Posted by on May 23, 2014 in Blog

By Hanane Lahnaoui
Summer Intern, 2014

Christine Lagarde, managing director at the International Monetary Fund (IMF), recently visited Morocco and Jordan to discuss the current economic situation in both countries and in the MENA region in general. Most importantly, Lagarde's visit focused on the region’s economic transformation after the Arab Spring. Her speech in Morocco touched on three important points: the region's economic progress as well as its future challenges, the importance of strengthening the middle class and providing opportunities for small and medium enterprises (SMEs) to thrive, and finally, the procedures needed to strengthen the middle class and empower SMEs.

In Amman, Lagarde attended the "Building the Future" conference to discuss the future targets of the country and how the IMF can assist in reaching these goals. The conference, which is attended by prominent regional leaders, government officials and experts, also included critics of the IMF who provided their input on how Jordan can develop economically.

In Morocco, Lagarde highlighted that the Kingdom was able to make economic progress despite the recent economic crisis that plagued European countries across the Mediterranean. In fact, Morocco was able to reduce its fiscal deficit by 2% of GDP mainly due to strong policies the government implemented and the decrease in international oil prices.

Morocco is not the only country in the region that witnessed economic progress recently. In fact, other Arab countries implemented various economic policies to respond to the European crisis and to limit economic ramifications. In addition to Morocco diversifying its exports and foreign direct investments to include industries such as aeronautics, automobiles and electronics, Tunisia improved its banking system while Jordan cut back its energy subsidies.  

The issue that Lagarde strongly emphasized is the importance of concentrating on both the middle class and SMEs as vital factors in enhancing not only the economic situation of countries but also their social and political conditions. The middle class was the driving force behind the Arab uprisings and suffered from various social, economic and political injustices that prompted the Arab Spring. Therefore, the solution to responding to the needs of the middle class lies in empowering the middle class first and foremost.

More importantly, empowering the middle class economically targets the majority, if not all, of the needs of society. Empowering the middle class leads to entrepreneurship which contributes to the creation of jobs in society, which is important for improving living conditions and providing opportunities for these societies to improve. Hence, it is vital for the MENA region to invest in its middle class.

Recently, a Financial Times report stated that about one billion people worldwide are drifting from the middle class to the poor and lower class. This puts more pressure on governments in the MENA region to tackle the needs of those in the middle class in the very near future.  

The other aspect that Lagarde focused on is SMEs. SMEs face various challenges such as competition with larger firms with more capital, in addition to market entry factors and financing barriers. SMEs also face the challenges of high taxations and low government subsidies. The Arab Spring altered the financing possibilities available to SMEs mainly due to repayment uncertainties, posing more challenges to SMEs in the region. On the other hand, SMEs are known to be the backbone of the middle class, so enhancing the viability of and strengthening SMEs can help improve the situation of a major part of the region’s population.

A survey conducted by the IMF shows that the percentage growth rates of Arab countries is very low. For example, Jordan’s GDP is growing by 3% when it needs to be growing by 6% on average in order to reduce youth unemployment and increase productivity. Another important issue that the survey focused on is the credibility of the Jordanian government. Both the prime minister of Jordan and Lagarde spoke on the importance for governments to be transparent in the data and the information they provide, especially regarding sensitive topics such as subsidy reforms.

Lagarde's visit to Morocco and Jordan exemplifies the different relationships that countries in the Middle East have with the United States, which is the biggest and most powerful IMF member. Lagarde highlighted in her speech that the IMF and the United States in general are willing to offer help that will contribute to the economic development of the MENA region, whether in the form of finance, advice or strategic guidance. Such visits are examples of the economic ties that link the United States and the MENA region.

After the Arab Spring, the United States has been promoting efforts and projects that support the political and economic stability of the region. Trade agreements with various Arab countries are an example of the efforts the United States is pursuing to facilitate trade in the region and to benefit both parties economically. 

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