Building Integrated Economies in West Africa
Chapter

Chapter 8. Financing Growth

Author(s):
Alexei Kireyev
Published Date:
April 2016
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Author(s)
Mame Astou Diouf and François Boutin-Dufresne 

The West African Economic and Monetary Union (WAEMU) region faces the challenge of mobilizing resources for growth financing. The regional financial market has grown substantially in the past decade but still remains relatively shallow and falls short of supplying sufficient long-term financing for growth-enhancing public and private investment projects. Although the institutional structure for financing mobilization is broadly in place, the undiversified issuer and narrow investor bases, banks’ preferences for short-term securities, the limited set of maturities offered by sovereigns, underdeveloped secondary markets for bills and bonds, organizational issues, and limited access to information increase financing costs and hinder market efficiency. The yield curve in the region has been generally upward sloping, as interest rates at issuance were higher for securities with longer maturities. The interest rates have been largely driven by country ratings, market liquidity conditions, and bidders’ appetites at the time of issuance. The principal component analysis in this chapter suggests that the issuance volumes offered also mattered for the level of interest rates, with seasonality, issuance procedures, and the frequency and predictability of issues also playing their roles. Further reforms could help the region reap the full benefits of a more dynamic securities market to finance growth-enhancing projects.

Resource Mobilization

To finance growth, several initiatives to create regional financial markets in Asia, Europe, and Africa have been pushed forward in the last decade. The global financial crisis highlighted the importance of regional financial markets’ ability to provide liquidity to governments and private sector actors during periods of heightened economic and financial uncertainty. The launching of regional markets aimed to cater to governments’ and the private sector’s financing needs and growth ambitions, and to smooth out global economic and financial woes by sustaining adequate spending and investment levels during economic and financial volatility.

The WAEMU region, which faces challenges of mobilizing resources for growth financing, was no stranger to this trend. The WAEMU securities market was launched in 1998. Its creation followed the decision of the region’s Council of Ministers in 1993 to establish a common financial market to respond in a more transparent, efficient, and harmonized manner to the financing needs of WAEMU countries and private corporations. That mandate was reinforced by the 2001 decision to gradually phase out statutory advances with a total elimination by 2010, which encouraged governments to substitute sovereign issues to the Central Bank of West African States’ (BCEAO’s) direct lending.

The securities market benefited from the region’s economic and monetary integration, notably its shared institutions and harmonized financial regulations. When the securities market became operational in 1999—more than three decades after the WAMU1 was set—the region was already functioning in a coordinated manner with a common central bank, regional monetary policy, and uniform banking and financial regulations. The creation of the regional securities market completed the WAEMU’s financial integration by facilitating cross-regional funding for governments while reducing transaction costs through harmonized issuance procedures. In addition to these enabling preconditions, the market benefited from the region’s relatively strong macroeconomic and political stability—notwithstanding the crisis in Côte d’Ivoire and Mali—and from the strong credibility of the CFA franc/euro peg.

While the securities market succeeded in providing short-term financing to actors, it fell short of expectations regarding the financing of growth-enhancing, long-term investment projects. With the region’s high investment needs, the market was initially expected to increase financial intermediation and help spur public and private investment. Moreover, the reduction of foreign aid and private capital flows to the region in the early 2000s, combined with the commodity-led swings in regional terms of trade, underscored the need for countries to find more stable sources of finance through the deepening of the regional financial market. However, to date, the WAEMU securities market has failed to catalyze large long-term financing for public and private entities, pointing to several impediments to its full development.

Institutional Framework and Instruments

The WAEMU regional securities market is managed by four institutions (Figure 8.1): the BCEAO, the Regional Council for Public Savings and Financial Markets (CREPMF),2 the Regional Stock Exchange (BRVM),3 and the Central Deposit and Settlement Organization (DC/BR).4 The BCEAO manages sovereign securities issued through auctions by WAEMU countries. It takes care of issuances and acts as book runner and clearinghouse for market participants. In addition, the BCEAO helps regulate the sovereign debt market, as well as commercial banks and nonbank financial institutions. The CREPMF, BRVM, and DC/BR manage the securities beyond the BCEAO’s scope of action. The CREPMF is a surveillance body that manages initial public offerings and regulates market participants. It reports directly to the WAEMU Council of Ministers. The BRVM ensures the quotation and negotiation of transferable securities and supplies market information to participants. The DC/BR acts as a custodian for investors and as an overall clearing house. Commercial operators who intervene in the market include banks and asset managers (acting on their own account or on behalf of their clients), asset custodians, business developers, and incubators, all of which are regulated by the CREPMF.

Figure 8.1.Organigram of the WAEMU Securities Market

Source: Authors’ presentation.

Note: BCEAO = Central Bank of West African States; BRVM = Regional Stock Exchange; CREPMF = Regional Council for Public Savings and Financial Markets; DC/BR = Central Deposit and Settlement Organization; WAEMU = West African Economic and Monetary Union.

The regional securities market offers the following investment instruments, which include both equity (stocks) and debt securities:

  • Stocks—Offered by listed companies and traded on the stock exchange.
  • Treasury bills and bonds—Issued by treasuries of WAEMU member countries. Treasury bills have maturities of 3–24 months whereas Treasury bonds are of 2–7-year maturity. The maturities of Treasury bills typically range from 3 to 12 months. On rare occasions, Treasury bills of 24-month maturity were issued.
  • Regional bills and bonds—Issued by regional institutions such as the West African Development Bank and the Economic Community of West African States Bank for Investment and Development.
  • Kola bills and bonds—Issued by non-WAEMU resident institutions such as the International Finance Corporation (IFC), and the French Development Agency. This segment of the market was launched in 2006 with the IFC’s first local currency bond issuance in sub-Saharan Africa.
  • Corporate bills and bonds—Issued by WAEMU resident private companies, including state-owned enterprises.
  • Other quoted securities.

Issuance procedures for securities depend on the type of security. Although regional regulations require that government bills and bonds be auctioned on the primary market, some Treasury bonds are still issued by syndication. Treasury bill and Treasury bond auctions are carried out for each member country at the national branches of the BCEAO. This is done by an appointed issuance committee composed of three representatives of the ministry of finance and three representatives of the BCEAO national branch. Auctions are open to investors who bid prices, interest rates, and quantities, mostly through financial institutions acting as primary dealers in the process. Bids are also open to foreign investors who have an account in the region’s commercial banks. National Treasury bill issuance calendars are typically published on a quarterly basis, after the region’s ministers of finance and the BCEAO agree on treasuries’ liquidity needs. Corporate and other types of nonsovereign bonds are issued via syndication to market participants, while stock initial public offerings are auctioned by the DC/BR. All quotations are made by the BRVM.

Three categories of securities are publicly placed in the WAEMU bond market: (1) negotiable securities, including Treasury bills, commercial paper, regional financial institution negotiable bills, and certificates of deposit; (2) public debt securities, which include securitization of statutory advances and other debt arrears of governments and public enterprises; and (3) non-negotiable bonds, including notably sovereign and corporate bonds.

A number of initiatives and reforms are under way to support development of the WAEMU bond market. As part of a strategy to attract greater and more diverse foreign capital flows, some of the region’s governments have sought the service of credit rating agencies (Table 8.1). In addition, the WAEMU launched a process to harmonize the taxation of securities listed on the regional market. Government securities are tax-exempt, increasing their attractiveness to potential investors. Conversely, other types of bonds are taxed with a progressive rate favoring long-term investment. Interest payments on bonds of 10-year maturity or higher are tax-exempt, while the tax rate for Treasury bonds of maturities between 5 and 10 years is 3 percent. The rate is 6 percent for maturities of less than 5 years. Distributions of corporate dividends are taxed at a rate of between 10 and 15 percent, and dividends of companies listed on the regional stock market for listings approved by CFEPMF are taxed at a rate of between 2 and 7 percent. Finally, the WAEMU Council of Ministers granted a tax exemption to interest payments on IFC Kola bonds for 5 years.

Table 8.1WAEMU: Countries’ Sovereign Debt Ratings
CountryBondsT-Bills
Standard and Poor’sFitchStandard and Poor’sFitch
BeninBBBB
Burkina FasoBB
SenegalB+B
Mali1Discontinued
Source: Bloomberg, L.P., as of December 2010.

Mali’s rating was discontinued by Fitch as of 12/04/09.

Source: Bloomberg, L.P., as of December 2010.

Mali’s rating was discontinued by Fitch as of 12/04/09.

Operations

The WAEMU regional bond market expanded relatively rapidly in the first decade of 2000, owing to regular issuances of government securities (Figure 8.2). The total amount of publicly placed securities almost doubled during the period. This dynamism was mainly driven by regular public debt issues, reflecting the increasing resorting of governments to the bond market after the elimination of central bank financing. The predominant part of securities was issued by the region’s treasuries, whereas issuances by corporate and other institutions were limited. On average, Treasury bills and bonds issued represented barely a fifth of WAEMU countries’ total financing (aid flows, central bank financing, nonbank financing, and privatization revenue), showing that the market is far from being their main source of financing.

Figure 8.2.WAEMU: Issuance of Debt Securities, 2001–101

Issuances were dominated by sovereign short-term borrowing, sustained by treasuries’ liquidity needs and a hefty appetite from commercial banks. Treasury bill issuances have dominated market operations. Such large issues are accommodated by banks’ appetites for Treasury bills, owing to the many advantages they bear. In fact, the acquisition of Treasury bills by banks does not hinder commercial banks’ capital adequacy requirements. They are of short maturity, count as “capital” holdings in banks’ balance sheets, and bear a zero-risk weight in the calculation of capital adequacy ratios. Besides, Treasury bills can be traded in any of the eight WAEMU countries and can be used for refinancing at the central bank.

Treasury issues and holdings generally show a high concentration of both issuers and investors, a significant excess demand, and a predominance of securities with less than ½-year maturities (Figure 8.2 and Table 8.2). Using 2010 as example, Côte d’Ivoire alone issued about ⅔ of the total amount of traded Treasury bills, dominating the market in that year owing to the country’s special circumstances. Benin, Burkina Faso, Senegal, and Mali issued less than ⅓ percent of the Treasury bills. A large part of those Treasury bills was of less than ½-year maturities, with a predominance of three- and six-month maturities. Financial institutions from Côte d’Ivoire, Senegal, Burkina Faso, and Mali bought ¾ of the securities, though the distribution of actual investors is unknown because operations are handled by financial intermediaries. For each country, investors registered in other WAEMU countries bought a nonnegligible part of the domestic securities, even if cross-border investment was still timid.

Table 8.2WAEMU: Government Debt Issues, 20101
Amount2Average Maturity3, 4Interest Rate at Issuance5Average Coverage Rate5
Average3Range
Treasury bills
WAEMU1452.4185.35.1[4.1, 6.8]194.0
Benin154.7364.05.8[5.5, 6.0]166.0
Burkina Faso70.291.04.7[4.1, 5.5]484.9
Côte d’Ivoire982.3140.05.7[4.8, 6.8]171.3
Guinea-Bissau
Mali99.5276.25.1[4.9, 5.3]218.6
Niger
Senegal94.7389.15.6[5.1, 6.4]213.3
Togo51.091.04.7[4.5, 4.9]239.9
Treasury bonds
WAEMU127.45.76.6[6.6, 7.0]
Benin
Burkina Faso43.37.06.56.5
Côte d’Ivoire35.67.07.07.0
Guinea-Bissau
Mali
Niger
Senegal31.43.06.06.0
Togo17.15.07.07.0
Sources: Central Bank of West African States; IMF staff calculations.

Gross issuance. At November 10, 2010, for bills and at end-June 2010 for bonds.

In CFAF trillions.

Weighted average.

Number of days for bills and number of years for bonds.

In percent.

Sources: Central Bank of West African States; IMF staff calculations.

Gross issuance. At November 10, 2010, for bills and at end-June 2010 for bonds.

In CFAF trillions.

Weighted average.

Number of days for bills and number of years for bonds.

In percent.

Similarly, long-term securities show a low diversification in issuers and maturities (Table 8.3). The governments of Côte d’Ivoire, Senegal, and Burkina Faso are the main issuers in the market, with about half of the total long-term, nonnegotiable securities issued. They are followed by the West African Development Bank, with about 20 percent of the long-term, nonnegotiable securities. The regional development bank issues bonds regularly, acting de facto as a benchmark issuer for nonsovereigns. During the first decade of 2000 period, 20 private corporations issued bonds, representing merely 15 percent of total bond issues. Issuing companies included public utilities, telecommunication companies, and banks. Most of the long-term securities had five- to seven-year maturities.

Table 8.3WAEMU: Issuance of Long-Term Securities, 1999–20101, 2
Amount (CFAF billions)Number of IssuanceMaturity (years)Interest Rate at Issuance (percent)
1999–20102201021999–2010220102Average3RangeAverage3Range
Negotiable debt securities209.6301107.0[3,7]4.4[3.3, 7.0]
Sovereign0
BOAD4207.7080774.4[3.3, 5.9]
Other nontreasury1.930303.4[3,4]6.7[5.5, 7.0]
Nonnegotiable debt securities1575.7137.46056.0[3,10]6.2[4.5, 7.5]
BOAD4144.401006.9[3,10]5.5[4.5, 6.3]
BIDC524.10107.075.65.6
IFC622.00105.054.84.8
AFD720.00108.085.35.3
Sovereign1121.9127.42745.9[3,10]6.3[5.5, 7.0]
Other (corporate)243.4102016.0[5, 7]6.6[5.9, 7.5]
Sources: Central Bank of West African States; IMF staff calculations.

Securities with maturities of more than two years.

As of end-June 2010.

Weighted average.

West African Development Bank. It issued its first nonnegotiable bond in 1995.

Economic Community of West African States (ECOWAS) Bank for Investment and Development. The bond was issued in 2006.

International Finance Corporation. The bond was issued in 2006.

French Development Agency. The bond was issued in 2008.

Sources: Central Bank of West African States; IMF staff calculations.

Securities with maturities of more than two years.

As of end-June 2010.

Weighted average.

West African Development Bank. It issued its first nonnegotiable bond in 1995.

Economic Community of West African States (ECOWAS) Bank for Investment and Development. The bond was issued in 2006.

International Finance Corporation. The bond was issued in 2006.

French Development Agency. The bond was issued in 2008.

Foreign participation in the bond market remained marginal. The region’s relative economic stability and pegged exchange rate was expected to foster greater participation of foreign investors in the market. On the contrary, external portfolio flows to the region were dismal in the last decade.

Interest Rates Determinants

The term structure of interest rates—or yield curve—for sovereign securities shows that for all countries, interest rates at issuance were higher for securities with longer maturities (Figure 8.3). The yield curves of all WAEMU countries show an upward trend, signaling investors’ general preferences for shorter-term, thus less risky, securities. Investors imposed a risk premium on long-term, less liquid securities, which is actually an indicator of investors’ rational market behavior. Nevertheless, the yield and term premiums imposed by investors differed from country to country as revealed by the curves’ levels and shapes. For example, with a yield curve above that of other WAEMU countries, the cost of financing for Côte d’Ivoire was, on average, higher than that of other WAEMU countries. Moreover, Côte d’Ivoire and Senegal had especially steep yield curves for short maturities, signaling that investors requested for the two countries risk premiums that were proportionally higher than the increases in maturity. By contrast, the yield curve for Burkina Faso was among the lowest in the region and had an almost linear shape. All securities issued by Benin were of the same maturity (one year); this was similar for Togo (three months). The latter benefited from the lowest interest rates on the market, except for two Burkina Faso issues of equivalent maturities.

Figure 8.3.WAEMU: Determinants of T-Bills’ Interest Rates, 20101

Sources: Central Bank of West African States; and IMF staff calculations.

Note: BEN = Benin; BFA = Burkina Faso; CIV = Côte d’Ivoire; GNB = Guinea-Bissau; MLI = Mali; NER = Niger; SEN = Senegal; TGO = Togo.

1Data up to December 19, 2010.

Country ratings had some beneficial impact on Treasury bond interest rates (Tables 8.1 and 8.2). Interest rates on Treasury bonds appear to react positively to country ratings. The interest rate on the Treasury bond issued by Burkina Faso was lower than that for Togo, which did not have a rating for its bonds at that time—even though the maturity of the Burkina Faso bond was longer than that of the Togo bond. The interest rate on the Treasury bond issued by Senegal, which has the highest Treasury bond rating in the region, was the lowest of the year, but this could also be due to its lower maturity.

However, other factors seem predominant in explaining cross-country differences in Treasury bills (Tables 8.1 and 8.2). The relationship between interest rates and Treasury bill ratings appears less straightforward than for Treasury bonds. Again, using 2010 as an example, interest rates on Togo Treasury bills were among the lowest in the region, though the bills were not rated. Similarly, interest rates on some three-month Treasury bills issued by Burkina Faso were about 100 basis points lower than those for Senegal, notwithstanding their equivalent ratings. However, even if ratings did not matter predominantly, signals of risk levels did. For example, economic and political conditions mattered for Côte d’Ivoire: interest rates on the country’s issues were at odds with interest rates for other countries’ issues, with some of its 28-day Treasury bills sold at an interest rate even higher than that of Mali’s one-year Treasury bill.

Further analysis reveals that interest rates on sovereign securities were affected by the market’s liquidity conditions and bidders’ appetites at the time of issuances (Figure 8.3). Coverage rates, maturity, and interest rates appear closely linked in a three-way relationship. Coverage rates decreased sharply as maturity increased, both at the country and aggregate levels. Three-month Treasury bills attracted typically more than twice the amount offered by countries, whereas issues at higher maturities barely covered the total amount. Hence, interest rates’ positive correlations with maturity could actually be due to the negative impact of maturity on coverage rates. Securities with shorter maturities attracted more bids, hence higher coverage rates and lower interest rates. Burkina Faso registered the highest demand, with up to 600 percent of coverage for some of its 91-day Treasury bills, hence the very low interest rates compared to the other issues.

Results from principal component analysis show that issuance volumes offered at each date also mattered and provide a profile of countries’ interventions (Figure 8.4). Principal component analysis using securities’ coverage rates, maturity, average interest rates, and the amount sold at each issuance confirms that high interest rates are associated with low coverage rates and long maturities, but the degree of association for the former is much stronger than it is for the latter. Principal component analysis also shows that most of the large issuances in terms of volume were for securities with short maturities. Results also provide a profile of issues for each country. Issues by Mali and Côte d’Ivoire were large, albeit with short maturities compared with other countries. Issues by Burkina Faso were of smaller amounts and rather constant maturities, and benefited from both relatively high coverage rates and low interest rates. Most issues by Benin and Senegal were also of relatively small amounts and long maturities but had lower coverage rates than did issues by Burkina Faso and Togo, and hence higher interest rates.

Figure 8.4.WAEMU: Government Issues Profiling Using Principal Component Analysis, 20101

Sources: Central Bank of West African States; and IMF staff calculations.

Note: Three-letter International Organization for Standardization abbreviations used for country names. WAEMU = West African Economic and Monetary Union.

1Data up to December 19, 2010.

Finally, other less quantifiable factors such as seasonality, issuance procedures, and the frequency and predictability of issues could also have played a role, either indirectly through their effects on coverage rates or more directly. Some apparent inconsistencies show that other factors could have had an impact on interest rates, independent of coverage rates. Togo, for example, had a lower interest rate on some of its three-month Treasury bills than did Burkina Faso and Senegal, even though the coverage rates for those issuances were lower. Among the contributing factors are: (1) seasonal effects, that is, the issuance with the lowest interest rate of the year took place during the last quarter and the issuer, Burkina Faso, benefited from decreasing interest rates during the year despite decreasing coverage rates and constant maturity; (2) securities’ modes of issuance, that is, bonds issued by auction benefit from more competition than do those issued by syndication; (3) frequency and predictability of countries’ issues, that is, Burkina Faso, which had some of the lowest interest rates, issued Treasury bills with the same maturity (three months) every two to three months; and (4) countries’ outstanding stocks of securities. More detailed data spanning over several years, however, would be needed to have conclusive evidence of the impact of those factors on interest rates.

Constraints to Regional Financing

Among the most acute constraints are the bond market’s undiversified issuers and narrow investor bases. On the first challenge, our analysis highlighted that market activity is overwhelmingly driven by government issues. Market interventions by nonsovereign issuers—including nonbank financial institutions, private companies, and regional and international institutions—remain scarce. On the second challenge, data on primary market activity show that WAEMU commercial banks are the main investors on the market. Even though some of the region’s governments have sought ratings from credit rating agencies to attract more foreign capital, very few nonresident investors showed interest in purchasing securities on the market.

As a consequence, issuers stay captive of banks’ preferences for short-term securities while investment opportunities are constrained to the limited set of maturities offered by sovereigns. Banks have not only a strong preference for Treasury bills because those securities bear multiple advantages, but also because of a lack of other equally attractive risk-adjusted investment alternatives. As such, the region’s banking system assets are predominantly composed of short- term government securities, which accounted on average for about a fourth of the net total assets of WAEMU banks. These preferences also reflect the short-term nature of bank liabilities, which essentially consist of deposits from the public and private sectors. Such constraints benefit governments that use the Treasury bill market to finance treasury needs, thus providing an ample supply of low-risk assets to banks that are more than willing to invest in high-yielding, short-term, risk-free government paper. However, those constraints also weigh on issuers’ abilities to raise long-term financing. In fact, long-term issues are still facing a lack of interest in the market, while investors are calling for a more diverse set of maturities than are typically proposed by issuers. Our analysis showed that coverage rates decrease sharply as maturity increases, suggesting that the market may not be deep enough to cover the region’s long-term financing needs.

Another consequence is that the secondary market for bills and bonds remains underdeveloped. Excess liquidity in the financial system and the interest rate spread between the refinancing operations at the central bank and sovereign securities tends to encourage banks to buy and hold government securities until maturity rather than to trade them frequently as part of an active and diversified investment strategy. In addition, the lack of competing investors, such as social security bodies and pension funds, keeps the nonbank buy side for securities shallow, reducing trade opportunities in the secondary market. Also, the scarcity of long-term securities with intermediate maturities, between two and seven years, limits the spectrum of investment strategies on the market. Also, capacity constraints prevent adequate pricing of securities traded in the secondary market, thus reducing the profitability of such operations. Finally, differences in tax regimes among WAEMU member states complicate the pricing process on the secondary market.

Organizational issues and limited access to information increase financing costs and hinder the market’s efficiency and integration. First, though member countries are required to submit a schedule of public debt issuance at the beginning of each year, these are not binding and often lack reliability partly owing to issues in forecasting treasury cash-flow needs. Hence, the poor coordination between Treasury bill and Treasury bond offerings among WAEMU treasuries leads to unpredictable demand for liquidity on the market. In some instances, bond issuances were even substantially undersubscribed. Second, insufficient information sharing and transparency hampers investors’ abilities to analyze market information and make optimal investment choices. Debt data and governments’ debt management strategies over the medium term are not readily available to the public and often lack reliability. Similarly, detailed data on issuances’ outcomes for all countries and over a long period are difficult to gather. Benchmarking is also challenging owing to the irregularity and nondiversification of issues, in particular long-term ones. Third, governments tend to issue higher amounts than those announced before the bidding process, contributing to blurring the market’s signaling system. All these factors reduce the market’s efficiency and favor its segmentation, also triggering supplemental financing costs for issuers.

Finally, mitigating the systemic risk emanating from banks’ relatively large exposure to government securities could prove challenging. Net bank holdings of government debt are substantial; its amount was roughly equivalent to the ratio of regulatory capital to risk-weighted assets of the region’s banking system. Such large exposure to government paper could pose a solvency issue for some banks in times of economic crisis, and hence a systemic threat to the region’s banking system.

Challenges Ahead

Substantial progress has been achieved in mobilizing resources to finance growth on the regional market. Market operations expanded considerably over the last decade, but are still predominantly dominated by sovereign debt issuances and fueled by banks’ supply of liquidity. Moreover, recalling the market’s initial goal of providing a more transparent and efficient source of capital for the region’s governments and corporations, the WAEMU regional bond market has succeeded in providing sufficient short-term financing to governments. However, the market fell short in providing long-term financing for both member countries and the private sector. Against this backdrop, the tax exemption granted to IFC bonds could help bolster future issuances in the Kola bond segment.

Notwithstanding the recent improvements, significant progress is needed for the market to reach its full potential and support the region’s growth ambitions. Among the challenges to the market’s development are the undiversified issuer and narrow investor bases, regulations favoring banks’ preferences for short-term securities, the lack of diversity in maturities, an undeveloped secondary market owing to a shallow buy side, organizational issues including insufficient coordination of issuances by member countries and low reliability of issuance plans (both dates and volume), insufficient information sharing, and relatively high financing costs for prospective borrowers.

Witnessing the strong activity in the primary market for Treasury bills, market authorities and participants should address the issues that delay the development of a secondary market. Because the region’s banks boast very high liquidity ratios and intermediation of savings into loans to the private sector is very low, a further deepening of the financial sector would allow private corporations to raise more financing on the regional market. The empowerment of local and regional investors and the development of new instruments to collect long-term savings (for example, life insurance, complementary retirement plans, and mutual funds) could be important steps in this direction.

Authorities should also tackle impediments to the issuance of securities with longer maturities. This could be helped by broadening offerings of longer-term government bonds to help benchmark financial risk for private issuers. Moreover, regional capital and exchange rate controls could also be revisited to attract more foreign investors to the market.

The current challenges associated with the financing of growth in the region should further encourage authorities to pursue reforms both at national and regional levels. The swift implementation of pending reforms, such as the adoption of national treasury cash-flow plans, the coordination of debt issuance schedules at the regional level, and the improvement of governments’ debt management capacity could help market players better reap the benefits of a vibrant regional financial market. Moreover, strengthening the pension and social security systems through comprehensive reforms could also help broaden the investor base and increase market activity, notably in the secondary market.

Taking stock of regulatory issues that hamper market development and preparing a strategy to address those issues would also be beneficial. Such a strategy should include a rethinking of the role of the BCEAO in the sovereign issuance process. In that regard, the creation of the WAEMU-Securities Agency (Agence UEMOA-Titres) with the goal of supporting WAEMU countries in the issue and management of public debt securities is a welcome step forward. Finally, the BCEAO should develop contingency plans to address the systemic risk that could arise from the banking sector’s large exposure to government securities.

1

The West African Monetary Union (WAMU) was created in 1962. It became a monetary and economic union (WAEMU) in 1994.

2

Conseil Régional de l’Epargne Publique et des Marchè Financiers (CREPMF).

3

Bourse Régionale des valeurs mobilières (BRVM).

4

Dépositaire Central/Banque de Règlement (DC/BR).

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