International reserves, currency depreciation and public debt: New evidence of buffer effects in Africa

Issiaka Coulibaly, Blaise Gnimassoun, Hamza Mighri and Jamel Saadaoui

Emerging Markets Review, 2024, vol. 60, issue C

Abstract: The paper adds to the literature on the issue of public debt in African economies, by investigating the role foreign exchange reserves play in improving the level of indebtedness and as buffer of the negative effect of exchange rate depreciation while considering the exchange rate policy. Our results show a direct link between the level of foreign currency reserves and that of external debt in Africa. Particularly, we demonstrate that higher foreign currency reserves tend to decrease the public debt stock to GDP. This effect is even more significant when countries go through high exchange rate depreciation episodes (10% or higher). This impact, however, is not homogenous among country groups, as only countries with a floating exchange regime tend to benefit from this buffer effect compared to anchored regimes. In a time where most African economies face severe exchange rate depreciation episodes following the U.S. monetary tightening policy, central bankers and policy makers need to consider a plethora of policy issues including interventions in the FX market to mitigate depreciations and maintain a sustainable public debt stock.

Keywords: Exchange rate; International reserves; Buffer effect; Public debt (search for similar items in EconPapers)
JEL-codes: F3 F31 F32 F34 H6 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1566014124000256
Full text for ScienceDirect subscribers only

Related works:
Working Paper: International reserves, currency depreciation and public debt: new evidence of buffer effects in Africa (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:60:y:2024:i:c:s1566014124000256

DOI: 10.1016/j.ememar.2024.101130

Access Statistics for this article

Emerging Markets Review is currently edited by Jonathan A. Batten

More articles in Emerging Markets Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().