1 – Introduction

On behalf of my CEMAC authorities, I would like to thank staff for the constructive policy discussions and the comprehensive set of papers on the recent macroeconomic developments in the region. Discussions focused on the economic, financial and monetary situation and the main challenges facing member countries. They also covered, the issues regarding the diversification of the production base, management of oil revenue, deepening the financial market and the improvement of the regional integration process and institutions. My authorities appreciate the exchange of views with staff and welcome the policy advice. In particular, they welcome the proposed formalization of IMF surveillance over monetary unions and the recent agreement on regional FSAP. These steps would help strengthen CEMAC review and further harmonize member countries’ policies and make progress on outstanding issues.

2 – Recent Macroeconomic Developments

It is worth noting that apart from Central African Republic (CAR) all other CEMAC member countries are oil producers and the effects of oil windfalls largely dominated macroeconomic developments in 2004. In view of increases in oil prices and export volume, and broadly favorable rainfall, real GDP growth of the region reached 8.3 percent against 4.5 percent in 2003. While the real oil GDP grew by 21 percent, the non-oil GDP recorded a growth of 3.2 percent against 3.6 percent in the previous year due to the drought and locust invasion in Chad and the post conflict effects emerging in CAR. Furthermore, inflation has declined while international reserves increased significantly and fiscal performance improved markedly.

In spite of these achievements and some progress made in trade and financial market integration, much remains to be done in the structural areas in order to deepen the regional integration. In addition the region’s economic prospects will continue to be dominated by developments in oil markets. In 2005, economic growth is forecasted to remain strong and overall fiscal balance roughly constant. The authorities have renewed, during their summit held in last February in Libreville, (Gabon), their commitment to the regional integration through further enhancing their efforts to increase the effectiveness of CEMAC institutions and agreements. In this regard, they call on the Fund and the international community for an adequate technical assistance to help them build the capacity needed to deal with the important challenges facing the region including fighting poverty, and enhancing the regional integration process.

Moreover, in their efforts to diversify the non oil sector in the region, the CEMAC authorities intend to host in collaboration with the Fund a workshop on the sources of growth in member countries.

3 – Strengthening Regional Surveillance

My CEMAC authorities are cognizant that an effective coordination of macroeconomic policies is crucial for member countries to reap full benefits of the economic integration process. Therefore there is a need to strengthen CEMAC regional surveillance and fully implement policy actions designed in this regard. My authorities welcome the proposed formalization of IMF surveillance over monetary unions and the recent agreement on a regional FSAP. They intend to link future Fund surveillance more closely with CEMAC review of member countries’ policies with a view to further support the regional surveillance process. This new framework will enable the authorities to find solutions to the problems stemming from lack of resources and adequate follow-up of policy recommendations.

4 – Transparency and Governance

Significant progress has been achieved in this area and the CEMAC authorities are determined to sustain their efforts in collaboration with the international community. At present, all oil exporters are implementing the EITI with the World Bank’s support and some of them like Equatorial Guinea is publishing the ROCS on fiscal transparency. In addition, transparency and accountability in oil resource management was the theme of the regional seminar for CEMAC Parliamentarians held in Malabo, Equatorial Guinea, on January 27, 2005 with the assistance of the Fund and the World bank. Also we would like to recall that the CEMAC Summit that took place in Libreville, Gabon, in August 2004 was an opportunity for the Heads of State to reaffirm their strong commitment to transparency in the management of natural resources, particularly oil revenue. They decided to improve their efforts of public communication in this regard. They have also welcomed the formulation of a code of conduct in oil sector as proposed by the Fund Managing Director. Moreover, it is worth noting that the BEAC posts regularly on its website the evolution of the main economic and financial indicators in the region. Member countries also are making available data and information on oil activities in their territories. However, the strengthening of achievements made by the CEMAC members, will require further technical assistance from the international community aimed at building institutions and capacity needed to deal with challenges faced by the region, notably in the economic diversification and oil revenue management.

5 – Monetary Policy and International Reserves Management

The BEAC’s monetary policy is aimed at supporting the fixed parity of the CFA franc to the Euro and that monetary arrangement has served the member countries very well. Despite the lack of a wide range of instruments and shallow markets, monetary policy has been effective and prudent. Inflation has remained low and official reserves increased sharply in 2004 mainly on account of the rise in oil revenue. The new situation resulting from the large increase in oil revenue flows has highlighted the challenges facing the central bank in implementing a prudent policy with its current monetary instruments. The authorities believe that there is a crucial need to develop markets for treasury bills and bonds. They are also mindful that the only short-term deposits with the BEAC are insufficient in sterilizing the high level of banks’ liquidity. Therefore they share the view for improving the financial market integration in the region through a successful implementation of reforms in the regional payment system, strengthening the Central Bank’s forecasting unit and issuing tradable central bank bills as an interim solution before the introduction of treasury bills. My authorities fully agree that as the BEAC operating environment becomes more complex, it will require the introduction of market-based instruments in order to allow the central bank to more directly influence interest rates.

With regard to the issue of investment of excess oil revenue and related effects, my authorities are aware of their fiscal and monetary implications notably in a context of international reserves pooling. While noting the limits of the current arrangements meant to remunerate the CFA franc-denominated deposits of oil exporting countries at the central bank, my BEAC authorities are strongly determined to deal with concerns expressed by some member countries. To that extend they welcome Fund technical assistance in order to better preserve transparency in the management of oil revenues, provide a better return to oil exporters and strengthen the common pool of reserves. In this context My CEMAC authorities also agree with staff that the level of international reserves need to be adequate while taking into account the country-owned “Funds for Future Generations” and respecting the principles of the monetary arrangement.

6 – Banking Supervision and Financial Sector

Over the past years, the Commission Bancaire de l’Afrique Centrale (COBAC) has pursued the strengthening of prudential regulations. However the implementation of some prudential requirements was hampered by the economic structure of the member countries. The authorities are concerned about this situation and determined to subdue the nonperforming loans. While the authorities share the concerns expressed about the access of the private sector to credit, they remain committed to press ahead with the ongoing reforms in the financial sector including the clarification of the legal status of mortgage and the banks’ familiarization with loans’ syndication. New regulations regarding capital base, risk-management systems and audits to properly manage risks have also been adopted with a view to strengthen the public confidence in the banking sector. The CEMAC authorities are strongly determined to develop a regional capital market. To this end they also take note of the need to avoid duplication of efforts in the sector. In addition, the project meant to modernize the regional payment system has been on going and the authorities envisage to operationalize the new system in 2006. Progress made in the area of microfinance regulation and supervision will be sustained owing to its valuable role in financing rural activities and helping financial sector development.

7 – Trade Policy and External Competitiveness

My CEMAC authorities stressed their commitment to increase member countries’ compliance with common rules in order to expand the intraregional trade. They support the staff’ views on the difficulties they face in this area due in particular to weak institutional capacity to implement and control trading rules. Fiscal factors also explain the internal tariffs’ upholding in some member countries. To further increase the trade within the region, there is a crucial need to step up structural reforms in improving the region’s tariff policy, promoting export diversification, reducing production costs and making better the business environment to attract foreign direct investment. The CEMAC authorities attach great importance to these steps as they are key elements in their efforts to improve the region’s competitiveness. In order to strengthen the region’s economic position, my authorities are determined to boost labor productivity, diversify the production and export base as well as improving infrastructure, energy and access to new technologies. In the same vein, they will focus on streamlining investment codes, adopting a single document by limiting the number of customs forms and eliminating double taxation of goods in member countries and further enhancing the region-wide laws implementation.

8 – Policy Convergence

It is worth noting that compliance with CEMAC convergence criteria improved significantly in 2004. This noteworthy progress, over the past years, is the result of the authorities’ determination to abide by macroeconomic criteria coupled with the favorable external developments that occurred in the oil markets. Nearly all oil exporters were able to meet the criteria. Based on this result, the authorities are committed to further encourage compliance with the regional convergence criteria and region-wide rules and regulations.

9 – Conclusion

Strengthening the regional integration process remains the key objective of my CEMAC authorities and the political commitment of member countries is still strong. In his respect significant progress has been achieved, notably in 2004, with the convergence criteria. However, much remains to be done in order to create an effective regional economy. To this end the CEMAC authorities, mindful of the depletion of oil resources, are strongly determined to press ahead with structural reforms needed to support market integration, diversify the production and export base in the non oil sector. They will also pursue steadfastly the efforts to reduce poverty in the region.