Conference Paper
Fiscal Limits in the MENA Region: A Structural Analysis of Debt Sustainability
No.
ERF_31_MC15
Publisher
ERF
Date
March, 2025
Topic
E. Macroeconomics and Monetary Economics
The MENA region has faced significant socio-economic and political shocks over the past decade, impacting the fiscal stability of its economies. This paper explores how the fiscal fundamentals of these economies and the economic shocks they face influence their fiscal space, defined as the maximum level of sustainable debt net of actual debt as a share of GDP. Using a non-linear DSGE model with a state-dependent fiscal limit that is calibrated using data from six non-oil-exporting and six oil-exporting MENA countries, I estimate the fiscal limit distributions for these economies. I also examine how shocks to productivity, public spending and government revenues affect the fiscal space, as well as how fiscal policy tools such as transfers and taxation shape debt sustainability. Key findings reveal that non-oil-exporting MENA countries operate with more constrained fiscal positions, that government transfers and tax capacity play a major role in shaping fiscal limits, and that the fiscal resilience of oil-exporting MENA economies is primarily attributed to the oil revenues they generate.
Authors
Nadine Yamout
Assistant Professor of Economics, American University of...