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Investment in economically viable projects enhances short-run growth: Economist

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Economist writes in report published on IMF website that sustainable and inclusive growth requires both short-term and long-term measures

By Evline Meshreky

 

A policy package that includes investment in economically viable projects would enhance short-run growth and employment in Egypt, a working paper published by economist Shahid Yusuf on the International Monetary Fund (IMF) website in July

The paper, entitled “Middle East Transitions: A Long, Hard Road”, said that this employment-generating growth would be led by tradable sectors contributing to foreign exchange earnings.

The paper lists short-term and long-term measures to be taken by six Arab Countries in Transition (ACTs), one of which is Egypt, to attain sustainable and inclusive growth.

One of the short-term measures is correcting macroeconomic imbalances through macro-stabilisation, flexible business and trade regulations, improved governance, and the time it takes to enforce contracts and start a business.

The paper suggests that progress in these areas would reduce the dampening of private investment and of capital flight.

Another recommendation is to promote exports through currency undervaluation, export subsidies, reduction of trade barriers, and soft infrastructure: overseas market intelligence, standards, metrology, and statistics.

Another short-term measure is assisting small and medium enterprises (SMEs) through specialised public financial institutions created to serve those SMEs.

The paper urged the ACTs to manage their political differences and foster tolerance, as the implementation of sound economic policies is dependent on political understanding.

As for the long-term measures, the paper suggests raising the level of investment in manufacturing and tradable services. This would positively impact productivity, innovation, trade, and employment.

ACTs should create more open and competitive industrial and financial sectors that are hospitable to new entry and to the growth of small firms. They should also raise private investment and attract new players, whether domestic or foreign, into the industrial arena. Egypt has yet to prove its worth in the free trade zones.

In order to overcome the lack of entrepreneurship in the MENA region, ACTs should downsize their public sector and redirect the energies of talented young people into the business sector, the report said.

A solution to the ACTs’ unemployment problem is reform of the education and vocational training systems that would raise quality and reduce the skill mismatches in labour markets.

The paper points to social safety nets as the final long-term aspect that the ACTs should put into consideration. ACTs need to improve the administration of the safety net programmes and to develop delivery methods that minimise leakages and the transaction costs of servicing the targeted recipients. Such methods could include mobile communication devices, smart cards, and the existing network of bank branches, it said.

 


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