Abstract
IMF Country Report No. 23/1
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IMF Country Report No. 23/1
CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC)
STAFF REPORT ON 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
January 2023
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 20, 2022, following discussions with regional institutions that ended on November 15, 2022. Based on information available at the time of these discussions, the staff report was completed on December 7, 2022.
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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Press Release
PRESS RELEASE
PR 22/457
IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs
FOR IMMEDIATE RELEASE
The positive terms-of-trade shock amidst the f allout from Russia’s war in Ukraine has broadly benef ited CEMAC, reinf orcing its external position and gradual post-pandemic recovery.
Rising global inf lation has passed through to domestic prices, putting pressure on real incomes and threatening food security and tight global financial conditions create headwinds to growth.
A prudent management of the oil windf all and f aster progress on deep structural and governance ref orms are pivotal f or laying the foundations for a more diversif ied, inclusive, and sustainable growth.
Washington, DC: On December 20, 2022, 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 Ref orm Programs.1
CEMAC is broadly benef iting from the positive terms of trade shock amidst the f allout from Russia’s war in Ukraine. Post-pandemic economic recovery is gradually taking hold, with real GDP growth expected to reach 3.4 percent in 2022, mostly supported by high oil prices and the lif ting of COVID-19 containment measures. External reserves have started to build up (though still short of the desired level), with gross reserves expected to reach 3.5 months of prospective imports at end-2022, thanks to higher oil export revenues and tighter monetary policies. The regional policy assurance on net foreign assets (NFA) for end-June 2022 (EUR 2.81 billion) was met with a good margin (EUR 378 million). Global inf lation pressures have passed through to domestic prices, with regional inf lation expected to reach 4.6 percent by end-2022, putting pressure on real incomes and threatening food security.
Regional authorities tightened monetary policy and normalized prudential regulation in 2022, while continuing to advance the ref orm agenda. The Central Bank (BEAC) increased its policy rate three times in less than a year to respond to inf lationary pressures and support reserves levels. In addition, it reinf orced its liquidity management f ramework, steadily scaling back weekly liquidity injections at its monetary operations window, discontinuing all three long-term liquidity injection operations upon their maturation, and gradually returning to the pre-COVID liquidity management f ramework. The Banking Commission (COBAC) normalized prudential regulation, ending the temporary COVID-related prudential forbearance as planned in July 2022 and increasing the capital conservation buf fer by 50 basis points to 2.5 percent. The CEMAC Commission completed its regional surveillance consultations f or all six member countries in July 2022, af ter the post-COVID resumption in April 2022.
The outlook f or 2023 is broadly positive, driven by high oil prices, the lif ting of COVID-19 containment measures, and assumed continued prudent management of the oil windf all in the context of Fund-supported programs and policy advice. Inf lation is projected to slow to 3.3 percent in 2023 and to revert to below the 3 percent convergence criterion f rom 2024 on, as monetary policy is expected to remain appropriately tight to anchor inf lation expectations firmly and to support the external position. However, this outlook is also subject to headwinds and heightened uncertainties stemming f rom elevated debt vulnerabilities, risks of persistently high inf lationary pressures, the prospect of continued tightening of global financial conditions, and regional security issues. Particularly, the near-term recalibration of f iscal stances, motivated by the desire to cushion the social impact of external shocks, will tend to slow the positive trends in public debt reduction and reserve accumulation.
In the medium term, growth is expected to rise gradually to above 3.5 percent, mostly owing to a stronger rebound in the non-oil sector, as the ref orms to improve governance, transparency, and business climate are projected to bear f ruit progressively. Current high oil prices, if sustained, will help rebuild f iscal and external buf f ers, as well as curb debt levels signif icantly by 2024, provided fiscal policies remain prudent. Public debt is expected to decline to close to 40 percent of GDP by 2026, down f rom about 53 percent of GDP in 2022. After improving in 2022, the current account balance is expected to f all to -1.2 percent of GDP in 2023, and to about -3 percent of GDP over the medium term. Gross reserves are projected to reach about 4½ months of prospective imports by 2026, slightly below staf f ‘s adequate metrics f or a resource-rich monetary union (5 months), assuming a more active management of liquidity and greater foreign exchanges repatriations, including f rom governments, state-owned enterprises, and the extractive sector.
Executive Board Assessment2
Executive Directors welcomed the strengthening of CEMAC’s external position and gradual post-COVID recovery amid the positive terms-of-trade shock linked to Russia’s war in Ukraine. Given headwinds and heightened uncertainties from elevated debt vulnerabilities, persistently high inflationary pressures, tight global financial conditions, and regional security issues, Directors urged CEMAC authorities to manage the oil windfalls prudently, to rebuild buffers and sustain a recovery that protects the most vulnerable, including through reforming energy and food subsidies while implementing targeted social safety nets.
Directors welcomed BEAC’s monetary policy tightening to date and encouraged BEAC to tighten further should it observe evidence of rising inflation, deviations from the targeted reserve path, or fiscal slippages. Directors also encouraged BEAC to work to absorb excess liquidity more effectively and implement the FX regulation transparently and consistently.
Directors encouraged the regional and country authorities in CEMAC to cooperatively resolve the inconsistency between C.A.R.’s cryptoasset law and the CEMAC Treaty. Directors also urged regional supervisors to step up coordination to ensure greater capacity in regulating digital assets, with a view to preserving the single currency, mitigating risks, and protecting consumers, while creating space for legitimate innovation.
Directors welcomed the normalization of prudential regulation and urged COBAC to move to conduct thorough asset quality reviews in the banking sector following the normalization, to better monitor and tackle NPLs, and appropriately address undercapitalized banks. They also advised COBAC to pursue a prudent approach on dividend distribution and to ensure banks account for sovereign risks adequately.
Noting mixed progress in ongoing Fund-supported programs and likely delays in completing a number of upcoming reviews, Directors underscored the importance of accelerating progress on deep structural and governance reforms, which, if coupled with prudent management of the oil windfall, should lay the foundations for a more diversified, inclusive, and sustainable growth.
Directors considered that BEAC met the policy assurance on the NFA for June 2022 provided in the July 2022 follow-up letter, which ref lected inter alia greater FX repatriation and tighter monetary policy. They endorsed the updated policy assurance on NFA accumulation for end-December 2022 and end-June 2023 outlined in the December 2022 Follow-up Letter from the BEAC governor. Directors emphasized that implementation of this assurance is critical for the success of Fund-supported programs with CEMAC member countries.
Title Page
CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC)
STAFF REPORT ON COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS
December 7, 2022
EXECUTIVE SUMMARY
Context and risks. CEMAC is broadly benefiting from the positive terms of trade shock amidst the fallout from Russia’s war in Ukraine. Post-pandemic economic recovery is taking hold, albeit slowly, supported by high oil prices and the lifting of COVID-19 containment measures. External reserves have started to build up, though still short of the desired level, owing in part to costly untargeted energy and food subsidies. Global inflation pressures have passed through to domestic prices, putting pressure on real incomes. Rebuilding buffers and sustaining a recovery that protects the most vulnerable will require stricter adherence to budget and reform plans consistent with Fund-supported programs and policy advice; this will ensure that part of the oil windfall is saved. Implementation of these policies in current favorable conditions is critical to strengthening resilience in the face of rising risks, including most notably to food security, debt vulnerabilities, and tightening of global financial conditions.
Policy Recommendations:
To reduce inflation and secure the NFA targets, stand ready to tighten monetary policy further given prospects of inflationary pressures and further ECB tightening; improve liquidity absorption attractiveness; and continue to implement the foreign exchange (FX) regulations transparently and consistently.
To strengthen fiscal and external stability, ensure a coherent policy mix by saving part of the oil windfall; reform subsidies and provide targeted safety nets to protect poorer groups from high food and energy prices.
To enhance food security and resilience, step up efforts on growth diversification, regional trade integration, non-oil revenue collection, and governance reforms.
To strengthen COBAC’s supervisory capacity, conduct thorough post-COVID asset quality reviews, ensure banks adequately account for the rising sovereign exposure, tackle liquidity-stressed banks, and monitor new risks from digital payments and cybersecurity.
To address risks related to cryptoassets, collaborate on settling the legal inconsistency between C.A.R.’s cryptoasset law and CEMAC Treaty; ensure consistency across regional regulatory frameworks related to digital assets and transactions, and strengthen communication.
Approved By
Vitaliy Kramarenko (AFR) and Geremia Palomba (SPR)
Discussions were held in-person during November 2–4 and November 7–15, 2022, in Libreville (Gabon) and Yaoundé (Cameroon), respectively. The Staff team comprised Mr. Mills (head), Messrs. Tapsoba, Lautier, and Dalmau, and Ms. Belianska (all AFR); Mr. Dehmej (MCM); and Ms. Mendez (SPR). It was assisted by Messrs. Gomez and Staines (Resident Representatives in Gabon and Cameroon, respectively), and Messrs. Nzebi and Ambassa (local economists in Gabon and Cameroon, respectively). The mission held discussions with Mr. Abbas Mahamat Tolli, Governor of the Central Bank of Central African States (BEAC) and Chairman of the banking commission (COBAC); Prof. Djiena Wembou (Secretary General of CEMAC’s Economic and financial Reforms Program (PREF-CEMAC)); senior officials of COBAC, BEAC, the capital markets regulator (COSUMAF) and the regional stock exchange (BVMAC); as well as with representatives of business and banking associations. This report was prepared with Ms. Adjahouinou’s assistance
This is a staff report on common policies of member countries, and 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. CEMAC covers six countries: Cameroon, Chad, Congo, Gabon, Equatorial Guinea, and Central African Republic.
Contents
BACKGROUND AND RECENT DEVELOPMENTS
A. Background
B. Recent Economic Developments
OUTLOOK AND RISKS
BALANCING INTERNAL AND EXTERNAL STABILITY, FOOD SECURITY, AND THE RECOVERY
A. Strengthening Resilience while Protecting Vulnerable Populations
B. Monetary Policy: Balancing Domestic Needs and External Pressures
C. Strengthening Financial Sector Policies and Banks’ Balance Sheets
D. Using Digital Payments for Innovation and Inclusion while Tackling Related Risks
E. Pressing Ahead with the Regional Surveillance Framework
HARNESSING EXTERNAL TAILWINDS FOR GROWTH DIVERSIFICATION AND RESILIENCE
MONITORING OF REGIONAL POLICY ASSURANCES
STAFF APPRAISAL
BOX
1. Inflation Developments
FIGURES
1. Selected Economic Indicators, 2001–22
2. Selected Economic Indicators, 2006–25
3. Recent Monetary Developments
4. An Overall Positive Terms of Trade Shock
TABLES
1. Selected Economic and Financial Indicators, 2017–27
2. National Accounts, 2017–27
3a. Fiscal Indicators, 2017–27 (Percent of GDP)
3b. Fiscal Indicators, 2017–27 (Percent of Non-oil GDP)
4a. Fiscal Indicators, 2016–26 (Percent of Non-oil GDP)
4b. Balance of Payments, 2017–27 (Percent of GDP)
5. Compliance with Convergence Criteria, 2016–27
6. Monetary Survey, 2017–27
7. Summary Accounts of the Central Bank, 2017–27
8. Net Foreign Assets of the Central Bank, 2017–27
9. External Financing Sources, 2017–23
ANNEXES
I. Risk Assessment Matrix
II. Food Security in CEMAC Countries
III. External Sector Assessment
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 consultations, 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, 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’ authorities. An explanation of any qualifiers used in summing up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
