West African Economic and Monetary Union (WAEMU) countries face a well-known dilemma between the need to provide shock-smoothing mechanisms and the lack of adequate mechanisms to do so. WAEMU countries are subject to frequent and, to a large extent, asymmetric shocks. They have remained poorly diversified and vulnerable to external shocks, such as changing weather conditions. In addition to limited shock-smoothing mechanisms at the regional level, WAEMU members’ ability to respond to shocks through national policies is also constrained by limited fiscal space and the need to preserve external stability—not only at the national level but also at the union level. In this context, developing a well-defined fiscal rule framework at the national level would help to build the necessary fiscal space for shock-smoothing. In addition, the development of specific shock-smoothing mechanisms—including a more developed and integrated financial sector—would also be critical. In addition, promoting financial development is also a challenge, which needs to be addressed in tandem with an adequate surveillance system. Some of these challenges have been faced by other monetary unions, such as the euro area.

The financial system in the WAEMU remains largely bank-based. The banking sector comprises 106 banks and 13 financial institutions, which together hold more than 90 percent of the financial system’s assets (about 54 percent of GDP at end-2011). Five banks account for 50 percent of banking assets. The ownership structure of the sector is changing fast, with the rapid rise of foreign-owned (pan-African) banks. This contributes to higher competition but also rising heterogeneity in the banking system, with large and profitable cross-country groups competing with often weaker country-based (and sometime government-owned) banks. Nonbank financial institutions are developing quickly, notably insurance companies, but remain overall small. This paper presents a detailed analysis of the banking system.

The book examines various aspects of Africa's external economy by focusing on regional monetary arrangements and how they are affected by devaluation episodes. It investigates the relationship between current account balances, trade balances and trade openness with respect to regional integration and regional growth patterns, discusses obstacles to a successful regional integration and paths to structural transformation, and studies the impact of economic partnership on inclusive development. The book addresses researchers and policymakers interested in development economies and African economic development.

After almost a decade of strong growth, the WAEMU region is facing severe challenges from a triple crisis impacting the health, economic and security situations. Both fiscal and monetary policies were relaxed significantly in 2020 to contain the pandemic and support the economy. A gradual fiscal consolidation is expected to start in 2021 and bring back the aggregate fiscal deficit towards the 3 percent of GDP regional ceiling within three years. Growth is expected to recover swiftly in 2021–22 to pre-crisis levels, but the economic outlook is still uncertain.

Military coups that occurred in Guinea-Bissau and Mali caused economic disruption in the WAEMU countries. Regional policies have been in line with the recommendations, and growth is expected to remain robust, risks are on the downside, and the macroeconomic policy is appropriate. Preserving debt sustainability and stability of the Union in the medium term requires better coordination of fiscal policies. Development of the financial system, and strengthening of the regulatory and supervisory framework is necessary to address existing and new risks.

Africa is working toward the goal of creating a common currency that would serve as a symbol of African unity. The advantages of a common currency include lower transaction costs, increased stability, and greater insulation of central banks from pressures to provide monetary financing. Disadvantages relate to asymmetries among countries, especially in their terms of trade and in the degree of fiscal discipline. More disciplined countries will not want to form a union with countries whose excessive spending puts upward pressure on the central bank's monetary expansion. In T he Monetary Geography of Africa, Paul Masson and Catherine Pattillo review the history of monetary arrangements on the continent and analyze the current situation and prospects for further integration. They apply lessons from both experience and theory that lead to a number of conclusions. To begin with, West Africa faces a major problem because Nigeria has both asymmetric terms of trade—it is a large oil exporter while its potential partners are oil importers—and most important, large fiscal imbalances. Secondly, a monetary union among all eastern or southern African countries seems infeasible at this stage, since a number of countries suffer from the effects of civil conflicts and drought and are far from achieving the macroeconomic stability of South Africa. Lastly, the plan by Kenya, Tanzania, and Uganda to create a common currency seems to be generally compatible with other initiatives that could contribute to greater regional solidarity. However, economic gains would likely favor Kenya, which, unlike the other two countries, has substantial exports to its neighbors, and this may constrain the political will needed to proceed. A more promising strategy for monetary integration would be to build on existing monetary unions—the CFA franc zone in western and central Africa and the Common Monetary Area in southern Africa. Masson and Pattillo argue that the goal of a creating a s

The WAEMU’s post-Covid-19 recovery has so far withstood the new global and regional shocks, partly owing to supportive fiscal and monetary policies as well as relatively strong macroeconomic fundamentals over the previous decade. Growth prospects remain favorable, reserves—albeit declining—remain adequate, and the financial system appears to be resilient. However, the region faces important challenges associated with rising inflation, limited access to international capital markets, eroding external buffers, and regional security issues, in the presence of elevated global risks.

In its fourth edition, this report focuses on recent developments in Africa's banking sectors and the policy options for all stakeholders. The study of banking sectors across all African sub-regions includes the results of the EIB survey of banking groups operating in Africa. Three thematic chapters address challenges and opportunities for financing investment in Africa: Crowding out of private sector lending by public debt issuance The state of bank recovery and resolution laws in Africa Policy options on how to finance infrastructure development. The report finds that in many African banking markets, the last two years saw a pause in financial deepening. However, a rising share of banking groups report improving market conditions and plan a structural expansion of their operations in Africa and a continued push for new technologies.

This book provides an empirical analysis of economic and political structures impacting the CFA franc zone. Concise and practical chapters explore the history of the CFA franc zone, challenges to development, geopolitical issues, the importance of flexible exchanges rates, growth trends, and the impact of the Covid crisis. Policy reform is examined to detail economic approaches that could reduce poverty and increase the quality of life within the area. This book aims to present a macroeconomic and exchange rate framework to promote development and post-Covid recovery within the CFA franc zone. It will be of interest to students, researchers, and policymakers involved in African economics, the political economy, and development economics.

This paper assesses the adequacy and effectiveness of the WAEMU fiscal framework along three pillars that have proven to effectively support fiscal discipline in monetary unions—common fiscal rules (including adequacy of numerical ceilings as well as elements of design and enforcement), shared public financial management systems, and coordination mechanisms for decentralized fiscal policies. We undertake a calibration of regional debt and fiscal deficit ceilings taking into account different macroeconomic tradeoffs and risks and conclude that numerical ceilings that prevailed before the suspension of the fiscal rules remain adequate and strike the right balance between growth and fiscal sustainability. The paper also proposes reform options to strengthen the WAEMU regional fiscal surveillance framework, with a view to more effectively supporting fiscal discipline.