Central African Economic and Monetary Community (CEMAC): 2013 Staff Report on Common Policies for Member Countries

KEY ISSUES: Context. Strong area-wide economic performance in 2012 was largely driven by public investment financed by high oil revenues. GDP growth is expected to slow down in 2013 due to a decline in oil production, moderation in public investment and the political crisis in Central African Republic. Albeit robust in recent years, economic growth has been insufficient to significantly improve income per capita. While macroeconomic stability has been maintained, with moderate inflation, the region's main challenge is to implement structural policies necessary to help promote sustainable and inclusive growth. The region remains vulnerable to a possible decline in oil prices. Key policy recommendations: Policy mix. The fiscal stance should be more cautious in some countries where policy buffers are insufficient to withstand shocks. The recent easing of monetary policy has been appropriate given the positive inflation outlook. Reserves coverage remains adequate and the real effective exchange rate is broadly in line with fundamentals but the issue of only partial repatriation of foreign exchange reserves by some member states needs be resolved. Fiscal policy coordination. The fiscal surveillance framework should be revised to limit pro-cyclicality and better ensure long-term fiscal sustainability of oil rich countries. Monetary policy framework. In the context of the peg of the CFA Franc to the euro, the operational framework for monetary policy needs to be revised to improve management of systemic liquidity and make it an efficient tool of macroeconomic management. Financial sector. To reduce risks to financial sector stability, strengthening the capacity of the regional regulator, strictly enforcing prudential requirements and expediting the restructuring of unviable institutions are among key priorities. Financial deepening requires structural financial sector reforms related to credit information, security of collaterals, creditor rights and payment system. Growth. More effective regional integration could help boost and sustain diversified and inclusive growth. Reinforcing regional institutions and improving the coordination of national development plans are needed to optimize the region's potential. Regional efforts to boost private sector investment should aim at improving governance and the business climate, one of the most challenging in Africa.