CEMAC: Economic Outlook Improving, But Faster Progress Needed

IMF News, July 27, 2018

Source details

Canonical URL: CEMAC: Economic Outlook Improving, But Faster Progress Needed

The economic and financial situation in the Central African Economic and Monetary Community (CEMAC)—Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of Congo—has improved over the last year, but the outlook remains fragile.
According to the IMF’s latest projections:
- Growth is expected to increase to about 2¾ percent in 2018 from just under 1 percent in 2017.
- The increase would mainly result from a rebound in oil production (6 percent in 2018 after minus 3 percent in 2017).
- Non-oil sector growth would remain relatively low (at about 2 percent).
Fiscal and external imbalances have been reduced through fiscal consolidation efforts, rising oil prices, and the central bank’s tighter monetary policy and stricter enforcement of regulations.
Despite higher growth and significant improvement in the current account deficit, CEMAC’s external position remains weak:
- After having stabilized in 2017, regional external reserves fell short of targets in 2018 despite higher oil prices.
Further improvement is expected conditional on full implementation of policy commitments by CEMAC member states and regional institutions.

Member states: Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and Republic of Congo
Population: 49 million (2017)
Currency: Central African Communauté Financière Africaine (CFA) franc
Average annual economic growth: 0.9% (2017)
Main resources: Petrol, gas, wood, gold, manganese, and diamonds

Significant downside risks include:
- Weaker fiscal reforms in the face of political pressures (notably in the countries holding elections this year).
- A reversal in oil prices, which would put additional pressure on fiscal and external balances (though that risk has subdued in the current context of higher oil prices).
- Deterioration in the security situation (security conditions have already worsened in the Central African Republic).
- Lower-than-projected external budget support.
To mitigate the risk of reduced external aid, national authorities must ensure that the conditions for receiving external aid continue to be met without delay.

The recent rise in oil prices should not lead to complacency.
Recommended uses for additional government revenue from higher oil prices:
- Mostly save and use to reduce debt and boost reserves and/or to repay domestic arrears.

Fund-supported programs aim to restore macroeconomic stability and create space to increase spending on investment and priority social areas that help reduce poverty, including health and education.
Wages in many CEMAC countries are often higher than in comparator countries.
It is critical for governments to contain the wage bill to a reasonable level consistent with each government’s resources to allow space for public investment and priority social spending.

Continue efforts to strengthen countries’ fiscal positions as planned, while protecting social spending.
Strengthen the regional convergence framework to ensure lasting fiscal sustainability.
The Bank of Central African States (BEAC) should be ready to act alongside national authorities, including by tightening monetary policy, should reserves continue to fall short of targets.
Member states need to support regional institutions’ efforts to strengthen and better enforce foreign exchange regulations.
- Higher compliance with these regulations, including foreign exchange repatriation by extractive industries, is key to rebuilding an adequate level of international reserves.

IMF-supported programs in the CEMAC region emphasize measures to increase transparency and good governance, including:
- Accounting of oil revenues.
- Elimination of extra budgetary spending.
- Following proper spending procedures.
- Transparent disclosure of information.
Ultimate responsibility for good governance and transparent government practices rests with national governments, Parliament, civil society, and the judicial system.

IMF press release: CEMAC: Economic Outlook Improving, But Faster Progress Needed (July 27, 2018).