1. BY ABWAKU ENGLAMA, ABU BAKARR TARAWALIE AND CHRISTIAN R. K. AHORTOR A Paper Prepared for the Fourth Annual Conference on Regional Integration in Africa (ACRIA4) Abidjan, Côte d’Ivoire July 4 -6 2013

2. OUTLINE OF THE PRESENTATION  Introduction  Research Problem & Objective  Justification and Relevance  Institutional arrangements for policy coordination in the WAMZ  Literature Review  Theoretical Framework and Methodology  Presentation and Analysis of Results  Conclusion and Policy Recommendations

3. INTRODUCTION  Stable and non-inflationary economic growth remains the focus of economic policy.  Fiscal policy is to reduce unemployment rate.  Monetary policy is to maintain price stability.  Fiscal and monetary policies are not mutually exclusive.  Hence, lack of policy coordination may result in serious economic dislocations.

4. RESEARCH PROBLEM & OBJECTIVE  Non appreciation of policy interdependencies  Fiscal policy influences price developments, real interest rates, exchange rates as well as aggregate demand and potential output.  Monetary policy has an impact on exchange rates, inflation expectations and short-term interest rates with implications for government borrowing.  Non-compliance with inflation and fiscal deficit criteria in the WAMZ.  The study, therefore, seeks to investigate the level of coordination between the fiscal and monetary authorities in each of the WAMZ countries.

5. RELEVANCE AND JUSTIFICATION  Provides evidence of the status of policy coordination in the WAMZ countries.  Produces empirical assessment of effectiveness of policy coordination in the Zone.  Proffers recommendations on building formal policy coordination platforms.  Promotes compliance with the convergence criteria.

6. INSTITUTIONAL ARRANGEMENTS FOR POLICY COORDINATION IN THE WAMZ  Monetary policy objectives, frameworks, instruments, conduct and outcomes, central bank independence  Fiscal policy objectives, frameworks, instruments conduct and outcomes  Line of communication between fiscal and monetary authorities  Policy coordination – platforms, periodicity, binding decisions, monitoring and evaluation units and effectiveness.

7. Gambia – Monetary Policy Goal & Instrument

8. The Gambia – Fiscal Policy Goal & Instrument

9. Ghana – Monetary Policy Goal & Instrument

10. Ghana – Fiscal Policy Goal & Instrument

11. Guinea – Monetary Policy Goal & Instrument

12. Guinea – Fiscal Policy Goal & Instrument

13. Liberia – Monetary Policy Goal & Instrument

14. Liberia – Fiscal Policy Goal & Instrument

15. Nigeria – Monetary Policy Goal & Instrument

16. Nigeria – Fiscal Policy Goal & Instrument

17. Sierra Leone – Monetary Policy Goal & Instrument

18. Sierra Leone – Fiscal Policy Goal & Instrument

19. LITERATURE REVIEW - THEORIES  The fiscal theory of price level determination (FTPL) (Semmler and Zhang, 2003)  The time paths of government debt, expenditure and taxes do not satisfy the inter-temporal solvency constraint  In equilibrium, the price level has to adjust in order to ensure government solvency  Monetary policy alone does not provide the nominal anchor for an economy.  Strategic interactions within a game theoretic framework (Sargent and Wallace, 1981)  If the central bank takes the lead in setting the path of inflation, then the fiscal authority, should select a sequence of primary surpluses (and debt) that is consistent with money supply  under a fiscal dominance regime, monetary authorities may be called upon to accommodate.

20. LITERATURE REVIEW - EMPIRICS Lambertini and Rovelli (2003), Tabellini (1986), Muscatelli et al. (2002), Zoli and Lambert (2005), Hasan and Isgut (2009), Arby and Hanif (2010) & Chuku (2012), etc.

21. THEORETICAL FRAMEWORK AND METHODOLOGY

22. EMPIRICAL MODEL SPECIFICATION 1. Set Theoretic Approach Target Shocks to Monetary Policy Target (Inflation) Positive (P)Negative (N) Shocks to Fiscal Policy Target (Growth) Positive (P) P, PP, N Negative (N)N, PN, N Table 4.1: Macroeconomic Environment Matrix Policy Direction Monetary Policy Response Contraction (C)Expansion (E) Fiscal Policy Response Contraction (C) C, CC, E Expansion (E)E, CE, E Table 4.2: Policy Response Matrix

23. STA: Strength of Policy Coordination

24. 2. A Vector Autoregressive Technique

25. ESTIMATION TECHNIQUE AND DATA  Unrestricted VAR – Impulse Response Functions  Sources of data: Country Authorities, WAMI database, IFS  Study period: 1980 – 2011 (Guinea 1988-2011)

26. EMPIRICAL RESULTS - STA Country Policy Coordination Score (%) Fiscal Prudence Score (%) Monetary Prudence Score (%) The Gambia10.348.334.5 Ghana34.544.848.3 Guinea19.047.6 Liberia17.241.451.7 Nigeria16.758.641.4 Sierra Leone31.048.365.5 Table 5.1: Strength of Fiscal and Monetary Policy Coordination in the WAMZ Countries

27. THE GAMBIA: NON-ACCUMULATED RESPONSES OF FISCAL DEFICIT

28. THE GAMBIA: NON-ACCUMULATED RESPONSES OF MONEY SUPPLY GROWTH

29. SUMMARY OF FINDINGS  Weak policy coordination in all the WAMZ countries during the study period.  Results from the set theoretic coordination scores ranged from 10.3 percent in The Gambia to 34.5 percent in Ghana, clearly less than the 50.0 percent benchmark for adequate policy coordination.  The IRFs indicate that variables converge to their original values after a very long time, implying weak responses of policy variables to different shocks  Weak responses from fiscal deficit and inflation confirms the generally non-compliance with these two criteria by Member States of the WAMZ.

30. RECOMMENDATIONS  Generally, the authorities should  formalise policy coordination processes.  establish or strengthen set rules and procedures for policy coordination.  make policy decisions emanating from coordinating meetings binding.  equip statistical bureaux/ offices to produce quality high frequency data on a timely basis.  enhance the capacity of relevant policy institutions to fully understand the cyclical nature of their respective economies.  identify and strengthen policy transmission mechanisms through key policy reforms.  establish monitoring and evaluation units.

31. THANK YOU FOR YOUR ATTENTION.