The fiscal impact of privatization, with some examples from Arab countries

Abstract

This paper reviews current thinking on the fiscal impact of privatization against the background of developments and prospects for privatization in Arab countries. It argues that the fiscal impact is likely to be slight in the absence of fundamental structural reforms by Arab countries to secure gains in allocative efficiency by the privatized enterprises. By itself, privatization may simply lead to a change in the government's asset portfolio. In the case of loss- making enterprises, the government may need to pay the private entrepreneur to take on the enterprise, particularly when the sources of inefficiency reflect government policy decisions that are not likely to be modified; alternatively, liquidation of the assets of unprofitable enterprises may be the appropriate policy.