World Bank: The economy is trapped. Grey economy needs to be controlled

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World Bank: The economy is trapped

Grey economy needs
to be controlled

Lebanon is trapped in a ‘poor policy - poor growth’ cycle, according to a World Bank report. ‘Predictions, Perceptions and Economic Reality – Challenges of Seven MENA Countries’ said this cycle is keeping the economy from moving to a sustainable growth path. This is made worse by a growing public debt leaving little space for growth-promoting investment.

The report said poor policies are forcing many workers into the ‘informal’ sector, where entities create revenues not subject to government taxation or controls.

“High unemployment is especially harmful in these countries, but an even greater problem is that of those working in the informal sector,” said Shanta Devarajan, World Bank Chief Economist for the Middle East and North Africa region (MENA). She said these people, who are not part of the unemployment statistics, are in an even worse situation, since they lack security in their earnings and often live near the poverty line.

Economist Elie Yashoui wants better control by fiscal authorities. He said emerging markets are unable to control unlawful economic activities that escape taxation. “We need to identify these informal sectors but as well formal ones that do not pay electricity bills and taxes on built properties,” said Yashoui.

There are common errors policymakers fall into according to the report. “By trusting economic forecasts that paint a positive outlook for their economies, policymakers resist needed reforms,” said Lili Mottaghi, World Bank MENA Economist and the author of the brief.

Yashoui said: “Our job is not to listen to positive economic outlooks but to engage in a discussion with experts on the true drivers or enablers of the economy."

The report said that quick action is needed. This includes strengthening the investment climate, improving governance, and removing rigidities in product and labor markets.

Reported by Hadi Khatib

Date Posted: Aug 08, 2014