Copyright ©2017 International Monetary Fund
Fiscal Rules: Coping with Revenue Volatility in Lesotho and Swaziland prepared by Jiro Honda, Fernando Im, Natalia Koliadina, Murna Morgan, Manabu Nose, Cesar Sosa Padilla, and Jose Torres. – Washington, D.C.: International Monetary Fund, 2017.
pages; cm – (African departmental paper)
“Approved by the African Department.”
Includes bibliographical references.
Names: Jiro Honda, Fernando Im, Natalia Koliadina, Murna Morgan, Manabu Nose, Cesar Sosa Padilla, and Jose Torres.
Title: Fiscal Rules: Coping with Revenue Volatility in Lesotho and Swaziland
Description: Washington, DC.: African Department, International Monetary Fund, 2017.
Identifiers: ISBN 9781484309575
The African Departmental Paper Series presents research by IMF staff on issues of broad regional or cross-country interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The paper was prepared by Jiro Honda (FAD), Fernando Im (WBG), Natalia Koliadina (AFR), Murna Morgan (SPR), Manabu Nose (AFR), Cesar Sosa Padilla (Assistant Professor, McMaster University), and Jose Torres (AFR). The authors thank seminar participants at the IMF and Ms. Laura Papi, Ms. Christine Dieterich, Ms. Lesley Fisher, and Ms. Yasemin Hurcan and Mr. Axel Schimmelpfennig, Mr. Leandro Medina, Mr. Geremia Palomba, Mr. David Dunn, Mr. Victor Lledo, Mr. Aidar Abdychev, Mr. Richard Allen, Mr. Johann Seiwald, and Mr. Matthew Simmonds for useful comments and suggestions. Cecilia Prado de Guzman provided excellent editorial assistance. All remaining errors are the authors’ own.
Over the past decade, Lesotho and Swaziland have faced significant volatility in their fiscal revenues, owing to highly unstable Southern African Customs Union (SACU) receipts. Based on model analysis, this paper explores the advantages of implementing fiscal rules to deal with such volatility. It finds that the use of a structural balance target could smooth the growth impact from revenue shocks while helping preserve sufficient international reserves during bad times. From a long-term perspective, it suggests possible welfare gains from introducing fiscal rules. Last, it concludes that, based on experiences in other countries, developing strong institutions and improving public financial management are necessary steps to ease the transitions to a rules-based fiscal policy framework.