A Common Cause for Sustainable Growth and Stability in Central Africa
IMF Blog, August 1, 2017
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- Authors: Abebe Aemro Selassie
- Published: August 1, 2017
Expenditure, context, and shocks
- Six countries in the Central African Economic and Monetary Community: Gabon, Cameroon, Chad, the Central African Republic, the Republic of Congo, and Equatorial Guinea.
- Share a common currency—the CFA franc—pegged to the euro, and a common central bank that holds the region’s pool of foreign exchange reserves.
- Oil accounts for about 60 percent of the region’s exports.
- Oil price collapse in 2014 cut government revenues from oil exports in half between 2014 and 2016.
- Current account deficit widened from 3.9 percent of GDP in 2014 to 9.3 percent in 2016.
- Public debt rose from 29 percent of GDP in 2014 to 47 percent of GDP in 2016, despite some cuts in public spending.
- By end-2016, foreign exchange reserves had dropped by US$10 billion, reaching the equivalent of about two months of imports.
- Security threats compounded economic difficulties: Boko Haram in the Lake Chad region and civil conflict in the Central African Republic.
Regional strategy and the united front
- Summit in Yaoundé: leaders decided to preserve the current exchange rate peg and take coordinated actions to address collective problems.
- Overall reform emphasis on four areas:
- Raise non-oil revenues through fiscal reforms, better prioritize expenditures, and strengthen transparency and efficiency of public spending.
- Protect social spending and introduce new social protection programs to ease the impact on the poor.
- Strengthen the financial sector to promote stability and inclusion.
- Improve the business environment and promote economic diversification away from overreliance on oil.
- Rationale: coordinated implementation across countries is critical to prevent free rider problems and enable regional recovery.
IMF support: financing, policy advice, and technical assistance
- IMF actions:
- Approved new Fund-supported programs for Gabon, Cameroon, and Chad, and an increase in funding for the Central African Republic.
- Discussions ongoing with the Republic of Congo and Equatorial Guinea.
- Financing:
- Provided in conjunction with other development partners to allow a more gradual correction of imbalances and more time to implement reforms.
- Three critical areas of policy advice and technical assistance:
- Policy coordination among countries and with regional institutions:
- Consistent implementation of reform programs to prevent free rider problems.
- Regional central bank commitment to support country programs and raise interest rates as needed to help rebuild external reserves and support the exchange rate peg.
- Strengthen the financial sector, including enhancing the bank supervision framework and its implementation.
- Growth-friendly and inclusive fiscal reforms:
- Mitigate effects of spending cuts by improving efficiency of public spending and protecting the poor.
- Emphasize fair distribution of fiscal adjustment to increase public support for reforms.
- Combating corruption and increasing transparency in public resource use:
- Corruption is a significant drain on scarce public resources and a drag on growth.
- Encourage concrete steps such as joining the Extractive Industries Transparency Initiative to support disclosure of commodity revenue information.
- Final note: ultimate success depends on how well countries implement reforms and respond to future shocks; the IMF stands ready to support their efforts.
Key features of country programs
- Cameroon:
- Maintain sustainability of public debt by aligning borrowing plans with capacity to execute investment projects and prioritizing infrastructure projects that will contribute to the development of the country.
- Increase non-oil revenue by broadening the coverage of the land tax and rationalizing tax exemptions.
- Support private-sector led growth by addressing high non-performing loans and resolving insolvent banks, and removing administrative obstacles to private sector development.
- Target 3.5 percent of GDP for spending for health and education, and expand the coverage of social protection programs.
- Gabon:
- Contain public spending to stabilize public debt and place it on a downward path over the medium term.
- Increase transparency and efficiency of public spending through public finance management reforms, including improving the process for public purchases to ensure better value for money.
- Protect critical social programs from fiscal adjustment by ensuring they remain adequately funded, maintain financial stability, and adopt policies to foster economic diversification.
- Simplify procedures and reduce the time it takes to start a business, deal with construction permits, register property, pay taxes, and enforce contracts to support private sector investment and job creation.
- Chad:
- Reestablish debt sustainability by restructuring external commercial debt.
- Boost non-oil revenue mobilization, improve public financial management, and pursue economic diversification efforts, while strengthening the stability of the banking sector.
- Reallocate resources to public investment, clearance of domestic arrears, and social spending, including a target to gradually increase the latter starting in 2017, to reach 4.2 percent of GDP.
- Central African Republic:
- Accelerate payments of domestic arrears and increase social expenditure to support social cohesion and growth.
- Raise domestic revenues by almost 3 percent of GDP by 2020 to create room in the budget for social services and critical infrastructure projects.
- Improve transparency and efficiency of public spending through regular publication of budget execution reports.
Source: A Common Cause for Sustainable Growth and Stability in Central Africa, Abebe Aemro Selassie, August 1, 2017.
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- Uma Causa Comum para o Crescimento Sustentável e a Estabilidade na África Central
