Measuring Fiscal Sustainability in the MENA Region Using a Time-Varying Fiscal Reaction Function

Abstract

Over the past few decades, countries of the Middle East and North Africa (MENA) region have faced several economic and political challenges such as plummeting oil prices, currency devaluations, political instability, and several refugee crises in sev eral countries. Even prior to the onset of the COVID-19 pandemic, several studies revealed that the MENA region suffers from poor governance which leads to higher levels of debt as a share of the output. Consequently, addressing the sustainability of this mounting debt is a pressing issue for the region. As such, the escalating debt situation in the MENA region demands a comprehensive analysis. Against this background, this thesis evaluates the sustainability of public debt in some coun tries of the MENA regions, particularly Bahrain, Egypt, Jordan, Kuwait, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates by employing a state-space model with time-varying parameters. The thesis endeavors to tackle how the trajectory of debt sustainability evolved in MENA region economies throughout different time periods and what economic criteria determine the threshold of public debt sustainability.