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IMF Country Report No. 22/68

WEST AFRICAN ECONOMIC AND MONETARY UNION

SELECTED ISSUES

March 2022

This Selected Issues Paper on the West African Economic and Monetary Union regional member countries was prepared by a staff team of the International Monetary Fund as background documentation for the periodic consultation with the member countries. It is based on the information available at the time it was completed on January 20, 2022.

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Title page

WEST AFRICAN ECONOMIC AND MONETARY UNION

SELECTED ISSUES

January 20, 2022

Approved By

African Department

Contents

• DAMAGE CONTROL: QUANTIFYING THE MEDIUM-TERM SCARRING EFFECTS OF COVID-19 IN THE WAEMU

• A. Introduction

• B. A Simple Framework to Quantify the Effects of the COVID-19 Crisis on Medium-Term Growth

• C. Investment in Physical Capital

• D. Human Capital Accumulation and the COVID Pandemic

• E. Productivity and the COVID-19 Pandemic

• F. Putting All Results Together

• G. Some Policy Options to Address Scarring

• FIGURES

• 1. Average Growth in Total Investment Across WEO Vintages

• 2. Investment in the WAEMU (2019=100)

• 3. Years of Schooling Under Different Scenarios

• 4. Size of the Informal Economy

• 5. Increases in Informality and TFP

• 6. Firms Identifying Issue as Major Constraint

• 7. Senior Management Time Spent Dealing with the Requirements of Government Regulation

• 8. Barriers to Trade in 2019

• 9. Education Spending and Outcomes

• TABLES

• 1. Key Assumptions for Medium-Term Growth Components under Alternative Scenarios

• 2. Medium-Term Potential Output Growth Losses in the WAEMU Under Two “Post-Crisis” Scenarios

• References

• AN ANALYSIS OF MEDIUM-TERM REGIONAL FISCAL TARGETS IN THE WAEMU

• A. Introduction

• B. Calibration of the Debt Ceiling

• C. Calibration of the Deficit Ceiling

• D. Conclusions

• BOX

• 1. The Structural Model Used for the Simulations

• FIGURES

• 1. Fiscal Anchors and Safety Buffers

• 2. Stock-Flow Adjustments and Regional Market Absorptive Capacity

• 3. Effects of Different Scenarios on Growth and Debt

• 4. Effects of Different Scenarios on the Trade Balance and Reserves

• 5. Unconstrained External Finance, but No Improvements in PFM and Low-Quality Spending

• 6. Improvements in PFM and High-Quality Spending, but Constrained External Financing

• 7. Median Net Overseas Development Assistance

• TABLES

• 1. Estimates of the Debt Limit

• 2. Estimates of the Output Elasticity of Public Capital

• 3. Implied Nominal Debt Limits

• 4. Key Assumptions Under Different Scenarios for an Increase in the Deficit Ceiling Under Option 1

• 5. Overview of Implications of Higher Deficit Ceiling

• ANNEX

• I. Financing Additional Expenditures through Domestic Revenue Mobilization in Lieu of Higher Borrowing

• References

• DEVELOPING THE WAEMU’S SOVEREIGN SECURITY MARKET

• A. Background

• B. Assessment of the Building Blocks for Sovereign Bond Market Development

• C. Conclusions and Policy Recommendations

• FIGURES

• 1. Stock of Sovereign Securities Issued on Regional Market

• 2. Stock of Local Currency Sovereign Securities

• 3. Sovereign Bond Market Stages of Building Block Development

• 4. Interbank Loans, 2014–20

• 5. Interbank Transactions, 2019–20

• 6. Stock of CFAF Sovereign Securities

• 7. Number of Outstanding Auctioned Securities, end-June 2021

• 8. Secondary Trading on Sovereign Securities

• 9. Turnover Ratio on Secondary Market for Sovereign Securities

• 10. Banks’ Holdings of Sovereign Securities

• TABLES

• 1. Stages of Development of Building Blocks of the Sovereign Security Market

• 2. Proposed Sequencing of Reforms for the WAEMU’s Sovereign Security Market

• References