Transcript

Transcript of the Middle East and Central Asia Press Briefing

October 10, 2015

SPEAKERS:

Masood Ahmed - Director, Middle East and Central Asia Department
Randa Elnagar - Communications Officer, Communications Department

Webcast of the press conference

MS. ELNAGAR - Good morning, everyone, and welcome to the IMF and World Bank Annual Meetings from Lima, Peru. I am Randa Elnagar, Communications Officer with the IMF. This is the Middle East and Central Asia Department Press Briefing. We have with us Mr. Masood, Director of the Middle East and Central Asia Department. He is going to start with a opening remarks and then he will answer your questions. Thank you.

MR. AHMED - Thank you very much, Randa, and thank you all for taking the time to rejoin us for this press briefing. As Randa said, let me make a few opening remarks and then I look forward to your questions and I hope to be able to respond to them.

Let me just give you one bit of context before I start, which is to remind you that we are going to give you an overview today of our outlook for, first, the Middle East and North Africa region, and then for the Caucuses and Central Asia region. We will be producing later this month the Regional Economic Outlook covering both of these regions and they will be released in both regions around the 21st, 22nd, 23rd, over that period, so that will have a lot more detail when you get that. What I would like to do is start with the Middle East and North Africa region and then move on to the Caucuses.

But before I say anything about the economic outlook for the Middle East and North Africa, I do want to, first of all, say how delighted we are by the fact that the National Dialogue Quartet in Tunisia has today been awarded the Nobel Peace Prize. I think this is a really wonderful piece of news. Personally, I am very happy about it. On half of the IMF, also, let me use this opportunity to congratulate not only the National Dialogue Quartet but also Tunisia itself, the whole country, the people of Tunisia, because of the example that they have set in terms of finding a way forward in a consensual way that then sets the basis for the economic challenges that they face and they continue to face.

Let me now say that, more broadly, if you look at the region, there are two important factors that, in our view, will shape the economic outlook. The first of these, unfortunately, is the effect of deepening and intensifying conflicts in the region, particularly in Iraq, in Libya, in Syria, in Yemen. These conflicts, first and foremost, have a horrendous human cost and that is something that we need to squarely focus on.

They also have an economic cost, an economic cost again on the countries that are directly affected. For example, the economy of Syria is now about half the size of what it used to be before the conflicts started. If you look at Yemen, even Yemen in the last year, its economy has shrunk by a quarter. So, there is an immediate cost in terms of the size of the economy, in terms of access to services, in terms of living standards. But there is also a cost to the neighbors, and that is something that I want to come back to.

The first dimension through which conflicts affect the region more broadly is, of course, the refugees and displaced people. As you know, the Syrian and Iraqi conflicts alone have led to 12 million people who are displaced, two thirds of them within the country and one third outside the country. Many of them have now settled and being hosted very generously by Lebanon, by Jordan, by Turkey in the region and, as a result, this has imposed an economic cost, a budgetary cost on those countries, as well as a need to manage the process of integrating a large number of refugees which creates its own social tensions and its own social pressures that have to be managed.

More recently, we have also begun to see Yemeni refugees who have been fleeing to Djibouti, and that is another small country that is being impacted by that. Of course, now you see also refugees trying to escape the violence and moving out of the region, including to Europe.

Now, an important point I want to stress here is that in addressing the refugee crisis, there has to be a concerted international effort and that this international effort needs to include providing support to the countries in the region that are hosting these refugees, often at a very high economic cost to their own budgets. It also needs to include a stepped-up effort to try and stabilize the situation in the countries from which the refugees are coming in the first place.

The second factor that is going to shape the outlook for the region is, of course, the price of oil. The slump in oil prices that has taken place over the past year is now, most experts believe, one that will live with us for a number of years to come. So, while we might see day-to-day variations in the price of oil, and while we are likely to see some increase in the price of oil over the next five years from its current level, it will still be well below the kinds of numbers that we had been seeing until 2014. If you look at the impact of this, well, obviously, the first effect of this is on oil-exporting countries. Just to give you a couple of numbers, the export earnings of the oil-exporting countries in the Middle East and North Africa have gone down by $360 billion in 2015 compared to 2014. That is $360 billion. One consequence of this is that budget deficits in these countries have increased dramatically because they have continued to spend from savings but that still means that their current expenditure is now higher than their income. Just to give you a number again, the budget deficits of the oil exporters are, on average, now just about 13 percent of GDP this year. Since, as I said, we expect that oil prices will likely remain low over the coming years, it does mean that to achieve fiscal sustainability in the medium term for these countries, they will have to undertake gradual but sizable and sustained consolidation on the budgetary side.

Achieving this fiscal sustainability is going to be even more challenging given the need to find jobs for the over 10 million people that are anticipated to be looking for work in the oil-exporting countries by 2020. So, they have two challenges. They need to try and reduce their spending in a way to balance it with their income over the next five years, but at the same time they have to recognize that they have to provide jobs for a number of people and, of course, in many of these countries, nationals, in particular, have mainly been working in the public sector rather than in the private sector.

So, the way to try to make progress on this, in our view, also requires accelerating the efforts in many of these countries to diversify the economy away from oil and to allow private firms to expand their activities in a way that does not depend on government spending or on oil.

So, the combination of the low oil prices and the intensifying conflicts has meant that the growth rate for oil exporters this year is going down. If you look at the growth rate, it is a little short of 2 percent for the oil exporters. That is almost 1 percent below the number for 2014. Of course, there is a lot of variation even among the oil exporters. The GCC countries are doing better than the others. Their growth rate is about 3 1/4 percent this year and will slow down a little bit more next year to just below 3 percent as they continue with their process of fiscal adjustment. Outside of the GCC, this year actually there is virtually no growth in the oil exporters. So, countries like Yemen, Libya, and Iraq are impacted by conflict.

Iran, which is yet to benefit from the agreement with the B5+1 that would lift sanctions will only see that benefit next year, and this year the economy of Iran also is not expected to show any economic growth. However, let me say a word about Iran because it is an important actor going forward. The easing of sanctions in Iran is expected to lead to a substantial improvement in the economic outlook for that country for next year. When I say next year, I am talking about 2016/17, which is the sort of Iranian year which starts in March, as you know. Our assumptions are that looking to the growth rate for Iran next year is likely to be between 4 1/2 and 5 percent as opposed to no growth this year.

What is driving that improvement? Well, first of all, there is an increase in the production of oil and next year we expect that Iran will be able to, even on conservative assumptions, we expect Iran will be able to produce an additional 600,000 to 900,000 barrels a day of oil and that will add to production, but also a reduction in the financial costs of doing business because some easing of sanctions will improve economic growth in the economy as a whole. So, as I said, we expect the growth rate will be about 4 1/2 - 5 percent next year.

Looking out into the medium term, Iran could continue to grow at rates of about 4 1/2 - 5 percent, but sustaining that rate of growth will require a series of changes and reforms within the country that would improve the functioning of the financial system, that would sustain macroeconomic stability. They have made some gains in the past two years, and that would also improve the efficiency and productivity of the enterprise sector. So, it is possible, but it requires a set of measures that they would need to undertake.

Let me say that lower oil prices have also been a factor for the oil importers in the region, this time a positive factor. That is one of the reasons why they have gained about $12 billion as a group from lower oil prices this year. Indeed, lower oil prices is one of the reasons why you are seeing an improvement, a pickup in the level of economic activity in the oil importers in the region. It is also the result of some difficult decisions that were made by the countries themselves to undertake important reforms. You begin to see in a number of countries, fiscal deficits are starting to go down, reserves are beginning to go up and you see, as a result, an improvement in economic growth rates.

But even there I should say that these countries do have a quite a lot of variation across. So, some countries like Egypt and Morocco are now growing at about the growth rates that they had before 2011. On the other hand, other countries like Tunisia or Lebanon are still being held back by the spillovers from conflict.

I should also say that, looking ahead, there are risks facing these countries and let me highlight three risks that are important. One, the slowdown in economic activity in the GCC countries could lead to a reduction in remittances that come from the GCC to many of these countries. They have workers from these countries working in the G

and that could lead to some reduction in remittances. Secondly, the increase in international interest rates could lead to higher borrowing costs and tighter financial conditions. Third, the slowdown in emerging markets that people are concerned about could also have an impact on exports from these countries.

So, our message to the oil-importing countries is to use this favorable window and the tailwind that comes from lower oil prices to prepare for a period when there could be more risks ahead and to do this by reallocating their spending from consumption to investment, because investment will generate growth, and by improving the climate for private investment in the country.

Now, let me just then turn to the Caucuses and Central Asian countries. Let me start by saying that the region, the Caucuses and Central Asia, has really been hit quite hard by the combination of the decline in global commodity prices, by the economic slowdown in Russia, by the movements in major exchange rates. As a result of this, you begin to see a downward pressure on economic activity in all of these countries.

For the oil exporters, export losses from lower oil prices have translated into significant fiscal losses. The current account impact of lower oil prices for the oil exporters in the Caucuses and Central Asia amounts to about $45 billion this year compared to last year.

For the oil importers, although they have been helped a little bit by lower oil prices, that has been more than compensated by the impact of lower remittances by Russia, by the impact of lower commodity prices, and also by reduced FDI inflows. So, growth is slowing for both groups across the board and it is down by about a third for the oil exporters to 3 3/4 percent, just short of 4 percent. For the oil importers, it has been reduced even more sharply by about half to a little over 2 percent.

One issue with which all of the countries of the Caucuses and Central Asia have been grappling with in the past year is the volatility in foreign exchange markets. As you know, all CCA countries have seen their currencies depreciate against the US dollar to varying degrees. In some cases, with quite large reserve losses at the same time. This has triggered inflationary pressures in some countries, raising concerns about financial stability.

Notwithstanding this, our view is that the policy responses have been generally appropriate in the short term. Where conditions have permitted, there has been some degree of temporary fiscal easing as a way of dampening the effect of these shocks.

Greater exchange rate flexibility has helped to limit the rundown of reserves, and that is particularly important because in some of the countries the reserve margins are not very large. It has also helped to absorb the fiscal impact of commodity price movements.

There are risks going forward for these countries, also. There could be weaker-than-expected growth in Russia, in China, in the euro area. There could be a further decline in commodity prices which would hurt them, of course, both directly and indirectly. And as I said, there is uncertainty about how the pace of normalization of monetary policy is likely to affect some of these countries.

Our view is that these shocks that they are experiencing are likely to be long-lasting in nature. As a result, we believe that in countries where they have undertaken some degree of countercyclical fiscal policy, now fiscal consolidation will be needed. It depends on how quickly, on how much of a buffer they have, but over the next few years they will have to do that, both exporters and importers. Monetary policy, in our view, should now aim more on reducing inflationary pressures and hankering expectations. At the same time, high dollarization of bank balance sheets and depreciating currencies call for the strengthened use of financial supervision and macroprudential regulation in these countries.

Finally, structural reform will help to make these countries move to a higher growth path, which also includes focusing now on areas of financial development, export diversification, governance, and in some cases also the quality of education.

So, let me stop with that and I will be very happy to answer any questions you may have.

MS. ELNAGAR - Identify yourself and organization, please.

QUESTIONER - You mentioned that Egypt is one of the countries enjoying stability. What about the challenges that Egypt is facing? Egypt is an oil importer but the bill for that is due. Therefore, I wanted to know from you the growth rate has been 3.25 this year against what was the rate last year.

MR. AHMED - I think I got the translation off your question except for the last part, which was the rate?

MS. ELNAGAR - The rate of growth.

MR. AHMED - Got it. Thank you.

So, let me say, first of all, that you are beginning to see now in Egypt a second year of improvement in the economic outlook. The combination of return of confidence, combination of improved policies on the budgetary side to try to bring the budget deficit under control, as well as for the external financial support that Egypt has received, notably from the countries in the Gulf, have all helped now to see a turnaround in the economic performance.

You see, for example, the growth rate this year for Egypt, which, if I recall correctly, is a little over 4 percent—I think I have the exact number—4.2 percent for the year that ended last June. This year we are expecting again a growth rate of about the same, maybe a little bit higher, 4.3. But, having said that, let me also say that there are still challenges that face Egypt. Let me perhaps just focus on two challenges that are particularly important.

One is that Egypt needs to generate jobs, jobs for young people who are unemployed, jobs for people who are going to be coming into the labor market. Of course, to generate jobs and to reduce unemployment, Egypt needs to sustain a high level of growth but also to make this growth more inclusive.

The second challenge that Egypt faces is to further strengthen its macroeconomic fundamentals. What do I mean by that? The budget deficit has come down a bit but still is quite high in relation to many other countries. The external position has strengthened, but it still could be strengthened further to make it feel more resilient as an economy. The debt level of Egypt is high in relation to other countries.

So, what this requires is to continue with the policies that the government has now set out to progressively improve the budgetary and external positions and, at the same time, to create the conditions for the private sector to increase its activity so that they can generate the jobs that I mentioned that will be needed to deal with the aspirations of the Egyptian people.

QUESTIONER - The Middle East growth, you mentioned that it was 3.25 percent. What was it last year?

MR. AHMED - The overall growth rate for the Middle East oil exporters/oil importers together is about 2.5 percent this year, 2015. Last year it was a little bit higher, 2.7 percent. But you have to break this down a little bit to get a better sense of it. If you look at the oil exporters, in the region, last year they were growing at 2.6 percent and this year, as I said, they are growing below 2 percent, at 1.8. If you look at the oil importers, last year they growing at just below 3 percent, 2.9, and this year they are expected to grow at nearly 4 percent, 3.9. So, what you have seen is overall not much change, but, within that, oil exporters come down and oil importers have improved this year.

QUESTIONER - What are your proposals for the Palestinian Authority to stem the backing in the remittances of the donors to Palestine? During this year, the IMF has issued a report in which it proposed to Palestinians to lift the subsidies on oil, though the price over there is one of the highest in the whole world. So, how could you do that?

MR. AHMED - So, let me answer your two questions. The first one which you said is how do we see the situation in terms of the financing needs for the Palestinian authority for this year. I think it is a very important to say that the Palestinian economy continues to face a very difficult challenge, with weak growth, high unemployment and falling per capita income, which reflects both the lack of confidence in terms of investment, as well as the restrictions under which the economy is operating.

More narrowly, if you look at the Palestinian Authority, their finances remain fragile, with continued accumulation of arrears. Our expectations are that, unless there is additional financing made available to the Palestinian Authority from donors, then this year they are likely to end with a gap in their budget of 0.5 billion; they will be short of 500 $billion.

Now, how can they close that gap? We think it requires actions by the Palestinian Authority, by donors, and by Israel. The Palestinian Authority needs to contain the deficit beyond the level envisaged in the budget by limiting wage increases and raising tax compliance, both areas where they could act. Donors, we believe, should stand by their financing commitments that they have made. We have also called for additional support by donors for the Palestinian Authority. We have also said that Israel should ensure timely transfer of clearance revenues and ease the restrictions. All three acting together could help to reduce the impact.

Now, the second question you asked is one about energy subsidies in West Bank and Gaza. What I would say there is that not just in West Bank and Gaza but more generally in the region, we have been saying for about four years that, in our view, subsidizing energy products for everybody is not a sustainable or efficient way for governments that are facing shortages to spend money. We think that energy subsidies need to be targeted to people who need them; that is to say for poor people or households that are of limited means. We think that safety nets that are more targeted for those families are a better way of transferring money. In some countries, we also feel that energy subsidies are encouraging very fast growth in energy consumption and that also encourages an industrial structure which is dependent on very energy-intensive production. So, I think for all of these reasons, we have taken a view that we need to make sure that the vulnerable and the poor households is protected; it is the role of any government to help do that, but it is not by generalized subsidies for the rich and poor alike that is the best way to do it.

QUESTIONER - In the spring, the IMF recommended the Central Asian countries to provide fiscal stimulus to the economy and the IMF signed assistance programs with the countries which have not got financial buffers; namely, Armenia, Georgia and Kyrgyzstan. My question is, how have these programs worked out and what is the IMF going to suggest for the region now? Also, with depreciating national currencies, how would the government manage fiscal consolidation you have just now talked about?

MR. AHMED - So, as you said, our view has been—and remains—that in countries that were faced with a large external shock, to the extent that they have the resources—and that applies to mainly the oil-exporting countries—or to the extent that they were able to get access to resources on appropriate terms, which applies to the countries, for example, where the IMF was providing financial support, it makes sense for them to try and cushion the impact of the shock on the economy, the downward pressure that it put, by having some fiscal countercyclical spending.

Over the last year or so, we have seen that happen in Kazakhstan, in Uzbekistan. We have seen that happen in Armenia; we have seen that also in the Kyrgyz Republic. In all of those cases, in our view, it was a useful way to moderate the shock and to buy time to undertake the policies that would deal with the shock.

But the shock is not turning out to be temporary. It is something that is likely to be long-lasting. That is why we are saying, as I said a few minutes ago in my opening remarks, that we do feel that it is now important to start with the process of consolidating budgetary spending so that over time you begin to bring spending and income in line.

So, it is useful not to react immediately to a shock if you can afford it, but then you do need to take into account the new reality and start slowly, gradually, but in a sustained way, adjusting to that new reality. That is the line that we have taken not just in the Caucuses and Central Asia, but that is also our position vis-à-vis the GCC countries, for example, where they have been affected by a shock, to say that they need to not react immediately, in a knee-jerk way, but to gradually but in a sustained way now adjust to the new reality.

Now, the second part of your question was, is this going to be easier to do with a depreciation or harder to do? Clearly, the movement in exchange rates, the external pressure, has been one of the sources of the shock. At the same time, I think allowing the exchange rate to depreciate, which makes some of their products more competitive and also takes away the market pressure of the exchange rates, allows also to protect their reserves, gives the governments a little bit more space to undertake the fiscal consolidation in a more gradual way. So, it has, on balance, been a helpful instrument for them.

QUESTIONER - We hear from time to time that there will be a loan from the IMF to Egypt. Then we want to know exactly where is the reality. Are there negotiations that are imminent and if the Egyptian delegation attending these meetings is just only to attend the meetings or there will be consultations with the officials in the Fund?

The second question, what is the size of the fiscal gap that is needed for the Egyptian economy? Last question. If Egypt goes into negotiations with the IMF, how much is going to be the amount of the loans that might be given by the IMF to Egypt?

MR. AHMED - So, I think you had three questions. The first one was about what is the status of the discussions on a possible program that would support Egypt by the IMF. The second one was about what is the size of the financing gap for the Egyptian economy. The third one was that if there were program negotiations, then—I did not get exactly the third translation.

MR. AHMED - Okay. Right. So, the answer to the first question is that there is no negotiation on a possible program that is currently underway. The Egyptian authorities have not asked for financial support from the IMF. The IMF’s position, as the Managing Director of the IMF has said repeatedly and which I am happy to reconfirm, is that we are there to provide support to Egypt in any way that the Egyptian authorities think is most useful. We have a very good dialogue already under way now on technical issues, on tax policies, discussions with the authorities. While they are here, I am looking forward to continuing those discussions with them on those technical issues, but at this stage there is no request for a program from the IMF.

Then in the second way, let me also answer your third question first, which is what would be the size of an IMF program if it was there. Really, it is very hard to say at this stage what the size would be because it depends on what the needs are at the time; what the other sources of financing are; and what the requests and interests of the Egyptian authorities are. So, I think it would be a little bit premature for me to be talking about any possible size since we do not have any discussions right now on a program.

Then the question you asked in terms of what is the financing needs for Egypt over the next few years. I was trying to look and see if I had an exact number for you and I am not sure that I have one that I can find for you now, but I will certainly let you have that number. What is very clear is that for the next three years, the Egyptian economy will need substantial external financing and it will need substantial external financing both for projects that are needed in terms of ensuring that those development projects take place, but also for supporting the overall needs of the budget and of building up the external reserve position. So, the Egyptian economy does need substantial financing. I am sure I can find for you in due course a precise number. I do not want to use a number that turns out to be inaccurate, so I will make sure that we come back to you with that.

QUESTIONER - I would like to ask you about Lebanon, because we have so many problems in Lebanon. What are the projection of the IMF? It has been zero by the Bank of Lebanon, but the IMF has put it at 2 percent.

Another question is on the refugees in Lebanon, which is a real burden on all the economic sectors in Lebanon, even on the public sector as for services and financing the services of the refugees for schools, health and infrastructure and all such stuff. We heard in the meetings of the IMF that there might be a new project for cooperation between the IMF and the World Bank, and the Lebanese delegation is working on that, that there will be giving more assistance to Lebanon to satisfy the requirements of the refugees or in another shape. I think that Lebanon will not be able, within the political conflicts that are taking place either inside Lebanon or outside Lebanon to [permit?] that.

MR. AHMED - On Lebanon, I think the first thing I want to say is that it is very important for us to recognize the enormous generosity and hospitality of Lebanon and the Lebanese people for hosting a number of refugees, which is very large in relation to the population of Lebanon. I think we need to recognize that this is not just a financial cost but is also a difficult social effort that everybody is pitching in. So, I just want to start by acknowledging that.

Second, it is also clear that Lebanon is going through a very difficult period, the impact of the regional developments on Lebanon, as well as the difficult conditions within Lebanon in terms of the fact that there has not been now a President for some time, that the political difficulties that have been there have led to a dampening effect on economic activity. Tourism is impacted; economic activity within is impacted. You will see growth now slowing down quite a lot from the historical numbers that Lebanon used to know, which were in the high single digitals.

What will be the growth rate this year? Our last projection that we did was about 2 percent. Since then, the economy has slowed down a little more. I also had the opportunity to look at the numbers that were referred to by the Governor of the Central Bank. He thought that actually economic activity might be close to zero this year. Where it ends up, whether it is zero or one or two, it is clearly well below what is needed to keep the Lebanese economy moving forward and to respond to the needs of the Lebanese people.

Now, the second point of that is, of course, there is a high cost on the economy of dealing with the refugees. As you said, many estimates have been made of the cost of this. The World Bank, for example, estimated that the fiscal impact of the crisis was about $two and half billion dollars, with an additional $2 and halfmillion to restore public service to the levels before the crisis. There has also been an additional two and half to try to bring it to the level before the crisis.

So, last year, as you know, the UNDP launched the Lebanon Crisis Response Plan, which is a big proposal to try and help Lebanon deal with some of these costs with international support. Funding this effort has turned out to be a challenge. We believe in the IMF that Lebanon needs international support, additional international support to be able to meet the costs of the refugees, and also to meet the additional cost of providing better services to communities within which the refugees are living.

As to any specific project in terms of additional financing, I am not aware of a particular project as such. I know the World Bank has been providing financial support for this area and continues to look at ways in which it could do that, but I do not have any specific things on that.

QUESTIONER - When somebody hears your presentation talking about deepening the conflicts in the region and the MENA region about the refugees, about oil prices, it looks like these are external problems and somebody or the countries in the region have to adjust to them. We are in a specific moment of history of the region, which means the youth bulge, rural/urban migration had made all these countries explode. I mean, you have 80 percent of the employed out of the public sector. You have failed states, fragile states, like the technology of the World Bank. Only one, let us say, international concern about the region was the Deauville Initiative which was launched.

Do you think that business can be continued as usual or something more important should be made for the region, for Lebanon, for Jordan? We are talking about a $200 billion loss in Syria, destructions, the same in Yemen, and trillions, if the whole region has to be repushed again. Is the IMF concerned by this or it is business as usual?

MR. AHMED - Thank you very much for raising those points. Before I answer your question, let me also answer the missing part of my earlier question, your question about what is the figure on the financing needs. Randa is much more efficient than I am so she managed to get the number for me from my colleague.

It is about $10 billion a year for the next two years, so it is about $20 billion for the next two years, just to give you that number.

Now to come to, I think, the really very difficult set of questions that you have raised, difficult issues that you have raised. I think what you are saying I will maybe respond to in two different ways. One is that it seems to be the case that the factors that have led to the pressures inside a number of countries, demographics, youth bulge, rural/urban migration, and also I would argue going beyond that, a sense in many countries that existed that the benefits of growth were not being shared broadly but being captured by a few, a sense that while some parts of the country were doing well, there were other regions which were lagging behind, all of these created a series of social pressures along with a feeling that the education system in many countries was failing to deliver the skills that young people needed to be able to undertake jobs in the private sector. Because of the relative salary structure and security of jobs, many young people wanted to go and work in the public sector, which is not sustainable anymore. So, what you are getting at is really what are the underlying reasons, long-term issues that have to be addressed.

I think we wrote a paper, and I do not know if you had a chance to see it, for the Conference we worked in Amman that year jointly with the Arab Fund for Economic and Social Development as well as with the Government of Jordan, which looks at precisely this set of underlying issues of structural agenda as well, background paper. So, I am happy to have a conversation about that. Maybe this is not the right format, but I am happy to do that.

You also raised a very important point that, going forward, the financing needs that we are talking about for the region really do not take into account the costs of reconstruction and rehabilitation that are going to be required once the conflicts end in Syria, maybe even in Libya, in Yemen, as well as the needs that exist for upgrading infrastructure across the region, which could run into hundreds of billion of dollars.

In some ways, what you are pointing to is that, going forward—what we are talking about is really the near-term macroeconomic outlook and the financing associated with it, but there is a bigger agenda that one has to address in terms of reconstruction and how that would be organized and when and how that would be financed, which I think does raise challenges.

Does the IMF focus on those? Yes, to the extent that we are conscious of them and trying to put that in terms of the issues that have to be addressed, but in some ways what I was focusing on today was really more in providing an outlook for the next 2-3 years, recognizing that there are other issues in the background.

QUESTIONER - Tunisia now is so happy with this Nobel Prize recognition and with this trust, but we still have a lot of work to do. The IMF was the first organization who support Tunisia, What should Tunisia do to face the challenges specifically that we have difficulty with hosting refugees from Libya and there is the decline of oil prices as well.

MR. AHMED - As I said at the beginning of this Press Conference, I was really very happy about the recognition that Tunisia has received today in terms of the successful political transition. I also want to say that I think the economic transition in Tunisia is still only partially I done. Why do I say that? Because while Tunisia has been able to maintain macroeconomic stability in a difficult period, the growth rates and the structural reforms in Tunisia are still lagging in terms of the aspirations of people to generate a better living standard.

So, this year, for example, we expect, partly because of the external shock that you see from the terrorist attacks that led to tourism coming down, we do see a low growth rate of about 1 percent for this year. I think the challenge now for the government will be to try and make sure that it is spending money more on investment and less on current expenditures. That is why we have been saying that it is important to reallocate the budgetary spending. It is also important to move forward with a number of laws that the Tunisian authorities have been considering and which have also been discussed in Parliament, laws that will create a better business environment; I am thinking of the new Investment Code and thinking of the law for the banking sector. I am thinking also of Competition Law.

So, I think these will help to improve the functioning of the Tunisian economy, attract investment, and try to move to the next phase, which is to generate more private sector confidence and growth. The private sector is still waiting a little bit on the sideline. Some of this is due to the security worries, but some of it is also due to the fact that they have not seen yet the movement of the legislation that would help to create a better environment. So, I think our basic view is that Tunisia has embarked on a good track, but now we have to accelerate the process to generate more private sector confidence and job creation.

Definitely, the refugees from Libya is an additional cost for Tunisia. The numbers are hard to establish. The official numbers are quite small, but actually the number of Libyans who are living in Tunisia are much larger. So, that is an additional factor that needs to be taken into account and which has been a source of additional budgetary pressures on the economy.

MS ELNAGAR - Okay. With this, we end our Press Briefing. Thank you very much. 12:14