OREANDA-NEWS. July 27, 2015. Executive Board of the International Monetary Fund (IMF) concluded the annual discussions on Common Policies and Challenges of Member Countries with the Central African Economic and Monetary Community (CEMAC).1

CEMAC growth remained robust in 2014, but the full effect of the oil-price shock will be felt in 2015. Regional growth is estimated to have reached 4.7 percent, driven by an increase in oil production and the continuation of public investment programs. Nonetheless, growth in 2015 is projected to slow down to 2.8 percent, mostly because of lower public investment. Inflation remains below the regional inflation criterion of 3 percent. The regional fiscal deficit is estimated to have widened to 5.0 percent of regional GDP in 2014 and is projected to deteriorate to 5.7 percent in 2015. The current account deficit, meanwhile, is estimated to have reached 3.8 percent of GDP in 2014 and is projected to widen to 5.8 percent in 2015, as oil exports are expected to decline and investment-related imports to remain significant. Reserve adequacy remains adequate.

CEMAC countries have reacted differently to this new economic context with most countries scaling back their spending plans by reducing public investment and limiting current expenditure. All countries have also sought advances from the regional central bank. As a result of these and other debt-related developments, regional public debt is rising.

Medium-term prospects for CEMAC are uncertain. Despite their recent stabilization, oil prices are projected to remain well below pre-shock levels in the medium term. In addition, oil production is projected to start falling after 2017. This puts the burden of ensuring macroeconomic sustainability on boosting non-oil revenue, prudent public spending, and improving the competitiveness of the non-oil economy. The fall in imports related to the public investment programs will contribute to improving current accounts. Because of the magnitude of the required adjustment, maintaining this course of action will be a challenge. Moreover, a relapse in the security situation in the Lake Chad region or in the Central African Republic could curtail efforts to invest in regional infrastructure—a key factor for non-oil growth—and could weaken an already difficult business climate. In this context, CEMAC’s main challenge is to embark on an ambitious reform agenda to underpin macroeconomic stability and better support sustainable and inclusive growth. The regional institutions should be the cornerstones of this effort.

Executive Board Assessment2

Executive Directors welcomed CEMAC’s robust growth performance in 2014, but noted that the region’s prospects have been adversely impacted by the slump in oil prices and heightened security risks. Directors agreed that to deal with this challenging situation, ambitious reforms are needed to strengthen the macroeconomic and financial policy mix, facilitate the transition to more broad-based and inclusive growth, and boost CEMAC countries’ external competitiveness and resilience to shocks. Fund and development partners’ technical assistance will need to support the region’s reform efforts.

Directors stressed the importance of timely fiscal consolidation to ensure macroeconomic stability. They welcomed the efforts already being made by many CEMAC members, and emphasized that the adjustment should be growth-friendly, with careful investment prioritization, while improving efficiency and safeguarding priority social spending. Directors agreed that the regional surveillance framework needs to be strengthened. They welcomed ongoing reform efforts, and encouraged the authorities to aim for a budget rule that is simple and transparent, and a lower public debt ceiling, consistent with safeguarding sustainability. Creation of a regional fiscal unit to help monitor, evaluate, and coordinate national policies will also be important. Directors also called for continued progress with the implementation of CEMAC-wide public financial management directives.

Directors encouraged the authorities to accelerate the reform of the monetary policy framework to improve transmission channels and better manage systemic liquidity. They welcomed progress in establishing a liquidity forecasting framework and efforts to reactivate the interbank market, and noted that the transition toward a market-based monetary policy should be aided by the development of local debt markets and a more active interbank market. Although reserve levels remain broadly adequate, Directors stressed the importance of full compliance with the pooling of foreign exchange earnings with the regional central bank (BEAC). They also called for stepped-up efforts to implement outstanding safeguards recommendations.

Directors acknowledged progress in adopting new banking regulations, and looked forward to a well-sequenced plan to implement the recommendations of the 2015 FSAP Update. They advised continued upgrading of prudential regulations and their prompt publication; undertaking an asset quality review of bank assets; introduction of a new bank resolution mechanism; and strengthened cross-border supervision and enforcement. Directors also encouraged efforts to promote financial sector development and inclusion. They welcomed the provision of increased human and financial resources for the regional bank regulator (COBAC), and supported capacity-building assistance.

Directors highlighted the important role that greater regional integration could play in boosting non-oil growth and accelerating poverty reduction. Trade within CEMAC should be facilitated by reducing non-trade barriers, and harmonizing customs procedures, taxes on goods and services, and technical standards. Concerted national and regional efforts to improve competitiveness and the business climate, enhance investor protections, and strengthen regional institutions should also be important priorities.

Directors emphasized the need to improve the quality and timeliness of regional and national statistics, and supported the provision of technical assistance.

The views expressed by Executive Directors today will form part of the Article IV consultation discussions on individual members of the CEMAC that take place until the next Board discussion of CEMAC common policies.