Inside Story

Subsidies versus social welfare

How can governments in the Middle East and North Africa break the cycle of poverty?

Last Modified: 12 Apr 2013 12:53
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The World Bank has released a study reporting that governments in the Middle East and North Africa are not doing enough to provide jobs, opportunities, and drive social economic progress.

"I think that [the] welfare programmes that the ministry of social affairs has been undertaken over the last couple of years is well directed towards the poorest of the poor families .... I think the ministry have succeeded to cover families that deserve to be covered, and not give subsidies to the rich before the poor."

- Naser Abdelkarim, a financial economist

The Middle East and North Africa is home to some 300 million people, but the World Bank says one-quarter of them live on less than two dollars a day - and when it comes to protecting their poorest citizens, most government welfare programmes are inadequate keeping many in poverty, generation after generation.

The study found that 54 percent of the region's working age population is not employed or in school.

Three out of four working age women are outside the labour force, and one-quarter of 15 to 25 year olds are unemployed.

"The call for economic and social justice is intimately related to the need for more equal access to economic opportunities, jobs and more effective safety nets ... By seizing this historical moment and fundamentally changing the rules of the game, the region can lay the foundations for inclusive growth, and provide the poor with the means to climb out of poverty," Ingersen Andersen, the World Bank's vice president for the MENA region declared.  

"The IMF has not made any statements about conditionality on the loan yet ... But when you look at the cost for many of the governments of the region, particularly the poor countries ... the cost of the subsidy, and particularly on fuel is about two-thirds of the total subsidy bill is on fuel which goes to everybody … the total cost is rising so fast … that it's unsustainable for the government. So even with or without the IMF, it is going to have to tackle these subsidies in a more targeted way to help the poor." 

Angus Blair, the founder and president of the Signet Institute

The World Bank commissioned a series of surveys in support of its report. It focused mainly on Tunisia, Egypt, Lebanon and Jordan to give a broad snapshot of opinion in the Middle East and North Africa or the MENA region.

One of the questions addressed was: who should bear primary responsibility for helping the poor?

The vast majority in all countries answered the government should - about 90 percent in Tunisia.

But just a few MENA countries provide targeted, cash-based assistance on a large scale, the majority are relaying on universal subsidies of goods.

So should governments subsidise food and fuel for all? Or should money be made available for those who need it most?

To discuss this, Inside Story, with presenter Hazem Sika, is joined by guests: Steen Jorgensen, the World Bank director for Middle East and North African Human Development; Angus Blair, the  founder and president of the Signet Institute; and Naser Abdelkarim, a financial economist and former adviser to the United Nations and the World Bank on the Palestinian economy.

"The most important thing is really that you need to start from the plight of the poor. There are poor people in the region ... it is essential to protect them. Unfortunately, we also know … that only about a third of all people in the bottom 20 percent of populations are covered by safety nets and welfare programmes now.

So I think that the really sad part is that those fuel and food subsidies ... that are supposed to protect the poor, actually benefit the rich and the non-poor much more so and they create distortions in the economy.

Obviously for private sector firm can get subsidies for energy, it has an incentive to invest more in energy in terms of machinery and less in labour ... they are limiting the chances for young people to really get a chance at a job in the economies of the Middle East and North Africa."

- Steen Jorgensen, the World Bank director for Middle East and North Africa Human Development


Al Jazeera
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