Selected Issues Papers

Revamping the West African Economic and Monetary Union (WAEMU) Fiscal Framework

Author/Editor:

Can Sever ; Athene Laws

Publication Date:

April 26, 2023

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Summary:

This paper aims to provide a broad perspective on the WAEMU fiscal framework. Based on backward looking exercises and forward looking scenarios, it shows that (i) repeated fiscal slippages and historically large stock flow adjustments contributed to the surge in the WAEMU public debt, and (ii) stock flow adjustments can have significant effects on the WAEMU debt dynamics going forward. This paper also discusses that it is essential and urgent to reintroduce the fiscal rules and the Convergence Pact and to enhance the rules. Revamping the fiscal rules should focus on introducing a correction mechanism (which could contain surges in debt in the future) and an escape clause (which would enhance fiscal discipline and predictability), as well as capturing the extensive extra-budgetary and below-the-line operations and strengthening the enforcement mechanism. Any consideration to changing the fiscal deficit target should also encompass addressing extra-budgetary and below-the-line transactions (for example by changing the definition of the deficit). It is not appropriate to increase the debt ceiling.

Series:

Selected Issues Paper No. 2023/028

Subject:

Asset and liability management Debt limits Debt sustainability analysis External debt Fiscal policy Fiscal rules Government debt management International organization Monetary policy Public debt Public financial management (PFM)

Frequency:

Regular