REFLECTIONS ON THE ESTABLISHMENT OF A STABILISATION FUND IN ECOWAS
Macroeconomic stability is one of the major concerns of political and economic decision- makers and means observing major macroeconomic indicators. In fact, since the recent crisis which began in 2008 in the United States, developed and developing countries have been finding it difficult to restore macroeconomic stability. In the OECD zone, the budget deficit reached unprecedented levels in 2009 before dropping to about 6% of GDP in 2011. In addition, for many countries, the level of indebtedness has increased considerably, worsening the vulnerability of public finance to the volatility of capital markets and reducing the room to manoeuvre and therefore the effectiveness of fiscal policy measures to stem the economic slowdown.
On the African continent, the crisis was also felt at various levels. In 2009, the growth rate recorded on the continent was 2.5%, representing less than half the rate achieved prior to the crisis. This led, for the first time in ten years, to a reduction in real per capita GDP. In the course of this year, Africa lost about 30 to 50% of its export revenues in 2008. In spite of some reduction in the import bill due to the decline in food and oil prices, the overall trade balance deteriorated significantly. From a surplus of 3.8% of GDP in 2008, the current account recorded a deficit of 2.9% in 2009. Within the ECOWAS space, compliance with the convergence criteria was seriously disrupted by the impact of the exogenous shocks on food and fuel prices which reflected in a net increase in inflation and the deterioration of public finances of oil importing countries. The crises intensified the volatility of exchange rates which is detrimental trade by increasing uncertainty and the cost of international trade. Most countries in the WAMZ experienced a depreciation of their currencies.
To address these crises that are seriously affecting macroeconomic stability, governments of developed countries (United States and European Union) deployed huge sums of public funds to ensure financial stability. In the European Union, all the twenty-seven Member States have set up a stabilisation fund to preserve the financial stability of the European economic and monetary union by offering financial assistance to Member States in difficulty. Greece and Ireland have already benefitted from this fund with relatively low interest rate. The EU’s experience is instructive in several ways as it has just proven that if the community instinct prevails, financial stabilisation solutions can be found within regional groupings. Consequently, some organizations such ECOWAS could as well set up a stabilisation fund 4 that will enable Member States deal with exogenous shocks. It was against this appeal that the Committee of Governors recommended the launching of a Stabilisation Fund following the presentation of the document on the ECOWAS Exchange Rate Mechanism. This recommendation was also underscored by the Committee of Governors during its 40th Statutory meeting in Conakry.
The aim of this stabilisation fund will be, on one the hand, to protect ECOWAS Members States facing external shocks by stabilizing revenues, and on the other hand, shield national currencies against the risks of speculative attack.
Following this introductory section (I), the rest of the paper is structured as follows:
II) theoretical and empirical approaches of stabilisation funds ;
III) experiences of funds across the world;
IV) Justification for a Stabilisation Fund in the ECOWAS Region;
V) Mechanism and Operation of the fund;
VI) Conclusion