Structural vulnerability and excessive public indebtedness in CFA Franc Zone countries

- We study the link between structural vulnerability and the excessive indebtedness.
- The sample consists of the 14 CFA Franc Zone countries.
- We rely on the 'institutional debt rule' sets up within the zone franc.
- The structural vulnerability affects non-linearly the excessive debt probability.
- This effect is the same for the two monetary areas belonging to the Franc Zone.

This paper relies on the 'institutional debt rule' implemented in Franc Zone countries to assess whether the structural vulnerability of these countries matter for their probability to enter into excessive indebtedness. This structural vulnerability is measured by retrospective 'Economic Vulnerability Index' (EVI) recently computed jointly by the United Nations and Guillaumont and Cariolle (2011). We observe evidence that the impact of 'EVI' is non-linear with respect to the probability of these countries to engage into excessive indebtedness and that, this effect appears to be the same for the two monetary areas belonging to the CFA Franc Zone countries: a rise of EVI induces a higher probability of excessive debt and for higher EVI, this probability declines. Consequently, international community and more particularly international development institutions such as the Bretton Woods should take into account such vulnerability in their assessment of the adequate development policies and recommendations to these countries.

Comparative evolution of the average total public debt and average EVI of CFA Franc Zone countries.Source: the author calculation based on IMF's data on public debt.