Public Sector Deficits and Macroeconomic Performance in Lebanon: A Simulation Analysis

The main aims of this paper are as follows. First, to macro model prospective development in the Lebanese economy for policy analysis and evaluation. This study develops s a dynamic macroeconomic model for Lebanon including the budget deficit and the funding of it (e.g. by monetary accommodation or bond financing), as well as the composition of government expenditures (capital or current). Hence this paper develops behavioural equations not used before for Lebanon. This macroeconomic model is utilised as well to analyse the effects of exogenous shocks arising from increased government expenditures (capital expenditure or consumption expenditure) upon key macroeconomic variables. The second aim of this study is the application of a simulation analysis to the Lebanese economy, which suffers from fiscal deficits and public debt during last few decades. This study conducts a numerical simulation analysis of the macroeconomic model developed, in order to analyse a number of economic policies in the context of the Lebanese fiscal crisis with the aim of improving the country’s macroeconomic performance. The major findings from the simulation results presented in this study are that, implementing the policy of expansion in government capital expenditure, for two presumed cases (unanticipated/gradual), produces larger favourable impacts (in comparison with the policy of expansion in government consumption expenditure) upon Lebanese economic development in terms of private sector investment, and in terms of the supply side of the economy (crowding in effects) during the whole adjustment process towards long run steady state. Implementing the policy of an expansion in government consumption expenditure produces unfavourable effects in terms of external developments during the adjustment process. This policy produces, as well, unfavourable effect in terms of private investment and aggregate supply (crowding out effect). However, the simulation results for the two policies show that money deficit financing is inflationary and shows large sensitivity in terms of the interest rate. Bond financing is non inflationary and shows little sensitivity in terms of interest rates. The main finding is that if the government considers a fiscal expansion policy in order to improve macroeconomic performance, the simulation results suggest that the government should adopt the policy of an expansion in capital expenditure because it produces the most desirable outcomes. In addition, it should adopt a gradual approach because this produces considerably less volatility in terms of major macro variables. The main findings from our simulation results dealing with the government approach to the fiscal crisis, does not support the government policy in dealing with the crisis. The results presented here suggest that it produces the most undesirable economic outcomes, and hence will only exacerbate Lebanon’s economic difficulties.Public sector deficits, macroeconomic performance, Lebanon, simulation analysis

Revisiting Budget and Trade Deficits in Lebanon: A Critique

This study re-examines the relationship between the budget deficit and the trade deficit in Lebanon. In contrast to earlier studies, we start by testing for a unit root in the presence of structural change using the Innovational Outlier (IO) model. This study also utilizes the newly proposed autoregressive distributed lag (ARDL) approach to examine such a relationship. The results show that the endogenously determined times of the breaks coincide with observed real events occurring during the years of Civil War in Lebanon and especially after the Israeli invasion of Beirut in 1982. This study finds, as well, that the trade deficit in Lebanon has a long run impact on the budget deficit.Budget deficit, trade deficit, structural break, ARDL, Lebanon

Testing the Keynesian Proposition of Twin Deficits in the Presence of Trade Liberalisation: Evidence from Sri Lanka after War: the case of a bridge too far?

This paper examines the long-run and short-run relationships between the current account deficit, budget deficit, savings and investment gap and trade openness in Sri Lanka using the autoregressive distributive lagged (ARDL) approach. The time series properties of the variables, in the presence of endogenous structural breaks, was previously analysed using Perron’s (1997) additive outlier (AO) and innovational outlier (IO) models. The empirical analysis supports the Keynesian view that a link exists between the current account, budget deficit and savings and investment gap. We found that trade openness has a positive effect on the current account deficit, but is statistically insignificant, and offer some strategies to stabilise the budget deficit and current account deficits in Sri Lanka.twin deficit, structural change, unit roots, ARDL

Lebanon’s Fiscal Crisis and Economic Reconstruction after War: the case of a bridge too far?

Since the onset of the Civil War in 1975 Lebanon has experienced burgeoning fiscal deficits and an unsustainable public debt overhang. Much of this arose from the loss of revenues during the period of the Civil War 1975-90 and attempts to maintain basic public expenditure, while from 1990-2006 it reflected post Taif rebuilding and reconstruction of key infrastructure with limited revenue capacity. Considerable progress from the 1990s has been achieved in rebuilding the shattered economy from both public and private international and domestic sources, but its legacy is a huge public debt and a servicing requirement that currently absorbs alone almost 30 per cent of total government revenue and is the highest in the world on a per capita basis. While the need to reduce this debt to a sustainable level would be daunting enough in itself, Lebanon’s fiscal predicament was further compounded by the outbreak of war with Israel during July-August 2006. The consequence of this 34 day conflagration was the devastation of residential property, vital infrastructure, agricultural production, industrial production, exports, environmental damage, the collapse of tourism and a further erosion of the influence and power of the central government. Estimates of the direct and indirect costs for Lebanon of this relatively brief but devastating war conservatively vary from US$10-15 billion. The implications of such reconstruction and rebuilding costs for the budget and public debt are potentially calamitous for Lebanon. A key question is whether Lebanon can tackle this enormous task in insolation. This paper explores the background to the fiscal crisis, identifies from available literature the extent, nature and cost of the war damage, analyses the options available to the authorities in rebuilding the economy and highlights key policy issues and measures that will be required if a sustainable economic recovery is to be achieved. Despite its demonstrated and remarkable resilience to past trauma the paper concludes that the fiscal crisis makes it impossible for Lebanon to tackle the reconstruction and rebuilding task on its own and particularly in the wake of the events of summer 2006. The country will require substantial and ongoing financial support from international lenders and donors. The success of these efforts in the case of Lebanon is of particular interest as it could well be a microcosm of possible future outcomes for the region more generally.

Islamic Banking Performance in the Middle East: A Case Study of Jordan

Islamic banking in Jordan started around two decades ago. Since then it has played an important role in financing and contributing to different economics and social sectors in the country in compliance with the principles of Shariah rules in Islamic banking practices. Since there have been limited studies on the financial performance of Islamic banks in the country. The aim of this paper is to examine and analyse the Jordanian experience with Islamic banking, and in particular the experience for the first and second Islamic bank in the country, Jordan Islamic Bank for Finance and Investment (JIBFI), and Islamic International Arab Bank (IIAB) in order to evaluate the Islamic banks’ performance in the county. The paper goes further to shed some light on the domestic as well as global challenges, which are facing this sector. However, this paper used the performance evaluation methodology by conducting the profit maximization, capital structure, and liquidity tests. This paper found that the efficiency and ability of both banks has increased and both have expanded their investment and activities and had played an important role in financing projects in Jordan. Another interesting finding of the paper that these banks have focused on the short-term investment, perhaps this seems to be the case in most Islamic banking practices. Another finding is that the Bank for Finance and Investment (JIBFI) has a high profitability that encourages other banks to practice the Islamic financial system. The paper also found that Islamic banks have a high growth in the credit facilities and in profitability.Islamic banking, Performance, Efficiency, Challenges, Jordan

SME Development in Malaysia: Domestic and Global Challenges

The primary objectives of this paper are to analyze and discuss the development of Malaysian SMEs and their role, as well as various contributions, in the national economy. The paper goes further by reviewing extant literature to identify the major challenges facing this sector in Malaysia as well as government policies aimed at the development of SMEs. We find that, while the government has implemented many programs to strengthen the performance of SMEs in the economy, Malaysian SMEs still face many challenges, both domestic and external, which could hinder their resilience and competitiveness. A number of strategies which could assist them to access new markets, increase their revenues and expand their customer bases are identified.Malaysian economy, Malaysian SMEs, government assistance programs

The Budget Deficit and Economic Performance: A Survey

The relationship between budget deficits and macroeconomic variables (such as growth, interest rates, trade deficit, exchange rate, among others) represents one of the most widely debated topics among economists and policy makers in both developed and developing countries. However, the purpose of this paper is to examine the extensive literature to such a relationship, concentrating on theoretical debates, empirical studies, and econometric models in order to derive substantive conclusions, which can be beneficial in terms of macroeconomics area or in terms of constructing or developing a macroeconomic model for analysing the impact of budget deficits on macroeconomic variables. The majority of these studies regress a macroeconomic variable on the deficit variable. These studies are cross-country and utilise time series data. In general the key outcomes from the studies presented in this paper indicated that both the method of financing and the components of government expenditures could have different effects. Therefore, it is crucial to distinguish between current and capital expenditure when evaluating the impact of fiscal policy on private investment and output growth. Even though, the overall results from the empirical literature with respect to the impact of public investment on private investment and growth are ambiguous, the bulk of the empirical studies finds a significantly negative effect of public consumption expenditure on growth, while the effects of public investment expenditure are found to be positive although less robust. The key outcome from all of the studies presented in this paper which investigating the relationship between the budget deficit and current account deficit showed strong evidence in both developed and developing countries towards supporting the Keynesian proposition (conventional view) which suggests that an increase in the budget deficit would induce domestic absorption and, hence import expansion, causing a current account deficit. Furthermore, it can also be concluded from the empirical findings that the effects of budget deficits on exchange rates depends on the way of funding the deficits, whether through taxation or through money growth. The key findings from the empirical studies investigating the relationship between the budget deficit and interest rates indicated strong evidence towards supporting the Keynesian model of a significant and positive relationship between budget deficits and interest rates. The major outcomes from the empirical studies examining the relationship between budget deficits and inflation showed strong evidence that the budget deficit financed through monetisation and a rising money supply could lead to inflation.budget deficits, economic performance, macroeconomic variables, current account deficit

Is a Reduction in Government Expenditure a Good Strategy to Reduce Budget Deficits?: A Case Study from the Middle East

This paper explores the macroeconomic implications arising from the Lebanese governments approach to dealing with its budget deficit, which has become one of the highest amongst in the Middle East

THE ADAPTATION STRATEGIES OF A COMMUNITY’S FOOD PRODUCTION AND CONSUMPTION WITHIN A SMALL ISLAND ECOSYSTEM (A CASE STUDY AT KARAMPUANG ISLAND IN MAMUJU DISTRICT, WEST SULAWESI, INDONESIA)

Restricted production facilities for fishermen and marginal land ownership have triggerred low living standard for communities on small islands. This negatively impacts on community members’ ability to fulfill household food needs. Therefore, long-term survival requires a pattern of adaptation by the social environment of the community. This study examines and analyzes the strategies of a single community’s food production and consumption within an island ecosystem. Case study research was chosen in order to provide in-depth exploration and description of the adaptation patterns of the community’s food production and consumption on Karampuang Island. The data were collected using in-depth interviews supplemented by focus group discussions and field observations in order to comprehensively explore the social and economic lives of community members. The results indicated that the adaptation strategies of the community’s food production in Karampuang Island included a double livelihood strategy.  Gendered division of labor was found to utilize the optimal potential of household workers: men were responsible to do fishing in the sea and work as wage laborers in Mamuju City while women were responsible for selling the fish to market in Mamuju City market, and worked as laundry women and shopkeepers. The food consumption adaptation strategy among people in Karampuang Island was accomplished by diversifying food between cassava and rice.