Statement by Mr. Yambaye and Mr. Bah on Central African Economic and Monetary Community (CEMAC), July 25, 2014

Regional growth weakened in 2013 due to a fall in oil production in most countries. GDP growth is expected to pick-up in 2014 due to the recovery of oil production and the continuation of the implementation of public investment plans in most of CEMAC countries. Despite large spending of oil wealth during the last years, poverty, income inequality and unemployment remain high. The business climate is one of the most challenging in Africa. The region’s most pressing challenge is to implement structural reforms to promote sustainable and inclusive growth while adopting macro policies to preserve financial stability, ensure an efficient use of oil revenues and increase resilience to shocks.

Abstract

Regional growth weakened in 2013 due to a fall in oil production in most countries. GDP growth is expected to pick-up in 2014 due to the recovery of oil production and the continuation of the implementation of public investment plans in most of CEMAC countries. Despite large spending of oil wealth during the last years, poverty, income inequality and unemployment remain high. The business climate is one of the most challenging in Africa. The region’s most pressing challenge is to implement structural reforms to promote sustainable and inclusive growth while adopting macro policies to preserve financial stability, ensure an efficient use of oil revenues and increase resilience to shocks.

I - Introduction

On behalf of our Central African Economic and Monetary Community (CEMAC) authorities, we would like to thank the Executive Board, Management and Staff for the policy advice and technical assistance they are benefiting from the Fund in their efforts to advance the process of economic and financial integration in the region. Our authorities also appreciate the constructive dialogue they have had with staff last June in Yaoundé during the 2014 consultations. They broadly share the thrust of the staff–s appraisal and policyrecommendations.

II - Economic Developments in 2013

The regional real GDP growth rate declined to 2.5 percent in 2013 from 5.2 percent in 2012 owing mainly to a decrease in oil production and contraction of economic activity in CAR. However, growth in the non-oil sector was solid thanks to high public investment and buoyant domestic consumption. Inflation in the region stood at 1.8 percent well below the convergence criteria of 3 percent due to the decline of food prices and stability in domestic petroleum prices. As for international reserves, they amounted to the equivalent of 5.1 months of imports. The regional fiscal position turned negative in 2013, but the public debt of CEMAC countries averaged around 23 percent of GDP below the convergence criteria set at 70 percent of GDP. Moreover, the debt analyses for member countries indicate low risk of debt distress.

III - Policies and Reforms Going Forward

The CEMAC authorities remain strongly committed to the pursuit of their reform agenda to deepen regional integration with strong institutions and achieve a single common market conducive to high inclusive growth in a sustainable macroeconomic environment. Policies implemented so far and with the Fund’s assistance have benefitted the region and led to higher growth. Considerable progress has been made in strengthening the capacity of the CEMAC institutions and implementing financial reforms. The medium-term outlook, despite some risks, remains positive with the projected increase in oil production and rebound of non-oil growth projected at 5-6 percent.

Fiscal Surveillance

The CEMAC authorities are cognizant that an effective fiscal surveillance framework and full implementation of measures designed to this effect will be helpful in coordinating macroeconomic policies of member countries. In this regard, they will speed up their efforts in implementing the regional directives on public financial management. They also agree on the need to adjust the current surveillance framework in order to better ensure the stability and sustainability of policies. On the fiscal surveillance framework, the Regional Surveillance Committee and national authorities held a meeting last June to discuss the required reform. The CEMAC Commission will prepare specific recommendations for the Zone Franc meeting in 2015. With regard to the debt ceiling, the authorities will review its criterion to make it more consistent with budget rule and the need for financing public investment.

External sustainability

The peg of the CFA Franc to the Euro has served the CEMAC member countries well. Inflation is well below the convergence criterion and international reserves are at a comfortable level in terms of imports and broad money covers. However, the noncompliance with the requirement of foreign assets centralization continues to be a source of concern, and the BEAC has initiated discussions with all stakeholders to agree on an appropriate framework. The authorities are grateful to the Fund for its policy advice and technical assistance in this regard.

Monetary policy framework

The BEAC’s monetary policy is aimed at supporting the fixed parity of the CFA Franc to the Euro. In a context of shallow markets and a small range of instruments, this policy has been prudent and helpful. Indeed, inflation has remained low and gross reserves equivalent to more than 5 months of imports. The authorities agree that the excess of liquidity in a context of shallow markets has highlighted the challenges facing the regional central bank notably the need to strengthen the monetary policy transmission mechanism. To address this situation, they plan to implement with the Fund’s technical assistance an ambitious reform of the BEAC’s monetary policy framework. Under this reform, the interbank and governments securities markets will be revitalized. The BEAC’s effective capacity to manage the liquidity will be further enhanced to develop the interbank market.

Financial sector stability and development

The authorities have made significant progress to strengthening the COBAC’s capacities to improve banking supervision and strengthen financial sector stability. This progress includes the adoption of new regulations, implementation of a remote financial reporting system for financial institutions and recruitments to speed up banking supervision. Efforts to further enhance the COBAC’s capacity will be pursued to address the challenges stemming from the expansion of the nonbank financial sector and the development of microfinance and mobile banking services. The authorities will also focus their efforts to accelerate the adoption of the new regulation on crisis management.

CEMAC authorities intend to further promote the development of the financial sector by increasing its role in financing the regional economy. In this regard, the recently established credit information bureau and rating system will be operational by end 2015. In addition, the authorities are reflecting on alternative and innovative sources of financing to support growth, including greater private sector participation in financing infrastructure projects.

Enhancing regional integration and competitiveness

In order to further enhance the regional integration process and increase regional growth, the CEMAC authorities agree that there is a need to intensify their reform efforts to address the weak structural competitiveness, develop the intra-regional trade and improve the business environment. To achieve these objectives, the authorities will prepare, with the support of the World Bank, a feasibility study to create a business climate regional observatory. They will continue implementing measures to reduce regional trade barriers, prepare a study to reduce the common external tariff, eliminate double taxation to third-country products and create CEMAC wide rules of origin. The authorities are hopeful that with an increased support of development partners they will tackle the growth constraints and improve the business climate through the region.

Strengthening institutional capacity

In view of the daunting challenges they face in their efforts to achieve an effective economic and financial integration, the CEMAC authorities agree on the need to further strengthen the capacity of regional institutions to fully fulfill their mandate. In this regard, remarkable progress has been made notably with the implementation of BEAC’s plan of reform and modernization as well as the COBAC staffing. The authorities will pursue their efforts to further enhance the CEMAC Commission and with the support of member states and development partners they will reinforce the BEAC’s institutional capacity. Further efforts will be focused on enhancing the quality of economic and financial information to improve the monitoring and assessment of reforms and policies.

IV - Conclusion

Our CEMAC authorities remain committed to strengthen the regional integration process. In this regard, they will press ahead with reforms needed to advance market integration, diversify the production and export base, and reinforce institutions’ capacity. The authorities are grateful to staff for their policy recommendations which will be an important input in their efforts to achieve their regional objectives.