Fiscal Dominance in Sub-Saharan Africa Revisited
IMF Working Papers, January 29, 2021
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Bibliographic details
- Authors: Lam Nguyen, Mika Saito, Shirin Nikaein Towfighian
- Published: January 29, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513567747.001
Overview
- Authors: Lam Nguyen, Mika Saito, Shirin Nikaein Towfighian
- Date: January 29, 2021
- Series: Working Paper No. 2021/017
- Abstracted summary: This paper explores the causes and consequences of fiscal dominance over monetary policy in Sub-Saharan Africa (SSA). Fiscal dominance can contribute to inflation and macroeconomic instability, and is increasingly pressing as fiscal deficits and public debt are rising in many SSA countries.
Key findings
- Legal limits and availability of alternative financing options play an important role in determining the extent to which government deficits tend to be financed by the central bank.
- Central bank lending to government has economically significant effects on the exchange rate and inflation.
- Fiscal dominance is associated with contributions to inflation and macroeconomic instability in SSA.
Policy implications and analytical emphasis (as stated in the paper)
- The role of legal limits on central bank financing is emphasized as a determinant of how government deficits are financed.
- The availability of alternative financing options for governments is identified as an important factor limiting central bank financing of deficits.
- The documented effects of central bank lending to government on the exchange rate and inflation highlight the macroeconomic consequences of fiscal dominance.
Subjects and keywords
- Subject: Bank credit, Government debt management, Government debt planning, Legal support in revenue administration, Loans
- Keywords: central bank, central bank bank loan, central bank claim, central bank financing, central bank lending, exchange rate, fiscal deficit, fiscal dominance, fiscal policy, Inflation, lending to government, monetary policy, policy coordination, sovereign debt, WP
Source: IMF Working Papers — "Fiscal Dominance in Sub-Saharan Africa Revisited", Lam Nguyen, Mika Saito, Shirin Nikaein Towfighian, January 29, 2021.
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