Statement by Mr. Yambaye, Executive Director for the Central African Economic and Monetary Community (CEMAC), and Mr. Raghani, Alternate Executive Director, and Mr. Bah, Senior Advisor to Executive Director, July 17, 2015

CEMAC’s economic outlook has changed dramatically since the last discussions because of the significant decline in international oil prices. The financial sector is shallow, and financial intermediation and inclusion are limited. The regional institutions face considerable challenges, including from political interference and capacity constraints. Downside risks are important, as CEMAC is vulnerable to protracted low oil prices and a possible relapse in regional security crises.

Abstract

CEMAC’s economic outlook has changed dramatically since the last discussions because of the significant decline in international oil prices. The financial sector is shallow, and financial intermediation and inclusion are limited. The regional institutions face considerable challenges, including from political interference and capacity constraints. Downside risks are important, as CEMAC is vulnerable to protracted low oil prices and a possible relapse in regional security crises.

I. Introduction

The authorities of the Central African Economic and Monetary Community (CEMAC) express their appreciation to Staff, management and the Executive Board for the support they are benefiting from the Fund in their efforts to achieve the CEMAC objectives. They also appreciate the constructive policy dialogue they have had with staff last April and May in Libreville and Yaoundé under the 2015 regional consultations.

The CEMAC region is experiencing a difficult situation due to the combination of the sharp decline in international oil prices that started in mid-2014 and security shocks stemming from terrorists attacks around the Lake Chad and political instability in the Central African Republic (CAR). Given the region’s high dependence on the oil sector – more than 80 percent of exports and more than 50 percent of fiscal revenues - these shocks are taking a heavy toll on economic performance and prospects. They also highlight the need to deepen the community’s reform agenda with a view to better increase the region’s resilience to shocks. Mindful of the need to forcefully address these daunting challenges, the CEMAC authorities remain committed to pursuing prudent fiscal and monetary policies to strengthen the macroeconomic stability while further deepening the structural reforms to create a conducive environment for business and private investment.

II. Economic Developments in 2014

In 2014, the regional growth is estimated to have reached 4.7 percent against 2.4 percent in 2013. This performance, uneven across the region, is mainly due to the increase in crude oil production and continuation of public investments. The non-oil sector grew by 4.7 per cent largely sustained by public investment projects. As for inflation, it stood at 2.7 percent in 2014 owing mainly to the low food prices. Although unevenly distributed between member countries it thus remained below the convergence criterion of 3 percent. The international reserves of the BEAC –the common central bank –remained largely adequate to cover 7 months of imports in 2014 against 5.8 months in 2013. The fiscal deficit widened to 5.0 percent of GDP from 3.5 percent in 2013 following the fall in oil revenues combined with the pursuit of public investments and rising security expenditures. In addition, the deficit of the current account increased from 1.6 per cent of GDP in 2013 to 3.8 percent of GDP in 2014, as oil revenues declined and investment-related imports remained important.

III. Policies and Structural Reforms in 2015 and Going Forward

The CEMAC’s economic prospects in 2015 will be heavily affected by the shocks the economies are experiencing with the slump in oil prices and increases in security related expenditure. In this context, growth is projected to slow down, the fiscal and current account deficits will widen further, although most member countries have reduced their public investment and limited current expenditure. This could lead to an increase in the regional public debt to meet the member countries’ financial needs.

To address the new challenges, our CEMAC authorities will pursue the implementation of needed reforms. Under the technical assistance from the Fund and other development partners, the CEMAC authorities will intensify their efforts to further strengthen fiscal and debt sustainability, promote a dynamic financial sector and achieve the common market in the CEMAC region.

1. Fiscal and Debt Surveillance

The authorities’ efforts to make the fiscal surveillance framework more efficient will be further enhanced. In this regard, they will continue, with the implementation of CEMAC public financial management directives, to achieve greater harmonization of procedures and promote fiscal cooperation among member countries. Moreover, a proposal revising the surveillance framework and strengthening the monitoring system will be presented at the zone franc ministerial meeting scheduled for October 2015. On the debt ceiling, they intend to review its criterion based on the countries’ needs for financing public investment.

2. Monetary Policy

The authorities’ monetary policy is aimed at price stability and supporting the fixed exchange rate of the CFA Franc to the Euro. They are mindful of the need to further improve the monetary transmission mechanisms in a context of excess liquidity and large needs of economic activity financing. With Fund technical assistance, initiatives to revitalize the regional money markets are underway like the approval of repo regulation, the introduction of certificates of deposits and commercial papers at the regional level. Good progress has also been made in bolstering the interbank transactions and establishing a liquidity forecasting framework. Moreover, the phasing out of statutory advances to public treasuries will continue in order to promote the development of sovereign bond markets.

3. External Sustainability

The CFA Franc peg to the Euro has served the BEAC member countries very well. The authorities will closely monitor its evolution to meet the monetary union requirements. Their continued efforts to improve reserves management and compliance with pooling rules will be further enhanced. An agreement with the French treasury to increase the remuneration of BEAC’s deposits has been signed. Moreover, the BEAC will establish correspondent accounts with selected international financial institutions to hold subaccounts for member countries. This will help meet both BEAC’s reserve pooling requirement and member countries’ development objectives.

4. Financial Sector Reforms

The CEMAC authorities welcome the 2015 FSAP and value its recommendations as their implementation will help address the vulnerabilities facing the financial sector. Based on progress made under the technical assistance, the authorities will pursue their reform efforts to mitigate risks to financial stability and enable the sector to play its role in financing the development of CEMAC member countries. In this respect, they are developing additional regulations on systemic institutions and implementing measures to enhance the supervision of microfinance institutions in addition to recently adopted regulation to further strengthen the financial sector supervision. The new bank resolution mechanism will be fully implemented to give greater authority in dealing with banks in difficult situation. The authorities intend also to develop a sound financial market infrastructure and allow mobile banking services while developing a surveillance mechanism for the payments system. With further improvements in enhancing the business climate, these reform measures will enable the financial sector to increase its contribution to the financing of CEMAC economies.

5. Enhancing Growth and Competitiveness

Cognizant of the need to reduce the CEMAC countries’ dependence on oil crude production, the authorities are determined to diversify the sources of growth and increase the region’s resilience to shocks. To this end, improving the business environment will be crucial. In this regard, their efforts to remove regulatory bottlenecks to the private investment and regional trade will be increased through needed measures including the reduction of non-tariff barriers, harmonization of taxes on goods and services and streamlining customs procedures. More importantly, investments in the infrastructure sector will be further encouraged. The authorities are also hopeful that the implementation of the regional business climate observatory will help make significant inroads in the process of regional integration.

6. Strengthening CEMAC Institutions

In order to achieve the CEMAC objectives, the authorities are committed to further strengthen the regional institutions’ capacity. Good progress has been made in implementing the BEAC’s operational reform plan. The authorities are also developing a human resources management plan and a new employee charter. In addition, COBAC human capacity has been increased with the hiring of new staff. Moreover, the coordination between national authorities and CEMAC institutions will be further enhanced to improve economic data collection and policy formulation and implementation as well.

IV. Conclusion

The slump in oil prices in a context of security strong concerns has increased the challenges facing the CEMAC region. The authorities remain strongly committed to the regional integration objective and economic growth. Progress made in his regard will be consolidated through further efforts to diversify the production and export base while deepening financial intermediation and reinforcing regional institutions capacity. The CEMAC authorities are grateful to Fund for its policy dialogue and technical assistance which are helpful in their efforts to achieve the economic regional integration.