Statement by Mr. Mohamed-Lemine Raghani, Executive Director for the Central African Economic and Monetary Community (CEMAC) and Mr. Regis N’Sonde, Senior Advisor to the Executive Director Executive Board Meeting December 17, 2018

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

1. On behalf of our CEMAC authorities, we wish to thank the Executive Board, Management and Staff for the continued support to CEMAC since the adoption in December 2016 of the regional strategy to exit the crisis. Our authorities are grateful for the constructive dialogue with Management and Staff, and for the renewed commitment to support their efforts in addressing the daunting macroeconomic challenges facing the region in a context of security tensions, notably continuous terrorist threats in three of the six countries.

2. Since the inception of the regional strategy—and even more so after the last Board meeting on CEMAC common policies last June—significant progress has been made by member countries and regional institutions on fiscal, monetary and financial sector policies needed to achieve the objectives of the regional strategy. Their efforts, supported by development partners, have been successful in adverting a full-blown crisis with tremendous consequences. However, while four countries are implementing Fund-supported programs as part of the regional strategy, two countries have yet to formally benefit from such support, namely Equatorial Guinea and Republic of Congo which account for 15% and 11% of CEMAC’s GDP respectively. Moreover, the regional authorities recognize that more remains to be done to diffuse uncertainties about the effectiveness of the regional efforts notably regarding the quality and sustainability of fiscal consolidation, closing the gap in external buffers, and restoring confidence.

3. It is in this context of uncertainties that the Extraordinary Summit of CEMAC Conference of Heads of State took place in N’Djamena in last October. Fully aware of the challenges facing the region, the Heads of State have, in a public Resolution, renewed their firm commitment to an orderly, concerted and solidary exit from crisis. In this vein, they have reiterated their commitment to enhance the monetary cooperation between the six countries and to the strict respect of its regulations. They have formulated clear and specific guidance to national authorities and regional institutions and called on the international financial community and development partners to step up their support to further invigorate the regional strategy.

4. Guided by this resolution, CEMAC institutions intend to build on the good progress made thus far by the regional central bank (BEAC), the regional banking supervisory body (COBAC), and the CEMAC Commission in supporting the strategy. The two former institutions have provided policy assurances consistent with their respective mandates through a Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries. Regional authorities share staff’s assessment of the situation, outlook, and significant risks facing the region, as well as their recommendations to sustain the external viability and economic resilience of CEMAC members. They call on the Fund and development partners to strengthen their support at this critical juncture.

Recent Developments and Outlook

5. Oil GDP has rebounded more than expected in the region in 2018. However, overall growth, while improving, remains insufficient to rebuild significant policy space and buffers as it is projected at 2.2 percent this year. Inflation is under control, below 2 percent at end-year. Higher oil exports have helped improve the external current account and overall balance of payments which recorded significantly lower deficits. Nevertheless, large shortfalls in external financing notably due to delays in the adoption of Fund-supported programs for Congo and Equatorial Guinea have left net foreign reserves at levels below expectations.

6. On the fiscal front, the four countries implementing Fund-supported programs and the one under staff-monitored program (SMP) have continued to register satisfactory performance, with next program reviews for Cameroon, Gabon, Central African Republic and Chad expected to be completed in December 2018 and Equatorial Guinea’s fiscal performance assessed positively under the second review of its SMP. The region as a whole is expected to meet targets on non-oil fiscal balances albeit some difficulties encountered by few countries in boosting non-oil revenue. Encouraging progress has also been made by all CEMAC countries in net arrears repayments.

7. Regarding monetary policy, the BEAC, consistent with policy assurances provided in June 2018, has tightened its policy stance by raising the policy rate last October and, along with COBAC, strengthened the enforcement of foreign exchange regulations—including through sanctions imposed to non-complying banks—in face of shortfalls in reserves accumulation. As a result, banks have reduced their foreign assets position and surrendered them to the BEAC. Nonetheless, the central bank stresses that more need to be done to enforce the repatriation of foreign exchange export proceeds. It has made important strides towards enhancing those foreign exchange regulations and plans to submit a draft on stronger regulations to the adoption of the Central African Monetary Union’s Ministerial Committee by year-end.

8. Despite progress made in net arrears repayments by governments, non-performing loans (NPLs) have risen and hampered banks’ liquidity positions. However, banks in the region are well capitalized except for a few that are under close supervision, two of which COBAC has withdrawn, or requested the withdrawal of licenses. In addition, banks in the region are generally profitable.

9. Looking ahead, the region’s medium-term prospects remain broadly favorable as rightly pointed out in the staff report, with expected gradually recovery of non-oil growth, rapid decline in public debt-to-GDP ratios, and narrowing of current account deficits, which would contribute to gradual reserve accumulation up to 4 months of import coverage by 2020.

10. Conversely, recent oil price developments, if they persist, further delays in the approval of Fund-supported programs for Congo and Equatorial Guinea, or protracted security challenges could jeopardize the success of the regional strategy and deteriorate the economic outlook. Country and regional authorities agree with the need to promptly coordinate necessary corrective actions if any of these risks were to materialize. They commit to remain steadfast in implementing the commonly-agreed and coordinated strategy. However, the materialization of risks would have considerable depressing effects on the already tepid growth, external buffers, and social conditions, and the room for maneuver to cope with large shocks may be limited. In this context, the authorities stress the importance of expanding the policy space, which entails the timely conclusion of financial arrangements for Congo and Equatorial Guinea as well as flexibility in program design to accommodate for adverse oil price movements and heightened security tensions.

Ensuring the Success of the Regional Strategy

11. The regional authorities welcomed the focus of recent discussions with Staff and Management on ensuring that the objectives of the CEMAC strategy and the related regional policy assurances are met. As properly stated in the staff report, there is full agreement between the authorities and staff on the need for: (i) country members to implement thoroughly their fiscal consolidation plans; (ii) BEAC to continue monitoring liquidity conditions and mop up excess liquidity as needed while strictly enforcing enhanced foreign exchange regulations with the overarching objective of rebuilding reserves buffers; (iii) COBAC to finalize and implement its 2019–21 strategic plan focused on risk-based supervision while also revising AML/CFT regulation; and (iv) the CEMAC Commission, along with national authorities, to deepen and improve coordination of efforts to implement the CEMAC Economic and Financial Reform Program (PREF).

12. Regarding fiscal consolidation, regional authorities also agree on the need to improve the quality of adjustment, with greater emphasis on strengthening non-oil revenue mobilization—including through curbing tax exemptions and strengthening tax and customs administrations—and rationalizing fuel subsidies. They also share the view on saving oil revenue windfalls to rebuild buffers or reduce domestic arrears to reinvigorate activity and reduce NPLs in the banking sector. BEAC and COBAC are eager to monitor countries’ arrears repayment plans once they are finalized and provide countries with their assessment of those plans’ macroeconomic impact. Moreover, the ongoing amendment to BEAC’s Charter to tailor government securities used as collateral for monetary operations or reduce central bank refinancing as required by the level of reserves, should help strengthen fiscal discipline and thereby enhance the currency union.

13. On monetary policy, BEAC stands ready to tighten further its policy stance if needed. It will build on the progress achieved in modernizing its monetary policy operational framework and adopt a new accounting system for recording monetary transactions. Work in this area should be finalized by end-year. BEAC welcomes staff’s advice to implement a new bank sanctions framework for monetary operations and for non-compliance with reserve requirements. They also share staff’s view on the need to deepen the interbank market notably by further reducing excess liquidity, developing the trading platform, encouraging the use of repurchase agreements by banks, and widening its interest rate corridor.

14. Regarding the financial sector, the Secretariat General of COBAC (SG-COBAC)’s strategic plan should help strengthen the banking supervision framework, promote timely resolution of troubled banks, encourage banks to implement NPL reduction plans, support the enforcement of the enhanced foreign exchange regulations and that of new microfinance prudential rules, and prepare the transition to Basel II/III and IFRS standards. The banking commission welcomes Fund advice on guiding NPL resolution processes in a proactive manner; minimizing the costs of protracted resolution decisions; ensuring high expertise and independence of COBAC members; and enhancing the SG-COBAC’s effectiveness, including through enhanced human capacity.

15. The region has most incurred the impact of the oil price shock in 2014 because of undiversified economies and the excessive dependence of their commodity exports on extra-CEMAC trade. Therefore, the regional institutions stress the criticality of promoting economic diversification and fostering regional integration. The two complementary actions should contribute to overcoming CEMAC’s macroeconomic challenges. In this vein, besides creating fiscal space for highly needed infrastructure and social spending, the regional authorities are cognizant of the importance of developing domestic markets. The merger of the two stock markets of the region is proceeding well, with the physical unification planned for end-2018 and the alignment of procedures for the new market with best international practices expected for mid-2019. The regional authorities will also continue improving the functioning of public securities markets and the secondary market.

16. On governance, regional authorities welcome staff’s analysis laid out in the Selected Issues paper on the tremendous potential that strengthening governance will have for boosting growth in a sustainable and inclusive manner. They very much appreciate the lines of actions proposed to give priority to more transparency, full disclosures, internal and external audits of the public sector, and full implementation of the system of check and balances contained in the CEMAC legislation. In particular, the CEMAC Commission puts high value on member states improving public resource management and, in this vein, it has decided to create a unit in charge of monitoring and reporting on progress and remaining weaknesses in the implementation of CEMAC directives on PFM.

17. Other structural reforms are envisaged under the PREF, and include measures to ensure the strict compliance of contracts in extractive industries with regional directives on transparency in this sector; improve the business environment; and strengthen regional convergence criteria.

18. Regional institutions see merits in reinforcing the monitoring of the regional strategy implementation. They have agreed on the principle to hold semi-annual tripartite consultations involving national authorities, regional institutions and the IMF to assess progress, at both regional and national levels, in advancing the strategy and to design additional measures to ensure that the strategy’s objectives are met. Regional institutions continue to put emphasis on the need for the Fund to help members harmonize their tax frameworks and strengthen the regional surveillance framework through an increased technical support.


19. The CEMAC region is at a crossroads. While progress has been made in advancing the regional strategy to exit the crisis, further efforts are needed to finalize the negotiations for Fund-supported programs for two remaining countries. CEMAC authorities acknowledge that tackling the impact of the crisis depends on the national and regional authorities’ steadfast implementation of the exit strategy. They however also stress the importance of timely and adequate support from external partners, notably the Fund and other multilateral and bilateral creditors, in achieving success. Therefore, they call on the international financial community to provide needed financing assurances for CEMAC countries and step up their financial and technical assistance. We would greatly appreciate Board’s support to the CEMAC authorities’ requests.