nep-ara New Economics Papers
on Arab World
Issue of 2011‒04‒02
eleven papers chosen by
Quentin Wodon
World Bank

  1. Food and Energy Prices, Government Subsidies and Fiscal Balances in South Mediterranean Countries By Ronald Albers; Marga Peeters
  2. How Strong are Fiscal Multipliers in the GCC? An Empirical Investigation By Raphael A. Espinoza; Abdelhak S Senhadji
  3. Reforming government debt markets in MENA By Garcia-Kilroy, Catiana; Silva, Anderson Caputo
  4. The status of bank lending to SMES in the Middle East and North Africa region : the results of a joint survey of the Union of Arab Bank and the World Bank By Rocha, Roberto; Farazi, Subika; Khouri, Rania; Pearce, Douglas
  5. A review of credit guarantee schemes in the Middle East and North Africa Region By Saadani, Youssef; Arvai, Zsofia; Rocha, Roberto
  6. Financial inclusion in the Middle East and North Africa : analysis and roadmap recommendations By Pearce, Douglas
  7. "No way out": the lack of efficient insolvency regimes in the MENA region By Uttamchandani, Mahesh
  8. Increasing access to credit through reforming secured transactions in the MENA Region By Alvarez de la Campa, Alejandro
  9. The insurance sector in the Middle East and North Africa : challenges and development agenda By Lester, Rodney
  10. Egyptian Men Working Abroad: Labor Supply Responses by the Women Left Behind By Binzel, Christine; Assaad, Ragui
  11. The Palestinian economy and its trade pattern: Stylised facts and alternative modelling strategies By Botta, Alberto

  1. By: Ronald Albers; Marga Peeters
    Abstract: Working paper, focusing on the impact of soaring commodity prices, notably for food and energy on the economy and public finances of Mediterranean neighbour countries of the EU. Just before the global crisis soaring commodity prices pushed up inflation significantly, not least in EU neighbour countries at the Mediterranean. These price shocks affected public finances in the southern Mediterranean region, notably via government subsidies. Partly due to lags in the transmission of commodity prices into prices for final users the subsidies burden continued to be felt, despite the price falls registered in the wake of the credit crisis. We show that downward price rigidities play a role. Recently, commodity price pressures have re-emerged. We focus on food prices and analyse recent developments in food inflation in Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, the occupied Palestinian territories, Syria and Tunisia in comparison with other middle income economies. Subsidies on food and fuel are quantified per country for the period 2002-2010. The incremental government subsidies entail an estimated deterioration of the government balances of up to more than 2% of GDP in 2008 and, for most countries only slight improvements in the global recession year 2009. Ensuing longer-term challenges for public finances remain as inflation rises on the back of higher global economic growth. As recent events in Tunisia illustrate, these can have important political implications. Finally, the paper discusses some options that can lead to more efficient government spending, even in the event of sharp swings in prices of basic necessities.
    Date: 2011–02
  2. By: Raphael A. Espinoza; Abdelhak S Senhadji
    Abstract: The effectiveness of fiscal policy in smoothing the impact of shocks depends critically on the size of fiscal multipliers. This is particularly relevant for the GCC countries given the need for fiscal policy to cushion the economy from large terms of trade shocks in the absence of an independent monetary policy and where fiscal multipliers could be weak dues to substantial leakages through remittances and imports. The paper provides estimates of the size of fiscal multipliers using a variety of models. The focus is on government spending since tax revenues are small. The long-run multiplier estimates vary in the 0.3-0.7 range for current expenditure and 0.6-1.1 for capital spending, depending on the particular specification and estimation method chosen. These estimates fall within the range of fiscal multiplier estimates in the literature for non-oil emerging markets.
    Keywords: Cooperation Council for the Arab States of the Gulf , External shocks , Fiscal policy , Government expenditures , Nonoil sector , Saudi Arabia ,
    Date: 2011–03–22
  3. By: Garcia-Kilroy, Catiana; Silva, Anderson Caputo
    Abstract: This paper examines the current stage of development of government securities markets in the non-GCC MENA region focusing in five countries that have government bond markets with a minimum size and greater potential for market development: Egypt, Jordan, Lebanon, Morocco and Tunisia. The analysis focuses on the five key building blocks that normally sustain deep and liquid public debt markets: (i) money markets; (ii) primary market (issuance policy and placement mechanisms); (iii) secondary market organization; (iv) investor base; and (v) clearing and settlement infrastructure. The study shows that despite country differences, several common weaknesses in the key building blocks explain the underdevelopment of MENA bond markets. Most important among these are a symbiotic relationship between banks and Governments caused by lack of alternative investments that makes banks act as captive demand and dominate bond markets, opportunistic primary issuance practices, and excess liquidity in the financial system. These demand and supply characteristics have led to highly concentrated buy-and-hold portfolios by banks and State-owned institutions, poor price discovery and lack of liquidity in secondary markets. A set of actions to unlock market development in MENA is proposed involving measures in all key building blocks - from improvements in monetary policy implementation and liquidity management to enhancements in issuance practices, price transparency, and clearing&settlement infrastructure. Measures to improve the role of mutual funds and foster foreign investor presence are also of utmost importance to increase competition and investor diversification in these markets.
    Keywords: Debt Markets,Emerging Markets,Markets and Market Access,Mutual Funds,Economic Theory&Research
    Date: 2011–03–01
  4. By: Rocha, Roberto; Farazi, Subika; Khouri, Rania; Pearce, Douglas
    Abstract: Among the principal constraints for SME lending is the lack of SME transparency, poor credit information from credit registries and bureaus, and weak creditor rights. If constraints can be addressed, lending can potentially reach bank targets of 21 percent. State banks still play an important role in financing SMEs in the MENA region, but they use less sophisticated risk management systems than private banks. On another hand, credit guarantee schemes are a popular form of support to SME finance in the region, and are associated with higher levels of SME lending. The paper concludes that MENA policy makers should prioritize improvements in financial infrastructure, including greater coverage and depth of credit bureaus, improvements in the collateral regime (especially for movable assets), and increased competition between banks and also non-banks. Weaknesses in insolvency regimes and credit reporting systems should also be alleviated. Direct policy interventions through public banks, guarantee schemes, lower reserve requirements and subsidized lending and other measures have played a role in compensating for MENA's weak financial infrastructure, but more sustainable structural solutions are needed.
    Keywords: Banks&Banking Reform,Access to Finance,Debt Markets,Financial Intermediation,Bankruptcy and Resolution of Financial Distress
    Date: 2011–03–01
  5. By: Saadani, Youssef; Arvai, Zsofia; Rocha, Roberto
    Abstract: Many countries in the MENA region have established partial credit guarantee schemes to facilitate SME access to finance. These schemes can play an important role, especially in a period where MENA governments are making efforts to improve the effectiveness of credit registries and bureaus and strengthen creditor rights. This paper reviews the design of partial credit guarantee schemes in MENA, and assesses their preliminary outcomes. The paper is based on a survey conducted in 10 MENA countries in early 2010. The authors find that the average size of guarantee schemes in MENA (measured by the total value of outstanding guarantees) is in line with the international average, although there are wide differences across countries, and some schemes seem too small to make any significant impact. Most importantly, the number of guarantees looks generally small while their average value looks large. This suggests that guarantee schemes are not yet reaching the smaller firms. Guarantee schemes in MENA look financially sound and most schemes have room to grow. However, this growth should be accompanied by an improvement of some key design and management features, as well as the introduction of systematic impact evaluation reviews.
    Keywords: Access to Finance,Debt Markets,Bankruptcy and Resolution of Financial Distress,Microfinance,Banks&Banking Reform
    Date: 2011–03–01
  6. By: Pearce, Douglas
    Abstract: The paper provides an assessment of the state of financial inclusion in the MENA region, and identifies constraints, opportunities, and priorities for significantly improving access to finance. Practical recommendations for improving financial inclusion are outlined. Firstly, governments could agree a Financial Inclusion Strategy that is underpinned by improved data, that has both public and private sector commitment, and that scales up financial access on a large scale, principally through bank accounts. Secondly, the regulators should provide a legal and supervisory framework that enables access to finance to be expanded primarily through banks, but with regulatory space for the use of agents, mobile phone technology, and for a finance company model for microcredit and leasing. Interest rate caps on microloans should be removed, and instead consumer protection and supervisory capacity for microfinance should be strengthened, while prudent competition between financial service providers should be promoted. Thirdly, financial infrastructure needs to continue to be a focus area, and in particular credit information and secured transactions. Finally, barriers to the growth of Islamic financial services should be removed so that they can better meet market demand.
    Keywords: Access to Finance,Financial Literacy,Banks&Banking Reform,Debt Markets,Emerging Markets
    Date: 2011–03–01
  7. By: Uttamchandani, Mahesh
    Abstract: This paper provides a comparative summary of the payout phase of insolvency systems in the MENA Region. Countries in the region generally have weaker restructuring and liquidation systems than those in most other regions. The paper summarizes many of the weaknesses common across the region.
    Keywords: Bankruptcy and Resolution of Financial Distress,Debt Markets,Deposit Insurance,Banks&Banking Reform,Investment and Investment Climate
    Date: 2011–03–01
  8. By: Alvarez de la Campa, Alejandro
    Abstract: This paper provides a comparative summary of secured transactions systems related to the use of movable property as collateral in the MENA region vis a vis international practices in countries with modern secured transactions systems. The paper sets out the importance of introducing reforms in the area of secured transactions with the objective of increasing access to credit for businesses, particularly SMEs. The MENA region clearly lags behind all other regions in the introduction of secured transactions reforms. The paper summarizes many of the weaknesses common across the region. The two main critical areas that need urgent reforms are the creation of modern secured transactions laws and electronic movable collateral registries, and the need to improve enforcement mechanisms for security interests in movable property.
    Keywords: Debt Markets,Bankruptcy and Resolution of Financial Distress,Access to Finance,Emerging Markets,E-Business
    Date: 2011–03–01
  9. By: Lester, Rodney
    Abstract: This paper studies the causes of the low development of the insurance sector in the Middle East and North African (MENA) region, particularly for long term insurance. The paper shows that life and non-life premiums, as well as assets, are very low relative to expected levels given per capita income and demographic characteristics, and examines the causes of such poor performance. There is a wide range of factors constraining the development of the industry, including the absence of mandatory insurance in key areas, the predominant presence of the state in some countries, gaps in regulation and supervision, unsupportive tax regimes, fragmented market structures, a chronic lack of suitably skilled people, as well as the absence of products that conform with cultural/religious preferences, especially in the case of life insurance. The lack of development of the insurance sector is a matter of concern, as research shows that the sector can contribute to both financial and economic development. Key recommendations to accelerate the development of the sector include wider introduction of mandatory insurance lines that have clear positive externalities, continuing the privatization process for government owned insurers, employing non capital techniques to force rationalization of insurance sectors with too many small and inefficient players, removing tax distortions, taking steps to stabilize motor third party liability markets (typically the largest line of business), strengthening reporting and disclosure, regulating banc-assurance, improving consumer protection, further developing Takaful long term insurance ('Family Insurance'), and establishing regional centers of excellence for skills development.
    Keywords: Insurance Law,Insurance&Risk Mitigation,Debt Markets,Climate Change Economics,Emerging Markets
    Date: 2011–03–01
  10. By: Binzel, Christine (Dartmouth College); Assaad, Ragui (University of Minnesota)
    Abstract: Female labor force participation has remained low in Egypt. This paper examines whether male international migration provides a leeway for women to enter the labor market and/or to increase their labor supply. In line with previous studies, we find a decrease in wage work in both rural and urban areas. However, women living in rural areas and affected by migration are much more likely to be employed in non-wage activities (i.e. unpaid family work) and subsistence work compared to women in non-migrant households. Furthermore, we find evidence that this labor supply response is driven by the household’s need to replace the migrant's labor rather than by a loosening of a financing constraint on family enterprises made possible by the flow of remittances.
    Keywords: migration, remittances, labor supply, gender
    JEL: O15 J22 F22 R23
    Date: 2011–03
  11. By: Botta, Alberto
    Abstract: The World Bank (WB) Computational General Equilibrium model (CGE) by Claus Astrup and Sebastian Dessus (2001) is a cornerstone study on Palestine. It adopts a strictly neoclassical perspective, in which price-driven adjustments and the Armington/Constant-Elasticity-of-Transformation (CET) apparatus describe the functioning of the Palestinian economy and its foreign trade relations. This paper argues that certain empirical and factual inconsistencies prevent such a “pure” neoclassical approach from representing the Palestinian reality. We firstly argue that quantity-driven adjustments better describe economic adjustments within the Palestinian economy than price-driven adjustments do. Secondly, we stress the prevailing inter-industry nature of Palestinian foreign trade and the relevance of real income variables to explain expenditure allocation between domestic and imported goods. These aspects are hardly caught by the Armington/CET apparatus and require an alternative formalizing strategy. The final section of the paper describes a heterodox/structuralist perspective on Palestine.
    Keywords: Palestine; Foreign trade; Structuralist CGE models
    JEL: C68 F14 B50
    Date: 2010–10

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