Governance and public debt accumulation: Quantitative analysis in MENA countries

This paper studies how institution quality, through the worldwide governance index, affects public debt accumulation in 17 countries of MENA region. By testing the hypothesis that poor governance leads to higher accumulation of MENA public debt over the period, the results show that only three governance indicators support well this hypothesis. These variables are Political Stability and Absence of Violence index, Regulatory Quality index and Rule of Law index. Moreover, the estimates suggest a significant indirect impact of bad governance operating via decreased GDP growth. These findings have important implications for policy makers of these countries which are currently facing major fiscal and external imbalances due to the high cost of war and terrorist attacks, low oil prices and a decline in trade. Sound public debt management represents an urgent task especially that public debt management problems often find their origins in the lack of attention paid by policymakers to the costs of bad governance and weak macroeconomic management