IMF Finalizes 2024 West African Union Policy Talks

Washington, DC: The Executive Board of the International Monetary Fund (IMF) on March 15, 2024, concluded the annual discussions on common policies of member countries of the West African Economic and Monetary Union (WAEMU)[1].

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 Board Assessment[2]

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, 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 reserves 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.

[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. Staff hold separate annual discussions with the regional institutions responsible for common policies for the countries in four currency unions – the Euro-Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collect economic and financial information, and discuss with officials the currency union's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the IMF Executive Board. Both staff's discussions with the regional institutions and the Board discussion of the annual staff report subsequently are considered an integral part of the Article IV consultation with each member.

[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.