Fiscal Space in Arab Countries: a Human Development Perspective

Rathin Roy (Director of IPC-IG in Brasilia) and Khalid Abu-Ismail

This paper proposes an analytical framework and policy instruments to secure fiscal space for financing Arab national development strategies. Our central premise is that the sustainability of policies to create fiscal space is a function of what the fiscal space is used for. This in turn depends on the central economic policy challenges and the attendant interventions that need to be financed to secure these challenges. In the Arab region, it can be argued that the stability, sustainability and inclusivity of the growth process, including its capacity to generate employment is the fundamental challenge facing all low and middle-income countries. However, for Arab LDCs and lower-MICs, raising public investment to address MDGs and in particular extreme poverty, is an additional pressing challenge. We argue that the balance of emphasis placed on the stabilization, allocation and distribution and growth functions of fiscal policy would differ according to the timeframe of the analytical framework and the political economy context within which any proposed interventions to address these challenges are operationalized. In this respect we note that the indicators used to assess fiscal solvency and sustainability will be very different if the assessment is carried out on a longterm, as opposed to short-term analytical context.

The above issues are discussed in the context of the Millennium Development Goals (MDGs). At this stage we recall that these goals are formulated on the basis of a broad understanding of development as a process of expanding the freedoms that people enjoy. From a philosophical point of view such a broad definition of the development process is anchored on the capability approach to the welfare of individuals. Not only is the material dimension  (exclusively dealing with goods and services, and thus income) but also other achievements (e.g. health, education, human rights etc) are central to human well being.

The paper was presented at the 10^th International Conference on “Recent Trends in Financing Development” that was held in  Beirut, Lebanon and organised by the Arab Planning Institute. More papers from the conference can be seen here.

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