*The Economic Impact of Conflicts and the Refugee Crisis in the Middle East
and North Africa / International Monetary Fund 16.09.16- Full text availabl
in IDC by request*

Executive Summary

Large-scale conflicts are a major challenge for the Middle East and North
Africa (MENA).

Since about the middle of the last century, the region has experienced more
frequent and severe conflicts than any other part of the world, exacting a
devastating human toll. Yet, as conflicts intensify and spread, the region
now faces unprecedented challenges. Violent, non-state groups such as the
Islamic State of Iraq and the Levant have emerged as significant political
and military actors, holding large areas of territory. And a refugee crisis
bigger than any since World War II is affecting the MENA region, Europe,
and beyond, straining economies and social systems. Given the significant
political polarization, economic inequality, and rapid population growth in
the region, these conflicts are unlikely to dissipate anytime soon.

Intense conflicts and human displacement have had massive and persistent
economic costs

Conflicts in countries such as Iraq, Libya, Syria, and Yemen, in addition
to tragic loss of life and physical destruction, have caused deep
recessions, driven up inflation, worsened fiscal and financial positions,
and damaged institutions. In addition, the harmful effects of the turmoil
have spilled over into neighboring countries such as Lebanon, Jordan,
Tunisia, and Turkey, into the broader Middle East and North Africa, and
even other regions, notably Europe. To varying degrees, these countries
face large numbers of refugees, weak confidence and security, and declining
social cohesion that undermines the quality of institutions and their
ability to undertake much-needed economic reforms.

How can economic policies mitigate the economic costs of conflicts and
large refugee flows?

Recent MENA experience suggests that effective policy focuses on protecting
economic institutions, prioritizing budget space to serve basic public
needs, and using monetary and exchange rate policies to shore up
confidence. But such policies are often difficult to implement, requiring
unconventional measures. In Libya and Yemen, for example, central banks
have gone to extraordinary lengths to support their economies. Once
conflicts subside, successful rebuilding requires well-functioning
institutions and robust yet flexible macroeconomic frameworks to absorb
capital inflows and maintain debt sustainability. Countries hosting
refugees must make difficult decisions about access to labor markets and
social programs, as well as measures for their own nationals who often
struggle with poverty and unemployment. To help prevent future violence,
countries across the region should accelerate inclusive growth reforms
aimed at reducing inequality.

External partners, including the IMF, have supported countries’ efforts to
contain the fallout.

The top priority has been to scale-up humanitarian aid to meet the
immediate needs of the people affected, both in conflict zones and in
countries hosting large numbers of refugees, such as Jordan and Lebanon.
The second priority is on developmental aid to help rebuild infrastructure,
and, more broadly, strengthen economic and social resilience across the
MENA region. Efforts to organize a wider and deeper international response
recently intensified and have focused on mobilizing additional financing.
As much as possible, this additional funding should take the form of grants
and concessional loans to avoid overburdening countries unable to sustain
the extra debt. The IMF supports these efforts, including with policy
advice, sizable financing, and capacity building.

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