Public Sector Governance and Accountability Series: Budgeting and ...

Budget Preparation and Approval 259
BOX 8.3 Fiscal Rules in the West African Economic and
Monetary Union
The West African Economic and Monetary Union (WAEMU) consists of eight
countries (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal,
and Togo), which have a common central bank (the Banque Centrale des États
de l’Afrique de l’Ouest) and a common convertible currency pegged to the euro
(the CFA franc). To coordinate macroeconomic policies, WAEMU countries have
set up convergence criteria within the framework of the Convergence, Stability,
Growth, and Solidarity Pact adopted by WAEMU governments in 1999. As in the
Maastricht Treaty, the convergence criteria pay special attention to the fiscal
deficit and to public debt sustainability, because these factors can undermine
the viability of the common currency. In addition, the pact prohibits use of the
exchange rate and interest rate as policy instruments by member states.
The convergence criteria include the following first-order criteria:
Average annual inflation rate of no more than 3 percent, based on the
objective of keeping a low inflation differential between the WAEMU and
the euro area. All WAEMU countries met this criterion in 2003 and 2004,
but only one of the eight countries managed to do so in 2005, owing to
increases in oil prices and a decline in crop production.
Zero or positive fiscal balance (defined as nongrant revenues minus expenditures
excluding foreign-financed investment). In 2005, four WAEMU
countries met this criterion.
Overall debt-to-GDP ratio lower than 70 percent. In 2005, five WAEMU
countries met this criterion.
No change in the domestic and external stock of arrears. In 2005, four
WAEMU countries met this criterion.
These first-order criteria are supplemented with the following second-order
criteria:
Government wage bill less than 35 percent of tax receipts. In 2005, three
countries met this criterion.
Ratio of domestically financed investment to tax receipts no lower than
20 percent. In 2005, five countries met this criterion.
Tax-to-GDP ratio of at least 17 percent. Only one country met this criterion
in 2005.
External current account deficit, excluding grants, lower than 3 percent of
GDP. Only one country met this criterion in 2005.
Each year the WAEMU member-states prepare a three-year convergence,
stability, growth, solidarity program, and every six months the WAEMU commission
publishes a report to assess progress in implementing these programs.
Sources: Convergence, Stability, Growth, and Solidarity Pact and WAEMU 2005.