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

Macroeconomic developments in the Central African Economic and Monetary Community (CEMAC) region have been satisfactory, but risks to macroeconomic stability persist. The process of convergence remains slow and needs strengthening, notably through the adoption of a fiscal rule and the elimination of bank financing of fiscal deficits. Continued efforts by the banking regulator are needed to strengthen the banking sector. There is a need to accelerate structural reforms, strengthen basic infrastructure, and adopt common sectoral policies aimed at diversifying the regional economy.

Abstract

Macroeconomic developments in the Central African Economic and Monetary Community (CEMAC) region have been satisfactory, but risks to macroeconomic stability persist. The process of convergence remains slow and needs strengthening, notably through the adoption of a fiscal rule and the elimination of bank financing of fiscal deficits. Continued efforts by the banking regulator are needed to strengthen the banking sector. There is a need to accelerate structural reforms, strengthen basic infrastructure, and adopt common sectoral policies aimed at diversifying the regional economy.

I. Recent Economic Developments and Prospects

1. Oil market developments continue to dominate the economic performance of the region, as petroleum constitutes 77 percent of the Central African Economic and Monetary Community (CEMAC) countries’ export receipts and almost half of their budgetary revenue.1 Despite a rich regional endowment of oil and other natural resources, four CEMAC countries continue to rank in the lowest quartile of the United Nations Development Program (UNDP) human development indicators and poverty remains pervasive in most countries.

2. Region-wide real GDP growth declined from 5.4 percent in 2001 to 4.7 percent in 2002 (Figure 1 and Tables 1, 2, 3, and 5).2 Growth ranged from an estimated 40.6 percent in Equatorial Guinea, which benefited from a continued strong growth of oil output (see figure to the right), to zero in Gabon, an outcome that reflects a decline in oil output and a lackluster non-oil sector. Chad recorded 9.7 percent real GDP growth, mainly on account of the construction of the Doba-Kribi pipeline; Cameroon sustained broad-based growth of 4.2 percent; the economy of the Republic of Congo (henceforth “the Congo”) grew by 3.5 percent following the resolution of its political crisis; while in the Central African Republic, economic growth declined to 0.8 percent, reflecting political instability.

A01ufig01

Oil Production

(In millions of barrels per year)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Figure 1.
Figure 1.

CEMAC: Selected Macroeconomic Indicators, 1990–2003 1/

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.1/ Cameroon, Gabon, and Republic of Congo are the largest economies in the zone.
Table 1.

CEMAC: Selected Economic and Financial Indicators, 1998–2003

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Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.

The weighted average of oil and non-oil real GDP growth rates does not always add up to real GDP growth because of the nonadditivity of the underlying index.

Excluding grants and foreign-financed investment and interest payments.

Excluding grants and foreign-financed investment.

Table 2.

CEMAC: Summary Medium-Term Projections, 2001-2007

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Sources: IMF, World Economic Outlook database, April 2003; and staff estimates and projections.
Table 3.

CEMAC: National Accounts, 1998–2003

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Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.

Fiscal year (July-June) up to 2001 and calendar year starting in 2002.

Annual average

Table 4.

CEMAC: Relative Size of CEMAC Economies and Importance of Oil Sector, 1998–2003

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Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.

Fiscal year (July-June) up to 2001 and calendar year starting in 2002.

Table 5.

Sub-Saharan Africa: Cross-Group Comparisons, 1998–2003 1/

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Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.

CEMAC data is weighted by the nominal GDP.

West African Economic and Monetary Union.

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

Gross official reserves as a percentage of base money.

Table 6.

CEMAC: Fiscal Balances, 1998–2003

(In percent of GDP)

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Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.

Fiscal year (July-June) up to 2001 and calendar year starting in 2002.

Overall budget balance excluding grants and foreign-financed investment.

3. In spite of strong growth of broad money, consumer price inflation in CEMAC countries fell from 4.3 percent in 2001 to 3 percent in 2002, partly as a result of the appreciation of the euro and increased monetization of the economy. While net domestic assets of the banking system grew by less than 5 percent of beginning-of-period broad money, reflecting a decline in net bank credit to government and a moderate increase in private sector credit, a significant buildup of net foreign assets contributed to a double-digit expansion of broad money (Tables 7, 8, and 9, and figure above).

A01ufig02

CEMAC: Net Domestic Assets, Net Foreign Assets and Broad Money

(Annual change in percent of beginning-of-period broad money)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Table 7.

CEMAC: Monetary Survey, 1998–2003

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Sources: BEAC; and staff estimates.
Table 8.

CEMAC: Summary Accounts of Central Bank, 1998–2003

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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.

Gross official reserves as a percentage of base money.

Table 9.

CEMAC: Summary Accounts of Commercial Banks, 1998–2003

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

Fiscal year (July-June) up to 2001 and calendar year starting in 2002.

4. The use of monetary policy instruments by the Bank of Central African States (BEAC) has remained problematic. In spite of excess bank liquidity overall,3 the BEAC lowered its intervention rates in 2002 in line with the monetary easing in the euro area.4 In the meantime, in an attempt to respond to differences in liquidity conditions among CEMAC countries and to improve the effectiveness of its monetary policy instruments, the BEAC increased the statutory reserve requirements on commercial bank deposits and began differentiating them by country. As a result, banks in Cameroon, the Congo, and Equatorial Guinea bear reserve requirements that exceed those of the other three countries by 2.75 percentage points.5

5. In line with lower GDP growth, the regional fiscal position weakened in 2002. The overall fiscal surplus (excluding grants) declined to 0.3 percent of GDP in 2002, after having fallen to 1.7 percent in 2001 (Tables 1, 2 and 6, and figure to the right). While total government revenue fell by 2.3 percentage points to 21.7 percent of GDP, expenditure was reduced by only 0.9 percentage point to 21.4 percent of GDP, reflecting difficulties in containing spending in countries with declining oil output and strong spending growth in Chad and Equatorial Guinea. The primary surplus of the region is estimated at 6.8 percent of GDP, down from 10.2 percent in 2001. Partly because of the weakening of fiscal balances, several countries accumulated external arrears.6

A01ufig03

EMAC: Government Revenue. Expenditure, and Balance

(In percent of GDP)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

6. Against a background of broadly unchanged terms of trade, the trade balance and the current account balance deteriorated slightly in 2002 (Figure 4 and Tables 1, 10, and 12). The trade surplus slipped by 0.5 percentage point to 9.3 percent of GDP, while the external current account deficit rose from 7 percent of GDP to 7.8 percent. Nevertheless, mainly because of larger foreign direct investment inflows, BEAC’s international reserves grew by 39 percent, raising the ratio of gross foreign exchange reserves to base money to 68 percent (Figure 2). Reflecting subdued trading partners’ inflation, higher domestic inflation, and the depreciation of the U.S. dollar against the euro, the real effective exchange rate appreciated by 4.7 percent in 2002 (Figure 3, figures above and below, and Table 11). Higher international commodity prices resulted in an improvement of 0.7 percent in the terms of trade.

A01ufig04

CEMAC and WAEMU Real Effective Exchange Rates

(Index, 1990=100)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

A01ufig05

CEMAC: Real Effective Exchange Rates of Member Countries

(Index, 1990=100)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Figure 2.
Figure 2.

CEMAC: Currency Cover Ratio, 1995–2003 1/

(In percent)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

1/ Data as of April 2003; 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 1993–April 2003 1/

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Sources: IMF, Information Notice System; and Bank of Central African States.1/ A higher effective exchange rate corresponds to an appreciation of the domestic currency.
Figure 4.
Figure 4.

CEMAC: Terms of Trade and Petroleum Prices, 1993–2003

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.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.
Figure 5.
Figure 5.

CEMAC: French Money Market Rate and BEAC Discount and Deposit Rates, January 1994–June 2003

(In percent)

Citation: IMF Staff Country Reports 2003, 398; 10.5089/9781451806502.002.A001

Sources: IMF, Information Notice System; and Bank of Central African States (BEAC).
Table 10.

CEMAC: Balance of Payments, 1998–2003 1/

(In billions of CFA francs)

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Sources: IMF, World Economic Outlook database, June 2003; and staff estimates and projections.
Table 11.

CEMAC: Nominal and Real Effective Exchange Rates, 1997–2002 1/

(Annual percentage changes)

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Sources: IMF, Information Notice System; and staff estimates.

CEMAC data is weighted by nominal GDP.