IMF Concludes Regional Consultation with West African Economic and Monetary Union

  • 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 : On February 11, the Executive Board of the International Monetary Fund (IMF) concluded the regional consultation[1]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 Assessment[2]

    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.




    [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:https://www.IMF.org/external/np/sec/misc/qualifiers.htm.

    Table 1. WAEMU: Selected Economic and Social Indicators, 2018–261

    Social Indicators

    GDP

    Poverty (2015 or latest available)

    Nominal GDP (2020, millions of US Dollars)

    159,277

    Headcount ratio at $1.90 a day (2011 PPP)

    47.1

    GDP per capita (2020, US Dollars)

    1,218

    Undernourishment (percent of population)

    12.5

    Populations characteristics

    Inequality (2015 or latest available)

    Total (2020, millions)

    131

    Income share held by highest 10 percent of population

    32.1

    Urban Population (2020, percent of total)

    40.8

    Income share held by lowest 20 percent of population

    6.1

    Life expectancy at birth (2019, years)

    61.3

    Gini index

    40.8

    Economic Indicators

    2018

    2019

    2020

    2021

    2022

    2023

    2024

    2025

    2026

    SM/21/5 2

    Est.

    SM/21/5 2

    Proj.

    Projected

    (Annual percentage change)

    National income and prices

    GDP at constant prices 3

    6.5

    5.8

    0.3

    2.0

    5.4

    5.7

    6.1

    7.0

    7.2

    6.1

    5.8

    GDP per capita at constant prices

    3.4

    2.8

    -2.5

    -1.0

    2.5

    2.8

    3.1

    3.9

    4.1

    3.1

    2.8

    Consumer prices (average)

    1.0

    -0.1

    1.7

    2.3

    1.6

    3.3

    2.5

    1.9

    1.9

    1.9

    1.9

    Terms of trade

    -1.9

    -3.2

    18.4

    19.4

    2.3

    -3.1

    -1.7

    -2.6

    -2.2

    -0.5

    -0.6

    Nominal effective exchange rate

    4.1

    -0.5

    3.7

    Real effective exchange rate

    2.2

    -3.7

    3.7

    (Percent of GDP)

    National accounts

    Gross national savings

    18.6

    19.4

    18.6

    20.1

    19.4

    19.5

    20.1

    20.7

    21.0

    21.4

    21.5

    Gross domestic investment

    24.4

    24.2

    24.0

    24.6

    25.1

    25.4

    25.9

    26.0

    25.5

    25.8

    26.0

    Of which: public investment

    6.4

    6.1

    7.1

    7.1

    7.1

    7.5

    7.8

    7.4

    6.9

    7.0

    7.1

    (Annual changes in percent of beginning-of-period broad money)

    Money and credit

    Net foreign assets

    4.6

    6.6

    0.3

    0.7

    -0.5

    2.5

    -0.1

    0.7

    1.8

    1.3

    1.0

    Net domestic assets

    7.9

    3.7

    10.1

    15.9

    7.4

    5.5

    8.0

    8.0

    7.2

    6.7

    6.7

    Broad money

    12.5

    10.3

    10.4

    16.5

    6.9

    8.0

    8.0

    8.7

    9.0

    8.0

    7.7

    Credit to the economy

    5.9

    4.2

    5.6

    4.1

    3.3

    2.6

    2.5

    3.8

    4.6

    3.9

    3.8

    (Percent of GDP, unless otherwise indicated)

    Government financial operations

    Government total revenue, excl. grants

    14.6

    15.6

    14.7

    15.2

    15.5

    15.3

    15.9

    16.3

    16.5

    16.9

    17.2

    Government expenditure

    19.7

    19.8

    23.1

    22.9

    22.3

    22.9

    22.4

    21.6

    21.0

    21.2

    21.4

    Overall fiscal balance, excl. grants

    -5.0

    -4.1

    -8.4

    -7.6

    -6.9

    -7.6

    -6.5

    -5.4

    -4.4

    -4.3

    -4.2

    Overall fiscal balance, incl. grants

    -3.3

    -2.3

    -5.9

    -5.7

    -4.9

    -5.9

    -4.7

    -3.8

    -3.0

    -3.0

    -3.0

    External sector

    Exports of goods and services 4

    19.2

    19.6

    17.0

    18.7

    18.1

    18.9

    19.9

    19.7

    20.3

    20.2

    19.8

    Imports of goods and services 4

    25.5

    25.4

    23.4

    24.2

    24.3

    25.8

    26.6

    25.7

    25.4

    25.0

    24.8

    Current account, excl. grants

    -6.7

    -6.1

    -6.9

    -5.9

    -6.8

    -6.8

    -6.8

    -6.3

    -5.4

    -5.3

    -5.3

    Current account, incl. grants

    -5.6

    -4.9

    -5.4

    -4.5

    -5.7

    -5.9

    -5.9

    -5.3

    -4.5

    -4.5

    -4.6

    External public debt

    28.0

    30.2

    32.9

    33.6

    33.3

    36.4

    35.1

    33.5

    31.8

    30.3

    29.4

    Total public debt

    43.4

    45.5

    48.5

    52.1

    49.6

    55.6

    55.5

    54.5

    52.7

    51.5

    50.8

    Broad money

    33.0

    34.3

    37.1

    38.6

    37.1

    38.6

    Memorandum items:

    Nominal GDP (billions of CFA francs)

    83,301

    88,519

    90,231

    91,545

    96,476

    98,891

    106,762

    116,024

    126,456

    136,513

    147,001

    Nominal GDP per capita (US dollars)

    1,217

    1,190

    1,198

    1,218

    1,322

    1,332

    1,394

    1,494

    1,600

    1,692

    1,784

    CFA franc per US dollars, average

    555

    585.9

    574.8

    Gross international reserves 5

    In months of next year’s imports (of

    goods and services)

    4.6

    5.6

    5.5

    5.5

    5.0

    5.8

    5.5

    5.3

    5.3

    5.2

    5.0

    In percent of this year’s GDP

    10.3

    11.7

    12.8

    13.9

    12.9

    12.2

    11.9

    11.5

    11.0

    In percent of the BCEAO’s sight liabilities

    79.6

    81.4

    77.3

    86.4

    89.4

    84.2

    81.9

    79.2

    76.1

    In millions of US dollars

    14,853

    17,547

    19,275

    21,764

    19,497

    24,228

    24,898

    25,827

    27,626

    29,035

    30,043

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

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

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

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

    4 Excluding intraregional trade.

    5 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.

    Public Release. More on this here.