Statement by Mr. Kossi Assimaidou, Executive Director for Central African Economic and Monetary Community (CEMAC), June 18, 2012

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

My authorities of the Central African Economic and Monetary Community (CEMAC) would like to thank the Executive Board, Management and Staff for the steadfast support they receive from the Fund in their efforts aimed at implementing needed policies and reforms to strengthen the economic and financial integration’s process in the region. In particular, they highly value the technical assistance provided by the Fund to CEMAC’s institutions, and the constructive policy discussions and seminars they had last March in the context of the 2012 article IV consultations.

My authorities broadly share the thrust of the staff report whose recommendations will help them ensure greater financial stability and development while enhancing growth and competitiveness.

CEMAC’s overall macroeconomic performance was good in 2011 on account of the high oil revenue inflows in several member countries. The authorities are aware that the global economic slowdown, the persistent financial crisis in euro zone, the vulnerabilities of the domestic banking sector and the limited capacities at the regional level could pose potential risks to the regional economies. To mitigate these risks and foster the positive regional economic outlook, they will accelerate their efforts in implementing, with the support of the Fund and other partners, required policies and structural reforms. These efforts are also aimed at safeguarding the currency union, foster fiscal policy coordination, enhance external sustainability and make substantial inroads in economic diversification and poverty reduction.

Recent Economic Developments

The decline in oil output growth in Gabon and the Republic of Congo led the CEMAC real GDP growth to fall to 4.5 percent in 2011 from 5.1per cent in 2010. The oil sector plays a crucial role in the development of CEMAC economies as it contributes to 41 percent to the regional GDP and accounts for 86 percent of total exports. Thanks to the high oil related inflows and other commodity prices, the current account deficit narrowed and international reserves strengthened to cover about five months of total imports. However, regional inflation increased from 2.4 to 3.1 percent slightly above the convergence criterion of 3 percent, mainly due to the rise in food and fuel prices, in a context of accommodative monetary policy. In addition, the non-oil fiscal primary deficit widened owing to large public investment primarily financed by the buoyant oil revenue. This also led the public debt to remain low at about 18 percent of GDP.

CEMAC countries made good progress in their efforts to comply with the regional convergence criteria. As indicated by staff, the number of violations declined from six in 2010 to three in 2011. The authorities agreed on the need to accelerate the reform of the convergence criteria and framework given the macro economic implications of the oil wealth and the need to improve the regional surveillance. In this regard, they intend to organize before the end of 2012 a high-level workshop with IMF technical support to address these issues.

In order to better coordinate and harmonize fiscal policies of member countries, the authorities adopted directives on budget law and the medium-term fiscal framework, public accounting, payroll management, implementation of the Government Finance Statistics Manuel, metadata related to the budget system and transparency and good governance in PFM. The transposition of these directives into national legal framework and their implementation will further enhance the regional surveillance.

Given the dependence of CEMAC countries on oil and other commodities with a volatile world prices, the authorities remain determined to pursue their reform agenda to ensure fiscal and external sustainability, improve the financial sector’s stability and its role in the economy and make significant progress in the economic and financial integration process.

Policies and Structural Reforms in 2012

Economic outlook and stability

The CEMAC economic outlook appears positive given the expected rebound in oil production and the large ongoing public investments in member countries financed mainly by the high oil revenue. In this context, overall real GDP growth is projected at 4.5 percent in 2012 while inflation is forecast to decline. The authorities’ efforts to further widen the economic diversification will be pursued with a view to achieve, over the medium-term, higher and sustainable growth in the non-oil sector. The authorities are mindful that the region’s financial and real sectors will be severely affected by a global economic slowdown resulting from a protracted euro crisis. They, therefore, welcome the policies and programs being implemented by the Euro area authorities, together with assistance from the Fund, to solve this financial crisis and put the member economies on a sustained growth path.

Fiscal consolidation

Despite the capacity constraints they face, the authorities are determined to pursue their fiscal consolidation efforts and anchor public investment in a credible medium-term fiscal strategy. The CEMAC Commission capacity will be further enhanced with a view to strengthen the regional surveillance through an adequate implementation of fiscal directives adopted in 2011. This also will enable the authorities to enforce an efficient and transparent public financial management. To this end, an action plan has been finalized and the training at national levels will be conducted in the second half of 2012.

External sustainability

The authorities agree with staff that the reserves’ level is adequate to support the fixed exchange rate regime. They also share the view that the CEMAC’s external position and the REER are broadly consistent with external stability. The authorities are determined to safeguard these achievements through intensified efforts to address weaknesses related to the full compliance with the reserve-pooling requirement and implement needed reforms to improve the oil-savings management. To address the non-compliance by member countries with the regional requirement of a full reserves pooling, a working group made up of senior officials was set up and the authorities are regularly updated on progress made in this regard. Moreover, it is worth noting that member countries lagging behind the compliance with this rule governing the currency union have been reassured that their obligations under this requirement will be fully respected.

Financial sector reforms

The Fund technical assistance through policy advice and resident advisors has helped achieved significant progress in enhancing the BEAC safeguard measures and implementing the central bank’s reforms. This assistance has increased the capacity and credibility of the regional central bank. They intend to fully implement the recommendations made by recent safeguard mission.

The authorities agreed that the health of the financial sector is a source of concern given the weaknesses identified on the compliance with the regional prudential ratios. In this regard, the authorities have increased the minimum capital requirements under the review of prudential regulations. They have also established a regional deposit insurance scheme as well as a financial stability committee. Given the delays encountered in the resolution of a systematically important regional banking group, further efforts will be made to strengthen crisis prevention, management and resolution. To improve the institutional environment for the financial sector, significant measures and actions have been made recently, notably the creation of credit bureaus, the establishment of a credit rating agency and a central registry of corporate balance sheets. On enhancing collaterals, member countries are implementing measures to promote land registration and bookkeeping of titles recommendations while broadening the range of assets to be used as collateral.

Structural reforms and Competitiveness

The CEMAC authorities are aware of the need to create more growth and employment opportunities in order to fight poverty and sustain the development of the region. The weak structural competitiveness of the region’s economies is a concern. The low level of infrastructure development and low interregional trade and mobility of production factors are the main challenges to non-oil growth in the region. To this end, the authorities are determined to implement the regional economic program (REP) with a view to transform the region into an emerging market by 2025. In addition, efforts to remove barriers to internal and external trade, address labor market mobility issues will be pursued at both national and regional levels. These reforms together with improved governance and business environment will help increase the region competitiveness and enhance growth and economic diversification.

Capacity building

Under the technical assistance of the Fund and other partners including the World Bank, significant progress has been made in strengthening the capacities of CEMAC institutions including the BEAC, COBAC and the Commission. The authorities will speed up their efforts in implementing recommendations and action plans designed to increase efficiency, transparency, governance and accountability of their regional institutions.

Conclusion

Despite the difficult external environment, progress has been by the CEMAC region in stabilizing the macroeconomic situation and advancing in reforms. However, much remains to be done to further enhance the regional integration process and achieve more benefits from the regional agreements. My authorities remain committed to pursue their reform agenda with the continued support of the international community and of the Fund in particular.