BEIRUT: The Institute of International Finance expects modest recovery in Egypt, Tunisia and Libya in the coming 12 to 18 months, while overall economic conditions for countries in political transition would remain weak.

In addition, the required policy reforms are likely to be slow unfocused and lacking in overall cohesion, it said in a report that was carried by Bank Audi’s MENA Weekly Monitor.

“In fact, economic policymaking would be hindered by concern with political issues, by the lack of clarity surrounding the economic policy framework to be proposed by new governments, and by the difficulty of forging political consensus over diversity and multiplicity of political parties in new coalitions,” the report said.

It added that the complexity of the problems would add another dimension of difficulty.

As a result, these economies would perform only modestly in the next two to three years, the IIF said.

“Egypt, and to a lesser extent Tunisia, could be heading toward an economic crisis if growth rates do not take off and unemployment does not drop,” the IIF warned.

The IIF recommended that the new authorities could learn from some Asian and Latin American countries which, with the help of external support, overhauled their economies through fundamental structural reforms and established a market-friendly business environment, spurring innovation, entrepreneurship and dynamic growth.

“In this regard, Tunisia and Libya [if the political transition remains peaceful] are better positioned to go in the direction of market-oriented reforms. Egypt’s situation, because of the heavy legacy of an inflated public sector and state-dominated economic growth, is far more complex. On the other hand, success in Egypt carries much higher stakes than in any other country in the region,” the report said.

It added that Egypt, Tunisia, Morocco, Syria, Libya and Jordan, have considerable inefficiencies that can be easily exploited to great advantage with the appropriate policies and incentives.

“The countries possess young populations with basic education and skills, most have some natural resources or enjoy strategic advantages of location or strong external support, and all could benefit from proximity to fast-growing emerging markets in Asia and Africa as well as to Europe,” the IIF said.

It added success during the coming two to three years in establishing more open and accountable governments, supported by reformed institutions and a market-friendly business environment, could pave the way for the high and sustainable quality growth that could bring much prosperity to the region.

“Indeed, if countries in the region somehow navigate this difficult passage, the prospects over the long term could be exceptionally bright,” the report concluded.