IDEAS home Printed from https://ideas.repec.org/p/erg/wpaper/1787.html

Fiscal Limits in the MENA Region: A Structural Analysis of Debt Sustainability

Author

Listed:
  • Nadine Yamout

    (American University of Beirut)

Abstract

The MENA region has faced significant socio-economic and political shocks over the past decade, which impacted 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.

Suggested Citation

  • Nadine Yamout, 2025. "Fiscal Limits in the MENA Region: A Structural Analysis of Debt Sustainability," Working Papers 1787, Economic Research Forum, revised 20 Aug 2025.
    • Handle: RePEc:erg:wpaper:1787
    as

    Download full text from publisher

    File URL: https://erf.org.eg/publications/fiscal-limits-in-the-mena-region-a-structural-analysis-of-debt-sustainability-2/
    Download Restriction: no
    File URL: https://erf.org.eg/app/uploads/2025/08/1755504594_545_3649164_1787.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Coimbra, Nuno, 2020. "Sovereigns at risk: A dynamic model of sovereign debt and banking leverage," Journal of International Economics, Elsevier, vol. 124(C).
    2. Bi, Huixin, 2012. "Sovereign default risk premia, fiscal limits, and fiscal policy," European Economic Review, Elsevier, vol. 56(3), pages 389-410.
    3. Huixin Bi & Nora Traum, 2012. "Estimating Sovereign Default Risk," American Economic Review, American Economic Association, vol. 102(3), pages 161-166, May.
    4. Bi, Huixin & Shen, Wenyi & Yang, Shu-Chun S., 2016. "Fiscal limits in developing countries: A DSGE Approach," Journal of Macroeconomics, Elsevier, vol. 49(C), pages 119-130.
    5. Simon Neaime, 2010. "Sustainability Of Mena Public Debt And The Macroeconomic Implications Of The Recent Global Financial Crisis," Middle East Development Journal (MEDJ), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 177-201.
    6. Assil EL. Mahmah & Magda Elsayed Kandil, 2019. "The balance between fiscal consolidation and non-oil growth: The case of the UAE," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 19(1), pages 77-93, March.
    7. Javier Andrés & Pablo Burriel & Wenyi Shen, 2020. "Debt sustainability and fiscal space in a heterogeneous Monetary Union: normal times vs the zero lower bound," Working Papers 2001, Banco de España.
    8. Neaime, Simon & Gaysset, Isabelle, 2017. "Sustainability of macroeconomic policies in selected MENA countries: Post financial and debt crises," Research in International Business and Finance, Elsevier, vol. 40(C), pages 129-140.
    9. Huixin Bi, 2017. "Fiscal Sustainability: A Cross-Country Analysis," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 5-35.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hürtgen, Patrick, 2020. "Fiscal sustainability duringthe COVID-19 pandemic," Discussion Papers 35/2020, Deutsche Bundesbank.
    2. Wang, Shu-Ling, 2021. "Fiscal stimulus in a high-debt economy? A DSGE analysis," Economic Modelling, Elsevier, vol. 98(C), pages 118-135.
    3. Eijffinger, S.C.W. & Kobielarz, M.L. & Uras, R.B., 2015. "Sovereign Debt, Bail-Outs and Contagion in a Monetary Union," Discussion Paper 2015-018, Tilburg University, Center for Economic Research.
    4. Fotiou, Alexandra & Shen, Wenyi & Yang, Shu-Chun S., 2020. "The fiscal state-dependent effects of capital income tax cuts," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    5. Mario Alloza & Javier Andrés & Pablo Burriel & Iván Kataryniuk & Javier J. Pérez & Juan Luis Vega, 2021. "La reforma del marco de gobernanza de la política fiscal de la Unión Europea en un nuevo entorno macroeconómico," Occasional Papers 2121, Banco de España.
    6. Xiao-Li Gong & Jin-Yan Lu & Xiong Xiong & Wei Zhang, 2025. "Liquidity constraints, real estate regulation, and local government debt risks," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 11(1), pages 1-28, December.
    7. Zuzana Mucka, 2019. "The mirror does not lie: Endogenous fiscal limits for Slovakia," Working Papers Working Paper No. 2/2019, Council for Budget Responsibility.
    8. repec:hum:wpaper:sfb649dp2015-032 is not listed on IDEAS
    9. Kollintzas, Tryphon & Tsoukalas, Konstantinos, 2015. "Bank and Sovereign Risk Interdependence in the Euro Area," CEPR Discussion Papers 10485, C.E.P.R. Discussion Papers.
    10. Fueki, Takuji & Hürtgen, Patrick & Walker, Todd B., 2024. "Zero-risk weights and capital misallocation," Journal of Financial Stability, Elsevier, vol. 72(C).
    11. Sokolova, Anna, 2015. "Fiscal limits and monetary policy: default vs. inflation," Economic Modelling, Elsevier, vol. 48(C), pages 189-198.
    12. Abderrahim Chibi & Sidi Mohamed Chekouri & Mohamed Benbouziane, 2019. "Debt sustainability, structural breaks and nonlinear fiscal adjustment: empirical evidence from Algeria," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 66(4), pages 369-397, December.
    13. Matthieu Darracq Paries & Georg Muller & Niki Papadopoulou, 2022. "Fiscal Multipliers with Sovereign Risk and Fragile Banks," Working Papers 2022-5, Central Bank of Cyprus.
    14. Chen, Xiaoshan & Leith, Campbell & Ricci, Mattia, 2023. "Evaluating fiscal policy reforms using the fiscal frontier," Journal of Economic Dynamics and Control, Elsevier, vol. 155(C).
    15. Sokolova, A., 2014. "Sovereign Risk and Monetary Policy," Journal of the New Economic Association, New Economic Association, vol. 21(1), pages 56-82.
    16. Neaime, Simon & Gaysset, Isabelle, 2024. "Financial inclusion, integration, and stability asymmetries in the Mediterranean region," The Journal of Economic Asymmetries, Elsevier, vol. 30(C).
    17. Mario Alloza & Javier Andrés & Pablo Burriel & Iván Kataryniuk & Javier J. Pérez & Juan Luis Vega, 2021. "The reform of the european Union’s fiscal governance Framework in a new Macroeconomic environment," Occasional Papers 2121, Banco de España.
    18. Huixin Bi & Wenyi Shen & Shu‐Chun S. Yang, 2022. "Fiscal implications of interest rate normalization in the United States," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 868-904, May.
    19. Christos Shiamptanis, 2024. "Tax Austerity: Does It Avert Solvency Crises?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 56(6), pages 1515-1543, September.
    20. Radde, Sören & Checherita-Westphal, Cristina & Cui, Wei, 2015. "Government bond liquidity and sovereign-bank interlinkages," SFB 649 Discussion Papers 2015-032, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    21. Olaoye, Olumide Olusegun & Olomola, P.A., 2022. "Empirical analysis of asymmetry phenomenon in the public debt structure of Sub-Saharan Africa's five biggest economies: A Markov-Switching model," The Journal of Economic Asymmetries, Elsevier, vol. 25(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:erg:wpaper:1787. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Namees Nabeel (email available below). General contact details of provider: https://edirc.repec.org/data/erfaceg.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.