Towards economic convergence in WAMZ: effects of fiscal dominance on macroeconomic stability

Authors

O.J. Nnannna

Publisher

Central Bank of Nigeria, Research Department

Keywords

West African Monetary Zone (WAMZ), Macroeconomic convergence, Overall budget deficit, Foreign exchange reserves

Abstract

This article discusses the threat posed by fiscal dominance and measures that could be adopted to contain it in order to foster macroeconomic convergence in the WAMZ. The presentation is organised around two elements: the boom and burst cycle of capital expenditure, adjudged to be the root cause of fiscal dominance, and an empirical analysis of the implication of fiscal dominance for macroeconomic stability in the WAMZ. While the empirical and anecdotal evidences of the adverse effect of fiscal dominance is overwhelming, the paper went .further to propose a fiscal rule that would contain the destabilising effect of large revenue swings.

Author Bio

The author is the Director of Research at the Central Bank of Nigeria.

Issue

1

Volume

41

Recommended Citation

Nnanna, O.J. (2003). Towards economic convergence in WAMZ: effects of fiscal dominance on macroeconomic stability. Economic and Financial Review. 41(1), 1-22.