Oil Price Shocks, Fiscal Asymmetry, and Digital Governance in MENA Economies: A Panel VAR Analysis

Abstract

The purpose of this paper is to examine the relationship between oil-price shocks, fiscal dynamics, and digital-governance readiness in twelve MENA economies over 2013–2024 using a first-difference Panel Vector Autoregressive (PVAR) model. The first-difference specification is adopted following the absence of evidence for a long-run cointegrating relationship among the integrated fiscal and digital-governance variables. Three main findings emerge. First, oil-price shocks constitute a major external driver of fiscal dynamics, accounting for approximately 29–30% of the forecast error variance of the fiscal balance across the horizons considered and approximately 25–31% of public-debt variance. Second, the transmission is strongly asymmetric across country groups. Among oil exporters, a 1% increase in Brent prices is associated with a 0.165-percentage-point increase in the fiscal balance (p < 0.001), whereas the corresponding coefficient for oil importers is statistically indistinguishable from zero (+0.001, p = 0.915). This contrast is consistent with the different fiscal transmission mechanisms associated with hydrocarbon revenues, energy-import costs, subsidies, inflation, and domestic economic activity. Third, digital-governance readiness, measured through an annual proxy based on the first principal component of internet penetration and WGI political stability, does not exhibit statistically significant Granger-predictive causality with fiscal outcomes at the annual frequency. The Granger-causality tests yield an F-statistic of 0.034 (p = 0.853) for digital governance predicting changes in the fiscal balance and 0.287 (p = 0.593) for the reverse direction. These results provide no evidence of a short-run predictive relationship between digital-governance readiness and fiscal-balance changes at the annual frequency. Finally, we construct a Budget Resilience and AI Index (BRAI) as a descriptive cross-sectional scorecard of the twelve MENA economies, combining fiscal resilience and digital readiness. Overall, the findings highlight the importance of oil-price exposure and country-specific fiscal structures in explaining short-run fiscal dynamics, while suggesting that the aggregate fiscal effects of digital-governance readiness may not be detectable at an annual frequency.