The IMF actively supports countries in the Middle East and North Africa (MENA) region in adopting economic policies and reforms aimed at achieving stronger economic performance and higher living standards. This support takes the form of policy discussions and advice, technical assistance, and training, in addition to lending. IMF work in the region has focused especially on (i) public sector reform; (ii) transparency issues; (iii) financial market development; (iv) integration with the global economy; (v) reform of exchange rate regimes; and (vi) post-conflict situations. Three countries in the region—Jordan, Islamic Republic of Mauritania, and Pakistan—currently have access to financial resources under Fund-supported programs, and several other countries, including most recently Djibouti and the Republic of Yemen, have benefited from IMF lending in the past.

Public Sector Reform

• IMF policy advice and technical assistance have contributed to improving fiscal management in MENA. Notable successes include VAT implementation (Lebanon, Islamic Republic of Mauritania, and Sudan); reform of income taxation (Lebanon, Pakistan, Saudi Arabia, and Republic of Yemen); and expenditure management (Jordan, Islamic Republic of Mauritania, Pakistan, Tunisia, Sudan, and West Bank and Gaza).



• While the World Bank traditionally takes the lead in advising on privatization, the IMF has strongly supported the process (with notable results, for example, in Djibouti, Arab Republic of Egypt, Jordan, Lebanon, Islamic Republic of Mauritania, Morocco, Pakistan, Sudan, and Tunisia).

Improving Transparency and Promoting Good Governance

• The IMF, jointly with the World Bank, is examining the degree of transparency in economic policies, compared with a set of internationally-accepted standards. The results of this analysis are presented in a set of Reports on Observance of Standards and Codes, or ROSCs. Several MENA countries have voluntarily participated in this process, which includes an assessment of fiscal transparency (Arab Republic of Egypt, the Islamic Republic of Iran, Islamic Republic of Mauritania, Pakistan, and Tunisia); data transparency and integrity (Jordan, Morocco, and Tunisia); monetary and financial policy transparency (Algeria, Arab Republic of Egypt, Oman, Tunisia, and the United Arab Emirates, among others); and legislation on anti-money laundering and combating of terrorist financing (nearly all countries in the region).

Financial Market Development

• The IMF has helped to strengthen banking supervision in many countries, in some cases in conjunction with joint IMF-World Bank Financial Sector Assessment Programs (FSAPs) (for example, Arab Republic of Egypt, Lebanon, Morocco, and Tunisia).



• While indirect monetary policy instruments—such as open market operations, rediscount facilities and reserve requirements—have long been used in several MENA countries, they have been introduced with Fund assistance in others (such as Pakistan and Republic of Yemen).

Trade Liberalization

• The IMF supports steps by MENA countries toward trade liberalization and multilateral trade initiatives, including the prospective establishment of Associate Agreements with the EU (AAEU),¹ the ongoing creation of the Greater Arab Free Trade Area (GAFTA), the establishment of a U.S.-Jordan free trade agreement, and the recent establishment of a common external tariff for the Cooperation Council for the Arab States of the Gulf (GCC).



• The IMF has contributed to significantly modernizing customs administrations and streamlining tariff policies by providing technical assistance (notably in Algeria, Lebanon, Morocco, Tunisia, and the Republic of Yemen). Further work is ongoing, e.g., in the Arab Republic of Egypt and Pakistan.

Reforming Exchange Rate Regimes

• To help develop exchange markets, the IMF has provided technical assistance and policy advice on the establishment of inter-bank exchange markets (Morocco and Tunisia); unification of exchange rates (Islamic Republic of Iran, Libyan Arab Jamahiriya, and Republic of Yemen); and the implementation of flexible exchange rate arrangements and supporting monetary policies (Arab Republic of Egypt, Pakistan, Sudan, Tunisia, and Republic of Yemen).

Involvement in Post-Conflict Situations

The IMF has provided advice and technical assistance to several MENA countries challenged with establishing economic management in a post-conflict environment.

• In the West Bank and Gaza, the Fund has provided extensive policy advice and technical assistance since the Palestinian Authority was established in 1994. The focus has been on establishing functioning institutions and developing sound economic policies. Assistance has involved an extensive range of issues, mostly in the areas of fiscal policy, banking supervision and regulation, and economics statistics.



• In the Islamic State of Afghanistan, the Fund has provided extensive policy advice and technical assistance to help establish the foundations for sound economic policies, including functioning institutions and key economic statistics.



• In the area of fiscal policy, the Fund assisted with the preparation of government budgets and with improving revenue collection.



• On monetary and exchange rate policy, the Fund assisted with the introduction of a new currency; the setting-up of the overall framework for monetary policy, including the exchange rate regime; the modernization of the central bank; and the drafting of new financial sector legislation.

• In Iraq, Fund staff missions have recently visited Baghdad to conduct an initial assessment of the economic and financial situation and to determine early priorities for advice and technical assistance.



• Technical assistance has already been provided on introducing a new currency, central bank legislation, commercial bank licensing, the payments system, budget execution and public expenditure management, and the compilation and dissemination of economic statistics.



• The Fund staff is also assisting in the development of a macroeconomic framework, including a fiscal budget for 2004 and a monetary and exchange rate policy regime.

¹ Countries that have signed Association Agreements with the European Union (AAEU) include Algeria, Arab Republic of Egypt, Jordan, Lebanon, Morocco, and Tunisia. Negotiations are underway with the Syrian Arab Republic.