By Aalaa Halaka
The closing session of ERF’s 25th annual conference celebrated a number recently published books by ERF fellows. Dr Jeffrey Nugent from the University of Southern California talked to us about the second volume of “Institutions and Macroeconomic Policies in Resource-Rich Arab Economies”, recently published with Oxford University Press. The book features chapters on oil management in resource-rich MENA countries, with a special focus on fiscal policy management.
One of the main economic management in oil-rich countries is fixed exchange rates, which implies that theses government can only use fiscal policy in the face of economic shocks. The book analyzes how fiscal policy is used, more specifically in the management of oil revenues, to identify the main challenges and weaknesses.
Dr Nugent explains that the volatility in oil prices is the culprit, as it leads governments to increase spending when prices are high to appease the citizens or voters, but most importantly the circle of friends and crony capitalists. The challenge is that these governments are unwilling to decrease spending in fear of losing popularity. This pattern has led to unhealthy budgets and inefficient allocation of expenditure that ultimately undermines economic management processes.
Taking a more pragmatic stance on how to shake things up, the book thus takes a more in-depth look at these budgets and how they are formed. In looking at how to manage exchange rates, one of the chapter proposes what could be a better system, which recommends modifying the fixed exchange rates not just against the dollar -as they are now, but against a basket of currencies, including the oil price. The other angle that the book tackles is the underlying institutional framework that affect policy making in the region. Dr Nugent points out that these oil-rich countries haven’t developed their pre-oil institutions to adapt to the new economic system. The book features three chapters that look at specific countries and how they -each being a unique case- can design better institutions to support more effective policies for a sustainable future.
The Economic Research Forum’s 25th Annual Conference is held in Kuwait City, on 10-12 March, 2019, under the theme of Knowledge, Research Networks, and Development Policy. . Visit the conference website to find out more about the event and access papers, videos and blogs.