Fiscal Revenues in South Mediterranean Arab Countries: Vulnerabilities and Growth Potential

IMF Working Papers, April 1, 2002

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This paper reviews the fiscal revenue performance of Southern Mediterranean Arab countries (SMCs) over the last decade and compares this performance with selected middle income and Organization for Economic Cooperation and Development (OECD) countries.
These revenues have been declining over the past few years, and this trend is expected to continue because of a fall in mineral receipts and trade liberalization.
Individual income tax yields are substantially lower than in other regions but the introduction of the value-added tax has proven to be highly successful.
Higher trade protection than in other regions must be reduced, if SMCs are to be integrated into the global economy.
Loss of nontax and customs revenues can be offset by reforms in income tax systems, petroleum product pricing, and by ensuring, through flexible exchange rate policies, that competitiveness is maintained.

Fiscal revenues in SMCs have been declining in recent years.
Decline drivers identified: fall in mineral receipts and trade liberalization.
Individual income tax yields: substantially lower than in other regions.
Value-added tax (VAT): introduction has been highly successful in SMCs.
Trade protection: higher than in other regions and needs reduction for global integration.
Nontax and customs revenue losses can be offset by:
- reforms in income tax systems;
- petroleum product pricing adjustments;
- ensuring competitiveness via flexible exchange rate policies.

Reduce trade protection to facilitate integration into the global economy.
Reform income tax systems to increase individual income tax yields.
Adjust petroleum product pricing to recover fiscal revenues lost from nontax sources.
Use flexible exchange rate policies to help maintain competitiveness amid revenue shifts.