Challenges and Dilemmas of Policy Making after the Arab Spring

While the need for economic reform is well-recognized by political stakeholders, neither people on the street nor those in the government are yet ready to bear the social and political costs of reform.

Bassem Awadallah (Tomoh Advisory) set off this ERF policy session with a background on the gravity of economic problems in the Arab spring countries and how the governments struggle with the politics of reform. Following the Arab spring uprisings, which demanded freedom, bread and social justice, Awadallah argues that the economic challenges facing the Arab spring countries have only become more pressing; unemployment nearly doubled, foreign investment dried up, tourism revenues are endangered and fiscal challenges remain at large. What’s alarming, though, is the apparent absence or painful tardiness of policy response.

How are governments responding to the emerging challenges in the post Arab spring era to ensure sustainable economic prosperity and secure social stability?

The first speaker was Dr. Mustapha Nabli (ERF and former governor of the Central Bank of Tunisia), who argues that the time for economics is not aligned with the time for politics during transitions. Dr. Nabli believes that the fundamental causes of the uprisings were rooted in deep structural issues; unemployment, youth unemployment, inequality of opportunity, corruption… etc., which require major structural transformation in the economy as well as in politics.

In order to achieve structural transformation, he argues that what we really need to see is major changes in the economic system, which can bring about growth, and eventually bring in the dividends of political transformation. However this plan is a long-term one. In times of transition, he argues, the political process is largely geared towards achieving short-term gains that respond to the popular demands of solutions, jobs and improvement of living standards. Which is where the paradox lies. Aligning both perspectives, on the other hand, should prove quite successful, in terms of promoting growth, wealth creation, decreasing uncertainty and increasing investment.

The International Monetary Fund (IMF)’s Daniela Gressani then presents her work on “The political Economy of Reform: Economic Transformation in the Arab Countries in Transition”. Daniela claimed a more optimistic view of the situation, where she argues that while transition has complicated the decision-making in the political economy, it has also created opportunities for change in economic policy that were not there before.

Transition governments with limited mandates in the aftermath of the Arab spring have been presented with the challenges of having to deal with a new class of political actors, major changes in society and communication, which inevitably affects policy-making. Daniela argues that budget expenditure agendas should rather be oriented towards “pro-poor” strategies.

Dr. Ahmed Galal then talks from his experience in transition policy-making as the former Egyptian finance minister about “Economic management during the political transition in Egypt”. On the contrary to both Nabli and Gressani, he argues that the driving force of economic reform is more about the political dividend rather than structural transformation. Countries like Egypt and Tunisia, he explains, are deprived of plenty of resources due to political instability, which further exasperates uncertainty. This, in turn, reflects on Foreign Direct Investment (FDI) in the country as well as the domestic investment environment.

Consequently, he argues that implementing a sensible political roadmap that will help build political institutions, will ultimately help growth down the road. In this sense, political transformation drives economic reform and structural transformation.

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