macroeconomic convergence: what does it mean …...2016/11/01 · gross public debt: below the...
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Macroeconomic Convergence: What does it mean exactly, why is it needed, and what are the priorities?
Joint Conference on “Regional Integration in the EAC: Making the Most of the Common Market on the Road to a Monetary Union”
Roger NordAfrican Department, IMF
November 1, 2016
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Outline
What does convergence mean?
Why does it matter?
Is the EAC different from the euro area?
How is the EAC doing?
The road ahead
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The meaning of convergence
Commonly refers to economic catch-up
(real convergence)
Roots in the OCA literature (Mundell, etc)
Application in the euro area:
nominal convergence criteria
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Why does it matter?
OCA theory: reduction in scope for asymmetric shocks: synchronization of business cyclestrade integrationlabor mobility
EMU Maastricht criteria are different:Deficit and debt limitsInflation limitsExchange rate stability; LT interest rate convergence
Why this difference?
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Is the EAC different from the euro area?
Different degree of trade integration
Financial depth and integration
Labor mobility?
Do LICs require less strong convergence?
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How is the EAC doing?
Inflation: OK
Debt: OK
Deficits: too high
Reserves: more needed
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Inflation: converging and below the ceiling
0
5
10
15
20
0
5
10
15
20
2011 2012 2013 2014 2015
Headline Inflation(Percent, period average)
Kenya Burundi Uganda
Tanzania Rwanda Ceiling
0
5
10
15
20
0
5
10
15
20
2011 2012 2013 2014 2015
Core Inflation (Percent, period average)
Tanzania Burundi Uganda
Kenya Rwanda Ceiling
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Gross Public Debt: below the ceilingTax Revenue: below the target
0
10
20
30
40
50
60
0
10
20
30
40
50
60
Kenya Tanzania Burundi Uganda Rwanda
PV of Gross Public Debt in 2015 (Percent of GDP)
External Domestic Ceiling
8
12
16
20
24
8
12
16
20
24
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Tax Revenue(Percent of GDP)
Kenya Tanzania BurundiRwanda Uganda Target
1
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1. Substantial adjustments needed 2. How to reconcile with planned capital spending increases?
0
5
10
15
20
25
0
5
10
15
20
25
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Fiscal Deficit (excluding grants)(Percent of GDP)
Kenya Burundi Uganda
Rwanda Tanzania Ceiling
1
Fiscal Deficits
0
2
4
6
8
10
0
2
4
6
8
10
2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Fiscal Deficit (including grants)(Percent of GDP)
Kenya Tanzania Uganda
Rwanda Burundi Ceiling1
For Burundi, calendar years; e.g., 2015/16 corresponds to 20151
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International Reserves1. Large variations among countries
2. Need to build up reserves
3
4
5
6
7
8
3
4
5
6
7
8
2011 2012 2013 2014 2015
International Reserves(In months of next year's imports)
Kenya Tanzania Burundi Uganda Rwanda Target
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The path ahead
The EAMU Protocol: institutions, processes, etc
Lessons from the eurozone
Priorities
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Thank you