Managing Fiscal Risks in the Middle East and North Africa

Departmental Papers, June 11, 2023

Source details

Authors: Racheeda Boukezia, Jacques Charaoui, Jonas M Frank, Mahmoud Harb, Maximilien Queyranne, Nathalie Reyes, Patrick F Ryan, Alexander F. Tieman
Published: June 11, 2023
Series: Departmental Papers
DOI: https://doi.org/10.5089/9798400229886.087

Analyzes sources of fiscal risks in 17 low- and middle-income countries in the Middle East, North Africa and Pakistan region, excluding high-income Gulf countries (MENAPEG).
Discusses avenues for reform to strengthen fiscal risk management and provides a broad analytical framework for policymakers.

Macroeconomic shocks, contingent liabilities, and tail-risk events.
Volatile economic growth and sharp exchange rate movements.
High dependence on hydrocarbon revenue among MENAPEG oil and gas exporters.
Pervasive universal subsidies that generate budgetary exposure to swings in commodity prices.
Substantial government involvement in the economy and large state ownership of firms and banks, creating contingent liabilities from state-owned enterprises and the financial sector.
Social unrest and conflicts, COVID-19 pandemic, natural disasters, and climate change as important tail-risk events.

Many factors historically associated with the materialization of fiscal risks in MENAPEG countries are likely to remain sources of vulnerability in the future.
The region’s exposure arises from interacting channels: commodity price volatility, fiscal commitments through subsidies and SOEs, exchange rate and growth volatility, and tail risks from shocks and disasters.

Enhance national authorities’ capacity to identify, quantify, and assess risk factors and their budget’s exposure to them.
Conduct thorough fiscal risk analysis to inform policy decisions and to guide risk-mitigation measures.
Where risks cannot be mitigated or are judged to be acceptable, consider adopting appropriate medium-term fiscal frameworks to build buffers to deal with them.
Build on precedents where progress has been made and use the provided analytical framework to fully embrace fiscal risk management in all its dimensions.

IMF Departmental Paper “Managing Fiscal Risks in the Middle East and North Africa” (June 11, 2023).