The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya

Journal of Banking and Financial Economics, Vol. 2, No. 4, 2015

Posted: 16 Nov 2017

See all articles by Carlos Caceres

Carlos Caceres

International Monetary Fund (IMF)

Serhan Cevik

International Monetary Fund (IMF)

Ricardo Fenochietto

International Monetary Fund (IMF) - Fiscal Affairs Department

Borja Gracia

Yale University

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2015

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 rule-based 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.

Keywords: Fiscal Policy, Fiscal Sustainability, Fiscal Rules, Natural Resources, Public Financial Management

JEL Classification: E32, E62, H11, H62, O13

Suggested Citation

Caceres, Carlos and Cevik, Serhan and Fenochietto, Ricardo and Gracia, Borja, The Day After Tomorrow: Designing an Optimal Fiscal Strategy for Libya (November 1, 2015). Journal of Banking and Financial Economics, Vol. 2, No. 4, 2015 , Available at SSRN: https://ssrn.com/abstract=3063519

Carlos Caceres

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Serhan Cevik (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ricardo Fenochietto

International Monetary Fund (IMF) - Fiscal Affairs Department ( email )

700 19th Street, NW
Washington, DC 20431
United States

Borja Gracia

Yale University ( email )

New Haven, CT 06520
United States

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