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Article Type

Research Article

Abstract

This paper assesses the short-term shock-absorption capacity of the Middle East, North Africa, Afghanistan, and Pakistan (MENAAP) using the Policy Space Index (PSI). The PSI integrates fiscal, monetary, and reserve indicators and adjusts them for institutional constraints to measure nominal and effective shock-absorption capacity. The key finding is that MENAAP effective policy space averaged about 11 percent of GDP in 2024, roughly half the global average and heavily concentrated in oil exporters. The constraints lie in MENAAP's institutional arrangements and insufficient fiscal discipline. Easing them requires fiscal consolidation alongside structural reforms to address the institutional bottlenecks.

Keywords

Policy Space Index, fiscal space, fiscal policy, monetary policy, reserve adequacy, exchange rate regimes, sovereign debt, macroeconomic resilience, MENAAP.

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