West African Economic and Monetary Union: Selected Issues

West African Economic and Monetary Union: Selected Issues
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Volume/Issue: Volume 2023 Issue 103
Publication date: March 2023
ISBN: 9798400235986
$20.00
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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Exports and Imports , Finance , Inflation , Economics- Macroeconomics , Money and Monetary Policy , Public Finance , International - Economics , WAEMU inflation , deficit target , inflation DYNAMICS , market borrowing costs , auction market debt , inflation contagion , Inflation , Government debt management , Fiscal rules , Global

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Summary

This Selected Issues paper explores revamping the West African Economic and Monetary Union’s fiscal framework. The new set of fiscal rules should be improved via various supporting arrangements. Those include an escape clause, and broader mechanisms for assessment, accountability, enforcement, and discipline, as well as possibly additional operational frameworks based on intermediate and complementary targets. The fiscal strategy should also crucially encompass efforts towards increasing domestic revenues. The countries’ debt dynamics were affected not only by the fiscal deficit but also by stock flow adjustments. 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. Simulations show that bringing stock flow adjustments (SFA) under control is essential to ensure debt stabilization over medium term. The only option to stabilize debt and recover buffers is to stick to the 3 percent fiscal deficit target while addressing the SFA. The simulations indicate that 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.