How UEMOA countries are coping as financing needs rise

The economic situation in UEMOA remained favourable in 2018. The region’s average GDP growth was 6.6%, the seventh consecutive year above 6%, and the average annual inflation rate was 0.9%, compared to 1.1% the previous year. However, with strong capital spending and trade terms turning unfavourable following a rise in global oil prices, this was accompanied by a high fiscal deficit, estimated at CFA2.7trn ($4.6bn), or 3.9% of regional GDP, although there were disparities between member states. In comparison, the fiscal deficit stood at 4.3% in 2017. The overall financing need for the UEMOA zone was estimated at CFA3.1trn ($5.3bn) in 2018, up 9.4% compared to the previous year. This was covered by net capital inflows in the financial account, which increased by 21.2% due to the issuance of eurobonds by Côte d’Ivoire and Senegal, and an average 26.5% rise in public lending.

Regional Market

The regional public debt market remained the main source of financing for UEMOA states in 2018. The financing forecasts of these countries were valued at CFA3.9trn ($6.7bn) in 2018, including CFA3trn ($5.2bn) by auction distributed over 126 operations. This was a 7.3% decrease on CFA4.2trn ($7.2bn) in 2017, which can largely be attributed to Senegal’s total absence from the regional market in 2018.

In 2018 gross issuances carried out on the regional public debt market totalled CFA3.2trn ($5.5bn), down from CFA3.7trn ($6.4bn) the previous year. The majority, at 54.6%, were Treasury bonds. Bond issuances by auction totalled CFA943.9bn ($1.6bn), down from CFA1.2trn ($2.1bn) in 2017. Securities with threeand five-year maturities were the most requested, representing CFA698.3bn ($1.2bn) and CFA194.2bn ($333.8m), respectively, together making up 94.6% of the total. The average rate of return on bonds issued by auction in 2018 was 6.3%, compared to 6.6% in 2017.

Bond issuances by syndication amounted to CFA844.3bn ($1.4bn) in 2018. States generally favoured maturities of seven or eight years, which generated CFA487.6bn ($838.2m) and CFA294.9bn ($506.9m), respectively, or 92.7% of the total. The largest volume of issuances in the region were carried out by Côte d’Ivoire, at CFA394.8bn ($678.7m). Benin, Burkina Faso, Mali and Togo also issued bonds by syndication.

In terms of Treasury bonds, 71 issuances were carried out in 2018 for a total amount of CFA1.4trn ($2.4bn), against an initial forecast of CFA1.2trn ($2.1bn). The 12-month maturity was the most requested, with 46 issues and an overall value of CFA937.4bn, or 62.9% of the total. The overall stock of government securities rose to CFA9.9trn ($17bn), or 14.4% of the region’s GDP as of end-2018, against CFA9.6trn ($16.5bn), or 14.5% of GDP, a year earlier. The structure of this outstanding amount remains dominated by bonds, which represented 89% of the total.

International Market

In 2018 only Côte d’Ivoire and Senegal raised resources on the international markets by issuing eurobonds, which were equivalent to 87% of the overall UEMOA budget deficit in 2018. For Côte d’Ivoire, the total amount mobilised amounted to CFA1.1trn ($1.9bn). These resources were raised in two instalments with maturities of 12 years at the rate of 5.25% and 30 years at 6.625%. Senegal’s issuance was also divided into instalments of $1bn at 6.75% over 30 years and €1bn at 4.75% over 10 years.

Moving Forwards

With an increase in development investments over the short term, the outlook for UEMOA should remain positive and encourage significant recourse by states on both local and international markets. The region’s financing needs for 2019 were estimated at CFA3.4trn ($5.8bn) and are expected to gradually increase until 2025.

On the regional level, several measures are planned to improve market operations, including the transition to integrated market surveillance; the adoption of a single central securities depository; the development of repo transactions on sovereign securities; and the introduction of new products on the capital market.