A quarterly magazine of the IMF

March 2003, Volume 40, Number 1

Improving human development indicators in MENA will require different approaches to health, education, and social protection

Since the 1970s, the MENA region has made significant progress on the social front. Fueled by paternalistic state welfare policies and funded by the 1970s oil boom, most countries drastically expanded access to publicly provided social services and developed extensive health, education, and social protection systems. Islamic traditions of charity (for example, Zakat) and family support networks also helped countries manage social and economic risks. As a result, social infrastructures expanded rapidly, and key social indicators—such as child mortality rates, life expectancy, and literacy—show dramatic improvements in most countries (see chart).

Nevertheless, major challenges remain. Poverty is a problem, with 30 percent of the region's population living on less than $2 a day. The low-income countries (Afghanistan, Djibouti, Pakistan, Somalia, Sudan, and Yemen) have alarming levels of infant and maternal mortality and illiteracy, with limited resources to tackle these problems. In the middle- and high-income countries, health, education, and social protection systems must concentrate on targeting vulnerable populations and ensuring equity, quality, efficiency, and financial sustainability in the provision of services.

But the demographic, economic, and institutional context for reform is not favorable. High, albeit declining, population growth rates, regional instability, and limited political empowerment differentiate the Middle East and North Africa from other regions. Population growth puts pressure on the demand for social services. Security concerns and political instability divert public resources away from development, discourage foreign investment, and restrain intraregional flows of goods and labor. The countries must also deal with economic and institutional constraints, including the dominant role of government, regulatory institutions that hamper private sector development, and lack of civil society involvement in decision making; weak governance and endemic corruption in many countries; slow economic growth, rigid labor markets, and rapid labor force growth, resulting in an average unemployment rate of about 15 percent, one of the highest in the world; rapid urbanization that is weakening traditional social protection systems; and pervasive gender inequalities.

What can be done to address the problems in the health, education, and social protection systems in the region? While the menu of policies is generic, each country's circumstances will dictate its priorities.

Health systems in the region account for some 5 percent of GDP (about half of this spending is publicly financed), 4–10 percent of the public budget, and 2–5 percent of all employment. The health sector accounts for over 9 percent of GDP in Jordan and 12 percent in Lebanon. Demographic changes and shifts in the disease burden (from communicable to noncommunicable diseases and injuries) confronting all MENA countries are resulting in increasing cost pressures. Needed reforms include the following:

Improving health outcomes. Public health care needs to be better directed to both benefit the poor and support cost-effective interventions, even in middle-income countries. For example, in rural upper Egypt, infant mortality rates are more than double those in urban governorates, while infant mortality rates in Morocco are 50 percent higher in rural areas than in urban areas. The low-income countries should continue to focus on providing basic public health services, promoting good nutrition, ensuring a safe water supply, preventing and treating communicable diseases, and improving maternal and child health outcomes (including by promoting education for girls). The middle- and upper-income countries need to put more effort into ensuring that vulnerable populations benefit from cost-effective health interventions while preventing and treating noncommunicable diseases and injuries. Educating the public about reproductive behavior, smoking, accident prevention, mental health, and HIV/AIDS is important for all countries in the region.

Shoring up the financial base. Governments need to protect their populations from the costs of catastrophic illness; ensure that public health interventions are adequately financed; guarantee affordable health care; maintain equitable, efficient, and sustainable public and private financing mechanisms (including user charges); and implement incentive-based payment arrangements for medical care providers.

Increasing public sector efficiency. Policymaking and management must be coordinated across the multiple public agencies that finance and deliver health services and between the public and the private sectors. Thus, governments need to move away from simply financing and providing services and take over management of the system. They also need to develop effective regulations for both the public and the private sectors, decentralize decision making, and encourage public facilities to be autonomous.

Improving delivery systems. To guarantee that the system meets people's needs, governments must see to it that there are enough health personnel and adequate facilities and that they are optimally situated geographically. Governments should also ensure physical accessibility, efficient referral arrangements, effective cost controls, and high-quality services.

Education expenditures consume, on average, 4.5 percent of GDP but often surpass 6 percent. Although MENA countries spend more than other countries with similar levels of income, their education systems do not perform better. The largest share of budgets is allocated to salaries despite relatively low average wages for teachers. One reason is the role of the education system as the employer of last resort, which leads to redundancies in teaching and administrative personnel. Systems are inefficient, with excessive subsidies allocated to higher education and vocational training. Many systems are also ineffective, with high dropout and repetition rates offsetting high enrollment rates. In Algeria, for example, enrollment in primary education is almost universal, but only 12 out of 100 children entering first grade ever obtain a high school diploma. Finally, the systems remain inequitable. In Egypt, the enrollment rate for children in the top income quintile is above 80 percent, whereas enrollment in the lowest quintile is below 50 percent. In Morocco, net primary enrollment in urban areas is 85 percent, compared with 58 percent in rural areas. In all countries, enrollment rates are lower and dropout rates higher for girls than for boys. Proposed reforms concentrate on three areas:

Boosting efficiency. Management should be streamlined. Most MENA education systems are managed by at least three ministries, creating competition for resources and limiting consensus on systemwide reforms. While difficult to implement, given the institutional inertia of centralized planning, decentralization would allow communities and households to become more involved in the allocation of resources. Student/teacher ratios need to increase gradually, and, to improve quality—beyond teacher training—remuneration and promotion policies have to be linked to results in classes.

Increasing private participation. In contrast with other regions, the role of the private sector is highly constrained in MENA. These countries simply cannot afford to provide a free, high-quality public education at all levels. They need to consider cost recovery in public institutions, expansion of private services through appropriate accreditation standards, and outsourcing. The socially efficient ratio between public and private resources is higher in primary education than in higher education. Public subsidies need to be rationalized to target vulnerable population groups, perhaps by replacing supply subsidies with demand subsidies (for example, vouchers). To deal with students' lack of money to pay for higher education, sustainable fellowships and student loan programs are necessary.

Adapting programs and curriculums, promoting research and development, and diffusing new technologies. As the economic environment changes and new information and communication technologies develop, all countries face the challenge of adapting education programs. MENA countries have been slower to react, in part because of cultural conservatism and strong government regulation. More private sector involvement in the design of curriculums, research partnerships between universities and the private sector, and changes in remuneration policies to attract national scientists and researchers working or studying abroad will also be necessary.

Most MENA countries' social insurance, social assistance, and labor market programs consume between 6 and 20 percent of GDP. Social insurance is limited to workers in the formal sector, mostly in urban areas. Programs are generous even by standards in the Organization for Economic Cooperation and Development (OECD) (for example, average income replacement rates at retirement are often above 75 percent at all levels of income, compared with less than 50 percent in the OECD) and are not financially sustainable (unfunded liabilities often surpass 100 percent of GDP). Safety-net programs have limited outreach and are plagued by coordination and targeting problems. Active labor market policies, such as wage subsidies, training, and public works have proved costly and ineffective in generating new jobs. Countries will need to better match social risk-management instruments and risk factors. For instance, to reduce the risk of unemployment, efforts should focus on generating growth and deregulating labor markets rather than on expanding current labor market programs. Interventions that create opportunities for the poor and lessen vulnerability should have priority over traditional social assistance interventions. New instruments are also necessary to manage such previously overlooked social risks as child labor. The following policies should be considered:

Redesigning safety nets. Communities, not the central administration, should be in charge. Baseline data need to be developed to improve the targeting and monitoring of cash and in-kind transfers. Public works should pay salaries below market rates. Assistance should be temporary, and programs should not be used to create public sector employment.

Reforming pension funds. Countries should consider reducing the mandate of the public system by targeting more affordable replacement rates; introducing incentives for voluntary savings; reducing labor market distortions by reinforcing the links between contributions and benefits; creating a more decentralized system for the management of pension reserves; and developing noncontributory regimes to cover the long-term poor.

Overhauling labor market policies. Countries need to promote job creation, rather than avoid job destruction. Attention should be on phasing out wage subsidies, moving from supply-driven to demand-driven training, modernizing labor codes, and developing affordable unemployment insurance that does not create negative incentives for work.

For the majority of MENA countries, the focus in the social sectors during the new millennium should largely be on "software"—management remuneration policies, payment methods, promotion policies, and the like—rather than "hardware," such as clinics, schools, roads, and wells. The issues are complex, and the policy interventions often involve transformations of traditional systems that will certainly face opposition from those favored by the status quo. The preconditions for success are to fill the gaps in terms of civil and political freedom, empower women and the poor, and reform public sector management.

References:
  United Nations Development Program, 2002, The Arab Human Development Report (New York).
  World Bank, 1999, "Education in the Middle East and North Africa: A Strategy Towards Learning for Development," Middle East and North Africa Region, Human Development Department (Washington); http://www-wds.worldbank.org/servlet/WDS_IBank_Servlet?pcont =detail&eid=000094946020703004020126
  ______, 2002a, "Public Health in the Middle East and North Africa: A Situation Analysis," Middle East and North Africa Region, Human Development Department (unpublished; Washington).
  _______, 2002b, "Reducing Vulnerability and Increasing Opportunity: Social Protection in the Middle East and North Africa," Middle East and North Africa Region, Human Development Department (Washington); http://www-wds.worldbank.org/servlet/ WDS_IBank_Servlet?pcont=detail&eid=000094946_02073004020126