The economic impact on the West African Economic and Monetary Union (WAEMU) and the broader region of last year’s disputed national elections in Côte d’Ivoire is still unfolding, but is becoming more severe as time goes on.
Economic growth in the WAEMU is estimated to have on average returned to levels reached before the 2007–08 global food and fuel price shocks and the global financial crisis. Growth has been supported by monetary and fiscal easing, good agricultural production, recovery in the region’s main trading partners, and a pickup in economic activity in Guinea-Bissau and Togo.
At the same time, average inflation remained low in all WAEMU countries, although it edged up in the second half of 2010. On average, annual consumer price inflation reached 1.4 percent, up from 0.4 percent in 2009. More recently, however, higher international oil and food prices have started to feed through to inflation, but, while rising, core inflation has remained subdued.
With a rapid and peaceful solution in Côte d’Ivoire and the right policies, the region could still experience a continuation of the recovery. Zone-wide economic activity was expected to edge up to close to 4½ percent in 2011 from 4.0 percent the previous year and 3 percent in 2009 (see Chart 1). But for this benign scenario to unfold, regional political stability is a necessary condition.
Risks to the outlook
The unresolved crisis in Côte d’Ivoire, which has intensified in recent weeks, poses considerable risks through various transmission channels, including through trade and transport links, remittances and migration, and financial sector linkages. Compared with the political crisis in Côte d’Ivoire a decade ago, neighboring countries have established alternate transport routes, and, combined with low intra-regional trade, the growth linkages have declined somewhat but financial linkages are now closer through the regional bond market (see Chart 2).
The closing of the offices of the Banque Centrale des Etats de l’Afrique de l’Ouest (BCEAO), the regional central bank, in Côte d’Ivoire in late January, as well as the closure of most banks since mid-February, has left the Ivoirien banking system in disarray. To reduce liquidity and solvency risks in the WAEMU banking sector, the BCEAO has since...