Journal Issue

West African Economic and Monetary Union: Common Policies of Member Countries—Press Release; Staff Report; and Statement by the Executive Director for the West African Economic and Monetary Union

International Monetary Fund. African Dept.
Published Date:
April 2016
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1. Economic growth has been strong in recent years, but reforms to sustain momentum and make it more inclusive have been sluggish. The region’s recent period of high growth benefitted from a post-conflict catch-up effect in Cote d’Ivoire and from scaled-up infrastructure investment in the region. However, the business environment remains unattractive, competitiveness is weak, and structural transformation and economic diversification have been modest. Poverty, unemployment, and income and gender inequalities remain high (Figure 1).

Figure 1.WAEMU: Trends in Poverty and Inequality1

1/ Prepared by Stefan Klos and Monique Newiak

2. The security situation remains fragile. As illustrated by the recent terrorist attacks in Burkina Faso and Mali, terrorist activities remain a major challenge in the region.

3. Implementation of the 2015 Article IV consultation recommendations by the regional authorities has been good but action at the national level sluggish. The BCEAO and the Banking Commission have made progress in modernizing the financial sector and strengthening the regulatory framework. Key reforms include raising the minimum share capital for credit institutions, accelerating the pace of the transposition of Basel II and III norms into the regulatory framework, promoting the establishment of credit bureaus, and putting in place a bank crisis resolution mechanism and a deposit guarantee fund. The BCEAO and the Banking Commission have also enhanced the supervision of cross-border banks, notably through the organization of supervisory colleges for the two WAEMU-based pan-African banks. Efforts have also been made to further develop financial markets to strengthen the transmission mechanism of monetary policy. The WAEMU Commission has continued to help countries transpose and implement the WAEMU directives. However, at the national level, while some efforts have been made to improve the business climate, there was no progress on fiscal consolidation. Budget deficits have increased from 3.4 percent of GDP in 2014 to 4.6 percent in 2015 with deficits falling in only two out of eight WAEMU member states.

Recent Economic Developments, Outlook and Risks

A. Recent Developments

4. Growth remains robust and inflation subdued. While average economic growth in Sub-Saharan Africa has been slower than expected, reflecting weak commodity prices and difficult financing conditions, economic activity in the WAEMU remained strong. Regional real GDP growth is estimated to have reached 6.4 percent in 2015, driven by ongoing infrastructure investments, solid private consumption, and favorable agricultural campaigns. Inflation remained subdued reflecting the exchange rate anchor and positive terms of trade developments.

5. The fiscal deficit widened further. The overall fiscal deficit has largely been driven by ongoing large public investment programs. It is estimated to have reached 4.6 percent of GDP in 2015 up from 3.4 percent in 2014. This deterioration brings the regional deficit more than 2 percentage points higher than the average of the last 10 years.

6. The current account deficit remains large in spite of lower energy prices. The drop in oil prices has lightened the energy bills for all WAEMU countries while cocoa and groundnut prices have remained buoyant, thereby improving the trade balance, notably of Cote d’Ivoire, the largest economy in the region. However, the surge of imports, associated with public investment and private consumption has partly offset the impact of lower energy bills. Thus, the region’s overall current account deficit has improved somewhat from 6.1 to 5.6 percent of regional GDP. Gross international reserves (GIR) have slightly increased, supported by a stricter implementation of the obligation to repatriate export receipts (Figure 2). The net foreign asset (NFA) position of commercial banks, however, has continued to deteriorate. This appears to reflect commercial bank sales of foreign currency to meet client needs, exceeding corresponding purchases from WAEMU central banks or from exporters.

Figure 2.WAEMU: Recent Economic Developments

7. The external position is sustainable but vulnerabilities remain. Model-based assessments indicate that the current account and real effective exchange rate are broadly in line with fundamentals. Regional reserve coverage, even after assuming that BCEAO reserves would be used to replenish commercial banks’ NFA drawing, remains adequate—provided the current account deficit stabilizes over the medium term (Text Table 1)—according to traditional metrics and under the zone’s monetary arrangement with France.1

Text Table 1.WAEMU: Selected Macroeconomic Indicators; 2014–20
Real GDP growth (%)
Inflation (average, %)1.3−
Central government finances
Overall balance incl. grants (% GDP)−3.0−3.4−4.6−4.0−3.4−3.0−2.9−2.8
Public debt (% GDP)37.338.944.745.344.343.242.041.3
Balance of payments
Current account (% GDP)−6.8−6.1−5.6−5.8−6.2−6.4−6.4−6.3
Reserves (months imports)

Box 1.WAEMU: External Stability Assessment and Competitiveness

The WAEMU external position remains stable. The regional current account deficit is estimated to have improved moderately in 2015. Contingent on fiscal consolidation and rising exports, the current account balance is expected to stabilize at above 6 percent of GDP and be fully financed over the projection period. Reserves coverage remains broadly adequate according to traditional metrics. EBA-based analyses (“EBA-lite”) suggest that the real effective exchange rate (REER) remains broadly in line with fundamentals. Survey-based indicators of structural competitiveness show improvement, but indicate significant structural bottlenecks.

BOP developments. The regional current account deficit (including grants) has continued to decrease from 6.1 percent of GDP in 2014 to at 5.6 percent of GDP in 2015 reflecting more favorable terms of trade. Current and capital transfers have declined slighly by about about 0.2 percentage point to about 5.5 and 1.7 percent of GDP, respectively. The current account deficit is expected to increase to 6.4 percent of GDP in 2018, owing to important investment-related imports, and remain at this level over the medium term. FDI and capital transfers are expected to remain the main source of external financing.

Exchange rate assessment. The External Balance Assessment1 (EBA-lite)2/ provides a current account benchmark based on the WAEMU’s fundamentals relative to the rest of the world adjusted by a policy gap (the region’s policies relative to an optimal level and relative to the rest of the world). Results do not indicate significant misalignments of the real effective exchange rate for the region. The results suggest that the real effective exchange rate overvaluation ranges between 0.7 and 5.3 percent, which means that the real exchange rate can be considered as broadly in line with the region’s fundamentals given the margins of uncertainty of such estimations.

Summary: Real Effective Exchange Rate Assessment
Current Account/GDPREER1
EBA -lite
Equilibrium real exchange rate5.3
External sustainability−4.9−6.33.3

“ + ” overvaluated

short term incl. grant

External sustainability, the current account balance at end-projection

“ + ” overvaluated

short term incl. grant

External sustainability, the current account balance at end-projection

Reserve adequacy. Regional gross international reserves increased in CFAF terms from 7,033 billion (US$14.2 billion) at end 2014 to 7,487 billion (US$11.7 billion) at end 2015 covering 4.5 months of extra-regional imports, about 63 percent of the regional broad money, and 80 percent of short-term debt. Reserve coverage is projected to stabilize at around 5 months of extra-regional imports over the medium term. The level of reserve is broadly adequate according to traditional metrics.

Competitiveness. Despite progress, competitiveness remains weak and has deteriorated since 2004 (Figure 3.4, page [22]); the region continues to lag behind its African and Asian benchmark countries (such as Ghana, Rwanda, and Tanzania—Figures 3.1-3.3) in terms of structural competitiveness. To sustain growth, the region will need to integrate into and move up the global value chains. Necessary reforms include improving investment efficiency to ensure that infrastructures are productivity-enhancing and strengthening the business climate. In particular, difficulties in registering property, dealing with construction permits, getting credit and electricity, paying taxes, and protecting minority investors pose particular challenges to firms and result in higher relative prices of WAEMU products.

1/ Phillips S. et al., 2013. “The External Balance Assessment (EBA) Methodology.” IMF Working paper, 13/2722/ IMF, 2016. “Methodological Note on EBA-lite” (forthcoming)

B. Outlook and Risks

8. The outlook remains positive (Text Table 1). Over the projection period, growth should remain above 6 percent, owing to continued strong domestic demand and stronger agricultural production. Meanwhile, inflation is expected to remain subdued over the medium term. The overall fiscal deficit should gradually decrease while total public debt is projected to stabilize at moderate levels (about 40 percent of GDP). The current account deficit (including grants) would stabilize slightly above 6 percent of GDP over the medium term because of fiscal consolidation and rising exports. FDI and capital transfers are expected to remain the main source of external financing. Reserve coverage would remain stable.

9. The outlook is subject to significant downside risks.

  • The projected economic growth assumes the realization of reforms to spur private investment. In particular, growth in most WAEMU countries anticipates progress in the efficiency of infrastructure investment, reforms of the energy sector, a more inclusive financial sector, and improvements in the business climate. If structural reforms fail to materialize, growth prospects could falter.

  • Fiscal consolidation is required to maintain macroeconomic stability and thus the sustainability of the currency peg.

  • Security-related risks remain high in several countries. Islamist groups remain active in Mali and Niger with potential spillovers to neighboring countries. Beyond the immediate human toll, security issues would affect economic activity, strain budgets and undermine foreign investment to the region.

  • On the external side, a further slowdown in global growth, and/or tighter global financial conditions, could affect macro-fiscal stability, foreign direct investment, and other external flows (Box 2). Lower cocoa and groundnut prices would also adversely affect exports. Overall, external growth shocks could reduce WAEMU growth by up to 1.5 percentage point (see Table 9 WAEMU Risk Assessment Matrix).

Box 2.WAEMU: Risks for the Regional Economic Outlook

We estimate the possible effects of identified domestic and external downside risks on the WAEMU outlook (See companion Selected Issues Paper). First, we simulate the impact of (i) country-specific delays in structural reforms and (ii) tighter or more volatile global conditions which would result in higher financing costs for governments and (iii) we model the impact of a growth slowdown in key advanced economies, China, and Nigeria. Results show that the materialization of these risks would reduce real aggregate WAEMU GDP growth by up to 1.5 percentage points through different channels.

  • Delays in structural reforms. For most WAEMU countries, growth projections under the baseline scenario assume the realization of growth-enhancing structural reforms including improvements in PFM, better incentives for private sector activity, higher investment efficiency etc. Country assessments of a delay in those reforms show substantially lower domestic investment growth coupled with less external financing, reflecting mainly a significant reduction in private and foreign investment due to a less favorable business climate. This scenario would result in a lower WAEMU economic growth by about 1–1.5 percentage points compared to the baseline scenario.

  • Tighter global and, therefore, regional financing conditions in 2016–17. While regional exposure to global financial markets remains limited, increased financing costs could affect the region through higher regional risks premia and availability of external and regional financing. Overall, WAEMU growth could be reduced by about 0.6 percentage points compared to the baseline scenario, owing to lower private investment.

  • Lower growth in key advanced economies. Result show that a 1-percentage point lower growth in key advanced economies would reduce WAEMU real GDP by about 0.8 percent after two years and about 1 percent at the peak after five years.

  • Lower growth in China. A slowdown in China would directly affect regional exports and investment flows. WAEMU countries could also be affected through cross-border spillovers from the Euro area and other emerging market partners. A 1-percentage point lower growth in China would lower WAEMU real GDP by about 0.5 percent in the short term. It is worth noting that the effects of a lower growth in China have increased over time, and also become more heterogeneous across all countries. Finally, lower growth, driven by a slowdown in the manufacturing sector has significant spillover effects suggesting a potential important role of China rebalancing process on the region.

  • Lower growth in Nigeria. Spillovers from Nigeria are the lowest: a 1-percentage point lower growth in Nigeria would reduce WAEMU real GDP by only 0.2 percent after 3-4 years.

Impact of Shock Scenarios on WAEMU Growth

(percentage point deviation from the baseline)

Aggregate numbers hide diverse situations across countries: the impact of shocks is larger in countries with higher trade openness (Benin, Senegal, and Burkina Faso) and benefitting from higher investment levels from China (Niger and Togo). Transit and informal trade are major spillover channels of regional shocks (Benin, Togo) while regional linkages increase through rapidly growing cross-border banks.

Table 1.WAEMU: Selected Economic and Financial Indicators, 2012–20
(Annual percentage change)
National income and prices
GDP at constant prices6.
GDP per capita at constant prices3.
Broad money to GDP−
Consumer prices (average)2.41.3−
Terms of trade−5.0−9.0−0.66.9−0.7−1.6−1.3−1.7−1.8
Nominal effective exchange rates−−3.9
Real effective exchange rates−−5.5
(Percent of GDP)
National accounts
Gross national savings15.015.514.816.918.218.519.019.219.6
Gross domestic investment21.523.722.724.725.926.627.227.527.8
Of which: public investment5.
(Annual changes in percent of beginning-of-period broad money)
Money and credit 1
Net foreign assets−2.1−5.30.1−0.2
Net domestic assets11.915.814.617.2
Broad money9.810.514.617.0
Credit to the private sector12.916.414.314.112.713.511.913.013.8
(Percent of GDP, unless otherwise indicated)
Government financial operations 2
Government total revenue, excl. grants17.517.817.818.218.518.719.119.419.7
Government expenditure22.623.823.824.324.324.023.924.124.4
Official grants2.
Overall fiscal balance, incl. grants (cash basis)−2.5−3.0−3.4−4.6−4.0−3.4−3.0−2.9−2.8
Basic fiscal balance, incl. grants & HIPC−1.6−1.4−1.5−0.6−
External sector
Exports of goods and services 326.624.324.425.122.722.222.021.621.3
Imports of goods and services 334.535.635.733.631.331.231.230.830.3
Current account, excl. grants 4−7.3−9.2−8.9−8.3−8.3−8.7−8.8−8.7−8.4
Current account, incl. grants 4−6.0−6.8−6.1−5.6−5.8−6.2−6.4−6.4−6.3
External public debt24.624.725.230.430.329.729.128.728.3
Total public debt36.537.338.944.745.344.343.242.041.3
Broad money27.728.730.531.3
Memorandum items:
Nominal GDP (billions of CFA francs)43,38046,23449,21553,15057,62262,51367,92773,76880,094
Nominal GDP per capita (US dollars)8378969288148438959461,0031,063
CFA franc per US dollars, average511494494591
Foreign exchange cover ratio 598.484.077.079.2
Reserves in months of imports (excl. intra-WAEMU imports)
Sources: IMF, African Department database; World Economic Outlook; IMF staff estimates.

Year on year change, end December; for 2014 year on year change, end November.

Fiscal data for 2014 reflect a strong increase in the fiscal deficit of Niger, following a new project in the hydrocarbon sector.

Excluding intraregional trade.

Data up to 2011 are corrected for intraregional trade discrepancies by BCEAO.

Gross official reserves divided by short-term domestic liabilities (IMF definition).

Sources: IMF, African Department database; World Economic Outlook; IMF staff estimates.

Year on year change, end December; for 2014 year on year change, end November.

Fiscal data for 2014 reflect a strong increase in the fiscal deficit of Niger, following a new project in the hydrocarbon sector.

Excluding intraregional trade.

Data up to 2011 are corrected for intraregional trade discrepancies by BCEAO.

Gross official reserves divided by short-term domestic liabilities (IMF definition).

Table 2.WAEMU: Selected National Accounts and Inflation Statistics, 2010–20
(Annual percentage change)
Real GDP
Burkina Faso6.
Côte d’Ivoire10.
Real GDP per capita
Burkina Faso3.
Côte d’Ivoire7.
Burkina Faso3.80.5−
Côte d’Ivoire1.
(Percent of GDP)
Gross national savings
Burkina Faso7.
Côte d’Ivoire15.315.716.116.416.416.417.017.317.9
Gross domestic investment
Burkina Faso14.920.811.211.413.215.616.818.619.1
Côte d’Ivoire16.517.016.818.419.920.821.321.722.4
Sources: IMF, African Department database; and staff estimates.
Sources: IMF, African Department database; and staff estimates.
Table 3.WAEMU: Selected Fiscal Indicators, 2012–20
(Percent of GDP)
Primary fiscal balance
Burkina Faso−2.4−2.9−1.1−0.6−2.3−1.8−1.8−1.9−1.9
Côte d’Ivoire−1.4−0.9−1.0−2.0−1.9−1.3−1.1−1.0−1.0
Niger 1−0.8−2.3−7.6−6.8−5.8−3.5−1.7−1.3−1.3
Overall fiscal balance (including grants), cash basis
Burkina Faso−2.8−2.70.4−2.8−3.0−2.5−2.5−2.5−2.5
Côte d’Ivoire−1.7−2.0−3.2−3.9−3.6−3.2−2.9−2.9−2.8
Government revenue (excluding grants)
Burkina Faso17.518.517.316.216.917.418.319.219.6
Côte d’Ivoire18.418.517.919.118.919.019.519.719.9
Government expenditure
Burkina Faso25.527.423.321.123.924.425.326.126.4
Côte d’Ivoire22.
Government current expenditure
Burkina Faso14.513.614.414.
Côte d’Ivoire17.616.016.117.516.316.516.516.917.0
Government capital expenditure2
Burkina Faso11.
Côte d’Ivoire4.
Table 4.WAEMU: Selected External Indicators, 2010–20
(Percent of GDP)
Exports of goods and services
Burkina Faso23.525.925.925.725.124.724.424.724.5
Côte d’Ivoire48.441.842.340.735.436.137.337.337.9
Imports of goods and services
Burkina Faso34.739.034.732.430.730.831.332.132.4
Côte d’Ivoire44.238.839.439.135.537.038.438.839.8
External current account (excl. grants)
Burkina Faso−10.6−13.2−9.7−7.7−6.5−6.8−7.4−7.8−8.1
Côte d’Ivoire−1.0−1.8−2.3−3.8−5.1−5.8−5.6−5.7−5.7
External current account (incl. grants)
Burkina Faso−7.2−11.0−7.9−5.7−5.2−4.8−5.4−5.8−6.2
Côte d’Ivoire−1.2−1.4−0.7−1.9−3.5−4.3−4.3−4.4−4.5
Sources: IMF, African Department database; and staff estimates.
Sources: IMF, African Department database; and staff estimates.
Table 5.WAEMU: Government Debt, 2012–20
(Percent of GDP)
External Debt
Burkina Faso22.621.421.823.123.022.422.021.721.6
Côte d’Ivoire28.026.428.
Domestic Debt
Burkina Faso5.
Côte d’Ivoire16.517.318.817.316.116.616.917.217.3
Total Debt
Burkina Faso28.328.728.629.934.833.132.432.231.8
Côte d’Ivoire44.543.647.050.347.346.144.943.943.6
Source: IMF, African Department database.
Source: IMF, African Department database.
Table 6WAEMU: Monetary Survey, Dec. 2011–Sept. 2015
(Billions of CFA francs)
Net foreign assets5,5015,2194,4484,4594,404
of which:
Commercial Banks−7251−120−358−872
Net domestic assets7,7519,32811,62013,95815,579
Domestic credit10,06511,59713,79816,27718,091
Net credit to government2,2512,7773,5294,5845,618
Net credit to the economy7,8148,82010,26911,69312,473
Claims on private sector7,8138,81510,26611,69012,469
Claims on other financial institutions15234
Other items, net−2,313−2,269−2,178−2,318−2,512
Broad Money13,25214,54716,06818,41719,983
of which: Currency in circulation3,6763,8934,2354,6644,789
(Factors affecting liquidity, in percent of previous period’s broad money)
Net foreign assets1.0−2.1−5.30.1−0.2
Net domestic assets9.711.915.814.617.2
Domestic credit11.911.615.115.417.7
Net credit to government3.
Net credit to the economy8.57.610.08.98.8
Claims on private sector8.57.610.08.98.8
Claims on other financial institutions0.
Other items, net−−0.98.8
Broad Money10.79.810.514.617.0
(Year on year percent change)
Net foreign assets2.2−5.1−14.80.2−0.8
Net domestic assets17.720.324.620.123.3
Domestic credit16.515.
Net credit to government22.223.427.129.937.3
Net credit to the economy14.912.916.413.913.6
Claims on private sector15.012.816.513.913.6
Claims on other financial institutions−74.7329.0−45.715.9−9.7
Other items, net12.5−1.9−
Broad Money10.79.810.514.617.0
Source: IMF, International Financial Statistics.
Source: IMF, International Financial Statistics.
Table 7.WAEMU: Monetary Projections, 2013–20

CFAF billion
Broad money12,53516,06818,41720,37222,79425,56828,65131,96735,733
Net foreign assets4,4484,4594,0243,5563,6193,7553,7193,703
Net domestic assets11,62013,95816,34819,23821,94924,89628,24932,030
Net credit to govt.3,5294,5845,3236,5137,1988,1218,9839,783
Net credit to the economy10,26911,69313,34415,04417,07019,09421,58424,565
Other items, net−2,178−2,319−2319−2319−2319−2319−2319−2319
Memorandum items
Broad money growth11.710.514.610.611.912.212.111.611.8
Nominal GDP growth8.
Velocity (% change)−3.1−3.6−7.0−2.4−2.8−3.1−3.0−2.6−2.7
Growth in credit to economy13.116.413.914.112.713.511.913.013.8
Growth in credit to govt.47.727.129.916.122.410.512.810.68.9
New credit to govt (CFAF bn)7521,0557391,190685924862800
New credit to govt (% of GDP)
Nominal GDP (CFAF bn)45,10848,07551,90056,43461,32566,69072,48978,844
No fiscal consolidation Scenario
Growth in credit to govt.
Net foreign assets3,9223,6662,9652,6492,0811,464
Sources: IMF, African Department database; and staff estimates.
Sources: IMF, African Department database; and staff estimates.
Table 8.WAEMU: Financial Soundness Indicators 2010–15
(in percent, unless otherwise indicated)
Solvency ratios
Regulatory capital to risk weighted assets11.312.512.812.912.711.6
Tier I capital to risk-weighted assets10.711.712.011.811.210.6
Provisions to risk-weighted assets11.410.710.810.310.79.7
Capital to total assets6.
Composition and quality of assets
Total loans to total assets55.355.255.055.954.654.0
Concentration: loans to 5 largest borrowers105.992.992.375.188.694.2
Sectoral distribution of loans
Extractive industries2.
Electricity, water and gas3.
Retail and wholesale trade, restaurants andho3t1e.l9s32.334.733.531.133.5
Transportation and communication13.611.
Insurance, real estate and services5.
Other services17.017.116.816.217.015.2
Gross NPLs to total loans17.615.916.015.314.915.3
Provisioning rate63.764.263.461.062.860.4
Net NPLs to total loans7.
Net NPLs to capital57.347.848.851.150.155.1
Earnings and profitability
Average cost of borrowed funds2.
Average interest rate on loans10.99.79.810.79.1
Average interest margin28.
After-tax return on average assets (ROA)
After-tax return on average equity (ROE)12.613.710.111.515.5
Noninterest expenses/net banking income64.861.661.060.658.6
Salaries and wages/net banking income27.126.425.726.525.4
Liquid assets to total assets33.333.632.532.230.930.2
Liquid assets to total deposits45.146.145.847.145.943.8
Total loans to total deposits84.084.386.290.089.586.3
Total deposits to total liabilities74.172.971.168.567.369.0
Sight deposits to total liabilities336.737.836.535.534.535.6
Term deposits to total liabilities37.535.134.632.932.833.4
Source: BCEAO.

the indicators do not take into consideration the additional provisions required by the WAMU Banking Commission.

Excluding tax on bank operations.

Including saving accounts.

Source: BCEAO.

the indicators do not take into consideration the additional provisions required by the WAMU Banking Commission.

Excluding tax on bank operations.

Including saving accounts.

Table 9.WAEMU: Risk Assessment Matrix
Source of RiskRelative LikelihoodPotential Impact
Spillover Risks
Short Term (ST)Tighter or more volatile global financial conditions.

Sharp asset price decline and decompression of credit spreads
MediumLow to medium. The region’s exposure to global financial markets remains limited, but increased financial market volatility and financing costs could adversely affect the region through higher regional risk premium and WAEMU countries which plan to tap international financial markets.
Tighter or more volatile global financial conditions.

Surge in the U.S dollar
HighMedium. Since the CFAF is pegged to the euro, an even stronger dollar would make WAEMU exports of goods and services outside of the euro zone more competitive, while imports would become more expensive.
Short TermSignificant China slowdown.Low/MediumMedium to high. Shaper-than-expected downturn in China could significantly lower trade, investment, aid, and tourism flows and affect WAEMU region trough cross-border spillover effects from the Euro area and SSA emerging markets.
Medium Term (MT)Significant slowdown in other large EMs/frontier economies.

Structurally weak growth in key advanced and emerging economies.

Medium. Slower growth in and subsequently lower demand for commodities by emerging markets could dampen commodity prices and thus exports in some countries (e.g. gold, cocoa); a positive impact is expected for the region’s current account deficit if mainly oil prices are affected. Slower growth in advanced markets, in particular Europe, could lower trade, remittances, foreign aid and FDI.
STHeightened risk of fragmentation/security dislocation in part of the Middle East, Africa, and Europe, leading to a sharp rise in migrant flows, with negative global spillovers.HighMedium to high. It could have negative implications on investor sentiments, and hence a dampening effect on investment and capital flows.
Regional Risks
STPolitical and security risks, including regional spillovers.MediumHigh. Security risks in the Sahel remain. Risks include a destruction of (human) capital, negative effects on growth and inclusiveness, delays in reforms, and increased fiscal cost and liquidity risks for the affected sovereign.
MTDelay in reforms at country and regional level related to (i) fiscal consolidation (ii) infrastructure investment, (iii) the energy sector, (iii) PFM, (iv) the financial sector and (iv) regional integration.MediumMedium to high. Fiscal consolidation and key reforms will require strong political will. Weak implementation capacity and bureaucratic hurdles pose risks to efficient reform implementation. With many countries targeting large infrastructure investments, a delay in PFM reforms and inefficient investment could give rise to debt, fiscal and external sustainability issues, with negative implications for growth and poverty reduction. Delays in supervisory reforms may pose financial stability risks.
STAdverse weather conditions.MediumHigh. Lower agricultural production could imply heightened food security risks, a decline in growth rates, and additional fiscal costs.
MTPersistently low non-oil commodity prices.Low/MediumHigh. Lower export revenues would adversely affect fiscal and macroeconomic performance with particular negative effects on inclusiveness and the poverty reduction.

Authorities’ views

10. The authorities broadly agreed with staff views on the outlook and risks. They pointed out that adverse weather conditions could also lower agricultural production and heighten food security risks. Adverse weather could also negate at least partially the recent improvement in value added in this sector.

Adopting a Policy Mix to Support Stability and Growth

A. Implementing Fiscal Consolidation Plans

Maintaining the growth momentum while preserving external stability and debt sustainability will require a timely and effective implementation of the planned fiscal consolidation at the national level. In that context, efforts should focus on increasing domestic fiscal revenue mobilization, enhancing the efficiency of spending and improving the quality of public investment.

11. Current national fiscal plans imply gradual fiscal consolidation over the medium-term. Fiscal deficits would decline gradually from about 4.6 percent of GDP in 2015 to below 3 percent in 2020. Domestic revenues would reach almost 20 percent in 2020 from 18.2 percent in 2015. At the same time, current spending would decrease from 15.4 to 14.8 percent while capital spending would stay at about 9 percent.

Text Figure 1.WAEMU: External Sustainability in the Absence of Fiscal Consolidation: Impact on Official Reserves

12. Prudent fiscal policy is required to preserve external stability and debt sustainability. Current projections suggest that two countries will continue to breach the 3 percent of GDP new regional convergence criterion for the fiscal deficit by 2019.2 Notwithstanding these breaches, the planned consolidation path is estimated to be consistent with prudent growth of regional monetary and credit aggregates and BCEAO reserve cover of around 5 months of imports at end-2020. However, the scope for further fiscal slippage is limited. Continuing fiscal expansion at the 2008–2013 level could erode BCEAO reserve cover to just 2 months of import cover by 2020. In addition, tighter global financial conditions constitute a source of vulnerability because they could limit sovereign bond access. If regional bank financing is used as an alternative, this could erode BCEAO reserve cover or crowd-out private investment.

Text Table 2.WAEMU: Number of Countries Violating Convergence Criteria, 2011—2020
First-order criteria
Overall Balance/GDP (≥ − 3 percent)4234555322
Average consumer price inflation (≤ 3 percent)5300000000
Total debt/GDP (≤ 70 percent)0000000000
Second-order criteria
Wages and salaries/tax revenue (≤ 35 percent)5655655555
Tax revenue/GDP (≥ 20 percent)8888888887
Sources: WAEMU; Central Bank of West African States (BCEAO); and staff estimates and projections.
Sources: WAEMU; Central Bank of West African States (BCEAO); and staff estimates and projections.

Staff’s advice

13. Increasing domestic revenue should be a foremost policy priority to create fiscal space for development needs. WAEMU countries have significant room to improve domestic tax collection (including income tax) by 0.8 up to 2 percent of GDP, by broadening the tax base and strengthening tax administration. In particular, eliminating the exemptions for VAT not included in the WAEMU code and increasing the excise tax rate for products, such as tobacco and luxury goods, in line with WAEMU directives would be beneficial. Staff encouraged the WAEMU Commission to continue, with the help of development partners, promoting and sharing best practices through regional seminars and technical assistance.

14. Better control and allocation of current spending will also help create additional fiscal space. This will require strong resolve to contain the wage bill, in line with the WAEMU convergence criteria, reduce non-priority spending and lower inefficient subsidies. Social spending and capital expenditure should be safeguarded to support diversification, boost competitiveness, and increase growth and inclusiveness.

15. The WAEMU Commission should encourage countries to transpose the new convergence criterion in national laws and accelerate progress toward the 2019 target. Whilst the current fiscal consolidation path preserves external stability and debt sustainability, the WAEMU Commission may want to coordinate efforts of national Governments and seek support from partners to ensure that the eight members follow their planned fiscal consolidation paths and respect the convergence criteria. In addition to providing credibility for recently made rules, this adjustment would provide additional buffers against negative shocks if the various risks materialize.

16. Improving public investment efficiency can help boost growth and speed up progress in realizing the development agenda. There is substantial room to improve public investment efficiency in WAEMU, in particular by enhancing the quality of institutions. The WAEMU Commission should urge the governments not only to transpose but also to implement the WAEMU directives modernizing their PFM framework, which could help countries strengthen the key stages of public investment cycle and translate their ambitious public investment plans into outcomes that will boost growth. In addition, closer collaboration between the WAEMU Commission and development partners is needed to support, develop and spread best practices in public investment and PPPs. Finally, the WAEMU Commission and the BCEAO should help member countries further strengthen their public debt management capacities to enhance and diversify their debt policies.

Authorities’ views

17. The WAEMU Commission and the BCEAO agreed with IMF staff on the need for fiscal consolidation and improved PFM practices. They agreed with IMF staff view that countries should adhere to their budget deficit reduction plans while closing the infrastructure gap. In this context, the WAEMU Commission will continue to help countries step up efforts to enhance domestic revenue mobilization, rationalize current expenditure, and improve public finance management and the quality of spending. However, both the BCEAO and the WAEMU Commission pointed out that they do not have the mandate to enforce fiscal consolidation plans and noted that Fund monitored programs can play an important role in ensuring the zone’s macroeconomic consistency. Going forward, reinforcing the mandate of the WAEMU Commission and strengthening its capacity to monitor and coordinate national fiscal policies will be needed. The BCEAO and the WAEMU Commission agreed that strengthening regional institutions should be a priority. The WAEMU Commission pointed to an ongoing study (requested by the Heads of States in January 2015) that aimed at making recommendations to strengthen the current regional institutions.

B. Enhancing Regional Monetary Policy

The current stance of monetary policy is appropriate and the current environment is propitious to developing the policy tools that may be needed if shocks disturb the economic landscape. Raising monetary policy effectiveness requires developing an active interbank market and secondary market for public securities, better controlling liquidity and the access of commercial banks to BCEAO refinancing, and broadening of the financial market investor base

18. In view of the benign inflation outlook and external developments, an immediate tightening of monetary policy is not warranted. 3 Inflation is expected to remain well below the 3 percent criterion, reserves are projected to remain stable, and the external stability assessment suggests that the exchange rate is broadly in line with fundamentals.

19. Some progress has been made in improving the operational efficiency of the monetary policy. For example, the recent launching of an electronic platform to computerize liquidity injections and absorptions, auctioning of government securities, and monitoring banks’ compliance with the established reserve requirements is welcome. The authorities have also (i) created WAMU-Securities Agency–a regional issuance agency for public debt; (ii) launched a new repo agreement, (iii) established a regional network of brokers specialized in government securities.

20. Nevertheless, the efficiency of monetary policy remains undermined by excess liquidity, low depth and segmentation of the interbank market. A persistent surplus of liquidity in the banking sector continues to pose challenges for the effective conduct of monetary policy in the region. As the WAEMU banking system is highly heterogeneous and segmented and there are no collateralized operations, even highly liquid banks are reluctant to lend to others.4 Most interbank loans take place within banking groups, to avoid any counterparty risk.5 The increasing reliance on liquidity provision to commercial banks may hamper the development of the interbank market, and expose banks to potential interest and liquidity risks.

Text Table 3.WAEMU Commercial Banks and Central Bank Refinancing
Source: BCEAO
Source: BCEAO

21. The secondary market of government securities remains underdeveloped. Two decades after its creation, the regional securities’ market remains underdeveloped. Despite some diversification, it remains dominated by short-term government papers and is regionally concentrated among local players. The bulk of investors in WAEMU sovereign regional debt markets are still resident commercial banks. The secondary market remains quasi-inexistent and foreign participation marginal. Lack of appetite from foreign investors may be explained by relatively low volumes, lack of country and maturity differentiation and a flat yield curve. Reforms are underway but progress is slow.

Box 3:WAEMU’s Regional Securities Market: Where Do We Stand?

The WAEMU securities market was launched in 1998 to facilitate cross regional funding for governments while reducing transaction costs through harmonized issuance procedures. It was planned to help WAEMU countries find stable new sources of financing as the BCEAO phased out statutory advances.

The securities’ market has not developed as much as policy makers expected. The market was expected to increase financial intermediation and help spur public and private long term investment through the deepening of the regional financial market. So far, the securities’ market has succeeded in providing short-term financing to governments but deepening has been slow.

Debt securities remain the prevailing instrument in the market. The regional market offers stocks by listed companies, corporate bills and bonds by WAEMU companies, regional bills issued by regional institutions, kola bills by non-WAEMU institutions (IFC, AFD) but the bulk of the transaction are T-bills (government papers shorter than 24 months) and T-bonds (2 to 7 years maturities). In 2014, more than 90 percent of securities were issued by WAEMU treasuries.

The government securities market expanded rapidly albeit from a very low base. The total amount of T-bills and T-bonds rose from 75 billion in 2001 to 1.5 trillion CFAF in 2014. Nonetheless, on average over the last decade the issued government paper represented less than 20 percent of WAEMU countries’ total financing.

Short-term borrowing remains predominant but maturities have expanded in recent years. T-bills still make for more than half of the issuances in 2014 but bond issuance are slowly catching up (Figure 1). The shorter maturity papers benefit from a regulatory advantage. Commercial bank holdings of T-bills bear a zero-weight in the calculation of the capital adequacy ratio and can be used for refinancing at the central banks.

The market shows a significant regional concentration. On the issuers’ side, Cote d’Ivoire and Senegal issue more than half of the total amount of T-bills traded. On the buyers’ side, financial institutions from Cote d’Ivoire, Senegal, Burkina Faso and Mali bought 75 percent of the securities.

Foreign participation remains marginal. In spite of the peg to the euro, net portfolio inflows are very limited, averaging about 200 CFAF billion in the past decade.

Trading on the secondary market remains extremely limited. Abundant liquidity in the financial system and the spread between the refinancing operations at the central banks and sovereign securities encourage banks to hold to maturity. Moreover, maturity is on average very short. Banks that need liquidity refinance at the central bank. The lack of long-term investors such as pension funds and social security bodies reduces trade opportunities in the secondary market.

Staff’s advice

22. The BCEAO should accelerate the implementation of ongoing financial market reforms to improve monetary policy effectiveness. Efforts are needed to develop further interbank, secondary debt, stock, and other financial markets by introducing the adequate infrastructure and collateral procedures, and instilling mutual confidence in market participants. Priorities in 2016 include (i) finalizing the licensing of primary dealers in government securities to activate the secondary market for government paper; and (ii) adopting measures to help diversify the investor base. Steps to make government paper more attractive for other institutional investors such as pension and insurance funds and for international investors include (i) the establishment of individual ratings for all member states; (ii) the regular listing of the securities; (iii) better dissemination of statistical information; and (iv) the elimination of WAEMU tax distortions discriminating against non-resident investors. Other supporting steps include the establishment of an interbank reference rate and an interest rate curve. These reforms, coupled with concrete progress to strengthen financial stability and (as noted in staff recommendations in the next section of this report), will help activate interbank market operations.

23. The BCEAO should gradually reduce its refinancing operations to commercial banks and maintain an adequate calibration of liquidity injections. Gradual reduction in refinancing operations would also help strengthen monetary policy effectiveness. In that context, the BCEAO should ensure strict compliance with the existing statutory refinancing ceiling for countries and banks.6

Authorities’ views

24. The BCEAO broadly agreed with staff on the need for strengthening the effectiveness of monetary policy. In particularly, they concurred with staff on the need to boost the interbank market and the secondary market of government securities. They felt that the alignment of prudential regulations with international standards, including the introduction of the financial leverage ratio, should restore confidence in the interbank market and lead to lower levels of BCEAO refinancing and expand the financial markets’ investor base.

25. The authorities noted that failures in the interbank market led to resumption of BCEAO’s open market operations. They underscored the segmented nature of the banking system, indicating that institutions with excess liquidity were subsidiaries of major international banking groups which did not participate in the interbank market. Local banks on the other hand had in general liquidity needs. They also highlighted the limited activity of the interbank market despite reforms already adopted by the BCEAO, and in particular the recently introduced repo auction mechanism. They added that additional measures such as the licensing of primary dealers and principal market operators in government securities will help develop interbank market and the secondary market for government securities.

26. The BCEAO expressed some reservations about staff’s recommendation to reduce its refinancing operations. The authorities argued that the disappointing performance of the interbank market justified central bank refinancing to promote lending to support regional economic activity. They underscored that the banks requesting access to central bank liquidities were those providing the larger volume of loans to the private sector. Consequently, they are concerned that a withdrawal of BCEAO’s refinancing at this stage could curtail financing to the private sector and weight on economic activity. The BCEAO underlined that, over time, fiscal consolidation and measures to increase repatriation of export proceeds will reduce the need for central bank refinancing.

27. Nevertheless, the BCEAO is watching closely the evolution of refinancing and risk stemming from excessive exposure to government securities. In this context, they have reduced short term liquidity injections in the last quarter of 2015. Consequently, the refinancing average rate has increased from the lower bound of the corridor (2.5 percent) to a level close to the upper bound (3.5 percent). The BCEAO is also monitoring closely potential liquidity and interest rate risks to banks. Staff and authorities concurred that additional work is needed to explore options to better control central bank refinancing operations and analyze the implications for banking risks.

Enhancing Financial Sector Stability and Financial Inclusion

The banking sector is vulnerable to credit and operational risks. The authorities should move ahead in enacting the planned regulatory reforms and improve further supervisory processes and the enforcement of existing prudential norms. Reforms to boost financial inclusion should focus on improving the business climate and financial environment to facilitate access to finance for households and SMEs.

A. Strengthening the Financial Sector

28. The authorities are making important progress in modernizing the financial sector and strengthening the regulatory framework. Reforms include: (i) adopting the increase in the banks’ minimum share capital to CFAF 10 billion effective in 2017; (ii) the adoption of the uniform regional law on credit bureaus by four Member States and progress on related operational aspects;7 (iii) the appointment of a general manager for the newly established deposit insurance fund (hence facilitating developing its organizational structure, recruiting its personnel and rendering it operational); and (iv) the adoption of a new law on anti-money laundering and countering the financing of terrorism. Furthermore, the authorities have accelerated their efforts to align their regulations with international standards and best practices. The main regulatory changes include reinforcing the banks’ capital adequacy regime and aligning it with Basel II and III framework and reducing the large exposure limit from 75 percent to 25 percent of banks’ capital by 2021. The WAMU Council of Ministers has also mandated the BCEAO to establish a bank resolution framework.

29. The BCEAO has also enhanced the supervision of cross-border banks, notably pan-African banks. In line with the IMF report on cross-border oversight of pan-African banks,8 the WAMU Banking Commission has organized supervisory colleges for the two WAEMU-based pan-African banks. The Banking Commission has also participated in supervisory colleges organized by home supervisors of Moroccan, Nigerian and Central African banking groups having subsidiaries in the region. Joint inspections have also been held with foreign supervisors. The regulatory reforms in progress also envisage subjecting parent holding companies of banks (including cross-border banks) to bank regulation and applying consolidated supervision for banking groups (including cross-border banking groups controlled by unregulated holding companies).

30. Notwithstanding the above, the WAEMU banking system still shows vulnerabilities and continues to be exposed to various risks. This includes primarily credit and concentration risk (large exposures). Non-performing loans remain at high levels (i.e. 15.4 percent at-end June 20159) even though economic activity is buoyant. In addition, 13 percent of banks fail to comply with the minimum capital requirement of 5 billion at-end June 2015 and 10 percent of banks record negative equity. While several banks were put under close scrutiny or temporary administration by the WAMU Banking Commission, resolution of troubled banks is often delayed and challenged by national authorities. Moreover, bank lending is still hampered by poor legal and judicial processes when it comes to collateral registry and recovery and lack of information on the solvency and quality of borrowers.

Text Figure 2.WAEMU: Compliance of Banks with Key Prudential Limits

* Data on compliance with the related party and the single large exposure limits are not yet available for June 2015.

Staff’s advice

31. Additional efforts are needed to strengthen financial stability. Priorities include:

  • Strengthening the supervisory processes: The Banking Commission needs to strengthen its supervisory tools (e.g. risk mapping, bank risk assessments and ratings, stress-tests), build its staff capacity, and bring its methodologies in line with risk-based supervision. The BCEAO and the Banking Commission should enhance the supervisory framework to allow for a more proactive and risk-based supervision, including for AML/CFT purposes, and a better enforcement of prudential limits

  • Preparation for the implementation of the new regulations: in anticipation of the enactment of the new regulations, the BCEAO and the Banking Commission should build the capacity of their staff and keep an open communication with banks to ensure a smooth implementation of the new requirements and a close follow-up of banks that will not be able to comply with those requirements.

  • Enforcement: The Banking Commission needs to (i) ensure strict application of the prevailing prudential rules and regulations governing banking activity and (ii) take diligent, timely, and appropriate actions to resolve the problems of troubled banks.

  • Starting the operations of the deposit guarantee fund: The deposit guarantee fund needs to become fully operational and play its role of instilling confidence in the banking sector.

  • Bank resolution framework: It is important to develop a resolution framework that includes a resolution authority and a resolution fund. However, WAEMU policymakers also need to make sure that the new resolution regime is in line with best practices and international standards (notably the Financial Stability Board “Key Attributes of Effective Resolution Regimes for Financial Institutions”). The resolution authority should be endowed with the necessary powers and independence and that only courts have the right (but with non-suspensive effects) to rule on appeals against license withdrawal decisions. 10

Authorities’ Views

32. The authorities agreed with the thrust of staff views on financial stability and stressed that they will continue their reforms to upgrade financial sector regulation and supervision. They underscored that recent decisions, including the adoption of Basel II and III capital framework, will enhance the resilience of banks against potential shocks and vulnerabilities. The BCEAO also indicated that the introduction of credit bureaus and the plan to reduce large exposure limits will reduce credit and concentration risks. The BCEAO fully agreed that the resolution authority should be endowed with the necessary powers and independence. They, however, indicated that the regional legal system may not have the appropriate capacity to pronounce appeals against decisions to withdraw licenses and its shortcomings may slow down the resolution of problem banks. 11

B. Enhancing Financial Development and Inclusion

Despite the progress made in recent years to improve financial inclusion and development, WAEMU countries still lag behind benchmark countries. Access to finance and utilization of financial services remain low especially for the most vulnerable parts of the population. Further, a new measure of financial development shows that WAEMU countries rank below benchmark countries particularly in terms of financial market development.12

Staff Advice

33. Additional efforts are needed to boost financial development and inclusion. The most urgent reforms should aim at (i) lowering the cost of financial services; (ii) strengthening the legal framework and judicial processes; (iii) enhancing the business environment; and (iv) improving financial literacy and financial consumer protection. The authorities are encouraged to build on the fast growing access of the population to mobile phones, to boost the development of mobile banking, while paying due consideration to financial stability, and anti-money laundering issues.

Authorities’ Views

34. Authorities agreed with the thrust of staff’s recommendations and highlighted their efforts to further promote financial inclusion and deepening. They indicated that a regional financial inclusion strategy is being coordinated with national authorities. This strategy will aim to enhance access to financial services and their use. They also underlined the need to focus on more granular targets to ensure that the strategy addresses the needs of different niches of the population. They underscored the rapid development in mobile payment services, notably in Côte d’Ivoire, and stressed that their approach to promotion of these services has been accompanied by adequate regulation to limit associated financial risks.

Promoting Competitiveness and Inclusion

Promoting competitiveness and inclusion would help achieve higher and more inclusive growth.

35. Improving the business environment is urgent to boost competiveness. While estimates do not indicate significant price-competiveness issues, structural challenges remain. Survey-based indicators of structural competitiveness show improvement, but still indicate significant bottlenecks with business obstacle in registering property, dealing with construction permits, getting credit and electricity, paying taxes (Figure 3). The region’s lagging infrastructure, high costs of inputs such as communication, transport and electricity and the weak business and legal environments are hampering competitiveness in the WAEMU region. Despite progress, competitiveness remains weak and has deteriorated since 2004 (Figure 3.5); the region continues to lag behind its African and Asian benchmark countries (e.g. Ghana, Rwanda, and Tanzania—Figure 3.1) regarding structural competitiveness (Figures 3.3 and 3.4). To sustain growth, the region will need to integrate into and move up the global value chains. Necessary reforms include improving investment efficiency to ensure that investment in public infrastructures is productivity-enhancing and strengthening the business climate. In particular, difficulties in registering property, dealing with construction permits, getting credit and electricity, paying taxes, and protecting minority investors pose particular challenges to firms and result in higher relative prices of WAEMU products.

Figure 3.WAEMU: Structural Competitiveness

Note: Asia-Benchmark includes Bangladesh, Cambodia, India, Nepal, Lao PDR, and Vietnam; Africa-benchmark—Ghana, Kenya, Lesoto, Rwanda, Tanzania, Uganda, and Zambia.

Sources: BCEAO, World Bank Doing Business and Global Competitivenss Index; and IMF staff calculation.

36. Higher inequalities are hindering economic growth and inclusion. Progress on poverty alleviation and improving social indicators has been encouraging. The majority of WAEMU countries have succeeded in reducing extreme poverty rates13 often from very high levels. Extreme poverty ratios in Burkina Faso, Mali, Niger and Senegal have declined by more than 25 percentage point since the early 1990s. However, while declining, poverty rate as well as income inequality and gender inequality in the region remain among the highest in the world (see figure 1 and companion Selected Issues Paper).

Staff Advice

37. Staff recommended promoting business climate reforms through the dissemination of best practices. Fostering regional integration and adopting a regional approach to bridging the infrastructure gap would also help improve competitiveness. The WAEMU Commission should play a greater role in coordinating infrastructure plans and could work with development partners to build a regional capacity to assist national Governments in properly preparing PPPs and large projects.

38. Staff underscored that there could be a growth dividend for policies directly aimed at increasing human capital investment through reducing inequality. In particular, efforts to close gender gaps in opportunities, such as in education and health, and granting the same legal rights to women as for men could boost per capita growth. Closing gender gaps would not only stimulate growth through a more efficient allocation of resources, it would in addition increase total education and improve human capital in the region, thus boosting growth further. The WAEMU Commission could catalogue all discriminatory legal provisions and engage members in a dialogue to establish a timetable to eliminate these. An annual report on progress made could provide an incentive for national action and provide Civil Society Organizations in member states with the ammunition to press for legal changes that are both fair and good for growth.

Authorities’ Views

39. Authorities agreed with the thrust of staff’s recommendations. They highlighted ongoing efforts to address infrastructure gaps, reduce the cost and alleviate the burden of doing business, promote financial inclusion and deepening, and strengthen human capital.

Other Issues

40. The latest safeguards assessment of the WAEMU common central bank, BCEAO, found a continuing strong control environment. Post assessment monitoring of the BCEAO indicate that all recommendations, except one, have been implemented. These include strengthening the external audit arrangements by appointments of an international firm with ISA experience for the audits of FY 2015–17, and reinforcing the capacity of the audit committee with external expertise to oversee the audit and financial reporting processes. The outstanding recommendation, on IFRS, is substantively completed and the BCEAO is in the process of finalizing certain aspects based on discussions with its external auditors.

41. The BCEAO made significant efforts to modernize its statistical data collection, storage, treatment and dissemination. The reforms underway or planned over the period 2016-2018 focus on:

  • redesigning business surveys and non-financial data collection;

  • upgrading to quarterly GDP statistics,

  • modernizing the collection device and data processing on banking conditions;

  • redesigning quarterly balance of payments data.

Staff Advice

BCEAO should continue to improve quarterly BOP statistics. In particular, they should start compiling quarterly external debt statistics and review the possibility of compiling a WAEMU-wide reserves template.

Box 4.WAEMU: IMF Technical Assistance to WAEMU Institutions

Over the last three years, IMF provided technical assistance (TA) to the WAEMU in several areas, notably on improving data quality, financial sector supervision and regulation as well as on debt management, tax policy and Public Financial Management. In particular, TA programs focused on the following areas:

Real and external sector statistics. The implementation of the 2015-2020 regional statistical programs, including the migration to the 2008 System of National Accounts. In addition, the focus is on improving infra-annual indicators by (i) implementing quarterly national accounts as well as quarterly balance of payments in all countries and (ii) improving the quality of some indicators such as the industrial production index and the producer price index.

Financial sector and debt management. The transition to Basel II and Basel III. The operationalization of Agence UMOA-Titres, a regional agency created in 2013 by the WAEMU Council of Ministers to assist the eight member states implement their issuance debt plans.

Tax policy. Assisting the WAEMU Commission in designing and monitoring the application of the WAEMU tax coordination framework within the eight member states through technical assistance as well as regional seminar.

Public Financial Management. Assisting the WAEMU Commission in strengthening the capacities of senior officials from key Public Financial Management (PFM) related areas in member States to transcribe and implement regional PFM directives adopted in 2009.

Staff Appraisal

42. Economic growth has been robust and macroeconomic conditions generally sound. Despite the fragile security situation in some member countries and a less favorable external environment in 2015, economic growth exceeded 6 percent for the second consecutive year, helped in part by favorable weather and positive terms of trade developments. Inflation remains under control and the external position has been stable with gross international reserves at 4.3 months of imports at end-December 2105.

43. The outlook remains positive but is subject to considerable downside risks. The GDP growth rate is expected to turn out at around 6.5 percent in 2016, buoyed by strong domestic demand, driven essentially by public investment Factors that could weigh on growth include persistent security problems in the region, delays in implementing fiscal consolidation as well as structural reforms, poor weather, a reversal of gains in the terms of trade, a sharper slowdown of global economic growth, and tighter international financing conditions.

44. The challenge is to sustain the growth momentum while preserving internal and external stability in an uncertain global landscape. This will require prudent and well-coordinated national fiscal policies and regional monetary policy, and strong resolve to move ahead with long-awaited structural reforms to boost competitiveness and diversification, improve the business environment and enhance inclusion. The BCEAO, Banking Commission and WAEMU Commission may need to be more forceful in their dialogue with national authorities to press for the reforms required to safeguard growth and promote more equality of opportunity.

45. Pursuing fiscal consolidation while expanding space for development needs would help preserve macroeconomic stability and support growth. In this context, the WAEMU Commission should help the member countries move forcefully on fiscal reforms to increase domestic revenue, rationalize current spending, and improve public financial management and the quality of spending. Reforms to increase public investment efficiency and further strengthen debt management are welcome.

46. The monetary policy stance is currently appropriate but enhanced monetary effectiveness is needed. Further progress to improve liquidity management, deepen financial markets, and strengthen market-based operations, will help enhance monetary transmission mechanisms. The benign inflation outlook and favorable macro-economic environment offer an opportunity to focus the energies of the BCEAO in this area.

47. Financial stability, deepening and inclusion are essential to support growth. Staff commended the authorities for the significant reform efforts in 2015 to modernize the financial sector and strengthen banking supervision. Looking forward, the authorities need to speed up the reform agenda, particularly the implementation of Basel II and Basel III, strengthen risk-based supervision, align prudential limits with international standards and best practices, and avoid regulatory forbearance. Staff encourages the authorities to adopt and implement the regional financial inclusion strategy.

48. Sustaining higher and inclusive growth will also require enhancing competitiveness and diversification, and reducing inequalities. Efforts will be needed to further improve public infrastructure, reduce the cost of inputs and ease the business environment. Efforts to close gender gaps in opportunities, such as in education and health, and granting the same legal rights to women as for men could boost per capita growth as well as promoting more social justice. The WAEMU Commission may need to play a stronger role in collecting information and disseminating it to promote action to remove legal discrimination.

Table 10.WAEMU: Authorities’ Responses to 2015 Policy Recommendations(Scale: fully consistent, broadly consistent, partially consistent, and inconsistent)
2015 Article IV RecommendationsAuthorities’ Response
Policy Mix
  • ‒ Macroeconomic conditions do not warrant a tightening of monetary policy at this juncture.

  • ‒ Closely follow the evolution of the macro-prudential risks flowing from its sharp increase in commercial bank refinancing.

Broadly consistent
  • ‒ Risks remain but are monitoring closely by the BCEAO.

Fiscal Policy

  • ‒ Governments need to adhere to their budget deficit reduction plans.

Partially consistent
  • ‒ Planned fiscal consolidation has been postponed in most countries.


sector Development
  • ‒ Accelerate financial sector reforms

  • ‒ Accelerate the development of the interbank and government debt markets.

Broadly consistent
  • ‒ Adoption of the uniform Law on credit bureaus.

  • ‒ New repo agreement.

  • ‒ Launching of a regional network of brokers specialized in government securities.

  • ‒ Reforms to debt and interbank market include the introduction of a new repo agreement, the launching of a regional network of brokers specialized in government securities.

Financial Regulation

and Supervision
  • ‒ Substantially strengthen transparency, bank supervision, and crisis management resolution framework.

  • ‒ Develop macro-prudential analyses, with regular stress testing and early warning indicators.

Broadly consistent
  • ‒ Significant progress in upgrading the bank regulatory framework and enhancing the supervision of pan-African banks.

  • ‒ Stress testing done.

  • ‒ Increase in the banks’ minimum share capital to CFAF 10 billion.

  • ‒ Establishment of a bank resolution framework.

  • ‒ Significant efforts to transpose Basel II/III.

  • ‒ the WAEMU banking system continues to be exposed to credit and concentration risks



  • ‒ Reinforce the regional growth agenda by concrete and coordinated actions to -improve structural competitiveness, accelerate regional integration, and strengthen economic resilience.

Partially consistent Some improvements in the business environment.

Adoption of ECOWAS tariff in 2015
Table 11.WAEMU: Selected Policy Recommendations for Member States
Fiscal and Debt PoliciesFinancial Sector and Structural Reforms
  • ‒ Boost domestic revenue, mainly through better tax administration.

  • ‒ Preserve debt stability by predominantly relying on concessional financing, prioritizing investments, and enhancing debt management.

  • ‒ Improve PFM and government capacity to support efficient spending.

  • ‒ Improve the business environment, including through financial sector reforms.

  • ‒ Improve coherence of budget planning and execution. Improve debt and cash management.

  • ‒ Attend to pace and quality of public investment spending.

  • ‒ Boost energy supply; implement reforms to put income support schemes in the cotton sector on a more sustainable basis.

  • ‒ Implement a more systematic approach to transfer schemes to protect the vulnerable.

  • ‒ Build fiscal buffers, particularly through tax policy measures, given rising fiscal risks (namely from public enterprises, PPPs).

  • ‒ Strengthen public financial and debt management, and monitoring of debt and fiscal risks. Pursue prudent borrowing policy to avoid an excessive bunching of maturities in the mid-2020s, and to take adequate consideration of rollover and foreign exchange risks.

  • ‒ Implement the financial sector reform, including early restructuring of public banks.

  • Further reforms to improve the business climate and encourage private investment, and strengthen national statistics.

  • ‒ Advance PFM reforms, particularly in budget execution and better Treasury management

  • ‒ Step up debt management and maintain a prudent borrowing policy, seeking mostly grants and concessional loans.

  • ‒ Prepare a medium-term strategy, including measures to improve the business environment, increase financial deepening, and promote the development of the cashew sector.

  • ‒ Mobilize more tax revenue by broadening the tax base and tightening tax exemptions; improve quality of spending.

  • ‒ Implement fiscal decentralization plans (gradually).

  • ‒Keep the basic fiscal balance close to zero and the overall fiscal balance in line with overall public debt sustainability.

  • ‒ Reduce NPLs by accelerating clean-up of commercial banks’ balance sheets; restructure the BHM (state-owned bank); clean up the microfinance sector.

  • ‒Improve the business environment; improve public infrastructure and education; lighten the labor tax load; tackle corruption.

  • ‒ Maintain fiscal sustainability and strengthen budgetary oversight, while anchoring envisaged investments in a multiyear plan

  • ‒ Implement a prudent debt policy, using concessional resources and channel loans to high return projects.

  • ‒ Strengthen long-term resilience to weather related shocks by enhancing food security and facilitating movement of goods.

  • ‒ Promote economic diversification and private sector led-growth: scale-up investment on key infrastructure (health, education) and financial inclusion.

  • ‒ Anchor fiscal policy on an agreed debt path, with corrective action mandated in case of deviations.

  • ‒ Control public consumption as envisaged in the PSE resist any pressure to relax the deficit target.

  • ‒ Further improve public financial management

  • ‒ Accelerate structural reforms, particularly in the electricity sector

  • ‒ Place fiscal balances on a sustainable path to ensure debt and external sustainability;

  • ‒ Undertake investment projects that are fully integrated in all phases of the budget process and strengthen debt management.

  • ‒ Enforce the regulatory framework in the financial sector, solve problem banks, and strengthen supervision in the microfinance sector. Further modernize revenue administration, improve public investment management, open key economic sectors to private sector competition, and further improve the business environment.

The arrangement with France provides an operation account on which the BCEAO can draw in case of reserve shortage – a mechanism akin to an overdraft possibility. However, in exchange of the French guaranteeing of the CFA Franc peg to the Euro, BCEAO countries must hold 50 percent of their exchange reserves at the French Treasury, and 20 percent of the BCEAO liabilities must be covered by foreign reserves.

On January 2015, the WAEMU Heads of States adopted a new set of convergence criteria to be met by 2019.

The monetary policy of the BCEAO pursues two objectives;(i) price stability and (ii) sound and sustainable growth.

A relatively narrow group of banks holds most excess liquidity in the region and they cannot use it to buy government securities because most of them have already reached the internal statutory ceilings on country-specific exposures imposed by their headquarters

IMF Country Report No. 13/92, Staff Report On Common Policies For Member Countries: Supplement-Financial Depth And Macrostability

For each country, total stock of refinancing backed by public securities should not exceed 35 percent of tax revenue mobilized during the fiscal year before the last. Central Bank refinancing to a single counterparty should not exceed 35 percent of customer lending by said counterparty. At December 15, 2015, the ratio stood at 32.4 percent for the countries of the Union as a whole. It should nonetheless be highlighted that, at that same date, four of the eight member countries were in breach of the provision. Several banks have reached the ceiling and have been denied access to refinancing.

The common law on credit bureaus was adopted by Côte D’Ivoire, Mali, Niger and Senegal. Measures to adopt the law in other WAMU member states are underway. Main instructions on application of this common law were issued by the BCEAO. A new WAMU-level credit bureau based in Côte D’Ivoire was licensed in May 2015.

Pan-African Banks: Opportunities and challenges for cross-border oversight / prepared by a staff team led by Charles Enoch et al.. – Washington, D.C.: International Monetary Fund, 2015.

The high level of non-performing loans can be largely explained as a legacy from the past.

It is important to note in this respect that, based on the Financial Stability Board Key attributes for effective resolution, the legislation establishing resolution regimes should not provide for judicial actions that could constrain the implementation of, or result in a reversal of, measures taken by resolution authorities acting within their legal powers and in good faith.

Currently, right of appeal is given to WAMU council of ministers and not to courts.

This measure is based on a new broad-based index of financial development by Svirydzenka (2016) and Sahay and others (2015). It helps benchmarking countries (like WAEMU countries) against benchmark groups according to their financial institutions and markets. For more information, refer to WAEMU – 2016 – Regional Consultation -Selected Issues.

Extreme poverty is defined as the ratio of the population living on less than US$ 1.90 (2011 PPP)

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