Guest editorial: Introduction to the special issue on challenges and new perspectives for monetary policy in Africa

The current global politico-economic environment characterised with rising geopolitical risks and supply chain disruptions, persistent global uncertainty and climate change risks, among other macroeconomic shocks, presents complex challenges for economies of the world. An IMF study by Andriantomanga et al. (2023) showed that these concerns are severe for Africa, where weak monetary policy frameworks increase the risk of inflation expectations becoming unanchored. According to Brunnermeier (2023), monetary policy conduct in Africa requires a modified approach that is robust to sudden and unexpected changes in the macroeconomic scenario. In addition to these global pressures, African countries are grappling with several macroeconomic challenges at the local level, notably high inflation and unemployment, energy supply shocks, elevated public debt levels, low investment levels, low economic growth and other structural issues. The gravity of these concerns provides a unique context to rethink monetary policy for Africa. This special issue features carefully selected works that address some of the significant challenges outlined above. In particular, it brings together nine original research articles conducted within the context of various African countries to provide a critical reflection on these matters to suggest solutions relevant for the region. In subsequent sections, we provide a concise exposition of each author's contribution as it relates to some of the aforementioned challenges surrounding monetary policy. This introduction to the special issue is divided into three sections: In the first section, we introduce two articles that depict the role of monetary policy on public debt and deficit financing. In section two, we present five articles that explore policy convergence and macroeconomic stability, including the interplay between fiscal dominance and monetary policy. The remaining contributions focus on climate change, capital market development and the monetary policy nexus.

Although public debt is growing in all the regions of the world, it is only in Africa that it is growing faster than GDP (UNCTAD, 2024). In 2023 nearly half of African countries were reported by UNCTAD (2025) to have debt-to-GDP ratios in excess of 60%, with the majority spending more on debt interest than health and education. The paper by Boadi et al. (2025) examines this issue of the nexus between public debt and monetary policy in the context of sub-Saharan Africa. They demonstrate that tightening monetary policy leads to a significant reduction in public debt levels in the region and recommend a number of interventions to strengthen the effectiveness of the role of monetary policy in aiding public debt management. These include the need to adopt disciplined fiscal policies that align with monetary policy tightening cycles; avoiding excessive borrowing during periods of high interest rates; reducing budget deficits through efficient public spending and improved revenue mobilisation; designing and implementing monetary policy frameworks that are tailored to specific economic conditions in the country and the region; using interest rate policies cautiously; and developing more resilient financial markets, including improving the infrastructure of domestic debt markets. Abdullahi et al. (2025) paper, however, draws attention to the question of whether the mode of deficit financing significantly affects inflation. Using a single country context of Nigeria, they conclude that to achieve lower inflation, policy makers should prioritise using bonds to finance budget deficits, as this was shown to exhibit a significant short- and long-term deflationary effect on the economy.

Hooley et al. (2021) showed that fiscal dominance is widespread in sub-Saharan Africa and that it can contribute to inflation and macroeconomic instability. In this issue, the paper “Safeguarding economic stability: the interplay of fiscal dominance and monetary policy in South Africa” by Buthelezi (2025) examines the impact of the short-term and long-term shocks of government borrowing and deficits on inflation dynamics and concludes that fiscal dominance has a significant effect both in the short and long run. Their findings highlight that government debt and deficits increase inflation, overriding the effects of monetary policy aimed at maintaining price stability. Additionally, money supply shocks were shown to exhibit a relatively greater effect in reducing fiscal dominance than interest rate shocks. Benkhaira and Hassani (2025), focusing on the impact of public spending and money supply on economic recovery in Morocco, reach a somewhat similar conclusion as Buthelezi that money supply plays a relatively greater role in influencing the variation of GDP over time compared to public spending. In other words, they showed that monetary policy is more effective than fiscal policy in affecting economic performance and highlighted the importance of policy coordination. Despite the general recognition that proper alignment of macroeconomic policies is crucial for supporting a low inflationary and stable macroeconomic environment, interactions of fiscal and monetary policy in many African countries are often misaligned. Abdul Rahman et al. (2025) explore this issue by examining the effectiveness of the joint impact of convergence policy measures on macroeconomic stability conditions in the West African Monetary Zone (WAMZ) countries. Utilising a dynamic ARDL approach, their findings suggest that, in the short run, a unit positive deviation of the convergence policy index from the mean leads to worsening external and overall macroeconomic stability conditions in the zone but leads to improvement in internal macroeconomic stability conditions. However, in the long run, it leads to improvement in both external and overall macroeconomic stability situations and deterioration in the internal macroeconomic stability situation. They conclude that the convergence policy index improves macroeconomic stability conditions in the long run only but is destabilising in the short run. The authors therefore caution policy makers in the region to take steps to mitigate the adverse impact of the convergence policy measures and highlight the need to address structural challenges.

Citing general weaknesses related to econometric models and their dominant application in many monetary policy studies, the paper by Ouchchikh et al. (2025) employs the wavelet coherence approach to model the dynamic relationship between monetary policy transmission, the real sector, the financial sector, and monetary variables. The authors examined the interdependencies among these variables over time and across various frequencies using the context of Morocco. The authors conclude that the exchange rate channel plays a limited role in transmitting monetary policy shocks and propose the need to transition to a flexible exchange rate regime. They find further evidence supporting that the credit channel is effective not only in low market volatility but also during turbulent economic times. A related paper by Achmakou and Hachimi Alaoui (2025) examines the linkage between the financial sector and the real economy within an emerging market context using Morocco as a case study. In their econometric modelling, the authors incorporate non-performing loans (NPLs) to capture the probability of default, stating that changes in NPLs have implications on the behaviour of the financial sector and the real economy. Thus the inclusion of NPLs was argued to serve as a piece joining the real and the financial spheres of the economy while the simulation of the demand shock was incorporated to trace out the mechanism of its influence in the economy. The authors find that a unit positive demand shock results in a 0.4 unit decrease in NPLs, implying that favourable macroeconomic conditions promote business financial health and hence their ability to repay loans. They also find that in response to a unit positive shock in NPLs, the risk premium rises by 2 units.

Even though climate change is a global phenomenon, Africa is the region that is most vulnerable to climate change impacts under all climate scenarios above 1.5°C. According to UNECA (2023), 17 of the 20 countries most vulnerable to climate change are in Africa. Adapting and strengthening resilience to climate change is therefore critical, and yet despite the compelling case for climate action, Africa has the least means to adapt. The need for development of capital markets in Africa cannot be overemphasised. Capital markets are crucial for strengthening domestic resource mobilisation to ensure local financing, particularly development finance. In this issue, Edo (2025), highlighting inadequate attention in research and literature on the role and effects of macroeconomic policies in driving capital market development in emerging African economies in the pre- and post-pandemic periods, identifies important policy options for sustaining capital markets post-pandemic. The author concludes that fiscal and monetary policies played a significant and positive role in capital market development in both pre- and post-pandemic periods, while the exchange rate policy exerted an insignificant impact in both periods. Furthermore, trade policy and investment return were shown to be significant in the pre-pandemic period; however, their impact could not be sustained significantly in the post-pandemic period. The central focus of the paper by Lukashe and Nishimwe-Niyimbanira (2025) is on determining the impact of climate change on price stability in South Africa. They demonstrate evidence that climate change has a statistically significant long-run impact on inflation and underscore the importance of integrating a climate change mandate into monetary policy framing.