IMF report after periodic regional surveillance of the WAEMU region discovered an increase in vulnerabilities despite the region having experienced strong growth over the last five years.
WAEMU region which is comprised of Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo, is having a rise in public debt and external buffers have shrunk.
The Executive Director for the West African Economic and Monetary Union said “Good progress has been made in upgrading the financial sector regulatory framework but significant pockets of vulnerability remain. The outlook remains positive, provided macroeconomic stability and strong resolve to improve the business environment and promote private investment are maintained. Downside risks stem from a sharper slowdown of economic growth, tighter international financing conditions, delays in implementing fiscal consolidation, sluggish structural reforms as well as a sustained decline in cocoa prices. In addition, security threats remain significant.”
According to the report, real GDP growth is estimated to have reached 6.2 percent in 2016, underpinned by robust and resilient domestic demand. Inflation remained subdued, at about 0.4 percent on average in 2016 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 (4 percent).
Credit to the public sector expanded at a significantly faster rate (43.6 percent) than credit to the private sector (9.7 percent). However, money growth remained moderate (10.2 percent) as net foreign assets declined. Public debt is on the rise and reserve coverage declined to 3.7 months of imports at End-December 2016, reflecting a continued expansion in public infrastructure and lower-than-expected external financing.
Executive Directors agreed with the thrust of the staff appraisal and welcomed the region’s continued strong economic performance, with robust growth and low inflation.
Directors noted, however, that risks to public debt sustainability and external stability have risen. They underscored that sustaining high growth would require well-coordinated and consistent national fiscal policies and regional monetary policy to contain vulnerabilities and safeguard macroeconomic stability.
“While the main responsibility in this regard falls on national and regional authorities, Directors noted that the Fund could play a key role through policy advice and capacity building. Structural reforms will also need to be accelerated to improve the business environment, boost competitiveness, and promote diversification”.