Monetary Union in West Africa: An Agency of Restraint for Fiscal Policies
International Monetary Fund, Mar 1, 2001 - Business & Economics - 33 pages
Could a West African monetary union (either of the non-CFA countries, or all ECOWAS members) be an effective "agency of restraint" on fiscal policies? We discuss how monetary union could affect fiscal discipline and the arguments for explicit fiscal restraints considered in the European Monetary Union literature, and their applicability to West Africa. The empirical evidence, EMU literature, and CFA experience suggest that monetary union could create the temptation for fiscal profligacy through prospects of a bailout, or costs diluted through the membership. Thus, a West African monetary union could promote fiscal discipline only if the hands of the fiscal authorities are also tied by a strong set of fiscal restraints.
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IIBackground on Proposed Monetary Union in West Africa
III A Comparison of the Economies in the Euro Area and ECOWAS
IV Monetary Union and Fiscal Discipline
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African countries agency of restraint Area and ECOWAS bailout BCEAO beneﬁts Benin Burkina Faso Cape Verde ceilings central bank Central bank advances CFA franc zone CFA zone convergence criteria costs Cote d’Ivoire country’s currency boards deﬁned dummies economies ECOWAS countries ECOWAS monetary union euro area excessive deﬁcits exchange rate stability Excluding grants exports external guarantor Fatas and Rose ﬁnancial markets ﬁrst Fiscal ﬁscal adjustment ﬁscal authorities ﬁscal discipline ﬁscal performance ﬁscal policies ﬂexibility ﬂuctuations Gambia Ghana govemment government debt Guinea Guinea-Bissau indiscipline institutions labor mobility Liberia low inﬂation monetary ﬁnancing monetary policy multilateral currency unions mutual surveillance Niger Nigeria non-WAEMU countries overall ﬁscal deﬁcit Pattillo percent of GDP percent of tax ratios regional monetary relevant second monetary union seigniorage Senegal Sierra Leone smaller budget deﬁcits Stasavage Table terms of trade Togo unilateral currency unions union in West unions on ﬁscal unsustainable WAEMU countries WAMZ West Africa