By Tanu Jalloh
1 February 2012
When before her removal from office in 1990 British Prime Minister Margaret Thatcher foresaw, with painful clarity, the devastation a single currency in the Eurozone was bound to cause, her Euro-friendly Chancellor of the Exchequer, John Major was blind to her clairvoyance. She left to allow for a new British consensus on the euro.
Her fear was that the single currency could not accommodate industrial powerhouses such as Germany and smaller countries such as Greece. Germany, forecast Thatcher, would be phobic about inflation, while the euro would prove fatal to the poorer countries in Europe because it would “devastate their inefficient economies”. True to her word, today Ireland, Greece and Portugal are in a big mess with Italy and Spain struggling to ward off the tide.
The West Africa Monetary Zone (WAMZ) must learn from mistakes the Eurozone made at the outset. The idea of a common currency by 2015 was initiated by WAMZ, comprising six countries - The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone - within the ECOWAS in 2000 to promote economic integration and trade in the sub-region.
After over thirty meetings and related gatherings to fully realise a single currency for West Africa by 2020 (the new date), finance ministers and bank governors of ECOWAS approved a revised road map in May 2009. Impliedly, the pre-2009 target and 2015 deadline for a full operation of the Eco seem to have been ruled out in principle. I have come to blame that unpreparedness on the seeming total disregard for such factors as may be related to orientation and diversity of what could be referred to as economic culture. Harmony dwells and thrives on diversity.
Consequently, there have been setbacks, some of them created by complex stipulated convergence criteria, especially for weaker states with small but obstinate economies. Even as we write in 2012 individual state efforts have been very loose due in part to scrawny macroeconomic policies. Also, there are likely to emerge some challenges created and sustained by externally imposed fiscal disciplines, biased tax regimes, unrealistic budgetary limits and commitment, uncoordinated local revenue generating efforts and most importantly the lack of political will.
Before the revised road map in May 2009, a monetary union for the countries of the WAMZ was scheduled to be realised on or before 2015. Only then would the Eco be launched as a common currency, to be followed by the withdrawal of the national currencies of the consented constituent member states. Sierra Leone is still struggling to live up to the expectation of the technical committee; her neighbour, Guinea has been far behind but their sister country Liberia in the Mano River Union basin at one point met all four critical convergence criteria.
Like me, there have been skeptics, most of whom would draw their fear from extant happenings in the Eurozone. They have also pointed out certain economic disparities that could sabotage the convergence criteria. Although, the International Monetary Fund, a principal authority on global economic evaluation, was hopeful that West African leaders could successfully set up a single monetary union if they mustered the political will, it is still apprehensive that “disparities between the member countries can undermine such a union.”
The Fund’s country representative in Nigeria, the biggest but certainly not the strongest economy in the zone, W. Scott Rogers once observed that the degree of differences in national financial systems and response to specific shocks in individual countries are critical factors to be considered. “But the West African states planning to adopt the Eco currency have largely failed to meet self-set primary criteria of a single digit inflation rate and reduction in budget deficit for the introduction of the currency, as the overall compliance with macroeconomic convergence criteria deteriorated,” he remarked.
Sierra Leone does not seem to have been able to produce credible updates on its progress and it is still faced with possible challenges in dealing with accumulating structural deficiencies and some other tall multilateral commitments and benchmarks. For example according to Banie Eillah Seisay, a senior deputy financial secretary in the ministry of finance and economic development, the latest update on Sierra Leone following the 32nd statutory technical committee meeting in Freetown in January 2012 was indicative of how not to report the progress of anything serious at all.
“Sierra Leone met three convergence criteria at end - June 2011…the best performance since 2006” he said, adding that “The payments system project is progressing satisfactorily in Sierra Leone and the Bank of Sierra Leone has recently organised training programmes for staff of the Central Bank as it prepares to roll out the WAMZ payments system. With support from WAMI, Sierra Leone has formulated the National trade policy and plans for its implementation are underway. The country has developed a competition policy, expert strategy, competition law, and consumer protection policy to promote and deepen trade,” he said in a press release.
That was just the wrong message from the wrong person. No specifics as to how those efforts were related to the country’s commitment to basic WAMZ convergence criteria. By the way what is the macro fiscal section, established within the economic policy and research division at the ministry of finance, doing? This is supposed to be a credible channel that should generate reliable and consistent macro fiscal projections to facilitate credible and reliable forecasting of revenue flows. It draws its sources from the integrated macroeconomic modelling and forecasting steering group that comprises officials from the finance ministry, Bank of Sierra Leone, Statistics Sierra Leone and National Revenue Authority, which will ensure the consistency of macro-forecasts in government and improve on the macroeconomic evidence base available for policy formulation.
However, Nigeria’s minister of state for finance Hajiya Lawan Yabawa Wabi told the 30th WAMZ meeting that: “Nigeria sustained its performance in the convergence skill, by maintaining three criteria as at June 2010 and Sierra Leone maintained its end of the 2009 performance of compliance with one criterion.” She disclosed that the same reasons that compelled Heads of State and Governments of WAMZ countries in June 2009 to postpone the monetary union to not later than 1 January 2015, still persists.
Therefore, updates are very necessary to keep the public informed on sensitive economic policy matters because they touch their lives directly and almost immediately they are taken. Thus when The Gambia satisfied all four primary convergence criteria set out for the introduction of a common currency by the WAMZ in April 2007 it was big news, with specific numerical details. Ghana also has a constant pattern of profiling its economic initiatives and sounding public opinions on them. Liberia’s efforts have been the most laudable, and they continue not to rest on their laurels. In essence, year-in year-out all countries must endeavour to update their publics and, where necessary, peer-review themselves. In all of this, authorities in member countries owe it to their conscience to be honest and realistic in their estimates and projections.
Invariably, what the IMF chief meant when he said countries have “failed to meet self-set primary criteria” could not be far from the impression I hold that countries were not being honest about their efforts and the current realities they face. Any attempt to deceive the trust of those primary convergence criteria - the fiscal deficit (excluding grants as a percentage of GDP), inflation rate, gross external reserves (in months of import cover) and Central Bank financing of the fiscal deficit – could undermine the inspiration.
Exactly one year ago when governor of the central bank of Nigeria, Sanusi Lamido Sanusi, was commenting on the Nigerian economy, he said the nation was at the recovery mode, but noted that “there were questions in the fiscal space about the size of government spending and pace of structural reforms, among others.” While similar instances live here, authorities in the country have never pointed them out in a genuine bid to salvage them. When Greek’s economic frailty and frivolity became unbearable in the Eurozone the French said their admission into the euro was an error. The Greeks were accused of telling lies about their sustainable fiscal discipline and tenable reserve, which were basic fundamental entry requirement into the single currency zone.
Similarly, certain WAMZ countries with the Greek tendency are likely to jeopardise the wish for a strong single currency. Some observers, who point to the French speaking ECOWAS countries that achieved “convergence criteria” and created the CFA currency, say they did so “because they had similar institutional environment.” They doubt that the francophone bloc of ECOWAS would be interested to join the Eco.
Their fear is that the convergence criteria for WAMZ would not be sustainable in terms of how they deal with shocks given the very diverse institutional environments in which they operate. Nigeria, like France and Germany in the Eurozone, is larger in economy than the remaining five countries put together. The argument is that with the introduction of a currency union Nigeria could be made to bear the brunt of the inability of weaker member countries to deal with peculiar shocks. Today when the euro shrinks because of defaulting debt ridden countries like Greece, Ireland, Spain and Italy, the giant economies of Germany and France are being forced to bail them out.
In a May 2010 public financial management national action plan status report by the Public Financial Management Reform Unit in the finance ministry, one of the outcomes of the key components of the integrated public financial management reform project include “improved budget credibility associated with a more appropriately developed and managed aggregate fiscal position, delivery by the ministry of finance of predictable funding in accordance with budgets.” I have deliberately referenced this section of that document to highlight the relevance of correct information dissemination on countries’ budget credibility based on well managed fiscal positions and realistic predictions. That is what seems to be lacking towards Sierra Leone’s efforts at fulfilling all convergence conditionalities.
Until authorities in Sierra Leone read this article and react appropriately, I will continue to hold on to my prescience about the Eco.
