Lumengo Bonga-Bonga

Budget deficit and long-term interest rates in South Africa

This paper investigated the extent of the effects of the systematic and surprise changes in budget deficits on the long-term interest rate in South Africa. Use was made of the identified cointegrating vector autoregressive (VAR) techniques whereby cointegrating vectors were identified based on the Fisher effect theory and the expectation hypothesis of the term structure to assess the effect of systematic changes in budget deficit on the long-term interest rate. Moreover, the generalised impulse response functions obtained from the cointegrating VAR were used to assess the effect of the surprise change in budget deficit on the long-term interest rate. The results of the paper showed a positive relationship between the budget deficits and long-term interest rate under different assumptions of price expectations by economic agents.

Fiscal policy, monetary policy and external imbalances: Cross-country evidence from Africa's three largest economies

ABSTRACT This paper determines which of the three policy approaches: fiscal, monetary and exchange rate can better address external imbalances in the three largest African economies, Nigeria, South Africa and Egypt. To this end, use is made of the panel vector autoregressive model to assess the dynamic effects of shocks emanating from the three policy approaches. The findings of the paper indicate that unlike in many emerging and developed economies the current accounts of these three economies react to fiscal, monetary and exchange rate shocks. More particular, the results of the empirical analysis show that the appreciations of the currencies in the three economies lead to current account surpluses. This is mainly attributed to the fact that most African economies have a high propensity to import with limited productive capacity for exports.

Effects of Reducing Tariffs in the Democratic Republic of Congo (DRC): A CGE Analysis

ABSTRACT:Over the past two and a half decades, the Democratic Republic of Congo (DRC), along with several other developing countries, implemented the Structural Adjustment Program (SAP) proposed by the International Monetary Fund (IMF) and World Bank. Since the 1990s when war broke out in the DRC triggered by the control of natural resources, unemployment and poverty have been on the rise in the country. Despite this, ever since the Government Action Plan for Natural Resource Law Enforcement, Governance and Trade was implemented in 1992, the population blamed the SAP for causing the heightened poverty of the 1990s. However, during the reform period it was difficult to point out which policies had an adverse effect on unemployment, poverty and productivity growth. It is in that context that this paper analyses the effects of reducing tariffs through a Computable General Equilibrium (CGE) model of the DRC. The specific DRC Formal-Informal Model (DRCFIM) is a multi-sectoral computable general equilibrium model that captures the observed structure of the DRCs formal and informal economies, as well as the numerous linkages or transmission channels connecting their various economic agents, such as investors, firms, traders, and the government. The parameters of the CGE equations are calibrated to observed data from a social accounting matrix (SAM). The paper finds that tariff reduction increases formal employment and output but hurts informal producers. It considerably increases the output and employment of the formal sector by raising import competition without providing further opportunities for the informal sector to access foreign export markets. Nonetheless, it induces productivity improvements when local producers survive import competition by seeking importing input-saving technologies and production practices. These findings highlight the importance of differentiating between the formal and informal sector impacts of the DRCs socioeconomic policies. In particular, this study draws the attention of policy makers to a different employment outcome when tariff reduction is taken into consideration. We suggest that the DRC government considers subsidising low income household to avoid widening inequality in the country.

Inflation and output growth dynamics in South Africa: Evidence from the Markov switching vector auto-regression model

ABSTRACT This paper introduces the possibility of asymmetry in the reaction of output growth to inflation shocks in South Africa by making use of the Markov-switching vector autoregressive model. Using quarterly data from 1969Q1 to 2013Q4, the empirical finding suggests that the reaction of output growth to inflation shocks is not only regime dependent but is also contingent on how the monetary authority reacts to such shocks. Two important regimes are identified; the high and low inflation volatility regimes. Consistent with the signal extraction theory, the output effect of inflation shocks is found to be significantly lower in the high inflation volatility regime compared to the low inflation regime.

Assessing the readiness of the BRICS grouping for mutually beneficial financial integration

This paper assesses the extent of the transmission of equity market volatility shocks between BRICS (Brazil, Russia, India, China and South Africa) countries to infer the degree of risk sharing and the possibility of a beneficial financial integration between its member countries. The paper makes use of the spillover index methodology suggested by Diebold and Yilmaz (2012) to this end. Nonetheless, the paper extends this methodology by making use of ex ante volatility measures that account for long memory in equity markets. The paper finds asymmetric influences between BRICS countries in relation to the cross transmission of risks. The finding of the paper implies the possibility of unequal benefit that could result from a possible capital market liberalisation between the BRICS countries.

ASSESSING THE DETREMINANTS OF ECONOMIC GROWTH IN GHANA

African economies count among the fastest-growing economies in the world. In particular, West African economies have grown by an average of 5.7% in 2013 and 6% in 2014, despite the battle with the Ebola virus. Ghana has been at the forefront of this growth with an average economic growth of 8% in the period 2001–2014 (). The challenge faced by African countries, such as Ghana, is to maintain this high economic growth rate in order to finance a number of developmental projects and curb the rampant poverty prevalent in a number of African countries. The sustainability of Ghana’s growth path and the economic policy that ensued necessitates a sound knowledge of the drivers and determinants of its economic growth. This paper contribute to the literature on economic growth in Ghana, as a case study of a fast-growing economy in Africa, by applying the BMA analysis in determining the drivers of the country’s economic growth. To the best of our knowledge, there is no study that identifies the drivers of economic growth in Ghana by using the BMA approach. The BMA technique provides the advantage over single-model techniques by combining and averaging different existing models and theories to determine the driver of economic growth. Yearly data ranging from 1970 to 2012 was collected from the World Bank Development Indicators (WDI 2012) and International Monetary Fund (IMF) statistics. There are 22 variables used in the model estimation, including the GDP per capita as the dependent variable. Explanatory variables are selected by taking into account their likelihood of determining economic growth in Ghana. Moreover, these variables are selected by accounting for the particularities of the Ghanaian economies, such as the existence of the dual economy and its reliance on natural resources for export revenues. Using the 50% threshold, as suggested by , for the selection of relevant variables that drive economic growth in Ghana, the empirical results show that variables such as population density, crop production, inflation rate, labor force, current account balance and population growth are the important drivers of economic growth in Ghana. The paper suggests the following recommendation in the light of these results. Firstly, inflation targeting should remain the anchor of monetary policy in Ghana. Secondly, this paper recommends that the government of Ghana develops policies and strategies that enable the crowding-in of the private sector. Finally, this paper recommends that the government of Ghana promotes crop production in both commercial and subsistence sectors.

Economic Growth, Redistribution Policy and Fiscal Policy in South Africa: An SVAR Analysis

The aim of this article is to uncover which method of fi nancing an increase in social services expenditure would guarantee economic growth while assuring that government operates within a balanced budget constraint. The article will also assess whether fi scal policy (which aims at fiscal discipline) could improve the rate of economic growth when a particular tax is used to fi nance social services expenditure. The SVAR models applied in this study used two types of restrictions: the contemporaneous and the long-run (Blanchard and Quah) restriction. In the Blanchard and Quah restriction, structural shocks are identifi ed under two different categories: the Keynesian and neoclassical types. Africa Insight Vol. 38 (1) 2008: pp. 67-80