As Bank research has shown, if these conditions do not fully hold, these approaches could in fact prove destabilizing to the economy and damaging to the central bank’s credibility.8 Moreover, there are reasons why central banks have preferred to support employment and output by targeting price stability, rather than more directly through an approach like nominal GDP targeting.
However, the COVID-19 pandemic, the global growth shock, the plunge in commodity prices, reduced growth outcomes and lower revenue collections will further exacerbate the already increasing sovereign indebtedness across the continent. Economic theory can assist in framing the conjectural policy challenges and options to address the high and rising levels of sovereign debt in Africa.