This paper gauges the scope for market discipline and the effectiveness of the regional surveillance framework in the West African Economic and Monetary Union (WAEMU). The paper finds that the responsiveness of sovereign bond rates to governments' fiscal behavior in the regional financial market remains limited. In addition, the paper examines the effectiveness of fiscal rules and institutions in an environment where financial markets fall short of exerting a significant disciplining effect on governments.
We consider the impact of Fund-supported programs in fragile and conflict-affected states (FCS) on aid flows and what factors determine program success. Using several indicators of fragility in a multivariate setting, we find that the catalytic role of IMF engagement on aid is significant in general and particularly so in fragile states. There is clear evidence that risks are more elevated in FCS due to conflict and political instability. Probit analysis for metrics of program success indicates that programs in FCS have a significantly higher probability of non-completion than non-FCS. We find a strong negative effect of high public debt on program completion. Usage of prior actions is associated with weaker program performance, suggesting that their use occurs in situations that are perceived as more risky. We recommend a greater focus on the drivers of conflict and instability in FCS and consideration of program measures that contribute to better economic outcomes.
RESPONDING TO SHOCKS AND MAINTAINING STABILITY IN THE WAEMU of shocks on consumption. The following three chapters look at different dimensions of external sustainability of the WAEMU. Chapter 2 analyzes a specifi c shock (the crisis in Mali) and its impact on the rest of the WAEMU. Chapter 3 discusses the crucial role of fi scal policy in the context of the WAEMU in addressing exogenous shocks and preserving external stability. It fi nds that an improvement of the effectiveness of market discipline in the WAEMU would require further development of the regional fi nancial market and improvements in fi scal aspects of the WAEMU's regional surveillance framework. Finally, Chapter 4 and Chapter 5 provide an assessment of the current external stability and debt sustainability situation.
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