Statement by Mr. Mohamed-Lemine Raghani, Executive Director for the Central African Economic and Monetary Community (CEMAC) and Mr. N’Sonde, Senior Advisor to the Executive Director December 13, 2019

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


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

On behalf of the CEMAC authorities, we express our appreciation to staff, Management and the Executive Board for the continued support to CEMAC countries and institutions notably in fending off the crisis triggered by the 2014–15 downfall of global oil prices and exacerbated by security challenges.

Under the implementation of Fund-supported programs and pre-program adjustment efforts, significant progress has been achieved by member countries in fiscal consolidation and jump-starting growth, although significant work remains to be done on the structural front to strengthen resilience. These efforts, sustained by regional institutions policies, notably the regional central bank (BEAC), banking supervisory body (COBAC) and CEMAC Commission, have started to yield appreciable results as evidenced in the gradual restoration of macroeconomic stability and rebuilding of external reserves. In addition, the solidary nature of the regional strategy to exit the crisis has advanced, with entry into IMF-supported program of Congo last July and positive prospects for a program for Equatorial Guinea by year-end.

Going forward, the CEMAC authorities intend to pursue their adjustment and reform agenda at both national and regional levels. They are cognizant that recent performance remains fragile considering the global uncertainties and elevated downside risks. Against this backdrop, the Second Tripartite discussions held in Yaoundé on October 2nd, 2019, issued recommendations to stay the course with the regional strategy and take corrective measures as needed.

Encouraged by the progress made thus far and aware that the sub-region is at a cross-roads, CEMAC Heads of State and government, in their Extraordinary Summit of November 22, 2019 held in Yaoundé, have reiterated their firm commitment to maintain the reform momentum in a collective and solidary manner, with a view to reinforce macroeconomic stability, boost growth and strengthen the external viability of the monetary and economic union.

Recent Developments and Prospects

While economic activity has remained below pre-crisis levels, overall regional growth has increased to reach 2.5 percent in 2018, with non-oil growth standing at 1.8 percent. The somewhat subdued activity is attributable to fiscal consolidation—which has been geared in large part towards investment reduction—the impact of domestic arrears on private sector activity, and security problems in some countries. Growth is expected to remain at this level in 2019 with however a pick-up in non-oil growth. Inflation which rose to 3 percent on the back of food supply shocks in some countries and price adjustments to reduce subsidies, decelerated to below 2 percent (y-o-y) at end June and should remain subdued at year-end.

CEMAC countries have pursued strong fiscal adjustment efforts throughout 2019. Indeed, in the first half of 2019, fiscal deficit targets have been met thanks to some progress made in revenue mobilization—albeit below expectations—and strong expenditure reduction. Non-oil fiscal deficit as a percentage of non-oil GDP continues to decline, albeit difficulties in some countries which have been promptly corrected. The overall fiscal deficit is also anticipated to improve by around 1 percent of GDP, in line with projections, to reach a position close to balance. These fiscal policy efforts have helped bring the regional public debt-to-GDP ratio down to slightly below 50 percent.

BEAC has continued a tight monetary policy stance since its decision in October 2018 to increase its policy rate by 55 basis point, with a view to sustain the accumulation of external reserves The Monetary Policy Committee maintained the rate at 3.5 percent at its November 2019 meeting. The central bank adopted a gradual approach to reducing liquidity injections even though excessive liquidity in the banking sector could not be significantly lowered owing to autonomous factors and very prudent lending practices on the part of banks. This gradual approach has nevertheless pushed the weighted average auction rate up and improved banks’ use of the marginal lending facility.

External current account deficits have continued to improve to 2.6 percent of GDP in 2018 against 4.6 percent in 2017 and should further decrease in 2019. Gross reserves have accumulated to a level covering 3.3 months of imports of goods and services, on the back of the restrictive macroeconomic policy mix, enhanced enforcement of foreign exchange regulations, and relatively stable oil prices.

BEAC and COBAC have met all their policy assurances provided in June 2019 in support of CEMAC country programs, notably: (i) the implementation of the enhanced foreign exchange regulations; (ii) the implementation of tight monetary policy; (iii) continued modernization of the monetary policy operational framework, with a new framework for private claims accepted as collateral in refinancing operations and the recently-adopted regulation setting a sanction framework for BEAC’s counterparties; and (iv) the achievement of the June 2019 regional target on net foreign assets (NFAs), which has been largely exceeded.

Pursuing the Regional Strategy

Looking forward, the medium-term outlook in CEMAC remains favorable, with notably: (i) growth expected to reach 3.5 percent in 2020 and 2021, pulled by non-oil activity; (ii) inflation projected to remain below the 3-percent convergence threshold over the medium term; (iii) a gradual decline in public debt-to-GDP ratios to reach an anticipated regional average below 40 percent by 2023; (iv) a narrowing of external imbalances slightly deteriorating on the grounds of reduced oil export receipts and increased imports in line with non-oil GDP growth; and (v) steady increase in regional NFAs and reserves, which would attain 5 months of import coverage by 2022.

Our CEMAC authorities are mindful of the fact that these positive prospects are predicated on member countries’ staying the course with their program objectives, especially the pursuit of reductions in the non-oil primary fiscal deficits notably through non-oil revenue mobilization; the progressive repayment of domestic arrears and improvements in governance and the business climate to foster confidence and support non-oil activity; and strict enforcement of foreign exchange regulations. Support to balance-of-payments needs under Fund-supported programs and budgetary assistance by other development partners will also carry weight.

At the country level, our authorities commit to: (i) adhere to non-oil budget targets under their respective Fund-supported programs; (ii) accelerate the audits of the stock of public arrears and set up strategies to reduce these arrears; (iii) maintain efforts to achieve a prompt and regular repatriation of commodity export earnings and assets held abroad by state-owned enterprises; and (iv) support BEAC’s implementation of the new foreign exchange regulation, notably through the transmission of mining and oil production contracts to the central bank.

At the regional level, BEAC is committed to preserve a tight monetary policy stance to support reserves accumulation and contain inflation to ensure the currency’s internal and external stability. It will also issue by the end of the year additional guidelines to revise eligibility criteria for accessing money market operation and define its own intervention procedures. Regarding liquidity management, the central bank will continue to favor a gradual reduction of liquidity injections and will conduct initially small absorption operations in January 2020. It stands ready to recalibrate absorption instruments after evaluating the initial feedback of absorption operations and the effect of the single treasury account reform in some member countries which are expected to reduce excess liquidity in banks.

As stated in the BEAC’s Follow Up to the Letter of Support to the Recovery and Reform Program Undertaken by the CEMAC Member Countries (Appendix I to the staff report), the central bank has issued specific measures to operationalize the enhanced foreign exchange regulations and will continue its outreach efforts to promote its smooth implementation. In particular, consultation meetings are being held with operators in the extractive sectors in the six countries to explain the regulation and will continue dialogue as needed. In addition to transmission of mining and oil contracts, BEAC is also requiring member countries to revise their national regulations as necessary to align them with the regional regulations.

In spite of a stabilization in the quality of banks’ portfolio, non-performing loans (NPLs) remain a source of concern in CEMAC. In addition, the solvency and liquidity ratios of banks have deteriorated somewhat since end 2018. Against this backdrop, the regional banking commission COBAC views risk-based supervision as essential to ensuring financial stability. The Secretariat General of COBAC (SG-COBAC) has defined its priority actions for the coming months, which are embedded in its 2019–2021 strategic plan and centered around overhauling processes and tools to implement such a modern supervision, modernizing prudential norms and stepping up efforts against money laundering and terrorism financing. The SG-COBAC is addressing head-on NPLs and promoting the repair of banks’ balance sheets by notably requiring troubled banks to submit an NPL reduction plan and continuing to prepare the transition to Basel II/III and IFRS standards.

The regional development bank (BDEAC) underscored efforts in its improving governance and advancing internal control reforms, including the operationalization of the audit committee. This progress should contribute to strengthening its financial health and reinforce its financial independence vis-à-vis central bank.

The CEMAC Commission puts value in strengthening its regional surveillance framework notably to ameliorate member states’ compliance with convergence criteria, and, in this connection, it is requiring member countries to submit a triennial convergence program and credible domestic arrears clearance plans by end-2019. It is also elaborating a binding sanction scheme applicable in cases of breach of norms, which first draft could be ready in early 2020, In addition, an early warning tool to detect macroeconomic imbalances in a promptly manner is in preparation, with the assistance of World Bank and IMF.

The regional authorities consider bolstering economic diversification and regional integration as critical to enhance resilience and sustain growth. The regional reform program (PREF-CEMAC) envisions a strict compliance of extractive industries with the regional directives on transparency and measures to improve the business environment. The CEMAC Commission appreciate the reform priorities discussed with staff, notably pertaining to governance, the business climate, the contribution of the financial sector to private sector development and financial inclusion, regional taxation and internal barriers to trade.


Our CEMAC authorities remain committed to the regional strategy to exit the crisis. This strategy, which is fully supported by the Fund and other partners has started to bear fruit. The authorities have provided new policy assurances to support member states’ actions to strengthen macroeconomic stability and the stability of the currency union. They appreciate Fund’s continued support to all member countries of CEMAC and continue to stress the importance of timely disbursements of budget assistance committed by other external partners.