1. Scenarios for alternative Inter-Arab Financing for Development Abdallah Al Dardari Director Economic Development and Globalisation Division UN-ESCWA December 08 2011

2. This work was initiated in the context of the preparation of two ESCWA publications: the Arab World 20-25 report, and the Arab Integration report. Given some of the main questions of the lead authors, a macroeconomic framework that ensures the coherency of model and judgment-based forecasts was deemed necessary.

3. The main features of a small Macro- econometric modeling exercise in the Keynes-Klein/ Phillips- Bergstrom tradition will be presented. The model is a stochastic, dynamic, non- linear simultaneous-equations model formulated in discrete time.

4. The main purpose of a Macro-econometric Model is to forecast : -Wealth/ Income/ GDP growth; -Employment; -Price/ Monetary developments; -Balance of Payments Developments; -Fiscal Sustainability Issues/ Public Debt Developments.

5. Structure of the Model: The model is structured along 5 main Blocks: -The real sector dealing with household demand, factors demand by firms, and external trade. -The Balance of Payments block; -The Prices-Wages block; -The Monetary survey; -The Fiscal accounts. The output of the model will be linked to sub- modules tackling several development issues (poverty, malnutrition,…) through cross-sectional regressions.

6. The main purpose of the framework is to: to conduct simulations of the impact of budgetary (and monetary) policies. to shock indicators/ parameters related to: -Intra-regional financial flows, in particular issues related to the reallocation of the global accumulated Oil Wealth; -intra-regional aid flows; -Intraregional-trade in goods and services with reference the two main modeled sub-regions; -Some structural developments related to Labor Supply, particularly to simulate the impact of increases in the participation rates in the region; -The model considers two sub-regional groupings, the Oil Exporters (the GCCs along with Algeria and Libya) and the Oil Importers. So far the model excludes Comoros, Djibouti, Iraq and Somalia. Iraq will be modeled separately.

7. Picture that: Real GDP per capita in the Arab World

8. The outcomes under the status quo are alarming for the Oil Importers…

9. Adverse capital accumulation dynamics …

10. .. Even if the trade balance of Oil Importers is set to reach equilibrium in 2025 on mechanical grounds

11. Some Simulations Main assumption: 10% of the projected oil receipts of the Oil Exporters are invested in the Oil Importing Countries, and 0.5% in increased intra-regional aid.

12. Simulation Results

15. Further simulation of Innovative Financing Liquidity Surplus in Arab Banks in MICs and LDCs is estimated at US$150 billion Effective intermediation with strctural transformation would have much higher impact on poverty reduction, employment and equity.

16. THANK YOU