Fiscal Rules: Coping with Revenue Volatility in Lesotho and Swaziland

By Jiro Honda, Manabu Nose, Cesar Sosa Padilla, Jose L. Torres, Murna Morgan, Fernando G Im, Natasha Koliadina

September 12, 2017

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Format: Chicago

Jiro Honda, Manabu Nose, Cesar Sosa Padilla, Jose L. Torres, Murna Morgan, Fernando G Im, and Natasha Koliadina. Fiscal Rules: Coping with Revenue Volatility in Lesotho and Swaziland, (USA: International Monetary Fund, 2017) accessed December 21, 2024

Disclaimer: The views expressed herein are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Over the past decade, Lesotho and Swaziland have faced significant volatility in their fiscal revenues, owing to highly unstable Southern African Customs Union (SACU) receipts. Based on model analysis, this paper explores the advantages of implementing fiscal rules to deal with such volatility. It finds that the use of a structural balance target could smooth the growth impact from revenue shocks while helping preserve sufficient international reserves during bad times. From a long-term perspective, it suggests possible welfare gains from introducing fiscal rules. Last, it concludes that, based on experiences in other countries, developing strong institutions and improving public financial management are necessary steps to ease the transitions to a rules-based fiscal policy framework.

Subject: Central banks, Expenditure, Fiscal policy, Fiscal rules, International reserves, Public financial management (PFM)

Keywords: Africa, DP, DPPP, Feedback coefficient, Fiscal rules, Global, Government, Impulse responses to SACU revenue shock, International reserves, Revenue fall, SACU, SACU receipts, SACU revenue, SACU revenue feedback coefficient, SACU revenues in excess, SACU transfer, Stabilization fund, Structural surplus, Unstable SACU receipt, Volatile SACU receipt

Publication Details

Pages:

53
Volume:

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DOI:

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Issue:

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Series:

Departmental Paper No. 2017/005
Stock No:

FRAVREA
ISBN:

9781484309575
ISSN:

2616-5333

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