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Fiscal dominance and inflation: evidence from Sub-Saharan Africa*
Article | Year: 2024 | Pages: 363 - 391 | Volume: 48 | Issue: 48 Received: November 10, 2023 | Accepted: April 23, 2024 | Published online: September 3, 2024
|
FULL ARTICLE
FIGURES & DATA
REFERENCES
CROSSMARK POLICY
METRICS
LICENCING
PDF
Sources: Central Bank Legislation Database (CBLD); national authorities; and IMF staff
calculations.
Sources: CBLD; International Financial Statistics (IFS); World Economic Outlook (WEO);
national authorities; and IMF staff calculations.
Sources: CBLD; national authorities; MFS; WEO; and IMF staff calculations.
|
Variable
|
No. of obs.
|
Mean
|
St. Dev.
|
Min.
|
Max.
|
|
Central bank claims/GDP
|
719
|
6.1
|
8.9
|
0.0
|
63.2
|
|
Percentage change of central bank claims/GDP
|
675
|
5.2
|
22.8
|
-217.5
|
150.7
|
|
Central bank loans/GDP
|
719
|
3.7
|
5.6
|
0.0
|
61.5
|
|
Percentage change of central bank loans/GDP
|
677
|
2.1
|
21.6
|
-260.5
|
162.1
|
|
Fiscal deficit/GDP
|
756
|
2.6
|
5.6
|
-27.2
|
30.4
|
|
Real GDP Growth
|
770
|
4.6
|
5.2
|
-36.7
|
60.1
|
|
Legal Limit/revenue
|
703
|
11.2
|
7.8
|
0.0
|
25.0
|
|
Government deposits/GDP
|
731
|
4.4
|
5.1
|
0.0
|
33.0
|
|
Government gross debt/GDP
|
754
|
62.1
|
49.6
|
0.5
|
406.7
|
|
Dummy for domestic market development (1 or 0)
|
781
|
0.5
|
0.5
|
0.0
|
1.0
|
|
Dummy for IMF conditionality on central bank
lending (1 or 0)
|
781
|
0.2
|
0.4
|
0.0
|
1.0
|
|
Interaction between fiscal deficit and legal
limits (%*%)
|
678
|
15.7
|
88.6
|
-610.1
|
545
|
|
|
(1)
|
(2)
|
(3)
|
(4)
|
(5)
|
|
Dependent
variable: Central bank loans/GDP
|
Model 1
|
Model 2
|
Model 3
|
Model 4
|
Model 5
|
|
Fiscal deficit
|
0.1041***
|
0.0362
|
0.0409*
|
0.0216
|
0.0267
|
|
(0.0359)
|
(0.0254)
|
(0.0209)
|
(0.0262)
|
(0.0220)
|
|
Fiscal deficit × Legal limit
|
|
0.0046***
|
0.0053***
|
0.0055***
|
0.0062***
|
|
(0.0015)
|
(0.0014)
|
(0.0019)
|
(0.0018)
|
|
Fiscal deficit × Domestic market development
|
|
|
-0.0639**
|
|
-0.0622**
|
|
|
(0.0284)
|
|
(0.0260)
|
|
Fiscal deficit × IMF conditionality
|
|
|
|
-0.0269*
|
-0.0255**
|
|
|
|
(0.0149)
|
(0.0123)
|
|
Legal
limit
|
|
-0.0014
|
0.0007
|
-0.0036
|
-0.0018
|
|
|
(0.0317)
|
(0.0344)
|
(0.0318)
|
(0.0343)
|
|
Domestic
market development
|
|
|
-0.9234**
|
|
-0.8080**
|
|
|
|
(0.4267)
|
|
(0.3835)
|
|
IMF
conditionality
|
|
|
|
-0.7964
|
-0.6888
|
|
|
|
|
(0.5420)
|
(0.5166)
|
|
Lags
of central bank loans/GDP
|
0.8049***
|
0.7952***
|
0.7992***
|
0.7904***
|
0.7952***
|
|
(0.0461)
|
(0.0381)
|
(0.0402)
|
(0.0354)
|
(0.0368)
|
|
Lag
of real GDP growth
|
-0.0163
|
-0.0223**
|
-0.0210**
|
-0.0221**
|
-0.0209**
|
|
(0.0115)
|
(0.0108)
|
(0.0098)
|
(0.0112)
|
(0.0100)
|
|
Lag
of government deposit/GDP
|
-0.0737
|
-0.0811
|
-0.0952
|
-0.0735
|
-0.0873
|
|
(0.0739)
|
(0.0606)
|
(0.0640)
|
(0.0598)
|
(0.0630)
|
|
Lag
of government debt/GDP
|
-0.0100*
|
-0.0035
|
-0.0026
|
-0.0073
|
-0.0062
|
|
(0.0057)
|
(0.0067)
|
(0.0070)
|
(0.0068)
|
(0.0068)
|
|
Observations
|
667
|
596
|
596
|
596
|
596
|
|
Number
of countries
|
45
|
41
|
41
|
41
|
41
|
|
Variable
|
No. of obs.
|
Mean
|
St. Dev.
|
Min.
|
Max.
|
|
Base money
|
729
|
11.0
|
7.4
|
0.1
|
52.8
|
|
Exchange
rate
|
780
|
4.6
|
16.6
|
-28.1
|
295.5
|
|
Inflation
|
764
|
8.2
|
18.0
|
-72.7
|
357.3
|
|
Broad money
|
764
|
32.4
|
24.2
|
3.1
|
150.8
|
Sources: WEO; IFS; and IMF staff calculations.
Notes: The figure shows the impulse response functions for a one unit innovation in the ratio of
central bank loans to GDP and presents both the point estimates and the 68 and 90 percent confidence
intervals around them.
|
Country name
|
Legal limit
|
Name of most recent legislation
|
Year current legislation took effect (last amendment)
|
|
Angola
|
10% of previous year’s
revenue
|
Banco Nacional de Angola
Act. Law No. 16/10 15 July
|
2010
|
|
Benin
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Botswana
|
5% of previous three years’
average revenue
|
The Bank of Botswana Act.
1996
|
1997
|
|
Burkina Faso
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Burundi
|
N/A
|
|
|
|
Cabo Verde
|
5% of previous year’s
revenue
|
Organic Law of the Bank of
Cape Verde, 2002
|
2002
|
|
Cameroon
|
20% of previous year’s
revenue
|
Charter of the Bank of
Central African States, 2010 (CEMAC)
|
2010
|
|
Central African Republic
|
20% of previous year’s
revenue
|
Charter of the Bank of
Central African States, 2010 (CEMAC)
|
2010
|
|
Chad
|
20% of previous year’s
revenue
|
Charter of the Bank of
Central African States, 2010 (CEMAC)
|
2010
|
|
Comoros
|
20% of previous three years’
average revenue
|
Statuts de la Banque
Centrale des Comoros, 2008
|
2008
|
|
Congo, Democratic Rep. of
|
0%
|
Law 005/2002 on the Establishment,
Organization, and Operations of the Central Bank of Congo, May 7, 2002
|
2002
|
|
Congo, Republic of
|
20% of previous year’s
revenue
|
Charter of the Bank of
Central African States, 2010 (CEMAC)
|
2010
|
|
Côte d'Ivoire
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Equatorial Guinea
|
20% of previous year’s
revenue
|
Charter of the Bank of
Central African States, 2010 (CEMAC)
|
2010
|
|
Eritrea
|
N/A
|
|
|
|
Ethiopia
|
N/S
|
Monetary and Banking
Proclamation No. 183/1994 and No. 591/2008
|
1994 (2008)
|
|
Gabon
|
20% of previous year’s
revenue
|
Charter of the Bank of
Central African States, 2010 (CEMAC)
|
2010
|
|
Gambia, The
|
10% of previous year’s
revenue
|
Central Bank of Gambia Act, 2005
|
2005
|
|
Ghana
|
5% of current year’s revenue
|
Bank of Ghana Act, 24th
January 2002
|
2002 (2016)
|
|
Guinea
|
5% of previous year’s
revenue
|
Charter of the Central Bank
of the Republic of Guinea, 1994
|
1994 (2017)
|
|
Guinea-Bissau
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Kenya
|
5% of previous year’s
revenue
|
The Central Bank of Kenya
Act
|
1966 (2014)
|
|
Lesotho
|
Net claim is 5% of previous
year’s budget
|
Central Bank of Lesotho Act,
2000
|
2000
|
|
Madagascar
|
7% of previous year’s revenue
|
Charter of the Central Bank of Madagascar,
1994
|
1994 (2016)
|
|
Malawi
|
20% of current year’s revenue
|
Reserve Bank of Malawi Act - Laws of Malawi
(Chapter 44:02), 1989
|
1989
|
|
Mali
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Mauritania
|
5% of previous year’s revenue
|
Charter of the Central Bank of Mauritania
|
2007
|
|
Mauritius
|
10% of current year’s revenue
|
The Bank of Mauritius Act, 2004
|
2004 (2015)
|
|
Mozambique
|
10% of previous year’s revenue
|
Law 1/92 of January 3, 1992
|
1992
|
|
Namibia
|
25% of previous three years’ average revenue
|
Bank of Namibia Act, 1997
|
1997
|
|
Niger
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Nigeria
|
5% of previous year’s
revenue
|
Central Bank of Nigeria Act,
2007
|
2007
|
|
Rwanda
|
11% of previous year’s government
revenue
|
Law No. 55/2007 of 30/11/2007 Governing the
Central Bank of Rwanda
|
2007
|
|
São Tomé and Príncipe
|
5% of previous year’s
revenue
|
Law 8/92, Organic Law of the
Central Bank of STP, 1992
|
1992
|
|
Senegal
|
0%
|
Treaty of the West African Monetary
Union (UEMOA)
|
N/S
|
|
Seychelles
|
N/S
|
Central Bank of Seychelles
Act, 2004
|
2004 (2011)
|
|
Sierra Leone
|
5% of previous year’s
revenue
|
Bank of Sierra Leone Act,
2000
|
2000
|
|
South Africa
|
N/S
|
South African Reserve Bank
Act 90, 1989
|
1989
|
|
Sudan
|
15% of current year’s
revenue
|
The Bank of Sudan Act, 2002
|
2002
|
|
Swaziland (Eswatini)
|
20% of previous three years’
average revenue
|
The Central Bank of
Swaziland Order, 1974
|
1974 (1979)
|
|
Tanzania
|
12.5 % of previous year’s
revenue
|
The Bank of Tanzania Act,
2006
|
2006 (2010)
|
|
Togo
|
0%
|
Treaty of the West African
Monetary Union (UEMOA)
|
N/S
|
|
Uganda
|
18% of previous year’s
revenue
|
The Bank of Uganda Statute,
1993
|
1993 (2010)
|
|
Zambia
|
15% of previous year’s
revenue
|
Bank of Zambia (Amendment)
Act, 1998
|
1998
|
|
Zimbabwe
|
20% of previous year’s
revenue
|
Reserve Bank of Zimbabwe Act
(Chapter 22:15)
|
2010
|
Sources: National Authorities; and Central Bank Legislation Database (CBLD).
|
Dependent variable: Central bank loans/GDP
|
Model 1
|
Model 2
|
Model 3
|
Model 4
|
Model 5
|
|
Fiscal deficit
|
0.0156
|
-0.0329
|
-0.0172
|
-0.0077
|
-0.0010
|
|
(0.0416)
|
(0.0415)
|
(0.0312)
|
(0.0243)
|
(0.0207)
|
|
Fiscal deficit × Legal limit
|
|
0.0066**
|
0.0053**
|
0.0056***
|
0.0053**
|
|
(0.0028)
|
(0.0025)
|
(0.0021)
|
(0.0021)
|
|
Fiscal deficit × Domestic market development
|
|
|
0.0202
|
|
-0.0148
|
|
|
(0.0555)
|
|
(0.0427)
|
|
Fiscal deficit × IMF conditionality
|
|
|
|
-0.0252**
|
-0.0239**
|
|
|
|
(0.0119)
|
(0.0107)
|
|
Legal
limit
|
|
0.0098
|
0.0122
|
0.0139
|
0.0043
|
|
(0.0185)
|
(0.0152)
|
(0.0226)
|
(0.0210)
|
|
Domestic
market development
|
|
|
-0.8749***
|
|
-0.7560***
|
|
|
(0.2580)
|
|
(0.2244)
|
|
IMF
conditionality
|
|
|
|
-0.5713
|
-0.5919
|
|
|
|
(0.4638)
|
(0.4116)
|
|
Lags
of central bank loans/GDP
|
0.7584***
|
0.7355***
|
0.7319***
|
0.7243***
|
0.7237***
|
|
(0.0264)
|
(0.0315)
|
(0.0311)
|
(0.0269)
|
(0.0275)
|
|
Lag
of real GDP growth
|
-0.0143
|
-0.0130
|
-0.0146*
|
-0.0163
|
-0.0166*
|
|
(0.0106)
|
(0.0100)
|
(0.0087)
|
(0.0102)
|
(0.0093)
|
|
Lag
of government deposit/GDP
|
-0.0248
|
-0.0328
|
-0.0356
|
-0.0265
|
-0.0264
|
|
(0.0443)
|
(0.0341)
|
(0.0314)
|
(0.0270)
|
(0.0270)
|
|
Lag
of government debt/GDP
|
-0.0022
|
0.0057**
|
0.0059**
|
0.0051**
|
0.0042**
|
|
0.0156
|
-0.0329
|
-0.0172
|
-0.0077
|
-0.0010
|
|
Observations
|
667
|
596
|
596
|
596
|
596
|
|
Number
of countries
|
45
|
41
|
41
|
41
|
41
|
|
Dependent variable: Central bank claims/GDP
|
Model 1
|
Model 2
|
Model 3
|
Model 4
|
Model 5
|
|
Fiscal deficit
|
0.1449***
|
0.0375*
|
0.0398*
|
0.0274
|
0.0298
|
|
(0.0460)
|
(0.0228)
|
(0.0210)
|
(0.0245)
|
(0.0230)
|
|
Fiscal deficit × Legal limit
|
|
0.0037**
|
0.0038**
|
0.0044**
|
0.0046**
|
|
(0.0015)
|
(0.0016)
|
(0.0020)
|
(0.0020)
|
|
Fiscal deficit × Domestic market development
|
|
|
-0.0184
|
|
-0.0187
|
|
|
(0.0373)
|
|
(0.0355)
|
|
Fiscal deficit × IMF conditionality
|
|
|
|
-0.0183
|
-0.0181
|
|
|
|
(0.0153)
|
(0.0135)
|
|
Legal
limit (measured in percent of revenue)
|
|
0.0339
|
0.0384
|
0.0320
|
0.0359
|
|
(0.0382)
|
(0.0390)
|
(0.0404)
|
(0.0410)
|
|
Domestic
market development
|
|
|
-0.6718
|
|
-0.5889
|
|
|
(0.4664)
|
|
(0.4591)
|
|
IMF
conditionality
|
|
|
|
-0.6187
|
-0.5315
|
|
|
|
(0.6402)
|
(0.6146)
|
|
Lags
of central bank claims/GDP
|
0.8974***
|
0.8269***
|
0.8272***
|
0.8240***
|
0.8251***
|
|
(0.0752)
|
(0.0360)
|
(0.0374)
|
(0.0335)
|
(0.0348)
|
|
Lag
of real GDP growth
|
-0.0270
|
-0.0254
|
-0.0235
|
-0.0270
|
-0.0252
|
|
(0.0174)
|
(0.0206)
|
(0.0192)
|
(0.0211)
|
(0.0195)
|
|
Lag
of government deposit/GDP
|
-0.0839
|
-0.0733
|
-0.0786
|
-0.0704
|
-0.0756
|
|
(0.0768)
|
(0.0626)
|
(0.0634)
|
(0.0643)
|
(0.0652)
|
|
Lag
of government debt/GDP
|
-0.0148**
|
-0.0105
|
-0.0103
|
-0.0129*
|
-0.0125
|
|
(0.0068)
|
(0.0078)
|
(0.0080)
|
(0.0077)
|
(0.0078)
|
|
Observations
|
667
|
596
|
596
|
596
|
596
|
|
Number
of countries
|
45
|
41
|
41
|
41
|
41
|
|
Dependent variable: Change in Central bank
loans/GDP
|
Model 1
|
Model 2
|
Model 3
|
Model 4
|
Model 5
|
|
Fiscal deficit
|
0.6263**
|
0.0935
|
0.1016
|
-0.0331
|
-0.0253
|
|
(0.3038)
|
(0.2369)
|
(0.2366)
|
(0.2522)
|
(0.2538)
|
|
Fiscal deficit × Legal limit
|
|
0.0415***
|
0.0441***
|
0.0540***
|
0.0565***
|
|
(0.0159)
|
(0.0157)
|
(0.0205)
|
(0.0200)
|
|
Fiscal deficit × Domestic market development
|
|
|
-0.1821
|
|
-0.1929
|
|
|
(0.3505)
|
|
(0.3321)
|
|
Fiscal deficit × IMF conditionality
|
|
|
|
-0.2427*
|
-0.2372**
|
|
|
|
(0.1256)
|
(0.1150)
|
|
Legal
limit
|
|
0.6758
|
0.6126
|
0.5591
|
0.4772
|
|
(0.5628)
|
(0.5009)
|
(0.4962)
|
(0.4424)
|
|
Domestic
market development
|
|
|
3.9462
|
|
4.9117
|
|
|
(5.6728)
|
|
(4.9638)
|
|
IMF
conditionality
|
|
|
|
-8.8235
|
-9.2823
|
|
|
|
(6.8652)
|
(6.9630)
|
|
Lags
of change in central bank loans/GDP
|
-0.1952**
|
0.0203
|
0.0146
|
0.0052
|
-0.0022
|
|
(0.0942)
|
(0.0628)
|
(0.0677)
|
(0.0632)
|
(0.0689)
|
|
Lag
of real GDP growth
|
-0.1873
|
-0.2062
|
-0.1960
|
-0.2132
|
-0.2001
|
|
(0.1644)
|
(0.2083)
|
(0.2150)
|
(0.2213)
|
(0.2274)
|
|
Lag
of government deposit/GDP
|
-1.1335*
|
-0.8138*
|
-0.7709*
|
-0.7390
|
-0.6889
|
|
(0.6185)
|
(0.4752)
|
(0.4557)
|
(0.4700)
|
(0.4486)
|
|
Lag
of government debt/GDP
|
-0.0873*
|
-0.0132
|
-0.0059
|
-0.0373
|
-0.0280
|
|
(0.0468)
|
(0.0818)
|
(0.0852)
|
(0.0753)
|
(0.0771)
|
|
Observations
|
629
|
561
|
561
|
561
|
561
|
|
Number
of countries
|
45
|
41
|
41
|
41
|
41
|
|
Dependent variable: Central bank loans/GDP
|
Model 1
|
Model 2
|
Model 3
|
|
Fiscal deficit
|
0.0370
|
0.0734*
|
0.0752*
|
|
(0.0253)
|
(0.0394)
|
(0.0400)
|
|
Fiscal deficit × Legal limit
|
0.0046***
|
0.0056**
|
0.0056**
|
|
(0.0015)
|
(0.0022)
|
(0.0022)
|
|
Fiscal deficit × Domestic market dvpt+Eurobond access
|
-0.0358
|
|
-0.0887
|
|
(0.0778)
|
|
(0.1133)
|
|
Fiscal deficit × Sovereign risk
|
|
-0.0054
|
-0.0054
|
|
(0.0042)
|
(0.0042)
|
|
Legal
limit
|
-0.0013
|
-0.0181
|
-0.0172
|
|
(0.0321)
|
(0.0470)
|
(0.0474)
|
|
Domestic
market dvpt+ Eurobond access
|
0.1744
|
|
0.6700
|
|
(0.6399)
|
|
(0.8910)
|
|
Sovereign
risk
|
|
-0.0541
|
-0.0576
|
|
(0.1557)
|
(0.1515)
|
|
Lags
of central bank loans/GDP
|
0.7947***
|
0.7908***
|
0.7887***
|
|
(0.0382)
|
(0.0533)
|
(0.0533)
|
|
Lag
of real GDP growth
|
-0.0221**
|
-0.0207
|
-0.0204
|
|
(0.0108)
|
(0.0145)
|
(0.0147)
|
|
Lag
of government deposit/GDP
|
-0.0805
|
-0.1272
|
-0.1242
|
|
(0.0605)
|
(0.0888)
|
(0.0885)
|
|
Lag
of government debt/GDP
|
-0.0034
|
-0.0023
|
-0.0023
|
|
(0.0066)
|
(0.0068)
|
(0.0066)
|
|
Observations
|
596
|
443
|
443
|
|
Number
of countries
|
41
|
35
|
35
|
Notes: Sovereign risk measures the risk of debt distress using the ratings from the IMF’s Debt Sustainability Analysis (=0 if the rating is “Low”; =1 if the rating is
“Moderate”=2 if the rating is “High”=3 if the rating is “In debt distress”). Eurobond access is a dummy (=1 if the country has previously issued a Eurobond, 0 otherwise).
|
Dependent variable: Central bank loans/GDP
|
Model 1
|
Model 2
|
Model 3
|
Model 4
|
Model 5
|
|
Fiscal deficit
|
0.0833***
|
0.0050
|
0.0085
|
-0.0007
|
0.0031
|
|
(0.0173)
|
(0.0210)
|
(0.0211)
|
(0.0208)
|
(0.0208)
|
|
Fiscal deficit × Legal limit
|
|
0.0037***
|
0.0040***
|
0.0047***
|
0.0050***
|
|
(0.0012)
|
(0.0013)
|
(0.0013)
|
(0.0013)
|
|
Fiscal deficit × Domestic market development
|
|
|
-0.0464*
|
|
-0.0469*
|
|
|
(0.0243)
|
|
(0.0242)
|
|
Fiscal deficit × IMF conditionality
|
|
|
|
-0.0336***
|
-0.0314**
|
|
|
|
(0.0126)
|
(0.0127)
|
|
Legal
limit
|
|
-0.0149
|
-0.0166
|
-0.0179
|
-0.0192
|
|
(0.0264)
|
(0.0265)
|
(0.0262)
|
(0.0263)
|
|
Domestic
market development
|
|
|
0.0921
|
|
0.1098
|
|
|
(0.2347)
|
|
(0.2330)
|
|
IMF
conditionality
|
|
|
|
-0.1878
|
-0.2600
|
|
|
|
(0.1926)
|
(0.1933)
|
|
Lags
of central bank loans/GDP
|
0.7609***
|
0.7748***
|
0.7716***
|
0.7741***
|
0.7707***
|
|
(0.0233)
|
(0.0173)
|
(0.0176)
|
(0.0172)
|
(0.0175)
|
|
Lag
of real GDP growth
|
-0.0250
|
-0.0217*
|
-0.0195
|
-0.0209*
|
-0.0187
|
|
(0.0157)
|
(0.0123)
|
(0.0123)
|
(0.0122)
|
(0.0122)
|
|
Lag
of government deposit/GDP
|
-0.0218
|
-0.0397*
|
-0.0381*
|
-0.0389*
|
-0.0370*
|
|
(0.0231)
|
(0.0206)
|
(0.0209)
|
(0.0205)
|
(0.0207)
|
|
Lag
of government debt/GDP
|
-0.0010
|
-0.0018
|
-0.0014
|
-0.0036*
|
-0.0032
|
|
(0.0027)
|
(0.0021)
|
(0.0021)
|
(0.0021)
|
(0.0022)
|
|
Observations
|
667
|
596
|
596
|
596
|
596
|
|
Number
of countries
|
45
|
41
|
41
|
41
|
41
|
|
Dependent variable
|
Horizon
|
|
0
|
1
|
2
|
3
|
4
|
5
|
6
|
|
Base Money
|
580
|
545
|
507
|
469
|
430
|
391
|
354
|
|
(40)
|
(40)
|
(40)
|
(40)
|
(40)
|
(38)
|
(37)
|
|
Exchange Rate
|
596
|
560
|
521
|
482
|
442
|
402
|
364
|
|
(41)
|
(41)
|
(41)
|
(41)
|
(41)
|
(39)
|
(38)
|
|
Inflation
|
596
|
560
|
521
|
482
|
442
|
402
|
364
|
|
(41)
|
(41)
|
(41)
|
(41)
|
(41)
|
(39)
|
(38)
|
|
Broad Money
|
596
|
560
|
521
|
482
|
442
|
402
|
364
|
|
(41)
|
(41)
|
(41)
|
(41)
|
(41)
|
(39)
|
(38)
|
|
Angola
|
Madagascar
|
|
Benin
|
Malawi
|
|
Botswana
|
Mali
|
|
Burkina Faso
|
Mauritania
|
|
Burundi
|
Mauritius
|
|
Cabo Verde
|
Mozambique
|
|
Cameroon
|
Namibia
|
|
Central African Republic
|
Niger
|
|
Chad
|
Nigeria
|
|
Comoros
|
Rwanda
|
|
Congo, Democratic Republic of the
|
São Tomé and Principe
|
|
Congo, Rep.
|
Senegal
|
|
Côte d'Ivoire
|
Seychelles
|
|
Equatorial Guinea
|
Sierra Leone
|
|
Eritrea
|
South Africa
|
|
Ethiopia
|
Sudan
|
|
Gabon
|
Swaziland
|
|
Gambia
|
Tanzania
|
|
Ghana
|
Togo
|
|
Guinea
|
Uganda
|
|
Guinea-Bissau
|
Zambia
|
|
Kenya
|
Zimbabwe
|
|
Lesotho
|
|
Figure 1Sub-Saharan Africa: quantitative limits on central bank lending, 2017 (percent of sample) DISPLAY Figure
Figure 2Sub-Saharan Africa: central bank lending to government, 2001-17 DISPLAY Figure
Figure 3Sub-Saharan Africa: fiscal dominance, 2001-17 DISPLAY Figure
Table 1Sub-Saharan Africa: Descriptive Statistics, 2001-17 (percent; otherwise indicated) DISPLAY Table
Table 2Sub-Saharan Africa: determinants of central bank lending, 2001-17 DISPLAY Table
Table 3Sub-Saharan Africa: descriptive statistics, 2001-17 (in percent) DISPLAY Table
Figure 4Sub-Saharan Africa: impact of central bank financing on money, the exchange rate, and inflation DISPLAY Figure
Table A1Sub-Saharan Africa: central bank acts, 2017 DISPLAY Table
Table A2Determinants of central bank lending: treating the fiscal deficit as endogenous DISPLAY Table
Table A3Determinants of central bank lending: total claims DISPLAY Table
Table A4Determinants of central bank lending: change in central bank loans DISPLAY Table
Table A5Determinants of central bank lending: additional explanatory variables DISPLAY Table
Table A6Determinants of central bank lending: dynamic bias least squares dummy estimators DISPLAY Table
Table A7Number of observations (countries) in each local projection DISPLAY Table
Table A8List of the 45 Sub-Saharan countries used in the analysis DISPLAY Table
** The authors would like to thank the editor, Dubravko Mihaljek, an anonymous reviewer, and participants at IMF and World Bank seminars for excellent feedback that improved the quality of the paper. The views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, IMF Management, or Citigroup and its affiliates. Any remaining errors are our own.
1 For example, in the context of the Covid-19 pandemic, the South African Reserve Bank faced political pressure to directly fund government, while the Bank of Ghana was quick to extend additional financing to the government (See Cotterill,  2020 and Ministry of Finance of Ghana, 2020).
2 Cagan ( 1956) defined hyperinflation as beginning when monthly inflation rates exceed 50 percent and ending in the month before the rate declines below 50 percent (where it must remain for at least a year).
3 The median for SSA countries is 2 percent of GDP, while the arithmetic mean is 4 percent during the same time period. Given the presence of extreme outliers in the sample, the median is reported in this paper.
4 The ongoing Covid-19 crisis notwithstanding, during which some advanced economies have provided loans directly to government. For example, the Bank of England temporarily increased the limit on its overdraft facility with the Treasury.
5 The list of SSA countries in this analysis is in table A8.
6 Limited central bank holdings of government securities likely reflects, in turn, an absence of UMP needs (the policy rate has not yet reached the lower bound in any SSA country) and the lack of benefit from holding T-bills for liquidity management (since in practice most SSA countries have had a structural surplus of liquidity, which means the central bank needs to sell them to absorb liquidity).
7 Within-year data on central bank loans are not available. Although there is likely to be some intra-year volatility in central bank lending to government, it is not clear that there would be a particular bias since government financing needs are likely to depend on country-specific seasonality in revenues and expenditures.
8 The database is publicly accessible on request, at https://cbld.imf.org. Since the latest update of the database was in 2016, we complemented the information by checking the Central Bank and Ministry of Finance websites of individual countries for recent legislative updates, up to 2017.
9 Liberia, South Sudan and Somalia are excluded from our sample of Sub-Saharan African countries due to the incomplete time series of central bank loans to government.
10 The difference with respect to other regions is even more pronounced in revenue terms: central bank lending to government during 2001-17 amounted to 12 percent of revenue on average for SSA countries, compared to less than 1 percent in other regions.
11 However, we cannot assess whether a legal violation occurred in practice. There may be many reasons why it doesn’t, including differences in legal interpretations, accounting practices, and independence of the judiciary.
12 There is sometimes ambiguity in the central bank Act whether the limit applies to the outstanding stock of loans, or new lending only. When it is specified, the laws always refer to the outstanding stock but when it is not specified there is a possibility the law may be interpreted as applying to new lending, particularly in countries with large legacy central bank claims on government.
13 This is of course a bit of a simplification: several governments continue to issue marketable debt, but for market development purposes even when they have a fiscal surplus, which they might use to retire existing debt or build cash buffers.
14 Running arrears to suppliers or staff has also sometimes been an informal way of borrowing in many SSA countries but is not considered in this paper, due to data constraints.
15 “Ability” of the government to borrow from the market here can refer to both the existence of an investor base for additional debt issuance but also willingness to pay the market rate, since where notional borrowing rates are high, the central bank may not be the only option, just the apparently (much) cheaper option.
16 See Arellano and Bover ( 1995) and Blundell and Bond ( 1998).
17 The central bank lending series are persistent as confirmed by statistical significance of the coefficients of the lags of central bank loans/GDP in table 2.
18 Other sources of endogeneity such as simultaneity and measurement errors are less likely to be present in our sample. For example, amendments to the central bank laws, even if prompted by macroeconomic outcomes, are rarely completed within a year. And to reduce the possibility of measurement error, all the legal limits in the CBLD database were checked against the original legislation.
19 Other estimators such as the IV estimator or the matching estimator may be superior in establishing causal relationships to the GMM estimator with FEs. In our sample, however, it is challenging to find good instruments or counterfactuals without losing too many degrees of freedom.
20 Countries were excluded in cases where: (i) no Central Bank Act was found (Burundi and Eritrea) and, (ii) where the Central Bank Act did not specify a numerical legal limit on central bank lending (South Africa and Seychelles).
21 One practice sometimes used is securitization of the government’s overdraft with the central bank. For example, if the legal limit applies to the overdraft, once the size of the overdraft exceeds the legal limit, the balance may be converted into a bond. In such cases, total claims would be a better measure of fiscal dominance.
|
|
September, 2024
III/2024
|
