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CS/CMI/CCFMA/18/7 NOVEMBER, 2013

Original: ENGLISH

COMMON MARKET FOR EASTERNAND SOUTHERN AFRICA

11TH Meeting of the Monetary and Exchange Rates Policies Sub-Committee

11 – 13 November, 2013 Nairobi, Kenya

PROGRESS MADE TOWARDS ACHIEVING MACRO-ECONOMIC CONVERGENCE IN THE COMESA REGION IN THE YEAR 2012

2013 (IZ-mkc)

1

Introduction

1. The COMESA Monetary Cooperation Programme is intended to serve as a preparatory ground by setting in motion an evolutionary process that will create an enabling environment for economic co-operation to facilitate the free movement of goods, services, capital and labor across national frontiers and eventually lead to full regional monetary integration.

2. As a preparatory ground towards the eventual establishment of a monetary union, the phased Monetary Harmonization Programme is also intended to enable the member States to:

(a) Take aggressive economic reform programmes while at the same time learning how to co-operate and co-ordinate their economic policies;

(b) Through their reform programmes, create an enabling environment for price stability and economic growth to allow a natural development of financial markets and a high degree of economic integration;

(c) Increase intra-regional trade while narrowing inequalities through economic growth; and

(d) Form a more balanced monetary union of relative equality in the region.

3. To achieve the above, it is considered essential that member States should first go through a process of monetary harmonization with a view to achieving macro-economic convergence. In order to assess the progress by member States in the implementation of the programme, four primary and nine secondary convergence criteria were developed.

4. Part one of this report assesses the progress made by COMESA member countries in moving towards macro-economic convergence in the year 2012, based on the revised primary and secondary convergence criteria. Finally conclusions will be made.

I. Progress Made in Achieving Macroeconomic Convergence

Primary Criteria

A. Fiscal Deficit Excluding Grants to GDP Ratio

5. In 2012, the region’s average fiscal deficit excluding grants improved marginally improved to 5.6 percent of GDP in 2012 compared to 6.1 percent in 2011. Most member countries registered a budget deficit to GDP ratio of above the agreed upon 5 percent in the COMESA Macroeconomic Convergence Criteria. Member countries maintained accommodative fiscal policies, in an effort to boost the economy in the face of a potential slowdown in growth. External demand for exports slowed, owing to a number of factors including a decline in global demand, the Euro area debt crises, uncertainty over the debt in ceiling in the US and economic growth decelerating in emerging economies, especially in China and India. According to data from the IMF, Member states operated in a year that saw world exports growing only 5 percent in 2012, much less than the previous year’s 17.3 percent.

6. Despite a decline in international demand for exports, and decelerating global demand, or the adverse global economic environment, the fiscal deficit for the COMESA region

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narrowed by 0.2%. With strong economic growth, accommodative fiscal policies found support from a wider tax base, improved tax collection and administration, a greater mobilization of domestic resources and in some countries rising commodity revenue. The majority of governments primarily spent heavily on public infrastructure, human resource development, and social development programs. Consequently, most member countries registered a budget deficit to GDP ratio of above the target of no more than 5 percent in the COMESA Macroeconomic Convergence Criteria. However despite the challenges of 2012, the future looks bright for several member states, with recent discovers of minerals expected to further expand fiscal pace in countries like Kenya and Uganda.

7. The region’s average fiscal deficit excluding grants marginally improved to 5.6 percent of GDP in 2012 compared to 6.1 percent in 2011. The marginal improvement can partly be attributed to increased commodity export revenues. Most member countries registered a budget deficit to GDP ratio of above the agreed upon 5 percent in the COMESA Macroeconomic Convergence Criteria. This result is understandable given the desire to continue supportive fiscal measures in light of the global downturn. Many member countries increased spending on infrastructure and social protection programs – such as price subsidies in an attempt to stimulate growth and cushion the poor against high inflation rates.

Table 1: Overall Fiscal Balance, Excluding Grants(Percent of GDP)

Country 2008 2009 2010 2011 2012

Burundi -27.7 -24.5 -15.8 -14.9 -20.8Comoros -13.0 -9.1 -7.8 -6.0 -6.2Congo DR -6.4 -10.1 -9.1 -10.2 -8.3Djibouti − − − − −Egypt − − -8.1 -9.8 -10.8Eritrea -24.0 -17.3 -21.3 -19.4 -14.7Ethiopia -7.0 -5.3 -4.6 -4.9 -2.9Kenya -5.4 -6.2 -6.3 -5.6 -6.8Libya − − − − −Madagascar -5.4 -4.2 -1.5 -4.8 -3.8Malawi -6.0 -5.1 -1.6 -3.5 -16.6Mauritius -3.4 -5.2 -3.9 -3.9 -2.5Rwanda -10.0 -11.5 -13.3 -14.2 -12.4Seychelles 2.0 -1.2 -1.7 0.1 -2.6Sudan − − -4.7 -3.7 −Swaziland -1.3 -6.7 -11.7 -5.8 3.5Uganda -5.4 -5.0 -9.6 -5.1 -5.7Zambia -4.9 -5.4 -4.8 -2.9 -5.2Zimbabwe -2.7 -3.4 0.9 -1.7 -0.7COMESA -6.3 -6.6 -6.6 -6.1 -5.6

Source: IMF Regional Economic Outlook Sub Saharan Africa October 2013; IMF Regional Economic Outlook Update Middle East and Central Asia November 2013; Country Reports

3

2008 2009 2010 2011 2012

-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

COMESA Average Overall Fiscal Balance, Excluding Grants

Perc

ent o

f GDP

8. In COMESA regions the fiscal performance is similar to many African countries and is characterized by the following:

Fiscal policy remained on a supportive footing throughout 2012 in many countries. In the wake of the deteriorated international environment, a larger number of countries recorded fiscal deficits. On average, these fiscal balance developments reflected the combination of increased or constant public spending and declining government revenue. Some countries continued to ease fiscal policy, with the adoption of a series of measures to boost infrastructure investments and expand social safety-net systems in the 2011/2012 budget

Similarly, discretionary fiscal impulses targeted public investment in a number of countries as these countries attempted to relieve infrastructure bottlenecks that were limiting the supply response and the ability of these economies to sustain strong growth rates. The fiscal policy stance in 2012 indicates that the fiscal response in the region to the crisis has been appropriately countercyclical, while protecting social and capital spending. More countries than in the past seem to have had the economic stability and fiscal space to pursue countercyclical fiscal policies. Most of them did this by increasing or sustaining spending despite declining revenues. In general, social and capital spending has been protected during the downturn. Nonetheless, execution problems meant that not all budgeted spending, especially capital spending, was achieved. In some cases, this was also a result of unexpected dramatic reduction in GDP growth and as a result in tax revenue.

In countries where the food price increase caused significant economic dislocation, fiscal resources were used to ameliorate the impact on vulnerable groups. This support could be in the form of subsidies, income support, or direct provision of food items. But in many countries in the region, without such mechanisms in place the following targeted relief could be considered: i) temporary lowering of import taxes on essential food staples; and ii) subsidizing food items that are primarily consumed by the poorest households. All such interventions however, entail some cost to the budget. One way to mitigate the cost is to ensure that intervention is time bound. Where financing constraints

4

are binding, the interventions would have to be financed through savings elsewhere in the budget.

B. Inflation Rate

9. Average inflation dropped in 2012 to 13.1 percent compared to an average inflation rate of 17.7 percent in 2011. The ease in inflation is attributed to the prior tightening of monetary policies in the Member States, and to improved weather conditions in Eastern Africa. The region’s average inflation is expected to decline in 2013, provided global food, energy prices decline or stabilize, and the improved weather conditions following the severe drought in the horn of Africa. According to IMF projections, inflation levels will continue to vary widely among Member States, but are overall expected to continue the downward trend in 2013 with four countries projected to meet the COMESA primary convergence criteria of not more than five percent while the majority will manage to keep inflation in the single digits.

10. In the COMESA region, although inflation has decreased, the dependence on fuel products and food imports, commodity price inflation has been a major challenge, complicating macroeconomic management. In order to counter the effects of food prices some countries introduced food price controls and provision of subsidies.

Table 2: Consumer Prices(Annual Average, Percent Change)

Country 2008 2009 2010 2011 2012Burundi 26.0 4.6 4.1 14.9 11.8Comoros 4.8 4.8 3.9 6.8 6.3Congo DR 18.0 46.2 23.5 15.5 9.3Djibouti 12.0 1.7 4.0 5.1 3.7Egypt 18.3 11.7 10.1 11.8 7.3Eritrea 19.9 33.0 12.7 13.3 12.3Ethiopia 44.4 8.5 8.1 33.2 24.1Kenya 15.1 10.6 4.3 14.0 9.4Libya 10.4 2.4 2.5 15.9 6.1Madagascar 9.2 9.0 9.3 10.0 5.8Malawi 8.7 8.4 7.4 7.6 21.3Mauritius 9.7 2.5 2.9 6.5 3.9Rwanda 15.4 10.7 2.3 5.7 6.3Seychelles 37.0 31.7 -2.4 2.6 7.1Sudan 14.3 11.3 13.0 18.1 35.5Swaziland 12.7 7.4 4.5 6.1 8.9Uganda 12.0 13.1 4.0 18.7 14.0Zambia 12.4 13.4 8.5 8.7 6.6Zimbabwe 157.0 6.2 3.0 3.5 3.7COMESA 22.2 12.2 7.1 17.7 13.0


5

2008 2009 2010 2011 20120.0

5.0

10.0

15.0

20.0

25.0

Average Consumer Prices in COMESA

Annu

al A

vera

ge, P

erce

nt C

hang

e

11. Despite persistently high headline inflation, core inflation, which excluded food and energy prices, moderated in a number of countries. This development denotes the growing credibility of central banks in their attempts to anchor inflation expectations.

12. The surge in prices complicated macroeconomic management in most countries. In order to counter the effects of food prices some countries introduced food price controls and provision of subsidies.

C. Reserve Accumulation

13. External reserves were under pressure in a number of member countries in 2011 however improving economic conditions and decreasing pressures saw the average level of reserves was capable of meeting approximately three months of imports of goods and services, which is less than the agreed upon convergence criteria of not less than four months. The accumulation of sufficient foreign exchange reserves is necessary to cushion against external shocks, to ensure orderly conditions in the exchange market and a comfortable balance of payments position and space for macro-economic adjustments in unpredictably changing economic environments.

14. The table below indicates reserves in Member States (that is the months of imports of goods and services available in a given financial year) for the last five years.

6

Table 3: Reserves(Months of Imports of Goods and Services)

Country 2008 2009 2010 2011 2012Burundi 6.4 4.4 4.1 3.2 3.9Comoros 5.3 6.6 5.7 5.8 6.7Congo DR 0.1 1.2 1.3 1.4 1.8Djibouti − − − 1.0 3.4Egypt − − 8.6 6.3 3.2Eritrea 1.6 2.2 2.3 2.0 3.4Ethiopia 1.1 2.2 2.5 2.7 2.0Kenya 3.0 3.4 3.2 2.9 3.8Libya − − − 35.6 35Madagascar 3.0 4.2 3.8 4.0 3.6Malawi 1.5 0.7 1.6 1.0 1.1Mauritius 4.1 4.3 4.0 4.1 4.2Rwanda 4.7 5.4 5.2 5.8 4.3Seychelles 0.7 1.9 2.2 2.6 2.7Sudan − − 0.6 1.2 1.9Swaziland 3.8 4.4 3.2 2.7 3.6Uganda 5.3 5.8 4.4 4.1 4.7Zambia 3.2 4.0 3.3 3.0 3.4Zimbabwe 0.2 1.7 1.0 1.1 0.9COMESA 2.7 3.3 3.0 2.9 3.1


2008 2009 2010 2011 20120.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Reserves(Months of Imports of Goods and Services)

7

Secondary Criteria

A. Interest Rate Policy

15. As for interest rate policy, all countries have liberalized interest rates. Some COMESA member States have exceptionally high real lending rates and a wide margin between lending and deposit rates (see table 4). This is a reflection of relative inefficiency of their banking system. High nominal rates, even if inflation is also high, impose exceptional risks on borrowers. A business is fairly certain that its costs will rise with the level of inflation. On the other hand, there is a great deal less certainty that the price of the producer’s product will increase with inflation. The business, therefore, runs a risk that input costs will rise faster than output prices. Secondly, it has been established statistically that the higher the rate of inflation, the more variable it is. This means that a business borrowing at a high nominal interest rate faces the risk that inflation will actually be less than expected, while the business is committed to paying the high nominal interest rates.

16. It is therefore greatly preferable to achieve positive real interest rates by having low levels of inflation, than by having high nominal interest rates in order to offset a high level of inflation. High nominal interest rates have frequently resulted in the commercial banks buying Treasury Bills rather than lending to the private sector. This suggests that achieving positive real interest rates without also achieving low rates of inflation may do as much economic harm as good.

17. As economic activity tapered off and inflationary pressure receded, the majority of member countries central banks ease monetary conditions in order to support economic recovery. Monetary policies were, therefore, countercyclical in a large number of countries. In some countries limited coordination between the treasury and the central bank hampered liquidity management, thus leading to excess liquidity.

18. Monetary and Exchange rate policies provide a useful complement to a counter cyclical fiscal policy and should be used as such in COMESA member countries. This is necessary in order to shift from the focus on price stability to a stronger focus on employment generation and sustainable growth. Monetary policy can contribute to a pro-poor growth by supporting pro-poor fiscal policies, avoiding excessively volatile inflation episodes, helping to stabilize the balance of payments and the real exchange rate, and improving resource allocation in the economy (targeting credit to priority sectors and managing the capital account).

Table 4: Interest Rate Spread: (Lending Rate - Deposit Rate)

8

(Percent)Country 2008 2009 2010 2011 2012Burundi − − 12.42 − −Comoros 8.00 5.13 5.25 5.54 8.75Congo DR 35.36 49.34 39.75 30.40 20.73Djibouti 9.39 9.72 9.35 9.10 −Egypt, Arab Rep. 5.74 5.48 4.77 4.29 4.36Eritrea − − − − −Ethiopia 3.32 − − − −Kenya 8.71 8.84 9.81 9.42 8.15Libya 3.50 3.50 3.50 3.50 3.50Madagascar 33.50 33.50 38.50 41.85 49.50Malawi 21.78 21.75 21.02 19.64 21.25Mauritius 1.43 0.80 0.53 1.81 2.43Rwanda 9.79 − 9.57 − −Seychelles 7.84 5.58 9.84 9.11 8.89Sudan − − − − −Swaziland 6.67 5.97 5.90 6.15 6.29Uganda 9.78 11.20 12.49 8.81 10.08Zambia 12.51 14.97 13.52 11.81 5.15Zimbabwe − − − − −

Source: World Bank Development Indicators

B. Achievement of Market Determined Exchange Rates and Liberalization of Exchange Controls

19. Most of the COMESA member countries have made significant progress in moving towards market determined exchange rates and thereby reducing overvaluation of their currencies that characterized the 1980s and early 1990s. Exchange rate regimes are quite difficult to classify. A relatively small number are classified as having a “conventional peg” as was the most common arrangement previously. Swaziland is pegged to the South African Rand, which in turn floats independently. On the other hand, many countries have freely floating exchange rate regimes; although it is not possible to be certain that there is no Central Bank interference. Many COMESA member States have irregular receipts and payments of foreign exchange, making it unlikely that a completely free market can provide a relatively stable exchange rate.

20. The recent continued depreciation of the currencies of some member countries, for example Kenya has contributed to the significant rise in prices and eroded any gains arising from fiscal actions such as zero rating of wheat and maize flour imports and cutting of taxes on petroleum products. On the other hand, devaluation is good for the competitiveness of exports and in soaking up excess consumer cash to check inflation.

21. As regards removal of exchange restrictions, many countries accepted Article VIII of IMF Agreement., and thus fully removed restrictions on their current account. Accordingly, many countries can be said to have achieved the removal of restrictions on trade flows. Further efforts are also being made to remove restrictions to intra-COMESA trade, such as poor transportation networks; restrictions on movements of people; lack of trade information on products produced within COMESA; lack of linkages among financial institutions operating in COMESA; unavailability of regional payment and settlement system; etc.

9

22. Overall, most of the COMESA member countries have made significant moves towards liberalization of their financial markets. The main exceptions are the retention of exchange controls on some capital account transactions, and some continued central bank interference in exchange rate determination. Some governments also retain some control over interest rates. This is not surprising, given the small domestic financial markets of many COMESA member countries and considerable central bank controls over interest rates retained in major industrialized countries.

C. Growth

23. The COMESA region achieved a growth rate of 5.4 percent in 2012, down from 5.7 percent in 2011 but well above the world average of 2.2 percent. Despite continued fiscal consolidation in industrialized economies, slower than expected recovery from a weakened global financial system, depressed commodity prices, and continued low confidence in the policies of advanced economies, the region’s economic growth remained strong reflecting the increasing resilience of the economies of the Member States. However, the region still relies heavily on output of primary commodities. Big investment largely remains concentrated in a number of Member States in capital-intensive extractive industries with few forward and backward linkages with the rest of the economy. As a result, they have low employment intensity - the ability to generate jobs. Thus, the region suffers from downside risks of high unemployment and inequalities. Wider diversification from primary commodity production to the non-primary commodity sectors is, therefore, needed.

24. In many countries, growth was underpinned by a variety of factors, namely:

Strong demand and high prices for non-oil commodities and strong performance in agriculture, services and other sectors;

Growing domestic demand, especially private consumption, as a result of rising incomes and urbanization;

Increased private investment; Increasing public spending, particularly on major infrastructure projects and the provision

of public services; Increasing trade and investment between emerging and developing economies. This

helped to mitigate the impact of the recession in Europe; Increased foreign investment in extractive industries; Increasing diversification of national economies into non-primary-commodity sectors

such as manufacturing, telecommunications, banking and services; Despite slowdown in the global economy, many Member States benefitted from foreign

capital. Further, while overall FDI inflows declined, those originating from emerging economies, particularly for extractive industries actually increased and remittances remained high, supporting investment and demand in several Member States; and

Improved macro-economic management and prudential macroeconomic policies.

25. Growth prospects for 2013 remain robust with average real GDP growth projected at 5.9 percent. On top of the key growth factors that underpinned the region’s economic performance in 2012, recent discoveries of natural resources will boost prospects for growth. Robust domestic demand, especially private consumption and buoyant fixed investment in infrastructure and extractive industries, as well as high government spending will remain key drivers of economic growth in the region in the medium term. The down side risks for economic growth include, among others, weak institutional capacity, huge infrastructure deficit, and slowing global growth (including major emerging countries) and the Euro debt crisis.

10

26. The table below depicts real GDP growth in the region over the past five years.

Table 5: Real GDP Growth(Percent)

Country 2008 2009 2010 2011 2012Burundi 5.0 3.5 3.8 4.2 4.0Comoros 1.0 1.8 2.1 2.2 3.0Congo DR 6.2 2.8 7.2 6.9 7.2Djibouti 5.8 5.0 3.5 4.5 4.8Egypt 7.2 4.7 5.1 1.9 2.2Eritrea -9.8 3.9 2.2 8.7 7.0Ethiopia 11.2 10.0 10.6 11.4 8.5Kenya 1.5 2.7 5.8 4.4 4.6Libya 5.4 -0.1 2.5 -61.0 121.9Madagascar 7.1 -4.1 0.4 1.8 1.9Malawi 8.3 9.0 6.5 4.3 1.9Mauritius 5.5 3.0 4.1 3.8 3.3Rwanda 11.2 6.1 7.5 8.2 8.0Seychelles -1.9 -0.2 5.6 5.0 2.9Sudan 3.2 3.0 5.2 -1.8 -3.3Swaziland 3.1 1.2 1.9 0.3 -1.5Uganda 10.4 4.1 6.2 6.2 2.8Zambia 5.7 6.4 7.6 6.8 7.2Zimbabwe -17.8 8.9 9.6 10.6 4.4COMESA 6.5 5.1 6.9 6.9 5.5


2008 2009 2010 2011 20124

4.5

5

5.5

6

6.5

7

7.5

COMESA Average Real GDP Growth

Perc

ent

D. Savings

11

27. At below 20 percent of GDP, the savings rate in most COMESA member countries is very low compared to other parts of the developing world. A major reason may be that a large proportion of the population is not connected to the financial system and therefore has no access to savings instruments. Increasing the domestic private saving rate in the region will entail expanding the financial system to reach the majority of citizens through appropriate innovative financial reforms. An example of such innovative approaches is Kenya’s use of mobile phones to allow banks and informal financial institutions to offer savings. Member countries should expand on these innovations to bring banking to the rural and informal sectors, as well as introduce more savings instruments.

28. In addition to expanding the financial base, there is a need to develop efficient financial and capital markets with diversified financial instruments to attract both domestic and foreign savings. Member countries could also raise resources to finance accumulation through the issue of “Diaspora bonds”. Experience from India suggests that financial inflows from Diaspora bonds continued during the global financial crisis. Revenues from such bonds could dampen some of the volatility in foreign financial flows, as they tend to be stable even in times of reduced global economic activity. Some researchers have suggested establishment of a regional African Fund as a way of raising international capital to finance accumulation in Africa. Such a fund, it is argued, would raise Africa’s credit ratings. He suggested tax on petrol of US$.05 per gallon to establish the initial subscription to the fund. Such a regional approach would make it easier to attract international capital as well as increasing regional cooperation.

29. Efforts to increase private savings should be complemented by increased public savings resulting from larger budget surpluses or smaller budget deficits. Given the relatively low levels of public services provided in the region and the relatively high rates of poverty it may be imprudent to balance budgets by cutting government spending. The only reasonable alternative is to raise government revenues, especially given that government revenues amount to less than 30 percent of GDP.

30. Another way to effectively finance accumulation is to improve resource management to allow for the efficient and inter-temporal allocation of savings and other financial resources. This will be necessary to reduce the volatility that has been the hallmark of African economic growth since the 1960s. One possible way to reduce this volatility is to smooth the use of export revenues by increasing savings in times of commodity booms and reducing them in times of reduced export earnings. In the same way, member countries could work with donors to reduce the volatility in ODA disbursements. For example, they could work out an arrangement whereby donors could deposit aid disbursements in a fund for the recipient country to draw down as needed.

31. Domestic resource mobilization for the region remains insufficient to finance the investment needed for achieving the MDGs. The member countries will continue to rely on external capital inflows (mainly ODA, FDI and remittances) to fill the resource gap in the near future. The international community should live up to its commitments to scale up aid to the region under various initiatives such as the Multilateral Debt Relief Initiative (MDRI). In the meantime, member countries should ensure that external assistance is used to build productive capacity and deliver public services to reduce poverty and accelerate progress towards meeting the MDGs.

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Table 6: Gross National Savings(Percent of GDP)

Country 2008 2009 2010 2011 2012Burundi 19.0 21.8 7.8 6.3 2.5Comoros 2.1 4.6 9.7 5.5 9.5Congo DR 4.9 7.4 15.4 9.5 16.4Djibouti 22.3 26.4 14.5 10.5 14.1Egypt 22.9 16.8 17.5 14.5 13.6Eritrea 7.2 1.7 3.7 10.8 12.2Ethiopia 19.3 19.0 20.7 27.3 28.1Kenya 12.8 13.8 15.0 10.4 12.1Libya 78.0 55.2 59.1 29.2 47.2Madagascar 20.4 13.0 18.9 18.8 15.1Malawi 16.0 20.7 24.7 9.4 12.7Mauritius 17.2 13.9 13.3 12.5 14.5Rwanda 18.0 15.0 16.2 14.9 11.4Seychelles 10.3 17.5 13.6 12.4 17.3Sudan 19.6 11.4 18.0 18.7 7.9Swaziland 5.8 0.3 1.3 -0.1 13.0Zambia 20.9 21.0 22.6 25.0 26.4Zimbabwe NA 4.6 -4.4 -25.6 -1.4COMESA 14.7 15.3 16.7 16.2 18.1


2008 2009 2010 2011 201210.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0

Gross National Savings in COMESA

Perc

ent o

f GDP

E. Investment

13

32. The average overall investment as a percent of GDP in COMESA remained unchanged from 23.46 percent of GDP in 2011 and 2012. The investment performance for countries, which is less than 20 percent underscore the challenge facing policy makers in the COMESA region to implement a set of policies that would move the economies into virtuous cycle of higher investment and higher growth.

33. The investment rate in COMESA member countries is still lower than their current development objectives require. The average ratio of investment to GDP in COMESA reached 23.6 percent in 2012 compared to over 40 percent in Asia. There is therefore, a need to increase investment/GDP ratios, and investment in infrastructure and human capital, where Africa has a large deficit, Investment in infrastructure expands productive capacity, stimulates aggregate demand, and reallocates resources in an economy. Apart from a short-term stimulus, infrastructure and human capital investment also lay the foundation for long-term economic growth. Properly managed, expansionary fiscal policy during the global down turn could be very helpful to member countries.

Total Investment(Percent of GDP)

Country 2008 2009 2010 2011 2012Burundi 18.8 19.0 19.2 19.3 19.5Comoros 14.3 12.4 15.4 14.9 16.8Congo DR 22.4 18.0 23.5 20.5 26.0Djibouti − − − − −Egypt − − − − −Eritrea 12.7 9.3 9.3 10.0 9.5Ethiopia 21.2 21.5 23.6 27.2 34.6Kenya 19.2 19.9 20.9 20.7 21.4Libya − − − − −Madagascar 41.0 34.1 28.6 25.7 23.4Malawi 25.7 25.6 26.0 15.3 17.1Mauritius 27.3 21.3 23.6 25.7 24.7Rwanda 30.2 33.8 40.7 40 34Seychelles 26.9 27.3 36.6 35.1 39.0Sudan − − − − −Swaziland 13.9 14.4 11.8 8.9 9.2Uganda 20.4 22.0 23.1 25.0 25.2Zambia 20.9 21.0 22.6 25.0 26.4Zimbabwe NA 15.1 24.3 25.6 24.8COMESA 22.5 21.5 22.9 23.6 26.3


14

2008 2009 2010 2011 20120

5

10

15

20

25

30

Total Investment in COMESA

Perc

ent o

f GDP

F. External Current Account Excluding Grants

34. Current account positions remained largely unchanged in the COMESA region, averaging about 11.3 percent of GDP in 2011 and 2012. The average deficit for the COMESA region stands at 11.34 percent of GDP for the period from 2008 to 2012. The lack of significant improvement in the current account deficit in Member States can be attributed to persistent trade imbalances due to a combination of declining export demand and relatively inelastic import bills for fuel and food products, and in some cases late disbursement of external aid flows faced by most countries in the COMESA region.

35. It is worthwhile to note that sustainable current account deficit to GDP ratio is desirable, if it is the result of national investment growth rather than savings decrease, especially when the national savings are low.

36. The current account deficit is not expected to improve in 2013 unless the global economy recovers strongly.

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Table 8: External Current Account excluding Grants(% of GDP)

Country 2008 2009 2010 2011 2012Burundi -21.5 -13.9 -29.5 -25.6 -30.6Comoros -13.1 -10 -14.6 -9.4 -7.3Congo DR -24.7 -21.7 -14.8 -16 -14.1Djibouti* − − − − −Egypt* − − − − −Eritrea -8.3 -10.2 -10.8 -2.6 1.1Ethiopia -10.6 -10 -10.6 -5.2 -10.8Kenya -6.5 -5.7 -6.4 -9.5 -9.4Libya* − − − − −Madagascar -21.4 -21.2 -9.7 -7.6 -8.6Malawi -20.8 -14.2 -17 -12.3 -18.5Mauritius -11 -8.5 -10.9 -14 -11Rwanda -14.4 -17.3 -17.7 -19 -19.1Seychelles -20.3 -15.1 -25.7 -25.4 -27Sudan* − − − − −Swaziland -11.6 -18 -20.8 -20.3 -20.2Uganda -9.8 -8.7 -12.6 -13.2 -10.9Zambia -9.4 1.8 5.6 2.9 -0.9Zimbabwe -32.3 -32.4 -28.7 -39.7 -28.2COMESA -12.8 -10.9 -10.5 -11.3 -11.3

Source: IMF Regional Economic Outlook Sub Saharan Africa October 2013; IMF Regional Economic Outlook Update

Middle East and Central Asia November 2013; Country Reports

2008 2009 2010 2011 2012

-14

-12

-10

-8

-6

-4

-2

0 COMESA Average External Current Account excluding Grants

Perc

ent o

f GDP

16

G. Conclusion

37.Notwithstanding the positive outlook, COMESA region’s overall dependence on commodities makes it vulnerable to commodity price shocks. The region, therefore, needs structural transformation and diversified products with value addition as a means of mitigating the impact of volatility and fluctuations linked to unprocessed commodity exports. The importance of accelerated industrialization can also not be over-emphasized, as this will help to cushion against these effects. In addition, the trade barriers, unsound investment policies, and technological challenges beyond institutional and infrastructural issues, have to be resolved.

38.The overall assessment of progress made in macro-economic convergence in COMESA in 2012 shows that the fiscal criterion was missed by 10 of a possible 19 member countries. Assessment of the inflationary situation in 2012 indicates that 16 countries missed the criteria. The assessment shows that the performance of COMESA in respect of compliance with the secondary criteria as regards to the use of indirect monetary policy instruments, moving towards market-determined exchange rates; adherence to the 25 Core Principles of Bank Supervision and adherence to the Core principles for Systematically Important Payment Systems were in the right direction. The achievements as regards to other secondary convergence criteria were however, not very impressive (see table in Annex 1)

17

Annex 1

2012 Macro-Economic Convergence Achievements

CountryPrimary Criteria Secondary Criteria

1 2 3 4 1 2 3 4 5 6 7 8 9

Burundi-7.9% 18.2% 4.0

Met Met4.2% 16.2% -

28.9%

22.3%Met Met

Not Met Not Met Met Not Met Not Met Met

Congo, Dem. Rep.

-10.7% 9.3% 1.6Met Met

7.1% 22.2% -16.8%

27.4%Met Met

Not Met Not Met Not Met Met Met Met

Comoros-5.4% 6.0% 7.0

Met Met2.5% 20.2%

-5.4%16.8%

Met MetNot Met Not Met Met Not

Met Met Not Met

Djibouti -2.7Met

3.7%Met

3.4Not Met

Met Met4.8%Not Met

29.0%Not Met NA NA Met Met

Egypt, Arab Rep -10.8Not Met

7.3%Not Met

3.2Not Met

Met Met2.2%Not Met

21.8%Met NA NA Met Met

Eritrea-14.7% 12.3% 3.4

Met Met7.0% 16.0%

1.1%9.5%

Met MetNot Met Not Met Not

Met Met Not Met Not Met

Ethiopia-3.0% 22.8% 1.7

Met Met7.0% 14.2%

-9.9%28.1%

Met MetMet Not Met Not

Met Met Not Met Met

Kenya-6.6% 9.4% 3.7

Met Met3.3% 23.9%

-9.1%21.6%

Met MetNot Met Not Met Not

MetNot Met Met Met

Madagascar-2.6% 5.7% 3.2

Met Met1.9% 10.3%

-4.3%15.7%

Met MetMet Not Met Not

MetNot Met Not Met Not Met

Libya 19.3Met

6.1% 35Met Met Met

104.5% 70.4%

NA NA Met MetNot Met Met Met

Malawi-17.3% 21.3% 1.5

Met Met1.9% 26.0% -

18.9%

17.1%Met Met

Not Met Not Met Not Met

Not Met Met Not Met

Source: IMF Regional Economic Outlook Sub Saharan Africa October 2013; IMF Regional Economic Outlook Update Middle East and Central Asia November 2013;

Country Reports

18

CountryPrimary Criteria Secondary Criteria

1 2 3 4 1 2 3 4 5 6 7 8 9

Mauritius-2.5% 3.9% 4.9 Me

tMet

3.3% 20.3%-12.6%

23.0% Met

MetMet Met Met Not Met Met Met

Rwanda-12.4% 6.3% 4.3 Me

tMet

8.0% 14.5%-19.1%

34% Met

MetNot Met Not Met Met Met Not Met Met

Seychelles

-3.7% 7.1% 2.5 Met

Met

2.8% 37.3%-27.0%

38.8% Met

MetMet Not Met Not

Met Not Met Met Met

Sudan -3.8Met

35.5%Not Met

1.9Not Met

Met

Met

-3.3% Not Met

9.5%Not Met -10.8 NA Me

tMet

Swaziland3.5% 8.9% 3.5 Me

tMet

-1.5% 37.9%-17.2%

9.2% Met

MetMet Not Met Not

Met Not Met Met Not Met

Uganda-5.5% 14.0% 4.4 Me

tMet

3.4% 13.5%-11.9%

19.8% Met

MetNot Met Not Met Met Not Met Not Met Met

Zambia-6.0% 6.6% 3.5 Me

tMet

7.3% 19.8%-3.9%

26.8% Met

MetNot Met Not Met Not

Met Met Not Met Met

Zimbabwe-1.4% 3.7% 0.8 Me

tMet

4.4% 35.7%-20.8%

25.6% Met

MetMet Met Not

Met Not Met Met Met

Source: IMF Regional Economic Outlook Sub Saharan Africa October 2013; IMF Regional Economic Outlook Update Middle East and Central Asia November 2013;

Country Reports

Primary Criteria1. Overall budget deficit/GDP ratio (excluding grants) of not more than 5 %2. Annual average inflation rate not exceeding 5 %3. Minimize the central bank financing of the budget towards 0 % target4. External Reserves of equal to or more than 4 months of imports of goods and non-

factor services

Secondary Criteria1. Achievement and maintenance of stable real exchange rates2. Achievement and maintenance of market based positive real interest rates3. Achievement of sustainable real growth rate of real GDP of not less than 7 %4. Sustained pursuit of debt reduction initiative on domestic and foreign debt i.e.

reduction of total debt as a ration of GDP to a sustainable level5. Total domestic revenue to GDP ratio of not less 20 %6. Reduction of current account deficit (excluding grants) as a % of GDP to

sustainable level7. Achievement and maintenance of domestic investment rate of at least 20 %8. Implementation of 25 Core Principles of Bank Supervision and Regulation9. Adherence to the Core Principles for Systematically Important Payments Systems,

by modernizing the Payment and settlements system

19

References1. IMF, “Regional economic Outlook, Sub-Saharan Africa”, October 20122. AfDB, OECD, UNDP, UNECA, ACP” African Economic Outlook 20123. AU, UNECA” Economic report on Africa 20124. IMF Regional Economic Outlook Sub Saharan Africa October 2013; 5. IMF Regional Economic Outlook Update Middle East and Central Asia November

2013; 6. Select Country Reports

20

Distr.LIMITED

CS/CMI/November, 2012

Original: ENGLISH

COMMON MARKET FOR EASTERNAND SOUTHERN AFRICA

Merged Country Reports on Macro Economic Convergence 2013

COUNTRY REPORTS ON COMESA MACRO ECONOMIC CONVERGENCE TARGETS

2012 (IZ-mmn/mkc)

21

Burundi

Indicateurs 2011 2012 juin2013

Objectifs CME

Bref commentaire des facteurs qui influencent les indicateurs, et les raisons des performances ou les contreperformances par rapport à la CME.

1. Inflation (taux annuel en %) 9,6 18,2 11,4

5

Le Burundi n’a pas atteint ce critère. En 2012, la hausse du niveau général des prix est expliquée par la montée du prix des produits alimentaires (14,1 p.c.) et hors alimentaires (23,3 p.c.). Au cours du premier trimestre de l’année 2013, l’inflation a enregistré une baisse. L’inflation augmentera pour le reste de l’année à l’augmentation de certaines taxes et à l’annulation de la mesure de l’exonération de certains produits alimentaires qui avait

Prix à la consommation, moyenne de la période

958,5 1132,6 1213,4

Prix à la consommation, fin de période

1018,6 1139,2 1251,4

22

été prise en mai 2012.

2. Déficits budgétaires (à exception des aides en % PIB

-10,3 -7,9

5

Le critère sur le déficit budgétaire (hors dons) n’a pas été respecté en liaison avec la faiblesse des recettes publiques par rapport aux dépenses.Toutefois, le Burundi a enregistré une amélioration en 2012 suite à la l’amélioration de la collecte des recettes intérieures.Le déficit budgétaire global s’est détérioré en 2012 suite à la baisse des dons.

Déficit global en % du PIB -3 ,2 -3,5

3. Financement du déficit budgétaire par les avances de la Banque Centrale

0

Suite à l’augmentation du déficit budgétaire, le Trésor a fait recours à l’endettement intérieur notamment aux avances de la Banque Centrale. Toutefois, à partir de 2016 il sera interdit à l’Etat de s’endetter

Fin d’année 82,7Mds de BIF 51,3 Mds de BIF 7,8Mds de BIF

Moyenne annuelle

23

auprès de la Banque centrale

4. Réserves extérieures (couverture d’importation, en mois)

4,6 4,0 3,6 ≥4

Le Burundi a réalisé le critère sur les réserves de changes.Les prévisions montrent que ce critère ne sera pas réalisé en 2013.

Indicateurs secondaires

1. Croissance réelle du PIB (%)

4 ,2 4,2 4,5 7

Au cours de ces deux dernières années, la croissance du PIB réel n’a pas été suffisante pour atteindre le critère minimum de 7,0 p.c., les taux de croissance se sont maintenus à 4,2 p.c. en 2011 et 2012.

Les projections montrent que taux de croissance s’établirait à 4,5 p.c. en 2013

2. Taux de change effectif réel (2005=100) variation en %

-6,4 -7,2 -1,7 Maintenir stable le taux de change effectif réel

Au cours de l’année 2012, le taux de change effectif réel a baissé de 7,2 p.c. contre 6,4 p.c. en

24

2011, suite à l’augmentation des prix intérieurs plus prononcée (18,2 pc) que celle des prix extérieurs (6,9 pc).

3. Taux d’intérêts réels (moyenne annuelle du taux dépôts)

-2,24 -10,09 -2,35Maintenir un taux d’intérêt positif

Au cours de l’année 2011, les taux d’intérêts réels sont demeurés négatifs et ont sensiblement baissé, revenant de -2,24 p.c. en 2011 à – 10,09 p.c. en 2012, suite à la forte augmentation du taux d’inflation. Les taux d’intérêt resteront négatifs en 2013 suite à la hausse de l’inflation alors que les taux d’intérêt ne vont presque pas varier.

Taux d’intérêt nominal (moyenne annuelle du taux des dépôts)

7,36 8,11 8 ,95

4. Encours total de la dette (% du PIB)

35 34,7

Niveau viable

Le niveau de la dette publique se situe à un niveau viable (en dessous de 60%) suite principalement l’allégement de la dette extérieure dans le cadre de l’initiative PPTE. Malgré cette

Encours total de la dette extérieure du Gouvernement/ PIB

17,0 17,4

25

baisse de la dette extérieure, la dette intérieure continue à afficher une tendance à la hausse suite à la faiblesse des ressources par rapport aux dépenses. Pour financer le déficit budgétaire, l’Etat fait recours à l’endettement intérieur. Les projections montrent que le Burundi continuera à augmenter son niveau d’endettement en 2013.

5. Total des recettes intérieures ( en % PIB) exclusion des aides 16,7 16,2

20

Le Burundi n’a atteint ce critère de convergence. Le PIB nominal a augmenté plus rapidement que les recettes de l’Etat.

6. Déficit de la balance courante à exclusion des aides -24,2 -28,9 Niveau viable

La balance courante reste toujours négative suite à l’aggravation du déficit commercial et des services car le Burundi demeure un

26

importateur net des biens et services. En 2013, c’est la même tendance qui sera observée car les importations restent supérieures aux exportations de biens et services

7. Taux d’investissement intérieur en % PIB 20,6 22,3

20

Le Burundi a adhéré à ce critère de convergence macroéconomique.

8. conforme à tous les principes de bâles

Le Burundi était :- conforme pour 2 principes (principes 2 et 3) ;-Relativement conforme pour 12 Principes ;-Relativement non conforme pour 6 principes ;- Non conforme pour 5 principes.

Le Burundi était : - conforme pour 2 principes (principes 2 et 3) ;-Relativement conforme pour 12 Principes ;-Relativement non conforme pour 7 principes ;- Non conforme pour 4 principes.

Le Burundi est :- conforme pour 2 principes (principes 2 et 3) ;-Relativement conforme pour 12 Principes ; -Relativement non conforme pour 7 principes ;- Non conforme pour 4 principes.

En vue de se conformer à tous les 25 principes de Bâle, la loi bancaire et plusieurs de ses textes d’application sont, depuis 2011, en cours de révision.

9. Respect par les règlements bruts en temps réel des principes fondamentaux pour les systèmes de paiement

Le système de paiement RTGS n’est pas opérationnel



Le système Real Time Gross Settlements (RTGS) n’est pas encore opérationnel. L’opérationnalisation du système est

27

projetée à fin 2013.

Egypt

2011/20122010/20112009/2010Criteria

10.8%9.8%8.1%Budgetary Balance (Budget Deficit/GDP) £ 3%

1

32.6%14.4%7.1%Financing from Central Bank = 0

2

7.3%11.8%10.1%Inflation < 5%3

2.2%1.9%5.1%Real GDP Growth (at Factor Cost)

4

3.26.38.6External Reserves/Import ³ 6

Months5

28

Madagascar

Indicateurs

Estimation

CMEBrève description des facteurs qui influent sur les

indicateurs, et les raisons des résultats meilleurs que prévu ou de la contre-performance par rapport à la CME

2011 2012 2013Principaux indicateurs

1. Inflation (taux annuel -%) <5 a- Critère non atteint ;

b- Une politique monétaire prudente combinée à une faible variation des prix des produits locaux ont contribué à limiter l’inflation. L’année 2013 a été affectée par la hausse des prix des produits importés et semi-importés.

Prix à la consommation, moyenne de la période considérée 9,5% 5,7% 7,4%*Prix à la consommation, fin de période – Indice global 6,9% 5,8% 6,2%*

2. Déficits budgétaires (à l’exception des aides)/PIB (%) -3,6% -2,55% <5 a- Critère atteint ;

b- Le Trésor poursuit sa politique d’austérité en ajustant le rythme des dépenses en fonction des recettes, ce qui a contribué à limiter le déficit budgétaire. La suspension des aides budgétaires a été maintenue par les principaux bailleurs de fonds.

Déficit global/excédent exprimé en % du PIB -1,8% -1,1%* -1,2%*

3. Financement du déficit budgétaire par la banque Centrale

0 a- Critère atteint ;

b- Le financement par la banque centrale du déficit budgétaire a été évité grâce aux efforts de régulation des dépenses publiques ainsi qu’au recours aux bons de Trésor.

Fin d’année 0 0 0Moyenne annuelle 0 0 0

4. Réserves extérieures (couverture d’importation, mois) 3,9 3,2 2,6* =/>4 a- Critère non atteint ;

b- Les avoirs extérieurs se sont contractés suite aux pressions occasionnées par l’importation des produits pétroliers et ce, malgré la poursuite des flux d’investissement direct étranger destinés au secteur minier.

Indicateurs secondaires1. Croissance réelle du PIB (%) 1,6% 1,9%* 2,8%* >7.0 a- Critère non atteint ;

b- Une légère reprise de la croissance a été constatée mais l’activité économique demeure globalement affectée par la persistance de la crise nationale. L’industrie minière

29

constitue la principale branche qui tire la croissance.2. Taux de change effectif réel (2005=100) changement en %

0,9% 3% 3,6%** Atteindre et maintenir un TCER stable

a- Critère non atteint ;

b- La Banque Centrale de Madagascar effectue régulièrement des opérations de lissage des cours pour réduire les fluctuations brutales des taux de change nominaux. L’inflation intérieure demeure cependant élevée par rapport à celle des pays partenaires si bien que la monnaie observe une tendance à l’appréciation en termes réels.

3. Taux d’intérêt réel (moyenne annuelle des taux de dépôt)

0,31% 2,95% 0,88% Atteindre et maintenir un taux positif

a- Critère non atteint ;

b- La maîtrise de l’inflation a permis d’obtenir des taux d’intérêt réel positif. Néanmoins, les taux nominaux montrent des écarts significatifs suivants la nature des dépôts. Certains dépôts ne sont pas rémunérés ou le sont mais avec un taux très faible avoisinant les 2%.

Taux d’intérêt nominal (moyenne annuelle des taux de dépôts)

9,81% 8,65% 8,28%

4. Encours total de la dette (% du PIB) 32,2% 32,1%* 28,5%* Niveau viable

a- Critère atteint ;

b- L’encours de la dette a légèrement progressé en termes nominaux aussi bien pour la dette intérieure que pour la dette extérieure. En revanche, sa progression reste proportionnelle à la croissance du PIB, ce qui a contribué à maintenir le ratio de la dette à un niveau quasiment stable.

Encours total de la dette extérieure du gouvernement/PIB 25,7% 25,5%* 22,3%*

5. Total des recettes intérieures (% du PIB) à l’exclusion des aides

11% 10,3%* 11,5%* >20 a- Critère non atteint ;

b- Ces trois dernières années, les recettes intérieures ont été fortement dépendantes des recettes fiscales qui représentaient entre 90% à 95% du total. Plus de la moitié des recettes fiscales proviennent de l’intérieur. La récession économique nationale combinée à la baisse de l’impôt sur le revenu a engendré une baisse des recettes intérieures. Les recettes extérieures ont, par contre, connu une évolution à la hausse mais freinée par la suspension d’une partie des droits et taxes à l’importation des produits pétroliers.

6. Déficit de la balance courante (à l’exclusion des aides) exprimé en % du PIB

-4,8% -4,3% -4,0%* Niveau viable

a- Critère atteint ;

b- La balance courante demeure déficitaire sur les trois dernières années mais sa part en pourcentage du PIB est

30

relativement stable. En 2012, le déficit a été tiré par une forte progression des importations malgré une bonne tenue des exportations. En 2013, les paiements de dividende, la fuite de capitaux ainsi que la baisse des flux d’investissement direct étranger ont expliqué le déficit, la balance commerciale étant marquée par la baisse des importations proportionnelle à celle des exportations.

7. Taux d’investissement intérieur (%) 14,5% 15,7% 16,3% >20 a- Critère atteint ;

b- L’investissement intérieur a été fortement affecté par la récession économique. L’investissement public demeure très faible avec la suspension des aides budgétaires.

8. Mise en œuvre des 25 principes de base convenus sur la réglementation et le contrôle bancaire

Presque tous les critères sont respectés par Madagascar, en dehors de ceux relatifs à la supervision consolidée.

9. Respect des règlements bruts en temps réel des principes fondamentaux pour les systèmes de paiement d’importance systémique

Un système de règlement Brut en Temps Réel et du système automatisé de compensation d’ordres de virement ou télécompensation est actuellement fonctionnel. Les principes fondamentaux sur le système de règlement brut en temps réel sont respectés.

* Estimation **Premier trimestre 2013

MAURITIUSPROGRESS TOWARDS COMESA MACRO ECONOMIC CONVERGENCE (MEC) TARGETS

Indicators Estimate

MEC Target Brief description of factors affecting the indicators; and reasons for over performance or underperformance as compared to MEC

31

2011 2012 2013

Primary Indicators

1. Inflation (annual rate - %) Urban <5

Consumer price, 12-month period average - Headline (December)

Consumer prices end-of-period – Year-on-year (December)

6.5 3.9 4.1-4.3 The outlook for domestic inflation remained contingent upon commodity price dynamics, exchange rate fluctuations, potential change in administered prices and possible adverse spill-overs of the public sector wage award to the private sector, especially in a context of relatively lower productivity growth.

4.8 3.2 5.3–5.8

2. Fiscal deficit (excluding grants)/GDP (%)

-3.9 -2.5 -2.9 <5 The fiscal deficit (excluding grants received) to GDP ratio was less than 5 per cent as a result of fiscal consolidation by Government.

Overall Deficit /surplus as % of GDP

-3.2 -1.8 -2.2 The overall deficit to GDP ratio has been declining steadily since 2011 and is projected to remain below 5 per cent.

3. Central Bank financing of budget deficit (LE mn.) End of year Annual average

Rs3,766 mn

Rs3,94 mn Rs1,468 mn

(Jan-Jun 2013)

0 The central bank has not made any advance to Government but has purchased Government securities for conducting its open market operations.

4. External reserves (import cover, months)

4.6 4.9 n.a =/>4 Calendar year based on imports of goods and services.

Secondary Indicators

1. Real GDP growth (%) 3.6 3.3 3.3 >7.0 Following the global financial crisis, Mauritius recorded a

32

lower economic growth as from 2009. The growth rate continued to remain below the MEC target of 7.0 per cent throughout the following years, mainly due to economic slowdown in our main export markets. In 2012, the economy grew by 3.3 per cent amid stagnation in the tourism sector and a decline of 1.1 per cent in the textile sector. However, sectoral data indicate that the financial services sector has registered an average growth rate of 5.3 per cent over the past three years. The construction sector has contracted since 2011, after registering double digit growth rates prior to the crisis. This sector is expected to decline by 7.7 per cent in 2013 mainly due to completion of major infrastructural projects in 2012 and the rescheduling of major road decongestion projects. Given that the global economic outlook remains uncertain, total output is forecast to grow by 3.3 per cent, with downside risks.

2. Real Effective Exchange Rate (2005=100) % change

5.7 2.5 Achieve and maintain stable REER

The central bank increased purchases of foreign exchange from the domestic foreign exchange market to build up its foreign exchange reserves under its Operations Reserves Reconstitution program which limited the appreciation of the rupee in 2012.

3. Real Interest rates (annual average deposit rate) Nominal Interest rate (annual average deposit rate)

-2.43.9

-0.23.65

n.an.a

Achieve and maintain positive rate

4. Total debt stock (% GDP)Total government external debt stock/GDP

58.5 57.7 56.5 Sustainable level

The public sector debt to GDP ratio has remained below the ceiling of 60 per cent prescribed in the Public Debt Management Act 2008.Despite the Government policy of increasingly having recourse to foreign financing of its deficit, its external debt stock stood at around 10 per cent of GDP as at end-

9.5 10.2 11.6

33

December 2012.5. Total domestic revenue (% GDP) excl. grants

20.2 20.3 21.2 >20 The ratio of total domestic revenue (excluding grants) to GDP has marginally exceeded the MEC target during 2011 and 2012, and is estimated to remain above the target of 20 per cent in 2013.

6. Current a/c deficit (excluding grants) as % of GDP (End of June)

11.4 12.6 n.a. Sustainable level

7. Domestic investment rate (%) 24.0 23.0 22.2 >20 Investment as a ratio of GDP for Mauritius exceeded the MEC target of 20 per cent. However, it fell from 24.0 per cent in 2011 to 23.0 per cent in 2012. Domestic investment rate is expected to drop further to 22.2 per cent in 2013, attributable mainly to a decline in public sector investment on account of completion of major infrastructural projects in 2012 that include the extension of airport amenities, coupled with the rescheduling of major road decongestion projects.

8. Implementation of the agreed 25 core principles of bank Supervision and Regulation

The Financial Sector Assessment Program (FSAP) Update in February 2007 regarding the compliance with the Basel Core principles for effective banking supervision rated Mauritius as compliant and largely compliant with 15 Core Principles. Regarding the non-compliant principles, actions have since been taken to improve our compliance status.

In an assessment conducted in October 2010, a team from the Financial Stability Board (FSB) evaluated the level of compliance of the Bank with 4 core principles for which the Bank had been assessed as ‘Materially Not Compliant’ in the 2007 FSAP.

In particular, in respect of 3 Basel Core Principles (BCPs) - 3, 21 and 24, the evaluation team concluded that there has been an overall improvement in compliance through changes to legislation, introduction of guidelines, changes

34

to reporting procedures and internal processes in the Bank.

For BCP 25, the FSB evaluation team concluded that while there has been some improvement in communication with foreign supervisory authorities, a more comprehensive framework for home-host communication needs to be introduced before there is better compliance

The Bank has signed twelve Memoranda of Understanding with other Central Banks and information is shared on an adhoc basis.

The Bank usually attends supervisory colleges and it is planning to hold one in Mauritius for its local banks with overseas entities this year.

9. Adherence to core principles for SIPS by ACH, RTGS

The RTGS complies with all core principles except, principle 5 which is not applicable as the system does not carry out netting.

Rwanda: Macroeconomic Performance and Convergence under the COMESA Criteria

COMESA Target 2008 2009 2010 2011 2012 Comments

35

Primary Criteria

1 Overall budget deficit (excluding grants)/GDP of not more than 5 percent.

10.0 11.5 13,3 14.2 12.4 Rwanda’s overall deficit to GDP (excluding grants) declined from

14.1 to 12.4 percent of GDP between 2011 and 2012 as a result of

greater tax revenue collection boosted by higher-than-expected

imports and on account of an unexpectedly large clearance of areas,

while relatively lower spending were recorded due to some delays in

domestically financed capital projects.

2 Annual inflation rate not exceeding 5 percent (annual averages).

Headline 15.4 10.7 2.3 5.7 6.3 In Rwanda, the good performance in real sector has been achieved

with a sustained moderate inflation despite challenging global and

regional oil and food prices. In 2012, annual headline inflation has

been contained in one digit number, with end period inflation of 3.9%

and annual average of 6.3%. These positive developments were

achieved thanks especially to prudent monetary and exchange rate

policy and well-coordinated government policies to mitigate the

exogenous inflationary pressures.

Underlying

17.6 9.0 1.5 5.7 3.9

3 Minimize central bank financing of budget deficit towards zero percent.

%of revenues and grants

0.0 0.1 2.0 3.1 3.0 The legal provisions authorise the Government to use 11% of the

previous financial year revenues he central bank financing increased

from 2.0% in 2010 to 3.1% and 3.0% in 2011 and 2012 respectively.

4 External reserves equal to or more than 4 months of imports of goods and services.

4.7 5.4 5.2 5.8 4.3 Rwanda registered a decline of official reserves level from an

equivalent of 5.8 months of imports end 2011 to 4.3 months end

2012. This decline is explained by lower foreign capital inflows in

36

terms of budget support, while expenditures in forex to finance

imports increased noticeably.

Secondary Criteria

5 Achieve and maintain stable real exchange rates.

REER index (2005=100)

82.1 75.6 76.2 78.0 77.9 In Rwanda, the real effective exchange rate appreciated slightly from

78.0 in 2011to 77.9 in 2012. The stability of local currency has been

boosted by the relatively important level of official reserves

accumulated in 2011, allowing the banking system to continue

responding to increased demand for financing imports in line with

higher dynamism in economic activities in 2012.

% Change -7.1 -8.0 0.9 2.29 -0.10

6 Achieve and maintain market

based positive real interest rates

(Annual average deposit rate)

Nominal6.7 8.1 6.8 7.7 8.9 Deposit rate increased from 6.8 % to 7.7 % in 2011 and 8.9 % in

2012.

7 Achieve sustainable growth of real

GDP of not less than 7 percent

11.2 6.1 7.5 8.2 8.0 Despite the challenging international and regional economic

environment, Rwanda recorded a real GDP growth of 8.0% in 2012

higher than 7.7% initially projected. This growth was driven by good

performance in all economic sectors, such as agriculture sector

(+3.0%), industry sector (+7.2%) and services sector (+12.2%)

boosted by significant improvement in credit market conditions. .

8 Sustainable pursuit of debt

reduction initiative foreign debt

(reduction of debt/GDP ratio to a

%Domestic and Foreign debt stock/GDP

21.2 22.0 22.4 18.7 18.0 The ratio of debt over GDP kept reducing from 22.4% in 2010 to

18.7% and 18.0% in 2011 and 2012 respectively.

37

sustainable level).9 Total domestic revenue/GDP of

not less than 20 percent.

11.3 13.9 12.0 13.7 14.5 In Rwanda, domestic fiscal revenues as a share of GDP increased

from 13.7 percent in 2011 to 14.5 percent in 2012. The higher

revenues are associated with strong economic growth and ongoing

administrative reforms that continue to broaden the tax base and help

improving compliance.

10 Reduction of current account

deficit (excluding official

transfers)/GDP to a sustainable

level.

14.4 17.3 17.7 19.0 19.1 The slight deterioration in current account deficit in 2012 is explained

by higher demand for capital goods, higher domestic demand of

construction materials and industrial products, higher oil prices and

increasing domestic demand of energy and lubricants.

11 Achieve and maintain domestic

investment rate of at least 20%

domestic revenues

30.2 33.8 40.7 40.0 34.0 This ratio declined from 40.0% in 2011 to 34.0% in 2012 following

under-execution of domestically financed capital expenditure.

12 Implementation of the 25 core

principles of Bank supervision and

regulation based on agreed Action

Plan of harmonization of Bank

Supervision for the COMESA

region

By 2012, compliant with 9 BCPs, largely compliant with 13, materially non-compliant with 3 and none compliant

with none.

To further support the vision of payment system modernization, an important partnership between Visa inc. and

the Government of Rwanda was signed in November 2011. All commercial banks have different membership

with Visa namely 3 banks Which are principal members, 3 banks which are associate members and 4 banks with

cash disbursement.

National Net Settlement System (NNSS) is operational since 1st March 2012.By end June 2012, six banks were

already participating in NNSS.

13Modernizing payment and

settlements systems

38

Sudan

The Performance of Sudanese Economy towards COMESA macroeconomic Convergence Programme

The COMESA macroeconomic convergence programme which envisaged to be accomplished during the period “1992 – 2018 “ within four stages aims to achieve the ultimate goal of COMESA which is the establishment of a COMESA monetary union by the year 2018. The rationale for choosing macroeconomic convergence criteria is to ensure countries participating into the integration process develop sound and common macroeconomic policy i.e the convergence criteria should be designed in terms of prudent values of key variables summarizing the overall macroeconomic policy stance. COMESA convergence criteria are centered at price stability, sustainability of fiscal and current accounts, limiting of deficit financing by the central bank and maintaining sufficient foreign reserves. In addition, achieving and sustaining high economic growth, supported by high domestic investment. The specific COMESA targets for the period “2005 – 2010” were classified into primary and secondary criteria.Primary Criteria:

1. Overall budget deficit/GDP ratio “excluding grants” of not more than 5%.2. Annual inflation rate not exceeding 5%.3. Minimizing central bank financing of budget deficit towards 0% target.4. External reserves of equal or more than 4 months imports of goods and non-factor services.

Secondary Criteria:1. Achieve and maintain stable real exchange rates.2. Achieve and maintain market based positive real interest rates.3. Achieve sustainable growth rates of real GDP of not less than 7%.4. Sustained pursuit of debt reduction initiative on domestic and external debt (i.e reduction of debt as a ratio of

GDP to sustainable level).5. Total domestic revenue to GDP ratio of not less than 20%.6. Reduction of current account deficit (excluding grants) as ratio of GDP to sustainable level.7. Achieve and maintain domestic investment rate of at least 20%.

39

As for the performance of Sudanese economy towards the drawn target for the mentioned phase, to our view-and from the attached table of statistics-the Sudanese economy is performing relatively well and to a large extent in adherence and consistency in many of the set indicators. However, in some few fronts, Sudan is still exerting robust efforts to achieve the targets.

Historically, during the period “1990-1996” the Sudanese economy experienced a series of imbalances both internally and externally. To rectify the imbalances, various measures were undertaken by Ministry of Finance, central Bank of Sudan, and other related Ministries and Institutions which resulted in impressive performance during the period “1997 – 2007”, major among these measures adopted are the followings:

- Policies for containing and rationalizing the overall demand of the economy.- Stipulations for strict adherence to the statutory limits of borrowing from the central Bank.- Continuous application of variant flexible indirect monetary policy tools for managing the overall

volume of liquidity in the Economy.- Adoption of supply side measures as from 1999 onwards in both the monetary and fiscal sectors fronts.- Strong coordination and harmonization between the macroeconomic policies (mainly between monetary

and fiscal policies), and the well determined macroeconomic objectives under an environment of liberalized economy during the period under review.

- Normalization of economic relations with the international financial institutions such as the IMF.- Developing conducive investment climate through various economic reform and transparent institutional

and legal arrangements a matter that leads to the huge capital inflows to the oil sector as well as to other sectors such as: transport, telecommunications, Construction, banking… etc.

- Enforcing well- designed explicitly pronounced fiscal and monetary disciplines.

The outcomes of these measures featured in macroeconomic stability, monetary stability and fiscal stability, as the indicators in the attached table reflect.

The real GDP growth rate registered 6.9% on average; this positive economic growth is attributed to better contribution of the economic sectors, namely; Agriculture, industry and mining, and services. However, in the last five years (2003,2007) the GDP growth rate in Sudan recorded higher rate than the COMESA Secondary criteria stipulated level.

Inflation has been curtailed from two –digits inflation in the year 1997, 1998,1999 to single-digit inflation during the period (2000 – 2007). But it is still higher than the COMESA primary criteria (5% or less), this could be attributed to

40

internal conflicts that negatively affects the supply-side and the financial burden arised from the implementation of the Comprehensive Peace Agreement (CPA) with the South.

In the fiscal sector most of COMESA primary and Secondary criteria were met, the overall budget deficit/GDP% is below (1%), Total domestic revenue/GDP% in the year 2007 is around 20%, and the Central Bank financing to the budget deficit declined in nominal term and as a percentage to the overall budget deficit. The major factor behind this robust fiscal performance is the tight fiscal policies that were adopted.

In the external sector, despite the good performance of the BOPs, some COMESA criteria were not met by the end of the year 2007, the current account deficit/GDP% started to increase, and the Central Bank built up external reserves that cover only 2.1 months of imports. The huge deficit in the current account at the end of 2007 is due to non-oil exports constraints such as: inadequate capacity in the port, deterioration in the road infrastructure, conflict in livestock areas, and higher domestic demand. As for the exchange rate, since late 2004 and due to improved market fundamentals coupled with a move towards a market-driven, an appreciation of exchange rate for the Sudanese currency has been recorded. The higher oil prices in the last months of the year 2007, and the sharp rise in foreign direct investment led to the currency appreciation of 12% in nominal terms. Also, the capital inflows led to a substantial increase in the ratio of investment to GDP in the year 2007.

Sudan external debt problems continue to limit the country’s access to external development financing. Despite these and other emerging constraints, the authorities exerted a robust efforts in repayments to some creditors in order to maintain their record of cooperation on economic policies with the major international organizations-such as the IMF- including minimizing non-concessional borrowing in order to facilitate the prompt resolutions of Sudan’s debt and arrears problems at the appropriate time. Due to a firm commitment of the authorities with the repayments to some creditors the ratio of external debt to GDP registered a downward trend, which comes in conformity with COMESA criteria.

In the monetary sector, the COMESA criteria of positive real interest rate was met, since the real cost of finance registered a positive rate during the period “1998 –2007”, as a result of the sharp decline in inflation rate.

The following measures, policies and events contribute strongly to the good performance in the criteria met; and the developments in the trends of other criteria that were not yet met:

Demand and supply management policies, such as:- rationalization of government expenditure.- Wide-range tax reforms.

41

- Gradual phasing out of subsidies.- Redirection of resources to productive sectors.

All restrictions and controls on current account transactions abolished and the foreign exchange market unified.

Enhancing contribution of oil revenue to the budget. Adoption of measures for creating enabling investment environment leads to marked surge in capital inflows. Sizable reserves built-up serve stabilizing the exchange rate. External finance resumed due to normalization of relations with international financial institutions mainly the

IMF , the World Bank, the IDB ,the ADB, and the Arab Funds.Also, there are some factors negatively affect the performance of some major indicators, these factors summarized in the followings:1. Internal conflicts (Darfur).2. The burden of the financial commitments arised as a result of the implementation of the Peace Agreements.3. Fluctuations in inflation rates due to the seasonality in banking credit.4. The huge pile of stock of external debt and the political conditionality negatively affect the country’s position

in benefiting from the global initiatives of debt relief such as the Heavily Indebted Poor Countries (HIPCs).The tables below show the performance of Sudanese Economy towards the COMESA macroeconomic convergence programme.

COMESA Criteria Sudan position towards the

attainment of the criteria as the end of 2005.

Comments

1.overall budget deficit (excluding grants) to GDP to be not more than 5%.

Met Due to :1. Financial discipline2. Tight fiscal policies

2. Annual inflation rate not exceeding 5%. Were not met Due to:1. Internal conflicts2. Financial Consequences of the Peace Agreements.3. Some structural bottlenecks (transportation,

inadequate capacity at the port.3. Minimize central Bank financing to the budget Partially met The central bank financing to the budget deficit becomes

42

deficit towards 0% target very minimal due to tight fiscal policies.4. External reserves of equal to or more than 4 months of imports

Was not Met 1. It was not met in 2007 due to the bad performance of non-oil exports.

5. Achieve and maintain market based positive real interest rates

Met Due to:1. Sharp decrease in inflation rates2. Removal of restrictions on CBOS’s credit policy.

7. Sustained pursuit of debt reduction (debt/GDP% to a sustainable level)

Partially met The trend of external debt/GDP is downward due to repayments to some creditors. But the ratio still high because Sudan could not be able to benefit from the HIPCs initiatives due to some political conditionalities.

8. Achieve sustainable growth rates of real GDP of not less than 7%

Met Due to the positive sizable contribution of major economic sectors such as (Agriculture, industry, mining, and services).

9. Total domestic revenue to GDP ratio of not less than 20%

Met Due to: wide-range tax reforms as such and introduction of value-added tax (VAT)

10. Reduction of current account deficit/GDP to a sustainable level

Partially met Was not met fully due to the deterioration of non-oil exports (inadequate capacity at the port, transportation bottlenecks, conflicts at the livestock areas, higher domestic demand).

11. Achieve and maintain domestic investment/GDP not less than 20%

Met Due to huge capital inflows

Table (2)Economic Indicators of the Sudanese Economy performance towards the programme of macroeconomic convergence (1997-2006)

Primary criteria1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Overall budget deficit/GDP (%) 0.14 0.08 0.09 0.06 0.07 0.12 0.07 0.15 0.27 3.3Annual inflation rate% 47 17 14.2 8.1 4.9 8.3 7.4 7.3 8.5 7.1Central bank financing of budget deficit (SDD billion)

65.7 74.7 12 8 18 30.9 37.5 37.5 27.5 59.1

External reserves (in months of imports)

0 0 0.5 0.9 0.3 1.5 2.7 3.9 3.1 2.8

Secondary criteriaExchange rate (SDD per US$) 172.2 237.0 258.0 257.3 258.9 262.5 260.2 251.7 243.6 202.5Real interest rate * -1.7 10 13.8 16.4 9.9 6.6 8.9 3.9 11.0 11.3GDP growth rate (%) 6.1 6.0 6.0 8.3 6.4 6.5 6.1 9.1 8.3 9.1External debt/GDP (%) 213 247 220 183.8 160.5 181.7 139.3 113.7 100.7 80.0

43

Total domestic revenue//GDP (%) 0.07 7.99 8.38 11.25 10.80 12.30 15.81 19.16 19.59 20.0Current account deficit/GDP (%) 8.94 11.39 5.27 4.58 9.84 7.40 5.53 4.18 10.26 10.9Gross investment /GDP (%) NA NA 17.3 18.7 17.6 19.4 20.0 22.5 23.3 25.3GDP (SDD billions) 1593 1991.6 2448.9 2969.5 3380.6 3839.1 4449.9 5343 6220.2 7548.

2* In Sudan, Islamic modes of finance were used instead of interest-based loans.

Uganda

INDICATORS

2011 2012 Estimate 2013

MECC Target

Brief description of factors affecting the indicators;

and reasons for over performance or

underperformance as compared to MEC

Primary Criteria

44

INDICATORS

2011 2012 Estimate 2013

MECC Target




1.

Inflation (annual rate-%) <5Consumer prices, period average 18.7% 14.0% 4.0%

(Jan-July 2013)

<5

In 2012, average headline inflation declined to an annual average of 14 percent, supported by improved weather conditions, easing international commodity prices, stable exchange rate, low aggregate demand and a tight monetary policy stance adopted by the central bank in the last half of 2011 and beginning of 2012, to reign in the second round effects of inflation.

Consumer prices end-of-period-Headline 27.0% 5.3% 5.1% (July 2013)

3. Fiscal deficit (excluding grants)/ GDP of not more than 5%. -5.5%

(CY 2011)

-5.5%

(CY 2012)

-5.7%p

(FY 2012/13

Projection) <5

The overall budget deficit (excluding grants) remained at 5.5 percent of GDP in 2012, the same level recorded in 2011, even though total government expenditures, outpaced the growth in revenues during the year. The higher government expenditure was largely due to the suspension of donor support to the

45

INDICATORS

2011 2012 Estimate 2013

MECC Target




budget, in November 2012, which prompted supplementary domestic financing.

Overall Deficit /GDP of not more than 5% -3.3%(CY2011)

-3.5%(CY2012)

-3.9%pFY2012/13 Projection

)

The overall budget deficit rose slightly to 3.5 percent of GDP in 2012 and is expected to rise further to 3.9 percent in the financial year 2012/13 and to 5 percent in 2013/14 on account of the government’s planned investments in infrastructure.

5. Minimize central bank financing of budget deficit towards zero percent

- - - 0Bank of Uganda does not extend credit to the Government

6. External reserves equal to or more than 4 months of imports of goods and services

3.7 4.44.2

(June 2012)

=/>4External reserves improved to 4.4 months of future import of goods and services cover in 2012, mainly due to the deliberate effort of the central bank to build foreign exchange reserves.

Secondary Criteria

46

INDICATORS

2011 2012 Estimate 2013

MECC Target




1.Achieve sustainable growth of real GDP of not less than 7% 6.6%

(FY2010/11)

3.4%(FY2011/12

)

5.1%PFY2012/13 Projection

)

>7

The economy is poised to grow by 5.1 percent in FY2012/13 driven mainly by growth in exports and public investment. Overall, growth is subdued, reflecting the spill-overs of the global economic challenges, fiscal consolidation and the lagged impact of tight monetary policy in the first half of FY2011/12.

2. Achieve and maintain stable exchange rates.REER Annual percent Change

6.5% -10.6% 1.8%

(using

average of

Jan- Jun

2013

Achieve and maintain stable REER

The REER appreciated by 10.6 percent in 2012 compared to 2011 when it depreciated by 6.5 percent from the preceding year. Similarly, the Nominal Effective Exchange Rate (NEER) appreciated by 5.2 percent in 2012 from a depreciation of 14.3 percent in 2011. The high appreciation in the REER was on account of the strengthening of the Uganda Shilling vis-à-vis the currencies of

47

INDICATORS

2011 2012 Estimate 2013

MECC Target




Uganda’s trading partner countries and higher domestic inflation compared to inflation in Uganda’s trading partner countries. The NEER appreciated in 2012 on account of the tight monetary policy stance and increased capital inflows.

3.

Achieve and maintain market based positive real interest rates

Real Interest rates (Annual Average Deposit Rate)-16.07% -10.74% -1.25%

(Jan-June 2013)

Achieve and maintain positive rate

Uganda’s average real interest rate, based on the average weighted deposit rate, stood at -10.7 percent in 2012, from -16.7 percent recorded in 2011. The relative improvement in the average real interest rate was attributed to lower inflation during 2012 compared to 2011, and the increase in average nominal interest rate to 3.3 percent in 2012 from 2.6 percent in 2011, both attributed to the central bank’s tight monetary policy stance.

Nominal Interest rates (Annual Average Deposit Rate) 2.63% 3.26%2.75%

(Jan-June 2013)

48

INDICATORS

2011 2012 Estimate 2013

MECC Target




5.

Total debt Stock (% of GDP) 28.7%(FY 2010/11)

26.2% (FY 2011/12)

29.1%p(FY

2012/13)

Sustainable pursuit of debt reduction

While total government debt reduced slightly in 2012, it is projected to have risen in 2012/13 largely on account of economic stabilization costs and borrowing for infrastructure financing. Government remains committed to debt sustainability even with the sizeable financing needs and limited grant disbursements.

Total Government External Debt Stock (% of GDP) 19.5%(FY 2010/11)

16.1%(FY 2011/12)

18.1%p(FY

2012/13)

7. Total domestic revenue/ GDP 14.3% 13.5% 13.5%(FY

2012/13)

>20

Government tax and non-tax revenues declined to 13.5 percent of GDP in 2012, from 14.3 percent of GDP in 2011. The lower Government revenues are largely due to a narrow tax base and issues related to tax administration. The narrow tax base can be attributed to the large informal sector. However, the outturn of Government revenues also fell short of the target for the year on account of a reduction

49

INDICATORS

2011 2012 Estimate 2013

MECC Target




in import volumes of fuel and non tariff barriers imposed by Kenya Port Authority such as the cash bond imposed on transit goods through Kenya.

8. Current account deficit (excluding grants)/ GDP -15.9% -11.9% -10.5%P(FY

2012/13)

Sustainable level

The current account deficit improved in 2012. However, the deficit is expected to widen given the slowdown in Sub Saharan African economies, the main destination for Uganda’s exports, and government’s planned investments in infrastructure which are expected to have large import content. Going forward, the improved

50

INDICATORS

2011 2012 Estimate 2013

MECC Target




productive capacity will narrow the deficit.

9. Domestic investment rate (% ) 15.6%(FY2010/11

)

19.8%(FY2011/12

)

27.5%PFY2012/13 Projection

)

>20Capital formation as a share of the total government budget rose to 19.8 percent in 2012. Government capital investments grew by over 50 percent in 2012, signaling the government’s commitment to infrastructure development, especially development of the road network and electricity generation. However, the level of government capital investments in 2012 fell below the amount planned for the year, mainly on account of procurement delays and compensation challenges which prevented some planned key projects from taking off.

51

INDICATORS

2011 2012 Estimate 2013

MECC Target




10.Implementation of the 25 core principles of bank supervision and regulation based on agreed Action Plan for Harmonization of bank supervision for the COMESA region

BOU set up a task force to address recommendations of the FSAP 2011 on BCPs; The task force meets regularly to discuss progress on implementation of the FSAP recommendations and has so far made significant progress on the following Core Principles: 6, 7, 8, 12, 18, 25. BOU has scheduled to conduct a self assessment of the compliance with BCPs in November 2013. BOU participated in the peer review exercise of compliance with BCPs conducted by the EAC Central Banks in Arusha - Tanzania from 8th to 11th October 2012. Among the recommendations made at the peer review, was for EAC Partner States to study the additional four Core Principles with a view to assessing their implication(s) to the regulatory process

52

INDICATORS

2011 2012 Estimate 2013

MECC Target




to the banking sector as well as future implementation. EAC Central Banks also agreed to conduct peer reviews after every two years.

11.Adherence to the core principles for systematically important payments systems, by modernizing the payment and settlement system

Rigorous cross-border tests of the East African Payment System (EAPS) are being done between Kenya, Uganda and Tanzania targeting going live early in the FY 2013/14. In July 2013 BOU signed an implementation agreement with the East African Community for the East African Community Payment and Settlement Systems Integration Project to facilitate further regional integration of payment and settlement systems.

53

Zimbabwe

PROGRESS TOWARDS COMESA MACRO ECONOMIC CONVERGENCE (MEC) TARGETSIndicators Estimate MEC Target Brief description of

factorsaffecting the indicators; and reasons for over performance or underperformance as compared to MEC

2011 2012 2013PrimaryIndicators1. Inflation (annual rate - %) Urban - - - <5

Consumer price, period averageConsumer prices end-of-period – Headline (December)

3.5 3.7 4.5 Following the adoption of the multiple currency system in which Zimbabwe is using the US dollar, South African rand, Botswana pula and British pound in place of the local currency, the hyperinflation episode came to an end and the country is now enjoying low and stable inflation of less than 5%.

4.9 2.9 -

2. Fiscal deficit (excluding grants)/GDP (%) 0 1.4 -0.7 <5 The government is implementing a cash

54

budgeting system in order to contain its expenditure.

Overall Deficit /surplus as % of GDP 1.2 0.2 0.03. Central Bank financing of budget deficit (LE mn.)End of yearAnnualaverage

0 0 0 0 Under the multiple currency system, the Reserve Bank is no longer in a position to finance the budget deficit since it is not issuing any currency.

0 0 0

4. External reserves (import cover, months) 0.7 0.8 0.7 =/>4 Given the huge current account deficit, the country’s external reserves have remained precarious.

Secondary Indicators1. Real GDP growth (%) 10.6 4.4 5.1 >7.0 The economy started

recovering in 2009, following the introduction of the multiple currency system. Economic growth is, however, slowing downdue to persistant liquidity shortages which have resulted in low aggregate demand and lack of long term finance for recapitalisation and working capital needs of firms.

2. Real Effective Exchange Rate (2005=100) % change n.a n.a n.a Achieve and maintain stable REER

Under the multiple currency, this is no longer applicable since the country does not have a currency of its own.

3. Real Interest rates (annual average deposit rate) Nominal Interest rate (annual average deposit rate)

- - - Achieve and maintain positive rate

Inflation is well below annual average deposit rates.

4. Total debt stock (% GDP)Total government external debt stock/GDP

90.3 74.0 74.0 Sustainablelevel The debt/GDP ratio is declining as the country’s

55

GDP increases and as the country begins to service some of the international obligations in order to restore relations with the international community as part of the re-engagement process.

79.9 67.0 67.0

5. Total domestic revenue (% GDP) excl. grants 32.9 35.7 39.9 >20 The country’s revenue has been growing in tandem with economic recovery.

6. Current a/c deficit (excluding grants) as % of GDP(End of June)-31.1 -20.8 -18.4

Sustainablelevel The current account deficit remains under pressure due to the huge import bill mainly due to supply gaps in the economy. However, the current account is beginning to narrow down as the propensity to import declines and as the mining sector recovers since it is the major source of the country’s exports.

7. Domestic investment rate (%)23.3 25.6 25.4

>20 Domestic investment has been on the rise following the adoption of the multicurrency system.

8. Implementation of the agreed 25 coreprinciples of bankSupervision and Regulation

The Reserve bank is fully compliant with implementation of the 25 core principles of the Basel Accord

9. Adherence to core principles for SIPS by ACH, RTGS The RTGS fully adheres to the core principles. Currently, the country has no ACH.However, with the new Principles for Financial Market Infrastructure ( 2012) the Central Bank has adopted the new standards and will come up with a roadmap to implement the same.

56

d - comesa monetary institute (cmi)€¦ · web viewimproved macro-economic management and...

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