Monetary union in SADC, evidence from panel-ARDL co-integration of public debt and budget deficit : lessons for the African Union

The Southern African Development Community (SADC) is putting significant effort into promoting economic cooperation and integration within its region in order to provide imputes for the envisaged grand objective African continental monetary union in the future. All African regional trading blocs, including SADC, have agreed to work towards this grand objective by firstly implementing a monetary union for their respective regions. The purpose of this article is to determine the feasibility of a single currency (monetary union) in the SADC region by analysing the relationship between two crucial fiscal variables (public debt and budget deficit). Various panel unit root tests, and a panel-ARDL model to determine whether public debt and budget deficit are co-integrated in the SADC region. Annual data from 2000 to 2018 was used for analysis. The results of the panel-ARDL model suggested that public debt and budget deficit are co-integrated. This is indeed good news for the SADC member countries as it may suggest uniformity with which the SADC member countries conduct their fiscal policies. That is, their fiscal policies may be harmonised to some extent. The existence of the co-integration between these crucial fiscal policy variables could be interpreted in the region as a whole as influenced by certain macroeconomic forces in a symmetric fashion. A sound management of public debt and budget deficit across member countries is crucial before an SADC-wide monetary union is put in place, and public policy-makers, financial institutions and corporate managers should closely follow developments around these issues.