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Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa

  • Karim Nashashibi

    (International Monetary Fund)

  • Stefania Bazzoni

    (International Monetary Fund)

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    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.

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    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 41 (1994)
    Issue (Month): 1 (March)
    Pages: 76-122

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    Handle: RePEc:pal:imfstp:v:41:y:1994:i:1:p:76-122
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