The Economic Community of West African States (ECOWAS) experienced noticeable beehive of activities centered on mechanism towards the adoption of ECO currency. The move, saw many ECOWAS government officials, Finance Ministers and Central Bank Governors converge on Abuja before the 2019 Christmas holidays, and continued after the New Year, 2020.
The history of ECO has unfortunately been replete with postponements, as it was initially planned to be introduced in 2003, but was postponed to 2005, 2010 and 2014 for various reasons. The launch of the currency was also rescheduled to 2015 owing to global and continental economic crises.
Beyond the recent enthusiasm and excitement, there are underlining macroeconomic convergence criteria to be met by member states before the adoption of the currency. Among the criteria is sustaining single-digit inflation rate at the end of each year by each member state. It also stipulates the sustenance of fiscal deficit of not more than 4% of the GDP.
Another condition is limiting the central bank deficit to not more than 10% of the previous year’s tax revenue and maintenance of gross external reserves that can provide import cover for a minimum of three months.
There are in addition six secondary criteria, which include meeting tax revenue mark that is equal or greater than 20 percent of the GDP; sustaining a wage bill to tax revenue that is equal to or less than 36 per cent; maintaining a stable exchange rate; maintaining a positive interest rate; ensuring public investment to tax revenue equal to or greater than 20 percent and prohibition of new domestic default payments and liquidation of existing ones.
Current assessment of efforts by member countries to meet these criteria have been unimpressive. This dismal performance goes a long way to question the commitment of member countries in implementing the ECO currency. Given this, experts are of the view that effective implementation of the single currency will depend on strengthening and achieving macroeconomic convergence.
Furthermore, aside from the challenge in meeting the macroeconomic convergence, the sub-region is characterized by minimal trade convergence (volume of trade among member countries) as against huge volume of trade divergence (volume of trade between member countries and other countries outside the economic union). A development that is considered unsettling.
Empirical studies suggest that to achieve a sustainable economic integration, the volume of trade convergence must be greater than trade divergence. It is no secret that a number of member countries’ foreign exchange reserves are still being partially managed by external entities, giving the impression that such countries are not in full charge of their respective monetary policy management and control. These are issues demanding urgent resolution before the adoption of ECO.
Thus, when on December 21, 2019, the French-speaking ECOWAS countries announced to introduce single currency ECO to replace CFA franc, a move, which at best, smacks jumping the gun, in view of the poor performance in meeting macroeconomic convergence.
Therefore, one cannot but agree with the decision of the six English-speaking countries from West African Monetary Zone (WAMZ) that noted with concern, the unilateral declaration to replace the CFA franc with ECO. According to a press statement released by WAMZ, “this action is not in accordance with the decision” of ECOWAS with a view to “adopting the ECO as the name of the single currency” of the whole region.
It is expected that concerted efforts towards the adoption of the ECO should focus more on the convergence macroeconomic criteria rather than political rhetoric in ensuring an enduring economic union.
*Joy Nguri writes from Numan, Adamawa State.