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---

### The New DRM Action Plan (2024) — background and importance
- DRM is critical for financing economic and social development and ensuring debt sustainability in WAEMU amid rising interest, high security spending, and prospective reduction in foreign aid.
- WAEMU Convergence Pact (2015) included a secondary convergence criterion: tax-to-GDP floor = 20 percent; this remains extremely important for any future fiscal rule.
- Data notes:
  - BCEAO data used since 2001 for internal consistency.
  - WoRLD used for Togo (last available in 2022) to draw Togo data on net basis.
  - Annex 1 compares BCEAO data, WoRLD, and IMF country teams’ macroframeworks.

### Revenue trends, performance, and heterogeneity
- Historical changes (2001–2023):
  - Total revenue (excluding grants): increased from 11 percent of GDP to 17 percent of GDP.
  - Tax revenue: increased from 10 percent of GDP to 14 percent of GDP.
- Composition and cross-country range:
  - Tax revenue accounts for most of total revenue in all countries (over 80 percent share on average).
  - Tax revenue ranges from 9 percent of GDP in Guinea Bissau to 18 percent of GDP in Senegal.
- Peer comparisons and projected timelines:
  - WAEMU lags peers in 2022 revenues (below other SSA and LIC countries for total revenue; slightly below for tax revenue; lags EM and AE significantly).
  - Trend-based projection: WAEMU will reach 20 percent GDP tax revenue target by 2048 when using past trends plus staff projections.
  - If trend based only on historical data, timeline extends to 2061.

### Tax transition and policy environment
- Transition observed: shift from trade taxes to income and consumption taxes.
- Between 2015 and 2021: most WAEMU countries rely primarily on consumption taxes followed by income taxes; Benin remains comparable reliance on trade taxes.
- Property and other taxes are very low but slightly growing in a few countries.
- WAEMU has a Common External Tariff (CET) since 2000, extended to ECOWAS in 2015; reliance on trade taxes has been declining slightly since 2015.

### DRM Action Plan (2024) — features, status, and assessment
- Introduces a Medium-Term Revenue Mobilization Strategy (MTRS); deadline for adoption by all WAEMU countries = end of 2025.
- Assessment:
  - Deadline end of 2025 appears ambitious given prerequisites (broad consensus, sustained political commitment, comprehensive reforms).
  - Immediate-term recommendation: prioritize tax policy/TADAT diagnostics.
- Changes relative to 2019 Plan:
  - Motivated by weak tax revenue performance; 2019 reference to non-compliance with 20 percent tax-to-GDP removed.
  - Marginal amendments in tax and customs policies; study requested on methods of taxing agricultural profits.
  - No longer envisages revision of Directive 03/2009 harmonizing excise duties.
  - Property taxes: census and digitalization of land; one-stop shop for land formalities.
  - Tax competition/exemptions: removes Mining Code/research-stage exemptions; limits investment-phase exemptions to certain goods and services (unspecified).
  - Tax administration measures largely similar to 2019 Plan; need to tailor measures to country-specific situations.
- MTRS adoption status:
  - Adopted in Benin, Burkina Faso, Cote d’Ivoire and Senegal.
  - Pre-formulation stage in Togo.

### Policy implications and recommendations (regional and national)
- Regional authorities — key actions:
  - Revise VAT directive: improve refund mechanisms, broaden base, address digital economy taxation.
  - Update CIT directive: align with global tax reforms (e.g., adopt a minimum corporate tax), limit tax competition, unify tax structure across sectors.
  - Revise capital income taxation directive: simplify and improve neutrality of portfolio income taxation.
  - Reassess excise tax directives.
  - Simplify/consolidate incentives: move incentives from Investment Codes into the General Tax Code; regularly review effectiveness; consider revising Decision 08/2015/CM (Art. 5).
  - Strengthen surveillance: include DRM measures in the quintennial New Convergence Pact with full documentation and annual objectives; WAEMU Commission to undertake regular analytical work and deepen revenue analysis in quarterly multilateral surveillance reports.
  - Support knowledge transfer: periodic workshops/seminars; regional cooperation in revenue administration via capacity development and workshops.
- National authorities — key measures:
  - Ensure compliance with regional DRM regulations (address de jure deviations and de facto unequal enforcement).
  - Regular reviews: simplify tax systems, rationalize exemptions, eliminate low-yield taxes.
  - Strengthen non-regional tax sources:
    - Property taxation: systematic valuations, enhance local capacities, simplify code.
    - PIT: enhance progressivity, streamline regimes, rationalize exemptions.
    - SME taxation: consolidate entrepreneur and micro-enterprise schemes; smooth tax burden to encourage formalization.
  - Strengthen revenue administration: risk management, computerization, automated cross-checking, arrears management, VAT refund improvements; customs valuation, post-clearance audit, automated risk-based clearance.
  - Ensure DRM governance and transparency: implement anti-corruption measures.

---

### Regional tax harmonization — de jure vs de facto
- WAEMU legal framework aims to prevent tax competition and distortions to the internal market.
- Three harmonization elements: equalization of tax rates, common definition of national tax bases, uniform application of agreed rules.
- VAT rules:
  - VAT rate range required = 15-20 percent.
  - Exceptions: lower rate 5-10 percent for up to 10 goods and services from an exhaustive list (Directive 02/98/CM, Directive 02/2009/CM).
- CIT rules:
  - Single CIT rate required = 25-30 percent (Directive 08/2008/CM).
- PIT partially harmonized; highest statutory PIT rates range from 10 percent in Guinea Bissau to 60 percent in Côte d’Ivoire.
- Despite statutory alignment, generous exemptions and special regimes in many countries undermine de facto harmonization.

### Tax performance indicators and tax potential (stochastic frontier analysis)
- Key metrics: VAT/sales tax C-efficiency; CIT productivity; PIT productivity.
  - VAT C-efficiency: ratio of actual consumption revenue to potential revenue if tax rate applied uniformly; sensitive to deduction restrictions, refund bottlenecks, cascading on inputs.
  - CIT/PIT productivity: actual revenue compared to product of statutory rate and GDP; often well below 1 in practice.
- Cross-country observations:
  - Higher benchmarks approached: Senegal (PIT productivity), Mali (CIT productivity), Togo (VAT C-efficiency).
  - Benin and Guinea Bissau show significant gaps across indicators (Benin: very generous CIT exemptions and multiple rates).
- Stochastic frontier model:
  - Functional form: ln(Taxit) = β0 + β1 ln(Xit) + Tit − uit.
  - uit = one-sided non-negative tax inefficiency (half-normal); Tit = symmetric noise (normal).
  - True Random Effects used.
- Tax potential findings:
  - Four model specifications produce different estimates of maximum potential tax-to-GDP ratios (Tax potential 1-4).
  - Country-level insights:
    - Niger and Togo: tax gap fluctuated strongly but narrowed over time; revenue still below potential.
    - Guinea-Bissau: limited space to leverage tax capacity.
    - Benin and Burkina Faso: inefficiencies widened in recent years—opportunities for better mobilization.
- Interpretation caveat: results sensitive to specification; intended as broad policy indicators.

### Tax gap magnitudes (2021) — positioning vs benchmarks
- Benchmarks: SSA median and LIC median used as references.
- Country highlights:
  - Benin: highest tax gap, above LIC average.
  - Burkina Faso: exceeds SSA average but below LIC benchmark.
  - Guinea-Bissau: smallest tax gap.
  - Côte d’Ivoire, Mali, Niger, Senegal, Togo: varying tax gaps indicating differing inefficiency/structural barriers.

### Progress in DRM and administration reforms
- Progress areas:
  - Shift from international trade taxes to domestic sources; property tax reforms (e.g., Niger abolished two-year exemption on property taxes for income-generating real estate).
  - Limiting tax exemptions and preferential regimes: movement toward annual tax expenditure reports (Decision 08/2015/CM).
  - Elimination of small, low-yield taxes: Mali reformed General Tax Code; Guinea-Bissau implemented new VAT law and digital tax services; Benin reformed CIT and PIT toward broader-based models.
  - Revenue administration improvements: registers of large/medium taxpayers; central administration structures; results-based management prerequisites; digital tools (electronic declaration, telepayment, automated invoicing); operational improvements in filings, VAT return ratios, geolocated taxpayers; customs improvements in valuation, post-clearance audits, risk-based clearance.

---

### Data sources comparison (Annex I)
- EDEN (BCEAO):
  - EDEN = Entrepôt de Données Economiques et Financières; contains 15,000 series in six blocks (Real sector; Monetary and financial sector; Public finance sector; External sector; Monetary issuance sector; Social sector).
  - Accessibility: https://edenpub.bceao.int/
- IMF WoRLD:
  - Tracks government revenue trends in 193 countries since early 1990s; directly tracks 9 key components of tax and non-tax revenues contributing about 82 percent of government revenue globally.
  - Updated annually.
  - Accessibility: https://www.imf.org/en/Topics/fiscal-policies/world-revenue-longitudinal-database.
  - WoRLD sample starts from 2015 for detailed fiscal data; TGO net value used for comparability.

### Estimating tax potential (Annex II) — model details
- Stochastic frontier specification: ln(Taxit) = β0 + β1 ln(Xit) + Tit − uit.
- Definitions: Taxit = tax revenue; Xit = explanatory variables (GDP, trade openness, governance, demographics); Tit = symmetric noise (normal); uit = inefficiency (half-normal).
- Estimation: True Random Effects; tax effort measure: TTTEffort = TTTEe − uu_i (values close to 1 indicate higher efficiency).
- Empirical outputs referenced: Table 1. Stochastic Frontier Regression Estimates (referenced in source).

---

### Trade facilitation, AfCFTA scenarios, and quantified gains
- Trade facilitation status:
  - WAEMU agreement does not cover streamlining/harmonization of Customs and border procedures.
  - 2023 implementation of trade-facilitation measures: Benin = nearly 86 percent implemented; Mali = implemented only a third.
  - Key gaps: cross-border paperless trade procedures; measures benefiting women and SMEs.
- AfCFTA status:
  - All WAEMU members are parties to AfCFTA; agreement signed by 44 African nations in 2018 and came into effect in May 2019.
  - Objective: eliminate tariffs on 97 percent of tariff lines representing at least 90 percent of imports by value by 2030.
  - Rules of origin reached for 92 percent of tariff lines (as of February 2024).
- Quantitative methodology:
  - Two-step gravity estimation (Poisson pseudo-maximum likelihood), then simulation of counterfactuals; semi-elasticity = 1.25 between openness and GDP per capita (midpoint from literature).
- Scenarios:
  - AfCFTA scenario: 90 percent reduction in existing tariffs between AfCFTA signatories + 50 percent reduction in number of NTMs.
  - AfCFTA+ scenario: AfCFTA scenario + improvements in trade environment (infrastructure, financial development, security) bringing trade environment to median of next-best performing FTA (ASEAN or Mercosur).
- Main quantitative findings (median WAEMU member):
  - AfCFTA scenario:
    - Openness increase = 1.5 percentage points.
    - Long-term real income per capita increase = 2 percent.
    - Assumed NTM reduction increases openness by average 1 percentage point (double effect of tariff reduction).
  - AfCFTA+ scenario:
    - Median merchandise trade with other African countries could rise by more than 40 percent.
    - Intra-WAEMU trade could increase by more than 30 percent.
    - Income gains estimated = 10 percent.
  - Trade facilitation measures: implementing half of outstanding measures could increase openness by 1-2 percentage points → incomes rise by 1.3-2.5 percent.
  - Fiscal revenue risk from AfCFTA tariff reductions: estimated eventual effects on fiscal revenue = less than 0.1 percent of GDP for each WAEMU member.

### Trade policy recommendations
- Advance AfCFTA negotiations and implementation: finalize remaining tariff lines and rules of origin; implement agreements domestically; prepare Customs administrations; inform business community.
- Advocate for pro-active NTM removal: press partners for comprehensive review and alignment of national regulations generating NTMs rather than trader-initiated reporting.
- Deepen intra-WAEMU integration by proactively removing NTMs and drawing lessons from the EU and OHADA.
- Strengthen trade environment cost-effectively: prioritize country-specific, lower-cost measures like streamlining and digitization of Customs and border processes.
- Maintain macro stability and revenue resilience: strengthen domestic revenue to offset potential AfCFTA-related revenue losses (even if < 0.1 percent of GDP).
- Support inclusive adjustment: invest in workforce skills and strengthen social safety nets.

---

### Food security in WAEMU — trends, drivers, and targets
- Food insecurity trends:
  - 2019: 2.8 million people in food insecurity = 3 percent of population analyzed.
  - 2022 lean season: more than 12.5 million people (over 10 percent).
  - 2024: 9.8 million people faced food insecurity = 7 percent of population analyzed.
  - 2024 country shares: Niger 13 percent; Burkina Faso 12 percent; Senegal and Benin 3 percent.
- Agricultural production:
  - 2023/24 cereal outputs = 32.6 million tons — 2 percent year-on-year and 6.8 percent increase over five-year average (PREGEC, March 2024).
  - Per capita cereal availability = 221 kg in 2023/24 season — declined 1 percent year on year, 2 percent over five-year average.
  - Cadre Harmonisé projections (Nov 2024): food insecurity will remain high in 2025.
- Nutrition:
  - Acute malnutrition affects an estimated 16.7 million children under 5.
  - Chronic malnutrition (stunting) affected over 25 percent of children under five in 2022; nearly half of these children in Niger.
  - 2024: 63 million people (41 percent of total population) had insufficient food consumption; country range = 14 percent in Côte d’Ivoire to 76 percent in Niger.
- Drivers of food insecurity:
  - Conflict and displacement: fatalities close to 14,000 people in 2024.
  - Climate risks and disasters: floods in 2024 affected 3.5 million people across 14 countries; Mali flooded over 1.6 million hectares; Niger: 222 deaths, 200 injured, 44,600 houses destroyed, >350,000 homeless.
  - Food affordability: food inflation = 4.8 percent in WAEMU in 2024 on average; food prices in 2024 = 36 percent higher compared to 2015.
  - Cost of Diet (Jan–Jul 2024): cost of calorie intake increased by 8–10 percent in Benin and Niger; 20 percent in Burkina Faso; up to 50 percent in Togo.
  - Nutritious food on average = 60 percent more expensive than energy-rich food.
  - Trade restrictions: export bans and conditional export requirements remain in place as of Nov 2024.

### Policy recommendations for food security
- Achieve food sovereignty via reliable, affordable locally grown nutritious food.
- Strengthen governance and policy coherence; align with ECOWAS and WAEMU priorities.
- Increase resilience: climate-smart agricultural practices; robust response mechanisms.
- Integrate social protection and agriculture programs to address chronic vulnerabilities.

---

### Trade barriers to food security (Box 2) — specific restrictions and targets
- Export restrictions (WFP Tracker, Nov 2024):
  - Benin: export levy for agricultural products, ban on maize exports, border closure with Niger.
  - Burkina Faso: ban on export of cereals and cowpeas; ban on export of live cattle.
  - Mali: ban on export of cereals.
  - Niger: ban on export of cereals (except Burkina Faso and Mali); border closure with Benin.
  - Togo: one-time export authorization and payment of tax per authorization for agricultural exports.
- Immediate impacts:
  - Heavy restrictions limit regional cereal availability; administrative and financial hurdles discourage small-scale exporters; border closures disrupt formal/informal trade.
- Policy actions from Action Plan:
  - Promote Free Movement of Food Products: remove trade barriers and restrictions.
  - Enhance governance and coordination: harmonize policies with ECOWAS and CILSS.
  - Fully operationalize and fund National Response Plans (NRPs); mechanisms for stockpiling and rapid distribution.
  - Popularize community regulations on free movement of agricultural products.
  - Align agriculture and social protection programs; build strong data systems.
- Targets and intermediate objectives (selected):
  - Short-Term: fully operationalize/fund NRPs; remove trade barriers; replenish and scale up ECOWAS Regional Food Security Reserve.
  - Medium-Term: establish Market Functionality Index; climate-smart practices in at least 50 percent of vulnerable farming communities; increase national budget allocations to food security initiatives by 20 percent region-wide.
  - Long-Term: achieve 30 percent reduction in food insecurity prevalence in WAEMU by 2030; align agricultural production growth with population growth.
- Constraints:
  - Recommended reserve volume = 5 percent of national annual cereal consumption; many reserves fall below this.
  - Storage/post-harvest losses can exceed 20 percent annually in some countries.
  - Financial constraints and weak governance limit procurement and modernization of storage.

---

### Credit-cycle specification, macrofinancial model, and macroprudential policy
- Credit-cycle equations (select):
  - Real credit gap: CCggg_i = i1 CCggg_{i−1} + i2 YYggg_{i} + ε_ic.
  - Credit-supply shock decomposition: ε_ic = i3(BUei − BUesss) + ε_ic (white-noise).
  - Capital buffer: BUei = Ki − Ki*.
  - Capital buffer dynamics: BUei = ρBU BU_{i−1} + (1−ρBU) BUesss + i4(Cig − Csssg) + ε_iBU.
- Transmission mechanism: macroprudential stance → capital buffers → credit supply → output.
- CCyB status:
  - CCyB exists in WAEMU toolkit but set to zero since creation.
  - Purpose: build buffer during expansions and release during downturns.
  - Recommendation: move toward a positive neutral level for the CCyB and develop a CCyB decision framework.

### Model parametrization and results
- Estimation: mix of Bayesian estimation and calibration; use of Kalman filter and Metropolis-Hastings for posterior distributions.
- Predictive evaluation: pseudo-out-of-sample forecasting begins 2010Q1; model compares inflation, output gap, CCR, and real credit gap.
- Historical decomposition: output gap negative in 2011 (Ivorian crisis, Sahel drought); rose until COVID-2019; negative during pandemic; post-pandemic recovery aided by favorable monetary conditions and credit demand.
- Model caveats: limited external sector and omission of expected hydrocarbon developments and reserve accumulation; CCR target chosen close to end-2024 values.

### Decomposition and recent dynamics of the credit gap
- Positive credit gap has been narrowing since late 2023; projected to become somewhat negative by end of 2024.
- Offsetting drivers: strong inertia of credit gap; capital buffers below steady-state; credit shocks capturing demand and other determinants.
- Historical drivers (2010–2018): capital buffers above steady-state and persistence of credit.

### Impulse response findings (selected)
- 1 percent shock outcomes:
  - Positive demand shock: raises output gap and inflation; boosts real credit growth by 1.6 percent; leads to capital accumulation; calls for higher real interest rate.
  - Positive credit shock: allows banks to accumulate capital; tightening monetary/regulatory conditions put downward pressure on credit supply; credit growth turns negative after one quarter.
  - One-percentage-point increase in minimum capital requirements: credit drops by 1.3 percent; output gap turns slightly negative; monetary policy likely loosens in response.
- Neutral rate context: WAEMU neutral interbank rate could be considered 5 percent at present (model assumption footnote).

### Financial sector indicators and vulnerabilities
- Overall capital adequacy ratio: declined from 13.7 percent at end-2023 to 13 percent in June 2024.
  - Regulatory norm = 11.5 percent.
- NPLs and restructured loans: increased from 8.7 percent at end-2023 to 9 percent in June 2024.
- Credit penetration: about one-fourth of GDP.
- Heavy bank reliance on BCEAO refinancing poses risks; increased BCEAO financing could transmit financial stability risks to BCEAO.
- Policy recommendations:
  - Strengthen capital buffers; WAEMU Council of Ministers decision (Dec 2023) doubled minimum paid-in capital for banks to CFAF 20 billion.
  - BCEAO to be ready to adjust macroprudential policy with the financial cycle; phase-in higher capital requirements during expansions; use model simulations to assess impacts.

---

### Education — demographics, outcomes, and policy implications
- Demographics:
  - Share ages 0–14 in WAEMU = 44 percent of total population (~63 million people).
  - Share close to 50 percent in Mali and Niger.
  - Fertility rates: WAEMU average = 5.1 births per woman; Niger ≈ close to 7; SSA = 4.5; EMDEs = 2.3.
- Education outcomes (1990–2022 and 2022 levels):
  - Mean years of schooling (adults 25+): increased from 2.1 to 2.8 years (1990–2022).
    - Benin and Togo: largest improvements by more than doubling.
  - Comparator trajectories:
    - SSA: 3.8 → 6.2 years (1990–2022).
    - EMDEs: 4.3 → 7.6 years (1990–2022).
  - Literacy rates (2022): WAEMU adult (youth) = 52 (64) percent; SSA = 77 (85) percent; EMDEs = 86 (95) percent.
  - Enrollment/transition:
    - Primary gross enrollment: WAEMU = 86 percent; SSA = 100 percent; EMDEs = 103 percent.
    - Transition into secondary: WAEMU = 41 percent.
    - Tertiary enrollment: WAEMU = 9 percent; SSA = 12 percent; EMDEs = 46 percent.
  - Expected years of schooling: WAEMU = 8.8 years; SSA = 10.6; EMDEs = 13.2.
  - Learning-adjusted years of schooling: WAEMU = 4.2 years; SSA = 5 years; EMDEs = 7.5 years.
- Gender gaps:
  - Gender parity index in mean years of schooling (female/male) = 0.55 in WAEMU.
  - Reported years of schooling for females and males in WAEMU: 3.7 and 2 (as presented).
  - Closing the gender gap could boost mean years of schooling from 2.8 to 3.7 years.
- Estimated macroeconomic gains from improved schooling:
  - Regression point estimate β = 0.095; standard error = 0.033 (significant at 1 percent).
  - A 1 percentage point increase in growth rate of years of schooling → almost 0.1 percentage points higher per capita GDP growth on average.
  - One standard deviation confidence interval implies average annual boost to regional GDP per capita growth = 0.6 to 1.3 percentage points as WAEMU progresses to EMDEs levels over a decade.
  - Cumulative 10-year per capita GDP gains for WAEMU = 6.3 – 13.4 percent.
- Table of estimated gains (selected, as presented):
  - Average per capita GDP growth gains per annum (percentage points):
    - BEN: 0.6 – 1.2; BFA: 0.8 – 1.6; CIV: 0.4 – 0.8; GNB: 0.5 – 1.0; MLI: 1.0 – 2.1; NER: 1.2 – 2.4; SEN: 0.6 – 1.3; TGO: 0.2 – 0.4; WAEMU: 0.6 – 1.3.
  - Cumulative per capita GDP gains over the decade (percent of per capita GDP):
    - BEN: 5.9 – 12.6; BFA: 8.2 – 17.5; CIV: 3.9 – 8.1; GNB: 4.8 – 10.2; MLI: 10.9 – 23.6; NER: 12.5 – 27.2; SEN: 6.5 – 13.9; TGO: 2.0 – 4.2; WAEMU: 6.3 – 13.4.
- Education spending and infrastructure:
  - Education spending in WAEMU = 4.1 percent of regional GDP as of 2022 (from 2.5 percent in 2000).
  - This surpasses EMDEs average by about 0.8 percentage points of GDP.
  - Infrastructure shortfalls on basic school facilities (electricity, drinking water) remain.
- Ongoing policy efforts (country examples presented): Benin, Burkina Faso, Côte d'Ivoire, Niger, Senegal, Togo — programs on free primary/secondary schooling, school feeding, teacher recruitment/training, infrastructure, vocational training, gender-targeted measures.

### Regional education policy options and steps
- Regional initiatives: vocational training platform (Plateforme de Mutualisation des Outils et Ressources de la Formation Professionnelle); WAEMU Commission working on higher education and vocational training guidelines; BCEAO regional financial education program.
- Quality focus: minimum teacher requirements, standards and competencies, teacher education and career paths, professionalization of teaching.
- Implementation steps:
  - Stock-taking of education systems; set regional outcome targets with timelines; monitor and evaluate progress.
  - Prioritize and increase education spending; options: improve DRM or tap natural resource revenues where available.
  - Bridge gender gaps via targeted programs and implementation of WAEMU Gender Strategy.
  - Build resilience: climate-resilient infrastructures; teacher training for distance teaching; directives for regional infrastructures to facilitate digitalization.
  - Decrease costs and improve access: in-kind transfers, school feeding, cash transfers, penalties against child labor, prioritize infrastructure.
  - Align education with labor market: sectoral skills needs assessments; revise curricula; expand vocational/apprenticeship programs.
  - Emphasize evidence-based approaches and data collection to address dropouts and monitor outcomes.

*Source: 1wauea2025002-print-pdf*

### 1.   The New DRM Action Plan (2024) _______________________________________________ 15

### 1.   The New DRM Action Plan (2024)

### Background and importance of DRM
- Domestic Revenue Mobilization (DRM) is critical for financing economic and social development and ensuring debt sustainability in WAEMU, especially given rising interest, high security spending, and prospective reduction in foreign aid.
- DRM is a cornerstone of the authorities’ reform programs and one of the most pressing policy challenges.
- The WAEMU Convergence Pact (2015)—suspended and expired in 2020—included a secondary convergence criterion on the tax-to-GDP floor being 20 percent, which remains extremely important and should be preserved in a future adoption of a fiscal rule.
- WAEMU receives technical assistance on DRM from the IMF and other partners.
- Data sources and notes:
  - BCEAO data used since 2001 for internal consistency.
  - WoRLD used for Togo (last available in 2022) to draw Togo data on net basis.
  - Annex 1 compares BCEAO data, WoRLD, and IMF country teams’ macroframeworks.

### Revenue trends, performance, and heterogeneity
- Historical changes:
  - Total revenue (excluding grants) increased from 11 percent of GDP to 17 percent of GDP between 2001 and 2023.
  - Tax revenue increased from 10 percent of GDP to 14 percent of GDP between 2001 and 2023.
- Tax revenue composition and cross-country range:
  - Tax revenue accounts for most of total revenue in all countries (over 80 percent share on average).
  - Tax revenue ranges from 9 percent of GDP in Guinea Bissau to 18 percent of GDP in Senegal.
- Country heterogeneity and divergence:
  - Significant heterogeneity and divergence in revenue performance across countries over the last two decades.
  - Senegal and Mali had the highest tax collection as a share of GDP in 2001, improved significantly, and still rank in the top 3 in 2023.
  - Burkina Faso marked the strongest progress among lagging countries; some countries (for example Niger) recorded sharp reductions since 2015.
  - Countries that were closer to the 20 percent tax revenue target in 2015 are closing the gap faster than those that started from a lower level of tax revenue.
- Peer comparisons and projected timelines:
  - Despite stronger revenue growth over the last two decades than most peers (especially in taxes), WAEMU lags behind peers in 2022 revenues.
  - Simple comparisons show WAEMU is below other SSA and LIC countries for total revenue, and slightly even for tax revenue, while lagging EM and AE significantly.
  - Based on a trend calculated via both past trends and current staff projections, it will take WAEMU until 2048 to reach the 20 percent GDP tax revenue target.
  - If the trend is based only on historical data, the timeline extends to 2061.

### Tax revenue sources and transition
- Tax transition observed:
  - The WAEMU has been shifting reliance from trade taxes to income and consumption taxes.
  - Comparing 2015 and 2021, most WAEMU countries rely primarily on consumption taxes followed by income taxes, except Benin which still relies comparably more on trade taxes.
  - Property and other taxes are very low, albeit slightly growing in a few countries.
  - Income and consumption taxes increased in most countries as a share of GDP, while trade taxes stagnated or decreased in most countries.
- Policy environment:
  - WAEMU has had a Common External Tariff (CET) in place since 2000, extended to ECOWAS in 2015.
  - Reliance on trade taxes has been declining slightly since 2015.

### Key policy implications and recommendations
- Strengthen tax systems and administration:
  - Renewed commitment to streamline tax systems, rationalize exemptions, and improve compliance would durably support revenue mobilization.
- Regional coordination and enforcement:
  - Regional surveillance mechanisms should ensure effective implementation and enforcement of regional DRM commitments.
  - Enhance regional cooperation on revenue administration and support collaboration and knowledge transfer within the union.
- Fiscal consolidation and resilience:
  - Boosting domestic revenue is essential to support fiscal consolidation efforts, meet Sustainable Development Goals (SDGs), cover high security spending needs, rebuild buffers to increase resilience to future shocks, and ensure debt sustainability and financial stability amid tightening financing conditions.

*Source: 1wauea2025002-print-pdf - 1.   The New DRM Action Plan (2024)*

### 6.      Regional tax harmonization in WAEMU is quite advanced de jure (Figure 7) but

### 6.      Regional tax harmonization in WAEMU is quite advanced de jure (Figure 7) but

### De jure harmonization vs de facto effectiveness
- WAEMU legal framework aims to prevent tax competition and ensure national tax policies do not distort the internal market.
- Three elements of tax harmonization: equalization of tax rates, a common definition of national tax bases, and uniform application of agreed rules (IMF, 2013).
- VAT rules:
  - Requirement of a VAT rate range at 15-20 percent.
  - Exceptions at a lower rate 5-10 percent for up to 10 goods and services from an exhaustive list provided in the regional legislation (Directive 02/98/CM, Directive 02/2009/CM).
- CIT rules:
  - Requirement of a single CIT rate ranging 25-30 percent (Directive 08/2008/CM).
- PIT:
  - Only partially subject to harmonization.
  - Highest statutory PIT rates range from 10 percent in Guinea Bissau to 60 percent in Côte d’Ivoire.
- Despite statutory alignment with WAEMU directives, many countries use very generous exemptions and special regimes, undermining de facto harmonization.

### Tax performance indicators and heterogeneity across countries
- Key metrics used: VAT/sales tax C-efficiency, CIT productivity, PIT productivity.
  - VAT/sales tax C-efficiency: ratio of actual consumption revenue to potential revenue if tax rate applied uniformly; sensitive to deduction restrictions, refund bottlenecks, and cascading on inputs.
  - CIT/PIT productivity: actual revenue compared to product of statutory rate and GDP; in practice values often well below 1.
- Cross-country observations:
  - Some members approach higher benchmarks: Senegal (PIT productivity), Mali (CIT productivity), Togo (VAT C-efficiency).
  - Benin and Guinea Bissau show significant gaps across all three indicators (e.g., Benin has very generous CIT exemptions and multiple rates).
- Data caveats:
  - VAT/sales tax: sales tax was in place in GNB until 2025; earliest comparison year for GNB is 2019.
  - CIT: earliest comparison year for BFA, GNB and NER is 2000.
  - PIT: last year for GNB is 2015; 2002 data used for GNB and 2005 for MLI in some indicators.

### Tax potential and tax gap (stochastic frontier analysis)
- Methodology:
  - A stochastic frontier model estimates tax capacity by analyzing gaps between actual and potential tax revenue given fundamentals (GDP, trade openness, governance, demographics).
  - Inefficiency component captures deviations due to structural, administrative, or policy-related constraints.
  - Non-tax revenue excluded due to outliers.
- Four model specifications produce different estimates of maximum potential tax-to-GDP ratios (Tax potential 1-4).
- Country-level findings:
  - Niger and Togo: tax gap fluctuated strongly but narrowed over time; revenue still below potential.
  - Guinea-Bissau: limited space to leverage tax capacity, indicating structural limitations.
  - Benin and Burkina Faso: inefficiencies have widened in recent years, indicating opportunities for better revenue mobilization.
- Interpretation caveats:
  - Results sensitive to specification assumptions and intended as broad policy indicators rather than strict policy targets.

### Tax gap magnitudes and benchmarks (2021 comparisons)
- Tax gap expressed as percentage of GDP in 2021 compared to benchmarks:
  - SSA median (red dotted line) and LIC median (purple dotted line) used as references.
- Country-specific positioning:
  - Benin: highest tax gap, above the LIC average — significant underperformance relative to potential.
  - Burkina Faso: exceeds the SSA average but falls below the LIC benchmark.
  - Guinea-Bissau: smallest tax gap — limited scope to increase tax revenue given current fundamentals.
  - Côte d’Ivoire, Mali, Niger, Senegal, Togo: varying tax gaps implying differing degrees of inefficiency or structural barriers.

### Progress achieved in Domestic Revenue Mobilization (DRM)
- Overall: significant progress, but pace insufficient to reach the regional objective of 20 percent of GDP in the near future.
- Areas of advancement:
  - Shift from international trade taxes to domestic revenue sources; property taxation reform examples (e.g., Niger abolished a two-year exemption on property taxes for income-generating real estate).
  - Limiting tax exemptions and preferential regimes: movement toward annual tax expenditure reports (Decision 08/2015/CM).
  - Elimination of small, low-yield taxes with high administrative costs: Mali reformed General Tax Code; Guinea-Bissau implemented new VAT law and digital tax services; Benin reformed CIT and PIT toward broader-based models.
  - Revenue administration improvements:
    - Strengthened fundamentals: reliable registers of large and medium-sized taxpayers; central administration structures; prerequisites for results-based management and risk analysis.
    - Digital tools: electronic declaration, telepayment, automated invoicing program.
    - Operational improvements: increases in taxpayers filing regular returns, improved VAT return ratios, more geolocated taxpayers; customs improvements in valuation, post-clearance audits, and risk-based clearance.
  - Adoption of a New DRM Action Plan in 2024 (see Box 1).

### The New DRM Action Plan (2024) — key features and limitations
- Introduces a Medium-Term Revenue Mobilization Strategy (MTRS) aimed at coordinating reforms for efficiency and accountability; MTRS deadline for adoption by all WAEMU countries set for end of 2025.
- Assessment of ambition and feasibility:
  - Deadline end of 2025 appears ambitious given prerequisites (broad consensus, sustained political commitment, comprehensive reforms).
  - Immediate-term recommendation: prioritize tax policy/TADAT diagnostics.
- Changes relative to 2019 Plan:
  - Motivated by weak tax revenue performance; no longer references non-compliance with the secondary convergence criterion of 20 percent of GDP.
  - Marginal amendments in tax and customs policies; exception: study on methods of taxing agricultural profits requested by WAEMU Commission.
  - No longer envisages revision of Directive 03/2009 harmonizing excise duties (which previously proposed expanding taxable products from 8 to 12 and other changes).
  - For property taxes: aims to improve knowledge of taxable land through census and digitalization and set up a one-stop shop for land-related formalities.
  - On tax competition and exemptions: removes previous references to the Mining Code and exemptions in the research phase; limits exemptions in the investment phase to certain goods and services (without further specifications).
  - Tax administration measures largely similar to 2019 Plan; emphasizes need to tailor measures to country-specific situations.
- MTRS adoption status among members:
  - Adopted in Benin, Burkina Faso, Cote d’Ivoire and Senegal.
  - In pre-formulation stage in Togo.

### Policy recommendations — Regional authorities
- Overarching goal: strengthen revenue harmonization and surveillance of DRM reforms, enhance regional cooperation on revenue administration and knowledge transfer, while safeguarding WAEMU treaty objectives (neutrality of taxation on mobility of capital and goods and services).
- Specific actions:
  - Revise and Modernize DRM Directives:
    - Revise VAT directive to improve refund mechanisms, broaden base, address digital economy taxation.
    - Update CIT directive to align with global tax reforms (e.g., adopt a minimum corporate tax), limit tax competition via regional constraints, and unify tax structure across sectors.
    - Revise capital income taxation directive to simplify and improve neutrality of portfolio income taxation to address cross-border avoidance.
    - Reassess excise tax directives.
  - Consolidate and Evaluate Tax Incentives:
    - Simplify and consolidate incentives by removing them from Investment Codes and placing under the General Tax Code.
    - Regularly review and assess effectiveness of incentives; consider revising Decision 08/2015/CM (Art. 5) on expenditure.
    - Exclude incentives granted through regional directives from the benchmark tax system and ensure compliance with regional frameworks.
  - Strengthen Surveillance of DRM Reforms:
    - Accelerate introduction of DRM measures in the quintennial plan of the New Convergence Pact with full documentation and annual objectives.
    - WAEMU Commission to undertake regular analytical work on member states’ tax practices; deepen revenue analysis in quarterly multilateral surveillance reports.
    - Increase commitment in capacity building (impact assessment of tax measures), legal framework (mandate to enforce recommendations or sanctions), and institutional/political support for harmonizing tax policies.
  - Support Knowledge Transfer:
    - Hold periodic workshops/seminars to share best practices within WAEMU and with external countries.
  - Regional Cooperation in Revenue Administration:
    - Provide support via direct capacity development or regional workshops to disseminate best practices.

### Policy recommendations — National authorities
- Broad priorities: simplify tax systems, broaden the tax base, and improve compliance.
- Specific measures:
  - Ensure Compliance with Regional DRM Regulations:
    - Address both de jure deviations (e.g., tax incentives that deviate from directives) and de facto unequal enforcement of tax laws.
  - Conduct Regular Reviews of Tax Systems:
    - Simplify tax systems, rationalize exemptions, eliminate low-yield taxes, and ensure remaining exemptions serve clear economic purposes and comply with regional frameworks.
  - Strengthen Tax Sources Not Subject to Regional Framework:
    - Property taxation: systematic property valuations, enhance local administrative capacities, simplify tax code.
    - PIT: enhance progressivity by adjusting schedules, streamline regimes, rationalize income exemptions.
    - SME taxation: simplify to reduce compliance costs, consolidate entrepreneur and micro-enterprise schemes into a single regime, smooth tax burden to encourage formalization.
  - Strengthen Revenue Administration:
    - Improve management and governance (risk management, capitalize on computerization and digitalization investments).
    - Improve tax functions (optimize registration, invest in capacity building and tax literacy, implement automated cross-checking systems, modernize accounting, arrears management and VAT credit refunds).
    - Improve customs functions (customs valuation and clearance, automated risk management, strengthen post-clearance audit).
  - Ensure Good DRM Governance and Transparency:
    - Implement anti-corruption measures to support trust in institutions and tax compliance.

*Source: 1wauea2025002-print-pdf - 6.      Regional tax harmonization in WAEMU is quite advanced de jure (Figure 7) but*

### Annex I.   Data Sources Comparison

### Annex I.   Data Sources Comparison

### EDEN (BCEAO) — Economic and Financial Database
- The Central Bank of West African States (BCEAO) set up an economic and financial database called EDEN (Entrepôt de Données Economiques et Financières).
- Purpose: making available to the public the statistical information it develops or collects, including to researchers, universities and research centers.
- Coverage: contains 15,000 series grouped into six blocks:
  - Real sector
  - Monetary and financial sector
  - Public finance sector
  - External sector
  - Monetary issuance sector
  - Social sector
- Accessibility: The database is accessible at: https://edenpub.bceao.int/

### IMF World Revenue Longitudinal Database (WoRLD)
- Scope: tracks government revenue trends in 193 countries since the early 1990s.
- Components tracked: directly tracks 9 key components of tax and non-tax revenues, which together contribute about 82 percent of government revenue globally.
- Update frequency: updated annually to provide insight into recent developments affecting governments’ fiscal position.
- Accessibility: The database is accessible at: https://www.imf.org/en/Topics/fiscal-policies/world-revenue-longitudinal-database.
- Sample specifics:
  - The WoRLD sample starts from 2015 because of detailed fiscal data availability for some countries, especially TGO and CIV.
  - The TGO net value was used for the database, to ensure comparability to other countries.

### Figure and Comparative Note
- Figure 1. Tax Revenue Comparisons is indicated in the source material.
- The EDEN and WoRLD sources are presented as complementary inputs for tax revenue and fiscal analysis across WAEMU and broader country samples.

---

### Annex II.   Estimating Tax Potential

### Stochastic Frontier Model Specification
- Functional form:
  - ln(Taxit) = β0 + β1 ln(Xit) + Tit − uit
- Definitions:
  - Taxit is the tax revenue collected by country i in year t.
  - Xit represents explanatory variables affecting tax revenue, such as GDP, trade openness, or governance indicators.
  - Tit is a two-sided symmetric error term representing statistical noise (e.g., measurement errors, external shocks). It is assumed to be normally distributed.
  - uit is the one-sided non-negative tax inefficiency, capturing deviations from the frontier (maximum potential revenue) due to factors like tax evasion, exemptions, and administrative weaknesses. It follows a half-normal distribution.
- Estimation approach:
  - True Random Effects are used, assuming time-invariant heterogeneity is uncorrelated with explanatory variables.

### Interpretation and Tax Effort Calculation
- The inefficiency term uit provides insights into the gap between actual and potential tax revenue performance.
- Tax effort is computed as:
  - TTTEffort = TTTEe − uu_i (as presented in the source)
  - Where values close to 1 indicate higher efficiency.

### Empirical Outputs Referenced
- The source includes:
  - Table 1. Stochastic Frontier Regression Estimates (referenced)
  - Discussion of the role of uit in measuring tax gaps and effort.

---

*Source: Annex I. Data Sources Comparison and Annex II. Estimating Tax Potential (selected excerpts).*

### 12.      One element of the difficult trade environment relates to the fact that most WAEMU

### 12. One element of the difficult trade environment relates to the fact that most WAEMU members still appear to continue to impose challenging Customs and border processes on traders

### Trade facilitation status and constraints
- Most WAEMU members continue to impose challenging Customs and border processes; the WAEMU agreement does not cover streamlining and harmonization of these procedures.
- On average, WAEMU members perform fairly well in terms of freedom of transit and transparency of trade regulations, but there is significant heterogeneity across countries.
- Country implementation of trade-facilitation measures (2023):  
  - Benin: nearly 86 percent of potential measures implemented.  
  - Mali: implemented only a third of potential measures.
- Key gaps include cross-border paperless trade procedures and measures that benefit women and SMEs.
- The WAEMU has largest distance to frontier in the areas of digitalization of customs procedures and a supportive trade environment for women and SMEs (key areas with potential to improve trade facilitation).

### AfCFTA implementation, scope, and status
- All WAEMU members are parties to the AfCFTA.  
  - The agreement was signed by 44 African nations in 2018 and came into effect in May 2019.  
  - Objective: eliminate tariffs on 97 percent of tariff lines, representing at least 90 percent of imports by value, by 2030.  
  - Agreement reached on rules of origin for 92 percent of tariff lines (as of February 2024).
- AfCFTA aims for deep integration: lowering tariffs and addressing behind-the-border regulations that result in non-tariff measures (NTMs); streamline Customs and border processes; liberalize services trade; establish dispute settlement mechanisms.
- Progress: substantial consensus on protocols (goods, services, investment, competition, digital trade); tariff offers and schedules submitted by a substantial majority, including all ECOWAS (and hence WAEMU) countries. Some countries implemented tariff offers domestically; a pilot “Guided Trade Initiative” began in October 2022 for selected goods.
- Current NTM removal process: traders must report individual NTMs one by one to authorities, which implies slow progress given the multitude of NTMs.

### Quantifying potential benefits: methodology and scenarios
- Method: gravity estimation in two steps (as in Abbas and others, 2023).  
  - Step 1: estimate elasticity of bilateral trade flows to tariffs, NTMs, and trade-environment measures using Poisson pseudo-maximum likelihood with log of bilateral trade flows as dependent variable.  
  - Step 2: simulate counterfactual scenarios and compute impacts on trade openness and real income per capita.  
  - Semi-elasticity used: 1.25 between openness and GDP per capita (midpoint from literature).
- Scenarios modeled:
  - “AfCFTA scenario”: 90 percent reduction in existing tariffs between AfCFTA signatories and a 50 percent reduction in the number of NTMs.
  - “AfCFTA+ scenario”: AfCFTA scenario combined with improvements in trade environment—infrastructure, financial development, and security—bringing trade environment to the median of the next-best performing free trade agreement (ASEAN or Mercosur, depending on the indicator).

### Main quantitative findings and projections
- AfCFTA scenario effects (median WAEMU member):  
  - Openness would increase by 1.5 percentage points.  
  - Associated with a 2 percent increase in long-term real income per capita.
- Relative importance of NTMs vs tariffs:  
  - The assumed reduction in NTMs would increase openness by an average one percentage point in WAEMU members, double the effect of the assumed tariff reductions.
- AfCFTA+ scenario effects:  
  - WAEMU members’ median merchandise trade flow with other African countries could rise by more than 40 percent.  
  - Intra-WAEMU trade could increase by more than 30 percent.  
  - This would generate income gains of an estimated 10 percent.
- Trade facilitation measures:  
  - Implementing half of the outstanding measures by WAEMU members could increase their openness by 1-2 percentage points, which could raise incomes by 1.3-2.5 percent.
- Fiscal revenue risk from AfCFTA tariff reductions:  
  - Estimates suggest the eventual effects of tariff reductions on WAEMU members’ fiscal revenue will be small (less than 0.1 percent of GDP for each WAEMU member).

### Policy implications and recommendations
- Advance AfCFTA negotiations and implementation:  
  - Help move AfCFTA discussions forward to finalize remaining tariff lines and rules of origin, advance services trade liberalization, and complete annexes to protocols.  
  - Implement AfCFTA agreements in domestic law (new tariff schedules, rules of origin, future services agreements) and ensure Customs administrations are ready to apply them.  
  - Inform the business community about AfCFTA opportunities and related Customs/border changes.
- Advocate for more ambitious NTM removal processes:  
  - WAEMU members should press AfCFTA partners for a pro-active and comprehensive review and alignment of national regulations that generate NTMs, rather than relying on the current trader-initiated, one-by-one reporting process.
- Deepen intra-WAEMU integration by proactively removing NTMs:  
  - Undertake a pro-active and systematic NTM reduction effort to boost intra-WAEMU trade and serve as a model for continent-wide efforts.  
  - Draw lessons from the EU and from OHADA’s alignment of business law.
- Strengthen the trade environment cost-effectively:  
  - Prioritize country-specific, cost-effective measures. Where infrastructure is weak, large transport projects can boost trade but are costly and accrue benefits over time.  
  - Streamlining and digitization of Customs and border processes can be more affordable and focus on administrative reforms rather than large capital outlays.
- Maintain macroeconomic stability and revenue resilience:  
  - Continue efforts to strengthen domestic fiscal revenue to offset potential AfCFTA-related revenue losses, even if estimated losses are small (less than 0.1 percent of GDP).
- Support inclusive adjustment policies:  
  - Invest in workforce skills to help workers capture opportunities from trade integration.  
  - Strengthen social safety nets to provide targeted support during transitions so benefits of trade integration are shared widely and transition costs contained.

*International Monetary Fund — WEST AFRICAN ECONOMIC AND MONETARY UNION (excerpts).*

### References

### 1wauea2025002-print-pdf - References

### Key References Cited
- Abbas, A., C. Allard, H. Balima, C. Bteish, A. ElGanainy, R. Giri, S. Hakobyan, D. Kanda, B. Kett, F. Liu, S. Meleshchuk, M. Pohl, G. Ramirez, H. Weisfeld, R. Zymek. 2023. Trade Integration in Africa – Unleashing the Continent’s Potential in a Changing World, IMF Departmental Paper DP/23/003. (Washington DC: IMF).
- Bensassi, S., J. Jarreau, C. Mitaritonna. 2019. Regional Integration and Informal Trade in Africa: Evidence from Benin’s borders. Journal of African Economies 28, no. 1 (2019): 89-118.
- Caselli, F., M. Koren, M. Lisicky, M., and S. Tenreyro. 2020. “Diversification through Trade,” Quarterly Journal of Economics, 135(1), pp. 449-502.
- Eaton, J., and S. Kortum. 2002. Technology, Geography, and Trade, Econometrica 70, no. 5 (2002): 1741-1779.
- Fontagné, L., M. Lebran, S. Murray, M. Ruta, G. Santoni. 2023. Trade and Infrastructure Integration in Africa, World Bank Group Policy Research Working Paper 10609 (Washington DC: World Bank Group).
- Imbs, J., and R. Wacziarg. (2003). “Stages of diversification.” American Economic Review, 93(1), pp. 63-86.
- Lesser, C., and E. Moisé-Leeman. 2009. Informal cross-border trade and trade facilitation reform in Sub-Saharan Africa. OECD Trade Policy Working Paper 86. (Paris: OECD).
- Mancini, M., A. Mattoo, D. Taglioni, and D. Winkler. 2023. Sub‐Saharan Africa's participation in global value chains: 1995–2021. The World Economy 46, no. 11: 3192-3207.
- Melitz, M. J. (2003). The impact of trade on intra‐industry reallocations and aggregate industry productivity. Econometrica, 71(6), pp. 1695-1725.
- Organization for Economic Co-operation and Development (OECD). 2019. Aid for Trade at a Glance 2019: Economic Diversification and Empowerment. (Paris: OECD).
- Ricardo, D. 1817. On the Principles of Political Economy and Taxation. London: John Murray.
- Smith, A. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations, History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number smith1776.
- Topalova, P., and A. Khandelwal. (2011). Trade Liberalization and Firm Productivity: the Case of India, Review Of Economics And Statistics, 93(3), pp. 995-1009.
- Trade Law Centre, 2025, African Continental Free Trade Area (AfCFTA) Legal Texts and Policy Documents at https://www.tralac.org/resources/by-region/cfta.html#legal-texts.
- UNCTAD. 2018. Regional Integration and Non-Tariff Measures in the Economic Community of West African States (ECOWAS). New York: United Nations.
- World Bank. 2020. The African Continental Free Trade Area: Economic and Distributional Effects. Washington, DC: World Bank.

### Food Security in WAEMU: Current Challenges and a Way Forward — Overview
- Food insecurity in WAEMU has worsened over the last few years—mainly due to conflicts, climate, and affordability issues—with the Sahel zone being in a particularly difficult situation.
- The security environment is complex; the region is highly vulnerable to climate change and dependent on food imports.
- Further increases in food insecurity risk exacerbating social tensions and fueling further conflicts.
- Durable solutions require solidarity and well-targeted, coordinated efforts by national and regional authorities, in collaboration with partners.

### A. Context — Definitions, Trends, and Nutrition
- Definition: Food insecurity depends on availability, access, utilization (knowledge, access to water, health services), and stability over time across these three dimensions; it can be chronic and/or acute.
- IPC scale note: In IPC 3,4, and 5 humanitarian assistance is urgently required.
- Lean season: period between harvests when food is most scarce; for WAEMU, June to August.
- 2022 lean season: more than 12.5 million people in WAEMU experienced crisis, emergency, or catastrophe (IPC categories 3, 4 and 5).
- Comparisons:
  - 2019: 2.8 million people in food insecurity, or 3 percent of the population analyzed.
  - 2022: more than 12.5 million people (over 10 percent of the WAEMU population analyzed).
  - 2024: 9.8 million people faced food insecurity, accounting for 7 percent of the population analyzed.
  - 2024 country shares: Niger 13 percent; Burkina Faso 12 percent; Senegal and Benin 3 percent.
- Agricultural production:
  - 2023/24 crop season cereal outputs: 32.6 million tons — a 2 percent year-on-year and a 6.8 percent increase over the five-year average (PREGEC, March 2024).
  - Per capita cereal availability: 221 kg in the 2023/24 season — declined 1 percent year on year, 2 percent over the five-year average.
  - Cadre Harmonisé projections from November 2024: food insecurity will remain high in 2025.
- Nutrition:
  - Acute malnutrition affects an estimated 16.7 million children under 5 years of age.
  - Chronic malnutrition (stunting) affected over 25 percent of children under five in 2022, with nearly half of the children in Niger.
  - 2024: 63 million people (41 percent of the total population) had insufficient food consumption in WAEMU; country range: 14 percent in Côte d’Ivoire to 76 percent in Niger.
- Sources referenced: PREGEC, World Food Program (WFP) HungerMap, World Bank Indicators.

### B. Drivers of Food Insecurity in WAEMU
- Overarching drivers: conflicts, climate shocks, affordability issues, and dependence on food imports.
- Key identified factors:
  1. Conflict, insecurity, and displacement
     - Fatalities due to security incidents rose to close to 14,000 people in 2024.
     - 2023–2024: conflict and insecurity were primary drivers of acute food insecurity in Burkina Faso, Mali, Niger, and northern parts of Benin, Côte d’Ivoire, and Togo.
     - 2023: Burkina Faso and Mali experienced significant increases in instability; affected populations pushed into food security Catastrophe (CH Phase 5).
     - In Burkina Faso's Centre-Nord region, 30 percent of households have been displaced due to resource competition.
  2. Climate risks and disasters
     - Rising temperatures and frequent climate disasters (floods, droughts) adversely affect production, particularly in the Sahel.
     - Box 1 — Floods in WAEMU in 2024:
       - As of August 2024, floods affected 3.5 million people across 14 countries in West and Central Africa.
       - Mali: over 1.6 million hectares of land flooded (including nearly 500,000 hectares of cultivated land).
       - Niger: 222 reported deaths; 200 people injured; 44,600 houses destroyed; more than 350,000 people turned homeless; 86 schools in urgent need of repair; destruction of over 5,500 hectares of farmland.
       - Major 9 river basins recorded higher rainfall than historical average.
  3. Food affordability and access
     - Food inflation: reached 4.8 percent in WAEMU in 2024 on average — main contributor to headline inflation.
     - Food prices in 2024 were 36 percent higher compared to 2015.
     - Cost of Diet (CoD) findings (January–July 2024):
       - Cost of calorie intake increased by 8 to 10 percent in Benin and Niger.
       - 20 percent increase in Burkina Faso.
       - Up to 50 percent increase in Togo.
     - Nutritious food is on average 60 percent more expensive than energy-rich food.
     - Trade restrictions: export bans and conditional export requirements (largely legacy of COVID measures) remain in place as of November 2024 and pose barriers to regional trade; some limited exceptions exist (e.g., Niger permitting limited cereal exports to Burkina Faso and Mali).

### C. Policy Recommendations (Summarized)
- Overarching goal: achieve sustainable food security in WAEMU and a unified regional framework aligned with ECOWAS and WAEMU priorities.
- Main recommendations:
  - Achieve food sovereignty through reliable and affordable sources of healthy, nutritious food, which would be locally grown (instead of relying on imported cereals).
  - Strengthen governance and policy coherence to create a unified response to food crises.
  - Increase the resilience of food systems to shocks through sustainable agricultural practices and robust response mechanisms.
  - Address chronic vulnerabilities by integrating social protection and agriculture programs.

*International Monetary Fund — WEST AFRICAN ECONOMIC AND MONETARY UNION, References and "Food Security in WAEMU: Current Challenges and A Way Forward" excerpts.*

### Box 2. Trade Barriers to Food Security in WAEMU

### Box 2. Trade Barriers to Food Security in WAEMU

### Trade restrictions across member countries (WFP Tracker, November 2024)
- Benin: Restrictions on the export of agricultural products (a payment of an export levy is needed), ban on the export of maize, and border closure with Niger.
- Burkina Faso: Ban on the export of cereals and cowpeas; ban on the export of live cattle.
- Mali: Ban on the export of cereals.
- Niger: Ban on the export of cereals (except Burkina Faso and Mali), and border closure with Benin.
- Togo: Restrictions on the export of agricultural products (a one-time export authorization needed and a payment of tax for each authorization).

### Prevalence and immediate impacts of export restrictions
- Cereal exports are heavily restricted or outright banned in Burkina Faso, Mali, and Niger, significantly limiting access to staple foods within the region.
- Benin bans maize exports and imposes export levies on other agricultural products, creating financial burdens for exporters.
- Administrative and financial hurdles in Togo (one-time export authorization and tax per authorization) and levies in Benin discourage trade, particularly for small-scale exporters.
- These trade measures disrupt regional supply chains, exacerbate food shortages, and drive up prices in neighboring countries.

### Border closures and localized effects
- Border closures between Benin and Niger create significant disruptions to both formal and informal trade.
- Closures hinder availability of food in border regions that rely heavily on cross-border exchanges, leaving local populations particularly vulnerable to food shortages.

### Policy and governance recommendations (selected actions from the Action Plan)
- Promote Free Movement of Food Products: Remove trade barriers and restrictions to facilitate regional trade, ensuring that agricultural products reach areas of need.
- Enhance Governance and Coordination: Harmonize policies and strategies with ECOWAS and CILSS to facilitate a unified regional response to food security challenges.
- Accelerate Development and Implementation of NRPs: Fully operationalize and fund National Response Plans (NRPs) to address immediate crises, including mechanisms for stockpiling essential food supplies and ensuring rapid distribution during emergencies.
- Promote Awareness of Trade Regulations: Strengthen efforts to popularize community regulations on the free movement of agricultural products to facilitate compliance and support regional trade.
- Align Agriculture and Social Protection Programs: Foster integration of agricultural programs with social safety nets to target vulnerable populations and address chronic food insecurity effectively.
- Build strong data systems to ensure that policies are evidence-based, targeted, and coordinated.

### Targets and intermediate objectives (Box 3)
- Short-Term:
  - Fully operationalize and fund National Response Plans (NRPs) in all member states.
  - Remove trade barriers to facilitate regional food availability.
  - Replenish and scale up the ECOWAS Regional Food Security Reserve to address immediate crises.
- Medium-Term:
  - Establish functional and sustainable Market Functionality Index across the region.
  - Promote adoption of climate-smart agricultural practices in at least 50 percent of vulnerable farming communities.
  - Increase national budget allocations to food security initiatives by 20 percent region-wide.
- Long-Term:
  - Achieve a 30 percent reduction in food insecurity prevalence in WAEMU by 2030.
  - Align agricultural production growth with population growth rates to ensure stable food availability.

### Constraints in national food reserves and operational challenges
- Recommended reserve volume: 5 percent of national annual cereal consumption; many national reserves fall well below this threshold.
- Storage and post-harvest losses: In some countries, losses can exceed 20 percent of total reserves annually due to poor infrastructure.
- Management inefficiencies: Weak governance, insufficient technical capacity, and lack of transparency limit operational effectiveness.
- Financial constraints: Limited funding reduces governments’ ability to procure and maintain sufficient stocks and modernize storage facilities.

### Role of regional and international institutions
- CILSS aggregates SAPs data regionally through the Cadre Harmonisé and links with WAEMU’s High-Level Committee on Food Security for NRP development and implementation.
- The Regional Food Crisis Prevention Network (RPCA) coordinates among ECOWAS, CILSS, and WAEMU, with WAEMU represented and co-chaired by its Commissioner of Agriculture.
- The Food Security Cluster (FAO and WFP co-led) coordinates responses among governments, UN agencies, and NGOs.
- The IMF: provides policy advice, capacity development, and financial support; created a new facility, the “Food Shock Window,” to provide increased access under emergency financing instruments for countries with urgent balance of payments needs associated with acute food insecurity, rising costs of food and fertilizer imports, or substantial cereal export shortfalls.
  - Example: In the ECF to Burkina Faso approved in September 2023, a structural benchmark requires the authorities to publish the audits of the implementation of cash transfer programs and all emergency food expenditure.

*Source: Box 2. Trade Barriers to Food Security in WAEMU (1wauea2025002-print-pdf).*

### 5.      The cyclical dynamics of credit are defined by equations 1 and 2.

### 5.      The cyclical dynamics of credit are defined by equations 1 and 2.

### Credit-cycle specification and shocks
- Real credit gap equation (1):
  - 퐶퐶푔푔푔푔푔푔,푖 = 푖1 퐶퐶푔푔푔푔푔푔,푖−1 + 푖2 푌푌푔푔푔푔푔푔,푖 + 휖휖푖𝑐
  - 퐶퐶푔푔푔푔푔푔,푖 is the real credit gap; 푌푌푔푔푔푔푔푔 is the output gap.
- Credit-supply shock decomposition (2):
  - 휖휖푖𝑐 = 푖3(퐵퐵𝑢𝑢𝑒𝑒𝑖 − 퐵퐵𝑢𝑢𝑒𝑒𝑠𝑠𝑠𝑠) + 휀휀푖𝑐
  - 퐵퐵𝑢𝑢𝑒𝑒𝑖 is the capital buffer (capital ratio relative to supervisory threshold); 퐵퐵𝑢𝑢𝑒𝑒𝑠𝑠𝑠𝑠 is the steady-state level of capital buffers (calibrated as the historical long-term average); 휀휀푖𝑐 are white-noise shocks to real credit.
- Footnote definition:
  - The credit gap is defined as the difference between real private non-financial sector credit and its trend. The trend credit represents the long-term equilibrium (or “natural”) level of credit consistent with the economy operating at its potential.

### Banking capital buffers and feedback to credit
- Capital buffer definition (3):
  - 퐵퐵𝑢𝑢𝑒𝑒𝑖 = 퐾퐾𝑖 − 퐾퐾𝑖∗
  - 퐾퐾𝑖 is the capital ratio (regulatory capital to risk-weighted assets); 퐾퐾𝑖∗ is a time-varying regulatory requirement.
- Capital buffer dynamics (4):
  - 퐵퐵𝑢𝑢𝑒𝑒𝑖 = 휌휌𝐵𝐵𝑢𝑢 𝐵𝐵 𝑢𝑢𝑒𝑒𝑖−1 + (1−휌휌𝐵𝐵𝑢𝑢 𝐵𝐵) 퐵퐵𝑢𝑢𝑒𝑒𝑠𝑠𝑠𝑠 + 푖4(퐶퐶𝑖𝑔 − 퐶퐶𝑠𝑠𝑠𝑠𝑔) + 휀휀𝑖𝐵𝐵𝑢𝑢𝐵𝐵
  - Capital buffers adjust with regulatory and economic environment and are positively related to the credit growth gap (퐶퐶𝑖𝑔 − 퐶퐶𝑠𝑠𝑠𝑠𝑔).
- Regulatory requirement process (5):
  - 퐾퐾𝑖∗ = 퐾퐾𝑖−1∗ + 휀휀𝑖퐾퐾∗ (random walk without drift).
- Transmission mechanism:
  - Changes in macroprudential stance influence capital buffers (Equations 3 and 4) → influence credit supply (Equations 2 and 1) → influence output (Equation 6).
  - Tightening of macroprudential stance or higher capital requirements can lower capital buffers, reduce credit supply, and dampen credit and real economic cycles.
- Theoretical and empirical underpinning:
  - Credit channel arises from failure of Modigliani-Miller: issuing new equity is costly; undercapitalized banks may cut lending rather than raise equity, hurting economic growth.
  - Empirical literature supports that capital influences lending when breaking regulatory thresholds is costly and banks cannot easily issue new equity.

### Macroprudential policy in WAEMU and the CCyB
- Institutional context:
  - Regulatory changes to capital requirements are formally the primary tool for macroprudential policy in the WAEMU but have been little used.
  - The prudential framework established in 2018 allows the BCEAO to implement macroprudential measures aligned with its financial stability mandate.
  - The Financial Stability Committee of the West African Monetary Union (CSF-UMOA) and the BCEAO’s Macroprudential Policy Committee (CPMP) have made limited reliance on macroprudential measures.
- Countercyclical capital buffer (CCyB):
  - The CCyB is part of WAEMU’s toolkit but has been set to zero since its creation.
  - CCyB purpose: additional capital buffer built up during expansions and released during downturns to provide headroom and support lending.
  - Relaxing the CCyB can create headroom and encourage banks to maintain credit provision during adverse conditions.
  - International experience suggests maintaining a positive buffer, even in neutral times, facilitates buffer release and offers baseline protection (references to studies such as Couaillier et al. (2022a, 2022b), Mathur et al. (2023), Lang and Menno, 2023).
  - Basel Core Principles adjustment allows supervisors to require releasable capital buffers (Principle 16).

### Aggregate demand, credit shocks, and monetary conditions
- Output gap equation (6):
  - 푌푌푔푔푔푔푔푔,푖 = 훽1 푌푌푔푔푔푔푔푔,푖−1 − 훽2 𝑀𝐶𝑀𝑀𝑖 + 훽3 푌푌∗푔푔푔푔푔푔,푖 + 훽5 휖휖푖𝑐 + 휀휀푖𝑌
  - Aggregate demand shocks (휀휀푖𝑌) capture unmodeled influences such as fiscal policy.
  - Credit shocks (휖휖푖𝑐) enter demand, modeling feedback between output gap and other macro variables via credit crunch assumption.
- Monetary Condition Index (MCMM) (7):
  - 𝑀𝐶𝑀𝑀𝑖 = 훽4(𝑇𝑇𝑇𝑇𝑔𝑔𝑔𝑔𝑔𝑔,𝑖 + 𝑃𝑃𝑒𝑒𝑇𝑇𝑃𝑃𝑖) + (1−훽4)(−𝑍𝑍𝑔𝑔𝑔𝑔𝑔𝑔,𝑖)
  - MCMM shows weighted average effects of deviations of the real interest rate from its neutral level (𝑇𝑇𝑇𝑇𝑔𝑔𝑔𝑔𝑔𝑔), risk premium (𝑃𝑃𝑒𝑒𝑇𝑇𝑃𝑃), and real exchange rate gap (𝑍𝑍𝑔푔푔푔푔푔).
- Credit expansion unrelated to demand increases aggregate demand.

### Conventional block: aggregate supply, UIP, and monetary reaction
- Phillips curve for headline inflation (8) and marginal cost (9):
  - ∆𝐶𝐶𝑃𝑀𝑖 = 훼1 ∆𝐶𝐶𝑃𝑀𝑖−1 + (1−훼1) ∆𝐶𝐶𝑃𝑀𝑖+1 + 훼2 𝑇𝑀𝐶𝐶𝑖 + 휀휀𝑖𝐶𝐶𝐶𝐶𝐶𝐶
  - 𝑇𝑀𝐶𝐶𝑖 = 훼3 푌푌푔푔푔푔푔푔,𝑖 + (1−훼3) 𝑍𝑍𝑔푔푔푔푔푔,𝑖
  - 훼1 captures inflation persistence; 훼2 contemporaneous pass-through from real marginal costs; 훼3 slope of Phillips curve.
- UIP and exchange rate dynamics (10):
  - Generalized UIP allowing for exchange rate rigidity and capital controls; coefficient ℎ2 reflects exchange rate rigidity and is assumed close to unity for WAEMU.
  - Desired exchange rate variation and long-term real exchange rate variation are assumed zero (∆푆푆���� = 0 and ∆푍푍���� = 0), consistent with PPP.
- Monetary policy reaction (11) and auxiliary equations (12)-(13):
  - Short-term nominal interbank interest rate RS푖 responds to 4-quarter-ahead inflation forecast deviations, output gap, and deviation of risk premium from steady state.
  - Parameter ℎ1 captures degree of central bank control over interest rates (ℎ1 = 1 ⇒ CB loses control; ℎ1 = 0 ⇒ full sterilization).
  - Risk premium dynamics: 𝑃𝑒𝑇𝑃푖 = 𝑑1 𝑃𝑒𝑇𝑃푖−1 + (1−𝑑1) 𝑃𝑒𝑇𝑃𝑠𝑠𝑠𝑠 − 𝑑2 𝐶𝐶𝐶𝑇𝑔 + 휀휀푖𝐶𝐶𝑃𝑃𝑃
  - Currency Coverage Ratio (CCR) dynamics: 𝐶𝐶𝐶𝑇𝑔 depends on nominal interest rate and real exchange gaps; CCR long-term value chosen at 68 percent, close to the value at end 2024.
  - No formal rule for targeting CCR; Article 76 of the BCEAO statutes specifies a minimum threshold of 20 percent for FX reserves that, if maintained for three consecutive months, triggers reassessment of monetary stance.

### Model parametrization, calibration, and simulation
- Estimation approach:
  - Mix of Bayesian estimation and calibration (Annex I).
  - Business cycle parameterization relies on calibration in Carlos et al. (2022).
  - New financial block parameters first calibrated by regression, then estimated via Bayesian techniques.
  - Structural parameters estimated using observable variables over 2004Q1 to 2024Q3.
  - Bayesian procedure: likelihood via Kalman filter → maximize log posterior → Metropolis-Hastings for posterior distributions and marginal likelihood.
- Calibration details:
  - Steady-state parameters set to targets or historical averages.
  - Standard deviations of shocks generally calibrated unless indicated as estimated.
- Predictive evaluation:
  - Pseudo-out-of-sample forecasting begins in 2010Q1, assuming foreign and unobserved variables observed throughout forecast period; other variables known until quarter preceding each forecast over next 8 quarters.
  - Model simulations (Figure 1) compare inflation, output gap, currency coverage ratio, and real credit gap: solid black line = actual data; dotted colored lines = projections.
  - Model performs well when shocks are not large; divergences can arise from policy deviations from model-prescribed rules.
  - Historical decomposition (Figure 2) of output gap:
    - Output gap negative in 2011 due to Ivorian crisis and Sahel drought; rose until COVID-2019 pandemic; turned negative during pandemic.
    - Post-pandemic recovery aided by favorable monetary conditions, foreign output recovery, and credit demand; 2020 large fiscal package appears as large positive shock in mid-2020.
    - Feedback from financial sector shocks to business cycle is small in historical sample, possibly because no financial crisis or significant financial stress occurred in WAEMU during the period analyzed.

*Source: IMF staff estimates, as presented in the chapter text.*

### 20.      The decomposition of the credit gap shows that the positive credit gap is narrowing

### 20.      The decomposition of the credit gap shows that the positive credit gap is narrowing

### Decomposition and recent dynamics of the credit gap
- The positive credit gap has been narrowing since late 2023 and is projected to become somewhat negative by the end of 2024.
- Drivers offsetting the favorable business cycle contribution:
  - Strong inertia (persistence) of the credit gap.
  - Capital buffers being below their steady-state level.
  - Effects of credit shocks, capturing demand shocks and other credit determinants not explicitly modeled.
- Historical contributors to the positive credit gap (2010–2018):
  - Capital buffers above their steady-state level.
  - Underlying persistence of credit.

### Impulse response findings (IRFs)
- Business cycle leads the financial cycle within the union; historically limited feedback from financial shocks to the broader economy.
- Selected IRF outcomes following a 1 percent shock to output, credit, and capital:
  - A positive demand shock:
    - Raises the output gap and the rate of inflation.
    - Boosts real credit growth by 1.6%.
    - Contributes to capital accumulation via increased profitability.
    - Calls for an increase in the real interest rate (a nominal rate hike greater than the rise in inflation).
    - Tightening financial conditions dampen output and reduce credit demand; variables return to potential over the medium term.
    - Credit responses to a demand shock are mediated by macro feedback effects through capital buffers.
  - A positive credit shock:
    - Allows banks to accumulate capital from higher earnings driven by above-trend credit growth.
    - Tightening monetary conditions and discretionary regulatory decisions put downward pressure on credit supply; credit growth turns negative after one quarter.
    - Credit shocks do not directly affect inflation, consistent with episodes of growing credit and output without significant inflation build-up.
  - A tightening macroprudential policy (one-percentage-point increase in minimum capital requirements):
    - Credit drops by 1.3%.
    - Higher capital requirement lowers the additional capital buffer (difference between capital held and the regulatory threshold), raises marginal lending costs, and reduces credit volume.
    - The impact on output is mild; the output gap turns slightly negative, reflecting limited financial deepening.
    - Monetary policy would likely loosen in response to higher capital-induced effects on output and inflation.
    - Results imply a relatively easy trade-off for macroprudential regulators when addressing excessive credit growth and systemic risks.

### Model-based projections and medium-term outlook
- Model forecasts (conditioned on forecasts for foreign inflation, output growth, and interest rates) differ from the IMF WAEMU team's baseline because:
  - The model focuses on specified relations, lacks a full external sector, and does not incorporate expected developments in hydrocarbon production, current account improvements, or reserve accumulation.
  - A CCR target close to end-2024 values was chosen to avoid a monetary policy reaction to CCR.
- Key projection messages:
  - Macroeconomic conditions would call for normalization of monetary policy: FX reserve position improved in late 2024, inflation expectations declining, and a negative credit gap.
  - The negative credit gap is expected to close gradually until the end of the forecasting period.
  - Credit demand is expected to recover broadly in line with economic activity, with a lag, and to grow again as a ratio to GDP as financial deepening resumes.
  - Bank profitability would be enhanced and capital buffers gradually restored, but capital buffers are expected to remain below their historical long-term average.
  - Inflation (quarterly) is projected to converge to the target level by in early 2025.

### Financial sector vulnerabilities and indicators
- Overall capital adequacy ratio:
  - Declined from 13.7 percent at the end of 2023 to 13 percent in 2024 June.
  - Regulatory norm: 11.5 percent.
- Nonperforming loans (NPLs) and restructured loans:
  - Increased from 8.7 percent at the end-2023 to 9 percent in June 2024.
- Credit penetration: about one-fourth of GDP.
- Heavy reliance by banks on central bank (BCEAO) refinancing poses risks; increased BCEAO financing could transmit financial stability risks to the BCEAO.

### Policy implications and recommendations
- Strengthen capital buffers:
  - Current historically low capital buffers relative to steady-state may be insufficient to withstand adverse domestic and international shocks.
  - Further strengthening of capital buffers is necessary to mitigate risk amplifiers (concentration and contagion) and emerging risks (interest rate risk), given sovereign exposures and reliance on BCEAO refinancing.
  - The WAEMU Council of Ministers decision in December 2023 to double minimum paid-in capital for banks to CFAF 20 billion will help promote system resilience.
- Macroprudential policy stance and tools:
  - BCEAO’s recent expansion of macroprudential mandate and toolkit is welcomed.
  - BCEAO should be ready to adjust macroprudential policy in line with the financial cycle to preempt vulnerability build-ups.
  - Move toward a positive neutral level for the CCyB and further develop a CCyB decision framework.
  - Gradual phase-in of higher capital requirements during expansions can mitigate excessive credit growth and strengthen loss-absorption capacity.
  - Use the model to run simulations assessing macrofinancial impacts of micro- and macroprudential changes to capital requirements.
- Trade-offs and decision context:
  - As banks approach minimum regulatory capital, they face choices: restrict private sector credit or increase capital buffers—failing to address this may constrain lending and hinder growth.
  - Under the baseline model, capital buffers are projected to recover gradually toward the steady-state, suggesting financial deepening could be limited under current capital projections.

### Model utility, flexibility, and extensions
- The model formalizes linkages between macrofinancial shocks, cyclical risk, and capital buffers to inform capital requirement discussions.
- Uses of the model:
  - Analyze historical macroeconomic and financial data.
  - Interpret current disequilibria.
  - Conduct scenario analyses and forecasts.
  - Examine empirical relevance of various frictions.
  - Simulate impacts of specific macroprudential measures, such as the CCyB.
- Model design:
  - Financial block is simple; overall structure is flexible and can be extended with minor modifications and data to:
    - Address sector-specific financial risks.
    - Resemble an FSAP stress test using supervisory data.
    - Evaluate specific macroprudential measures.
- Neutral rate context (model assumption footnote):
  - Based on neutral rates in the Eurozone and U.S. and historical spreads, the WAEMU neutral interbank rate could be considered 5 percent at present.

*Source: IMF staff estimates and analysis in "The decomposition of the credit gap shows that the positive credit gap is narrowing" (content unit).*/

### 3.      Thus, education remains a central issue in the policy debate, particularly for

### 3.      Thus, education remains a central issue in the policy debate, particularly for

### Overview
- Education is a global development priority, including the 2030 Agenda of Sustainable Development.
- Figure sources: World Bank, UNDP, and IMF staff calculations. GDP per capita (constant in 2015 US dollars and in logarithm). Mean years of schooling is for adults ages 25+. Both series are from 2022.

### Education in the WAEMU: demographics and implications
- Share of young population (ages 0 to 14) in the WAEMU: 44 percent of the WAEMU’s total population (i.e., around 63 million people).
- Share of young population close to 50 percent in Mali and Niger.
- Comparable group averages: 42 percent in SSA, and around 26 percent in EMDEs.
- Fertility rates: WAEMU average = 5.1 births per woman; Niger ~ close to 7; SSA = 4.5; EMDEs = 2.3.
- Policy implication: A young, dynamic population and a growing talent pool can yield a demographic dividend only if member states ensure widespread, high-quality educational opportunities and skill formation aligned with key growth sectors.

### Education outcomes and gaps
- Mean years of schooling (adults ages 25+), WAEMU progress:
  - Increased from 2.1 to 2.8 years over 1990-2022.
  - Benin and Togo achieved the largest improvements by more than doubling this measure.
- Comparator trajectories:
  - SSA: mean years of schooling increased from 3.8 to 6.2 years (1990-2022).
  - EMDEs: increased from 4.3 to 7.6 years (1990-2022).
- Literacy rates (2022 unless noted):
  - WAEMU adult (youth) literacy rate = 52 (64) percent of population.
  - SSA = 77 (85) percent; EMDEs = 86 (95) percent.
- Enrollment and transition rates (gross enrollment rates):
  - Primary enrollment: WAEMU = 86 percent; SSA = 100 percent; EMDEs = 103 percent.
  - Transition into secondary: WAEMU = 41 percent (9 and 38 percentage points lower than SSA and EMDEs, respectively).
  - Tertiary enrollment: WAEMU = 9 percent; SSA = 12 percent; EMDEs = 46 percent.
- Forward-looking and quality-adjusted measures:
  - Expected years of schooling (children of school-entering age): WAEMU = 8.8 years; SSA = 10.6; EMDEs = 13.2.
  - Learning-adjusted years of schooling: WAEMU = 4.2 years; SSA = 5 years; EMDEs = 7.5 years.
- Disconnect noted between enrollment and completion within levels; dropout and transition challenges persist (Agbidinoukoun et al. 2023, UNESCO 2023).

### Gender gaps
- Gender parity index in mean years of schooling (female/male ratio): WAEMU = 0.55.
- Reported years of schooling for females and males in WAEMU: 3.7 and 2 (as presented).
- Comparable parity: SSA = 0.72; EMDEs = 0.84.
- Potential gain from closing the gender gap: fully closing the existing gender gap in mean years of schooling can boost this measure to 3.7 years from the current level of 2.8 years.
- Policy implication: Gender disparities, especially at higher education levels, depress overall education outcomes and contribute to labor market imbalances that hamper human capital accumulation.

### Estimated macroeconomic gains from improved schooling
- Prior IMF estimate: differences in years of schooling can explain 0.3 to 0.5 percentage points of the WAEMU’s per capita income growth shortfall compared to several African and Asian benchmark countries (IMF 2019).
- Trade competitiveness estimate: fostering quality of education to benchmark levels could boost trade flows by 10 to 16 percent.
- Regression-based empirical findings (global data, 1990-2022):
  - Point estimate β = 0.095 with a standard error of 0.033 (statistically significant at the 1 percent level).
  - A 1 percentage point increase in the growth rate of years of schooling translates into almost 0.1 percentage points higher growth in per capita GDP, on average.
  - Using a one standard deviation confidence interval around the point estimate, the average annual boost to regional GDP per capita growth ranges from 0.6 to 1.3 percentage points as WAEMU member states progress to EMDEs levels of years of schooling over a decade.
  - Cumulatively over a 10-year catch-up period, per capita income in the WAEMU becomes 6.3 to 13.4 percent higher, with particularly large gains in Burkina Faso, Mali and Niger.
- Table 1. Estimated Macroeconomic Gains (presented as in source)
  - A. Average per capita GDP growth gains per annum (percentage points)
    - BEN: 0.6 – 1.2
    - BFA: 0.8 – 1.6
    - CIV: 0.4 – 0.8
    - GNB: 0.5 – 1.0
    - MLI: 1.0 – 2.1
    - NER: 1.2 – 2.4
    - SEN: 0.6 – 1.3
    - TGO: 0.2 – 0.4
    - WAEMU: 0.6 – 1.3
  - B. Cumulative per capita GDP gains over the decade (percent of per capita GDP)
    - BEN: 5.9 – 12.6
    - BFA: 8.2 – 17.5
    - CIV: 3.9 – 8.1
    - GNB: 4.8 – 10.2
    - MLI: 10.9 – 23.6
    - NER: 12.5 – 27.2
    - SEN: 6.5 – 13.9
    - TGO: 2.0 – 4.2
    - WAEMU: 6.3 – 13.4
- Regression and calculation notes (as presented):
  - Δlog(per capita GDP) = β × Δ(years of schooling growth rate) + α × log(per capita GDP)_{t-1} + country and year fixed effects + error.
  - Variables winsorized at the 1st and 99th percentiles. Standard errors robust to heteroskedasticity. All available data (1990-2022) used. Annual growth gains assume steady progress in years of schooling over a decade. Table uses one standard error interval around the point estimate.

### Education spending and school facilities
- Trend: Education spending in the WAEMU has been on an upward trend since the 2000s despite setbacks.
- Aggregate spending: Reached 4.1 percent of the regional GDP as of 2022, from 2.5 percent of the regional GDP in 2000.
- Comparison: This surpasses the average in EMDEs by about 0.8 percentage points of GDP.
- Infrastructure shortfalls: Member states lag upper-middle income countries on basic school facilities (access to electricity and drinking water), indicating need to prioritize spending for infrastructure improvements.
- Empirical association: Education spending is positively associated with years of schooling, including expected years and learning-adjusted measures, particularly in country groups with lower baseline education levels (e.g., the WAEMU).

### Ongoing policy efforts and country examples
- Member states commit to inclusive, equitable, and quality education with measures including:
  - Revising institutional and legal frameworks; expanding free education; bridging gender gaps.
  - Teacher training and assessment; improving data collection, monitoring and evaluation.
  - Integrating IT and digitalization; revising curricula for future and entrepreneurial skills.
  - Supporting disadvantaged children; improving school environment and infrastructures.
  - Seeking efficiency of funds in collaboration with development partners.
- Selected country-level recent/ongoing actions (selection, not comprehensive):
  - Benin: school canteen programs; free primary schooling; provision of books; free secondary schooling for girls; scholarships for technical and vocational students; construction and equipment of educational infrastructures; school feeding program supported almost 6,000 schools since 2022 (about 75 percent of public primary schools) and 1.4 million students (46 percent of which are girls).
  - Burkina Faso: curricula improvements integrating language education; developing training curricula and syllabuses; plans to recruit teachers and build classrooms to improve rural education outcomes.
  - Côte d'Ivoire: school cafeteria programs; distribution of school kits and textbooks; support for payment of school fees; expansion of technical and vocational education and skills training under National Development Plan and Government Social Program.
  - Niger: focus on education infrastructures, teacher quality and inclusiveness; converting contractual teachers to civil servants; “zero straw hut classrooms” program; improving classroom facilities; integrating children affected by violence; supporting girls’ education via scholarships and boarding schools; implementing national strategy to accelerate education and training for girls and women.
  - Senegal: subsidies to reduce education costs; awareness campaigns and supportive measures to increase transition of girls from elementary to secondary education; measures to reduce dropout rates among girls, including temporary pause periods or financial support for adolescent mothers to acquire vocational training.
  - Togo: sector reforms to align education with labor market needs; construction of 15,000 classrooms with access to water and electricity; training at least 90 percent of teachers; ensuring 80 percent of vocational students enter the job market by 2025 aligned with the 2020-25 Government Roadmap; public-private partnerships for infrastructure; operational education management information system; pilot integration of local languages into vocational training; digital platform to monitor graduates; higher education quality assurance and curriculum harmonization; financial support for students in priority fields.

*Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1wauea2025002-print-pdf.pdf*

### 14.      Cognizant of the role of regional policies in achieving better education outcomes, the

### 14.      Cognizant of the role of regional policies in achieving better education outcomes, the

### Regional initiatives and cooperation
- In 2017, ministries in charge of employment established a platform for promoting regional cooperation in vocational training to share experience, information and tools, and to achieve harmonization of skills trainings across the region (Plateforme de Mutualisation des Outils et Ressources de la Formation Professionnelle).9
  - The platform has been working on implementing training programs and establishing reference training documents for different sectors.
- The WAEMU Commission has been working on improving the efficiency and quality of higher education and vocational training.
  - Developing guidelines for teachers’ trainings and curricula for vocational training in key sectors.
  - Assisting national authorities and the private sector regarding strategic areas for vocational training.
  - Aiming to improve mobility of students in higher education via scholarships and supporting programs to facilitate migration across member states and contribute to the quality of universities.
- In the context of the 2018 Gender Strategy, the WAEMU Commission has been working with national authorities to ensure effective implementation of policies toward gender equality in education, focusing on girls’ school enrollment and retention rates.
- As part of the regional financial inclusion strategy, BCEAO has been advancing a regional financial education program to equip education systems with financial literacy skills.
  - BCEAO activities include organizing regional financial education workshops for public officials and private sector representatives, supporting national efforts to improve financial education, and designing financial education courses and training modules (BCEAO 2019, 2022).

### Quality of education: challenges and focus areas
- Key problems affecting quality in WAEMU:
  - Poor learning outcomes even at higher education levels, including limited literacy and numeracy (World Bank 2018, 2022, UNESCO 2021, 2023).
  - Low education levels of teachers, misalignments between teacher trainings and curricula, and limited competency requirements for teaching professionals (World Bank 2021, INSEAD 2023, UNESCO 2023).10,11
  - Spending on teachers typically accounts for a large share of education expenditure, making teacher quality a major efficiency concern (Agbidinoukoun et al. 2023, World Bank 2023b).
- Policy emphasis:
  - Strengthening teacher capacity and quality is a cost-effective central policy lever for student achievement and growth (Hanushek and Kimko 2000, Barro 2001, World Bank 2009, Hanushek Woessmann 2007, 2010).
  - Regional frameworks and standards to support national efforts should include:
    - (i) minimum requirements for teaching,
    - (ii) teacher standards and competencies,
    - (iii) teacher education and training programs (both in pre- and in-service),
    - (iv) career paths for teachers,
    - (v) working conditions and well-being of teaching professionals,
    - (vi) professionalization of teaching.12
  - Preparation of reference documents should be coordinated with national authorities through participatory processes including teachers, communities, and stakeholders.

### Benchmarking, quality assurance, and student mobility
- Regional efforts should benchmark against international and regional best practices:
  - Global Framework of Professional Teaching Standards (UNESCO and Education International 2019).
  - UNESCO policy suggestions tailored to member states (2022).
  - African Continental Framework of Standards and Competencies for the Teaching Profession; African Continental Teacher Qualification Framework; African Continental Guidelines for the Teaching Profession (African Union Commission 2019a, 2019b, 2019c).
  - ECOWAS referential frameworks (2003, 2010, 2017a, 2017b).
- Actions to improve quality assurance and mobility:
  - Develop regional standards for educational quality assurance benchmarked to international best practices.
  - Prioritize regional skills needs to improve competitiveness and enable mutual recognition of diplomas, qualifications, and learning years (e.g., ECOWAS 2010, 2017a; EU process).
  - Promote student mobility to raise education quality, increase opportunities for students, and incentivize longer school attendance (e.g., Bista et al. 2018).

### Regional policy options and implementation steps
- Initial coordination measures:
  - Conduct a stock-taking exercise of education systems to identify common challenges.
  - Set regional outcome targets with clear timelines aligned with national development strategies.
  - Continuously monitor and evaluate regional progress, benefiting from international practices (e.g., EU regional education strategy with concrete policies and measurable targets).12
- Prioritizing and increasing education spending:
  - WAEMU average education spending as a share of GDP recently surpasses the average of EMDEs;13 however, high youth population and fertility rates require safeguarding, sustaining, and increasing spending.
  - Options to increase funding include improving domestic revenue mobilization or tapping upcoming natural resource revenues in some countries.14
  - Some member states (such as Benin and Côte d'Ivoire) need to boost spending to catch up with the region.
  - A regional comprehensive study to evaluate effectiveness of past education spending, benchmark against peers, facilitate peer-learning, and assess short- and medium-term needs is recommended.
- Addressing gender disparities:
  - Bridge gender gaps by keeping girls in school longer via national policies and through regional initiatives (effective implementation of the Gender Strategy by the WAEMU Commission; acceleration of BCEAO financial inclusion activities supporting women).15
- Building resilience to shocks:
  - Focus areas: climate-resilient school infrastructures; resilience of network sectors (electricity and internet); training teachers for distance teaching and equipping them; coordinating with development partners; exchanging experiences across member states (UNESCO 2021).
  - Regional role: assess cross-cutting priority needs; develop regional response plans for climate disasters or pandemics; introduce directives for regional infrastructures (e.g., to facilitate digitalization in education); promote information exchange and experience sharing.16
- Decreasing costs, improving accessibility, and incentivizing longer education:
  - Target children from poorer families17 and rural areas with measures such as:
    - Expanding in-kind transfers for school needs and school feeding programs.
    - Subsidizing families that keep children in school (cash transfers or child allowances).
    - Enforcing penalties against child labor and tackling child marriages.
    - Prioritizing expenditure for related infrastructure (safe roads, public/school transportation).
  - Align education with labor market needs:
    - Conduct sectoral skills needs assessments (ILO framework) and revise curricula, including higher education and schools outside the formal education system, to boost returns to education and incentive attendance.18
    - Expand accessible literacy education for young adults and vocational trainings (apprenticeship programs).
  - Evidence-based approaches: understand root causes of dropouts and implement monitoring and evaluation of outcomes; data collection is a first step.
  - Regional directives, guidelines, and benchmarking frameworks (vocational training standards, regional skills needs assessments, data collection and monitoring) can coordinate and guide national efforts.

### Conclusion and calls to action
- Education is both a human right and a key driver of sustainable and inclusive economic growth, poverty reduction, improved health, and stability.
- WAEMU’s future prosperity depends on tapping its demographic dividend by equipping youth for future jobs; this requires prompt actions and sustained political will since costs are immediate while gains take time and require a holistic approach, including policies that promote private sector-led growth.19
- Development partners and donors should scale up financing and capacity development; high-quality education is a global public good and international support can help deploy best practices to improve spending efficiency and education quality (IMF 2024a).

*Source: 1wauea2025002-print-pdf - 14.      Cognizant of the role of regional policies in achieving better education outcomes, the*

### References

### References

### Major topics covered in the references
- Education quality, learning, and learning-adjusted measures: "Learning-adjusted years of schooling (LAYS): Defining a new macro measure of education." Filmer, Deon, Halsey Rogers, Noam Angrist, and Shwetlena Sabarwal. Economics of Education Review 77 (2020): 101971.
- Higher education and economic growth: "Higher education and economic growth in Africa." Bloom, David E., David Canning, Kevin J. Chan, and Dara Lee Luca. International Journal of African Higher Education 1, no. 1 (2014): 22-57; Gyimah-Brempong, Kwabena, Oliver Paddison, and Workie Mitiku. The Journal of Development Studies 42, no. 3 (2006): 509-529.
- Education and economic growth theory and empirics: Aghion, Philippe, Peter Howitt, Maxine Brant-Collett, and Cecilia García-Peñalosa. Endogenous Growth Theory. MIT press, 1998; Barro, Robert J. "Human capital and growth." American Economic Review 91, no. 2 (2001): 12-17; Mankiw, N. Gregory, David Romer, and David N. Weil. "A contribution to the empirics of economic growth." The Quarterly Journal of Economics 107, no. 2 (1992): 407-437; Lucas Jr, Robert E. "On the mechanics of economic development." Journal of Monetary Economics 22, no. 1 (1988): 3-42; Romer, Paul M. "Endogenous technological change." Journal of Political Economy 98, no. 5, Part 2 (1990): 71-102.
- Education and health links: Appleton, Simon. "Education and health at the household level in sub-Saharan Africa." CID Working Paper Series (2000); Cutler, David M., and Adriana Lleras-Muney. Education and Health: Evaluating Theories and Evidence. No. 12352. National Bureau of Economic Research, Inc, 2006; Raghupathi, Viju, and Wullianallur Raghupathi. "The influence of education on health: an empirical assessment of OECD countries for the period 1995–2015." Archives of Public Health 78 (2020): 1-18.
- Education, social cohesion, and conflict: Easterly, William, Jozef Ritzen, and Michael Woolcock. "Social cohesion, institutions, and growth." Economics & Politics 18, no. 2 (2006): 103-120; Collier, Paul, and Anke Hoeffler. "Greed and grievance in civil war." Oxford Economic Papers 56, no. 4 (2004): 563-595; Ostby, Gudrun, and Henrik Urdal. "Education and civil conflict: A review of the quantitative, empirical literature." (2010); Thyne, Clayton L. "ABC's, 123's, and the golden rule: The pacifying effect of education on civil war, 1980–1999." International Studies Quarterly 50, no. 4 (2006): 733-754.
- Teacher standards, qualifications, and teacher-focused investment: African Union Commission (2019a). African Continental Framework of Standards and Competencies for the Teaching Profession. Addis Ababa; African Union Commission (2019b). African Continental Teacher Qualification Framework. Addis Ababa; UNESCO and Education International (2019). Global Framework of Professional Teaching Standards.
- Learning loss, COVID-19 impacts, and education responses in West Africa: UNESCO. Schools in the WAEMU area and COVID-19: impacts, innovations and recommendations. National Bureau of Education. 2021.

### Regional and institutional publications (WAEMU / ECOWAS / IMF / World Bank / UNESCO / AU)
- WEST AFRICAN ECONOMIC AND MONETARY UNION: multiple citations appear in the list, including IMF Selected Issues Papers and regional analyses.
- ECOWAS publications:
  - The ECOWAS Protocol on Education and Training. 2003.
  - The ECOWAS Report of a Feasibility Study on the Equivalence of Certificates 2010.
  - The Framework for the Harmonization of Basic Education in the ECOWAS. 2017a.
  - The ECOWAS Technical and Vocational Education and Training (TVET) Strategy for Skills Improvement and Employability. 2017b.
- International Monetary Fund publications:
  - International Monetary Fund, West African Economic and Monetary Union Selected Issues Papers no. 91, 2019.
  - International Monetary Fund. Regional Economic Outlook for sub-Saharan Africa, April. Building Tomorrow’s Workforce: Education, Opportunity, and Africa’s Demographic Dividend. Prepared by Michele Fornino and Andrew Tiffin. 2024a.
  - International Monetary Fund. Operational Guidance Note for the IMF Engagement on Social Spending Issues. April. 2024b.
  - International Monetary Fund. Regional Economic Outlook for sub-Saharan Africa, October. The Clock is Ticking: Meeting Sub-Saharan Africa’s Urgent Job Creation Challenge. Prepared by Wenjie Chen, Khushboo Khandelwal, Athene Laws, Faten Saliba, Can Sever, and Luc Tucker. 2024c.
  - IMF Selected Issues Papers cited with specific no. identifiers: Diallo, Yoro, Arsène Kaho, and Can Sever. Financial Inclusion in Niger: Challenges and Opportunities. International Monetary Fund, Selected Issues Papers no. 007, 2023.
  - Sever, Can. Multiple IMF papers: No. 2022/155 (2022); Conflicts and Growth: The R&D Channel. No. 2024/098. International Monetary Fund, 2024a; Gender Inequality in the WAEMU: Current Situation and Opportunities. IMF Selected Issues Paper no. 016, 2024b; Climate Change in the WAEMU: Trends, Macro-criticality and Options Going Forward. IMF Selected Issues Paper no. 015, 2024c.
- World Bank publications:
  - Accelerating Catch-up Tertiary Education for Growth in Sub-Saharan Africa. 2009.
  - World Development Report 2018: Learning to Realize Education’s Promise.
  - Sahel Education White Paper. The Wealth of Today and Tomorrow. 2021.
  - The State of Global Learning Poverty: 2022 Update. 2022.
  - The False Dichotomy between More & More Effective Public Spending on Education: Lessons from Country Experiences. 2023b.
  - Ending Learning Poverty and Building Skills: Investing in Education from Early Childhood to Lifelong Learning. 2023a.
- UNESCO publications:
  - Global Education Monitoring Report. 2021.
  - The brain in the classroom: operationalizing programs supporting improvements in teaching and learning implementation in Benin, Côte d’ivoire, and Senegal. 2022.
  - West Africa – Investing in Teachers and School Leaders: Professional Standards, Working Conditions, and Teacher Education. 2023.
- African Union Commission outputs (2019a, 2019b, 2019c) on continental teacher standards, qualification frameworks, and guidelines.

### Academic research and thematic evidence
- Human capital, growth, and composition of human capital: Vandenbussche, Jérôme, Philippe Aghion, and Costas Meghir. "Growth, distance to frontier and composition of human capital." Journal of economic growth 11 (2006): 97-127; Hanushek, Eric A., and Ludger Woessmann. "The role of education quality for economic growth." World Bank policy research working paper 4122 (2007); Hanushek, Eric A., and Ludger Woessmann. "Education and economic growth." Economics of Education 60, no. 67 (2010): 1.
- Learning measures and measurement debates: Glawe, Linda, and Helmut Wagner. "Is schooling the same as learning?–The impact of the learning-adjusted years of schooling on growth in a dynamic panel data framework." World Development 151 (2022): 105773.
- Education, gender, and labor markets: Bertay, Ata Can, Ljubica Dordevic, and Can Sever. "Gender inequality and economic growth: Evidence from industry-level data." Empirical Economics (2025): 1-36; Sever, Can. "Gendered laws and labour force participation." Applied Economics Letters 30, no. 19 (2023): 2681-2687.
- Education, conflict, and pacification evidence syntheses: Ostby, Gudrun, Henrik Urdal, and Kendra Dupuy. "Does education lead to pacification? A systematic review of statistical studies on education and political violence." Review of Educational Research 89, no. 1 (2019): 46-92; Rohner, Dominic, and Alessandro Saia. "Education and conflict: Evidence from a policy experiment in Indonesia." (2019).

### Policy implications and frameworks signaled by the references
- Emphasis on professional standards, qualification frameworks, and teacher development at continental and regional levels (African Union Commission 2019a, 2019b, 2019c; UNESCO and Education International 2019).
- Regional harmonization and equivalence initiatives in ECOWAS for basic education, certificates, and TVET (ECOWAS, 2003; 2010; 2017a; 2017b).
- IMF and World Bank outputs focused on links between education, workforce building, demographic dividends, social spending, and job creation in sub-Saharan Africa (IMF Regional Economic Outlooks 2024a, 2024c; IMF Operational Guidance Note 2024b; World Bank reports 2009, 2018, 2021, 2022, 2023a, 2023b).
- Research linking education quality and learning outcomes to macroeconomic growth and social outcomes (Hanushek and Woessmann; Filmer et al.; Glawe and Wagner).

*Source: 1wauea2025002-print-pdf - References*

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_Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1wauea2025002-print-pdf.pdf_