IV Challenges Ahead

Stéphane Cossé, Johannes Mueller, Jean Le Dem, and Jean Clément
Published Date:
June 1996
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The short-term objectives of the programs adopted in support of the devaluation were broadly met in 1994 and the first part of 1995, but a return to sustained growth and external viability will require substantial progress in the areas of fiscal adjustment and structural reform. Thus, the challenges facing the CFA franc countries in the period ahead are how to translate these early encouraging results into long-term gains.

In about half the countries of the zone, there is a need to continue fiscal consolidation and to deepen the structural reforms undertaken since early 1994. In the other half, there is a need to reposition economies on a path of reform and to correct the policy slippages that occurred in 1994. In a few countries, this effort at adjusting course has been under way in the framework of staff-monitored programs since the middle or the end of 1994, and it is crucial that the remaining countries follow suit without delay.

To achieve these objectives, the strategy adopted in the wake of the devaluation remains broadly appropriate. It is particularly important that demand management policies are consistent with the new level of the exchange rate anchor—that is, with very low inflation—and that supply-side actions are conducive to a generation and allocation of resources that will place the countries of the zone on a sustainable growth path.

Monetary policy under the fixed peg regime should continue to center on preserving the credibility of the exchange rate, and therefore on maintaining an adequate level of foreign assets in the two regional central banks. The liberalization and eventual integration of subregional financial markets are increasingly reducing the relevance of monetary and credit aggregates and policies at the national level, creating new operational challenges for the design and monitoring of individual country programs. These developments thus call for the strengthening of policy formulation and implementation at the regional central bank level.

Fiscal policy remains the central tool of domestic adjustment. First, fiscal policy forcefully affects cost behavior in the nontraded goods sector, inter alia, through government wage policies. Second, there is a need to bolster domestic savings both to support the recovery of investment and to keep the external current account positions on a trend consistent with the reestablishment of external viability (as defined earlier); and increasing public sector savings makes the most direct and predictable contribution to domestic resource mobilization. Fiscal consolidation, in turn, should facilitate the early regularization of payments arrears to the domestic private sector. Third, given the continued heavy debt-service burden and the weight of payments arrears, establishing fiscal sustainability and policy credibility calls for the generation of sizable primary surpluses that stabilize and, where needed, reduce public debt/GDP ratios. This effort needs to be complemented by similar improvements in the financial position of the nongovernmental public sector to lessen overall public sector pressures on resources and allow the private sector to serve as the engine of growth. Fourth, the resumption of orderly relations between member countries’ governments and their creditors will help restore creditworthiness and eventually facilitate the mobilization of foreign private saving to finance domestic investment.

Complementary structural reforms, at both the national and the regional levels, need to be accelerated to create an environment that fosters private initiative, unlocks the potential for economic diversification, and thus raises the rate of growth of potential output. In particular, the removal of impediments to intrazone goods and factor mobility should buttress the countries’ resilience to external shocks.

Fiscal Policy

As noted earlier, progress has been made in reducing fiscal imbalances in the zone since the devaluation, but the adjustment has lagged in three respects. First, in several countries the overall improvement in (current) primary balances fell short of program targets in 1994; moreover, additional adjustment over time was originally envisaged as foreign assistance was expected to taper off or decline. Second, there is a need to change the structure of public finances, as the large shortfalls in revenue caused the brunt of adjustment to fall disproportionately on nonwage current and investment expenditure, thus weakening the basis for long-term growth. Finally, several countries need to eliminate domestic payments arrears.

More specifically, to achieve a more sustainable fiscal position, CFA franc countries as a group should increase their primary surplus at least by 3.5 percentage points of GDP to 5 percent of GDP on average in 1996. To this end, these countries will need to adopt new revenue measures, including reforms centered on broadening the tax base and addressing administrative deficiencies, as well as continue to contain public spending. In addition, outlays will need to be allocated according to stricter economic and social criteria, and to be reoriented toward human capital and infrastructure, a process that is expected to be helped by the public expenditure reviews carried out with the assistance of the World Bank.

Improving Government Revenue Performance

The government revenue experience in 1994 indicates the need to strengthen four main areas. First, the ratio of tax collections to GDP—except in Côte d’ Ivoire, the Congo, and Gabon—has been relatively low, ranging from 5 percent to 13 percent. Second, widespread tax derogations, whether statutory or discretionary, have eroded the tax base and led to large shortfalls from targeted revenue levels. Third, the poor performance in revenue collection has brought to light considerable weaknesses in the tax and customs administrations. Fourth, because of the need for early and rapid deficit reduction, the reliance on export and import taxes has been useful or unavoidable in several cases—especially given the unexpectedly favorable export prices—but poses a risk for efficiency in the future, at least on its current scale.

Against this backdrop, a major effort is clearly needed to ensure a durable increase in revenue collection in terms of GDP. The challenge will therefore be not only to strengthen the tax and customs administrations but also to broaden the tax base and steer the tax structure toward more efficient expenditure-based taxes and modernized income tax regimes—which in turn would lessen the countries’ dependence on international trade taxation.

In proceeding with these reforms, two principles will need to be kept in mind. Success in improving revenue performance depends first and foremost on political will, and not only on reforms of administration and instruments; this is particularly true when the issue is the elimination of exemptions and loopholes that benefit specific interests. Second, the tax system must remain simple and easily understood, which requires that tax reforms be preceded by adequate preparation, even in a period of pressing revenue needs.

Strengthening Tax and Customs Administrations

To restructure tax collecting agencies, a number of corrective measures, often already incorporated into existing programs, need to be effectively implemented or reinforced without delay in most CFA franc countries.31 First, tax administration should focus on the largest taxpayers, either companies or individuals, because in most countries 80–90 percent of tax revenues are due from a limited number of easily identifiable taxpayers. To this end, it is important to establish a specialized unit for the monitoring of assessments and collections of taxes due. Second, the relations and communications between the domestic tax, customs, and treasury departments need to be improved, simplified, and tightly coordinated to facilitate the cross-checking of tax declarations. Third, the systematic registration and identification of taxpayers through a single identification number should be effected as early as possible. Fourth, administrative controls need to be reinforced through frequent in-house inspections, and tax officials offered incentives based on results. Finally, appropriate training in modern management techniques and upgrades in equipment are urgently required in many tax administrations.

The strengthening of customs administrations, where revenue shortfalls have been greatest in 1994, should be given high priority. Efforts need to be focused on improving clearance procedures (and tightening transitory regimes), as well as on controlling the value of imported goods. Import verification programs should be tightened in several countries, with support, as needed, from preshipment inspection companies. Moreover, appropriate measures to prevent fraud and parallel market activities should be given particular importance. The computerization of some critical tasks in the customs departments also has to be undertaken in those countries where this is made necessary by the volume of customs operations. These measures should be accompanied by the reinforcement of internal controls and sanctions, the strengthening of customs officials’ incentive systems to combat fraud, and the reorganization of central offices to improve the transparency and efficiency of administrative operations.

Improving the Tax Base and Structure

The exemption from taxes of a wide array of economic operations has seriously eroded the tax base in recent years, and has contributed to a sharp fall in the tax revenue/GDP ratio in most CFA franc countries. Statutory or contractual tax exemptions were established during the period prior to the devaluation,32 when increasingly fewer activities could be pursued profitably without special protection or exemptions to general tax regimes. Revenue forgone on account of these exemptions is estimated to have been in the range of 20–50 percent of potential tax receipts in recent years.33 These exemptions have led the authorities to maintain relatively high tariff and tax rates on an increasingly smaller number of taxpayers or product categories, which in turn have tended to foster distortions, fraud, and misallocation of resources. Not infrequently, state monopolies have been granted exemptions under individual arrangements. There has also been a multiplication of exemptions on an ad hoc basis in several countries, with opportunities for arbitrariness and abuse in the administration of the tax system.

The reduction or elimination of these exemptions should therefore be at the core of tax reform efforts. Progress in this area needs to be made rapidly in most countries, and particularly in the CAEMC countries. Indeed, the CAECU customs tariff and indirect tax reform of June 1993 calls for all ad hoc exemptions—as well as those granted by investment codes and specific regimes or bilateral conventions—to be renegotiated or eliminated by end-1995.34 A similar agreement at the regional level is needed in the WAEMU to prevent the undermining of efforts in one country by a greater tolerance for exceptions in another.35

The broadening of the tax base should also be sought through a more adequate taxation of small and medium-size companies, and of the informal sector. Although efforts to collect taxes from the largest companies should remain a priority, the taxation of these expanding sectors in most countries could draw useful lessons from the approach followed in Benin and Côte d’Ivoire. The mechanism that has been in place for some time in these two countries consists of substituting a single minimum fee (impot synthétique), based on turnover or rent value, for ill-adapted taxes.

The broadening of the tax base should be paralleled and supported by adjustments in the tax structure, with a view to increasing reliance on expenditure-based taxes and domestic taxes and to reducing dependence on international trade taxation. The objectives should be to adjust the structure to reduce distortions, improve income distribution, and lessen the vulnerability of revenue to changes in the external environment. The reform of indirect, income and property, and export taxation therefore needs to be actively on the agenda for the next few years.

In reforming indirect taxation, the WAEMU and CAEMC countries will face different challenges, though both subregions have to take into account their current or future participation in a common trade area. In the CAEMC countries, efforts will need to continue to center on a determined implementation of the CAECU reform. The external (and intraregional) tariff has already been harmonized, entailing a reduction of nominal effective protection;36 the new, two-tier (3–6 percent and 8–17 percent) domestic turnover tax (TCA) and excise taxes on a range of goods are now in place everywhere. In April 1995, however, Gabon moved directly to a value-added tax (VAT), a move that was originally scheduled to follow the introduction of the TCA by a few years, while Cameroon raised the upper rate of the lower tier to 8 percent and the upper rate of the upper tier TCA to 17 percent in June 1995. This suggests that there is a need for further coordination and harmonization within the CAEMC, but also that, with efficient management and collection of the TCA and excise taxes, the generalized move to a VAT can be envisaged in the not too distant future, once the preparatory work has been completed.

In the WAEMU, where the VAT is already in place in all countries, reforms should concentrate on the simplification and regional harmonization of the customs tariff and indirect tax rates, as part of the effort to establish a common market. The sequencing of the tariff and tax reforms, however, will have to be designed carefully, particularly because of the potential for revenue loss by landlocked countries.

The reform of income and property taxes is a longer-term proposition and, in some countries (Côte d’Ivoire, Cameroon, and Gabon), will greatly facilitate the necessary reduction in reliance on export taxes. Although the drawbacks of export taxation are recognized in all countries, the authorities are concerned that the alternatives raise difficult trade-offs and issues of design and management that most CFA franc countries are not equipped to address adequately—that is, without large revenue losses.37 These difficulties, however, should not delay the progressive reduction of the rates of export taxation so that the wedge between domestic and foreign prices becomes less economically distorting; this reduction should be accompanied by efforts to rapidly modernize and simplify the system of personal or corporate income taxation38 and broaden further the reach of domestic indirect taxes.

Expenditure Restraint and Management

To restore in due course a viable fiscal position, all CFA franc countries need to keep public sector spending in check, while reallocating expenditure away from the wage bill and toward physical infrastructure and human resource development.

Restraint in government total remuneration is, to be sure, crucial to overall fiscal adjustment and to maintaining cost control in the nontraded goods sector,39 but it must not be achieved at any cost in terms of efficiency. At the same time, budget allocations need to be restored to appropriate levels for basic health, education, and infrastructure, as well as, where needed, for social safety net expenditures. In the context of its public expenditure reviews and its support to the formulation of public investment programs (PIPs), the World Bank is giving priority to these issues, and its views are being incorporated in the programs supported by the Fund.

Weaknesses also need to be addressed rapidly in public sector financial management. In addition to institutional capacity building and investment programming, there is a need to strengthen budget formulation to ensure unity and comprehensiveness, as well as effective treasury management, expenditure control, and accounting procedures. The management and supervision of autonomous public agencies and public enterprises also need to be strengthened, which will often require technical assistance from the donor community. In addition, the selection and monitoring of investment projects calls for urgent improvements, with greater attention to cost-benefit analysis, rates of return, the associated future recurrent expenditure, and the needs for counterpart funding. Finally, in a number of countries, public investment budgets will need to be made consistent with PIPs, and consolidated with the current budget, with due regard being paid to overall fiscal constraints and to recurrent cost implications.

Monetary and Credit Policy

The monetary arrangements of the two subzones impose constraints on monetary policy, not only at the individual country level but also at the subregional level. The emergence of regional interbank and money markets, and the progressive move to indirect instruments of monetary management, have sharply reduced the scope for country-specific monetary and credit policies. In addition, the monetary authorities are facing increasing difficulties in determining the precise level of currency in circulation or reserve money at the individual country level, and therefore can only produce tentative (and often revisable) estimates of individual member country contributions to the consolidated net external position of each of the two central banks. These observations argue in favor of a monetary policy that is not only designed and conducted but also monitored at the regional level. The bilateral discussions that have been taking place on a semiannual basis between the Fund staff and the BCEAO and the BEAC may thus need to be given greater operational content, both from the standpoint of surveillance over policies in general and in particular in the context of use of Fund resources. In this regard, it would seem important that understandings be reached on projections of regional money demand in the two subzones and on the expansion in the two central banks’ net domestic assets consistent with the objectives for regional expenditure growth and the banks’ net foreign positions. These understandings would have to be translated (a) at the regional level, into objectives for net support of, or restrictions on, the lending capacity of commercial banks to the private sector; and (b) at the individual country level, into limits on net access by the governments not only to bank financing but, more narrowly, to financing by the central bank (irrespective of any margin that might be available under the statutory ceiling on advances).40

Control over bank lending to the private sector—assuming that such control can be exercised effectively, that is, to the extent that banks do not have freedom to draw on foreign resources to finance domestic operations—in turn raises the question of whether policy instruments are adequate to achieve the objectives. As indicated in Annex III, the two central banks have not yet fully developed their array of indirect monetary instruments, while they have already eschewed the direct instruments of monetary management (such as country and individual bank refinancing ceilings) that they had relied on in the past.

Programs recently negotiated or currently under discussion with the Fund have sought to increase the leverage of the two central banks’ lending capacity, expanding the scope of intervention to include (a) symmetrical credit auctions or reverse auctions of central bank bills, a first step toward full-fledged open market operations;41 (b) market determination of interest rates in these interventions, which will require that the two central banks refrain from fixing both quantity and prices at the auctions or reverse auctions as at present; and (c) the activation and refinement of existing reserve requirements, as needed.

It remains the case, however, that the effectiveness of monetary policy may be undermined, in the WAEMU, by the option to redeem at par the bonds issued in the context of the securitization scheme; and, in the CAEMC, by the possibility of open-ended refinancing of medium-term credit, and the voluntary character of the special deposits. Accordingly, the need to substitute central bank bills of various maturities for the paper issued in the context of the securitization scheme in the WAEMU, and for the special deposits in the CAEMC, needs to be actively examined. Improvements in and activation of legal reserve requirements will also have to be reviewed, particularly the existing use of the securitized debt to meet required reserve ratios in the WAEMU. In the CAEMC, the medium-term refinancing window will need to be closed as soon as conditions permit.

Financial and Banking Reforms

In recent years, given the arrangements governing the CFA franc zone and the unavailability of spontaneous domestic or external financing, the possibility of financing fiscal imbalances was limited to the accumulation of external and domestic payments arrears. This disorderly process of financing prevailed in most countries until the devaluation and contributed to undermining the functioning of the banking systems in several countries, as first the public sector and then its suppliers ceased meeting their financial obligations. A web of payments arrears was created, including arrears to commercial banks. As a result, most banking systems in the zone had turned both illiquid and insolvent by 1989–90 and had to undergo major restructurings.

These efforts led to measurable improvements in bank liquidity and solvency in both unions even before the devaluation; and, as expected, the restoration of liquidity has been helped greatly in 1994 by the rapid reconstitution of real money balances. Solvency has improved in most banking systems of the WAEMU; but progress has been uneven in the CAEMC, and substantial problems remain. Continued efforts are thus needed to strengthen the regional banking commissions and step up the necessary audits, liquidate insolvent banks, and recapitalize those in difficulty.42 Although now reduced in scope, the problem of nonperforming loans to public enterprises also remains unsolved in certain countries, partly because interenterprise debts and cross-debts with governments have not been fully accounted for, let alone settled. Alongside the settlement of government arrears, effective public enterprise reforms thus remain a condition for restoring health to the financial sector.

While specific cases of troubled banks must surely be addressed, an important challenge now facing most countries and the two central banks is to strengthen and deepen financial intermediation and reduce intermediation costs. The objective is to enable the banking sector to play a larger role in mobilizing financial savings and supporting economic activity. Improving intermediation, however, hinges on providing a predictable legal and regulatory framework that allows banks to pursue their claims on borrowers and to exercise guarantees as needed. Accordingly, buttressing the judiciary through training, elimination of political interferences, and restoration of adequate compensation levels and pay relatives is becoming an integral part of the efforts to strengthen the financial systems.

The deepening of financial intermediation is recognized as a more protracted undertaking. For one thing, it requires creating the conditions, including fiscal consolidation and elimination of government arrears, for the progressive emergence of regional financial markets in which public debt instruments can be traded. It also requires building on ongoing initiatives, especially in the countryside—where barter and cash-based exchange dominate—to set up or develop credit cooperatives or other systems of mutual credit. Similar arrangements are needed to support the growth of the small and medium-size enterprise sector, which often faces considerable difficulties accessing formal bank credit. Initiatives in this direction might involve building on such arrangements as the tontine credit networks, or introducing mechanisms akin to those successfully tested in Bangladesh (Grameen banks). Savings and loan type networks for the financing of social housing also need to be encouraged.

Structural Policies

In all CFA franc countries there is an urgent need for stepping up structural reforms. This will enhance the credibility of the adjustment strategy and create an environment where the private sector can take full advantage of the window of opportunity opened by the devaluation. At the same time, however, there is a need for a sharper prioritization of the critical mass of reforms that would take due account of the limitations of existing administrative capacity at both the national and the regional levels.

The reforms that were developed in the wake of the exchange rate action, but unevenly implemented in 1994, have centered on the progressive disengagement of the state from production activities that can be carried out more effectively by the private sector. They have also involved domestic deregulation and trade reforms, so as to increase efficiency further and reduce distortions. By making the economies more competitive internationally, these reforms will help integrate the zone in the mainstream of international trade and reduce its dependence on primary commodity exports. The agenda for the period ahead needs to impart greater momentum to this process.

Price liberalization has been at the core of the effort to increase flexibility in the economies of the zone, and ensure that international price signals are properly transmitted to domestic producers. Although producer prices have been greatly liberalized in many countries, not all have engineered a full pass-through of the devaluation to producers; state marketing boards remain active, notably in Benin, Mali, Côte d’Ivoire, and Senegal, although their activities have already been scaled down; and export taxes continue to act as a wedge between foreign and domestic prices.43 At the consumer level, measures need to be taken to reduce the list of the remaining administered prices in a number of countries, and to ensure that public monopoly prices cover costs. Meanwhile, automatic rate adjustment mechanisms for electricity, water, telecommunications, and public transportation, and, as a first step, systems linking petroleum pump prices to world prices (already adopted by Côte d’Ivoire, Mali, and Senegal, among others) would need to be extended to other countries.

Liberalization of labor markets is lagging behind in most countries, except Cameroon, Chad, and Senegal. Measurable improvements are required in this area to lessen market rigidities and reduce the social costs of adjustment. Reforms of labor codes, and of labor legislation more generally, also need to be given greater impetus.

Updating and harmonizing regulatory and legal frameworks, at both the national and the regional levels, are under way. A few countries of the zone have not yet ratified the regional treaties on social security institutions, harmonization of statistics, and harmonization of business law (OHADA). The regional Court of Law, to be established by OHADA when it becomes operational, is expected to impart greater independence to judges and facilitate the enforcement of court decisions.

Privatization and restructuring of public enterprises experienced delays in 1994, as noted earlier. This process now has to be given stronger momentum, and the World Bank is placing increased priority to supporting it. The key objectives are to foster competition and sound management, raise economic efficiency and weaken opportunities for rents, and reduce the burden of subsidies on the government budgets.

Economic integration has received a boost from the devaluation, with the recognition that the currency area, to be viable over the long run, needs to be grounded in an equivalent economic area with goods and factor mobility, and a high degree of convergence of economic and policy performance.44 However, the pace of implementation of the objectives envisaged in the treaties creating the WAEMU and the CAEMC has been uneven.45 The WAEMU has taken the lead in moving toward regional surveillance, but has made only limited progress toward building a customs, let alone an economic, union. The CAEMC, for its part, has made important strides toward establishing a common market, with the adoption in the framework of the CAECU of the common external and intraregional tariff and of a common system of domestic indirect taxation. It has yet to agree, however, on the elements of the conventions on economic and monetary union (including the coverage and mechanism of regional surveillance) that are to flesh out the CAEMC treaty.

The WAEMU member countries must therefore be encouraged to move in due course to a common external tariff. In the CAEMC, the challenge ahead is to eliminate the loopholes provided by statutory or contractual exemptions, and to avoid granting new ad hoc exemptions. Although these actions are provided for in the CAECU decisions of June 1993, the experience of 1994 suggests that they will require firm resolve on the part of the authorities.

Regional surveillance, as provided for in the WAEMU treaty and the draft CAEU and CAMU conventions now under discussion in the CAEMC, needs to be encouraged to foster sound and mutually supportive economic and sectoral policies in the two subregions, as well as a better coordination of economic policies. Convergence indicators and appropriate policy coordination mechanisms should be supported by efforts at harmonizing public finance statistics, as well as budget laws and procedures.

Finally, to give a boost to the credibility of their strategy and reaffirm the outward-oriented character of the zone, the CFA franc countries should consider moving rapidly toward acceptance of the obligations of Article VIII, Sections 2, 3, and 4 of the Fund’s Articles of Agreement.

Social Policies

On the social front, the implementation of social safety nets has varied widely from country to country. With the removal of the limits on price increases imposed on a few key consumer goods following the parity change, there is now a need to accelerate the implementation of well-targeted measures. This would help in alleviating the hardship on the poorest segments of the population, particularly in the cities. More generally, however, emergency social protection measures must progressively give way to lasting initiatives aimed at improving socioeconomic conditions. Accordingly, budgetary allocation decisions should place increased emphasis on the development of human resources, particularly health and primary education, and on essential economic infrastructure. This redirection of public expenditure would help in achieving sustainable economic growth and poverty reduction. In this context, public expenditure reviews, which are carried out with the help of the World Bank, should become a central element of the economic strategy of the member countries.

External Debt Management

Since early 1994, most CFA franc countries have benefited from substantial concessional reschedulings by Paris Club creditors, as well as from debt cancellation by several bilateral creditors (most notably, France). As noted above, eleven CFA franc countries have concessional rescheduling agreements currently in place—or lapsed—that envisage stock-of-debt operations over the next two and a half years. Under current Paris Club practices, these would be under Naples terms, provided the countries concerned establish track records of adjustment and good performance under the rescheduling agreements.46 Such stock-of-debt operations, combined with comparable treatment by other bilateral and commercial creditors, should lead to a marked improvement in these countries’ external debt situations. However, progress toward external viability will also require the pursuit of appropriate financial and structural adjustment policies to boost growth and export recovery, as well as continued external financial assistance on highly concessional terms.

In all CFA franc countries, a substantial improvement in the public finances will be a key condition to strengthening the external position over the medium term. Moreover, to improve debt-service profiles and lower average interest costs, these countries will have to resort primarily to grants and to long-term loans on highly concessional terms. Although most CFA franc countries have by and large regularized their relations with official bilateral creditors, administrative shortcomings have in some cases led to delays in meeting scheduled debt-service obligations. These shortcomings need to be addressed, as a matter of urgency in a number of cases, in the context of improvements in external debt management.

Overall, the timely and determined implementation of the policies and reforms envisaged in the adjustment programs, stock-of-debt operations tailored to the countries’ capacity to meet their foreign financial obligations, and appropriate new financing on concessional terms should permit a lasting exit from the rescheduling process and the achievement of external debt sustainability for eligible CFA franc countries. In the cases of Cameroon, the Congo, and Côte d’Ivoire, Paris Club action will need to be complemented by agreement on a menu of debt or debt-service reduction options with foreign commercial banks that are consistent with these countries’ ability to pay.

Fund technical assistance to CFA franc countries has been extensive in the last two years; it has sought to remedy weaknesses in tax and customs administrations and to simplify tax and tariff legislations. Technical assistance missions’ recommendations have often been detailed in individual country reform programs. In addition to the posting of several long-term IMF technical assistance experts, specialized missions have assisted most countries in the BEAC subregion in the implementation of the CAECU reform, including the introduction of the VAT in Gabon. For details, see Annex IV on technical assistance.

Under investment codes or under individual arrangements (conventions d’etablissement).

During the period June 1993-June 1994, goods exempted from customs duties were estimated at 30–65 percent of imports in value terms in the CAEMC countries (see Annex II, Table 55).

The agreement of June 1993 excludes exemptions granted under the Vienna Convention and public procurements. In these cases and in those of the NGOs, however, countries will need to tighten criteria and controls because of possible abuse.

To the extent that exemptions have been granted under contractual agreements, the authorities may not be at liberty to revoke them unilaterally; the agreements may thus have to be allowed to run their course, before they can be renegotiated and the exemptions eliminated.

See Annex II, Table 55. The intraregional tariff is also expected to be phased out by January 1, 1998.

Either these alternatives are economically efficient, such as taxes based on land values or on imputed farm income, but difficult and costly to administer—because they require, for instance, detailed and frequently updated cadastral surveys and estimates of land profitability—or they are easy to implement, such as taxes on farm inputs, but yield little and can lead to cost and price distortions.

It is recognized that some activities, such as the timber industry, remain difficult to bring even under these simplified regimes.

Wage bills still approached or exceeded government revenue in Niger and the Congo in 1994, and few countries would currently meet the regional convergence criterion of 50 percent of revenue agreed in the WAEMU.

An important issue for the future is whether or not the currency arrangements should require that the governments’ overdraft facility be gradually eliminated and that the governments in-stead rely on normal domestic financing at market conditions (that is, through commercial banks or through bond or bill issues, which in turn would encourage the development of financial markets). Such a move, however, would call for the observance of strict objectives for the governments’ primary balances, as well as for the strengthening of domestic debt management capacity.

Treasury bill auctions may probably have to be ruled out as long as the regular servicing of the existing domestic debt has not been resumed (and domestic arrears have not been eliminated).

Outright liquidations appear to be necessary only rarely. The authorities are developing, with World Bank support, solutions that involve either liquidations (that is, takeovers by other banks of the salvageable part of the portfolio) or the entry of new shareholders into the equity capital. To the extent possible, these solutions seek to minimize fiscal costs to the governments, except in those cases where state participation in the recapitalization is a condition for private shareholders to contribute to the operation.

The measure has been deliberate in the case of cocoa in Côte d’Ivoire because of the latter’s market-maker position and the need to encourage diversification of agricultural output.

In addition, the need to deal with other barriers such as trans-port barriers, roadblocks, and similar formal and informal impediments to cross-border trade will have to continue to be addressed.

The key objectives are the establishment of two common markets based on customs unions, the harmonization of indirect tax legislation, the coordination of economic policies among member countries through multilateral surveillance, and the implementation of common sectoral policies; see Annex II.

Benin, Burkina Faso, Cameroon, the C.A.R, Chad, Côte d’Ivoire, Equatorial Guinea, Mali, Niger, Senegal, and Togo. The Congo and Gabon had nonconcessional reschedulings.

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