6. Turning the tide

In MENA, the default mode for planning and allocating public resources often is top down—and sizeable public infrastructure investments have been a hallmark of several governments. Decisions regarding the geographic allocation of investment expenditure are taken by sectoral ministries within the central government, with little agency left to the local level. Not only is planning centralized, so are mechanisms for delivery of services. While several MENA countries have recently made important advances in implementing a decentralization agenda—including Tunisia and Lebanon—frontline service providers still have little real agency, as was noted in the discussion of water management. Notwithstanding some progress towards decentralization, local government systems in MENA still have little room for independent action, especially in the Mashreq region.

Central transfers continue to be the main source of local finance, because the share of local expenditures in total government spending remains low. But the budget processes governing sectoral and subnational resource allocations for public investment in MENA commonly lack transparency and predictability, potentially skewing resource flows toward areas with greater bargaining power. This pattern compounds existing regional imbalances in terms of local government staffing and human resource capacity, which disproportionately affect poorer areas. For example, in Tunisia, regional imbalances are massive in terms of staffing and human resource capacity between the northern and coastal municipalities and the less-well-off interior and rural ones.

Policies to reduce spatial inequity are often undermined by a lack of local authority and resources—whether to raise revenues, to make investment decisions and allocate expenditures, or to deliver local services. Lagging areas are often the least able to mobilize and manage local revenues because the central government wields more fiscal control over smaller municipalities than over larger ones. Further, transfers to these localities are often insufficient and lack objective standards, transparency, and predictability. This lack of budget authority, together with the lack of local control over provision of services, can undermine the local execution and maintenance of place-based investments—the very investments that are supposed to reduce spatial disparities.

Effectively meeting citizens’ demands for quality public services requires shifting from the monumental to the incremental: away from top-heavy, state-centric planning and delivery of services toward placing greater agency, capacity, and resources at the local level. Enhancing contestability for service delivery at the local level is a key part of this agenda. In other words, empowerment and accountability are essential to addressing the rising spatial inequalities that in other countries have caused significant political disruptions.

6. Turning the tide

The MENA region is facing important vulnerabilities, which the current crises—first the pandemic, then the Russian invasion of Ukraine—have exacerbated. Prices of food and energy are higher, hurting the most vulnerable, and rising interest rates from the global tightening of monetary policy are making debt service more burdensome. Moreover, no country is fully out of the pandemic and how and whether the virus will continue to mutate is unknowable. In previous issues of the MENA Economic Update, we argued that these shocks caught the MENA region ill-prepared to face them.21 Indeed, today’s vulnerabilities are deeply rooted in a decades-long history of low growth, in public debts that were already growing to worrisome levels before 2020, and in public services that continue to disappoint people.

21 Gatti et al. (2021) and Gatti et al (2022).