2022-03-03-IMF-Strengthening_the_WAEMU_Regional_Fiscal_Framework_35页_1mb

Strengthening the WAEMU Regional Fiscal Framework

Introduction

• The West African Economic and Monetary Union (WAEMU) requires a robust fiscal framework to safeguard macroeconomic stability and support its fixed exchange rate system due to fiscal spillovers affecting member countries.

Three Pillars of Fiscal Coordination
The study analyzes the WAEMU framework through three key pillars:

1. Common Fiscal Rules: Numerical ceilings (debt at 70% of GDP; deficit at 3% of GDP), design, and enforcement.
2. Shared Public Financial Management (PFM) Systems: Harmonization and implementation of regional directives.
3. Fiscal Coordination Mechanisms: Risk-sharing schemes addressing asymmetric shocks and tax coordination.

Analysis and Recommendations

Fiscal Rules

• Existing debt and deficit ceilings (70% and 3%, respectively) are deemed adequate for maintaining growth and fiscal sustainability, per calibration exercises.
• No significant revision is advised; alternatives like structural or cyclically-adjusted balances may introduce unnecessary complexity.
• Reforms Needed:
  • Strengthen monitoring by empowering the WAEMU Commission.
  • Improve escape clauses (flexible response to large shocks) via precise triggers and execution timelines.
  • Enhance correction mechanisms and reputational sanctions against breaches.
  • Ensure fairness through well-defined sanctions for non-compliance.

Public Financial Management (PFM)

• Public spending is influenced by poor revenue mobilization and excessive use of exception procedures, contributing to budget fraud.
• Progress in implementing 6 regional PFM directives remains ineven, especially concerning expenditure controls.
• Recommendations:
  • National authorities should prioritize the national transposition and implementation of directives.
  • Strengthen national fiscal councils to reduce debt stock-flow adjustments and limit deviations from budgets.
  • Establish tools allowing for faster budget execution, stricter internal controls, and increased transparency.

Fiscal Coordination Mechanisms

• WAEMU lacks automatic fiscal risk-sharing and coordination on taxes, limiting policy coordination during shocks.
• Global experience shows the need for regional stabilization funds, alongside harmonized fiscal risk management.

Conclusion

• The framework's pillars are adequate for enforcement, but compliance issues require targeted reforms with focus on transparency and institutional balance.

This summary condenses the key findings of the IMF working paper, emphasizing the balanced approach needed in fiscal governance for WAEMU.