West African Economic and Monetary Union: Selected Issues

IMF Staff Country Reports, March 7, 2023

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West African Economic and Monetary Union: Selected Issues

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Bibliographic details

• Published: March 7, 2023
• Series: IMF Staff Country Reports
• DOI: https://doi.org/10.5089/9798400235986.002

Fiscal framework reform and supporting arrangements

• The paper recommends revamping the West African Economic and Monetary Union’s fiscal framework.
• Proposed supporting arrangements include:
  • an escape clause,
  • broader mechanisms for assessment, accountability, enforcement, and discipline,
  • possibly additional operational frameworks based on intermediate and complementary targets.
• The fiscal strategy should crucially encompass efforts towards increasing domestic revenues.

Debt dynamics and drivers

• The countries’ debt dynamics are affected not only by the fiscal deficit but also by stock flow adjustments (SFA).
• The level of debt in any given year is a function of:
  • the previous year’s debt,
  • fiscal deficit,
  • a nominal growth effect,
  • an exchange rate effect,
  • a guarantees effect,
  • and a residual.
• Bringing stock flow adjustments (SFA) under control is essential to ensure debt stabilization over the medium term.

Simulations, scenarios, and policy implications

• Simulations show that:
  • The only option to stabilize debt and recover buffers is to stick to the 3 percent fiscal deficit target while addressing the SFA.
  • The only scenario consistent with both debt stability and the recovery of some fiscal buffers to cope with future shocks is the baseline scenario, with a deficit target of 3 percent of gross domestic product and elimination of the SFA.
• Policy implication: combine strict adherence to the 3 percent deficit target with measures to eliminate or control SFAs, and pursue domestic revenue mobilization.

Subjects and keywords (as listed)

• Subject: External debt, Fiscal policy, Fiscal rules, Government debt management, Inflation, International organization, Monetary policy, Prices, Public debt, Public financial management (PFM)
• Keywords: auction market debt, deficit target, Fiscal rules, Global, Government debt management, Inflation, inflation contagion, inflation DYNAMICS, market borrowing costs, WAEMU inflation

IMF Staff Country Reports — West African Economic and Monetary Union: Selected Issues (March 7, 2023).

Content in this bundle

• 1. Debt Dynamics
  • 1. Debt Dynamics (Markdown version)
  • 1. Debt Dynamics (PDF)