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Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa

Author

Listed:
  • Karim Nashashibi

    (International Monetary Fund)

  • Stefania Bazzoni

    (International Monetary Fund)

Abstract

This paper investigates the relationship between fiscal performance and movements in the exchange rates, the terms of trade, and other macroeconomic aggregates in 28 sub-Saharan African countries over the 1980-91 period. It finds that the tax base in most of these countries is heavily dependent on imports and import substitutes. Consequently, an overvaluation of the exchange rate in countries that adopt a fixed exchange rate strategy (CFA franc zone countries), when the purpose of the strategy is to restore the real exchange rate to its equilibrium through fiscal contraction, can result in a widening of the fiscal deficit. Those countries with a variable exchange rate strategy fail to attain price stability but are able to enhance their fiscal balance, competitiveness, and growth.

Suggested Citation

  • Karim Nashashibi & Stefania Bazzoni, 1994. "Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa," IMF Staff Papers, Palgrave Macmillan, vol. 41(1), pages 76-122, March.
  • Handle: RePEc:pal:imfstp:v:41:y:1994:i:1:p:76-122
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    Citations

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    Cited by:

    1. Paul Masson & Catherine Pattillo, 2002. "Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies?," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(3), pages 387-412, September.
    2. Rama,Martin G., 1998. "Wage misalignment in CFA countries: are labor market policies to blame?," Policy Research Working Paper Series 1873, The World Bank.
    3. Xavier Debrun & Paul Masson & Catherine Pattillo, 2005. "Monetary union in West Africa: who might gain, who might lose, and why?," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 454-481, May.
    4. Adam, Christopher S. & Bevan, David L. & Chambas, Gerard, 2001. "Exchange rate regimes and revenue performance in Sub-Saharan Africa," Journal of Development Economics, Elsevier, vol. 64(1), pages 173-213, February.
    5. Gnangnon, Sèna Kimm, 2016. "Aid for Trade and trade tax revenues in developing countries," Economic Analysis and Policy, Elsevier, vol. 50(C), pages 9-22.
    6. Fouopi Djiogap Constant, 2012. "The CFA Franc Devaluation and Output Growth in the Franc Zone," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(1), pages 40-48, January.
    7. Guillermo Javier Vúletin, 2002. "Regímenes Cambiarios y Performance Fiscal ¿Generan los Regímenes Fijos Mayor Disciplina que los Flexibles?," Department of Economics, Working Papers 042, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    8. P. van den Boogaerde & Charalambos G Tsangarides, 2005. "Ten Years After the CFA Franc Devaluation; Progress Toward Regional Integration in the WAEMU," IMF Working Papers 05/145, International Monetary Fund.
    9. Guillermo J. Vuletin, 2004. "Exchange Rate Regimes And Fiscal Performance. Do Fixed Exchange Rate Regimes Generate More Discipline Than Flexible Ones?," Econometric Society 2004 North American Winter Meetings 474, Econometric Society.
    10. Khattry, Barsha & Mohan Rao, J., 2002. "Fiscal Faux Pas?: An Analysis of the Revenue Implications of Trade Liberalization," World Development, Elsevier, vol. 30(8), pages 1431-1444, August.
    11. Brun, Jean-François & Gnangnon, Sèna Kimm, 2017. "Does trade openness contribute to driving financing flows for development?," WTO Staff Working Papers ERSD-2017-06, World Trade Organization (WTO), Economic Research and Statistics Division.
    12. repec:wsi:wschap:9789813108448_0005 is not listed on IDEAS
    13. Howard J. Shatz & David G. Tarr, 2017. "Exchange Rate Overvaluation and Trade Protection: Lessons from Experience," World Scientific Book Chapters,in: Trade Policies for Development and Transition, chapter 5, pages 115-127 World Scientific Publishing Co. Pte. Ltd..

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F3 - International Economics - - International Finance
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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