Central African Economic and Monetary Community: Recent Developments and Regional Policy Issues

This paper examines recent developments and regional policy issues for the Central African Economic and Monetary Community (CEMAC). The CEMAC region benefited in 2000–01 from favorable world oil prices. This helped to improve the public finances and to strengthen the reserve position of the Central Bank of Central African States. But inflation increased to 4 percent in 2001, owing 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.

Abstract

This paper examines recent developments and regional policy issues for the Central African Economic and Monetary Community (CEMAC). The CEMAC region benefited in 2000–01 from favorable world oil prices. This helped to improve the public finances and to strengthen the reserve position of the Central Bank of Central African States. But inflation increased to 4 percent in 2001, owing 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.

I. Introduction

1. This paper reports on the staff's discussions with senior officials of the Central Bank of Central African States (BEAC), the Regional Banking Commission (COBAC), and the Executive Secretariat of the Central African Economic and Monetary Community (CEMAC) that were held in Yaoundé (Cameroon) during March 19–22, 2002. 1 It provides a regional dimension to the Executive Board’s discussions of Article IV consultations with the six member countries of the CEMAC: Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon.

2. The Executive Board discussed the regional dimension of Article IV consultations with the six member countries of the CEMAC in May 2001 (SM/01/111, 4/17/01). Directors noted that in 2000 sharp increases in export earnings and government revenue in the oil- producing member countries had led to a large reduction in fiscal and external imbalances, as well as to a strong recovery in the BEAC’s international reserves. They observed, however, that an acceleration of the pace of economic integration would enhance CEMAC credibility, and encouraged the authorities to establish a solid framework for close coordination of fiscal and structural policies. Directors also urged the BEAC to improve the conduct of monetary policy, and to take steps to strengthen the functioning of the regional interbank money market. At the same time, they expressed concern about the continuing fragility of the banking sector, and underscored the importance of strengthening COBAC and keeping it free from political interference.

3. This paper is organized as follows. Section II summarizes recent economic developments and prospects. Section III discusses regional integration and multilateral surveillance, in particular issues arising in the context of managing oil revenues, monetary policy, and financial sector reform. The main conclusions drawn by the staff are summarized in section IV.

II. Recent Economic Developments and Prospects

A. Developments in 2001

4. Oil market developments continued to dominate the short-term economic performance of the region. In the wake of high oil prices for most of the year, domestic consumption and investment expanded strongly, supported by an accommodating monetary policy. As a consequence, consumer prices rose by almost 4 percent, and the CEMAC’s external balance deteriorated (Table 1 and Figure 1). Real GDP in the region grew by 5.4 percent, higher than in the rest of sub-Saharan Africa (Table 2), following 3 percent growth in 2000. This translated into healthy growth of 2.7 percent in real GDP per capita in 2001. Regional growth was broadly based, but strongest in Cameroon, Chad, and Equatorial Guinea (Table 3). Both oil and non-oil GDP increased by 5.4 percent; the former in particular continued to expand rapidly in Equatorial Guinea. Petroleum constitutes more than two thirds of the CEMAC-countries’ export receipts and about half of their fiscal revenues (Table 4), and in Chad and the Republic of Congo, non-oil GDP growth reflects almost entirely investments in the petroleum sector, and thus is closely linked to future oil GDP. However, Cameroon, the largest CEMAC economy, recorded broad based, private sector driven non-oil growth of 5.5 percent.2

Table 1.

CEMAC: Selected Economic and Financial Indicators, 1997–2002

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Sources: IMF, World Economic Outlook database, January 2002; and staff estimates and projections.

Excluding grants and foreign financed investment and interest payments.

Excluding grants and foreign financed investment.

Figure 1.
Figure 1.

CEMAC: Selected Macroeconomic Indicators, 1990–2002 1/

Citation: IMF Staff Country Reports 2002, 203; 10.5089/9781451806496.002.A001

Sources: IMF, World Economic Outlook database, December 2001; and staff estimates and projections.1/ Cameroon, Gabon, and Republic of Congo are the largest economies in the zone.
Table 2.

Sub-Saharan Africa: Cross-Group Comparisons, 1997–2002

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Sources: IMF, World Economic Outlook database, January 2002; and staff estimates and projections.

West African Economic and Monetary Union.

Sub-Saharan Africa, excluding Eritrea, Liberia, and Somalia.

Gross official reserves as a percentage of base money.

Table 3.

CEMAC: National Accounts, 1997–2002

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Sources: IMF, World Economic Outlook database, January 2002; and staff estimates and projections.

Fiscal year July 1–June 30.

Table 4.

CEMAC: Relative Size of the CEMAC Economies and Importance of the Oil Sector, 1997–2002

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Sources: IMF, World Economic Outlook database, January 2002; and staff estimates and projections.

5. Although the fiscal position remained strong in 2001, expenditures tended to be procyclical, with total government revenue increasing from 22.4 to 24 percent of GDP and total government expenditure rising from 19.6 percent to 21.2 percent of GDP (Table 5). After a strong increase in oil receipts in 2000, most of the revenue growth in 2001 was due to improved non-oil revenue collections in all CEMAC countries. The overall fiscal balance remained roughly constant at about 2¾ percent of GDP, as the increase in the primary surplus to 11 percent of GDP was offset by higher interest payments.

Table 5.

CEMAC: Fiscal Balances, 1997–2002

(In percent of GDP)

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Sources: IMF, World Economic Outlook database, January 2002; and staff estimates and projections.

Fiscal year July 1–June 30.

Overall budget balance excluding grants and foreign financed investment.

6. The expansion of net bank credit to the government was equivalent to almost 12 percent of beginning-of-period broad money during 2001. This credit growth was fed by statutory advances from the BEAC to the national treasuries in Cameroon, Gabon, and the Republic of Congo, the permissible level of which increased automatically as a result of a rise in their fiscal oil revenues in 2000.3 Moreover, the Gabonese and Congolese governments drew down deposits with commercial banks that they had built up in the previous year (Tables 68). Governments used these additional resources to reduce domestic and external arrears (Cameroon, Gabon, Congo), service larger-than-usual external debt payments (Gabon), and finance the cost of bank restructuring (Congo). As credit to the private sector expanded during 2001 by almost 10.7 percent (6.2 percent as a percentage of beginning-of-period broad money), in particular in Equatorial Guinea, Chad, Gabon and Cameroon, net domestic assets rose by 31 percent (18.6 percent as a percentage of beginning-of-period broad money).

Table 6.

CEMAC: Monetary Survey, 1997–2001

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Sources: BEAC; and staff estimates.

The special deposit system was replaced by the auctioning of BEAC certificates in February 1996.

Table 7.

CEMAC: Summary Accounts of the Central Bank, 1997–2001

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Sources: Bank of Central African States (BEAC); and staff estimates.

Gross foreign reserves, including gold, foreign currency reserves, IMF reserve position, and balance of the operations account at the French Treasury.

Includes cash in vault and deposits of commercial banks with the BEAC.

Table 8.

CEMAC: Summary Accounts of the Commercial Banks, 1997–2001

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Sources: Bank of Central African States (BEAC); and staff estimates.

7. The surge in demand, financed by rapid credit growth, contributed to a substantial deterioration in the CEMAC’s external position. Imports as a share of GDP increased by almost 5 percentage points, while the export share fell by 1 ½ percentage points as a result of weaker prices for oil and wood than in 2000 (Table 1). As a consequence, both the trade and the current account balances worsened, thus contributing to a loss in the BEAC’s international reserves, with the currency cover ratio falling from 77 percent at end-March to 65 percent at end-December (Figure 2 and Table 7). Excess demand led to high inflation in some member countries, notably Chad and Equatorial Guinea, and the zone-wide consumer price index rose by 3.9 percent in 2001. This contributed to an appreciation of 5.9 percent in the real effective exchange rate, in spite of a depreciation of the CFA Franc against the US Dollar (Figure 3 and Table 9). Moreover, the modest fall in petroleum prices during the last four months of the year, albeit from a high level, resulted in a 2.2 percent deterioration in the terms of trade for the whole year (Figure 4 and Table 10).

Figure 2.
Figure 2.

CEMAC: Currency Cover Ratio, 1995–2001 1/

(In percent)

Citation: IMF Staff Country Reports 2002, 203; 10.5089/9781451806496.002.A001

1/ Data as of October 2001; gross official reserves as a percentage of base money.
Figure 3.
Figure 3.

CEMAC: Nominal and Real Effective Exchange Rates and U.S. dollar Exchange Rate, January 1994–December 2001

Citation: IMF Staff Country Reports 2002, 203; 10.5089/9781451806496.002.A001

Sources: IMF, Information Notice System; and Bank of Central African States.
Table 9.

CEMAC: Nominal and Real Effective Exchange Rates, 1996–2001

(Annual percentage changes)

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Sources: Information Notice System; and staff estimates, as of October 2001.
Figure 4.
Figure 4.

CEMAC: Terms of Trade and Petroleum Prices, 1992–2001

Citation: IMF Staff Country Reports 2002, 203; 10.5089/9781451806496.002.A001

1/ Average petroleum spot price of U.K., Dubai, and West Texas crude in U.S. dollars (WEO).2/ Cameroon, Republic of Congo, Equatorial Guinea, and Gabon.3/ Chad and Central African Republic.
Table 10.

CEMAC: Terms of Trade, 1996–2001

(Annual percentage changes)

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Sources: IMF, World Economic Outlook database, January 2002; and staff estimates and projections.