Since many pro-poor reforms have redistributive consequences, they typically generate perceived winners and losers. Consequently, reform processes are quickly derailed when powerful stakeholders with the most to lose oppose such reforms and mobilize protests aimed at undermining government legitimacy.
This traditional story of interest group politics has long explained the reluctance of governments in the Middle East and North Africa (and elsewhere) to reform fiscally unsustainable subsidy programs, especially for food and fuel consumption. Since 2011, the shaky foundations of some of the region’s new regimes would logically exacerbate the challenges of subsidy reform. In fact, Figure 1 below from Afrobarometer public opinion data collected in 2013 shows that especially in a region where subsidies have long been part of the social contract between the state and citizens, government provision of basic goods is viewed as an essential characteristic of democracy.
Figure 1: Perceptions of Most Essential Characteristic of a Democracy 
Source: Afrobarometer, Round 5
Notes: Sample size of 1200 per country. The sub-Saharan African average includes 28 countries.
And yet quite a few MENA governments recently have proceeded with subsidy reforms of one type or another. What governance features have facilitated these reforms? And what explains the differences across countries in terms of the design and nature of these reforms? Typically, for citizens to buy into the need for subsidy reforms, they need to have sufficient trust that their government can effectively implement reforms and that the promised benefits from reform materialize. Such trust in turn can depend on assessments in at least three domains: 1) state capacity to implement reforms in an effective manner, 2) certainty that the political regime has a long term time horizon rather than being motivated only by short-term and populist appeals, and 3) mechanisms of accountability by which governments can be either rewarded or sanctioned for how well such reforms are implemented and can incorporate citizen concerns ex-ante.
Figure 2 presents some proxy indicators comparing key MENA countries in these three domains based on the World Bank’s Governance Indicators. One obvious take away from this graphic is that most MENA countries fall far short on these governance metrics. The full scale for each of these indicators ranges from 0 to 100, corresponding to worst and best ranked, respectively. Yet, no country here exceeds a 60, which indicates that a country is better ranked than 60 percent of the world’s countries.
But, the other key message is that there are important trade-offs across countries in different governance domains. For instance, Morocco and Jordan ranked highest in terms of political stability, thereby providing longer-term certainty to citizens. Along with Tunisia, they are also the region’s highest ranked countries for state capacity or “government effectiveness,” as measured by the quality of both the civil service and capability for policy formulation and implementation. In 2014, Morocco removed its petrol subsidy, which cost the country approximately US$5billion in 2013. Its gradual approach involved mitigation policies for the poor that expanded the coverage and amount of its social safety net, as well as retaining subsidies on wheat, sugar, and cooking gas. Likewise, the elimination of fuel subsidies in Jordan in 2012 was coupled with a compensation scheme to low income households to help them with the adjustment. Such policies, which are necessary to protect the most vulnerable, require a relatively high level of capacity.
Figure 2: Comparisons of Governance Quality in Selected MENA Countries, 2013 
Source: Calculated from World Bank’s Good Governance Indicators.
Notes: Government effectiveness captures the quality of public services, professionalism of the civil service and its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies. Voice and accountability reflects whether citizens can select their government and whether they have freedom of expression, association, and a free media. Political stability is the likelihood that the government will be destabilized or overthrown by unconstitutional or violent means.
Tunisia is clearly the best ranked in terms of voice and accountability, aided by multiparty elections and novel tools, such as the Marsoum41 online site, which allows citizens to directly access public documents. Given the increasingly open environment, it is not surprising that government attempts to reform fuel subsidies in early 2013 were met with large-scale protests. However, subsidy reform is now widely recognized among many political parties as essential to the country’s macroeconomic health. For instance, the winning party in the 2014 parliamentary and presidential elections, Nidaa Tounes (Call of Tunisia), included reducing public spending through subsidy cuts as one of its main manifesto promises.
Libya and Yemen present stark contrasts where there is a concurrent lack of capacity, stability, and accountability along with sharp social cleavages. Consequently, there is not only a higher likelihood that policy reforms will be mismanaged but also a greater probability that they could have large-scale social ramifications. Indeed, when the Yemeni government cut fuel subsidies in 2014, it then reneged on its promise to redirect the savings from the cuts. Public outrage ensued and generated grievances on which the Houthis could mobilize, resulting in devastating civil conflict.
As global oil prices begin to fall, there is an opportunity for many countries to reduce their current fuel subsidies. However, given the diversity in governance characteristics within the region, pursuing this opportunity will involve drawing on Brian Levy’s notion of “working with the grain.” This concept emphasizes that development reforms can only be successful if they are closely aligned with institutional and political contexts. For example, where voice and accountability are high and protests or election timetables may undermine leaders’ long-term commitment to reform, mechanisms to facilitate consensus and buy-in from all major stakeholders is necessary during discussions related to the design and implementation of reforms. Where state capacity is low, less technical options that involve very gradual changes, such as small-scale pilot reforms, may be the only feasible pathway.
