The Managing Director of the International Monetary Fund, Christine Lagarde, has cautioned governments in the Middle East against investing in white elephant projects and cited the need for higher fiscal transparency in combating weak governance and corruption.
Speaking at the Fourth Arab Fiscal Forum held at Dubai on Saturday, Lagarde tackled what she described were the critical aspects needed in achieving proper fiscal management in the Arab region. In her speech, the IMF chief also lamented on the costs faced by oil importing countries strongly affected by the oil price shock in 2014.
“Among oil importers, growth has picked up, but it is still below pre-crisis levels. Fiscal deficits remain high, and public debt has risen rapidly—from 64 percent of GDP in 2008 to 85 percent of GDP a decade later. Public debt now exceeds 90 percent of GDP in nearly half of these countries.”
The plight of oil exporting nations was also a subject touched upon by Lagarde. While lauding policies introduced by governments designed to increase revenue, the slow decline in deficits among these countries has reportedly been a paling significance in light of a steep increase in public debt.
“With revenues down, fiscal deficits are only slowly declining—despite significant reforms on both the spending and revenue sides, including the introduction of VAT and excise taxes. This has led to a sharp increase in public debt—from 13 percent of GDP in 2013 to 33 percent in 2018.”
In light of the increase in public debt, Lagarde cited the need for countries to shift towards renewable energy usage in the coming decades as part of the Paris climate agreement which aims for the reduction of greenhouse gas emissions beginning the year 2020.
In regards to the prospects for economic growth, however, estimates are equally as dire. Citing recently released forecasts, Lagarde predicted a measly global growth rate of 3.5 percent, in comparison to the 3.7 percent growth rate predicted last October. This lowly projection is described as having possible implications on the Arab region through various channels that include “trade, remittances, capital flows, commodity prices, and financing conditions.”
In order to build strong economic foundations, Lagarde recommended the presence of a “good fiscal framework”. Fiscal credibility and financial risk management techniques were critical to the establishment of a strong fiscal framework, she said, adding that such methods would reportedly bring about fiscal benefits such as proper macroeconomic management and credible debt management.
Lagarde also encouraged economic leaders to pursue higher fiscal transparency, noting the effects of corruption and poor governance on the conduct of fiscal policy. She stated that governments were better off investing in their citizenry as opposed to pursuing “white elephant projects” which would engender social conflict.