Abstract
IMF Country Report No. 22/13
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IMF Country Report No. 22/13
CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC)
CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY—COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS—PRESS RELEASE, STAFF REPORT, AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY
January 2022
In the context of the common policies of member countries, and common policies in support of member countries reform programs, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on December 10, 2021, following discussions with regional institutions that ended on November 5, 2021. Based on information available at the time of these discussions, the staff report was completed on December 1, 2021.
A Statement by the Executive Director.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PR21/380
IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs
FOR IMMEDIATE RELEASE
IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs.
The almost two-years pandemic-related crisis has left CEMAC with a fragile external position.
A tighter policy stance, high oil prices, and Heads of States renewed commitments to accelerate structural, transparency and governance reforms are expected to support a stronger external position from 2022, as the region recovers from the crisis.
Washington, DC – December 16, 2021: On December 10, 2021, 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 Programs1.
CEMAC experienced a smaller-than-anticipated economic contraction in 2020, as non-oil activity recovered in late 2020, supported by the relaxation of containment measures and stronger fiscal stimulus. A progressive recovery is expected to have started in 2021 with growth reaching 1.9 percent of GDP in 2021. The overall fiscal deficit (excluding grants) is projected to narrow by 0.5 percentage points to 2.7 percent of GDP in 2021 compared to 2020, while public debt would decline by 3.8 percentage points, to 56.2 percent of GDP in 2021.
Despite a more favorable external environment, marked by the rebound in global growth, fast-increasing oil prices, and unprecedented Fund financial support, including the SDR allocation, CEMAC is ending 2021 in a fragile external position with external reserves just slightly above three months of prospective imports. After a sharp deterioration in 2020, the external current account deficit is expected to improve significantly, primarily driven by the rebound in global oil prices, and reach 2.1 percent of GDP in 2021.
The regional and national authorities started to tighten the policy mix in 2021. BEAC strengthened its liquidity management framework, resuming liquidity absorption operations; the central bank also unwound the relaxation of the collateral framework for government securities adopted at the onset of the crisis, bringing haircuts back to their pre-pandemic levels; and phased out the government securities purchase program, as planned, at end-August. In November 2021, BEAC tightened monetary policy, increasing the policy rate by 25 basis points, and raised the rate of its liquidity absorption window in December. Prudential regulation, which was temporarily relaxed to cushion the impact of the crisis on the financial sector, is also being progressively normalized, with the capital requirement being increased by 50 basis points in August 2021. At the national level, the resumption of Fund-supported programs with Cameroon and Gabon and prospects for new programs with Chad and Congo helped secure commitments to fiscal consolidation and broader reforms.
Higher oil prices, strong global growth, and significant fiscal adjustment should contribute to stronger overall external balances and foreign reserves accumulation in 2022. Growth is expected to rebound to 2.8 percent in 2022 and continue to pick up gradually to around 4.1 percent in the medium term, mostly due to stronger growth in the non-oil sector, as reforms to improve governance, transparency, and the business climate are assumed to slowly take hold. The recovery in oil prices coupled with stronger revenue mobilization efforts should help narrow fiscal deficits and curb debt levels significantly by 2024. Inflation is projected to stay below the regional convergence criterion of 3 percent as monetary policy would remain appropriately tight to support the external position. Reserves are projected to reach the equivalent of five months of imports by 2026. This outlook assumes the continuation of IMF-supported programs with Cameroon, Gabon, the Central African Republic and Equatorial Guinea, and approval of two IMF-supported programs with Chad (2021) and Congo (2022).
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They noted that despite a more favorable external environment and unprecedented Fund financial support, CEMAC’s external position remains fragile. Against this backdrop, they welcomed the resumption of Fund-supported programs in the region. Directors underscored that a tight macroeconomic policy mix and strong structural reforms that enhance competitiveness are critical to bolster the external position and enable diversified, inclusive, and sustainable growth.
Directors stressed that a carefully calibrated fiscal consolidation is needed to bolster fiscal and external sustainability while safeguarding growth. They recommended mobilizing non-oil revenues and increasing expenditure efficiency to help finance targeted social spending and growth-friendly investments. Directors called for a prudent use of SDR allocations and the fiscal space provided by restructured statutory advances.
Directors welcomed the recent monetary policy tightening, which should help stem the decline in reserves and contain inflationary expectations. They generally agreed that further tightening would be needed if international reserves continued falling. Directors recommended returning to the pre-crisis liquidity management framework and restricting normal liquidity operations to solvent banks. They welcomed the central bank’s commitment to not extend direct monetary financing to its member states. Directors noted that the implementation of the foreign exchange regulation would support foreign reserve accumulation.
Directors supported the planned withdrawal of the temporary relaxation of prudential regulations. They underscored the need to move towards risk-based supervision, contain risks stemming from banks’ sovereign exposure, address high non-performing loans, strengthen regulatory compliance, and accelerate bank resolution.
Directors welcomed the reform momentum generated by the Summit of the Heads of States of CEMAC. They called on the authorities to accelerate the implementation of structural, transparency, and governance reforms. In particular, Directors called for ensuring full transparency in public finances and the hydrocarbon sector. They also recommended strengthening the regional surveillance framework.
Directors noted that the Central Bank of Central African States (BEAC) was unable to fully implement the policy assurance on accumulation of net foreign assets (NFA) at end-June 2021, which had been provided in the June 2021 Follow-Up Letter of Policy Support, due to a shortfall in external financing. They considered that BEAC has taken the necessary corrective actions to address the underperformance. Directors endorsed the updated policy assurance on NFA accumulation for end-December 2021 and end-June 2022 outlined in the November 2021 Follow-Up Letter from the BEAC Governor. This assurance is 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 this assurance is critical for the success of Fund-supported programs with CEMAC member countries.
The views expressed by Directors will form part of the Article IV consultation discussions on individual members of the CEMAC that will take place until the next Board discussion of common policies. It is expected that the next discussion of CEMAC common policies will be held on the standard 12-month cycle.
Title page
CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC)
STAFF REPORT ON THE COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS
December 1, 2021
KEY ISSUES
Context and risks. Despite a more favorable external environment, marked by the rebound in global growth, fast-increasing oil prices, and unprecedented Fund financial support, CEMAC is ending 2021 in a fragile external position. Net external reserves fell throughout 2021 to reach their lowest level in decades, and gross reserves are just above three months of imports of goods and services. The launch of a second phase of the regional strategy at the August 2021 CEMAC Heads of States summit saw renewed commitments to accelerate structural, transparency, and governance reforms. The resumption of program engagements with the Fund, combined with high oil prices and significant fiscal adjustments in 2022, should allow for a turnaround, and the build-up in external reserves is expected to resume in 2022. Risks include possible adverse pandemic developments, oil price volatility, possible fiscal slippages, shortfall in external financing, and security issues.
Policy Recommendations.
A tighter policy mix, combined with structural reforms to enhance the competitiveness of the region, is critically needed to bolster CEMAC’s external position.
The region’s external sustainability hinges on sustained fiscal consolidation, in line with existing and prospective IMF-supported programs. Fiscal policies should notably limit the impact of the use of the SDR allocations and the restructuring of statutory advances on reserves.
Monetary policy should also be tightened to stem the decline in reserves and contain excess liquidity. Banks with structural liquidity needs and/or difficulties meeting prudential requirements should reduce their reliance on liquidity injections, and/or be restructured.
In addition to the ongoing normalization of the prudential framework, COBAC (Central Africa Banking Commission) should improve regulatory compliance and accelerate bank resolution.
CEMAC must decisively accelerate structural, transparency, and governance reforms to lay the basis for a diversified, inclusive, and sustainable growth.
Approved By
Vitaliy Kramarenko (AFR) and Gavin Gray (SPR)
Discussions were held virtually from October 20 until November 5, 2021. The Staff team comprised Ms. Lahreche (head), Mr. Lautier, and Ms. Martin (all AFR); Mr. Portier (MCM); and Mrs. Balta (SPR). It was assisted by Messrs. Gomez and Staines (Resident Representatives in Gabon and Cameroon), and Mr. Ambassa (local economist in Cameroon). Mr. Andrianarivelo, Mr. Nguema Affane and Mr. N’Sonde (all OED) also attended the discussions. The mission held discussions with Mr. Abbas Mahamat Tolli, Governor of the Central Bank of Central African States (BEAC and Chairman of COBAC); Prof. Clément Belibanga, Commissioner for Economic, Monetary, and Financial Affairs (CEMAC Commission); Prof. Djiena Wembou (Secretary General of the Economic and financial Reforms Program (PREF) CEMAC); Mr. Halilou Yerima Boubakari (Secretary General of COBAC); and other senior officials of these institutions, as well as with representatives of financial institutions. This report was prepared with the assistance of Ms. Adjahouinou.
This is a report on the common policies in support of CEMAC member countries’ IMF-supported programs. Throughout the report, the term “authorities” refers to regional institutions responsible for common policies in the currency union.
Contents
BACKGROUND AND RECENT DEVELOPMENTS
A. Background
B. Recent Developments and Outlook
MEDIUM-TERM OUTLOOK AND RISKS
IMPLEMENTATION OF THE REGIONAL STRATEGY TO ADDRESS THE CRISIS
A. Fiscal Consolidation Efforts
B. Monetary Policy Stance and Operations
C. Enforcement of the Foreign Exchange Regulation
D. Financial Sector Policies and Reforms
E. Enhancing the Regional Surveillance Framework
REFORMS FOR HIGHER AND MORE INCLUSIVE GROWTH
MONITORING OF REGIONAL DEVELOPMENTS AND POLICIES
STAFF APPRAISAL
FIGURES
1. Selected Economic Indicators, 2000–21
2. Selected Economic Indicators, 2006–25
3. Monetary Indicators
TABLES
1. Selected Economic and Financial Indicators, 2016–26
2. National Accounts, 2016–26
3a. Balance of Payments, 2016–26 (Billions of CFA francs)
3b. Balance of Payments, 2016–26 (Percent of GDP)
4a. Fiscal Indicators, 2016–26 (Percent of GDP)
4b. Fiscal Indicators, 2016–25 (Percent of Non-oil GDP)
5. Compliance with Convergence Criteria, 2016–26
6. Monetary Survey, 2016–26
7. Summary Accounts of the Central Bank, 2017–26
8. Net Foreign Assets of the Central Bank, 2016–26
9. Financial Soundness Indicators, 2015–21
10. Financing Needs and Sources, 2020–23
ANNEXES
I. External Sustainability Assessment
II. Risk Assessment Matrix
III. Response to Past IMF Advice
IV. Treatment and Use of the SDR Allocations
V. Heads of States Summit on Macroeconomic Situation in CEMAC and Recovery Measures
APPENDIX
I. Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of these bilateral Article IV consultation discussion, staff hold separate annual discussions with the regional institutions responsible for common policies in four currency unions – the Euro Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collects economic and financial information, and discusses with officials the currency union’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board. Both staff’s discussions with the regional institutions and the Board discussion of the annual staff report will be considered an integral part of the Article IV consultation with each member.
At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
