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Macroeconomic and fiscal challenges faced by the Southern and Eastern Mediterranean region

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  • Marek Dabrowski

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.

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Bibliographic Info

Paper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0471.

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Length: 38
Date of creation: Apr 2014
Date of revision:
Handle: RePEc:sec:cnstan:0471

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Keywords: Southern and Eastern Mediterranean; fiscal policy; macroeconomic policy; energy and food subsidies; Arab Spring; Arab transition;

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  1. Sekkat, Khalid, 2012. "Manufactured Exports and FDI in Southern Mediterranean Countries: Evolution, determinants and prospects," CEPS Papers 6849, Centre for European Policy Studies.
  2. Michael Bruno & Guido Di Tella & Rudiger Dornbusch & Stanley Fischer, 1988. "Inflation Stabilization: The Experience of Israel, Argentina, Brazil, Bolivia, and Mexico," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022796, December.
  3. Padamja Khandelwal & Agustin Roitman, 2013. "The Economics of Political Transitions," IMF Working Papers 13/69, International Monetary Fund.
  4. Marek Dabrowski, 2012. "What Can Arab Countries Learn From Post-communist Transition?," CASE Network E-briefs 09, CASE-Center for Social and Economic Research.
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