Quasi-Fiscal Deficits in the Electricity Sector of the Middle East and North Africa: Sources and Size

20 Pages Posted: 20 Dec 2017

See all articles by Daniel Camos Daurella

Daniel Camos Daurella

World Bank

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Mohamad Rizal Bin Abdul Hamid

National Cheng Kung University

Date Written: December 18, 2017

Abstract

The annual electricity investments needed in the Middle East and North Africa region to keep up with demand have been estimated at about 3 percent of the region's projected gross domestic product. However, in most economies of the region, the ability to make those investments is limited by fiscal and macroeconomic constraints. This paper demonstrates that the solution is readily available: by improving the management and performance of the region's utilities, more than enough resources could be freed up to make the investments needed. The paper presents the first evaluation of the size and composition of the quasi-fiscal deficit associated with the management of the electricity sector in 14 economies in the Middle East and North Africa region. The estimations are for 2013. They show that the average quasi-fiscal deficit is 4.4 percent of gross domestic product (but goes down to 2.9 percent if Lebanon, Djibouti, Bahrain, and Jordan are excluded). Only five economies have a quasi-fiscal deficit below 3 percent of gross domestic product (Algeria, Morocco, Tunisia, Qatar, and the West Bank), and hence would not be able to finance the average investment requirement through elimination of inefficiencies. For most economies, the main driver of the quasi-fiscal deficit is the underpricing of electricity, which costs on average 3.2 percent of gross domestic product (but 2.2 percent without Lebanon, Djibouti, Bahrain, and Jordan). Commercial inefficiency comes next, at an average cost of 0.6 percent of gross domestic product. Technical and labor inefficiencies represent, respectively, 0.4 and 0.2 percent of gross domestic product.

Keywords: Macro-Fiscal Policy, Public Finance Decentralization and Poverty Reduction, Public Sector Economics, Technology Industry, Technology Innovation, Services & Transfers to Poor, Disability, Economic Adjustment and Lending, Access of Poor to Social Services, Economic Assistance, Energy Policies & Economics

Suggested Citation

Camos Daurella, Daniel and Estache, Antonio and Hamid, Mohamad Rizal Bin Abdul, Quasi-Fiscal Deficits in the Electricity Sector of the Middle East and North Africa: Sources and Size (December 18, 2017). World Bank Policy Research Working Paper No. 8280. Available at SSRN: https://ssrn.com/abstract=3090766

Daniel Camos Daurella (Contact Author)

World Bank ( email )

1818 H Street, NW
Washington, DC 20433
United States

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

Mohamad Rizal Bin Abdul Hamid

National Cheng Kung University ( email )

No.1, University Road
Tainan
Taiwan

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