No monetary devaluation, oil hopes for Central Africa

“A sharp decline in commodity prices, in particular of oil, as well as security threats and civil unrest in the Central African Republic (CAR) have profoundly impacted the region’s external and fiscal balances,” said International Monetary Fund (IMF) Managing Director Christine Lagarde after her participation to a Heads of States summit of the six Central African Economic and Monetary Community (CEMAC) countries in Yaoundé (Cameroon).

This extraordinary meeting was held on Cameroon President Paul Biya’s initiative because of growing concerns over the CEMAC’s financial situation. With rising inflation and economic growth at barely 1% in 2016, a possible devaluation of the CFA franc (XFA) indexed to the Euro (EUR) was finally ruled out considering that previous moves like the one in 1994 proved counterproductive and that most of the economic slowing resulted from the fast and sharp drop in the prices of oil that represents 70% of the CEMAC’s exports.

Additional growth-essential commodities like coffee, banana and cotton were negatively impacted too, plunging the region into deeper difficulty while the security situation remains tense despite the just ended three-year-long Operation Sangaris led by the French military in the CAR. After Cameroon’s Economic Partnership Agreement (EPA) with the European Union (EU) came into force in July 2016, CEMAC countries appeared increasingly willing to open the door to more support from the IMF and to greater convergence and free trade-related developments between their organization and the larger Economic Community of Central African States (ECCAS).

According to local sources, the question of devaluation of the CFA franc may still be raised in the future, especially if the recent oil agreement between OPEC and non-OPEC countries fails to meet expectations.