Context. The region continues to experience strong growth in 2015, and the immediate outlook is positive. Inflation is projected to remain low, reflecting the exchange rate peg and positive terms of trade developments. However, risks are on the downside. In the short term, security risks remain high. In the medium term, weaker trading partner growth, tighter global financial conditions, sluggish structural reforms, and difficulties delivering on the planned fiscal consolidation could weaken growth prospects.


Context. The region continues to experience strong growth in 2015, and the immediate outlook is positive. Inflation is projected to remain low, reflecting the exchange rate peg and positive terms of trade developments. However, risks are on the downside. In the short term, security risks remain high. In the medium term, weaker trading partner growth, tighter global financial conditions, sluggish structural reforms, and difficulties delivering on the planned fiscal consolidation could weaken growth prospects.

1. Our West African Economic and Monetary Union (WAEMU) authorities—both regional and national—are thankful to the Fund for its continued strong engagement with the regional institutions and for the candid, productive dialogue on a large range of issues confronting the Union. Our regional authorities are in broad agreement with the analysis and advice laid out by Fund staff in the context of the consultations that took place in the region last January. In particular, our authorities share staff’s views on factors behind recent macroeconomic and financial developments; risks looming ahead; the need for well-calibrated fiscal consolidation, mindful of the need to meet infrastructure gaps while reducing non-priority current spending and improving investment efficiency; and the necessity to enhance monetary policy transmission mechanism.

2. Our regional authorities also share staff’s advice on the need to develop and deepen the financial sector as a mean to boost activity while tackling the structural impediments to private sector development, and to a stronger, inclusive growth. While our authorities have a more cautious approach than staff’s regarding the resolution of banks, notably the powers of courts, on grounds of financial stability, they continue to value close dialogue with Fund staff on this and other regional issues.

Recent Macroeconomic Developments and Prospects

3. The WAEMU region continues to enjoy strong growth, at 6.4 percent in 2015, well above the Sub-Saharan African average. Activity in the Union is driven mostly by public infrastructure investment but also increasing private investment, including PPPs; robust private consumption; and strong agricultural production. The exchange rate anchor, coupled with favorable weather conditions and positive terms of trade developments, have helped maintain inflation at 1 percent. The widening fiscal deficit is driven by the ongoing large public investment programs to close the sizeable infrastructure gaps. By the same token, the current account deficit has remained rather large albeit reduced (5.6 percent of the Union’s GDP from 6.1 percent in 2014) despite lower energy prices and buoyant exports, notably cocoa and groundnut. The region continues to enjoy an adequate level of reserves, with gross international reserves amounting to the equivalent of 5 months of extra-regional imports.

4. Looking forward, the Union is expected to maintain strong macroeconomic indicators, with output growth anticipated to exceed 6 percent over the medium term; inflation will remain subdued; overall fiscal balance is on a slow but declining path; and the external position is sustainable. It is also worth noting that public debt as a ratio of the Union’s GDP is expected to gradually decline towards 40 percent in 2020 from 45 percent in 2015.

5. Our authorities however recognize risks to the outlook, including adverse weather conditions which would lower production in the agricultural sector and may threaten food security; and security-related risks which remain elevated, with notably terrorist attacks in Mali, Niger, Burkina Faso, and most recently Côte d’Ivoire. Other external risks relate to the global slowdown and tightening of international financial conditions. Our WAEMU authorities also acknowledge that continued delays in fiscal consolidation and structural reforms could weigh on the outlook. Against this backdrop, they remain committed to pushing forward fiscal adjustment policies that preserve growth momentum, and structural measures to boost competitiveness and productivity. In so doing, it will also be critical to preserve security in all eight countries. Security has indeed become a macro-critical issue in the region. Adequate support from the international community in this regard is of the essence.

Preserving Macroeconomic Stability and Growth

6. Our WAEMU authorities share the view that preserving external stability while supporting growth will require effective implementation of the envisaged fiscal consolidation at the country level and actions to enhance the effectiveness of monetary policy. They are committed to advance the needed reforms and broadly agree with staff advice going forward albeit some differences remain as regards the pace of reducing the central bank refinancing.

Fiscal Consolidation

7. Our WAEMU authorities reaffirm the importance of fiscal consolidation and structural reforms at the national level with the view to bring fiscal deficits back within the 3-percent limit by 2019 in accordance with the new norm under the Pacte de Convergence, de stabilité, de croissance et de solidarité adopted by the Conference of Heads of State and Government in January 2015. They stress the need to pursue actions aimed at improving domestic fiscal revenues and ensuring greater efficiency of public investment spending.

8. The regional authorities also point to the structural nature of WAEMU’s current account deficit and highlight the need to reduce it in order to safeguard the Union’s international reserves. To this end, they share the view to put in place substitution measures on imported food products and create conditions conducive to more foreign direct investment (FDI). Fiscal deficit reduction will also contribute to curbing the Union’s current account deficit.

Monetary and Financial Sector Policies

9. The authorities welcome staff’s recognition that BCEAO’s monetary policy stance is appropriate, in light of macroeconomic fundamentals, particularly in the current context of low inflation. Policy rates are kept low since their last decrease in September 2013. The reserve requirement rate applicable to banks has also been maintained at 5 percent since March 2012.

10. Regarding staff’s concerns on the central bank’s refinancing operations, the authorities stress that refinancing is warranted by the weak performance of the interbank market and aims at promoting lending to support regional economic activity. In addition, the significance of treasury securities in the central bank’s balance sheet has not crowded out the financing of the private sector; on the contrary, credit to the private sector is on the rise while bank credit to government is decelerating. At end-2015, credit to private sector amounted to 70 percent of domestic credit. Our authorities are of the view that absent a good functioning of the interbank market, an early withdrawal of BCEAO’s refinancing could raise interest rates on all segments of the Union’s capital market, curtail financing to the private sector and adversely impact economic activity. Nevertheless, the authorities closely monitor the evolution of refinancing and concur with staff that work is needed to better control these operations and minimize related banking risks.

11. As regards liquidity management, BCEAO notes that it has limited injections since October 2015, with the view to induce banks in need of liquidity to turn in priority to banks that hold significant idle reserves. However, this resulted in an increase in the average weighted rate for auctions, which if sustained, can lead to an increase of interest rates, inconsistent with the accommodative monetary policy stance called for by the current environment.

12. In order to improve the effectiveness of monetary policy transmission and favor a sustainable reduction of refinancing, BCEAO has reflected on ways to boost the interbank market and the secondary market of government securities. Planned measures include a revision of the conditions of access to the BCEAO’s refinancing window and notably the introduction of the debt ratio under the Basle II-III provisions. This should bring banks’ liabilities to proportions compatible with their own resources and, therefore, reduce government securities-backed refinancing. It is also envisaged to provide banks with training and information aimed at enhancing their mastering of monetary policy instruments and mechanisms as well as knowledge of the functioning of refinancing windows. BCEAO also envisages to put in place a robust mechanism for minimizing counterpart risk on the interbank market; establish a reference rate for the interbank market; and broaden the investor base for the regional financial market.

Financial Stability and Inclusion

13. Significant progress has been achieved in strengthening the financial sector and enhancing banking regulation. This includes the acceleration of regulatory reforms for the transposition of Basle II-III provisions; implementation of a supervisory framework on consolidated results of banking groups; and the increase in the minimum capital requirement to CFAF 10 billion for credit institutions. Other significant advances relate to the update of bank accounting; adoption of a new draft law on the fight against money laundering and financing of terrorism (AML-CFT); as well as the creation of a bank resolution mechanism and a deposit guarantee fund (Fonds de Garantie des Dépôts). Efforts have also been made since last year in enhancing the supervision of cross-border banks, notably pan-African banks, in line with the IMF report on cross-border oversight of pan-African banks.

14. The authorities broadly agree with the thrust of staff’s recommendations to implement regulatory reforms and improve further supervisory processes as well as enforcement of prudential norms. The authorities also share staff’s view on improving the business climate and the financial environment to promote access to financial services. They intend to complete all reforms and ensure compliance to new regulations.

15. Regarding bank crisis resolution, multiple legislative measures will enter into effect in 2016, including the revision of the Annex to the Convention governing the Banking Commission of Union Monétaire Ouest Africaine (UMOA). These measures aim at strengthening the powers of the regional banking commission in the treatment of troubled banks and lifting the states’ recourse against the Banking Commission’s decisions to withdraw banking licenses, in conjunction with the operationalization of the Fonds de Garantie des Dépôts. BCEAO has reservations on the capacity of the regional legal system to pronounce appeals against decisions to withdraw licenses, which could lengthen the resolution of problem banks and run counter to safeguarding financial stability.

16. WAEMU authorities have designed a regional financial inclusion strategy which is coordinated with country authorities and is aimed at enhancing access to financial services. The high access to mobile communication and the rapid development of mobile payment services provide opportunities to improve such access to financial services and develop the sector.

Promoting Competitiveness and Transformation

17. WAEMU authorities are fully cognizant of the structural competitiveness gaps and high income inequality facing the region. Nevertheless, they do not share staff’s statement that “the business environment remains unattractive”. Most WAEMU countries have made significant progress over the past years in improving the business environment. One-stop shops for registering businesses have been set up across countries, procedures have been streamlined and commercial courts have been created. As a result, many countries in the region have improved their international ranking in successive Doing Business reports and are attracting significant FDI flows as pointed by staff. The authorities are committed to make additional progress in improving the business climate through further reducing the cost and burden of doing business, closing infrastructure gaps, and enhancing human capital. They welcome staff’s advice in further promoting reforms and increasing human capital investment.

18. More broadly, the authorities remain committed to endeavor in the direction of economic diversification and structural transformation. They continue to call on actionable steps from the Fund’s analytical work in this area to help countries meet their needs. This agenda, building on macroeconomic stability, a strong growth momentum, and a common industrial policy to supplement national initiatives—including an emphasis on the development of SMEs–would lay the ground for higher potential growth and sustainable development.


19. The WAEMU region continues to experience strong economic growth amidst global slowdown and risks, thanks to buoyant public investment but also increasing private investment and robust private consumption. Structural changes will be the key to maintaining this momentum and helping countries of the Union graduate towards economic emergence. Regional and country authorities are committed to policies and reforms aimed at fostering this structural transformation, and they highly value the dialogue with, and assistance from, partners, notably the Fund, to achieve their goals.