Monetary policy

11. The BEAC formulates common monetary policy targets, but implementation remains constrained by a lack of instruments and shallow financial markets. The fixed exchange rate regime provides the ultimate anchor for monetary policy in the region. However, given the remaining capital controls, the authorities have formulated a regional reserve money program as a guide to assessing liquidity. As in previous years, the BEAC had difficulty adhering to the common program in 2004, because it could neither adequately forecast nor control balance of payments flows and statutory advances to member governments.² Among the few tools it uses to absorb liquidity, the BEAC imposes reserve requirements on commercial banks that in recent years have been set at differentiated levels across member countries to account for varying levels of excess liquidity. In addition, the BEAC offers, at its discretion, remunerated short-term deposits to commercial banks to sterilize liquidity. In practice, liquidity growth in 2004 has also been limited as a result of the rising government deposits with the BEAC.

12. The lack of monetary instruments could compromise the BEAC’s ability to achieve price stability, its primary goal. The long-delayed abolition of statutory advances and their replacement with treasury bills would have helped the BEAC to gain greater control over its balance sheet. Treasury bills could also have served as an instrument for open market operations. In spite of the BEAC’s successful preparatory work, the introduction of treasury bills has been delayed because member countries have been concerned about borrowing costs and technical constraints. In the absence of longer-term instruments, short-term deposits with the BEAC are insufficient to sterilize the high level of banks’ free liquidity.

13. The authorities acknowledged that they face challenges in implementing monetary policy but noted their overall success in liquidity management. They felt, in particular, that the use of differentiated reserve requirements—a pragmatic step given the very limited integration of money markets—had been effective in sterilizing liquidity where the problem was most acute. They also felt that short-term deposits with the central bank were effective tools for steering liquidity, but acknowledged that the lack of tradability of these instruments made them less desirable to banks than central bank bills. Finally, they indicated that CEMAC convergence criteria provided assurance that the high level of liquid government deposits would not translate into short-term liquidity injections. The mission cautioned that, given past experiences with fiscal slippages, government deposits remain a source of potential liquidity.

14. Looking forward, the monetary policy framework will need to adapt to greater market integration and, possibly, more volatile capital flows. A successful implementation of financial sector reforms as well as the ongoing reform of the regional payments system should increase financial market integration in the zone. Over time, even in the absence of full capital account liberalization, there is likely to be an increase in capital flows as banks continue to increase their exposures abroad, and the regional capital market develops. The authorities agreed that, as a result, the BEAC’s operating environment would become more complex and would require the introduction of market-based instruments to allow the central bank to more directly influence interest rates in the zone. In the short term, given member states’ decision to delay the introduction of treasury bills, the BEAC agreed to review the mission’s suggestion of issuing tradable central bank bills, at least as an interim solution, subject to the need to maintain its overall profitability. The authorities also indicated that the central bank was already putting in place supporting measures—such as strengthening its macroeconomic forecasting unit—to be better prepared to cope with the changes in its operating environment.

Fiscal policies and oil-related inflows

15. Fiscal policies remain under the control of member countries, but fiscal convergence in support of the monetary union is a key concern of the CEMAC. In the past, the effectiveness of CEMAC surveillance has been questioned, given its focus on the “basic fiscal balance,” which does not take structural and long-term considerations into account.³ Given the legal complications that would arise if the convergence criteria were changed, the formal requirement remains the basic balance.⁴ Yet, in response to earlier discussions of this issue, CEMAC broadened the implementation of its fiscal surveillance. Now the CEMAC also monitors structural balances and “permanent income” out of oil wealth, and brings its concerns to the member countries’ attention even if there is no violation of the formal convergence criterion. The mission welcomed the CEMAC’s new approach and suggested to keep track of the structural changes in member countries’ economies and be prepared to consider further refinements in assessing underlying fiscal balances if necessary. For reasons of transparency the mission also recommended that these additional considerations, even if they cannot legally substitute for the formal convergence criterion, should be set out in a transparent manner, possibly in the form of supplementary criteria.

16. Discussion of current fiscal challenges centered on the impact of the recent increases in oil output and oil-related receipts on optimal fiscal spending patterns. Fiscal policies in 2004 remained conservative, with much of the oil windfall saved in the form of higher net government deposits with the central bank. The mission welcomed this initial response in the face of uncertainty about the duration of the oil price increase. With oil prices now forecast to remain high, there is likely to be a permanent element that could justify some cautious increase in fiscal spending. The mission and the regional authorities agreed that any additional spending would need to be reviewed on a country-by-country basis and in all cases take into account longer-term fiscal and debt sustainability. The mission also noted the limited absorptive capacity of some CEMAC countries that could hinder the design of additional government spending.

17. With rising oil output and incomes, CEMAC members also need to decide on ways to safeguard the oil wealth for future generations. At present, most of the member countries’ oil income is subject to the BEAC’s repatriation requirement. As a result, oil-related inflows have been reflected in increases in the BEAC’s international reserves and, as a counterpart, CFA franc-denominated liquid deposits of member countries at the central bank. Several member countries have raised concerns with the central bank and regional institutions that these arrangements are not appropriate for oil-exporting countries. They point to the need to save the oil receipts in the form of alternative long-term assets, which would provide higher returns to share with future generations. They also raised concerns that the present arrangement limits individual countries to holding a CFA franc-denominated asset with a low rate of remuneration, whereas the higher returns on the foreign exchange asset accrue to the region as a whole in the form of BEAC profit distribution.

18. The BEAC noted the advantages of the present system for increasing the transparency of oil-related incomes. Central bank officials argued that channeling all foreign exchange inflows through the BEAC, will allow a full accounting of, and full accountability for, oil income. In addition, the BEAC noted that reserve pooling was a key feature of the monetary union and that the implied element of solidarity had served member countries well in the past and should not be abandoned lightly. Nevertheless, central bank officials acknowledged member countries’ concerns and they indicated their willingness to review a range of options. They also noted that arrangements for investing oil receipts, which they are currently finalizing with individual countries would be available to all members.

19. The mission welcomed the BEAC’s openness to establishing for each oil-producing member an oil stabilization fund and a fund for future generations. Country-owned funds administered by the BEAC could preserve transparency in the management of oil revenues, while providing a better return to oil exporters. The mission noted though that the design, operation, and governance of such funds should be transparent and follow international best practice. To alleviate members’ remaining unease about the BEAC’s role in investment of oil related reserve inflows, the mission recommended that the BEAC discuss the matter openly with the ministries of finance in the zone, and disseminate any bilateral agreements to all interested member governments. Finally, given the constraints of the exchange rate regime, any change in the share of exports receipts accruing to the common pool would need to be cognizant of the implications for the level of reserves (see also below).

Exchange rates and international reserves

20. The exchange rate of the CFA franc along with the euro has appreciated against the U.S. dollar. The authorities stressed the importance of the current exchange rate regime as a broad policy framework. They felt that the regional institutions and the CEMAC economies were sufficiently flexible to minimize any adverse real effects that could be implied by changes in the euro/U.S. dollar exchange rate. The mission stressed the continuous need for appropriate macroeconomic and structural policies to be consistent with the exchange rate regime. In that context, the mission noted that technical work by the staff, using a traditional model, suggested that the real exchange rate might be slightly above its long-term equilibrium value (Box 1). The mission recognized, however, that other aspects may need to be considered in modeling the equilibrium exchange rate, including properly accounting for the structural change in the region’s economies as a result of oil output.⁵ While agreeing with the need to ensure the sustainability of the exchange rate regime, the authorities felt that competitiveness needed to be discussed in a broader structural context. The mission agreed that measures to enhance factor productivity and improve the business environment were of key importance in that respect (see paragraph 30).

21. The mission discussed with the authorities the reserve implications of the recent oil price increases and forward-looking criteria on optimal levels of reserves. In their discussions, the mission and the authorities agreed that the level of international reserves in the CEMAC region needed to be evaluated in the context of the fixed exchange rate regime and the convertibility guarantee. Foreign exchange reserves, which have increased with the recent oil price increases, have reached the equivalent of US$3.2 billion, a 10-year high. The coverage of reserve money reached 75 percent, far exceeding the 20 percent coverage ratio mandated in the CFA franc agreement with France. Notwithstanding these positive developments, commonly used measures of reserve adequacy do not seem to indicate, at this stage, excessive levels (Box 2).

22. Looking forward, the current reserve levels may need to be maintained or even augmented in the future. The main arguments for a somewhat higher level of reserves are related to the CEMAC’s production and export structure, which makes reserve holdings highly sensitive to oil price changes. In this regard, the mission noted that financial markets might view the current level of reserves as a benchmark, given that it reached, for the first time, the same levels as those of other fixed exchange rate regimes and monetary unions, which traditionally had higher levels of foreign exchange reserves (Box 2). In this context, the mission felt that the French guarantee—while never in question—was more of a safety net in an unlikely crisis situation but could play less of a role in day-to-day perceptions of reserve adequacy.

Box 1.

Actual and Long-Run Real Equilibrium Effective Exchange Rates in the CEMAC Region

We analyze the relationship between the CEMAC real effective exchange rate (REER) and its long-run equilibrium level by applying the fundamental equilibrium exchange rate (FEER) approach based on the Edwards (1989) model and the Johansen (1995) cointegration methodology.¹ As one of several possible approaches to review equilibrium exchange rates, this approach assesses whether a movement of the REER represents a misalignment, or whether the equilibrium exchange rate itself has shifted as a result of changes in a country’s economic fundamentals. While the results show indications of a possible misalignment of the CFA franc in the CEMAC area, they are not statistically significant at the 95 percent level.

We test for the existence of a cointegrating (long-run) relationship between the real exchange rate and terms of trade (TOT), the ratio of government consumption to GDP (CGR), the ratio of investment to GDP (INV), the rate of technological progress (PROD), and capital inflows (BFDIR). Terms of trade, technological progress, and capital inflows are expected to have a positive (appreciating) effect on the REER as an increase in any of these variables induces an increase in the relative price of non tradable goods. Investment is expected to have a negative (depreciating) effect on the REER as a rise in the ratio of investment to GDP is likely to shift spending toward traded goods, thus raising their relative price. Finally, in the absence of a breakdown of the ratio of government consumption to GDP into tradable and nontradable goods, the expected sign of government consumption is ambiguous.

The data consist of annual observations for the period 1970–2004. The cointegration equation presented below (with t-statistics in brackets) shows the long-run relationship between the REER and the fundamentals.

$\text{ln(REER)}\text{=}\underset{\left[2.44\right]}{2.71+}\underset{\left[7.78\right]}{2.21\times }\text{ln(TOT)}\underset{[-1.62]}{-0.44\times }\ln \left(\text{CGR}\right)\underset{[-6.11]}{-2.71\times }\text{ln(INV)+}\underset{\left[8.63\right]}{1.67\times }\text{ln(PROD)+}\underset{\left[1.97\right]}{0.06\times }\left(\text{BFDIR}\right)$

Using the estimated coefficients and the long-term trend component of the fundamentals, the long run equilibrium exchange rate series (Figure 1) was generated.

The results show that the REER in the CEMAC region was overvalued from 1985 to 1994, validating the 1994 devaluation. Since 1994, the gap between the actual REER and its equilibrium level continuously narrowed, with the REER reaching its equilibrium level at end-2001. The appreciating trend of the REER kept it above its subsequent equilibrium level for the rest of the period of analysis possibly implying a misalignment in the last three years. However, this misalignment is not statistically significant from zero as the 95 percent error bands around the deviations from equilibrium include zero (Figure 2). While the results of the analysis herein must be interpreted with considerable caution (given data limitations and other statistical issues), they seem to be broadly consistent with the picture that emerges from other indicators.

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CEMAC: Actual and Equilibrium Real Exchange Rates Index 1990=100

Citation: IMF Staff Country Reports 2005, 403; 10.5089/9781451806526.002.A001

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CEMAC: Deviations from the Equilibrium

Citation: IMF Staff Country Reports 2005, 403; 10.5089/9781451806526.002.A001

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¹ The Selected Issues Paper includes a detailed description of the econometric analysis.

Box 2.

Reserve Adequacy in the CEMAC Region

CEMAC’s reserves are now at their highest since the 1994 devaluation, but proposed changes in accounting for oil export receipts might have implications for reserve levels. This box presents criteria in evaluating reserve adequacy.

Current institutional arrangement and proposed changes: CEMAC is part of the CFA franc zone. The CFA franc, which is pegged to the euro, is issued by the BEAC, the common central bank, which also holds member countries’ pooled reserves. The full convertibility of the CFA is guaranteed by the French Treasury. As a counterpart to this guarantee, the BEAC 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. Since 1994, the currency cover ratio has remained well above the limit of 20 percent, and there have been only two instances when the operations account represented less than 65 percent of foreign assets. The proposed saving of some oil receipts in member-owned funds for future generations would reduce the pool of common reserves. These funds would, instead, be owned by countries, and invested according to longer -term considerations.

Static measures of reserve adequacy: The CEMAC’s ratio of reserves to imports has increased but remains below a benchmark of three months. Reserves as a shar of short-term debt are comfortable. While reserve pooling is a key feature of the CFA arrangement, the BEAC continues to attempt to meet the reserve cover targets for individual countries, implying a need for higher reserves than aggregate requirements would indicate. Compared to other currency unions, the CEMAC region has lower values for most standard reserve adequacy indicators, except the ratio of reserves to broad money. The latter, however, reflects a lower level of broad money because of the region’s lower financial development (Table 1).

Table 1.

Reserve Adequacy Indicators as of end-2004

(In percent, unless otherwise indicated)

Sources: IMF WEO, April 2005, and staff calculations.

^1/In months of following year’s imports of goods and services

^2/On a remaining maturity basis.

Table 1.

Reserve Adequacy Indicators as of end-2004

(In percent, unless otherwise indicated)

Gross reserves as a percent of:	GDP	M2	Imports 1/	Short-term debt 2/
Cameroon	5.3	25.9	2.3	89.6
Central African Rep.	10.1	58.8	5.8	162.1
Chad	6.1	67.2	2.2	645.9
Congo, Rep. of	0.6	3.2	0.1	7.7
Equatorial Guinea	19.0	215.5	2.8	538.2
Gabon	5.7	30.2	2.0	88.7
CEMAC	8.0	52.1	2.5	165.9
WAEMU	16.3	63.6	6.6	564.8
ECCU	19.2	19.4	2.9	200.0

Sources: IMF WEO, April 2005, and staff calculations.

^1/In months of following year’s imports of goods and services

^2/On a remaining maturity basis.

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Table 1.

Reserve Adequacy Indicators as of end-2004

(In percent, unless otherwise indicated)

Gross reserves as a percent of:	GDP	M2	Imports 1/	Short-term debt 2/
Cameroon	5.3	25.9	2.3	89.6
Central African Rep.	10.1	58.8	5.8	162.1
Chad	6.1	67.2	2.2	645.9
Congo, Rep. of	0.6	3.2	0.1	7.7
Equatorial Guinea	19.0	215.5	2.8	538.2
Gabon	5.7	30.2	2.0	88.7
CEMAC	8.0	52.1	2.5	165.9
WAEMU	16.3	63.6	6.6	564.8
ECCU	19.2	19.4	2.9	200.0

Sources: IMF WEO, April 2005, and staff calculations.

^1/In months of following year’s imports of goods and services

^2/On a remaining maturity basis.

Dynamic considerations: Five of the six CEMAC member countries are oil exporters. Oil price fluctuations and the oil production cycle in each country represent major sources of macroeconomic and reserve volatility (Figure 1). Large interest payments on debt, (oil sector) FDI-related income payments and (oil sector) FDI-related imports, and FDI in the oil sector are the main determinants of balance of payments flows. Reserve flows have therefore been closely linked to oil price movements (Figure 2). Volatility could represent an important risk, especially in the context of a fixed exchange rate regime. For example, in the absence of any other adjustment, a US$7 change in the oil price (representing its 10-year standard deviation) would imply a fall (increase) in reserve assets of US$2.33 billion, implying a significant deterioration (improvement) in reserve adequacy indicators (Table 2).

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CEMAC: Evolution of Reserves, 1995-2005

(in millions of U.S. dollars)

Citation: IMF Staff Country Reports 2005, 403; 10.5089/9781451806526.002.A001

Source: WEO and IMF staff calculations.

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Table 2.

CEMAC: Projected Reserve Adequacy Indicators, 2005

(In percent, unless otherwise indicated)

Sources: IMF WEO, April 2005, and staff calculations.

^1/Ten year standard deviation = US$7

Table 2.

CEMAC: Projected Reserve Adequacy Indicators, 2005

(In percent, unless otherwise indicated)

Gross reserves as a percent of:	Imports	Short-term debt
Current WEO Oil price (US$46.5 pb)	3.3	229.7
WEO price + 1 standard deviation	5.1	416.5
WEO price - 1 standard deviation	1.5	123.5

Sources: IMF WEO, April 2005, and staff calculations.

^1/Ten year standard deviation = US$7

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Table 2.

CEMAC: Projected Reserve Adequacy Indicators, 2005

(In percent, unless otherwise indicated)

Gross reserves as a percent of:	Imports	Short-term debt
Current WEO Oil price (US$46.5 pb)	3.3	229.7
WEO price + 1 standard deviation	5.1	416.5
WEO price - 1 standard deviation	1.5	123.5

Sources: IMF WEO, April 2005, and staff calculations.

^1/Ten year standard deviation = US$7

23. The mission noted that in establishing oil-related “funds for future generations,” the BEAC needs to be mindful of how these funds could affect regional reserve adequacy. Foreign assets held in such funds would not constitute monetary reserves. They are to be invested in longer-term assets that are not generally considered adequate for reserve management. In addition, such funds—while maintained and managed by the BEAC—will be owned by member countries. They will, hence, need to be taken off the BEAC’s balance sheet and cannot be considered part of international reserves. Given that present levels of reserves do not appear excessive, the establishment of funds for future generations may need to focus on forthcoming receipts, and exclude reserves already with the BEAC. In addition, given the predominance of oil receipts in total exports, the mission agreed that the common reserve pool will need to receive some share of oil export receipts to ensure the sustainability of the monetary arrangement.

Financial sector soundness and financial sector development

24. Despite a strengthening of prudential regulations in recent years, concerns about the health of the banking sector remain (Tables 14 to 18). The mission noted the importance of raising capital adequacy levels, especially of the bottom third of institutions that do not yet comply with minimum requirements, and reinforcing efforts to reduce nonperforming loans, which rose slightly to 14.6 percent in 2004 (Table 16). The authorities agreed with this assessment but indicated that the implementation of some prudential requirements—especially the requirement on risk diversification, which more than half of the institutions have missed—is hampered by the economic structure of the member countries.

25. The banking sector in the CEMAC plays a limited role in the economy, even compared to other countries in the region. In 2004, loans to the private sector stood at only 7 percent of the region’s GDP, notwithstanding a sharp reduction in net credit to the government and relatively strong private sector growth.⁶ Formal financial services are available only to a small segment of the population, with about 3 percent of the population having accounts with commercial banks. In that regard, staff observed that the region-wide minimum saving deposit interest rate of 5 percent was an important obstacle as it increased banks’ costs of funds and in practice limited financial deepening. The authorities shared the mission’s concerns about the private sector’s access to credit, but noted that credit was expected to increase following several ongoing reforms (for example, the clarification of the legal status of mortgages, and the COBAC’s efforts to familiarize banks with syndication as a tool of risk diversification). On deposit rates, they noted that minimum deposit rates were needed for consumer protection and could be removed only after competition in the banking sector had increased.

26. Regional financial markets remain shallow and highly segmented (Table 17). The volume traded on the regional money market (3 percent of broad money in 2004) is negligible, partly because banks in five member countries have excess liquidity. The low volume also reflects the lack of suitable technical payments system infrastructure between countries. Finally, banks have limited information to judge the creditworthiness of potential borrowers. On the payments system, BEAC and COBAC representatives noted progress toward a regional payments platform, which is expected to be operational by 2006. The authorities reaffirmed their commitment to promoting capital market development and to opening a regional stock exchange in Libreville. While acknowledging the importance of a regional stock market, the staff underscored the need to avoid duplication with the already existing stock exchange in Cameroon.

Trade and economic integration

27. Trade restrictions and an uneven application of CEMAC rules constrain external and intraregional trade. Obstacles to trade include the relatively high effective level of the common external tariff (CET) with four rates (5, 10, 20, and 30 percent). In addition, individual countries continue to impose ad hoc fees, and other administrative requirements. Intraregional trade also suffers from a lack of complementarities in CEMAC countries’ output structure, the absence of harmonized tax structures including for the value-added tax (VAT), and, at times, the imposition of tariffs on intraregional trade in violation of the common market agreement. In addition, nontariff barriers—for example state-run monopolies, lengthy and complicated customs procedures, and extensive physical inspection of goods—also pose major obstacles to larger trade integration.

28. CEMAC officials pointed to their repeated efforts to increase member states’ compliance with common rules. They agreed, in particular, with concerns about the violation of agreed free trade between the members, but noted that the limited institutional capacity at the central level made it difficult to enforce controls over the regime. Significant improvements in compliance will therefore require a renewed political commitment to abide by the agreed trading rules. CEMAC officials also noted that several member countries maintained internal tariffs for fiscal reasons. Consequently, finding an alternative financing source for the government was a priority.

Further trade growth should be supported by broader changes in the economic environment. In view of the weak impact that past structural reforms and the region’s tariff policy have had on trade, the mission reiterated the importance of adopting measures to promote export diversification, reduce production costs, attract foreign direct investment (FDI), and improve the business environment. The mission also stressed the importance of ongoing negotiations to gain access to foreign markets, in particular the prospects of negotiating partnership agreements with the European Union (Box 3)⁷ and the eligibility of member states for the U.S. African Growth and Opportunity Act (AGOA) initiative.

Competitiveness

29. With the predominance of oil exports, competitiveness in the CEMAC is difficult to assess. Based on the real effective exchange rate, competitiveness in 2004 largely remained constant, after having deteriorated over the previous three years. As for longer-run developments, the competitiveness gains achieved with the 1994 CFA franc devaluation seem to have been largely preserved. Constant or improving profitability has also been supported by improving terms of trade and export prices. However, most of the improvements in export profitability have resulted from oil-price and output changes (Figures 7 and 8) while there are indications that the profitability of the non-oil sector has recently declined.⁸

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CEMAC: Terms of Trade, Oil Prices and Exchange Rates

(Index 1994=100)

Citation: IMF Staff Country Reports 2005, 403; 10.5089/9781451806526.002.A001

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

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30. The authorities indicated that recent changes in the exchange rate with respect to the U.S. dollar have had limited impact on exports. Oil and other commodity export prices, such as diamonds, timber and coffee, are invoiced in U.S. dollars and producers’ profits tend to be affected more by commodity price swings than by nominal exchange rate changes. In addition, among nontraditional exports and imports, exchange rates play a limited role as trade with the euro zone predominates. In pointing to possible competition from third countries with more flexible exchange rates, the mission noted that the prospects for a continuing appreciation of the CFA franc could have the potential of weakening competitiveness in the future and of discouraging efforts at export diversification.

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CEMAC: Profitability Indicators

(Index 1994=100)

Citation: IMF Staff Country Reports 2005, 403; 10.5089/9781451806526.002.A001

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

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31. The mission and the authorities discussed the elements of a broader agenda to improve competitiveness. The mission argued that, given the constraints of the exchange rate regime, it is critical to move rapidly with structural reform policies to boost labor productivity and diversify the base of production and exports. However, the mission and the authorities agreed that the exchange rate was but one element in ensuring competitiveness and that the implementation of key elements of the broader regional integration strategy—creating access to new technologies and improving road infrastructure, telecommunications, and energy—would also help to strengthen the region’s position.⁹ Finally, the creation of conditions that will attract additional domestic and foreign private investment, especially in the non-oil sector, could contribute to the development of a competitive economic base.

Effectiveness of regional surveillance and regional institutions

32. The CEMAC has increased its efforts to discuss policy issues with member countries. The mission noted the importance of the regional surveillance process and of the improvements achieved over the past year. Most important, the CEMAC’s surveillance now seems to be better established, and coordination of CEMAC and IMF surveillance on individual member states is advanced. While welcoming the progress made, the mission emphasized the need to further strengthen the regional surveillance process, notably by raising awareness of the importance of regional consistency in setting policies at the national level, and by introducing incentives and sanctions to encourage compliance with the convergence criteria and region-wide regulations.

33. The quality and financial sustainability of regional institutions continues to be uneven. The BEAC, the regional central bank, is well-established and recognized for its contributions. Representatives of other institutions, however, pointed out that working conditions in some institutions remain constrained by shortages of qualified staff, as well as by non-payment by member states of agreed contributions. For example, the COBAC continues to suffer from an insufficient number of qualified supervisors. The different CEMAC institutions are meant to be financed through a surcharge on external import tariffs, but most members do not yet fully participate in its financing.¹⁰ In addition to the lack of resources, the failure to implement agreed procedures complicates these institutions’ ability to engage in medium-term planning. Finally, the mission noted that the financing of the regional institutions other than the BEAC and the COBAC, all of which relied mostly on surcharges over import tariffs, might need to be reviewed in the context of ongoing trade liberalization.

34. The mission took note of the recent efforts to integrate the CEMAC into the ECCAS.¹¹ The authorities explained that efforts to widen integration beyond the CEMAC needed to be seen in the larger context of member states’ desire to follow the African Union integration process. The mission encouraged the authorities to remain mindful of a potential duplication of tasks and of possible inconsistencies in the application of ECCAS and CEMAC regulations.

Legal, tax, and institutional harmonization

35. The strengthening and harmonization of the legal and institutional framework in the region remains an integral part of the integration process. In 2004, the council of ministers of the CEMAC adopted relevant initiatives in the areas of transportation, statistics, fiscal, and funding for regional institutions. However, many of the regional policies could not be implemented because the member countries lacked the political will or because the CEMAC lacked the financial resources. Notwithstanding these setbacks, the authorities reaffirmed their intention to continue with legal and procedural harmonization. In 2005, regional policy initiatives will focus on streamlining investment codes in member countries, adopting a single administration document and thus limiting the number of customs forms for traded goods and services in the zone, eliminating double taxation of goods in member countries, and applying region-wide laws.

Fund surveillance

36. The authorities welcomed the proposed formalization of IMF surveillance over monetary unions and the recent agreement on a regional FSAP.¹² They expressed a desire to link future Fund surveillance activities more closely with the CEMAC review of member countries’ policies, including through overlapping missions. They also indicated that a regional FSAP would be an appropriate vehicle for reviewing the current challenges to financial stability and financial sector development.

37. In the context of improving regional surveillance the mission also noted the need to make progress on outstanding statistical issues. The data most in need of improvement are price and trade statistics. The authorities noted that the BEAC is working with national statistical agencies to update and harmonize the collection and coverage of consumer price indices in the region. Given the weak data on intraregional trade, the CEMAC is working with the authorities of member countries to strengthen customs agencies, which would also improve the registration of trade flows.