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The Impact of Climate Change on Budget Balances and Debt in the Middle East and North Africa (MENA) Region

Lower tax revenues and greater government spending result in higher deficits and public debt. As a result, determining the degree of budgetary effects is vital, but important to assess the persistence of these effects. We aim to investigate the impact of climate change on the fiscal balance and public debt in the countries of the Middle East and North Africa. The empirical analysis relies on panel data in the period 1990-2019 and employs various models. The findings show that temperature changes adversely affect the government budget and increase debt, but we find no significant impact of changes in rainfall. The average temperature decreases fiscal balance by 0.3 percent and increases debt by 1.87 percent. Using projections of temperature and rainfall over the years 2020 to 2099, we find a significant decrease in the fiscal balance at 7.3 percent and an increase in the public debt at 16 percent in 2060-2079 and 18 percent in 2080-2099 under the assumption of a high greenhouse gas (GHG) emissions scenario. On the contrary, under the low GHG emissions scenario, the fiscal balance deteriorates by 1.7 percent in 2020-2039 and 2.2 percent in 2080-2099, while public debt rises by 5 percent in 2020-2039 and 6.3 percent in 2080-2099.