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Journal of Economic Integration 2022 March;37(1) :30-53.
DOI: https://doi.org/10.11130/jei.2022.37.1.30
Monetary Agreements Reform and Issue of the Key Fiscal Convergence Criterion in the West African Economic and Monetary Union (WAEMU)

Léleng Kebalo 1 and Stéphane Zouri 2

1University of Lomé, Togo
2Central Bank of West African States, Senegal
Corresponding Author: Léleng Kebalo ,Email: kebalo.leleng@gmail.com
Copyright ©2022 Journal of Economic Integration
ABSTRACT
This paper estimates a fiscal deficit threshold that maximizes economic growth and is favorable to business cycles synchronization given the compliance of countries. The analysis covers the eight countries that form the West African Economic and Monetary Union (WAEMU) across 1990-2018. Our results show that 11.42% of the Gross Domestic Product (GDP) is the fiscal deficit threshold which should not to be exceeded and that fulfills the aforementioned conditions. Since the debt relief program in 2006, however, this threshold has been reduced from 11% to 3.97%. Therefore, compliance with the key fiscal convergence criterion limiting the fiscal deficit to 3% of the GDP and in force in the Union is pro-growth and favorable to business cycles synchronization. However, even if this convergence criterion seems rigorous for fiscal discipline and can be maintained, it could be adjusted to 4%. The paper discusses the advantages of this proposed adjustment.

JEL Classification
E32: Business Fluctuations; Cycles
E62: Fiscal Policy
F45: Macroeconomic Issues of Monetary Unions
O55: Africa
Keywords: single currency | fiscal balance | business cycles synchronization | WAEMU
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