Countries in the West African Economic and Monetary Union (WAEMU) are on track to see medium-term economic growth of about 6 percent after recording 6.5 percent growth last year, the International Monetary Fund (IMF) said on Thursday.
However, the eight-nation currency zone is “subject to significant downside risks”, including global uncertainties, sluggish structural reforms and falling cocoa prices, it said in a statement.
Member countries using the West African CFA franc – a currency pegged to the euro – include Ivory Coast, Senegal, Guinea-Bissau, Mali, Burkina Faso, Niger, Togo and Benin.
“Economic activity has remained strong but vulnerabilities have increased,” the IMF’s Boileau Loko said following a mission to regional economic hubs Abidjan, Ivory Coast and Dakar, Senegal.
Growth has been bolstered by robust domestic demand while inflation has remained subdued due to continued solid agricultural production and low oil prices.
But Ivory Coast, the zone’s dominant economy making up about 40 percent of its GDP, is in the midst of a crisis in its world-leading cocoa sector, a key source of export revenues.
Cocoa has piled up at Ivorian ports for weeks and has been left to rot on trees as exporters, having wrongly speculated that prices would extend years-long gains, declined to purchase beans to fill unprofitable contracts and defaulted.
New York cocoa futures fell to their lowest level in nearly 8-1/2 years this week and London cocoa touched a 3-1/2-year low before rallying on Wednesday.
Across the zone, an overall fiscal deficit of 4.5 percent of GDP in 2016 was higher than planned. The IMF encouraged WAEMU members to stick to pledges to reduce budget deficits to 3 percent of GDP by 2019.
“Public debt is on the rise and reserve coverage has declined to 3.7 months of imports, reflecting a continued expansion in public infrastructure and lower-than-expected external financing,” Loko said.
The IMF meanwhile said the regional central bank’s decision to increase its credit facility rate by 100 basis points would encourage banks to reconsider their risk policy and strengthen their capital.
(Reporting by Joe Bavier; Editing by Angus MacSwan)