MACROECONOMIC CONVERGENCE REPORT 2008
Executive Summary
The 2008 Macroeconomic Convergence Report and prospects for 2009 is divided into four main sections as follows: Section one deals with international developments, section two contains an overview of the situation of macroeconomic convergence in ECOWAS member states, Section three highlights the country-specific macroeconomic developments and status of convergence and the last section (section four) deals with general conclusions and policy recommendations as detailed below.
Section one presents the world economic developments and their implications for ECOWAS member states. The review shows that the world economy experienced significant challenges during 2008. These challenges mainly related to the housing crises in the United States, the credit crunch and the overall financial crises which contributed to a decline in world Gross Domestic Product (GDP) from 5.0 percent in 2007 to 3.3 percent in 2008. This slowdown is expected to continue in the outlook period and beyond, with an expected further decline in GDP growth rate to 2.2 percent in 2009.
Even though efforts at economic recovery were generally satisfactory at the level of ECOWAS, they fell short of the expected targets. While economic activity in UEMOA slightly increased from 3.3 percent in 2007 to 3.9 percent in 2008, economic growth in the WAMZ remained unchanged at 6.4 percent over the same period.
Inflationary pressures in ECOWAS worsened during 2008 as a result of both domestic and external factors, particularly the hike in prices of basic commodities as well as the world economic slowdown. Inflationary pressures in ECOWAS increased from 5.8 percent in 2007 to 12.7 percent in 2008. In UEMOA, some of the explanatory factors behind the increase in prices were mainly drought in some member countries as well as increase in petroleum prices at beginning of the year, culminating in an upsurge in inflation rate from 2.9 percent in 2007 to 8.5 percent in 2008. The rise in inflationary pressures was more pronounced in the WAMZ, with inflation increasing from 7.3 percent to 14.9 percent in 2007 and 2008 respectively. Similarly, ECOWAS Member countries also experienced fiscal challenges as well as deterioration of the external sector.
Section two gives an overview of the situation of macroeconomic convergence in 2008. The review shows that movement towards macroeconomic convergence remained mixed as there was no significant improvement in overall performance. Performance under inflation was poor during the period, with only one country meeting this criterion, compared to 7 in 2007. Performance with respect to the budget deficit criterion also deteriorated from 8 to 6 countries in December 2007 and December 2008 respectively. Fourteen countries met the required target for central bank financing of the budget deficit during the period under review, compared to 15 in 2007. Regarding gross external reserves, nine countries (Nigeria and the eight UEMOA countries) were able to meet the target during the period, thus maintaining the same level of achievement since 2006. The review also shows that performance in terms of the secondary criteria generally fell short of the prescribed benchmarks under the ECOWAS Monetary Cooperation Programme.
Section two also highlights the number of criteria achieved by each member state. This review indicates that none of the countries has yet been able to meet all the primary and secondary convergence criteria. As at end-2008, the best performance of 7 targets was recorded by Senegal, which was closely followed by Benin with 6 targets. Burkina Faso, Mali, Niger and Nigeria met 5 targets each, while Cote d’Ivoire, The Gambia and Guinea attained 4 benchmarks each. Cape Verde, Liberia and Togo met 3 targets each, while Ghana and Guinea Bissau achieved 2 targets. Sierra Leone met one criterion during the period. The details in country analyses in section three epitomise the key macroeconomic developments that accounted for the non-observance of the criteria and policy recommendations that may be considered by member countries to improve their performance.
In the area of policy harmonisation and institutional arrangements highlighted in section two and section three (country analyses section) of the report, there still remain some major challenges. Formation and effective functioning of National Coordinating Committees in WAMZ member countries remain a formidable challenge that needs to be addressed to facilitate multilateral surveillance especially at the level of the WAMA-ECOWAS Joint Secretariat. In addition, there is still the need to deepen the level of payments system development and interconnectivity, capital account liberalisation, implementation of the ECOWAS Common External Tariff, Statistical Harmonisation as well as to eliminate all other barriers to free movement of people, capital and goods within the community.
The report ends with a general conclusion in section four, which highlights the major issues.