West Africa Gears Up For The Long March To A Common Currency

ACCRA (dpa) – Leaders of the Economic Community of West African States (ECOWAS) have once again set themselves a tough assignment – to introduce a single currency in 2004.

As a first step, all countries outside the CFA zone are to have a single currency in 2003. For the seven countries in the CFA franc zone, supported by their colonial master, France, it may not be a difficult task.

For six other countries outside the zone – Nigeria, Ghana, Liberia, Sierra Leone, Guinea and the Gambia – it could be a real struggle.

But officials remain optimistic that the monetary union would take off smoothly. “The level of interest is very high for all countries except Liberia which was the only country that did not sign the agreement on the West African Monetary Zone,” Ernest Addison, a research officer at Ghana’s Central Bank said in Accra.

“The deadline is real,” he said, while cautioning that it is too early to ascertain the number of countries that can meet the deadline. “But they have agreed to allow the (monetary union to take off with a minimum of two countries that meet the convergence requirements,” Addison said.

And these are rather stringent, according to the eligibility criteria, which include:

Member countries must maintain price stability by reducing inflation to single digits by 2000 and five per cent by 2002

Member countries must maintain budgetary discipline by reducing budget deficit to a ratio of five per cent of GDP by 2000 and four per cent by 2002. Deficit budgetary financing by the Central Bank of member countries should not exceed 10 per cent of the previous year’s fiscal receipts

Member countries must maintain minimum foreign exchange reserve position that will support import cover for three months by the end of 2000 and six months by 2003.

ECOWAS officials say attainment of the convergence criteria will ensure the viability and credibility of the common currency. Only one country though, the Gambia, cleared the first hurdles fixed for the end of 1999 by meeting all four criteria.

Nigeria, the biggest economy in the sub-region, met three, Guinea and Ghana met two and Sierra Leone met only one.

“At the end of 1999, all countries except Sierra Leone and Ghana met the criterion on a single digit inflation, while only two countries, the Gambia and Guinea, met the criterion on the limit of five per cent to the budget deficit/GDP ratio.

“Three countries, the Gambia, Ghana and Nigeria, met the limit of Central Bank financing of the budget deficit and another three, the Gambia, Nigeria and Sierra Leone, met the foreign reserved to import over ratio,” Addison said.

He regards economic convergence as the major difficulty facing the countries in the march to monetary union. “All countries experienced a difficult international economic environment in 2000 and the impact on economic performance has been negative,” he said.

However, he remains optimistic saying many countries are putting into place the appropriate policy responses that would help led to convergence in inflation rates. “Participating countries are nearer the goal than a few years before as shown by positive growth rates in all the countries in 1999,” Addison said.

He acknowledged that some countries have had reversals in 2000 but said “it is likely these reversals are only temporary and in the immediate future, would return to a path of improvement.” For the political leaders, the advantages are too attractive to let the opportunity slip away.

The objective of the 16-nation ECOWAS – to foster economic growth and development through the integration of their economies – has been put on the back burner as political considerations, mainly wars in Liberia, Leone, Guinea and Guinea Bissau, have continued to gnaw the bowels of the political leaders.

The West Africa sub-region has a huge population of some 210 million people and a combined GDP of 105 billion dollars. Officials of ECOWAS note that common currencies are now the strength of most sub-regional economies and West Africa must not be left behind.

They point out that a major strategy to achieve the integration objective of the sub-region is to promote cross-border payments, trade and investment through the use of a common currency.

A single currency would also eliminate widespread and illegal speculative cross-border currency trafficking activities with its price distortions that encourage smuggling. The economists argue that the governments of ECOWAS countries would maintain price stability, reduce inflationary trends and foreign exchange reserve positions.