MENA’s poorest should not be the ones to pay for its economic recovery

Two years after the onset of the Covid-19 pandemic, the world looks at 2022 with anxious eyes, taking stock of its effects on people's lives today and for years to come. This multifaceted crisis has unmasked the shortcomings of our economies, social protection and healthcare systems, and the steep divide between rich and poor across the globe. 

This is especially true in the Middle East and North Africa (MENA) region which has one of the highest levels of wealth and income inequality in the world and is one of the regions that were most ill-prepared to shield their population from the devastating effects of this crisis.

The pandemic found the MENA region already grappling with a vicious circle of debt and austerity and pushed many countries to the edge of their financial crisis, with public debt in Egypt, Tunisia and Jordan reaching around 90% of gross domestic product (GDP) in 2020. In the meantime, and regardless of the pandemic, Lebanon has reached an unprecedented financial crisis, with a public debt now estimated to be almost twice the size of its economy.

We are looking at economic systems and public policies that are designed to ensure that wealth and income are concentrated in the hands of the few, while the most vulnerable bear the burden of debt, taxation and lack of social protection. Millions of people across the MENA region are living in poverty, while 37 billionaires own as much wealth as the poorest half of the adult population and the richest 10% of the population control 76% of all income.

"This is not the right way to reduce inequalities"

The International Monetary Fund (IMF) projects that income inequality will increase as a result of the pandemic. It can already be noted that the wealth of billionaires in MENA increased by at least $US 9.8bn between March and August 2020; more than twice the total IMF emergency financing that the region has received to cover its increased need for health expenditure. 

This comes after decades of reduced investment in public health services, resulting in a gradual deterioration of their quality and a large level of private expenditure on health, which indicates limited access to health services for the poorest and most vulnerable in society.

With already high unemployment rates, especially among women and youth, high levels of informality, and low wages, the MENA region has seen 16 million informal workers severely affected by lockdown measures, with 45 million people expected to be pushed into poverty by the pandemic. This is in the absence of universal social protection, with less than 40% of MENA populations covered by formal social protection systems. 

Social spending in the region is mainly geared towards earnings-related social insurance schemes and focuses on food and fuel subsidies. This approach is coupled with regressive taxation systems and aims simply at compensating the shortcomings of a structurally unequal economic system through poverty alleviation measures such as cash transfers and targeted social assistance. This is not the right way to reduce inequalities.

Oxfam has urged national governments to enact crucial policy measures to ensure a fair recovery for the MENA region, starting with immediate actions to raise tax revenues and protect the most vulnerable. This includes a 5% one-off solidarity tax on net wealth to compensate for fiscal losses and finance the coronavirus response. 

If Jordan, Lebanon, Egypt and Morocco had implemented net wealth taxes of just 2% from 2010 to 2020, this would have generated a total of around $US 42bn, more than all IMF lending to Egypt, Morocco, Jordan and Tunisia between 2012 and 2019. In Lebanon, if a solidarity net wealth tax had been introduced at a rate of 5%, the revenues generated in 2019 alone would have enabled the government to provide all 300,000 families whose homes were damaged and destroyed by the blast with $US 1000 a month for a year to help them rebuild their lives.

Other measures could include a temporary tax on excessive and exceptional profits made by corporations during the pandemic; substantially increased taxes on high-end consumption goods; reprioritizing spending to mobilise resources to fund wage guarantee policies, social protection and health; and requesting debt relief. These should be coupled with measures to ensure transparency and accountability for public spending.

Two years into the pandemic, we are yet to see such corrective measures being adopted by countries in the region. The recent issuance of Special Drawing Rights by the IMF has shown that the fiscal burden is real and urgent, and many governments in the region have shown a quick readiness to make use of their SDRs. 

"No sustainable political or economic system can be built on such high levels of wealth concentration and social injustice"

So far, however, the lack of transparency on how they are planning to spend those SDRs and the continued tendency to rely on external support such as IMF emergency relief packages shows no sign of structural reforms that would correct the long-term path of debt, austerity and inequality in the region.

The MENA region is in desperate need of a new social contract that ensures a fair distribution of income and wealth and access to basic rights and responds to the demands of popular movements who took to the streets since before the pandemic to protest against political and socioeconomic injustice. 

No sustainable political or economic system can be built on such high levels of wealth concentration and social injustice. 

Looking ahead, the richest need to pay their fair share not only to address the fallout of the pandemic but also to redress the harm done by decades of economic and fiscal policies that served their private interests at the expense of the public good.   

Diana Kallas is Oxfam MENA's senior inequality policy advisor, with over a decade of experience advising ministries, INGOs and civil society organizations on labour rights and social and economic reforms in Lebanon and the Arab region.

Follow her on Twitter: @OxfamMENA

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Opinions expressed in this article remain those of the author and do not necessarily represent those of The New Arab, its editorial board or staff.