without a written agreement and b) employment while officially registered as unemployed at a labour office. In order to reduce the bias resulting from the non-random selection of
individuals into informal employment, I use a rich set of control variables representing several individual characteristics.
Findings: After controlling for observed heterogeneity, I find that on average informal workers earn less than formal workers, both in terms of monthly earnings and hourly wage. This result is not sensitive to the definition of informal employment used and is
stable over the analysed time period (2009–2017). However, the wage penalty to informal employment is substantially higher for individuals at the bottom of the wage distribution, which supports the hypothesis of the two-tier structure of the informal labour market in Poland.
Originality/value: The main contribution of this study is that it identifies the two-tier structure of the informal labour market in Poland: informal workers in the first quartile of the wage distribution and those above the first quartile appear to be in two partially different segments of the labour market.
The rule of law, by securing civil and economic rights, directly contributes to social prosperity and is one of our societies’ greatest achievements. In the European Union (EU), the rule of law is enshrined in the Treaties of its founding and is recognised not just as a necessary condition of a liberal democratic society, but also as an important requirement for a stable, effective, and sustainable market economy. In fact, it was the stability and equality of opportunity provided by the rule of law that enabled the post-war Wirtschaftswunder in Germany and the post-Communist resuscitation of the economy in Poland.
But the rule of law is a living concept that is constantly evolving – both in its formal, de jure dimension, embodied in legislation, and its de facto dimension, or its reception by society. In Poland, in particular, according to the EU, the rule of law has been heavily challenged by government since 2015 and has evolved amid continued pressure exerted on the institutions which execute laws. More recently, the outbreak of the COVID-19 pandemic transformed the perception of the rule of law and its boundaries throughout the EU and beyond (Marzocchi, 2020).
This Study contains Value Added Tax (VAT) Gap estimates for 2018, fast estimates using a simplified methodology for 2019, the year immediately preceding the analysis, and includes revised estimates for 2014-2017. It also includes the updated and extended results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). As a novelty, the econometric analysis to forecast potential impacts of the coronavirus crisis and resulting recession on the evolution of the VAT Gap in 2020 is reported.
In 2018, most European Union (EU) Member States (MS) saw a slight decrease in the pace of gross domestic product (GDP) growth, but the economic conditions for increasing tax compliance remained favourable. We estimate that the VAT total tax liability (VTTL) in 2018 increased by 3.6 percent whereas VAT revenue increased by 4.2 percent, leading to a decline in the VAT Gap in both relative and nominal terms. In relative terms, the EU-wide Gap dropped to 11 percent and EUR 140 billion. Fast estimates show that the VAT Gap will likely continue to decline in 2019.
Of the EU-28, the smallest Gaps were observed in Sweden (0.7 percent), Croatia (3.5 percent), and Finland (3.6 percent), the largest – in Romania (33.8 percent), Greece (30.1 percent), and Lithuania (25.9 percent). Overall, half of the EU-28 MS recorded a Gap above 9.2 percent. In nominal terms, the largest Gaps were recorded in Italy (EUR 35.4 billion), the United Kingdom (EUR 23.5 billion), and Germany (EUR 22 billion).
Forecasting during a strong shock is burdened with exceptionally high uncertainty. This gives rise to the temptation to formulate alarmist forecasts. Experiences from earlier pandemics, particularly those from the 20th century, for which we have the most data, don’t provide a basis for this. The mildest of them weakened growth by less than 1 percentage point, and the worst, the Spanish Flu, by 6 percentage points. Still, even the Spanish Flu never caused losses on the order of 20% of GDP – not even where it turned out to be a humanitarian disaster, costing the lives of 3-5% of the population. History suggests that if pandemics lead to such deep losses at all, it’s only in particular quarters and not over a whole year, as economic activity rebounds. The strength of that rebound is largely determined by economic policy. The purpose of this work is to describe possible scenarios for a rebound in Polish economic growth after the epidemic.
A separate issue, no less important, is what world will emerge from the current crisis. In the face of the 2008 financial crisis, White House Chief of Staff Rahm Emanuel said: “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things that you think you could not do before.” Such changes can make the economy and society function better than before the crisis. Unfortunately, the opportunities created by the global financial crisis were squandered. Today’s task is more difficult; the scale of various problems has expanded even more. Without deep structural and institutional changes, the world will be facing enduring social and economic problems, accompanied by long-term stagnation.
"Many brilliant prophecies have appeared for the future of the EU and our entire planet. I believe that Europe, in its own style, will draw pragmatic conclusions from the crisis, not revolutionary ones; conclusions that will allow us to continue enjoying a Europe without borders. Brussels will demonstrate its usefulness; it will react ably and flexibly. First of all, contrary to the deceitful statements of members of the Polish government, the EU warned of the threats already in 2021. Secondly, already in mid-March EU assistance programs were ready, i.e. earlier than the PiS government’s “shield” program. The conclusion from the crisis will be a strengthening of all the preventive mechanisms that allow us to recognize threats and react in time of need. Research programs will be more strongly directed toward diagnosing and treating infectious diseases. Europe will gain greater self-sufficiency in the area of medical equipment and drugs, and the EU – greater competencies in the area of the health service, thus far entrusted to the member states. The 2021-27 budget must be reconstructed, to supplement the priority of the Green Deal with economic stimulus programs. In this way structural funds, which have the greatest multiplier effect for investment and the labor market, may return to favor. So once again: an addition, as a conclusion from the crisis, and not a reinvention of the EU," writes Dr. Janusz Lewandowski the author of the 162nd mBank-CASE seminar Proceeding.
Dla wielu rodaków europejskość Polski jest oczywista, trudno jest im nawet wyobrazić sobie, jak kształtowałyby się losy naszego kraju bez uczestnictwa w integracji europejskiej. Szczególnie młode pokolenie traktuje osiągnięty przez nas dzięki uczestnictwie w Unii ogromny postęp cywilizacyjny jako coś danego i naturalnego. Jednak świadomość tego, jaki był nasz punkt wyjścia, jaką przeszliśmy drogę i jak przyczyniły się do tego unijne działania oraz jakie wynikały z tego korzyści powinna nam stale towarzyszyć. Bez tej świadomości, starannego weryfikowania faktów i docenienia naszych osiągnięć grozi nam uleganie niesprawdzonym argumentom przeciwników integracji europejskiej i popełnienie nieodwracalnych błędów. Dla tych, którzy chcą poznać te fakty, przygotowany został raport "Nasza Europa. 15 lat Polski w Unii Europejskiej". Podjęto w nim ocenę 15 lat członkostwa Polski z perspektywy doświadczeń procesu integracji, z jego barierami i sukcesami, a także wyzwaniami przyszłości.
Raport jest wynikiem pracy zbiorowej licznych ekspertów z różnych dziedzin, od wielu lat analizujących wielowymiarowe efekty działania instytucji UE oraz współpracy z krajami członkowskimi na podstawie europejskich wartości i mechanizmów. Autorzy podsumowują korzyści członkostwa Polski w Unii Europejskiej na podstawie faktów, nie stroniąc jednakże od własnych ocen i refleksji.
This report is the result of the joint work of a number of experts from various fields who have been - for many years – analysing the multidimensional effects of EU institutions and cooperation with Member States pursuant to European values and mechanisms. The authors summarise the benefits of Poland’s membership in the EU based on facts; however, they do not hide their own views and reflections. They also demonstrate the barriers and challenges to further European integration.
This report was prepared by CASE, one of the oldest independent think tanks in Central and Eastern Europe, utilising its nearly 30 years of experience in providing objective analyses and recommendations with respect to socioeconomic topics. It is both an expression of concern about Poland’s future in the EU, as well as the authors’ contribution to the debate on further European integration.
Poland’s new Employee Capital Plans (PPK) scheme, which is mandatory for employers, started to be implemented in July 2019. The article looks at the systemic solutions applied in the programme from the perspective of the concept of the simultaneous reconstruction of the retirement pension system. The aim is to present arguments for and against the project from the point of view of various actors, and to assess the chances of success for the new system. The article offers a detailed study of legal solutions, an analysis of the literature on the subject, and reports of institutions that supervise pension funds. The results of this analysis point to the lack of cohesion between certain solutions of the 1999 pension reform and expose a lack of consistency in how the reform was carried out, which led to the eventual removal of the capital part of the pension system. The study shows that additional saving for old age is advisable in the country’s current demographic situation and necessary for both economic and social reasons. However, the systemic solutions offered by the government appear to be chiefly designated to serve short-term state interests and do not create sufficient incentives for pension plan participants to join the programme.
Belarus was among the few post-communist countries to resign from comprehensive market reforms and attempt to improve the efficiency of the economy through administrative means, leaving market mechanisms only an auxiliary role. Since its inception, the ‘Belarusian economic model’ has undergone several revisions of a de-statisation and de-regulation kind, but still the Belarusian economy remains dominated by the state. This paper analyses the characteristic features of the Belarusian economic system – especially those related to the public sector – as well as its evolution over time during the period following its independence. The paper concludes that during the post-Soviet period, the Belarusian economy evolved from a quasi-Soviet system based on state property, state planning, support to inefficient enterprises and the massive redistribution of funds to a more flexible hybrid model where the public sector still remains the core of the economy. The case of Belarus shows that presently there is no appropriate theoretical perspective which, in an unmodified form, could be applied to study this type of economic system. Therefore, a new perspective based on an already existing but updated approach or a multidisciplinary approach that incorporates the duality of the Belarusian economy is required.
Belarusian economy has been stagnating in 2011-2015 after 15 years of a high annual average growth rate. In 2015, after four years of stagnation, the Belarusian economy slid into a recession, its first since 1996, and experienced both cyclical and structural recessions. Since 2015, the Belarusian government and the National Bank of Belarus have been giving economic reforms a good chance thanks to gradual but consistent actions aimed at maintaining macroeconomic stability and economic liberalization. It seems that the economic authorities have sustained more transformation efforts during 2015-2018 than in the previous 24 years since 1991.
As the relative welfare level in Belarus is currently 64% compared to the Central and Eastern Europe (CEE) countries average, Belarus needs to build stronger fundaments of sustainable growth by continuing and accelerating the implementation of institutional transformation, primarily by fostering elimination of existing administrative mechanisms of inefficient resource allocation. Based on the experience of the CEE countries’ economic transformation, we highlight five lessons for the purpose of the economic reforms that Belarus still faces today: keeping macroeconomic stability, restructuring and improving the governance of state-owned enterprises, developing the financial market, increasing taxation efficiency, and deepening fiscal decentralization.
Inflation in advanced economies is low by historical standards but there is no threat of deflation. Slower economic growth is caused by supply-side constraints rather than low inflation. Below-the-target inflation does not damage the reputation of central banks. Thus, central banks should not try to bring inflation back to the targeted level of 2%. Rather, they should revise the inflation target downwards and publicly explain the rationale for such a move. Risks to the independence of central banks come from their additional mandates (beyond price stability) and populist politics.
Estonia has Europe’s most transparent tax system (while Poland is second-to-last, in 35th place), and is also known for its pioneering approach to taxation of legal persons’ income. Since 2000, payers of Estonian corporate tax don’t pay tax on their profits as long as they don’t realize them. In principle, this approach should make access to capital easier, spark investment by companies and contribute to faster economic growth. Are these and other positive effects really noticeable in Estonia? Have other countries followed in this country’s footsteps? Would deferment of income tax be possible and beneficial for Poland? How would this affect revenue from tax on corporate profits? Would investors come to see Poland as a tax haven? Does the Estonian system limit tax avoidance and evasion, or actually the opposite? Is such a system fair? Are intermediate solutions possible, which would combine the strengths or limit the weaknesses of the classical and Estonian models of profit tax? These questions are discussed in the mBank-CASE seminar Proceeding no. 163, written by Dmitri Jegorov, deputy general secretary of the Estonian Finance Ministry, who directs the country’s tax and customs policy, Dr. Anna Leszczyłowska of the Poznań University of Economics and Business and Aleksander Łożykowski of the Warsaw School of Economics.
The trade war between the U.S. and China began in March 2018. The American side raised import duties on aluminum and steel from China, which were later extended to other countries, including Canada, Mexico and the EU member states. This drew a negative reaction from those countries and bilateral negotiations with the U.S. In June 2018 America, referring to Section 301 of its 1974 Trade Act, raised tariffs to 25% on 818 groups of products imported from China, arguing that the tariff increase was a response to years of theft of American intellectual property and dishonest trade practices, which has caused the U.S. trade deficit.
Will this trade war mean the collapse of the multilateral trading system and a transition to bilateral relationships? What are the possibilities for increasing tariffs in light of World Trade Organization rules? Can the conflict be resolved using the WTO dispute-resolution mechanism? What are the consequences of the trade war for American consumers and producers, and for suppliers from other countries? How high will tariffs climb as a result of a global trade war? How far can trade volumes and GDP fall if the worst-case scenario comes to pass? Professor Jan J. Michałek and Dr. Przemysław Woźniak give answers to these questions in the mBank-CASE Seminar Proceeding No. 161.
This Report has been prepared for the European Commission, DG TAXUD under contract TAXUD/2017/DE/329, “Study and Reports on the VAT Gap in the EU-28 Member States” and serves as a follow-up to the six reports published between 2013 and 2018.
This Study contains new estimates of the Value Added Tax (VAT) Gap for 2017, as well as updated estimates for 2013-2016. As a novelty in this series of reports, so called “fast VAT Gap estimates” are also presented the year immediately preceding the analysis, namely for 2018. In addition, the study reports the results of the econometric analysis of VAT Gap determinants initiated and initially reported in the 2018 Report (Poniatowski et al., 2018). It also scrutinises the Policy Gap in 2017 as well as the contribution that reduced rates and exemptions made to the theoretical VAT revenue losses.
The paper discusses the role of the state in shaping an economic system which is, in line with the welfare economics approach, capable of performing socially important functions and achieving socially desirable results. We describe this system through a set of indexes: the IHDI, the World Happiness Index, and the Satisfaction of Life index. The characteris-tics of the state are analyzed using a set of variables which describe both the quantitative (government size, various types of governmental expenditures, and regulatory burden) and qualitative (institutional setup and property rights protection) aspects of its functioning. The study examines the “old” and “new” member states of the European Union, the post-communist countries of Eastern Europe and Asia, and the economies of Latin America. The main conclusion of the research is that the institutional quality of the state seems to be the most important for creation of a socially effective economic system, while the level of state interventionism plays, at most, a secondary and often negligible role. Geographical differentiation is also discovered, as well as the lack of a direct correlation between the characteristics of an economic system and the subjective feeling of well-being. These re-sults may corroborate the neo-institutionalist hypothesis that noneconomic factors, such as historical, institutional, cultural, and even genetic factors, may play an important role in making the economic system capable to perform its tasks; this remains an area for future research.
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how to sell pi coins on Bitmart crypto exchangeDOT TECH
Yes. Pi network coins can be exchanged but not on bitmart exchange. Because pi network is still in the enclosed mainnet. The only way pioneers are able to trade pi coins is by reselling the pi coins to pi verified merchants.
A verified merchant is someone who buys pi network coins and resell it to exchanges looking forward to hold till mainnet launch.
I will leave the telegram contact of my personal pi merchant to trade with.
@Pi_vendor_247
Currently pi network is not tradable on binance or any other exchange because we are still in the enclosed mainnet.
Right now the only way to sell pi coins is by trading with a verified merchant.
What is a pi merchant?
A pi merchant is someone verified by pi network team and allowed to barter pi coins for goods and services.
Since pi network is not doing any pre-sale The only way exchanges like binance/huobi or crypto whales can get pi is by buying from miners. And a merchant stands in between the exchanges and the miners.
I will leave the telegram contact of my personal pi merchant. I and my friends has traded more than 6000pi coins successfully
Tele-gram
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how to sell pi coins in South Korea profitably.DOT TECH
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What is a verified pi merchant?
Since pi network is not launched yet on any exchange, the only way you can sell pi coins is by selling to a verified pi merchant, and this is because pi network is not launched yet on any exchange and no pre-sale or ico offerings Is done on pi.
Since there is no pre-sale, the only way exchanges can get pi is by buying from miners. So a pi merchant facilitates these transactions by acting as a bridge for both transactions.
How can i find a pi vendor/merchant?
Well for those who haven't traded with a pi merchant or who don't already have one. I will leave the telegram id of my personal pi merchant who i trade pi with.
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Where can I sell my pi coins at a high rate.
Pi is not launched yet on any exchange. But one can easily sell his or her pi coins to investors who want to hold pi till mainnet launch.
This means crypto whales want to hold pi. And you can get a good rate for selling pi to them. I will leave the telegram contact of my personal pi vendor below.
A vendor is someone who buys from a miner and resell it to a holder or crypto whale.
Here is the telegram contact of my vendor:
@Pi_vendor_247
The secret way to sell pi coins effortlessly.DOT TECH
Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
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3. The CASE Network is a group of economic and social research centers in Poland, Kyrgyzstan,
Ukraine, Georgia, Moldova, and Belarus. Organizations in the network regularly conduct joint
research and advisory projects. The research covers a wide spectrum of economic and social
issues, including economic effects of the European integration process, economic relations
between the EU and CIS, monetary policy and euro-accession, innovation and
competitiveness, and labour markets and social policy. The network aims to increase the range
and quality of economic research and information available to policy-makers and civil society,
and takes an active role in on-going debates on how to meet the economic challenges facing
the EU, post-transition countries and the global economy.
The CASE Network consists of:
- CASE – Center for Social and Economic Research, Warsaw, est. 1991,
www.case-research.eu
- CASE – Center for Social and Economic Research – Kyrgyzstan, est. 1998,
http://case.jet.kg/
- Center for Social and Economic Research - CASE Ukraine, est. 1999,
www.case-ukraine.com.ua
- Foundation for Social and Economic Research CASE Moldova, est. 2003,
www.case.com.md
- CASE Belarus - Center for Social and Economic Research Belarus, est. 2007,
www.case-belarus.eu
- Center for Social and Economic Research CASE Georgia, est. 2011
4. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
4
Contents
Abstract ................................................................................................................................... 7
1. Introduction ..................................................................................................................... 8
2. Macroeconomic and fiscal trends in SEMC 1980-2010 ............................................... 9
2.1 Level of economic development and pace of economic growth .......................... 9
2.2 Inflation ..................................................................................................................... 13
2.3 Fiscal balances ........................................................................................................ 15
2.4 Public debt ............................................................................................................... 17
3. Recent fiscal deterioration in the region .................................................................... 19
3.1 Economic and political background ...................................................................... 19
3.2 Fiscal trends ............................................................................................................ 22
4. Causes of fiscal imbalances ........................................................................................ 23
4.1 Overview of revenue and expenditure ................................................................... 23
4.2 Consumer subsidies ............................................................................................... 24
4.3 Oversized public sector .......................................................................................... 27
4.4 Military expenditure ................................................................................................. 28
4.5 Hydrocarbon dependence ...................................................................................... 29
5. Macroeconomic consequences of fiscal imbalances ................................................ 31
5.1 Fiscal sustainability ................................................................................................ 31
5.2 Monetary and inflationary consequences ............................................................. 31
5.3 External vulnerability .............................................................................................. 32
6. Main directions of fiscal reform ................................................................................... 33
7. Summary and conclusions .......................................................................................... 35
References ............................................................................................................................ 37
5. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
List of figures
Figure 1.! MED11: GDP per capita, current international dollars, in PPP terms, 2010 ............ 10!
Figure 2.! Growth of real GDP in EMDE regions, 1980-2010, annual average, in % ............... 11!
Figure 3.! Growth of real GDP in SEMC, 1980-2010, annual average, in % ............................ 12!
Figure 4.! End-of-year inflation in EMDE regions, in %, period average, 1991-2010.............. 13!
Figure 5.! End-of-year inflation in SEMC, in %, period average, 1981-1995 ............................ 14!
Figure 6.! End-of-year inflation in SEMC, in %, period average, 1996-2010 ............................ 14!
Figure 7.! Structural vs. actual GG balances in selected SEMC, % of GDP, 2001-2010 ......... 17!
Figure 8.! GG gross debt in SEMC, % of GDP, 1990-2012 ...................................................... 18!
Figure 9.! GG gross debt in EMDE regions, in % of GDP, 2002-2012 ..................................... 18!
Figure 10.! GG gross debt as a % of GG revenue for selected SEMC, 2003-2013 ................... 22!
Figure 11.! Pre-tax energy subsidies and spending on education in MENA countries,
as % of GDP ................................................................................................................................. 26!
Figure 12.! Public-sector wage bill as % of GDP in selected countries, 2011 ............................ 27!
Figure 13.! Public employees per 1,000 inhabitants in selected countries, 2011 ....................... 28!
Figure 14.! Military expenditure, % of GDP, 1980-2012 ............................................................. 29!
List of tables
Table 1.! MED11 countries: annual growth rates, 2001-2010 ................................................. 13!
Table 2.! GG net lending/borrowing in SEMC, % of GDP, 1991-2010 .................................... 16!
Table 3.! GG gross debt in SEMC, % of GDP, 2000-2010 ...................................................... 19!
Table 4.! Basic macroeconomic indicators in SEMC, 2007-2013 ........................................... 20!
Table 5.! GG interest payment as a % of GG revenue for selected SEMC, 2003-2013 ......... 23!
Table 6.! GG revenue in SEMC, % of GDP, 2001-2012 ......................................................... 23!
Table 7.! GG expenditure in SEMC, % of GDP, 2001-2012 .................................................... 24!
Table 8.! Subsidies for Energy Products in SEMC, 2011, as % of GDP ................................. 25!
Table 9.! Subsidies for Energy Products in SEMC, 2011, as % of GG revenue ..................... 25!
Table 10.! Hydrocarbon dependence of major SEMC oil producers ......................................... 30!
Table 11.! SEMC’s sovereign rating, November 2013 .............................................................. 31!
Table 12.! Total reserves in SDR million, end of period, 2009-2013 ......................................... 33!
Table 13.! Market Rate, National Currency per SDR, end of period, 2009-2013 ...................... 33!
Table 14.! GG Foreign Currency & FC-Indexed Debt/GG Debt, 2003-2012 ............................. 33!
Table 15.! Subsidy reform survey .............................................................................................. 34!
5
6. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Dr. Marek Dabrowski, Professor of Economics, CASE Fellow and its co-founder, Professor
of the Higher School of Economics in Moscow, Chairman of the Supervisory Board of CASE
Ukraine in Kyiv; Former Chairman of the Supervisory Council and President of CASE
(1991-2011), Former First Deputy Minister of Finance (1989-1990), Member of Parliament
(1991-1993) and Member of the Monetary Policy Council of the National Bank of Poland
(1998-2004); Since the end of 1980s he has been involved in policy advising and policy research
in more than 20 countries of Central and Eastern Europe, the former USSR, the Middle East and
North Africa, as well as in a number of international research projects related to monetary and
fiscal policies, growth and poverty, currency crises, international financial architecture,
perspectives of European integration, European Neighborhood Policy and political economy
of transition; World Bank, IMF and UNDP Consultant; Author of several academic and policy
papers, and editor of several book publications.
6
7. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
7
Abstract
The current fiscal imbalances and fragilities in the Southern and Eastern Mediterranean countries
(SEMC) are the result of decades of instability, but have become more visible since 2008, when
a combination of adverse economic and political shocks (the global and European financial
crises, Arab Spring) hit the region. In an environment of slower growth and higher public
expenditure pressures, fiscal deficits and public debts have increased rapidly. This has led
to the deterioration of current accounts, a depletion of official reserves, the depreciation of some
currencies and higher inflationary pressure.
To avoid the danger of public debt and a balance-of-payment crisis, comprehensive economic
reforms, including fiscal adjustment, are urgently needed. These reforms should involve
eliminating energy and food subsidies and replacing them with targeted social assistance,
reducing the oversized public administration and privatizing public sector enterprises, improving
the business climate, increasing trade and investment openness, and sector diversification.
The SEMC may also benefit from a peace dividend if the numerous internal and regional conflicts
are resolved.
However, the success of economic reforms will depend on the results of the political transition,
i.e., the ability to build stable democratic regimes which can resist populist temptations and rally
political support for more rational economic policies.
8. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
8
1. Introduction
Over the last decade, most of the Southern and Eastern Mediterranean countries (SEMC)
experienced a deterioration of their fiscal accounts. This unfavorable trend primarily concerns
countries which are net oil importers but can also be observed in oil-producing Algeria. Some
countries (Lebanon and Egypt) have suffered serious fiscal imbalances for a long time. In others
(such as Jordan, Morocco and Tunisia), the fiscal balances deteriorated more recently as a result
of various adverse shocks (the global financial crisis and the direct or indirect impact of the Arab
Spring) and the policy responses to them.
As a result, some countries have accumulated relatively high, by emerging-market standards, gross
public debt, exceeding 140% of GDP in Lebanon, close to 90% of GDP in Egypt, over 80% of GDP
in Jordan, over 70% in Israel and over 60% in Morocco (all data for 2013). Such a high level
of indebtedness can lead to various adverse macroeconomic consequences depending on the source
of deficit and debt financing, such as problems with continuous debt financing/ rollover (risk
of sovereign insolvency), a narrowing of the room for maneuver in expenditure policy (as a result
of growing interest payments), higher taxation, increasing debt monetization which, in turn, can lead
to higher inflation and depleting official reserves, etc. Actually, countries such as Egypt or Tunisia
are already facing these challenges in a dramatic way.
The purpose of this paper is to provide an in-depth analysis and a diagnosis of the fiscal challenges
faced by selected SEMC in the long-term as well as policy recommendations on strategies of fiscal
adjustment. A special emphasis will be given to energy and food subsidies and the inefficient public
sector, which are among the main causes of fiscal imbalances.
Geographically, the analysis covers 9 countries which are considered by the European Union
as their Southern neighbors under the European Neighborhood Policy (ENP) initiative
(see http://eeas.europa.eu/enp/), i.e. Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco,
Syria and Tunisia, subject to data availability. Unfortunately, we are not able to cover
the 10th Southern neighbor of the EU, Palestine, due to data constraints and its political situation
as an occupied territory.
Although there have been a number of analyses related to fiscal policy issues in individual SEMC
and a few on the entire region (see e.g. De Wulf, Coutinho & Sassanpour, 2009), this paper offers
substantial value added to the existing knowledge in three different ways:
• It provides a long-term ex-post and ex-ante analysis of the SEMC’s fiscal problems
instead of short-term analyses, which prevail in various bulletins and studies
9. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
9
by international financial organizations (IFI) such as the International Monetary Fund (IMF)
and World Bank (WB);
• It updates existing studies (for example, De Wulf, Coutinho & Sassanpour, 2009) through
an in-depth analysis of the consequences of both the global financial crisis and the Arab
Spring (both direct and indirect);
• It provides a comparative cross-country analysis, which also refers to the selected
experience of other emerging-market regions.
The paper is structured as follows. In Section 2 we provide an overview of long-term
macroeconomic and fiscal trends in the SEMC as compared to other regions, which
is supplemented in Section 3 by a more contemporary analysis. In particular, we try to enumerate
factors and trends which have contributed to the recent fiscal deterioration in a number of SEMC.
Section 4 concentrates on the deep causes of fiscal imbalances such as energy and food
subsidies and an inefficient public sector. Section 5 deals with the negative consequences
of fiscal deterioration on the fiscal policy itself, monetary policy and external balances.
Section 6 contains a discussion of major directions of fiscal adjustment and fiscal reforms
in the SEMC. Section 7 summarizes the major findings and conclusions of this paper.
The dominant analytical framework and methodology consist of an analytic narrative supported
by a cross-country statistical comparison based on the available statistical databases (in the first
instance, those of the IMF and WB). The paper will partly draw from the research output produced
under the EU FP7 project on “Prospective Analysis for the Mediterranean Region (MEDPRO)” –
see http://www.medpro-foresight.eu.
2. Macroeconomic and fiscal trends in SEMC 1980-2010
2.1 Level of economic development and pace of economic growth
Most of the SEMC represent middle-income levels with the exception of Israel, which, with its
GDP per capita level (in PPP terms) close to 30,000 USD, belongs to the high-income group
according to the World Bank classification1. Five SEMC (Algeria, Jordan, Lebanon, Libya, and
Tunisia) are part of the upper-middle income category, and the three remaining countries (Egypt,
Morocco and Syria) are lower-middle income economies (see Figure 1).
1 See http://data.worldbank.org/about/country-classifications/country-and-lending-groups#High_income.
10. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
10
Figure 1. MED11: GDP per capita, current international dollars, in PPP terms, 2010
7,112
6,417
29,602
5,767
15,168
30,000
25,000
20,000
15,000
10,000
5,000
0
Algeria Egypt Israel Jordan Lebanon Libya Morocco Syria Tunisia
Source: IMF World Economic Outlook database, April 2012.
14,384
4,794 5,041
9,454
As shown in Figure 2, the pace of economic growth in the analyzed region was not particularly
impressive for quite a long time (especially in the 1980s) as compared to other emerging markets
and developing economies (EMDE) (see Couthino, 2012). It was also extremely volatile
as a consequence of its strong commodity export dependence (and changes in commodity
prices) and various political shocks (see below)2.
In the 1970s, the SEMC greatly benefited from the oil price boom, through a sharp increase
in exports and investments in oil-producing countries such as Algeria, Libya and, to a lesser
extent, Egypt, Syria, and Tunisia. These gains spilled over to neighboring countries through
significant increases in worker remittances, trade, and capital flows. However, a substantial part
of these windfall gains were misused for pursuing expensive and inefficient import-substitution
strategies, prestige infrastructure investment projects, and populist social policies involving,
among others, huge price subsidies.
2 Please note that Figure 2 contains data for the Middle East and North Africa (MENA) region, which covers
eight SEMC (all but Israel and Palestine) plus six Gulf states, Yemen, Iraq, Iran, Djibouti, Sudan and
Mauritania. Thus it can provide only a very rough estimate of the historical growth record of the SEMC.
11. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Figure 2. Growth of real GDP in EMDE regions, 1980-2010, annual average, in %
9!
8!
7!
6!
5!
4!
3!
2!
1!
Note: LAC – Latin America and Caribbean, MENA – Middle East and North Africa, SSA – Sub-Saharan
Africa.
Source: IMF WEO database, April 2012; author’s own calculation.
The economic model which dominated in several Arab countries in the 1960s and 1970s,
especially in Algeria, Egypt, Libya, Syria and Iraq and, to a lesser extent in Tunisia, was
sometimes referred to as Arab socialism. It relied heavily on public ownership, administrative
interference in market forces, central planning, the militarization of the economy and trade
protectionism (Dabrowski, 2012; MENA, 2004). Israel also followed a kind of ‘socialist’ economic
model at that time, with a large share of public and collective ownership and heavy government
regulation.
Political conflicts also had a negative impact on growth performance in the region. The most
striking case is Lebanon, once the richest country of the region which suffered one and half
decades of sectarian civil war (1975-1990). Other examples include the protracted Israeli-
Palestinian conflict, the civil war in Algeria in the early 1990s, international sanctions against
Libya in the 1990s or the conflict between Morocco and Algeria over Western Sahara.
11
0!
1980-1989 1990-1999 2000-2010
Dvlp Asia LAC MENA SSA
12. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
12
Figure 3. Growth of real GDP in SEMC, 1980-2010, annual average, in %
2.9
1.8
5.2
4.4
3.8
5.7
2.0
4.7
1981-1990 1991-2000 2001-2010
-4.3
0.2
3.8
2.6
2.5
4.8
3.6
4.7
7.8
-5.8
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
-6.0
Algeria Egypt Israel
Jordan Lebanon Libya
Morocco Syria Tunisia
Source: IMF WEO database, October 2013; author’s own calculation.
3.8
4.9
3.5
6.3
5.1
3.4
4.9
4.5
4.5
Since the early 1980s (Egypt) and 1990s (Algeria and Tunisia), individual countries started,
at least partially, to depart from administrative dirigisme in the economic sphere, usually with the
active engagement of the IMF and World Bank. This process was driven both by external factors
(a fall in oil prices in the mid-1980s, the collapse of the Soviet bloc, economic reforms in China,
India and other developing countries) and domestic policy needs (combatting macroeconomic
instability and the desire to avoid political unrest). In the decade of the 2000s, even the most
closed and statist countries, such as Libya and Syria, started to conduct more flexible economic
policies and limited market reforms (Dabrowski & De Wulf, 2013).
Countries such as Egypt, Israel, Jordan, Morocco, and Tunisia that pursued reforms subsequently
improved their growth performance (see Figure 3). However, if one takes into account the continuous
high rate of population growth (over 2% annually), the growth rates recorded in the 2000s (Table 1)
allowed for only a moderate improvement in GDP per capita. Furthermore, they were volatile and
suffered from the global financial crisis in 2008-2009 (see Section 3.1).
It is also worth remembering that the prospects for the economic growth of major hydrocarbon producers
(Libya, Algeria and, to a lesser extent, Syria) remain highly dependent on oil and natural gas prices.
Indirectly, through intra-MENA3 trade, migrant remittances, tourism and capital flows, other countries
(especially Egypt and Lebanon) have benefited from the oil boom of the 2000s. If hydrocarbon prices
3 i.e., including the Gulf countries and Iraq, which are even larger hydrocarbon producers than SEMC.
13. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
decline seriously (as they did in the second half of 2008 but only for a few months), their major producers
in the MED region could face the danger of fiscal and balance of payments crises and economic
downturn, especially in the context of imprudent management of the oil windfall.
Table 1. MED11 countries: annual growth rates, 2001-2010
Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Algeria 3.0 5.6 7.2 4.3 5.9 1.7 3.4 2.0 1.7 3.6
Egypt 3.5 3.2 3.2 4.1 4.5 6.8 7.1 7.2 4.7 5.1
Israel -0.2 -0.1 1.5 4.9 4.9 5.8 6.9 4.5 1.2 5.7
Jordan 5.3 5.8 4.2 8.6 8.1 8.1 8.2 7.2 5.5 2.3
Lebanon 3.9 3.4 1.7 7.5 0.7 1.4 8.4 8.6 9.0 7.0
Libya -1.8 -1.0 13.0 4.5 11.9 6.5 6.4 2.7 -0.8 5.0
Morocco 7.6 3.3 6.3 4.8 3.0 7.8 2.7 5.6 4.8 3.6
Syria 3.7 5.9 -2.0 6.9 6.2 5.0 5.7 4.5 5.9 3.4
Tunisia 4.9 1.7 5.5 6.0 4.0 5.7 6.3 4.5 3.1 2.9
Notes: Yellow fields – IMF estimates; no data for Palestinian Autonomy.
Source: IMF World Economic Outlook database, October 2013.
13
2.2 Inflation
As seen in Figure 4, the MENA region was not the worst (as compared to other EMDE) in terms
of inflation levels in 1990s and 2000s. Its relative performance deteriorated only slightly in the second
half of the 2000s, especially in the years preceding the global financial crisis.
Figure 4. End-of-year inflation in EMDE regions, in %, period average, 1991-2010
75.0
40.6
11.8
125.0
11.3
13.7
39.1
16.1
CEE CIS DA
LAC MENA SSA
10.9 10.7
5.9
419.5
31.9
12.6
4.7
6.0 6.1
3.2
5.3
7.5
6.1
9.4
9.5
8.9
1000.0
100.0
10.0
1.0
1991-1995 1996-2000 2001-2005 2006-2010
Note: CEE – Central and Eastern Europe, CIS – Commonwealth of Independent States, DA – Developing
Asia, LAC – Latin America and Caribbean, MENA – Middle East and North Africa, SSA – Sub-Saharan
Africa.
Source: IMF WEO database, October 2013; author’s own calculation.
14. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
However, if one analyzes the earlier period (for which there are no cross-regional comparative
inflation statistics), the situation looks less rosy. ‘Socialist’ policies in the 1960s-1980s resulted
not only in a poor growth record (Section 2.1) but also in high, sometimes very high, inflation.
In addition, the extensive price and foreign exchange controls led to a physical shortage and
black market for some goods, similarly to former communist countries.
14
Figure 5. End-of-year inflation in SEMC, in %, period average, 1981-1995
9.5
15.4
22.9
130.3
Algeria Egypt Israel
Jordan Lebanon Libya
Morocco Syria Tunisia
9.8 9.5
200
180
160
140
120
100
80
60
40
20
Source: IMF WEO database, October 2013; author’s own calculation.
Figure 6. End-of-year inflation in SEMC, in %, period average, 1996-2010
13
11
9
7
5
3
1
-1
-3
Algeria Egypt Israel
Jordan Lebanon Libya
Morocco Syria Tunisia
Source: IMF WEO database, October 2013; author’s own calculation.
27.3
14.5
20.1
12.2
18.1
12.2
5.3 5.9 4.3
29.6
10.8
5.7
4.3 5.5
11.6
5.5
191.6
0
1981-1985 1986-1990 1991-1995
6.3
3
4.4
4.6
5
11.2
5.4
1.9
2.7
1.7
3.1
6.1
2.9
1.7
5.6
0.5
-4
5.6
2
1.5
2
-0.7
5.5
6.9
2.9 2.9
4.1
-5
1996-2000 2001-2005 2006-2010
15. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
For individual SEMC, cross-country comparable inflation statistics are available as of 19804
so we do not have data for the earlier period. As a result, Figure 5 presents average end-of-year
inflation for the period of 1981-1995 when some countries had already launched market-oriented
reforms and stabilization policies.
Nevertheless, progress in reducing inflation, especially in the 1980s, was rather modest if not
disappointing. Only two countries – Jordan and Morocco – managed to keep average inflation
at one-digit levels in that period. The other end of spectrum was represented by Israel and
Lebanon, which suffered high inflation or even hyperinflation. In the case of Israel, this was
caused by high fiscal deficits and wage indexation (Bruno et al., 1988). In the case of Lebanon,
it was caused by the civil war. Other countries can be considered examples of chronic moderate
inflation, remaining at two-digit levels through most of the analyzed period. In the case of Algeria,
the internal political conflict of the early 1990s was one of the factors responsible for inflation
approaching an average annual level of 30%.
Better macroeconomic management in the 1990s and 2000s led to relative macroeconomic stability.
In particular, sounder monetary and fiscal policies resulted in lower inflation in the second half
of the 1990s and the first half of the 2000s (Figure 6). All SEMC managed to keep them at one-digit,
sometimes very low levels (Syria and Libya even recorded periods of price decline).
However, in the second half of the 2000s, inflation started to pick up again in all of the SEMC
(Figures 4 and 6), particularly in Egypt. This was caused by a combination of global and domestic
inflationary pressures. The former originated from the overheating of the world economy and
the abundant global liquidity built up by the lax monetary policy of the US Federal Reserve and
other major central banks. Countries which pegged their currencies to the US dollar (all except
Israel, Morocco and Tunisia) imported inflation via high commodity prices and a depreciating
US currency. Domestic factors included high fiscal deficits (see Section 2.3).
15
2.3 Fiscal balances
A long-term analysis of fiscal balances is difficult due to the incomplete cross-country datasets
of the IMF. For all nine SEMC comparative statistics of general government (GG), net
lending/borrowing covers the period since the early 2000s; earlier data are available only
for selected countries. In the case of Jordan, they start in 1985, for Algeria, Libya, Morocco and
Syria – in 1990, in Tunisia – in 1991, in Israel and Lebanon – in 2000, in Egypt – in 2002.
4 Inflation data series for Syria and Tunisia start from 1991 only.
16. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
16
Table 2. GG net lending/borrowing in SEMC, % of GDP, 1991-2010
Country 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Algeria 3.8 0.8 -5.9 -1.9 0.6 3.9 2.9 -3.6 -1.9 9.7 3.7 1.2 4.9 5.3 13.6 13.9 6.1 9.0 -5.4 -0.4
Egypt n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a -11.3 -9.0 -8.3 -8.4 -9.2 -7.5 -8.0 -6.9 -8.3
Israel n/a n/a n/a n/a n/a n/a n/a n/a n/a -3.8 -6.2 -7.6 -7.8 -6.0 -4.9 -2.6 -1.5 -3.7 -6.3 -4.6
Jordan -14.3 0.3 -0.5 -1.4 -3.9 -2.8 -2.5 -6.0 -3.5 -4.7 -3.6 -2.4 0.2 -1.7 -5.0 -3.5 -5.7 -5.5 -8.9 -5.6
Lebanon n/a n/a n/a n/a n/a n/a n/a n/a n/a -23.6 -20.7 -16.0 -13.8 -9.7 -8.6 -10.5 -10.9 -9.7 -8.3 -7.7
Libya 8.7 0.1 -6.0 -2.8 3.9 11.7 -2.2 -2.4 5.9 14.1 0.1 7.2 6.4 11.7 31.4 31.8 28.6 28.3 6.2 17.2
Morocco -1.1 -2.4 -2.6 -3.2 -3.3 1.1 1.9 1.7 3.6 -2.2 -4.3 -4.9 -4.2 -3.8 -6.2 -2.0 -0.1 0.7 -1.8 -4.4
Syria -6.6 -7.3 -5.0 -6.0 -3.8 -2.8 -1.8 -2.8 -1.5 -1.4 2.3 -2.0 -2.7 -4.2 -4.4 -1.1 -3.0 -2.9 -2.9 -7.8
Tunisia -4.4 -2.8 -2.6 -1.1 -3.2 -4.0 -2.6 -1.8 -2.2 -2.3 -2.1 -2.2 -2.2 -2.2 -2.8 -2.6 -2.0 -0.6 -1.2 -0.9
Notes: Yellow field – IMF estimate.
Source: IMF WEO database, October 2013.
As seen in Table 2, Lebanon represents the worst fiscal performance in the region. In the early 2000s,
i.e. a decade after the civil war ended, its fiscal deficit still exceeded 20% of GDP. In subsequent
years, it decreased to between 8 and 11% of GDP and remained at that level through the entire
decade of the 2000s. Egypt is the next worst performer. Since 2002, when GG balance data
according to GFS standards first became available, its deficit oscillated between 7 and 11% of GDP.
Fiscal deficits in Israel exceeded 5% of GDP in the early 2000s, slightly improving in the second half
of the decade (apart from 2009, the year of the global financial crisis).
The smallest fiscal imbalances were recorded in Tunisia (less than 3% of GDP in most
of the analyzed period) and Morocco. Jordan and Syria can be ranked as intermediate
performers: their fiscal imbalances were larger, on average, than in Tunisia and Morocco but
smaller as compared to Lebanon, Egypt and Israel.
Finally, the two large hydrocarbon exporters, Algeria and Libya, demonstrated high volatility
in their fiscal accounts, following changes in oil and natural gas prices and outputs, and various
political developments (like the civil war in Algeria in the early 1990s).
17. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Figure 7. Structural vs. actual GG balances in selected SEMC, % of GDP, 2001-2010
3.0
-2.0
-7.0
-12.0
-17.0
-22.0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: IMF WEO database, October 2013.
Egypt (str) Egypt (act)
Israel (str) Israel (act)
Jordan (str) Jordan (act)
Lebanon (str) Lebanon (act)
It is important to note that in spite of relatively high growth rates (see Section 2.1), several SEMC
increased their fiscal deficits in the second half of the 2000s. This concerns Egypt, Jordan,
Lebanon and, to a lesser extent, Israel. The unsustainable path of fiscal policy is confirmed
by Figure 7 according to which structural deficits, at least in Lebanon and Jordan, exceeded
actual ones (data on structural deficits are available for only four SEMC).
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2.4 Public debt
Volatile and often imprudent fiscal performance had to have an impact on the level of public
indebtedness. As seen in Figure 8, in the 1990s, all SEMC represented a high level of GG gross
debt to GDP by emerging market standards.
18. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
18
Figure 8. GG gross debt in SEMC, % of GDP, 1990-2012
200
150
100
50
0
Algeria Egypt Israel
Jordan Lebanon Libya
Morocco Syria Tunisia
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: IMF World Economic Outlook database, October 2013.
Figure 9. GG gross debt in EMDE regions, in % of GDP, 2002-2012
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
CEE CIS
Dvlp Asia LAC
MENA SSA
2002 2005 2008 2009 2012
Note: CEE – Central and Eastern Europe, CIS – Commonwealth of Independent States, DA – Developing Asia,
LAC – Latin America and Caribbean, MENA – Middle East and North Africa, SSA – Sub-Saharan Africa.
Source: IMF WEO database, October 2013.
In the second half of the 1990s and the first half of the 2000s, the situation improved substantially
due to an increase in oil prices in oil producing countries (Libya, Algeria and Syria) and large-scale
privatization in Jordan (Figure 8 and Table 3). Other SEMC (except Lebanon) also recorded
19. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
improvements, albeit less impressive. As a result, the level of public indebtedness of the entire
region went down in relation to GDP and in comparison with other EMDE regions (Figure 9).
Table 3. GG gross debt in SEMC, % of GDP, 2000-2010
Country 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Algeria 62.8 58.3 54.7 44.5 36.8 27.2 26.8 13.4 8.1 10.5 12.1
Egypt n/a n/a 90.4 102.3 101.5 103.3 90.3 80.2 70.2 73.0 73.2
Israel 81.4 86.0 93.1 95.6 94.1 90.6 81.6 74.6 72.9 75.3 71.5
Jordan 100.5 96.5 99.7 99.6 91.8 84.3 76.3 73.8 60.2 64.8 67.1
Lebanon 146.1 160.9 160.9 169.0 167.3 179.4 181.9 168.4 158.4 147.6 141.7
Libya 39.0 38.8 30.8 23.8 0.9 0.6 0.6 0.0 0.0 0.0 0.0
Morocco 73.7 68.4 67.1 64.4 61.7 64.6 59.4 54.6 48.2 48.0 51.3
Syria 152.1 144.5 132.4 133.4 113.0 50.7 45.0 42.7 37.3 31.2 30.0
Tunisia 65.9 67.6 67.4 66.4 53.7 52.5 48.8 45.9 43.3 42.8 40.4
Source: IMF World Economic Outlook database, October 2013.
However, there are two important caveats. First, the reduction in the public debt-to-GDP ratio
in the 2000s resulted, to a large extent, from the relatively rapid growth of nominal GDP
(denominator). Second, towards the end of that decade, it started to deteriorate in some countries
(Algeria, Egypt, Jordan and Morocco) which could be partly but not exclusively attributed to the impact
of the global financial crisis of 2008-2009. Domestic policy factors, in particular, the continuation
of energy and food subsidies in an environment of growing global commodity prices played an equally
important role. We will come back to these issues in Sections 3 and 4.
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3. Recent fiscal deterioration in the region
3.1 Economic and political background
Since 2008, the SEMC have experienced three adverse shocks: (i) the global financial crisis of 2008-
2009; (ii) the European sovereign debt and financial crisis of 2010-2013 and (iii) the Arab Spring.
The first stage of the global financial crisis (2008-2009) had a negative impact on EMDE through several
channels such as (i) the collapse of global trade; (ii) the decline in prices of oil and other commodities;
(iii) the drying up of liquidity on international markets; (iv) the sudden stop in capital flows; (v) decreasing
remittances of labor migrants; and, (vi) decreasing tourist revenues (see Dabrowski, 2010).
For the SEMC, channels (i), (ii), (v) and (vi) were key factors. The SEMC were less affected
by financial market contagion as the financial sector in most SEMC remained relatively closed
to the external world. Also, the role of foreign direct investment (FDI) and other (largely short-term)
private capital flows was not as important as in the case of other EMDE (see Sekkat, 2012,
Woodward and Safawi, 2012). In addition, a substantial part of private capital flows has an intra-regional
character, originating from the Gulf countries.
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The overall impact of the first stage of the global financial crisis on the SEMC was rather moderate and
short-lived. As seen in Table 4, only Libya experienced a modest recession in 2009 (-0.8%) due
to a sharp decline in oil prices in the second half of 2008. Algeria, Egypt, Israel, Jordan and Tunisia
recorded a growth slowdown while Lebanon, Morocco and Syria continued to grow at the previous pace
or even faster (Lebanon’s growth rate was record-high in 2009 at 9.0%).
Table 4. Basic macroeconomic indicators in SEMC, 2007-2013
Country Indicator 2007 2008 2009 2010 2011 2012 2013
Algeria Annual growth of real GDP, % 3.4 2.0 1.7 3.6 2.6 3.3 3.1
End-of-year inflation, % 4.8 4.9 5.8 2.7 5.2 9.0 8.2
GG net lending/borrowing, % of GDP 6.1 9.0 -5.4 -0.4 -0.4 -5.1 -1.7
GG gross debt, % of GDP 13.4 8.1 10.5 12.1 11.1 10.5 10.8
Current account balance, % of GDP 22.6 20.1 0.3 7.5 8.9 5.9 1.8
Egypt Annual growth of real GDP, % 7.1 7.2 4.7 5.1 1.8 2.2 1.8
End-of-year inflation, % 8.6 20.2 10.0 10.7 11.8 7.3 9.8
GG net lending/borrowing, % of GDP -7.5 -8.0 -6.9 -8.3 -9.8 -10.7 -14.7
GG gross debt, % of GDP 80.2 70.2 73.0 73.2 76.6 80.6 89.5
Current account balance, % of GDP 2.1 0.5 -2.3 -2.0 -2.6 -3.1 -2.6
Israel Annual growth of real GDP, % 6.9 4.5 1.2 5.7 4.6 3.4 3.8
End-of-year inflation, % 3.4 3.8 3.9 2.7 2.2 1.6 2.1
GG net lending/borrowing, % of GDP -1.5 -3.7 -6.3 -4.6 -4.2 -4.9 -5.1
GG gross debt, % of GDP 74.6 72.9 75.3 71.5 69.7 68.2 70.4
Current account balance, % of GDP 3.2 1.4 3.8 3.1 1.3 0.3 2.3
Jordan Annual growth of real GDP, % 8.2 7.2 5.5 2.3 2.6 2.8 3.3
End-of-year inflation, % 5.1 9.1 2.7 6.1 3.3 7.2 3.2
GG net lending/borrowing, % of GDP -5.7 -5.5 -8.9 -5.6 -6.8 -8.8 -9.1
GG gross debt, % of GDP 73.8 60.2 64.8 67.1 70.7 79.6 83.9
Current account balance, % of GDP -16.8 -9.3 -3.3 -5.3 -12.0 -18.1 -9.9
Lebanon Annual growth of real GDP, % 8.4 8.6 9.0 7.0 1.5 1.5 1.5
End-of-year inflation, % 6.0 6.4 3.4 5.1 3.1 10.1 3.5
GG net lending/borrowing, % of GDP -10.9 -9.7 -8.3 -7.7 -6.1 -9.0 -10.4
GG gross debt, % of GDP 168.4 158.4 147.6 141.7 137.5 139.5 143.1
Current account balance, % of GDP -4.1 -7.7 -9.3 -9.9 -12.4 -16.2 -16.7
Libya Annual growth of real GDP, % 6.4 2.7 -0.8 5.0 -62.1 104.5 -5.1
End-of-year inflation, % 7.6 9.7 0.3 3.3 26.6 -3.7 10.0
GG net lending/borrowing, % of GDP 28.6 28.3 6.2 17.2 -6.6 19.4 -5.4
GG gross debt, % of GDP 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Current account balance, % of GDP 44.1 42.5 14.9 19.5 9.1 29.2 -4.7
Morocco Annual growth of real GDP, % 2.7 5.6 4.8 3.6 5.0 2.7 5.1
End-of-year inflation, % 2.0 4.2 -1.6 2.2 0.9 2.6 2.3
GG net lending/borrowing, % of GDP -0.1 0.7 -1.8 -4.4 -6.7 -7.6 -5.5
GG gross debt, % of GDP 54.6 48.2 48.0 51.3 54.4 60.5 61.8
Current account balance, % of GDP -0.1 -5.2 -5.4 -4.1 -8.1 -10.0 -7.2
Syria Annual growth of real GDP, % 5.7 4.5 5.9 3.4 n/a n/a n/a
End-of-year inflation, % 4.8 15.4 1.7 6.3 n/a n/a n/a
GG net lending/borrowing, % of GDP -3.0 -2.9 -2.9 -7.8 n/a n/a n/a
GG gross debt, % of GDP 42.7 37.3 31.2 30.0 n/a n/a n/a
Current account balance, % of GDP -0.2 -1.3 -2.9 -2.8 n/a n/a n/a
Tunisia Annual growth of real GDP, % 6.3 4.5 3.1 2.9 -1.9 3.6 3.0
End-of-year inflation, % 5.1 4.0 4.0 4.1 4.2 5.9 5.3
GG net lending/borrowing, % of GDP -2.0 -0.6 -1.2 -0.9 -3.4 -4.9 -6.8
GG gross debt, % of GDP 45.9 43.3 42.8 40.4 44.0 44.0 45.5
Current account balance, % of GDP -2.4 -3.8 -2.8 -4.8 -7.3 -8.1 -8.0
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Notes: Yellow field – IMF estimate.
Source: IMF WEO database, October 2013.
21. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
The impact of the European debt and financial crisis also seems modest until now (definitely
smaller than in the CEE). It was mostly felt in countries which have higher export, migration and
incoming tourism exposure to the Eurozone like Morocco (see IMF, 2013a, Annex 2, p. 83).
In addition, as this crisis overlaps in time with the Arab Spring (see below) it is not easy
to statistically disentangle the impact of both factors. Nevertheless both crises (that of 2008-2009
and the European one) created a new global environment of slower growth and tighter financial
conditions as compared with the ‘golden’ era of the early and mid-2000s.
The popular uprising called the Arab Spring, which started at the end of 2010 in Tunisia and
spread rapidly to Egypt, Libya, Yemen, Bahrain and Syria, directly or indirectly affected
the economies of the entire region.
First, the collapse of the previous autocratic regimes has not yet led to the establishment of stable
democratic regimes able to ensure responsible economic management. On the contrary, most
of the countries directly affected by the Arab Spring suffer from political, economic and social
instability and insecurity.
Tunisia is perhaps the only exception as it enjoys a relatively stable democratic government
which has started to implement an economic reform program supported by the IMF stand-by loan
in June 2013. It also adopted the new democratic constitution on January 26, 2014 (ACRPS,
2014). However, its political transition is not yet complete.
The situation in other countries is much worse: Egypt and Libya struggle with domestic political
instability, deep splits of their societies along sectarian, regional, ideological and cultural lines,
and tribal insurrections. All of these developments have had a negative impact on current
business activity, investment, and incoming tourism in the entire region.
Syria is in the midst of its third year of bloody civil war with no prospects of a fast resolution. The
country is in fact territorially divided between pro-government forces and rebels of various ideological
and political profiles. The negative economic and political consequences of this conflict, for example,
the large number of refugees, blocked transit routes, declining tourism and FDI flows, are affecting
neighboring SEMC, especially Lebanon and Jordan (IMF, 2013a, Box 2.1, pp. 34-35). Similarly,
the civil war in Libya in 2011 and the following domestic instability have negatively affected
neighboring Tunisia and Egypt through a large inflow of refugees and returning migrant workers.
Second, the fear of popular unrest has made all governments in the region reluctant to conduct sorely
needed economic reforms such as the reduction or elimination of subsidies, public sector
modernization and restructuring, the continuation of privatization, and opening countries to foreign
investors. Worse, in the aftermath of the Arab Spring, several governments backtracked on previous
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22. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
reforms by, for example, increasing energy and food subsidies again, increasing public sector
employment, or revising previous privatization deals.
The negative impact of the Arab Spring on economic growth in Tunisia, Egypt, Libya and Lebanon
is clearly visible in Table 4. Data on Syria after 2010 are not available and one can only speculate
on the scale of economic and social damage (in addition to human losses). The situation in Syria has
not helped Jordan to return to a higher growth rate. Again, Tunisia may become the exception: after
an evident growth slowdown in 2011, it picked up again to a moderate level of 3+% in 2012-2013.
The period after 2009 has also been marked by higher inflation in several countries: Algeria, Egypt,
Jordan, Lebanon and Libya. Data for Syria is not available. Remarkably, Tunisia experienced only
a minor increase in inflation after 2010, and it continues to remain at the annual level of 5-6%.
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3.2 Fiscal trends
As illustrated by Table 4, since 2011, GG balances deteriorated everywhere in the region, even
in oil-producing Algeria, unaffected by the Arab Spring. Egypt has recorded high fiscal deficits
since at least the early 2000s but they deteriorated after the Arab Spring. In Israel, the fiscal
deficit increased to 6.3% of GDP in the crisis year 2009 and remained at the level of 4-5% of GDP
in the following years. There is no data for Syria after 2010.
Figure 10. GG gross debt as a % of GG revenue for selected SEMC, 2003-2013
700.0
600.0
500.0
400.0
300.0
200.0
100.0
Egypt
Israel
Jordan
Lebanon
Morocco
Tunisia
EMDE average
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F
Note: F – forecast; data for EMDE represent the unweighted arithmetic average of the group of 92 EMDE
rated by Moody’s; data on Jordan, Morocco and Tunisia are limited to the central government.
Source: Moody’s Statistical Handbook, November 2013; author’s own calculation.
23. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Table 5. GG interest payment as a % of GG revenue for selected SEMC, 2003-2013
Country 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013F
Egypt 21.8 22.2 22.4 19.8 18.7 16.5 15.2 20.5 25.3 26.8 28.4
Israel 13.0 12.7 11.5 10.4 10.3 8.6 9.5 8.8 7.4 7.6 7.4
Jordan 6.8 5.4 7.0 7.7 8.2 8.1 8.8 8.5 7.9 11.5 13.3
Lebanon 73.9 53.7 47.7 53.7 54.3 46.2 45.2 46.4 41.1 37.7 39.9
Morocco 15.5 14.3 12.4 11.7 10.4 8.1 8.1 8.3 8.2 8.6 9.0
Tunisia 11.8 11.8 11.9 11.5 10.9 8.7 8.8 8.0 7.5 7.8 7.7
EMDE 11.5 10.6 9.5 8.6 8.0 7.4 8.4 8.1 7.7 7.9 8.4
Note: F – forecast; data for EMDE represent the unweighted arithmetic average of the group of 92 EMDE
rated by Moody’s; data on Jordan, Lebanon, Morocco and Tunisia are limited to the central government.
Source: Moody’s Statistical Handbook, November 2013; author’s own calculation.
The combination of slower growth and higher fiscal deficits has led to an increase in GG debt-to-GDP
ratio in most SEMC apart from Algeria and Libya. In 2013 it is expected to amount to 143.1% of GDP
in Lebanon, 89.5% of GDP in Egypt, 83.9% in Jordan, 70.4% in Israel, 61.8% in Morocco and
45.5% of GDP in Tunisia (Table 4). These are pretty high numbers for EMDE standards.
Data on gross debt-to revenue ratio (Figure 10) looks equally worrying. Since 2008-2009 there
has been a clear reversal of the earlier moderate gains and all of the SEMC perform worse than
the EMDE average. The situations of Lebanon, Egypt and Jordan may raise concerns about their
long-term sovereign solvency.
The same kind of conclusion can be drawn from Table 5 which presents the interest payment-to-revenue
23
ratio. Interest payment absorbs ca. 40% or more of government revenue in Lebanon,
close to 30% in Egypt and above 13% in Jordan. In all countries except Israel and Tunisia,
it exceeds the EMDE average and has a tendency to grow.
4. Causes of fiscal imbalances
4.1 Overview of revenue and expenditure
The total GG revenue in the SEMC does not differ or even exceed the EMDE average (Table 6).
Table 6. GG revenue in SEMC, % of GDP, 2001-2012
Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Algeria 35.0 35.4 37.1 36.0 40.8 42.7 39.4 46.9 36.7 36.5 40.0 39.5
Egypt n/a 25.4 26.2 25.6 24.8 28.6 27.7 28.0 27.7 25.1 22.0 22.6
Israel 45.3 45.3 43.7 42.7 42.5 43.1 42.4 39.5 36.7 37.6 37.7 36.2
Jordan 30.3 29.6 34.7 36.6 33.3 32.4 32.3 30.1 26.5 24.9 26.4 22.8
Lebanon 17.7 20.3 22.2 23.2 22.9 25.4 24.1 24.0 24.5 22.7 23.4 23.2
Libya 38.2 49.4 49.4 54.0 60.4 63.0 62.3 68.4 52.9 64.9 50.3 72.3
Morocco 22.5 24.3 23.0 24.0 26.3 27.4 29.9 32.5 29.3 27.5 27.8 28.1
Syria 30.3 26.5 29.9 27.1 23.8 25.2 22.7 20.1 23.9 20.9 n/a n/a
Tunisia 27.0 27.6 27.1 27.0 26.5 26.6 27.4 29.9 29.6 30.0 31.2 30.7
EMDE 23.7 23.9 24.6 25.5 27.5 28.4 28.6 29.5 26.2 27.0 28.3 28.3
Notes: Yellow field – IMF estimate.
Source: IMF WEO database, October 2013.
24. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
24
Table 7. GG expenditure in SEMC, % of GDP, 2001-2012
Country 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Algeria 31.3 34.3 32.2 30.8 27.1 28.8 33.2 37.8 42.2 36.9 40.4 44.6
Egypt n/a 36.7 35.2 33.9 33.2 37.8 35.3 36.0 34.6 33.4 31.8 33.4
Israel 51.5 52.9 51.6 48.7 47.4 45.7 44.0 43.2 43.1 42.2 41.9 41.0
Jordan 33.9 32.0 34.5 38.3 38.3 35.9 38.0 35.6 35.4 30.4 33.2 31.7
Lebanon 38.4 36.3 35.9 32.9 31.5 35.9 35.0 33.7 32.8 30.4 29.5 32.2
Libya 38.2 42.2 43.1 42.4 29.1 31.2 33.7 40.1 46.6 47.7 56.9 52.9
Morocco 26.8 29.2 27.3 27.7 32.5 29.4 30.1 31.8 31.1 31.9 34.5 35.8
Syria 28.0 28.5 32.6 31.3 28.2 26.3 25.7 22.9 26.7 28.6 n/a n/a
Tunisia 29.1 29.8 29.3 29.2 29.3 29.2 29.4 30.5 30.8 30.9 34.6 35.5
EMDE 26.4 27.7 27.5 26.6 26.7 27.0 27.4 28.8 30.3 29.6 29.4 30.0
Notes: Yellow field – IMF estimate.
Source: IMF WEO database, October 2013.
Only Syria and Lebanon record systematically lower levels of GG revenue while Egypt, Jordan
and Morocco fall below the EMDE average in individual years. In terms of expenditure, all SEMC
record systematically higher levels except for Syria, which falls below the EMDE average
in individual years (Table 7).
The lack of cross-country comparative statistics does not allow for conducting a comprehensive
analysis of revenue and expenditure structure. Nevertheless, based on existing studies, we will try
to figure out the key fiscal challenges and vulnerabilities of the SEMC which are related to generalized
price subsidies, employment in the public sector, military expenditure, dependence on hydrocarbon
revenue and the impact of political instability.
4.2 Consumer subsidies
The biggest fiscal challenge relates to generalized price subsidies to food and energy (Dabrowski
& De Wulf, 2012; Bergasse et al., 2013), which continue to put a huge fiscal burden on several
SEMC, especially Egypt, Algeria, Libya, Jordan and Lebanon. Most of this burden relates
to energy subsidies, i.e., subsidies to petroleum, electricity, natural gas, and coal. The cost
of food subsidies is relatively smaller; it amounts to 0.7% of the GDP of the MENA region
according to IMF estimates (2013a, Box 2.4, p. 42). However, in some countries (Libya, Tunisia,
and Egypt) they are higher, i.e. in the range of 1 and 2% of GDP.
Consumer subsidies can be measured in two ways: as pre-tax subsidies and post-tax subsidies
(see Clement et al., 2013 for details). Pre-tax subsidies are defined as the difference between
the value of supplied products and services at either international prices (tradable goods) or cost-recovery
prices (non-tradable goods) and domestic prices paid by their consumers, both final and
intermediate. Post-tax subsidies are the sum of pre-tax and tax subsidies. The latter
are measured as the difference between efficient taxation, which takes sufficient account
of externalities (in the case of energy this is, for example, the environmental impact of its
production and consumption) and the actual one.
25. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
The IMF (2013a, Box 2.4, p. 42) estimated the total cost of pre-tax energy subsidies in MENA
countries at the level of USD 236.7 billion, i.e. 8.6% of their GDP and 22% of GG revenue in 2011.
About half of this was absorbed by subsidies to diesel and gasoline. In a global comparison, MENA
is the region with the highest energy subsidies; they constituted almost half of total pre-tax world
energy subsidies in 2011. If one adds implicit tax subsidies, the total post-tax energy subsidies
in the MENA region will approach the level of 15% of GDP (Clement et al, 2013).
Table 8. Subsidies for Energy Products in SEMC, 2011, as % of GDP
Country
25
Petroleum products Electricity Natural gas Coal
Pre-tax Post-tax Pre-tax Post-tax Pre-tax Post-tax Pre-tax Post-tax
Algeria 4.30 6.11 1.08 1.15 5.36 6.07 0.00 0.00
Egypt 6.74 8.60 2.30 2.50 1.60 2.59 0.00 0.05
Israel 0.0 0.00 n/a n/a. n/a 0.10 n/a 0.54
Jordan 2.15 5.27 3.81 4.10 n/a 0.34 n/a n/a
Lebanon 0.07 3.57 4.46 4.61 n/a 0.17 n/a 0.11
Libya 6.40 8.81 1.85 2.33 0.59 1.49 0.00 0.00
Morocco 0.66 2.83 n.a. n/a n/a 0.04 n/a 0.33
Tunisia 0.77 2.56 2.23 2.43 n/a 0.70 n/a n/a
Note: Data for Syria is not available.
Source: Clement et al. (2013), Appendix A, Table 2 and 4.
Tables 8 and 9 present estimates of energy subsidies in individual SEMC and their
disaggregation into major energy products. Pre-tax subsidies are the highest in oil- and gas-exporting
Algeria and Libya and oil-importing Egypt but also substantial in other SEMC apart from
Israel and Morocco. However, the product structure of subsidies differs among countries. Large
subsidies to petroleum products are provided in Algeria, Egypt, and Libya and, to a lesser extent,
Jordan. The highest electricity subsidies are recorded in Lebanon, followed by Jordan, Egypt and
Tunisia. Subsides to natural gas are the highest in Algeria. Coal subsidies are of marginal
importance in the analyzed region.
Table 9. Subsidies for Energy Products in SEMC, 2011, as % of GG revenue
Country
Petroleum products Electricity Natural gas Coal
Pre-tax Post-tax Pre-tax Post-tax Pre-tax Post-tax Pre-tax Post-tax
Algeria 10.84 15.40 2.72 2.89 13.52 15.31 0.00 0.00
Egypt 30.61 39.07 10.44 11.35 7.25 11.79 0.00 0.23
Israel 0.00 0.00 n/a n/a n/a 0.26 n/a 1.34
Jordan 8.13 19.94 14.41 15.49 n/a 1.30 n/a n/a
Lebanon 0.32 15.17 18.96 19.59 n/a 0.71 n/a 0.45
Libya 16.64 22.91 4.80 6.04 1.53 3.86 0.00 0.00
Morocco 2.40 10.27 n/a n/a n/a 0.13 n/a 1.21
Tunisia 2.42 8.07 7.02 7.66 n/a 2.19 n/a n/a
Note: Data for Syria is not available.
Source: Clement et al. (2013), Appendix A, Tables 3 and 5.
26. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Figure 11. Pre-tax energy subsidies and spending on education in MENA countries,
26
as % of GDP
Notes: Energy subsidies refer to 2011; education refers to the latest available data.
Source: IMF (2013a), Figure 2.4.2, p. 42.
Generalized consumer subsidies are usually the consequence of government price controls.
If a government determines fixed administrative prices on either energy or food products, those
prices become almost automatically ‘politicized’ as the necessity of their upward adjustment may
provoke social and political tensions. When the necessity of such an adjustment comes
as a result of, for example, higher international prices, a depreciation of the national currency,
domestic inflation, etc., the government usually tries to delay setting new higher prices and,
consequently, creates a gap between the administratively fixed price and the international or cost-recovery
price. When such a gap becomes large there is even less political readiness
to close it. However, sooner or later, this must be done and, in the case of a delay, the adjustment
becomes more painful socially, economically and politically.
Universal price subsidies are both costly and inefficient as tools to fight poverty (their main social
policy justification). In reality, higher- and middle-income groups are the main beneficiaries
of those subsidies (Bergasse et al, 2013, Clement at al., 2013). In addition, the subsidies have
a devastating microeconomic and structural impact. They discourage producers of the subsidized
energy and food products from increasing their output and quality parameters. They stimulate
excessive and wasteful consumption, damage the environment, and hinder the development
of renewable energy, etc. (see Bergasse et al., 2013 for the analysis of energy subsidies).
By absorbing a substantial share of fiscal resources (in the case of Egypt half of its GG revenue;
in the case of Algeria, Jordan, Lebanon and Libya, between 20 and 30% – see Table 9), energy
27. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
and food subsidies crowd out other important expenditures. For example, they may crowd
out education expenditures, which can create an important development bottleneck in the region.
Figure 11 shows that public spending on education is much lower than energy subsidies in Algeria,
Egypt, Libya, Jordan and Lebanon (no data is available for Syria).
27
4.3 Oversized public sector
Comprehensive and fully cross-country comparable statistics are not available on public sector
structure, employment and current budget spending on public employee salaries. However,
the incomplete IMF data (Figures 12 and 13) points to excessive public employment and a related
heavy expenditure burden in several SEMC and other MENA countries.
Figure 12. Public-sector wage bill as % of GDP in selected countries, 2011
Source: IMF (2013b), Appendix IV, p. 45.
The low effectiveness of public sector employment is another big challenge. Several SEMC hoard
an excessive labor force in both public administration bodies and agencies of various levels.
In many SEMC, state-owned enterprises serve as an instrument of social policy, with the aim
of reducing high unemployment and providing income support to at least part of the population.
In practice, it is a good pretext to employ relatives, friends, political supporters, retired military and
law enforcement personnel, or offer jobs in exchange for material goods.
28. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
28
Figure 13. Public employees per 1,000 inhabitants in selected countries, 2011
Source: IMF (2013b), Appendix IV, p. 45.
Needless to say, such policies do not meet their goal: instead of reducing poverty, they put
a heavy burden on public finances and the economy. According to the IMF (2013, Annex 4,
p. 98-99), countries with a higher share of spending on public sector wages and salaries in total
budget expenditure have higher Gini coefficients.
In addition, an oversized, incompetent and often corrupted public service is not able to provide
basic public goods and, instead, inhibits private sector development and its ability to provide
productive jobs. On the other hand, inefficient public enterprises distort competition and
the allocation of resources.
4.4 Military expenditure
Unresolved regional and internal conflicts as well as the authoritarian or semi-authoritarian
character of many political regimes in the region are responsible for high expenditures on defense
and law enforcement agencies.
We do not have reliable and cross-country comparable data on internal security/ law enforcement
expenditures. Thus our analysis will be limited to the WB World Development Indicator statistics
on military spending which are, in turn, based on the estimates of the Stockholm International
Peace Research Institute (SIPRI). They include all current and capital expenditures on armed
forces, including peacekeeping forces, defense ministries and other government agencies
engaged in defense.
29. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Although military expenditure in SEMC decreased substantially as a % of GDP from record-high
levels in the 1980s and early 1990s, it continues to exceed the world average in all analyzed
countries except Tunisia. Israel is the highest military spender in the region and one of the highest
in the world followed by Jordan, Lebanon, Syria, Algeria and Morocco. Egypt’s expenditures
on defense have gone down systematically (in relative terms) from over 6% of GDP at the end
of the 1980s to less than 2% of GDP after the Arab Spring.
Figure 14. Military expenditure, % of GDP, 1980-2012
18
16
14
12
10
8
6
4
2
0
Algeria Egypt
Israel Jordan
Lebanon Libya
Morocco Syria
Tunisia World
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Source: WB World Development Indicators.
In spite of the reported relative decrease in military expenditure, the data in Figure 14 clearly
indicate the remaining huge potential of the so-called peace dividend in the region. Further cuts
in those expenditures would not only help in restoring the badly needed fiscal balance but would
also create room for providing more non-military public goods such as better education
or an infrastructure upgrade. Indirectly, resolving existing conflicts could facilitate opening borders
and boosting intra-regional trade and economic growth.
29
4.5 Hydrocarbon dependence
The two large hydrocarbon producers and exporters (Algeria and Libya) are heavily dependent
on oil and natural gas-related revenue as seen in Table 105. In particular, the fiscal breakeven oil
5 One should take into account the consequences of the civil war in Libya on its fiscal performance in 2011
and 2012.
30. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
price in Algeria is above 100 USD and continues to grow. That is, the hypothetical level of the oil
price at which the fiscal balance would be zero well exceeds the actual export price level.
A substantial dependence on oil revenue (although smaller than in Algeria and Libya) was also
reported in Syria before it descended into a civil war. According to the IMF (2010, Table 2, p. 18),
oil revenues of the central government were equal to 7.1% of GDP and 29.7% of total revenues
in 2005 but then declined to 4.9% of GDP and 21.7% of total revenues, due to a decrease
in the volume of oil production.
30
Table 10. Hydrocarbon dependence of major SEMC oil producers
Country
Non-oil fiscal balance as % of non-oil GDP Fiscal breakeven oil price in USD
2006-2010 2011 2012 2006-2010 2011 2012
Algeria -43.8 -44.9 -46.7 n/a 109.7 125.6
Libya -115.9 -117.4 -194.6 46.9 124.0 75.7
Source: IMF (2013), Table 5, p. 106.
The above figures mean that hydrocarbon producing SEMC remain extremely vulnerable
to changes in international prices (which are unlikely to grow further and may decline in the next
couple of years) and production volume. The latter seems to be stabilizing in Algeria, and
is declining in Libya. Syria’s oil production will definitely go down even if the country restores
internal peace and stability soon, because of the shortage of new deposits.
Algeria created a sovereign wealth fund (called the Revenue Regulation Fund) in 2000 which has
cumulated USD 77.2 billion of oil-related fiscal surpluses. The Libyan Investment Authority
created in 2006 has accumulated USD 65 billion in financial assets6. However, according
to the Linaburg-Maduell Transparency Index7, the transparency of both funds is rated
at the lowest level “1” on the scale from 1 to 10.
Before the civil war, Syria also had a Price Stabilization Fund with the same role of cumulating oil-related
revenue surpluses.
Overall, although the existence of sovereign wealth funds in hydrocarbon producing countries
must be assessed positively, the question remains about whether or not their size is sufficient
to provide an effective fiscal buffer for ‘rainy’ days when either output or prices, or both, go down.
6 Data as of September 2013 – see http://www.swfinstitute.org/fund-rankings/
7 http://www.swfinstitute.org/statistics-research/linaburg-maduell-transparency-index/
31. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
31
5. Macroeconomic consequences of fiscal imbalances
Large fiscal imbalances and a high level of public indebtedness have various negative
consequences for macroeconomic stability and business climate.
5.1 Fiscal sustainability
The fiscal data presented in Tables 4 and 5 and Figure 10 suggest that Lebanon, Egypt and
Jordan, not to mention war-torn Syria may face fiscal sustainability challenges in the near-to-medium-
term perspective. This is additionally confirmed by individual countries’ sovereign ratings
of two major rating agencies as presented in Table 11.
According to both Moody’s and Standard and Poor’s (SP), only Israel enjoys a solid investment-grade
rating despite its continuously high GG deficit and public debt (-5.1 and 70.4% of GDP
in 2013, respectively). According to SP, Morocco’s BBB-rating is at the lowest end of investment
grade category. All other countries in the SP rating and all except Israel in the Moody’s rating
represent a speculative grade (of various degree). In the analyzed group, Egypt has the worst
Moody’s rating (Caa1) and Egypt and Lebanon have the worst SP rating (B-), close to default
grade territory. Egypt, Jordan, and Tunisia’s ratings have deteriorated since 2012.
Table 11. SEMC’s sovereign rating, November 2013
Country Moody's Standard and Poor's
Egypt Caa1 B-Israel
A1 A+
Jordan B1 BB-Lebanon
B1 B-Morocco
Ba1 BBB-Tunisia
Ba2 B
Source: Moody’s Statistical Handbook, November 2013;
http://www.standardandpoors.com/ratings/sovereigns/ratings-list/en/us
Please note that Algeria, Libya and Syria do not have sovereign ratings. Algeria and Libya do not
need to borrow internationally, at least now.
5.2 Monetary and inflationary consequences
In countries which have experienced fiscal strain in recent years (Egypt, Jordan, Lebanon, Morocco,
and Tunisia), part of the increasing public debt has been monetized either directly (with the central
bank lending to the government) or indirectly (through increasing the central bank’s credit
to commercial banks enabling them to lend to government). Most probably, monetary financing has
also become the main source of covering government expenditure in conflict-ridden Syria.
32. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
The partial monetization of fiscal deficit and public debt must lead to either the depletion of official
reserves of central banks used to sterilize increasing net domestic assets (see Section 5.3)
or to an increase in inflationary pressures, or both. Inflationary pressure is also boosted
by the contribution of fiscal deficits to growing domestic demand.
The data in Table 4 confirms that after 2009, all SEMC except Israel and Morocco have
experienced either continuous or periodic inflation pick up.
32
5.3 External vulnerability
Fiscal imbalances also put pressure on the external accounts of individual SEMC. The data
presented in Table 4 signal either a deterioration of current account balances (Algeria, Egypt,
Lebanon, Libya, Morocco, Tunisia and, most probably, Syria) or their stabilization on high deficit
levels (Jordan). This suggests the possibility of the phenomenon of twin deficits when fiscal
imbalances lead, via higher internal demand, to balance-of-payment problems. On the other
hand, adverse shocks generated by political instability in the region may simultaneously impact
both the balance of payments and fiscal accounts.
In the cases of Algeria and Libya, the deterioration of current accounts has led to a reduction
of their previously large current account surpluses. Egypt’s small current account surplus
in the past has been replaced by a modest current account deficit. In other countries, current
account deficits have rapidly increased, sometimes to two-digit levels (in terms of their share
in GDP) as in the case of Lebanon, or have remained the same (Jordan).
In the countries affected, directly or indirectly, by the negative consequences of the Arab Spring
(Tunisia, Egypt, Libya, Lebanon and Jordan), capital accounts have also deteriorated due
to decreasing FDI inflows and, in some cases, capital outflows.
The negative balance-of-payment trends have had a negative impact on both the size of gross
international reserves (Table 12) and exchange rates (Table 13). Since 2010, gross international
reserves have decreased in Egypt, Morocco, Tunisia and, temporarily, in Jordan (in 2012).
In the case of Egypt, this decline has been dramatic in spite of support provided by the Gulf
countries. Exchange rates have depreciated in Algeria, Egypt and Tunisia. Those depreciations
have contributed to higher inflation (see Section 5.2).
33. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Table 12. Total reserves in SDR million, end of period, 2009-2013
Country 2009 2010 2011 2012 2013 Q3
Algeria 95,266 105,787 119,277 124,663 125,708
Egypt 20,659 21,910 9,800 7,651 10,351a
Israel 38,663 46,043 48,769 49,389 52,085
Jordan 7,471 8,493 7,484 5,279 7,816
Lebanon 18,887 20,786 22,300 24,518 24,566
Libya 63,137 64,865 68,391 77,173 79,985a
Morocco 14,567 14,708 12,743 10,667 11,218
Tunisia 7,061 6,150 4,862 5,445 4,702
Note: a - August 2013.
Source: IMF International Financial Statistics.
Table 13. Market Rate, National Currency per SDR, end of period, 2009-2013
Country 2009 2010 2011 2012 2013 Q3
Algeria 114,02 115,42 116,77 120,04 124,89
Egypt 8,58 8,92 9,24 9,69 10,63a
Israel 5,92 5,47 5,87 5,74 5,43
Jordan 1,11 1,09 1,09 1,09 1,09
Lebanon 2363,29 2321,60 2314,42 2316,91 2312,63
Libya 1,93 1,93 1,93 1,93 1,93a
Morocco 12,32 12,87 13,17 12,96 12,68
Tunisia 2,07 2,21 2,30 2,38 2,53
Note: a - August 2013.
Source: IMF International Financial Statistics.
Table 14. GG Foreign Currency & FC-Indexed Debt/GG Debt, 2003-2012
Country 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Egypt 28.1 23.4 21.0 19.5 18.6 18.4 18.9 16.9 15.4 14.7
Israel 25.5 25.5 26.2 25.1 22.6 19.8 18.5 17.1 17.4 15.9
Jordan 76.7 72.0 69.2 65.3 58.7 38.7 35.3 36.6 31.0 28.0
Lebanon 49.1 53.4 51.9 53.3 54.6 48.5 45.2 42.5 42.4 45.7
Morocco 27.2 23.9 21.1 19.7 20.0 21.0 22.8 24.0 23.1 23.7
Tunisia 64.8 63.5 64.2 60.1 58.6 61.2 58.7 60.9 58.3 60.9
Note: Data on Jordan, Lebanon, Morocco and Tunisia are limited to central government.
Source: Moody’s Statistical Handbook, November 2013.
Increasing external imbalances may limit opportunities to finance public debt on international
bond markets. On the other hand, depreciating exchange rates increase the domestic currency
value of foreign currency denominated and indexed debt and its relation to GDP. Fortunately,
among SEMC, only Tunisia and Lebanon have a large share of such debt in their total public
debts (Figure 14).
33
6. Main directions of fiscal reform
Most of the SEMC must urgently undertake far-reaching fiscal reforms to avoid the potential risk
of public debt insolvency and macroeconomic instability. The elimination or substantial reduction
of energy and food subsidies, especially pre-tax subsidies, should be considered the number
34. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
one task in all countries except Israel. It can offer relatively quick and substantial fiscal gains,
which would allow for the restoration of fiscal and macroeconomic equilibrium and increase room
for fiscal maneuver in the medium and long-term.
Price subsidies should be replaced by targeted social safety nets, including targeted cash transfers
following, among others, the experiences of CEE or Turkey (see Clements et al., 2013 for a broader
overview of experiences related to subsidy reforms). They would absorb part of the resources
economized as a result of the elimination/reduction of subsidies. Another part of budget savings would
remain and would help reduce the fiscal deficit or increase expenditure for priority public goods such
as education, healthcare and transport infrastructure.
The results of the World Bank’s survey in four SEMC (see Table 15 and Silva et al., 2013) suggest
that there is social understanding and readiness to accept such a subsidy reform. This means that
a lot will depend on the determination of individual governments, their political skills, and their
administrative capacity in implementing the proposed policy changes8.
34
Table 15. Subsidy reform survey
Egypt Jordan Lebanon Tunisia
Question: If the government were to remove the subsidy on
the price of diesel, should the government…?
(In percent)
Distribute that money to the poor 32 50 32 38
Distribute that money to all families except the wealthy 3 19 11 6
Distribute that money to all families including the wealthy 2 3 1 1
Distribute a portion of that money to the poor and spend the rest
57 10 56 50
on healthcare and education programs for all
Don’t know/refused (volunteered response) 7 19 1 4
Source: IMF (2013c), p. 23 based on Silva et al (2013).
The second direction of fiscal adjustment should focus on the reform of public administration and
state-owned enterprises. The oversized public service must be reduced in terms of the number
of employees. However, the remaining staff should be better paid and selected on the basis
of professional competence rather than political and personal relations. The subsidization
of public sector enterprises has to end or at least be substantially reduced and loss-making firms
should either be closed down or restructured. The SEMC should continue to privatize their state
owned financial and non-financial corporations in an open, competitive and transparent manner.
Revenue from privatization can contribute to the reduction of the public debt burden.
8 See Clements et al. (2013) and Silva et al. (2013) for a broader discussion of possible strategies and
tactics in implementing subsidy reforms, including their sequencing and various flanking measures.
35. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
Other fiscal reforms involve simplifying tax systems, eliminating tax exemptions and loopholes,
ensuring better coverage of VAT and higher energy taxation (the elimination of tax subsidies –
see Section 4.2 and Table 8).
The elimination of other fiscal vulnerabilities will depend on changes in the economic structure
of individual countries (economic diversification), unlocking entrepreneurial potential
(by improving business and investment climate) and progress in resolving various internal and
regional conflicts (by decreasing military expenditure and unblocking intra-regional trade and
investment flows). Obviously, all of these requires more time and, in the case of regional conflicts,
international political effort.
In countries directly affected by the Arab Spring, prospects of fiscal adjustment and other
economic reforms will greatly depend on the outcome of the political transition and their ability
to build stable democratic regimes. A review of the experience of countries that managed
a successful transition to democracy suggests that growth declined by about 3% during
the transition, but recovered the pre-transition rate within two years. The investment took about
five years to recover (MENA, 2011, p. 2). The important lesson of this analysis suggests that with
the right policies, the dip in growth rates in some SEMC can be temporary and that the long term
growth trend can be resumed.
Similar conclusions are offered by Khandelwal & Roitman (2013). According to them,
macroeconomic performance thus far in Arab countries in transition has remained broadly in line
with other political transition experiences in Africa, Asia, Latin America and Eastern Europe,
except for fiscal balances. Here, the performance of Arab countries is consistently worse both
in the pre-transition and in the transition periods.
35
7. Summary and conclusions
Our analysis clearly demonstrates that all SEMC except the large hydrocarbon producers (Algeria
and Libya) suffer from serious fiscal imbalances and fragilities. These imbalances have been built
up over decades but have become more visible and acute since 2008, when a combination
of adverse economic and political shocks (global and European financial crises, Arab Spring) hit
the region. In an environment of slower growth and higher public expenditure pressures, fiscal
deficits and public debts have increased rapidly, leading to a deterioration of current accounts,
a depletion of official reserves, the depreciation of some currencies and higher inflationary
pressure. If not addressed in time, deteriorating fiscal and macroeconomic equilibria may lead
to serious problems, including potential public debt and balance-of-payment crises.
36. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
To avoid the worst-case scenario, bold fiscal adjustments and structural and institutional reforms
are urgently needed. Among them, the subsidy reform, especially with respect to energy products
is the most important issue. This is a priority task for all SEMC (except Israel), including Algeria
and Libya. It can bring substantial fiscal gains and several other positive effects such
as improving social targeting (when generalized price subsidies are replaced by targeted cash
transfers and other social assistance tools), reducing the excessive energy-intensity in the SEMC,
eliminating structural distortions and negative environmental effects, creating incentives
to develop alternative energy production, reducing the shadow economy, and unblocking fiscal
resources for human capital and environmental investment.
Another reform priority concerns public administration and public sector enterprises, including
their further privatization. In the longer term perspective, economies and public finances of SEMC
may benefit from improving business climate, more trade and investment openness, sector
diversification and peace dividend.
Economic and fiscal reform perspectives will depend on the pace of the political transition
in the region and its results, i.e. the ability to build stable democratic regimes that are resistant
to populist temptations and support more rational policies. The experiences of political and
economic transitions in other regions, such as Asia, CEE and the former USSR, Africa and Latin
America, may offer an useful guidance in building more effective governments and economies
in the SEMC.
36
37. CASE Network Studies & Analyses No. 471 – Macroeconomic and fiscal challenges faced…
37
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