TITLE:
Single Currency in the SADC Zone: Is It Necessary to Adjust the Convergence Criterion Relating to the Budget Deficit? Is the Norm Relating to the Budget Balance Pro-Growth?
AUTHORS:
Grégoire Lumbala Tshiamala, Yves Siasi Mamonekene
KEYWORDS:
Single Currency, Budget Deficit, Convergence Criterion, Business Cycles, SADC
JOURNAL NAME:
Modern Economy,
Vol.15 No.1,
January
26,
2024
ABSTRACT: With a view to the introduction of a single SADC currency, this study
uses a non-linear Hansen (1999) model to estimate the budget deficit threshold
that maximizes economic growth and whose observance by countries is conducive
to the convergence of economic cycles. The analysis covers the fifteen
countries in the Eurozone over the period 2000-2019. The results of this
empirical analysis reveal that the budget deficit threshold that should not be
exceeded to support growth and whose observance is favourable to the
convergence of economic cycles is 10.92% of
GDP over the entire estimation period, within an interval of [10.89; 10.98]. As
a result, compliance with the convergence criterion limiting the budget deficit to 3% of GDP is not optimal and not
conducive to the convergence of economic cycles. Furthermore, the results
show that since the start of public debt relief in the SADC region in 2006 (a
period of substantial debt reduction in SADC countries), the budget deficit
threshold that must not be exceeded has been 5.58% of GDP, within a range of
[5.48 to 5.98]. Thus, the current convergence criterion on the budget deficit (3%
of GDP) seems rigorous and restrictive in terms of fiscal discipline and could
therefore be adjusted to 5.58% of GDP. Under the current SADC framework, the
additional margin of around 2.5% of GDP could be used to finance the fight against
terrorism, economic transformation, the fight against Covid-19 and investment
in human capital.