ABSTRACT
This chapter reviews some basic elements of open economy macroeconomics to provide the background material that is necessary to understand how fiscal and monetary policies work in small open economies. It discusses the evolution of macroeconomic thinking and how it has shaped the choice of fiscal, monetary and exchange rate policies in the African context. The chapter examines the evidence on fiscal, monetary and exchange rate policies, highlighting both the broad trends and the country-specific (and sub-regional) experiences. It considers the origins and causes of the African debt crisis and its consequences for investment and growth. The chapter examines various initiatives to reduce Africa's debt. The Heavily Indebted Poor Countries (HIPCs) initiative was launched jointly by the World Bank and the International Monetary Fund in 1996 to reduce the external debt burdens of the HIPCs that successfully completed economic and social policy reforms to sustainable levels.
