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Last Updated: Thursday, 11 September, 2003, 18:14 GMT 19:14 UK
Arab economies 'must reform'
Saudi goatherd
Arab economies are only patchily modernised, the IMF believes
Arab countries urgently need to reform their institutions if they are to achieve sufficient growth to fight mounting unemployment, the International Monetary Fund (IMF) has warned.

Over the past 20 years, economic growth in the Middle East and North Africa has lagged most international averages, and rapidly growing populations have resulted in ever greater numbers out of work.

This problem - which is contributing to the region's political instability - has become more critical since the security situation deteriorated after September 11, 2001.

In a series of new reports, the IMF recommends that Arab governments liberalise their economies, improve the quality of government, reduce their dependence on oil revenues, and invest money in education.

Falling behind

The bulk of the IMF's concerns are laid out in a chapter of its next World Economic Outlook, which was published on 11 September a week ahead of the detailed data.

Middle Eastern economic growth
The chapter follows a series of discussion papers, in which the Fund has pored over the often neglected subject of the Middle East's economies.

Traditionally, Arab economies - generally highly restricted, reliant on energy exports and determinedly self-sufficient - have evolved at a different pace either from developed countries or the developing world.

Between 1980 and 2001, the Middle East and North Africa region grew at an annual average of 3.1%, compared with 3.4% for developing countries as a whole, and 6.4% for dynamic south-east Asia.

A large part of this is down to oil, which did not bring in foreign money as quickly as the region's governments hoped, and which squeezed out other possibly more fruitful forms of industry.

The heavy hand of the state

But oil is only a marginal cause of the Arab world's growth deficit, the IMF argues.

Oil wealth has not been spread evenly
Equally crucial are its weak civil institutions, which the IMF accuses of being prone to corruption and incompetence, especially since the influx of oil dollars has provided easy money for the fortunate few.

This would matter less if Arab governments were less important players in the economy, but one feature of the region is the disproportionate role played by the state.

A spin-off of this is that Arab economies are generally very tightly restricted, often being unfriendly to foreign investors, and rarely opening themselves up to free global trade.

Unemployed and ill-equipped

Social aspects have exacerbated these faults.

Over the past 20 years, the region's population has grown by an annual average of 2.5%, way above the global average of about 0.5%.

This has resulted in very high unemployment - well over 15% in many Arab countries, and far higher in war-torn states such as Afghanistan and Iraq.

The long oil boom of the late 20th century has raised the economic expectations of Arab populations, a factor that makes chronic unemployment a potential souce of political unrest.

And most Arab countries have education systems oriented more towards ideological than technical training, resulting in large numbers of unemployed young men ill-equipped to play a role in the global economy.

This unsophisticated group is, many point out, a fertile training ground for terrorism.

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