Fiscal Dominance in Sub-Saharan Africa Revisited

Lam Nguyen, Mika Saito and Shirin Nikaein Towfighian

No 2021/017, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: Inflation; monetary policy; central bank; fiscal policy; fiscal dominance; policy coordination; exchange rate; fiscal deficit; sovereign debt; WP; central bank lending; central bank financing; lending to government; central bank claim; central bank bank loan (search for similar items in EconPapers)
Pages: 28
Date: 2021-01-29
New Economics Papers: this item is included in nep-afr, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2021/017

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