ECOWAS MONETARY COOPERATION PROGRAMME FIRST HALF 2013 REPORT
World activity is expected to grow moderately in 2013, leading to a growth of rate of 2.9% against 3.2% in 2012. This growth would more or less stem from advanced countries where production is expected to increase by 1.2% in 2013 against 2.0% in 2014. The strengthening of the American economy and a significant relaxation of budget restrictions (except in Japan) as well as very accommodating monetary policies are the drivers of this expected slight recovery. In the Euro zone, growth will be slowed down by the severe weakness of the periphery countries and would settle at -0.4% in 2013 and 1.0% in 2014. Emerging countries and developing countries would record a growth rate of nearly 4.5% in 2013 and 5.1% in 2014 against 4.9% in 2012. Unemployment will remain high in most advanced countries and some emerging countries especially in the Middle East and North Africa.
In contrast with this heterogeneous situation for emerging and advanced countries, ECOWAS Member States’ economies are, on the whole, faring well. ECOWAS would once again experience a year of strong growth, with a rate of 6.3%. This performance would be mainly due to the boom in extractive and oil production activities in some countries (Cote d’Ivoire, Sierra Leone, Burkina Faso and Ghana), the implementation of public investment programmes in infrastructure and improvement in energy supply capacity in most Member States. However, compared to 2012, a marginal drop of 0.1 point in growth was observed as a result of a decline in growth in most member countries.
Economic activity in ECOWAS was conducted against the backdrop of low inflation induced by easing of pressures on global food commodities coupled with the effect of a relaxation of monetary policies in several countries as well as favourable weather conditions in the Sahel. At the end of June 2013, the Community’s inflation rate stood at 7.9% against 10.1% during the same period the previous year. Inflation was on a downward trend in almost all Member States, except in Ghana, The Gambia, Cote d’Ivoire and Niger. The lowest levels of inflation were observed in Benin, Mali and Guinea with respective rates of 0.7%, -1.3%, and -0.8%.
With regard to the fiscal sector, despite measures taken my some Member States to strengthen their fiscal position which was largely weakened by the global recession, performance in this sector deteriorated in many Member States in the first half of 2013. The budget deficit excluding grants (as a percentage of GDP) was 2.4% against 1.5% at the end of June 2012. Budget deficit, including grants, accounted for 1.1% of GDP at end of June 2013 against 1.7% at the end of June 2012. This decline performance mainly resulted from deficits recorded by most Member States, especially Niger (-7.0% against -1.2% in June 2012), Ghana (-6.4% against -4.3% in June 2012), Guinea (-6,4% against -2,4% in June 2012) and Cape Verde (-7,4% against -12,4% in June 2012). However, some countries such as Burkina Faso, Guinea Bissau and Sierra Leone improved their fiscal positions which stood at 1.7%, 1.5% and -0.9% of GDP, respectively, in June 2013 against -2.0%, -3.2% and -6.1% in June 2012. Nigeria recorded a slight increase in its deficit which accounted for -1.8% of GDP in June 2013 against -1.3% during the same period the preceding year.
With regards to public debt, the debt level of ECOWAS countries increased marginally in 2013 compared to 2012. Total debt outstanding is expected to decrease by 1.4% to settle at 25.9% of GDP in 2013 against 27.3% of GDP in 2012.
As regards the external sector, the current account balance would record a surplus of 3.4% against 4.2% in 2012. This poor performance would be essentially due to deficits recorded in all member countries, except Nigeria (which posted a surplus of 8.9% of GDP in 2013 against 10.3% of GDP in 2012. The most significant deficit would be recorded by Liberia (-89.7% of GDP), Guinea (-16.5% of GDP), The Gambia (-15.9% of GDP) and Niger (-14.0% of GDP). The increasing import bill and the deterioration of the balance of services as well as the decline in budgetary support received by most member countries and migrant remittances explain the persistence of the deficit on the current account balance. The upward trend in imports was due to the rising supply of capital and intermediary goods driven by the implementation of infrastructure development programmes in most Member States and the rebound of investments, especially in the mining and petroleum sectors. The deterioration in the balance of services was due to the increase of the freight bill, driven by higher imports and rising demand for other specialized services in the mining and petroleum sectors.
The surplus of the overall balance of payment of ECOWAS is expected to narrow down in 2013 to 0.4% of GDP against 3.9% in 2012 as a result of the decline in Nigeria’s surplus. This surplus was recorded in all member countries, except Mali, Niger, Ghana and Guinea which recorded deficits on their overall balances.
On the monetary front, BCEAO and the Central Banks of The Gambia, Guinea, and Sierra Leone relaxed their monetary policy by reducing their policy rates. The marginal lending rate and the minimum bidding rate of BCEAO were reduced by 0.25 percentage point on five occasions between 2011 and September 2013. The rates fell from 4.0% and 3.0% at the end of June 2012 to 3.5% and 2.5% respectively at the end of June 2013. The Central Banks of The Gambia, Guinea, and Sierra Leone reduced their policy rates from 12.5%, 22.0%, and 20.0% respectively in December 2012 to 10%, 16.0%, and 15.0% in June 2013. Nigeria and Cape Verde maintained their policy rates at 12.0% and 5.75% respectively. Ghana reviewed its rate upward from 15.0% to 16.0% between December 2012 and June 2013 with the aim of containing inflation or stabilizing the exchange rate. Reserve requirement ratios remained constant during the first half of 2013.
The easing of monetary policy in the majority of member Countries did not have a direct effect on interest rates, especially those of Treasury bills which were on an upward trend, except in Nigeria, Cape Verde, and Sierra Leone. Factoring in 91-day Treasury bill rates, interest rates in many member States remained positive in the first half of 2013, with exception of Sierra Leone. This implies that countries with high levels of inflation apply high nominal interest rates as well.
An analysis of monetary aggregates showed an expansion in money supply by 14.4% at the end of June 2013 against 11.7% at the same period in 2011, indicating an increase of 7.9 percentage points above the Community’s growth rate and higher liquidity in the economy. This growth in overall liquidity, driven by money supply counterparts, especially credits to the economy, was reflected in its components, including deposits and currency in circulation. At the zonal level, the situation varied from one zone to the other.
An analysis of financial institutions and capital markets shows that in the UEMOA, apart from a financial market and payments systems already integrated and harmonized, progress is still being made in terms of decentralizing financial and insurance systems. With regard to WAMZ, each country has its own financial system, indicating the low level of integration in the financial sector. On the whole, the financial system of the community is stable and faring well as most banks have complied with the prudential ratios such as adequate capital and liquidity and financial markets are on the right track even though the BRVM is experiencing a downward trend.
In terms of macroeconomic convergence, the level of performance of member countries did not changed much in the first half of 2013 compared to the same period of the preceding year, except a notable drop in compliance with the criterion on gross external reserves. As far as the primary criteria are concerned, there was a slight improvement in performance vis-à-vis the criteria on inflation and Central Bank financing of budget deficit. On the other hand, there was a decrease in performance with respect to the criterion on gross external reserves which deteriorated slightly as UEMOA did not meet this criterion. Similarly, the level of performance in relation to the criterion on budget deficit deteriorated marginally, with two additional countries missing the target. Concerning secondary criteria, the level of performance did not improve significantly compared to the same period the previous year. However, an improvement was noted in with respect to the real interest rate criterion, as two additional countries met this target and, to a lesser extent, the criterion on tax revenue/GDP and public investments financed from domestic resources. The level of performance was maintained for the other secondary criteria, namely the criteria on non accumulation of domestic and external arrears, wage bill and public debt.
In all, none of the countries complied with all the convergence criteria in the first half of 2013. The best performance was recorded by Burkina Faso and Senegal which met each nine (09) out of the eleven (11) convergence criteria. These countries were followed by Mali which observed eight (08) convergence criteria. The lowest performance was recorded by The Gambia, which met only two (02) criteria. During the period under review, the highest improvement (+2 criteria met) was achieved by Guinea, whereas the highest decrease (-3 criteria met) was experienced by The Gambia.
Concerning policy harmonization, significant progress has been made in the harmonization of monetary policy frameworks, regulatory and supervisory frameworks of banks and non-bank financial institutions, accounting and financial reporting frameworks of banks and non-bank financial institutions, and balance of payments statistics, as well as payment systems development. However, more efforts to be made for realization of payments systems interconnectivity and capital account liberalization.
n terms of prospects, the economic and financial situation of the Community indicates a sustainable profile and a favourable outlook. Growth would be sustained by many countries which are expected to achieve growth rates of at least to 7.0%, namely, Burkina Faso, Cote d’Ivoire, Niger, Ghana, Nigeria Liberia and Sierra Leone. The pursuit of investments in infrastructure, commissioning of new mining and oil production sites, positive trends in commodity prices, and improvements in fiscal sector management are factors that would drive this performance. In addition to the favourable trends in the 2013/2014 agricultural production, this performance would be achieved thanks to the expected recovery in Mali and Guinea Bissau to be facilitated by the gradual normalization of the socio-political situation.