Fiscal Policy And Public Debt Sustainability In A Sub-saharan Economic And Monetary Union:Evidence From CEMAC

The increase of budget deficit and public debt experienced in CEMAC countries lately is the main motivation of this research.In fact,between 2015 and 2016 the budget deficit of the CEMAC zone increased from 3.5% of GDP to 7.9 % of GDP,and the highest public debt of the region was experienced by the Republic of Congo(90% of GDP in 2018;91% of GDP in 2021)and Gabon(71% of GDP in2021).This swelling of debt in the CEMAC region occurs in a context where the world just after getting out of exchange rates and sovereign debts crises is been afflicted by a severe sanitary crisis since 2019.The management of the pandemic situation exposes,even more,the area to a potential debt crisis as CEMAC governments’ debt level is increasing due to the social policies applied to control the spread of the covid-19.Therefore,the study of the fiscal policy and public debt sustainability in the actual context of the CEMAC region is particularly important.The research contents and findings of this study are structured as follow:The first chapter presents a general introduction to the thesis.The second chapter provides a new sight of public debt determinants in CEMAC countries.The study uses panel data covering the period from 1980 to 2020 in which we associated economic,financial,and socio-political determinants of public debt.This chapter estimates a Model close to the one estimated by Bittencourt(2013),we used the system GMM and then applied the pooled OLS and the Fixed Effect estimator(FE)as robustness checks.The empirical findings highlight the persistence of lagged public debt in the region and the variables detected as the main source of public debt are: Government expenditure,the Presidential system,Electoral openness and competitiveness(Eiec),and Electoral fraud(Fraud-evidence).Therefore,we advise further studies to give more interest to socio-political factors of debt accumulation particularly in countries suffering from post-electoral conflicts.Chapter3 investigates the sustainability of public debt in the CEMAC Zone using each country’s time-series data from 1980 to 2020.The research applied first the stationarity tests using ADF and PP unit root tests,next we estimated the Fiscal Reaction Function of the six CEMAC countries before estimating the impulse response functions using the VAR model.Finally,we tested the long-run cointegration between the Government expenditure and revenues.Our findings show evidence of unsustainable public debt for the Central African Republic,Gabon,and the Republic of Congo;while Cameroon,Equatorial Guinea,and Chad have sustainable debt.Chapter4 estimates the fiscal reaction function of CEMAC countries to see whether there is evidence of fiscal fatigue,and investigates as well the impact of fiscal rules on fiscal space,using panel data from1990 to 2019.The study applied the System GMM model in a bivariate relationship between lagged debt and the primary balance before adding other explanatory variables to the panel.Furthermore,the FE model is applied to each country to investigate the hypothesis of fiscal fatigue in every single country as well as the threshold regression model to determine the debt threshold of the six CEMAC countries.Additionally,the system GMM was also used to analyze the determinants of Fiscal Space in CEMAC countries.Besides,OLS,2 Stages Least Square and Fixed Effects were used as alternative methods to investigate our hypothesis of fiscal fatigue,while OLS and Fixed Effects were used as robustness checks for the determinants of Fiscal Space in CEMAC.The findings show evidence of fiscal fatigue for the Central African Republic,Equatorial Guinea,Gabon,and the Republic of Congo while Cameroon and Chad exhibit no fiscal fatigue behavior.For our second objective,while analyzing the determinants of fiscal space we found that the two fiscal rules(the balanced budget rule and debt rule)implemented in CEMAC Zone do not improve fiscal space.Therefore,there is a need for the fiscal policy authorities to supervise the conduct of fiscal rules in the CEMAC region since fiscal rules alone do not enhance the available fiscal space.The study suggests implementing the expenditure rule inside the CEMAC fiscal rules frameworks to control the expenditure bias.Chapter5 investigates the degree of coordination between fiscal policy and monetary policy in CEMAC and their nature using time series data from 1970 to 2020.Our study starts by testing the stationarity of the data using ADF and PP unit root tests then employs the Markov Switching Model to estimate the fiscal and monetary policy reaction functions.The empirical findings suggest evidence of a dominant period of the passive fiscal regime for the Central African Republic and Equatorial Guinea,and balanced results for Gabon and Chad while Cameroon and Congo are the only countries to have a dominant period of active fiscal regime.Therefore,the fiscal policy is sustainable for Cameroon and the Republic of Congo during our study period.Besides,the results of the monetary reaction function are more balanced with evidence of active monetary regime for the Central African Republic,Cameroon,and Congo where the active monetary regime is synonymous with contractionary monetary policy for Cameroon and Congo while it is synonymous to expansionary monetary policy for the Central African Republic;but for the case of Gabon,Equatorial Guinea,and Chad the passive monetary regimes are observed during the study period characterized by expansionary monetary regimes when the monetary policy comes to be active for Gabon and Chad.Chapter6 concludes and presents the policy implications.