MEETINGS OF THE WEST AFRICAN MONETARY ZONE (WAMZ)

BANJUL, THE GAMBIA

JANUARY 13 – 17, 2014

WAMZ/CG/30

30TH MEETING OF THE COMMITTEE OF
GOVERNORS OF CENTRAL BANKS
OF THE WEST AFRICAN MONETARY ZONE (WAMZ)
BANJUL, THE GAMBIA
JANUARY 16, 2014

REPORT OF THE 30THMEETING OF THE COMMITTEE

OF GOVERNORS OF CENTRAL BANKS

OF THE WEST AFRICAN MONETARY ZONE (WAMZ)

HELD IN BANJUL, THE GAMBIA

JANUARY 16, 2014

I.INTRODUCTION
  1. The 30th Meeting of the Committee of Governors of the West African Monetary Zone (WAMZ) was held at Kairaba Beach Hotel, Banjul, The Gambia on 16th January 2014, to deliberate on the status of implementation of the WAMZ programme. The report of the 36th Meeting of the Technical Committee formed the basis for the deliberations.
  1. All the WAMZ Member States, ECOWAS Commission and WAMI were represented at the meeting. West African Monetary Agency (WAMA), West African Bankers Association (WABA), the ECOWAS Parliament, West African Institute for Financial and Economic Management (WAIFEM), ECOWAS Bank for Investment and Development (EBID), Union Economique et Monetaire Ouest Africaine (UEMOA), Banque Centrale des Etats de l’Afrique de L’Ouest (BCEAO), African Development Bank (AfDB), International Monetary Bank (IMF),African Export-Import Bank (AFREXIMBANK) and AFRISTAT also attended as observers.The list of delegates is attached as Appendix B.

II.OPENING

Remarks by Out-Going Chairman

  1. Dr. H.A. Kofi Wampah, Governor of the Bank of Ghana, welcomed distinguished delegates to Banjul.He thanked the Government and people of The Gambia for hosting the meeting and noted that it was due to the obvious benefits of integration that Member States continued to adhere fervently to pursuing the single currency objective. He explained that prior to 2001 when theWAMZ project was launched, macroeconomic harmonization was virtually non-existent in the Zone. Most of the Member States’ economies were characterized by chronic fiscal and external imbalances, while all aspects of zonal integration virtually took place only within the informal sector, the Governor remarked.
  1. As a result of the integration agenda, regional banks were sprawling throughout the region, financing trade and other economic transactions within the Zone. This had progressed to the extent that a zonal college of supervisors was established to facilitate cross border supervision, which was being replicated in other regions. Other achievements of the Zone, he noted, were an integrated payments system which was near completion; establishment of the West African Capital Markets Integration Council (WACMIC) to harmonize listing and trading rules; Studies conducted by WAMI on policy issues; statistical harmonisation as well as knowledge sharing and technical cooperation among member central banks.
  1. Dr. Wampahfurther observed that, despite the achievements, significant challenges were encountered, especially, the changing and unfavourable global environment that affected the drive towards macroeconomic stability and convergence. Notable among these were the drying up of donor inflows, falling interest rates on reserves, and declining export commodity prices.
  1. He noted that as the global outlook was improving, member countries needed to take full advantage of this to reinforce macroeconomic stability. He, therefore, called on member countries to also deepen their resolve and action towards the full liberalization of payments and trade within the Zone, harmonization of statistics, adoption of common external tariffs and a customs union.
  1. In conclusion, Governor Wampahthanked all the Governors for their cooperation during his tenure as the Chairman of the Committee and wished delegates a happy and prosperous 2014 and fruitful deliberations.

Remarks by the Host Governor

  1. Mr. Amadou Colley, Governor of the Central Bank of The Gambia on behalf of the President of the Republic of The Gambia, Sheick Prof. Alhaji Dr. Yahya A. J. J. Jammeh, welcomeddelegates to the 30th Meeting of the Committee of Governors of the WAMZ. He also expressed his gratitude to the Management and staff of WAMI for their tireless efforts in the effective implementation of the WAMZ agenda which was an integral part of the ECOWAS Single Currency Programme.
  1. He noted that to minimize uncertainty and smoothen the transition process, a currency union should be created on strong macroeconomic fundamentals. He further observed that economic growth in the sub-region continued to be strong due mainly to improved policy formulation and implementation as well as increased output of the extractive industries. However, this growth performance was yet to be translated to significant reduction of poverty in the sub-region. To tackle this problem, member countries needed to focus on inclusive growth and establish backward linkages to the national economy.
  1. Governor Colleynoted that member countries had come a long way in the integration process, and reflecting on what hadbeen achieved and the resources invested, there was no turning back on the integration agenda. He concluded by stating that The Gambia remained committed to the WAMZ monetary integration agenda and a sustainable development of the zone with the overall objective of improving the quality of life of its citizens.

Remarks by the Director General, WAMI

  1. In his address, the Director General of WAMI, Dr. Abwaku Englama, thanked the Authorities and people of The Gambia for the warm reception and the excellent facilities placed at their disposal. He also expressedhis profound gratitude to the Honourable Governors for the guidance and support they continued to extend to him since his appointment. He noted that theirdevotion and dedication to the WAMZ programme as an instrument for fostering regional development and progress for all citizens of the Zone had been backed up by their deep commitment to the goals and objectives of the WAMZ programme.
  1. On macroeconomic developments and convergence, the Director-General noted that the overall compliance score by Member States on the primary macroeconomic convergence criteria remained unchanged, at 66.7 percent at the end of June 2013 relative to the same period last year. However, during the review period, one Member State (Nigeria), satisfied all the four primary criteria, while two countries, Liberia and Sierra Leone, satisfied three criteria each. The remaining Member States, The Gambia, Ghana and Guinea satisfied two criteria each. Overall, inflation and fiscal deficit continued to be the more challenging benchmarks for Member States, while central bank financing and external reserves were the more consistently satisfied criteria. Performance had however remained poor as regards the secondary criteria.
  1. Dr. Englama informed the Committee that the payments system development project had been progressing smoothly and project implementation had been completed in The Gambia and Sierra Leone, where all components had gone live.The implementation of the projects in Guinea and Liberia was also progressing steadily with the go-live dates scheduled for April and July 2014, respectively, while a request has been sent to the AfDB for the project completion date to be extended to December 2014. The Director General also expressed his appreciation of the initiatives being undertaken in Ghana and Nigeria to further enhance their already well developed payment systems infrastructures.
  1. In conclusion, the Director Generalthanked the Technical Committee for the various reports considered and recommendations proffered for the consideration of the Governors. He also expressedhis gratitude to the Chairman of the Committee of Governors, Dr. H. K. Wampah, Governor, Bank of Ghana, for his visionary leadership and continued support to WAMIduring his tenure as Chairman of the Committee of Governors.

III.ELECTION OF CHAIRPERSON

  1. Mr. Amadou Colley, Governor of the Central Bank of The Gambia was elected as the Chairman of the Committee of Governors.

IV.ADOPTION OF THE AGENDA

  1. The Agenda was adopted as presented. The Agenda is attached as Appendix A.

V.CONSIDERATION OF THE REPORT OF THE 36TH MEETING OF THE TECHNICAL COMMITTEE

  1. The report of the 36th Meeting of the Technical Committee was presented by the Chairman of the Technical Committee, Mr. Abdoulie Jallow, Permanent Secretary, Ministry of Finance and Economic Affairs, The Gambia.He noted that the Technical Committee deliberated on the reports presented by WAMI and made some observations and recommendations.The highlights of the reports are as follows:
  1. Presentation of the Interim Report on the State of Preparedness of WAMZ Countries for a Monetary Union on January 1, 2015
  1. The Report noted that notwithstanding the slow growth of global real GDP growth, the Zone recorded a growth of 6.7 percent during the first half of 2013, from 6.4 percent in the corresponding period of 2012. Growth in the Zone was driven mainly by the services and agriculture sectors. All Member States recorded modest to robust growth rates.

Convergence Issues

  1. During the first half of 2013, Nigeria was the only Member State that satisfied all the four primary criteria. Liberia and Sierra Leone satisfied three each. While Liberia missed the external reserves criterion, Sierra Leone did not meet the inflation criterion. The Gambia, Ghana and Guinea satisfied two criteria each. The Gambia missed fiscal deficit and central bank financing criteria, while Ghana and Guinea did not satisfy the inflation and fiscal deficit criteria. Inflation and fiscal deficit were the more challenging criteria for Member States, while central bank financing and external reserves were the more commonly and consistently satisfied criteria. Member States attained a performance score of 66.7 percent on the primary convergence scale in June 2013
  1. An overall assessment of convergence indicated that Member States’ compliance with the primary macroeconomic convergence criteria deteriorated between 2009 and 2012. No two countries satisfied all the primary criteria simultaneously during this period. Only Liberia satisfied all the four primary criteria in 2009 and 2010, while Ghana was the only countrythat satisfied all the criteria in 2011. This compared similarlyto the performance between 2005 and 2008, when two countries, The Gambia and Nigeria, satisfied all the four primary criteria in 2006 and 2007 and The Gambia alone in 2008. During the first half of 2013, only Nigeria satisfied all the primary criteria.
  1. Furthermore, an evaluation of business cycle synchronization to identify channels of risk sharing that exist in the WAMZ indicated that there were generally weak links and synchronisation among Member States in terms of real GDP, inflation, broad money supply, nominal interest rate, fiscal deficit over GDP and gross external reserves in months of import.
  1. Using economic distance approach to assess Member States’ performance on the primary criteria, the report noted that Guinea, Sierra Leone and Ghana needed to make relatively more effort in achieving the primary criteria than the other Member States.
  1. On trade integration, it was noted that Member States of the WAMZ continued to implement the ECOWAS trade integration Protocols and Conventions within the framework of the ECOWAS common market programme. However, intra-regional trade remained low due partly to limited complementarity of trade structures, infrastructural challenges such as poor roads and communications systems as well as inadequate energy supply.
  1. The Report noted further that the nature and level of financial sector development varied across the WAMZ countries and the overall assessment in financial soundness indicators showed that the industry remained safe and sound. This notwithstanding, improving asset quality had remained a key challenge inmost Member Statesas the ratio of non-performing loans to gross loans (NPLs) had remained in double digits.
  1. On statistical harmonisation, progress had been made as all Member States migrated to the System of National Accounts (SNA) 1993 and some, partially to SNA 2008. However, only Ghana and Nigeria were producing annual and quarterly GDP estimates based on ISIC Revision 4. As regards price statistics, the compilation of Consumer Price Index (CPI) in all the WAMZ Member States was based on the harmonized classification system, the COICOP (12 functions).

Legal and Institutional Issues

  1. The Interim Report indicated that Member States were yet to ratify and domesticate all the relevant WAMZ Statutes. The Report further highlighted some constitutional conflicts that would arise as a result of the ratification of the WACB Statute, especially with the constitutions of Ghana and The Gambia, where the central banks were the sole authority to issue their respective currencies.
  1. Overall, the Report noted that the key challenges confronting Member States pertained to compliance with the convergence criteria, ratification and domestication of legal statutes, payment of contributions to statutory funds such as SCF and WACB Capital, asymmetric shocks, intra-regional trade, and capital account liberalisation.

B. Presentation of WAMI Work Programme and Proposed Budget – FY 2014

  1. A consolidated sum of US$12,946,835, was proposed for 2014, out of which donor grants amounted to US$8,626,666. WAMI’s internally generated budget proposal was US$4,320,169 which was a 6.07 percent increase over that of 2013. However, proposed Member States’ contributions were reduced by 2.80 percent, from US$4,015,498 to US$3,902,934. The balance was to be funded by Interest Income of US$5,000 and the 2013 Surplus of Income over Expenditure of US$412,235.
  1. The Chairman of the Technical Committee informed the Governors that other reports presented by WAMI and noted by the committee were Progress Report on WAMZ Payments System Development and theReport of the 6th WAMZ Trade Ministers’ Forum.

VI.OBSERVATIONS OF THE COMMITTEE OF GOVERNORS

  1. Following the presentation by the Chairman of the Technical Committee, the Committee of Governors deliberated on the report and made the following observations:

State of Preparedness – Convergence Issues

  1. Congratulated Nigeria for meeting all four primary convergence criteria while urging all the Member States to do more to achieve and sustain full compliance;
  2. While noting that macroeconomic convergence was essential, there was need to also put emphasis on the other building blocks for the union including financial sector integration, trade, payments system as well as the institutional and legal issues;
  3. Noted that significant milestones have been achieved notably, the payments system project and the revised CET which is scheduled to be implemented in January 2015;
  4. The recommendation for the review of the convergence criteria did not indicate what form such a review should take. This may give the impression that criteria were being relaxed to make it easier for Member States to qualify for the proposed monetary union;
  5. That the infrastructure needs justification for a review of the criteria is not convincing since there are other non-debt creating approaches to funding for public infrastructure, such as, public private partnerships and foreign direct investments;
  6. That over-dependence on grants for infrastructure financing should be reduced in order to enhance fiscal sustainability;
  7. Noted the inter-linkages between the convergence criteria and the repercussionsthat the relaxation of the fiscal deficit criterion could have on the others;
  8. The need to follow up the extent to which previous recommendations had been implemented as this could help in keeping track of progress towards the objectives of the programme;
  9. Noted that the final decision to proceed to monetary union rests at the highest political level, and not at the level of central banks;
  10. Noted that the developments in the euro zone have sent caution notes to all prospective monetary unions to ensure that all macroeconomic convergence issues are properly aligned before entering the monetary union;
  11. The need for the final State of Preparedness Report to set a new timeframe for the launch of the monetary union, if the January 1, 2015 date is not found to be feasible;
  12. Noted the success of Guinea in reducing the level of government borrowing from the central bank that brought inflation down significantly in the recent past;

Financial Integration Issues

  1. Noted the variation in the computation of Non-Performing Loans (NPL) across Member States which makes intra-country comparison misleading. For example, in Nigeria, after the accounts of deposit money banks were audited, the central bank allowed banks to take off loans that had been fully provisioned for but this was not the case in other member countries;

Payments System Issues

  1. Noted the collaboration among Member States brought about by the integration agenda, especially, the payments system project;
  2. Noted that the go-live date of the payments system project in Guinea may be delayed due to the need for synchronisation of the Core Banking Application (CBA) component of the Project and the Oracle Accounting Systems currently being implemented by BCRG;
  3. That the completion of the Payments System Project in Sierra Leone had greatly enhanced the efficiency of banking operations and the general payments environment within the country;

Administrative Issues

  1. The proposed reactivation of the sensitisation programme through the National Sensitisation Committees was not clear regarding the nature of the sensitisation activities;
  2. The reduction in the contribution of Member States to the proposed 2014 budget of WAMI, which denotes prudent management of resources by WAMI; and
  3. The need to revise the contribution formula by WAMI in accordance with the ECOWAS Protocol;

VII.RECOMMENDATIONS FOR CONSIDERATION BY THE

THE CONVERGENCE COUNCIL

  1. The Committee of Governors hereby invites the Convergence Council to consider and approve the following recommendations:

State of Preparedness – Convergence Issues

  1. The final report on the state of preparedness to be presented by WAMI by early June 2014 should include more analytical discussion of the challenges faced and policies that Member States should undertake to address the slow pace of progress towards macroeconomic convergence;
  2. WAMI should undertake an assessment of the extent to which recommendations made in previous surveillance mission reports have been implemented by Member States. Also, gap analysis on the Abuja Action Plan should be undertaken in order to identify concrete and practical measures to ensure compliance with the quantitative and structural benchmarks;
  3. Request should be made to the political leadership of Ghana and Nigeria as the largest economies in the Zone to drive the monetary integration process forward;

State of Preparedness – Legal and Institutional Issues