WAEMU to Extend Integration Efforts To Build Macroeconomic Stability
| Pages | 187-188 |
Page 187
In January 1994, seven sub-Saharan countries signed a treaty establishing the West African Economic and Monetary Union (WAEMU). These countries, which were joined by Guinea-Bissau in May 1997, form part of the CFA Franc Zone and share a common currency issued by the Central Bank of the West African States (BCEAO)-the CFA franc. During the late 1980s and the early 1990s, declining terms of trade, rising labor costs, and nominal appreciation of the French franc against the U.S. dollar, resulted in a real effective appreciation of the CFA franc. This led to a serious deterioration in the region's competitive position. As part of a wider strategy to address this downturn, countries in the CFA Franc Zone devalued their common currency by 50 percent in January 1994. Since then, most of the region's economies-particularly in the WAEMU- have recovered. Moreover, after a brief surge following the devaluation, inflation has returned to low levels.
Nevertheless, challenges remain. The WAEMU treaty aims to build on the achievements of the West African Monetary Union (WAMU), created in 1962 to provide the macroeconomic stability and the credibility required for sustaining the fixed exchange rate for the common currency. The WAEMU will extend integration efforts already at work in the monetary area to the whole economic sphere.
During the 1990s, the WAEM faced negative per capita GDP growth and very low saving and investment rates. As income declined and corporate taxpayers faced financial difficulties, the tax base shrunk. The region suffered from a decline in government revenue relative to GDP and a deterioration in the overall fiscal balance, despite severe constraints on government investment. A deterioration in the terms of trade aggravated weak export growth, and the external current account deficit widened to an average of 11 percent of GDP in 1990-93. Sizable domestic and external payments arrears accumulated, the level of public debt increased, and net foreign assets declined. A comprehensive strategy aimed at addressing these problems-including the 1994 devaluation-succeeded in turning the WAEMU economies around (see table, page 188). Export volumes increased sharply in response to the region's improved competitive position. Import volumes fell sharply in 1994, reflecting some demand compression and strong import substitution in favor of...
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