Fiscal Dominance in Sub-Saharan Africa Revisited

By John Hooley, Lam Nguyen, Mika Saito, Shirin Nikaein Towfighian

January 29, 2021

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John Hooley, Lam Nguyen, Mika Saito, and Shirin Nikaein Towfighian. Fiscal Dominance in Sub-Saharan Africa Revisited, (USA: International Monetary Fund, 2021) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper explores the causes and consequences of fiscal dominance over monetary policy in Sub-Saharan Africa (SSA). Fiscal dominance has always been a pressing problem as it can contribute to inflation and macroeconomic instability, and increasingly so as fiscal deficits and public debt are rising in many SSA countries. We find that 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. We also find economically significant effects of central bank lending to government on the exchange rate and inflation.

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

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2021/017
Stock No:

WPIEA2021017
ISBN:

9781513567747
ISSN:

1018-5941

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