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IMF Executive Board Concludes Regional Consultation with West African Economic and Monetary Union

Author(s):
International Monetary Fund. African Dept.
Published Date:
April 2016
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On March 21, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the annual Discussion on Common Policies of Member Countries of the West African Economic and Monetary Union (WAEMU).1

Background

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, driven by ongoing infrastructure investments, solid private consumption, and favorable agricultural campaigns. Inflation has remained subdued around 1 percent in 2015, reflecting the exchange rate anchor and positive terms of trade developments. Monetary policy has remained accommodative, with the key policy rate unchanged at 2.5 percent since September 2013, and private sector credit grew by nearly 14 percent in 2015.

The overall budget deficit (including grants) increased to 4.8 percent of GDP in 2014, up from 3.3 percent in 2013, largely driven by ongoing large public investment programs to address countries’ infrastructure gaps. This deterioration increases public debt for the region to 44.7 percent of GDP in 2015 from 38.9 percent in 2014.

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. As a result, in 2015 the region’s overall current account deficit reached 5.6 percent of regional GDP, compared with 6.1 percent in previous year, and gross international reserves rose to 5 months of imports from 4.7 months in 2014.

The medium-term growth outlook remains positive but entails significant downside risks. Growth should remain above 6 percent, owing to continued strong domestic demand, while inflation is expected to remain subdued. The overall fiscal deficit should gradually decrease while total public debt is projected to stabilize at moderate levels (about 40 percent of GDP). In the short term, security risks remain high. In the medium term, weaker trading partner growth, tighter global financial conditions, sluggish implementation of structural reforms, and difficulties delivering on the planned fiscal consolidation could weaken growth prospects.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the region’s continued strong growth performance despite the fragile security situation in some member countries and a less favorable external environment. Noting the risks to the outlook, Directors encouraged the authorities to safeguard macroeconomic and financial stability by implementing prudent and well-coordinated national fiscal policies and regional monetary policy. Strong resolve to move ahead with the much-needed structural reforms would help achieve higher and more inclusive growth.

Directors underscored that pursuing fiscal consolidation plans, while expanding space for development needs, is critical to preserve macroeconomic stability and support growth. In this regard, they encouraged the WAEMU Commission to help member countries move decisively on fiscal reforms. Directors encouraged the authorities to increase domestic revenue by broadening the tax base and strengthening tax administration, and rationalize current spending, particularly the wage bill. They also called for measures to improve public financial management and the quality of spending, and reforms to increase public investment efficiency. In addition, Directors emphasized the importance of further strengthening debt management.

Directors highlighted the need for enhancing monetary policy effectiveness. They viewed the benign inflation outlook and favorable macroeconomic environment as an opportunity to focus on reforms to further improve liquidity management, deepen financial markets, and strengthen market-based operations.

Directors commended the authorities for the significant reform efforts to modernize the financial sector and strengthen banking supervision. Underlining that financial stability, deepening, and inclusion are essential for growth, Directors encouraged the authorities 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, enforce existing prudential rules to reduce NPLs, and avoid regulatory forbearance. Directors also encouraged adoption and implementation of the regional financial inclusion strategy.

Directors emphasized that accelerating the pace of structural reforms aimed at boosting competitiveness and diversification will be key to sustaining the growth momentum and reducing poverty. They particularly highlighted the need for improving the business climate and addressing income and gender inequalities.

The views expressed by Executive Directors today will form part of the Article IV consultations with individual member countries that take place until the next Board discussion of WAEMU common policies. The next Article IV consultation discussion with the WAEMU regional authorities will be held on the 12-month cycle in accordance with the Executive Board Decision on the modalities for surveillance over WAEMU policies.

Table 1.WAEMU: Selected Economic and Financial Indicators, 2012—2020
201220132014201520162017201820192020
Est.Proj.
National income and prices(Annual percentage change)
GDP at constant prices6.76.06.36.36.36.66.66.56.4
GDP per capita at constant prices3.73.23.43.43.43.73.83.63.6
Broad money to GDP−3.13.56.32.6
Consumer prices (average)2.41.3−0.11.01.71.81.92.02.0
Terms of trade−5.0−9.0−0.66.9−0.7−1.6−1.3−1.7−1.8
Nominal effective exchange rates−2.44.33.9−3.9
Real effective exchange rates−2.72.81.0−5.5
National accounts(Percent of GDP)
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 investment5.77.37.27.78.38.08.18.18.2
Money and credit 1(Annual changes in percent of beginning-of-period broad money)
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
Government financial operations 2(Percent of GDP, unless otherwise indicated)
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 grants2.63.02.71.41.81.91.81.71.9
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−1.6−1.4−1.5−0.6−0.40.10.40.30.3
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)5.14.54.75.04.84.84.94.95.0
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).

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.

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