Public Debt and Fiscal Vulnerability in the Middle East
IMF Working Papers, January 1, 2007
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Bibliographic details
- Authors: Ludvig Söderling, Hanan Morsy, Martin Petri, Martin Hommes, Manal Fouad, Wojciech Maliszewski
- Published: January 1, 2007
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451865769.001
Summary
- Public debt in the Middle East increased during the mid-1990s mainly because of fiscal expansions.
- Public debt decreased in recent years, thanks to high oil revenue, economic growth, some primary non-oil fiscal adjustment, and debt relief.
- While countries in the Middle East appear to have adequately reacted to high indebtedness in the past, public debt levels remain uncomfortably high in many, particularly non-oil producing countries and middle income oil producers.
- Non-oil countries adjust mainly by increasing revenues, whereas oil countries adjust expenditure.
- For non-oil producing countries, substantial fiscal adjustment would be needed to bring debt down to below 50 percent of GDP.
- Oil producers as a group appear to follow sustainable, though procyclical, fiscal policies.
- Middle-income (but not high-income) oil producing countries would need to adjust somewhat to bring their policies in line with the permanent oil income benchmark.
Key findings and diagnostics
- Cause of mid-1990s debt increase: fiscal expansions.
- Recent drivers of debt reduction: high oil revenue; economic growth; some primary non-oil fiscal adjustment; debt relief.
- Cross-group behavior:
- Non-oil producing countries: adjustment primarily via revenue increases.
- Oil producing countries: adjustment primarily via expenditure cuts.
- Debt sustainability assessment:
- Non-oil producing countries: require substantial fiscal adjustment to reach debt below 50 percent of GDP.
- Oil producers (group level): generally follow sustainable but procyclical fiscal policies.
- Middle-income oil producers: need moderate adjustment to align with permanent oil income benchmark; high-income oil producers not identified as needing that adjustment.
Policy implications and recommendations
- Non-oil producing countries: undertake substantial fiscal adjustment focused on revenue measures to reduce public debt toward below 50 percent of GDP.
- Oil producing countries: consider measures to reduce procyclicality in fiscal policy and align fiscal policy with permanent oil income benchmarks, with particular attention to middle-income oil producers.
- Continue leveraging economic growth, oil revenues (where applicable), and targeted debt relief as part of comprehensive strategies to reduce public debt.