My WAEMU authorities would like to thank staff for the fruitful discussions held with the regional institutions and which allowed a broad overview of the achievements of the economic and monetary union as well as the policy challenges facing the region. My authorities consider the thrust of the report as a fair reflection of the discussions, and would like to reiterate their full commitment to continue to work towards achieving a more stable and prosperous union. In this regard, they will step up their efforts in critical areas including the coordination of fiscal policy, the deepening of the financial sector and the structural transformation of the economies to entrench growth, bolster trade and provide employment opportunities.
I. Recent Developments, Fiscal Policy and Convergence
After declining significantly in 2011 due to the post-election crisis in Côte d’Ivoire and the drought in the Sahel, regional growth is estimated to have rebounded strongly at 5.8 percent in 2012. The main drivers of this growth were the recovery in Côte d’Ivoire –the largest economy of the Union – the rebound of agricultural production in a number of countries, the dynamism of the tertiary sector and the start of oil production in Niger. Inflation in the region was subdued to 2.5 percent, lower than in 2011, though some countries faced some upward pressures due to high food and fuel prices.
The situation in Mali has had an adverse impact on the domestic economy and triggered large refugee inflows in neighboring countries and a humanitarian crisis. Nevertheless, the effect on the area-wide economy has been kept in check. My authorities would like to express their gratitude to the partners who have helped to restore the full territorial integrity of Mali.
The coordination of fiscal policy and the monitoring of convergence criteria set accordingly is an important agenda for my WAEMU authorities. The end-2012 assessment showed that overall compliance with the regional surveillance framework was mixed. Most countries missed the key criterion on fiscal deficit, but the situation on arrears improved significantly. Likewise, the drastic reduction of transfers and subsidies positively impacted public finances, as had debt relief under the HIPC and MDRI initiatives. Going forward, my authorities have initiated a thorough analysis on the relevance of the convergence criteria in light of recent 2 major developments. In this regard, they view as critical the setting of a new criterion that ensures debt sustainability.
The overall agenda of harmonizing the practices in public finance management is proceeding well. Member countries’ authorities are working towards transposing in their national frameworks the WAEMU directives on public financial management. These directives are meant to harmonize within the Union, the rules for the preparation, submission, approval, execution and control of budgets, and to encourage efficient and transparent management of public finances in all countries.
II. Development of Financial Markets and Monetary Policy
Membership in the Franc Zone, which has a common currency pegged to the Euro, has been beneficial to the countries as it has been a source of stability. Thanks to a stable exchange rate which remains in line with fundamentals, my authorities have used appropriately monetary policy in their efforts to stabilize the macroeconomic framework. Yet, they are cognizant of the weaknesses of the financial system that still impede the proper transmission of monetary policy and hence limit the ability of the BCEAO’s instruments to control inflation. The central Bank has initiated a variety of reforms to modernize and strengthen the financial markets in this regard. One critical reform to be launched by mid-2013 aims to deepen the interbank market including by introducing collateralized operations to address the reluctance of liquid banks to lend to illiquid ones.
The BCEAO has also taken steps to better organize and develop the government debt market. Measures underway include: (i) the rollout of an electronic platform to auction and trade liquidity and government paper (“application Trésor”); (ii) the introduction of primary dealers, which should accelerate the development of the secondary government debt market; and (iii) the establishment of a regional debt agency, which will advise national treasuries and help improve issuance coordination.
My authorities are committed to continue to take measures aimed at deepening and strengthening the financial system which remains dominated by banks to date. Though the banks are liquid and well capitalized, my authorities are aware of the main challenges of the sector, as evidenced in the pilot studies on Benin and Senegal. Critical weaknesses include shallowness of the sector, high concentration of credit, insufficient transparency and informational asymmetries, weak business environment and legal and judicial frameworks, and regulatory and supervision issues.
My authorities have stepped up actions on many fronts to address these weaknesses. The BCEAO has recently overhauled some key prudential ratios. As an example, at the request of banks, the transformation ratio now requires that only 50 percent of long term deposits should finance long term lending, compared to the previous ratio of 75 percent, which was a major obstacle to lending. In the same vein, the central bank has also launched the preparatory work to establish a credit bureau, which will gather information on customers and facilitate lending in the Union. The BCEAO-initiated reforms are being complemented by national initiatives. Many governments have adopted financial sector development 3 strategies with the view to improve financial inclusion and enhance credit to the private sector, especially SMEs. The improvement of the overall business climate in most countries of the Union has attracted new banks to the region and the ensued competition has benefited the consumers, especially the formerly unbanked segments of the population.
III. Structural Transformation and Growth
In addition to conducting a sound policy mix to maintain macroeconomic stability and reforms to deepen the financial sector to support the private sector, my WAEMU authorities pay due regard to policies aimed at engineering a structural transformation of the Union’s economies and further unleash area-wide growth.
Output is expected to remain robust in 2013 and at about 6 percent in the medium term. This trend should be backed by the member countries’ planned large public investments. Most countries, including Cote d’Ivoire and Niger, have recently unveiled national development plans to be implemented over the coming years and which are geared on buoyant investment from the public and private sectors. These plans have secured large support from official donors and private investors. Closing the infrastructure gap remains one of the key elements of the country authorities’ agendas. A concerted effort is underway in this area, and national efforts are well complemented by intraregional infrastructure projects. The WAEMU Commission is working on a vast array of transportation corridors, which will connect capital cities within the Union, and thus facilitate integration between the economies and boost areawide growth.
My authorities have also worked expeditiously to address the energy issue. The regional fund created in this regard has helped finance urgent projects to address electricity shortages in most of the Union member countries. My authorities continue to work on long-term projects capable of increasing the energy supply and reduce its costs for states’ budgets. Progress on these fronts of transportation and energy should help boost the price and nonprice competitiveness of the region, and advance integration. Likewise, the second phase of the Regional Economic Program should help lift barriers to trade, enhance regional integration and harness its growth dividends. Furthermore, it should avail additional resources to complement national efforts to support enterprises and hence broaden the industrial base and increase the share of manufactured goods in the region’s exports. In so doing, the economies of the Union should be able to bolster trade and create highly needed employment opportunities.
Despite new political and security challenges in 2012, the WAEMU region has harnessed the peace dividends from Cote d’Ivoire and benefited from buoyant activity in key sectors. This trend is expected to hold and growth should continue to be robust in 2013 and over the medium term. My WAEMU authorities are fully aware of the challenges still facing the region’s economies and are committed to implement the appropriate policies for these favorable prospects to materialize.
For the period ahead, my authorities will step up their efforts to revamp the regional surveillance framework with the view to enhancing compliance of member countries and prevent risks. The conduct of macroeconomic policies will go hand in hand with structural reforms to deepen the financial sector and make it a vibrant support to private activity. In the same vein, the WAEMU authorities will leverage regional instruments to accompany the structural transformation of the region’s economies, strengthen the private sector and enhance area-wide employment.