IMF Guides West African Economic and Monetary Union Members on Policies

The Executive Board of the International Monetary Fund (IMF) has concluded the annual discussions on common policies of member countries of the West African Economic and Monetary Union (WAEMU)

According to IMF, the WAEMU has proved resilient amid significant adverse shocks, maintaining strong growth estimated at 5.1 percent in 2023. Inflation has fallen rapidly from its 2022 peaks and is now back within the 1-3 percent target range.

External reserves continued to fall significantly in 2023, by about US$2.6 billion, or to about 3.3 months of imports, although they rebounded by US$1.8 billion in January. Against the background, the central bank raised interest rates by a cumulative 150 basis points over 2022-2023, and limited the amount of bank refinancing.

Growth is projected to rise to about 6.8 percent in 2024-2025, due to the start of new hydrocarbon production, and hover near 6 percent in the longer term. Fiscal consolidation would proceed in 2024 and bring the deficit back to 3 percent of GDP in most member countries in 2025.

The completion of these hydrocarbon projects, together with fiscal consolidation, would lead to a quick narrowing of the current account deficit, and contribute to a gradual rebuilding of external reserves The region remains subject to downside risks, including to the regional security situation and political uncertainty.

Executive Directors agreed with the thrust of the staff appraisal. They welcomed that the WAEMU has been resilient to multiple shocks, with continued strong growth and inflation reverting to its target range.

Noting the persistent fiscal and external imbalances, which have contributed to a significant decline in reserves, the directors highlighted that the region also faces considerable risks, including from further deterioration in regional security and political stability.

In that context, they stressed the importance of a prudent policy mix to ensure macroeconomic stability and to rebuild external buffers, coupled with further efforts to promote financial stability and advance structural reforms to foster inclusive growth.

Directors recognized the authorities’ commitment to fiscal consolidation, noting that reducing the deficit to 3 percent in 2025 is central to domestic and external stability. They underscored the need for a credible fiscal framework that addresses unidentified sources of debt creation and ensures debt sustainability.

Directors recommended reintroducing the WAEMU Convergence Pact with the previous fiscal deficit and debt ceilings with enhancements to include a debt correction and enforcement mechanisms and escape clauses. Fiscal adjustment should be driven by revenue mobilization to protect priority spending. Directors commended the regional central bank for its effective policy response to address inflation and reserve losses.

They recommended further tightening monetary policy to rebuild external buffers and contain financial risks. Enhanced monetary-fiscal policy coordination would avoid strains on regional financing, while ensuring that medium-term reserve objectives are met.

Directors welcomed the resilience of the financial system and recommended adopting a medium-term plan to address risks emanating from the sovereign-bank nexus. They encouraged the introduction of targeted Pillar 2 capital surcharges to contain bank concentration risks from sovereign lending.

Directors also welcomed progress in operationalizing the bank resolution framework and stressed the importance of addressing outstanding FSAP recommendations. They highlighted that implementing the new AML/CFT law would help facilitate the removal of WAEMU members currently on the FATF grey list.

Directors agreed that prosperity in the WAEMU will depend on progress on political cohesion, economic integration, institutional frameworks, and infrastructure. They stressed the importance of continued efforts to increase common productive capacity in energy, infrastructure, and food resilience.

Noting recent developments, directors emphasized the importance of enhancing regional integration. Such efforts could include reducing non-tariff barriers and promoting physical and digital connectivity. Addressing gender disparities, climate-related vulnerabilities, and governance challenges would also be important.

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. It is expected that the next regional discussions with the WAEMU authorities will be held on the standard 12-month cycle. Anti-Homosexuality: Uganda Faces Difficulties Accessing External Funding –Fitch

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