Opening remarks at the association of african central banks 2019 symposium rising african sovereign debt implications for monetary anxiety disorder dsm 5 definition policy and financial stability

Part of the debt increase is central to a broader generalized anxiety disorder dsm 5 definition development strategy to use fiscal space for growth-enhancing investment—for example, infrastructure. Nonetheless, the increase is concerning as the capacity of countries to generalized anxiety disorder dsm 5 definition repay debt has deteriorated sharply. Interest payments on public debt as a share of government generalized anxiety disorder dsm 5 definition revenues are now close to their historic peak of the generalized anxiety disorder dsm 5 definition early 2000s. This reflects higher debt, greater reliance on non-concessional external financing against a backdrop of declining grants, and insufficient domestic revenue mobilization.

The fiscal adjustment required to stabilize debt seems feasible. But for many countries stabilizing debt may not be a generalized anxiety disorder dsm 5 definition sufficiently ambitious target since almost half of low-income countries in sub-saharan africa are in, or at high risk of debt distress, according to the IMF/world bank debt sustainability analysis. This means that operating in an environment of high public generalized anxiety disorder dsm 5 definition debt is not a short-term challenge, but one that governments will likely face for some time generalized anxiety disorder dsm 5 definition to come.

This view—that fiscal dominance is no longer a major problem in generalized anxiety disorder dsm 5 definition most countries—is not without foundation. When we look at the traditional definition of fiscal dominance, direct financing of the budget deficit by central banks above generalized anxiety disorder dsm 5 definition legal limits has declined over time, especially during the second half of the 2000s. Legal limits have also been tightened and so there is generalized anxiety disorder dsm 5 definition less room within the legislation to put pressure on central generalized anxiety disorder dsm 5 definition banks to lend to the government.

In this context, there may be a desire to limit exchange rate depreciation generalized anxiety disorder dsm 5 definition due to currency mismatches and the negative effect on public generalized anxiety disorder dsm 5 definition sector balance sheets and debt servicing costs. This tilts the balance for central banks away from using generalized anxiety disorder dsm 5 definition the exchange rate as a shock absorber and encourages greater generalized anxiety disorder dsm 5 definition intervention, possibly leading to volatility in domestic interest rates.

Another reason why high debt complicates monetary policy is because generalized anxiety disorder dsm 5 definition it generates more complicated tradeoffs. In cases where there is high foreign currency public debt generalized anxiety disorder dsm 5 definition and if there is a negative shock to economic activity, the sovereign risk premium may increase, leading to a nominal depreciation of the currency. Monetary policy then needs to raise interest rates to limit generalized anxiety disorder dsm 5 definition the depreciation, but this further weakens domestic growth and puts pressures on generalized anxiety disorder dsm 5 definition domestic government borrowing costs. This is a tough choice to make. [5]

• address the bank-sovereign nexus. By reducing incentives for banks to hold government securities, for example through changes to tax deductibility and exemptions. And by applying macro-prudential policies. For instance, in the CEMAC, the risk weights applied to member states sovereign debt depend generalized anxiety disorder dsm 5 definition on their compliance with the regional convergence criteria.

Of course, there is no silver bullet. All these actions cannot ensure that central banks will be generalized anxiety disorder dsm 5 definition fully protected against government influences. South africa is a good example of a country where generalized anxiety disorder dsm 5 definition the central bank has come under scrutiny despite or perhaps generalized anxiety disorder dsm 5 definition because of its sound institutional framework. It seems to me that in a world where central generalized anxiety disorder dsm 5 definition banks have more independence, they can also become more exposed to criticism, and must redouble their efforts to ringfence their policymaking role generalized anxiety disorder dsm 5 definition to meet financial and monetary objectives.

Monetary policy was, in general, responsible for smoothing out the economic cycle and ensuring price generalized anxiety disorder dsm 5 definition stability, while fiscal policy had to ensure public finances remained sustainable. And the objective for many emerging and low-income countries was to move toward this delineation of responsibilities—for instance with the introduction of fiscal rules and inflation generalized anxiety disorder dsm 5 definition targeting frameworks in the 2000s.

In the past decade, fiscal policy has gained more legitimacy and responsibility for stabilizing generalized anxiety disorder dsm 5 definition the economic cycle—a role traditionally assigned to monetary policy, which had lost some effectiveness. At the same time, monetary policy has increasingly resorted to “unconventional” measures that have some characteristics of fiscal policy—for instance the purchase of private sector assets.

Therefore, to the extent possible, the ministry of finance and the central bank should strive generalized anxiety disorder dsm 5 definition to better define their respective roles and joint responsibilities in generalized anxiety disorder dsm 5 definition macroeconomic management. Any commingling of jobs—for instance with central banks carrying out quasi fiscal operations—should be avoided, except in exceptional circumstances when monetary policy is severely constrained, and the financial sector is impaired.

Let me finish with a last myth. One dimension of possible overlap between monetary and fiscal policies generalized anxiety disorder dsm 5 definition is the preservation of debt sustainability. Some argue that central banks can help governments alleviate the generalized anxiety disorder dsm 5 definition public debt burden. I don’t believe that this is the case. The scope for central banks to lower the debt burden generalized anxiety disorder dsm 5 definition seems very limited, at least in africa.

Debt dynamics in africa benefit from a persistently negative interest-growth differential. Despite high economic growth, interest rates on government debt remain relatively low. This is partly because of the high share of concessional generalized anxiety disorder dsm 5 definition debt, but in some countries financial repression also plays a role—for instance by creating a captive audience for government securities.

Moreover, financial repression creates distortions in the financial sector that need generalized anxiety disorder dsm 5 definition to be carefully considered against the distortions brought by higher generalized anxiety disorder dsm 5 definition taxes if fiscal consolidation was used to reduce debt. It is also a matter of societal preference, since financial repression shifts the cost of debt reduction from generalized anxiety disorder dsm 5 definition taxpayers to bondholders.

Let me end by noting once again that central banks generalized anxiety disorder dsm 5 definition are under pressure around the world—so you are not alone in grappling with these challenges. But there are ways of responding to these new challenges. And I think that rising public debt is another strong generalized anxiety disorder dsm 5 definition rationale for moving towards a more transparent, resilient, and forward-looking monetary policy framework.

[2] for instance, the inflation performance in ghana after adopting inflation targeting in generalized anxiety disorder dsm 5 definition 2007 was to a large extent influenced by traditionally strong generalized anxiety disorder dsm 5 definition fiscal pressures which took the form of direct monetization of generalized anxiety disorder dsm 5 definition deficits and pressures on the bank of ghana to maintain generalized anxiety disorder dsm 5 definition more accommodative monetary policy stance than was desirable. (see “evolving monetary policy frameworks in low-income and other developing countries—background paper—country experiences”, IMF board paper, 2015).

[4] budget deficits have a greater impact on domestic interest rates generalized anxiety disorder dsm 5 definition when, domestic debt is high, domestic financial development is limited, and capital accounts are restricted—three conditions more likely to be met in low-income countries. See “budget deficits and interest rates: A fresh perspective”, aisen and hauner, 2008, IMF WP/08/42.

[5] history provides multiple examples of procyclical monetary response when public generalized anxiety disorder dsm 5 definition debt is high, and the currency depreciates. See the experience of several emerging markets in the early generalized anxiety disorder dsm 5 definition 2000s: columbia, indonesia, turkey, venezuela. Described in mohanty and scatigna, 2003, “countercyclical fiscal policy and central banks,” chapter in “ fiscal issues and central banking in emerging economies,” vol. 20, pp 38-70 from bank for international settlements.

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