## _wp1332 ## Source details **Canonical URL:** [_wp1332](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1332.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1332.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1332.pdf.json) --- ### Background and overview - Many sub-Saharan African (SSA) countries liberalized international trade and foreign exchange rate regimes in the 1980s and early 1990s. - Pre-liberalization features: - Administrative controls over foreign exchange allocation and current account transactions. - Extensive rationing of foreign exchange and sizeable black market premiums, sometimes reaching 1,000–4,000 percent. - Stagnant or declining per capita real income. - Post-reform outcomes for successful reformers: - Rationing and parallel market spreads largely eliminated. - Per capita income increased sharply for many, by as much as 2.5–5 percent a year for several decades. - A subset of countries did not transition successfully to market-determined exchange rates and continued to face foreign exchange shortages, rationing, and parallel market spreads. - Purpose: review foreign exchange regime reforms in selected SSA countries and associated macroeconomic policies and economic performance during and after reforms. ### Overview and main lessons - Reforms worked when sustained; reform periods often marked the end of prolonged crisis and the beginning of strong, ongoing economic expansion. - Fixing the exchange rate without supportive fiscal and monetary policies led to: - Overvalued exchange rates and severe balance-of-payments pressure. - Use of price controls, rationing, and import licenses that depressed the economy and reduced fiscal revenues. - Shift of external trade to the informal sector and shortages of imported inputs. - Declines in fiscal revenue and/or monetization of deficits, worsening macroeconomic imbalances. - Successful transitions typically combined exchange rate liberalization with tighter fiscal and monetary stances, which: - Reduced inflation. - Rebuilt reserves and restored external trade. - Supported sustained output and per capita income recovery. - Sustaining reforms, ownership, and commitment are critical to avoid damaging stop-and-go policies. ### Key quantitative observations across case studies - Extreme parallel market premiums and peaks: - General range 1,000–4,000 percent. - Ghana peak almost 4300 percent in 1982. - Mozambique parallel market sometimes 40–50 times the official rate in the mid-1980s. - Tanzania peak over 700 percent in March 1986. - Uganda peak 2100 percent in May 1981. - Notable exchange rate adjustments: - Ghana: 800 percent increase in cedi/US$ exchange rate in 1983. - Uganda: 840 percent increase in shilling/US$ exchange rate in 1980/81. - Tanzania: shilling/U.S. dollar exchange rate increases totaling almost 2,700 percent (period covering reforms). - Growth and recovery metrics: - Ghana: average annual per capita growth of 2.6 percent after 1983. - Mozambique: U.S. dollar export growth averaged 12.4 percent per year in 1987–2010; GDP growth averaged 7.4 percent a year in 1987–2010; per capita income increased 243 percent since the decline ended in 1986. - Tanzania: 4.5 percent per capita annual average growth in 2000–10. - Uganda: average annual GDP growth of 7.5 percent in 1986–2010. - Zambia: average annual GDP per capita growth of 2.8 percent in 2000–10. - Fiscal and external metrics at crisis points: - Ghana: fiscal revenue down to only 4–6 percent of GDP in 1982/1983; imports compressed from 24 percent of GDP in 1970 to 3 percent of GDP in 1982. - Mozambique: international reserve coverage down to only 0.4 months of prospective imports in the mid-1980s. - Tanzania: imports fell from 25 percent of GDP in the 1970s to 12 percent in 1983–84; exports from 17 percent to 6 percent of GDP in the same period. - Zambia: large fiscal deficits averaged almost 13 percent of GDP in the 1970s and 1980s. ### Exchange rate liberalization: mechanisms, pass-through, and policy conditions - Exchange rate liberalization was a fundamental element in all successful cases, together with structural reforms, reduced fiscal deficits, restrained monetary expansion, and external assistance. - Complementary fiscal and monetary measures were necessary to contain inflation pass-through and secure a sustained real depreciation. - Monetary policy must be forward looking and non-accommodating; nominal interest rates should be allowed to increase as needed to keep the real rate high enough to contain inflation pressure. - Under sufficiently tight fiscal and monetary policy, pass-through can be small or even negative; where parallel market spreads are large, devaluation of the official rate may have limited direct effect on domestic prices. - Risks of exchange-rate-based stabilization without supportive policies: - Administratively fixed nominal exchange rates inconsistent with fundamentals produced overvaluation, shortages, and either damaging controls or large ad hoc devaluations. - Stop-and-go policies caused unpredictable and large REER volatility that can be more damaging than floating rate volatility. - Expectations of sustained reform are crucial for foreign exchange flows, output, exports, and private investment responses. ### Case evidence — Ghana (decline, adjustment, sustained recovery) - Pre-reform conditions: - Real per capita income declined by 27 percent since 1970. - Fiscal revenue declined to only 4–6 percent of GDP. - Imports through official channels compressed from 24 percent of GDP in 1970 to 3 percent of GDP in 1982. - Inflation around 123 percent in 1981; parallel market spread peaked at almost 4300 percent at end-1982. - Exports declined from 23 percent of GDP to 3.3 percent of GDP; capital formation declined from 12 percent of GDP to 3.5 percent of GDP. - 1983 Economic Reform Program (ERP) measures (selected, dates preserved): - Cedi effectively devalued by 89 percent in April 1983 (from 2.75 to a weighted average rate of 24.7 cedis per U.S. dollar); multiple exchange rate system abolished in October 1983 and unified at 30 cedis per U.S. dollar. - Tariff reform in 1983: predominantly uniform tariff with duty rate of 30 percent. - Periodic exchange rate adjustments 1983–86 including devaluations of 18 percent (Oct 1983), 15 percent (Mar–Apr 1984), 9 percent (Aug–Sep 1984), 21 percent (Dec 1984), and 45 percent between end-1984 and Jan/Feb 1986 to 90 cedis per U.S. dollar. - Foreign deposit accounts permitted in June 1985; liberalization of import licensing in 1985 and removal in January 1989. - Dual exchange rate system introduced Sep 1986 and merged Feb 1987; foreign exchange bureaus established Feb 1988. - Wholesale foreign exchange auction system April 1990; interbank market March 1992; Article VIII obligations accepted Feb 1994. - Outcomes: - Official REER depreciated by almost 83 percent between March and December 1983 and continued to depreciate over the next decade. - GDP per capita grew by almost 3 percent in 1984 after contractions of 9 percent and 8 percent in 1982 and 1983; average growth around 2.6 percent a year subsequently. - Exports (U.S. dollars) grew by almost 29 percent in 1984 and at an annual average of 9 percent over the next decade; export volume grew by more than 240 percent between 1982 and 1995. - Export-to-GDP ratio rose from 3.3 percent of GDP in 1982 to almost 25 percent in 1995. - Reserve coverage increased from around 2.5 months of prospective imports in 1983 to almost 6 months in 1985. - Inflation dynamics: - Inflation increased sharply in 1983; broad money growth peaked at almost 70 percent in September 1983. - Real interest rates allowed to decline to negative 162 percent in mid-1983. - Inflation declined to below 6 percent at year-end 1984 and to 1.5 percent in May 1985 after recovery in agriculture and monetary tightening, but remained above target in later years. ### Ghana — inflation impact of April 1983 adjustment and fiscal effects - Official cedi/U.S. dollar rate increased by 800 percent in April 1983. - Parallel market rate appreciated by 118 percent between January and May 1983. - The one-month seasonally adjusted inflation rate showed a sharp decline from June 1983 onward. - Limited correlation between the official exchange rate and the CPI for 1980–90; many tradables were priced at the parallel market exchange rate. - Devaluations positively affected the budget when: - monetary policy contained the inflation impact, - aid and trade taxes provided a significant part of government revenue, - foreign exchange expenditure was a smaller share of total government spending. - Up-front fiscal deficit reduction was central: deficit reduced from 11.6 percent in 1980 to 2.6 percent in 1983. - Monetary policy was not fully supportive in 1985–89, with high monetary expansion and real interest rates too low, producing larger-than-needed nominal depreciation. ### Kenya — liberalization, monetary policy, and short-lived recovery - Timeline: - Early 1990s: move from crawling peg to a dual system and then to a floating regime in October 1993. - 1994: removal of all restrictions on current account transactions; Article VIII accepted. - By mid-1995 many capital account controls removed. - Excess liquidity complicated October 1993 float: - Inflation and parallel market spreads increased sharply before Oct 1993. - Inflation pressure receded and the exchange rate appreciated through 1994 as excess liquidity dried up and nominal interest rates rose. - Outcomes: - Exports increased sharply; current account improved. - Growth: per capita growth averaged 1.2 percent in 1994–96 compared to -2.8 percent in 1991–93. - Growth recovery not sustained in late 1990s and early 2000s; strengthened since 2003. ### Malawi — stop-and-go regimes, large depreciations, and high inflation - Exchange-rate regime history (1990–2010): basket peg (1984–94), managed float (1994–95), de facto peg (1995–97), crawling peg (1997–98), float (1998–2003), de facto adjustable peg/stabilized (2003 onward). - Between end-1990 and end-2010, relative to comparators: - Consumer prices increased by almost 23 percent on average each year. - The kwacha (MK) depreciated by 98 percent (cumulative decline in the U.S. dollar/local currency exchange rate between end-1990 and end-2010). - Higher REER volatility, lower growth, less diversification, repeated foreign exchange shortages and rationing. - GDP per capita declined by almost 15 percent between 1975 and 1994. - February 1994 move to a floating regime produced: - MK depreciation by almost 75 percent between end-January and end-November 1994 (equivalent to a 293 percent increase in the MK/U.S. dollar exchange rate). - MK depreciated by 32.6 percent in February 1994 alone; another 55 percent in Sep–Nov 1994. - Inflation rose from just below 20 percent in late 1993 to around 100 percent in mid-1995. - Contributing factors to 1994–95 inflation surge: - Parallel market premium 45 percent in Jan 1994; declined to -35 percent in Nov 1994. - Fiscal deficit exploded to more than 17 percent of GDP in 1994, up from 6 percent in 1993; government expenditure rose from 26 percent of GDP in 1993 to more than 48 percent in 1994. - Broad money grew by almost 66 percent in 12 months to Dec 1994, up from below 18 percent in the 12 months to Dec 1993. - Nominal interest rates fixed from mid-1993 to late 1994/early 1995; real interest rates bottomed at around -50 percent in July 1995. - Severe drought 1993/94: agricultural production dropped by almost 30 percent and GDP by almost 12 percent. - Real outcomes and subsequent policy: - REER depreciated by 60 percent between Jan and Nov 1994. - Reserves 0.8 months of imports at end-1994, 1.8 months at end-1995; by end-1996 reserve coverage increased to 3 months. - REER appreciated by almost 130 percent between Nov 1994 and July 1997, reversing competitiveness gains. - August 1998 devaluation of 32 percent and float led to a 28 percent REER depreciation between end-July and Nov 1998. - Reserves rose to 4 months of imports by end-1998 and to 4.5 months by end-1999. - Monetary tightening after Aug 1998: discount rate increased by 17 percentage points between Aug 1998 and Jan 1999; T-bill rate increased by 24 percent to almost 48 percent in Aug 1998. - From May 2000 onward the RBM stopped quoting an exchange rate and restricted interventions. - Real per capita GDP declined by almost 5 percent between 1997 and 2006 (average -0.5 percent annually); recent positive per capita growth restored by improved macroeconomic management and fertilizer program success. ### Mozambique — collapse, 1987 ERP, and sustained growth - Pre-reform (mid-1980s): - Real per capita income fell by 34 percent between 1981 and 1986. - Inflation around 41 percent in 1986. - Fiscal deficit 12 percent of GDP in 1986. - International reserve coverage only 0.4 months of prospective imports. - Parallel market rate about 40–50 times the official rate. - 1987 Economic Rehabilitation Program reforms: - Unification of the exchange rate and large devaluations: metical devalued by 80.5 percent in Jan 1987 (Mt 39 to Mt 202 per U.S. dollar) and by another 50 percent in July 1987 to Mt 404 per U.S. dollar; monthly devaluations instituted April 1989; peg changes from basket to U.S. dollar and back to baskets as documented. - Liberalization of external trade, tariff reforms, privatization of public enterprises, elimination of most price controls, financial sector reforms including interest rate liberalization. - Market for foreign exchange introduced Oct 1990; unification of central bank and market rates April 1992; official exchange rate became fully market determined after June 1993. - Macroeconomic outcomes after reforms: - GDP growth averaged 7.4 percent a year in 1987–2010. - Per capita income increased 243 percent since the decline ended in 1986. - U.S. dollar exports and services grew by 18 percent in 1987; export growth averaged 12.4 percent in 1987–2010. - Inflation spiked in 1987 due to removal of price controls, fiscal deficit, money supply increase, and large devaluation; inflation remained relatively high until 1996 but declined after tighter policy from 1995 onward. - Aid-facilitated import increases and substantial rebuilding of reserves. ### Tanzania — ERP, exchange-rate reform chronology, and outcomes - Pre-1986 distress: - Negative per capita growth, declining exports/imports, shortages, high parallel market spreads, high inflation. - Imports through official channels declined from around 25 percent of GDP in the 1970s to 12 percent in 1983–84; exports declined from around 17 percent to 6 percent of GDP in 1983–84. - Parallel market premium rose from around 40 percent in 1970 to about 250 percent in 1980–85, peaking over 700 percent in March 1986. - Annual inflation rose above 30 percent in the first half of the 1980s. - ERP (starting 1986) and exchange rate transformation: - Large nominal devaluation of the shilling in March–June 1986: 60 percent nominal devaluation producing a REER depreciation of 50 percent. - Between March 1986 and mid-1992 nominal exchange rate devalued around 95 percent, yielding REER depreciation of almost 87 percent and reducing parallel market premium from 700 percent to below 30 percent. - Foreign exchange bureaus and foreign currency deposit accounts introduced in 1992; official and parallel rates unified mid-1993; interbank foreign exchange market introduced in 1994. - Aggregate official shilling/U.S. dollar rate increased by almost 2,700 percent from start of reforms in March 1986 to mid-1993 (equivalent to depreciation of almost 97 percent). - Policy and inflation dynamics: - Moderate money growth and solid fiscal consolidation reduced headline inflation from around 30 percent in early 1986 to around 22 percent in mid-1992; broad money growth averaged ~30 percent a year; fiscal deficit reduced from 8.3 percent of GDP in 1987 to 1.6 percent in 1992. - Inflation peaked around 38 percent in early 1995 due to drought and temporary loosening; broad money growth peaked at almost 70 percent in 1994. - Post-1995 disinflation: headline inflation declined rapidly to single digits by early 1999; interest rate liberalization and T-bill auctions improved liquidity management; broad money growth fell to 8.7 percent in 1996. - Long-term outcomes: - Inflation averaged 6.8 percent in 2000–10. - Economic growth averaged 4.5 percent per capita since 2000; real GDP per capita almost doubled since the mid-1980s. - Exports and imports (percent of GDP) increased sharply; exports became more diversified with rapid growth in gold and manufacturing exports. - Tanzania’s Human Development Index ranking improved from 89 percent of the SSA average in 1995 to equal the SSA average in 2010. ### Tanzania — exchange rate pass-through evidence - Mwase (2006) result: during 1990–2005, a 10 percent devaluation was associated with a 0.05 percent increase in inflation after a two-quarter lag. - Pass-through decreased from a low level in the early 1990s to essentially zero from mid-1990s onward when the shilling was floating. - No evidence of Granger causality from the exchange rate to inflation. - Decline in pass-through attributed to improvements in monetary policy implementation, higher productivity, increased competition, and decreased import tariffs. ### Uganda — from distress to high growth and low inflation - Early 1980s conditions: - Per capita income declined by around 3.4 percent a year between 1970 and 1980. - Parallel market premium averaged 800–900 percent in 1979–80, peaking at 2100 percent in May 1981. - Dependence on coffee: coffee accounted for 98 percent of exports by 1980. - 1980–86 adjustment: - Managed floating regime adopted June 1981; official shilling/U.S. dollar rate increased by 840 percent. - REER depreciated by 84 percent; parallel premium dropped below 200 percent in June 1981 and to 3 percent in late 1984. - June 1981 devaluation caused consumer prices to jump 60 percent; with monetary containment and output expansion, prices stabilized thereafter. - Exports rose from <5 percent of GDP in 1981 to almost 15 percent in 1984; imports fell from 20 percent to <15 percent, aiding reserve recovery. - 1984–86 setback: - IMF-supported program went off track in March 1984 due to fiscal slippages; inflation rose to almost 240 percent in mid-1985. - Parallel premium reached almost 1200 percent in April 1986; inflation exceeded 300 percent by mid-1986; GDP per capita fell by >14 percent in 1984–86. - 1987 reform program and sustained recovery: - Program launched in 1987 included exchange rate and trade liberalization, financial sector liberalization, agricultural marketing liberalization, and privatization. - Between 1986 and 2010: economic growth averaged 7.5 percent; real per capita income rose by 114 percent; inflation below 10 percent for most years since 1993 (except 2008–09 and 2011–12); exports >20 percent of GDP; foreign exchange reserve coverage above six months since 1998. - Sequence of liberalization (1987–1993) — major milestones: - 1987: crawling peg with discrete adjustments; official shilling/U.S. dollar rate increased by almost 330 percent in May 1987. - 1989–1991: further discrete adjustments and multiple markets; foreign exchange bureaus established July 1990. - 1992: floating regime adopted; weekly Dutch auctions for donor funds Jan 1992; average bureau rate for travelers’ checks adopted Mar 1992. - Nov 1993: interbank market introduced; April 1994: Article VIII obligations accepted. - Removal of surrender requirements and export retention: - Nov 1988: non-traditional exporters permitted to retain 100 percent of export proceeds in retention accounts for payments on “positive import list.” - March 1989: extended to all non-coffee export proceeds; by 1993 surrender requirement on coffee proceeds removed. - Monetary and inflation dynamics: - Headline inflation peaked ~360 percent in May 1987. - Broad money increased by almost 12000 percent between 1985 and 1992; official and parallel exchange rates increased by >7000 percent (depreciation of almost 99 percent). - Interest rate controls until 1992 weakened policy; real interest rates were as low as -330 percent in May 1987; real rates turned positive only by mid-1990. - Once broad money growth curtailed, 12-month inflation fell below 30 percent in mid-1990 and remained below 10 percent for most of the time since early 1993. - Evidence (Barungi, 1997): inflation in Uganda was persistently monetary; devaluation reduced excess demand for foreign exchange, caused the parallel rate to appreciate, and eased upward pressure on the general price level. ### Zambia — move from regulated market to liberalized regime (1989–1994) and outcomes - Pre-reform (1970s–late 1980s): - Per capita income declined on average by around 2 percent a year between 1970 and 1989. - Fiscal deficit averaged almost 13 percent of GDP during the 1970s and 1980s. - Exchange rate consistently overvalued; export volumes declined; low savings and capital formation; low international reserves. - Nominal domestic interest rates were kept low and heavily negative in real terms. - Foreign exchange transactions highly regulated with surrender requirements and licensing. - Exchange rate and policy changes 1985–1994: - Oct 1985: kwacha/U.S. dollar rate increased by >215 percent via foreign exchange auction. - May 1987: reforms abandoned; price controls re-imposed; exchange rate fixed at ZK 8 to the dollar (a 75 percent appreciation relative to final auction rate of ZK 21). - May 1987–Nov 1988: parallel premium increased from ~25 percent to 920 percent. - Nov 1988: kwacha devalued 20 percent and pegged to SDR. - June 1989: price controls removed (except maize and fertilizers); kwacha/U.S. dollar rate increased 50 percent; regime switched to crawling peg. - Feb 1990: dual exchange rate introduced with about 40 percent difference; export retention scheme gave exporters 50 percent retention rights. - Mid-1992: foreign exchange bureaus licensed; Apr 1991: two official rates unified. - By late 1992: market-determined official rate established; parallel premium reduced to essentially zero. - June 1989–Dec 1992: official kwacha/U.S. dollar rate increased by >3000 percent (devaluation of the U.S. dollar/kwacha rate of 97 percent); parallel market kwacha/U.S. dollar rate increased by 150 percent during same period. - Controls on deposit and lending rates removed Sep 1992; treasury bill auctions introduced Jan 1993; capital account liberalized Jan 1994 and ZK became fully convertible by March 1994. - Monetary and inflation dynamics: - Real rates were deeply negative at start of liberalization (around -120 percent to more than -160 percent in late 1989). - Nominal interest rates rose rapidly after liberalization, peaking ~180 percent in July 1993. - Inflation trajectory: almost 40 percent in Sep 1985; around 60 percent in early 1986; persistent 50–60 percent in May 1987–Oct 1988; almost 100 percent in mid-1989; peaked ~240 percent in July 1993. - Tightening policy reduced broad money growth from >200 percent in 1990 to ~70 percent in 1992; inflation declined to below 50 percent by mid-1994. - Structural reforms and outcomes: - Dual official rates and export retention used as transition tools; market bureau licensed mid-1992 with previous day bureau rate adopted as official rate in Dec 1992. - Capital formation increased as percent of GDP since 1991; non-traditional exports and services grew; non-mining GDP growth positive since 1995; total GDP growth positive since 1999; per capita positive since 2000. - Copper production: declined from 700,000 metric tons in early 1970s to 228,000 tons in 1998, then more than tripled to above 800,000 metric tons. ### Key policy implications and conclusions - Exchange rate liberalization is necessary but not sufficient; it must be accompanied by: - Structural reforms, - Reduced fiscal deficits, - Restrained monetary expansion, - External assistance where appropriate. - Administratively fixing the nominal exchange rate inconsistent with fundamentals leads to overvaluation, shortages, controls, and damaging ad hoc devaluations. - Price controls, rationing, and import licensing depress the economy, reduce fiscal revenue, and push trade into informal channels. - Exchange-rate-based stabilization without fiscal and monetary support is dangerous; stop-and-go policies and unpredictable REER volatility can be more harmful than floating regimes. - Sustained reforms, credible policy commitment, and appropriate sequencing are essential because benefits take time to materialize. *Italic: Content derived from the supplied IMF chapter/section text (_wp1332).* ### References ............................................................................................................ ### _wp1332 - References ### Background and overview - Many sub-Saharan African (SSA) countries undertook fundamental reforms to liberalize international trade and foreign exchange rate regimes in the 1980s and early 1990s. - Pre-liberalization features: - Administrative controls over foreign exchange allocation and current account transactions. - Extensive rationing of foreign exchange because of persistently weak external accounts. - Sizeable black market premiums, sometimes reaching 1,000–4,000 percent (Table 1 and Figures 2, 19, 42, 50, 62). - Stagnant or declining per capita real income (Figure 1). - Post-reform outcomes for successful reformers: - Rationing and parallel market spreads largely eliminated. - Per capita income increased sharply for many, by as much as 2.5–5 percent a year for several decades. - A subset of countries did not transition successfully to market-determined exchange rates and continued to face foreign exchange shortages, rationing, and parallel market spreads. - Purpose of the paper: review foreign exchange regime reforms in selected SSA countries, and associated macroeconomic policies and economic performance during and after reforms. ### Overview and main lessons (summary) - Reforms worked when sustained; reform periods often marked the end of prolonged crisis and the beginning of strong, ongoing economic expansion. - Fixing the exchange rate without supportive fiscal and monetary policies led to: - Overvalued exchange rates. - Severe balance-of-payments pressure. - Use of price controls, rationing, and import licenses that depressed the economy and reduced fiscal revenues. - Shift of external trade to the informal sector and shortages of imported inputs. - Declines in fiscal revenue and/or monetization of deficits, worsening macroeconomic imbalances. - Successful transitions typically combined exchange rate liberalization with tighter fiscal and monetary stances, which: - Reduced inflation. - Rebuilt reserves and restored external trade. - Supported sustained output and per capita income recovery. ### Box 1 — Overview of the case studies (country highlights) - Ghana - 1982/1983: A 27 percent decline in per capita income since 1970; fiscal revenue down to only 4–6 percent of GDP; imports compressed from 24 percent of GDP in 1970 to only 3 percent of GDP; high and volatile inflation and high parallel market spreads, peaking at almost 4300 percent in 1982. - After 1983: Average annual per capita growth of 2.6 percent resulted in a doubling of real per capita income; strong growth in exports and imports; strong increases in fiscal revenue and expenditure; parallel market rate appreciated following an 800 percent increase in cedi/US$ exchange rate in 1983; underlying inflation declined as monetary and fiscal policy was tightened. - Mozambique - Mid-1980s: Real per capita income declined by 34 percent between 1981and 1986; high inflation; international reserve coverage down to only 0.4 months of prospective imports; parallel market exchange rate at times 40–50 higher than the official rate. - After 1986/87: U.S. dollar export growth averaged 12.4 percent per year in 1987–2010; GDP growth averaged 7.4 percent a year during the same period, resulting in a 243 percent increase in per capita income since the decline ended in 1986; inflation remained relatively high until 1996 but stabilized after policy tightening from 1995 onward. - Tanzania - First half of the 1980s: Negative per capita growth, declining exports and imports, shortages and high parallel market spreads; imports declined from 25 percent of GDP in the 1970s to 12 percent of GDP in 1983–84; exports declined from 17 percent to 6 percent of GDP in the same period; parallel market premium increased from around 40 percent in 1970 to about 250 percent in 1980–85, peaking at over 700 percent in March 1986. - After 1986: Rapid growth pickup initially, then further decline as reforms waned; 4.5 percent per capita annual average growth in 2000–10; real GDP per capita almost doubled since the mid-1980s; exports, imports, and reserves increased; inflation averaged only 6.8 percent a year in 2000–10; shilling/U.S. dollar exchange rate increases totaling almost 2,700 percent had limited pass-through because money growth was moderate and fiscal consolidation was solid. - Uganda - Early 1980s: Per capita income declined on average by 3.4 percent per year between 1970 and 1980; parallel market premium averaged 800–900 percent in 1979–80, peaking at 2100 percent in May 1981. - 1980/81: Short-lived reform with partial price liberalization and a floating exchange rate following an 840 percent increase in the shilling/US$ exchange rate that reduced the parallel market premium to almost zero; monetary containment and output expansion stabilized prices and the exchange rate. - After 1987: Average annual GDP growth of 7.5 percent in 1986–2010, more than doubling real per capita income; inflation declined sharply once money supply was curtailed and has been below 10 percent for most of the time since 1993. - Zambia - Before 1989: Per capita income declined on average by around 2 percent a year for almost 20 years; large fiscal deficits averaged almost 13 percent of GDP in the 1970s and 1980s; overvalued exchange rates, declining export volumes, low savings and capital formation, and low reserves. - 1985–87: Attempts to rein in imbalances failed, leading to worsened imbalances, capital flight, and higher inflation; reintroduction of price controls and re-pegging in 1987 failed to lower inflation. - After 1989: Non-mining GDP growth positive since 1995; per capita growth positive since 2000 following mining privatization; average annual GDP per capita growth was 2.8 percent in 2000–10; inflation declined after monetary tightening and a fiscal policy rule committing to a balanced domestic budget. - Kenya - Early 1990s: Gradual liberalization of the foreign exchange market contributed to a sharp increase in exports and current account improvement. - Excess money supply and increased government spending complicated the move to a floating regime and contributed to a sharp increase in inflation. - Policy tightening after the 1992 elections helped stabilize prices and restore credibility; return of foreign exchange held abroad led to exchange rate appreciation. - Malawi - Stop-reverse-and-go exchange rate policies resulted in larger real exchange rate volatility, lower growth, less economic diversification, higher inflation than comparators in 1990–2010, and repeated foreign exchange shortages and rationing. - Exchange rate reforms combined with high monetary and fiscal discipline succeeded in containing inflation when implemented. ### Key quantitative observations across the cases - Extreme parallel market premiums occurred in some episodes: 1,000–4,000 percent (general range); Ghana peak almost 4300 percent in 1982; Mozambique parallel market sometimes 40–50 times the official rate in the mid-1980s; Tanzania peak over 700 percent in March 1986; Uganda peak 2100 percent in May 1981. - Notable exchange rate adjustments and effects: - Ghana: 800 percent increase in cedi/US$ exchange rate in 1983. - Uganda: 840 percent increase in shilling/US$ exchange rate in 1980/81. - Tanzania: total shilling/U.S. dollar exchange rate increases totaling almost 2,700 percent (period not explicitly restated in the excerpt). - Growth and recovery metrics: - Ghana: average annual per capita growth of 2.6 percent after 1983. - Mozambique: U.S. dollar export growth averaged 12.4 percent per year in 1987–2010; GDP growth averaged 7.4 percent a year in the same period; per capita income increased 243 percent since recovery began. - Tanzania: 4.5 percent per capita annual average growth in 2000–10. - Uganda: average annual GDP growth of 7.5 percent in 1986–2010. - Zambia: average annual GDP per capita growth of 2.8 percent in 2000–10. - Fiscal and external metrics at crisis points: - Ghana: fiscal revenue down to only 4–6 percent of GDP in 1982/1983; imports compressed from 24 percent of GDP in 1970 to 3 percent of GDP. - Mozambique: international reserve coverage down to only 0.4 months of prospective imports in the mid-1980s. - Tanzania: imports fell from 25 percent of GDP in the 1970s to 12 percent in 1983–84; exports from 17 percent to 6 percent of GDP in the same period. - Zambia: large fiscal deficits averaged almost 13 percent of GDP in the 1970s and 1980s. *Source: _wp1332 - References* ### 4. Exchange rate liberalization was a fundamental element of the reform effort in ### _wp1332 - 4. Exchange rate liberalization was a fundamental element of the reform effort in ### Key findings on exchange rate liberalization and complementary reforms - Exchange rate liberalization was a fundamental element of the reform effort in all successful cases, but so were structural reforms, reduced fiscal deficits and monetary expansions, and external assistance. - Sustained and mutually reinforcing reforms on a broad front, including on the exchange rate regime, were needed to turn the economies around. - Reduced domestic demand through fiscal and monetary tightening might end a balance of payments crisis, but this would be at the expense of a sharp contraction in domestic output unless accompanied by a corresponding adjustment of the nominal exchange rate that results in a sustained adjustment of the real exchange rate. - A sustained devaluation of the real effective exchange rate should help reduce the costs of the required balance of payments adjustment by shifting demand from imports to domestically produced goods and by encouraging exports. - For countries that largely are price takers on the world markets, a depreciation should improve the current account balance by reducing imports regardless of the size of its trade elasticities as long as imports are not completely inelastic. - Reduced foreign exchange shortages (through reduced imports of consumer goods and/or increased aid) should increase exports by easing existing exporters’ access to needed imported inputs. ### Pass-through, inflation, and policy conditions - Nominal devaluations of the official exchange rate caused a real depreciation, but sustained real depreciation required complementary fiscal and monetary measures to contain inflation pass-through to domestic product prices. - Monetary policy must be forward looking and non-accommodating; nominal interest rates must be allowed to increase as needed to keep the real rate high enough to contain inflation pressure. - Accommodating monetary policies and loose fiscal policies, together with pent-up demand and adjustments to controlled prices, caused inflation initially to skyrocket in a number of countries; inflation pressure was successfully reduced once fiscal and monetary discipline were restored. - The pass-through of devaluations to inflation depends on policy and circumstances and can be small, or even negative, under sufficiently tight fiscal and monetary policy and a strong output and foreign exchange inflow response. - Credible exchange rate reforms, increased interest differentials, positive exchange rate expectations, and renewed economic stability can repatriate foreign exchange held abroad or held privately into the official market. - Where parallel market spreads are large, a devaluation of the official rate may have little direct effect on domestic prices because prices of most tradable goods depend on the market-clearing parallel exchange rate, not the inframarginal official one. ### Risks of exchange-rate-based stabilization without supportive policies - Attempts to fix the nominal exchange rate administratively at levels inconsistent with fundamentals and fiscal and monetary policies resulted in an increasingly overvalued exchange rate and foreign exchange shortages. - Authorities faced either increasingly damaging controls and rationing or large ad hoc devaluations, both of which can have devastating effects on growth and poverty reduction. - Unpredictable and large REER volatility caused by stop-and-go policies can be more damaging to growth and development than the high-frequency volatility associated with floating exchange rates. - Efforts to stabilize the nominal exchange rate may amplify the impact of exogenous shocks on other parts of the economy, in particular the poor. - Sustaining reforms is critical: ownership and commitment are necessary to avoid damaging stop-and-go policies and to reap benefits that take time to materialize. - Expectations that reforms will be sustained are crucial for foreign exchange flows, output, exports, and private investment responses to reforms. ### Case evidence and illustrative examples - Uganda (1980/81) and Zambia (1985–87) illustrate partial and short-lived reform efforts that were not successful when adjustments relied on only a few instruments. - Malawi had several successful episodes of large reserve improvements; for instance, in Malawi in 1994–98 reserves rose from 0.8 months of imports to 4 months of imports in response to the depreciation of the real effective exchange rate and large official foreign exchange inflows in 1996–98. - Ghana: credible exchange rate reforms and coordinated measures led to a strong and sustained recovery (detailed in the Ghana section). ### Ghana: decline, adjustment, and sustained recovery with moderate inflation - Pre-reform conditions: - Real per capita income had declined by 27 percent since 1970. - Fiscal revenue had declined to only 4–6 percent of GDP. - Imports through official recorded channels had been compressed from 24 percent of GDP in 1970 to only 3 percent of GDP in 1982. - Inflation was around 123 percent in 1981. - Parallel market spread peaked at almost 4300 percent at end-1982. - Exports declined from 23 percent of GDP to 3.3 percent of GDP; capital formation declined from 12 percent of GDP to only 3.5 percent of GDP. - The 1983 Economic Reform Program (ERP) key elements included: - Realignment of relative prices, shift away from direct controls toward market mechanisms, restoration of fiscal discipline, rehabilitation of infrastructure, structural and institutional reforms. - Exchange rate and trade reforms under the ERP (selected measures and dates preserved from source): - A sharp, up-front devaluation: The cedi was effectively devalued by 89 percent in April 1983 from 2.75 cedis per U.S. dollar to a weighted average rate of 24.7 cedis per U.S. dollar with the introduction of a transitional multiple exchange rate system; system abolished in October 1983 and unified at 30 cedis per U.S. dollar. - Tariff reforms: In 1983, replaced by a predominantly uniform tariff structure, with a duty rate of 30 percent. - Periodic exchange rate adjustments, 1983–86: devaluations of 18 percent in October 1983, 15 percent in March–April 1984, 9 percent in August–September 1984, 21 percent in December 1984, and another 45 percent between end-1984 and January/February 1986 to 90 cedis per U.S. dollar. - Foreign deposit accounts permitted in June 1985. - Liberalization of import licensing: Special Import Licenses scheme liberalized in 1985 and removed in January 1989. - Dual exchange rate system introduced September 1986; merged in February 1987. - Foreign exchange bureaus established February 1988. - Wholesale foreign exchange auction system, April 1990; retail auction discontinued. - Interbank foreign exchange market, March 1992. - Accepted Article VIII, Sections 2, 3, and 4 obligations, February 1994. - Effects and outcomes in Ghana: - Official REER depreciated by almost 83 percent between March and December 1983 and continued to depreciate over the next decade. - GDP per capita grew by almost 3 percent in 1984 after contracting by 9 percent and 8 percent in 1982 and 1983 respectively; average growth around 2.6 percent a year subsequently. - Exports (U.S. dollars) grew by almost 29 percent in 1984, and at an annual average rate of 9 percent over the next decade. - Ghana’s export volume grew by more than 240 percent between 1982 and 1995. - Export-to-GDP ratio increased from 3.3 percent of GDP in 1982 to almost 25 percent in 1995. - International reserve coverage increased from around 2.5 months of prospective imports in 1983 to almost 6 months of prospective imports in 1985. - Imports (U.S. dollars) grew by 23 percent in 1984 and 9.7 percent a year in 1985–95. - Inflation dynamics in Ghana: - Inflation increased sharply in 1983, influenced by a severe drought in 1982–83 and supply shocks; Nigeria stopped crude oil exports to Ghana and expelled over 1 million illegal Ghanaian migrants in 1983. - Broad money growth peaked at almost 70 percent in September 1983. - Real interest rates were allowed to decline to negative 162 percent in mid-1983. - Following recovery in agriculture and monetary tightening, inflation declined to below 6 percent at year-end 1984 and to 1.5 percent in May 1985, but subsequently remained above target in later years. - Export and import responses were rapid, supporting rehabilitation of productive capacity through increased access to raw materials, intermediate inputs, and equipment. *Italic: Source content from the supplied IMF chapter/section text.* ### 15. The inflation impact of the massive adjustment of the official exchange appears ### _wp1332 - 15. The inflation impact of the massive adjustment of the official exchange appears ### Ghana — Inflation impact of the April 1983 exchange-rate adjustment - The official cedi/U.S. dollar rate increased by 800 percent in April 1983. - The parallel market rate appreciated by 118 percent between January and May 1983. - The one-month inflation rate (seasonally adjusted) showed a sharp decline from June 1983 onward. - In general, there is limited correlation between the official exchange rate and the consumer price index (CPI) for 1980–90. - Most tradables were priced at the parallel market exchange rate during this period, including tradables imported by firms with access to foreign exchange at the official rate. ### Ghana — Exchange-rate depreciations and fiscal effects - Devaluations of the official exchange rate were associated with appreciations of the parallel market rate in November 1985, February–March 1987, and February 1989. - Depreciations can have a direct positive effect on the budget when: - monetary policy contains the inflation impact, - aid and taxes on international trade provide a significant part of government revenue, and - foreign exchange expenditure is a smaller share of total government spending. - Kapur and others (1991) report that Ghanaian authorities intentionally used devaluations to raise government revenue during 1983–86. - Kapur and others (1991) also note: - up-front fiscal deficit reduction was a central feature of Ghana's adjustment strategy (the deficit was reduced from 11.6 percent in 1980 to 2.6 percent in 1983), - monetary policy was not fully supportive of exchange-rate adjustments, with monetary expansion remaining high and real interest rates too low in 1985–89, resulting in a larger nominal depreciation than needed. - Hadjimichael and others (1996) argue that while monetary policy may have supported strong output expansion after 1983, it caused inflation to remain stubbornly high; a more decisive reduction of inflation could have restored private-sector confidence sooner. ### Kenya — Liberalization, monetary policy, and short-lived recovery - Exchange-rate liberalization timeline: - Early 1990s: move from crawling peg to a dual system (official rate and market rate based on foreign exchange bearer certificates). - October 1993: floating exchange rate regime adopted. - 1994: removal of all restrictions on current account transactions; Article VIII accepted. - By mid-1995: many capital account controls removed. - Excess liquidity complicated the October 1993 move to a floating regime: - Inflation and parallel market spreads increased sharply before October 1993. - Drivers of the temporary jump in inflation included excess money supply, severe shortage of foreign exchange, removal of price controls amid inadequate supply of essential commodities, and increased government spending in the run-up to the 1992 elections. - Inflation pressure receded and the exchange rate appreciated through 1994 as excess liquidity dried up and nominal interest rates increased; with reduced inflation, nominal interest rates subsequently declined. - Observations from analysts: - “Monetary policy in Kenya is key to the determination of the path of the exchange rate, inflation, and the rate of interest.” (Ndung’u, 2000) - Monetary policy played a key role as a nominal anchor; when relaxed because of electoral greasing and cutback on foreign aid, inflation exploded. (Were and others, 2001) - Part of exchange-rate depreciation and accelerating inflation could be traced to expectations driven by fear of policy reversal or a backlog of demand. (Ndung’u, 2000) - Economic outcomes after reform: - Exports increased sharply and the current account improved. - By mid-1994 prices had stabilized and credibility and confidence returned. - Exchange rate appreciated strongly in 1994; international reserve coverage improved sharply. - Growth recovered: averaged 1.2 percent in per capita terms during 1994–96 compared to -2.8 percent in 1991–93. - The growth recovery was not sustained in the late 1990s and early 2000s (partly due to governance concerns associated with the “Goldenberg scandal”); growth strengthened since 2003. ### Malawi — Stop-and-go regimes, large depreciations, and high inflation - Exchange-rate regime history (1990–2010): basket peg (1984–94), managed float (1994–95), de facto peg (1995–97), crawling peg (1997–98), float (1998–2003), de facto adjustable peg/stabilized (2003 onward). - Between end-1990 and end-2010, Malawi exhibited, relative to comparator countries: - Higher inflation: consumer prices increased by almost 23 percent on average each year. - Higher nominal exchange-rate depreciation: the Malawian kwacha (MK) depreciated by 98 percent (cumulative decline in the U.S. dollar/local currency exchange rate between end-1990 and end-2010). - Higher real effective exchange-rate volatility. - Lower growth and less economic diversification: the non-primary sector’s share of total value added declined by almost 1 percentage point between 1995 and 2010 (contrasted with increases in Uganda, Tanzania, and Zambia). - Lower foreign reserves with repeated periods of foreign-exchange shortages, rationing, and large parallel market premiums. - Historical policy and effects: - MK pegged to the SDR between 1975 and 1984; to a basket of currencies of seven major trading partners between 1984 and February 1994. - The MK was on average devalued against the U.S. dollar by around 11 percent a year between January 1984 and end-January 1994. - Persistent overvaluation and large parallel market premiums led to quantitative restrictions, export prohibitions for many goods, and mandatory surrender of foreign-exchange receipts to the RBM; this suppressed growth and drove much activity outside formal channels. - GDP per capita declined by almost 15 percent between 1975 and 1994. - Liberalization starting in 1988 culminated in a floating, market-determined exchange rate regime in February 1994: - Controls on current account payments removed (temporary exceptions for a short list of services). - Exporters: non-traditional exporters allowed to retain a major portion of foreign-exchange earnings; traditional exporters allowed foreign-currency deposit accounts. - December 7, 1995: Malawi accepted obligations under Article VIII of the IMF’s Articles of Agreement. - Authorized dealer banks, foreign-exchange bureaus, and foreign-exchange brokers were permitted to operate (brokers suspended in November 1994). - The February 1994 move to a floating regime produced a sharp MK depreciation and a surge in inflation: - The MK depreciated by almost 75 percent between end-January and end-November 1994 (equivalent to a 293 percent increase in the MK/U.S. dollar exchange rate). - The MK depreciated by 32.6 percent in February 1994 alone; by another 55 percent in September–November 1994. - Inflation increased from just below 20 percent in late 1993 to around 100 percent in mid-1995. - Contributing factors to the 1994–95 inflation surge: - Substantially overvalued exchange rate at the onset (parallel market premium was 45 percent in January 1994; it declined rapidly to -35 percent in November 1994). - An extraordinarily loose fiscal policy: deficit exploded to more than 17 percent of GDP in 1994, up from 6 percent in 1993; government expenditure increased from 26 percent of GDP in 1993 to more than 48 percent of GDP in 1994. - An equally loose monetary policy: broad money grew by almost 66 percent in the 12 months to December 1994, up from below 18 percent in the 12 months to December 1993; nominal interest rates were kept fixed from mid-1993 to late 1994/early 1995, and real interest rates became sharply negative by mid-1995, bottoming out at around -50 percent in July 1995. - A severe drought during the 1993/94 crop season: agricultural production dropped by almost 30 percent and GDP by almost 12 percent. - Uncertainties associated with the new government’s policies. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1332.pdf* ### 26. The move in 1994 to a floating exchange rate regime also led to a sharp ### 26. The move in 1994 to a floating exchange rate regime also led to a sharp ### Real effective exchange rate (REER) and international reserves, 1994–1996 - The REER depreciated by 60 percent between January and November 1994. - International reserves were 0.8 months of imports at end 1994 and increased to 1.8 months of imports at end 1995. - By end-1996 the inflation rate had been brought down to below 10 percent. - The REER appreciated by almost 130 percent between November 1994 and July 1997, reversing the competitiveness gains of the floating regime. - Reserve coverage increased to 3 months of prospective imports at end 1996. ### Exchange rate regime changes and implications, 1994–1998 - The floating regime was short lived; by late 1994 the exchange rate became de facto pegged to the U.S. dollar. - The exchange rate remained virtually unchanged between December 1994 and July 1997 as part of efforts to lower inflation. - In August 1997 the authorities allowed the kwacha to gradually depreciate; at the same time the RBM lowered the discount rate by 500 basis points. - The overall budget deficit for 1997/98 reached 11½ percent of GDP, exceeding the program target by more than 4 percentage points. - Broad money increased by 54 percent in January 1998 alone (seasonally adjusted); the unadjusted series increased by 46 percent. - In total, the nominal exchange rate depreciated by almost 42 percent between end-June 1997 and end-July 1998, and the REER by 19 percent. - The 12-month headline inflation rate increased from around 7 percent in mid-1997 to 20 percent by March-1998, and peaked above 56 percent in March 1999. ### Devaluation and float in August 1998 and subsequent stabilization - In August 1998 the MK was devalued 32 percent and allowed to float. - The exchange rate regime change resulted in a 28 percent depreciation of the REER between end-July and November 1998. - Reserves rose to 4 months of imports by end-1998 and further to 4.5 months of imports at end-1999, up from 2.6 months at the end of 1997. - From May 2000 onward, the RBM stopped quoting an exchange rate and further restricted its interventions. ### Monetary tightening after the August 1998 float - Following a 23 percent decline in broad money (seasonally adjusted) in July 1998, between August 1998 and January 1999 the RBM increased the discount rate by 17 percentage points. - The T-bill rate was allowed to increase by 24 percent to almost 48 percent in August 1998. - Nonfood inflation was reduced to around 40 percent in late 1999 and early 2000, from almost 67 percent at end-1998. - The REER appreciated by 48 percent between November 1998 and May 2000. ### Crisis pressures, 2000–2001, and policy responses - The MK depreciated by 70 percent against the U.S. dollar between March and November 2000. - Broad money grew by 52 percent between April and November 2000. - The RBM discount rate was lowered by 300 basis points in July–August 2000, and T-bill rates declined by almost 20 percentage points between May and September 2000. - Inflation peaked at more than 35 percent in December 2000. - Between September and December 2000 the yield on Treasury bill rates was allowed to rise by almost 42 percentage points to 67 percent. - The RBM discount rate was increased to more than 75 percent in February 2001, up from 44.5 percent in November 2000. - The MK appreciated by almost 30 percent against the U.S. dollar and 51 percent in real effective terms between January and September 2001, reducing inflation to 14 percent by end-2001. - International reserves declined by US$40 million, or from 4.3 months of imports to 2.8 months of imports during 2001. ### Renewed pressures and outcomes, 2001–2003 - The MK depreciated by 36 percent against the U.S. dollar between end-September 2001 and end-July 2003. - The REER depreciated by 35 percent during that same period, and by a further 20 percent before bottoming out in February 2004. - Overall inflation continued to decline, bottoming out at below 9 percent in June 2003. - Real T-bill and discount rates averaged more than 25 percent between end-2001 and June 2003. ### Pegging and policy stance, 2003–2006 - In August 2003 the authorities decided to stabilize the exchange rate at MK108 to the U.S. dollar. - Following an 11.6 percent increase in the kwacha/U.S. dollar rate in August 2003 on top of a 7.7 percent increase in July 2003, the kwacha/U.S. dollar exchange rate remained largely unchanged until March 2005. - The July–August 2003 devaluation contributed to a sharp increase in nonfood prices, which jumped almost 8 percent between June and September 2003. - Average monthly growth in nonfood prices for December 2002–June 2003 and for October 2003–March 2005 were almost identical at around 1 percent. - Reduced money growth, fiscal consolidation, continued high real interest rates, and gradually better anchored inflation expectations prevented another inflation spiral. - Broad money growth was reduced from more than 75 percent in 2002 to slightly above 30 percent in 2003 and to 16 percent in 2005. - The fiscal deficit was reduced from more than 8 percent in 2002 to around 1 percent in 2005. - The nominal discount rate was increased from 40 percent to 45 percent in June 2003—the real discount rate averaged almost 30 percent in 2003. ### Foreign exchange shortages, administrative measures, and adjustments, 2004–2006 - The surrender requirement on smallholders’ proceeds from the tobacco auctions was increased to 100 percent in 2004. - In addition, 60 percent of the foreign exchange proceeds from non-smallholder tobacco, sugar, and tea exports had to be surrendered to the commercial banks; exporters could keep 40 percent in foreign currency deposit accounts. - Access to foreign exchange was rationed selectively under the RBM Guidelines for Foreign Exchange Trading Activities issued in April 2005. - By early 2005 a backlog of foreign exchange invoices at commercial banks had emerged. - In response, the RBM allowed the kwacha to increase by 12 percent between February and July 2005, and by a further 11 percent between November 2005 and January 2006; the backlogs were cleared by mid-2006. ### Inflation dynamics and monetary outcomes, 2003–2006 - Despite the sizable 2005–06 depreciation, underlying inflation continued to decline. - The average one-month nonfood price inflation rate declined from 1 percent in October 2003–August 2004, to 0.9 percent in October 2004–August 2005, and to 0.6 percent during the same period in 2005–06. - The 12-month headline inflation rate increased during 2005 as the 2004/05 food crises pushed up food prices. - Broad money growth was around 20 percent, and the fiscal deficit was reduced only 0.4 percent in 2006. ### Growth outcomes and structural effects - After a brief growth rebound in 1995–97, real per capita GDP declined by almost 5 percent between 1997 and 2006, or on average by 0.5 percent annually. - Improved macroeconomic management and the success of Malawi’s fertilizer support program succeeded in restoring positive per capita growth in recent years. *Source: Excerpt from IMF working paper chapter on Malawi (pages covering paragraphs 26–37).* ### 38. In the mid-1980s, Mozambique’s economy was in collapse as a result of civil war, ### _wp1332 - 38. In the mid-1980s, Mozambique’s economy was in collapse as a result of civil war, ### Mozambique: pre-reform collapse and macroeconomic imbalances - Centrally planned economy during the first 10 years after independence in 1975 with: - extensive price controls; - nationalization of all land and banks; - government appointed administrators of more than 2,000 commercial farmers; - industrial companies abandoned by the many Portuguese settlers who had left the country (Arndt, 1999). - Exchange rate fixed by the government and rarely adjusted, despite deteriorating conditions. - By 1986 macroeconomic imbalances included: - real per capita income had fallen by 34 percent since 1981 (Figure 33); - industrial capacity utilization was low (just 20–30 percent according to Arndt, 1999); - inflation was high (around 41 percent in 1986), despite products subject to price controls constituting around 70 percent of GDP (Arndt, 1999); - fiscal deficit was large (12 percent of GDP in 1986); - international reserve coverage was down to only 0.4 months of prospective imports; - exchange rate in the parallel market was about 40–50 times higher than the official exchange rate (Fabrizio, 1998 and 2001; Tarp and others, 2002). ### Mozambique: policy reforms under the 1987 Economic Rehabilitation Program (ERP) - Major reforms undertaken: - unification of the exchange rate; - liberalization of external trade; - reform of the import tariff structure and of the regime of exemptions; - privatization of a large number of public enterprises; - elimination of most price controls; - tripartite wages negotiations; - reforms in the financial sector including liberalization of interest rates. - Exchange rate and foreign exchange market measures (as documented by Fabrizio, 1998 and 2001): - metical devalued by 80.5 percent, from Mt 39 per U.S. dollar to Mt 202 per U.S. dollar in January 1987, and the exchange rate peg changed from a basket of six currencies to the U.S. dollar; - metical devalued by another 50 percent in July 1987, to Mt 404 per U.S. dollar; - devaluations continued at irregular intervals until April 1989, when a system of monthly devaluations was instituted (Figure 34); - exchange rate peg changed again to a basket of 10 currencies in December 1989; - market for foreign exchange introduced, where commercial banks were authorized to transact with the public in October 1990; - after a substantial devaluation in mid-1991, foreign exchange transactions increasingly shifted to the official market; - official central bank rate and the market rate vis-à-vis the public were unified in April 1992, but a special more appreciated rate for tied aid was introduced and abolished in June 1993, after which the official exchange rate became fully market determined; - significant spread between official and parallel rate temporarily reappeared in early 2000, peaking at 10 percent in March 2000, in the wake of severe floods; - banking system partially privatized after 1995, exchange bureaus legalized, and measures taken to liberalize the current account of the balance of payments. ### Mozambique: macroeconomic outcomes after reforms - Growth and income: - GDP growth averaged 7.4 percent a year in 1987–2010; - per capita income has increased 243 percent since the decline ended in 1986 (Figures 1, 33). - Inflation and external sector: - inflation sharply increased in 1987 due to removal of most price controls, the large fiscal deficit of 1986, sharp increase in money supply, and large devaluation (Figure 35); - inflation remained relatively high until 1996, driven mainly by excessive monetary expansion, supply shocks, and continued large fiscal deficits; - from 1995 onward, a significantly tighter macroeconomic policy stance with marked reduction in the fiscal deficit and reduced money growth helped stabilize the metical and sharply reduce inflation. - Trade, exports, imports, and reserves: - growth in output and exports: growth picked up to almost 15 percent in 1987, and averaged more than 7 percent a year (5.4 percent in per capita terms) over the last 24 years (Figure 33); - U.S. dollar value of exports and services grew by 18 percent in 1987; export growth averaged 12.4 percent in 1987 and 2010 (Figure 37); - sharp increase in aid facilitated a sharper increase in imports and substantial rebuilding of international reserves (Figure 38). ### Tanzania: pre-reform distress in the early 1980s - Macroeconomic conditions in the first half of the 1980s: - negative per capita growth, declining exports and imports, widespread shortages, high parallel market spreads, and high inflation (Figures 39, 40, 43, 44); - agricultural production had been declining since the 1970s; exports of cash crops fell by half between 1970 and 1985 (Nord and others, 2009, p.1); - imports through official recorded channels declined from around 25 percent of GDP in the 1970s to only 12 percent of GDP in 1983 and 1984; - exports declined from around 17 percent in the 1970s to only around 6 percent in 1983 and 1984; - capital formation declined from an average of around 35 percent of GDP in the 1970s to around 20 percent of GDP in the mid-1980s; - international reserves averaged less than one week of prospective imports in the first half of the 1980s; - parallel market premium increased from around 40 percent in 1970 to about 250 percent in 1980–85, peaking at over 700 percent in March 1986 (Figure 43); - annual inflation rose above 30 percent in the first half of the 1980s (Nord and others, 2009, p. 3). ### Tanzania: Economic Recovery Program (ERP) and exchange rate reforms - ERP objectives and measures (starting 1986): - large devaluation of the shilling as the centerpiece of the program (Edwards, p. 29); - measures to increase producer prices, reorganize public enterprises, and remove subsidies (Mwase and Ndulu, 2008, p. 428); - gradual elimination of market and policy distortions in the external sector between 1986 and mid-1993 by removing import restrictions, adjusting the exchange rate regularly, reducing foreign exchange surrender requirements, and reforming export marketing (Nord and others, 2009, p. 8). - Exchange rate regime transformation (1986–1993): - crawling peg adopted in 1986 to depreciate the real exchange rate gradually and reduce the parallel market premium (Nord and others, 2009, p. 10); - nominal exchange rate devalued by 60 percent between March and June 1986, resulting in a REER depreciation of 50 percent; a number of large adjustments followed (including devaluations of 8.5 percent in December 1987 and January 1988, 18.9 percent in November 1988, 19.1 percent in December 1989, 8.2 percent in May 1991, 14.8 percent in March 1992, and 7.7 percent in July 1992); - between March 1986 and mid-1992 the nominal exchange rate was devalued by around 95 percent, resulting in a REER depreciation of almost 87 percent and reducing the parallel market premium from 700 percent to below 30 percent; - foreign exchange bureaus and foreign currency deposit accounts in domestic banks were introduced in 1992; bureaus were authorized to buy and sell foreign exchange at freely negotiated rates, financing nearly 20 percent of total commodity imports (Nord and others, 2009); - official and parallel market rate unified in mid-1993 and current account transactions fully liberalized; weekly foreign exchange auction system introduced with the official exchange rate guided by the average rate from these auctions (IMF, 1994b); - interbank foreign exchange market (IFEM) replaced the auction system in 1994 (Rutasitara, 2004); - surrender requirement on export proceeds and other export restrictions gradually removed, with the surrender requirement dropped altogether by 1993/94 and remaining export restrictions eliminated by the end of 1999 (Kanaan, 2000). - Aggregate change: from start of reforms in March 1986 to the unification of official and parallel market rate in mid-1993, the official Tanzania shilling/U.S. dollar rate was increased by almost 2,700 percent (equivalent to a depreciation of almost 97 percent). ### Tanzania: monetary, fiscal policy, inflation dynamics, and outcomes - Monetary and fiscal stance during 1986–1992: - moderate money growth and solid fiscal consolidation helped reduce headline inflation from around 30 percent in early 1986 to around 22 percent in mid-1992, despite a 1700 percent increase in the official shilling/U.S. dollar rate; - broad money growth averaged around 30 percent a year during this period; - fiscal deficit was reduced from 8.3 percent of GDP in 1987 to 1.6 percent of GDP in 1992. - Inflation episodes and causes: - inflation subsequently peaked at around 38 percent in early 1995, attributed to a severe drought in 1994 and temporary fiscal and monetary loosening (fiscal deficit increased from 1.6 percent of GDP in 1992 to 8.2 percent in 1993 and stayed around 5 percent in 1994 and 1995; broad money growth peaked at almost 70 percent in 1994); - food prices increased by almost 40 percent from 1993 to 1994, while nonfood prices increased by 25 percent. - Disinflation and structural reforms (post-1995): - headline inflation declined rapidly from early-1995, reaching single-digit levels in early 1999, largely due to improved control over money supply from interest rate liberalization, improved fiscal management, reforms of the state-owned enterprise system, and cleanup of the banking system (IMF, 1996c; Nord and others, 2009); - interest rates liberalized in 1991; T-bill auctions introduced in August 1993 to manage liquidity and provide a market-determined reference rate; - real interest rates rose sharply, peaking at around 30 percent in December 1994 and early 1995 and remaining high until January 1996; - broad money growth reduced from almost 70 percent in 1994 to 32 percent in 1995 and further to only 8.7 percent in 1996. - Tanzania: long-term outcomes - inflation in single digits for most of the last 12 to 13 years, averaging only 6.8 percent in 2000–10; - economic growth strong, averaging 4.5 percent per capita since 2000—real GDP per capita has almost doubled since the mid-1980s (Figure 41); - exports and imports (as a percent of GDP) increased sharply, as did foreign exchange reserves (Figure 42); - exports became more diversified with rapid growth in exports of gold and manufacturing goods; - Tanzania’s Human Development Index ranking improved from only 89 percent of the SSA average in 1995 to equal the SSA average in 2010 (UNDP, 2012). *Italic: Content derived from the provided IMF chapter/section text.* ### 50. Consistent with the above, Mwase (2006) found the exchange rate pass-through ### _wp1332 - 50. Consistent with the above, Mwase (2006) found the exchange rate pass-through ### Exchange rate pass-through in Tanzania - Mwase (2006) found the exchange rate pass-through to consumer inflation in Tanzania to be low during 1990–2005. - On average a 10 percent devaluation was associated with a 0.05 percent increase in inflation after a two-quarter lag. - The pass-through decreased from a low level in the early 1990s to essentially zero from mid-1990s onward when the Tanzania shilling was floating. - No evidence of Granger causality from the exchange rate to inflation was found. - The decline in pass-through was attributed to: - improvements in monetary policy implementation, - higher productivity, - increased competition, - a decrease in import tariffs following liberalization in the context of structural adjustment programs. - This evidence is consistent with findings that the extent of exchange rate pass-through, and speed of adjustment of domestic prices, depends on the prevailing macroeconomic environment, including reduced pricing power of firms in a low inflation environment (Taylor, 2000). ### Tanzania: reform chronology and macroeconomic outcomes - Per capita growth responded strongly to initial reforms and has been increasingly positive since 1995. - After an initial sharp recovery, growth turned negative in 1991–94 as adherence to reforms waned and key bottlenecks were not addressed. - From 1994 the authorities: - gradually lowered and rationalized tariff rates, - liberalized foreign direct investments, - kept the exchange rate flexible. - Liberalization of the exchange and trade regimes had a dramatic impact on Tanzania’s export performance. - Unifying the exchange rate and liberalizing external trade allowed the private sector to trade freely, fueling an export boom and restoring foreign exchange reserves. - Wholesale financial sector restructuring, licensing of numerous foreign banks, and stricter public finance discipline contributed to lower inflation, increased private investment, and higher tax revenues. ### VII. UGANDA: from economic distress to high growth and low inflation — overview - In the early 1980s Uganda experienced severe economic distress, a seriously overvalued exchange rate, and negative growth. - Per capita income declined on average by around 3.4 percent a year between 1970 and 1980. - The parallel foreign exchange market premium averaged 800–900 percent in 1979–80, peaking at 2100 percent in May 1981. - By 1980 Uganda had become dependent on one crop—coffee—for 98 percent of its exports; coffee export volume in 1980 amounted to barely half the shipments of the early 1970s. ### Uganda: 1980–86 adjustment and outcomes - A managed floating exchange rate regime was adopted in June 1981; the official Uganda shilling/U.S. dollar exchange rate was increased by 840 percent. - As a result: - REER depreciated by 84 percent, - parallel market premium dropped to below 200 percent in June 1981 and to 3 percent in late 1984. - The June 1981 devaluation caused consumer prices to immediately jump 60 percent (in seasonally adjusted terms), raising the 12-month inflation rate to more than 150 percent, up from 80 percent in May 1981 and around 50 percent earlier in 1981. - With monetary expansion contained and sharp output expansion, prices and the exchange rate quickly stabilized, with prices increasing by only 20 percent over the following 12 months. - Exports rose from less than 5 percent of GDP in 1981 to almost 15 percent of GDP in 1984; imports declined from 20 percent of GDP in 1981 to less than 15 percent of GDP in 1984, aiding reserve recovery. ### 1984–86 setback and macro instability - The IMF-supported program went off track in March 1984 largely because of fiscal slippages. - From mid-1984 onward, fueled by massive monetary expansion, the exchange rate depreciated rapidly and inflation rose to almost 240 percent in mid-1985. - In May 1985 the Uganda shilling was pegged to the U.S. dollar at 6 shillings to the dollar until October 1985. Between October and December 1985 the exchange rate was increased by 133 percent and re-pegged at 14 shillings to the dollar. - The parallel market premium rose to almost 1200 percent in April 1986. - Inflation exceeded 300 percent by mid-1986 while GDP per capita fell by more than 14 percent in 1984–86. ### 1987 reform program and sustained recovery - A new IMF-World Bank supported reform program was launched in 1987 under President Museveni. - Reforms included liberalization of foreign exchange and trade arrangements, financial sector liberalization, agriculture marketing liberalization, and privatization of public enterprises. - Between 1986 and 2010: - Economic growth averaged 7.5 percent, - Real per capita income rose by 114 percent, - Inflation was below 10 percent for most of the time since 1993 except for 2008–09 and 2011–12, - Exports increased to more than 20 percent of GDP, - Foreign exchange reserve coverage was above six months of prospective imports since 1998. ### Uganda: sequence of exchange rate liberalization (1987–1993) - 1987: crawling peg with discrete adjustments; official shilling/U.S. dollar exchange rate increased by almost 330 percent in May 1987 (equal to a devaluation of the U.S. dollar/shilling rate of almost 77 percent), triggering short-lived appreciation of the parallel rate and reducing the parallel premium from almost 1200 percent to 50 percent between May and June 1987. - 1989: crawling peg with multiple foreign exchange markets and discrete adjustments; Special Import Program launched in July 1989 with rate Sh400/$ (twice the official rate). Official rate increased by 70 percent in October 1989, 8 percent in November 1989, 14.6 percent in June 1990, on average 4 percent a month between June 1990 and July 1991, 14.3 percent in July 1991, 6.3 percent in September 1991, and 7.6 percent in October 1991. - July 1990: foreign exchange bureaus established; licensed traders could freely buy and sell foreign exchange at market-determined rates. - 1992: floating exchange rate regime adopted; weekly Dutch type auctions for donor funds adopted in January 1992; average bureau rate for travelers’ checks adopted as official rate in March 1992; parallel premium dropped below 20 percent. - November 1993: interbank foreign exchange market introduced and BoU ceased foreign exchange auction of donor funds. - April 1994: Uganda accepted the obligations of Article VIII, Sections 2, 3, and 4, of the IMF’s Articles of Agreement. ### Removal of surrender requirements and export retention - November 1988: exporters of non-traditional agricultural products permitted to retain 100 percent of export proceeds in retention accounts for payments on the “positive import list.” - March 1989: scheme extended to cover all non-coffee export proceeds. - 1990: requirement to deposit non-coffee export proceeds in retention accounts removed; exporters could open foreign exchange accounts. - 1993: surrender requirement on coffee export proceeds removed. - Prior to relaxation, a large portion of export proceeds entered the “no-forex” parallel market. ### Monetary policy, interest controls, and inflation dynamics - Headline inflation peaked around 360 percent in May 1987. - Broad money increased by almost 12000 percent (or 100 percent a year on average) between 1985 and 1992; the official and parallel market Uganda shilling/U.S. dollar exchange rate increased by more than 7000 percent (equivalent to a depreciation of almost 99 percent). - Interest rate controls until 1992 weakened monetary policy efficiency. Following a 7–14 percentage point increase in interest rates in March 1986, nominal rates were kept constant until July 1987 when they were lowered by 5–10 percentage points while inflation was surging, producing real interest rates as low as -330 percent in May 1987. - Real interest rates did not turn positive until mid-1990 after several nominal rate hikes and a sharp decline in inflation. - Once broad money growth was curtailed, headline 12-month inflation fell below 30 percent in mid-1990 and has been below 10 percent for most of the time since early 1993. ### Evidence on exchange rate devaluations and inflation (Uganda) - Barungi (1997) found inflation in Uganda to be persistently a monetary phenomenon: fiscal deficit and crop financing requirements drove money supply and increased domestic demand for foreign exchange, weakening the parallel market exchange rate. - She found that devaluation of the official exchange rate reduced excess demand for foreign exchange, caused the parallel exchange rate to appreciate, and reduced upward pressure on the general price level. - Devaluations had a positive impact on the budget and, through that channel, helped reduce money supply. - Empirical inspection: - May 1987: 330 percent increase in the official shilling/U.S. dollar exchange rate triggered a short-lived appreciation of the parallel rate and slowed underlying inflation pressure. Prices grew by more than 300 percent in the 12 months to April 1987, but by 140 percent in the 12 months between May 1987 and May 1988. - July 1988: 150 percent increase in the official exchange rate and about a 25 percent jump in the price level; the 12-month inflation rate declined to 60 percent between July 1988 and July 1989 despite further devaluations in December 1988 (10 percent) and March 1989 (21 percent). *Source: Excerpted content from the supplied IMF PDF chapter/section.* ### 63. Between 1989 and 1992 Zambia moved from a highly regulated foreign exchange ### _wp1332 - 63. Between 1989 and 1992 Zambia moved from a highly regulated foreign exchange ### Background and pre-reform conditions (1970s–late 1980s) - Per capita income declined on average by around 2 percent a year between 1970 and 1989. - The fiscal deficit averaged almost 13 percent of GDP during the 1970s and 1980s. - The controlled exchange rate was consistently overvalued; export volumes declined sharply. - Savings and capital formation was low and declining. - International reserves were low. - Nominal domestic interest rates were kept low and heavily negative in real terms. - Foreign exchange transactions were highly regulated: foreign exchange receipts were required to be surrendered to the BoZ, foreign exchange was allocated to priority transactions on a case-by-case basis, and exports and imports were subject to licensing. - The kwacha was pegged to various anchors over time: U.S. dollar (1971–76, May 1987–Nov. 1988), SDR (1976–83, Nov. 1988), basket of trading partner currencies (1983–85), determined through auction (Oct. 1985–May 1987). ### Exchange rate and policy changes, 1985–1994 - October 1985: kwacha/U.S. dollar exchange rate increased by more than 215 percent when a foreign exchange auction was put in place. - August–November 1985: nominal central bank discount rate and the T-bill rate were raised by 10.5 and 14.5 percentage points respectively (they remained highly negative in real terms). - May 1987: reform efforts abandoned; price controls re-imposed; exchange rate fixed at ZK 8 to the dollar (a 75 percent appreciation relative to final auction rate of ZK 21). - May 1987–November 1988: parallel market premium increased from around 25 percent to 920 percent while ZK fixed to U.S. dollar. - November 1988: kwacha devalued by 20 percent and pegged to the SDR. - June 1989: price controls (except maize and fertilizers) were removed; kwacha/U.S. dollar exchange rate increased by 50 percent; exchange rate regime changed from fixed peg against the SDR to a crawling peg. - February 1990: dual exchange rate system introduced, with a second, more depreciated official exchange rate (difference about 40 percent) applicable to non-copper export proceeds and imports under the Open General License (OGL) system. - February 1990: export retention scheme gave exporters of non-traditional exports the right to use 50 percent of earnings for imports and other transactions; these retention rights could be sold, creating an additional foreign exchange market. - Mid-1992: foreign exchange bureaus licensed and allowed to determine rates freely. - April 1991: the two official exchange rates were unified. - By late 1992: BoZ had established a market-determined official exchange rate, eliminated most restrictions on payments for current international transactions, and reduced the parallel market premium to essentially zero. - June 1989–December 1992: official kwacha/U.S. dollar exchange rate increased by more than 3000 percent (equal to a devaluation of the U.S. dollar/kwacha exchange rate of 97 percent). The parallel market kwacha/U.S. dollar rate increased by 150 percent (equal to a depreciation of the U.S. dollar/kwacha rate of 60 percent) during the same period. - Controls on commercial banks’ deposit and lending rates were removed in September 1992. - Auctions of treasury bills were introduced in January 1993. - Capital account liberalized in January 1994; ZK became fully convertible. By March 1994 commercial banks were providing full foreign exchange retail and corporate banking services to the private sector. ### Monetary and inflation dynamics during liberalization - Real rates became increasingly negative, reaching -120 percent at the start of liberalization in mid-1989 and bottoming out at more than -160 percent in late 1989. - Nominal interest rates rose rapidly after liberalization, peaking at around 180 percent in July 1993. - Inflation timeline and magnitudes: - Inflation rose to almost 40 percent in September 1985, up from around 20 percent in most of 1983 and 1984. - Increased to around 60 percent in first half of 1986, then back to around 40 percent in late 1986 and early 1987. - Headline inflation persistently around 50–60 percent in May 1987–October 1988 when exchange rate pegged to dollar. - Gradually rose to almost 100 percent in mid-1989 while ZK pegged to SDR. - Driven by sharp increases in broad money and domestic credit, inflation accelerated rapidly, peaking at around 240 percent in July 1993. - Policy responses that reduced inflation: - Tightening of monetary policy reduced broad money growth from more than 200 percent in 1990 to around 70 percent in 1992. - Introduction of a fiscal policy “cash budget” rule helped reduce the deficit from 8–10 percent in 1989–90 to below 3 percent in 1992. - Inflation declined rapidly to below 50 percent by mid-1994. ### Structural reforms and market mechanisms introduced - Dual official exchange rate structure used as transition tool to incentivize nontraditional exports and channel donor assistance to private sector imports; differential narrowed and rates gradually depreciated before unification. - Export retention market (1990) allowed exporters to retain a portion of foreign exchange and create tradable retention rights. - Bureau market (mid-1992) licensed; previous day bureau market rate adopted as official rate in December 1992. - Removal of most payments restrictions and liberalization of capital account by January–March 1994 laid foundation for fully convertible ZK and expanded private sector foreign exchange services. ### Economic outcomes after stabilization and reform - Capital formation increased substantially (as percent of GDP) since 1991. - Non-traditional exports and services grew rapidly since early 1990s (from low levels), with copper remaining the dominant export commodity. - Non-mining GDP growth consistently positive since 1995. - Total GDP growth consistently positive since 1999; per capita terms positive since 2000. - Copper production: declined from 700,000 metric tons a year in early 1970s to 228,000 tons in 1998, then more than tripled since to above 800,000 metric tons. ### Key lessons and policy implications (conclusions) - Exchange rate liberalization was a fundamental element of successful reforms, alongside structural reforms, reduced fiscal deficits, restrained monetary expansion, and external assistance. - Fixing the exchange rate without supportive fiscal and monetary policy led to overvalued exchange rates, foreign exchange shortages, and damaging controls or large ad hoc devaluations. - Price controls, rationing, and import licensing depressed the economy, reduced fiscal revenue, and shifted external trade to the informal sector. - Exchange-rate-based stabilization without fiscal and monetary support is dangerous; administratively fixed nominal exchange rates inconsistent with fundamentals cause escalating distortions. - Sustaining reforms is essential because full benefits take time to be realized. *Source: _wp1332 - 63. 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Statistics, (Washington: The World Bank). ### IMF staff reports, country reports, and working papers (selected entries from the References list) - International Monetary Fund, 1987, “Uganda—Staff Report for the 1987 Article IV Consultation and Request for Arrangements Under the Enhanced Structural Adjustment Facility” EBS/87/110 (Washington: International Monetary Fund). - International Monetary Fund, 1989a, “Malawi—Staff Report for the 1989 Article IV Consultation and Request for the Second Annual Arrangement Under the Enhanced Structural Adjustment Facility” EBS/89/156 (Washington: International Monetary Fund). - International Monetary Fund, 1989b, “Uganda—Staff Report for the 1987 Article IV Consultation and Midterm Review of the First Annual Arrangement Under the Enhanced Structural Adjustment Facility” EBS/89/241 (Washington: International Monetary Fund). - International Monetary Fund, 1989c, “Zambia—Staff Report for the 1987 Article IV Consultation” SM/89/186 (Washington: International Monetary Fund). - International Monetary Fund, 1991a, “Malawi—Staff Report for the 1990 Article IV Consultation; Midterm Review of the Third Annual Arrangement Under the Enhanced Structural Adjustment Facility” EBS/91/10 (Washington: International Monetary Fund). - International Monetary Fund, 1991b, “Zambia—Staff Report for the 1991 Article IV Consultation and request for Accumulation of Rights” EBS/91/59 (Washington: International Monetary Fund). - International Monetary Fund, 1991c, “Uganda—Background Paper and Statistical Appendix” SM/91/72 (Washington: International Monetary Fund). - International Monetary Fund, 1992a, “Uganda—Background Paper and Statistical Appendix” SM/92/94 (Washington: International Monetary Fund). - International Monetary Fund, 1992b, “Uganda—Staff Report for the 1992 Article IV Consultation and Midterm Review of the Third Annual Arrangement Under the Enhanced Structural Adjustment Facility” EBS/92/73 (Washington: International Monetary Fund). - International Monetary Fund, 1992c, “Zambia—Staff Report for the 1992 Article IV Consultation and Request for Accumulation of Rights.” EBS/92/114 (Washington: International Monetary Fund). - International Monetary Fund, 1992d, “Zambia—Economic and Financial Policy Framework.” EBD/92/32 (Washington: International Monetary Fund). - International Monetary Fund, 1992e, “Tanzania—Staff Report for the 1992 Article IV Consultation and Request for the Second Annual Arrangement under the Enhanced Structural Adjustment Facility.” EBS/92/170 (Washington: International Monetary Fund). - International Monetary Fund, 1992f, “Zambia—Midterm Review of the 1992 Rights Accumulation Program.” EBS/92/199 (Washington: International Monetary Fund). - International Monetary Fund, 1993a, “Malawi—Staff Report for the 1992 Article IV Consultation and policy framework” EBS/93/2 (Washington: International Monetary Fund). - International Monetary Fund, 1993b, “Uganda—Staff Report for the 1993 Article IV Consultation and Midterm Review of the Additional Annual Arrangement Under the Enhanced Structural Adjustment Facility and Financial Program for 1993/94” EBS/93/172 (Washington: International Monetary Fund). - International Monetary Fund, 1993c, “Uganda—Background Paper and Statistical Appendix” SM/93/234 (Washington: International Monetary Fund). - International Monetary Fund, 1993d, “Zambia—Staff Report for the 1993 Article IV Consultation and Midterm Review of Rights Accumulation Program” EBS/93/120 (Washington: International Monetary Fund). - International Monetary Fund, 1993e, “Zambia—Recent Economic Developments.” SM/93/174 (Washington: International Monetary Fund). - International Monetary Fund, 1994a, “Malawi—Staff Report for the 1993 Article IV Consultation” SM/94/33 (Washington: International Monetary Fund). - International Monetary Fund, 1994b, “Tanzania—Staff Report for the 1994 Article IV Consultation” EBS/94/82 (Washington: International Monetary Fund). - International Monetary Fund, 1995a, “Uganda—Background Paper on the Response of Output and Investment to Adjustment Programs” SM/95/72 (Washington: International Monetary Fund). - International Monetary Fund, 1995b, “Malawi—Staff Report for the 1995 Article IV Consultation” SM/95/80 (Washington: International Monetary Fund). - International Monetary Fund, 1996a, “Malawi—Staff Report for the 1996 Article IV Consultation” EBS/96/86 (Washington: International Monetary Fund). - International Monetary Fund, 1996b, “Zambia—Staff Report for the 1996 Article IV Consultation” EBS/96/104 (Washington—International Monetary Fund). - International Monetary Fund, 1996c, “Tanzania—Staff Report for the 1996 Article IV Consultation and Request for a Three-year Arrangement under the Enhanced Structural Adjustment Facility.” EBS/96/165 (Washington: International Monetary Fund). - International Monetary Fund, 1996d, “Tanzania—Selected Issues and Statistical Appendix” SM/96/267 (Washington: International Monetary Fund). - International Monetary Fund, 1997a, “Malawi—Staff Report for the 1997 Article IV Consultation; Midterm Review Under the Second Annual Arrangement Under the Enhanced Structural Adjustment Facility; and Request for Waiver of Performance Criteria” EBS/97/166 (Washington: International Monetary Fund). - International Monetary Fund, 1997b, “Malawi—Selected Issues and Statistical Appendix“ SM/97/107 (Washington: International Monetary Fund). - International Monetary Fund, 1997c, “Zambia—Staff Report for the 1997 Article IV Consultation” SM/97/226 (Washington: International Monetary Fund). - International Monetary Fund, 1997d, “Zambia—Selected Issues and Statistical Appendix” SM/97/243 (Washington: International Monetary Fund). - International Monetary Fund, 1998, “Malawi—Staff Report for the 1998 Article IV Consultation and Request for the Third Annual Arrangement Under the Enhanced Structural Adjustment Facility” EBS/98/209 (Washington: International Monetary Fund). - International Monetary Fund, 1999, “Zambia—Staff Report for the 1998 Article IV Consultation and Request for Arrangements Under the Enhanced Structural Adjustment Facility” EBS/99/35 (Washington: International Monetary Fund). - International Monetary Fund, 2000, “Malawi—Staff Report for the 2000 Article IV Consultation and Request for a three-Year Arrangement Under the Poverty Reduction and Growth Facility and” EBS/00/263 (Washington: International Monetary Fund). - International Monetary Fund, 2001, “Malawi—Review Under the three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria” EBS/01/90 (Washington: International Monetary Fund). - International Monetary Fund, 2002, “Malawi—Staff Report for the 2002 Article IV Consultation and Economic Program for 2002” EBS/02/131 (Washington: International Monetary Fund). - International Monetary Fund, 2004, “Malawi—Staff Report for the 2004 Article IV Consultation” EBS/04/355 (Washington: International Monetary Fund). - International Monetary Fund, 2005, “Uganda—Ex Post Assessment of Performance Under Fund-Supported Programs“ SM/05/223 (Washington: International Monetary Fund). - International Monetary Fund, 2006, “Malawi—Second Review Under the three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criteria” EBS/06/109 (Washington: International Monetary Fund). - International Monetary Fund, 2007, “Malawi—Staff Report for the 2006 Article IV Consultation, Third Review Under the three-Year Arrangement Under the Poverty Reduction and Growth Facility, and Request for Waiver of Performance Criterion” EBS/07/11 (Washington: International Monetary Fund). ### Central bank reports and institutional working papers - Reserve Bank of Malawi, 2000, Exchange and Interest Rate Determination in Malawi: Past and Present. Reserve Bank of Malawi. http://www.rbm.mw/research_papers.aspx - Reserve Bank of Malawi, 2003, Evolution of exchange rate determination in Malawi: past and present. Reserve Bank of Malawi. http://www.rbm.mw/research_papers.aspx *Content derived from the References section of _wp1332 - References (source PDF)._* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2013/_wp1332.pdf_