Central African Economic and Monetary Community
Staff Report on Common Policies of Member Countries; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the Central African Economic and Monetary Community

This paper discusses the common policies adopted by the members of the Central African Economic and Monetary Community (CEMAC). The macroeconomic performance was good in 2011 with improved fiscal balances, public investment programs, and higher reserves. However, CEMAC is facing challenges from deep-seated structural problems, including uncoordinated fiscal policy, financial sector weaknesses, and obstacles to growth and competitiveness. The Executive Board recommends monetary policies for financial stability and suggest making monetary policies an efficient tool of macroeconomic management. Also, the Board recommends strengthening of governance of CEMAC’s common institutions.

Abstract

This paper discusses the common policies adopted by the members of the Central African Economic and Monetary Community (CEMAC). The macroeconomic performance was good in 2011 with improved fiscal balances, public investment programs, and higher reserves. However, CEMAC is facing challenges from deep-seated structural problems, including uncoordinated fiscal policy, financial sector weaknesses, and obstacles to growth and competitiveness. The Executive Board recommends monetary policies for financial stability and suggest making monetary policies an efficient tool of macroeconomic management. Also, the Board recommends strengthening of governance of CEMAC’s common institutions.

Introduction

1. Macroeconomic performance in 2011 was good, supported by high oil-related inflows. Oil revenue allowed oil-producing member countries to comfortably finance ambitious investment programs while further strengthening international reserves.

2. Despite its vast oil wealth, the CEMAC faces substantial development challenges. Five of the six CEMAC countries are oil producers; oil accounts for 41 percent of regional GDP (Figure 1) and 86 percent of total goods exports. Oil-related surpluses have posed challenges for macroeconomic policymaking. Channeled through government spending, oil revenue is the main driver of economic activity. Volatile oil prices and procyclical fiscal policy have caused boom and bust cycles, exacerbated by high wages, in a fixed exchange rate regime. Spending out of oil wealth has not led to more inclusive growth. The Central African Republic (C.A.R.), the only member country without oil, continues to grapple with the challenges of a fragile postconflict state. With high inequality, poverty, and unemployment, it is unlikely that the region will meet the Millennium Development Goals by 2015 (Table 2).

Figure 1.
Figure 1.

CEMAC: GDP Composition, 2011

Citation: IMF Staff Country Reports 2012, 244; 10.5089/9781475504842.002.A001

Source: IMF African Department (AFR) database.

3. Implementation of long-standing IMF policy advice has been slow. National fiscal policies are not well coordinated, in part because the current convergence criteria are not appropriate for a region dominated by oil-producers (Appendix I). On monetary policy, long-standing recommendations on improving policy instruments have not yet been implemented. However, government cash holdings have largely been centralized at the regional central bank, statutory advances are being phased out, and a regional government securities market is now operating. Regarding the financial sector, core recommendations of the 2006 Financial Sector Assessment Program (FSAP) report (Appendix III) have not been implemented. Notably, the principal prudential regulations are still out of line with international best practices and are poorly enforced. The regional supervisor’s (the Central African Banking Commission (COBAC)) severe staffing problems continue to undermine the credibility of supervision, with serious reputational risks for the financial sector. The new regulation on banking crisis management has yet to be adopted, and little progress has been made on addressing the problems of weak banks, including a systemically important regional banking group. Regarding trade reforms, more needs to be done to remove barriers to internal and external trade. On safeguards and governance issues, the BEAC has made progress in implementing its action plan, but risks remain in core functions and at the higher level of governance and oversight bodies.

4. The CEMAC would benefit from improved regional integration. The ongoing crisis in the euro area has brought to the forefront a currency union’s policy challenges stemming from loss of competitiveness, lack of fiscal coordination, and loose economic and financial integration. To safeguard the CEMAC’s currency union and enhance the benefits of regional integration, the authorities need to ensure progress in three areas:1 (i) ensuring economic stability and external sustainability; (ii) ensuring financial stability and development; and (iii) enhancing growth and competitiveness. To this end, there is an urgent need to further strengthen the CEMAC’s common institutions.

Economic Context

A. Recent Economic Developments

5. Economic activity in 2011 was affected by lower oil output (Tables 1 and 3, and Figure 2). Real GDP growth in 2011 fell slightly to 4.5 percent, driven by a decline in oil output growth in Republic of Congo and Gabon. Non-oil real GDP growth was somewhat below sub-Saharan African (SSA) oil exporters’ average, but exceeded the West African Economic and Monetary Union’s (WAEMU) average.

Table 1.

CEMAC: Selected Economic and Financial Indicators, 2007–13

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Sources: Authorities’ actual data and IMF staff estimates and projections.

CEMAC data are weighted by GDP in purchasing power parity US dollar.

Excluding grants and foreign-financed investment and interest payments.

Excluding grants and foreign-financed investment.

Table 2.

CEMAC: Millennium Development Goals, 1990 and 2010

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Source: World Development Indicators.
Table 3.

CEMAC: National Accounts, 2007–13

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Sources: Authorities’ actual data and IMF staff estimates and projections.

CEMAC data are weighted by GDP in purchasing power parity US dollar.

Figure 2.
Figure 2.

Recent Economic Developments, 2008–11

Citation: IMF Staff Country Reports 2012, 244; 10.5089/9781475504842.002.A001

Source: IMF AFR database.

6. Regional inflation picked up, but the real effective exchange rate (REER) was stable (Table 4). Because of rising food and fuel prices, average annual consumer price inflation increased markedly from 2.4 percent in 2010 to 3.1 percent in 2011, slightly above the regional convergence criterion of 3 percent, but close to inflation in the WAEMU. The regional REER was stable because the appreciation in Republic of Congo and Equatorial Guinea outweighed the depreciation in other CEMAC countries. The REER remains below its predevaluation level.

Table 4.

CEMAC: Nominal and Real Effective Exchange Rates, 2006–11

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Sources: IMF, Information Notice System.

CEMAC data are weighted by GDP in purchasing power parity US dollar.

7. The monetary stance was accommodative (Figure 3). Despite inflation slightly above the convergence criterion of 3 percent and high excess liquidity, the BEAC left its policy rate unchanged. The spread between the BEAC and the European Central Bank (ECB) policy rates was about 200 basis points during 2011. Regarding monetary aggregates in 2011, government deposits increased, driven by oil-related inflows. However, broad money and credit to private sector grew by double digits driven by commercial bank deposits (Tables 8, 9, and 10). Commercial bank excess liquidity also remained elevated.

Figure 3.
Figure 3.

CEMAC: Monetary Developments, 2007–11

Citation: IMF Staff Country Reports 2012, 244; 10.5089/9781475504842.002.A001

Sources: International Financial Statistics (IFS), BEAC, and ECB.
Table 5.

CEMAC: Balance of Payments, 2007–13

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Sources: Authorities’ actual data and IMF staff estimates and projections.
Table 6a.

CEMAC: Fiscal Balances, 2007–13

(Percent of GDP)

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Sources: Country authorities’ actual data and IMF staff projections.

Overall budget balance excluding grants and foreign-financed investment.

Table 6b.

CEMAC: Fiscal Non-oil Balances, 2007–13

(Percent of non-oil GDP)

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Sources: Country authorities’ actual data and IMF staff projections.

Overall budget balance excluding grants and foreign-financed investment.

Table 7.

CEMAC: Compliance with Convergence Criteria, 2007–13

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Sources: Country authorities’ actual data and IMF staff projections.

Overall budget balance, excluding grants and foreign-financed investment.

External and domestic arrears.

Table 8.

CEMAC: Monetary Survey, 2007–11

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