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

The medium-term outlook remains positive but hinges critically on the implementation of planned reforms. Growth is projected to stay above 6 percent, assuming fiscal consolidation to meet the regional fiscal deficit convergence criterion of 3 percent of GDP and eliminate below-the-line budgetary operations from this year onwards, and structural reforms implementation. Risks are tilted to the downside and stem from potential slippages in fiscal consolidation, slow progress in implementing structural reforms and improving inclusiveness, larger imports or lower capital inflows relative to projections, persistent security concerns, as well as weaker-than-expected global recovery and tighter international financial conditions.

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They welcomed the region’scontinued strong growth despite the ongoing challenges and commended the authorities for the progress made in implementing banking sector reforms. Directors noted, however, that the medium-term outlook is subject to downside risks, including those from rising public debt burdens and higher external current account deficit. They emphasized that continued fiscal consolidation, more effective monetary policy transmission, and further financial and structural reforms are needed to support private sector-led growth and reduce vulnerabilities.

Directors underscored that growth-friendly fiscal consolidation is critical to reduce risks of public debt distress and preserve external stability. They urged member-countries to adhere to the regional fiscal deficit convergence criterion of 3 percent of GDP. Directors emphasized that adjustment efforts should focus on domestic revenue mobilization by curbing tax exemptions and enforcing regional tax policy directives, to generate space for development spending. They also urged more effective control of below-the-line budget operations and encouraged a review of the regional surveillance framework to better contain risks to debt sustainability.

Directors concurred that the current monetary policy is broadly appropriate but highlighted that the regional central bank (BCEAO) should stand ready to tighten its stance in case externalreserves deteriorate. They encouraged the BCEAO to address cautiously the banking sector’sstructural liquidity deficit and advised the authorities to take steps to further develop more active and liquid secondary debt and interbank markets for deepening the WAEMU financial markets and enhancing monetary policy transmission.

Directors welcomed the smooth introduction of new Basel II/III prudential regulations and bank accounting standards in 2018. They highlighted the importance of increasing banks’ capital and reducing concentration risks and non-performing loans to foster confidence in the banking sector. Directors also encouraged the authorities to promptly resolve ailing banks, operationalize the new resolution framework, improve banking groups’ supervision, and identify criteria fordefining systemic institutions.

Directors called for further efforts to improve financial inclusion. They highlighted the need for adequate supervision alongside financial innovations to ensure that such development does not create new risks to financial stability. Directors stressed the importance of closely monitoring microfinance institutions and strengthening AML/CFT risk-based supervision.

Directors emphasized the need to intensify the pace of structural reforms and regional initiatives to improve competitiveness and inclusiveness, including through continued efforts to promote cross-border infrastructure projects, and ease custom procedures. Directors also encouraged the authorities to sustain the progress made in improving the quality, coverage, and timeliness of regional data.

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. The next Article IV consultation discussion with the WAEMU regional authorities will be held on the 12-month cycle in accordance with the Executive Board Decision on the modalities for surveillance over WAEMU policies.

Table 1. WAEMU: Selected Economic and Financial Indicators, 2015-2023

2015 2016 2017 2018 2019 2020 2021 2022 2023 Est. Proj. National income and prices GDP at constant prices 6.3 6.4 6.6 6.3 6.6 6.5 6.3 7.4 6.8 GDP per capita at constant prices 3.4 3.5 3.7 3.6 3.7 3.7 3.5 4.5 4.0 Broad money to GDP 6.2 4.0 1.2 0.8 1.7 2.2 … … … Consumer prices (average) 1.0 0.3 0.8 1.4 1.6 1.9 1.9 1.9 1.9 Terms of trade 8.4 11.9 -0.8 -1.7 2.5 -0.6 -0.6 -2.0 -1.6 Nominal effective exchange rates -3.8 2.0 1.8 3.2 … … … … … Real effective exchange rates -5.4 -0.6 0.0 1.9 … … … … … National accounts Gross national savings 17.3 16.2 16.7 16.5 17.9 18.3 19.2 20.8 22.1 Gross domestic investment 23.2 21.8 23.4 23.4 24.2 25.1 25.8 25.8 27.1 Of which: public investment 7.7 7.7 8.2 8.7 8.8 8.9 8.9 8.9 9.0 Money and credit1 Net foreign assets 0.0 -5.4 1.7 4.0 2.6 1.3 … … … Net domestic assets 14.8 16.1 6.8 4.9 7.6 9.7 … … … Broad money 14.8 10.7 8.5 8.9 10.2 11.0 … … … Credit to the economy 17.4 9.9 9.4 8.0 8.3 7.1 … … … Government financial operations Government total revenue, excl. grants 17.6 17.6 18.1 18.2 18.6 19.0 19.2 19.6 19.8 Government expenditure 23.9 24.1 24.6 24.1 23.8 24.0 24.0 24.2 24.3 Official grants 2.3 2.1 2.1 2.2 2.2 2.2 2.1 2.0 1.9 Overall fiscal balance, incl. grants (commitment basis) -4.0 -4.4 -4.3 -3.8 -3.1 -2.8 -2.7 -2.6 -2.6 Basic fiscal balance, incl. grants & HIPC -1.1 -1.6 -1.3 -0.9 -0.1 0.0 0.1 0.2 0.2 External sector Exports of goods and services 2 23.2 21.9 22.1 22.5 22.6 22.2 22.1 23.2 23.2 Imports of goods and services 2 32.0 29.9 31.0 32.1 31.7 31.9 31.4 30.1 28.8 Current account, excl. grants -7.3 -7.2 -8.5 -8.9 -8.3 -8.7 -8.4 -6.6 -5.9 Current account, incl. grants -5.4 -5.4 -6.6 -6.8 -6.3 -6.8 -6.6 -5.0 -5.0 External public debt 27.5 28.4 29.6 33.8 33.9 32.5 32.0 30.5 29.7 Total public debt 43.3 46.8 50.1 52.5 51.3 50.2 49.4 47.7 46.5 Broad money 28.4 28.9 28.9 31.1 33.3 33.8 … … … Memorandum items: Nominal GDP (billions of CFA francs) 56,299 59,901 64,208 69,351 75,119 81,588 88,306 96,755 105,257 Nominal GDP per capita (US dollars) 1,013 1,045 1,112 1,227 1,258 1,343 1,421 1,525 1,619 CFA franc per US dollars, average 591 593 581 555 … … … … … Foreign exchange cover ratio3 84.4 71.4 73.5 … … … … … … Gross international reserves In months of imports of goods and services  2 5.0 3.9 3.9 4.3 4.4 4.3 4.4 4.6 4.8 In millions of US dollars 12,725 11,015 12,367 15,419 16,514 17,361 19,068 20,999 23,576 In percent of broad money 37.0 29.0 29.4 32.2 32.2 30.2 … … … Sources: IMF, African Department database; World Economic Outlook; World Bank World Development Indicators; IMF staff estimates and projections. 1 Year on year change, end December. 2 Excluding intraregional trade. 3 Gross official reserves divided by short-term domestic liabilities (IMF definition).

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 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.