Central African Economic and Monetary Community (CEMAC): Selected Issues

This Selected Issues paper on the Central African Economic and Monetary Community (CEMAC) reviews the evolution of actual and equilibrium real effective exchange rates (REER). The current level of the CEMAC REER is broadly in line with its long-term equilibrium value. The estimation approach herein is subject to certain limitations, some of which are inherent to the literature that tries to estimate the equilibrium REERs. Absolute statements about magnitudes of any possible misalignments should be avoided given the degree of model uncertainty; error bands around estimated equilibrium exchange rates may, in some cases, yield inconclusive results.

Abstract

This Selected Issues paper on the Central African Economic and Monetary Community (CEMAC) reviews the evolution of actual and equilibrium real effective exchange rates (REER). The current level of the CEMAC REER is broadly in line with its long-term equilibrium value. The estimation approach herein is subject to certain limitations, some of which are inherent to the literature that tries to estimate the equilibrium REERs. Absolute statements about magnitudes of any possible misalignments should be avoided given the degree of model uncertainty; error bands around estimated equilibrium exchange rates may, in some cases, yield inconclusive results.

II. Reserve Adequacy in a Currency Union—The Case of the CEMAC Region18

A. Introduction

26. The CEMAC region’s unique characteristics create interesting challenges for assessing reserve adequacy. First, the currency union arrangements (including a convertibility guarantee by France and reserve pooling) in the context of a fixed exchange-rate regime impose requirements on reserve holdings. Second, due to its dependency on oil exports, the region is particularly exposed to large current account shocks, which in the case of positive shocks, expose weaknesses in liquidity management and the inadequacy of monetary policy instruments, and, in the case of negative shocks, could undermine the sustainability of the peg. Third, going forward, proposed instruments to save part of the oil revenues in special savings funds would lower the region’s pooled reserves.

27. In its evaluation of reserve adequacy in the CEMAC region, this paper will follow recent Fund guidance. Whereas there is no definitive theoretical or empirical guidance as to what constitutes an “adequate” level of reserve holdings, the Board Paper on Liquidity Management emphasizes a multifaceted approach, that considers both qualitative and quantitative factors (institutional characteristics), and that recommends supplementing the use of static indicators by analyzing in a forward-looking manner the potential sources of pressures on reserves (Box 1). Based on this approach, the paper finds that an additional reserves cushion of about two months of imports and over 100 percent of short-term debt would be needed beyond levels suggested by standard reserve adequacy indicators in order to withstand the impact of oil price fluctuations.

28. The paper is structured as follows: Section B discusses the determinants of adequate reserve levels in the CEMAC, from the perspective of the institutional arrangements and also considering the main sources of external vulnerability in the region. Section C looks at the evolution of reserves assets since the mid-1990s, and at whether they met both statutory requirements and more standard reserve adequacy benchmarks. The case of the CEMAC is also compared to similar currency unions (the WAEMU and the ECCU). Going forward, future challenges for reserve adequacy are discussed in Section D. These challenges arise both from the large current account volatility and from a progressive liberalization of capital account transactions. In this context, the implications of alternative arrangements to save oil-related inflows on reserve adequacy will also be considered. Section E concludes.

The Fund’s Approach to Reserve Adequacy Assessments

The IMF needs an operational measure of reserves that would seem adequate to help countries cope with external shocks. In light of experiences during recent crises newer research conducted in the Fund recommends to augment ratios summarizing the status of the country’s sectoral FX exposures and to conduct sensitivity analysis of projected reserve adequacy ratios. In addition, specific country characteristics such as institutional arrangements and practices that relate to public debt management, financial sector supervision and regulation, corporate governance, and financial market development are of key importance for reserve adequacy assessments.

Reserve adequacy assessments need to be based on a clear understanding of the key factors that affect the likelihood and magnitude of pressures on reserves, including the choice of exchange-rate regime, the extent of external imbalances, the degree of openness of the capital account (including the existence and effectiveness of capital controls in containing liquidity pressures) the regulatory regime, the extent to which debt is denominated in local currency, hedged, or offset by private entities’ external assets and foreign currency cash flows, and the derivative exposure of the public sector.

For countries with low or no access to international markets, the focus of the analysis should be on the size and volatility of current account flows. The relevant indicator will be the ratio of reserves to months of imports, with a benchmark value of 3 months. However, that benchmark value needs to be evaluated in terms of the past and projected volatility of current account flows. A higher level of reserves is typically sought in countries where shocks to current account flows can be particularly strong, for instance in countries where the export base is narrow and the price of the few key exports is particularly volatile.

For countries with access to capital markets, the ratio of reserves to short-term debt is still the best single indicator, being a good predictor of crises. In addition, the paper suggests augmenting this ratio to include all foreign currency-linked public domestic debt (by residual maturity) and residents’ foreign currency deposits in domestic banks net of domestic banks’ liquid foreign currency assets to reserves.

The paper also recommends the use of rolling liquidity analyses to complement the static analysis of standard reserve adequacy indicators, institutions, and balance sheets. Such analyses, which consist in projecting reserve coverage ratios under a baseline scenario over the short- to-medium-term and assessing the potential use of reserves under alternative scenarios could complement the projections and stress testing made in the context of the debt sustainability framework, and underpin the discussions of short- to medium-term reserve targets.

B. Institutional Arrangements

29. An assessment of reserve adequacy in the CEMAC needs to take into account the key features and requirements of the currency union arrangement. The CFA franc zone arrangements entail a fixed peg vis-a-vis the euro, the pooling of reserve assets and a guarantee of full convertibility by the French Treasury. This guarantee is supported by limits on reserve holdings of both sub-regional central banks, the BEAC and the BCEAO: each is required to keep at least 65 percent of its foreign assets in the operations account with the French Treasury, and to maintain a foreign exchange cover of at least 20 percent of its sight liabilities. Capital movements between each zone and France are free, although in practice a number of administrative restrictions severely limit de facto capital mobility (Box 2). In addition, capital flows between both zones are restricted insofar as both currencies are not convertible against each other.

30. When the currency cover ratio declines below 20 percent for three consecutive months, emergency measures must be taken by the central bank to protect the parity, such as increases in the official interest rates and reductions in refinancing ceilings. Similarly, if the balance of the operations account goes into deficit for 30 days, specific measures are triggered, including the reduction by 20 percent of refinancing ceilings for countries in deficit, and by 10 percent for countries whose surplus is less than 15 percent of its money supply. In addition, if the operations account is in debit position in any one CEMAC member country, the BEAC Governor is to consult with the Ministerial Committee as well as the concerned member in order to agree on rapid corrective measures.19 The BEAC also aims at maintaining the currency cover ratio above 20 percent in each country, although this is not a statutory requirement and has not in practice always been met by individual CEMAC countries.20

31. Whereas reserve pooling is a key feature of the currency union arrangement, the BEAC continues to attempt to meet the currency cover ratios for individual countries, which implies higher aggregate reserves than is required. For the purposes of monetary programming, reserves are attributed to each of the member countries, as is money in circulation. Then the monetary program is built up from country-by-country estimates of money and credit demand from the private and public sectors—yielding individual country ceilings for central bank credit to the economy (Masson and Patillo, 2004).

32. The BEAC’s role as a lender of last resort for the region also implies the need to maintain appropriate capitalization in case of banking sector problems. Although the prudential regulations and surveillance of the sector have improved in recent years, weaknesses remain. The ratio of non-performing loans relative to gross loans increased slightly to 141/2 percent in 2004 while provisioning remained constant. Properly measured, one-third of the 33 banks do not meet the minimal required capital adequacy ratio of 8 percent. In addition, 20 out of 33 banks have violated in 2004 the single large exposure limit, representing an increase of more than 40 percent compared with 2002.

C. Sources of External Vulnerability

33. The convertibility guarantee should be understood as a last recourse and does not eliminate the need to hold adequate reserves to sustain the peg. In principle, the convertibility guarantee functions like an insurance mechanism in case of adverse external shocks, rendering reserve holdings in excess of what is required under the currency union arrangement redundant. In practice however, CEMAC country authorities and France have proved extremely reluctant to either changes in the parity or substantial liquidity injections (the parity has been modified only once in 1994 after every other possible remedy had failed). Therefore, in addition to meeting the above statutory requirements, CEMAC’s reserves should be sufficient to maintain the credibility of the peg and to provide a liquidity buffer in case of adverse external shocks.

34. CEMAC countries are particularly vulnerable to large terms of trade shocks and for that reason should hold reserves beyond standard benchmarks. Five out of the six member countries are oil exporters and oil-price fluctuations and the oil production cycle represent major sources of macroeconomic and reserves volatility. 21 The large (although declining) public external debt stock of the region also represents a source of vulnerability. Finally, the BEAC’s role as a lender of last resort for the region implies the need to maintain adequate capitalization.

35. At present there are few capital account vulnerabilities, as capital controls prevent large capital outflows and there is no international capital market access. However, the progressive liberalization of capital account transactions would imply a need for an adequate reserves cushion. In particular, the situation of excess domestic liquidity should be addressed prior to any liberalization, preferably through the introduction of appropriate sterilization instruments. Other balance-sheet vulnerabilities could stem from large foreign currency exposures of the public or private sector.

The CFA Franc Arrangement 1

Together, the CEMAC and WAEMU constitute the CFA franc zone. Whereas there are two formally distinct currencies in both zones (the West African CFA franc in WAEMU, and the Central African CFA franc in CEMAC), the arrangement between both central banks and the French Treasury is almost identical (France is represented on the executive boards of the two regional central banks).2

The CFA franc zone functions according to the following rules: (a) fixed parity against the euro, adjustable if required by economic reasons after consultation with the French government and the unanimous decision of all member countries; (b) convertibility of the CFA franc at the rate of €1 = CFAF655.957; (c) guarantee of full convertibility through the establishment by each central bank of an operations account with the French Treasury with market-related yields of charges; (d) free capital mobility between the two regions and France; and (e) the pooling of foreign exchange reserves in each monetary area.

The statutes of the central banks require that each central bank: (a) maintain at least 65 percent of their foreign assets in the operations account; (b) provide for exchange cover of at least 20 percent of their sight deposits; and (c) impose a cap on accumulated credit extended to each member country of 20 percent of the previous year’s public sector revenue.3

Aside from the 1994 50 percent devaluation of the CFA franc, the parity between the CFAF and the French franc/euro has remained unchanged. The move to the EMU third stage and the creation of the euro did not have major implications for the zone, apart from the replacement of the peg to the French franc by the euro and the need to inform the ECOFIN about any change in partity.4 As the agreement between the French Treasury and the CFA zone members is of a budgetary nature, it does not oblige the ECB to support the peg (EU council decision of November 23, 1998).

1 This box draws Hadjimichael and Galy (1997).2 CEMAC members are Cameroon, Chad, the Central African Republic, Equatorial Guinea, and the Republic of Congo. WAEMU members are Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Senegal, and Togo.3 As of X, advances to governments have been replaced by central government bills in the WAEMU.4 See Masson and Patillo (2004).

D. Evolution of Reserve Adequacy Indicators

Reserves and statutory reserve requirements in the CEMAC and WAEMU

36. Reserve assets in the CEMAC and WAEMU are now at their highest level in a decade. Since the 1994 devaluation, reserve assets in the CEMAC have followed an increasing trend—albeit somewhat irregular, with a large recent accumulation due to favorable oil prices and increases in oil production. The increase in the WAEMU has been steadier and reflects mostly favorable commodity prices. Statutory reserve indicators have generally remained well above their benchmark values in both the CEMAC and WAEMU regions. One exception is the share of foreign assets in the operations account in the CEMAC, which was below 65 percent in 1998 and 1999, mostly due to low oil prices. In addition, the currency cover ratio in the CEMAC has remained on average almost 40 percent below that of the WAEMU over the last decade (Table 1)

Table 1.

CEMAC and WAEMU: Foreign assets of the Central Bank and statutory reserve indicators, 1995-2004

(In billions of CFA francs unless otherwise indicated)

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Source: WEO, IMF staff calculations.

Foreign assets as a share of short-term domestic liabilities.

37. However, the currency cover ratios for individual CEMAC members exhibit wide variations, with the cover ratios for individual countries in the CEMAC remaining quite low for Cameroon (and below 20 percent until 1999) and for Congo. In addition, the cover ratios for the oil-dependent economies (Congo, Equatorial Guinea and Gabon) are highly volatile due to large variations in oil-related inflows (Table 2).

Table 2.

CEMAC Countries: Currency Cover Ratios

(In percent)

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Source: WEO, IMF staff calculations.

Traditional indicators of reserve adequacy

38. For the CEMAC region, the most relevant indicator is the ratio of reserves to prospective imports, as there is no international capital market access. However, the ratio of reserves to short-term debt on a remaining maturity basis remains important insofar as it captures the size of amortization due on the relatively large external debt, i.e., it captures liquidity (and potentially solvency) risk rather than rollover risk.22 The ratio of reserves to broad money—an indicator of the potential magnitude of capital flight—has empirically been found to be of little relevance. In addition, capital controls in principle limit potentially large capital outflows.23

39. Traditional reserve adequacy indicators are now at their highest since 1995. Compared to 1995, reserves have increased as a share of GDP, broad money, prospective imports and short-term debt (on a remaining maturity basis). The trend has however been irregular, with a low in 1998 followed by a peak in 2000, associated with oil price movements. In addition, reserves are still low in terms of imports, where a 3-months cover is normally recommended, and the reserves-to-short-term debt ratio is adequate in the sense that reserves currently cover the region’s scheduled amortization for a year and a half. (Table 3).

Table 3.

CEMAC: Reserve Adequacy Indicators, 1995-2004

(In percent, unless otherwise indicated)

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Source: WEO, IMF staff calculations.

In months of following year’s imports of goods and services.

On a remaining maturity basis.

40. As of end-2004, the CEMAC region had lower values for most indicators compared to the WAEMU and the ECCU. The only exception is the ratio of reserves to broad money, which mainly reflects a lower level of broad money given the region’s lower level of financial development. As mentioned above, the reserves to imports ratio is on the low side given the fixed exchange rate commitment and the oil-dependency. Again there are large variations across individual CEMAC countries, with very low reserve indicators in Congo and very high ones in Equatorial Guinea (Table 4).

Table 4.

Reserve Adequacy Indicators as of end-2004

(In percent, unless otherwise indicated)

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Source: WEO, IMF staff calculations.

In months of following year’s imports of goods and services.

On a remaining maturity basis.

E. Future Challenges for Reserve Adequacy

Current account volatility

41. Going forward, the adequate level of reserves should be determined by taking into account the main sources of pressure on reserves. For the period 1995–2004, reserves in the CEMAC were six times more volatile than in the WAEMU.24 For the CEMAC countries, the volatility of reserve flows stems from large current and capital account fluctuations linked to the oil price and oil production cycle. In contrast, in the WAEMU region reserves tend to follow capital account developments and are not so volatile.25 Reserve flows in the WAEMU are also less correlated with export price movements—although the recent increase in reserves reflects the favorable evolution of commodity prices (Figure 1).

Figure 1.
Figure 1.

CEMAC and WAEMU: Balance of Payments Flows and Reserve Assets

Citation: IMF Staff Country Reports 2005, 390; 10.5089/9781451806519.002.A002

Source: WEO and IMF staff calculations.

42. Medium-term projections indicate that reserve levels should rapidly increase and largely meet the standard reserve adequacy benchmarks.26 By end-2008, reserves should cover about seven months of imports and over 5 years of amortization (Figure 2). However, as noted earlier, reserve indicators are very sensitive to the underlying oil price assumptions.

Figure 2.
Figure 2.

Projected Reserve Adequacy Indicators

Citation: IMF Staff Country Reports 2005, 390; 10.5089/9781451806519.002.A002

Source: WEO and IMF staff calculations.

43. To illustrate the sensitivity of reserve indicators to oil price fluctuations, a simple stress test was performed. Similarly to the stress tests used in the standard debt sustainability analysis (DSA) templates, the oil price was assumed to fall by US$7 per barrel in 2005, corresponding to its 10-year standard deviation. Assuming further that only export revenues would adjust, the corresponding fall in reserves would be of US$2.33 billion. In that case, the reserves to import ratio would fall by almost two months in 2005, from 3.3 to 1.5 months, and would not reach 3 months until 2007. At the same time, the ratio of reserves to short-term debt ratio would fall by over 100 percent in 2005 (from 229 to 105 percent), going back to the benchmark value of 100 percent (Figure 2).

44. Such sensitivity of reserves to changes in the oil price indicates the need to maintain an additional reserve cushion in excess of the recommended levels. The above results would point to the need to maintain an additional reserve cover of about two-three months of imports above the three-month benchmark, and a ratio of reserves to short-term debt of about 100–150 percent in excess of the 100 percent benchmark. Therefore, as an indicative target, the BEAC should strive to maintain an import cover of at least five months and a short-term debt cover of about 200–250 percent, in addition to complying with the statutory requirements for reserve holdings. According to the baseline projections, the recommended import cover will not be reached until 2007.

Costs of holding reserves for the CEMAC

45. Because holding reserves is costly, accumulation of reserves significantly in excess of the recommended level would not be advisable. There is an opportunity cost of holding reserves in terms of foregone alternative investment opportunities, and increased exposure of the central bank’s balance sheet to currency risk. In addition, past a certain level it is empirically not clear that a further build up helps reduce vulnerability, and rapid reserve accumulation may suggest an exchange rate misalignment and may lead to excess domestic liquidity expansion. Finally, the costs of sterilization and their impact on central bank profitability also have to be taken into account.

46. The opportunity cost can be approximated by the difference between the rate of return on reserves and the interest payments on government or central bank borrowing.27 As central bank or government bonds have yet to be introduced in the CEMAC region, the closest approximation would be the rate charged by the BEAC on advances to governments. The rate of return on reserves has two components—the rate of return on reserves in the operations account and the rate of return on reserves managed by the BEAC itself. As of end-2004, 85 percent of BEAC’s reserves were held in the operations account. The reserves on this account receive the European Marginal Lending Facility Rate (EMLFR).28 The remaining 15 percent managed by the BEAC is invested in BIS, FED and OECD government papers.29 As there is no separate information on the returns on those assets, it is assumed here that the totality of reserves is remunerated at the EMLFR.

47. By that measure, the opportunity cost of holding reserves for the BEAC is relatively small. The opportunity cost represents only about 0.2 percent of the region’s GDP (Table 5). The sterilization cost, as measured by the difference between the average return on reserves and the cost to full sterilization, is even smaller. The interest rate used to calculate the sterilization cost is the rate on liquidity withdrawals (“taux des appels d’offres négatifs”), whereby the central bank can hold part of commercial banks’ excess liquidity. However, these operations are not very successful at mopping up excess liquidity (even in the presence of capital controls)—possibly due to the low rate of return offered to banks—pointing to the necessity of introducing alternative monetary policy instruments such as central bank bills.

Table 5.

CEMAC: Opportunity Cost of Holding Reserves

(in millions of U.S. dollars unless otherwise indicated)

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Sources: BEAC, WEO and IMF staff calculations.

Sterilization cost, measured as rate on liquidity placements at 28 days.

Difference between the return on reserves and the rate on Treasury advances.

Difference between the return on reserves and the cost of sterilization-liquidity withdrawals (“appels d’offre négatifs).

Balance sheet vulnerabilities

48. Aside from official external debt, foreign currency exposures in the CEMAC are moderate. In addition, external debt has been steadily declining over the last decade, due to regional GDP growth and debt reduction in some countries in the context of the enhanced HIPC Initiative.30 Based on current WEO assumptions, the reserves to short-term debt ratio are therefore projected to reach 170 percent by end-2005. Due to the lack of market access, non-financial private sector’s foreign currency exposures are small, although the lack of information on private external debt prevents an accurate diagnostic. As banks are not allowed to hold FX deposits or to make FX loans, the foreign currency exposure of the financial sector is not very significant. It is not possible to assess the region’s overall FX exposure as CEMAC members do not yet report data on their net international investment position (Table 6).

Table 6.

CEMAC and WAEMU: Foreign currency exposures

(In millions of U.S. dollars unless otherwise indicated)

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Source: WEO, IMF staff calculations.

On a remaining maturity basis.

Managing oil-related inflows

49. The repatriation requirement for FX proceeds, combined with the pooling of reserves at the BEAC, implies that most of the region’s oil inflows add to BEAC’s reserves. As a counterpart, CEMAC governments build up CFA deposits at the BEAC. However, remuneration on these deposits is currently low. Such remuneration is linked to the amount of outstanding advances provided by BEAC (each year member states can draw up to 20 percent of the preceding year’s revenue). Only the portion of deposits in excess of these advances can be remunerated at the rate of 1.7 percent,31 and in practice only Equatorial Guinea and Gabon have such an excedent. In view of the likely further increase in their deposits related to oil inflows, some member countries are concerned about this lack of remuneration in view of the need to preserve the value of their oil wealth.

50. The BEAC intends to address these concerns by providing an operational framework establishing remunerated Funds for Future Generations (FFGs) and Stabilization Funds (SFs). In 1998, the CEMAC Ministers agreed on the necessity to generate savings out of oil revenues and to establish FFGs. Chad, Equatorial Guinea, and Gabon established such funds, outside of the BEAC for Chad and Equatorial Guinea, and in the form of an account at the BEAC but with minimal contributions in the case of Gabon. Concerned about the need to maintain the principle of reserve pooling, in 1999 CEMAC Ministers agreed on further implementing rules for the funds for future generations and on the creation of Oil Revenue Stabilization Funds.32 According to these rules, which were formally adopted by BEAC’s Administrative Board on July 12, 2001, the funds would be established at the BEAC and would be remunerated.

51. The impact of these schemes on reserve adequacy and BEAC’s profitability is yet unclear. Regarding SFs, the FX resources would continue to be channeled through the operations account, and should thus have no impact on reserves. The net remuneration offered by BEAC on the CFA counterpart (2 percent) would represent an additional cost to the BEAC. The total impact would depend on the size of the contributions to SFs by CEMAC members (mostly Chad, Equatorial Guinea, and Gabon). FFGs, however, should not be considered part of monetary reserves as they have a long-term orientation and the assets they invest in would not be recommended as best practice for the investment of monetary reserves. In addition, the FX assets should be the property of the member states, and for that reason as well would not be considered part of the pooled reserves.

52. In the case of Chad, the BEAC has already agreed on a set of conventions establishing a stabilization fund and a fund for future generations (see Box 3). A simple estimation of the possible impact on BEAC’s reserves of the establishment of FFGs in all CEMAC oil exporters on the same terms as Chad has been conducted. The estimation assumes for simplicity that savings start in 2004. 33 The Chadian decree specifies that 10 percent of all royalties and dividends received by the state would be allocated to the FFG. This is similar to the conditions set in the Gabonese law establishing a FFG, passed in July 1998.34 Assuming that all CEMAC oil exporters would implement a savings scheme on the same terms, the projected impact on reserves and reserve adequacy indicators would be rather small (Table 7).35

Table 7.

CEMAC: Impact of Funds for Future Generations on Reserves

(in millions of U.S. dollars unless otherwise indicated)

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Sources: WEO and IMF staff calculations.

In months of prospective imports of goods and services.

In percent of short-term debt on a remaining maturity basis.

53. However, the optimal savings profile for, and size of, an FFG will differ across countries. They depend, inter alia, on each country’s set of intergenerational preferences, its phase in the oil production cycle, the projected size of oil reserves, its absorptive capacity and initial level of external indebtedness (Davis et al., 2001, Gereirat, 2005, Katz, et al., 2004). These variables are different for each CEMAC oil producer, and a simple, homogeneous savings rule is unlikely to yield an optimal result. In particular, there are important benefits to saving more early in the production cycle, when revenues are high. Whereas a discussion on the optimal size of FFGs for CEMAC countries is beyond the scope of this paper, allowing more flexibility in the savings profile will be beneficial. Looking at the baseline profile of reserve accumulation and projected oil revenue, larger savings could be accommodated—provided reserves remain at an adequate level (Table 7).

F. Conclusion

54. Whereas reserves are currently at their highest level in a decade and statutory indicators are exceeded by a large margin, standard indicators of reserve adequacy such as the ratios of reserve to imports and to short-term debt remain on the low side. Taking into account the impact of oil price fluctuations on the current account, it is suggested that reserves for the region should cover at least 5 months of imports and about 250 percent of short-term debt on a remaining maturity basis in order to withstand a one-standard deviation fall in oil prices in any given year.36 Going forward, an important challenge for the BEAC will be to manage the large projected oil inflows. Both the introduction of central banks or treasury bills to better sterilize the excess liquidity and the establishment of funds for future generations would be helpful. However, the amount of FX resources going outside the reserve pool into special funds would have to take into account the need to maintain adequate reserves.

References

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18

Prepared by Corinne Deléchat.

19

BEAC statutes, Article 11.

20

The cover ratio was below 20 percent until 1999 for Cameroon, and sporadically in Congo, Equatorial Guinea and Gabon since 1995. In these three countries, the ratio is highly volatile due to large variations in oil-related inflows.

21

The Central African Republic exports diamonds.

22

Most of CEMAC’s and WAEMU’s external debt is official medium-and long-term debt.

23

In practice, free capital mobility has been constrained by a number of administrative regulations, prudential limits on the net holdings of foreign assets by commercial banks, very high bank commissions for capital transfers abroad and, indirectly, by the discontinuation since August 1993 of the purchases by the two CFA franc zone central banks of their banknotes held outside the zone.

24

Volatility is calculated as the10-year standard deviation of the annual percentage changes. For the period, reserves volatility in the CEMAC was 53 percent, compared to 9 percent in the CEMAC.

25

For the last decade, the coefficient of correlation between reserves and the oil price is .94 in the CEMAC, whereas for the WAEMU the correlation between reserves and an index of export prices is -.1.

26

Projections are based on March 1, 2005 WEO assumptions, with the 2005 oil price at US$46.5 per barrel.

28

From 1999 onwards.

29

With technical assistance from the Fund, a trading room was recently established and investment policy is progressively becoming less conservative.

30

Cameroon, Chad, the Central African Republic and Congo are HIPC-eligible, and Cameroon and Chad have already benefited from interim debt relief in the context of the initiate.

31

As of January 20, 2005.

32

CEMAC Ministerial Committee, Note d’Orientation sur la Mise en Oeuvre des Fonds de Réserve pour les Générations Futures et du Mécanisme de Stabilisation des Recettes Budgétaires September 20, 1999.

33

The convention on the establishment of a fund for future generations has not yet been finalized but the main modalities are not expected to change much—the outstanding issue was the rate of remuneration paid to Chad and the management fee of the BEAC.

34

The Gabonese law established an FFG with a minimum capital of CFAF 500 billion. Until the minimum capital is reached, 10 percent of projected baseline oil revenues are saved in the fund, and 50 percent of oil revenues exceeding the baseline projection contained in the budget (half of the oil windfall). Once the minimum capital is reached all of the oil windfall would be placed in the fund. As of end-2004, the outstanding FFG balance was of CFAF 55 billion (Gereirat, 2005).

35

These assumptions are however likely to overestimate the actual impact, as total revenue might also include indirect oil revenue (income tax and profit tax) depending on individual countries’ definitions. In addition, it is not clear at this point whether all CEMAC oil exporters would agree to participate in such a scheme.

36

Using the 10-year standard deviation.