Fiscal Cyclicality in the Anglophone West Africa and Guinea: Panel Data Assessments of Contemporaneous and Lagged Fiscal Rules

This study assessed the nature of fiscal cyclicality within the Anglophone West African countries as well as Guinea (all known as the West African Monetary Zone (WAMZ) countries). This study was conducted within the context of the achievement of fiscal cyclicality objectives over the period covered by the study, as a pointer to the future due to the proposed monetary integration of the West African sub region. The cyclical conduct of fiscal policy by member countries of a monetary union is a crucial determinant of the coherence of the monetary union and hence, the significance of understanding the cyclical behaviour of fiscal policy within these West African countries. In this study, the models of fiscal policy cyclical behaviour of these WAMZ countries were specified at the level and backward-looking in line with the contemporaneous fiscal rule model and lagged fiscal rule model; and were estimated using annual panel data of the relative fiscal and output variables of the WAMZ countries spanning generally over the 15-year period between 2000 and 2014. The countries under assessment are commodity exporting countries and the commodity windfalls uniformly influence government expenditure patterns in these countries. This makes the panel data regression estimations employed in this study to be appropriate. Panel data random effects generalised least square (RE-GLS) regressions, random effects maximum likelihood estimation (RE-MLE) regressions, generalised estimating equation (GEE) population-averaged regressions and fixed effects regressions were performed to generate results. The statistically significant results of the estimations of the contemporaneous fiscal rule estimations suggested counter-cyclicality across the four methods of regression. However, the lagged fiscal rule regression estimates generated statistically insignificant information about co-movements of fiscal policy and real output cycle variables, although counter-cyclicality was equally established. The indication of this is that fiscal policies move against business cycles in the Anglophone countries and Guinea, implying that in ‘bust’ or financial and economic crisis, fiscal authorities in these countries are likely to opt for expansionary fiscal policies (lowering revenue/taxes and raising expenditures) while they are likely to contract fiscal policy during ‘boom’. If on the take-off of monetary integration in West Africa, fiscal policy matters are eventually relinquished to national authorities, these would have implications for fiscal policy/monetary policy interactions within the proposed West African monetary union, when monetary policy would be in the hand of a supranational regional monetary authority while the fiscal policies would be in the hands of fifteen national authorities.