Fiscal consolidation essential for solid growth
A staff team from the International Monetary Fund (IMF), headed by Boileau Loko, visited Abidjan, Lomé, and Dakar from January 19-28, 2016 for discussions with the institutions of the West African Economic and Monetary Union (WAEMU) on Common Policies for Member Countries of the Union.
At the end of the mission, Loko said despite the fragile security situation in some member countries and a less favorable external environment in 2015, economic growth exceeded 6 percent for the second consecutive year, driven in particular by strong growth in Côte d'Ivoire and Senegal and by higher public investment. Inflation remains under control at around 1 percent.
The medium-term growth outlook remains subject to significant downside risks, including persistent security problems in the region, delays in implementing fiscal consolidation as well as structural reforms, a sharper slowdown of global economic growth, and tighter international financing conditions.
The fiscal deficit is estimated at 4.8 percent of GDP in 2015, due to high public investment programs. In the medium term, the regional fiscal deficit is expected to decline while the current account deficit will likely remain high, driven mainly by imports related to investment.
Fiscal consolidation is essential if the pace of growth in the region as well as the Union's external sustainability is to be maintained. Thus, member countries need to follow their planned fiscal consolidation path, notably by reducing budget deficits to 3 percent of GDP in 2019, in line with the WAEMU convergence criteria.
In that context, and to improve growth prospects over the medium term, reform efforts must focus on increasing domestic fiscal revenue mobilization, better controlling current expenditures, and improving the quality of public investment.
Raising monetary policy effectiveness requires developing an active interbank market and secondary market for public securities, better controlling the refinancing of banks, and broadening of the financial market investor base. Significant progress was made in 2015 on strengthening bank regulation and supervision, including of cross-border banks, and on modernizing the financial sector.
Key reforms include raising the minimum share capital for credit institutions, accelerating the pace of the transposition of Basel II and III norms into the regulatory framework, promoting the establishment of credit bureaus, and putting in place a bank crisis resolution mechanism and a deposit guarantee fund.