Attempts at Change

Whether seen from the standpoint of efficiency or of equity, there could hardly be a worse way of distributing wealth than through subsidised energy, particularly in the Arab region’s energy-importing countries. Public sector employment as a tool of welfare is somewhat less economically irrational, but more distortionary of politically sensitive labour markets.

The above problems, albeit rarely looked at in an integrated fashion, are not unknown to regional policymakers. Facing increasing fiscal constraints, poorer Arab countries made some attempts at partial subsidy reform before 2011 (Sdralevich et al., 2014; IMF, 2013a; Devarajan et al., 2014). These however were abandoned with the uprisings. Instead, both old and new regimes relapsed into ingrained patterns of patronage spending, showing how deeply entrenched the old distribution regime has become. The post-Mubarak transitional government in Egypt ordered rises in subsidies and public sector salaries, and the transitional government in Tunisia new public sector jobs; while in Syria Assad has increased the heating oil allowance for public workers and augmented government salaries. The Jordanian government increased subsidies as well as salaries and pensions, while Morocco temporarily doubled its subsidy budget (Hertog, 2011).

These steps have proven unsustainable and have since been partially rolled back. Egypt, Jordan, Morocco, Tunisia and Yemen have initiated partial pricing reforms of transport fuels and electricity since 2012 (Sdralevich et al., 2014).

It is encouraging that most of these reform efforts have been accompanied by some form of compensatory policy. These include cash transfers to families below a certain income threshold in Jordan, plans to strengthen existing social safety nets in Morocco, a ‘lifeline’ electricity tariffs for small consumers and a new social housing programme in Tunisia, and expanded coverage of the Social Welfare Fund in Yemen. The reform process generally is piecemeal however and the compensation strategies often diffuse and not clearly enough linked to, and financed through, the savings achieved. Reforms are also limited to energy subsidies in particular, while public employment and labour market regulations remain untouched. The initiatives hence fall short of the big- picture thinking that is necessary for moving towards a new social contract and a distributional regime that are both more efficient and inclusive.

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