One possible way to assess the nature of that relationship is to trace the path of growth and fiscal deficits over the period of program implementation using causality and correlation analysis. However, deriving point estimates from these measures of association requires a choice and specification of underlying variables, a priori. While rates of economic growth can be easily estimated and standardized for cross-country comparisons, the choice of point estimates for fiscal balances that allow comparisons across countries is less obvious, owing in part to the multiplicity of definitions available in the literature. It is also due to the challenges of constructing consistent data on government budget deficits across countries—the coexistence of cash and accrual budgeting in numerous countries in the region being a non negligible source of discrepancy [Hagemann (1999)].

Notwithstanding these challenges, a number of definitions have emerged and are commonly used to assess countries’ fiscal stance. These measures include the conventional deficit, the primary deficit, the operational deficit and the structural budget deficit [Tanzi et al. (1993), Agénor (2000)]. Early choices and preferences in the literature have focused on the primary and conventional deficit. However, these two indicators are crude measures of fiscal deficits that do not take into account public debt and inflationary pressures.

In practice, macroeconomic instability and external debt greatly affect the size of government fiscal balance, and may have implications for estimating either of these two measures. Furthermore, the conventional fiscal deficit is very sensitive to inflation, and may overestimate the size of the deficit during episodes of excess inflationary pressures. In particular, and to the extent that inflation affects the conventional deficit through interest payments on public debt, the degree of sensitivity of conventional deficits to inflation tends to be particularly important when public debt is high [Tanzi et al.(1993)].<sup>9</sup> In this regard and given that containing the rising stock of public debt and deficits are at the core of macroeconomic stabilization, the conventional fiscal balance may not necessarily be commensurate with the sustainability of fiscal stance in the region. At the same time, the primary fiscal balance does not adequately reflect the financing implications of a policy stance. This measure largely focuses on discretionary government spending and does not account for the burden of interest payments in countries running large public debt. As a result, it is often referred to as the noninterest deficit, and hence, may not adequately capture the fiscal stance of most countries in Sub-Saharan Africa, either.

A large number of these countries accumulated sizable amounts of domestic and foreign debt during the adjustment eras. And in most cases, external liabilities reached unsustainable levels in the 1990s when a significant share of the budget was allocated to interest payments [Elbadawi et al.(1997)]. Although the net present value of these liabilities has since been discounted, particularly in the set of countries which received debt relief under the HIPC Initiative, interest payments on external debt remain an important component in the government budget in most countries.<sup>10</sup> And failing to account for these liabilities can significantly underestimate fiscal deficits.

> 9 Empirically, Tanzi, Blejer and Teijeiro (1993) have shown that inflation can have a significant effect on the conventional deficit, especially when the domestic public debt, and correlatively interest rate bill, is high.

> 10 Furthermore, a review of post-HIPC Completion Point countries has revealed a renewed deterioration of external debt thresholds in a number of countries [World Bank (2006)].

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