Human Development and Poverty Reduction Progress in Middle Income Arab Countries: Two Competing Narratives

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1 Human Development and Poverty Reduction Progress in Middle Income Arab Countries: Two Competing Narratives Khalid Abu Ismail, Chief Economic Development and Poverty Section Economic Development and Integration Division

2 Mainstream Narrative The region was doing fine- at least until these unruly youth took to the streets. 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

3 Examples of arguments to support conventional wisdom 1. Growth was decent for most countries (4-5% in 2s) 2. Fiscal and monetary indicators were stable and outlook positive (IMF/WB regional outlook, 21) 3. Employment growth was fastest in the world and unemployment declined significantly from Extreme poverty was low (MPI and HC below 1.9$) and declining from 199 to Inequality low to medium (.33 Gini) and declining slightly from 199. Page 3

4 The region has scored major gains in Human Development 1 HDI Algeria Bahrain Egypt Jordan Kuwait Lebanon Libya Mauritania Morocco Oman Palestine, State of Qatar Page 4

5 More importantly, most of the human development progress was driven by gains in education in ALL countries Page 5

6 If we take 197 as a base, then the region is actually a global leader on human development progress HDI (21) Five Arab countries (Oman, Saudi Arabia, Tunisia, Algeria and Morocco) were among the ten top movers globally - countries that have seen the greatest improvements in HDI since 197. Page 6

7 A Second Narrative There is a disconnect between these empirical results and the more visible day to day reality. The protests in 21 were not because of abject poverty or lack of education and health services, but because of the lack of economic opportunities, social inequalities and governance deficits, which the GDP, Gini, MPI/P and HDI don t capture. 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

8 Money metric poverty rates in 199 and 213 are low if we use the 1.9 line but not at the 4 dollar a day line The region is poorer than global average at higher than 7 dollars a day 2 Headcount Poverty in Headcount Poverty in East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Page 8Sub-Saharan Africa World Total East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa World Total

9 Progress in reducing poverty varies between regions and also depends on choice of poverty line Little progress in Arab countries relatively to other regions (except in SSA where it is lowest) East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa Page

10 Both Poverty rates and progress in reducing poverty vary between regions and also depend on choice of poverty line This is especially true for Arab Countries where vulnerability to extreme poverty is the highest Region From 1.9 to 3.5 From 1.9 to 5.5 East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East and North Africa South Asia Sub-Saharan Africa World Total Page 1

11 Acute Poverty (%) Household multidimensional poverty affects 4 in 1 Households Cluster 1 Morocco Cluster 2 Sudan Mauritania Yemen Comoros Cluster 3 Jordan Egypt Tunisia Iraq Algeria Poverty 5 (%)

12 Vulnerability to MP is also high and severity is high in LDCs 1% 8% 6% 92.4 Acute Poverty Poverty % of the population are vulnerable to falling into poverty 4% 2% % 31/5/ Cluster 1 Cluster 2 Cluster 3 Regional Cluster1 Cluster2 Cluster3 Regional Average Average Non-Poor Vulnerable to poverty (deprivation score %) Poor excluding the severly poor (Deprivation score %) Severly Poor (deprivation score >5%) 17.5% of the population are in severe poverty

13 Income Inequality is higher than Gini suggests GINI Index for 12 Arab countries; Source: WDI Database, 217. TUN MRT IRQ MAR JOR MRT MRT MAR SDNPSE YEM JORPSE TUN EGY YEMJOR JOR YEM MAR MRT PSEIRQ DZA EGY JOR EGY EGY EGY EGY P PSE PSE TUN Page 13

14 Total Rural Urban FHH MHH No education Highest education Bottom quintile Top quintile Household size 8+ Household size 14 Total Rural Urban FHH MHH No education Highest education Bottom quintile Top quintile Household size 8+ Household size 14 Headcount poverty (%) Significant inequalities in non-money metric deprivation by region and education level Poverty Acute Poverty 31/5/218

15 Ratio WQ5/WQ1 Despite progress in education, enormous gaps remain between rich and poor in many countries 1.% 14 9.% 8.% 7.% % 5.% 4.% 3.% 2.% 1.% Adj. Net Attendance Ratio (Secondary) (WQ1 - Poorest) Adj. Net Attendance Ratio (Secondary) (WQ5 - Richest) Ratio of WQ5/WQ1.% MAR COM DZA EGY IRQ JOR LBY MRT PSE SDN TUN YEM

16 Ratio Richest/Poorest Wealth Quintile Uneven progress in between the poorest and richest quintiles can also lead to increase in inequality such as in Stunting (Height-for-age) 7.% % 1. 5.% 4.% 3.% 2.% 1.% Stunting (WQ1 - poorest) Stunting (WQ5 - richest) Ratio of WQ5/WQ1.%. MAR COM DZA EGY IRQ JOR LBY MRT PSE SDN TUN YEM

17 Despite rapid employment creation, unemployment is still high (double world average) especially for females and youth (lowest participation WW) 45% 4% 35% 3% 25% 2% 15% 1% 5% % Male Female Total World avg MENA avg UMI LMI Sudan Iraq UAE KSA Qatar Oman Kuwait Bahrain Tunisia Libya Lebanon Jordan Algeria Yemen WBG Syria Morocco Egypt Page 17

18 Employment mainly occurred in the informal sector Public Informal private Self-employed Formal private Employers Unpaid family workers Page 18

19 Labor Productivity is the lowest world wide and has In 211 PPPs even become negative during Northern, Southern and Western Europe Europe and Central Asia.8%.7% 1.% 1.5% South-Eastern Asia and the Pacific 3.1% 2.8% Asia and the Pacific 4.4% 5.% Arab States Latin America and the Caribbean -.8%.3%.4%.8% Sub-Saharan Africa.7% 2.9% World 2.% 2.3% Source: ILO estimates and projections -2.% -1.%.% 1.% 2.% 3.% 4.% 5.% 6.% Page 19

20 As a result, Arab Countries have lowest return to schooling Almost half of the average for 12 countries Page 2 Source: Montenegro and Patrinos, 213

21 More importantly State is fiscally constrained by the rentier state political economy: Low tax to GDP ratio in most Arab countries 3 Tax revenue (% of GDP) in oil-rich countries 3 Tax revenue (% of GDP) in oil-poor countries Bahrain Kuwait Oman Saudi Arabia Iraq Libya Qatar Arab oil-rich countries Comoros Djibouti Egypt Jordan Lebanon Mauritania Morocco Sudan Syrian Arab Republic Tunisia Yemen, Republic of Arab oil-poor countries Page 21 Source: Rethinking Fiscal Policy in Arab Countries ]

22 The low taxation/representation equation is increasingly untenable: Rising debt and debt servicing payments Represent a major concern 1. General government gross debt (%GDP) OR-HMICs (Excl. Iraq, Libya) OP-MICs (Excl Palestine, Syria) LICs (Excl. Somalia) Arab region Source: Sarangi 217 [Background paper for the forthcoming ESCWA Report on Rethinking Fiscal Policy in Arab Countries ] Page 22

23 The big debate is not only on fiscal governance but on two other crucial aspects of governance such as voice and accountability and rule of law (and their nexus with conflict and development) GI Country GNI EDUC LE GOV NIHDI HDI GHDI Qatar UAE Kuwait Oman Bahrain Jordan Lebanon Tunisia Saudi Arabia Algeria West Bank and Gaza Average Egypt Morocco Iraq Syrian Arab Republic Comoros Mauritania Yemen Djibouti Sudan QAT TUN JOR OMN LEB UAE COM MAR ALG BAH MAU WBG EGY YEM LIB KSA DJB SUDSYR IRQ GNI Source: K. Page Abu-Ismail, 23 A. Kuncic and N. Sarangi (216). Governance-adjusted Human Development Index: The case for a broader index and its implications for Arab States. ESCWA Working Paper. E/ESCWA/EDID/216/WP3.

24 One thing is for sure The rosy global picture changes when governance is included in the global HDI Venezuela, RB Belarus Saudi Arabia Libya Iran, Islamic Rep. Cuba Uzbekistan Russian Federation Kazakhstan Azerbaijan Syrian Arab Republic China Equatorial Guinea Bahrain Zimbabwe Source: K. Page Abu-Ismail, 24 A. Kuncic and N. Sarangi (216). Governance-adjusted Human Development Index: The case for a broader index and its implications for Arab States. ESCWA Working Paper. E/ESCWA/EDID/216/WP3.

25 Conclusion: pre-analytical vision matters (1) Development model was working- look at health, education, GNI, Gini, 1.25$ so liberal economic model delivered on growth and poverty reduction. It just needed some fine tuning and returns on education and growth can be improved by better doing business indicators, less state intervention (smaller public sectors, subsidies and social transfers) and better education quality. (IMF-WB-Government reports) (2) Arab development model was fundamentally broken- because of the underlying political economy model and its outcomes and there are serious fiscal policy constraints. What is needed are deeper economic governance reforms to create fiscal space for a stronger poverty-growth-employment nexus with structural transformation as a core policy objective. Page 25

26 Examples of how ESCWA is leading this rethinking of socio-economic policies - Social Protection and Services to promote inclusion and human capital development (Arab Poverty Report, ASDR, Migration Report, Food Security Report) - Economic Structural Transformation towards toward high value added (Middle Class Report, Rethinking Fiscal Policies in Arab States) - Social justice and equality (on going work with ERF and SDR) Page 26

27 THANK YOU