Press Release No. 18/25

IMF Staff Conclude 2018 Discussions with the West African Economic and Monetary Union on Common Policies for Member Countries

January 24, 2018

• Real GDP growth in the WAEMU is estimated above 6 percent in 2017 for the sixth consecutive year, despite adverse terms of trade shocks and security concerns.
• Convergence of WAEMU countries’ budget deficits of 3% of GDP by 2019 is crucial for ensuring macroeconomic stability and sustaining growth.
• An ambitious set of reforms to modernize the financial sector regulations in line with the Basel II/III principles has been introduced.

A staff team from the International Monetary Fund (IMF), headed by Mr. Dhaneshwar Ghura visited Ouagadougou, Abidjan, Lomé, and Dakar from January 11 to 24, 2018 for discussions with the institutions of the West African Economic and Monetary Union (WAEMU) on Common Policies for Member Countries of the Union.

At the conclusion of the mission, Mr. Ghura issued the following statement:

“Real GDP growth in the WAEMU is estimated above 6 percent in 2017 for the sixth consecutive year, despite adverse terms of trade shocks and security concerns. Inflation has remained low reflecting the continued solid food production. However, external and internal imbalances have persisted. The consolidated fiscal deficit is estimated to have reached 4.6 percent of GDP in 2017, as in 2016. This deficit and unfavorable terms of trade contributed to a widening of the external current account deficit. Public debt is rising and its service remains elevated, driven by large central government fiscal deficits as well as other public sector operations. International reserve coverage at end-2017 stabilized at about 4 months of imports, helped by Eurobond issuances by Côte d’Ivoire, Senegal, and the West African Development Bank (BOAD).

“The growth outlook remains favorable but is subject to downside risks. Real GDP growth is projected to stay above 6 percent over the medium-term, provided effective implementation of fiscal consolidation plans and structural reforms. The main risks to the outlook include slippages in fiscal consolidation plans, sluggish structural reforms, further security concerns as well as uncertainties on global growth and international financial market conditions.

“Envisaged convergence of the budget deficits of the member countries to the WAEMU criterion of 3% of GDP by 2019 is crucial for ensuring macroeconomic stability and sustaining growth. Therefore, 2018 is a critical year to ensure convergence to more sustainable budget deficits. Fiscal consolidation will require bolstering domestic revenue mobilization and prioritizing spending. In particular, tax policy reforms could help create space to reduce budget deficits without jeopardizing infrastructure investment as well as security and social spending.

“The measures undertaken by the BCEAO since end-2016 have initiated a rebalancing of monetary conditions and stimulated the development of the interbank market. However, liquidity shortages in the money market have reemerged since September 2017, which have pushed interbank rates up. The mission encouraged the BCEAO to adjust its monetary policy operations in case such shortages persist, or in the event of renewed pressures on foreign exchange reserves.

“An ambitious set of reforms to modernize the financial sector regulations in line with the Basel II/III principles has been introduced. These reforms include gradually increasing in the minimum capital requirements over several years, introducing a new accounting plan, moving to consolidated supervision of bank groups, strengthening the resolution framework, and setting up a deposit guarantee fund. The mission encouraged the regional authorities to make all the necessary arrangements for the effective implementation of these important reforms, which should help improve the quality of the banks’ loan portfolios and make the financial system more stable and resilient to shocks.

“The members of the IMF team express their gratitude to the authorities and to all the counterparts they met for the candid and constructive discussions and the warm hospitality extended to them. ”