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Olivier Basdevant, Patrick A. Imam, Mr. Tidiane Kinda, and Ms. Aleksandra Zdzienicka
West African Economic and Monetary Union (WAEMU) countries face a well-known dilemma between the need to provide shock-smoothing mechanisms and the lack of adequate mechanisms to do so. WAEMU countries are subject to frequent and, to a large extent, asymmetric shocks. They have remained poorly diversified and vulnerable to external shocks, such as changing weather conditions. In addition to limited shock-smoothing mechanisms at the regional level, WAEMU members’ ability to respond to shocks through national policies is also constrained by limited fiscal space and the need to preserve external stability—not only at the national level but also at the union level. In this context, developing a well-defined fiscal rule framework at the national level would help to build the necessary fiscal space for shock-smoothing. In addition, the development of specific shock-smoothing mechanisms—including a more developed and integrated financial sector—would also be critical. In addition, promoting financial development is also a challenge, which needs to be addressed in tandem with an adequate surveillance system. Some of these challenges have been faced by other monetary unions, such as the euro area.
Mr. Paolo Dudine, Sibabrata Das, Ms. Pritha Mitra, Yongzheng Yang, Eteri Kvintradze, and Miss Nkunde Mwase
Low-income countries were hit especially hard by sharp increases in world food and fuel prices in 2007-08 and the global financial crisis that followed. In response, the International Monetary Fund scaled up its financial assistance to low-income countries and revamped its concessional lending facilities to make them more flexible in meeting the diverse needs of these countries. Creating Policy Space in Low-Income Countries during the Recent Crises assesses empirically the outcome of the IMF response, and provides insight into how IMF-supported programs in low-income countries have been adapted to the changing economic circumstances in these countries. The authors report that these programs have provided expanded policy space in the face of the global price shocks and financial crisis.
Ms. Malangu Kabedi-Mbuyi, Mame Astou Diouf, and Mr. Constant A Lonkeng Ngouana
This paper analyzes the macroeconomics of scaling up public investment in Burkina Faso under alternative financing options, including through foreign aid and a combination of tax adjustment and borrowing. Our findings are twofold: (1) raising official development assistance in line with the Gleneagles agreement provides scope for financing public investment at low cost and would have positive, but somewhat moderate, effects on aggregate output—the growth dividends in the nontradables sector would be partially offset by the Dutch disease in the tradables sector; and (2) the massive investment scaling-up contemplated under Burkina Faso’s “accelerated growth” strategy, while boosting medium- and long-term growth, would lead to unsustainable debt dynamics under a plausible tax adjustment and realistic concessional financing. A more gradual approach to closing Burkina Faso’s infrastructure gap is therefore desirable because it would take into account the needed time for the country to address its capacity constraints and to further improve investment efficiency.
Charlotte J. Lundgren
Cette étude analyse l’impact de la politique salariale de la fonction publique au Bénin sur la viabilité des finances publiques et de la dette à moyen et long terme. Elle aboutit principalement à la conclusion suivante : si la masse salariale continue d’augmenter au même rythme que par le passé récent, elle compromettra la viabilité des finances publiques et de la dette à moyen et long terme en générant des déficits excessifs ou en évinçant l’investissement public générateur de croissance. L’étude montre qu’une politique financière guidée par des objectifs de maintien de la viabilité de la dette, tenant compte de la croissance démographique et axée sur les Objectifs du Millénaire pour le Développement, ne laissera que peu d’espace pour une hausse des salaires dans la fonction publique. Maîtriser l’augmentation de la masse salariale pour préserver la viabilité budgétaire n’est qu’une première étape dans l’objectif plus large des autorités de réforme de la fonction publique.
Ms. Stefania Fabrizio
As part of its work to help low-income countries manage volatility, the IMF has developed an analytical framework for assessing vulnerabilities and emerging risks that arise from changes in the external environment. This paper draws on the results of the first vulnerability exercise for low-income countries conducted by the IMF staff using this new framework. It focuses on the risks of a downturn in global growth and of further global commodity price shocks and discusses related policy challenges. Chapters review recent macroeconomic developments, including the spike in global commodity prices in early 2012; assess current risks and vulnerabilities, including how a sharp downturn in global growth and further commodity price shocks would affect low-income countries; and discuss policy challenges in the face of these risks and vulnerabilities.
Patrick A. Imam and Ms. Christina Kolerus
The financial system in the WAEMU remains largely bank-based. The banking sector comprises 106 banks and 13 financial institutions, which together hold more than 90 percent of the financial system’s assets (about 54 percent of GDP at end-2011). Five banks account for 50 percent of banking assets. The ownership structure of the sector is changing fast, with the rapid rise of foreign-owned (pan-African) banks. This contributes to higher competition but also rising heterogeneity in the banking system, with large and profitable cross-country groups competing with often weaker country-based (and sometime government-owned) banks. Nonbank financial institutions are developing quickly, notably insurance companies, but remain overall small. This paper presents a detailed analysis of the banking system.
Karim Barhoumi, Mr. Larry Q Cui, Ms. Christine Dieterich, Mr. Nicolas End, Matteo Ghilardi, Alexander Raabe, and Mr. Sergio Sola
Le document se propose de réaliser une analyse systématique de la croissance et du budget pour répondre à deux questions : (1) Quel est le potentiel de croissance de cette ambitieuse augmentation des investissements ? (2) Comment le gouvernement peut-il ménager l’espace budgétaire nécessaire pour accroître les investissements sans compromettre la solide performance macroéconomique du Bénin ?
Ms. Christina Kolerus, Ms. Aleksandra Zdzienicka, Mr. Ermal Hitaj, and Mr. Douglas J Shapiro
The West African Economic and Monetary Union (WAEMU), like other monetary unions, faces a number of challenges in dealing with macroeconomic shocks. The region experiences a large number of exogenous shocks: climate-related (e.g., droughts, floods), with a heavy toll on populations and agriculture, but also economic (e.g., terms of trade), with a large impact on key sectors and the cost of living. More generally business cycle synchronization within the WAEMU seems low. Addressing these shocks, while preserving the stability of the union, is therefore a critical issue in the WAEMU.This paper discusses these issues and suggests possible reforms.
Karim Barhoumi, Mr. Larry Q Cui, Ms. Christine Dieterich, Mr. Nicolas End, Matteo Ghilardi, Alexander Raabe, and Mr. Sergio Sola
This paper conducts a systematic growth and fiscal analysis to determine: (1) the growth potential of Benin’s ambitious scaling-up of investment, and (2) how the government can generate the necessary fiscal space needed to increase investment without jeopardizing Benin’s solid macroeconomic performance.
Mr. Roger Nord, Mr. Yuri V Sobolev, Mr. David G. Dunn, Alejandro Hajdenberg, Mr. Niko A Hobdari, Samar Maziad, and Stéphane Roudet
This volume documents Tanzania’s remarkable turnaround from severe economic distress in 1985, and reviews the economic policies that twenty years later contributed to a successful reversal. Tanzania still faces many policy and reform challenges, despite the many recent economic achievements the country has experienced.