References

If the current environment of higher global interest rates were to persist, the increased burden of higher interest costs would weigh even more on countries’ debt sustainability over time, especially for countries with already high debt levels—such as Lebanon, Jordan, Egypt, and Tunisia.

4.b. Better governance can mitigate the risk of debt distress

The above calculations demonstrate the heightened risk that the current global environment poses for some developing oil Importers. Should these risks materialize, these countries could fall into debt distress and risk having to restructure their debt.13 Restructurings are often very costly, as the default by Lebanon in March 2020 has shown. Countries lose access to international markets, their local currency can depreciate sharply, and the banking sector can become impaired—all of which can lead to a decline in investment, trade, and growth for several years after the restructuring, and to an increase in poverty.

Gatti et al. (2021) show that stronger governance is correlated with a lower risk of debt default. Using data on debt restructuring first assembled by Asonuma and Trebesch (2016), the authors found that the likelihood that a country would enter into a restructuring was higher for countries with lower levels of economic growth and governance during the five years before the restructuring.

This evidence suggests that developing oil importers share certain characteristics with countries that entered costly debt restructurings, namely lower growth rates and higher debt levels. Strengthened governance and institutional reforms to improve accountability and transparency can play an important role in helping countries manage their fiscal and debt policies, mitigating the costs of high public debt levels.

Part 2 of this report discusses the multifaceted nature of how governance—and in particular transparency and accountability—affects economic development and long-term prospects in the MENA region.

Amaglobeli, David, Emine Hanedar, Gee Hee Hong, and Céline Thévenot. (2022). Response to High Food, Energy Prices Should Focus on Most Vulnerable. IMF Blog. June 7, 2022. https://blogs.imf.org/2022/06/07/response-to-highfood-energy-prices-should-focus-on-most-vulnerable/ Arnold, David. (1979). “Dacoity and Rural Crime in Madras, 1860–1940.” Journal of Peasant Studies 6, pp. 140–167. Asonuma, Tamon, and Christoph Trebesch. (2016). “Sovereign Debt Restructurings: Preemptive or Post-default.” Journal of the European Economic Association 14(1), pp. 175-214. Bellemare, Marc F. (2015). “Rising food prices, food price volatility, and social unrest.” American Journal of Agricultural Economics, 97(1), pp. 1-21.

13 Restructuring are modifications to the terms and conditions of debt obligations wherein bondholders are made worse off. These often take the form of refinancing existing debt obligations with new obligations with lower coupon payments or longer maturities, or both.

Bertaut, Carol, Bastian von Beschwitz and Stephanie Curcuru. (2021). The International Role of the U.S. Dollar. FEDS Notes. https://www.federalreserve.gov/econres/notes/feds-notes/the-international-role-of-the-u-s-dollar-20211006. html Gopinath, Gita., Oleg Itskhoki, and Roberto Rigobon. (2010). “Currency choice and exchange rate pass-through.” American Economic Review, 100(1), pp. 304-36. Gatti, Roberta, Daniel Lederman, Ha Nguyen, Sultan Abdulaziz Alturki, Rachel Yuting Fan, Asif Islam, and Claudio J. Rojas. (2021). Living with Debt: How Institutions Can Chart a Path to Recovery in the Middle East and North Africa. MENA Economic Update. Washington, DC: World Bank. April. Gatti, Roberta, Daniel Lederman, Asif M. Islam, Christina A. Wood, Rachel Yuting Fan, Rana Lotfi, Mennatallah Emam Mousa, and Ha Nguyen. (2022). Reality Check: Forecasting Growth in the Middle East and North Africa in Times of Uncertainty. MENA Economic Update. Washington, DC: World Bank. April. Guenette, Justin Damien. (2020). “Price Controls: Good Intentions, Bad Outcomes.” Policy Research Working Paper No. 9212. Washington, DC: World Bank. Lederman, Daniel, and Guido Porto (2016). “The price is not always right: on the impacts of commodity prices on households (and countries).” The World Bank Research Observer, 31(1), pp. 168–197. Lopez-Acevedo, Gladys. Minh Cong Nguyen, Nadir Mohammed and Johannes Hoogeveen. (2022). How rising inflation in MENA impacts poverty. Arab Voices, World Bank Blogs. June 30, 2022. How rising inflation in MENA impacts poverty (worldbank.org). Rudé, George (1964). The Crowd in History 1730-1848: A Study of Popular Disturbances in France and England 17301848. Wiley. Wade, Rex A. (2005). The Russian Revolution, 1917. Cambridge: Cambridge University Press.