Fiscal Convergence and Sustainability in Africa: Evidence from African Regional Economic Communities

Mercredi | 2021-12-03
Salle des thèses – 12h


The literature on regional integration has acknowledged the use of macroeconomic convergence programs to align domestic policies regarding fiscal deficits, public debt, inflation, interest rates and exchange rates, and foster the monetary integration process. This paper analyses fiscal convergence and its contribution to fiscal sustainability in African Regional Economic Communities (RECs) over the period 2000 to 2019 using data on government debt, revenue and expenditure. Log t convergence tests indicate that absolute fiscal convergence is only present in the CFA Franc monetary zone and the East African Community (EAC), and divergent in the other African RECs. However, we find evidence of fiscal club convergence when clubs are endogenously determined. Club convergence provides an important guide for the African continent because member states’ fiscal policies are heterogeneous, and particularly in the wake of the historic signing of the African Continental Free Trade Area (AfCFTA) agreement that aims to deepen integration in the continent. Using a policy response function where the primary surplus is a function of public debt, output gap and other controls, fiscal policy is found to be generally sustainable, and somewhat countercyclical when output gap is used in its contemporaneous form. These results are in line with the self-validation of macroeconomic convergence programs, often demonstrated in the European Union, despite low levels of their adherence in African RECs.