IMF Managing Director Rodrigo de Rato pledged enhanced IMF support for the Palestinian National Authority’s efforts to build sound economic and financial institutions and improve the economy at a London meeting on March 1. “We are now at a critical juncture, and the international community should stand ready to fully support Palestinian reforms to strengthen governance and promote economic development,” de Rato said at the meeting hosted by the U.K. government and attended by foreign ministers from 23 countries. Participants agreed to help the Palestinian Authority strengthen its governing institutions, combat corruption, and unify its security forces. They also pledged up to $1.2 billion toward the reform efforts.
Taking a brief diversion from a trip to the Maghreb region, de Rato told meeting participants that on top of the enormous human cost, the past four years of conflict have dealt a severe blow to the Palestinian economy. Real per capita income has dropped by 35 percent, unemployment remains high at 26 percent, and about half of the Palestinian population lives in poverty. This has led to a grim fiscal situation, which is highly dependent on external budget support.
But despite the difficult environment, de Rato noted, the authorities have continued to implement reforms and improve transparency and accountability in public finances. He welcomed President Mahmoud Abbas’ reform program to improve public services and create a more transparent environment for investment decisions. He said the reforms will require a large amount of external financing to cover budget shortfalls, repay commercial bank debt and arrears, and finance pensions, social safety nets, and the restructuring of security agencies.
Enhanced IMF technical assistance, including through the IMF’s Middle East Technical Assistance Center in Beirut, will focus on modernizing tax administration, strengthening the customs office, and improving the payments system and banking intermediation to facilitate private sector development. The Palestinian National Authority is not a member of the IMF and hence is not eligible for financial support. However, at the request of the international donor community, the IMF has worked closely with the Authority on fiscal and monetary policy issues and has provided regular reports on the fiscal position.
Morocco. Before going to the London meeting, de Rato had traveled to Morocco on February 28 as part of a three-country visit to the Maghreb region. In discussions with the authorities, he called for stronger regional cooperation to buttress the benefits from multilateral trade liberalization. He also proposed a regional seminar on trade facilitation. De Rato welcomed the authorities’ continued efforts to reinforce social cohesion, which is essential for economic development. Although Morocco has maintained macroeconomic stability since the early 1990s, economic growth remains insufficient to reduce unemployment and poverty.
De Rato encouraged the authorities to accelerate structural reforms, maximize the benefits of trade integration, and consolidate the fiscal position. On the potential impact of the end of preferential trade arrangements in textiles, he agreed with the authorities that Morocco’s strong balance of payments position could absorb a possible shock to textile exports.
Algeria. In Algiers on March 2, de Rato commended the country’s progress over the past decade in moving to an open, market-based economy. However, he added, “major challenges remain, in particular to quicken the pace of sustainable growth and to reduce the high level of unemployment.” He encouraged the authorities to use the window of opportunity created by the strong financial position and greater political stability to tackle the challenges ahead—including by sound management of the hydrocarbon wealth and decisive structural and institutional reforms, with the financial sector a priority.
Tunisia. In Tunis on March 3, de Rato praised Tunisia’s reform efforts over the past decade, which have led to improved economic growth and social conditions. He also said the country needed to further increase growth and reduce unemployment through greater liberalization and improvements in the business climate. He agreed with the authorities that exports will continue to be the cornerstone of Tunisia’s development strategy and that the recent expiration of the Multifiber Agreement on Textiles constitutes an additional reason to quicken the pace of economic reform. In preparing for gradual liberalization of the external capital account, he said, the authorities should also strengthen fiscal, monetary, and exchange rate policies. He commended Tunisia for taking ownership of its reform policies and for the high degree of transparency.