The West African Economic and Monetary Union (WAEMU), Facing the Challenges of the Future -- Statement by Alassane D. Ouattara

IMF News, June 30, 1998

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The West African Economic and Monetary Union (WAEMU), Facing the Challenges of the Future -- Statement by Alassane D. Ouattara

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• Published: June 30, 1998

Introduction

• WAEMU countries must equip themselves to draw the full benefits from globalization and avoid marginalization.
• WAEMU has a long-standing single currency and common monetary policy based on a special relationship with France; regional integration is more advanced than elsewhere in Africa.
• Renegotiation of the Lomé Convention and Europe’s move toward a new single currency and single market will change WAEMU’s relationship with Europe, shifting from preferential treatment toward open trade.
• Key questions posed:
  • What remains to be done to enhance recent economic performance and enable participation in globalized markets?
  • Are there WAEMU-specific issues requiring particular policy responses?
  • How should WAEMU countries react to the changing relationship with Europe?

An encouraging recovery since the devaluation of the CFA franc

• Devaluation of the CFA franc plus bold structural reforms was necessary after failed domestic adjustment strategies in the 1980s.
• Observed macroeconomic changes (1990-97):
  • Growth rate moved from an average of 0.5 percent during the period 1990-93 to 5.5 percent in 1997.
  • Budget deficits fell from an average of 6.7 percent of GDP to 1.8 percent.
  • External current account deficits moved from 7.8 percent of GDP to 5.2 percent.
  • Inflation rates declined to 4 percent in 1997 after the initial 1994-95 price surge.
• Remaining structural weaknesses:
  • Delays in implementing key reforms; growth not yet high enough to significantly reduce poverty.
  • Banking systems recovering but financial markets remain very thin.
  • Privatization operations delayed in most countries.
  • Tariff rates still too high and too dispersed despite progress in trade liberalization.
  • Heavy dependence on trade taxes for budgetary revenue; tax bases too narrow and poorly structured to fund priority development outlays or infrastructure investment.

Challenges ahead: sources of weak private-sector confidence

• Inadequate saving and insufficient domestic and external investment, despite improved environment.
• Identified aspects of lack of confidence:
  • Doubt about direction and sustainability of economic policy; hesitancy on privatization or elimination of special exemptions raises perception of weak commitment to adjustment.
  • Uncertainty in legal and regulatory frameworks: property rights and contracts not enforced impartially; commercial law often out of date; inadequate judicial resources leading to arbitrary application.
  • Economic management capacity and bureaucratic red tape: oversized public employment undermines efficiency; nominal wage restraint hinders recruitment/retention of skilled workers.
  • Absence of appropriate economic infrastructure and well-trained affordable labor deters private investment.
  • Fiscal consolidation that compresses essential investment or reduces health and education spending is unsustainable and signals wrong priorities to investors.

WAEMU policy priorities

• Overarching objective:
  • Maintain macroeconomic stability and reduce domestic and external imbalances to increase saving and investment, accelerate growth, and reduce poverty.
• Financial policy priorities:
  • Further fiscal consolidation is essential and must be sustainable to dispel fears of policy setbacks.
  • Emphasize revenue collection by expanding the tax base and eliminating remaining exemptions.
  • Increase allocations for investment in essential infrastructure and outlays in priority sectors: health, education, economic management, and administration of justice.
• Completion of the unfinished reform agenda, with emphasis on:
  • Privatization and elimination of monopolies:
  • Privatization must be conducted with absolute transparency to prevent rent-seeking and to demonstrate government commitment to liberalization.
  • Liberalization of agriculture and exports:
  • Scaling back government marketing and distribution agencies has raised producer prices and production efficiency in major sectors, stimulating domestic demand and reducing rural poverty.
  • Liberalization efforts should be expanded to cotton, where they lag behind cocoa and coffee sectors and behind efforts in other African countries.
• Five specific policy priorities to strengthen private-sector confidence (future Fund-supported structural adjustment programs will emphasize these):

1. Establish policy credibility:

• Ensure full ownership of adjustment efforts; seek input from social partners to build consensus.
• Improve quality, timeliness, and availability of economic and social data to inform policy decisions.

2. Strengthen legal and judicial frameworks:

• Support OHADA and SYSCOA initiatives.
• Allocate budgetary resources to hire and train magistrates and judicial personnel, especially in commercial law.
• Demonstrate commitment to good governance, rule of law, combat corruption, ensure transparency and accountability, and enforce property rights and contracts.

3. Civil service reform:

• Establish remuneration levels that attract necessary skills while remaining within budget limits.
• Strengthen personnel management so right skills are assigned to functions for efficient, cost-effective public service delivery.

4. Financial sector restructuring and deepening:

• Promote new private-sector institutions (mutual credit unions, leasing firms, mortgage finance companies, microfinance organizations) and new saving instruments.
• With a strong regulatory and supervisory agency in place, increase competition in formal banking via licensing of new specialized institutions or allowing established institutions unrestricted access to all eight markets of the Union.

5. Pursue regional integration initiatives to achieve a true economic union:

• Decision to implement a common external tariff with preferential internal tariffs by the year 2000.
• Imminent adoption of a common investment code; common budgetary nomenclature under preparation; multilateral surveillance contributing to convergence of budgetary policies.
• Press ahead with harmonization of domestic indirect, and eventually direct, taxation.
• Effectively implement free movement of goods, services, and people throughout the Union.

Regional integration, scale economies, and relations with CAEMC and Europe

• Benefits of a single market:
  • Population of unified economic space would be equivalent to two-thirds that of Nigeria or 11 percent of the population of sub-Saharan Africa (noted as some 600 million inhabitants).
  • Real GDP would be equivalent to approximately 90 percent of Nigeria’s or 10 percent of real GDP for sub-Saharan Africa.
  • Expected to increase attractiveness to domestic and foreign investors and enable closer cooperation on major infrastructure and sectoral policies.
  • Must be a stepping stone to more open trade with the rest of the world.
• Relationship with CAEMC:
  • WAEMU integration should not prevent closer ties with Central African Economic and Monetary Community (CAEMC); together they represent 16 percent of the population of sub-Saharan Africa and 18 percent of real GDP for the continent.
  • Avoiding major differences within the franc zone is important to prevent complications in relations with a unified Europe.
• Country-specific considerations:
  • Each country faces its own special challenges and some may require more substantial efforts; firm government commitment to Union goals is crucial.

Role of global partners and concluding policy guidance

• Global partners should continue to provide advice and financial and technical assistance while requiring efficient use of such assistance.
• Opening industrial-country markets to WAEMU goods would better equip these countries to face global competition; more targeted assistance from EU countries is desirable.
• Europe’s experience with regional integration can guide WAEMU; European Commission already provides essential technical and financial support.
• Bilateral financial and technical support remains crucial.
• Urged actions for WAEMU governments:
  • Move swiftly to strengthen governance.
  • Enhance efficiency of government spending, particularly public investment.
  • Expand social programs.
  • These efforts are essential to ensure high long-term growth rates and achieve sustainable reductions in poverty.

Statement by Alassane D. Ouattara, Deputy Managing Director, International Monetary Fund, at the Meeting of the External Relations Branch of the Conseil Economique et Social, France, June 30, 1998.

References

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• Guinea-Bissau and the IMF
• Benin and the IMF
• Burkina Faso and the IMF
• Côte d'Ivoire and the IMF
• Mali and the IMF
• Niger and the IMF
• Nigeria and the IMF
• Senegal and the IMF
• Togo and the IMF
• Speeches
• PRESS CENTER
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