This paper investigates the existence or otherwise of Fiscal dominance (non-Ricardian) regime in the West African Monetary Zone (WAMZ) from 1990 through 2017 using a Structural Vector Auto Regressive (SVAR) approach. Following Canzoneri, Cumby and Diba (2000), the study made use of public liabilities and primary balance as the main variables of the model. Our findings confirm the existence of fiscal dominance regime in Ghana, Guinea and Sierra Leone, and monetary dominance regime in The Gambia and Nigeria. The main policy recommendations proffered are that fiscal policy should be based on an active reaction function for countries with fiscal dominant regimes in order to allow primary surplus respond to change in debt thereby ensuring credibility and solvency. For those that exhibit Recardian regimes phenomena, they should have robust and effective monetary policy re-enforced by strong and efficient institutions, autonomous and devoid of any fiscal interference and policy accommodation that may lead to inflation bias.
WAMZ countries have accumulated high levels of public debt less than two decades after the massive debt forgiveness effected under the Highly Indebted Poor Countries (HIPC) initiative. This has raised sustainability concerns as rising debt levels have the potential to create negative spillover effects and derail the macroeconomic convergence process in the Zone. This study examines the response of WAMZ countries to increases in public debt levels. Utilizing pooled OLS and panel fixed effects (FE) on annual data covering the period 2000 â 2018, the study shows positive response of primary balance to changes in the debt to GDP ratio across WAMZ countries, indicating that public debt were sustainable during the period. Results from the Panel Smooth Transition Regression (PSTR) model indicate significant positive non-linear response of primary balance to increases in the debt ratio below a threshold debt-to-GDP ratio of 90 percent. The study recommends the continuation of fiscal consolidation efforts aimed at enhancing revenue and rationalizing unproductive expenditures in all Member States.
Countries of the Economic Community of West African States (ECOWAS) are heterogeneous, characterized by marked differences in production and export structures, divergent levels of inflation rates and fiscal positions. These features suggest that there is a greater tendency for the transmission of asymmetric shocks across member countries in the ECOWAS region. Understanding how well business cycles are synchronised between member countries is extremely important in designing appropriate policy responses to facilitate the launch of the single currency and reduce the cost of joining the proposed ECOWAS monetary union. This study undertakes a time-varying assessment of the degree of synchronisation of business cycles among ECOWAS member countries and analyses the role of bilateral trade, financial integration, and convergence in fiscal and monetary policy in achieving more synchronised business cycles in the region. Using the Hausman-Taylor and Error Components panel two-stage least squares (EC-2SLS) estimation techniques over the period 2001 – 2018, this study finds that well-coordinated policy responses such as the strengthening of trade linkages, convergence in fiscal policy and strong financial linkages would foster more closely synchronised business cycles across the region. Thus, measures to promote the synchronisation of business cycles and ensure the sustainable adoption of a single currency should focus not only on satisfying the macroeconomic convergence criteria, but also enhance trade and financial integration to foster broader policy coordination among countries in the region.
The West African Monetary Zone (WAMZ) member countries are predominantly low income countries, and exhibit certain characteristics, which make them very susceptible to macroeconomic vulnerability. These characteristics include, among others, heavy dependence on imports of food and fuel products, concentration of exports on few primary commodities, heavy reliance on foreign sources of finance (foreign aid, debt and capital inflows), economic size, peripherality, political crises, corruption and incidence of natural disasters. The vulnerability of these economies to external shocks increases the risks of adverse effects on economic growth and imposes costly setbacks on the performance of other key macroeconomic indicators, invariably slowing the progress on economic convergence and integration among Member States. The economic integration process, thus, requires appropriate understanding of the degree of vulnerability of Member States to various kinds of shocks as well as identification of appropriate measures to mitigate the impact of these shocks on macroeconomic performance. Against this background, this study seeks to measure the degree of vulnerability of WAMZ member countries to external shocks by computing economic vulnerability indices for each Member State and for the zone as a whole, utilizing data spanning over the period 2004 2016. The paper employs the Briguglio-type economic vulnerability index (EVI) in which the EVI is composed of three components trade openness, export concentration and dependence on strategic imports. The paper computes the indices by taking a weighted average of the three components. Three different EVI indicators were computed for each country and the WAMZ, by assigning weights to each of the components in the first two EVI indicators, and generating the component weights for the third indicator utilizing principal component analysis. The EVI3 was chosen as the preferred index in view of the usage of a statistical methodology in generating the component weights. The computed EVI values and the component indices ranged between 0 and 1, with a high score in the index corresponding to a high level of vulnerability and vice versa. Results from the empirical analysis show that the average EVI for the Zone is 0.581, implying that the Zone, as a whole, is vulnerable to external shocks. Specifically, Liberia, Ghana and Guinea were found to be most vulnerable in the Zone, while The Gambia is the least. In addition, the trade openness indicator shows that Liberia is the most open economy while Nigeria is the least. On the other hand, export concentration is highest in Nigeria and lowest in The Gambia, while dependence on strategic imports is highest in The Gambia and lowest in Ghana. Being highly vulnerable to external shocks has profound implications for the attainment of the macroeconomic convergence criteria and sustenance of regional economic integration. It triggers wider fiscal deficits in countries with no adequate fiscal frameworks to control volatility in government revenues, increases in gross public debts arising from the financing of higher budget deficits, lead to lower international reserves emanating from lower foreign exchange inflows, exchange rate instability and higher inflationary pressures. Macroeconomic vulnerability could be mitigated in the WAMZ economies by implementing a number of measures aimed at building economic resilience enhancing countries ability to withstand economic vulnerability emanating from external shocks. The emphasis on resilience is important because of the huge success achieved by the South-East Asian economies in building economic resilience through appropriate economic policies to mitigate macroeconomic vulnerability and achieve high level of economic development. Ensuring macroeconomic stability with a healthy fiscal position, among others, would assist in building resilience against external shocks. In addition, member countries need to make concerted efforts aimed at diversifying their export base; promote savings and create stabilization funds both of which could come handy in periods of commodity price falls. They could also explore using market-based instruments such as forwards, futures and options to manage commodity price risks.
This paper investigates the impact of financial development on economic growth in the West African Monetary Zone (WAMZ) from 1990 through 2015 using a Heterogeneous Panel Data Approach. The study made use of Two (2) financial indicators: liquid liabilities of the financial system as a percent of GDP and domestic credit to private sector as a percent of GDP. Economic growth is proxied by the real GDP per capita. Our results show that while liquid liabilities exerts long-run positive impact on economic growth in the WAMZ, the positive impact of domestic credit to private sector on economic growth is not in the long run. At country level, our findings indicate that most countries in the WAMZ could foster long run economic growth through changes in the size of financial institutions. Our findings suggest that structural reforms are needed in order to channel private credit to long run productive and growth-driving sectors.
The increasing uncertainties about the evolving pattern of the novel COVID-19 virus in the absence of a vaccine and the dampening economic effects associated with the containment measures, which have triggered a sharp fall in global commodity prices have raised concerns among policymakers in the WAMZ. This paper seeks to determine the likely time of containment of the pandemic in WAMZ countries and return to normalcy to guide decisions on measures to curtail transmission of the virus. Using three different scenarios and the traditional SEIR (susceptible, exposed, infectious and recovered) epidemiological model, this paper shows that under scenario 1 of continued government intervention and containment measures, all the WAMZ countries may contain the spread of new infections latest in December, 2020. Predictions from scenario 2, which assumes increased testing, contact tracing and isolation of infected and exposed persons suggest that all the six countries are likely to contain the outbreak around October, 2020. By comparison, scenario 3, which assumes increased number of infected cases, owing to weak preventive and control measures, points to delayed containment of pandemic latest by April 2021. The findings underscore the need for the government in the Zone to sustain budgetary spending on health, build capacity to minimise the impact of future pandemic, continue to support public sensitisation campaigns on personal hygiene and social distancing protocols, vulnerable households and businesses to facilitate economic recovery, and develop a regional health strategy to contain contagion across countries.
This study assesses the speed of real convergence in ECOWAS using the Optimal Currency Area (OCA) theory to determine the readiness of member countries for a monetary union. The study leveraged on Bayoumi and Eichengreen (1996) and computed OCA indices utilizing both variables suggested by the traditional OCA criteria and the new variables identified in the literature. Empirical results from the analysis showed that ECOWAS countries could be divided into three groups: those exhibiting high level of real convergence and would be ready to join the monetary union at the proposed date of 2020, those exhibiting medium level of convergence and may be ready for the union shortly after 2020, and those converging slowly and would require more time to achieve convergence. Additional results indicated that UEMOA countries have achieved real convergence and the single currency programme benefitted the countries at least in line with the OCA analysis. The results also showed that small countries stand to benefit most from joining a monetary union than having its own currency. The study recommends that the formation of an ECOWAS monetary union should assume a gradual approach. In the interim, however, WAMZ countries should intensify efforts to meet the ECOWAS nominal macroeconomic convergence criteria on a sustained basis, as this would make the countries move faster towards real convergence.
Empirical evidence suggests that regional economic integration plays a crucial role in accelerating growth and development, reducing poverty and economic disparity and boosting productivity and employment, in addition to expanding markets, maximising the efficiency of resource allocation and increasing investment opportunities. Consequently, countries across the globe, including those in Africa, participate in regional integration arrangements to derive the huge benefits associated with it. The Economic Community of West African States (ECOWAS) was, therefore, established in May 1975 to promote cooperation and integration among the countries of the West African sub-region. To fast-track the ECOWAS Monetary Cooperation Programme (EMCP), a two-track approach to monetary integration was adopted by the ECOWAS Authority, leading to the establishment of the West African Monetary Zone (WAMZ) in 2000. The second monetary zone was initially scheduled to kick-off in January 2003, but there have been several postponements due to the slow progress in meeting the macroeconomic convergence criteria by Member States. In spite of the slow progress, evidence has shown that WAMZ countries have made considerable progress towards achieving economic integration in the sub-region. This called for the need to measure and assess Member countries performance in the WAMZ integration process using a composite index. Against this background, the study seeks to develop an economic integration index to adequately measure the intensity and pace of regional economic integration in the Zone. The index would help to assess each Member States efforts towards the WAMZ integration process. The WAMZ Economic Integration Index (WEII) is composed of five dimensions trade integration, regional infrastructure, compliance with ECOWAS trade-related protocols, compliance with WAMZ macroeconomic convergence criteria and financial integration. Twenty indicators were identified across the five dimensions to compute the composite index for the period 2015 - 2017. Index weights were obtained and assigned to each of the five dimensions using Principal Component Analysis. Results from the analysis showed that the WAMZ trade integration index increased from 0.063 in 2015 to 0.073 in 2016, but declined to 0.032 in 2017. The result indicated that intra-regional trade was significantly low among the WAMZ economies compared to other regions across the world; thus, Member countries would need to expand their intra-regional trade volumes overtime to improve regional economic integration. The WAMZ regional infrastructure index, however, declined marginally from 0.382 in 2015 to 0.381 in 2016 before rising to 0.386 in 2017, with four Member States recording increases in both 2016 and 2017, while the other two recorded declines in 2016 before increasing in 2017. The WAMZ countries have recorded significant progress in their compliance with ECOWAS trade-related protocols, as the WAMZ compliance index increased to 0.698 and 0.740 in 2016 and 2017, respectively, from 0.649 in 2015. Compliance with the WAMZ macroeconomic convergence criteria, however, has been slow, as the compliance index remained at 0.528 in both 2015 and 2016 before rising to 0.667 in 2017. The financial integration index declined from 0.955 in 2015 to 0.927 in 2016 before increasing to 0.943 in 2017. The WAMZ economic integration index showed increased level of integration among Member States, as the index scores rose to 0.536 and 0.571 in 2016 and 2017, respectively, from 0.529 in 2015, indicating increased commitment to the WAMZ integration agenda. The under-performance by some of the Member States in the WAMZ-index is attributable to the twin shocks of the Ebola Virus Disease (EVD) and the fall in world commodity prices, in addition to the massive landslide in Sierra Leone in 2017. In terms of country performances, whereas Nigeria recorded the highest WAMZ-index depicting the country as the most integrated in the sub-region, the composite indexes of Sierra Leone and Liberia were the lowest with the indexes for Sierra Leone being below the sub-regional averages throughout the three years while that of Liberia was below the sub-regional average in 2017.
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