addressing social inequalities in arab states: …...2018/06/23 · addressing social inequalities...
TRANSCRIPT
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
Page 2
Outline
A- Conventional wisdom
B- Competing narrative
C- Fiscal policy considerations
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1. Conventional wisdom
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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.
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Contextualizing inequality:
Development stylized facts (1990-2010)
4. Low and declining poverty according to
international definitions (less than 10% using $1.9
or global MPI) and Middle class using ESCWA
definition is largest economic group in 2010.
5. Complimenting decline in extreme poverty stunting declined in most countries
0%
10%
20%
30%
40%
50%
60%
70%
20
02
/20
12
20
06
/20
14
20
01
/20
11
20
02
/20
12
20
03
/20
11
20
00
/20
11
20
00
/20
14
20
07
/20
15
20
00
/20
12
20
07
/20
14
20
00
/20
14
20
03
/20
13
JOR PSE TUN* DZA MAR IRQ EGY RA* MRT COM LBY SDN YEM
Total Baseyear…
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6. Low and declining inequality along with rising
household expenditure
0
10
20
30
40
50
60
0
100
200
300
400
500
600
700
Alg
eria
Egy
pt
Iran
Iraq
Jord
an
Leb
ano
n
Mau
rita
nia
Mo
rocc
o
Sudan
Tun
isia
Yem
en
Gin
i in
dex
Mea
n e
xpen
dit
ure
($
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
© 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
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?
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2. But has it?
Elements of a counter narrative
Page 10
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
© 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
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.
Page 12
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
Page 15
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
Ru
ral
Urb
an
FHH
MH
H
No
ed
uca
tio
n
Hig
he
st e
du
cati
on
Bo
tto
m q
uin
tile
Top
qu
inti
le
Ho
use
ho
ld s
ize
8+
Ho
use
ho
ld s
ize
14
Tota
l
Ru
ral
Urb
an
FHH
MH
H
No
ed
uca
tio
n
Hig
he
st e
du
cati
on
Bo
tto
m q
uin
tile
Top
qu
inti
le
Ho
use
ho
ld s
ize
8+
Ho
use
ho
ld s
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
Page 18
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.
Page 19
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
Page 20
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.
Page 21
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.
Page 22
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.
Page 23
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.
Page 24
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.
Page 25
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.
Page 26
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