West African Economic and Monetary Union : Staff Report on Common Policies for Member Countries; Press Release; Statement by the Executive Director

KEY ISSUES Context. The region continued to experience a strong upswing in 2013 and the immediate outlook is for further vigorous growth and moderate inflation. Sustaining this performance over the medium term, however, will require ambitious growth-enhancing reforms, high quality public investment, and consolidation of the recent improvements in the regional political and security situation. The outlook is subject to moderate downside risks. In the short term, political stability could be tested with the upcoming elections in a number of member states, particularly in a context of high demand for better governance and higher living standards. Security issues in the Sahel constitute another short-term risk. Delays in implementing reforms, at both the national and regional levels, are the principal medium-term risk. Policy recommendations: • Maintaining the current macroeconomic policy mix. The recent upswing is welcome. As growth is now better entrenched, more stimulus is not required at this juncture. With continued strong growth projected for the region, countries are encouraged to seek opportunities to strengthen fiscal sustainability while maintaining public investment efforts. The widening current account deficit and declining reserves?which remain adequate?should be monitored closely and warrant a pause in loosening monetary policy. • Increasing fiscal policy coordination. The ongoing review of the regional surveillance framework is welcome. Its ultimate goal should be to preserve fiscal and external sustainability. This will involve redesigning fiscal convergence criteria, improving regional surveillance, and strengthening the application of fiscal rules. • Accelerating financial sector reforms. Developing the financial sector while preserving its stability is essential to support sustainable economic development and improve the effectiveness of macroeconomic policies. Developing the interbank and government debt markets and strengthening substantially transparency, bank supervision, and the crisis management and resolution framework are priorities. Ongoing reforms go in the right direction but the pace of implementation needs to accelerate. • Moving toward a more dynamic and resilient union. The regional growth agenda should be reinforced by concrete and coordinated actions to improve structural competitiveness, accelerate regional integration, and strengthen economic resilience