IMF Executive Board Concludes Annual Discussions on CEMAC Countries’ Common Policies

On July13,2016, the 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 was subdued in2015. It slowed to 1.6percent, from 4.9percent in2014, because of reduced public investment and lower oil production. Growth is projected to be 1.9percent in2016, as oil production and investment remain sluggish. From2017 onward, growth is expected to reach 3frac12;percent a year, as oil prices gradually recover, some onepercentage point below the average growth level of the past decade of high oil prices. Growth of money and credit to the economy turned negative in2015 for the first time in a decade, contributing to keeping inflation low. The regional fiscal and current account deficits grew to 6 and 9percent of GDP in2015, respectively, as oil export proceeds fell by 32percent. Continued low oil prices and high public expenditure will contribute to maintaining both deficits at about 6 and 8percent of GDP in2016, respectively. The gradual recovery in oil prices and the expected moderate fiscal consolidation should narrow the regional fiscal and current account deficits to 3percent by2021. Reserves have declined. Banks appear to have weathered the economic downturn thus far.

Policies to counter the oil-price shock need to focus on fiscal consolidation and real-economy reforms. In the wake of the oil-price shock, monetary financing has been the primary response tool. Although the non-oil primary deficit dropped by 8percentage points of GDP in2015, this response has been insufficient to check the overall fiscal deficit. Fiscal policy coordination among members should be strengthened and fiscal discipline enforcement is needed. Real-economy reforms, focusing on improving the business climate and boosting private investment, are also needed to preserve macroeconomic stability.

CEMAC medium-term prospects are challenging. A weaker-than-expected oil price recovery or a relapse in security conditions in the Lake Chad region could undermine macroeconomic stability and private investment. Lower growth in China could dampen commodity prices-especially oil-, lower demand, and reduce financing. In these challenging times, stronger regional institutions are necessary for promoting regional integration and supporting regional economic growth.

Executive Board Assessment2

Executive Directors expressed concern about the region’s deteriorating economic prospects stemming from multiple shocks, in particular the oil price decline, the challenging security environment, and the insufficient policy response. With the medium-term outlook facing considerable risks, Directors strongly encouraged the authorities to take timely and decisive actions to pursue fiscal adjustment and ensure debt and external sustainability, rebuild foreign reserves buffers, and implement region-wide structural reforms to diversify the economy and improve investment prospects. Stronger regional institutions are also essential to improving regional integration and policy coherence and compliance. Directors also called for enhanced support from the Fund and other international partners to help the authorities address the current economic difficulties.

Directors stressed the critical importance of continued fiscal consolidation to address the widening fiscal and current account deficits and to maintain macroeconomic stability. While welcoming the recent progress, they encouraged further efforts to expand the non-oil tax base and rationalize and improve the quality of spending to maximize economic returns and social protection. Directors welcomed the authorities’ intention to pursue prudent borrowing and debt management policies, and encouraged borrowing on concessional terms to the extent possible. Directors also welcomed the new regional convergence framework, although a lower debt ceiling and stronger monitoring mechanisms should be considered.

While acknowledging the supportive role played by the accommodative monetary stance in weathering shocks, Directors noted the limited scope for further monetary policy easing and called for greater prudence in this regard. They urged the authorities to freeze the statutory advances to national governments, avoid indirect monetary financing, and accelerate reforms to the monetary policy framework to improve its effectiveness, including greater central bank independence. Directors underscored that rebuilding the low level of reserves is an urgent priority, and that better pooling of reserves across the members remains important. They encouraged the implementation of the remaining safeguards assessment recommendations.

Directors noted the resilience of the financial sector, and encouraged the development of a sound macroprudential framework to safeguard financial stability in the region. Directors also welcomed the progress made following the2015 FSAP recommendations, and urged the implementation of the remaining recommendations, as well as measures to broaden financial inclusion and strengthen the AML/CFT framework.

Directors stressed the need for ambitious structural reforms to boost competitiveness and diversification, create private-sector investment opportunities, and improve the business environment. They encouraged the strengthening of regional institutions to enhance collaboration and macroeconomic management.

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

Non-oil overall fiscal balance, excluding grants4

Non-oil primary fiscal balance, including grants 4

External sector Exports of goods and nonfactor services Imports of goods and nonfactor services

Balance on goods and nonfactor services

Gross official reserves (end of period)

Millions of U.S. dollars

Months of imports of goods and services

(less intra-regional imports)

Memorandum items:

Nominal GDP (billions of CFA francs)

CFA francs per U.S. dollar, average

Oil prices (US dollars per barrel)

1 Using as weights the shares of member countries in CEMAC#39;s GDP in purchasing power parity in US dollars.

2 Excluding grants and foreign-financed investment and interest payments.

3 Excluding grants and foreign-financed investment.

4 Inpercent of non-oil GDP.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of these bilateral Article IV consultation discussion, staff hold separate annual discussions with the regional institutions responsible for common policies in four currency unions – the Euro Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collects economic and financial information, and discusses with officials the currency union’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board. Both staff’s discussions with the regional institutions and the Board discussion of the annual staff report will be considered an integral part of the ArticleIV consultation with each member.

2At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the regional authorities. An explanation of any qualifiers used in summing ups can be found here:

Source: International Monetary Fund (IMF).