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Mr. Ernesto Hernández-Catá and C. A. François

Abstract

In January 1994, seven sub-Saharan African countries—Benin, Burkina Faso, Côte dď lvoire, Mali. Niger, Senegal, and Togo—signed a treaty establishing the West African Economic and Monetary Union (WAEMU). These countries, with the addition of Guinea-Bissau in 1997, form part of the CFA franc zone along with a second group of six African countries that participate in a similar monetary arrangement, the Central African Economic and Monetary Community (CAEMC). The CAEMC countries are Cameroon, the Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon. Within eaeh subzone, monetary arrangements are managed by a separate central bank: the Central Bank of West African States (BCEAO) for the WAEMU and the Bank of Central African States (BEAC) for the CAEMC. The two subzones share a common currency, the CFA franc, which stands for the Communauté financiere africaine in the BCEAO area and for the Coopération financiere en Afrique in the BEAC area.

Mr. Ernesto Hernández-Catá and C. A. François

Abstract

During the second half of the 1980s and in the early 1990s, a prolonged deterioration of the terms of trade, a steep increase in labor costs, and the nominal appreciation of the French franc against the U.S. dollar resulted in a considerable real effective appreciation of the CFA franc (Figure 1 and Figure 2 and Appendix II).3 These developments led to a serious decline in the competitive position of the CFA franc zone and a substantial weakening of the economic situation in the region. For the WAEMU as a whole during 1990–93, real GDP growth per capita was negative, and savings and investment ratios were very low (see Table 1 and Appendix IV, Tables 4–13). The deterioration in the terms of trade, together with the slow growth of export volume, resulted in a widening of the external current account deficit to an average of 11 percent of GDP in 1990–93. The shrinking of the tax base caused by the decline in real income as well as the financial difficulties of most corporate taxpayers were reflected in a drop in the ratio of government revenue to GDP, a deterioration in the overall fiscal balance, and severe constraints on government investment. Consequently, there was a significant accumulation of both domestic and external payments arrears, a large increase in the public debt, and a decline in the net foreign assets of the BCEAO.

Mr. Ernesto Hernández-Catá and C. A. François

Abstract

The BCEAO conducts monetary policy in the WAEMU at the regional level. Its basic near-term objectives are (1) to maintain the fixed exchange rate relationship between the CFA franc and the French franc—which means that the trend rate of inflation in the area is fundamentally determined by French inflation (Box 2); and (2) to achieve a target level of foreign assets for the BCEAO. The fixed exchange rate system implies that the independence of regional monetary policy is constrained: money growth within the region is endogenously determined, and an appropriate differential must be maintained between market interest rates in the WAEMU and in France (Figure 3). Moreover, there is no scope for national monetary policies in the member countries of the WAEMU. For this reason, IMF-supported programs in these countries currently do not include targets for either base money or the central banksď net domestic assets because these variables cannot be meaningfully defined at the national level. Even if they could be defined, they would be beyond the control of the national authorities. Of course, fiscal policy—including public debt management—remains within the purview of individual countries in the WAEMU, and IMF-supported programs typically include targets for the fiscal deficit, external borrowing by the government, and net domestic bank credit to the government. Cumulative borrowing by national governments from the BCEAO is itself constrained to no more than 20 percent of their fiscal revenue in the previous year.

International Monetary Fund. African Dept.
KEY ISSUES • The Comorian economy continues to grow although at a slightly slower pace. Economic growth in 2014 is projected at 3.3 percent, adversely affected by electricity disruptions and slower-than-expected implementation of the public investment program. Inflation has remained subdued. Staffs’ baseline assumption is that real GDP growth will average around 4 percent per annum over the medium term, provided reforms are implemented. • Implementation of the 2014 budget was challenging, particularly after mid-year. While revenues were broadly on target, resources were inadequate to meet the higher- than-budgeted wage bill resulting from an increase in teacher salaries in March and previously un-budgeted expenditures, including on elections. Domestically-financed investment spending was severely constrained and temporary arrears were incurred on salaries and external debt. • The key short-term challenge is to find a better balance between available resources and expenditures so that arrears can be avoided. Spending plans need to be based on realistic expectations of the resources likely to be available. The 2015 budget is premised on this principle but the scope for domestically-financed investment is inadequate as obligatory spending on wages and salaries and debt service absorbs most of domestic revenue. • For the medium-term the key challenges are to create fiscal space for infrastructure investment and social spending, accelerate inclusive growth and employment generation, and reduce poverty. The authorities need to focus their efforts on strengthening revenue administration and public financial management to expand fiscal space and improve transparency. Weaknesses in the business environment, including inadequate infrastructure, especially in the energy sector, and difficulties in contract enforcement represent important challenges.
International Monetary Fund
This paper discusses the Union of Comoros’ 2008 Article IV Consultation and request for Emergency Post-Conflict Assistance and disbursement under the Rapid-Access Component of the Exogenous Shocks Facility. Real GDP growth has been well below the regional average, and per-capita income has steadily declined. Rising food and energy costs have worsened the external position, and the external debt burden is far above the Heavily Indebted Poor Countries threshold. To reverse the deteriorating trend, the authorities have initiated measures in 2008 to contain the fiscal deficit and begin to address macroeconomic and structural impediments to growth.
International Monetary Fund
The dominant role of remittances in Comoros’s economy presents policymakers with important challenges and opportunities. Fiscal decentralization is a pillar of national reconciliation in Comoros. To make decentralization work better, more revenue and expenditure responsibilities could be devolved to the islands. The paper also presents statistical data on gross domestic product, indicators of tourism, consolidated government financial operations, breakdown of staffing levels, summary statement of banks, balance of payments, payment arrears and service payments, summary of the tax system, and other economic indices.
International Monetary Fund
This report provides a summary of the Antimoney Laundering and Combating the Financing of Terrorism (AML/CFT) measures in effect in the Union of the Comoros on the date of or shortly after the onsite visit. It describes and analyzes these measures, indicates the level of the Union of the Comoros’s compliance with the 40 + 9 Financial Action Task Force (FATF) Recommendations, and makes recommendations on measures to be taken to strengthen certain aspects of the system. The authorities agreed with the mission that the Comoros is a potential transit point for international terrorism.
Mr. Ernesto Hernández-Catá and C. A. François

Abstract

As a key element in the achievement of sustainable long-run growth, investment is given top priority in the development of the WAEMUď s economic policy. On average, rates of investment in the WAEMU are comparatively low.12 A major objective of the regional investment code in preparation, which is intended to replace all existing codes in member countries, is to promote investment through simpler and more transparent rules. It also seeks to correct discriminatory practices that are based on the type of economic activity, the nationality of the beneficiaries, and the size of the relevant enterprises. Another objective is to avoid the distortions associated with exemptions from customs duties and other indirect taxes. In the view of the IMF staff, however, the project as it now stands does not go far enough in the direction of eliminating exemptions, notably those on customs duties on equipment and investment goods as well as those on the value-added tax on imports and local goods and services.

Mr. Ernesto Hernández-Catá and C. A. François

Abstract

Economic performance in the WAEMU has improved considerably since the devaluation of the CFA franc in 1994. The growth of output has increased rapidly and now exceeds population growth by a substantial margin, exports and investment have recovered strongly, and budgetary and external imbalances have narrowed. Moreover, after a brief surge in the aftermath of the devaluation, inflation has returned to low levels. However, while the ratio of investment to GDP has risen since 1994, it remains low by the standards of other developing countries and even in comparison with other countries of sub–Saharan Africa, thus raising some questions about the sustainability of strong growth.