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Building a Common Future in Southern Africa
The Southern African Customs Union (SACU) is the oldest customs union in the world, with significant opportunities ahead for creating higher economic growth and increased welfare benefits to the people of the region, by fulfilling its vision to become an economic community with a common market and monetary union. This volume describes policy options to address the barriers to equitable and sustainable development in the region and outlines a plan for deeper regional integration.
Gabon
In August 2023, Gabon underwent a major political transition after a coup d’état had overthrown a decades-long regime. Despite multiple reform attempts, years of poorly managed oil wealth, weak inclusion, and stagnant incomes fragilized the political and socio-economic environment in the runup to the coup. The transition authorities now face a historic opportunity to pivot towards a more transparent and inclusive model of governance, but overcoming decades of entrenched institutional practice will require sustained reform efforts to achieve a point of no return. Meanwhile, the Fund-supported EFF program veered off-track soon after the completion of the first two reviews in 2022 and will expire soon.
Morocco
This paper discusses Morocco’s request for an arrangement under the Precautionary and Liquidity Line (PLL) and cancellation of the current arrangement. Morocco’s economic fundamentals and policy frameworks are sound. The country is implementing sound policies and remains committed to maintaining such policies in the future. The IMF staff assesses that Morocco performs strongly in four of the five areas of PLL qualification, does not substantially underperform in the fiscal area, and does not face any of the circumstances under which the IMF might no longer approve a PLL arrangement. The IMF staff recommends the approval of the authorities’ request.
Chad: Request for a Three-Year Arrangement Under the Extended Credit Facility-Press Release; Staff Report; and Statement by the Executive Director for Chad
The COVID-19 pandemic, the volatility in oil prices, heightened insecurity, and a looming food crisis due to climate change have severely stressed an already vulnerable Chadian economy. The two Rapid Credit Facility (RCF) disbursements in April and July 2020 allowed Chad to meet its immediate financing and urgent balance of payment needs in the early stages of the pandemic. The authorities have requested Fund assistance under the ECF to support their post-COVID recovery and their plan to reduce debt vulnerabilities through a combination of a debt workout and a multi-year fiscal consolidation program. However, due to the death of the president following a resurgence of fighting with rebel groups in April and the delayed delivery of donor support, the treasury situation has become extremely tight, threatening social stability.
Republic of Congo
As declining oil prices and rising funding costs challenge Congo’s economic recovery, public debt remains high, and additional fiscal consolidation needs to compensate past fiscal slippages. Newly recognized domestic arrears and the temporary accumulation of new external arrears impede progresses made in debt repayment, implying that debt remains sustainable but “in distress”. Economic recovery will depend on regaining fiscal space, reducing debt levels, and continuing reforms promoting improvements in revenue generation, debt management, governance, and transparency. The second review of the three-year Extended Credit Facility (ECF) arrangement (SDR 324 million, 200 percent of quota) that was concluded by the IMF Executive Board on February 6, 2023, provided support for this process.
Monetary Policy Implementation and Volatility Transmission along the Yield Curve
This paper analyzes the degree to which volatility in interbank interest rates leads to volatility in financial instruments with longer maturities (e.g., T-bills) in Kenya since 2012, year in which the monetary policy framework switched to a forward-looking approach, relative to seven other inflation targeting (IT) countries (Ghana, Hungary, Poland, South Africa, Sweden, Thailand, and Uganda). Kenya shows strong volatility transmission and high persistence similar to other countries in transition to a more forward-looking monetary policy framework. These results emphasize the importance of a strong commitment to an interbank rate as an operational target and suggest that the central bank could reduce uncertainty in short-term yields significantly by smoothing out the overnight interest rates around the policy rate.
Short-Versus Long-Term Credit and Economic Performance
This paper studies the link between financial development and economic growth in the West African Economic and Monetary Union (WAEMU). Using panel data for WAEMU countries over the period 1995-2006, the results suggest that while financial development does support growth in the region, long-term bank financing has a greater impact on economic growth than short-term financing because long-term projects have higher returns adjusted for risks. Given that in the WAEMU short-term credit accounts for about 70 percent of credit to the private sector, WAEMU countries are less able to reap the full benefits of improvements in their financial systems. The results also highlight the importance of macroeconomic stability, a creditor-friendly environment, political stability, and the availability of long-term financial resources in fostering banks’ supply of long-term loans.
Islamic Banking
This paper investigates the determinants of the pattern of Islamic bank diffusion around the world using country-level data for 1992 - 2006. The analysis illustrates that income per capita, share of Muslims in the population and status as an oil producer are linked to the development of Islamic banking, as are economic integration with Middle Eastern countries and proximity to Islamic financial centers. Interest rates have a negative impact on Islamic banking, reflecting the implicit benchmark for Islamic banks. The quality of institutions does not matter, probably because the often higher hurdle set by Shariah law trumps the quality of local institutions in most countries. The 9/11 attacks were not important to the diffusion of Islamic banking; but they coincided with rising oil prices, which are a significant factor in the diffusion of Islamic banking. Islamic banks also appear to be complements to, rather than substitutes for, conventional banks.
Echoes Across Borders
This paper quantifies the macroeconomic spillover effects of conflict within sub-Saharan African (SSA) countries using a new Conflict Spillover Index (CSI), which accounts for conflict intensity and distance from conflict-affected countries. Our findings reveal an escalation in conflict spillovers across SSA since 2011, marked by considerable cross-country heterogeneity. Impulse responses show that conflict spillovers shocks significantly and persistently hinder economic growth, while concurrently elevating inflation in the “home” country. Conflict spillover shocks are also associated with increases in (current) government spending and government debt. Furthermore, the international trad...
Republic of Congo
The third review of a three-year Extended Credit Facility (ECF) arrangement (SDR 324 million, 200 percent of quota) was concluded on July 19, 2023. The momentum in economic growth continues, while rising production costs push up inflation. In the first half of 2023, overperformance in oil and non-oil revenue, combined with tighter budget execution, improved the non-oil primary fiscal deficit by 0.6 percent of non-oil GDP compared to the Third Review (CR 23/271). However, higher-than-expected external debt service—due to contractual contingencies to oil prices—tightened the adjusted target for the non-oil basic primary balance, implying a miss of the target by 0.9 percent of non-oil GDP. Congo also accumulated less deposits at BEAC than initially targeted. Despite external arrears remaining below the de-minimis threshold, public debt is assessed as sustainable but “in distress” due to frequent accumulation of new external arrears and uncertainty about the size of domestic arrears.
