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Economic Trends in Africa

Author(s):
Pierre Dhonte, Jean Clément, Mbuyamu Matungulu, and Dawn Rehm
Published Date:
September 1993
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I. Introduction

This paper is an outgrowth of a collective effort in AFR to develop a regional perspective on sub-Saharan Africa. 2/ It presents, in a convenient format, data on the international environment which are relevant to an understanding of economic conditions in the region. More originally, it draws on updates of selected WEO series (the “Economic Trends in Africa” (ETA) tables), to summarize the overall economic performance and to highlight its diversity. An attempt is also made to raise issues of a more analytical nature—i.e., to provide measures of the policy stance and of its impact on economic performance. Such measures do capture some of the important concepts that arise out of operational work; by necessity and design, they are selective and debatable on theoretical and technical grounds, but, it is hoped, will prove stimulating.

Broadly stated, the paper presents contrasting findings. Overall, economic trends continue to be unfavorable, and in 1993, income per capita is expected to fall in 19 out of the 40 countries covered in the paper. On the other hand, the paper also underscores the progress made in adjusting economic policies toward a more appropriate setting, including in particular, progress toward liberal exchange systems. To the extent that appropriate policies are an “advance indicator” of improved results, this progress bodes well for an eventual improvement in economic performance.

II. The Environment

Grants and net loans extended to sub-Saharan countries exceeded US$10 billion in 1992, but the region’s exports were depressed by weak commodity prices. While the flow of external resources is projected to rise further, to over US$11 billion, in 1993, commodity prices are expected to be even further depressed. Despite these difficult circumstances, political structures are evolving at a rapid pace.

1. External financing

Net external financing flows to the sub-Saharan African countries increased to US$10 billion in 1992, reflecting in part the international community’s response to the drought which seriously affected a number of countries (Chart 1). Of the total, US$3.3 billion was in the form of grants. Capital transactions left a surplus of US$7 billion, the bulk of which (US$5.6 billion) was absorbed by interest payments. Capital transactions are expected to yield moderately increasing net inflows in 1993. Moreover, in contrast with their stagnation of recent years, net grants received would rise significantly in 1993.

Chart 1External Financing, 1985-1994

(In millions of US-dollars)

Source: ETA Tables, August 1993.

Paris Club creditors concluded debt reschedulings with nine African countries in 1992, eight of which benefited from enhanced concessional terms (Table 1). Debt renegotiations for Benin, Burkina Faso, and Mozambique, have been concluded so far in 1993, also under the menu of enhanced concessions. 3/ In addition, other creditors also provided relief under the Paris Club’s comparability of treatment principle.

Table 1.Recent Paris Club Agreements
AgreementAmount Conso-ConsolidationTerms 3/
Countrydatelidated 1/Period 2/
(in millions

of U.S.

dollars)
(months)(in years)

Grace Maturity
Tanzania IV1/21/92691306.022.5
Cameroon II 3/1/23/921,08098.214.6
Eq. Guinea III4/02/9232126.022.5
Uganda V6/17/9239176.022.5
Togo IX6/19/2252246.022.5
Zambia V7/23/92917335.522.5
Guinea III11/18/922034/6.022.5
Sierra Leone V11/20/92164166.022.5
Ethiopia I12/16/92441356.022.5
Mozambique IV3/23/93223245.022.5
Burkina Faso II5/07/9336335.121.6
Benin III6/21/9325295.321.8
Source: Agreed Minutes of debt rescheduling.

Includes debt service formerly rescheduled as well as postponed maturities.

Consolidation periods exceeding 18 months are tranched.

All rescheduling other than the one for Cameroon occurred under the menu of enhanced options.

Source: Agreed Minutes of debt rescheduling.

Includes debt service formerly rescheduled as well as postponed maturities.

Consolidation periods exceeding 18 months are tranched.

All rescheduling other than the one for Cameroon occurred under the menu of enhanced options.

With the assistance of the IDA Debt Reduction Facility, Uganda completed a buyback of suppliers’ credits and commercial debt for US$152 million in February 1993, at a cost of US$15 million. This is the first commercial bank debt reduction operation in the region since the 1991 agreements with Niger and Nigeria.

2. Commodity markets 4/

Petroleum, coffee, cocoa, and copper are the major sources of export revenue for much of sub-Saharan Africa. World Bank data (Table 2) indicate that they accounted, respectively, for 41 percent, 9 percent, 6 percent, and 5 percent of total merchandise exports of the region in 1985-87; coffee and cocoa combined account for some 50 percent of export earnings for Burundi, Côte d’lvoire, Equatorial Guinea, Ethiopia, Ghana, Rwanda, and Uganda. Petroleum products account for important export shares in Angola, Cameroon, Congo, Gabon, and Nigeria. In addition, Kenya and Tanzania depend on coffee and tea for about half of their export revenues.

Table 2.Distribution of Exports by Commodity, (Averages, 1985-87)(In percent)
CocoaCoffeeTeaSugarFishCottonTimberTobaccoPetroleumBauxiteAluminumCopper
Angola..2.6............77.1......
Benin16.00.5....0.626.0............
Botswana......................2.0
Burkina..........27.3............
Burundi..83.54.2..0.11.2............
Cameroon8.313.1....0.21.03.20.148.1..2.9..
Central African Rep...26.0......11.618.00.9........
Chad..........33.2............
Congo0.30.2..0.70.5..5.7..83.2......
Equatorial Guinea53.57.2....0.5..38.0..........
Ethiopia..66.6..1.1................
Gabon0.30.1....0.6..7.4..70.5......
Gambia, The........3.01.60.0..........
Ghana49.20.1....3.0..5.4....0.511.3..
Guinea1.11.2........0.1....72.819.4..
Guinea-Bisseau........13.93.12.9..........
Côte d’lvoire30.518.5..0.32.42.66.9..1.6......
Kenya..31.722.2..0.4....0.1........
Lesotho........................
Liberia2.24.4....0.3..10.0..........
Madagascar1.236.8..2.38.81.3..0.4........
Malawi..3.715.49.90.11.2..53.5........
Mali........0.341.9............
Mauritius....1.338.71.5..............
Mozambique....1.77.155.75.01.3..........
Namibia........................
Niger..........0.4............
Nigeria2.5..............94.2......
Rwanda..68.88.4..................
Senegal........39.92.2............
Sierra Leone16.316.0....5.6..0.11.1..18.0....
Swaziland......40.6..1.94.0..........
Tanzania1.044.14.81.20.611.30.64.4........
Togo8.610.4....0.911.8............
Uganda0.195.80.8....1.6..0.3........
Zaire0.614.30.2......0.8..10.7....35.9
Zambia..0.2..0.8..0.4..0.7......93.3
Zimbabwe..2.61.03.4..6.70.319.7......2.1
Total Sub-Saharan Africa 1/6.18.71.11.51.51.61.91.341.41.40.94.5
Source: IBRD, Commodity Markets Division.

Including Angola.

Source: IBRD, Commodity Markets Division.

Including Angola.

Overall, the trend of export prices continues to be unfavorable. An index of export prices reflecting the above commodity structure is represented in Chart 2. Excluding oil, that index is expected to fall in 1993 for the fifth consecutive year, for a cumulative drop of 23 percent since 1988, which is equivalent to an earnings shortfall of US$11 billion at 1993 conditions. Including oil, the medium-term pattern is less depressed; still, export prices would fall by 6.5 percent in 1993, following a decline of 2 percent in 1992. Both trends, however, are expected to be reversed in 1994.

Chart 2Export Prices, 1972-1994 1/

(US-dollar Index, 1985 = 100)

Source: IMF, Commodities Division, and Table 2.

1/ Based on weights in Table 2.

Coffee prices fell to historic lows in world markets during 1992 and have declined further in early 1993 before firming up. Production in Côte d’lvoire, Cameroon, Kenya, and Ethiopia is expected to stagnate in 1993, owing to falling producer prices and, in some cases, land pressures generated by population growth. After 1993, prices are projected to strengthen somewhat as major Latin American producers cut back production.

Cocoa prices also fell to a twenty-year low in 1992, and have declined by an additional 8 percent over the first two quarters of 1993. The continued downward pressure on prices reflects high world stocks, favorable weather in West Africa increasing yields in Ghana and Côte d’lvoire, and low manufacturer demand. Prices are projected to strengthen modestly in 1994.

Copper prices declined by over 2 percent in 1992, and are expected to decline again sharply in 1993, reflecting weak demand and increases in supply from the former Soviet Union, as well as from new projects in Indonesia, Chile, Portugal, and the United States. Despite the high-grade ore deposits in Zambia and Zaire, deteriorating infrastructure in both countries has resulted in declines in both output and productivity. Zambia has announced its intention to seek foreign investors or to privatize the state-owned copper enterprise.

3. The drought

A serious drought affected a number of countries in the South and East of the region in 1992. For Kenya, Malawi, Mozambique, Swaziland, Zambia, and Zimbabwe together, the shortfall of output in 1992 relative to the average of 1991 and 1993 is on the order of US$1 billion, or 5 percent of these countries’s total output and 0.7 percent of the region’s. Botswana, Lesotho, and Namibia were also affected, but their GDPs nevertheless increased in 1992. Food crops in that area were very good in 1993, contributing, in some cases strongly, to an abatement of inflationary pressures.

4. The electoral cycle

While this survey concentrates on economic developments, mention must be made of the sweeping political changes that are taking place over the continent. It is estimated that 29 countries will have organized presidential elections, and 33 countries will have held parliamentary elections, in the four-year period 1990-93. In many instances, these will have been the first polls in many years to be contested by several political parties. In some cases this process has had a notable impact on economic policies in the countries concerned.

III. Economic Trends

This section reviews recent economic developments in sub-Saharan Africa, including preliminary estimates for 1993, based on the August 1993 update of the Economic Trends in Africa (ETA) tables. The section also looks into indicators of the macroeconomic policy stance. However, no forecast beyond 1993 is presented, as any forecast is subject to many qualifications in terms of underlying policies.

In order to account for the diversity of economies, country groups have been defined on the basis of various criteria. The group of countries with liberal exchange and trade systems includes the 14 countries that had liberal exchange and trade regimes at the end of 1990 (and does not include the CFA countries, on account of their accumulation of external payments arrears). The group of “performing” economies includes the 10 countries that had both positive real per capita growth in 1989-92, and balance of payments viability (as defined below) in 1992. Finally, membership in the CFA area is also used as a criterion.

1. Growth performance

Sub-Saharan Africa’s total GDP expressed at current exchange rates amounted to US$144 billion in 1992 (Table 3). Output was concentrated in a few countries, nine of which, with individual GDPs in excess of US$5 billion, accounted for 60 percent of the region’s total production. Of these “big nine,” Nigeria alone contributed 18 percent to the regional total. The other eight countries include Cameroon, Côte d’lvoire, and Kenya (about 7 percent each), 5/ as well as Ethiopia, Gabon, Ghana, Senegal, and Zimbabwe (about 4 percent).

Table 3.Basic Data, 1/ 1989-93
1992Real per capita
Per capitaGDP growthExport growthTerms ofReal effective
NominalPopulationGDP(in %)(in %) 3/trade 4/exchange rate 4/
GDP 2/Curr. Prices1989-9219931989-92199319921992
(in US$ bn)(in mill.)(in US$)averageaverage
Total sub-Saharan Africa144.4435.0332.0−1.4−0.42.4−3.670.663.8
CFA countries50.481.6617.6−3.6−3.13.0−2.565.8101.0
Non-CFA countries94.0353.8265.7−0.20.92.172.945.5
Liberal exchange systems58.4179.0326.31.40.64.1−5.765.136.3
Other exchange systems86.0256.3335.5−4.6−1.10.2−0.674.582.5
Strong performers22.439.1572.91.3−0.25.3−0.285.178.5
Other performers122.0396.2307.9−1.8−0.41.6−4.574.162.0
Source: ETA Tables, August 1993.

For a description of groups, see p. 5.

At current exchange rate.

Merchandise exports in current U.S. dollars.

Level of GDP-weighted index, 1985-100 (source: WEO/INS).

Source: ETA Tables, August 1993.

For a description of groups, see p. 5.

At current exchange rate.

Merchandise exports in current U.S. dollars.

Level of GDP-weighted index, 1985-100 (source: WEO/INS).

Real GDP growth has been sluggish since 1989, the last year output growth exceeded that of the population. The region’s output rose by 2.2 percent a year in 1991 6/ and only 0.2 percent in 1992, owing in part to the drought. A modest recovery (2.6 percent) is expected for 1993 (Chart 3). The region’s relatively weak economic activity over the period took place against the background of a rapidly expanding population, causing per capita income to fall by 1.4 percent a year on average between 1989 (the previous peak) and 1992, with a smaller decline being expected in 1993.

Chart 3Real GDP, 1985-1993

(In millions of US-dollars, at 1990 prices)

Source: ETA Tables, August 1993.

Export performance—in nominal U.S. dollars terms–was also disappointing over the 1989-93 period (a period which straddles the 1991 oil market tensions), owing partly to a 3.6 percent drop in earnings expected in 1993. In part, the lack of export buoyancy is a reflection of the decline in commodity prices discussed above. Depressed export prices contributed to a 30 percent cumulative loss of terms of trade for the region in 1985-92. However, significant adjustment has taken place, to the extent that the real effective exchange rate depreciated by 36 percent over that period.

On average, annual losses in per capita incomes in 1989-92 were more pronounced in the CFA countries than in the other countries, and this trend is projected to continue in 1993. At the same time, the group of countries that established liberal exchange and trade systems has been doing better than those that did not. Between 1989 and 1992, per capita real GDP rose by 1.4 percent a year in the “liberal” group of countries, and is projected to increase slightly in 1993, while it fell by 4.6 percent per annum in the “nonliberal” economies, and is expected to shrink further, by 1.1 percent, this year.

2. Financial indicators

Economic performance in sub-Saharan Africa can also be assessed on the basis of developments in inflation, in fiscal and external balances, and in real interest and exchange rates (Table 4).

Table 4.Financial Indicators, 1/ 1989-93
Overall budgetCurrent accountDebt/Exports
Inflation 2/M2 Growth 2/balance 3/balance 3/(percent)
1992199319921993199219931992199319891992
Total sub-Saharan Africa25.432.319.714.0−7.0−5.4−4.8−5.6316.4341.1
CFA countries1.71.24.8−6.2−5.3−6.8−7.5304.2364.9
Non-CFA countries34.940.628.218.3−7.4−5.5−3.8−4.5321.3331.4
Liberal exchange systems14.214.320.614.8−8.5−5.6−3.1−4.3267.8248.9
Other exchange systems30.639.719.213.5−5.9−5.3−5.9−6.5376.4467.9
Strong performers0.18.914.912.8−0.9−0.1−0.4−2.4159.9158.8
Other performers30.638.621.314.4−8.1−6.5−5.6−6.2356.8393.5
Source: ETA Tables, August 1993.

For a description of groups, see p. 5.

Average percent change (unweighted); excluding Zaire.

In percent of GDP; including official grants received.

Source: ETA Tables, August 1993.

For a description of groups, see p. 5.

Average percent change (unweighted); excluding Zaire.

In percent of GDP; including official grants received.

Changes in consumer prices (excluding Zaire) accelerated to an (unweighted) average of 25 percent in 1992. This relatively favorable result is largely due to the strong inflation performance of the CFA countries; as regards the other countries, a long-term trend toward an acceleration of inflation (Statistical Appendix Table IV) is of concern. Inflation has been rising to particularly high levels in countries experiencing serious security problems.

M2 growth eased slightly, to an unweighted average rate (excluding Zaire) of just below 20 percent in 1992, and is expected to fall to 14 percent in 1993. The pattern of growth rates across country groups bears some resemblance, as would be expected, to that of CPI increases; it is noteworthy, though, that countries with liberal exchange systems record relatively high rates of monetary expansion, indicating more favorable trends in velocity.

Thirty of the 40 countries have experienced substantial overall budget deficits (including grants), exceeding 3 percent of GDP in 1992; the proportion varies little among country groupings, except that the “performing” economies have lower than average deficits. The proportion of high deficit countries is expected to remain high in 1993; however, on average, deficits would fall markedly in relation to GDP, from 7.0 percent in 1992 to 5.4 percent in 1993 (Appendix Table II).

Owing in part to a trend toward the liberalization of financial markets, the number of countries that maintain positive real interest rates 7/ has risen from 22 in 1989 to 27 in 1992; however, it is somewhat worrisome that an increasing number of countries (7 in 1989 and 10 in 1992) experienced real interest rates higher than 10 percent. While reflecting sub-Saharan Africa’s recent achievements in the critical area of financial sector liberalization, the increase in the number of high positive real interest rate countries may also testify to both the low interestsensitivity of international capital flows and persistent underlying resource gaps within the subregion.

3. Policy stance and economic performance

In the Fund’s perspective, economic policies should seek growth that is balanced enough to be sustainable. One strategic option in pursuing this goal is to facilitate the opening up of the economy to the world market.

For this, it is important to allow exchange and interest rates to settle down at equilibrium levels, and to regulate domestic demand. Thus, two indicators, one for growth and one for sustainability, can provide a basic gauge of economic performance, while two others, one for the flexibility of relative prices and one for excess domestic demand, can characterize the stance of macroeconomic policies. In practice, of course, countries pursue a much more open set of objectives and employ accordingly a far wider range of instruments, as indeed can be verified in the design of Fund programs; yet, the simple grid made up of these four indicators can be a helpful guide through the diversity of country experiences.

a. Economic performance

According to the above approach, measures of growth and sustainability provide primary criteria for the assessment of performance.

A straightforward measure of growth is the change in real GDP per capita. As noted previously, recent performance on this account has not been very satisfactory.

As regards sustainability, a straightforward test is to determine whether current trends are consistent with the stabilization of the debt/exports ratio. While other criteria also need to be used, the stabilization of the debt ratio has a long-standing operational status and lends itself to easy quantification. Moreover, and most interestingly, this criterion intimately combines the two concepts of growth and stability into what is, therefore, genuinely an indicator of sustainability. 8/

On this basis, the fragility of sub-Saharan Africa’s macroeconomic situation is demonstrated by the high level of the primary current account surpluses which must be achieved to stabilize the debt ratio (Table 5), a threshold which has steadily been raised in recent years, owing to a slowdown in the underlying rate of export growth. Such surpluses have been out of reach for an increasing number of countries (23 in 1989 and 26 in 1992), with the result that, on average, debt ratios have continued to rise over the period, at a very alarming pace indeed for some groups of countries. It should however be noted that these average results cover a variety of individual situations and that (notwithstanding the use of statistical smoothing techniques) individual situations are apt to turn around rather abruptly.

Table 5.Indicators of External Viability, 1/ 1992
SustainableNumber of
Exportcurrent accountcountries withChange in the
growthInterestDebtbalance aftersustainable/un-debt/export
rate 2/rate 3/ratio 4/grants 5/sustainableratio,
balances1989-92
Total sub-Saharan Africa0.54.5341.113.414/2624.7
CFA countries0.56.0314.921.43/1063.7
Non-CFA countries0.53.8331.410.211/1610.1
Liberal exchange systems0.34.6248.913.26/8−18.8
Other exchange systems0.74.4467.913.78/1891.5
Strong performers3.13.6158.8−4.210/-−1.1
Other performers−0.24.6393.518.64/2636.9
Source: ETA Tables, August 1993.

For a description of groups, see p. 5.

Annual growth rate of merchandise exports in U.S. dollars, 1993-95 projected average relative to 1989-91 average.

Apparent interest rate on debt outstanding (3-year centered average).

Debt (end of period) in percent of merchandise exports.

Level of threshold that must be exceeded to stabilize debt ratio; in percent of merchandise exports. These average values per group cover a wide diversity of individual situations. Averages are calculated from individual country data and results may therefore differ from calculations from group averages.

Source: ETA Tables, August 1993.

For a description of groups, see p. 5.

Annual growth rate of merchandise exports in U.S. dollars, 1993-95 projected average relative to 1989-91 average.

Apparent interest rate on debt outstanding (3-year centered average).

Debt (end of period) in percent of merchandise exports.

Level of threshold that must be exceeded to stabilize debt ratio; in percent of merchandise exports. These average values per group cover a wide diversity of individual situations. Averages are calculated from individual country data and results may therefore differ from calculations from group averages.

Combining the two criteria—positive per capita real growth in 1989-92 and external viability in 1992—provides the basis for identification of a group of “strong performers.” Only 10 countries belonged to that group in 1992.

b. The policy stance

As with the assessment of performance, a dual criterion is required for the identification of the policy stance.

In the first place, the opening of the economy to the influence of world markets requires an exchange and trade system which is substantially free of restrictions. Such a requirement can be justified because the presence of restrictions is costly, both directly and as a hotbed of “directly unproductive activities;” and because a liberal exchange system is indicative of equilibrium in the exchange markets. Moving on to a liberal exchange and trade regime, therefore, represents a major step forward in setting the preconditions for efficient use of resources.

From that perspective, the policy performance of the sub-Saharan African countries has shown remarkable improvement over the past few years. Of the 26 non-CFA countries, a survey of country desks 9/ indicates that 11 could be classified as having a liberal exchange regime at end-1987; that number had risen to 14 at end-1990, and to 21 by mid-1993 (although two countries reverted to a restrictive system). Therefore, as of today, all but five of the non-CFA countries can be classified as “liberal.” It is worth noting, moreover, that the shift to liberal exchange markets has been compounded by a shift to liberal credit markets as an increasing number of countries has adopted indirect methods of credit controls.

Openness to world markets needs to be sustained by control over domestic demand. One ready indicator in this respect is the level of the budget deficit, after grants, relative to GDP. There are a number of ways to specify a test value on that indicator. One rough approach is to specify a uniform test for all countries; as indicated above, only 10 countries met a.3 percent threshold in 1992; even a 4 percent threshold “rejected” 26 of the 40 countries.

It is interesting to combine the two criteria in a single test of the policy stance. For this purpose, a 4 percent threshold was used to specify budgetary policy, in combination with the status of the exchange system. Only 4 countries met that combined test in 1987. Their number rose encouragingly to 11 in 1990, but improved only slightly, to 12 (including three borderline cases) in 1992.

c. Policy stance and economic performance

The expectation underlying the attempt to assess the policy stance is, of course, that good policies will generate strong performance. In the highly simplified model of the preceding paragraph, this would imply a very close concentration of countries on the appropriate diagonal of a policy/performance grid, as in Table 6. However, there are many reasons why the reality will differ from this model; among others (i) the criteria used to assess performance and the policy stance are very restrictive; (ii) measurements used are very crude and subject to a considerable margin of error (as would be induced, for example, by the incidence of the drought); and (iii) the analysis disregards lags and the need to sustain policies over time. Considering these limitations, Table 6 drops the budget deficit as a policy indicator and correlates the stance of the exchange system with the two indicators of performance. On this somewhat contrived basis, Table 6 below provides encouragement to further research: the “success rate” of the 14 countries that have maintained a liberal exchange system since 1990 or earlier (to allow for some lag effect) is 78 percent, well above the 46 percent recorded by the 26 countries that have not maintained such systems.

Table 6.Policy Stance and Economic Performance(Number of Countries)
Positive real per capita

income growth 1/ and/or

external viability 2/
Neither of

these criteria
Total
Liberal exchange system 3/11314
Other exchange systems121426
Total231740
Source: Staff estimates.

Positive real per capita GDP growth, 1989-92 average.

Based on the test of sustainability of p. 10; 1992.

Evaluation as of 1990.

Source: Staff estimates.

Positive real per capita GDP growth, 1989-92 average.

Based on the test of sustainability of p. 10; 1992.

Evaluation as of 1990.

To gain further insight into the characteristics of countries with liberal exchange regimes, Table 7 recapitulates elements of comparison with other countries. Firstly, losses of terms of trade were of comparable magnitude in both groups, though somewhat larger for the countries with liberal exchange systems (Chart 4). Secondly, the countries with liberal exchange systems have depreciated distinctly more, in real terms, than the other countries; there is, accordingly, an expectation that they will have made more progress in restoring their external balance and their growth potential. Thirdly, they have indeed achieved both better real GDP growth and better external viability.

Table 7.Selected Characteristics of Countries with Liberal Exchange Systems 1/
Liberal systemsOther systemsTotal
Terms of trade, 1992
(Index 100=1985)65.174.570.6
Real effective exchange rate,
1992 (Index 100=1985) 2/36.382.563.8
Real GDP growth, 1989-92
average (percent)4.61.6
Debt/exports ratio, 1992 and248.9467.9341.1
change 1989 to 1992 (points)(−18.9)(91.5)(24.7)
Share of domestic savings
in GDP, 1992 (percent)21.610.815.2
Share of investment in22.115.918.4
GDP (percent)
Nominal export growth (US$),
1989-92 average (percent)4.00.32.4
Source: ETA Tables, August 1993, and INS.

For a description of groups, see p. 5.

Excluding Comoros, Equatorial Guinea, Guinea Bissau, Namibia, Sao Tomé and Principe.

Source: ETA Tables, August 1993, and INS.

For a description of groups, see p. 5.

Excluding Comoros, Equatorial Guinea, Guinea Bissau, Namibia, Sao Tomé and Principe.

Chart 4Terms of Trade and Real Exchange Rates, 1985-1993

(Index 1985 = 100) 1/

Citation: 1993, 71; 10.5089/9781451849196.001.A001

Source: ETA Tables, August 1993.

1/ GDP-weighted.

2/ For definitions see page 5.

All together, there is good reason to find merit in the assumption that a transition to liberal exchange systems contributes to an improvement in macroeconomic performance. Full benefits, however, cannot be expected unless and until there is commensurate progress in controlling the fiscal situation. Meanwhile, there is comfort to be found in the increasing number of countries that have made the transition, and in the implied view that Fund programs that supported their efforts have been of some help.

ANNEX: Note on the Exchange Rate Regimes in Sub-Saharan Africa. 1980-93

This note reviews the changes in exchange rate regimes in sub-Saharan Africa during the period 1980-93 and investigates the relationship between these changes, the deterioration in the terms of trade, and the adjustment of real effective exchange rates.

1. Change in exchange rate regimes

During the period 1980-end-March 1993, there was a noticeable change in exchange rate regimes in sub-Saharan Africa. Countries moved away from pegging to a single currency toward more flexible arrangements under which the exchange rate is frequently adjusted. Overall, 19 countries have changed their exchange rate regime during the period at least once (Annex Tables A1 and A2).

Table Al:Exchange Arrangements(as of December 31,1980)
Flexibility limited
Currency pegged toin terms ofMore flexible
Adjusted
PoundFrenchOtherA composite ofSingleCooperativeaccording to aOther managedIndependently
U.S. DollarSterlingFrancCurrenciescurrenciescurrencyArrangementset of indicatorsfloatingfloating
Angola 1/The GambiaBeninEquat. GuineaCape VerdeNigeriaGhana
BotswanaBurkina Faso 2/LesothoGuinea*South Africa
BurundiCameroonSwazilandGuinea-Bissau
EthiopiaCARNamibia 4/Kenya*
LiberiaChadMalawi*
RwandaComoresMauritania
SomaliaCongoMauritius*
Côte d’lvoireMozambique 2/
GabonSao Tome and
MadagascarPrincipe*
MaliSeychelles*
NigerSierra Leone*
SenegalTanzania
TogoUganda*
Zaire*
Zambie*
Zimbabwe 3/

indicates the composite is the SDR.

The countries indicated in boldface have changed their exchange arrangement between 1980 and 1991.

South Africa is excluded since it was not yet a member of the Fund.

Angola became a member of the Fund in 1989.

Mozambique became a member of the Fund in 1984.

Namibia became a member of the Fund in 1990.

Zimbabwe became a member of the Fund in 1980.

indicates the composite is the SDR.

The countries indicated in boldface have changed their exchange arrangement between 1980 and 1991.

South Africa is excluded since it was not yet a member of the Fund.

Angola became a member of the Fund in 1989.

Mozambique became a member of the Fund in 1984.

Namibia became a member of the Fund in 1990.

Zimbabwe became a member of the Fund in 1980.

Table A2:Exchange Arrangements(as of March 1993)
Flexibility limited
Currency pegged toin terms ofMore flexible
Adjusted
PoundFrenchOtherA composite ofSingleCooperativeaccording to aOther managedIndependently
U.S. DollarSterlingFrancCurrenciescurrenciescurrencyArrangementset of indicatorsfloatingfloating
AngolaBeninLesothoBotswanaMadagascarGuineaEthiopia1/
LiberiaBurkina FasoSwazilandBurundiGuinea-BissauThe Gambia
CameroonNamibia1/Cape VerdeSao-Tome andGhana
CARMalawiPrincipeKenya1/
ChadMauritania1/SomaliaMozambique1/
ComoresMauritiusNigeria
CongoRwanda*Sierra Leone
Cote d’IvoireSeychelles*South Africa
Equatorial GuineaTanzaniaZaire
GabonUgandaZambia1/
MaliZimbabwe
Niger
Senegal
Togo
Source: IFS.

The countries indicated in boldface changed their exchange arrangement from 1980-91, whereas the countries which are printed in italics changed between 1991 and March 1993.

indicates the composite is the SDR.

Source: IFS.

The countries indicated in boldface changed their exchange arrangement from 1980-91, whereas the countries which are printed in italics changed between 1991 and March 1993.

indicates the composite is the SDR.

The number of countries pegging their currency to a single foreign currency declined from 26 to 19, although the number of countries pegging to the French franc remained constant at 14. The number of countries pegging their currencies to a composite basket also declined from 17 to 10. Moreover, in this category, there was a move away from pegging to an SDR basket as the number of countries choosing this anchor decreased from 9 to 2.

In contrast, sub-Saharan countries have dramatically increased their reliance on more flexible arrangements 10/ under which the exchange rate is adjusted frequently. These arrangements are often officially described as “adjusting to indicators,” “managed floating,” or “independently floating.” The number of countries relying on flexible arrangements has increased sharply from 2 in 1980 (Nigeria and South Africa) to 15 in 1993, of which 10 pursued a regime of “independent floating,” 4 pursued a “managed float,” and 1 adjusted its currency to a set of indicators. Thus, the proportion of countries in this category increased from 7 percent to 34 percent, and excluding the CFA zone, from 10 percent to 50 percent.

2. Changes in the terms of trade

Most of the changes in exchange rate regimes took place during the second half of the 1980s, coinciding with large deteriorations in the terms of trade. This coincidence was not fortuitous, as the optimal choice of exchange rate regime depends heavily on the nature of the shocks which the economy is likely to experience. 11/

Among the 20 sub-Saharan countries with the most pronounced deterioration in their terms of trade during the 1980-85 period (Table A3), only 2 countries adopted a flexible regime. In contrast, during the 1985-92 period, 10 countries adopted a flexible exchange system.

Table A3:Terms of Trade, 1980=100(Period averages)
1980-851985-92
AverageAverage
Ghana67.63Nigeria40.78
Swaziland76.75Cameroon42.77
Tanzanie77.33Gabon51.73
Uganda78.40Uganda56.40
Côte d’lvoire79.09Ghana56.89
Zambia83.02Congo58.98
Zaire86.63Tanzania60.65
Equatorial Guinea88.13Côte d’lvoire62.85
Sao Tome & Principe89.18Sao Tome & Principe64.21
Cameroon89.96Benin65.52
Mali90.38Sierra Leone72.86
Kenya90.53Swaziland74.62
Ethiopia90.93Cape Verde75.47
Sierra Leone93.22Central Afr. Rep.76.47
Togo95.24Kenya77.06
Nigeria96.85Ethiopia79.36
Lesotho97.71Equatorial Guinea79.39
Central Afr. Rep.97.92Mali81.61
Chad99.12Zambia87.72
Mauritius99.21Comoros90.09
Cape Verde103.92Zaire90.24
Comoros105.09Guinea Bissau91.16
Gabon105.63Togo94.13
Burundi106.12Malawi95.65
Guinea Bissau106.85Burundi98.91
Congo108.09Guinea100.17
Burkina Faso109.06Chad101.06
Malawi109.22Lesotho102.62
Seychelles111.36Mozambique106.68
Zimbabwe111.50Niger109.60
Mozambique112.33Seychelles113.19
Botswana112.37Burkina Faso116.20
Senegal115.10Senegal132.32
Benin119.50Rwanda133.73
Guinea121.29Botswana135.50
Niger121.71Gambia, The141.41
Rwanda152.30Mauritius141.76
Gambia, The184.75Zimbabwe178.17
Madagascar212.43Madagascar210.83
Source: World Economic Outlook, Spring 1993.
Source: World Economic Outlook, Spring 1993.

Theory holds that a deterioration in the terms of trade results in a depreciation of the equilibrium real exchange rate. 12/ The evidence suggests that the adjustment occurs under fixed as well as flexible regimes. During 1980-85, out of 17 countries for which REER indices are available and which experienced a deterioration in their terms of trade, 12 countries depreciated their REER (Table A4), 7 of which depreciated by an amount more than proportional to the deterioration in their terms of trade (3 CFA countries, 2 countries which pegged to another foreign currency, and 2 which pegged to the SDR). During 1985-92, 16 of the 20 countries which experienced a deterioration in their terms of trade depreciated, 10 of which depreciated by an amount more than proportional to the deterioration in their terms of trade (including 2 CFA countries, 13/ 1 which pegged to another foreign currency, 4 countries with flexible rate regimes, and 2 which pegged to a basket of currencies).

Table A4:Real Effective Exchange Rates, 1980-92(1980=100)
1980-851985-92
AverageAverage
Uganda41.5Uganda15.8
Côte d’Ivoire81.0Ghana26.7
Zaire82.4Zaire35.0
Chad87.3Nigeria53.4
Burkina Faso88.4Madagascar61.0
Gabon90.7Niger66.6
Togo92.9Zambia67.0
Mali93.8Zimbabwe70.9
Niger95.0Chad71.0
Senegal95.2South Africa74.5
Cameroon95.4Gambia, The77.5
Central African Rep.95.6Burkina Faso77.9
Gambia, The96.9Tanzania79.7
Sudan97.4Kenya79.7
South Africa97.5Mali80.5
Botswana98.1Togo80.7
Lesotho98.3Mauritius83.2
Mauritius98.5Gabon86.9
Malawi98.7Swaziland86.9
Swaziland98.8Botswana87.5
Congo99.2Congo88.3
Kenya99.8Malawi90.7
Zambia100.3Lesotho92.1
Zimbabwe103.6Côte d’lvoire92.1
Madagascar104.1Burundi93.5
Cape Verde110.6Central African Rep.94.6
Seychelles118.7Senegal98.4
Ethiopia125.8Cameroon112.2
Burundi127.3Cape Verde113.0
Rwanda130.7Sierra Leone115.5
Nigeria136.4Seychelles116.6
Mozambique145.9Ethiopia120.2
Ghana154.1Rwanda123.6
Sierra Leone157.5Mozambique129.0
Tanzania158.1Sudan149.2
Source: IMF, Information Notice System.
Source: IMF, Information Notice System.

One factor limiting the effectiveness of flexible regimes in adjusting real exchange rates is the impact of inflation. Over 1985-92, countries with a flexible exchange rate regime achieved a sharper depreciation than those pursuing a policy of a pegged nominal exchange rate. On the other hand, some countries, such as Niger, Mali, Togo, and Chad were also among the group of countries with the most depreciated REER, reflecting relatively low inflation rates. Out of 18 countries with the most depreciated REER in 1985-92, 11 countries had adopted a flexible regime, 6 had currencies pegged to the French franc, and 1 was pegged to a basket of currencies. However, as mentioned above, these results have to be weighted with the deterioration in the terms of trade.

A few conclusions can be drawn from the above. First, there is no simple linkage between the choice of exchange regime and the adaptability of national economies. While the adoption of a more flexible exchange rate regime has helped a number of countries regain competitiveness and balance the effect of adverse terms of trade shocks, this was not true for all countries with flexible regimes. Conversely, some of the countries with a fixed exchange rate regime have been able to adjust extensively to terms of trade shocks, either through low inflation as in the CFA countries, or through successive devaluations as in Burundi. Second, investigation of these linkages is subject to serious methodological difficulties, as results will tend to be sensitive to the choice of base year and observation periods; the evidence in Annex Tables A3 and A4 serves to nuance the conclusions of Chart 4 in the main text.

APPENDIX
Appendix Table I.Population(In millions)
198519861987198819891990199119921993
Total Sub-Saharan Africa, exc. South Africa353.00363.68374.58386.10397.96409.9942252435.31448.51
o.w.: Strong Performers32.1433.0534.0035.0035.9937.0038.0439.1140.20
Others320.87330.62340.58351.10361.97372.98384.48396.21408.31
Liberal Exchange Systems143.99148.69153.41158.34163.26168.38173.68178.98184.58
Other Exchange Systems209.01214.99221.17227.76234.70241.60248.83256.33263.93
CFA countries66.3768.3770.3872.4974.7376.9179.2281.5783.97
Non-CFA countries286.64295.31304.19313.62323.22333.07343.29353.75364.54
Source: ETA Tables, August 1993.
Source: ETA Tables, August 1993.
Appendix Table II.Real GDP

(In millions of US-dollars 1/, in 1990 prices)

198519861987198819891990199119921993
Total Sub-Saharan Africa, exc. South Africa120733.3123894.1124645.1129335.9134495.7137811.7140792.5141203.9144912.7
o.w.: Strong Performers15987.716469.016398.617392.518270.419121.520131.520647.521195.0
Others104745.6107425.1108246.5111943.5116225.2118690.2120661.0120556.5123717.6
Liberal Exchange Systems43090.644522.545397.049150.052213.755567.257881.459674.661894.0
Other Exchange Systems77642.779371.679248.280185.982282.082244.582911.181529.383018.7
CFA countries47880.248320.946931.346312.047136.946442.646455.846124.746026.8
Non-CFA countries72853.175573.277713.983024.087358.891369.194336.795079.398885.9

Converted with 1989- 91 average exchange rates.

Source: ETA Tables, August 1993.

Converted with 1989- 91 average exchange rates.

Source: ETA Tables, August 1993.
Appendix Table III.Real Per Capita GDP(In US-dollars)
198519861987198819891990199119921993
Average, Sub-Sah. Africa, exc. South Africa342.02340.6733276334.98337.97336.14333.22324.38323.10
o.w.: Strong Performers497.46498.2548230496.91507.70516.77529.23528.00527.22
Others326.45324.92317.83318.83321.09318.22313.83304.28303.00
Liberal Exch. Systems299.26299.43295.91310.40319.82330.01333,26333.42335.32
Other Exch. Systems371.47369.19358.32352.06350.59340.41333.20318.06314.55
CFA countries721.43706.79666.79638.89630.74603.84586.39565.49548.11
Non-CFA countries254.17255.91255.47264.73270.27274.32274.80268.78271.26
Source: ETA Tables, August 1993.
Source: ETA Tables, August 1993.
Appendix Table IV.Change in CPI(In percent)
19861987198819891990199119921993
Average, Sub-Sah. Africa, exc. South Africa 1/5.286.8010.0412.3412.8716.6325.3732.34
o.w.: Strong Performers6.327.796.6711.0410.219.919.138.87
Others4.906.43113212.8013.8118.9530.5538.59
Liberal Exch. Systems12.7614.1915.2615.0512.5811.3514.191431
Other Exch, Systems2.493.767.6811.0213.0119.2730.5939.70
CFA countries−0.51−2.121.761.081.660.75−0.001.67
Non-CFA countries11.68152416.5219.9819.2524.2234.8940.59

Excluding Zaire.

Source: ETA Tables, August 1993.

Excluding Zaire.

Source: ETA Tables, August 1993.
Appendix Table V.Merchandise Imports and Exports(In millions of US-Dollars)
198519861987198819891990199119921993
Merchandise Imports (f.o.b.)
Total Sub-Saharan Africa, exc. South Africa26813.227106.028809.030875.431589.735106.935365.936223.836023.5
o.w.: Strong Performers4491.75175.36128.17013.37191.58221.78654.78793.69326.5
Others22321.521930.722680.923862.024398.226885.126711.227430.326696.9
Liberal Exchange Systems13762.312699.113236.114445.114978.917390.818039.218676.518465.2
Other Exchange Systems13050.914406.915573.016430.316610.917716.117326.717547.317558.3
CFA countries6855.77890.28323.78480.28081.98913.08642.68696.88513.4
Non-CFA countries19957.519215.820485.322395.223507.826193.926723.327527.027510.1
Merchandise Exports
Total Sub-Saharan Africa, exc. South Africa33721.628647.029867.730053.934278.240393.537721.236780.035472.7
o.w.: Strong Performers5579.65662.66142.86128.67029.57933.28200.98207.78194.1
Others28142.022984.423724.923925.227248.732460.329520.328572.327278.6
Liberal Exchange Systems19103.714483.915438.115469.618913.223250.621536.321296.220075.1
Other Exchange Systems14617.914163.114429.614584.315365.017142.816184.915483.815397.6
CFA countries10144.29269.89619.19195.89751.911710.010934.710684.910428.3
Non-CFA countries23577.419377.220248.620858.124526.328683.526786.626095.125044.4
Source: ETA Tables, August 1993.
Source: ETA Tables, August 1993.
Appendix Table VI.External Public Debt Outstanding(In millions of US-Dollars)
198519861987198819891990199119921993
Total Sub-Saharan Africa, exc. South Africa63481.584198.3100131.4103574.6108469.1119928.4126665.9125462.5132694.3
o.w.: Strong Performers6614.48764.110439.311019.411243.412818.412625.913030.213388.5
Others56867.175434.289692.192555.297225.7107110.0114040.0112432.3119305.7
Liberal Exchange Systems30716.941331.346621.948136.550641.354940.756991.853006.855513.2
Other Exchange Systems32764.742867.053509.455438.157827.864987.769674.172455.777181.1
CFA countries16396.121693.827679.428387.029667.934162.238056.138988.242408.8
Non-CFA countries47085.462504.572452.075187.678801.285766.288609.886474.390285.5
Source: ETA Tables, August 1993.
Source: ETA Tables, August 1993.
Appendix Table VII.Current Account Balances (incl. official transfers)(In percent of GDP)
198519861987198819891990199119921993
Total Sub-Saharan Africa, exc. South Africa−1.31−5.25−5.14−5.93−3.43−2.66−4.22−4.82−5.56
o.w.: Strong Performers2.121.211.04−3.99−0.52−1.50−0.21−0.41−2.37
Others−1.68−6.04−5.99−6.18−3.84−2.84−4.88−5.63−6.19
Liberal Exchange Systems−0.23−4.72−3.02−4.87−0.701.50−1.97−3.18−4.31
Other Exchange Systems−2.90−5.69−6.48−6.65−5.35−5.67−5.92−5.93−6.49
CFA countries−1.69−8.23−7.50−8.36−5.55−5.95−6.38−6.75−7.52
Non-CFA countries−1.22−4.11−3.92−4.80−2.50−1.07−3.18−3.78−4.48
Source: ETA Tables, August 1993.
Source: ETA Tables, August 1993.
Appendix Table VIII.Overall Government Balances(In percent of GDP)
198519861987198819891990199119921993
Total Sub-Saharan Africa, exc. South Africa−2.98−4.96−6.68−7.61−5.17−4.84−5.86−6.99−5.43
o.w.: Strong Performers−3.72−4.10−3.22−1.180.022.102.50−0.85−0.11
Others−2.90−5.07−7.16−8.47−5.89−5.90−7.23−8.11−6.49
Liberal Exchange Systems−1.60−3.91−5.36−9.39−3.48−2.40−5.91−8.52−5.64
Other Exchange Systems−5.00−5.85−7.51−6.39−6.36−6.61−5.83−5.94−5.27
CFA countries−2.43−4.03−8.47−7.75−7.29−6.25−5.52−6.22−5.26
Non-CFA countries−3.10−5.31−5.76−7.55−4.24−4.16−6.03−7.40−5.52
Source: ETA Tables, August 1993.
Source: ETA Tables, August 1993.
Appendix Table IX.Real Effective Exchange Rates(Index, 1985 = 100)
19851986198719881989199019911992
Average, Sub-Sah. Africa, exc. South Africa100.0085.7074.4273.5271.1568.3465.2663.82
o.w.: Strong Performers100.0096.4888.7481.3081.2884.5982.4078.51
Others100.0084.3772.6572.5669.8966.3363.1462.01
Liberal Exch. Systems100.0068.4642.4343.7642.1440.3638.3236.30
Other Exch. Systems100.0097.3796.0893.6890.7887.2883.5082.45
CFA countries100.00108.61111.90108.59103.20105.46100.94101.00
Non-CFA countries100.0074.4455.9956.2755.3950.0847.7145.54
Source: INS.
Source: INS.
Appendix Table X.Terms of Trade(Index, 1985 = 100)
198519861987198819891990199119921993
Average, Sub-Sah. Africa, exc. South Africa100.0086.1179.7478.8278.0276.3473.2270.5768.32
o.w.: Strong Performers100.0087.2586.1787.8487.5586.7681.5978.2977.55
Others100.0085.9478.7677.4576.5874.7671.9569.4066.92
Liberal Exch. Systems100.0070.4369.9267.2969.3572.5566.5465.1260.72
Other Exch. Systems100.0097.4386.8287.1484.2879.0878.0474.5173.81
CFA countries100.0088.9080.2075.5572.1470.3169.7565.8464.60
Non-CFA countries100.0084.7679.5180.4080.8779.2674.9072.8670.13
Source: World Economic Outlook, August 1993.
Source: World Economic Outlook, August 1993.
Appendix Table XI.Market Shares for Main Export Commodities (Annual Averages, 1985-87)(Country shares of world exports of listed commodities, in percent)
CocoaCoffeeTeaSugarFishCottonTimberTobaccoPetroleumBauxiteAluminumCopper
Angola..0.4............0.9......
Benin0.7........0.6............
Botswana......................0.3
Burkina..........0.7............
Burundi..0.80.2..................
Cameroon5.52.1......0.30.4..0.6..0.5..
Central African Rep...0.2......0.20.1..........
Chad..........0.6............
Congo............0.3..0.5......
Cote d’Ivoire30.74.6....0.31.31.2..........
Equatorial Guinea0.5......................
Ethiopia..2.1....................
Gabon0.10.0........0.6..0.7......
Gambia, The........................
Ghana14.3......0.1..0.3....0.50.9..
Guinea0.2................43.70.9..
Guinea-Bisseau........................
Kenya..2.710.7..................
Lesotho........................
Liberia0.30.1........0.2..........
Madagascar0.10.9....................
Malawi....1.80.3......3.5........
Mali..........1.4............
Mauritius....0.42.8................
Mozambique........0.2..............
Namibia......................0.6
Niger........................
Nigeria7.2..............5.4......
Rwanda..0.80.6..................
Senegal........1.10.2............
Sierra Leone0.70.2..............2.6....
Swaziland......1.1................
Tanzania0.11.10.7....0.6..0.4........
Togo0.80.2......0.5............
Uganda..3.00.1....0.1............
Zaire0.31.80.1..........0.1....7.2
Zambia..............0.1......9.5
Zimbabwe..0.30.60.5..1.4..6.2......0.3
Total Sub-Saharan Africa 1/61.521.315.24.71.77.93.110.28.246.82.317.9
Source: IBRD, Commodity Markets Division.

Including Angola.

Source: IBRD, Commodity Markets Division.

Including Angola.

The authors thank G. Windsperger for extensive research assistance, and C. Enweze, R. van Til, M. Hadjimichael and participants in an African Department seminar, for helpful comments.

Sub-Saharan Africa in this paper includes the countries in AFR excluding South Africa, and, for statistical reasons, Angola and Liberia.

The enhanced menu includes options providing for a 50 percent reduction (in net present value terms) of debt service payments consolidated on non-ODA debts through either outright cancellation of 50 percent of the consolidated claims or a rescheduling at concessional interest rates. The menu retains, however, the nonconcessional option provided under the Toronto terms. Agreements reached under the enhanced terms also carry the option of similarly restructuring or reducing the remaining stock after a period of three to four years, provided that the previous rescheduling is fully implemented, other nonmultilateral

This subsection relies on data from the Commodities Division of the Research Department.

Angola, not included in this survey, would also feature as one of the larger countries. Note that country shares of regional output are sensitive to deviations of the market exchange rate in the base period from their PPP levels. However, for practical reasons, PPP weights were not available for purposes of aggregation in this paper. Aggregation over current U.S. dollar magnitudes has been made at current exchange rates. Real GDP data in local currency were converted to U.S. dollars using 1989-91 average exchange rates.

Unless otherwise specified, group averages in this paper are computed on an appropriately weighted basis.

Nominal rate deflated by the average CPI growth in the following two years. The measurement of 1992 real interest rates accordingly would be biased by any systematic error in the inflation forecast.

Abstracting from direct investment and reserves flows, which are usually small, the condition for stabilizing the debt ratio is that the primary current account balance after grants should meet or exceed a threshold which depends on the interest rate on foreign borrowing and on the export growth rate.

(1) PC ≥ -(g - i) D

where: PC = primary current account balance after grants (+ = surplus)

g = export growth rate

i = average interest rate on new loans

D = foreign debt outstanding at end of previous period.

It follows from (1) that, when i > g, a country may stabilize its foreign debt if it runs a primary current account surplus (after grants) sufficient to offset the effect on the debt of the excess of the interest rate over the export growth rate (the “snowball effect”). Failure to do so results in a trend increase in the debt ratio. Other things being equal, an increase in the rate of growth of exports would reduce the primary current account adjustment needed to stabilize the outstanding debt and secure external viability, while a rise in the interest rate on foreign borrowing would have the opposite effect.

The difference between the sustainable primary current balance thus defined and the actual primary current account can be defined as the current account gap. A positive gap corresponds to the extent of the improvement in the primary current account needed to ensure external viability in the foregoing sense.

Polling the country desks has the advantage that an element of judgment can be introduced in the classification of countries (e.g., an existing restriction can be disregarded as being “not significant”). It also implies, however, that the classification is only to be used for statistical purposes and not as a formal assessment of any individual country’s system.

A number of countries classified under the pegged regime have undertaken frequent devaluations.

For a comprehensive review of these issues, see “Exchange Rate Policy in Developing Countries: Some Analytical Issues,” Occasional Paper 78, by Bijan Aghevli, Mohsin S. Khan, and Peter J. Montiel.

See Aghevli et al., op cit, p. 9.

The INS weighting scheme used in this note, however, does not allow for border trade with Nigeria.

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