Commodity Price Fluctuations and Their Impact on Monetary and Fiscal Policies in Western and Central Africa
56 Pages Posted: 23 Apr 2007
Date Written: April 2007
Commodity prices play an important role in economic developments in most of the 24 Western and Central African (WCA) countries covered in this paper. It is confirmed that in the light of rising commodity prices between 1999 and 2005, net oil exporters recorded strong growth rates while net oil-importing countries - albeit benefiting from increases in their major non-oil commodity export prices - displayed somewhat lower growth. For most WCA economies, inflation rates appear less affected by commodity price changes and more determined by exchange rate regimes as well as monetary and fiscal policies. While pass-through effects from international to domestic energy prices were significant, notably in oil-importing countries, second-round effects on overall prices seem limited. Governments of oil-rich countries reacted prudently to windfall revenues, partly running sizable fiscal surpluses. A favourable supply response to rising spending as well as sterilisation efforts and increasing money demand also helped to dampen inflationary pressures. However, substantial excess reserves of commercial banks reflect challenges in financial sector developments and the effectiveness of monetary policy in many WCA countries. Given currently widely used fixed exchange rate regimes, fiscal policy will continue to carry the main burden of macroeconomic adjustment and of sustaining non-inflationary growth, which remains the key policy challenge facing WCA authorities.
Keywords: Africa, commodity prices, monetary policy, fiscal policy
JEL Classification: Q33, O23, O24, O55
Suggested Citation: Suggested Citation
Do you have a job opening that you would like to promote on SSRN?
Operational Aspects of Fiscal Policy in Oil-Producing Countries
Optimal Fiscal Strategy for Oil Exporting Countries
Review of the Experience with Oil Stabilization and Savings Funds in Selected Countries
By Ugo Fasano
Nonrenewable Resources: A Case for Persistent Fiscal Surpluses
By Max Alier and Martin Kaufman
Hedging Government Oil Price Risk
By James Daniel
Fiscal Policy Sustainability in Oil-Producing Countries
By Claire Liuksila, Alejandro García, ...
Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy: Lessons from Gabon
By Daniel Leigh and Jan-peter Olters
Are Developing Countries Better Off Spending Their Oil Wealth Upfront?
By Hajime Takizawa, Edward Gardner, ...
Regional Monetary Integration in the Member States of the Gulf Cooperation Council
By Michael Sturm and Nikolaus Siegfried
Management of Oil Wealth Under the Permanent Income Hypothesis: The Case of São Tomé and Príncipe