Back Matter

Back Matter

Author(s):
Ernesto Hernández-Catá, and C. François
Published Date:
September 1998
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    Appendix I Comparison of Regional Integration: TheWAEMU and the European Union

    The two regions present an interesting contrast. Forty years after the Treaty of Rome, the European Union (EU) has created a customs union and achieved extensive regional economic and political integration, but is only now moving to a single currency. By contrast, the West African Economic and Monetary Union has had a single currency for 50 years, but a common external tariff is still in the planning stages, and other aspects of regional integration are far less developed than in Europe. The extent of reported intraregional trade (as a proportion of total trade of member countries) gives a striking, though somewhat exaggerated,13 measure of the difference in trade integration between the two regions. Despite sharing a common currency, the countries of WAEMU trade little among themselves; most of their exports and imports are with industrial countries. In relation to total international trade, reported internal trade in the WAEMU is even significantly below that of the rest of Africa.

    Intraregional Exports(Percent of total exports)
    19931996
    European Union61.561.2
    WAEMU8.49.1
    Other Africa13.110.5
    Source: IMR Direction of Trade Statistics (Washtngton), various years.

    The WAEMU and the EU differ considerably in their regional institutional and legal structures. In Europe, security as well as political considerations have reinforced the economic rationale for integration and have given rise to intergovernmental bodies with clear supranational authority in particular areas. The European Commission has executive responsibility in such areas as trade negotiations and competition policy, the European Court of Justice has its own areas of jurisdiction, and the European Parliament is directly elected. In addition, the European Council can make decisions through qualified majority voting, helping to avoid paralysis of decision making in areas for which the European institutions do not have supranational authority. In the WAEMU, supranationality to date has effectively been limited to the central bank for the region (the BCEAO) and to the regional Banking Commission.

    Since the creation of the WAEMU in 1994, which broadened the scope of the existing WAMU, a more ambitious form of regional integration is being put in place that will include surveillance over member country policies through the monitoring of convergence criteria. The criteria (discussed in the body of the text) resemble the fiscal criteria of the EU (budget deficits and debt), but are focused more closely on the composition of government expenditures: wage bill, elimination of arrears, and primary surplus. Sanctions may be imposed on countries that do not observe the criteria, although details have not been worked out. In contrast, the countries proceeding to Economic and Monetary Union in the EU will be subject to the Stability and Growth Pact, which contains detailed procedures and considerable fines for those countries running excessive fiscal deficits. In the WAEMU, the danger of excessive deficits is reduced by the existence of ceilings on each member governmentďs reliance on central bank financing. In effect, the fixed exchange rate link between the CFA franc and the French franc provides a tight constraint on money growth and budgetary profligacy.

    In the European Union, the Treaty of Rome kicked off the integration process with a schedule for eliminating internal tariffs and quotas and moving to a common external tariff. These measures were accompanied by the management of agricultural production and important transfers to farmers in the context of the Common Agricultural Policy. By contrast, the WAEMU region has been slow to achieve a customs union. Tariffs were eliminated in 1996 on agricultural products, and preferential rates are applied on internally produced industrial goods. A common external tariff is scheduled to be phased in during 1998—2000.

    Appendix II The Real Exchange Rate of the WAEMU

    This appendix calculates several indices of the real exchange rate for the WAEMU as a whole during 1970–97. The WAEMU economies maintain a fixed nominal exchange rate vis-a-vis the French franc, which remained unchanged from 1948 to January 1994, when the parity was devalued by 50 percent. The following questions are examined: To what extent had the real exchange rate appreciated before the devaluation of 1994? Was the nominal devaluation effective in improving competitiveness, and, if so, did the improvement last in the years following the devaluation?

    There are two main definitions of the real exchange rate: the external real exchange rate and the internal real exchange rate. The external real exchange rate is the ratio of a domestic price or cost index to a weighted average of the corresponding index in foreign countries. The real exchange rate as measured by relative prices may not be appropriate for measuring competitiveness in small open economies because the price of tradable goods is determined in world markets. Domestic price changes therefore do not necessarily reflect changes in production costs. Moreover, trade barriers drive a wedge between foreign and domestic prices of tradable goods, so that changes in trade policy will change the external real exchange rate even though production costs do not change. It is therefore preferable to calculate the external real exchange rate as a ratio of production costs. The ratio of domestic to foreign wages or unit labor costs is often chosen because labor costs represent the largest proportion of total production costs.

    The terms of trade have also been used as a measure of the external real exchange rate. This approach is based on the assumptions that the export price proxies the domestic deflator and that the import price proxies the foreign deflator. However, the first assumption is not expected to hold for small economies with undiversified exports, as is the case for the economies in the WAEMU that export primary products. In this case, the export price index is not representative of domestic prices because it measures the prices of only a few commodities. Furthermore, both the export and import price components of the terms of trade are determined in world markets, and changes of the nominal exchange rate therefore have no impact on them.

    The internal real exchange rate is the ratio of the price of nontradable goods to the price of tradable goods. This measure relies only on domestic price indices and may therefore be more appropriate for small economies with relatively high trade barriers. The price of nontradables is influenced by their cost of production and may thus be more relevant as a measure of competitiveness.14

    This appendix provides estimates of the external and internal real exchange rates for the WAEMU. The external real exchange rate is measured here as the ratio of domestic to foreign consumer price indices (CPI). Unfortunately, owing to unavailability of cost data for these economies, it was not possible to estimate a measure of relative costs. The internal real exchange rate, which has some of the advantages of a measure of relative costs, is calculated as the price ratio of nontradables to imports (the latter being a proxy for tradable goods).15

    Both measures show that the real exchange rate depreciated sharply in 1994 and that it appreciated in the following three years, although a substantial margin of improvement remains relative to 1994. These results suggest that the devaluation of 1994, together with the accompanying policies, improved the competitive position of the region and that the competitiveness gains have been broadly maintained. The evolution of domestic costs and prices will nonetheless need to be carefully monitored to avoid a recurrence of the overvaluation of the early 1990s.

    The results are more mixed before 1994. On average, the external real exchange rate shows no appreciation of the real exchange rate before the devaluation of the nominal exchange rate in 1994. In contrast, the internal real exchange rate shows a significant appreciation before 1994, tending to confirm the theoretical presumption that the internal real exchange rate is a superior measure for these economies.

    Measuring the Real Exchange Rate

    The external real exchange rate (RERX) is calculated here as the ratio of consumer price indices:

    where CPId and CPlf are the domestic and foreign consumer price indices, respectively, and Ē is the nominal exchange rate expressed in CFA francs per unit of foreign currency. An increase of the ratio implies an appreciation of the real exchange rate. Both CPlf and Ē are weighted averages for major trading partners, with bilateral trade shares used as the weights. RERX index is calculated for each of the seven economies of the WAEMU, and the national indices are then used to calculate a GDP-weighted average RERX for the WAEMU region (which is the one reported here). Box 5 shows the weights (GDP-weighted averages for the WAEMU) for the foreign price index in the calculations of the RERX.

    The internal real exchange rate (RERN) is the ratio of nontradable to tradable goods prices. When the price of nontradable goods increases in relation to the price of tradable goods, factors of production move to the nontradables sector. To avoid such a reallocation of resources, a devaluation of the nominal exchange rate or a tightening of aggregate demand may be necessary. This is often the case when economic agents perceive as permanent a temporary resource “boom” in an economy that exports primary products.

    The difficulty in measuring the internal real exchange rate is that there is no operationally straightforward definition of tradable and nontradable goods. As a result, the literature uses a variety of approximations.16 In the measure calculated here, the price of imports (Pm) is used for the price of tradable goods. An alternative would be to use the price of exports, but for economies with undiversified exports, the import price index is more representative of tradable goods prices.17

    Box 5Weights for Calculating the External Real Exchange Rate

    France28.23Netherlands5.82
    United States10.09United Kingdom5.50
    Germany9.95Belgium5.23
    Japan7.24Spain3.23
    Italy7.04Canada2.53
    Source: IMF, International Financial Statistics (IFS) (Washington), various issue DP-weighted averages for the WAEMU, calculated on the basis of trade shares during 1988–91.

    The price of nontradables (Pn) is calculated on the basis of the domestic CPI, which is actually a weighted average of prices of tradable and nontradable goods. If these weights are known, it is easy to calculate the internal real exchange rate from the ratio of the CPI to the import price index (both expressed in terms of the domestic currency). Alternatively, it can be assumed that the weight of tradable goods in the CPI is equal to the average share of imports over total consumption—in line with the assumption that the import price is the price of tradable goods. The ratio of the CPI to the import price index can then be written

    wherey is the weight of tradable goods in the CPI. Therefore,

    Figure 1 shows the GDP-weighted average external real exchange rate (ratio of domestic to foreign CPIs) for the WAEMU economies. The real exchange rate appreciated during most of the 1970s before depreciating between 1979 and 1984. It then appreciated between 1984 and 1986 without, however, reaching its 1979 level. It depreciated gradually during 1986–93 and sharply in 1994, but appreciated in the following years, partially offsetting the effect of the nominal exchange rate devaluation in 1994.

    The internal real exchange rate in Figure 1 shows a substantial appreciation between 1985 and 1994, reversing the depreciation that occurred between 1980 and 1985. It reached its highest level in 1993, just before the devaluation. Finally, the devaluation of 1994 caused the internal real exchange rate to depreciate substantially in that year, although this effect was offset to some extent in the following years.

    In addition to the effect of the devaluation of the CFA franc against the French franc in 1994, the real exchange rate of the WAEMU may also be influenced by the movement of the U.S. dollar against the French franc (Figure 2). The nominal exchange rate of the WAEMU in terms of the U.S. dollar (which reflects both factors) appreciated from 1985 to 1994. The two measures of the real exchange rate for the WAEMU show similar movements, although the internal real exchange rate exhibits fluctuations that are amplified by domestic price movements.

    Conclusions

    This appendix constructed two measures of the real exchange rate in the WAEMU for the period 1970–97.

    The external real exchange rate shows on average no appreciation of the real exchange rate before the devaluation of the nominal exchange rate in 1994, while the internal real exchange rate—which is thought to provide a better measure of competitiveness—shows a significant appreciation of the real exchange rate before 1994, as does the nominal exchange rate visà-vis the U.S. dollar. Both measures of the real exchange rate depreciated sharply in 1994 and appreciated somewhat thereafter, although the competitiveness gains achieved in 1994 have been largely preserved.

    Appendix III Determinants of Investment in the WAEMU

    Capital investment, by increasing productive capacity and serving as a vehicle for new technologies, is an important engine of growth. It is thus encouraging that the share of investment in GDP has risen in every country of the WAEMU in recent years. However, the fact that the average investment ratio remains low in the WAEMU, compared not only with the developing countries of Asia, but also with the rest of sub-Saharan Africa, remains a source of concern (Table 3). Investment ratios vary widely within the WAEMU, from relatively high ratios in Burkina Faso and Mali to very low ones in Côte ďlvoire, Togo, and, especially, Niger (Appendix IV, Table 10). The empirical tests presented in this appendix seek to explain these differences by using panel regressions to examine the determinants of annual investment (private plus public) in the period 1970–95 for die seven WAEMU countries for which data were available.

    Table 3.Investment Share, Trade Share, and Index of Economic Freedom in the WAEMU and Other Selected Countries, 1995(Percent)
    Investment/ GDPImports + Exports/ GDPIndex of Economic Freedom 1
    WAEMU countries 215.8
    Benin19.364.02.5
    Burkina Faso24.044.7
    Côte dďlvoire12.875.92.0
    Mali26.038.23.5
    Niger7.230.12.5
    Senegal15.668.52.5
    Togo13.565.22.5
    Other African countries2092.53
    Selected other countries
    Brazil21.915.53.8
    France17.743.47.8
    India24.527.23.5
    Korea36.667.26.3
    United States16.524.410.0
    Sources: IMF, World Economic Outlook database;World Bank, World Development Indicators database; and J. Gwartney, R. Lawson, and W. Block, Economic Freedom of the World (1996).

    Unweighted average of freedom of capital transactions and freedom of business to compete, for most recent year. A value of 0 is the least free, one of 10 is the most

    Excluding Guinea-Bissau.

    Central African Republic, Chad, and Nigeria.

    Several factors have been suggested as explaining investment behavior.18 The traditional accelerator model suggests that changes in income should be positively associated with short–run fluctuations in investment. Other explanations of a more structural nature include demographic trends, the competitiveness and profitability of exports, and the attractiveness of the business environment. While difficult to measure, attractiveness of the business environment probably includes freedom from bureaucratic meddling and excessive regulation, as well as openness to the outside world through access to foreign goods and capital. Indeed, one of the advantages suggested for regional (and global) integration is that it may increase investment and hence growth. A related factor is the international competitiveness of domestic producers. The WAEMU countries experienced an appreciation of the real exchange rate in the late 1980s and early 1990s, which was associated with low investment, but investment rebounded after the devaluation of 1994. Finally, the price and profitability of the regionďs exports—which consist largely of primary commodities—could be expected to influence domestic investment. This relationship might be captured through the price ratio of primary commodities to manufactures.

    The results of the panel regressions, using the average investment share of the WAEMU (1NV) as the dependent variable during 1970–95, tend to confirm most of the hypotheses mentioned above. The growth variable (GROW) is not statistically significant (despite being biased upward, since positive investment probably also increases contemporaneous growth to some extent). However, the dependency ratio (DEP)—the ratio of the young and the elderly to those of working age; a measure of openness (OPEN)—exports plus imports divided by GDP; and two indices of “economic freedom” are significant. The economic freedom variables are subjective indicators 19 that measure the freedom of businesses to compete domestically (COMPETE) and the freedom of international capital transactions (CAPITAL). A simple average of the two variables for 1995 is reported in Table 3. In addition, the real effective exchange rate (RER,) which is based on relative GDP deflators, has a significant negative effect on investment.20 The regression did not include country dummies, and thus differences between countries that are not captured by the explanatory variables show up in the random error terms:

    Number of observations = 152 R2= 0.37

    t–statistics are reported in parentheses below the coefficients.

    Additional explanatory variables were tried and some of those mentioned above were dropped, but generally the variables included remained statistically significant,21 A Granger causality test was run, which confirmed that openness influenced investment rather than the reverse. The measure of openness is imperfect because larger countries tend to have lower ratios of trade to GDP than smaller ones for a given level of trade restrictiveness; inclusion of country size (as measured by GDP) in the regression still yielded a significant coefficient for the openness variable. Thus, there seems to be firm evidence that more freedom to compete and to access foreign goods and capital markets has favorable effects on the scale of investment in WAEMU countries, adding to evidence for other regions.22

    Appendix IV Background Tables
    Table 4.WAEMU: Output Growth(Annual percentage changes)
    Average 1990–93199419951996Prel. 1997
    (Real GDP)
    Benin2.84.44.65.65.3
    Burkina Faso2.61.23.86.25.5
    Cote d’lvoire-0.42.17.16.86.0
    Mali1.42.36.43.33.5
    Niger-1.04.02.63.33.5
    Senegal0.92.94.85.75.2
    Togo-5.916.86.88.24.8
    WAEMU10.23.25.76.05.6
    (Per capita GDP)
    Benin-0.31.52.91.52.1
    Burkina Faso-0.3-1.60.93.42.5
    Cote d’lvoire-4.3-1.93.23.12.3
    Mali-1.6-0.73.30.93.6
    Niger-3.70.7-0.70.00.2
    Senegal-1.90.12.13.02.5
    Togo-8.413.23.55.01.7
    WAEMU1-3.0-0.22.52.62.3
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 5WAEMU: Trade Volume Growh(Annual percentage changes)
    Average 1990–93199419951996Prel. 1997
    (Export volume)
    Benin6.745.52.827.34.1
    Burkina Faso10.09.75.42.518.3
    Cote d’lvoire4.44.96.021.73.9
    Mali8.71.419.62.631.7
    Niger-2.92.06.811.918.3
    Senegal1.89.17.32.11.7
    Togo10.86.030.41.23.5
    WAEMU 13.68.88.613.08.8
    ((Import volume))
    Benin1.7-32.339.0-0.93.0
    Burkina Faso7.1-29.924.412.85.8
    Cote d’lvoire-2.0-9.540.76.66.3
    Mali3.2-2.714.42.12.8
    Niger-9.2-9.58.6-3.79.7
    Senegal0.2-4.45.04.22.9
    Togo13.716.156.68.0-2.1
    WAEMU 1-1.1-12.0-28.2-5.0-4.8
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 6WAEMU: Real Effective Exchange Rates(Annual percentage changes)
    Average 1990–93199419951996Prel. 1997
    Benin1.0-35.814.51.00.6
    Burkina Faso-1.5-38.87.73.0-2.9
    Cote d’lvoire0.2-35.48.3-1.02.2
    Mali-2.4-38.112.63.6-6.9
    Niger-4.9-33.510.93.3-3.0
    Senegal-2.0-35.18.5-2.4-3.7
    Togo-0.8-33.516.02.62.8
    WAEMU 1-1.1-35.49.80.3-0.8
    Sources: IMF staff estimates.Note: In terms of relative consumer price indices.

    Excluding Guinea-Bissau.

    Table 7WAEMU: Inflation(Annual percentage changes)
    Average 1990–93199419951996Prel. 1997
    Benin2.438.614.94.73.8
    Burkina Faso0.224.77.84.73.8
    Cote d’lvoire1.826.014.12.75.6
    Mali-0.924.812.46.4
    Niger-1.535.610.95.32.9
    Senegal-0.632.18.52.81.8
    Togo-0.135.315.94.68.2
    WAEMU 10.629.212.23.93.8
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 8WAEMU: Fiscal Balances(Percent of GDP)
    Average 1990–93199419951996Prel. 1997
    (Primary balance)
    Benin-4.5-3.8-4.5-1.9-2.5
    Burkina Faso-7.4-9.6-7.8-8.1-9.0
    Cote d’lvoire-2.6-1.43.23.83.0
    Mali-8.4-11.4-9.1-6.9-7.8
    Niger-7.8-10.2-5.5-3.7-5.3
    Senegal-0.3-2.40.21.31.9
    Togo-5.7-5.9-2.1-1.40.8
    WAEMU 1-3.9-3.4-1.2-0.2-0.7
    (overall balance, excluding grants)
    Benin-7.5-7.0-7.3-4.3-4.2
    Burkina Faso-8.8-11.0-9.2-9.0-9.8
    Cote d’lvoire-12.5-7.2-4.4-2.8-2.7
    Mali-10.3-13.7-10.5-7.9-8.8
    Niger-9.7-12.5-7.8-5.4-6.8
    Senegal-2.6-6.1-3.5-2.2-1.5
    Togo-9.1-13.1-7.8-6.3-3.6
    WAEMU 1-9.1-8.7-6.0-4.3-4.3
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 9WAEMU: Government Revenue, Excluding Grants (Percent of GDP)
    Average 1990–93199419951996Prel. 1997
    Benin11.712.814.915.214.6
    Burkina Faso12.51 1.01 1.812.313.0
    Cote d’lvoire19.619.922.122.522.2
    Mali15.212.213.114.414.4
    Niger8.66.17.27.88.4
    Senegal18.014.916.316.016.3
    Togo16.812.114.7i414.815.2
    WAEMU 116.415.217.017.417.4
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 10.WAEMU: Gross Domestic Investment(Percent of GDP)
    Average 1990–93199419951996Prel,1997
    Benin14.515.819.617.117.8
    Burkina Faso20.619.322.524.826.2
    Côte dďlvoire6.911.112.913.916.0
    Mali22.326.026.026.525.8
    Niger7.110.47.59.79.7
    Senegal13.316.216.917.418.7
    Togo15.915.116.116.315.2
    WAEMU 112.114.816.216.918.1
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 11WAEMU: Gross Domestic Saving(Percent of GDP)
    Average 1990–93199419951996Prel. 1997
    Benin5.29.510.28.79.9
    Burkina Faso6.56.17.17.59.2
    Cote d’lvoire10.122.420.322.323.1
    Mali5.97.19.510.814.2
    Niger2.21.70.43.12.1
    Senegal6.19.611.311.913.2
    Togo6.611.411.911.411.2
    WAEMU 17.313.613.514.615.7
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 12WAEMU: External Current Account Balance, Excluding Grants(Percent of GDP)
    Average 1990–93199419951996Prel. 1997
    Benin-6.9-5.2-8.2-6.8-6.5
    Burkina Faso-10.3-8.7-11.3-13.4-13.3
    Cote d’lvoire-12.8-2.2-7.2-6.0-5.6
    Mali-14.5-16.9-15.3-14.7-10.8
    Niger-8.7-13.6-11.1-9.2-10.0
    Senegal-9.9-9.9-9.2-7.7-7.5
    Togo-10.5-8.1-6.7-6.2-5.3
    WAEMU 1-11.2-7.2-9.1-8.2-7.6
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 13.WAEMU: Public External Debt(Percent of GDP)
    Average 1990 93199419951996Prel. 1997
    Benin65.5102.378.570.263.1
    Burkina Faso18.474.352.350.756.4
    Cote d’lvoire124.9183.9157.9154.7140.3
    Mali100.5141.0115.4108.4113.9
    Niger55.084.874.568.573.7
    Senegal56.1B0.976.677.373.0
    Togo81 1131.7108.399.493.8
    WAEMU 185.0132.2113.1109.3103.3
    Sources: IMF staff estimates, and World Economic Outlook database, January 1998.

    Excluding Guinea-Bissau.

    Table 14.WAEMU: Balance of Payments(Billions of CFA francs)
    199419951996Prel,1997
    Exports (f.o.b.)2,878.73,298.43,654.13,960.1
    Imports (f.o.b.)-2,485.8-3,118.2-3,166.2-3,473.1
    Trade balance392.9180.2487.9487.0
    Services-1,106.7-1,296.5-1,258.6-1,317.7
    Transfers1,017.6810.9572.1S35.4
    Private-56.4-71.4-87.2-111.0
    Official1,074.0882.3659.3646.4
    Current balance1-772.2-1,187.7-857.9-941.7
    Capital account435.8183.919.1497.3
    Private179.5108.7-93.5167.3
    Public256.375.2112.6330.0
    Errors and omissions-31.6-26.3-22.0
    Overall balance706.0-147.8-201.5202.0
    Financing-706.0147.3201.5-202.0
    Change in arrears-666.6-155.7-29.0-207.0
    Debt relief843.6313.6355.6101.2
    Other (including change in foreign assets)-883.0-10.1-125.1-96.2
    Exports + imports/GDP51.1406452.8063150.6836850.44656
    Trade balance/GDP3.7455791.4829813.625733.305101
    Current account balance/GDP-7.36151-9.77434-6.37531-6.39099
    GDP10,489.712,151.213,456.614,734.8
    Source: BCEAO.Note: Data are provided by the BCEAO and may show differences with data from the World Economic Outlook database

    Excluding official transfers.

    Table 15.WAEMU Governments’Financial Operations(Billions of CFA francs)
    199419951996Prel,1997
    Total revenue and grants2,025.62,491.92,805.13,058.1
    Total revenue1,625.92,093.82,378.02,648.3
    Tax revenue1,352.311,7562,048.02,254.9
    Direct taxes304.3441.7524.8603.8
    Indirect taxes1,019.81,290.61,495.21,615.3
    Taxes on goods and services266.5335.7405.3446.1
    Taxes on foreign trade753.3954.91,089.91,169.2
    Other taxes28.223.828.035.8
    Nontax revenue273.6337.7330.0393.4
    Grants399.7398.1427.1409.8
    Total expenditure2,559.32,833.52,972.33,245.1
    Current expenditure1,926.82,026.62,091.72,189.7
    Wages and salaries721,6769.3818.2854.1
    Interest due534.7514.3476.0471.9
    Domestic interest70.564.256.469.4
    Foreign interest464.2450.1419.6402.5
    Other current expenditure670.5743.0797.5863.7
    Capital expenditure639.6812.5881.41,044.0
    Domestically financed153.5254.4265.1355.0
    Externally financed486.1558.1616.3689.0
    Netlending-7.1-5.6-0.811.4
    Primary balance 180.3327.1497.2575.5
    Overall balance, excluding grants-933.4-739.7-594.3-596.8
    Overall balance-533.7-341.6-167.2-187.0
    Financing533.7341.6167.2187.0
    Domestic financing-155.8-119.7-237.3-215.5
    Arrears-67.2-106.9-188.8-112.7
    Banking system-15.821.4-100.3-50.5
    N on bank borrowing-72.8-34.251.8-52.3
    External financing689.5461.3404.5272.3
    Drawings866.7692.9600.7591.3
    Amortization due-615.9-610.0-530.9-451.5
    Debt relief973.9457.11349.7226.8
    Arrears-535.2-78.7-15.0-94.3
    (Percent of GDP
    Budgetary revenue15 517.217,718.0
    Total expenditure24.423.322 122.0
    Current expenditure18.416.715.614.9
    Capital expenditure6.16.76.57.1
    Primary balance0.82.73.73.9
    Overall balance excluding grants-8.9-6.1-4.4-4.1
    Memorandum items(Percent of tax revenue)
    Wages/tax revenue53.443.840.037.9
    Domestically financed investment/tax revenue11.414.512.915.7
    Primary balance/tax revenue5.918.624.325.5
    Source: BCEAO.Note: Data are provided by the BCEAO and may show differences with data from the World Economic Outlook database

    Total revenue less total expenditure excluding interest due, externally financed investment, and net lending

    Table 16.WAEMU: Monetary Survey(Billions of CFA francs)
    1993 Dec11994 Dec11995 Dec11995 Dec1996 Sept.1996 Dec.1997 Mar.1997 Jun.1997 Sept.Perl,1997 Dec.
    Net foreign assets-2254306937337118701,2481,1331,0711,088
    Gross foreign assets3061,4441,8161,8131,8282,0032,3762,3022,3532,278
    Liabilities5311,0131,1231,0801,1171,1331,1281,1681,2821,190
    Net domestic assets2,2172,3452,4732,3222,4262,5322,4012,3632,3922,566
    Net credit to government4308979861,0531,0089461,0161,1341,1171,011
    Credit to economy1,7641,6071,8611,7461,8442,0442,0872,0122,0072,251
    Crop credits97190248248124196295222161287
    Other credits1,6671,4161,6131,4981,7201,8471,7911,7901,8471,964
    Other items (net)23-159-373-477-427-458-702-783-732-696
    Money supply1,9922,7763,1663,0553,1373,4013,6493,4963,4643,654
    Currency in circulation5938941,0181,0189081,0601,1631,0721,0071,217
    Postal deposits10141414191715161618
    Savings banks11131515171818191919
    Bank deposits1,3781,8552,1182,0082,1922,3072,4502,3892,4222,400
    Public enterprises188254331309331343381359382368
    Sight deposits119174215198209226252248231221
    Term deposits6980117111104117129111150147
    Private sector1,1911,6011,7871,6991,8801,9632,0692,0302,0402,032
    Sight deposits51281690S8648819771,0409859821,020
    Term deposits6787848798359999861,0291,0441,0581,011
    (Twelve-month rote of increase; percent)
    Memorandum items
    Net foreign assets29161195125
    Net domestic assets659-11
    Net credit to government10910-10117
    Credit to economy-91617910
    Money supply391411107
    Currency in circulation511441115
    Bank deposits351415104
    Source: BCEAO.

    Includes data for liquidated banks.

    Table 17WAEMU: Summary Accounts of the Central Bank(Billions ofCFA francs)
    1993 Dec 11994 Dec 11995 Dec 11995 Dec1996 Sept.1996 Dec.1997 Mar.1997 Jun.1997 Sept.Perl 1997 Dec.
    Assets
    Net foreign assets-1343726096096177551,061970941962
    Gross foreign assets1901,1381,4171,4171,4551,6121,9381,8941,9651,889
    Liabilities 23257678098098378578779251,024927
    Net domestic assets1,135826698697551580351452420525
    Net credit to government535792782782756745769855831797
    Guaranteed bonds360317270272328296299334312326
    Securitiled debt20911711713877719
    Other (including IMF)233399550517608642776764791777
    Government deposits60136158158180231314249279325
    Net claims on banks and
    financial institutions80915716416476162308354174
    Money market paper1922953
    Repurchase agreements (pensions)1910
    Collateralized loans148121100
    Other4507
    Other items (net)-209-123-248-249-281-327-498-485-465-446
    Liabilities
    Base money1.0011,1971,3061,3061,1691,3351.4121,4221,3611,487
    Currency in circulation5938941,0181,0189081,0601,1631,0721,0071,217
    Bank deposits340220193193168180148253250168
    Other deposits67849595939610197104102
    Memorandum item
    Gross foreign assets/base money
    (in percent)1995108109124121137133144127
    Source: BCEAO.

    Includes data for liquidated banks.

    Includes liabilities to IMF.

    Table 18.WAEMU: Summary Accounts of the Commercial Banks(Billions of CFA francs)
    1993 Dec11994 Dec11995 Dec11995 Dec1996 Sept.1996 Dec.1997 Mar.1997 Jun.1997 Sept.Perl,1997 Dec.
    Assets
    Net foreign assets 2-91598512494115187164130126
    Gross foreign assets115305399396373391438407388389
    Liabilities206247314272279276251244257263
    Net domestic assets1,8491,6621,9231,7731,9102,0662,0872,0212,0122,142
    Net credit to government-102112200267240196234264273208
    Claims283623724701847827800824848807
    Of which, securitiied debt201289289367331341341320320
    Deposits385511524434607631566559575599
    Credit to economy1,7261,5661,8211,7071,8051,9982,0481,9771,97l2,204
    Short-term credits8689441,1181,0481,0771,2471,3201,2241,2221,426
    Crop credits97190248248124197295222161287
    Ordinary credits7717548708019531,0511,0241,0021,0621,139
    Medium-term credits568459549516580605589614612641
    Long-term credits290163154142148146139139137137
    Other items net225-16-98-201-135-128-195-220-232-270
    Reserves 3344200177177157178146192211188
    Liabilities
    Private sector and public
    enterprise deposits1,3111,7712,0231,9132,0992,2112,3492,3142,3182,297
    Public enterprises139193263240249278310293310295
    Private sector1,1721,5781,7611,6731,8501,9332,0392,0212,0072,003
    Central bank loans79115016216262148706336159
    Memorandum items(Percent of deposits)
    Bank reserves20978665776
    Securitked debt91112141212121111
    Liquid assets20181520191817191318
    Loaned eposits96656872626667666672
    Reserves + securitiied debt/deposits20181820191817191818
    Source: BCEAO.

    Includes data for liquidated banks

    Excluding all intra-WAEMU claims and liabilities, including securitized debt of governments

    Including deposits with central bank, currency in vaults, and BCEAO short-term bonds.

    Table 19.WAEMU: Indicators of Banking Sector Soundness
    Number of Active BanksNumber of Banks Not Meeting Prudential RatiosShare of Non-peKorming Assets1Number of Banks with Government Share Exceeding 20 Percent
    SolvencyLiquidity
    1993199419951996199319941995199619931994199519961993199419951996Dec. 1995Dec. 1996
    Benin5555012100029.37.46.93.600
    Including provisions216.016.415.410.0
    Burkina Fa so88555402110i15.28.45.62.945
    Including provisions334.329.919.811.0
    Cote d’lvoire141415153630341516.29.94.65.843
    Including provisions132.831.221.219.7
    Mall77773334100128.132.018.310.744
    Including provisions245.952.534.724.8
    Niger66552121112228.67.54.05.022
    Including provisions355.043.039.529.8
    Senegal998533262349.911.111.87.544
    Including provisions322.524.824.219.6
    Togo77770443043317.218.115.85.346
    Including provisions333.435.429.119.4
    Total5656525318221713121291815.812.07.96.22224
    Including provisions232.231.623.719.6
    Source: WAEMU, Annual Report of the Banking Commission (1996).

    In percent of credit to the economy, unless otherwise indicated

    Total amount of bad loans (that is, including provisions) over total credit.

    Table 20.WAEMU: Convergence Criteria
    19931994199519961997Prel,1997
    (Percentage of tax revenue)
    Wage bill/tax revenue (<50 percent)
    Benin574O44414343
    Burkina Faso725648433939
    Côte dďlvoire724839373737
    Mali494337293130
    Niger97102805057
    Senegal605648444141
    Togo1159564575I51
    WAEMU69544440
    Public investment paid from domestic
    revenue/tax revenue (>20 percent)
    Benin551161111
    Burkina Faso1298101717
    Côte dďlvoire101418161919
    Mali111314141414
    Niger36447
    Senegal131011111212
    Togo1953544
    WAEMU11111413
    Primary fiscal balance/tax revenue (> 15 percent)
    Benin201919272020
    Burkina Faso-349141717
    Côte ďlvoire-221927302727
    Mall-721732403333
    Niger-116-98-2954
    Senegal-131124263131
    Togo-123-53-13-1166
    WAEMU-3082126
    (BiWions of CFA francs)
    Change in externa arrears (≤0)
    Benin2-3
    Burkina Faso3-15-4
    Côte ďlvoire269-35372
    Mali5-20
    Niger19-6734-262
    Senegal37-12946-9-9
    Togo20161-3-47-47
    WAEMU355-570-7-27-53-55
    Change in domestic arrears (≤0)
    Benin-10-11-17-26-13-13
    Burkina Faso-7-16-19
    Côte ď-27-98-79-84-78-78
    Mall4-10-14-19-4-4
    Niger66-12-20-21
    Senegal12-3-15-9
    Togo29-6-62-25-24
    WAEMU14-157-159-165-150-119
    Sources: IMF staff estimates; and WAEMU regional Banking Commission.

    Appendix I describes some of the main features of the WAEMU as a regional grouping and compares them with features of the European Union.

    At present, the WAEMU treaty coexists with the earlier WAMU treaty, but is expected eventually to replace it.

    This conclusion is based on the behavior of the internal real exchange rale, a proxy for the ratio or nontradable to tradable goods prices (Figure 1). For reasons explained in Appendix II, this concept of the real exchange rate is more relevant for small open economies than the one based on relative consumer prices.

    For a more detailed discussion of the background of the 1994 devaluation, see Jean A.P. Clement and others. Aftermath of the CFA Franc Devaluation, IMF Occasional Paper No. I, IS (Washington: International Monetary Fund, 1996).

    Historical relationships suggest that changes in government savings in sub-Saharan Africa lend to be offset only in part by opposite changes in private savings.

    A system of reserve requirements has been in place since late 1993. However, the required reserve ratio is very low (1–5 percent of deposits) and has remained unchanged since 1993.

    The long-term consolidated bonds were issued by the BCEAO in 1994, in counterpart of its claims on member governments resulting from the restructuring of the banking system: they are de facto highly liquid because they can be redeemed on demand with the BCEAO. The short-term BCEAO bills are purchased through the periodic auction system introduced in 1996.

    Banks in Senegal and Côte ďlvoire tend to be less liquid Utan those in other WAEMU countries. However. Senegalese and Ivoirien banks are usually refinanced through the central bank rather than tiirough the regional interbank market.

    The average cost of resources in the WAEMU is about 2 percent, while lending rates range from 6 percent to 15 percent.

    The broad classification of products envisaged by the WAliMU Commission in November l997 is as follows: category I: essential goods (for example, medical supplies and school books); category II: raw materials and capital goods; category III: intermediate goods; category IV: final consumption goods. The revised classification is expected to be finalized by the end of June 1998.

    Defined as total revenue minus expenditure and net lending, excluding interest payments and externally financed capital expenditure.

    The results reported in Appendix III suggest that low investment ratios in the region reflect insufficient competition among businesses in domestic markets, excessive regulation, and a lack of openness to international trade and capital movements.

    Informal trade is probably more significant for WAEMU countries, and other current account transactions, in particular workersď remittances, are substantial.

    For an extensive comparison of the external and the internal real exchange rate, see Lawrence E. Hinkle and Fabien Nsengiyumva. “The Relationship Between and Interpretation of External and Internal Real Exchange Rales: Competitiveness, Productivity, and the Terms of Trade,” in Estimating Equilibrium Exchange Rates in Developing Countries, ed, by Lawrence E. Hinkle and Peter J. Montiel (unpublished; Washington: World Bank, 1997).

    Other measures were also calculated, but for various reasons the indices chosen seemed to be the most satisfactory.

    See Lawrence E. Hinkle, and Fabien Nsengiyumva, “Internal Real Exchange Rates: Concepts and Measurement,” in Hinkle and Montiel (1997).

    The results do not change significantly if the price of tradable goods is defined as the average of the indices of export and import prices.

    Some factors, like the cost of capital, could not be included in the analysis because no information is available for the WAEMU countries.

    Calculated by J. Gwarlney, R. Lawson, and W. Block. Economic Freedom of the World (Vancouver, British Columbia. Canada: Fraser Institute, 1996).

    The price ratio of commodities to manufactures was not statistically significant, perhaps because it was correlated with other variables.

    An exception was competitiveness, which, when measured by the relative CPI variable, changed the sign of the coefficient on the variable COMPETE.

    See for instance Ross Levine and David Renell. “A Sensitivity Analysis of Cross-Country Growth Regressions.” American Economic Review, Vol. 82 (September 1992), pp. 942–63; and Jeffrey Sachs and Andrew Warner, “Economic Reform and the Process of Global Integration.” Brookings Papers on Economic Activity: 1, Brookings Institution, 1995. pp. 1–118.

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    169. Financial Sector Development in Sub-Saharan African Countries, by Hassanali Mehran, Piero Ugolini, Jean Phillipe Briffaux, George Iden, Tonny Lybek, Stephen Swaray, and Peter Hayward. 1998.

    168. Exit Strategies: Policy Options for Countries Seeking Greater Exchange Rate Flexibility, by a staff team led by Barry Eichengreen and Paul Masson with Hugh Bredenkamp, Barry Johnston, Javier Hamann, Esteban Jadresic, and Inci Ötker. 1998.

    167. Exchange Rate Assessment: Extensions of the Macroeconomic Balance Approach, edited by Peter Isard and Hamid Faruqee. 1998

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    165. Algeria: Stabilization and Transition to the Market, by Karim Nashashibi, Patricia Alonso-Gamo, Stefania Bazzoni, Alain Féler, Nicole Laframboise, and Sebastian Paris Horvitz. 1998.

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    161. The Nordic Banking Crises: Pitfalls in Financial Liberalization? by Burkhard Dress and Ceyla Pazarbasşiogğlu. 1998.

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    Note: For information on the title and availability of Occasional Papers not listed, please consult the IMF Publications Catalog or contact IMF Publication Services.

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