Alternative Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa

Author/Editor:

Stefania Bazzoni ; Karim A. Nashashibi

Publication Date:

August 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper investigates the relationship between fiscal performance in 28 sub-Saharan African countries over the 1980-91 period with movements in the exchange rates, the terms of trade, and other macroeconomic aggregates. It finds that the tax base in most of these countries is heavily dependent on imports and import substitutes. Consequently, an overvaluation of the exchange rate in countries which adopted a fixed exchange rate strategy undermines the tax base and results in a widening of the fiscal deficit when the purpose of the strategy is to restore the real exchange rate to its equilibrium through fiscal contraction. Those countries which pursued a variable exchange rate strategy failed in attaining price stability, but exchange rate adjustment was critical in contributing to other macroeconomic objectives, particularly fiscal balance, competitiveness, and growth.

Series:

Working Paper No. 93/68

Subject:

Notes:

Study based on 28 sub-Saharan African countries over the 1980-91 period. Also published in Staff Papers, Vol. 41, No. 1, March 1994.

English

Publication Date:

August 1, 1993

ISBN/ISSN:

9781451961058/1018-5941

Stock No:

WPIEA0681993

Format:

Paper

Pages:

86

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