2022-06-08-IMF-Informality,_Development,_and_the_Business_Cycle_in_North_Africa_90页_6mb

Summary: Informality, Development, and the Business Cycle in North Africa

Key Findings:

Extent of Informality In North Africa, informal activity constitutes a substantial share of economic output and employment. According to the Schneider index, informal production accounts for about 30% of GDP on average across the region, with some countries like Algeria and Tunisia exhibiting higher levels, while others like Egypt, Mauritania, and Morocco have shown improvements in recent years. Employment informality is also high, with around two-thirds of workers in North Africa employed informally, lacking formal jobs, social protection, and tax compliance.

Drivers of Informality Informality in North Africa is influenced by both structural factors and policy distortions.

• Structural Factors: Low human capital levels, youth bulge, high agricultural employment, and female labor force participation, particularly concentrated in agriculture, contribute to informality.
• Policy Distortions: Governance quality, tax burdens, labor market rigidities, and regulatory complexity significantly explain a large share of informal employment, especially compared to advanced economies.

Impact on Growth and Cycles: High informality levels can hinder sustainable and inclusive growth by constraining formal investment, reducing tax revenues, and limiting access to finance. Informality acts as a countercyclical buffer during normal recessions by absorbing job losses, but the COVID-19 pandemic had an unusual impact. In North Africa, the contraction in formal economic activity forced many informal businesses to shut down, leading to a significant decline in informal employment during the pandemic, disrupting the usual cyclical pattern.

Policy Recommendations: Comprehensive reforms are needed to reduce informality and harness its potential. Key measures include:

• Reducing barriers to formality (simplified tax regimes, eased business registration).
• Improving governance, the business climate, and tax enforcement.
• Strengthening financial inclusion and access to credit for small firms and the self-employed.
• Increasing the use of digital payments to improve transparency.
• Updating labor market regulations to improve flexibility while protecting workers through efficient social safety nets.

Path Forward: A coordinated and comprehensive approach involving multiple reforms (tax, labor, product market, and governance) is more effective than isolated measures. Such policies can potentially reduce employment informality by up to 40% and boost long-term growth significantly in North Africa.