Friday, July 05, 2019 / 05:00PM /
United Capital Research / Header Image Credit: Africafeeds
Recently, the Economic Community of West African States (ECOWAS), consisting of 15 countries, revived its plans to adopt a common currency “the Eco”, targeting 2020 as the new date for implementation across the member nations. This is coming after a series of postponement since the initial 2003 target launch date.
According to ECOWAS, the preconditions for member countries to participate in the single currency union are; budget deficit of not more than 4%; maximum average annual inflation rate of 5.0% by 2019; maximum public debt to GDP ratio of 70.0%; minimum of 3-month import cover; and consolidation of custom unions.
In all, we reckon that the policy comes with a lot of benefits for member states, ranging from; elimination of FX risks, a bigger and stronger single market as well as a stable domestic economy. However, it is unlikely for most member States to meet up with the set criteria by 2020. Save for a few member countries in the Francophone bloc, majority of the members have inflation rate above 5%, sharp rising debt profiles as well as a fragile external buffer.
Accordingly, we believe the new launch date – 2020 – is likely to be missed again, as most of the countries are yet to satisfy most of the preconditions. Additionally, the fact that no progress has been made as regards the design and production of the currency, adds to our doubt.
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