Middle East and North Africa
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Fields of Specialization
Macroeconomics, Egypt, International Finance, Expenditure Efficiency Measurement and Benchmarking, Latin America
Middle East and North Africa
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Last updated February 1, 2023
Santiago Herrera Aguilera is the Lead Country Economist for Egypt in the Middle East and North Africa region at the World Bank. He has been in this position since September of 2008. He first joined the Bank in May of 1998 as a Senior Economist working for the Latin America and Caribbean Region. In February of 2004 he became the Lead Economist for economic policy at the Poverty Reduction and Economic Management Network in Washington. Prior to joining the Bank, Aguilera was the Deputy Minister of Finance in Columbia from 1995 to 1996. Before that, he was the Director of the National Budget also at the Columbian Ministry of Finance. Aguilera holds a Doctor of Philosophy in Economics from Columbia University in New York. He also holds a Masters degree in Economics from the Universidad de Los Andes in Bogota, Columbia.
Publication Search Results
Now showing 1 - 10 of 13
Publication(World Bank, Washington, DC, 2013-01) Herrera, Santiago ; Youssef, HodaFrom 2008 to 2011, Egypt was hit by significant shocks, both global and country-specific. This paper assesses the impact of the resulting macroeconomic instability on the banking sector, and examines its role as a shock absorber. The Central Bank of Egypt accommodated the shocks by supplying liquidity to the market. The paper verifies a change in the fiscal regime from one in which the primary fiscal balance was used an instrument to stabilize the public debt ratio to one in which the policy instrument stopped playing that role and affected investors' assessment of the risk of holding public debt. This pattern suggests that fiscal conditions influenced exchange rate and price expectations originating a fiscal dominance situation in which the Central Bank could not control inflation. Hence, the Central Bank lacked functional independence in spite of its de jure independence, which underscores the importance of strengthening institutions that facilitate policy coordination and allow policy to be more predictable. The government also funds itself through non-market mechanisms, in a typical financial repression scheme. The paper estimates the revenue from financial repression at about 2.5 percent of gross domestic product in 2011, which together with the revenues from seignoriage add up to close to 50 percent of the budgeted tax revenues, indicating the need for an in-depth review of the governance of the public banks and the funding of public sector activities. Finally, the paper estimates the impact of shocks to macroeconomic variables on loan portfolio quality and bank capital.
Publication(World Bank, Washington, DC, 2001-11) Herrera, Santiago ; Perry, GuillermoThe authors test for the existence of asset price bubbles in Latin America in 1980-2001, focusing mainly on stock prices. Based on unit root and cointegration tests, they find that they cannot reject the hypothesis of bubbles. They arrive at the same conclusion using Froot and Obstfeld's intrinsic bubbles model. To examine empirical regularities of these bubble episodes in the region, the authors identify periods of significant stock price overvaluation. They quantify the relative importance of different factors that determine the probability of bubble occurrence, focusing on the contrast between the country-specific variables and the common external factors. They include as country-specific variables both the level and the volatility of domestic credit growth, the volatility of asset returns, the capital flows to each country, and the terms of trade. As common external variables, they consider the degree of asset overvaluation in the U.S. stock and real estate markets and the term spread of U.S. Treasury securities. To quantitatively assess the relative importance of each factor, they estimate a logit model for a panel of five Latin American countries from 1985 to 2001. In general, the authors find that the marginal probabilities of common and country-specific variables are of roughly the same order of magnitude. This finding contrasts with those of previous studies that real asset returns in Latin America are dominated by local factors. Finally, the authors explore the main channels through which asset prices affect real economic activity, with the most important being the balance sheet effect and its impact on bank lending. They show how the allocation of bank lending across different sectors responded sensitively to real estate prices during the boom years in countries that experienced banking crises. Thus asset price bubbles have long-lasting effects in the financial sector and, through this channel, on growth. Another channel through which asset prices-particularly stock market prices-affect long-run growth is through their effect on investment. The authors find a strong positive association between stock prices and investment and a negative effect of stock price volatility on investment. An additional motive for the central bank to monitor asset prices is the general coincidence of the crash episodes identified by the authors with currency crises in the region in the past two decades.
Publication(World Bank, Washington, DC, 2007-10) Herrera, SantiagoGiven that public spending will have a positive impact on GDP if the benefits exceed the marginal cost of public funds, the present paper deals with measuring costs and benefits of public spending. The paper discusses one cost seldom considered in the literature and in policy debates, namely, the volatility derived from additional public spending. The paper identifies a relationship between public spending volatility and consumption volatility, which implies a direct welfare loss to society. This loss is substantial in developing countries, estimated at 8 percent of consumption. If welfare losses due to volatility are this sizeable, then measuring the benefits of public spending is critical. Gauging benefits based on macro aggregate data requires three caveats: a) considering of the impact of the funding (taxation) required for the additional public spending; b) differentiating between investment and capital formation; c) allowing for heterogeneous response of output to different types of capital and differences in network development. It is essential to go beyond country-specificity to project-level evaluation of the benefits and costs of public projects. From the micro viewpoint, the rate of return of a project must exceed the marginal cost of public funds, determined by tax levels and structure. Credible evaluations require microeconomic evidence and careful specification of counterfactuals. On this, the impact evaluation literature and methods play a critical role. From individual project evaluation, the analyst must contemplate the general equilibrium impacts. In general, the paper advocates for project evaluation as a central piece of any development platform. By increasing the efficiency of public spending, the government can permanently increase the rate of productivity growth and, hence, affect the growth rate of GDP.
Publication(World Bank, Washington, DC, 2008-05) Herrera, Santiago ; Vincent, BrunoRecent estimates of the welfare cost of consumption volatility find that it is significant in developing nations, where it may reach an equivalent of reducing consumption by 10 percent per year. Hence, examining the determinants of consumption volatility is of utmost relevance. Based on cross-country data for the period 1960-2005, the paper explains consumption volatility using three sets of variables: one refers to the volatility of income and the persistence of income shocks; the second set of variables refers to policy volatility, considering the volatility of public spending and the size of government; while the third set captures the ability of agents to smooth shocks, and includes the depth of the domestic financial markets as well as the degree of integration to international capital markets. To allow for potential endogenous regressors, in particular the volatility of fiscal policy and the size of government, the system is estimated using the instrumental variables method. The results indicate that, besides income volatility, the variables with the largest and most robust impact on consumption volatility are government size and the volatility of public spending. Results also show that deeper and more stable domestic financial markets reduce the volatility of consumption, and that more integrated financial markets to the international capital markets are associated with lower volatility of consumption.
Publication(World Bank, Washington, DC, 2005-06) Herrera, Santiago ; Pang, GaoboGovernment spending in developing countries typically account for between 15 and 30 percent of GDP. Hence, small changes in the efficiency of public spending could have a major impact on GDP and on the attainment of the government's objectives. The first challenge that stakeholders face is measuring efficiency. This paper attempts such quantification and has two major parts. The first part estimates efficiency as the distance between observed input-output combinations and an efficiency frontier (defined as the maximum attainable output for a given level of inputs). This frontier is estimated for several health and education output indicators by means of the Free Disposable Hull (FDH) and Data Envelopment Analysis (DEA) techniques. Both input-inefficiency (excess input consumption to achieve a level of output) and output-inefficiency (output shortfall for a given level of inputs) are scored in a sample of 140 countries using data from 1996 to 2002. The second part of the paper seeks to verify empirical regularities of the cross-country variation in efficiency. Results show that countries with higher expenditure levels register lower efficiency scores, as well as countries where the wage bill is a larger share of the government's budget. Similarly, countries with higher ratios of public to private financing of the service provision score lower efficiency, as do countries plagued by the HIV/AIDS epidemic and those with higher income inequality. Countries with higher aid-dependency ratios also tend to score lower in efficiency, probably due to the volatility of this type of funding that impedes medium term planning and budgeting. Though no causality may be inferred from this exercise, it points at different factors to understand why some countries might need more resources than others to achieve similar educational and health outcomes.
Publication(World Bank, Washington, DC, 2005-02) Herrera, SantiagoDespite significant progress in economic reform throughout the 1990s, and an exemplary development of the policymaking framework in the second part of the decade, Brazil suffered a major public debt and currency crisis in 2002. Though the political origin of the uncertainty cannot be ignored, the author identifies other sources of uncertainty emanating from the policymaking framework: fiscal policy was not responsive to the shocks, public debt instruments were used with several objectives (to stabilize the currency and to lengthen maturity) and there was inadequate supervision of agents holding public debt. Most of the flaws have been fixed following the crisis: a) The primary fiscal balance has been increased, sending the signal that it is a flexible instrument that will be used to ensure commitment of the sovereign to honor its obligations. b) The central bank formally transferred to the Treasury the remaining debt-issuance functions, facilitating a more adequate balancing of different risks involved in debt management. c) Mutual funds' public debt holdings are better regulated, ensuring that end-investors have the proper information to assess the risk of the institutions in which they invest.
Publication(World Bank, Washington, DC, 2006-09) Blanco, Fernando ; Herrera, SantiagoThe authors describe the main trends of Brazil's fiscal policy during the past decade and analyze (1) the ability to raise the primary surplus in response to external shocks, (2) the pro-cyclical nature of fiscal policy, and (3) the long-run impact of government expenditure composition and taxation. They analyze the use of the primary balance as a policy tool within the Drudi-Prati model, wherein the government uses the primary balance to reveal its commitment to service its debt. The authors verify that both the debt ratio and the primary balance are determinants of spreads and credit ratings in Brazil. But the relationship is nonlinear: the impact of the primary balance on spreads is amplified as the debt ratio increases. Using an Autoregressive Distributed Lag (ARDL) approach, the authors analyze the relationship between the primary balance and economic activity, finding a positive correlation in the long run. However, in the short run fiscal expansions are associated with primary balance reductions and vice-versa during output contractions, confirming the procyclical nature of fiscal policy in the short run. The authors use two approaches, ARDL and a cointegrating value at risk (VAR), to analyze the interaction between public expenditure composition and taxation on growth. Similar results are obtained: large elasticities of output with respect to capital stocks, a significant negative impact of taxation on long-run GDP, and a negative impact of increasing government consumption and transfer payments on GDP. These results shed light on the contribution of fiscal policy to disappointing growth performance in Brazil during the past decade.
Publication(World Bank, Washington, DC, 2012-06) Herrera, Santiago ; Hurlin, Christophe ; Zaki, ChahirBank credit to Egypt's private sector decreased over the last decade, despite a recapitalized banking system and high rates of economic growth. Recent macro-economic turmoil has reinforced the trend. This paper explains the decrease based on credit supply and demand considerations by 1) presenting stylized facts regarding the evolution of the banks' sources and fund use in 2005 to 2011, noting two different cycles of external capital flows, and 2) estimating private credit supply and demand equations using quarterly data from 1998 to 2011. The system of simultaneous equations is estimated both assuming continuous market clearing and allowing for transitory price rigidity entailing market disequilibrium. The main results are robust to the market clearing assumption. During the global financial crisis, a significant capital outflow stalled bank deposit growth, which in turn affected the private sector's credit supply. At the same time, the banking sector increased credit to the government. Both factors reduced the private sector's credit supply during the period under study. After the trough of the global crisis, capital flowed back into Egypt and deposit growth stopped being a drag on the supply side, but bank credit to the government continued to drive the decrease in the private sector's credit supply. Beginning in the final quarter of 2010, capital flows reversed in tandem with global capital markets, and in January 2011 the popular uprising that ousted President Hosni Mubarak added an Egypt-specific shock that accentuated the outflow. Lending capacity dragged again, accounting for 10 percent of the estimated fall in private credit. Credit to the government continued to drain resources, accounting for 70 - 80 percent of the estimated total decline. Reduced economic activity contributed around 15 percent of the total fall in credit. The relative importance of these factors contrasts with that of the preceding capital inflow period, when credit to the government accounted for 54 percent of the estimated fall, while demand factors accounted for a similar percentage.
Publication(World Bank Group, Washington, DC, 2014-11) Herrera, Santiago ; Aykut, DilekGhana's economic growth picked up in the early 2000s and has been exceptionally strong over the past few years, with price booms of its main commodity exports, gold and cocoa, and the initiation of commercial oil production in 2011. This paper examines recent econometric evidence on Ghana's long-term growth and evaluates its sustainability. The empirical evidence surveyed finds that Ghana's main growth drivers were investment, oil, and mineral rents, while government consumption acted as a growth retardant. Based on various scenarios for its determinants, per capita GDP growth rates are predicted to be between 3.5 and 4.5 percent for 2014-34. Nevertheless, the predictions are subject to considerable uncertainty associated with the expected trends and volatility of the drivers of growth, particularly to sustaining investment levels and external factors such as commodity prices and international capital flows. A growth decomposition exercise shows that Ghana's past growth was led by capital accumulation, which will be difficult to sustain given the high current account deficits and the volatility of capital flows. Hence, a switch toward a productivity-based growth strategy, instead of the investment-led growth strategy of the past, is the only viable alternative to sustain the recent high growth rates. For that, Ghana needs focus on policies that enhance government effectiveness and public spending efficiency. To mitigate the risk of falling into the so-called growth traps like many other countries, Ghana must resolve its macroeconomic imbalances and resume the institutional reform to enhance the quality of institutions and make growth more inclusive.
Publication(World Bank, Washington, DC, 2000-05) Herrera, Santiago ; Perry, Guillermo ; Quintero, NeileThe authors explain Latin America's growth slowdown in 1998-1999. To do so, they use two complementary methodologies. The first aims at determining how much of the slowdown can be explained by specific external factors: the terms of trade, international interest rates, spreads on external debt, capital flows, and climatological factors (El Nino). Using quarterly GDP data for the eight largest countries in the region, the authors estimate a dynamic panel showing that 50-60 percent of the slowdown was due to these external factors. The second approach allows for effects on output by some endogeneous variables, such as domestic real interest rates, and real exchange rates. Using monthly industrial performance data, the authors estimate country-specific generalized vector auto-regressions (GVAR) for the largest countries. They find that during the sample period (1992-98) output volatility is mostly associated with shocks to domestic factors, but the slowdown in the sub-period 1998-99 is explained more than 60 percent by shocks to the external factors.