Browsing by Author "Mateane, Lebogang"
Now showing 1 - 8 of 8
Results Per Page
Sort Options
- ItemOpen AccessA Critical Assessment of the Sustainability of South Africa's Fiscal Policy and Related Institutional Frameworks(2019) Ngewana, Azande; Mateane, LebogangHistorically, there are many examples of countries that have had to deal with the unpleasant consequences of economic mismanagement. A recent example is Venezuela, which has imploded into hyperinflation. It is therefore important to consider the question of fiscal sustainability in the South African context. This study ultimately aimed to test the sustainability of South Africa’s fiscal policy and public debt, with fiscal policy defined as the satisfaction of the intertemporal budget constraint. The Augmented Dickey–Fuller test was used to assess the stationarity of national government revenue and national government expenditure – both expressed as percentages of GDP – while the Engle–Granger test was used to test the residuals of the regression between national government revenue and national government expenditure for a long-run relationship. A long-run relationship was found between these two variables, suggesting that fiscal policy and South Africa’s public debt are sustainable. However, due to weakened institutions, the South African government should remain aware that the country’s fiscal policy could easily move into unsustainable territory.
- ItemOpen AccessDerivatives and Economic Growth in South Africa: Lessons for Kenya(2019) Mulei, Mutava Michael; Abraham, Haim; Mateane, LebogangKenya is now at advanced stages of introducing a derivatives market. Its aim is to enhance Kenya’s medium-term growth prospects as outlined in the capital markets master plan 2014- 2023. This study interrogates the effect of derivatives on economic growth and growth volatility, learning from the South African experience. The study also identifies some of the factors that drove South Africa’s implementation of derivatives as a development tool - Some countries have enacted legislation for it yet have never transitioned to successful operations. The study paints a picture of the current global and regional view of derivatives and examines empirical evidence from previous studies. Using a GMM approach, the study finds no significant relationship between trading derivatives and economic growth in South Africa. Thereafter, economic growth volatility is modelled using the GARCH method and the effects of derivatives on that volatility are tested. No effect is found. The study finds that the derivative market in South Africa is not yet sufficiently developed to benefit the economy. Finally, the relationship between economic development and derivatives is appraised using a Granger causality test: this suggests that development tends to engender the evolution of derivatives in the long run.
- ItemOpen AccessEssays on current account dynamics and fiscal rules in sub-Saharan Africa(2020) Ayot, Kenrick Otieno; Ellyne, Mark; Mateane, LebogangLarge and persistent current account and fiscal deficits coexisting alongside high public debt levels pose significant risks to macroeconomic stability and limit policymaking options. This thesis focuses on the current account dynamics and fiscal policy in the sub-Saharan Africa region. Over the past two decades, countries in this region have experienced large and persistent current account and fiscal deficits as well as a recent upsurge in public debt. In response to this situation, these countries are beginning to adopt fiscal rules whose primary objective is to rein in discretionary fiscal policy. This thesis examines the attendant issues within a broad context of three interrelated empirical studies, presented in separate chapters. The first study (chapter two) examines the overall sustainability of current account balances in sub-Saharan Africa and evaluates the pattern of current account adjustment in the region. The common approach for testing current account sustainability involves testing the violation of the intertemporal budget constraint. This was implemented by testing for a cointegrating relationship between exports and imports plus net interest payments on external debt using a panel error correction model. Based on a sample of 35 sub-Saharan Africa countries from 1980-2017, the study found evidence that current account balances are weakly sustainable in the region. In addition, countries in the region face a gradual current account adjustment pattern. On average, it takes six years for the current account to return to its long-run equilibrium after a disturbance, exposing these countries to prolonged spells of current account deficits and rising debt levels when corrective measures are not put in place. The second study (chapter three) examines the twin deficit hypothesis, or the effect of fiscal deficit on the current account deficit, and how the level of public debt impacts this relationship. Empirical studies that test this hypothesis often arrive at mixed results, possibly due to the omission of debt threshold effects on the current account. Thus, debt thresholds were included in the model used in this chapter. Using 2000-2016 data from 33 sub-Saharan Africa countries, a linear dynamic panel data model was estimated to address the twin deficit question. Next, a dynamic panel data threshold model was estimated to investigate how different debt regimes affect the twin deficit relationship. The empirical results for the linear model show that the fiscal deficit worsens the current account―thus the twin deficit hypothesis holds. However, introducing a debt threshold into this model resulted in different outcome. Based on an endogenously determined threshold level of debt, xiii which splits the sample into low and high debt regimes, the results reveal that the fiscal deficit continues to worsen the current account in the lower debt regime, whereas in the higher debt regime the pattern changes and the fiscal deficit loses its effect on the current account. These findings point to the uncertain effects of fiscal policy on the external imbalance when public debt reaches high levels. The third study (chapter four) examines the overall impact of fiscal rules on fiscal performance in the sub-Saharan Africa region. In addition, it evaluates whether there are any differences in fiscal performance between countries with and without the fiscal rules. The study used the fiscal balance as a measure of fiscal performance, while a time varying composite fiscal rule index was used to capture the effects of fiscal rules. The fiscal rule index was based on the updated IMF's fiscal rules dataset. Baseline regression examined the effect of fiscal rules on fiscal performance and a fiscal policy reaction function was estimated on 1997-2015 data from 24 sub-Saharan Africa countries that implemented these rules. The regression results suggest that fiscal rules improve fiscal performance. In particular, the fiscal rules for the budget balance, debt and revenue, are found to have positive and significant effects on fiscal performance. The same regression was repeated based on supranational rules. The results reveal that supranational rules are more effective compared to national rules. The second part of the empirical analysis compared the fiscal performance between these 24 countries that have fiscal rules and 16 countries that do not implement the rules. The time period was also expanded to include 1980-1996, prior to adoption of fiscal rules. A difference in differences model was then estimated using the treatment effect method. The results reveal that there is a significant improvement in fiscal performance for countries which have fiscal rules compared to those without fiscal rules. The main conclusion from this exercise is that fiscal rules have been effective in instilling fiscal discipline in the region; therefore, there is significant benefit for countries to adopt fiscal rules. This research supports the view that there is a causal relation between the fiscal deficit and the current account balance in most sub-Saharan Africa countries. The nature of this dynamic relationship appears to depend largely on the level of public debt. Thus, fiscal rules present an effective instrument to influence the fiscal deficit and therefore the current account balance.
- ItemOpen AccessFiscal Rules, Fiscal Space and Debt Sustainability for Macroeconomic Stability in Sub-Saharan Africa(2021) Nandelenga, Martin Wafula; Ellyne, Mark J; Mateane, LebogangThis dissertation investigates the role of fiscal rules for fiscal space, debt sustainability dynamics, and macroeconomic stability in economies of Sub-Saharan Africa (SSA). It is motivated on the premise that fiscal policy plays a primary role in a country's policy undercurrents, and that fiscal rules can enhance fiscal effectiveness and sustainability. Chapter one introduces fiscal rules, fiscal space, and debt sustainability in SSA and examines the macroeconomic effects of fiscal rules on fiscal policy and their contribution to macroeconomic stability. The debate on the size of budget deficits and lack of fiscal space has shifted the focus of major macroeconomic adjustments in developed and developing economies to the fiscal sector. The experiences of debt distress and debt relief in SSA in the 1990s and recently in Euro area (Greece), offer a painful reminder of the dangers of a surging debt. The chapter argues that developing countries, particularly in Africa, have had their share of unsustainable budget deficits that have developed into major debt crises, which required subsequent debt relief packages. The concepts of fiscal rules and the space in which they operate, is fundamental for sound debt management and growth outcomes. Chapter two offers both theoretical and empirical literature and lays the foundation for analysis undertaken in the subsequent chapters. The theoretical literature includes the deficit bias, signalling theory, common pool hypothesis, Ricardian Equivalence, time inconsistency preference, debt sustainability and compliance theory on enforcement and management. Chapter three assesses fiscal space in SSA and further develops Aizenman's (2010) approach to fiscal space measurement. This chapter provides a simple but efficient way to measure fiscal space. The chapter estimates fiscal space as a proportion of debt to tax revenue; a measure that gives a significant channel to checking a country's capacity to meet future debt obligations. Chapter four establishes the extent to which the economies of SSA have complied with fiscal rules. A logit model and instrumental variable probit model are used to test compliance rates over the sample period. The results show that both fiscal rules and macroeconomic factors exhibit significant effects on compliance rates. Chapter five uses two stage least squares (2SLS) and a fixed effect model to investigate the effects of fiscal rules on fiscal space in the presence of institutions. The findings suggest that fiscal rules significantly affect fiscal space and the smoothness of fiscal adjustments. It concludes that fiscal space is expanded by enhanced fiscal governance and a reduction of corruption. Chapter six investigates fiscal policy and debt sustainability via a suite of techniques including: the stationarity tests, cointegration tests, Bohn's sustainability test and a Markov-switching regime test for selected SSA economies. The central finding is that fiscal policy has generally been sustainable in SSA for the period 1980-2016, but the results were sensitive to the test used. The debt and fiscal sustainability analysis are heterogeneous across countries. In particular, stationarity tests show that debt is sustainable except for Kenya and Equatorial Guinea. Applying a cointegration framework we find debt to be sustainable across countries. However, the Bohn's sustainability test returns heterogeneous results as Kenya and Nigeria debt is found to be unsustainable. Moreover, we find that Nigeria and Burkina Faso show evidence of fiscal fatigue. Under the Markov-switching framework we also find that debt and fiscal sustainability varies across countries. Nevertheless, the results suggested that the use of fiscal rules improves debt and fiscal sustainability.
- ItemOpen AccessImpact of Taxation on Economic Growth: Case study of sub-Saharan African Countries(2022) Kandoje, Natasha; Mateane, LebogangThis paper investigates the effects of taxes on economic growth by using a dynamic panel regression analysis on 35 countries in sub–Saharan Africa (SSA)1 region over the 2009–2020 period. The analysis is executed using a dynamic panel regression model, System Generalized Methods of Moments (GMM). The findings of this paper suggest that different tax types have different effects on economic growth. Income taxes and corporate taxes have a statistically significant negative impact on economic growth. In contrast, value-added tax (VAT) exhibits a statistically significant positive relationship with economic growth. Therefore, according to these findings, policymakers in the SSA region should consider lowering income and corporate taxes while raising VAT because these policy combinations may increase long-term economic growth.
- ItemOpen AccessMonetary Policy in a Low Exchange Rate Pass-Through Environment: The case of Botswana(2019) Nkwe, Tlotlo Pauline; Mateane, LebogangThis paper constructs a small open economy New Keynesian Dynamic Stochastic General Equilibrium (DSGE) model, to examine monetary policy conduct and the extent of exchange rate pass-through in Botswana. Thus, I apply a three-step procedure. In the first step, I estimate the degree of exchange rate pass-through to Consumer Price Index (CPI) and import prices using a Vector Error Correction model (VECM). Secondly, I carry out simulations using trade openness parameter value suggested by the imports and exports to GDP ratio for Botswana and using parameter values consistent with Justiniano and Preston (2010). The simulations allow me to establish the impact of different economic disturbances on Botswana’s business cycle fluctuations and the extent to which these economic disturbances influence Botswana’s business cycle fluctuations. Following this set-up, using time series data for Botswana’s macro-economic variables for the period 2004:Q1-2017:Q4 obtained from Bank of Botswana I use Bayesian methods to estimate the DSGE model. I find that in the short-run, exchange rate pass-through to CPI and imports prices is low, at 12 percent and 5 percent, respectively. Secondly, the simulations show that imports cost-push shock leads to a decrease in consumption by a higher magnitude than the decrease in output. The estimation results show that the central bank allocates the largest weight towards price stability as compared to other target variables such as the output gap, in its monetary policy rule. Moreover, the monetary policy shock, import cost-push shock and risk premium are responsible for majority of the business cycle fluctuations in Botswana. These findings may be useful for policy makers and in particular in guiding their policy decision making because of the suggested variables that may influence business cycle fluctuations in Botswana.
- ItemOpen AccessRegime changes in monetary policy(2018) Addo, Samuel; Ellyne, Mark; Mateane, LebogangThis thesis consists of six chapters of which chapters one and two provide the introduction and a brief review of policy regimes in South Africa. Each of the three chapters that follow has its own structure and method. Chapter six concludes the thesis. The chapters share a common theme of understanding the effects of policy regime changes in stabilising inflation and output dynamics in emerging economies with reference to the South African economy. This thesis’s theme is premised on the debate that policy rate setting better describes the conduct of monetary policy and helps stabilise inflation and output. There is, however, no consensus on the appropriate policy regime and the specification of a policy rule that is universal for all economies. Chapter three establishes whether central bank preferences are related to governors’ tenures when there is a change in policy regime. A time-varying parameter approach that allows the policy preferences to vary over the sample period is used. The results show that the policy parameters exhibit significant changes and that the South African Reserve Bank placed more weight on output relative to inflation over the period 2000 and 2007. The dynamic responses of output and inflation under different central bank governors show different outcomes because of changes in central bank policy preferences and not necessarily different governors at the central bank. The effects of policy switches on macroeconomic performance using a regime-switching small open economy dynamic stochastic general equilibrium model is investigated in chapter four. The novelty of this chapter is in the structural model, where the primary commodity export sector follows a regime shock process that affect the policy parameters is allowed. The results suggest that an unexpected monetary policy shock and its variances account for a smaller proportion of macroeconomic fluctuations in the South African economy compared to external shocks and its variances in the form of exports, import cost inflation, risk premia, preference and technology changes. Chapter five consists of an investigation into central bank credibility by simulating a Markov-switching Bayesian vector autoregression model with time-varying transition probabilities. This is based on changes in monetary policy leading to clear policy goals. The findings suggest that the policy authority was credible over the period 2003 to 2007 and over the period 2010 until 2016. However, policy switched to a low credibility regime over the period 1990 to 1999 and in 2008. It is found that a positive yet unexpected change to credibility leads to a reduction in policy rate which leads to a decrease in inflation. The conclusion indicates that credibility is an important instrument that helps policy authority to conduct efficient monetary policy in stabilising inflation and output.
- ItemOpen AccessThe impact of government debt on economic growth: An empirical investigation of Namibia(2018) Kaune, Jaungura; Mateane, LebogangThis paper examines the impact of government debt on economic growth in Namibia with annual data spanning from 1980 to 2016. The paper investigates whether public debt spurs on or promotes economic growth. We employ an Autoregressive Distribution Lag (ARDL) model that serves as an analysis of the short and long run link between public debt and economic growth. In addition, we explore other possible indicators that are likely to affect economic growth such as government expenditure, inflation, gross fixed capital formation and openness. Our findings are consistent with the existing literature that finds a negative correlation between public debt and economic growth. The results of the long run relationship reveal that public debt has an insignificant negative effect on economic growth in Namibia, however, only government expenditure and openness have a negative effect on economic growth. In the short run, gross fixed capital formation and openness promote economic growth, whereas the effect of public debt on economic growth is negative. Following this set-up, we provide policy recommendations that future debt acquired should be for high priority projects and programs that are well reviewed, self-sustainable and can enhance the productive capacity of Namibia. Moreover, the government should take a firm stand on fiscal consolidation and policies that are pro-growth.