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© 2002 International Monetary Fund
September 2002
IMF Country Report No. 02/203
Central African Economic and Monetary Community—Paper on Recent Developments and Regional Policy Issues; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director on Recent Developments and Regional Policy Issues in the Central African Economic and Monetary Community
As a supplement to the Article IV consultations with Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon, the IMF has regular discussions of developments and regional policy issues in the Central African Economic and Monetary Community (CEMAC). In this context, the following documents have been released and are included in this package:
the paper on recent developments and regional policy issues in the Central African Economic and Monetary Community, prepared by a staff team of the IMF, following discussions that ended on March 22, 2002, with officials of the CEMAC on economic developments and policies. Based on information available at the time of these discussions, the paper was completed on May 31, 2002. The views expressed in the paper are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF.
the Public Information Notice (PIN) summarizing the views of the Executive Board as expressed during the June 14, 2002 Executive Board discussion of the paper.
a statement by the Executive Director on recent developments and regional policy issues in the CEMAC.
The policy of publication of staff reports and other documents by the IMF allows for the deletion of market-sensitive information.
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INTERNATIONAL MONETARY FUND
Central African Economic and Monetary Community: Recent Developments and Regional Policy Issues
Prepared by the African Department
(In consultation with the Fiscal Affairs, Legal, Monetary and Exchange Affairs, Policy Development and Review, Research, and Statistics Departments)
Approved by Anupam Basu and Michael Hadjimichael
May 31, 2002
Table of Contents
Executive Summary
I. Introduction
II. Recent Economic Developments and Prospects
A. Developments in 2001
B. Prospects for 2002
III. Main Policy Issues and Report of the Discussions
A. Regional Surveillance over Macroeconomic Policies
B. Managing Oil Revenues
C. Regional Monetary Policy
D. Financial System Issues and Regional Integration
The interbank market and its role in the implementation of the regional monetary policy
Financial system soundness and regional integration
Legal environment for banking activity
Money laundering
E. Trade, Tax and Sectoral Policies, and Other Regional Integration Issues
Trade policy
Tax harmonization
Sectoral policies
Financing of CEMAC institutions
IV. Staff Appraisal
Text Boxes
1. The Effect of Oil Prices and Production on the Basic Fiscal Balance, 1994–2001
2. COBAC: Recent and Prospective Changes in Prudential Regulations for the Banking System
3. CEMAC: Regional Integration Initiatives, Progress Achieved (March 2002)
Figures
1. CEMAC: Selected Macroeconomic Indicators, 1990–2002
2. CEMAC: Currency Cover Ratio, 1995–2001
3. CEMAC: Nominal and Real Effective Exchange Rates and U.S. Dollar Exchange Rate, January 1994–December 2001
4. CEMAC: Terms of Trade and Petroleum Prices, 1992–2001
5. CEMAC: French Money Market Rate and BEAC Discount and Deposit Rates, January 1994–December 2001
6. CEMAC: Analysis of Spreads in the Banking System, 1997–2000
7. CEMAC: Evolution of Net Profit and Net Banking Product, 1998–2001
Tables
1. CEMAC: Selected Economic and Financial Indicators, 1997–2002
2. Sub-Saharan Africa: Cross-Group Comparisons, 1997–2002
3. CEMAC: National Accounts, 1997–2002
4. CEMAC: Relative Size of the CEMAC Economies and Importance of the Oil Sector, 1997–2002
5. CEMAC: Fiscal Balances, 1997–2002
6. CEMAC: Monetary Survey, 1997–2001
7. CEMAC: Summary Accounts of the Central Bank, 1997–2001
8. CEMAC: Summary Accounts of the Commercial Banks, 1997–2001
9. CEMAC: Nominal and Real Effective Exchange Rates, 1996–2001
10. CEMAC: Terms of Trade, 1996–2001
11. CEMAC: Balance of Payments, 1997–2002
12. CEMAC: Compliance with Convergence Criteria, 1997–2002
13. CEMAC: External Debt, 1997–2002
14. CEMAC: Money Market Volumes, 1999–2001
15. CEMAC: Summary of Violations of Main Prudential Ratios, 2000–01
16. CEMAC: Quality of Loan Portfolio, 1999–2001
17. CEMAC: Bank Ratings, 2001
Executive Summary
The CEMAC region benefited in 2000-2001 from favorable world oil prices. This helped to improve the public finances and to strengthen the BEAC’s reserve position. But inflation increased to 4 percent in 2001, due to pressures from high domestic demand growth, which rose by 12 percent in real terms, and was fed by growth in credit to governments.
Prospects for 2002 are for continued strong growth in domestic demand and an opening up of trade imbalances. GDP growth is likely to remain strong, and inflation to increase further.
The regional monetary policy of the BEAC needs to respond to the inflationary pressures, by mopping up liquidity. However, incomplete integration of financial markets and the obligation to provide statutory monetary financing to governments make monetary control difficult. Reforms (to the payments system, and the elimination of monetary financing of government deficits) are underway to improve the effectiveness of the BEAC’s instruments and the financial integration of the region.
The banking system is in better shape than in recent years, but still does not operate in an integrated fashion across national borders despite the possibility of obtaining a regional banking license. The regional banking supervisory agency, the COBAC, needs to be strengthened to prevent renewed problems and to encourage regional financial integration. The ad hoc attachment of commercial bank accounts needs to be addressed by changes to Cameroon’s business law, and the immunity status of the BEAC needs to be clarified.
Regional surveillance over fiscal policies could be improved by taking into account the volatility of oil prices. Further fiscal consolidation is needed to provide firm support to the common exchange rate regime. Convergence criteria should be adjusted for movements in oil prices, because otherwise they are too lax when prices are high. Countries must also be induced to increase national saving before oil reserves become depleted. Though funds for future generations may help in the process, they need to be designed to embody adequate safeguards, and to ensure consistency with the obligation to pool external assets in the monetary union.
The CEMAC has initiated a number of projects that aim at furthering regional integration, including trade liberalization, the harmonization of taxation, facilitating movements of persons and inputs to production, enhancing multilateral surveillance, and implementing sectoral reforms. While efforts have borne fruit in some areas, in others progress has been slow and there has not been sufficient political will to implement agreed measures. The common external tariff rates need to be fully implemented, and barriers to regional trade dismantled.
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Public Information Notice (PIN) No. 02/96
FOR IMMEDIATE RELEASE
September 3, 2002
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June 14, 2002
