ECOWAS MONETARY COOPERATION PROGRAMME 2012 REPORT
This report reviews the global economic and financial environment and analyses the economic, monetary and financial developments in ECOWAS member States in 2012. It also assesses progress made on the macroeconomic convergence programme as well as policy harmonization activities.
Economic activity within the Community remained robust in 2012, recording a growth rate of 6.5%, despite the difficulties encountered at the global level and declining growth in some Member Countries facing socio-political instability, especially in Mali and Guinea Bissau. This growth was sustained by encouraging performance in agriculture, vibrant production in the mining industry, boom in ‘telecommunications’ and ‘building and construction’ subsectors in some countries. Inflation hovered below 10.0%, influenced by easing pressures on world commodity markets and favourable weather conditions in the Sahel.
In terms of macroeconomic convergence, performance deteriorated in 2012. Regarding the budget deficit criterion, whereas eight (8) countries met the required target in 2011, this number decreased to six (6) in the year under review. In addition, the number of countries satisfying the criterion on inflation declined by one, noting that nine (9) countries met the required benchmark in 2011. Only one country met the criterion relating to gross external reserves against ten (10) countries in 2011. However, the only improvement noted among the primary criteria related to Central Bank budget deficit financing. With respect to the secondary criteria, countries continued to experience difficulties in relation to tax revenue and wage bill. The best performance under this category related to public debt, nominal exchange rate stability, and positive real interest rate.
Regarding policy harmonization, significant progress was noted in the areas of monetary policy frameworks, regulatory frameworks governing current and capital account transactions, supervisory frameworks of banks and non-bank financial institutions, accounting and financial reporting standards of banks and non-bank financial institutions as well as balance of payments statistics.
In terms of prospects, the favourable profile of the economic and financial situation of the Community is expected to be maintained. Thus, real GDP growth is expected to be around 6.6% in 2013. This growth would be driven by investments in infrastructure, increased activity in mining and crude oil production, favourable trends in some commodity prices and an expected boost in agriculture. This growth prospects is dependent on sustenance and normalization of the socio-political situation in Member Countries, especially in Mali and Guinea Bissau as well as continued recovery in the Sahel region.
INTRODUCTION
This report forms part of the activities carried out by the West African Monetary Agency (WAMA) in 2012 under the implementation of the ECOWAS Monetary Cooperation Programme (EMCP). This programme was adopted in Abuja in 1987 by the Authority of Heads of State and Governments of ECOWAS member countries, with the ultimate objective of creating a single currency for the region managed by a common Central Bank. The short-term objective is the harmonization of rules governing the economic and financial management in the region. To this effect, the following issues were identified:
• harmonization of regulations and legislations relating to foreign exchange and banking supervision;
• liberalization of the monetary and financial market ;
• introduction of a stringent macroeconomic management pact and strengthening of structural policies at the national and regional levels ;
• compliance with the macroeconomic convergence criteria, harmonization of economic and monetary statistics and evaluation of the quality of convergence;
• completion of the establishment of an domestic community market (including the liberalization of trade and removal of tariff and non-tariff barriers) ;
• liberalization of the labour market ;
• formulation of an exchange rate mechanism and its adoption by all ECOWAS Member States ;
• deployment of efforts for the adoption of the same management rules and monetary policy instruments;
• evaluation of the status of the financial system ;
• popularization of the use of the West Africa Unit of Account (WAUA) and revitalization of the West African Clearing Mechanism, including oil transactions ; and
• establishment of a Community Monetary Institution (CMI)
The programme also aims at ensuring the achievement of currency convertibility within the medium term to facilitate the use of national currencies in regional commercial transactions in a more liberal manner and in accordance with market-based rates.
To facilitate effective implementation of the EMCP, the Convergence Council adopted the Single Currency Roadmap in May 2009. This roadmap emphasizes the importance of macroeconomic convergence and the harmonization of structural policies in order to ensure macroeconomic stability prior to the launch of the Single Currency for West Africa. Macroeconomic convergence emphasizes price stability, low budget deficit, restrictions on Central Bank budget deficit financing and maintenance of adequate levels of gross external reserves.
The evaluation mechanism envisaged to this effect was revised in June 2012 by the Authority of ECOWAS Heads of State and Government. This report is therefore based on the new set of eleven (11) criteria, comprising four (4) primary and seven (7) secondary criteria. These criteria are as follows: