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ORCID

Serhan Cevik 0000-0002-2373-2023

Keywords

Fiscal policy; fiscal sustainability; fiscal rules; natural resources; public financial; management

Abstract

Libya is highly dependent on exhaustible and volatile hydrocarbon resources, which constitute the bulk of government revenues. Although resource wealth provides the means to promote socio-economic development, procyclical fiscal policies threaten macroeconomic stability as well as fiscal sustainability and intergenerational equity. This paper provides an assessment of the cyclically adjusted fiscal stance, analyzes fiscal sustainability according the permanent income framework, and simulates various fiscal policy rules with the objective of developing a rulebased fiscal strategy that would delink the economy from oil price fluctuations, improve the management of resource wealth, and safeguard macroeconomic stability. The empirical results suggest that an “enhanced” structural fiscal balance rule would provide the strongest anchor for policymaking, accommodating for output and/or commodity price shocks, though at the cost of relative complexity.

Acknowledgments

The authors would like to thank Hesham Alogeel, Alberto Behar, Ralph Chami, Reda Cherif, Salvatore Dell’Erba, Kia Penso, and Agustin Roitman, and participants of a presentation at the Central Bank of Libya held on March 7, 2013 for their insightful comments and suggestions. The views expressed herein are those of the authors and should not be attributed to the IMF, its executive Board, or its management.

First Page

32

Last Page

50

Page Count

19

Received Date

University of Warsaw

Revised Date

22 January 2015

Accept Date

18 May 2015

Online Available Date

16 July 2015

DOI

10.7172/2353-6845.jbfe.2015.2.3

JEL Code

E32; E62; H11; H62; O13

Publisher

16 July 2015

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