By Peter OBIORA InvestAdvocate

Lagos (INVESTADVOCATE)-The International Monetary Fund (IMF) Wednesday said average nominal debt for the West Africa Economic and Monetary Union (WAEMU) region now stands at about 40 percent (40%) of Gross Domestic Product (GDP).

This is coming on the heels of the IMF’s Executive Board’s Annual Discussion on common policies for member countries of WAEMU region.

“With Côte d’Ivoire reaching the Heavily Indebted Poor Countries, initiative’s completion point in 2012, all WAEMU countries have benefited from substantial relief on their external debt. The average nominal debt for the region now stands at about 40 percent of GDP” the IMF said.

According to the IMF, all countries have public debt ratios substantially below the 70% of GDP ceiling set by the regional surveillance framework; they also have low or moderate ratings for the risk of debt distress according to recent debt sustainability analyses (DSAs), reflecting prudent fiscal policies and sustained growth.

At the Annual Discussion, the IMF said regional economic activity rebounded in 2012; after a large decline in 2011 to about 1% of GDP because of the drought in the Sahel and the post-electoral crisis in Côte d’Ivoire.

The Fund affirmed that regional growth is estimated to have reached 5.8% of GDP in 2012 which was driven mainly by the post-crisis recovery in Côte d’Ivoire, “the rebound of agricultural production in a number of countries, and the start of oil production in Niger” the IMF Executive Board said.

They further affirmed that a few countries faced inflationary pressures, mainly on domestic prices for food and petroleum products. “Nevertheless, average regional inflation remained low, at about 2.5%” the IMF Board said.

In the same vein, the IMF said the area-wide fiscal deficit stabilised around 4% of GDP in 2012, “while the overall debt situation improved thanks to debt relief to Côte d’Ivoire. Compared with 2011, fiscal deficits increased in Burkina Faso, Niger, and Togo, stabilised in Côte d’Ivoire, and decreased in the other countries” the IMF Annual Discussion noted.

The IMF Executive Board said Monetary Policy was eased modestly in 2012; despite relatively strong growth of credit to the Private Sector and Government, “money growth remained moderate in 2012 (at about 8 percent year-on-year) because of a significant contraction in net foreign assets (NFA)” the IMF said.

The Executive Board Annual Discussion said in a context of continued moderate inflation and a sharp contraction in Bank Liquidity (related, to a large extent, to the evolution of NFA) leading to pressures on interest rates, the Central Bank of West African States (BCEAO) injected substantial amounts of liquidity to Banks. “It also cut the Policy Rates by 25 basis points to respectively 3% and 4% and lowered the reserve requirement ratio to from 7% to 5%” the IMF said.

They also said the region’s current account deficit widened significantly in 2012; which reflects a number of exceptional factors, such as higher imports of intermediate and capital goods by Côte d’Ivoire related to reconstruction efforts and by Burkina Faso and Niger for mining and hydrocarbon projects, higher food imports to make up for the impact of the 2011 drought, and unfavourable terms of trade.

“The higher current account deficit, combined with temporary delays in repatriating export proceeds (mostly by Côte d’Ivoire), led to a deficit in the overall balance of payments and a decline of official reserves, which stood at about 5 months of regional imports and 98% of short-term domestic liabilities at end-2012” the IMF said.

According to them, progress in fiscal convergence has been limited and the key convergence criterion on the basic fiscal balance was missed by five (5) of the eight (8) countries in 2012; following debt relief, the debt criterion is now met by all countries.

On the Executive Boards Assessment, Executive Directors (EDs) welcomed the maintenance of macroeconomic stability in the region and the prospects for continued robust growth with moderate inflation.

Also, the Directors considered the current macroeconomic policy mix appropriate and welcomed the planned fiscal consolidation in the countries with higher deficits; while stressing the importance of better coordination of fiscal policies to help preserve debt sustainability and the stability of the Union in the medium term.

Apart from these, the Directors encouraged further measures to develop the Financial System to help raise growth, mitigate the impact of volatility, increase inclusion and improve the effectiveness of macroeconomic policies.

According to them, the completion of ongoing reforms to develop the Interbank and Secondary Government Debt Markets will be critical.

The Directors noted that Banks are on average relatively well capitalised and liquid, although there is substantial heterogeneity among them. “Risks arise from high lending concentration and uneven asset quality and from Banks’ increasing exposure to sovereigns in the region and the emergence of Regional Groups” the Directors noted.