Ghana, four others cause common currency delays

The failure of Ghana and four other countries to meet most of the four primary convergence criteria requisite for membership of the West African Monetary Zone (WAMZ), has cast serious doubts on the likelihood that a common currency zone can take off in January 2003 as planned.

The other countries involved are Nigeria, Sierra Leone, Gambia and Guinea. Ghana has been unable to meet two out of the four criteria.

Under the macro-economic convergence criteria and accompanying time frame, drawn up in December 1999, each member country, Ghana inclusive was to have achieved single digit inflation by the end of 2001.

However, Ghana’s year-end inflation rate was 21.3%.

The other criterion missed by Ghana relates to the months of import cover available in the form of foreign reserves. While the target for end of 2001 was three months, Ghana achieved foreign reserves of less than two months import cover.

On the other hand, Ghana’s fiscal deficit for 2001 was 4.4% of Gross Domestic Product, which was within the 5% limit set under the convergence criteria. Ghana did even better with regard to the final criterion, while this prescribes that central bank financing of government should not exceed 10% of the previous year’s revenues, Ghana did not use any central bank financing at all.

However, officials at the West African Monetary Institute in Accra, the forerunner of the proposed West African Bank fret that Ghana’s fiscal programme for 2002 will take the country further away from meeting this year’s targets.

Like last year, Ghana does not expect to meet the 5% inflation target under this year convergence criteria having set its sights on 13% by year-end. Also, just like last year, it is unlikely to meet the WAMZ foreign exchange reserve target of six months import cover; government is realistically aiming at just 2.7 months import cover by the end of 2002.

Conversely, Ghana can expect to meet its target of keeping central bank financing within 10% of previous year’s revenue again. But government has projected a fiscal deficit of 6.9% this year, which is significantly higher than the 4% ceiling for 2002 adopted for WAMZ member countries.

The other four members of WAMI have all fallen short of the convergence criteria in some ways. Last year, both Ghana and Nigeria failed to achieve the prescribed single digit inflation rate (Nigeria: 16.4% for 2001) while Gambia (8.1%), Guinea (1.1%) and Sierra Leone (3.4%) did.

Gambia, Guinea and Sierra Leone all exceeded WAMZ’s prescribed target for fiscal deficits last year, Sierra Leone’s 15% being three times the ceiling. Only Nigeria and Gambia had more than the minimum three months import cover by their foreign reserves as at the end of 2001 and only Nigeria exceeded the six months import cover targeted for the end of this year.

Like with Ghana, the other countries also have set economic targets for this year that still do not fulfill some of WAMZ’s convergence criteria. For instance, Guinea anticipates a budget deficit of 7.5% and foreign reserve cover for 3.5 months of imports this year. Sierra Leone and Gambia project two months and 5.5 months import cover respectively.

WAMI expects that the situation is even more worrying than the statistics show. The institute has raised concern over the validity of some of the figures provided by member countries. Indeed, the inflation figures of some countries do appear understated and to a lesser extent, the fiscal deficit numbers too.

Under the circumstances, there are growing doubts among the technical people behind the WAMZ initiative that the January 3 2003 star up date can be achieved. Under the current timetable, the WAMZ is ambitiously expected to merge with francophone West Africa’s UEMOA as early o create a common currency for the entire sub-region. This is now in doubt too.