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Olivier Basdevant

the need to defend the pegs. B. Analyzing Design Options for the Fiscal Adjustment in BLNS In order the analyze options for BLNS fiscal adjustment, a dynamic stochastic general equilibrium (DGSE) model is used (see Basdevant and others, 2011 , as well as Appendix I ). The general-equilibrium structure provides a coherent framework to trace the macroeconomic effects of fiscal consolidations from the original steady state (i.e., the state before a SACU transfer reduction) to a new steady state (i.e., the state reached years after such a reduction). Policy

Luis-Felipe Zanna, Olivier Basdevant, Ms. Susan S. Yang, Ms. Genevieve Verdier, Mr. Joannes Mongardini, and Dalmacio Benicio
Botswana, Lesotho, Namibia, and Swaziland face the serious challenge of adjusting not only to lower Southern Africa Customs Union (SACU) transfers because of the global economic crisis, but also to a potential further decline over the medium term. This paper assesses options for the design of the needed fiscal consolidation. The choice among these options should be driven by (i) the impact on growth and (ii) the specificities of each country. Overall, a focus on government consumption cuts appears to minimize the negative impact on growth, and would be appropriate given the relatively large size of the public sector in each country.
Luis-Felipe Zanna, Olivier Basdevant, Ms. Susan S. Yang, Ms. Genevieve Verdier, Mr. Joannes Mongardini, and Dalmacio Benicio

Front Matter Page African and Research Departments Authorized for distribution by Andy Berg and Calvin A. Mc Donald Contents I. Introduction II. Designs for a Successful Fiscal Consolidation A. Fiscal Consolidation and Multipliers B. Factors of a Successful Fiscal Consolidation III. A Dynamic Model with Demand and Supply Effects A. Overview of the Model B. Fiscal Consolidation Strategies IV. Economics of Single-Instrument Fiscal Consolidations to SACU Transfer Reductions V. Analyzing Fiscal Policy Options VI. Conclusion

Olivier Basdevant
Following the onset of the global economic crisis in 2008, SACU member countries have witnessed a significant growth slowdown, and a deterioration of their fiscal balances. This paper (i) assesses options for the design of the needed fiscal consolidation, and (ii) discussed medium-term fiscal policy rules that would help maintain a sound fiscal stance once consolidation has taken place. The main messages are: (i) government consumption cuts appears to minimize the negative impact on growth, and would be appropriate given the relatively large size of the public sector in each country, (ii) fiscal rules could be of particular interest for SACU members notably, a new customs revenue-sharing formula, procedural rules to strengthen budget process, and numerical rules at the national level.
Luis-Felipe Zanna, Olivier Basdevant, Ms. Susan S. Yang, Ms. Genevieve Verdier, Mr. Joannes Mongardini, and Dalmacio Benicio

coherent framework to trace the macroeconomic effects of fiscal consolidations from the original steady state (i.e., the state before a permanent SACU transfer reduction) to a new steady state (i.e., the state reached years after such a reduction). Appendixes I and II contain model specification and calibration. 16. Policy choices are predicated on the assumption that the government does not engage in additional borrowing as a way to make up for the financing gap . Thus, the only option is to adjust the fiscal stance, either by increasing revenue, decreasing

Olivier Basdevant

to defend the pegs. Analyzing Design Options for the Fiscal Adjustment in BLNS A dynamic stochastic general equilibrium model is used to analyze options for BLNS fiscal adjustment (see Basdevant and others, 2011 ). The general equilibrium structure provides a coherent framework for tracing the macroeconomic effects of fiscal consolidation from the original steady state (the state before a permanent SACU transfer reduction) to a new steady state (the state reached years after such a reduction). Policy choices are predicated on the assumption that the