• The medium-term growth outlook is favorable but remains subject to significant downside risks
• The BCEAO Monetary Policy Committee’s decision to increase its credit facility rate by 100 basis points and place tighter access to the refinancing window is expected to encourage banks to reconsider their risk policy and strengthen their capital
• Strengthening bank supervision will help ensure the quality of new loans while enhancing the effectiveness of the bank resolution framework remains a priority

A staff team from the International Monetary Fund (IMF), headed by Mr. Boileau Loko visited Abidjan and Dakar from February 7 to 15, 2017 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, Mr. Loko issued the following statement:

“Economic activity has remained strong but vulnerabilities have increased. Real GDP growth is estimated to have reached 6.5 percent in 2016, underpinned by robust and resilient domestic demand. Inflation has remained subdued due to continued solid agricultural production and low oil prices. Preliminary data suggest an overall fiscal deficit of 4.5 percent of GDP in 2016, higher than initially planned. Public debt is on the rise and reserve coverage has declined to 3.7 months of imports, reflecting a continued expansion in public infrastructure and lower-than-expected external financing.

“The medium-term growth outlook is favorable with GDP growth around 6 percent but remains subject to significant downside risks. Key risks to the outlook include global uncertainties, slippages in fiscal consolidation plans, sluggish structural reforms as well as a sustained decline in cocoa prices. Planned fiscal consolidation has been repeatedly deferred in recent years and most countries are still scaling up public investment. Continued delays in implementing fiscal consolidation would further increase public debt, raising debt distress risks and putting the currency coverage at risk. At the same time, a slow implementation of key structural reforms would prevent the private sector to take over the lead in generating strong and inclusive growth.

“Member countries need to stick to their planned fiscal consolidation paths, which include reducing budget deficits to 3 percent of GDP by 2019, in line with the WAEMU convergence criteria, and fiscal plans for 2017 need to be consistent with that path. This will require steadfast implementation of reforms to enhance revenue mobilization, contain current expenditure, improve public financial management, increase public investment efficiency and strengthen debt management. to create space for infrastructure investment and social spending.

“The mission welcomed the December 2016 decision of the Monetary Policy Committee of the BCEAO to increase its credit facility rate by 100 basis points and place tighter access to the refinancing window. These measure should encourage banks to reconsider their risk policy and strengthen their capital. They are also expected to energize the interbank market and the secondary market for public securities, and ultimately raise monetary policy effectiveness. These reforms confirm the authorities' commitment to preserve macroeconomic and external stability. The mission encouraged the authorities to stand ready to tighten monetary policy should pressure on external reserves continue.

“The WAMU council of ministers adopted an ambitious set of regulatory reforms in June 2016, to modernize the financial sector. Key reforms included adopting Basel II and Basel III capital standards and introducing consolidated supervision of cross-border banks. The monetary authorities should continue these efforts by enforcing existing prudential regulations and preparing for the effective implementation of new regulations. Strengthening bank supervision will help ensure the quality of new loans. Enhancing the effectiveness of the bank resolution framework is a priority and the deposit guarantee fund should become fully operational.

“The members of the IMF team express their gratitude to the authorities and to all the counterparts with whom they met for the candid and constructive discussions and the warm hospitality extended to them.”