Front Matter
Author:
International Monetary Fund. African Dept.
Search for other papers by International Monetary Fund. African Dept. in
Current site
Google Scholar
PubMedClose
Publication Date:
02 Mar 2022
eISBN:
9798400203244
ISBN:
9798400203244
Language:
English
Keywords:
transparency policy; Convergence pact; WAEMU member country; target band; inflation statistics; Monetary unions; Economic unions; Economic recovery
Download PDF (581.6 KB)

IMF Country Report No. 22/67

Abstract

IMF Country Report No. 22/67

Copyright Page

IMF Country Report No. 22/67

WEST AFRICAN ECONOMIC AND MONETARY UNION

STAFF REPORT ON COMMON POLICIES FOR MEMBER COUNTRIES—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE WAEMU

March 2022

This staff report on discussions with regional institutions of the West African Economic and Monetary Union (WAEMU) was prepared by a staff team of the International Monetary Fund in the context of the periodic regional surveillance of the WAEMU. The regional perspective of such discussions is intended to strengthen the bilateral discussions that the IMF holds with the members in the region under Article IV of the IMF’s Articles of Agreement. The following documents have been released and are included in the package:

  • A Press Release summarizing the views of the Executive Board as expressed during its February 11, 2022, consideration of the staff report.

  • The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on February 11, 2022, following discussions that ended on November 19, 2021. Based on information available at the time of these discussions, the staff report was completed on January 20, 2022.

  • A Statement by the Executive Director for the WAEMU member countries.

The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

Telephone: (202) 623–7430 • Fax: (202) 623–7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

© 2022 International Monetary Fund

Press Release

PR22/55

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

FOR IMMEDIATE RELEASE

  • The WAEMU region has so far demonstrated strong resilience to the Covid crisis, and the economy is recovering on the back of supportive fiscal and monetary policies.

  • Growth is projected to accelerate this year, mostly driven by a rebound in net exports. But there are important downside risks to the economic outlook, including from the possibility of further deterioration of the security situation and political uncertainty.

  • A gradual fiscal consolidation is expected to start in 2022 and bring back the regional fiscal deficit towards 3 percent of regional GDP by 2024.

Washington, DC – March 2, 2022: On February 11, the Executive Board of the International Monetary Fund (IMF) concluded the regional consultation1 with the West African Economic and Monetary Union (WAEMU) on February 11, 2022.

The WAEMU has so far demonstrated strong resilience to the Covid crisis. Nonetheless, the region has been hard hit by the Omicron variant and security risks continue to increase in some countries. Despite these headwinds, the economic rebound that started in the second half of 2020 firmed up in 2021, while fiscal and monetary policies remained supportive. External reserves have risen to comfortable levels and the financial system appears to be broadly sound. Inflation has exceeded the 3 percent ceiling of the BCEAO’s target band since April 2021, mainly on account of higher domestic and imported food prices.

Growth is expected to further accelerate to about 6 percent in 2022, primarily driven by a rebound in net exports and inflation is projected to return to the BCEAO’s target band by the end of the year. A gradual fiscal consolidation is expected to start this year and bring the aggregate fiscal deficit to 3 percent of GDP by 2024. There are however significant downside risks to the outlook, particularly given slow and uneven progress with vaccination, the possibility of further deterioration of security risks and political uncertainty, and the likely tightening of global financial conditions.

Executive Board Assessment2

Executive Directors welcomed the region’s strong resilience to the COVID crisis and that the recovery has firmed up in 2021. Directors noted important downside risks to the outlook, particularly from the evolution of the pandemic, a tightening in global financial conditions, deterioration in security conditions, and political instability. They underscored that efforts to ensure macroeconomic sustainability, while limiting scarring and supporting the recovery are crucial.

Directors agreed that a return to the aggregate fiscal deficit ceiling of 3 percent of GDP by 2024 is essential to maintain an adequate level of external reserves, limit the risk of regional financial market pressures, and ensure debt sustainability. The credibility of the medium-term adjustment path would be enhanced by re-establishing the WAEMU’s Convergence Pact. Directors emphasized that the fiscal adjustment should promote an inclusive recovery. They recommended implementing revenue-enhancing measures, protecting priority social and infrastructure expenditure, and prioritizing vaccine rollout. Directors highlighted the importance of using the SDR allocation in a way that preserves fiscal sustainability and external stability.

Directors concurred that the accommodative monetary policy stance remains appropriate. They urged the BCEAO to stand ready to tighten monetary policy if the external position weakens or persistent inflationary pressures emerge. Directors welcomed the BCEAO’s continuing efforts to modernize its policy and governance frameworks. They noted that reserves are adequate.

Directors welcomed the progress on finalizing the bank resolution framework and encouraged its full operationalization. They stressed the need to reduce the high reliance of some banks on BCEAO refinancing and to address structural fragilities in the microfinance institutions sector. Directors concurred that enhancing the depth and liquidity of the sovereign security market remained a priority.

Directors agreed that countering the possible scarring effects of the crisis would require strong actions at the regional and national levels to boost productivity growth and stimulate private investment. They noted that regional-level priorities were to foster trade integration, enhance regional competitiveness, and accelerate the implementation of regional infrastructure projects.

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.

Table 1.

WAEMU: Selected Economic and Social Indicators, 2018–261

article image
Sources: IMF, African Department database; World Economic Outlook; World Bank World Development Indicators; IMF staff estimates and projections.

All projections presented in this staff report were prepared in the first half of December 2021 and do not incorporate any further developments.

Shows data from the IMF Country Report No. 21/49, published on January 21, 2021 (Board document number SM/21/5).

The acceleration in GDP growth in 2023 is due to the start of production of large hydrocarbon projects in Niger and Senegal.

Excluding intraregional trade.

Projections for 2021 include the 2021 SDR allocation which is equivalent to US$2,327 million, or 0.6 months of imports and 9.6 percent of the BCEAO’s sight liabilities.

Title page

WEST AFRICA ECONOMIC AND MONETARY UNION

STAFF REPORT ON COMMON POLICIES OF MEMBER COUNTRIES

January 20, 2022

KEY ISSUES

Context. The WAEMU has, so far, demonstrated strong resilience to the Covid crisis. The economic rebound that started in the second half of 2020 firmed up in 2021, while fiscal and monetary policies remained supportive. External reserves have risen to comfortable levels and the financial system appears to be broadly sound. However, the region faces significant challenges to ensure the sustainability of macroeconomic policies, while supporting the economic recovery and navigating the uncertain outlook.

Policy Recommendations

  • Fiscal policy. Convergence towards the regional fiscal deficit anchor of 3 percent of GDP by 2024 is key to preserve external and domestic stability. The credibility of the medium-term adjustment path would be enhanced by reinstating the WAEMU’s Convergence Pact. The composition of the adjustment should promote an inclusive economic recovery by placing emphasis on revenue-enhancing measures and protecting priority social expenditure, vaccination rollout and infrastructure investment.

  • Monetary policy. In light of the severity of the Covid shock, maintaining an accommodative stance has been appropriate. Nonetheless, the BCEAO should stand ready to tighten monetary policy if the external position weakens or inflation forecasts exceed durably the ceiling of the target band.

  • Financial markets. The banking sector has been resilient during the crisis, but the high reliance of some commercial banks on BCEAO refinancing is a source of vulnerability. Structural weaknesses in the microfinance sector should be better understood and addressed. Fostering financial market development remains a priority to support the growth outlook and enhance financial inclusion.

  • Structural reforms. Alongside national reforms, measures that enhance regional integration by fostering trade, improving competition, and developing cross-border infrastructure can contribute to mitigating the scarring effects of the pandemic.

Approved By

Annalisa Fedelino (AFR)

Bjorn Rother (SPR)

Discussions on the 2021 regional consultation were held in a hybrid format comprising virtual video conferences as well as physical meetings during October 25 – November 19, 2021. The staff team comprised Mr. Eyraud (head), Messrs. David, Feler, and Sever (all AFR), Ms. Fernandes (MCM) and Mr. Lisi (SPR). The mission was assisted by Messrs. Jenkinson, Koulet-Vickot, and Kalonji (resident representatives in Burkina Faso, Senegal, and Cote d’lvoire). Ms. lorgova, Messrs. Couderc, Khan, Pedras, and Veyrune (all MCM), Messrs. Loeprick and Nguenang (both from FAD), and Ms. Uguen, Messrs. Chaker, Jahjah, and Normand (all Afritac West) participated in some meetings. The concluding meetings were held on November 19, 2021, with BCEAO Governor Kone. Ms. Bentum provided research support and Ms. Jaghori provided assistance in the preparation of this report. The West African Economic and Monetary Union (WAEMU) covers eight countries: Benin, Burkina Faso, Cote d’lvoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

Contents

  • RECENT DEVELOPMENTS

  • A. Health and Security Situation

  • B. Economic Developments

  • C. Macroeconomic Policy

  • OUTLOOK AND RISKS

  • POLICY DISCUSSIONS

  • A. Recalibrating the Medium-Term Fiscal Strategy After the Crisis

  • B. Monetary Policy: Balancing Support for the Recovery, Price Stability, and External Buffers

  • C. Fostering Financial Stability and Inclusion

  • D. Mitigating the Risk of Scarring Effects on Medium-Term Growth

  • STAFF APPRAISAL

  • BOXES

  • 1. Alternative Scenario with a More Gradual Recovery

  • 2. The SDR Allocation and its Use in the WAEMU

  • 3. Reforms of Central Bank Operations and Monetary Arrangements

  • FIGURES

  • 1. Recent Economic Developments

  • 2. Recent Monetary and Financial Sector Developments

  • 3. Medium-Term Prospects

  • 4. WAEMU: Regional Macroeconomic Heterogeneity

  • TABLES

  • 1. Selected Economic and Social Indicators, 2018–26

  • 2. Selected National Accounts and Inflation Statistics, 2018–26

  • 3. Sub-Saharan Africa: Cross-Group Comparison, 2018–26

  • 4. Selected Fiscal Indicators, 2018–26

  • 5. Balance of Payment, 2018–26

  • 6. Government Public Debt and Debt Service, 2018–26

  • 7. Monetary Survey, 2018–26

  • 8. Financial Soundness Indicators, 2016–21

  • ANNEXES

  • I. Impact of the Pandemic on Financial Inclusion

  • II. Risk Assessment Matrix

  • III. External Sector Assessment

  • IV. Inflation Dynamics During the Pandemic

  • V. Assessing the Monetary Policy Stance

  • VI. Status Update on the Monetary Cooperation and Currency Reform

  • VII. Capacity Development

  • VIII. Authorities’ Responses to the 2020 Policy Recommendations

1

Staff reports on the annual consultations with regional institutions of currency unions and the ensuing Board discussion are both considered an integral part of the Article IV consultations with individual member countries. Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff f 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.

2

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.

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
West African Economic and Monetary Union: Staff Report On Common Policies for Member Countries-Press Release; Staff Report; and Statement by the Executive for the WAEMU
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 067
Publisher:
International Monetary Fund
ISBN:
9798400203244
ISSN:
1934-7685
Pages:
68
DOI:
https://doi.org/10.5089/9798400203244.002