Fiscal support and the impacts of tumbling oil prices from COVID-19 on MENA’s economy, energy consumption and environment

Zahra Khalilnezhad and Karim Eslamloueyan

International Journal of Islamic and Middle Eastern Finance and Management, 2024, vol. 18, issue 2, 381-401

Abstract: Purpose - This study aims to investigate the impact of the oil crash during the COVID-19 pandemic on the economy, energy and the environment in MENA countries, with and without fiscal policy, in a global context. Design/methodology/approach - This study applies a Global Vector Autoregressive (GVAR) model for 47 countries from 2006Q1 to 2021Q3. The sign restriction method is used to identify the oil shocks originating from the COVID-19 crisis. Findings - Empirical evidence shows that without fiscal interventions, MENA countries experienced a decline in output growth, energy consumption and CO2emissions due to lower oil prices caused by the COVID-19 pandemic. The impact of the oil price shock on inflation varied across the region. Economic growth and inflation rates in MENA countries turn positive when the member states implement expansionary fiscal measures to stimulate economic activities during the pandemic. Hence, fiscal policy played a crucial role in supporting the economy and preventing a severe recession during COVID-19 in the MENA region. However, expansionary fiscal measures increased energy consumption and air pollution. Practical implications - The findings help policymakers better cope with the outbreak of deadly pandemics in the coming years. It improves our understanding of the role of fiscal policy in boosting economic efforts and reducing the adverse environmental impact of increased government spending. Originality/value - This paper enhances the current body of literature by investigating how fiscal policies implemented by the MENA countries help mitigate the adverse economic effects of the COVID-19 crisis. Moreover, it enables us to analyze the impact of fiscal support on energy consumption and the environment during an oil shock influenced by global uncertainty, lockdowns, and supply chain disruptions.

Keywords: Fiscal stimulus; Economy; Energy consumption; Environment; Oil shock; Covid-19 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eme:imefmp:imefm-12-2023-0499

DOI: 10.1108/IMEFM-12-2023-0499

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