Sovereign debt sustainability in MENA countries: Determinants and policy implications
Abstract
This paper examines sovereign debt sustainability in the Middle East and North Africa (MENA) region by comprehensively analyzing macroeconomic, institutional, and geopolitical determinants. Using a panel dataset of 15 MENA countries spanning 2000-2023, we employ dynamic panel estimation techniques to identify key factors affecting debt sustainability. Our findings reveal significant heterogeneity across the region, with oil-exporting countries demonstrating distinct debt dynamics compared to oil-importing nations. Institutional quality and governance indicators emerge as critical predictors of debt sustainability beyond traditional macroeconomic variables. Furthermore, our threshold analysis identifies specific debt-to-GDP levels at which growth effects become negative, varying substantially across country groups. The results underscore the importance of tailored policy approaches to regional debt management, challenging one-size-fits-all recommendations from international financial institutions. This research contributes to the literature by developing a novel composite debt sustainability index and providing empirical evidence on the region-specific determinants of sustainable sovereign debt management.
Full text article
References
Abdel-Haleim, S. M. (2016). Fiscal policy and economic performance in MENA countries: New evidence from panel data analysis. Middle East Development Journal, 8(2), 264-292.
Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369-1401. DOI: https://doi.org/10.1257/aer.91.5.1369
Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions are a fundamental cause of long-run growth. In P. Aghion & S. N. Durlauf (Eds.), Handbook of economic growth (Vol. 1, pp.385-472). Elsevier. DOI: https://doi.org/10.1016/S1574-0684(05)01006-3
Acemoglu, D., Naidu, S., Restrepo, P., & Robinson, J. A. (2019). Democracy does cause growth. Journal of Political Economy, 127(1), 47-100. DOI: https://doi.org/10.1086/700936
Alesina, A., & Passalacqua, A. (2016). The political economy of government debt. In J. B. Taylor & H. Uhlig (Eds.), Handbook of macroeconomics (Vol.6, pp.6599-2651). Elsevier. DOI: https://doi.org/10.1016/bs.hesmac.2016.03.014
Alkhatib, A., Al-Sharif, N., & Al-Rawashdeh, N. (2020). Fiscal sustainability in GCC countries: Evidence from panel data approach. Journal of Economics and Financial Analysis, 4(1), 45-63.
Al-Saidi, M., Zaidan, E., & Hammad, S. (2021). Governance of natural resource revenues in the MENA region: Challenges and opportunities. Resources Policy, 71, 102010.
Alvarado, C. D., Izquierdo, A., & Panizza, U. (2004). Fiscal sustainability in emerging market countries with an application to Ecuador (Working Paper No. 511). Inter-American Development Bank. DOI: https://doi.org/10.2139/ssrn.1818713
Arellano, C. (2008). Default risk and income fluctuations in emerging economies. American Economic Review, 98(3), 690–712. DOI: https://doi.org/10.1257/aer.98.3.690
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51. DOI: https://doi.org/10.1016/0304-4076(94)01642-D
Arezki, R., & Brückner, M. (2012). Commodity windfalls, democracy and external debt. The Economic Journal, 122(561), 848-866. DOI: https://doi.org/10.1111/j.1468-0297.2012.02508.x
Arslanalp, S., & Tsuda, T. (2014). Tracking global demand for emerging market sovereign debt. IMF Economic Review, 62(3), 430-464. DOI: https://doi.org/10.1057/imfer.2014.20
Ayadi, R., Azzabi, M., & Sessa, C. (2022). Public debt and fiscal sustainability in MENA countries: A post-COVID assessment (EMEA Policy Paper).
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115-143. DOI: https://doi.org/10.1016/S0304-4076(98)00009-8
Bohn, H. (1998). The behavior of U.S. public debt and deficits. The Quarterly Journal of Economics, 113(3), 949-963. DOI: https://doi.org/10.1162/003355398555793
Broner, F., Erce, A., Martin, A., & Ventura, J. (2014). Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects. Journal of Monetary Economics, 61, 114-142. DOI: https://doi.org/10.1016/j.jmoneco.2013.11.009
Calvo, G. A., Izquierdo, A., & Talvi, E. (2008). Sudden stops and phoenix miracles in emerging markets. American Economic Review, 98(2), 439-444.
Caner, M., & Hansen, B. E. (2004). Instrumental variable estimation of a threshold model. Econometric Theory, 20(5), 813-843. DOI: https://doi.org/10.1017/S0266466604205011
Cecchetti, S. G., Mohanty, M. S., & Zampolli, F. (2011). The real effects of debt (BIS Working Paper No.352).
Checherita-Westphal, C., & Žďárek, V. (2017). Fiscal reaction function and fiscal fatigue: Evidence for the euro area (ECB Working Paper No.6036).
Chudik, A., Mohaddes, K., Pesaran, M. H., & Raissi, M. (2017). Is there a debt-threshold effect on output growth? Review of Economics and Statistics, 99(1), 135-150. DOI: https://doi.org/10.1162/REST_a_00593
Domar, E. D. (1944). The "burden of the debt" and the national income. The American Economic Review, 34(4), 798-827.
Dovis, A. (2019). Efficient sovereign default. The Review of Economic Studies, 86(1), 282-312. DOI: https://doi.org/10.1093/restud/rdy012
Du, W., & Schreger, J. (2016). Local currency sovereign risk. The Journal of Finance, 71(3), 1027-1070. DOI: https://doi.org/10.1111/jofi.12389
Eberhardt, M., & Presbitero, A. F. (2015). Public debt and growth: Heterogeneity and non-linearity. Journal of International Economics, 97(1), 45-58. DOI: https://doi.org/10.1016/j.jinteco.2015.04.005
Eichengreen, B., Hausmann, R., & Panizza, U. (2007). Currency mismatches, debt intolerance, and the original sin: Why they are not the same and why it matters. In S. Edwards (Ed.), Capital controls and capital flows in emerging economies: Policies, practices, and consequences (pp.121-170). University of Chicago Press. DOI: https://doi.org/10.7208/chicago/9780226184999.003.0004
El-Husseiny, I. A. (2020). Determinants of public debt in MENA countries: A panel data analysis. Middle East Development Journal, 12(2), 210-229.
Emam, H. A., Bary, A. A., & Abdelwahab, N. M. (2019). Governance and fiscal sustainability in the MENA region. International Journal of Economics and Financial Issues, 9(4), 84-94.
Ghosh, A. R., Kim, J. I., Mendoza, E. G., Ostry, J. D., & Qureshi, M. S. (2013). Fiscal fatigue, fiscal space and debt sustainability in advanced economies. The Economic Journal, 123(566), F4-F30. DOI: https://doi.org/10.1111/ecoj.12010
Hakkio, C. S., & Rush, M. (1991). Is the budget deficit "too large"? Economic Inquiry, 29(3), 429-445. DOI: https://doi.org/10.1111/j.1465-7295.1991.tb00837.x
Hansen, B. E. (1999). Threshold effects in non-dynamic panels: Estimation, testing, and inference. Journal of Econometrics, 93(2), 345-368. DOI: https://doi.org/10.1016/S0304-4076(99)00025-1
Hegazy, A. K., & Matta, S. (2022). Hidden debt and contingent liabilities: Challenges for fiscal risk assessment in MENA countries (World Bank Policy Research Working Paper No.9968).
International Monetary Fund. (2023, April). Regional economic outlook: Middle East and Central Asia.
Kabbani, N., & Ben Mimoune, N. (2021). Economic diversification in the MENA region. Brookings Doha Center. DOI: https://doi.org/10.1007/978-3-030-66380-3
Khalladi, H. B. H. (2019). Fiscal fatigue, public debt limits, and fiscal space in some MENA countries. Economics Bulletin, 39(2), 1005-1017.
Khandelwal, P., & Roitman, A. (2013). The economics of political transitions: Implications for the Arab Spring (IMF Working Paper No.13/69). DOI: https://doi.org/10.5089/9781475569643.001
Kraay, A., & Nehru, V. (2006). When is external debt sustainable? The World Bank Economic Review, 20(3), 341-365. DOI: https://doi.org/10.1093/wber/lhl006
Mahdavi, S. (2022). Debt sustainability framework for MENA oil exporters. MEEA 21st Annual International Conference.
Mahmah, A. E., & Kandil, M. E. (2019). The balance between fiscal consolidation and non-oil growth: The case of the UAE. Borsa Istanbul Review, 19(1), 77-93. DOI: https://doi.org/10.1016/j.bir.2018.05.002
Mahmoud, K. A. (2023). Public debt sustainability challenges in MENA countries: A post-pandemic assessment. Journal of Development Economics and Finance, 4(1), 37-58.
Mazraati, V., & Alyousif, O. M. (2009). GCC countries' oil revenue management: A comparative review. OPEC Energy Review, 33(3-4), 267-292. DOI: https://doi.org/10.1111/j.1753-0237.2009.00161.x
Mendoza, E. G., & Oviedo, P. M. (2006). Fiscal policy and macroeconomic uncertainty in developing countries: The tale of the tormented insurer (NBER Working Paper No.12586). DOI: https://doi.org/10.3386/w12586
Moreno Badia, M., Medas, P., Gupta, P., & Xiang, Y. (2020). Debt is not free (IMF Working Paper No.60/1). DOI: https://doi.org/10.5089/9781513523767.001
Neaime, S. (2010). Sustainability of MENA public debt and the macroeconomic implications of the recent global financial crisis. Middle East Development Journal, 2(2), 177–201. DOI: https://doi.org/10.1142/S1793812010000228
Neaime, S., & Gaysset, I. (2017). Sustainability of macroeconomic policies in selected MENA countries: Post financial and debt crises. Research in International Business and Finance, 40, 129-140. DOI: https://doi.org/10.1016/j.ribaf.2017.01.001
Presbitero, A. F. (2012). Total public debt and growth in developing countries. The European Journal of Development Research, 24(4), 606-626. DOI: https://doi.org/10.1057/ejdr.2011.62
Reinhart, C. M., & Rogoff, K. S. (2010). Growth in a time of debt. American Economic Review, 100(2), 573-578. DOI: https://doi.org/10.1257/aer.100.2.573
Rey, H. (2015). Dilemma not trilemma: The global financial cycle and monetary policy independence (NBER Working Paper No.61162). DOI: https://doi.org/10.3386/w21162
Sarangi, N., & El-Ahmadieh, L. (2017). Fiscal policy response to public debt in the Arab region. Economic and Social Commission for Western Asia (ESCWA).
Selwaness, I., & Zaki, C. (2015). Assessing the impact of trade reforms on informality in Egypt. The Journal of North African Studies, 20(3), 391-414. DOI: https://doi.org/10.1080/13629387.2014.997717
Van der Ploeg, F. (2011). Natural resources: Curse or blessing? Journal of Economic Literature, 49(2), 366-420. DOI: https://doi.org/10.1257/jel.49.2.366
Venables, A. J. (2016). Using natural resources for development: Why has it proven so difficult? Journal of Economic Perspectives, 30(1), 161-184. DOI: https://doi.org/10.1257/jep.30.1.161
Yamout, N. (2024). Fiscal limits in the MENA region: A structural analysis of debt sustainability. SSRN. DOI: https://doi.org/10.2139/ssrn.5052527
Yoon, J. W., Kim, J., & Lee, J. (2014). Impact of demographic changes on inflation and the macroeconomy (IMF Working Paper No.14/210). DOI: https://doi.org/10.5089/9781498396783.001
Authors
Copyright (c) 2025 Kais Ben Mbarek

This work is licensed under a Creative Commons Attribution 4.0 International License.