Working Paper 178 - Holding Excess Foreign Reserves Versus Infrastructure Finance: What should Africa do?
Financing infrastructure needs in Africa necessitates new thinking on financing mechanisms. This paper is a contribution to the debate on the use of excess foreign exchange reserves from different African countries as one of the funding sources for financing infrastructure. The study has: (i) extracted data on the foreign exchange reserve, debt and infrastructure needs of African countries from different IMF, World Bank and AfDB databases; (ii) estimated the adequacy level of foreign reserve for these countries based on two commonly used methodologies – the traditional metric method of import cover and the Wijnholds and Kapteyn (WK) method; (iii) then estimated the excess foreign reserve and the social cost of holding this excess based on comparison to other alternative investment opportunities such as investments in African infrastructure. Based on these estimations, the study has shown that: (i) African countries have held excess reserves in the range of $ 165.5 and $ 193.6 billion on average per year between 2000 and 2011. This is more than the infrastructure financing gap identified at $ 93 billion per year; and (ii) the social cost of holding these excess reserves amount to up to 1.65% in GDP terms on average. In addition, the study provides some suggestions on how central banks can innovate in their reserves management. A close collaboration between the central banks and the debt management offices on the alignment of foreign reserves and foreign debt is deemed crucial.
|Date of creation:||24 Jul 2013|
|Contact details of provider:|| Postal: 15 Avenue du Ghana P.O.Box 323-1002 Tunis-Belvedère, Tunisia|
Phone: (+216) 71 10 39 00
Fax: (225) 21.77.53
Web page: https://www.afdb.org/en/knowledge/publications/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bhattacharyay, Biswa, 2010. "Financing Asia’s Infrastructure: Modes of Development and Integration of Asian Financial Markets," ADBI Working Papers 229, Asian Development Bank Institute.
- Robert P Flood & Nancy P. Marion, 2002. "Holding International Reserves in an Era of High Capital Mobility," IMF Working Papers 02/62, .
- Javier Bianchi & Juan Carlos Hatchondo & Leonardo Martinez, 2013.
"International Reserves and Rollover Risk,"
IMF Working Papers
- Javier Bianchi & Juan Carlos Hatchondo & Leonardo Martinez, 2012. "International Reserves and Rollover Risk," NBER Working Papers 18628, National Bureau of Economic Research, Inc.
- Bianchi, Javier & Hatchondo, Juan Carlos & Martinez, Leonardo, 2013. "International reserves and rollover risk," Working Paper 13-01, Federal Reserve Bank of Richmond, revised 01 Jun 2013.
- Javier Bianchi & Juan Carlos Hatchondo, 2013. "International reserves and rollover risk," Globalization and Monetary Policy Institute Working Paper 151, Federal Reserve Bank of Dallas.
- Graham Bird & Ramkishen Rajan, 2003.
"Too Much of a Good Thing? The Adequacy of International Reserves in the Aftermath of Crises,"
The World Economy,
Wiley Blackwell, vol. 26(6), pages 873-891, 06.
- Graham Bird & Ramkishen Rajan, 2002. "Too Much of a Good Thing?: The Adequacy of International Reserves in the Aftermath of Crises," Centre for International Economic Studies Working Papers 2002-10, University of Adelaide, Centre for International Economic Studies.
- Léonce Ndikumana & Adam Elhiraika, 2007. "Reserves Accumulation in African Countries: Sources, Motivations, and Effects," UMASS Amherst Economics Working Papers 2007-12, University of Massachusetts Amherst, Department of Economics.
- Frenkel, Jacob A. & Razin, Assaf, 1980. "Stochastic prices and tests of efficiency of foreign exchange markets," Economics Letters, Elsevier, vol. 6(2), pages 165-170.
- Mendoza, Ronald U., 2004. "International reserve-holding in the developing world: self insurance in a crisis-prone era?," Emerging Markets Review, Elsevier, vol. 5(1), pages 61-82, March.
- Jacob A. Frenkel & Michael L. Mussa, 1980. "Efficiency of Foreign Exchange Markets and Measures of Turbulence," NBER Working Papers 0476, National Bureau of Economic Research, Inc.
- Frenkel, Jacob A & Mussa, Michael L, 1980. "The Efficiency of Foreign Exchange Markets and Measures of Turbulence," American Economic Review, American Economic Association, vol. 70(2), pages 374-381, May.
- Frenkel, Jacob A, 1974. "The Demand for International Reserves by Developed and Less-Developed Countries," Economica, London School of Economics and Political Science, vol. 41(161), pages 14-24, February.
When requesting a correction, please mention this item's handle: RePEc:adb:adbwps:478. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Adeleke Oluwole Salami)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.