addressing social inequalities in arab states: …...2018/06/23 · addressing social inequalities...

Expert Group meeting on the priority theme of the 57th

session of the Commission for Social Development

Khalid Abu Ismail and Niranjan Sarangi

Economic Development and Integration Division

Addressing social inequalities in Arab States:

Competing narratives and role of fiscal policies

Outline

A- Conventional wisdom

B- Competing narrative

C- Fiscal policy considerations

© Copyright ESCWA. All rights reserved. No part of this presentation in all its property may be used or reproduced in any form without written permission

1. Conventional wisdom

© Copyright 2014 ESCWA. All rights reserved. No part of this presentation in all its property may be used or reproduced in any form without a written permission

Contextualizing inequality:

Development stylized facts (1990-2010)

1. Relatively high GDP and growth was decent for most countries (4-5% in 2000s) before the spring

2. Fiscal and monetary indicators were stable and outlook positive in 2010 (IMF/WB regional outlook, 2010)

3. Most countries above medium HDI level with significant progress since 1970, especially in LE and education.


Contextualizing inequality:

Development stylized facts (1990-2010)

4. Low and declining poverty according to

international definitions (less than 10% using $1.9

or global MPI) and Middle class using ESCWA

definition is largest economic group in 2010.

5. Complimenting decline in extreme poverty stunting declined in most countries

0%

10%

20%

30%

40%

50%

60%

70%

20

02

/20

12

20

06

/20

14

20

01

/20

11

20

02

/20

12

20

03

/20

11

20

00

/20

11

20

00

/20

14

20

07

/20

15

20

00

/20

12

20

07

/20

14

20

00

/20

14

20

03

/20

13

JOR PSE TUN* DZA MAR IRQ EGY RA* MRT COM LBY SDN YEM

Total Baseyear…


6. Low and declining inequality along with rising

household expenditure

0

10

20

30

40

50

60

0

100

200

300

400

500

600

700

Alg

eria

Egy

pt

Iran

Iraq

Jord

an

Leb

ano

n

Mau

rita

nia

Mo

rocc

o

Sudan

Tun

isia

Yem

en

Gin

i in

dex

Mea

n e

xpen

dit

ure

($

in 2

011 P

PP

)

Mean expenditure 1990 Mean expenditure 2013

Gini 1990 Gini 2013

Algeria

Egypt

Iran

Iraq

Jordan

Mauritania

Morocco

Tunisia

Yemen

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

-50% 0% 50% 100%

% c

hn

age

in m

ean

exp

endit

ure

% change in Gini Index


Finally, governance deficits are acknowledged

but why worry about them if the development

model that has prioritized economic growth

and human development has delivered so

much to so many on so many fronts?


2. But has it?

Elements of a counter narrative

1. Growth much lower on per capita basis

and without structural transformation or

productivity

Source: ILO estimates and projections

2.3%

2.9%

0.8%

0.3%

5.0%

2.8%

1.5%

0.7%

2.0%

0.7%

0.4%

-0.8%

4.4%

3.1%

1.0%

0.8%

-2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0%

World

Sub-Saharan Africa

Latin America and the Caribbean

Arab States

Asia and the Pacific

South-Eastern Asia and the Pacific

Europe and Central Asia

Northern, Southern and Western…

2011-2017 2001-2010


2. Employment with high and increasing informality

Morocco (2002-2012)Egypt (1990-2013)

Labour moved from agriculture and even manufacturing to other service

sectors with negative growth in productivity

Source: N. Sarangi, K. Abu-Ismail and V. Gantner (2017). Fiscal Policy and Structural Transformation in the Arab Region:

What are the Pathways? ESCWA Working Paper. E/ESCWA/EDID/ 2017/WP.7.

3. As a result, Arab Countries have lowest return to schooling with implications for social mobility

almost half of the average for 120 countries

Source: Montenegro and Patrinos, 2013

4. Region is not as poor as SSA or SA but poorer than we think with higher PLs

29/06/2018

0.6 2.510.9

26.137.1

48.756.4

62.2 66.5

0102030405060708090

100

0.5 1 1.5 1.9 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 10East Asia and Pacific Europe and Central Asia

Latin America and the Caribbean Middle East and North Africa

South Asia Sub-Saharan Africa

World Total

5. Multidimensional poverty and vulnerability is also much higher with a tailored regional definition, affecting

6.5 in 10 HHs

29/06/2018

0.2 1.4

20.9

5.5 5.311.6

49.7

17.5

1.86.3

21.6

7.619.2

29.6

23.1

22.6

5.6

16.2

20.4

11.7

27.0

31.0

15.8

25.292.4

76.2

37.0

75.2

48.6

27.8

11.4

34.7

0%

20%

40%

60%

80%

100%

Cluster 1 Cluster 2 Cluster 3 RegionalAverage

Cluster1 Cluster2 Cluster3 RegionalAverage

Non-Poor

Vulnerable to poverty (deprivation score 20-33.32%)

Poor excluding the severly poor (Deprivation score 33.3-50%)

Severly Poor (deprivation score >50%)

Acute Poverty Poverty

25.2% of the population are vulnerable to falling into poverty

17.5% of the population are in severe poverty

6. Expenditure Inequality is higher than Gini suggests

when top spenders are factored in

7. High inequality in multidimensional poverty

29/06/2018

0

20

40

60

80To

tal

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ral

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an

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8+

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14

Tota

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8+

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ize

14

Poverty Acute Poverty

He

adco

un

t p

ove

rty

(%)

8. Declining deprivation yes but in some cases with an increase in inequality as in the case of stunting

COM

EGY

JOR

MRT

MAR

PSE

SUD

YEM

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

-20% -15% -10% -5% 0% 5% 10% 15%

AA

RC

in S

tun

tin

g

AARC in (negative) Concentration Index (Wagstaff)

Positive change in the AARC means more inequality

Conclusion: We have two competing

narratives and policy visions

(1) Arab development model was working- broken social contract on

employment, not poverty and inequality, the cause of the AS. Policy

conclusion: some governance fine tuning to improve private sector

by better doing business indicators, less state intervention (smaller

public sectors, subsidies and social transfers) and better education

quality (IMF-WB)

(2) Arab development model is fundamentally flawed. Policy conclusion:

Governance is key but through strong institutions that can manage

complex development programs. But this will require different social

and economic policies with different targets. Stabilisation needs to

give way to structural transformation, long term unemployment and

inequality reduction policies.

3. What to do?

Fiscal Policy for social

inclusion

This section draws heavily on the ESCWA report on “Rethinking

Fiscal Policy for the Arab Region” (2017)

https://www.unescwa.org/publications/rethinking-fiscal-policy-arab-region



1. Design fiscal policies to promote economic transformation

and decent work to raise return on education and promote

social mobility

(a) increased public investment/fiscal incentives into strategic

sectors;

✓ the strategic sectors (higher value-added and relativelyhigh labour-intensive sectors)

(b) increased investment in building infrastructure, innovations

and improving human capital

✓ Investing in knowledge assets, quality of education

✓ Investing in infrastructure

As a direct intervention to boost sectoral investments, fiscal policy is crucial.

Complementarities with monetary, trade and industrial policy can accelerate the

process of structural transformation.

Source: ESCWA (2017). Rethinking Fiscal Policy for the Arab Region. E/ESCWA/EDID/2017/4.

Enhance spending on education and health

Long Term Effects of Increasing Education Expenditure on Mean Years of

Schooling

6.0

7.0

8.0

9.0

10.0

11.0

12.0

13.0

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

1% increase 0.5% increase World average

Euro average

World average

2. Make budget choices to reduce poverty and inequality, and

close health, housing and education deficits

Source: N. Sarangi and J. von Bonin (2017). Fiscal Policy on Public Social Spending and Human Development

in Arab Countries. ESCWA Working Paper. E/ESCWA/EDID/2017.WP.13.

3. Expand and sustain fiscal space by raising

revenues

• Oil-poor countries: Greater focus on mobilizing revenues rather than

cutting productive expenditure•Improve tax fairness, increase progressivity, identify potential tax base

(property tax), rationalise exemptions (income tax, VAT, excise),

Compulsory filing of tax (at residents’/businesses’ end)

•Administrative reforms to control tax evasion, tax avoidance and illicit

financial flows

• Oil-rich countries: Diversify revenue sources to cope with managing

volatility and sustaining growth

• Better quality governance: Adoption of rule-based fiscal policy (short-

term, medium term, long-term objectives)

• Better data and monitoring (improving transparency)

Source: ESCWA (2017). Rethinking Fiscal Policy for the Arab Region. E/ESCWA/EDID/2017/4.

So in a nut shell, this picture of low tax revenue to GDP ratios

in oil poor countries needs to change

0

5

10

15

20

25

30

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014Comoros Djibouti Egypt

Jordan Lebanon Mauritania

Morocco Sudan Syrian Arab Republic

Tunisia Yemen, Republic of Arab oil-poor countries

Source: N. Sarangi (2016). Domestic Public Resources in the Arab Region: Where Do We Stand?. ESCWA

Working Paper. E/ESCWA/EDID/2017/WP.1.

And this needs to happen soon

Rising debt and debt servicing payments– A major concern

-

20.0

40.0

60.0

80.0

100.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

General government gross debt (%GDP)

OR-HMICs (Excl. Iraq, Libya) OP-MICs (Excl Palestine, Syria)

LICs (Excl. Somalia) Arab region

Source: N. Sarangi and L. El-Ahmadieh (2017). Fiscal Policy Response to Public Debt in the Arab Region.

ESCWA Working Paper. E/ESCWA/EDID/2017/WP.6.

And it can’t be based on VAT only. Taxation in oil-poor countries is predominantly on goods and services,

imposing a greater burden on the poor and middle-class, exacerbating

inequalities

31.0 35.9

9.8 14.8 17.2 19.4 16.7 18.5

13.012.6

4.33.7

20.3 16.1 18.7 20.5

1.01.6

2.22.5

3.5 7.4 0.1 0.3

10.8 7.1

17.4 7.9

12.2 3.89.0 8.6

44.2 42.8

66.3 71.1

46.8 53.3 55.4 52.1

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005 2014 2005 2014 2005 2014 2005 2012

Egypt Jordan Morocco Tunisia

Corporate income Individual income Property Trade Goods and services

Composition of tax revenue (percentage share)

Source: N. Sarangi (2016). Domestic Public Resources in the Arab Region: Where Do We Stand?. ESCWA

Working Paper. E/ESCWA/EDID/2017/WP.1.

Finally, these fiscal policy changes will have limited effect in

the absence of stronger institutions and political stability,

which (many believe) are created and determined by voice and

accountability and rule of law

Algeria BahrainComoros

DjiboutiEgypt

Iraq

Jordan Kuwait

Lebanon

LibyaMauritania

MoroccoOman

Qatar

Saudi ArabiaSudan Syrian …

Tunisia

United …State of Palestine

Yemen

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

0.20 0.30 0.40 0.50 0.60 0.70 0.80 0.90 1.00

Go

vern

ance

Ind

ex

(Ru

le o

f la

w, V

oic

e an

d A

cco

un

tab

ility

)

GNI Index

Note: Data pertain to year 2013

Source: K. Abu-Ismail, A. Kuncic and N. Sarangi (2016), based on data from Worldwide Governance Indicators

and World Development Indicators

Thank you

addressing social inequalities in arab states: …...2018/06/23 · addressing social inequalities...

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