## anea2022002 — Executive Summary and Key Findings ## Source details **Canonical URL:** [anea2022002 — Executive Summary and Key Findings](https://www.imf.org/-/media/files/publications/analytical-notes/2024/english/anea2022002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/analytical-notes/2024/english/anea2022002.pdf.md) - [Structured JSON version](/-/media/files/publications/analytical-notes/2024/english/anea2022002.pdf.json) --- ### Scope and timeframe - Analysis completed through 2021. - The IMF and World Bank remain committed to help Central African Economic and Monetary Community (CEMAC) countries strengthen the foundation for inclusive growth and lay the ground for shared prosperity. - This summary provides findings, policy recommendations, and an update on developments since 2022. ### Major findings on past performance and constraints - Growth and demographics - Population Growth Forecast signals significant demographic pressures (figure referenced). - CEMAC experienced lackluster growth performance over past decades (Section 2.A). - CEMAC’s growth has been procyclical (Section 2.B). - CEMAC population is set to increase by 60 percent between now and 2040 (United Nations projections). - About 34 million young people will enter the job market in the next two decades. - Fiscal and investment cycle - Total public investment in CEMAC collapsed from 13.4 percent of GDP in 2014 to 5.0 percent in 2019. - Collective regional fiscal adjustment of about 7 percent of GDP in 2017–19, largely via a sharp reduction in capital spending. - Trade and extractives - Oil and other commodities account for 64 percent of CEMAC’s total exports and 41 percent of its budget revenue. - CEMAC remains largely undiversified and over-dependent on oil. - Financial sector and inclusion - Credit to the economy accounted for only 24 percent of CEMAC’s 2018 GDP (compared with WAEMU 35.5 percent). - Contribution of the banking sector, which includes state-owned enterprises, represents only 13.8 percent of GDP. - Nonperforming loans (NPLs) rose from 11 percent in 2014 to 21.1 percent at the end of 2019. - NPLs range by country from about 10.5 percent in Gabon to about 47 percent in Equatorial Guinea. - Net NPLs to regulated capital stand at about 52 percent. - Market capitalization of the stock exchange is about 2 percent of regional GDP; the bond market represented about 3 percent of GDP in 2019. - Human capital, health, and education - Human capital contribution to real GDP growth stayed constant and close to 0.5 percent over the past two decades; brief peak around 0.65 percent in 2011–12. - Human Capital Index (HCI) 2020 — Country values: - HCI 2020: Cameroon 0.40; Central African Republic 0.29; Chad 0.30; Gabon 0.46; Republic of Congo 0.42; CEMAC average* 0.37; Sub-Saharan Africa (SSA) 0.40. (Equatorial Guinea excluded from CEMAC average due to missing test score data.) - HCI Component 1: Survival — Cameroon 0.92; Central African Republic 0.88; Chad 0.88; Gabon 0.96; Equatorial Guinea 0.91; Republic of Congo 0.95; CEMAC average* 0.92; SSA 0.93. - HCI Component 2: School — Cameroon 8.7; Central African Republic 4.6; Chad 5.3; Gabon 8.3; Equatorial Guinea 4 .1; Republic of Congo 8.9; CEMAC average* 7. 2; SSA 8.3. - Harmonized Test Scores — Cameroon 379; Central African Republic 369; Chad 333; Gabon 456; Equatorial Guinea: –; Republic of Congo 371; CEMAC average* 381; SSA 374. - HCI Component 3: Health — Cameroon 0.70; Central African Republic 0.59; Chad 0.65; Gabon 0.79; Equatorial Guinea 0.69; Republic of Congo 0.74; CEMAC average* 0.70; SSA 0.74. - Fraction of Children Under 5 Not Stunted — Cameroon 0.71; Central African Republic 0.59; Chad 0.60; Gabon 0.83; Equatorial Guinea 0.74; Republic of Congo 0.79; CEMAC average* 0.70; SSA 0.69. - Stunting reductions: estimated reduction about 2.2 percent annually between 2000 and 2017; stunting remains above 40 percent in Central African Republic and Chad. - Education: Cameroon net enrollment rate in primary education: 2011 = 89 percent; 2017 = 93 percent. Chad: 2011 = 62 percent; 2017 = 73 percent. - Labor market: unemployment rising, especially among youth; informal nonagricultural informality rates: Cameroon 82 percent; Chad 90 percent; Republic of Congo 73 percent. - Governance and public finance - Weaknesses in Public Financial Management (PFM) and public investment efficiency constrained growth (Section 3, Annex 2). - PEFA/diagnostic issues: fragmented TSA implementation; limited internal audit coverage; IT systems not interconnected; limited fiscal transparency and weak court of accounts independence. - Poverty and inequality - Poverty and inequality described as multifaceted; Gini inequality Index presented (Figure 2); income inequality higher in CEMAC than WAEMU and SSA and has stagnated. ### Key quantitative growth-accounting and empirical findings - Public capital stock contribution to growth: - Peaked at 1.84 percent in 2012. - Averaged 0.4 percent over 2015–19. - Private capital accumulation: - Fell to 0.7 percent after averaging 1.5 percent over 2008–14 (when Brent was above $90 per barrel). - Share in real GDP growth fell from 2.26 to 0.97 percent between 2000–10 and 2011–19. - Total factor productivity (TFP) - Negative drag of TFP on real GDP growth was –2.29 percent over 2011–19. - Correlations of TFP with governance and business climate over 2010–19 range between 24 percent and 50 percent. - Empirical elasticity estimates (Annex Table 1.1) - Public Capital 0.136*** (0.023) - Private Capital 0.196*** (0.024) - Governance 0.584*** (0.054) - Business Climate 0.060* (0.031) - Education 0.041 (0.033) - Significance: * p < 0.10, ** p < 0.05, *** p < 0.01. - Key interpretation: a 10 percent improvement in governance scores translates into a 5.8 percent increase in real GDP per capita; a 10 percent improvement in business climate scores translates into a 0.6 percent increase in real GDP per capita. ### Shocks and recent macroeconomic context - CEMAC hit by two major shocks: the 2015–16 oil-price decline and the COVID-19 pandemic beginning in early 2020. - The 2015–16 shock occurred as many countries were ramping up public investment; the region implemented coordinated large fiscal adjustments under IMF- and World Bank Group-supported programs. - The COVID-19 shock added large demand and supply shocks and another collapse in oil prices before fiscal and external buffers had fully recovered. - Collective regional fiscal adjustment of about 7 percent of GDP in 2017–19 helped reverse the decline in foreign exchange reserves. ### Recent developments since 2022 (summary of progress) - Strengthening PFM - Preparation of action plans for strengthening frameworks for preparation, publication, and follow-up of public spending audits; plans to strengthen relevant institutions (examples cited: Cameroon, Gabon). - Some progress toward establishing single treasury accounts and ringfencing social spending (Congo, CAR). - Publication of governance diagnostic reports and governance strategies in some countries (Equatorial Guinea). - Steps to strengthen monitoring of public enterprises and establish performance contracts (Cameroon). - Tax/customs and FX law - Improvements in revenue collection, combating tax evasion and fraud, and integrity of taxpayer records (Cameroon). - Several countries working to ensure effective implementation of CEMAC’s foreign exchange law; gradual clarification in new concessions related to commodity exports. - Financial sector development - Progress limited to definition and approval of financial sector development strategies. - Health and human capital - CEMAC countries maintained or increased health budget allocations during the COVID crisis; some countries moved toward performance-oriented education measures (Cameroon). - Limited progress in promoting effective vocational training and technology-related skills. - Greater resources allocated to strengthen social safety nets partially by reducing untargeted fuel subsidies. ### Key policy recommendations — Three-Pillar Pro-Inclusive Growth Reform - Pillar 1 — Governance of the Public Sector (PFM, SOEs, PIM) - Strengthen Directorate of Public Finances at the CEMAC Commission; hire public finance specialists. End-2021; conduct and publish evaluation every semester starting January 2022; strategic thinking mid-2022. - Expand and operationalize Treasury Single Accounts (TSA): draft standardized convention BEAC/national treasuries (Mid-2021); implement new IT system for TSA operations (2021 Q3); operationalize TSAs for all CEMAC countries (End-2021/mid-2022). - Establish and strengthen supreme audit institutions (SAIs): generalize institutional/legal conditions (Mid-2021); develop SAIs’ capacity consistent with INTOSAI standards (End-2024). - Strengthen monitoring and accountability of public enterprises; publish audited financial statements of systemically important SOEs; establish annual aggregate portfolio-wide report. Cabinet/MoF — Medium term. - Improve public investment management: strengthen legal frameworks (Medium term); centralize project planning and monitoring (Medium term); publish project selection criteria and selected contractors (Short term). - Implement CEMAC directives on transparency and good governance (Directive 06/2011 and others); publish regular report on Status of Adherence to PFM Directives (suggestion starting end-2020) or pursue peer-review. - Pillar 2 — Enhancing Competition and Attracting Investors (Business climate, Financial sector, Agriculture, Regional integration) - Improve business climate measures; define regional strategy to revise tax regime and implement online tax filing and payments. MoFs/tax authorities — Two to three years. - Advance financial sector development and inclusion beyond strategy approval to implementation: ensure payments systems’ interoperability (BEAC/Banking Group of Central Africa — 12 months); promote digital financial services and roll out financial inclusion action plans (BEAC/COBAC/national governments — 18 months); activate capital markets (12–18 months). - Strengthen agriculture productivity and competitiveness; deepen regional integration to boost intraregional trade. - Pillar 3 — Protecting and Investing in People (Health, Education, Social Protection, Skills) - Health - Ensure broad access to COVID-19 vaccines via COVAX and other sources; mobilize financing and develop deployment plans. MoF/ministry of health — Immediate. - Expand and reprioritize domestic financing of the health system in line with Africa Leaders’ Meeting Declaration. MoF — 12–26 months. - Strengthen primary health care and capacity to prevent, detect, and respond to public health emergencies. Ministry of health — 12–24 months. - Consider pro-health taxes (for example, alcohol and tobacco) and expand water and sanitation. All relevant ministries — 12–24 months. - Education - Ensure safe return to full-time education and provide remedial programs. Ministries of education — Immediate. - Protect education funding while improving efficiency and transparency. Ministries of finance and education — Immediate. - Strengthen governance, planning, and accountability including teacher/civil service reforms — 12–24 months. - Address equity and resilience and scale up technology and remote learning — 12–36 months. - Social protection and skills - Continue expanding coverage prioritizing the most vulnerable — Immediate. - Diversify instruments and expand coverage to nonpoor informal sector workers — Immediate. - Expand fiscal space for social protection; redirect funding away from regressive spending (for example, energy subsidies, public pensions) — 12–24 months. - Build shock-responsive delivery systems (social registries, foundational ID systems) and accelerate digital payments — 12–24 months. - Strengthen digital and post–basic skills with employer involvement — 12–24 months. - High-return human capital investments - Invest in early years: malnutrition, early childhood development, preschool education — 12–24 months. - Pursue comprehensive strategies to empower girls and women and tackle early pregnancies — 12–24 months. ### DSGE/DIGNAR model simulations and scenarios — Spending better vs. spending more - Model: small open economy DSGE (DIGNAR/DIGNAR variant) with two household types, three production sectors (oil, tradable, nontradable), public and private capital, governance channels, and endogenous growth; country calibrations for Cameroon, Republic of Congo, Gabon (end-2019 macro parameters). - Simulated scenarios (10-year horizon unless otherwise stated): - Scenario 1: scale-up in public investment spending of 20 percent of the current public investment to GDP ratio over 10 years with no change in governance. - Scenario 2: gradual improvement in governance over 10 years with no increase in public investment spending. - Scenario 3: a small increase in public investment spending and a gradual improvement in governance over 10 years. - Key simulated quantitative results (Annex Table 2.1 — evolution from initial state over 10 years): - Scenario 1 (20% public investment increase, no governance change) - Republic of Congo: Private Investment 0.7%; Non-Oil Output –1.9%; Non-Oil Revenue (as % of Total Revenue) 40.4%; Total Debt 21%; Improvements in Current Account Balance (as % GDP) 8.8%. - Gabon: Private Investment 0.2%; Non-Oil Output 0 .1%; Non-Oil Revenue 18.9%; Total Debt 10%; Improvements in Current Account Balance 2.2%. - Cameroon: Private Investment 0.2%; Non-Oil Output 0.4%; Non-Oil Revenue 9.4%; Total Debt 7%; Improvements in Current Account Balance 2.1%. - Scenario 2 (Governance reforms, no public investment increase) - Republic of Congo: Private Investment 12.4%; Non-Oil Output 6.8%; Non-OIl Revenue (as % of Total Revenue) 37. 2 %; Total Debt 13. 3%; Improvements in Current Account Balance 11. 4 %. - Gabon: Private Investment 13.0 %; Non-Oil Output 4.3%; Non-OIl Revenue 20.2%; Total Debt –3.4%; Improvements in Current Account Balance 3.9%. - Cameroon: Private Investment 14.6%; Non-Oil Output 6 .1%; Non-OIl Revenue 9. 2%; Total Debt –2.9%; Improvements in Current Account Balance 3.5%. - Scenario 3 (Governance reforms + 20% public investment increase) - Republic of Congo: Private Investment 12.8%; Non-Oil Output 7. 6%; Non-Oil Revenue 47. 4 %; Total Debt 15.9%; Improvements in Current Account Balance 12. 3%. - Gabon: Private Investment 13.6%; Non-Oil Output 5.2%; Non-Oil Revenue 32.4%; Total Debt 0.3%; Improvements in Current Account Balance 5.5%. - Cameroon: Private Investment 15. 2%; Non-Oil Output 6.7%; Non-Oil Revenue 16.4%; Total Debt −1. 4%; Improvements in Current Account Balance 4.9%. - Principal insight: a comprehensive governance reform package delivers much higher growth and non-oil expansion than simply scaling up public investment with no governance improvements; in some cases scaling up investment without governance change can crowd out private activity and produce unsustainable debt dynamics (example: Republic of Congo). ### Extractive sector governance and customs - Oil sector significance: - Oil accounts for about 20 percent of GDP; roughly 75 percent of the region’s exports of goods; tax and nontax revenues related to oil contribute to more than 40 percent of total revenues. - Governance concerns: - Available data suggest official oil export statistics sometimes prone to miscalculation; CEMAC balance of payments data show strong correlation between recorded oil exports and recorded capital outflows. - Evidence of under-invoicing and very large deposits by CEMAC residents abroad may not fully comply with FX regulations. - Customs and legal framework - Regulation 05/01–UEAC-097–CM-06 of August 3, 2001 (Customs Code) establishes exported goods must be reported; exported goods are subject to a customs declaration (Article 110–1); exported goods can be inspected (Article 127–1); exit of goods possible only when customs formalities completed (Article 146). - No legal exceptions exempting resident exporters from customs obligations; goods exported by the state are not immune from customs. - Recommendations - Fully implement foreign exchange law obligations and strengthen banks’ and traders’ responsibilities; establish customs units specialized in oil-trade controls; strengthen transparency, reconciliation of production/export data and revenue, and encourage EITI participation. ### PFM, procurement, and public investment management (PIM) - PFM weaknesses and recommendations - Incomplete transposition of CEMAC directives (Directive 06/2011 and others); estimated implementation rate of about 35 percent per CEMAC Commission evaluation. - Recommendations: strengthen Directorate of Public Finances at CEMAC Commission; coordinate adoption of country reform strategies; complete TSA implementation; strengthen court of auditors independence; increase transparency in public procurement (open competition, e-procurement); disclose tax exemptions and extra-budgetary operations. - PIM findings and recommendations - PIMA diagnostics highlight critical shortcomings at planning phase and weak quality/efficiency of public investments. - Box 3 principal recommendation: "spend better, not more" — strategic project selection, cost-benefit analysis, implementation monitoring, geotagging and remote monitoring, strengthen parliamentary oversight, build SAIs capacity for infrastructure audits. - Role for BDEAC to secure financing and ensure governance in regional infrastructure. ### Health financing and efficiency - Health financing and coverage - Out-of-pocket financing accounts for over 55 percent of total health expenditures in CEMAC countries. - UHC Service Coverage Index (SCI) increased: global SCI from 0.45 to 0.66 between 2000 and 2017; CEMAC average SCI from 0.22 to 0.40 between 2000 and 2017. - Health workforce density (doctors, nurses, midwives per 1,000 population): LMICs average 3.2; WHO norm 2.3; SSA average 1.52; LICs average 0.86; Country values: Congo 1.95; Cameroon 1.00; CAR 0.28; Chad 0.28; EQG 0.90; Gabon 3.62. - Health system preparedness (IHR score): SSA average 44 percent; Country scores: Cameroon 42; Republic of Congo 33; Gabon 27; Equatorial Guinea 22; Central African Republic 17. - Pandemic response - All CEMAC countries participate in COVAX; COVAX committed to financing vaccines for a little less than 20 percent of the population in CAR, Chad, Republic of Congo; AU target 60 percent immunized in next two to three years. - Recommendations - Protect lives and pursue universal health coverage; deploy COVID-19 vaccination; sustain and expand domestic health financing; strengthen primary care and community health; consider pro-health taxes; expand water and sanitation. ### Human capital, gender, and demographic dividend - UHCI and productivity - Utilization-Adjusted Human Capital Index (UHCI): only 20 to 25 percent of children in CEMAC countries expected to reach potential and be employed in private sector as adults. - UHCI full scores: Cameroon 0.23; Central African Republic 0.20; Chad 0.20; Republic of Congo 0.24; Gabon 0.25. - Demographic dividend potential - Exploiting demographic dividend could raise GDP per capita by between 40 and 59 percent: - Central African Republic: 59 percent; Equatorial Guinea: 40 percent; Gabon: 44 percent; Republic of Congo: 46 percent; Chad: 50 percent; Cameroon: 52 percent. - Girls’ empowerment and SWEDD results - Chad SWEDD pilot: supported more than 10,000 girls to stay in school with 98 percent retention; more than 18,000 girls in safe spaces; about 9,000 trained in nontraditional professions; more than 1,500 religious leaders engaged in dialogues; legislation banning child marriage enacted. - Cameroon plans investment of $75 million for three regions where about 700,000 girls younger than 19 are at risk. ### Process, sequencing, and political economy - Reform process recommendations - Secure a credible, inclusive, and transparent reform process (Section 4). - Emphasize sequencing: assessment followed by prioritized recommendations (Section 4.A and 4.B). - Establish broad-based public consultation and public-private dialogue; explicitly articulate costs of status quo and engage reform losers proactively. - Strengthen monitoring frameworks for reform progress; engage media, civil society, and private sector to build coalitions for change. - Strategic prioritization - Prioritize deep-reaching structural governance reforms, investment in human capital, suppression of corruption, and refocusing spending priorities toward synergies that propel non-oil sector growth. ### Model calibration and key parameter values (DIGNAR / DSGE) - Elasticity of output to capital: set at 0.125. - Public investment efficiency ε: set at 42 percent. - Investment adjustment cost parameters k_N and k_T: both set at 0.25. - Frisch labor elasticity: 0.10. - Capital account: 40 percent of consumers not savers. - Intertemporal consumption inverse elasticity: 2.94. - Fiscal adjustment parameters: speed 0.2; responsiveness-to-debt-to-GDP ratio 0.1. - Data sources used for calibration include IMF WEO, World Bank WDI, Penn World Tables 9.1, IMF FAD investment and Capital Stock Database, World Governance Indicators, World Bank business climate indicators. ### Appendix: TFP correlations (selected values by subperiod) - Governance correlation with TFP: - 2000–04 (ρ = 0.023); 2005–09 (ρ = −0.078); 2010–14 (ρ = 0.243); 2015–19 (ρ = 0.376). - Business Climate correlation: - 2000–04 (ρ = 0.298); 2005–09 (ρ = −0.083); 2010–14 (ρ = 0.279); 2015–19 (ρ = 0.506). - Undernourishment correlation: - 2000–04 (ρ = −0.321); 2005–09 (ρ = 0.09); 2010–14 (ρ = −0.128); 2015–19 (ρ = −0.234). - Mobile cellular subscription correlation: - 2000–04 (ρ = −0.04); 2005–09 (ρ = −0.103); 2010–14 (ρ = 0.182); 2015–19 (ρ = 0.242). *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC (analysis completed through 2021; update on developments since 2022 included).* ### Executive Summary ...............................................................................................vii ### Executive Summary ...............................................................................................vii ### Scope and timeframe - Analysis completed through 2021. - The IMF and World Bank remain committed to help Central African Economic and Monetary Community (CEMAC) countries strengthen the foundation for inclusive growth and lay the ground for shared prosperity. - This summary provides findings, policy recommendations, and an update on developments since 2022. ### Major findings on past performance and constraints (drawn from sections 1–3) - Growth and demographics - Population Growth Forecast (Figure 1) signals significant demographic pressures (figure referenced). - CEMAC experienced lackluster growth performance over past decades (Section 2.A). - CEMAC’s growth has been procyclical (Section 2.B). - Governance and public finance - Weaknesses in Public Financial Management (PFM) and public investment efficiency have constrained growth (Section 3, Annex 2). - The note includes CEMAC Regional Standards for Budget Preparation and Execution and assessments of the legal/institutional framework for PFM (Box 2, Table 5, Table 6). - Progress in establishing single treasury accounts and ringfencing social spending was underway in some countries (An Update on Developments since 2022). - Extractive sectors and state-owned enterprises - Governance framework for extractive sectors and the management and accountability of state-owned enterprises are identified as priorities (Section 3, Pro-inclusive Growth Reform Pillar 1). - Financial sector and inclusion - Financial sector development remains limited; a financial sector development gap is documented (Figure 11). - Credit as share of GDP and access to finance remain low in parts of the region (Figure 12, Figure 14). - Limited progress beyond strategy approvals in financial sector development (An Update on Developments since 2022). - Human capital, health, and education - Human Capital Index 2020 and components are presented for the CEMAC region (Table 3); country comparisons 2010 and 2020 are provided (Table 4). - Long-term improvements in life expectancy and child mortality (Figure 5), but persistent stunting (Figures 6 and 9), high total fertility rate (Figure 7), and adolescent fertility (Figure 8) constrain human capital accumulation. - CEMAC countries maintained or increased health budget allocations during the COVID crisis; performance-oriented education measures were introduced in some countries (An Update on Developments since 2022). - Density of health workers and health financing composition are assessed (Figure 18, Figure 19). - Poverty and inequality - Poverty and inequality described as a multifaceted phenomenon (Section 2.C); Gini inequality Index presented (Figure 2). ### Key policy recommendations (Three-Pillar Pro-Inclusive Growth Reform) - Pillar 1 — Governance of the Public Sector - Strengthen PFM, including action plans for preparation, publication, and follow-up of public spending audits (An Update on Developments since 2022). - Establish single treasury accounts to strengthen governance and enhance cash management (countries including Cameroon, Gabon). - Ringfence social spending while securing credible consolidation paths (Congo, CAR). - Strengthen monitoring and accountability of public enterprises; establish performance contracts (Cameroon). - Improve public investment management and focus on quality and efficiency of spending (Box 3, Annex 2, Figure 10). - Implement CEMAC directives on transparency and good governance in public financial management (Table 5, Table 6). - Pillar 2 — Enhancing Competition and Attracting Investors - Improve business climate measures (Section 3, Pillar 2.A). - Advance financial sector development and inclusion beyond strategy approval to implementation (Section 3, Pillar 2.B). - Strengthen agriculture productivity and competitiveness (Section 3, Pillar 2.C). - Deepen regional integration to boost intraregional trade (Figure 4). - Pillar 3 — Protecting and Investing in People - Prioritize pre-distributive policies and effective investment in human capital (Section 3, Pillar 3). - Reform agenda for education and training to improve learning outcomes and skills for growth (Section 3.C). - Strengthen social protection and target spending to protect the vulnerable (Section 3.D). - Tackle cross-cutting challenges that undermine service delivery and outcomes (Section 3.E). ### Recent developments since 2022 (summary of progress) - Strengthening Public Financial Management (PFM) - Preparation of action plans for strengthening frameworks for preparation, publication, and follow-up of public spending audits; plans to strengthen relevant institutions (examples cited: Cameroon, Gabon). - Some progress toward establishing single treasury accounts and ringfencing social spending (Congo, CAR). - Publication of governance diagnostic reports and governance strategies in some countries (Equatorial Guinea). - Steps to strengthen monitoring of public enterprises and establish performance contracts (Cameroon). - Tax/customs administration and foreign exchange law - Improvements in revenue collection, combating tax evasion and fraud, and integrity of taxpayer records (Cameroon). - Several countries working to ensure effective implementation of CEMAC’s foreign exchange law; gradual clarification in new concessions related to commodity exports. - Financial sector development - Progress limited to definition and approval of financial sector development strategies. - Health and human capital investment - Vigorous response to the COVID crisis with maintained or increased health budget allocations. - Education sector: some countries moved from input-based to output-oriented approaches to measure impact; some strengthened performance dimension to secure government’s budget by schools (Cameroon). - Limited progress in promoting effective vocational training and technology-related skills. - Greater resources allocated to strengthen social safety nets partially by reducing untargeted fuel subsidies. ### Assessment and way forward (Section 4) - Secure a credible, inclusive, and transparent reform process (Section 4). - Emphasize sequencing: assessment followed by prioritized recommendations (Section 4.A and 4.B). - Focus on implementation of the three reform pillars to translate standards, strategies, and diagnostics into measurable improvements in governance, financial intermediation, human capital outcomes, and private sector development. *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC (analysis completed through 2021; update on developments since 2022 included).* ### Executive Summary ### anea2022002 - Executive Summary ### Shocks and recent macroeconomic context - CEMAC has been hit by two major shocks: the 2015–16 oil-price decline and the COVID-19 pandemic beginning in early 2020. - The 2015–16 shock occurred as many countries were ramping up public investment; the region implemented coordinated large fiscal adjustments under IMF- and World Bank Group-supported programs. - The COVID-19 shock in 2020 added a large demand and supply shock and another collapse in oil prices, occurring before fiscal and external buffers had fully recovered from the previous shock. - Collective regional fiscal adjustment of about 7 percent of GDP in 2017–19, largely via a sharp reduction in capital spending, helped reverse the decline in foreign exchange reserves. - Oil and other commodities account for 64 percent of CEMAC’s total exports and 41 percent of its budget revenue. ### PREF and the second-generation reform agenda - The CEMAC Commission launched the CEMAC Economic and Financial Reform (PREF), organized around five pillars to promote diversified, inclusive, private sector–led growth and enhanced public sector governance. - Initial measures emphasized closer engagement with the IMF and other development partners. - As first-generation IMF-supported programs end and emergency financing for COVID-19 has been provided, the note identifies priority reforms for second-generation programs to deepen PREF and address growth bottlenecks. ### Purpose, authorship, and process - The note is a joint IMF–World Bank effort led by Joël Toujas and Genevieve Verdier (IMF), and Abebe Adugna and Elisabeth Huybens (World Bank), coordinated by Samuele Rosa (IMF) and Raju Singh (World Bank), with wider IMF and World Bank inputs. - It builds on PREF progress, prior surveillance and policy work, ongoing dialogues with CEMAC authorities, and proposes reforms to address human capital bottlenecks in national development strategies. ### Main recommendations (summary of Table 1) - Public Financial Management - Strengthen the Directorate of Public Finances at the CEMAC Commission. - Step 1: Hire public finance specialists to oversee implementation of regional directives. End-2021 - Step 2: Conduct and publish an evaluation of implementation. Every semester starting January 2022 - Step 3: Conduct strategic thinking on new regional reforms. Mid-2022 - Boost countries’ efforts to implement regional directives on public finances. - Step 1: Adopt reform strategies in every country consistent with the 2024 deadlines and regional guidelines. Early 2022 - Step 2: Establish units to follow up on strategies. Early 2022 - Establish and strengthen supreme audit institutions (SAIs). - Step 1: Generalize institutional and legal conditions for effective SAIs. Mid-2021 - Step 2: Develop SAIs’ capacity to produce audits consistent with INTOSAI standards. End-2024 - Expand comprehensiveness of Treasury Single Accounts (TSAs) and improve budget execution reporting. - Draft standardized convention template between BEAC and national treasuries. Mid-2021 - Implement a new IT system for TSA operations. 2021 Q3 - Operationalize TSAs for all CEMAC countries. End-2021/mid-2022 - Ensure adequate financing of social sectors, education, health, and social protection to address COVID-19 effects and build resilient systems. MoFs, social ministries — 12–24 months - Management of Public Investment Program - Strengthen legal frameworks for public investment management. Medium term - Centralize project planning and monitoring. Medium term - Publish project selection criteria and selected contractors. Short term - Improve budget documentation to better estimate fiscal risks from public investment. Medium term - Management and Reform of State-Owned Enterprises (SOEs) - Build MoF capacity to monitor SOE performance and prepare aggregate reports. Short/medium term - Publish audited financial statements of all systemically important SOEs. Short term - Publish an annual aggregate portfolio-wide report on SOE performance. Cabinet/MoF — Medium term - Business Climate - Define regional strategy to revise the tax regime and implement online tax filing and payments. MoFs/tax authorities — Two to three years - Revise civil and commercial procedures code to incorporate international best practices in commercial justice. Ministries of justice — Two to three years - Enhance judiciary and commercial courts capacity to deal with commercial and financial crimes. Ministries of justice — Two to three years - Tax and Custom Administration - Improve customs modernization and introduce automated goods-clearing solutions; adopt community tax procedures code and establish a regional observatory. One year - Approve regulation and customs procedures to ensure application of foreign exchange regulation and agree on data exchange procedures. One to two years - Step up capacity to monitor oil trade by tracking flows and exchanging data with importing jurisdictions. Two to three years - Regional Market and Agriculture - Fully and effectively operationalize the single transit regime. Timeframe: To be determined - Financial Sector Development and Inclusion - Ensure payments systems’ interoperability. Banking Group of Central Africa/BEAC — 12 months - Promote digital financial services through fintechs and roll out financial inclusion action plans. BEAC/COBAC/national governments — 18 months - Activate capital markets through regular market-based government issuances and consider partial listing of viable SOEs. BEAC/Central African Financial Market Oversight Commission/national MoFs — 12–18 months - Enhance enforcement of collateral via effective registries and commercial courts. BEAC/COBAC/MoF/ministries of justice — 12–24 months - Promote partial credit guarantee schemes for SMEs and MSMEs in growth sectors. MoFs/national governments — 12–24 months - Promote market discipline by revising transparency and disclosure requirements for banks. BEAC/COBAC — 12–24 months - Protecting and Investing in People’s Health - Ensure broad access to COVID-19 vaccines via COVAX and other sources; mobilize financing and develop deployment plans. MoF/ministry of health — Immediate - Expand and reprioritize domestic financing of the health system in line with Africa Leaders’ Meeting Declaration. MoF — 12–26 months - Strengthen health systems with focus on primary health care. Ministry of health — 12–24 months - Enhance capacity to prevent, detect, and respond to public health emergencies. All relevant ministries — 12–24 months - Address multisectoral drivers of nutrition and health outcomes, including pro-health taxes (for example, alcohol and tobacco) and expand water and sanitation access. All relevant ministries — 12–24 months - Boosting Learning Outcomes and Education - Ensure safe return to full-time education and provide remedial programs for lost learning time. Ministries of education and stakeholders — Immediate - Protect education funding while improving efficiency and transparency of resource allocation and funds flow. Ministries of finance and education — Immediate - Strengthen governance, management, planning, and accountability of the education sector, including teacher/civil service reforms throughout the education cycle. Ministries of finance and education, public administration — 12–24 months - Address equity and resilience in access to quality education, infrastructure, and scale up technology and remote learning. Ministries of finance and education — 12–36 months - Strengthening Skills Systems - Enhance digital skills development across the system. MoFs/social ministries (for example, education, labor, skills development) — 12–24 months - Strengthen post–basic education for economic diversification and improve market relevance of skills programs with employer involvement. MoFs/social ministries — 12–24 months - Building and Expanding Social Protection Systems - Continue expanding coverage prioritizing the most vulnerable. MoFs, with ministries in charge of social affairs — Immediate - Diversify social protection instruments and expand coverage to nonpoor informal sector workers. MoFs, with ministries in charge of social affairs — Immediate - Expand fiscal space for social protection and redirect funding to poverty-targeted assistance away from regressive spending (for example, energy subsidies, public pensions); leverage safety nets to incentivize human capital investments. MoFs, with ministries in charge of social affairs — 12–24 months - Build inclusive and shock-responsive delivery systems (for example, social registries, foundational ID systems) and accelerate adoption of digital payments. MoFs, with ministries in charge of social affairs — 12–24 months - Strengthen strategic and institutional framework for social protection program design, implementation, and management. MoFs, with ministries in charge of social affairs — 12–24 months - High-Return Cross-Cutting Investments for Human Capital - Invest in early years, focusing on malnutrition, early childhood development, and preschool education. Ministries of planning, with relevant sectoral ministries — 12–24 months - Pursue comprehensive strategies to empower girls and women and tackle early pregnancies. 12–24 months ### Key policy messages and rationale - The COVID-19 crisis exposed the underlying vulnerability of heavy dependence on commodities (oil) and underscored the need for broader-based, inclusive growth to secure social cohesion and macroeconomic resilience. - Relying on resource windfalls is insufficient; CEMAC must address policy constraints that have historically limited private sector–led diversification. - Faster progress on transparent governance of public funds and anti-corruption is budget-neutral and critical to enabling private sector growth and efficient use of resources. - Inclusive reform processes and high-level buy-in are essential; lack of broad political and social buy-in is a main obstacle to creating conditions for resilient and inclusive growth. - The crisis presents an opportunity to rethink public spending priorities and invest in human capital, with policy priorities including protecting education funding, scaling remote learning where effective, and strengthening health and social protection systems. ### Structure of the full note - Chapter 1: Background on the economic fallout of COVID-19 and importance of pro-growth and inclusive policies. - Chapter 2: Peer group comparison of CEMAC performance over two decades on inclusive and equitable growth. - Chapter 3: Assessment of policy challenges and key recommendations to secure inclusive growth, with emphasis on protecting and boosting human capital. - Chapter 4: Framework for ensuring reform momentum is inclusive and broadly communicated to increase accountability and signal a break with the past. *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC — Executive Summary* ### 2. Where Do We Come From? ### 2. Where Do We Come From? ### A. CEMAC—Lackluster Growth Performance over the Past Decade - Demographics and labor market - CEMAC population is set to increase by 60 percent between now and 2040 (United Nations projections). - About 34 million young people will enter the job market in the next two decades. - Urgent need to create jobs to preserve social cohesion and harness the demographic potential. - Fiscal and investment cycle - High oil prices (2007–end of 2014) led to a ramping up of public spending and infrastructure investment. - Total public investment in CEMAC collapsed from 13.4 percent of GDP in 2014 to 5.0 percent in 2019. - Non-oil sector growth plummeted to historic lows after the collapse in oil prices. - Income and inequality - Between 1990 and 2018, real income in constant 2011 terms increased by a very small amount and even declined in some cases (Central African Republic, the Republic of Congo, Gabon). - Equatorial Guinea was an exception, with an impressive increase in GDP per capita after oil discovery. - CEMAC did not experience the steady increase in GDP per capita seen in other parts of the continent (e.g., WAEMU since 2011). - Income inequality measured by the Gini index is higher in CEMAC than in WAEMU and the rest of the continent; the index suggests inequality has stagnated in CEMAC while it declined in WAEMU and sub-Saharan Africa. - Trade structure and diversification - CEMAC remains largely undiversified and over-dependent on oil, with significant untapped internal regional market potential. - Between 2010 and 2017, the share of non-oil exports in total exports increased from 14.6 percent to 20.2 percent while total exports dropped. - The share of non-oil exports in non-oil GDP has stagnated below 12 percent since 2011. - Non-oil exports remain concentrated in traditional commodity sectors with limited value addition. - Intraregional trade is very low and declined during the analysis period; WAEMU intratrade is four to five times higher and increased in 2010–16. - Financial sector weaknesses - Credit to the economy accounted for only 24 percent of CEMAC’s 2018 GDP (compared with WAEMU 35.5 percent). - The contribution of the banking sector, which includes state-owned enterprises, represents only 13.8 percent of GDP. - Nonperforming loans (NPLs) rose from 11 percent in 2014 to 21.1 percent at the end of 2019. - NPLs range by country from about 10.5 percent in Gabon to about 47 percent in Equatorial Guinea. - Net NPLs to regulated capital stand at about 52 percent. - Market capitalization of the stock exchange is about 2 percent of regional GDP; the bond market represented about 3 percent of GDP in 2019. - Strong sovereign–bank nexus constrains banks’ engagement with the private sector (including large exposures to SOEs). - Payment infrastructure is aging and interoperability constrains digital financial services development. - Bank resolution capacities remain weak; COBAC is still operationalizing the regional deposit guarantee fund (FOGADAC). - Growth model assessment - Growth heavily reliant on oil sector exports and related revenues; private sector mainly ancillary, focused on public works. - Fall in oil prices exposed limits of this model as states curtailed public spending while non-oil private sector activity remained weak. - Policy implication: shift growth model to expand economic base outside dominant role of the state, foster private sector–led growth, and implement ambitious education and skills policies. - PREF-CEMAC progress (2017–21) - PREF-CEMAC structured around five pillars: (1) fiscal policies, (2) monetary policy and financial systems, (3) structural reforms, (4) regional integration, and (5) international cooperation. - At end-2019: - 70 percent of the objectives for the year had been achieved. - 61 percent of the objectives for the period 2017–21 had been met. - 38 percent of structural reform actions had been undertaken. - 54 percent of regional integration actions had been undertaken. - The PREF-CEMAC contributed to macroeconomic stabilization; coordination with IMF-supported programs and World Bank budget support noted. - Progress on structural reforms (Pillar 3) and regional integration (Pillar 4) has been slower. ### B. CEMAC’s Procyclical Growth Performance—A Growth Accounting Approach - Sector concentration and vulnerability - Over the past decade, oil and extractives accounted for 84 percent and 39 percent, respectively, of the primary and industrial sector output. - Oil sector’s share in national GDP reached 30 percent in the Republic of Congo and Equatorial Guinea, and nearly 20 percent in Chad and Gabon. - Continued reliance on commodity-generated revenues harms regional competitiveness via poor governance, public spending misallocation, and impaired business climate. - Growth accounting findings - Public capital stock contribution to growth: - Peaked at 1.84 percent in 2012. - Plummeted to an average of 0.4 percent over 2015–19. - Private capital accumulation contribution: - Fell to 0.7 percent after averaging 1.5 percent over 2008–14 (when Brent was above $90 per barrel). - Up to 50 percent of private sector contribution to growth is related to oil sector dynamics and can evaporate with commodity shocks. - Essential to incentivize growth of a vibrant non-oil private sector. - Role of governance, business climate, and productivity - Empirical results: - A 10 percent improvement in governance scores translates into a 5.8 percent increase in real GDP per capita. - A 10 percent improvement in business climate scores translates into a 0.6 percent increase in real GDP per capita. - At the subregion level, governance and business climate performances in CEMAC dragged down real GDP growth by up to 2.2 points over the past decade (TFP impact). - By contrast, WAEMU’s TFP contribution to growth averaged 1.2 points; the number of business climate reforms in WAEMU was double that in CEMAC. - Enhancing governance and accountability of public funds is key to supporting a thriving private sector. - Human capital - Fully leveraging the region’s human capital potential is identified as CEMAC’s second-greatest missed opportunity for growth. - Findings suggest that human capital contribution to growth remains low and constant at (text ends). *Source: anea2022002 - 2. Where Do We Come From?* ### 0.5 percent over the past two decades. This is well below the progress recorded in lower-income group ### anea2022002 - 0.5 percent over the past two decades. This is well below the progress recorded in lower-income group ### C. Poverty and Inequality in CEMAC: A Multifaced Phenomenon - Higher inequality within CEMAC countries is accompanied by large disparities in the incidence and depth of income poverty between urban and rural areas. - Gabon and the Republic of Congo are among the most urbanized in sub-Saharan Africa; although the incidence of poverty is generally lower in urban areas, the number of poor is higher in the cities of these two countries due to population concentration. - In Cameroon, Chad, and the Central African Republic, poverty (both incidence and number of poor) is concentrated in rural areas or specific regions (for example, the northern and far northern regions of Cameroon). - Income poverty in rural areas is accompanied by food insecurity and deprivation in access to basic services. - Most rural poor derive incomes from farming and herding using traditional techniques, with limited access to markets and services (reference to FAO, Sustainable Agricultural Mechanization, a Framework for Africa). - High fertility rates and high dependence on rainfall: - keep the population (women in particular) economically inactive for a large part of the year; - increase vulnerability to poverty associated with climate change and unpredictable weather; - combined with small-scale family farms, deter private investment, perpetuating stagnating agricultural yields and rural livelihoods. - Insecurity from local conflict and potential displacement deters investment and entrepreneurship in rural areas of Cameroon, the Central African Republic, and Chad. ### D. Human Capital: An Untapped Potential - Investment in human capital is critical for economic growth, poverty reduction, and inclusive productivity, and is especially important for economic diversification in CEMAC. - Recent World Bank estimates: the average child born today in CEMAC countries will be only 37 percent as productive as he or she could be. - The Human Capital Index (HCI) shows the CEMAC region lags behind the sub-Saharan African average while being in line with the global average for low-income countries. - For CEMAC countries with time-series data, the HCI for 2010 and 2020 showed only modest improvement. - Two HCI indicators dragging the CEMAC average down: expected years of school and adult survival rate. - Utilization-Adjusted Human Capital Index (UHCI) findings (World Bank 2020 methodology): - only 20 to 25 percent of children in CEMAC countries are expected to reach their potential and be employed in the private sector as adults. - UHCI full scores: 0.23 for Cameroon, 0.20 for the Central African Republic, 0.20 for Chad, 0.24 for the Republic of Congo, and 0.25 for Gabon. - Labor market and skills issues: - unemployment rates are rising, especially among youth; - low productivity and informality remain main employment challenges; - the private sector is weak, with formal job creation lagging behind population growth and urbanization; - skills from formal education and technical and vocational training are often misaligned with market demands; - the informal sector is the default for those with higher education who cannot find formal jobs and for the poor lacking resources; - many women choose lower-earning informal work for flexibility to balance heavy domestic responsibilities. - Key determinants and binding constraints contributing to low HCI in CEMAC: 1. limited improvements in health and nutrition outcomes; 2. persistent access issues and poor learning outcomes; 3. inadequate social protection amid persisting and increasing poverty and vulnerability; 4. weak levels of girls’ and women’s empowerment overall, associated with high or slowly declining fertility rates; 5. gaps in access to identification. - Additional binding constraints relate to financing, overall management of key social sectors, and related service delivery. ### Table 3. Human Capital Index 2020 and Components for the CEMAC Region - Note: CEMAC comprises Cameroon, Central African Republic, Chad, Gabon, Equatorial Guinea, Republic of Congo. Equatorial Guinea is excluded from the CEMAC average due to missing test score data necessary to calculate an HCI. - HCI Component 1: Survival — Probability of Survival to Age 5 - Cameroon: 0.92 - Central African Republic: 0.88 - Chad: 0.88 - Gabon: 0.96 - Equatorial Guinea: 0.91 - Republic of Congo: 0.95 - CEMAC average*: 0.92 - Sub-Saharan Africa (SSA): 0.93 - HCI Component 2: School — Expected Years of School - Cameroon: 8.7 - Central African Republic: 4.6 - Chad: 5.3 - Gabon: 8.3 - Equatorial Guinea: 4 .1 - Republic of Congo: 8.9 - CEMAC average*: 7. 2 - Sub-Saharan Africa (SSA): 8.3 - Harmonized Test Scores - Cameroon: 379 - Central African Republic: 369 - Chad: 333 - Gabon: 456 - Equatorial Guinea: – - Republic of Congo: 371 - CEMAC average*: 381 - Sub-Saharan Africa (SSA): 374 - HCI Component 3: Health — Survival Rate from Age 15 to 60 - Cameroon: 0.70 - Central African Republic: 0.59 - Chad: 0.65 - Gabon: 0.79 - Equatorial Guinea: 0.69 - Republic of Congo: 0.74 - CEMAC average*: 0.70 - Sub-Saharan Africa (SSA): 0.74 - Fraction of Children Under 5 Not Stunted - Cameroon: 0.71 - Central African Republic: 0.59 - Chad: 0.60 - Gabon: 0.83 - Equatorial Guinea: 0.74 - Republic of Congo: 0.79 - CEMAC average*: 0.70 - Sub-Saharan Africa (SSA): 0.69 - Human Capital Index (HCI) 2020 - Cameroon: 0.40 - Central African Republic: 0.29 - Chad: 0.30 - Gabon: 0.46 - Equatorial Guinea: – - Republic of Congo: 0.42 - CEMAC average*: 0.37 - Sub-Saharan Africa (SSA): 0.40 ### Limited Improvements in Health and Nutrition Outcomes - Despite notable progress in life expectancy and child mortality, health outcomes remain below expected levels given CEMAC countries’ level of income. - Between 2000 and 2018, in CEMAC countries: - life expectancy increased by about 0.8 percent annually on average; - child mortality fell by [text truncated in source]. *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC* ### 3.2  percent annually. While in the Republic of Congo and Gabon these improvements have been on par ### anea2022002 - 3.2  percent annually. While in the Republic of Congo and Gabon these improvements have been on par ### Human capital, stunting, and HCI - Chronic malnutrition contributes to the low HCI index of CEMAC countries. - Stunting is largely irreversible after childhood and is detrimental to cognitive development and productivity. - Stunting rate estimates from the Institute of Health Metrics and Evaluation suggest CEMAC countries reduced stunting by about 2.2 percent annually between 2000 and 2017. - Stunting remains above 40 percent in Central African Republic and Chad (children under 5 years old). - Chronic malnutrition has converged around 20 percent for the Republic of Congo, Equatorial Guinea, and Gabon. - Table 4 (Human Capital Index for CEMAC Countries, 2010 and 2020) reports: - Cameroon: 2010 = 0.38; 2020 = 0.40 - Chad: 2010 = 0.29; 2020 = 0.30 - Congo, Rep.: 2010 = 0.41; 2020 = 0.42 - CEMAC (average): 2010 = 0.36; 2020 = 0.37 - Note: Empty cells indicate “data not available”. ### Education, learning outcomes, and skills mismatches - Primary school enrollment rose in many countries over the past decade: - Cameroon net enrollment rate in primary education: 2011 = 89 percent; 2017 = 93 percent. - Chad net enrollment rate in primary education: 2011 = 62 percent; 2017 = 73 percent. - CEMAC countries have not reached SDG 4 on universal access to primary education. - Expected years of schooling vary across the region: - Central African Republic: 4.1 years - Cameroon: 8.7 years - Republic of Congo: 8.9 years - Learning quality is low across CEMAC; Gabon performs better relative to peers. - Learning poverty remains high, especially in CEMAC countries affected by fragility, conflict, and violence. - Low learning outcomes reflect system-wide weaknesses on both demand and supply sides. - Skills shortages and mismatches hinder economic development, competitiveness, and diversification. - About 35 percent of employers in Cameroon report that lack of skilled and qualified labor is a major constraint to business growth and development. ### Social protection, informality, and labor vulnerabilities - Most CEMAC countries have yet to develop adequate social protection systems despite persistent poverty and vulnerability. - Social assistance spending is well below the regional average in all CEMAC countries except the Central African Republic, which allocated 2.6 percent of GDP in 2015. - Social safety net coverage has been expanding but remains well behind the 30 percent Africa Human Capital Target for 2023. - Gabon stands out with 31 percent social safety net coverage due to generous health insurance subsidies. - Without reliable social protection, poor households resort to negative coping strategies (e.g., pulling children out of school, early marriage). - Informality is widespread: - Nonagricultural informality rates: 82 percent in Cameroon, 90 percent in Chad, 73 percent in the Republic of Congo. - Public administration is the main provider of formal wage jobs in the region: - In the Republic of Congo: 14 percent of workers employed by state or parastatal firm; 13 percent employed by formal large firms (5 percent) and SMEs (8 percent). ### Identification systems - Lack of effective identification systems limits governments’ capacity to deliver basic services and hampers human capital development. - Lack of legal identification disproportionately affects women, children, minorities, migrants, and refugees. - ID requirements sometimes impede progression through education systems (e.g., registration for exams) and access to cash transfers. - Underlying weaknesses include poor coordination, limited administrative/fiscal/technical capacity, unrealized technology potential, and procurement/vendor problems. - Birth registration coverage has improved in some countries: - Republic of Congo: 91 percent birth registration coverage. - Gabon: 90 percent birth registration coverage. ### Demographic challenges, fertility, and girls’ empowerment - Total fertility rates in CEMAC countries are among the highest in the world and, except for the Central African Republic, higher than peers at comparable income levels. - Adolescent fertility rates are higher than expected given average total fertility rates in all CEMAC countries. - Nearly all adolescent girls who have ever been pregnant are out of school in many sub-Saharan African countries. - High fertility drives and is driven by low human capital, impeding investments in education and health. - Low female education contributes to high child mortality and high fertility, complicating poverty reduction and job creation. - Exploiting the demographic dividend could raise GDP per capita in CEMAC countries by between 40 and 59 percent: - Central African Republic: GDP per capita could increase by 59 percent over the baseline (highest among CEMAC countries in the referenced study). - Equatorial Guinea: GDP per capita could rise by 40 percent over the baseline (lowest percentage increase among CEMAC countries in the referenced study). - Other cited increases: Gabon: 44 percent; Republic of Congo: 46 percent; Chad: 50 percent; Cameroon: 52 percent. ### COVID-19 impacts on human capital - COVID-19 generated direct impacts (loss of lives) and indirect impacts (labor income losses, loss of remittances/private transfers, disruptions to social services). - Pandemic-related job losses and deprivation hit poor and vulnerable populations hardest and create new poor. - Education disruption: schools were closed at the peak of the pandemic in all CEMAC countries, leaving millions of learners out of school. - Preliminary simulations (very conservative assumptions) for an average sub-Saharan African country suggest: - Learning-adjusted years of schooling could decline by approximately 18 percent. - This translates into an average loss of $400 in annual earnings per student. ### Key messages and policy implications - Progress in income per capita has been modest despite large natural resources. - Income inequality in CEMAC is high compared with peers and has hardly improved over the past decade. - High oil prices did not translate into more inclusive and diversified economies; non-oil growth has declined in recent years. - Policy priorities to place CEMAC on a path for sustained and inclusive growth include: - Deep-reaching structural governance reforms. - Investment in human capital. - Suppression of corruption to improve the business environment and equal access to opportunities. - Refocusing spending priorities toward generating synergies to propel non-oil sector growth momentum. - Only through transparency and human capital investment can CEMAC incentivize formal private sector dynamism, boost the non-oil economy, and provide development prospects to the new generation. *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC* ### 3. Reforms and Policies to Enhance Inclusive ### 3. Reforms and Policies to Enhance Inclusive Growth: A Three-Pillar Approach ### A. CEMAC Regional Standards for Budget Preparation and Execution — Assessment - The legal and institutional framework for defining standards related to budget preparation and execution are defined at the CEMAC regional level. - The foundational CEMAC directive 06/11 on transparency and good governance plays a key role and serves as the general framework for: - (1) the attribution and responsibilities of each public institution; - (2) the economic context in which the policy decision in the area of fiscal policies are embedded; - (3) the elaboration and presentation of the budget law; - (4) the activities related to revenue collection and expenditure; - (5) the information to be provided to the public; and - (6) a participative process, with involvement by the civil society, in defining key policy decisions. - Implementation issues and gaps: - Equatorial Guinea has not transposed directive 06/11; regional coverage is partial. - Key principles of the directive are not implemented fully where transposed; e.g., fiscal reporting on natural resources management: contracts with the oil sector are seldom made available in budget documents in a full and transparent manner. - Public procurement: directive requires compliance with international standards, open competition as default method, and a complaints review mechanism, but these are often not implemented. - Asset declaration principle for elected or high-level public officials is not widely implemented; sanctions for noncompliance need to be established. - Transactions to and from SOEs, including SOEs in profit-sharing agreements in the extractive sector, are not systematically covered by central governments’ fiscal reporting. - Tax exemptions and other tax expenditures are rarely detailed and assessed in budget documentation or are maintained for several years without clear legal basis and economic justification. - Consolidation and full operationalization of the Treasury Single Account (TSA) is incomplete; the TSA is not used extensively for the domiciliation of the state’s share in the extractive industry or for some external financing; holdings related to the central government are sometimes kept in foreign accounts. - Directive prohibits deposit of public funds in commercial banks, yet fragmented banking arrangements outside the TSA persist, weakening treasury oversight and external audit of public funds. - Inefficient cash management systems and inadequate control and accounting of commitments are the main cause of payment arrears accumulation. - Expenditure controls are not effective and exceptions to regular expenditure procedures have multiplied, creating incentives for spending outside the approved budget and explaining accumulation of large stocks of arrears, which tend to peak with commodity price shocks. - Coverage of internal audits is limited; internal audit activities do not apply standardized professional procedures. - Timeliness, comprehensiveness, and accessibility of fiscal reports remain limited; operations of autonomous agencies, EBFs, and unorthodox spending are not systematically included in ex post financial reports. - IT systems used to manage revenues, expenditures, wage bill, cash, and debt are not interconnected. - Limited fiscal transparency hinders external controls; limited independence of the court of accounts undermines external audit quality; legislative scrutiny of court’s reports is poor. - Despite legal framework encouraging publication of budget documents and fiscal information, much information is not accessible or is made available with significant delays or in a user-unfriendly form. - Box 2 highlights the transposition process: - CEMAC standards are set through a “directive” and need transposition into national laws; member countries must submit draft laws to the CEMAC Commission for conformity assessment; implementing regulations follow national legislation approval. - Transposition has advanced in some but not all CEMAC countries. CEMAC central directives on governance and transparency (06/2011) and on the budget law (01/2011) have been transposed into national legislation by all CEMAC countries, except Equatorial Guinea. - Transposition of all other directives is partial because two countries (Cameroon, Equatorial Guinea) have not transposed these into national legislations. - An evaluation by the CEMAC Commission concluded that directives have been implemented at a rate of about 35 percent. - Table 5 (summarized scope): - Directive 06/2011 (12/11/2001): Code of Good Governance and Transparency in the Management of Public Resources — Key principles to ensure transparency, good governance, and participation of civil society in fiscal policy, budget formulation and execution. - Directive 01/2011 (12/19/2001): Framework for budget law preparation and implementation — General rules on nature, coverage, presentation, preparation, and adoption of the budget law. - Directive 02/2011: General rules in the area of public accounting — Operational and procedural framework underpinning budget execution and controls. - Directive 03/2011: Structure of the State’s accounting - the balance sheet — Rules for the state’s public accounting plan to track assets and liabilities. - Directive 04/2011: The nomenclature and presentation of budget operation — Principles for presenting operations of the general budget, annexed budgets, and special accounts of the Treasury. - Directive 05/2011: Table/presentation of the financial operation of the state — Defines principles for production of statistics on budget executions (follows international statistical standards — e.g. GFSM). ### A. CEMAC Regional Standards for Budget Preparation and Execution — Recommendations - Strengthen the CEMAC Commission’s capacity to supervise adherence to regional PFM standards: - Strengthen the Directorate of Public Finances at the CEMAC Commission with more dedicated human resources and a precise program to ensure regular reports on implementation status of key CEMAC directives. - Directorate should support strategic thinking on new reforms (public-private partnerships, tax exemptions, SOEs). - Coordinate the adoption of reform strategies in every country to guide implementation of CEMAC PFM directives: - Reform strategies should be targeted, sequenced, and prioritized to achieve budget savings and fiscal sustainability, address accumulation of payment arrears and contingent liabilities, and improve outcomes of public spending in human capital and infrastructure. - Strengthen independent external oversight of budget execution: - Court of Auditors must be independent from political interference to be credible; further work is needed despite some progress. - Complete TSA implementation to save money and improve transparency: - Expand government entities executing budgets through the TSA; reduce government accounts and deposits in commercial banks; consolidate cash balances regularly―ideally daily; time funds releases based on regularly updated cash plans. - Country-specific strategy measures: - Strengthen commitment and expenditure controls to prevent accumulation of new payment arrears and clear outstanding arrears; actions could include changes to PFM regulations to strengthen ex ante commitment and expenditure controls, minimize emergency procedures, tighten conditions for vendor invoice payments, record commitments when incurred, and monitor to ensure timely invoice payment and closure of commitments on contract completion. - Implement CEMAC transparency provisions: - Timely publication of budget execution reports and audited annual financial statements providing government balance sheet detailing all financial assets and liabilities, including extra-budgetary funds, debt obligations, and contingent liabilities. - Membership of the Extractive Industry Transparency Initiative (EITI) and continuous compliance with EITI transparency requirements for extractive industries. - Disclosure of tax exemptions as part of the draft budget documentation with disaggregated information on estimated forgone revenue and beneficiaries. - Suggestion: CEMAC Commission, in cooperation with country authorities, begin publishing (starting at the end of 2020) a regular report on the Status of Adherence to PFM Directives in the Area of Transparency, or alternatively pursue a peer-review system under CEMAC coordination. - Increase transparency and competition in public procurement: - Adopt robust laws and regulations to make open competition the default method and minimize direct contracting. - Steps toward e-procurement, starting with online publication of tenders and contract awards. - Strengthen PFM and tax/revenue administrations: - Review and rationalize numerous tax exemptions to expand the tax base and simplify tax regimes. - Invest in institutional capacity of tax and customs administrations using ICT-enabled risk-management systems, third-party information, business intelligence tools, and advanced audit techniques. - Simplify business processes and expand e-services (e-filing, e-payments, automated customs clearance) to reduce compliance costs and improve business environment. - Invest in more efficient customs controls to reduce cross-border trade costs and support regional integration. ### B. Strengthening PFM in the Area of Public Investment Management — Assessment - Context and challenge: - Significant infrastructure gaps exist in power, water, digital, and transport services; unlocking higher non-oil sector growth depends on strategic infrastructure development. - Past significant public investment efforts have failed to yield significant improvement in the perceived overall quality of investment where data are available. - With limited fiscal space, strategic project selection and mechanisms to ensure effective implementation are key to maximizing economic benefits from public investments. - Public Investment Management Assessment (PIMA) findings: - Recent PIMA in member countries highlight important shortcomings affecting the quality and efficiency of public investments. - Critical weaknesses exist at the planning phase of the public investment management process, affecting both the institutional framework and its effectiveness. - Weaknesses at the earliest stage of the PIM cycle negatively impact efficient allocation of resources and execution of capital budgets. - Figure 10 (summary from available data for Cameroon, Gabon, and Chad, 2007–18): - Indicators shown include a score index of quality of overall infrastructure and public investment as percent of GDP for Cameroon, Gabon, and Chad, compared with Sub Saharan Africa median, over 2007–18 time bands. *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC* ### Box 3. Shifting the Focus on the Quality and Efficiency of Spending: Spending Better ### Box 3. Shifting the Focus on the Quality and Efficiency of Spending: Spending Better Rather than More—A DSGE Approach ### Model and Scenarios - Model: the debt sustainability, public investment, and natural resources model (a small open economy DSGE with two household types, three production sectors—oil, tradable, nontradable—and separate export and import prices; perfectly competitive markets with flexible prices). Growth is endogenous. - Country coverage: three CEMAC countries—Cameroon, the Republic of Congo, Gabon—using their macro parameters as of the end of 2019. - Simulated scenarios (10-year horizon unless otherwise stated): - Scenario 1: scale-up in public investment spending of 20 percent of the current public investment to GDP ratio over 10 years with no change in governance. - Scenario 2: gradual improvement in governance over 10 years captured through three channels, with no increase in public investment spending. - Scenario 3: a small increase in public investment spending and a gradual improvement in governance over 10 years. ### Key Findings from Simulations - A comprehensive governance reform package delivers much higher growth for all countries covered compared with a simple scaling up in public spending with no improvement in governance. - Scenario 1 (scaling up investment spending with no governance improvement) leads to: - crowding out of private demand (investment and consumption) in the long term; - reduced positive impact on non-oil sector growth; - risk of locking countries into current resource dependency conundrum. - For the Republic of Congo, in a scenario with no governance improvements the debt trajectory becomes explosive, implying that governance reforms are necessary for a sustainable path to higher growth. - Improved governance produces: - a crowding-in dynamic that lowers generalized costs of production and boosts non-oil sector growth; - reduced waste in public capital spending, maximizing the return per dollar spent and raising growth dividends; - improved revenue collection that increases fiscal sustainability, leading to a downward trend in public debt and reducing reliance on taxes on labor and consumption, thereby further boosting private sector growth. - Box Figure 3.1 illustrates the evolution of non-oil GDP growth over 10 years with and without change in governance (presented as percent deviation from initial year). ### Implications for Public Investment Management (PIM) - Principal insight: spend better, not more—improving governance of public investment yields higher returns than merely scaling up investment spending. - Given limited fiscal space and high public debt, maximizing economic benefits from public investments requires: - strategic project selection based on evidence and rigorous cost-benefit analysis to maximize social returns and avoid white elephant projects; - mechanisms to ensure effective implementation, including transparency, predictability, and accountability in budget execution; - capacity building for project implementation and asset management. - Role of institutions: - The Development Bank of Central African States (BDEAC) can help secure financing and ensure strong governance in execution of regional infrastructure projects. ### Specific PIM Recommendations - Strengthen the regulatory framework: - define transparent criteria for project selection to be financed from the budget (ideally regulated by law); - define implementation monitoring and reporting requirements to ensure accountability and enable timely adjustments to projects and the overall portfolio. - Strategic planning and prioritization: - invest in capacity for strategic investment planning and coordination based on evidence-based analysis of infrastructure gaps and sector prioritization; - decentralize preparation of capital budget submissions based on prioritized sector investment plans, with central selection based on policy priorities, cost-benefit analysis, and budget availability. - Parliamentary oversight and transparency: - consider dedicated prebudget debates for capital budgets; - share consolidated lists of approved projects widely to ensure appropriate allocation and reporting. - Implementation monitoring tools: - combine tracking of financial and physical progress of projects; - use affordable ICT tools (geotagging, remote monitoring via smartphones and drones) to verify completion before paying contractors; - build capacity in supreme audit institutions for specialized audits of infrastructure projects, procurement, and contracts. ### Assessment: Governance in the Extractive (Oil) Sector - Oil sector significance in CEMAC: - oil accounts for about 20 percent of GDP; - oil covers roughly 75 percent of the region’s exports of goods; - tax and nontax revenues related to oil contribute to more than 40 percent of total revenues. - Sector complexity: - typical contractual arrangements: profit-sharing agreements (state/SOE and foreign private company share profits) and concession schemes (royalty and income tax; sometimes sector-specific taxes such as resource rent or additional profit taxes); - calculating the state's actual share requires complex calculations (production, exports, prices, costs); significant state capacity and time are needed to manage and audit contracts effectively. - Data and governance concerns: - available data and studies suggest official oil export statistics are sometimes prone to miscalculation. - CEMAC balance of payments data show a strong correlation between recorded oil exports and recorded capital outflows, suggesting some export proceeds may not be repatriated and are recorded as capital outflow. - studies indicate under-invoicing in oil exports and evidence of very large deposits by CEMAC residents abroad that may not comply fully with foreign exchange regulations; part of such holdings may be related to unrecorded oil export earnings. - Institutional context: - the EITI is an international standard for governance in the extractive industry; no formal relationship exists between the CEMAC Commission and the EITI (membership is by countries only), but EITI requirements are synergistic with CEMAC PFM guidelines. - CEMAC legal frameworks provide a strong basis for governance of oil transactions, but practical implementation is weak: - customs should be central to export declarations and share information with tax institutions and BEAC; - ex ante and ex post controls required by CEMAC PFM directives are often not fully implemented; - customs declarations are frequently incomplete or incorrect; strict monitoring of oil transactions is limited; - customs administrations have weak capacity to cope with sector complexity and have often not proactively applied regulations. ### Recommendations for Extractive Sector Governance - Regional legal framework and monitoring: - CEMAC Commission should ensure full implementation of the regional legal framework, including enhancing its own capacity; - member states should consider submitting an annual report to CEMAC on the status of implementation of guidelines consistent with a customs union and monitoring of the extractive sector. - Foreign exchange and repatriation: - fully implement foreign exchange law obligations; address the rule-of-law challenge when members do not respect regional legal frameworks; - consider clarifying banks’ responsibilities and strengthening the nature of customs verifications and sanctions of noncompliance; extend obligations to oil traders and banks involved in settling transactions where appropriate. - Capacity building and institutional arrangements: - establish regional capacity (ideally at the BEAC) to assess links between oil prices, volumes, and expected tax revenues to verify that tax revenues entering the system are justified by prices and output, and to inform external stability and policy responses; - revisit the adequacy of documentation models to be provided by petroleum companies to customs and the reporting system with BEAC. - Customs specialization and risk-based controls: - establish a dedicated unit within customs administrations of the largest oil exporters with specialty knowledge of the oil sector, intelligence and risk analysis capabilities, and a central role in directing and monitoring customs control activities; - the unit should define exact information required from oil exporters to monitor governance risks, develop a cartography of risks for misreporting or nonreporting, and control those risks; - the dedicated unit would benefit from including representatives of state-owned oil companies to obtain critical contract and production data. - Transparency and reconciliation: - strengthen implementation of transparency provisions in the CEMAC Directive on Transparency and Governance (06/2013); - urge member countries to provide complete reconciliation of oil production and export data with oil tax revenues included in budget documents; - such reconciliation would lay groundwork for EITI participation, which should be encouraged. *Source: Box 3, "Shifting the Focus on the Quality and Efficiency of Spending: Spending Better Rather than More—A DSGE Approach," anea2022002.* ### Box 4. Customs: An Assessment of Standards ### Box 4. Customs: An Assessment of Standards ### Customs’ role and key finding - Customs’ role is important in controlling the oil and gas sector. - Customs’ existing mandate to control exports should be effectively carried out to assist CEMAC with managing this sector, enhancing governance, and receiving the due amount of revenues from natural resources. ### The CEMAC regulatory framework (legal obligations and scope) - Customs authorities of CEMAC member states have the unconditioned right and obligation to control introduction in and exit of goods from the community and authorize these operations only after compulsory import and export formalities have been accomplished. - Regulation 05/01–UEAC-097–CM-06 of August 3, 2001, establishing the revised Customs Code (CC) of the CEMAC provides: - Exported goods shall be reported to customs (Article 94). - Exported goods are subject to a customs declaration (Article 110–1) even if no customs duty is applicable (Article 110–3). - Exported goods can be inspected (Article 127–1). - Customs shall authorize boarding of exported goods on ships (combined Articles 84–2 and 145). - Exit of goods from the territory is possible only when customs formalities have been completed (Article 146). - The Customs Code is directly applicable by member states. ### Legal universality and enforcement - There is no exception, based on the law, to the fact that all resident economic agents exporting goods are subject to the obligations mentioned above. - To oppose the exercise of customs functions is an offense (Article 62 of the CC). - Article 2 of the CC provides that customs laws and regulations must be applied without regard to the quality of the persons; and goods imported or exported by the state are not subject to any immunity or derogations. - As a result, there is no suspension of customs obligations in any way when the economic entity exporting consists of a partnership between a private entity (for example., an oil company, through its resident arm) and an SOE. ### Operational implication - Customs shall authorize boarding of exported goods on ships and control exit only after completion of formalities, implying that effective customs enforcement is critical to ensuring that natural resource exports (notably oil and gas) are properly declared, inspected, and revenue accrual is secured. *Source: Box 4. Customs: An Assessment of Standards, anea2022002.* ### 2. Efficiency of public health expenditures ### 2. Efficiency of public health expenditures ### Assessment: financing, coverage, and workforce - Out-of-pocket financing accounts for over 55 percent of total health expenditures in CEMAC countries. - High out-of-pocket spending: - Undermines achievement of universal health coverage by deterring access and pushing households into poverty. - Is typically regressive and inefficient. - UHC Service Coverage Index (SCI) progress, 2000–2017: - Global SCI increased from 0.45 to 0.66 between 2000 and 2017. - CEMAC average SCI increased from 0.22 to 0.40 between 2000 and 2017. - Most of the increase in SCI was accounted for by improvements in infectious disease control, followed by reproductive, maternal, neonatal, and child health. - Equatorial Guinea was the only country that significantly improved service capacity (for example, hospital bed density, health worker density, IHR core capacity index) over the same period. - Health workforce density (number of doctors, nurses and midwives per 1,000 population): - LMICs average (3.2) - WHO norm (2.3) - SSA average (1.52) - LICs average (0.86) - Country values: Congo (1.95), Cameroon (1.00), CAR (0.28), Chad (0.28), EQG (0.90), Gabon (3.62) - Health system preparedness (IHR score): - Sub-Saharan Africa average: 44 percent - Non-sub-Saharan African countries average: 68 percent - Country scores: Cameroon (42), Republic of Congo (33), Gabon (27), Equatorial Guinea (22), Central African Republic (17) ### Pandemic response and vaccination - Early 2020 responses: - All CEMAC countries rapidly adopted measures to inform populations, enhance surveillance and detection, and improve clinical management. - Eligible CEMAC countries availed resources from the World Bank emergency health support facility. - Vaccination and COVAX: - All CEMAC countries participate in the COVID-19 Vaccines Global Access Initiative (COVAX). - COVAX is committed to financing vaccines for a little less than 20 percent of the population in the Central African Republic, Chad, and the Republic of Congo; these countries still have to bear the cost of deployment and any additional immunization. - Republic of Congo and Gabon have approached the World Bank to support immunization. - AU target: 60 percent of people immunized within the next two to three years to achieve some measure of herd immunity. - Immediate vaccination deployment challenges: 1. Secure access for high-priority groups, such as frontline health workers, in a highly competitive environment. 2. Ensure that deployment strategies are robust, including training health workers, maintaining appropriate cold chains, and keeping populations informed. 3. Distribute vaccines transparently to adequately prioritized target groups, especially challenging in the absence of comprehensive population identification systems. ### Recommendations: sustaining response and strengthening systems - Short-term priorities (next 24 months): - Protecting lives in the context of the pandemic must remain a priority while maintaining commitment to universal health coverage (access for all to essential quality health services without financial hardship). - Countries’ efforts to control the pandemic need to be sustained given the emergence of new COVID variants. - Deploying COVID-19 vaccination is essential to protecting lives and enabling full recovery. - Learn and share lessons from the COVID-19 pandemic to improve preparedness for future pandemics. - Pursue “One Health” approaches to design and implement multisectoral programs, policies, legislation, and research to respond to zoonoses and antimicrobial resistance. - Medium-term financing and fiscal measures: - Sustain and expand domestic resources for health beyond the pandemic. - Recognize potential higher funding requirements to address pent-up demand due to deferred health interventions. - Consider ramping up taxes on goods and services that have harmful health effects, such as on tobacco, alcohol, sugar-sweetened beverages, and carbon emissions. - Service delivery and primary care: - Strengthen community and primary care services as a cornerstone to expanding coverage. - Leverage technological innovations in diagnostics and treatments to enable community and primary care workers to provide nearly all essential interventions to reduce preventable deaths for women and children. - Examples of country initiatives: - Central African Republic: creating a network of competent community providers to expand access in hard-to-reach regions. - Chad: plans to train and equip community health workers with mobile phones and tablets with task management software to enhance service delivery. - Direct more resources to frontline facilities and hold them accountable for delivering services. - Performance-based financing has been pursued in Cameroon, Chad, the Republic of Congo, and the Central African Republic, producing some promising results and challenges for sustainable purchasing strategies. - Multisectoral actions and determinants of health: - Complement health service improvements with actions on environmental and social determinants of health. - Expand access to clean water and sanitation to achieve further progress in health status. - Promote empowerment and opportunities for women and girls to overcome health challenges and support the demographic transition in CEMAC countries. *IMF/World Bank Position Note • Enhancing Sustainable and Inclusive Growth in CEMAC — 2. Efficiency of public health expenditures* ### Box 4. CEMAC Countries: The Path Toward Girls’ Empowerment and ### Box 4. CEMAC Countries: The Path Toward Girls’ Empowerment and Demographic Dividend ### Context and strategic relevance - The demographic dividend is highlighted as a critical tool for achieving a peaceful and prosperous Africa in key strategies including the 2030 Agenda for Sustainable Development, the African Union’s “Agenda 2063” and its first strategy for gender equality and women’s empowerment, and national development strategies such as Cameroon’s “Vision 2035.” - Heads of state are setting targets to ban child marriage, reduce girls’ dropout rates from secondary school, and improve social and financial inclusion of young women. - Nine countries participate in the Sahel Women Empowerment and Demographic Dividend project (SWEDD), including two CEMAC countries: Chad and Cameroon. Benin, Cameroon, and Guinea joined the initiative in 2019 and 2020, respectively. ### SWEDD, national pilots, and scaling - SWEDD implements interventions along the “four E” strategies, targeting the rural poor. - Other CEMAC countries are developing similar national projects (examples: Central African Republic and Republic of Congo). - Chad has piloted girls’ and women’s empowerment strategies and is scaling interventions to more regions. - Chad launched a second phase in November 2020 to increase reach to several hundred thousand beneficiaries. - Cameroon plans an investment of $75 million to be implemented in three regions: far north, north, and Adamawa, where about 700,000 girls younger than 19 years of age are at risk of early marriage, pregnancy, or dropping out of school. - Cameroon intends to collaborate with neighboring countries, including Chad, to reach transitory and cross-border communities. ### Chad pilot: concrete results from SWEDD-Chad pilot phase - The government has supported more than 10,000 girls to stay in school, achieving a 98 percent retention rate among those who benefited from the interventions. - More than 18,000 girls have attended community-based safe spaces, where they are taught life skills, essential sexual reproductive health knowledge, literacy, and numeracy. - About 9,000 girls have benefited from training in nontraditional professions that have brought them higher-income earning opportunities (for example, installation of solar panels). - More than 1,500 male and female religious leaders have engaged in community dialogues in favor of girls’ secondary education, delaying childbearing to adulthood, birth spacing, and family planning and against gender-based violence in rural communities. - Legislation has come into effect, including a ban on child marriage, to be supported through translation of the law into local languages and by community dialogue, supported by legal practitioners and religious leaders. - A demographic dividend observatory is providing research and programmatic evidence on girls and women’s social and economic participation to policymakers to inform policy, development strategies, and budget allocations. ### Fiscal and implementation challenges; priority spending and innovation - Structural bottlenecks remain, notably teacher recruitment, management, and quality, which impede education service delivery and learning outcomes. - In contexts of limited fiscal space, spending can achieve more impact through prioritization, innovation, and coordination across relevant sectors. - Priorities include spending on early years when losses are irreversible, securing essential services and nutrition/food security, and expanding social protection programs. - Innovation includes leveraging technologies such as digital payments and adaptive cash transfers to reach more households (examples cited: Colombia, Pakistan). - Partnerships and colocation of investments across ministries can speed and reduce the cost of delivery (example: Central African Republic worked with small entrepreneurs to produce 1 million masks in a few months while generating temporary jobs). - Senegal improved nutrition results by elevating coordination at the highest levels and by fostering coordination at local levels across health, social protection, and agriculture. ### Data, monitoring, and evidence-based adaptive policymaking - Improved data collection, monitoring, and use for policymaking is essential for human capital development in CEMAC. - National assessment systems have been recently established in some CEMAC countries, but further strengthening is needed to provide timely feedback and guide teaching and decision making. - Some CEMAC countries do not participate in any international assessments, impeding benchmarking against international standards and calculation of the Human Capital Index for some CEMAC countries (EQG). - Rapid-response phone surveys and other innovative tools can help decision makers understand changing needs, program efficacy, and attitudes toward initiatives such as vaccination campaigns, and can improve targeting of assistance. ### The way forward: securing a credible, inclusive, transparent reform process - Assessment findings: - Broad recognition exists of necessary reforms (many incorporated in the PREF launched in 2017), but implementation has been slow and stagnant. - Regional shortcomings persist in public sector governance and equality, economic diversification, and trade integration. - Reform success requires attention to both the content of reforms and the processes by which they are developed, disseminated, implemented, and monitored. - Recommendations (process and political economy): - Establish broad-based and inclusive public consultation processes and institutionalize public-private dialogue mechanisms with clear mandates and regular exchanges (stakeholders to include chambers of commerce, professional associations, trade unions, financial institutions). - Explicitly articulate the costs of the status quo and the forgone benefits of not implementing reforms to broaden support. - Example: Transport prices along the northern corridor decreased by 30 percent following integration of trucking services and facilitation of border clearance (Kunaka, Raballand, and Fitzmaurice 2016). - Example: Considering intermediation costs and petty harassments, evidence suggests that food prices for consumers in Libreville, Gabon, are four to six times higher compared with prices in Cameroon; reducing these costs would significantly improve purchasing power and living standards (Arias and others 2018). - Identify and engage reform losers proactively to mitigate negative impacts while safeguarding legitimate demands and ensuring corrupt or unsustainable practices do not endure. - Promote competition and transparency around pricing and services and address monopolies/oligarchies. - Strengthen monitoring frameworks for reform progress, explore participation of other stakeholders in institutional reform fora (for example, PREF COPIL), and engage media, civil society, and private sector to build coalitions for change. - Prioritize and sequence reforms to set realistic expectations and maintain progress momentum; ultimate prioritization should be set by CEMAC institutions, governments, and the public. *Source: Box 4. CEMAC Countries: The Path Toward Girls’ Empowerment and Demographic Dividend (from anea2022002).* ### Appendix 1 summarizes the sources of our data set. ### anea2022002 - Appendix 1 summarizes the sources of our data set. ### Results: growth decomposition and sectoral contributions - Public capital stock contribution to real GDP growth: - Peaked at 1.84 percent in 2012. - Averaged 0.4 percent over 2015–19 after oil prices collapsed in 2014–15 and public investment was curtailed. - Private capital accumulation: - Share in real GDP growth fell from 2.26 to 0.97 percent between 2000–10 and 2011–19. - Averaged 1.5 percent over 2008–14 when the Brent was above $90 per barrel. - Human capital: - Contribution to real GDP growth stayed constant and close to 0.5 percent over the past two decades. - Brief peak around 0.65 percent in 2011–12. - Labor force share remained constant and slightly above 2 percent over the two decades. - Total factor productivity (TFP) and correlations: - Correlations of TFP with business climate and governance indicators over 2010–19 range between 24 percent and 50 percent. - Health level (prevalence of undernourishment and under-5 mortality) correlates with TFP in ranges of negative 11 to 23 percent over the past decade. - Digital connectivity (mobile penetration) correlates with TFP in ranges of positive 18 percent to 24 percent. - Negative drag of TFP on real GDP growth was –2.29 percent over 2011–19. - Cross-regional comparisons: - TFP contribution to growth averaged 1.2 percent over 2012–19 in WAEMU. - Since 2010, WAEMU registered more than double the number of business climate reforms taking place in CEMAC. - Contribution of public capital stock to real GDP growth improved 0.27 percent for WAEMU and 0.43 percent in low-income countries on average between the 2000s and 2010s. - Interpretation: - Growth in CEMAC relied on oil prices and investment while foundations for private sector growth and human capital accumulation weakened, increasing vulnerability to external shocks. - Urgent reforms in business climate, governance, health, and digital connectivity are called for as part of IMF-supported programs in CEMAC. ### Empirical exercise: model specification and main estimates - Growth equation (cross-country panel, factors and policy variables): - Baseline: Yit = X'it b + εit (equation 6). - Expanded (6’): (Y/L)it = a + b1 Kgit + b2 Kpit + b3 Govit + b4 BCit + b5 Educit + γXit + εit. - Kgt and Kpt: public and private capital stocks; Educ: secondary school enrollment rate (proxy for human capital); Gov and BC: governance and business climate policy variables; X: control variables. - Estimation details: - Fixed effects specification passed Hausman and Mundlack tests (εit = υi + νit). - Three-year averages used to mitigate business and commodity cycle effects. - Hausman test’s null of exogeneity for public capital, private capital, and education variables could not be rejected. - Policy variables (governance and business climate) are World Bank survey-based variables published with a lag. - All series transformed in logarithm; coefficients interpreted as elasticities. - Key empirical finding: - A 10 percent increase in governance and business climate variables leads to an increase in real GDP per capita between 6 and 7 percent, all else equal. - Annex Table 1.1 (empirical estimates; standard errors in parentheses; 3 years averages; coefficients represent elasticities): - Column (1) Real GDP per capita: - Public Capital 0.136*** (0.023) - Private Capital 0.196*** (0.024) - Governance 0.584*** (0.054) - Business Climate 0.060* (0.031) - Education 0.041 (0.033) - Openness 0.031 (0.028) - Inflation –0.004 (0.006) - N779731 - Groups154151 - R-squared, within0.582 - Country fixed effects Yes - Hausman test Yes - Mundlack test Yes - Column (2) Real GDP per capita: - Public Capital 0.137*** (0.024) - Private Capital 0.193*** (0.025) - Governance 0.565*** (0.057) - Business Climate 0.056* (0.033) - Education 0.039 (0.034) - Openness (not reported separately) - Inflation (not reported separately) - N779731 - Groups154151 - R-squared, within0.581 - Country fixed effects Yes - Hausman test Yes - Mundlack test Yes - Significance: * p < 0.10, ** p < 0.05, *** p < 0.01. ### Robustness tests and semiparametric estimation - Main methodological challenges addressed: - Variable selection: restricted via growth accounting framework; fixed effects used to capture country-specific omitted factors. - Cross-sectional dependence: mitigated by three-year averages to reduce impact of common shocks. - Parameter heterogeneity: addressed with a varying coefficient (semiparametric) model allowing coefficients to vary with a conditioning variable Z (initial level of real GDP per capita). - Semiparametric model: - Yit = Σj=1..p bj(Z) Xjit + εit (equation 7); allows coefficients to vary smoothly over conditioning variable Z. - Conditioning variable chosen: initial level of real GDP per capita (and initial non-oil GDP per capita when focusing on non-oil growth). - Major oil economies defined and examined separately (see Appendix 5 in source). - Annex Table 1.2 (semiparametric estimations; 3 years average, coefficients represent elasticities; standard errors in parentheses; * p < 0.10, ** p < 0.05, *** p < 0.01): - Columns: Real GDP per capita; Real Non-Oil GDP per capita; Major oil economies excluded/included distinctions. - Reported coefficients (as in source): - Public Capital 0 .137 (0 .16 3) | 0.162*** (0.029) | 0.113*** (0.0 41) - Private Capital 0 .176 ( 0 .113) | 0.232*** (0.032) | 0.188*** (0.048) - Governance 0.825*** (0.266) | 0.592*** (0.066) | 0.614*** (0.070) - Business climate 0.092 (0 .13 4) | 0 .101** (0.042) | 0.063 (0.046) - Education 0.182* (0.096) | 0.043 (0.040) | 0.034 (0.046) - N773687339 - Groups15413469 - Major oil economies... No | Yes - Country fixed effects Yes | Yes | Yes - Findings: - Governance variable contributes significantly and in similar ranges to real GDP per capita across specifications. - Business climate shows a significant impact when major oil economies are excluded. - Plotting policy coefficients against initial GDP per capita reveals: - A positive and decreasing growth dividend from governance (higher dividends at earlier development stages). - A convex-shaped pattern for business climate coefficient, indicating governance reforms matter as a precondition and amplify business climate benefits, especially for non-oil growth. ### Policy implications: governance and reform sequencing - Governance reforms are identified as a binding constraint to growth in CEMAC. - Reform fatigue and limited progress on structural adjustments after the first wave of IMF-supported programs mean: - A well-sequenced and prioritized reform agenda is essential to remove pressing constraints and maximize growth dividends. - The combination of governance and business climate reforms is essential to maximize growth dividends and to spur and sustain non-oil economic growth in the CEMAC region. *Source: IMF staff computations and empirical results as reported in the annex content of the provided document.* ### 1. Varying Coefficients of Governance2. Varying Coefficients of Business Climate ### 1. Varying Coefficients of Governance2. Varying Coefficients of Business Climate ### Growth diagnostic framework and binding constraints - Framework: Adopts Hausmann, Rodrik, and Velasco (2004) growth diagnostic approach calibrated to an oil-exporting region with limited access to international capital markets. - Core assessment: Structural governance reforms complemented by business climate improvements are identified as the optimal development strategy to unlock non-oil sector growth. - Key barriers identified: - Restricted and costly access to international capital markets: only two countries (Cameroon, Gabon) issued Eurobonds in the past five years with rates fluctuating between 5 percent and 13 percent. - Low private credit: credit to the private sector was 12.9 percent of GDP in 2019. - High level of nonperforming loans due to government arrears and growing bank exposure to sovereigns, crowding out private credit. - Low returns to capital and schooling; limited formal high-skill job opportunities despite a growing young population. - Four governance-related distortion categories (per Hausmann, Rodrik, and Velasco (2004)): 1. Macroeconomic imbalances (surprise inflation or depreciation, macro-financial risks, sovereign risks, recurrent fiscal deficits) that implicitly tax private returns. 2. Adverse business climate: complex taxation regimes, costly international trade procedures, weak property rights and contract enforcement, corruption, and judicial manipulation. 3. Lack of innovation and “self-discovery” climate: economy entrenched in low-productivity activities and resource extraction dependence, facing established international competitors and patents. 4. Uncertainty about commitment to rules of the game, raising entry risks and deterring market participation. ### Policy recommendations and targeted governance actions - Recommended governance diagnostics: - Conduct regular governance diagnostics reports with IMF and World Bank assistance. - Specific priority actions highlighted: - Complete the transposition of CEMAC directives on PFM to reinforce budgeting frameworks and internal controls. - Strengthen PFM practices: adopt expenditure monitoring and tracking systems, design and implement medium-term implementation strategies for PFM reforms, and fully operationalize TSAs. - Strengthen anticorruption framework: adopt anticorruption laws, procedures, and financial asset disclosure practices aligned with the UN Convention against Corruption. - Increase transparency in oil revenue management: conduct regular audits, adopt plans to address audits’ shortcomings, publish oil reconciliation reports for state-owned companies, and comply with EITI information sharing standards. - Conduct fiscal safeguards reviews to assess functioning of treasury frameworks and ensure spending compliance and revenue channeling through TSAs. - Strategic priorities: - Prioritize deep-reaching structural governance reforms, investment in individuals (human capital), and suppression of corruption to incentivize a vibrant non-oil private sector. - Revise inefficient and blurry business climate rules (taxation regimes, property rights, trade procedures, judicial systems) to mobilize private investment and diversify away from primary resources. ### Quantitative findings and growth implications - Concentration of value creation: sources of value creation in CEMAC remain overly concentrated and dependent on oil production. - Public and private capital contribution: the oil cycle has been driving public and private capital stock contributions to growth; up to 50 percent of the private sector’s share is vulnerable to oil sector dynamics. - Governance and business climate impact: a 10 percent improvement in governance and business climate scores could potentially translate into a 6 percent to 7 percent cumulated increase in real GDP per capita. - Human capital: public capital spent during oil price windfalls failed to build foundations for higher human capital accumulation; leveraging human capital is critical to productive growth and diversification. - Past public investment scaling: public capital expenditure increased from a stable 5 percent of GDP in 2000–05 to 12% in 2014, but did not deliver higher non-oil sector growth; perceived infrastructure quality remains behind sub-Saharan peers. ### Annex: DIGNAR model setup and simulated scenarios - Model: Uses the DIGNAR model (Melina and others (2018)) — a small open-economy model with two household types, three production sectors (oil, non-oil tradables, non-traded goods), and separate export/import prices; production functions are Cobb-Douglas including public capital, private capital, and labor. - Simulation horizon: improvements in governance are simulated over a 10-year period. - Three scenarios simulated: a. Scale-up in public investment spending of 20 percent (relative to the baseline) of the current public investment to GDP ratio over 10 years with no change in governance. b. Gradual improvement in governance over 10 years with no increase in public investment spending. Governance improvements occur through: - (i) A gradual reduction in bribery and distortions (captured as an implicit tax similar to a bribe rate), which would boost private sector investment and gradually reduce the marginal cost of capital and labor by 5 percent. - (ii) Gradual improvement in public investment selection and monitoring, raising elasticity of output to public capital from 15 to 20 percent and enhancing conversion of public investment spending into actual capital stock from 42 to 58 percent (as per the sub-Saharan African median). - (iii) Gradual increase in revenue collection equivalent to widening the tax base and limiting tax evasion of 10 percent for taxes on both consumption and labor. c. Combination: gradual improvement in governance (as in b) plus an increase in public investment spending of 20 percent (relative to the baseline). - Summary result: A comprehensive governance reform package (scenario b and/or c) delivers much higher growth for all countries in the analysis compared with a simple scaling up of public spending with no governance improvement; an increase in public investment without governance reform leads to only small increases in private investment to GDP and modest non-oil output growth in Gabon and Cameroon due to crowding out and continued commodity dependence. *Source: anea2022002 - 1. Varying Coefficients of Governance2. Varying Coefficients of Business Climate* ### 1. Procurement and Monitoring ### 1. Procurement and Monitoring ### Available PEFA Scores and PFM Diagnostics - Sources: PEFA secretariat; and IMF staff. - PEFA element rankings use a scale between 1 (criteria severely not met) to 4 (criteria fully met). Based on the PEFA classification applied since (June 2014). - Annex Figure 2.2 lists PEFA indicators covered (as presented): - Recording and reporting of debt and guarantees - Monitoring of sub-national government (SNG) - Approval of debt and guarantees - Transfer of revenue collections (timeliness, controls) - Revenue accounts reconciliation - Consolidation of cash balances - Payroll controls - Procurement (quality of legislation, implementation) - Suspense accounts (recording, regularization) - Advance accounts (recording, regularization) - Coverage and comparability of reports - Timing of in-year budget reports - Accuracy of in-year budget reports - Completeness of annual financial reports - Accounting standards - Monitoring of public corporations - Public access to information - Financial reports of extra-budgetary units - Bank account reconciliation - Financial data integrity - Internal audit effectiveness - Internal controls on nonsalary expenditure ### Simulation Scenarios and Quantitative Results (Annex Table 2.1) - Scenario: Increase of 20 Percent in Public Investment with No Change in Governance — Evolution from Initial State over 10 Years - Republic of Congo - Private Investment: 0.7% - Non-Oil Output: –1.9% - Non-Oil Revenue (as % of Total Revenue): 40.4% - Total Debt: 21% - Improvements in Current Account Balance (as % GDP): 8.8% - Gabon - Private Investment: 0.2% - Non-Oil Output: 0 .1% - Non-Oil Revenue (as % of Total Revenue): 18.9% - Total Debt: 10% - Improvements in Current Account Balance (as % GDP): 2.2% - Cameroon - Private Investment: 0.2% - Non-Oil Output: 0.4% - Non-Oil Revenue (as % of Total Revenue): 9.4% - Total Debt: 7% - Improvements in Current Account Balance (as % GDP): 2.1% - Scenario: Comprehensive Governance Reform Package with No Change in Public Investment — Evolution from Initial State over 10 Years - Republic of Congo - Private Investment: 12.4% - Non-Oil Output: 6.8% - Non-OIl Revenue (as % of Total Revenue): 37. 2 % - Total Debt: 13. 3% - Improvements in Current Account Balance (as % GDP): 11. 4 % - Gabon - Private Investment: 13.0 % - Non-Oil Output: 4.3% - Non-OIl Revenue (as % of Total Revenue): 20.2% - Total Debt: –3.4% - Improvements in Current Account Balance (as % GDP): 3.9% - Cameroon - Private Investment: 14.6% - Non-Oil Output: 6 .1% - Non-OIl Revenue (as % of Total Revenue): 9. 2% - Total Debt: –2.9% - Improvements in Current Account Balance (as % GDP): 3.5% - Scenario: Comprehensive Governance Reform Package with an Increase of 20% in Public Investment — Evolution from Initial State over 10 Years - Republic of Congo - Private Investment: 12.8% - Non-Oil Output: 7. 6% - Non-Oil Revenue (as % of Total Revenue): 47. 4 % - Total Debt: 15.9% - Improvements in Current Account Balance (as % GDP): 12. 3% - Gabon - Private Investment: 13.6% - Non-Oil Output: 5.2% - Non-Oil Revenue (as % of Total Revenue): 32.4% - Total Debt: 0.3% - Improvements in Current Account Balance (as % GDP): 5.5% - Cameroon - Private Investment: 15. 2% - Non-Oil Output: 6.7% - Non-Oil Revenue (as % of Total Revenue): 16.4% - Total Debt: −1. 4% - Improvements in Current Account Balance (as % GDP): 4.9% ### Key Analytical Findings - For the Republic of Congo: - Without governance improvements, an increase in public investment can lead to a decline in non-oil output (example: Non-Oil Output –1.9% under 20% public investment increase with no governance change). - Given the Republic of Congo’s position “on the side of severe debt distress,” external commercial borrowing at market terms may not be available to finance public investment scale-up; fiscal gaps would need to be closed by increasing tax and reducing government expenditure, possibly including priority social spending, with negative spillovers on non-oil output. - Because concessional debt is treated as exogenous and constant in the model period, remaining fiscal gaps are closed through domestic debt, resulting in an explosive debt scenario unless governance improves. - Only a very ambitious governance reform package (scale of reforms doubled to reduce distortions to private firms by 10 percent and support widening of the tax base by 20 percent over 10 years) can be compatible with maintaining long-term debt sustainability. The model also requires oil production around 100 million barrels a year from 2025 for this scenario. - Across countries: - The largest windfall to non-oil output occurs when governance improves through well-targeted, largely budgetary-neutral reforms that reduce private-sector distortions—this unleashes crowding-in dynamics and reduces generalized production costs. - Improvement in governance that reduces waste in capital expenditure increases the stock of public capital per dollar spent, improving project selection and yielding positive spillovers on non-oil sector growth. - Governance improvements together with more effective tax administration and widened tax bases lead to higher tax revenue and improved fiscal balances, potentially avoiding sharp tax rate increases required under baseline scenarios without governance change. - A gradual governance reform package in Cameroon and Gabon can be compatible with stable and sustainable total debt even while scaling up public investment (assuming a recovery in oil prices). ### Policy Recommendations - Prioritize a comprehensive governance reform package to: - Deliver significant windfall across all sectors. - Crowd in private-sector activity. - Maximize value from new public investment projects. - CEMAC Commission actions: - Ensure effective implementation of the business climate observatory. - Leverage available survey indicators. - Draft action plans to achieve measurable progress on business climate indicators in the CEMAC region. - Public Investment Management (PIM) improvements: - Strengthen the legal framework of PIM to establish durable procedures and responsibilities for stakeholders. - Strengthen planning functions and capacities through a centralized body to support and coordinate transparent project selection. - Publish winning bids and details on a firm’s ownership to improve transparency. - Public Financial Management (PFM) reforms: - Complete the transposition of CEMAC PFM regional directives and strengthen PFM processes. - Reinforce PFM to secure funds for effective project implementation, guarantee infrastructure maintenance, and prevent accumulation of arrears. - Recognize that better PIM contributes to better PFM by improving project planning and budgetary programming credibility. *Source: PEFA secretariat; and IMF staff estimates.* ### Appendix 1. DIGNAR Model and Calibration ### Appendix 1. DIGNAR Model and Calibration ### Model structure and fiscal framework - Public investment increases gross public capital but is discounted by an efficiency factor accounting for leakages and absorptive capacity constraints. - Government total receipts each period: (1) taxes (consumption taxes, labor income taxes, resource revenues), (2) foreign aid, (3) bond sales, (4) principal and interest earnings from the resource fund, and (5) user fees on infrastructure services. - Government total outlays each period: (1) government current spending, (2) public investment, (3) transfers to households, and (4) debt service payments. - External concessional debt path is taken exogenously; domestic and external commercial debt accumulate endogenously, subject to current external debt borrowing capacity. - Public debt accumulation triggers fiscal adjustments that can alter consumption and labor income tax rates, government consumption, or transfers to households. - Transition dynamics: increases in public investment and required fiscal adjustment can generate private sector crowding-in or crowding-out. While long-term crowding-in occurs if projects are good, during transition crowding-out may dominate, especially if there is insufficient foreign financing. ### Governance channels incorporated in DIGNAR - Weak governance is modeled to affect three channels, aligned with the IMF framework for enhanced engagement on governance: - (1) Output and private investment and employment via wasted output. - (2) Public investment efficiency and accumulation of public capital. - (3) Revenue collection via tax revenue losses. - Channel 1 — output wasted due to weak governance: - A share of economic output is lost (time/resources lost to bribes, administrative inefficiency) and is modeled as proportional to production. - Firm production function: Yt = f(Kt, Lt, KtG), where Yt is output, Kt private capital, Lt labor, KtG public capital, and f(⋅) is increasing and concave. - Firm profit: Pt = (1 − κt)Yt − wtLt − RtkKt, where κt ∈ (0,1) is the percentage of output wasted; wt is the real wage; Rtk is the gross return to private capital. - Waste κt creates a wedge (1 − κt) < 1 between factor payments and marginal products; higher κt reduces equilibrium demands for labor and capital, lowering employment, investment, and output. - Channel 2 — public investment efficiency: - Law of motion of public capital: KtG+1 = (1 − δG)KtG + εt ltG, where δG is the depreciation rate, εt ∈ (0,1) is public investment efficiency, and ltG is public investment expenditure. - Weak governance implies a fraction 1 − εt of public investment spending is wasted; lower εt reduces the accumulated public capital stock and, via the production function, lowers output. - Channel 3 — revenue losses: - Tax collection loses a fraction of taxes due; denote the share lost by θt ∈ (0,1). - Government budget identity excerpt: B_{t+1} = R_t B_t + I_t^G − (1 − θ_t) τ_t C_t, where Rt is real gross rate on government bonds Bt; τ_t is consumption tax rate; Ct private consumption. - Higher θt raises debt for a given tax rate; to keep debt constant, higher θt requires higher tax rates, which reduces private demand and output. ### Outputs, sectors, and macro aggregates - Aggregate output follows a Cobb-Douglas function with three sectors: nontradable, tradable, and oil. - Non-oil output is defined as aggregate output minus oil output. - Non-oil revenue composition: tax revenues from consumption and labor income, international grants, and a user fee on current infrastructure. - Total debt-to-GDP is the sum of concessional debt (exogenous), domestic debt (endogenous as described), and commercial debt. - Private investment dynamics for tradable and nontradable sectors: - k_{T,t} = (1 − δ_T) k_{T,t−1} + [1 − 0.25 _κ_T _2 ((i_{T,t} _ i_{T,t−1} − 1)^2)] i_{T,t}. - k_{N,t} = (1 − δ_N) k_{N,t−1} + [1 − 0.25 _κ_N _2 ((i_{N,t} _ i_{N,t−1} − 1)^2)] i_{N,t}. - Note: investment adjustment cost parameters k_N and k_T are both set at 0.25; δ_N and δ_T are capital depreciation rates; i_N and i_T are investment expenditures. - Current account deficit definition (consumption of households, private investments, government consumption of tradables, portfolio adjustment costs, interest on foreign debt, minus foreign aid): - ca_t^d = C_t + i_{N,t} + i_{T,t} + p_t^G g_t + Â_t^{OPT} − y_t − s_t r m_t^* + (R_d − 1) s_t d_{t−1} + (R_{dc,t−1} − 1) s_t d_{c,t−1} + (R_{t−1}^* − 1) s_t b_{t−1}^* + 2 (R_{RF} − 1) s_t f_{t−1}^*. - (Equation presented in the source; terms denote standard portfolio and interest adjustments.) ### Calibration of key parameters and assumptions - Elasticity of output to capital: set at 0.125 (explicitly: "Elasticity of output to capital is set in the lowest quartile of the distribution at 0.125"). - Public investment efficiency ε: set at 42 percent (explicitly: "Efficiency of public investment is also set at the lowest quartile of the sub-Saharan African distribution, at 42 percent"). - Investment adjustment cost parameters: k_N and k_T both set at 0.25. - Household preferences: - Frisch labor elasticity: 0.10 (low), following Berg and others (2012) and Goldberg (2011). - Labor mobility parameter: unity. - Elasticity of substitution between traded and nontraded goods: set following Stockman and Tesar (1995) (value taken from source framework). - Capital account openness / savers: 40 percent of consumers are entirely not savers (following Buffie and others (2012)). - Tax rate calibration: - Baseline scenario uses each country’s nominal tax rates for labor, consumption, and capital. - Royalties on oil derived from reported fiscal oil revenue (excluding income tax on oil companies) as a ratio of oil output value from reported oil production and average cost-adjusted barrel price. - Tax leakages are derived to match observed non-oil revenue-to-GDP ratio. - Remaining parameters set to LIC averages as in Medina and others (2016). - Baseline calibration uses average ratios from each CEMAC country’s macro-frameworks and DSA calibrations for the past four years. - Fiscal rule calibration and adjustment mechanics: - Resource fund assumed to be 0 in baseline calibration. - Fiscal adjustments occur equally through changes in labor taxes, consumption taxes, government consumption, and transfers: l1 = l2 = l3 = l4 = 0. - Speed of fiscal adjustment: 0.2. - Responsiveness-to-debt-to-GDP ratio: 0.1. - Intertemporal consumption parameter: - The inverse of the intertemporal elasticity of consumption is set to 2.94. - Implication: a higher intertemporal elasticity (i.e., smaller inverse σ) means private consumption is more sensitive to real interest rate movements; with σ = 2.94 the model yields less appreciation pressure on the real exchange rate during public capital buildup and relatively better traded output performance over time. ### Data sources (as used in calibration) - Real GDP: IMF, World Economic Outlook. - Working-age population (15–64 years): World Bank Group, World Development Indicators. - Human capital: Penn World Tables 9.1. - Real public and private gross fixed capital formation: IMF, World Economic Outlook. - Public and private capital stock, and depreciation rates: IMF, FAD investment and Capital Stock Database. - Normalized governance indicator: World Governance Indicators. - Business climate indicator: World Bank Group. - School enrollment, secondary (gross): World Bank Group, World Development Indicators. - Openness (ratio of imports and exports to GDP): IMF, World Economic Outlook. - Inflation (period average): IMF, World Economic Outlook. *Source: anea2022002 - Appendix 1. DIGNAR Model and Calibration.* ### Appendix 2. TFP Correlations ### Appendix 2. TFP Correlations ### Appendix Figure 2.1 — Overview - Title: TFP Correlations with Key Development Indicators. - Figure presents scatter/correlation relationships between TFP and several development indicators over four subperiods: 2000–04, 2005–09, 2010–14, and 2015–19. - Note appearing in figure: High income countries omitted. - Caption/source line in figure: Source: ???. ### 1. Governance - 2000–04 (ρ = 0.023) - 2005–09 (ρ = −0.078) - 2010–14 (ρ = 0.243) - 2015–19 (ρ = 0.376) ### 2. Business Climate - 2000–04 (ρ = 0.298) - 2005–09 (ρ = −0.083) - 2010–14 (ρ = 0.279) - 2015–19 (ρ = 0.506) ### 3. Undernourishment - 2000–04 (ρ = −0.321) - 2005–09 (ρ = 0.09) - 2010–14 (ρ = −0.128) - 2015–19 (ρ = −0.234) ### 4. Under-5 Mortality - 2000–04 (ρ = 7.5e-03) - 2005–09 (ρ = 0.082) - 2010–14 (ρ = −0.108) - 2015–19 (ρ = −0.208) ### 5. Access to Electricity - 2000–04 (ρ = 0.097) - 2005–09 (ρ = 0.049) - 2010–14 (ρ = 0.081) - 2015–19 (ρ = 0 .064) ### 6. Mobile Cellular Subscription - 2000–04 (ρ = −0.04) - 2005–09 (ρ = −0.103) - 2010–14 (ρ = 0.182) - 2015–19 (ρ = 0.242) *Appendix 2. TFP Correlations — source PDF: anea2022002 - Appendix 2. TFP Correlations* --- _Source: https://www.imf.org/-/media/files/publications/analytical-notes/2024/english/anea2022002.pdf_