Fiscal reforms key to Mideast stability: IMF – ‘Tepid’ growth for world economy: Lagarde

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DUBAI, United Arab Emirates, Feb 23, (Agencies): The head of the International Monetary Fund on Tuesday called for greater taxation and fiscal reforms as a pathway to political stability in her second speech this week in the Middle East.

“I think the economic issues have to be at the table,” Christine Lagarde said in remarks at the Global Women’s Forum in Dubai.

“We cannot stop the warriors, we cannot bring truce, but certainly we can help with good economic policies… with a state that actually works for the benefit of people, that collects tax, that organizes public spending in an efficient way for countries, that finances infrastructure projects where it’s needed.”

Lagarde said oil-dependent states face a “new reality” as global prices hover around $34 per barrel, down from more than $110 in mid-2014. Facing widening budget deficits due to plunging oil revenues, Saudi Arabia, the United Arab Emirates and Bahrain have partially lifted subsidies, raising the cost of gasoline, electricity and meat.

Lagarde also said young people need to know they have a future.

The IMF has previously warned that up to 1.6 million young people will enter the workforce by 2018 in Saudi Arabia and other Gulf countries, but that only around 600,000 will find jobs in the private sector.

Young people’s frustration at their lack of prospects was a key driver of the Arab Spring uprisings that rocked the Middle East in 2011.

A day earlier in Abu Dhabi, Lagarde called on Gulf states to diversify their streams of revenue by putting in place a regional value-added tax and eventually allowing for the introduction of personal income taxes, the lack of which draws millions of foreigners to the region to work.

Earlier this week, the Beirut Institute, a newly-formed think tank, released a 21-page set of recommendations in the UAE, stressing that “stagnant economic growth is a root cause of many of the most significant challenges facing the Arab region.”

The institute, founded by prominent Arab journalist Raghida Dergham, said failure to provide economic growth would increase the social and political chaos that results from “persistent economic disenfranchisement of emerging generations.”

The world economy is going through a “tepid” recovery, International Monetary Fund chief Christine Lagarde said on Tuesday, adding that growth in advanced economies should be higher.

Speaking at a women’s forum in Dubai, the newly reelected Lagarde said global economic growth stood at 3.1 percent last year, and is expected to grow by “a bit more than three percent” this year, and a “little higher” in 2017.

“It is a growth but it is a tepid growth because the recovery that we see in the United States, Europe and a little bit in Japan as well could be bigger,” she said.

“If you compare current growth to the potential output the economy should deliver, it is less,” she added.

As for emerging economies, apart from India which is “doing pretty well,” they are slowing down, said Lagarde.

Other emerging economies are either “deliberately” slowing down like China, or “in a pretty weak position” like Russia, Brazil or South Africa, she said.

“Those countries are struggling. Both Russia and Brazil will be in negative territory this year.”

Lagarde said commodity producers, particularly oil exporters, “are facing a completely new reality.”

She said world prices, not only of oil but also of metals and food, “have gone down significantly to actually change the business models of those countries, which some of them are addressing well.

“It’s really a new reality that these countries are dealing with at the moment.”

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