Aftermath of the CFA Franc Devaluation

by Jean A.P. Clement, with Johannes Mueller, Stéphane Cossé, and Jean Le Dem

INTERNATIONAL MONETARY FUND

Washington, D.C.

May 1996

© 1996 International Monetary Fund

Library of Congress Cataloging-in-Publication Data

Aftermath of the CFA franc devaluation / Jean A.P. Clément … [et al.].

p. cm.—(Occasional Paper; 138)

Includes bibliographical references

ISBN 1-55775-561-2

1. French franc area. 2. Devaluation of Currency—Africa, French-speaking West. 3. Devaluation of Currency—Africa, French-speaking Equatorial. 4. Monetary policy—Africa, French-speaking West. 4. Monetary policy—Africa, French-speaking Equatorial. I. Clément, Jean A. P. II. Series: Occasional paper (International Monetary Fund); no. 138.

HG3897.4.A34 199696-19859

332.4’966’0917541—dc20CIP

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Contents

• Preface

• I Introduction and Background

• II Modified Adjustment Strategy

  • Policy Framework

  • Medium-Term Objectives

  • Fund-Supported Programs, Creditors, and Donors

• III Adjustment Experience

  • Overall Performance in 1994

  • Policies Supporting the Exchange Rate Adjustment

    • Wage and Labor Policies

    • Fiscal Developments and Policy

    • Monetary Developments and Policy

    • Structural Reforms

    • Social Policies

• IV Challenges Ahead

  • Fiscal Policy

    • Improving Government Revenue Performance

    • Expenditure Restraint and Management

  • Monetary and Credit Policy

  • Financial and Banking Reforms

  • Structural Policies

  • Social Policies

  • External Debt Management

• V Conclusions

• Annexes

  • I Statistical Tables

  • II Economic Integration Within the Two Unions of the CFA Franc Zone

  • III Monetary Policy and Banking Supervision in the Two Unions of the CFA Franc Zone

  • IV Fund Technical Assistance in CFA Franc Countries

  • V World Bank Group Technical Assistance in CFA Franc Countries

• References

• Box

  • 1. CFA Franc Zone: A Profile

• Tables

• Section

  • I 1. Economic and Financial Indicators for CFA Franc and Non-CFA Franc Sub-Saharan African Countries, 1975–93

  • III 2. Selected Economic and Financial Indicators, 1990–96

• Annex

• I

  • 3. Nominal GDP, 1991–96

  • 4. Real Rate of Growth, 1990–96

  • 5. GDP Deflator, 1990–96

  • 6. Inflation (CPI), 1990–96

  • 7. Cumulative Consumer Price Index, 1994 and 1995 (January-June)

  • 8. Total Consumption, 1990–96

  • 9. Total Gross Domestic Investment, 1990–96

  • 10. Gross Public Investment, 1990–96

  • 11. Total Private Investment, 1990–96

  • 12. Gross Domestic Savings, 1990–96

  • 13. Government Domestic Savings, 1990–96

  • 14. Private Domestic Savings, 1990–96

  • 15. Gross National Savings, 1990–96

  • 16. Resource Balance, 1990–96

  • 17. Exports Value (f.o.b.), 1991–96

  • 18. Exports—Volume, 1991–96

  • 19. Imports Value (f.o.b.), 1991–96

  • 20. Imports—Volume, 1991–96

  • 21. Trade Balance, 1990–96

  • 22. Intra-CFA Franc Zone Trade, in 1990–93 and 1994

  • 23. External Current Account Excluding Official Transfers, 1990–96

  • 24. External Current Account Including Official Transfers, 1990–96

  • 25. Terms of Trade, 1990–96

  • 26. Nominal and Real Effective Exchange Rates, 1991–94

  • 27. Stock of External Public Debt at End of 1994

  • 28. Recent Paris Club Debt Reschedulings for the CFA Franc Countries

  • 29. Total Scheduled Public Debt Service, 1990–96

  • 30. Total Scheduled External Public Debt Service, 1990–96

  • 31. Total Government Revenue, 1990–96

  • 32. Total Government Tax Revenue, 1990–96

  • 33. Domestic Tax Revenue, 1990–96

  • 34. Tax on International Trade, 1990–96

  • 35. Total Government Expenditure, 1990–96

  • 36. Basic Primary Expenditure, 1990–96

  • 37. Government Wage Bill, 1990–96

  • 38. Government Wage Bill, 1991–96)

  • 39. Adjustments in Civil Service Wage Bill, 1993–95

  • 40. Government Investment Expenditure, 1990–96

  • 41. Public Investment Financed by Internal Resources, 1990–96

  • 42. Basic Primary Balance, 1990–96

  • 43. Overall Fiscal Balance, 1990–96

  • 44. Monetary Survey, 1993

  • 45. Monetary Survey, 1994

  • 46. Interest Rate Structure, 1989–95

  • 47. Sources of Exceptional Financial Assistance, 1993–94

  • 48. Exceptional Financial Assistance by Recipient Country, 1993–94

  • 49. Project Aid by Recipient Country, 1993–94

  • 50. Official Debt Relief by Recipient Country, 1993–94

  • 51. Disbursements from the Fund, 1994–95

  • 52. Official Producer Prices for Main Export Crops by Country, 1993–95

  • 53. Selected Demographic and Social Indicators

• II

  • 54. Summary of Economic Integration Initiatives/Results in the CFA Franc Zone

  • 55. Harmonization of Customs Duties and Indirect Taxes in the CFA Franc Zone

  • 56. Economic Integration Projects at the CFA Franc Zone Level

• III

  • 57. Status of Monetary Reforms in the Two Unions of the CFA Franc Zone

  • 58. Banking Supervision in the Two Unions of the CFA Franc Zone

• IV

  • 59. Fund Technical Assistance in CFA Franc Countries, 1989–95

• Charts

• Section

• III

  • 1. Economic and Financial Indicators, 1990–96

  • 2. Quarterly Increases in Consumer Prices, 1994-March 1995

  • 3. Real Effective Exchange Rate and Terms of Trade, 1980–94

  • 4. WAEMU: Decomposition of Trade Balance Variations, 1993–94

  • 5. CAEMC: Decomposition of Trade Balance Variations, 1993–94

  • 6. External Public Debt at End of 1994

  • 7. WAEMU: Monetary Survey, 1994

  • 8. CAEMC: Monetary Survey, 1994

Preface

This Occasional Paper reviews developments in the countries of the CFA franc zone in the aftermath of the January 1994 CFA franc devaluation and discusses the challenges that lie ahead in securing a sustainable rate of growth in an environment of financial stability.

The paper draws largely on the report on “CFA Franc Countries—Recent Adjustment Experience and Policy Issues in the CFA Franc Countries” that was circulated for information to the Executive Board of the IMF in October 1995.

The authors are indebted to numerous colleagues throughout the IMF—particularly in the African Department—and the World Bank for comments on the paper. The authors wish especially to thank Evangelos A. Calamitsis and Christian Brachet for comments, guidance, and support. Thanks are also due to Paul Acquah, Anupam Basu, Pierre Dhonte, Christian François, Louis Goreux, Pierre Ewenczyk, Michel Galy, and Amor Tahari for insightful views, Ngoc Tuyêt Lê and Diep Nuven for research assistance, and Leslie Lefever for secretarial assistance. David Driscoll of the External Relations Department edited the paper for publication and coordinated production.

The opinions expressed in the paper are those of the authors and should not be construed as representing the views of the IMF or of its Executive Directors.