An analysis of foreign debt by the Arab countries with special reference to Egypt, Morocco and Tunisia

In this study the demand for foreign debt was disaggregated into government demand and private sector demand. Hence, two demand models have been specified. Where, the government maximises an expected quadratic preference function, and the private sector maximises the expected returns from its financial portfolio. The two models are then empirically tested on data from the three Arab countries. Furthermore, the two models are then combined and empirically tested and compared to the disaggregated model.;The general framework of this study is that the governments of the Arab countries under study pursue internal and external acceptance in an effort to remain in power, which is empirically supported here. Increasing government expenditure, which implies higher budget deficit, reflects the government's efforts to gain internal acceptance. On the other hand, opening up the domestic economy to the world indicates the government's efforts to gain international acceptance.;This study concludes that the Arab countries under study have been undergoing imprudent economic policies that mainly accommodating the government's credit requirements. It has shown that the countries had accepted irresistible foreign loans contracts possibly to finance the current account deficits. Further, the IMF stabilisation program requirement to devalue the national currency, in order to increase foreign exchange inflows and hence reduce foreign debt, founds not to be working for the three Arab countries under study.