Active Treasury Management of the state: Instrument for financing the economy (Economic Community of Central African States)


The process of regional integration is relatively well-advanced in the Central African region for financial operations and banking regulations. However, in other areas it is under-developed due to weak institutional capacity of regional bodies and physical barriers (transportation and communication networks). In addition the customs union is troubled by persistent fraud and smuggling activities. For example, some landlocked countries such as CAR typically only collect one-quarter of the customs duties they are owed because of widespread smuggling that occurs along the porous borders. (GIZ, 2015) There is a gap between the advanced rules for regional integration and the behavior on the ground. The latter continues to encourage the fragmentation of national markets. However banks, insurance and regulatory bodies operate on a regional basis.

The ECCAS was created largely to strengthen the process of regional economic integration and contribute to development in Central Africa. Compared to a number of regional integration efforts in Africa, CEMAC is relatively well developed as a monetary and customs union with a common external tariff (CET), defined criteria for macroeconomic convergence and an institutional structure for surveillance, as well as an institutional and historic base through which structural reforms can take place to achieve these objectives. According to Zafar and Kubota (2003), for Central African countries, regional integration offers many advantages including being the source of enhanced growth and economic efficiency by locking Central African countries into policy reform; providing a framework in which restrictive trade practices can be removed, customs procedures streamlined, macroeconomic policy surveillance increased, and greater fiscal discipline ensured; and an opportunity for the poorer land-locked economies (Chad and the CAR) whose economic survival depends on the coastal countries.   

Financing a transformative development agenda in ECCAS countries members require that available resources be used more effectively and strategically to catalyze additional financing from official and private sectors. To achieve the above, the development of basic infrastructure (roads, bridges, schools, low cost housing, sports facilities, etc.) is indisputably one of the major thrusts of the majority of the sub region countries. ECCAS countries need therefore to step up efforts to finance their own development by improving domestic resource mobilization, including by strengthening tax administration, better harnessing natural resource revenue, and curbing illicit financial flows.

This initiative intends to reviews and proposes active management of the treasury as an instrument to finance the economy of ECCAS member countries like bond financing, institutional investors, Diaspora bonds, pull mechanisms, advance market commitments, resources-for-infrastructure deals, and climate finance. Not all of these options are feasible in the case of ECCAS countries. In fact, the challenge and the objective of ECCAS countries as this initiative will recommend, lies in establishing a supporting sub regional-level policy framework and credible commitment to build sub regional capacity and combat bottom of the pyramid poverty in expanding and utilizing the options that the project aims to recommend and make them available as soon as possible to deal with financial challenges that the region faces.

Fiscal policies within ECCAS countries

In ECCAS countries, fiscal policies are conducted independently by each member country, although there have been instances of regional coordination in taxation policies. The member governments have recognized, however, that a regime which combines a common fixed exchange rate in conjunction with national fiscal policies requires macroeconomic convergence and surveillance. The treaty that specified the legal and institutional arrangements of ECCAS countries created the following bodies:

• Central African Economic Union (Union économique de l’Afrique centrale–UEAC) with an Executive Secretariat based in Bangui, CAR.

• The Central African Monetary Union (Union monétaire de l’Afrique centrale), which specifies the responsibilities of BEAC, and the Central African Banking Commission (COBAC).

The Customs Union is one of the central pillars of ECCAS countries. It has established a CET for trade with third countries, and trade inside the Community has been duty free since 1998. The CET has four rates: 5% (for essential goods); 10% (for raw materials and capital goods); 20% (for intermediate goods); and 30% (for consumer goods). In addition to the average CET of 11.8%, several other temporary and excises taxes and a value-added tax (VAT) are applied, leading to an average taxation level of 32%. 

The Monetary Union plays a key role in the integration process. There is one central bank called the Banque des états d’Afrique Centrale (BEAC), a single currency (CFA Franc [XAF]) and defined criteria for macroeconomic convergence[1]. The BEAC regulates the sector through its regional banking commission, COBAC, which shares responsibility with the national ministries of finance for licensing new banks. There is also a budgetary agreement between the French Treasury (Ministry of Finance) and BEAC with fixed convertibility of the XAF and a ‘droit de regard’ by the European Central Bank (ECB). In theory, through the adoption of a single banking licence, a bank licensed in one ECCAS country should be freely able to operate in the CEMAC region.

The provision of a regulatory framework for the sub-region to ensure a good business climate for private and foreign investment is also already conducted partly at the regional level. The Organisation pour l’harmonisation en Afrique du droit des affaires (OHADA) was established in 1995 with 16 francophone countries signing on to adopt common business laws in the region. OHADA covers the implementation of uniform acts on commercial legislation, company law, bankruptcy law, secured transaction law, debt collection and arbitration. This was intended, among other things, to create a positive business environment for the development of financial services. 

The financial integration includes two regional stock exchanges: BVMAC in Libreville (Gabon) and the Douala Stock Exchange (Cameroon). The main participants are the State, public and semi-public companies and international companies. Oversight is provided by the Commission de surveillance du marché financier d’Afrique centrale (COSUMAF).

Characteristics of the Financial Services Sector in the Central African Region

 The banking sector and financial markets in the Central African region are dominated by foreign banks. The most significant of these are subsidiaries of large French and US banks which have traditionally been active in the coastal countries open to foreign commercial exchange (such as Cameroon and Gabon). Following the economic crisis of the 1980s, these foreign banks contributed to a relatively stable banking system by conforming to COBAC requirements.

According to AfDB (2015), the depth of financial development, an indicator of the extent to which agents are able to use financial markets for savings and investment decisions has a strong link with long-term economic growth in the ECCAS sub region as it enhances firms and businesses’ ability to invest in long-term and risky initiatives. It captures claims on the private sector by deposit taking financial institutions relative to economic activity and hence, reflects the role played by financial intermediaries in channeling savings to private sector investors. Higher domestic credit to the private sector is therefore indicative of the provision of productivity enhancing financial services (King and Levine, 1993). Using this measure, the ECCAS sub region has the shallowest financial depth among the various regions. Deepening the sub region financial sector in the long run partly depends on financial institution’s ability to track repayment history that requires credit registry and information sharing among financial intermediaries. Difficulties in establishing borrowers’ ability and willingness to repay, and lack of legal support for creditor rights limit banks’ lending schemes, which contributes to shallow financial development. In weak legal and institutional environment, the ECCAS financial institutions run the risk of lending to agents with little to no prospects of repayment. (AfDB, 2015)

Furthermore, financial penetration also remains low in the ECCAS sub region. Less than a quarter of sub-regional population has access to a formal bank account. This indicates that (i) there is less financial inclusion particularly in low income communities and (ii) the degree to which private individuals can access financial services is limited. (AfDB, 2015)


Revenue mobilisation has been a core topic on the international agenda since 2007. The coordination and dialogue networks on the         topic have expanded and intensified their work. In general, revenue mobilisation in developing countries has been high on the political agenda since the Monterrey Consensus in 2002.  This section reviews items including; tax collection policies, the accountability of revenues from extractive industries, the establishment of transparent and comprehensive budgeting procedures, the integration of policy-making, planning and budgeting, the enhancement of budgetary oversight and the fight against corruption, and finally the role of parliaments in budgetary oversight.

Tax collection policies

Correspondingly, support to the development of tax systems has intensified to a large extent since then. The G8 Action Plan for Good Financial Governance in Africa also underlined the support of tax policy and tax administration reform. Central African countries were encouraged to make use of regional networks and international knowledge on tax policy and tax administration, particularly in order to        bolster domestic expertise. The enlargement of the tax base cannot be over emphasized .unlike other western economic blocks where the common tax policy is defined, the structure in the central African sub-region is still wanting like in many other sectors .While waiting to open gigantic projects on the reforms and potentials to be used in this sector, the following measures could be put in place;

The Governments of the Central African Sub- region and their partners:

  • Adopt fiscal policies that will enable an optimal collection of tax revenues and
  • will combat illicit financial flows in order to achieve development;
  • Publicize national reports on tax system which could serve as a basis of
  • support for national, regional and international campaigns and enhance the
  • knowledge and understanding of stake holders on tax issues;
  • Support a participative, transparent, and responsible tax reform process;
  • Educate citizens on the importance of tax in development;
  • Strengthen the capacity of CSOs to monitor tax policies;
  • Ratify the African Union convention to fight corruption; ;
  • Protect members of CSOs engaged in the campaign for tax justice.

Increasing accountability for revenues from extractive industries

The highest potential for increasing revenues is to be expected from extractive industries (AFDB/ OECD/ UNDP 2014:65). In the case of resource-endowed countries, the success of the Extractive Industries Transparency Initiative (EITI) is really welcome and is an effective and efficient resource mobilization mean. The Resource Governance Index (RGI) measures the quality of governance in the oil, gas, and mining sectors. The enabling environment that rates the broader governance environment with indicators as accountability, government effectiveness, the rule of law, corruption, and democracy must be enhanced.

It is amazing the huge potential that is yet to be tapped from the central African sub-region,From a fiscal stand point, we can build a transparent legal and regulatory framework. This will have the advantage of building the credibility of the states and economic operators without forgetting the international investment community.

Low technical man power to handle this new industry to the will be meaningful and beneficial to build technical skills and negotiation capacities that will help achieve equitable negotiation yet flexible fiscal regimes.

Transfer pricing is a tax avoidance tactics that can also bring in lots of revenue if the people are properly trained, this will definitely curb the avoidance scheme in place.Governance challenges is a huge impediment to growth in this industry .venality and racketing has become a way of is true reports always point accusing fingers at the government but the world fails to understand that it take two to tangle. It is essential to build strong institutions which uphold transparency and good governance. The greater majority of the population and citizens can only benefit if there is a deep culture of transparency and accountability. The natural consequence is inclusive growth that will in turn lead to the growth of the economy especially with human development improvement. Jobs will be created, skills will be acquired, and healthcare systems will be developed and improved, gender increase not leaving out Rand D innovation.Economic diversification has the natural repercussion of bringing resources diversification with natural consequences on expanding options for projects and infrastructure development.

Establishing transparent and comprehensive budgeting procedures

Working towards transparent, accountable and reliable        budget management has been at the top of the international development cooperation agenda since the declaration of Rome in 2002, when the concepts of aid harmonization, mutual ownership and alignment with country systems were placed at a high policy         level for the first time–although not yet named so.      When budget is not transparent, accurate and accessible it cannot be properly analyzed. The achievement of this outcome is based on setting up transparent and comprehensive legal norms that are adapted to the present times. Most the existing budgetary procedures were inherited from a colonial past which has outlived its usefulness.

Within the past three years, gender responsive budgeting and result oriented budget is what is being preached at the ECCAS member states .budget performance is the way out for this region if we need diversify our source of liquidity mobilization.

Transparency of performance budgets is one major advantage because taxpayers see results during every budgeting cycle when good programs get funding, whereas bad programs are dropped. Another advantage is quantitative analysis and input from employees that have a vested interest in their departments. Workers and program managers know what budgeting priorities are needed to further the goals of the agency when their performance is examined.

One major disadvantage to performance budgeting is the relative cost between two divisions. Supplies, workload and office needs may differ from one aspect of the agency to the next, which makes larger budgets more challenging. Some department heads may inflate or bloat their successes to ensure better funding during the next budget cycle. Performance budgets are great for routine programs, but if emergency needs arise there may be hassles to try to get more funding.A performance budget is based upon the output of services versus the input of money to each department. In an ideal situation, government agencies and divisions that have the best results based upon efficiency get funded again for later years.

Integrating policy-making, planning and budgeting

The G8 Action Plan for Good Financial Governance in Africa aimed at improving the integration of policy-making, planning and budgeting. This is measured by the dimension “quality of budgetary and financial management” (QBFM) under the World Bank Group’s CPIA Framework. The budget transparency is undertakes through the Open Budget Index (OBI) that evaluates–through thorough questionnaires–the amount of budget information that is made publicly available, mostly focused on eight key budget documents[2]. To this, there is a need of comprehensive and transparent budgeting procedures that could be gained through theanalyzing PEFA data that includes the comprehensiveness and transparency of public finance management systems, procedures and institutions.

Enhancing budgetary oversight and fighting corruption

Budgetary control and oversight are the founding pillars in the GFG system. Therefore the G8 Action Plan for Good Financial Governance in Africa includes the promotion of supreme audit institutions to assist their respective governments in improving performance and fostering the efficient and effective receipt and use of public resources through increased capacity building measures.          

The role of parliaments in budgetary oversight

Budgets usually are laws, and parliaments are thus the responsible organs in states to legally approve the governmental financial planning. Parliaments can influence the budget cycle. The involvement of parliaments in the budget process informs choices for fiscal policy and ensures executive accountability. The question is usually whether the parliamentarians actually represent the people in some of the autocratic systems that exist within the sub region. Information gathered talks of members of parliament being appointed instead of being elected .the question if therefore is how effective is parliamentary scrutiny in enhancing quality budget expenditures. if we must improve on the quality of our spending, we must go back to the drawing board and understand the rationale behind budgeting .the representatives of the people should be able to define the type of budget that will bring about the development and prosperity that is needed .if the budget is badly drawn, it will definitely not reach the desired objectives. The question I constantly ask myself is to know if a budged voted largly with a 50-70 percent on operations of the state can effectively meet economic transformation and development objectives? The following principles should be upheld by the ECCAS member states in designing their budgets ;

  • Comprehensiveness: The budget must cover all the fiscal operations of government,

Encompassing all public expenditure and revenues, to enable full and informed debate of the tradeoffs between different policy options.

  • Predictability: Spending agencies should have certainty about their allocations in the medium term to enable them to plan ahead. Stable funding flows support departmental planning and efficient and effective delivery.
  • Contestability: No item in the budget should have an automatic claim to funding. All policy and attached funding should be regularly reviewed and evaluated in order to ensure prioritization and optimal performance of spending agencies.
  • Transparency: All relevant information required for sound budgetary decision making should be available in an accessible format, and in a timely and systematic fashion. Budget information needs to be accurate, reliable and comprehensive.
  • Periodicity: The budget should cover a fixed period of time, typically one year, and the process of compiling the budget should follow a clear and reliable schedule that is agreed upon and published in advance.(Source: World Bank (1998)).


The cost of achieving any development goal depends on the efficiency with which the objective is pursued, taking into account the quality of underlying policies and practices. The initiative discusses active management of the treasury as an instrument to finance the economy of ECCAS member countries. According to Mua (2016), they are:

  1. Pull mechanisms for development, which involve ex-post economic incentives for innovation to solve a well-defined problem. By linking payments to the actual impact of an innovation, they can lay the foundations for a self-sustaining, competitive market for the relevant product.
  2. Resources-for-infrastructure (RfI) financing model aims to overcome limited capital market access and domestic capacity constraints. Under RfI, oil or mineral extraction rights are exchanged for turnkey infrastructure, complementing standard tax and royalty regimes.
  1. Diaspora resources (Diaspora bonds and remittance-backed bonds) could be seen as active management of the treasury as an instrument to finance the economy of ECCAS member countries.
  2. Linking climate finance and development finance can enhance development impact by allowing the fight against poverty to take climate effects into account and vice versa. Comprehensive a) carbon pricing policies, b) the removal of inefficient fuel subsidies, and c) cap-and-trade schemes are promising options to mobilize larger and higher-return investments.
  3. Reallocation of untargeted and inefficient energy subsidies to social safety net programs. Simply increasing public spending is unlikely to lead to better outcomes in countries suffering from poor governance.
  4. Harnessing Sustainable Streams of Natural Resource Revenue.Capacity constraints often prevent ECCAS countries from effectively and efficiently obtaining revenues from extractive industries. Investments in natural resources commonly involve high sunk costs for a project that can last decades. Rents can be substantial and represent a large share of the home country’s GDP and government revenue. Natural resource-rich countries like those of ECCAS sub region could improve their capacity to negotiate fair contracts in extractive industries.To help ECCAS countries retain more of its natural resource rents, ECCAS governments must pursue initiatives like the Extractive Industries Transparency Initiative (EITI) that promote greater transparency in revenue flows and contract disclosure.
  5. Subsidy Reform. Subsidy reform is one of the main areas in which public resources can be redirected to more effective uses.It is not only important for mobilizing domestic resources but also for getting incentives right. While it is important to remove harmful subsidies, increasing subsidies for activities with positive externalities might be the proper course of action. An extensive body of research has demonstrated that food and fuel subsidies are often poorly targeted and end up disproportionately benefiting the wealthy and middle class. It is important to explore the steps needed to remove harmful subsidies, thereby freeing public resources that can then be directed towards investments with higher social returns. Energy subsidiesparticularly fossil fuel subsidies are costly, and these costs are quantifiable and can be measured. Despite their negative environmental impacts, subsidies artificially increase the incentives for using fossil fuels.
  6. Procurement.Beyond increasing value for money, good practices in procurement can bring additional benefits to ECCAS countries, including the development of domestic industries and services; better service delivery, e.g., through sound management of PPP contracts in several sectors (health, education, power distribution, and water and sanitation); and transparency, including through public participation in procurement at the local level through community driven development approaches. In this sub section the project will look at feasible procurement reforms in ECCAS countries to achieve new financing schemes. Reforms may require new legislation, identifying and eliminating antiquated regulations, and intervention throughout the entire project cycle, from design to planning, tendering, contract execution, and completion.
  7. Emerging Sources.Given the scarcity of bank lending for infrastructure, the development of non-bank financing for infrastructure is now emerging as the new imperative. International financial markets present a largely untapped pool of capital to finance infrastructure; and institutional investors have the potential to provide an additional source of long term finance. It is important to explore some of these untapped schemes that fit the ECCAS environment and the level of the sub region external debt.
  8. Institutional Investors, including Sovereign Wealth Funds.With their growing assets under management and their ability to provide long-term finance, institutional investors, such as pension funds, insurance companies, mutual funds, or sovereign wealth funds (SWF) have potential as pools of non-bank capital for emerging markets infrastructure.
  9. Carbon Markets.A market that is created from the trading of carbon emission allowances to encourage or help countries and companies to limit their carbon dioxide (CO2) emissions. This is also known as emissions for carbon trading. Carbon emissions trading is a way of reducing greenhouse gases produced by polluters. A relatively novel instrument to generate climate finance can be found in cap-and-trade schemes, which set a limit to the overall emissions, thereby creating carbon credits (emission allowances). Any surplus carbon credits can be traded at carbon markets, thereby generating a new revenue stream for ECCAS countries. Similarly, project developers can invest in low-emissions projects (so far mainly renewable energy, energy efficiency, waste management, and reforestation) generating carbon-offsets which can be sold at voluntary carbon markets to private consumers and companies who want to reduce their carbon footprint.

This source will envisions two major market-based options that currently exist, the carbon trading over its rival, the carbon tax. In short, carbon trading, sometimes called emissions trading, is a market-based tool to limit GHG. The carbon market trades emissions under cap-and-trade schemes or with credits that pay for or offset GHG reductions. Cap-and-trade schemes are the most popular way to regulate carbon dioxide (CO2) and other emissions. The scheme’s governing body begins by setting a cap on allowable emissions. It then distributes or auctions off emissions allowances that total the cap. Member firms that do not have enough allowances to cover their emissions must either make reductions or buy another firm’s spare credits. Members with extra allowances can sell them or bank them for future use. Cap-and-trade schemes can be either mandatory or voluntary. It must be mentioned that a successful cap-and-trade scheme relies on a strict but feasible cap that decreases emissions over time. If the cap is set too high, an excess of emissions will enter the atmosphere and the scheme will have no effect on the environment. A high cap can also drive down the value of allowances, causing losses in firms that have reduced their emissions and banked credits. If the cap is set too low, allowances are scarce and overpriced.

  1. Diaspora BondsDiaspora resources via Diaspora bonds and remittance-backed bonds—have the potential to be viewed as active management of the treasury as an instrument to finance the economy of ECCAS member countries that ECCAS sub region want to launch. It is necessary to look the feasibility of ECCAS countries Diaspora bond that could have a greater chance of success if the proceeds were to finance projects which interest overseas migrants,such as housing, schooling, hospitals, and community infrastructure projects that could benefit them and/or their families, or their region in their homeland. It also fits with the concept of delivering results.


Regional coordination within the ECCAS sub region can help mitigate spillovers from tax competition, although this requires political commitment and an effective supranational enforcement mechanism, something that is often lacking in the regional economic community. Because, common reporting standards and data collection can be an important first step toward coordination and enhanced transparency. This initiative is an attempt to sketch a blueprint for financing development for the construction of basic infrastructure: roads, bridges, schools, low cost housing, and sports facilitiesin a world with increasingly scarce concessional resources and in an environment where access to long-term financing for development has become more difficult. The challenge for ECCAS countries is to make the sub region more attractive destinations for resource from the private-sector and donors. The sub region can do this by improving the effectiveness with which existing resources are used, enhancing domestic resource mobilization and by making strides to develop and access new sources of financing. This will require a foundation of good polices, supported by the institutional capacity to implement them.


Gesellschaft für Internationale Zusammenarbeit (GIZ), (2015), Good Financial Governance in Africa. Report done on June 2015.

Mua, K, K, (2016), What can states do when fiscal revenue cannot finance the economy alone?

available at: accessed on the 20th January 2017.

Zafar, Ali and Keiko Kubota, (2003), Regional Integration in Central Africa: Key Issues. Africa Working Paper Series No. 52. The World Bank. June.

[1] In March 1993 the ECCAS countries set up a special committee on multilateral surveillance (Conseil de convergence) to ensure fiscal discipline and to promote macroeconomic convergence. The establishment of this Committee was the first step toward a full-fledged multilateral surveillance framework. On a quarterly basis, the Committee conducts regional surveillance which includes a review of the following four fiscal indicators or “criteria for convergence”: basic budget balance to be zero or positive and the annual rate of inflation to be below 3%;


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