CEMAC oil boom presents opportunities to deepen reforms and regional integration

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Real GDP growth in the Central African Monetary and Economic Union (CEMAC)-Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon-reached 8.3 percent in 2004, the highest rate in 10 years, according to the IMF's annual economic review. Real oil sector GDP grew by more than 21 percent, driving the region's growth.

Growth developments in the non-oil sector were less encouraging, with regionwide non-oil GDP growth slowing from 3.6 percent in 2003 to 3.2 percent in 2004, the lowest level in five years.

This performance resulted from a drought and a locust-related decline in non-oil output in Chad, and roughly constant or only slowly improving non-oil growth in the remaining oil-exporting CEMAC member countries.

Broad money growth in the region was moderate, and inflation declined to 1.7 percent-lower than in the euro area. The favorable inflation performance-in spite of the overall high growth and significant reserve inflows-was helped by good harvests in almost all countries, as well as by the appreciating nominal exchange rate vis-à-vis the U.S. dollar. Yet inflation performance differed significantly across the region. In Chad and the Central African Republic, both countries with stagnant or declining domestic demand, the price level dropped. In Equatorial Guinea, inflation reached 8 percent, reflecting mainly supply bottlenecks in the country's fast-growing economy.

In line with higher oil output and increasing oil prices, the region's fiscal position improved in 2004, posting an overall surplus (excluding grants) of about 3.1 percent of GDP. This positive outcome was due, in part, to windfall revenues from higher oil prices. For the region as a whole, about one-fourth of oil windfall receipts associated with the price increases accrued to the budgets of oil producers. As a result of improved non-oil revenue collection in some member countries, the regionwide non-oil overall fiscal deficit (excluding grants) also improved slightly, even though in Cameroon, the largest CEMAC economy, the non-oil fiscal balance deteriorated by 1 percent of non-oil GDP. At more than 12 percent of non-oil GDP, the non-oil deficit (non-oil revenue less expenditure) is sizable, however, underscoring the region's dependence on oil receipts for government finance.

External sector developments were also favorable in 2004.

Although the CFA franc strengthened in real effective terms, the current account deficit declined in 2004 and...