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Luc Eyraud, Irina Bunda, Jehann Jack, Rasmané Ouedraogo, Zhangrui Wang, and Torsten Wezel
Mr. Marc G Quintyn and Sophia Gollwitzer
This paper analyzes the institutional conditions affecting the establishment and effectiveness of independent central banks and of budgetary institutions. It draws on the recent theory developed by North, Wallis and Weingast on the transition from a closed and fragile state to an open economic and political environment. The paper presents a composite indicator allowing for the identification of a country’s position along this transition path. The findings suggest that (i) while the establishment of autonomous central banks seems to be relatively independent from the broader institutional framework, sound budgetary institutions tend to be established in countries with higher levels of rule of law for the elites, and (ii) while central bank independence is effective in reducing inflation irrespective of a country’s position along the transition path, budget institutions seem to be most effective as a disciplining device in weak institutional environments.
Luc Eyraud, Irina Bunda, Jehann Jack, Rasmané Ouedraogo, Zhangrui Wang, and Torsten Wezel

Sub-Saharan African countries are facing an unprecedented health and economic crisis that is likely to severely hurt credit quality and raise non-performing loans from already high levels. Banks have a critical role to play not only during the crisis by providing temporarily relief to businesses and households, but also during the recovery by supporting economic activity and facilitating the structural transformations engaged by the pandemic.