Fis­cal con­sol­i­da­tion es­sen­tial for solid growth

The Pak Banker - - COMPANIES/BOSS -

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.

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