The commencement of a single currency regime in West Africa initially set for 2003 had been postponed three times. IFEANYI ONUBA examines the preparedness of member states for the monetary union
The Heads of states and governments of the West Africa Monetary Zone met in Abuja on June 22, 2009 and agreed to postpone the commencement date of the single currency regime for the region to January 2015.
The decision was sequel to the adoption of a report, which had indicated that countries within the sub-region had not sufficiently converged for the introduction of the regime.
The idea of a single currency, initiated by the West African Monetary Zone, is to promote economic integration and trade in the sub-region.
But with less than two years to the commencement of the regime, all countries within the zone hare yet to meet the criteria.
Worried by this development, and in view of the fact that the global recovery, which began mostly on account of impressive growth in emerging Asian economies has stalled in the wake of the Euro zone debt, a technical committee meeting of the WAMZ was held in Abuja last week to review and evaluate the preparedness of member states towards the take-off of the regime.
During the meeting, it was observed that the debt crisis had brought to the fore the urgent need for more collective efforts towards the actualisation of the monetary union, which was hinged on the achievement of the criteria.
The criteria are a single digit interest rate for member countries; reduction in fiscal deficit; robust gross external reserves that will cover three months of imports and the central bank’s ability to finance fiscal deficit.
Of the four criteria, Nigeria satisfied three in 2012; Gambia met three; Ghana met one; Guinea satisfied three; Liberia slipped from four to three while Sierra Leone satisfied two criteria as against one in 2011.
The criterion that was missed by Nigeria is the single digit inflation rate, which currently stands at 12.9 per cent.
The Acting Director-General, West African Monetary Institute, Mr. Tei Kitcher, and the Minister of State for Finance, Dr Yerima Ngama, separately confirmed the deterioration in the convergence criteria by member states.
Ngama said, “The rate of inflation in WAMZ rose to 12.6 per cent in June 2012 from 11.6 per cent in June 2011.
“Price increases in the non-food items were the main driver of inflation in the zone. Fiscal deficit (excluding grants) as ratio of GDP was below the minimum four per cent in six countries, while gross external reserves was enough to cover at least three months in five countries.
“Central bank financing of fiscal deficit was below the required 10 per cent of the previous year’s tax revenue in five countries.”
Ngama said the challenges being faced by the global economy in the wake of the Euro Zone debt crisis had brought to the fore the urgent need for more collective efforts towards the actualisation of the new date for the monetary union.
He said, “This meeting will provide us the opportunity to take stock of the progress made and to chart the way forward taking into consideration the current turmoil in the Euro zone.
“Information at my disposal indicates that despite the challenges that necessitated the postponement of the WAMZ monetary union, performance of member countries on the convergence scale deteriorated significantly from a score of 79.2 per cent in June 2011 to 62.5 per cent in the review period.
“Real Gross Domestic Growth for the zone is projected at 6.9 per cent in 2012, compared to estimated growth rate of 8.7 per cent as at June 2011.”
The minister said the growth rate in GDP was driven by the increased activities in the agricultural, service and industrial sectors in most member states.
He, however, lamented that inflationary pressures picked up slightly during the review period as the consumer price index went above the trend line.
Ngama called on member states to “explore innovative ways of enhancing domestic revenue and rationalise expenditures.”
He said, “With regard to individual country performance on the convergence scale, Gambia met three criteria, same as in 2011; Ghana met one, same as in 2011; Guinea satisfied three criteria in 2012, same as in the preceding year; Liberia slipped from four to three; Nigeria satisfied three criteria in 2012, same as in 2011; while Sierra Leone satisfied two criteria, as against one in 2011.
The minister stated that improving and sustaining the performance on the convergence scale would require member countries to further strengthen fiscal performance through exploring innovative ways of enhancing domestic revenue mobilisation and rationalising expenditure.
He said, “In this regard, injecting efficiency in tax administration, reforming the tax structure and broadening the tax base will be essential. Let me also add that expenditure rationalisation and efficiency will be needed not only to lower the fiscal deficit, but also to make government expenditure more effective and productive.”
Kitcher also spoke in a similar vein and called on member countries to promote sustainable economic growth that could create jobs, while learning from past experiences to fine-tune policies to deal with possible fiscal imbalances in the future.
He said, “Unfolding developments in the Euro zone provide useful lessons for prospective monetary unions. WAMI is closely monitoring these developments with the objective of proposing the necessary strategies to avoid costly economic mistakes in our quest to build a durable monetary union for the zone.
“The key issues are how to ensure sustainable fiscal policies under a single currency regime and promote sound and stable financial systems.
“Growth is projected to decelerate in Ghana and Nigeria, while picking up in the four other member states. Sierra Leone is expected to record the highest growth rate of 21.3 per cent in 2012, supported by the commencement of iron ore mining in the country.”
Kitcher added, “All member states have adopted the ECOWAS protocols on trade and trade-related issues and are at different stages of implementation.
“On financial sector integration, efforts are underway to further integrate the various stock exchanges in the ECOWAS region and cooperation in cross border banking supervision is being pursued vigorously.”
He said WAMI had revamped its macroeconomic developments and convergence report to place more emphasis on country peer review analysis and convergence, rather than zonal convergence.
The Deputy Governor, Economic Policy of the Central Bank of Nigeria, Dr. Sarah Alade, said the threat of unstable capital inflow and rising unemployment in countries in the region had contributed substantially to the slowdown in economic performance.
She said, “This meeting is taking place with only two years to the agreed time for the formal take-off of the monetary union having been postponed on three previous occasions.
“The development in the Euro zone reaffirmed the need for the countries to achieve and maintain the required level of macro-economic stability prior to the formation of a monetary union.”
She called on member countries to refocus their efforts towards fostering sound monetary, fiscal and exchange rate policies and added that this was the only viable way of promoting macroeconomic stability, economic growth and the emergence of a viable monetary union.
The CBN Governor, Mr. Lamido Sanusi, said a recent appraisal showed that the level of macroeconomic convergence in the zone had remained inadequate relative to the set targets.
This, he noted, had been a major challenge to the zone, adding that it was important for member countries to evolve strategies to address the situation both at the individual country levels and collectively at the regional level.
Sanusi said, “A recent appraisal revealed that the level of macroeconomic convergence in the zone has remained inadequate relative to the set targets over the years.
“This has been a major challenge and it is important that we evolve appropriate strategies to address the situation both at the individual country levels and collectively at the regional level.
“The recent experiences of the Euro zone should provide the need for serious caution on our part and a comprehensive re-appraisal of existing framework of monetary union.
“With only two years to the set deadline for the formal take-off of the project, there is need for the intensification of efforts in the area of sensitisation of all stakeholders.”
Sanusi said through strong commitment and political will, the various machineries of WAMZ could be used to promote trade integration.