## 1. The Monetary Cooperation and Currency Reform ## Source details **Canonical URL:** [1. The Monetary Cooperation and Currency Reform](https://www.imf.org/-/media/files/publications/cr/2021/english/1wauea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1wauea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1wauea2021001.pdf.json) --- ### Background: triple crisis and reform context - Near-decade high growth ended with Covid-19: after exceeding 6 percent every year over 2012–19, real GDP growth is expected to have collapsed in 2020 to less than 0.5 percent. - Health impact: as of end-December 2020, cumulative Covid-19 cases represented less than 0.1 percent of the total WAEMU population. - Security shock: fatalities from terrorism surged by 90 percent in 2019 in Burkina Faso, Mali and Niger, and another 40 percent (on an annualized basis) in the first 10 months of 2020. - Political transitions: elections in four member countries between Fall 2020 and Spring 2021; Mali experienced a military coup in August 2020. - Monetary reform announced end-2019 (see Box 1) is an important transition for WAEMU. ### Box 1 — Monetary cooperation and currency reform (reform features and status) - Reform introduces three main changes while maintaining the peg to the euro and France’s convertibility guarantee: - (i) the BCEAO will manage all its reserves instead of depositing half with the French Treasury in the “Compte d’opérations”; - (ii) France will cease to be represented on the BCEAO’s main decision-making bodies; - (iii) the WAEMU’s CFAF will be renamed ECO. - Status and timeline: - First two changes already in place, though some modalities still being sorted out at drafting. - ECO launch postponed to articulate reform with ECOWAS single flexible currency roadmap. - President Ouattara announced in September 2020 that the ECO would not be introduced before, at least, three to five years. ### Recent economic and financial developments - Growth and inflation: - Real GDP growth in 2019: 5.9 percent. - Sharp deceleration March–June 2020; rebound in Q3 2020. - Inflation averaged 2.1 percent over January–November 2020 vs same period the previous year. - Fiscal stance: - Aggregate fiscal deficit fell below the 3 percent of GDP regional ceiling in 2019. - Covid-19 led to supplementary budgets and an estimated fiscal stance loosening by about 3½ percent of GDP in 2020. - Union’s Macroeconomic Convergence Pact suspended in April 2020. - External reserves and repatriation: - Reserve coverage ratio: 4.7 months (end-2018) → around 6.0 months (April–June 2020) → 5.4 months (November 2020). - Repatriation rate of FX export proceeds: 13 percent (2012) → 70 percent (2019) → about 60 percent (first three quarters of 2020). - Liquidity and sovereign borrowing: - BCEAO shifted to “fixed-rate full allotment” (FRFA) in March 2020; policy rate reduced by 50 bps in June 2020. - Côte d’Ivoire issued a 12-year eurobond of EUR 1 billion at 5 percent in November 2020. - Banking and microfinance: - Aggregate CAR: 10.5 percent (Dec 2018) → 11.5 percent (Dec 2019) → 12.1 percent (end-June 2020). - At end-June 2020, 17 banks (15.7 percent of system assets) did not meet the regulatory minimum; eight banks (3 percent of system assets) recorded negative equity. - NPL ratio: 12.4 percent (end-2018) → 11.4 percent (end-2019) and 11.4 percent (end-June 2020). - Bank credit to private sector growth: 8.2 percent (2019); 5.8 percent (Jan–Sep 2020, y/y). - MFIs: end-2019 credit outstanding = 1.3 percent of GDP and 6 percent of bank credit; MFI NPL stock rose by 33.4 percent between end-December 2019 and end-June 2020; stock of credit edged up by 0.6 percent over same period. ### Outlook and risks - Baseline projections: - Growth projected at 5.4 percent in 2021, driven by rebound in private consumption and private investment. - GDP per capita projected to remain 6 percent lower than before the crisis in coming years. - Return to the 3 percent of GDP regional deficit ceiling expected to take 3 years, on average. - Financing composition: less than 40 percent of the fiscal deficit covered by official flows in coming years (compared to about two-thirds in 2020 and 54 percent over 2015–19). - Current account expected to narrow to around 4 percent of GDP in the medium term. - Reserves should gradually stabilize at 4 months of imports by the end of the forecast horizon. - Hydrocarbon exports from Niger and Senegal expected to come on stream from 2022 onwards. - Downside risks and adverse scenario: - Major risks: new virus outbreaks, security shocks, election-related fiscal slippages, worsening bank positions, uncertainties over ECO timeline. - Adverse scenario reduces growth relative to baseline by 1.25 percent in 2020, 2.5 percent in 2021, 2 percent in 2022 and 1 percent in 2023 (average lower by 1½ percent over 2020–23). - Fiscal deficits higher by about 1 percent of GDP in the medium term (converging towards 4 percent of GDP). - Reserves would fall to about 3 months of imports by 2025. ### Authorities’ views - Regional authorities broadly agreed with IMF staff on outlook and risks; their growth and fiscal projections are very close to staff’s. - WAEMU Commission developed capacity for macroeconomic projections using a new model applied to two pilot countries in 2020 and to be extended in 2021. - WAEMU Commission predicts return to the 3 percent deficit ceiling in 2023 or 2024 depending on the country. - BCEAO baseline foresees reserve coverage stabilizing at about 6 months of imports by 2022 (higher than IMF staff baseline). ### Policy discussions — navigating fiscal response under constraints - Constraints: - Need to maintain sufficient reserves to protect the euro peg. - Potential financing difficulties due to lower donor support, uncertain Eurobond market appetite, and limited regional market absorption. - Deterioration in debt servicing capacity: interest-to-revenue (excluding grants) rose from 4.7 percent to 12.3 percent between 2012 and 2019, expected to increase to 15.1 percent in 2020. - Latest DSAs: risks of external debt distress moderate for all member-countries; two are at high risk for overall debt. - Recommended aggregate pace: - Return to 3 percent of GDP fiscal deficit by 2023 balances feasibility and preservation of internal/external stability. - Consolidation relies largely on withdrawing crisis current expenditure measures and modest revenue gains. - Sahel-differentiated approach: - Slower fiscal convergence may be justified for countries with surge in violence to avoid crowding out investment and social expenditure. - Support by additional grants, strict fiscal discipline elsewhere in the Union, and improved fiscal transparency/PFM. --- ### Regional fiscal framework: rules, enforcement, and design - Fiscal rules were put on hold in response to the crisis; WAEMU Commission will review the regional surveillance framework and discuss changes with national governments in 2021. - IMF staff advice: - Maintain the "3 percent of GDP" fiscal deficit ceiling. - Support with stronger enforcement mechanisms, including better defined escape clauses. - Risks and alternatives: - Replacing the ceiling with a "structural balance rule" could create measurement, implementation and communication problems and lead to spending slippages. - Debt rule ceiling ("70 percent of GDP") could be lowered to better preserve debt sustainability. - PFM: - Regional PFM directives should be more effectively implemented to limit below-the-line operations. - Extend coverage of government debt statistics to include extrabudgetary entities and state-owned enterprises. ### Composition and pace of the 2021 adjustment (Box 2 highlights) - 2021 budgets point to discretionary fiscal consolidation of around "1 percent of GDP" for the WAEMU region in 2021. - Because automatic stabilizers are small, cyclically-adjusted numbers are close to headline values. - Regional projection for 2021 adjustment: - Retrenchment of current expenditure: down by "0.7 percent of GDP". - Tax-enhancing measures: increase of "0.8 percent of GDP". - Decline in grants: around "0.5 percent of GDP". - Country examples: - Côte d’Ivoire: crisis-related expenditure reduced by "half a percent of GDP" in 2021; revenue measures include reduction in VAT exemptions and increase in registration fees for cocoa exports. - Senegal: introduction of a tax on textiles and base-broadening measures. - Mali: adjustment mostly via revenue administration measures (fuel tracing, digitalization, data exchange). ### Revenue mobilization priorities - Average tax-to-GDP ratio in 2019: "13.4 percent" vs. a "20 percent" regional target. - Tax policy actions: - Revise regional tax directives, in particular the VAT directive. - Raise excises toward ceilings set by regional directives and better apply petroleum product regulation. - Revenue administration: - Improve harmonization of customs procedures and practices. - Enhance collaboration and exchange of information between revenue administrations. ### Authorities’ governance views on fiscal strategy - Authorities agreed on gradual deficit reduction starting in 2021; found IMF staff time horizon reasonable. - WAEMU Commission noted debt service accounted for more than a third of revenues (excluding grants) in five member states at end-2019. - Convergence on need to update regional fiscal governance: revise escape clauses and consider a regional fiscal council of independent experts. - Skepticism on differentiated pace for security-exposed countries due to implementation challenges and adverse incentives. ### Monetary policy stance and foreign exchange reserves - Monetary stance judged appropriate; BCEAO measures prevented tightening of financial conditions. - Foreign exchange reserves: - Import coverage estimated at "5.4 months" in November 2020, within ESA recommended range of "5 to 7 months of imports". - Medium-term projection: reserves stabilize at "4 months of imports"—below ESA range—requiring competitiveness efforts. - BCEAO recommendations: - Be ready to tighten if external buffers fall significantly. - Make evidence-based decisions prioritizing price and external stability while considering growth. - Continue satisfying banks’ liquidity demand at a set rate; FRFA adopted since March recommended as permanent. - Adapt investment strategies and risk management following end of centralization of half of reserves at the French Treasury. ### BCEAO crisis measures (Box 3) - Since March 2020, BCEAO met all banks’ demand for liquidity at a fixed rate via FRFA auctions. - May 2020: launched special 3-month refinancing window at a fixed low rate for limited amounts of 3-month "Covid-19 T-Bills"; program expired end-December 2020. - June 2020: Monetary Policy Committee lowered interest rate corridor by "50 basis points" to "2–4 percent". - Extended collateral framework to include bank loans to selected private companies; private sector claims = "4.3 percent" of collateral portfolio as of end-December 2020. - FRFA mitigated liquidity risk, avoided credit crunch, and can reduce liquidity premium on sovereign yields. ### Safeguards, reserves management and monetary views - 2018 safeguards assessment found a strong control environment and transparent financial reporting; one outstanding recommendation on risk management is underway. - BCEAO concurs with staff assessment; intends to continue ample liquidity provision and accommodative stance as warranted; reviewing reserve management processes. ### Financial sector reforms, forbearance, and supervisory priorities - Loan forbearance (moratorium) introduced March 2020 allowed repayment postponement for solvent borrowers without reclassifying claims as non-performing; deferred payments = "5 percent of bank credit outstanding at end-August 2020". - Moratorium was time-bound (expiring end-2020) and targeted. - Supervisory advice: ensure banks monitor and regularly assess credit quality of beneficiaries. - Capital and NPL outlook: - Central scenario: WAEMU average NPL ratio would increase by one third in next five years relative to 2019, generating recapitalization needs of about "half a percent of GDP" to comply with regulatory CAR of "11.5 percent" in medium term. - Crisis-related recapitalization needs: range from "0.1 to 0.9 percent of GDP" depending on country. - These add to existing recapitalization needs of about "half a percent of GDP" at end-2019 based on regulatory CAR of "9.5 percent". - Full-fledged FSAP stress tests to be conducted in 2021 to complete estimates. - Supervisory and resolution actions: - Banking Commission should require credible capital restoration plans, monitor execution—focus on state-owned banks. - Make bank resolution framework fully operational (P&A transactions, bridge banks), issue legal texts and guidelines in 2021, publish list of systemic banks and restructuring templates. - Microfinance (MFI) sector: - Restructuring needs continue; supervisor should strengthen monitoring, facilitate restructuring or exit of nonviable MFIs. - AML/CFT and anti-corruption: - Risk-based supervision essential to prevent misuse/diversion of funds. - Consider reminding banks of AML/CFT obligations and developing capacity for virtual onsite inspections. ### Banking sector resilience and outlook - Preliminary data did not show significant deterioration in banks’ financial soundness indicators in first six months of 2020, but effects may materialize after forbearance ends. - Encourage proactive supervision, capital restoration plans, and full operation of bank resolution framework in 2021. --- ### Development of regional financial markets — recommendations - Foster a more active secondary market: - Better coordination and fungibility between adjudication and syndication issuance modes. - More proactive communication of annual borrowing plans. - More transparency on banks’ bilateral sovereign loans. - Transform SVTs (primary dealers) into true market makers: - Make SVTs sole distributors in primary market. - Grant SVTs special BCEAO liquidity access to prompt secondary market activation. - Require continuous price quotations centralized on accessible platform. ### WAEMU Government Securities Market (Box 4) — structure and metrics - Launched 2001 after prohibition of direct central bank funding to governments. - Instruments: T-bills 1–24 months (auctions); bonds 3–10 years (auctions or syndications); Sukuks possible. - At end-2019: - Outstanding stock of government securities = 12.5 percent of regional GDP. - Outstanding stock represented 84.4 percent of governments’ domestic debt. - 61 percent of outstanding stock issued via auction; remainder via syndication. - Banks held 81.2 percent of outstanding stock; rest held by mutual funds/institutional investors mainly within WAEMU. - Market weaknesses: shallow secondary market, buy-and-hold bank behavior, narrow investor base, fragmented infrastructure. ### Authorities’ views on financial stability and bond market - Authorities agreed with staff on near-term banking resilience, progress on bank resolution framework expected in 2021, and commitment to MFI sector cleanup. - Recognized need to improve bond market depth and liquidity; support incentivizing SVTs as market makers. - Practical difficulties in achieving fungibility between adjudication and syndication noted. - To widen investor base: proactive government communication, better information dissemination, harmonize income taxation from securities. ### Contingency planning and adverse scenario responses - Baseline assumes rapid rebound with growth exceeding 6½ percent from 2022. - Annex III simulates adverse scenario with growth lower by 1½ percent on average over 2020-23. - Fiscal policy constraints in adverse shocks: - Limited room to raise deficits further; higher deficits could erode reserves, pressure regional market, and risk debt sustainability. - First defense for cyclical revenue shortfalls: curtail non-priority expenditures and target support. - If investment cuts unavoidable: base them on transparent criteria and target lower-efficiency projects. - Revenue-enhancing scope: repeal inefficient tax incentives and rationalize VAT exemptions/reduced rates. - Monetary policy and buffers: - Monetary policy could be relaxed further if outlook deteriorates, provided external buffers remain sufficient. - BCEAO has room for further easing using available instruments if conditions warrant. - Regulatory/supervisory measures: - Use capital conservation buffer to absorb cyclical losses and allow time to comply with capital requirements. - Engage banks with compromised capital ratios; request medium-term capital restoration plans and monitor implementation. - Consider prudential restrictions on dividend distribution and another targeted loan forbearance scheme for viable customers. ### Staff appraisal — summary of priorities - Growth: severe downturn in 2020 with expected recovery in 2021–22; medium-term outlook uncertain due to pandemic and security risks. - Fiscal policy: gradual return to 3 percent of GDP deficit by 2023 necessary to preserve reserves and debt sustainability; emphasis on revenue mobilization and differentiated pace for security-exposed countries. - Monetary policy: current stance appropriate; BCEAO measures prevented tightening of financial conditions; further relaxation possible if buffers suffice. - Banking supervision: proactive supervision and operational bank resolution framework needed. - Market deepening and structural reforms: priority to deepen regional sovereign bond market and remove structural impediments to competitiveness; enhance regional infrastructure coordination and eliminate non-tariff barriers. --- ### Key macro and social indicators (selected exact figures) - Nominal GDP (2019, millions of US Dollars): 151,154 - GDP per capita (2019, US Dollars): 1,190 - Headcount ratio at $1.90 a day (2011 PPP): 46.3 - Undernourishment (percent of population): 15.9 - Population total (2019, millions): 127 - Urban Population (2018, percent of total): 40.3 - Life expectancy at birth (2017, years): 60.9 - WAEMU real GDP (selected years, annual percent change): 6.4 6.5 6.6 5.9 6.5 0.3 5.4 6.6 7.4 6.5 6.1 - Consumer prices (average): 0.8 0.9 1.6 -0.1 1.9 1.7 1.6 1.9 1.9 1.9 1.9 - Government total revenue, excl. grants: 15.0 14.6 15.4 15.6 15.8 14.7 15.5 15.8 16.3 16.5 16.8 - Government expenditure: 20.3 19.6 19.8 19.7 19.9 23.1 22.3 21.4 21.0 20.9 21.1 - Overall fiscal balance, incl. grants (commitment basis): -3.6 -3.3 -2.5 -2.3 -2.4 -5.9 -4.9 -3.8 -3.1 -2.9 -2.8 - Gross international reserves (months of imports): 4.1 4.7 4.4 5.9 4.3 5.5 5.0 4.6 4.5 4.3 3.9 - Total public debt: 40.4 43.0 42.6 44.8 41.7 48.5 49.6 49.5 48.4 47.6 46.8 - WAEMU total debt service (percent of government revenue excluding grants): 32.2 36.6 30.2 35.5 27.5 41.7 40.6 44.0 40.4 42.0 41.5 - WAEMU debt service, interest (percent of GDP): 9.2 11.5 9.4 12.3 8.6 15.1 13.7 14.5 14.5 13.9 13.5 --- ### Annex I — Risk Assessment Matrix (selected risks and policy responses) - Unexpected (adverse) shift in Covid-19 pandemic - Likelihood/Time Horizon: High / Short to Medium Term - Impact: large negative effects on growth, external and fiscal positions, debt and poverty. - Response: reintroduce containment, prioritize spending, target support, provide bank liquidity, mobilize donor support. - Intensified security risks - Likelihood/Time Horizon: Medium / Short to Medium Term - Impact: large adverse effects on activity and public finances; fiscal slippages could crowd out private credit and lead to reserve losses. - Response: improve spending efficiency; allow more gradualism in consolidation for affected countries supported by donor assistance and fiscal discipline elsewhere. - Higher reliance on domestic financing - Likelihood/Time Horizon: High / Short to Medium Term - Impact: increased debt service costs and crowding-out of private sector. - Response: maintain agreed fiscal path; deepen regional market; loosen monetary policy if growth weakens. --- ### Annex II — Covid-19 impact on banks’ asset quality and capital adequacy (summary) - Pre-Covid bank metrics: - Gross NPL ratio declined to 11.4 percent at end-2019; 63.3 percent of NPLs provisioned → net NPL ratio 4.5 percent. - Aggregate provisioning gap: 0.9 percent of GDP at end-2019. - WAEMU average CAR increased from 10.0 percent (end-June 2018) to 11.5 percent (end-2019). - Recapitalization needs to bring non-compliant banks to regulatory CAR at end-2019: 0.5 percent of GDP. - Scenarios and elasticities: - IMF SSA elasticity: a 1 percentage point drop in real GDP growth → increase in gross NPL ratio by 0.70 percentage point cumulatively by 2025. - Drop from 6.0 percent (2019) to 0.4 percent (2020) implies durable NPL increase by 4 percentage points in medium term. - Baseline: Covid slowdown could increase WAEMU average NPL ratio by one third by end-2025 vs end-2019. - Adverse scenario: growth lower by 1½ percent on average over 2020–23 → NPLs increase by two-thirds relative to baseline. - Capital adequacy simulations: - Baseline (one-third NPL increase): average CAR declines from 11.6 (end-2019) to 9.5 percent by end-2025; below regulatory minimum of 11.5 percent from end-2023. - Accounting for legacy provisioning shortfalls at end-2019: average CAR falls to 6.2 percent; only a third of banks (35 percent of assets) would comply with 11.5 percent; > one fifth of banks (15 percent of assets) would have negative equity. - Overall medium-term recapitalization needs rise by 0.5 percent of 2020 GDP (additional) plus existing pre-Covid needs estimated at 1.4 percent of GDP (composition: 0.5 percent to make CAR compliant at end-2019 + 0.9 percent unmet provisioning). - Country-level overall needs: up to 4.7 percent (Guinea-Bissau) and 6.5 percent (Togo) of national GDP over the medium term. - Crisis-related capitalization needs by country range from "0.1 to 0.9 percent of national GDP". ### Annex III — Adverse growth scenario and looser fiscal consolidation (assumptions and impacts) - Scenario: GDP growth rates average lower by 1½ percent between 2020 and 2023 relative to baseline. - Elasticities and financing assumptions: - Elasticity of revenue to GDP: 1. - Elasticity of reserves to fiscal deficit increase: range 0.2–0.5. - Elasticity of imports to GDP: 1. - Financing composition after 2020: 75 percent financed on regional market, 25 percent externally; 2020 assumed all additional financing from regional market. - Macroeconomic impacts: - Reserves could fall from 6 months (end-2019) to about 3 months by 2025 under adverse scenario. - Interest bill (domestic and external) would be on average 1.2 percentage points of revenue higher per year relative to baseline over 2020-25 (0.2 percentage points when comparing interest-to-GDP). - Annual debt service would average 46.8 percent of revenue over 2020-25 under adverse scenario vs 41.7 percent in baseline (difference 5.1 percentage points of revenue; 0.8 percentage point of GDP annually). - Domestic borrowing requirements could reach 2.9 percent of GDP in 2021 under adverse scenario (vs 2.0 percent in 2020 and 2.4 percent in 2021 baseline). - Private credit growth projected to drop from 4.8 percent (2020-2025 baseline average) to 3.5 percent (adverse scenario). ### Reserves and external sector details - Reserves: 5.9 months of prospective imports at end-2019 vs 4.7 months at end-2018. - 2019 international reserves: CFAF 10,357 billion (US$17.7 billion) at end-2019. - ARA CC adequacy range (end-2019): 4.9 to 6.5 months; 2020 preliminary range: 5.4 to 7.1 months. - Staff view: current reserves adequate (~5 to 7 months), but medium-term projected 4 months of import coverage is below that range yet broadly sustainable given France’s convertibility guarantee. --- ### Capacity development (CD), technical assistance (TA), and implementation assessment - TA 2017–20 achievements: - Progress on Basel II/III transition; banking legislation and prudential alignment under way. - Financial market regulation and market infrastructure improvements (CREPMF, Agence UMOA-Titres). - PFM guidance (budgeting of public employment ceilings; accrual accounting guidance). - Improvements in external sector statistics and provisional FSIs. - Implementation challenges: - Need consensus among eight members; limited enforcement powers of regional institutions; variation in administrative capacity; limited operational guidance for national transposition. - Near-term CDS priorities: - Banking regulation and supervision: complete Basel II/III transition (extended to 2023), strengthen supervision, operationalize resolution framework. - Financial sector development: deepen regional market, reduce auction/syndication segmentation. - PFM and fiscal institutions: transposition and implementation of directives, contain below-the-line operations, improve fiscal transparency. - Tax policy: revise regional tax directives (especially VAT) and harmonize customs procedures. - External sector statistics: sustain ESS improvements and regularize quarterly BOP/IIP dissemination. - TA delivery modalities: missions, training, peer learning; main providers include AFRITAC West, FAD, MCM. --- *Italicized source: IMF staff report — “The Monetary Cooperation and Currency Reform” (WAEMU staff report content extracted from the supplied PDF).* ### 1. The Monetary Cooperation and Currency Reform _______________________________________________5 ### 1. The Monetary Cooperation and Currency Reform ### Background: a triple crisis - Near-decade long high growth ended abruptly with the Covid-19 pandemic: after exceeding 6 percent every year over 2012–19, real GDP growth is expected to have collapsed in 2020 to less than 0.5 percent. - Health impact: as of end-December 2020, cumulative Covid-19 cases represented less than 0.1 percent of the total WAEMU population. - Security shock: fatalities from terrorism surged by 90 percent in 2019 in Burkina Faso, Mali and Niger, and another 40 percent (on an annualized basis) in the first 10 months of 2020, exerting significant budget pressures and humanitarian costs. - Political transitions: presidential and parliamentary elections took or were expected to take place in four member countries between Fall 2020 and Spring 2021; Mali experienced a military coup in August 2020. - Monetary reform context: the monetary cooperation and currency reform announced end-2019 is an important transition (see Box 1). ### Box 1 — The Monetary Cooperation and Currency Reform - Reform announced December 2019 introduces three main changes while maintaining the peg to the euro at its current parity and France’s convertibility guarantee: - (i) the BCEAO will manage all its reserves instead of having to deposit half of them with the French Treasury in the “Compte d’opérations”; - (ii) France will cease to be represented on the BCEAO’s main decision-making bodies; - (iii) the WAEMU’s CFAF will be renamed ECO. - Status and timeline: - The first two changes are already in place, although some practical or legal modalities were still being sorted out at the time of drafting. - The ECO launch, initially envisaged in 2020, has been postponed to articulate the reform with the ECOWAS single flexible currency roadmap. - President Ouattara announced in September 2020 that the ECO would not be introduced before, at least, three to five years. ### Recent economic and financial developments - 2019 performance and 2020 disruption: - Real GDP growth in 2019: 5.9 percent. - Sharp deceleration in March–June 2020 across commerce, construction, transportation and hospitality; rebound in Q3 2020. - Inflation averaged 2.1 percent over January–November 2020 compared to the same period the previous year. - Fiscal stance: - Aggregate fiscal deficit fell below the 3 percent of GDP regional ceiling in 2019. - Covid-19 led to supplementary budgets and an estimated fiscal stance loosening by about 3½ percent of GDP in 2020. - The Union’s Macroeconomic Convergence Pact was suspended in April 2020. - External reserves and repatriation: - Reserve coverage ratio (months of prospective imports): 4.7 at end-2018 → around 6.0 in April–June 2020 → 5.4 months in November 2020. - Repatriation rate of FX export proceeds: 13 percent in 2012 → 70 percent in 2019 → about 60 percent in the first three quarters of 2020. - Liquidity and sovereign borrowing: - BCEAO shifted to “fixed-rate full allotment” (FRFA) in March 2020 and reduced its policy rate by 50 bps in June 2020. - Sovereigns placed larger volumes of securities; in November 2020 Côte d’Ivoire issued a 12-year eurobond of EUR 1 billion at 5 percent. - Banking sector and microfinance: - Aggregate capital adequacy ratio (CAR): 10.5 percent (Dec 2018) → 11.5 percent (Dec 2019) → 12.1 percent (end-June 2020). - Note: at end-June 2020, 17 banks accounting for 15.7 percent of system assets did not meet the regulatory minimum; eight banks representing 3 percent of system assets continued to record negative equity. - NPL ratio (share of NPLs to total loans): 12.4 percent (end-2018) → 11.4 percent (end-2019) and remained 11.4 percent at end-June 2020. - Bank credit to the private sector growth: 8.2 percent in 2019; 5.8 percent over January–September 2020 year-on-year. - Microfinance Institutions (MFIs): - End-2019 credit outstanding represented 1.3 percent of GDP and 6 percent of bank credit. - Preliminary data: stock of MFI NPLs soared by 33.4 percent between end-December 2019 and end-June 2020; stock of credit edged up by 0.6 percent over the same period. - Data shortcomings may partly explain MFI NPL increases; BCEAO collecting more information. ### Outlook and risks - Baseline projections: - Growth projected at 5.4 percent in 2021, driven by rebound in private consumption and private investment. - GDP per capita projected to remain 6 percent lower than before the crisis in coming years. - Return to the 3 percent of GDP regional deficit ceiling expected to take 3 years, on average. - Financing composition: less than 40 percent of the fiscal deficit covered by official flows in coming years (compared to about two-thirds in 2020 and 54 percent over 2015–19). - External position: current account expected to narrow to around 4 percent of GDP in the medium term; reserves should gradually stabilize at 4 months of imports by the end of the forecast horizon. - Hydrocarbon exports from Niger and Senegal expected to come on stream from 2022 onwards. - Downside risks and adverse scenario: - Major risks: new virus outbreaks, security shocks, election-related fiscal slippages, worsening bank financial positions, uncertainties over ECO timeline. - Adverse scenario: assumes growth path lower by 1½ percent, on average, over 2020–23 (specified as: lowers growth, relative to baseline, by 1.25 percent in 2020, 2.5 percent in 2021, 2 percent in 2022 and 1 percent in 2023). - Fiscal deficits would be higher by about 1 percent of GDP in the medium term (converging towards 4 percent of GDP). - Reserves would fall to about 3 months of imports by 2025. ### Authorities’ views - Regional authorities broadly agreed with IMF staff on outlook and risks; their growth and fiscal projections are very close to staff’s. - The WAEMU Commission has developed capacity to conduct macroeconomic projections using a new model applied to two pilot countries in 2020 and to be extended in 2021. - WAEMU Commission predicts return to the 3 percent deficit ceiling in 2023 or 2024 depending on the country. - BCEAO baseline foresees reserve coverage stabilizing at about 6 months of imports by 2022 (higher than IMF staff baseline). ### Policy discussions — Navigating the fiscal response within multiple constraints - Constraints on gradual consolidation: - Need to maintain sufficient reserves to protect the euro peg. - Potential financing difficulties due to lower donor support, uncertain Eurobond market appetite, and limited absorption capacity of the regional market. - Deterioration in debt servicing capacity: interest-to-revenue (excluding grants) rose from 4.7 percent to 12.3 percent between 2012 and 2019, expected to increase to 15.1 percent in 2020. - Latest DSAs: risks of external debt distress are moderate for all member-countries, but two are at high risk for overall debt. - Recommended pace and rationale: - At the aggregate level, returning to the 3 percent of GDP fiscal deficit by 2023 would balance feasibility and preservation of internal and external stability. - The projected gradual consolidation relies largely on withdrawing current expenditure measures introduced during the crisis and modest revenue gains (e.g., expected lifting of Nigeria’s border closure and tax measures in some countries). - Differentiated approach for Sahel countries: - The surge in violence in Sahel countries may justify a slower fiscal convergence to avoid crowding out investment and social expenditure. - A more gradual adjustment for affected countries should be supported by: - Additional grants from donors; - Full adherence to agreed fiscal consolidation efforts in other member-countries to prevent reserve erosion; - Improvements in fiscal transparency and public financial management to ensure additional fiscal space is used to address security challenges. *Source: IMF staff report — “The Monetary Cooperation and Currency Reform”* ### 21. The upcoming revision of the regional fiscal framework will provide an opportunity to ### 1wauea2021001 - 21. The upcoming revision of the regional fiscal framework will provide an opportunity to ### Regional fiscal framework: rules, enforcement, and design - Fiscal rules were put on hold in response to the crisis; the WAEMU Commission will review the regional surveillance framework and discuss changes with national governments in 2021. - IMF staff advice: - Maintain the "3 percent of GDP" fiscal deficit ceiling. - Support it with stronger enforcement mechanisms, including better defined escape clauses. - Risks and alternatives: - Replacing the ceiling with a "structural balance rule" could create measurement, implementation and communication problems and lead to spending slippages. - The debt rule ceiling—currently at "70 percent of GDP"—could be lowered to better preserve debt sustainability and more credibly guide medium-term fiscal policy. - Public financial management (PFM): - Regional PFM directives should be more effectively implemented to limit below-the-line operations. - Extend coverage of government debt statistics to include extrabudgetary entities and state-owned enterprises. ### Composition and pace of fiscal adjustment - General guidance: - Consolidation plans should be designed to be least harmful to inclusive growth. - Emergency measures introduced during the Covid crisis should be gradually withdrawn while protecting social spending and priority investment in public infrastructure. - Shift from broad fiscal support to more affordable, efficient, and targeted policies on both revenue and spending sides. - Specific measures: - Develop or strengthen targeted social programs relying on effective identification systems of beneficiaries. - Replace inefficient tax incentives (e.g., broad VAT exemptions) with focused tax breaks (e.g., income tax relief for lower-income households). - Adjustment pace: - Should take into account country-specific circumstances, including the impact of the Covid pandemic and security-related spending pressures. ### Size and composition of the 2021 adjustment (Box 2) - The 2021 budgets approved at drafting are incorporated in projections and point to a discretionary fiscal consolidation of around "1 percent of GDP" for the WAEMU region in 2021. - Because automatic stabilizers are small, cyclically-adjusted numbers are close to headline values. - Regional projection for 2021 adjustment: - Retrenchment of current expenditure: down by "0.7 percent of GDP". - Tax-enhancing measures: increase of "0.8 percent of GDP". - Decline in grants: around "0.5 percent of GDP". - Examples of measures by country: - Côte d’Ivoire: crisis-related expenditure projected to be reduced by "half a percent of GDP" in 2021; revenue measures include reduction in VAT exemptions and increase in registration fees for cocoa exports. - Senegal: introduction of a tax on textiles and several base-broadening measures. - Mali: adjustment relying mostly on revenue administration measures, including color tracing fuel and enhancing digitalization and data exchange between revenue agencies. ### Revenue mobilization priorities - Need to scale up revenue mobilization significantly: average tax-to-GDP ratio in 2019 was "13.4 percent" vs. a "20 percent" regional target. - Tax policy: - Revise regional tax directives, in particular the VAT directive (partly outdated, unevenly implemented, allows large exemptions). - Raise excises by bringing rates closer to ceilings set by regional directives and better apply regulation on petroleum products. - Revenue administration: - Improve harmonization of customs procedures and practices. - Enhance collaboration and exchange of information between revenue administrations of member states. ### Authorities' views on fiscal strategy and governance - Authorities acknowledged importance of reducing deficits gradually starting from 2021 to preserve debt sustainability and found IMF staff's time horizon to return to the "3 percent of GDP" ceiling reasonable. - WAEMU Commission noted debt service accounted for more than a third of revenues (excluding grants) in five member states at end-2019. - Convergence on need to update regional fiscal governance framework: - Authorities supported revising escape clauses to make them more specific and relevant while creating policy flexibility. - They saw benefits in creating a regional fiscal council of independent experts to provide analysis, recommendations, and enhance enforcement of convergence criteria. - Skepticism about differentiated pace of convergence tied to security risks: - Authorities concerned that slower convergence for security-exposed countries could create adverse incentives. - Difficulty implementing a security shock escape clause due to lack of reliable functional spending data and because security shocks affect both spending and revenue. ### Monetary policy stance and foreign exchange reserves - Current monetary stance is assessed appropriate in the Covid-19 crisis context; BCEAO measures prevented tightening of financial conditions. - Foreign exchange reserves: - Import coverage of reserves estimated at "5.4 months" in November 2020, within the External Sector Assessment (ESA) recommended range of "5 to 7 months of imports". - In the medium term, reserves are projected to gradually stabilize at "4 months of imports"—below the ESA range—requiring renewed efforts to improve competitiveness. - Recommendations for BCEAO: - Be ready to tighten monetary policy if external buffers fall significantly or too rapidly. - Monetary policy decisions should be evidence-based, prioritize price and external stability while considering effects on growth. - Continue to satisfy banks’ demand for liquidity at a set rate; the FRFA strategy (fixed-rate full-allotment) adopted since March is recommended as a permanent feature. - Adapt investment strategies and risk management tools in response to the reform of monetary arrangements with France (end of centralization of half of reserves at the French Treasury). ### BCEAO crisis measures (Box 3) — key actions - Since March 2020, BCEAO met all banks’ demand for liquidity at a fixed rate against adequate collateral via FRFA auctions. - May 2020: launched special 3-month refinancing window at a fixed low rate for limited amounts of 3-month "Covid-19 T-Bills" issued by WAEMU sovereigns; program expired at end-December 2020. - June 2020: Monetary Policy Committee lowered interest rate corridor by "50 basis points" to "2–4 percent". - Extended collateral framework to include bank loans to selected private companies; as of end-December 2020 private sector claims accounted for "4.3 percent" of the collateral portfolio. - The FRFA has mitigated liquidity risk, avoided credit crunch, and can reduce liquidity premium on sovereign bond yields. ### Safeguards, reserves management, and authorities' views on monetary matters - 2018 safeguards assessment found a strong control environment and transparent financial reporting framework; one outstanding recommendation on strengthening risk management is underway. - BCEAO concurred with staff assessment, intends to continue providing ample liquidity and maintaining accommodative stance as warranted, and is reviewing processes and investment strategies for reserve management. ### Financial sector reforms, forbearance, and supervisory priorities - Loan forbearance framework (moratorium) introduced March 2020 allowed postponement of repayments for solvent borrowers without reclassifying claims as non-performing; deferred payments amounted to "5 percent of bank credit outstanding at end-August 2020". - The moratorium was time-bound (expiring at end-2020) and targeted on solvent borrowers. - Supervisory advice: - Ensure banks continue to monitor and regularly assess credit quality of customers benefiting from the scheme. - Capital and NPL outlook: - In the central scenario, WAEMU’s average NPL ratio would increase by one third in the next five years relative to its 2019 level, generating recapitalization needs of about "half a percent of GDP" to comply with the targeted regulatory CAR of "11.5 percent" in the medium term. - Crisis-related recapitalization needs would range from "0.1 to 0.9 percent of GDP" depending on the country. - These add to existing recapitalization needs of about "half a percent of GDP" at end-2019 based on a regulatory CAR of "9.5 percent". - Full-fledged stress tests in the FSAP (to be conducted in 2021) will complete these estimates. - Supervisory and resolution actions: - Banking Commission should require credible capital restoration plans from affected banks and monitor execution—focus on state-owned banks where indicators are worse. - Make bank resolution framework fully operational (P&A transactions, bridge banks), issue necessary legal texts and guidelines in 2021, and publish list of systemic banks and templates for restructuring/resolution plans. - Microfinance institutions (MFI) sector: - Restructuring needs should continue; supervisor should strengthen monitoring, dialogue with weakest MFIs, facilitate restructuring or exit of nonviable MFIs through liquidation or merger. - AML/CFT and anti-corruption: - Risk-based supervision of AML/CFT is essential during the crisis to prevent misuse of external or reallocated domestic financing. - Consider measures including: (i) reminding banks of existing AML/CFT obligations that help prevent/detect corruption or diversion of public funds; and (ii) developing capacity to carry out AML/CFT onsite inspections virtually. *International Monetary Fund — West African Economic and Monetary Union staff report sections summarized as provided.* ### 41. Another medium-term priority is to continue to support the development of regional ### Another medium-term priority is to continue to support the development of regional financial markets ### Development of regional financial markets — key recommendations and measures - Foster a more active secondary market for public debt by: - Better coordination and fungibility between adjudication and syndication modes of issuance. - More proactive communication of member states about their annual borrowing plans. - More transparency on banks’ bilateral sovereign loans. - Transform the role of primary dealers in sovereign securities (Spécialistes en Valeurs du Trésor or SVT) into true market makers: - Make SVTs the sole distributors of government securities on the primary market. - Grant SVTs special access to BCEAO liquidity to prompt activation of the secondary market. - Require SVTs to produce continuous price quotations, centralized on a platform accessible to all market participants. ### WAEMU’s Government Securities Market (Box 4) — structure, metrics, and constraints - Market structure and instruments: - Launched in 2001 after prohibition of direct central bank funding to governments. - Governments can issue T-bills with maturities of 1 to 24 months or bonds with maturities ranging from 3 to 10 years. - T-bills are issued exclusively through auctions; bonds, including Sukuks consistent with Islamic finance principles, may be issued either through auctions or syndications. - Auctions organized by Agence UMOA Titres (AUT); securities cleared and deposited at the regional central bank (BCEAO). - Syndicated issues facilitated and supervised by CREPMF; securities listed on BRVM and cleared/deposited at DC/BR. - Product differences (e.g., auctioned instruments increasingly require a bullet repayment while syndicated ones are amortizing) contribute to segmentation between issuance forms. - Key statistics at end-2019: - Outstanding stock of government securities issued within the WAEMU amounted to 12.5 percent of regional GDP. - Outstanding stock represented 84.4 percent of governments’ domestic debt. - 61 percent of the outstanding stock was issued on the auction segment of the regional market and the remainder through syndication. - Banks held 81.2 percent of the outstanding stock at end-2019; the rest held by mutual funds or institutional investors, almost all from within the WAEMU. - Market weaknesses: - Secondary market is relatively shallow, lacking both depth and liquidity. - Buy-and-hold remains the dominant strategy for banks due to a narrow investor base. - Suboptimal practices and fragmented infrastructure impede market liquidity. ### Authorities’ views on financial stability, bond market, and AML/CFT - Financial stability and banking sector: - Authorities agreed with staff views and underscored near-term banking sector resilience based on their stress tests, conditional on recovery per the central scenario. - Supervisory and regulatory mechanisms in place to encourage banks to restore capital positions if needed. - Significant progress on the bank resolution framework; expected to become fully operational in 2021. - Commitment to continue cleaning up the MFI sector and enhance monitoring. - Bond market: - Authorities recognized importance of improving depth and liquidity of the regional bond market. - Regional institutions concurred SVTs should be incentivized to become true market makers, though detailed arrangements are yet to be spelled out. - Practical difficulties noted in achieving full fungibility between adjudication and syndication issuance types. - To widen the investor base: need for more proactive and timely government communication, better dissemination of information with new technologies, and harmonization of income taxation from securities across member states. - AML/CFT during the crisis: - Banking Commission adapted supervisory procedures; normally relies on on-site and off-site inspections. - Standard on-site inspections were not conducted during the first seven months of the pandemic due to lockdowns. - A mechanism (“SCAN-R”) was established to obtain additional information and engage virtually with banks; eight such engagements conducted in 2020. ### Contingency planning and adverse scenario responses - Baseline and adverse scenario framing: - Baseline assumes a rapid economic rebound, with growth exceeding 6½ percent from 2022. - Annex III simulates a scenario with growth lower by 1½ percent, on average, over 2020-23 relative to the baseline. - Fiscal policy constraints and priorities in adverse shocks: - Limited room to raise fiscal deficits further; higher deficits could lead to losses of external reserves, pressures on the regional financial market, and risks to debt sustainability (Annex III). - First line of defense for cyclical revenue shortfalls: curtail non-priority expenditures and better target support to firms and households. - If investment cuts unavoidable: base them on transparent criteria and target lower-efficiency projects. - Scope for revenue-enhancing measures including repealing inefficient tax incentives and rationalizing VAT exemptions and reduced rates. - Monetary policy and buffers: - Monetary policy could be relaxed further if the economic outlook deteriorates, provided external buffers remain sufficient. - Staff estimates that the BCEAO would have room for further monetary easing using its available instruments if conditions warranted it. - Mission presented measures used in other countries related to maturity of operations and forward-looking orientation of monetary policy. - Regulatory and supervisory measures: - Proactive supervision would be important to support activity without compromising regional financial stability. - Capital conservation buffer could be used to allow banks to absorb cyclical losses and time to comply with capital requirements. - Supervisor should engage banks with compromised capital ratios, request medium-term capital restoration plans, and closely monitor implementation. - Consider prudential restrictions on dividend distribution by banks. - Contemplate another loan forbearance scheme, provided relief is targeted toward viable customers and most-hit sectors. ### Staff appraisal — outlook, policy stance, and reform priorities - Growth and outlook: - After almost a decade of growth above 6 percent, the WAEMU faced a triple crisis (health, economic, security). - Growth expected to have collapsed to near zero in 2020 before recovering swiftly in 2021–22 to pre-crisis levels. - Conjunctural indicators and private sector discussions support a rebound starting in Q3 2020. - Medium-term outlook remains uncertain; forecasts subject to greater-than-usual uncertainty from potential new virus outbreaks or security shocks. - Fiscal policy and governance: - A gradual return to the fiscal deficit ceiling of 3 percent of GDP by 2023 would balance feasibility and preservation of internal and external stability. - Three-year fiscal consolidation is essential to preserve external reserves, mitigate pressure on regional financial market, and prevent deterioration of debt servicing capacity. - Fiscal policy should emphasize revenue mobilization; differentiation in pace of convergence could be considered for countries more exposed to security risks. - Reform of regional fiscal governance framework expected in 2021; staff recommends maintaining the 3 percent of GDP deficit ceiling with more specific escape clauses, and lowering the ceiling of the debt ratio to increase credibility. - Caution about introducing a deficit ceiling adjusted for the business cycle due to potential implementation and communication challenges and expenditure slippages. - Monetary policy assessment: - Monetary stance appears appropriate; BCEAO measures during the pandemic prevented tightening of financial conditions and too strong a slowdown of credit to the private sector. - 2019 and 2020 WAEMU external positions assessed as broadly consistent with fundamentals and desirable policy settings. - In an adverse scenario, further monetary relaxation advisable if external buffers remain sufficient. - Banking supervision and resolution: - While banking sector seemed resilient so far, proactive supervision needed to anticipate protracted Covid impact on credit quality. - Preliminary data did not point to significant deterioration in banks’ financial soundness indicators in the first six months of 2020, but effects may materialize after forbearance measures end. - Encourage supervisors to engage with banks whose capital ratios would be compromised and implement capital restoration plans; make bank resolution framework fully operational in 2021. - Market deepening and structural reforms: - Deepening the regional sovereign bond market is a priority as it will come under pressure in coming years. - Member states likely to rely heavily on regional borrowing during convergence given relatively high fiscal deficits and possible difficulties accessing external financing. - Near-term measures to increase depth and liquidity include enhancing the role of primary dealers and improving governments’ communication about their borrowing plans. - To strengthen recovery and growth potential, lift structural impediments to competitiveness via regional policies: better coordination of regional infrastructure investments, enhancing regional competition framework, and eliminating non-tariff barriers. *WEST AFRICAN ECONOMIC AND MONETARY UNION INTERNATIONAL MONETARY FUND* ### 58. The discussions with the WAEMU authorities will be on the 12-month cycle in ### 1wauea2021001 - 58. The discussions with the WAEMU authorities will be on the 12-month cycle in ### Recent Economic Developments - After nearly a decade of strong economic growth, the economy decelerated sharply in the first half of 2020 but rebounded in Q3. - Broad fiscal convergence was achieved in 2019 mainly due to revenue mobilization efforts, but the public debt ratio kept increasing. - The external position improved in 2019 and external buffers rose in nominal terms. - Sources cited: BCEAO, World Economic Outlook and IMF staff calculations. ### Financial Sector Developments - Money market and interbank rates have declined since early 2019, partly due to higher liquidity supplied by the BCEAO, notably during the pandemic. - Bank credit to the private sector was dynamic in 2019 and remained robust in 2020 without apparent asset quality deterioration so far. - Subscription rates for sovereign securities auctions increased in 2020 while domestic borrowing rates have remained moderate or even declined despite the pandemic. - Sources cited: BCEAO; Agence UMOA-Titres; and IMF staff calculations. ### Medium-Term Prospects - After the severe downturn in 2020, the economy is expected to recover starting from 2021, mostly driven by a rebound of private demand. - A gradual consolidation towards the regional deficit ceiling should start in 2021, eventually reducing the high debt service. - The current account deficit is expected to widen in 2020 before converging to 4 percent of GDP; reserves would eventually stabilize at around 4 months of imports. - Sources cited: BCEAO; World Economic Outlook; and IMF staff calculations. ### Selected Economic and Social Indicators (Table 1 highlights) - Nominal GDP (2019, millions of US Dollars): 151,154 - GDP per capita (2019, US Dollars): 1,190 - Headcount ratio at $1.90 a day (2011 PPP): 46.3 - Undernourishment (percent of population): 15.9 - Income share held by highest 10 percent of population: 32.1 - Income share held by lowest 20 percent of population: 6.1 - Gini index: 40.8 - Population total (2019, millions): 127 - Urban Population (2018, percent of total): 40.3 - Life expectancy at birth (2017, years): 60.9 Key macro projections (WAEMU, annual percentage change / percent of GDP): - GDP at constant prices (2017–2025 row): 6.4 6.5 6.6 5.9 6.5 0.3 5.4 6.6 7.4 6.5 6.1 - GDP per capita at constant prices: 3.5 3.5 3.7 3.0 3.7 -2.5 2.5 3.7 4.4 3.6 3.2 - Consumer prices (average): 0.8 0.9 1.6 -0.1 1.9 1.7 1.6 1.9 1.9 1.9 1.9 - Gross national savings: 18.0 18.6 14.9 19.1 15.2 18.6 19.4 19.8 21.3 21.3 21.4 - Gross domestic investment: 23.0 24.3 20.1 23.7 20.9 24.0 25.1 24.9 25.3 25.1 25.4 - Government total revenue, excl. grants: 15.0 14.6 15.4 15.6 15.8 14.7 15.5 15.8 16.3 16.5 16.8 - Government expenditure: 20.3 19.6 19.8 19.7 19.9 23.1 22.3 21.4 21.0 20.9 21.1 - Overall fiscal balance, excl. grants: -5.3 -5.0 -4.4 -4.1 -4.2 -8.4 -6.9 -5.6 -4.8 -4.4 -4.3 - Overall fiscal balance, incl. grants (commitment basis): -3.6 -3.3 -2.5 -2.3 -2.4 -5.9 -4.9 -3.8 -3.1 -2.9 -2.8 - Current account, excl. grants: -5.8 -6.5 -8.3 -6.0 -8.7 -6.9 -6.8 -6.3 -5.0 -4.7 -4.7 - External public debt: 23.1 27.7 28.2 30.2 27.0 32.9 33.3 32.7 31.5 30.5 29.4 - Total public debt: 40.4 43.0 42.6 44.8 41.7 48.5 49.6 49.5 48.4 47.6 46.8 - Gross international reserves (months of imports): 4.1 4.7 4.4 5.9 4.3 5.5 5.0 4.6 4.5 4.3 3.9 - Nominal GDP (billions of CFA francs) memorandum: 77,736 83,391 90,359.6 88,561 98,154.8 90,231 96,476 104,539 114,189 123,865 133,761 Sources for Table 1: IMF, African Department database; World Economic Outlook; World Bank World Development Indicators; IMF staff estimates and projections. ### Selected National Accounts and Inflation (Table 2 highlights) - WAEMU real GDP (2017–2025): 6.4 6.5 6.6 5.9 6.5 0.3 5.4 6.6 7.4 6.5 6.1 - Country real GDP examples (selected): - Benin: 5.7 6.7 6.5 6.9 6.5 2.0 5.0 6.0 6.5 6.5 6.5 - Côte d'Ivoire: 7.4 6.9 7.5 6.2 7.2 1.8 6.5 6.5 6.5 6.5 6.5 - Niger (note on higher growth in 2022 and 2023 reflecting hydrocarbons): 5.0 7.2 6.5 5.9 6.0 1.2 6.9 12.8 11.1 6.7 6.3 - WAEMU inflation (annual averages): 0.8 0.9 1.6 -0.1 1.9 1.7 1.6 1.9 1.9 1.9 1.9 - Gross national savings (WAEMU): 18.0 18.6 14.9 19.1 15.2 18.6 19.4 19.8 21.3 21.3 21.4 - Gross domestic investment (WAEMU): 23.0 24.3 20.1 23.7 20.9 24.0 25.1 24.9 25.3 25.1 25.4 Sources for Table 2: IMF, African Department database; and staff estimates. ### Cross-Group Comparison (Table 3 highlights) - Real GDP (selected groups): - WAEMU: 6.4 6.5 5.9 0.3 5.4 6.6 7.4 6.5 6.1 - CEMAC: 0.2 0.9 2.0 -3.2 3.0 3.1 3.7 4.0 4.1 - Sub-Saharan Africa: 3.1 3.3 3.3 -3.0 3.1 4.0 4.4 4.4 4.3 - Inflation (annual averages): - WAEMU: 0.8 0.9 -0.1 1.7 1.6 1.9 1.9 1.9 1.9 - Sub-Saharan Africa: 10.8 8.4 7.2 -8.6 8.0 6.9 6.5 6.3 6.1 - Overall fiscal balance, incl. grants: - WAEMU: -3.6 -3.3 -2.3 -5.9 -4.9 -3.8 -3.1 -2.9 -2.8 - Sub-Saharan Africa: -4.4 -3.5 -4.3 -7.6 -5.9 -4.8 -4.0 -3.7 -3.4 - External public debt: - WAEMU: 23.1 27.7 30.2 27.0 32.9 33.3 32.7 31.5 30.5 Sources for Table 3: IMF, African Department database; and staff estimates. ### Fiscal Indicators (Table 4 highlights) - WAEMU primary fiscal balance (2017–2025): -2.3 -1.9 -1.1 -0.8 -0.8 -4.1 -2.9 -2.0 -1.2 -1.0 -1.0 - WAEMU overall fiscal balance (including grants), commitment basis (2017–2025): -3.6 -3.3 -2.5 -2.3 -2.4 -5.9 -4.9 -3.8 -3.1 -2.9 -2.8 - WAEMU government revenue (excluding grants): 15.0 14.6 15.4 15.6 15.8 14.7 15.5 15.8 16.3 16.5 16.8 - WAEMU government expenditure: 20.3 19.6 19.8 19.7 19.9 23.1 22.3 21.4 21.0 20.9 21.1 - WAEMU government capital expenditure: 7.1 6.5 6.8 6.0 7.0 7.4 7.3 7.0 6.8 6.8 6.9 Sources for Table 4: IMF, African Department database; and staff estimates. ### Balance of Payments (Table 5 highlights) - Balance on current account (percent of GDP, 2017–2025): -4.7 -5.4 -5.2 -4.8 -5.7 -5.4 -5.7 -5.2 -4.0 -3.9 -4.0 - Excluding official transfers: -5.8 -6.5 -6.9 -6.0 -7.3 -6.9 -6.8 -6.3 -5.0 -4.7 -4.7 - Exports of goods and services (percent of GDP): 23.6 23.0 22.8 23.0 22.5 20.8 21.9 22.6 24.0 24.2 24.0 - Exports of goods: 20.2 19.6 19.7 19.7 19.5 18.3 19.0 19.5 21.0 21.1 21.0 - Imports of goods and services (percent of GDP): -29.2 -29.2 -29.7 -28.7 -29.8 -27.4 -28.3 -28.2 -28.1 -28.0 -27.9 - Current transfers, net: 3.3 3.2 3.6 3.1 3.5 3.4 3.0 3.0 2.9 2.8 2.8 - Balance on capital and financial account: 5.7 7.2 6.2 6.2 6.1 4.9 5.7 5.4 4.8 4.7 4.3 - Overall balance: 0.7 1.3 1.0 1.5 0.4 -0.6 0.1 0.2 0.8 0.8 0.3 - Change in official NFA ("-" increase): -0.7 -1.3 -1.0 -1.5 -0.4 0.6 -0.1 -0.2 -0.8 -0.8 -0.3 Source for Table 5: IMF, African Department database. ### Government Public Debt and Debt Service (Table 6 highlights) - WAEMU external debt (percent of GDP, 2017–2025): 23.1 27.7 28.2 30.2 27.0 32.9 33.3 32.7 31.5 30.5 29.4 - WAEMU domestic debt (percent of GDP): 17.2 15.3 14.4 14.6 14.7 15.6 16.3 16.9 16.9 17.1 17.4 - WAEMU total debt (percent of GDP): 40.4 43.0 42.6 44.8 41.7 48.5 49.6 49.5 48.4 47.6 46.8 - WAEMU total debt service (percent of government revenue excluding grants): 32.2 36.6 30.2 35.5 27.5 41.7 40.6 44.0 40.4 42.0 41.5 - WAEMU debt service, interest (percent of GDP): 9.2 11.5 9.4 12.3 8.6 15.1 13.7 14.5 14.5 13.9 13.5 Source for Table 6: IMF, African Department database. ### Monetary Survey (Table 7 highlights) - Broad Money (billions of CFA francs, levels 2017–2025): 24,442 27,490 30,333 33,487 35,798 38,790 42,370 45,961 49,633 - Net foreign assets (billions of CFA francs): 4,037 5,137 6,945 7,044 6,864 6,966 7,752 8,649 9,053 - of which BCEAO: 5,169 6,347 7,927 8,247 8,217 8,318 9,105 10,002 10,406 - Net domestic assets (billions of CFA francs): 20,406 22,353 23,387 26,443 28,934 31,824 34,618 37,312 40,580 - Domestic credit (billions of CFA francs): 27,161 29,434 30,586 34,461 37,102 40,093 42,786 45,480 48,748 - Net credit to government: 7,308 8,143 8,147 10,327 11,879 13,694 15,026 16,453 18,169 - Net credit to the economy: 19,853 21,291 22,439 24,134 25,223 26,398 27,761 29,026 30,579 - Annual percent change, selected: Net foreign assets 1.7 4.5 6.6 0.3 -0.5 0.3 -0.5 2.0 2.1 0.9; Broad Money 8.5 12.5 10.2 10.4 6.9 8.4 9.2 8.5 8.0. Sources for Table 7: BCEAO and IMF staff calculations. ### Financial Soundness Indicators (Table 8 highlights) - Regulatory capital to risk weighted assets: 11.3 11.7 10.5 11.5 12.1 - Tier I capital to risk-weighted assets: 10.3 10.0 8.9 9.7 10.6 11.2 - Gross NPLs to total loans: 13.8 13.9 12.4 11.4 11.4 - Provisioning rate: 65.5 63.6 65.3 63.3 67.1 - Net NPLs to total loans: 5.2 5.5 4.7 4.5 4.0 - Net NPLs to capital: 47.2 48.0 38.0 38.2 30.5 - Liquid assets to total assets: 27.1 27.3 27.8 26.0 23.8 - Total loans to total deposits: 89.5 92.0 92.2 90.2 84.7 - Average interest rate on loans (selected years): 9.8 8.4 7.6 7.1 ... - After-tax return on average assets (ROA): 1.3 1.3 1.2 1.3 ... - After-tax return on average equity (ROE): 20.2 17.6 14.6 15.3 ... - Note: Indicators do not account for the additional provisions required by the WAEMU Banking Commission. First year of data reporting in accordance with Basel II/III prudential standards and the new banking chart of account. Source for Table 8: BCEAO. *Sources: IMF, African Department database; World Economic Outlook; World Bank World Development Indicators; BCEAO; Agence UMOA-Titres; and IMF staff calculations.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Major Risks, Likelihood, Time Horizon, Expected Impact, and Recommended Policy Response - Unexpected (adverse) shift in the Covid-19 pandemic - Relative Likelihood/Time Horizon: High / Short to Medium Term - Expected Impact if Realized: More severe or protracted domestic outbreak and spillovers from the ongoing global second wave of the pandemic could further reduce growth, worsen external and fiscal positions, increase debt vulnerabilities, and poverty. Impact could be large given health system weaknesses in WAEMU countries. - Recommended Policy Response: Reintroduce containment and mitigation measures. Better prioritize spending and target support to affected firms and households. Provide adequate liquidity to banks. Mobilize greater donor support. - Intensified security risks, including due to regional spillovers - Relative Likelihood/Time Horizon: Medium / Short to Medium Term - Expected Impact if Realized: Intensification or contagion of security shocks could potentially have large adverse effects on activity and public finances, and complicate policy implementation. Fiscal slippages could crowd out credit to private sector and/or lead external reserves losses. - Recommended Policy Response: Countries facing security shocks should improve public spending efficiency while enjoying more gradualism in the pace of medium-term consolidation. This would need to be supported by appropriate fiscal discipline by other WAEMU member countries and greater assistance from the international community. - Higher reliance on domestic financing - Relative Likelihood/Time Horizon: High / Short to Medium Term - Expected Impact if Realized: Pressures on regional market due to higher fiscal deficits and/or lower-than-expected external financing would increase debt service costs, and crowd-out the private sector. - Recommended Policy Response: Maintain agreed fiscal deficit path; accelerate reforms to deepen regional market; loosen further monetary policy if growth does not recover as planned. - Policy and reform implementation delays linked to elections or political instability - Relative Likelihood/Time Horizon: High / Short Term - Expected Impact if Realized: Presidential elections in four WAEMU countries and the political transition following the coup in Mali could increase risks of fiscal slippages and delays in the implementation of reforms, which in turn could undermine macroeconomic stability and external viability. - Recommended Policy Response: Build coalition of stakeholders to support reforms. Improve governance, inclusiveness of government policies and the social safety net system to foster buy-in. Educate the population about the risks of policy slippages (e.g., risk to stability of currency; crowding out of private sector). - Accelerating de-globalization - Relative Likelihood/Time Horizon: High / Short to Medium Term - Expected Impact if Realized: Increasing recourse to protectionist measures could lead to further fragmentation and less trade, FDI, aid and potential growth. - Recommended Policy Response: Promote regional integration, including regional bond markets and trade; pursue export diversification across products and trading partners. - Oversupply and volatility in the oil market - Relative Likelihood/Time Horizon: Medium / Short to Medium Term - Expected Impact if Realized: Large energy price swings can have significant fiscal implications under unchanged retail prices. Lower oil price would benefit balance of payments, inflation, and economic activity, as the WAEMU is net oil importer. - Recommended Policy Response: Adjust domestic energy prices to reflect changes in international prices. If domestic prices increase, mitigate adverse impacts on the most vulnerable through targeted fiscal transfers. - Adverse or more severe weather conditions, partly due to climate change - Relative Likelihood/Time Horizon: Medium / Short to Medium Term - Expected Impact if Realized: Could adversely affect agricultural output and exports; increase subsidy needs; and reduce the population’s living standards. - Recommended Policy Response: Develop further food security strategy; strengthen resilience through irrigation and productivity in agriculture. Mitigate the impact on the poor through targeted fiscal transfers and other types of public spending. - Delays in the realization of oil and gas projects in Niger or Senegal - Relative Likelihood/Time Horizon: Medium / Medium Term - Expected Impact if Realized: Delays in hydrocarbon projects or revised reserve estimations relative to baseline would weaken the current account and external buffers. - Recommended Policy Response: Adjust fiscal plans, improve spending quality and step up structural reforms to improve competitiveness and foster private sector development in non-extractive sectors. ### Explanatory Note on RAM Probabilities and Timing - The relative likelihood labels are staff’s subjective assessments: “low” indicates a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent. - “Short term (ST)” and “medium term (MT)” indicate risks could materialize within 1 and 3 years, respectively. - The RAM reflects staff views as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. --- ### Annex II. Potential Impact of the Covid-19 Crisis on WAEMU Banks’ Asset Quality and Capital Adequacy ### Overview and Purpose - Sensitivity analysis based on end-2019 bank data suggests that, under the baseline macroframework, the economic fallout from the Covid-19 pandemic would add to banks’ capital needs in the medium term, in the context of the phased transition to Basel II/III prudential standards. - This underscores the need to make bank supervision more proactive, address potential capital shortages that would emerge from the crisis, and operationalize the WAEMU’s bank resolution framework. ### A. Banks’ Credit Portfolio Quality and Capital Adequacy pre-Covid — Key Findings - Non-performing loans (NPLs) history and levels: - Close to 18 percent of gross total loans at the beginning of last decade. - Gross NPL ratio declined to 11.4 percent at end-2019. - At-end 2019, 63.3 percent of NPLs were provisioned implying a net NPL ratio of 4.5 percent. - Aggregate provisioning gap of 0.9 percent of GDP at end-2019. - Credit concentration: Share of the five largest borrowers in outstanding bank credit declined by 3.7 percentage points to 86.1 percent between end-2017 and end-2019. - Heterogeneity across countries and banks: Gross NPL ratio at end-2019 was particularly elevated in Guinea-Bissau and Benin; above WAEMU average for Niger, Senegal and Togo. Median NPL ratio: government-owned banks 17.9 percent vs private banks 9.9 percent. - Capital Adequacy Ratio (CAR) trends and Basel II/III transition: - During 2010–17, average CAR for WAEMU banks remained broadly stable at around 12 percent. - SSA average CAR was 17.5 percent. - Transition to Basel II/III initiated in 2018 to raise capital requirements gradually from 8.6 percent to 11.5 percent by 2023. (Note: convergence to 11.5 percent expected in 2023 instead of 2022 due to Covid crisis.) - WAEMU average CAR increased from 10.0 percent at end-June 2018 to 11.5 percent at end-2019. - Banks accounting for about a third of system assets have capital buffers of less than 2 percentage points. - Persistently under-capitalized institutions at end-2019: - 15.1 percent of banks accounting for 9.4 percent of total assets did not meet regulatory CAR requirement of 9.5 percent. - Recapitalization needs to bring these banks to regulatory CAR compliance amounted to 0.5 percent of GDP at end-2019. - Country-level CAR issues: Guinea Bissau CAR negative at end-2019 (large private bank representing close to one-third of country assets); excluding that bank CAR for Guinea Bissau was 33.4 percent. Togo CAR at 2.4 percent due to two banks with negative equity; excluding them CAR was 12.5 percent. ### B. Potential Impact of the Covid-19 Crisis on Bank Credit Quality — Scenarios and Key Statistics - Macroeconomic shock and baseline growth outlook: - The Covid pandemic ended an 8-year spurt of real GDP growth averaging about 6 ½ percent. - Baseline macroframework projects real GDP growth at 0.4 percent for 2020 (almost 6 percentage points below the pre-Covid projection), converging back to pre-Covid levels thereafter. - Sector exposure: Construction and public work, retail, transportation and hospitality accounted for 41.7 percent of banks’ performing loan portfolios at end-2019. - Policy forbearance effect: BCEAO satisfied all liquidity needs at its minimum policy rate, now 50 basis point lower than before Covid outbreak; encouraged loan deferrals up to end-2020 without classifying deferred claims as non-performing. These measures contributed to NPL ratio stability at 11.4 percent in first half of 2020. - Empirical elasticity and projected NPL increase: - IMF staff analysis for SSA: a 1 percentage point drop in real GDP growth would lead to an increase in the gross NPL ratio by 0.70 percentage point cumulatively by 2025. - Using this elasticity, the drop in real GDP growth from 6.0 percent in 2019 to 0.4 percent in 2020 implies a durable increase in the NPL ratio by 4 percentage points in the medium term. - Under baseline macroframework, the Covid-related slowdown projected for 2020 could potentially contribute to an increase of the WAEMU’s average NPL ratio by a third by end-2025, relative to its end-2019 level. - Adverse scenario amplification: An adverse scenario assuming GDP growth rates lower by 1½ percent on average between 2020 and 2023 would, using the same elasticity, increase NPLs by two-thirds relative to the baseline in the medium term. ### C. Potential Impact of the Covid-19 Crisis on Bank Capital Adequacy — Simulations and Results - Data coverage and shock design: - Simulation based on end-2019 bank data covering 83.1 percent of WAEMU banks, accounting for 90.1 percent of banking system assets. - Baseline shock: adverse credit shock leading to an increase in the average NPL ratio by one third in the medium term. - Adverse shock: two-third NPLs increase in the medium term corresponding to more adverse growth scenario. - Baseline CAR impact (one-third NPL increase): - Average CAR decline from 11.6 at end-2019 to an estimated 9.5 percent by end-2025. - This would fall significantly below regulatory minimum of 11.5 percent expected from end-2023 onwards. - Majority of WAEMU member-countries would have average CAR below required level at end of Basel II/III transition, except Burkina Faso, Mali and Niger. - Accounting for legacy provisioning shortfalls at end-2019, average CAR would fall further to 6.2 percent; only a third of banks accounting for 35 percent of assets would comply with 11.5 percent regulatory CAR; more than one fifth of banks accounting for 15 percent of system assets would have negative equity. - Recapitalization needs (medium term): - Overall recapitalization needs would rise by equivalent of 0.5 percent of 2020 GDP over the medium term, on top of existing pre-Covid needs. - Medium-term recapitalization needs estimated to average about 2 percent of GDP in the Union. Composition: - Additional capital required to bring all WAEMU banks’ CAR to 11.5 percent due to Covid and NPL rises: 0.5 percentage points of 2020 GDP. - Existing needs (pre-Covid) estimated at 1.4 percent of GDP, comprising (i) capital injections needed to make all banks’ CAR compliant at end-2019 (0.5 percent of GDP) and (ii) currently unmet provisioning requirements (0.9 percent of GDP). - National systems most affected: overall needs reaching 4.7 percent and 6.5 percent of national GDP over the medium term for Guinea-Bissau and Togo respectively. - Focusing on capitalization needs related to the crisis (first component), these would range from 0.1 to 0.9 percent of national GDP. ### Selected Quantitative Outcomes from the Baseline Simulation (table highlights) - Non Performing Loans (Gross ratio) — End-2019 vs Post Covid Shock (Baseline): WAEMU total gross NPL end-2019 10.5; Post Covid Shock (Baseline) 15.3 (table presents disaggregated national/private/public/large/medium/small/foreign breakdowns). - Capital Adequacy Ratio (CAR) — End-2019 vs Post Covid Shock (Baseline): WAEMU total CAR End-2019 11.5; Post Covid Shock (Baseline) 9.7 (table provides disaggregated values). - Recapitalization needs (percent of 2020 GDP) — Post Covid Shock (Baseline): WAEMU total 0.5 (table provides disaggregated national/private/public and size categories). - Memo items: Unmet provisioning requirements at end-2019 totaled 0.6 (percent of 2020 GDP) for the WAEMU system (table provides disaggregated values). - Number of banks in sample, and share in banking system’s assets are reported in the table (sample coverage and country/subgroup breakdowns documented). *Source: IMF staff compilation from the provided annex content.* ### 14. Under the adverse scenario, compliance ### 1wauea2021001 - 14. Under the adverse scenario, compliance ### Banking sector: CAR impact under the adverse scenario - A two-third increase in the NPL ratio relative to 2019 levels would cause the average CAR for the WAEMU to fall from 11.4 at end-2019 to an estimated 7.5 percent by end-2025. - Under this baseline scenario, all WAEMU member-countries would have average CAR below the level required at the end of the Basel II/III transition period. - Simulated CAR (selected reported figures): - End-2019 average CAR: 11.4 - End-2025 (Post Covid Shock, Adverse) average CAR: 7.5 - Regulatory threshold: 9.5 at end-2019 and 2020 and 11.5 starting at end-2023, with capital conservation buffer of 1.25 and 2.50 respectively. - CAR compliance assessment is based on a regulatory threshold of 11.5 percent. ### Bank recapitalization needs (medium term) - Under the adverse scenario, overall bank recapitalization needs for the WAEMU in the medium term would rise further than under the baseline by the equivalent of half a percentage point of 2020 GDP. - Additional recapitalization needs would mostly arise in medium and large banks. - Country-level additional recapitalization needs (share of national GDP) under the adverse scenario: - Togo: 0.9 percent - Benin: 0.7 percent - Guinea-Bissau: 0.6 percent - Reported medium-term recapitalization needs (percent of 2020 GDP, total): 1.4 (WAEMU aggregate reported in table: 1.4) - Needs to make all banks CAR compliant at end-2019 (percent of 2020 GDP, total): 0.8 ### Annex III — Adverse growth scenario and looser fiscal consolidation: assumptions and setup - Scenario assumption: GDP growth rates, on average, lower by 1½ percent between 2020 and 2023 relative to baseline. - Elasticity assumptions: - Elasticity of revenue to GDP: 1 - Elasticity of reserves to increase in fiscal deficit: range 0.2–0.5 (lower bound when deficits are externally-financed; upper bound when domestically-financed) - Elasticity of imports to GDP (adverse scenario): 1 - Terms of additional financing: assumed identical to terms observed in 2020 for each country (domestic and external) - Elasticity of crowding-out effect on private credit from extra domestic financing: 0.5 (i.e., 1 percent of GDP increase in government domestic financing → contraction of 0.5 percent of GDP of bank credit to private sector) - Financing composition assumption after 2020: three quarters of additional fiscal deficits financed on the regional market (through domestic banks), one quarter financed externally; for 2020, all additional financing assumed to come from the regional market. ### Macroeconomic impacts of the adverse scenario: reserves, debt service, and private credit - Reserves: - Reserve coverage could fall from 6 months of prospective imports at end-2019 towards about 3 months by 2025 under the adverse scenario. - The 3 months threshold is cited as a standard reserve adequacy metric. - Interest payments and debt service: - WAEMU interest bill (domestic and external) would, on average, be 1.2 percentage points of revenue higher every year relative to baseline over 2020-25 (and 0.2 percentage points when comparing interest-to-GDP shares). - Annual debt service (domestic and external) would average 46.8 percent of revenue over 2020-25 under the adverse scenario, compared to 41.7 percent of revenue in the baseline — a difference of 5.1 percentage points of revenue, equivalent to 0.8 percentage point of GDP when comparing GDP shares (or 5 percentage points of GDP on a cumulative basis over the six years). - Domestic borrowing pressure: - Domestic borrowing requirements to finance higher deficits could reach as much as 2.9 percent of GDP in 2021 under the adverse scenario — compared to 2.0 percent in 2020 and 2.4 percent in 2021 in the baseline. - Historical comparator: amount would exceed that raised in 2016 (2.3 percent of GDP). - Private credit crowding-out: - Commercial banks in the WAEMU hold more than 80 percent of sovereign securities. - Simulations suggest higher domestically-financed deficits could cause private sector credit growth to dip by about 1.5 percentage points, on average every year under the adverse scenario. - Credit growth projected to drop from an average 4.8 percent over 2020-2025 (baseline) to 3.5 percent (adverse scenario). ### Indicators of regional market absorption capacity (selected reported figures) - Domestic financing of fiscal deficits (CFAF billion, selected years): 2015: 519; 2016: 1,674; 2017: 470; 2018: -870; 2019: -806; 2020: 1,818; 2021: 2,009; later entries in table: 2,291; 2,738. - Domestic financing as percent of GDP (selected years): 2015: 0.8; 2016: 2.3; 2017: 0.1; 2018: -1.0; 2019: -0.9; 2020: 2.0; 2021: 2.3; later: 2.4; 2.9. - Banks' claims on governments (end-of-period, percent of banks' capital and percent of banks' total assets): - Banks' claims on governments (e.o.p.) percent of banks' capital (selected years): 2015: 165.7; 2016: 235.1; 2017: 229.1; 2018: 252.5; 2019: 228.9; 2020: 260.8; 2021: 265.0; later: 346.3; 362.1. - Banks' claims on governments (e.o.p.) percent of banks' total assets (selected years): 2015: 13.0; 2016: 17.4; 2017: 18.6; 2018: 20.1; 2019: 19.1; 2020: 22.2; 2021: 22.8; later: 24.8; 26.9. - Memo item: Aggregate fiscal balance in percent of GDP (selected years): 2015: -3.2; 2016: -3.6; 2017: -3.6; 2018: -3.3; 2019: -2.3; 2020: -5.9; 2021: -6.2; later: -4.9; -5.7. ### External sector assessment — overall and policy guidance - Overall assessment: The 2019 and 2020 WAEMU external positions are assessed as broadly consistent with fundamentals and desirable policy settings. Current level of reserves is within the range suggested by reserve adequacy metrics using end-2019 or preliminary 2020 data. - Potential policy responses: - Near term: balance support for the economy during the pandemic with monitoring external buffers amid uncertain access to financing. - Medium term: gradual and growth-friendly fiscal consolidation towards the regional deficit ceiling of 3 percent of GDP by 2023 to stabilize reserves. - Structural reforms: boost non-price competitiveness and enhance the region’s export performance. ### External sector details: current account, REER, capital flows, reserves - Current account: - 2019 CA (including grants): estimated at -4.8 percent of GDP (from -5.4 percent in 2018). - 2020 projected CA deficit: -5.4 percent of GDP. - Medium-term projection: CA narrows to around -4.0 percent of GDP by 2025. - EBA-lite CA model estimates for 2019: - Multilaterally consistent, cyclically-adjusted CA norm: -5.1 percent of GDP. - Cyclically-adjusted CA: -4.5 percent of GDP. - Implied gap: 0.6 percent of GDP under current policies. - Applying model to preliminary 2020 data: CA gap turns negative to -0.4 percent of GDP (marginal). - Real Effective Exchange Rate (REER): - CFAF REER depreciated by 14 percent over 2009-19. - 2019 REER depreciation: about 4.0 percent. - Between March and October 2020, REER appreciated by 6.4 percent compared to same months of 2019. - EBA’s Lite IREER model results: - 2019: marginal undervaluation of -0.2 percent. - Preliminary 2020: small overvaluation of 1.8 percent. - When applied to 2020 data, model points to small overvaluation of 2.3 or 1.5 percent based on elasticity of CA to REER of -0.17 (Fund model) or -0.24 (authorities’ assumption). - Capital flows: - 2019 net capital inflows declined by close to 1 percentage point of GDP from 2018. - Portfolio inflows: 2018: 3.7 percent of GDP; 2019: 2.2 percent of GDP. - Financial account surplus in 2019: 4.7 percent of GDP. - 2020 projection: surplus projected to narrow further. - Medium term (baseline): net financial inflows projected at 3.5 percent of GDP on average over 2021-25 (compared to 4.8 percent over 2017-19). - FDI inflows projected to decline further from 2022-23 due to completion of oil and mining projects in Niger. - Reserves adequacy (selected reported figures): - International reserves stood at CFAF 10,357 billion (US$17.7 billion) at end-2019, up by 1,796 billion (US$2.7 billion) from end-2018. - Reported reserve cover at end-2019: 6 months of prospective imports (baseline reference); adverse scenario projects fall to about 3 months by 2025. *Sources: BCEAO and Fund Staff estimates; IMF staff estimates.* ### 5.9 months of prospective imports at end-2019 compared to 4.7 months at end-2018. In contrast to ### 1wauea2021001 - 5.9 months of prospective imports at end-2019 compared to 4.7 months at end-2018. In contrast to ### Reserves and import cover - Reserves amounted to 5.9 months of prospective imports at end-2019 compared to 4.7 months at end-2018. - Eurobond issuance contribution: - In 2018, Eurobond issuances buttressed reserves accumulation. - In 2019, the Eurobond contribution to the increase in reserves was more modest. - Export proceeds repatriation: - Rate of repatriation of export receipts estimated to have increased from 62.0 percent in 2018 to 69.0 percent in 2019. - 2020 developments: - For the first 6 months of 2020, import cover remained broadly stable at 6 months, due to large financial support received from the international community and despite the pickup in imports projected in 2021. - Import cover then declined to 5.4 months between July and November 2020. - In nominal CFAF terms, reserves increased by about 8 percent between end-December 2019 and end-June 2020, amounting to CFAF 11,156 billion at end-June before declining by 6 percent to CFAF 10, 486 billion (US$ 19.1billion) at end-November 2020. - Baseline outlook and risks: - Under the WEO baseline, the reserve cover is expected to decline both as a share of GDP and prospective imports over the medium term. - Projected contraction in reserve coverage to about 4 months by 2025. - Drivers of decline: moderate pickup in imports during the recovery and subdued outlook for capital inflows (both FDI and official flows). - A gradual return of the fiscal deficit to the 3 percent of GDP regional ceiling should help support the reserve position. - Risk scenario: If, at the WAEMU level, the share of imports to GDP recovered to its pre-Covid level (about 1 percentage point higher than in the current baseline at the end of the forecast horizon), the reserve to import ratio would be lower by 0.1–0.2 months of imports. - Eurobond issuance assumptions in baseline projections: - Cumulative USD 2.5 billion (CFAF 1,358 billion) of Eurobond issuances for Cote d’Ivoire over 2020-22. - USD 400 million (CFAF 213.6 billion) of Eurobond issuance for Senegal in 2024. - For Benin, no new issuance is projected in the baseline. ### Assessment of reserve adequacy - ARA CC approach (based on end-2019 data) estimates adequate reserves adequacy in the range of 4.9 to 6.5 months for the WAEMU’s reserve import cover (depending on the assumption for the marginal productivity of capital). - For 2020, preliminary assessment sets the adequacy range at 5.4 to 7.1 months of prospective imports. - Overall implication: - Optimal range suggested by ARA CC results: approximately 5 to 7 months of imports, indicating current level of reserves is adequate. - Medium-term projection of 4 months of imports remains below this range. - Quantitative assessment does not account for additional factors that may reduce the need to hold reserves for insurance purposes, including France’s unlimited convertibility guarantee of the CFA franc into euro. - Staff view: projected level of 4 months of import coverage, while lower than ARA CC range, is broadly sustainable over the medium term. ### Competitiveness — trade performance and price competitiveness - Current account and exports: - Current account deficit (in percent of GDP) deteriorated by above 3 percentage points between 2011 and 2019. - Ratio of exports to GDP declined from 27.0 percent of GDP in 2012 to 23.0 percent of GDP in 2019. - Limited export diversification and sophistication; export basket dominated by low-productivity goods, accounting for more than half of total merchandise exports. - Share of manufacturing exports has increased in recent years. - REER and price competitiveness: - REER has depreciated in the past decade. - Price competitiveness improved over the past decade due to euro depreciation against the dollar and persistently low inflation in the WAEMU. - REER seems currently in line with fundamentals using both 2019 and 2020 data. - Recent appreciation of the euro against the USD may harm price competitiveness going forward. ### Competitiveness — non-price factors and intraregional trade - Non-price competitiveness constraints: - Structural constraints in institutions, infrastructure, and education and labor skills identified by 2019 Global Competitiveness Report (World Economic Forum) perception indicators. - WAEMU economies record relatively low scores on ease of dealing with insolvency regulations and getting electricity. - Lagging years of schooling and skillset of graduates relative to comparator economies in Africa and Asia. - 2018 logistics performance index (LPI) shows broadly stagnant WAEMU performance since 2016 and lagging relative to comparators on customs performance, infrastructure quality, and timeliness of shipments. - 2019 World Bank Governance indicators reveal weaknesses in government effectiveness, political stability, regulatory quality and rule of law compared to other African and Asian countries; WAEMU indicators in line with comparators for voice and accountability and, to a lesser extent, control of corruption. - Intraregional trade: - Trade in local products within WAEMU and ECOWAS is, by law, free of customs’ duties and import taxes. - Common external tariff (CET) regime for ECOWAS adopted by WAEMU members in 2015–16. - Non-tariff barriers persist: lack of common documentation system for customs procedures; incomplete harmonization of rules for certification of origin; illicit and ad hoc charges on road transit. - Intraregional trade accounted for only about 10 percent of members’ trade flows in 2015; a large part of trade in goods occurred with partners outside the WAEMU. ### Policy recommendations to improve competitiveness - National-level reform priorities: - Improve infrastructure endowment, particularly road connectivity and energy availability to enterprises. - Strengthen human capital, including universal access to primary and secondary education. - Simplify tax procedures (e.g., through the digitalization of tax documents). - Promote good governance practices by enhancing investment management (e.g., public procurement reform and better monitoring of SOE operations) and fighting corruption (e.g., stronger national anti-corruption agencies and mandating public asset disclosure for high-level officials). - Foster structural transformation to accelerate industrialization and reduce concentration of exports in non-transformed commodities (e.g., through horizontal measures and cautious use of targeted tax incentives). - Regional-level measures: - Promote economic integration, particularly through better coordination of regional infrastructure investments, enhancement of the regional competition framework, and elimination of non-tariff barriers. - WAEMU Commission actions: - Approved a five-year plan to promote investments in transportation (e.g., roads) and energy at the regional level, allowing financing of infrastructure projects in individual states when projects have positive repercussions at the level of the union. - Promoting joint efforts to improve the business environment, particularly easing procedures to start new businesses. - Promoting harmonization of customs’ regulations, digitalization of customs’ documents and enhanced monitoring of customs’ procedures. - Expected outcome: reduced processing time for customs’ procedures, boosted cross-border activity, facilitated movements of factors of production, and helped countries join global value chains. ### Annex V — Rebasing of National Accounts - Since 2018, seven out of eight WAEMU countries rebased their national accounts. - Countries rebasing: Senegal (2018), Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Niger, and Togo. - Mali rebasing expected in 2021. - Impact of rebasing on nominal GDP and ratios: - Rebasing resulted in increases in nominal GDP levels ranging from 9.9 percent (Guinea-Bissau) to 38.0 percent (Côte d’Ivoire). - National rebasing exercises increased WAEMU nominal GDP by an average of 27 percent between 2015 and 2019. - Average declines in regional ratios (all else equal): - Aggregate tax revenue ratio: 3.5 percentage points (ppts) of GDP. - Fiscal deficit ratio: 0.9 ppt of GDP. - Public debt ratio: 10.8 ppts. - Current account ratio: 1.3 ppt. - Recommendations to enhance credibility of rebasing: - National authorities should publish online their underlying methodology, including main drivers of the revisions and survey results. - Produce guides to GDP revisions understandable by the general public. - For future revisions, disseminate plans and roadmaps in advance to the public. ### Annex VI — Authorities’ responses to the 2019 policy recommendations (summary) - Policy mix: - Recommendation: fiscal policy first line of defense; BCEAO to stand ready to tighten monetary conditions in case of pressures on external reserves. - Authorities’ response: Broadly consistent — Monetary policy rates remained unchanged until the pandemic; external reserves increased by equivalent of 1 ¼ month of imports between end-2018 and mid-2020. - Fiscal policy coordination: - Recommendations: adhere to budget reduction plans, increase tax revenue, improve quality of spending, better control below-the-line operations. - Authorities’ response: Broadly consistent — Aggregate fiscal deficit declined by close to 1 percent of GDP in 2019 to come within regional ceiling of 3 percent of GDP; four countries had deficits above ceiling; convergence partly achieved through GDP rebasing; below-the-line operations estimated to have declined in 2018 and 2019. - Monetary/financial sector development: - Recommendations: enhance monetary policy effectiveness; consider differentiated haircuts on sovereign securities as collateral for BCEAO refinancing; accelerate development of interbank and government debt markets. - Authorities’ response: Partially consistent — BCEAO shifted to fixed rate full allocation auction system during the crisis; regional debt agency coordinating bond issuance through auctions but regional market remains segmented and under-developed; reforms to debt and interbank market ongoing. - Financial regulation and supervision: - Recommendations: speed up financial sector reform and implement new prudential regulations consistent with Basel II/III; strengthen risk-based prudential and AML/CFT supervision; avoid regulatory forbearance; make bank resolution framework fully operational. - Authorities’ response: Partially consistent — Aggregate CAR improved from 10.0 to 11.5 percent between June 2018 and December 2019 (above 9.5 percent regulatory threshold); June 2017 requirement of CFAF 10 billion minimum capital remains unmet by a few banks; eight banks (3 percent of banking system’s assets) with increasingly negative equity have not been resolved as Banking Commission’s new resolution powers not yet operational. - Structural reforms/competitiveness: - Recommendations: accelerate reforms to raise structural competitiveness, improve business climate, logistics, governance, and public investment efficiency; improve implementation of regional guidelines on infrastructure quality. - Authorities’ response: Partially consistent — Ease of doing business improved; WAEMU countries still lag in non-price competitiveness areas including perceived quality of institutions, infrastructure and education and labor market skills. ### Annex VII — Technical assistance assessment - Main IMF TA providers to WAEMU regional institutions: AFRITAC West, Fiscal Affairs Department (FAD), Monetary and Capital Markets Department (MCM). - TA objectives and modalities: - Improve design and implementation of economic policies via TA missions, training activities, peer learning, and seminars. - Tailored TA provided to strengthen banking and macroprudential supervision, reinforce macroeconomic surveillance, foster capital and financial markets development, advance domestic resource mobilization, enhance public financial management, and improve government and external sector data. *Source: IMF — WEST AFRICAN ECONOMIC AND MONETARY UNION report content (extracted from the supplied PDF content).* ### 2. Implementation of past TA recommendations has been broadly satisfactory, although ### 2. Implementation of past TA recommendations has been broadly satisfactory, although some challenges remain ### Overall assessment of past TA (2017–20) - TA provided to regional authorities broadly achieved its goals, with significant progress on reforms such as the transition to Basel II/III standards. - Uptake of TA was generally satisfactory, reflecting solid interest and good capacity on the regional authorities’ side. - Implementation challenges that slowed reform uptake: - Need to build consensus among all eight WAEMU member-countries. - Some regional institutions have limited enforcement powers to make regional commitments binding and provide inadequate operational guidance for national transposition and implementation. - Significant variation in administrative capacity among member-countries and limited capacity of implementing agencies at the national level and some departments of regional institutions. ### Key TA outputs and outcomes (selected highlights from Table 1: TA Provided to Regional Institutions 2017–20) - Banking regulation and supervision (MCM / Afritac West) - Implement Basel II/III standards (BCEAO, 2018-20). - Banking legislation and regulations are being aligned with Basel II/III requirements; liquidity regulations in line with Basel III requirements are being prepared. - Enhanced supervisory capacity via a seminar in 2018 and analysis of prudential statements, particularly on a consolidated basis. - Implement a risk-based prudential supervision system and improve technical capacity (SGCBU, 2017-20): strengthened bank risk assessment frameworks and built capacity for credit risk monitoring and risk-based supervision, including IT systems and training (Basel II/III framework training in 2018; credit risk control training in 2020). - Financial market regulation and development (CREPMF; Agence UMOA-Titres, AUT) - Strengthened on-site supervisory processes and established a regulatory framework for market intermediaries (CREPMF, 2018-20): revised chart of accounts; drafted regulation on capital requirement; set regulations on internal control, statutory capital investment, propriety trading, and segregation of funds. - Reviewed and proposed conventions/formulas for pricing, interest payments and yields in the OTC government securities market (Agence UMOA-Titres and CREPMF, 2018). - Developed an assessment framework to evaluate absorptive capacity of the WAEMU public securities market (Agence UMOA-Titres, 2018). - Improved rules and procedures for government securities issuance through syndication (CREPMF, 2017-18) and standardized auctioned public securities and WAEMU procedures (Agence UMOA-Titres, 2017). - Action plan to diversify investor base and address barriers to non-bank investor participation (Agence UMOA-Titres and CREPMF, 2017). - Public Financial Management (FAD / Afritac West; WAEMU Commission, 2017-20) - Drafted practical regional guidance note on budgeting of public employment ceilings (WAEMU Commission, 2020); validated and presented via three webinars in September 2020. - Assisted implementation of accrual accounting by preparing guidance for governments’ opening balance sheets (WAEMU Commission, 2020): drafted methodology, methodological sheets, technical appendices, and roadmap. - Supported implementation of the region's harmonized PFM directives transcribed into organic budget laws and related regulations (WAEMU Commission, 2018-20): updated monitoring grids; strengthened capacities in cost accounting; advised on program budgeting; examined and validated regional regulations to harmonize fiscal revenue and wage bill data coverage. - Tax policy coordination (FAD / Afritac West; WAEMU Commission, 2017-20) - Limited take-up of tax policy TA during May 2017–April 2020 despite RMTF support; notable outputs include advising on a new tobacco excise tax directive (May 2017) and adoption of a new excise tax directive in December 2017. - Participation in regional workshop on national strategies for revenue mobilization (June 2018) and preliminary review of the VAT Directive (December 2019). - Macroeconomic surveillance and statistics (SPR / Afritac West; STA) - Training on MTDS and DSA provided (WAEMU Commission, 2019). - Improvements in external sector statistics (BCEAO, 2017-19) under the JSA-AFR Project: significant improvements in annual BOP and IIP quality and timeliness; started reporting timely data to the IMF’s CDIS; quarterly BOP compilation adapted by BCEAO (compilation mainly for internal use except Senegal); initiated new ITRS version. - Production of provisional Financial Soundness Indicators (FSIs) completed (BCEAO, 2017-18), though dissemination/reporting practices need strengthening. ### Near-term Capacity Development Strategy (CDS) — Forward-Looking Priorities - CDS focus: support reform plans and capacity building of five regional institutions (BCEAO, WAEMU Commission, SGBC/SGCB, CREPMF, Agence UMOA-Titres/AUT), aligned with macroeconomic objectives in the context of the Covid-19 crisis. - Five main areas of near-term CD priorities: - Banking regulation and supervision - Rationale: Transition to Basel II/III and Covid-related risks to asset quality and capital needs. - Concerns: Expiration of debt repayment deferral measures at the end of 2020 may translate into bank losses and possible recapitalization needs. - Action: Ensure instruments to strengthen bank balance sheets, restructure weak institutions, operationalize banking resolution procedures. - Note: Forthcoming regional FSAP mission, currently planned for 2021, expected to provide further guidance on macroprudential policy framework, bank supervision and resolution. - Financial sector development - Rationale: High fiscal deficits and possibly more difficult access to external financing could pressure the regional government securities market. - Action: Deepen the regional market, assess options to reduce segmentation between auction and syndication modes, create deeper and more liquid markets to improve monetary policy transmission and finance infrastructure. - PFM and fiscal institutions - Rationale: Managing fiscal response and transition towards the 3 percent of GDP regional fiscal deficit anchor requires credible multi-year consolidation and quality budget processes. - Actions: Pursue PFM reforms, contain below-the-line operations, improve fiscal transparency for crisis-related external financing, review regional fiscal surveillance framework to strengthen enforcement and monitoring mechanisms. - Tax policy - Rationale: Pandemic impact on public finances increases importance of tax policy coordination. - Actions: Revise regional tax directives (especially VAT), improve harmonization of customs procedures and information exchange among member states' tax and customs administrations. - External Sector Statistics (ESS) - Rationale: Ensure sustainability of improvements in ESS compilation and dissemination amid the Covid pandemic. - Actions: Further assistance to sustain ESS improvements; address pandemic-related data challenges. ### CDS priorities, intermediate targets, and outstanding challenges (summarized) - Financial supervision and regulation - Strategic goals: Strengthen banking supervision and complete transition to Basel II/III while addressing Covid impacts; advance risk-based supervision; enhance market prudential regulations and accounting standards. - Intermediate targets: Transition to Basel II/III, which began in January 2018, has been extended by one year to 2023 in response to the Covid crisis. - Challenges: Prudential regulatory system for financial market participants is embryonic; definition of regulatory requirements awaits data collection and analysis by the CREPMF. - Debt management / regional financial market - Strategic goals: Improve syndication procedures; assess options to reduce market segmentation; develop a yield curve for syndicated sovereign securities. - Challenges: Accounting provisions for market players need validation by CREPMF; CREPMF staff should continue developing operational capacity; CREPMF and depositories should develop a shared vision to reduce segmentation; limited secondary trading hampers yield curve construction. - PFM - Strategic goals: Ensure full transposition and implementation of six PFM directives; improve transparency of crisis-related budget execution; extend TOFE coverage to all general government; adapt BCEAO IT to facilitate TSA with a main account and sub-accounts; review regional fiscal rule framework (convergence criteria). - Challenges: All member countries have fully transposed directives but implementation varies significantly; progress hampered by varying administrative capacity and insufficient operational guidance; low availability of data (extrabudgetary units, social security agency, SOEs); BCEAO’s computer system limitations for TSA main account/sub-accounts. - Tax policy - Strategic goals: Review regional tax directives to support revenue mobilization; strengthen dialogue between WAEMU Commission and member countries; promote conformity with regional tax commitments. - Challenges: Sporadic national implementation of regional tax directives and stalled revisions; recent emphasis on increasing domestic revenue may create impetus for renewed collaboration. - External Sector Statistics - Strategic goals: Ensure continuity of ESS production during and after the Covid pandemic; improve source data; regularize quarterly BOP and IIP compilation and dissemination. - Challenges: Pandemic has significantly hampered ESS source data; progress limited by member-countries’ capacity; BCEAO ESS compilation system has not been functioning properly to support quarterly BOP/IIP compilation and dissemination. *Source: IMF — Annex assessing TA and Near-Term Capacity Development Strategy for WAEMU regional institutions (material covering TA provided in 2017–20 and forward-looking CDS priorities).* ### 4. Although the CD strategy for the WAEMU and the associated TA delivery are ### 1wauea2021001 - 4. Although the CD strategy for the WAEMU and the associated TA delivery are ### Capacity development (CD) strategy and implementation challenges - CD strategy for the WAEMU and associated TA delivery are intrinsically interwoven with policy recommendations of member-countries’ UFR or PSI arrangements. - Persisting challenges in reform implementation (as highlighted in Annex VII) include: - (i) limited enforcement powers of some regional institutions to make regional commitments binding and credible; - (ii) insufficient operational guidance in transposition of regional directives; - (iii) significant variation in administrative capacity among member-countries; and - (iv) capacity constraints by implementing agencies at the national level and some departments of regional institutions. - Despite limited past traction in some areas, the strategy retains critical CD priorities: - Tax policy (given the need to improve domestic revenue mobilization). - Government securities market development (important for regional financial market development, meeting public and private sector funding needs, and improving monetary policy transmission). ### Mitigation and coordination measures for CD and surveillance - Key mitigation approach: improved coordination between: - CD and surveillance activities at the regional level; and - CD, surveillance and UFR activities at the national level. - Expected reinforcing factors: - A number of WAEMU countries are expected to have IMF arrangements in the near future, which could improve traction of regionally delivered CD. - Complementarity and synergies should be sought between this regional CD strategy and country-level CD strategies. - Regional seminars could deepen dialogue between regional authorities and national ones. ### Recent economic developments and macroeconomic outlook - Pre-pandemic growth: - The WAEMU region recorded strong GDP growth of more than 6 percent each year over the 2012-19 period. - COVID-19 impact: - GDP in 2020: projected to contract in 4 countries, be flat in one, and moderately positive in 3 countries. - Regional GDP growth declined to 0.3 percent in 2020, compared with 5.9 percent growth in 2019. - Hardest-hit sectors: construction, commerce, transportation and hospitality. - Inflation: rose on average by 2.1 percent over January-November 2020, compared to the same period in 2019. - External position: international reserves standing at more than 5 months of prospective imports (see external reserves section below). - Fiscal developments: - The Union’s Macroeconomic Convergence Pact was suspended in April 2020. - Regional fiscal stance was relaxed; the regional fiscal deficit is estimated to have loosened by about 3½ percent of GDP, to stand at close to 6 percent in 2020, after undershooting its target of 3% in 2019. - Authorities plan gradual fiscal consolidation to revert to the fiscal deficit target of 3 percent of GDP in 2023. - WAEMU Commission will undertake a review of the regional surveillance framework in the year of the report. - Banking and financial sector: - Banking sector resilience: aggregate capital adequacy ratio stood at 12.1 percent in the first half of 2020, well above the 9.5 percent regulatory threshold. - BCEAO monetary measures to maintain liquidity and credit flow included: auction system of “fixed-rate full allotment” in March, a 50 bps policy rate reduction in June, extension of collateral base for refinancing, and a framework with banks to help firms facing loan repayment difficulties. - Sovereign market measures: “Covid-19 T-Bill” program to provide financing to governments in initial months of the pandemic; increased BOAD resources for concessional lending; reduced charges on mobile banking transactions and services. - External reserves timeline and assessment: - External reserves rose from 4.7 months of prospective imports at end-2018 to around 6.0 months in April-June 2020, before receding to 5.4 months in November 2020. - Improvement attributed to stronger export receipt repatriation owing to better enforcement of foreign exchange regulatory requirement by the BCEAO. - External Sector Assessment (ESA) conclusion: import coverage of reserves (5.4 months) falls within the recommended range (of 5 to 7 months of imports). - ESA also assessed that the real effective exchange rate was in line with fundamentals in 2019; authorities remain committed to protecting the peg. ### Authorities’ policy stance, risks, and priorities - Authorities’ assessment and outlook: - Expect resumption of economic activities and growth recovery starting in 2021, consistent with gradual fiscal consolidation. - Vigilant on downside risks including the global second wave of the pandemic and security shocks; stand ready to act if needed. - Fiscal policy responses: - Most countries adopted supplementary budgets prioritizing health expenditures, economic support packages, and household assistance. - Revenue shortfalls occurred as activities collapsed and tax payments were deferred; IMF emergency assistance and partner support helped close financing gaps. - Monetary and financial policy responses (BCEAO actions recap): - Shift to auction system of “fixed-rate full allotment” (March). - Policy rate reduced by 50 bps (June). - Extended collateral base for refinancing. - Prepared framework with banks for firms facing repayment difficulties. - Implemented “Covid-19 T-Bill” program; increased BOAD concessional lending capacity. - Measures to lower mobile banking transaction charges. - Security and structural reform priorities: - Security shocks in the Sahel risk crowding out development spending; need for regional solidarity and international community concerted effort. - Commitment to resuming medium-term agenda for economic transformation, including: - Significantly boosting domestic revenue mobilization to sustainably finance infrastructure while maintaining debt sustainability. - Continuing reform of monetary arrangements and adapting BCEAO strategies and risk management tools for smooth transition. - Enhancing non-price competitiveness, including removing intra-regional trade barriers. - Coordination with ECOWAS on creation of a single ECOWAS currency (agenda delayed because of the pandemic). - Continuing public financial measures implementation and support for intra-regional projects in industrial development, energy supply and security. ### Key statistics and targets (exact values as reported) - GDP growth: more than 6 percent each year over 2012-19. - Regional GDP growth: 5.9 percent in 2019; 0.3 percent in 2020. - Inflation: rose on average by 2.1 percent over January-November 2020 vs same period in 2019. - Regional fiscal deficit: loosened by about 3½ percent of GDP; close to 6 percent in 2020; target of 3 percent of GDP in 2023. - Banking sector aggregate capital adequacy ratio: 12.1 percent in the first half of 2020; regulatory threshold 9.5 percent. - BCEAO policy rate: reduced by 50 bps in June. - External reserves: 4.7 months of prospective imports at end-2018; around 6.0 months in April-June 2020; 5.4 months in November 2020. - ESA recommended import coverage range: 5 to 7 months of imports. - Import coverage of reserves assessed at 5.4 months. *Statement by Mr. Aivo Andrianarivelo, Executive Director, and Mr. Marcellin Koffi Alle, Senior Advisor to Executive Director, on West African Economic and Monetary Union — Executive Board Meeting, February 8, 2021.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1wauea2021001.pdf_