Exchange Rate Strategies and Fiscal Performance in Sub-Saharan Africa

Karim Nashashibi and Stefania Bazzoni
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Karim Nashashibi: International Monetary Fund
Stefania Bazzoni: International Monetary Fund

IMF Staff Papers, 1994, vol. 41, issue 1, 76-122

Abstract: This paper investigates the relationship between fiscal performance and movements in the exchange rates, the terms of trade, and other macroeconomic aggregates in 28 sub-Saharan African countries over the 1980-91 period. It finds that the tax base in most of these countries is heavily dependent on imports and import substitutes. Consequently, an overvaluation of the exchange rate in countries that adopt a fixed exchange rate strategy (CFA franc zone countries), when the purpose of the strategy is to restore the real exchange rate to its equilibrium through fiscal contraction, can result in a widening of the fiscal deficit. Those countries with a variable exchange rate strategy fail to attain price stability but are able to enhance their fiscal balance, competitiveness, and growth.

JEL-codes: E31 E42 E6 F3 H2 H5 H6 (search for similar items in EconPapers)
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:pal:imfstp:v:41:y:1994:i:1:p:76-122

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