IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs

Common Policies of Member Countries, and Common Policies in Support of Member Countries Reform Programs-Press Release; Staff Report; and Statement by the Executive Director


Common Policies of Member Countries, and Common Policies in Support of Member Countries Reform Programs-Press Release; Staff Report; and Statement by the Executive Director

  • Continued efforts by CEMAC member states and regional institutions have helped avert an immediate crisis but the regional economic situation remains challenging.

  • Member states and regional institutions will need to fully implement their policy and reform commitments to restore the region’s external stability and achieve higher and inclusive growth.

On December 17, 2018, the IMF Executive Board concluded the annual discussions with the Central African Economic and Monetary Community (CEMAC) on Common Policies of Member Countries and Common Policies in Support of Member Countries Reform Programs.

CEMAC’s economic situation remains challenging. Economic growth in the region, which declined substantially after the oil price slump of 2014, remains sluggish and has not yet picked up as expected. Non-oil growth is projected to decline in 2018 to 1.0 percent (from 2.6 percent in 2017). A larger-than-expected rebound in oil GDP (+7.3 percent) would nevertheless contribute to an increase in overall growth, from 1.0 percent in 2017 to 2.2 percent in 2018. While increasing, inflation would remain low, at about 2 percent at end-year. The situation of the banking sector remains difficult, owing to large government arrears. Non-performing loans continued to rise to 17 percent at the end of September 2018, while several banks continue to fail to meet certain prudential ratios.

The Bank of Central African States’ (BEAC) net foreign assets were lower than expected at end-September and are expected to remain so until the end of the year, despite rising oil prices and the efforts of BEAC and the Central African Banking Commission (COBAC) to strengthen the enforcement of foreign exchange regulations. This largely owes to delays in the adoption of IMF-supported programs and of the disbursement of the related external budget support with Congo and Equatorial Guinea. At the same time, the budgetary efforts of countries with IMF-supported programs are broadly in line with expectations. For the region as a whole, the non-oil deficit at the end of 2018 should be in line with expectations, while the overall balance would exceed expectations on account of higher oil revenues.

The medium-term outlook continues to see a gradual improvement in the economic and financial situation. Reforms to improve the business environment and governance and strengthen the financial sector, along with a lower drag from fiscal adjustment and the repayment of government arrears would contribute to the gradual recovery of non-oil growth, to 4½ percent by 2021. The overall fiscal balance (excluding grants) would be close to balance from 2019 onward, reflecting a further reduction in the non-oil primary fiscal deficit. Public debt would decline significantly, from almost 50 percent of GDP at end-2018 to less than 44 percent of GDP by end-2020. A further decline in the current account deficit to around 1½ percent of GDP in 2018–20 (compared to 4 percent of GDP in 2017) would contribute to a gradual accumulation of reserves, with reserve coverage reaching almost 4 months of imports by 2020. This outlook is predicated on the full implementation of policy commitments by CEMAC member states and regional institutions and is subject to substantial downside risks, including: further delays in the approval of financial arrangements with the Republic of Congo and Equatorial Guinea; lower oil prices; and tighter global financial conditions.

Executive Board Assessment:

“Executive Directors noted that progress under the regional strategy helped avert an immediate crisis but that the strategy has yet to fully deliver on its objectives, with underperforming regional reserves and still sluggish non-oil growth. Directors stressed that improvement in the regional economic and financial situation over the medium term depends critically on full implementation of policy commitments by CEMAC member states and regional institutions and adoption of Fund supported programs by the Republic of Congo and Equatorial Guinea. Directors urged the authorities of these member countries to redouble their efforts to meet the preconditions for a Fund arrangement.

Directors urged CEMAC national authorities to continue to implement strictly their fiscal consolidation plans and promptly address any fiscal slippages. This is critical to rebuilding adequate fiscal and reserve buffers and putting public debt firmly on a declining path. Directors stressed the need to improve the quality of consolidation by enhancing non-oil revenue mobilization. They also emphasized the importance of finalizing and implementing arrears repayment plans. Member states must also support BEAC and COBAC’s enforcement of the foreign exchange regulations, including by enhancing transparency in extractive industries, and ensuring the domiciliation of export proceeds and the repatriation and surrender of foreign assets by all public entities.

Directors welcomed the corrective actions implemented to address NFA underperformance, especially the increase in BEAC’s policy rate and the enforcement by COBAC and BEAC of banks’ foreign exchange position limits. Directors also welcomed the substantial progress toward completing the modernization of the monetary policy operational framework and the drafting of new foreign exchange regulations, which, as they become fully effective, will help strengthen monetary policy transmission and contribute to bringing NFA accumulation back on track.

Directors considered that, following the recent tightening, the monetary policy stance appears adequate, but stressed that BEAC should stand ready to tighten it further if required to support the regional strategy. They also encouraged BEAC to pursue its efforts to develop the interbank market, including by further reducing excess liquidity.

Directors encouraged the Secretariat General of COBAC (SG COBAC) to make risk-based supervision the focal point of its 2019–21 strategic plan, which should also aim at strengthening the supervisory framework and tools, ensuring prompter resolution of distressed banks, and prompting banks to prepare and implement NPL reduction plans. Reinforcing SG COBAC’s human resources would be key to meeting these objectives.

Directors noted that a poor business environment and high perception of corruption continue to hinder growth. They encouraged the national and regional authorities to intensify efforts to restore sustained inclusive growth and foster diversification, including by improving governance, public financial management, and AML/CFT supervision; promoting regional integration; and supporting the development of financial markets.

Directors noted the substantial progress made by BEAC and COBAC against policy assurances provided in the June 2018 follow up Letter of Policy Support on: (i) completing the modernization of the monetary policy operations framework, and (ii) submitting for adoption to the UMAC ministerial committee revised foreign exchange regulations, both of which are expected by end 2018. They considered that BEAC and COBAC have taken satisfactory corrective measures to address the end June 2018 NFA underperformance. They further endorsed the updated policy assurances outlined in the December 2018 follow up Letter from the BEAC Governor on achieving the projected NFA accumulation based on BEAC’s commitment to implement an adequately tight monetary policy together with commitments by member states to implement adjustment policies in the context of Fund supported programs. Directors emphasized that implementation of these policy assurances continues to be critical for the success of Fund supported programs with CEMAC member countries.

The views expressed by Directors today will form part of the Article IV consultation discussions on individual members of the CEMAC that take place until the next Board discussion of CEMAC common policies. It is expected that the next discussion of CEMAC common policies will be held on the standard 12-month cycle.”