The impact of the financial and economic crisis on the...
Transcript of The impact of the financial and economic crisis on the...
The financial and economic
crisis: impact and response in
the Arab States
Tariq A. Haq
Research Economist
Employment Analysis and Research Unit
Economic and Labour Market Analysis Department
October 2010
Pre-crisis economic context6% GDP growth: high in oil-producing states, variable elsewhere
Growth sources: oil revenue, real estate investment, housing, tourism, financial assistance
Limited economic diversification, modest growth in exports
Challenges to foreign investment from:
Conflict and instability
Inadequate legal and regulatory environment
Declining living standards and increasing inequality
Pre-crisis labour market context
Labour force growth outpacing both (non-oil) GDP growth and employment opportunities
Employment predominantly in services (52.5% in 2008) cf. industry (21.3%)
Public sector bias; LM segmentation between public and private sectors (esp. in GCC countries)
Highest unemployment rates in the world: regional aggregate of 9.6% in 2007/8
Ue problem compounded by high underemployment: low-productivity, low income, precarious jobs
Pre-crisis labour market context
Defining characteristics:
Youth dimension
Gender dimension
Migration dimension
Crisis impact
The impact was:
Slower in affecting the region; less severe compared to others regions
• Surplus liquidity
• Relative insulation
• Low market capitalisation
Different from country to country; depending on the:
• Different economic and institutional characteristics
• Policy responses
But Arab economies have not been spared from slower, and in some cases negative, economic growth, rising unemployment and greater insecurity.
Crisis impact: Stock Market Indices
Feb 2008 – Feb 2009 change in per cent; source: Arab Monetary Fund, in Behrendt, Haq and Kamel (2009)
-60.9
-45.9
-48.7
-22.6
-41.0
-63.3
-67.8
-71.4
-13.7
-67.1
-60.3
-80 -70 -60 -50 -40 -30 -20 -10 0
Abu Dhabi Securities Market
Amman Stock Exchange
Bahrain Stock Exchange
Beirut Stock Exchange
Doha Securities Market
Dubai Financial Market
Kuwait Stock Market
Muscat Securities Market
Palestine Securities Exchange
Saudi Stock Market
Composite*
Change in percent
Crisis impact: Regional Real GDP:
Annual percent change
Source: IMF, World Economic Outlook, Oct 2010
-2
0
2
4
6
8
10
World Advanced Economies
European Union
Emerging & Developing Economies
Sub-Saharan Africa
Central & Eastern Europe
Middle East & North Africa
GD
P g
row
th r
ate
in p
erc
en
t
2007 2008 2009 2010
Crisis impact: Real GDP in Arab
States: Annual percent change
Source: IMF, World Economic Outlook, Oct 2010
-10
-5
0
5
10
15
20
25
30
Bah
rain
Jord
an
Ku
wait
Leb
ano
n
Om
an
Qatar
Saud
i Arab
ia
Syria
UA
E
Ye
me
n
Alge
ria
Egypt
Mo
rocco
Sud
an
Tun
isia
GD
P g
row
th r
ate
in p
erc
en
t
2007 2008 2009 2010
Crisis impact: Arab Region
Unemployment Rate
Source: ILO, Trends Econometric Models, Oct 2009
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
22.0
24.0
26.0
28.0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Total
Males
Females
Youth
Transmission channels
Transmission channels for growth and employment impact include:
Financial channels
• sharp reversals in stock market indices
• reduced net worth of region-specific sovereign wealth funds
Declining exports
Rising commodity prices
• benefits for net energy exporters
• costs for net importers
Declining tourism
Declining remittances and migration for L-exporting countries
Declining private capital flows
Declining official development assistance
Crisis responses
Many governments in the region took measures to mitigate the negative effects of the crisis:
A variety of monetary and financial measures to stabilize the financial sectors and reduce the systemic effect arising from lack of credit
Fiscal measures to maintain aggregate demand
Increases in public spending (incl. ‘rescue packages’) have been introduced, despite a sharp drop in revenues (esp. oil exporters)
Selective support to various industrial sectors deemed to be critical during the period of the crisis
Increase in minimum wages in several countries and some income protection schemes have been introduced
Greater focus on employment and social protection is required to speed up labour market recovery
Implications
Measures taken often do not constitute a comprehensive response; more focus on employment and social protection needed
More emphasis needed on measures to mitigate the impact on women, young people and vulnerable groups, including migrant workers
Opportunity to enact policies not only to mitigate short term crisis impacts but to rectify pre-existing imbalances and structural challenges and contribute to the achievement of longer-term objectives
Use Global Jobs Pact adopted by the International Labour Conference (June, 2009)
The Global Jobs Pact
An expression of government, workers’ and employers’ commitment to work together to overcome the crisis and its negative impact on labour markets (ILC, 2009)
It contains a policy portfolio that countries can adapt to their specific needs and situation, covering:
Accelerating employment creation, jobs recovery and sustaining enterprises
Building social protection systems and protecting people
Strengthening respect for international labour standards
Social dialogue: bargaining collectively, identifying priorities, stimulating action
Shaping a fair and sustainable globalization
The Pact has strong international and regional backing and endorsement from:
G20 Heads of State
UN General Assembly
UNDP Board
Numerous other international and regional bodies
The GJP and Arab States
The gains in Arab labour markets in the past decade are threatened by the crisis and need to be preserved
The foundations of an employment-centred recovery and a job-rich pattern of growth must be strengthened by addressing the structural challenges in the region:
Slow labour productivity growth
Low demand for skills
High dependency on the dynamics of the international oil market as well as international aid and labour migration
Slow rate of poverty reduction in recent years
Small proportion of the region’s population that enjoys adequate social security
Low labour force participation of women
High levels of youth unemployment
Employment and social protection
focusDeveloping employment policies
Strengthening employment services
Skills development
Improving labour market monitoring mechanisms
Providing better protection against the risk of unemployment
Ensuring sustainability and extending coverage of social security
Strengthening national social protection strategies and monitoring mechanisms
Policy inventory
ILO/World Bank inventory of policy responses to the crisis
Common questionnaire covering macroeconomic/investment/sectoral policies, LM policies, Social Protection, Rights at Work and Social Dialogue
ILO: 60 countries, including G20
From the Arab Region: Bahrain, Jordan, KSA, Egypt
Evidence-based analysis, monitoring, evaluation, policy dialogue
Selected issues for discussion
How has spending on labour market and social protection policies been affected by the crisis?
What measures has your country taken to tackle the labour market impact of the crisis?
How effective have these measures been and how are they monitored?
What has been the involvement of the social partners in the crisis response?
What role could regional coordination play in mitigating the crisis impact at the national level?