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Assessing Regional Integration in Africa III

Towards Monetary and Financial Integration in Africa

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This report finds that although there are some successes, African countries are still experiencing enormous difficulties in achieving the macroeconomic convergence criteria set by their RECs, such as targets on inflation, debt-to-GDP ratio, and deficit-to-GDP ratio. The assessment also indicates that despite some financial developments, African financial market activities remain shallow, with capital markets characterized by low capitalization and liquidity. The report also provides policymakers with recommendations on how to deepen monetary and financial integration on the continent and create an enabling macroeconomic environment for the continent.

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Introduction

Regional integration is now widely accepted as indispensable for expanding economic opportunities in Africa. Bigger markets permit better exploitation of economies of scale, while factor mobility across borders and the coordination and harmonization of monetary and fiscal policies would facilitate faster economic growth and greater welfare for participating countries. African countries consider regional integration the most direct route to fast, broad-based development and an effective way to overcome the limitations of small internal markets. They also perceive regional integration as a rallying platform for establishing African unity. The OAU Charter and the Constitutive Act establishing the African Union define the anchoring ideals of African unity (OAU 1963; AU, 2000), while the Lagos Plan of Action and the Abuja Treaty establishing the African Economic Community (OAU1980, 1991) spell out the economic, political and institutional mechanisms for attaining this goal. The treaties establishing regional economic groupings before and since independence, while reflecting the rich geographic and economic diversity of the continent, have pan-African dimensions.

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