IMF chief calls on Arab leaders to cut spending

IMF chief calls on Arab leaders to cut spending
IMF chief Lagarde said that subsidy and public sector wage cuts were needed to achieve sustainable growth and to tackle youth unemployment in the Arab world.
2 min read
11 February, 2018
Christine Lagarde at the annual World Bank-IMF meetings [Getty]

IMF chief Christine Lagarde called on Arab states to slash public sector wages and subsidies to offset the effects of low oil prices on state budgets.

Speaking at the one-day Arab Fiscal Forum in Dubai, Lagarde welcomed the "promising" reforms of some Arab states, but said more sweeping changes were needed.

Nearly all Arab states have posted budget deficits in the past few years, and Arab economies grew at just 1.9 per cent last year, half the global rate.

Government expenditures remain high in the Arab states, particularly the Gulf, where they exceed 55 per cent of GDP.

Lagarde added that subsidy and wage cuts would boost efficiency in areas like health, education and public investment.

"There is really no excuse for the continued use of energy subsidies," Lagarde added.

Many Arab states have cut energy subsidies in recent years to slim down public sector costs – the value of Arab energy subsidies dropped from $117 billion in 2015 to $98 billion last year, according to the Arab Monetary Fund.

Lagarde also warned that higher growth and stringent reforms were needed to create jobs for young Arabs.

"Youth unemployment is the highest in the world – averaging 25 per cent, and exceeding 30 per cent in nine countries," she said.

But in many Arab states, particularly the Gulf, public sector work remains the only route to employment for nationals.