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.
On November 12, 2003, the Executive Board of the International Monetary Fund (IMF) concluded the 2003 discussion of recent developments and regional policy issues in the Central African Economic and Monetary Community (CEMAC).
Background
In spite of a rich regional endowment of oil and other natural resources, the CEMAC region continues to fare poorly with respect to the United Nations Development Program human development indicators, and poverty remains pervasive. While macroeconomic developments in 2002 can be considered satisfactory, the authorities have so far not been able to consolidate public finances in spite of higher oil prices since 2000, prolonging the risk that a potential decline of oil prices might lead to serious macroeconomic disruptions. Other risks to economic stability persist as well, most importantly the high degree of fiscal revenue dependence on oil, the gradual erosion of the non-oil sector’s competitiveness, the lack of diversification, and the high level of some member countries’ indebtedness. Finally, little progress has been made with respect to strengthening institutions and meeting convergence criteria.
Oil sector developments continue to dominate the economic performance of the region, as petroleum constitutes on average 31 percent of GDP, 48 percent of budgetary revenue, and 77 percent of exports. The real growth rate of regional GDP declined from 5.2 percent in 2001 to 3.9 percent in 2002. Growth ranged from an estimated 17.6 percent in Equatorial Guinea, which benefited from a further growth in oil output, 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 grew by 3.5 percent following the resolution of its political crisis; and in the Central African Republic, economic growth declined to 0.8 percent, reflecting political instability.
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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 from 1.7 percent in 2001. While total government revenue dropped by 1.7 percentage points to 22.4 percent of GDP, expenditure was reduced by only 0.4 percentage point to 22 percent of GDP, reflecting difficulties in containing spending in countries with declining oil output and strong spending growth in Chad and Equatorial Guinea. The regions’ primary surplus is estimated at 7 percent of GDP, down from 10.2 percent in 2001. Partly because of the weakening of fiscal balances, several countries accumulated additional external arrears.
An insufficient sterilization of oil-sector related foreign currency inflows resulted in broad money to grow at double-digit rates. However, average 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 regional economy.
Against a background of broadly unchanged terms of trade, the trade and the current account balances deteriorated somewhat in 2002. The trade surplus slipped from 5.1 percent of GDP in 2001 to 4.3 percent in 2002, while the external current account deficit rose from 7.1 percent of GDP to 8.5 percent. Nevertheless, foreign currency inflows contributed to a further rise in international reserves of the Bank of Central African States (BEAC). Reflecting the differential between domestic and trading partners’ inflation, as well as the appreciation of the euro against the U.S. dollar, the region’s real effective exchange rate appreciated by 4.3 percent in 2002.
The use of monetary policy instruments by the BEAC remained problematic. In spite of excess bank liquidity overall, the BEAC lowered its intervention rates in 2002 in line with the monetary easing in the euro area. 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.
Given these macroeconomic developments, progress towards compliance with the recently reformed surveillance framework was slow. The total number of criteria violations declined from 11 in 2001 to 9 in 2002.
Progress with structural reform has been mixed. While the restructuring and privatization of distressed banks have moved ahead and the regulatory framework for financial institutions has been strengthened, the health of the banking system remains fragile in several CEMAC countries, the effectiveness of monetary policy instruments limited, and the implementation of the customs union inadequate.
Executive Board Assessment
Executive Directors observed that macroeconomic developments in the CEMAC region were generally satisfactory in 2002, with growth remaining buoyant, inflation moderate, and the level of official reserves rising. However, the region remains excessively dependent on the oil sector, and human development indicators have improved only marginally despite the region’s endowment of natural resources. More broadly, Directors considered that greater convergence in members’ fiscal, monetary, and trade policies would contribute to realizing the full potential of regional economic integration.
Against that background, Directors regretted the slow progress in macroeconomic convergence, and urged greater political commitment to and strengthening of the surveillance process. They welcomed the introduction of improved convergence criteria, and suggested further strengthening the peer review process. Given the volatility of oil revenues, they encouraged the CEMAC authorities to modify the basic fiscal balance criterion by using a fiscal rule, and to introduce greater transparency in the management of oil resources in tine with international best practices. Directors welcomed the plans for making the administration of national stabilization funds and “Funds for Future Generations” more flexible, and suggested that consideration be given to improved ways of investing these resources with the BEAC.
Directors considered the BEAC’s monetary policy stance in 2002 to have been generally prudent, and the 2003 monetary program is broadly consistent with the regional inflation objective. However, more progress is needed to remove the long-standing structural weaknesses that hinder the effective conduct of monetary policy in the region. Directors urged the CEMAC authorities not to delay further the replacement of the BEAC financing of budget deficits by the issuance of treasury bills. In that context, they encouraged the BEAC to consider issuing its own negotiable certificates of deposit in order to enhance its liquidity management capacity until government treasury bills become more generally available. Directors also considered that country-specific reserve requirements might create distortions across the region’s financial markets, which could impair the competitiveness of financial service providers in some member countries, and called for their realignment. Directors called for additional measures, such as a freeing up of interest rates, improving the payments system, and simplifying the procedures used for open market operations, to enhance the functioning of the interbank market.
Directors stressed the need for continued efforts to strengthen the banking system, which remains fragile despite the restructuring of distressed banks, and emphasized the role of the Banking Commission of Central Africa (COBAC) in ensuring banks’ compliance with prudential norms. They recommended that the COBAC be made the sole authority for issuing and withdrawing bank licenses, and that the common bank licensing rules be revised to further facilitate opening of bank branches across the region. Directors welcomed COBAC’s plans for progressive tightening of the capital adequacy ratio, but highlighted the need to match capital requirements to the high operational risks inherent in CEMAC economies because of their undiversified economic structure.
Directors encouraged the CEMAC authorities to press ahead with other financial sector reforms, including early and effective implementation of the new regulations for the microfinance sector. They welcomed the adoption of anti-money-laundering regulations, but noted that additional steps are needed to make them fully operational. In light of the modest size of the private sector in CEMAC countries, Directors expressed a preference for merging the nascent regional stock exchange in Libreville with the existing one in Douala. They saw merit in adopting a prudent approach in the operations of the recently reorganized regional development bank (BDEAC), so as to confine its lending operations to refinancing activities in accordance with sound financial criteria, relying on its own funds and long-term resources borrowed on the regional market.
Directors regretted that member countries still do not consistently apply the provisions of the common external tariff (CET), and they saw expediting trade integration among CEMAC nations as urgent. Remaining nontariff barriers need to be eliminated, customs codes, valuations and exemptions need to be harmonized, and the CET overhauled, including by reducing the top tariff rate of 30 percent. Directors encouraged the authorities to pursue tax harmonization in other fiscal areas as well, and to strengthen the collection of the regional tax on imports to ensure financing of the regional institutions and regional integration funds.
Directors observed that some of the competitiveness gains resulting from the 1994 devaluation of the CFA franc have been eroded. In order to maintain the region’s external competitiveness and its share in export markets, they underscored the need to pursue policies aimed at broadening the productive base and diversifying the economies, including by accelerating structural reforms, strengthening basic infrastructure, and adopting common sectoral policies.
Directors urged the authorities to improve the quality, harmonization, and distribution of CEMAC’s economic data, notably in the areas of price indices, the real sector, and public finance. In light of the high incidence of poverty in the region, it is important that social sector statistics be collected in order to track progress with poverty reduction and human development indicators.
Directors supported elevating the regional discussions on economic developments and policies to the level of formal regional surveillance of CEMAC-wide issues in the context of Article IV consultations with member countries.
Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF’s assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.
CEMAC: Selected Economic and Financial Indicators, 1997–2003
CEMAC: Selected Economic and Financial Indicators, 1997–2003
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |||
|---|---|---|---|---|---|---|---|---|
| Est. | Proj. | |||||||
| National income and prices | (Annual percentage change) | |||||||
| GDP at constant prices | 4.9 | −0.1 | 3.2 | 5.2 | 3.9 | 5.0 | ||
| Oil GDP | 1.4 | 3.6 | −4.6 | 1.2 | 2.1 | 4.2 | ||
| Non-oil GDP | 5.2 | −0.5 | 4.4 | 5.9 | 4.2 | 6.5 | ||
| Consumer prices (average) | 2.7 | 1.2 | 1.2 | 4.3 | 3.0 | 3.7 | ||
| Terms of trade | −19.1 | 17.1 | 48.3 | −8.1 | 0.7 | −2.4 | ||
| Real effective exchange rate | 2.8 | 0.3 | −4.9 | 3.6 | 4.3 | … | ||
| Money and credit | (Annual changes in percent of beginning-of-period broad money) | |||||||
| Net foreign assets | −11.8 | 4.5 | 38.4 | −11.3 | 10.3 | … | ||
| Net domestic assets | 11.5 | 4.8 | −15.4 | 18.6 | 4.2 | … | ||
| Broad money | −0.3 | 9.3 | 23.0 | 7.2 | 14.4 | … | ||
| National accounts | (In percent of GDP, unless otherwise indicated) | |||||||
| Gross domestic savings | 20.2 | 23.7 | 29.7 | 28.1 | 28.5 | 27.4 | ||
| Gross domestic investment | n.a | 21.9 | 20.0 | 25.5 | 25.2 | 22.5 | ||
| Resource gap | n.a | 1.7 | 9.7 | 2.7 | 3.3 | 4.9 | ||
| Government financial operations | ||||||||
| Total revenue, excluding grants | 20.4 | 19.1 | 22.5 | 24.1 | 22.4 | 23.2 | ||
| Total expenditure | 28.0 | 22.5 | 19.5 | 22.4 | 22.0 | 19.7 | ||
| Overall fiscal balance, including grants | −6.4 | −2.4 | 3.6 | 2.5 | 1.1 | 4.6 | ||
| External sector | (In billions of U.S. dollars, unless otherwise indicated) | |||||||
| Exports of goods and services | 6.9 | 7.9 | 10.5 | 9.9 | 10.6 | 12.1 | ||
| Imports of goods and services | 7.3 | 7.1 | 7.5 | 8.9 | 9.6 | 10.7 | ||
| Current account, including grants | −2.1 | −1.6 | −0.2 | −1.5 | −1.9 | −1.8 | ||
| In percent of GDP | −11.2 | −8.5 | −0.8 | −7.1 | −8.5 | −6.1 | ||
| External public debt | 19.3 | 19.6 | 18.1 | 17.6 | 17.6 | 18.3 | ||
| In percent of GDP | 104.3 | 102.3 | 90.2 | 86.2 | 76.4 | 63.3 | ||
| (In percent of GDP, unless otherwise indicated) | ||||||||
| Exports of goods and services | 37.1 | 41.1 | 52.1 | 48.5 | 45.6 | 41.7 | ||
| Imports of goods and services | 39.5 | 37.0 | 37.2 | 43.4 | 41.3 | 36.8 | ||
| Current account, including grants | −11.2 | −8.5 | −0.8 | −7.1 | −8.5 | −6.1 | ||
| Memorandum items: | ||||||||
| Gross official reserves (end of period, in millions of US dollars) | 552.0 | 595.2 | 1,318.9 | 1,157.6 | 1,608.0 | 1,757.1 | ||
| CFA francs per U.S. dollar, average | 590.0 | 615.7 | 712.0 | 732.5 | 690.9 | 581.4 | ||
| CFA francs per ECU/curo, average | 657.2 | 656.0 | 656.0 | 656.0 | 656.0 | 656.0 | ||
| Oil prices (in U.S. dollars per barrel) | 13.1 | 18.0 | 28.2 | 24.3 | 25.0 | 28.5 | ||
CEMAC: Selected Economic and Financial Indicators, 1997–2003
| 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | |||
|---|---|---|---|---|---|---|---|---|
| Est. | Proj. | |||||||
| National income and prices | (Annual percentage change) | |||||||
| GDP at constant prices | 4.9 | −0.1 | 3.2 | 5.2 | 3.9 | 5.0 | ||
| Oil GDP | 1.4 | 3.6 | −4.6 | 1.2 | 2.1 | 4.2 | ||
| Non-oil GDP | 5.2 | −0.5 | 4.4 | 5.9 | 4.2 | 6.5 | ||
| Consumer prices (average) | 2.7 | 1.2 | 1.2 | 4.3 | 3.0 | 3.7 | ||
| Terms of trade | −19.1 | 17.1 | 48.3 | −8.1 | 0.7 | −2.4 | ||
| Real effective exchange rate | 2.8 | 0.3 | −4.9 | 3.6 | 4.3 | … | ||
| Money and credit | (Annual changes in percent of beginning-of-period broad money) | |||||||
| Net foreign assets | −11.8 | 4.5 | 38.4 | −11.3 | 10.3 | … | ||
| Net domestic assets | 11.5 | 4.8 | −15.4 | 18.6 | 4.2 | … | ||
| Broad money | −0.3 | 9.3 | 23.0 | 7.2 | 14.4 | … | ||
| National accounts | (In percent of GDP, unless otherwise indicated) | |||||||
| Gross domestic savings | 20.2 | 23.7 | 29.7 | 28.1 | 28.5 | 27.4 | ||
| Gross domestic investment | n.a | 21.9 | 20.0 | 25.5 | 25.2 | 22.5 | ||
| Resource gap | n.a | 1.7 | 9.7 | 2.7 | 3.3 | 4.9 | ||
| Government financial operations | ||||||||
| Total revenue, excluding grants | 20.4 | 19.1 | 22.5 | 24.1 | 22.4 | 23.2 | ||
| Total expenditure | 28.0 | 22.5 | 19.5 | 22.4 | 22.0 | 19.7 | ||
| Overall fiscal balance, including grants | −6.4 | −2.4 | 3.6 | 2.5 | 1.1 | 4.6 | ||
| External sector | (In billions of U.S. dollars, unless otherwise indicated) | |||||||
| Exports of goods and services | 6.9 | 7.9 | 10.5 | 9.9 | 10.6 | 12.1 | ||
| Imports of goods and services | 7.3 | 7.1 | 7.5 | 8.9 | 9.6 | 10.7 | ||
| Current account, including grants | −2.1 | −1.6 | −0.2 | −1.5 | −1.9 | −1.8 | ||
| In percent of GDP | −11.2 | −8.5 | −0.8 | −7.1 | −8.5 | −6.1 | ||
| External public debt | 19.3 | 19.6 | 18.1 | 17.6 | 17.6 | 18.3 | ||
| In percent of GDP | 104.3 | 102.3 | 90.2 | 86.2 | 76.4 | 63.3 | ||
| (In percent of GDP, unless otherwise indicated) | ||||||||
| Exports of goods and services | 37.1 | 41.1 | 52.1 | 48.5 | 45.6 | 41.7 | ||
| Imports of goods and services | 39.5 | 37.0 | 37.2 | 43.4 | 41.3 | 36.8 | ||
| Current account, including grants | −11.2 | −8.5 | −0.8 | −7.1 | −8.5 | −6.1 | ||
| Memorandum items: | ||||||||
| Gross official reserves (end of period, in millions of US dollars) | 552.0 | 595.2 | 1,318.9 | 1,157.6 | 1,608.0 | 1,757.1 | ||
| CFA francs per U.S. dollar, average | 590.0 | 615.7 | 712.0 | 732.5 | 690.9 | 581.4 | ||
| CFA francs per ECU/curo, average | 657.2 | 656.0 | 656.0 | 656.0 | 656.0 | 656.0 | ||
| Oil prices (in U.S. dollars per barrel) | 13.1 | 18.0 | 28.2 | 24.3 | 25.0 | 28.5 | ||