Effects of the BCEAO post-COVID-19 strategy on economic activities in Togo

Abstract: The consequences of the anti-COVID-19 barrier measures have been damaging to economic activity. In order to stimulate economic recovery, BCEAO is proposing a 20% reduction in its target rate (2.5% to 2%). Our study offers a pre-assessment of the effects of this monetary policy on economic aggregates in Togo. Using a DSGE model based on the restrictions of the informal sector on access to credit, we analyze the transmission channels of the cut in the BCEAO target rate to the economy. The 20% reduction in the target rate generates a drop in the lending rate for commercial banks about nearly 3%, which stimulates investment for an additional 2% effect on GDP growth. However, growth will be mainly drained by the formal sector, the main beneficiary of the additional credit. The informal

sector will even be negatively affected, assuming the substitutability of factors between sectors of activity. There is a 0.9% drop in informal employment and a 0.7% reduction in informal production. The BCEAO’s recovery strategy could allow the West African countries to initiate a structural change for a better development different from the strong informal propensity one.

Keywords: COVID-19, monetary policy, economy recovery, informality, BCEAO, DSGE.

JEL classification : E16, C68, D58, E22, O10.

DOI: https://doi.org/10.18559/RIELF.2021.2.9