MEETING NOTES- Enterprise spoke to World Bank’s Chief Economic Advisor for MENA Shanta Devarajan for an interview at his office in Washington, DC, last week. Key takeaways:

• On job creation: “The government doesn’t necessarily need to invest in job-creating sectors. The government needs to invest in policies and regulations that get the private sector to invest in job-creating sectors,” Devarajan said. It is about implementing the policies, not just introducing them, he added, stressing on competition policies to support the job-creating SMEs.
• On how effective raising interest rates would be to combat inflation, given Egypt’s largely unbanked population, Devarajan said, “It doesn’t matter whether most Egyptians don’t have bank accounts or not, because what’s going on with the fiscal deficit is that the banks are using whatever deposits they have to buy the bonds.” Interest rates go up as an incentive to buy bonds, and every government needs a monetary policy tool to help contain inflation, which Devarajan describes as a “one shot episode” in Egypt. Bottom line: It all boils down to the fiscal deficit, he says. “The inflation and high interest rates are symptoms.”
• On the US providing “loan guarantee authority for Egypt” in a spending bill approved last week, Devarajan said it is not likely to make Egypt borrow more, because Cairo is only borrowing at the moment to finance its fiscal deficit. And despite the interest rate differential, Devarajan was cautious on foreign borrowing: “Now they’re borrowing domestically at 8%, and now you might be able to borrow in world markets at 2%,” he said, but the foreign currency risk that comes with the 2% rate gives pause.
• On growth and oil prices: All oil-importing countries in MENA (such as Egypt) are growing faster in 2017 due to low oil prices and relative political stability. “Even if oil prices stay at USD 40-50 a barrel range, I think even the oil exporters will see a slight uptick in growth,” Devarajan said.
• Shale has set a USD 60 / bbl ceiling on oil prices: “[Oil prices have not gone down] because of the US shale. It’s the non-OPEC countries that are now determining the price of oil, effectively,” said Devarajan. “If you look at it, the thing is, US shale becomes profitable at about USD 60 a barrel. And the interesting thing about shale … is that you can turn on and off production in six months.” So if the price goes up to USD 60, there will be a flood of US shale production that could go up to 1 mn barrels a day, making USD 60 effectively the new ceiling for the market.