Current Account Sustainability in the West African Economic and Monetary Union Countries

This paper assesses the external sustainability of member countries of the West African Economic and Monetary Union (WAEMU) over the period 1980–2008. A least square dummy variable corrected estimation first identifies over the 1980–2004 period, the lagged current account, unrequited transfer flows and government final consumption expenditures as the fundamentals of the current account balance. On grounds of the fitted values of these explanatory variables, the projected medium-term—2005–2008 period—current account deficits drift apart from the stabilizing current account deficits at external debt benchmarks, suggesting an increase of external debts over the medium term. The magnitude of adjustments in government final consumption expenditures to achieve the current account sustainability shows that the extent of adjustments is more important when the external debt benchmark is less than the WAEMU convergence norm. This finding calls for fiscal consolidation within the union.