The Central Bank of West African States intends to provide WAEMU countries with the financial instruments to accelerate post-Covid recovery. Interest rates are low, while the zone has the lowest inflation in Africa.
The global health crisis had major impacts on the economies of WAEMU member states in 2020, underlines a note from Bceao (Central Bank of West African States). Which specifies the terms of the financing of the recovery to come.
Indeed, the Central Bank notes that for the year 2021, West African countries aim to regain the average economic growth rate of 6.5% per year that they achieved before the crisis. To this end, they have initiated, as part of their 2021 budget, “ambitious economic recovery plans”. To finance these plans, the States have planned to appeal to the regional financial market and to mobilize external resources.
For its part, the Central Bank, more precisely the UMOA-Titles Agency, collected from the Member States of the Union their financing needs for the year 2021. The Agency was created in 2013 to support and organize the issuance of public securities by auction on the regional financial market. “This volume of need is the largest to be mobilized over the same year since the creation of the local debt market”, notes the Central Bank.
In view of the exceptional volume of these issues, the States, after agreement with BCEAO, will structure and issue so-called “Obligations de Relance” (OdR) securities to finance their economic recovery plans, like what had been made for the “Covid-19 coupons” in April 2020, at the start of the pandemic. The 2021 issuance program thus includes Treasury Bonds and Stimulus Bonds.
In WAEMU, all government securities are automatically eligible at the classic refinancing counters of the Bceao, which provides liquidity to banks. In order to allow States to issue the Recovery Bonds on favorable terms, the Bank has opened a special refinancing window called the “Recovery window” which is specifically intended for them. All the Recovery Bonds issued by the States in 2021 on the government securities market are eligible for this window.
Low interest rates!
Banks will be able to mobilize resources on this special window for a renewable period of six months at the minimum bidding rate for Bceao auctions, which is currently 2%.
The exit interest rates from the stimulus bonds will be determined by the market. The Central Bank urging stakeholders (banks and large investors on the one hand, national treasuries on the other) to take into account the downward trend in medium-term interest rates.
This trend is helped by the lull on the price front. Inflation in the WAEMU zone fell by 0.2 point in December 2020, to 2.3% year-on-year.
According to the BCEAO, “the deceleration in the rate of price growth is mainly due to the food component, whose contribution to total inflation fell from 2.0 percentage points in November to 1.9 points in December, in connection with the improvement of the supply of cereals, vegetables as well as tubers and plantains in most of the countries of the Union”. In addition, the wisdom of housing prices has also contributed to the slowdown in inflation.
