Central African Economic and Monetary Community: Staff Report on the 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
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International Monetary Fund. African Dept.
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Publication Date:
06 Jan 2023
eISBN:
9798400227455
ISBN:
9798400227455
Language:
English
Keywords:
CEMAC region; liquidity injection; BEAC staff; liquidity absorption operation; CEMAC treaty; Oil prices; Global
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1. CEMAC is benefiting broadly from a positive terms of trade shock amidst the fallout from the war in Ukraine, but uncertainties and risks weigh on the outlook. Post-pandemic economic recovery is taking hold, with real GDP growth expected to reach 3.4 percent in 2022, mostly supported by the lifting of COVID-19 containment measures and high oil prices (albeit lower than previously expected). The rise in external reserves has accelerated in recent months, though still short of the desired level, owing in part to costly untargeted food and energy subsidies. Rising global inflation has passed through to domestic prices, putting pressure on real incomes, and increasingly tighter financial conditions create headwinds to growth. Rebuilding buffers, protecting the vulnerable, and sustaining a recovery that protects the most vulnerable will require stricter adherence to budget and reform plans—recalibrated for 2022 and 2023 because of significant concerns about social stability and slow progress on targeted social assistance—consistent with Fund-supported programs and policy advice.

Abstract

1. CEMAC is benefiting broadly from a positive terms of trade shock amidst the fallout from the war in Ukraine, but uncertainties and risks weigh on the outlook. Post-pandemic economic recovery is taking hold, with real GDP growth expected to reach 3.4 percent in 2022, mostly supported by the lifting of COVID-19 containment measures and high oil prices (albeit lower than previously expected). The rise in external reserves has accelerated in recent months, though still short of the desired level, owing in part to costly untargeted food and energy subsidies. Rising global inflation has passed through to domestic prices, putting pressure on real incomes, and increasingly tighter financial conditions create headwinds to growth. Rebuilding buffers, protecting the vulnerable, and sustaining a recovery that protects the most vulnerable will require stricter adherence to budget and reform plans—recalibrated for 2022 and 2023 because of significant concerns about social stability and slow progress on targeted social assistance—consistent with Fund-supported programs and policy advice.

Background and Recent Developments

A. Background

1. CEMAC is benefiting broadly from a positive terms of trade shock amidst the fallout from the war in Ukraine, but uncertainties and risks weigh on the outlook. Post-pandemic economic recovery is taking hold, with real GDP growth expected to reach 3.4 percent in 2022, mostly supported by the lifting of COVID-19 containment measures and high oil prices (albeit lower than previously expected). The rise in external reserves has accelerated in recent months, though still short of the desired level, owing in part to costly untargeted food and energy subsidies. Rising global inflation has passed through to domestic prices, putting pressure on real incomes, and increasingly tighter financial conditions create headwinds to growth. Rebuilding buffers, protecting the vulnerable, and sustaining a recovery that protects the most vulnerable will require stricter adherence to budget and reform plans—recalibrated for 2022 and 2023 because of significant concerns about social stability and slow progress on targeted social assistance—consistent with Fund-supported programs and policy advice.

2. Progress has been mixed in implementing the recommendations from the August 2021 Heads of State (HOS) summit, including advancing governance and transparency reforms. Fund-supported programs are ongoing, although some are experiencing delays in completing reviews. Quarterly reporting to the Secretariat of CEMAC’s Economic and Financial Reforms Program (PREF-CEMAC) points to about 42 percent of the action matrix being implemented through 2022Q3, with heterogeneity across member countries. After resuming in April 2022 (after two years of COVID-related interruption), consultations under CEMAC Commission’s regional surveillance were completed by July 2022 for all six member countries. Findings point to room for improvement (including through addressing capacity constraints), particularly in transcribing regional directives and completing PFM systems modernization reforms (especially: rolling out Treasury Single Accounts and integrated financial information management systems, switching to program-based budgeting, advancing internal and budget controls, and strengthening debt management and arrears clearance strategies). Progress continued on the unified financial market, with an improved public issuance schedule, submissions from member countries (except Chad) of SOEs proposed for listing on BVMAC, and the clarification of the ownership structure of the company managing the single central depository.3 The new sanction mechanism for compliance with the regional convergence framework is yet to be adopted by the HOS Conference.

3. Progress on Fund-supported programs has been mixed, with likely delays in completing a number of upcoming reviews. Program reviews with Cameroon, Congo, and Gabon were concluded in the summer of 2022 largely as expected. However, delays are likely for upcoming reviews, owing to reform implementation challenges and ongoing discussions on recalibrating programs and finalizing corrective actions (particularly on missed structural benchmarks), in light of shocks. A staff-level agreement was reached with Congo on the conclusion of the third review, allowing the preparation of Board consideration in February. The first program review for Chad was delayed by several months because of ongoing debt treatment discussions, while the authorities have implemented policies broadly consistent with the proposed recalibrated program. The recent agreement on debt restructuring under the Common Framework has paved the way for the conclusion of the first and second reviews under the ECF arrangement with Chad. In C.A.R., the 2nd review under the SMP could not be completed, and the SMP was extended to end-September 2022 but subsequently expired. An Article IV mission is planned for December 2022, and discussions continue on a possible ECF arrangement in 2023. An EFF-supported program with Equatorial Guinea was approved in 2019 (with no reviews completed) but is expected to expire in December 2022. The authorities have expressed interest in a follow-up program.

B. Recent Economic Developments

4. The post-COVID recovery has been building gradually amid the positive terms of trade shock. After real GDP growth reached a tepid 1.1 percent in 2021, economic activity strengthened in the first half of 2022. This upturn owes much to a buoyant oil sector in most countries, of which the impact was partly offset by a decline in production in Gabon owing to compliance with the OPEC+ commitments. The non-oil sector also grew moderately, supported by improved non-oil terms of trade (especially manganese, wood, gas), the lifting of COVID-19 containment measures, and spillovers from high oil revenues. After slowing to 2.6 percent at end-2021, inflation has picked up in 2022, as global inflation pressures passed through to domestic prices, notably food prices (Box 1).

5. Fiscal balances improved in 2021, largely thanks to higher oil revenues and somewhat lower spending, although debt vulnerabilities remain elevated. The overall fiscal deficit (excl. grants) narrowed to 1.7 percent of GDP; important causes were expenditure compression in C.A.R. and Equatorial Guinea, as well as higher oil revenue collection, except in Chad, Gabon and C.A.R. These developments led to a decline in public debt to 57.6 percent of GDP at end-2021.4 The non-oil primary fiscal balance (incl. grants) was broadly unchanged from 2020 at about 7 percent of non-oil GDP in 2021, reflecting slower-than-expected progress on non-oil revenue collection owing in part to pandemic-or food-related tax exemptions. The overall fiscal balance (excl. grants) is estimated to have continued to improve in 2022H1. Despite the improved fiscal balances, debt vulnerabilities remain elevated, notably in low-income member countries (C.A.R., Chad, and Congo) (Text Table 1).

Inflation Developments

Inflation in CEMAC has been rising since early 2022, mainly owing to external factors—the commodity price shock and global inflationary pressures stemming from disruption in global supply amid COVID-19 lockdowns, pervasive supply chain bottlenecks, and the sharp increases in international energy and food prices.

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Source: Haver Analytics and IMF Staff calculations. Available data for Cameroon, Chad, Republic of Congo, Gabon, Equatorial Guinea.

High-frequency available data through 2022H1 for Cameroon, Chad, Gabon, and Equatorial Guinea point to regional inflationary pressures. The main drivers are food prices which represent around 40 percent of the CPI basket and have increased 10.5 percent y.o.y. in June, up from 7.8 percent y.o.y. in March. For end-2022, inflation is projected at 4.6 percent. Lags in passing global inflation through to domestic prices (due especially to price controls, implicit subsidies, or tax relief granted to suppliers) and some evidence of switching to local products have helped shield population from sharper local price increases as compared to global inflation. While continuing increases in transportation costs and energy subsidy reforms would contribute to inflationary pressures, inflation is expected to decline next year as global pressures ease. Overall, however, the risks are heavily skewed toward inflation exceeding projections in the region over the next year. Although the risks of a de-anchoring of regional inflation expectations—difficult to measure given data limitations—are rising and merit attention, they remain limited for the moment given that second-round effects on non-food inflation remain subdued so far.

Text Table 1.

CEMAC: DSA Ratings Pre- and Post-COVID and Shock from War in Ukraine

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6. BEAC tightened monetary policy and liquidity management over 2021 and 2022 as inflationary pressures rose. After raising its policy rate in 2021Q4 and 2022Q1, BEAC hiked it further to 4.5 percent in September 2022. It also tightened banks’ refinancing conditions, steadily scaling back weekly liquidity injections at its monetary operations window (going from CFAF 250 billion in June 2021 to CFAF 50 billion in November 2022). Rates at the marginal financing window were increased to 6.25 percent to keep the 175-basis point corridor unchanged. Two banks (down from five) that are structurally dependent on BEAC’s liquidity injections are currently restricted to access only to the marginal lending facility window. All three long-term liquidity injection operations have now been discontinued following the maturation of the last remaining one in October 2022. Liquidity demand remained high amid BEAC’s tightening, with weekly auctions largely oversubscribed, driven by liquidity-stressed banks. Consequently, auction rates have risen close to the marginal refinancing rate, gradually shifting banks into the interbank market, which has experienced stronger dynamism since June 2022. Staff and BEAC welcomed the dynamism in the interbank market but shared concerns over specific banks experiencing increasing liquidity stresses. Broad money decreased by 1.7 percent of GDP in 2022H1, driven by lower net credit to government more than offsetting the contribution of the NFA accumulation over 2022H1 (Table 6). However, continued excess bank liquidity limits the traction of monetary policy transmission.

7. BEAC’s liquidity absorption operations have encountered difficulties recently, owing to unattractive rates for banks with ample excess liquidity. With the absorption rate at 0.75 percent (with an increase of only 55-basis points through February 2022), BEAC’s absorption operations have largely failed, mostly owing to unattractive interest rates and a segmented market where few banks have large excess liquidity. These failures point to room for strengthening monetary policy transmission on banks with large excess liquidity. Autonomous factors of banking liquidity (AFBL) rose in 2022H2, driven by net redemption of public securities, declining financing needs and rising NFA amid high oil prices, adding to overall liquidity in the banking system (Figure 3, panel 4).5

8. COBAC normalized the prudential regulations. As planned, in July 2022, COBAC ended the temporary COVID-related forbearance prudential requirements (applied since mid-2020) and increased the capital conservation buffer by 50 basis points to 2.5 percent. The termination of these measures, coupled with resumed regular onsite inspections, are expected to contribute to a more accurate assessment of banks’ health. Capital adequacy modestly improved on average in 2022 to 14.7 percent, in part owing to the suspension of dividend distribution. After improving in 2021, the reported NPL ratio increased to 19.4 percent of total gross loans in 2022Q1, even with forbearance (Text Table 2). The reported NPL ratio is likely to increase further following the normalization of temporary measures and COBAC on-site inspections that may shed light on pandemic-related credit losses. Although liquidity is segmented, overall liquidity ratios are at 171 percent of short-term liabilities in 2022Q1. The banks’ loan portfolio grew 7.7 percent in 2022Q1 from end-2021.

Text Table 2.

CEMAC: Banking System’s Financial Soundness Indicators, 2016–22

(Percent)

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Source: Banking Commission of Central Africa (COBAC).

Calculated according to the Basel I guidance.

Return in ROE is calculated based on annualized net profit before tax.

As of end-April.

9. Banks’ exposure to the sovereign is persistently and uncomfortably high. This exposure stood at about 30 percent of total assets on average as of June 2022, up from 19 percent in 2019. The causes are largely structural—the bank-based nature of the financial system, a rising share of sovereign assets with a zero-risk weight as backed by escrow accounts with a zero-risk weight, rampant non-compliance with concentration limits, and high financing needs during COVID-19.

10. CEMAC’s external position strengthened in 2022H1, thanks to the positive terms of trade shock. CEMAC’s competitiveness improved on account of the CFAF depreciation in real effective terms over 2022H1, linked to the Euro depreciation relative to the dollar.

  • The current account balance (CAB) is expected to reach a surplus of 1.6 percent of GDP for 2022, following a deficit of 2.3 percent of GDP in 2021.6 The 2022 CAB projection has been modestly lowered (by CFAF 96 billion), due largely to lower net transfers for Cameroon and Chad (despite higher net income from Gabon) and in spite of a slightly stronger projected trade balance (as lower oil export receipts were offset by lower imports). The projection for the capital and financial account, however, was revised down significantly (by CFAF 1,000 billion), on account of substantially higher debt service, particularly from Congo to G20 DSSI creditors, and larger payments to two large external commercial creditors. Compared to the July projections, the overall balance deteriorates by about CFAF 1,100 billion (Table 4a). Meanwhile, budget support is expected to fall short of expectations, by CFAF 172 billion mostly due to delays in IMF-supported program reviews.

  • Nevertheless, after an initial decline in early 2022, gross FX reserves bounced back in 2022Q2 (Text Figure 1), reflecting the lagged impact of improved terms of trade and the SDR allocation. CEMAC member countries with stronger fiscal positions saved a portion of the 2021 SDR allocation to support reserve buildup.7 The regional policy assurance on net foreign assets (NFA) for end-June 2022 (EUR 2.81 billion) is estimated to have been met with a good margin (CFAF 248 billion). The annual NFA accumulation in 2022 is on track to be the largest ever, by factor of more than two, with gross external reserves projected to rise to 3.5 months of imports by end-2022.

Text Figure 1.
Text Figure 1.

CEMAC: Regional Daily Reserves, 2017–22

(Billions of CFA francs)

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

1/ Excludes the reserve position with the IMF (about CFAF 36 billion), which is not explicityly reported in the situation comptable.2/ The red squares represent levels consistent with the previously endorsed (December 2018, June 2019, December 2019 and June 2020) NFA regional policy assurances. The orange squares represent the revised NFA regional policy assurances (June 2021).3/ Starting in June 2022, Projections underpinning regional policy assurances incorporate FOGADAC Adjustment.Sources: BEAC and IMF Staff calculation

Outlook and Risks

11. The outlook is favorable, although enhanced resilience depends on managing prudently the oil windfalls and accelerating reforms. The outlook is predicated on continued high oil prices—albeit lower relative to the previous forecast8—and adherence to objectives under Fund-supported programs and policy advice. Vulnerabilities remain elevated, because of strong dependence on oil revenue and donor support, mixed progress on reforms, and heightened debt vulnerabilities against the background of tightening global financial conditions. Real GDP growth is projected to reach 3.4 percent in 2022, a downward revision of 0.7 percent points relative to projections from mid-2022, owing to lower oil production in Congo in H1 and in Equatorial Guinea in Q4. Inflation is projected at 4.6 percent at end-2022 (Box 1), which threatens to heighten social tensions over the rising cost of living. Inflation is projected to revert to below the 3 percent convergence criterion from 2024 on, provided inflation expectations remain firmly anchored. Stepped-up reforms implementation is critical for diversifying economies away from hydrocarbon and raising growth potential over the medium term.

12. Fiscal positions are expected to continue improving, thanks to strong oil revenues and subsequent structural fiscal measures. With the lagged effect of high oil prices on revenues, the region’s overall fiscal balance (excluding grants) for 2022 is projected at 0.7 percent of GDP—while stronger than 2021, this forecast is 0.4 percentage points lower than previously projected, owing to surging energy subsidies (1.5 percent of GDP) and lower non-oil revenue collection (Table 3a). Primarily for similar reasons, the non-oil primary fiscal deficit (including grants) is projected to deteriorate by 0.8 percentage points to 7.6 percent of non-oil GDP in 2022. It is expected to improve to 4 percent of non-oil GDP in the medium term, driven by structural revenue and expenditure measures (Table 3b). The near-term recalibration of fiscal stances, motivated by the desire to cushion the social impact of external shocks, will tend to slow—but not reverse—the positive trends in public debt reduction and reserve accumulation. Public debt is expected to decline, to 52.8 percent of GDP in 2022 and then gradually to 40 percent over the medium term. Nevertheless, debt dynamics remain vulnerable to negative oil price shocks, thus calling for stepping up fiscal consolidation and debt reduction over the medium term.

13. After improving in 2022, CEMAC’s external position is expected to weaken gradually over the medium term. The CAB is projected to deteriorate to -1.2 percent of GDP in 2023, 0.4 percentage points of GDP lower than the previous projection (Tables 4a and 4b). This weakening is driven by a deterioration in net income in Equatorial Guinea and Gabon driven by oil investment income outflows. The capital and financial account is expected to improve in 2023 (but revised slightly downward from the previous projection), thanks to lower outflows in Congo, and modest improvements in FDI. The CAB gradually reverts to just below its historical average (-3.1 percent of GDP) over the medium term, on account of lower oil prices and production. Nonetheless, capital inflows are expected to offset this deterioration and sustain reserve accumulation over the medium-term, through lower debt repayments from 2024 onwards (mostly by Congo and Chad) and continuing increases in foreign direct investment (FDI). Donor support remains critical for strengthening external stability and diversifying the region’s financing mix; it would also support a more even distribution of support, against the background of rising Fund exposure to the region (Text Figure 2).9 The reserve coverage ratio is projected to increase to around 4½ months of imports in the medium-term, slightly below staff’s adequacy target for a resource-rich monetary union (5 months, Annex III).

Text Figure 2.
Text Figure 2.

CEMAC: Credit Outstanding to the IMF

(SDR, percentage of SDR quota)

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

Sources: IMF Staff Calculations

14. The outlook is clouded by heightened uncertainties, with risks tilted to the downside (Annex I. Risk Assessment Matrix):

  • Higher food and fertilizer prices. If targeted assistance is not in place, larger and longer-than-expected surges in food subsidies could delay reserve accumulation to adequate levels.10

  • Inflation pressures could also weigh on growth, threaten food security, notably for low-income households, and entrench inflation expectations. Social tensions could also rise.

  • A larger-than-forecast decline in oil and other commodities’ prices linked to a likely stronger slowdown in global demand would lower demand for CEMAC exports, adversely affect public finances, external stability, and social indicators, which would require significant policy adjustments.

  • Failure to enhance spending efficiency or improve non-oil tax revenue collection could worsen the region’s elevated debt vulnerabilities and add to the challenges posed by its fragile external position, especially should multiple Fund-supported programs in the region go off-track. The subsidy bill would rise if targeted social assistance and automatic fuel price adjustment mechanisms are not implemented in the medium term. The associated fiscal slippages would consume the oil windfalls, delay reserve accumulation to adequate levels, and heighten debt vulnerabilities.

  • A greater-than-expected tightening of global financial conditions could sharpen risk premia and raise debt service and rollover risks. The narrowing market borrowing capacity could hinder growth and reserves buildup. Faster than assumed interest rate hikes from the ECB could require a faster monetary policy tightening by BEAC, negatively affecting growth.

  • A persistence or worsening of security challenges (C.A.R. and Chad), weak governance (particularly in natural resources management and including shortcomings in AML/CFT frameworks), high corruption perceptions, and possible post-election political instability may also weigh on growth prospects. Those risks are particularly acute in fragile and conflict-affected states.

  • The CEMAC region also remains vulnerable to climate-related shocks. In addition to a broader shift in energy preferences away from hydrocarbons, climate change is likely to exacerbate the region’s vulnerabilities, owing to high poverty rates, food insecurity, political instability, and conflicts, especially in drought-affected areas.

  • Slow progress on structural reforms and failures to adhere to targets under Fund-supported programs may delay IMF and other donor financing, generate external financing shortfalls, and postpone growth benefits.

  • Low vaccination rates and, more generally, weak health infrastructure in the CEMAC, also leave growth prospects vulnerable to new waves or variants of COVID-19.

  • The materialization of the above risks, along with existing vulnerabilities, could weaken banks’ balance sheets, affecting their ability to provide credit to governments and enterprises, further tightening the banks-sovereign nexus, and potentially triggering systemic risks.

  • On the upside, stricter compliance with the FX regulations could lead to greater repatriation of export proceeds, especially oil. In addition, larger-than-expected investments in the extractive sector amid higher oil prices, coupled with a rekindled momentum in reform implementation, could raise growth and help reduce vulnerabilities more rapidly. BEAC agreed with staff’s risk assessment, emphasizing the risk of tightening financial conditions, which could reduce financial flows and strain CEMAC member countries’ budgets, thereby raising debt vulnerabilities.

Balancing Internal and External Stability, Food Security, and the Recovery

15. Discussions focused on balancing the triple task of supporting internal and external stability, addressing growing social vulnerability, and sustaining the recovery. Given energy and food price pressures, higher inflation, tightening global financial conditions, disruptions in global supply chains, food insecurity and volatility in oil and commodity markets, achieving this delicate balancing act boils down to keep managing prudently the oil windfalls and accelerating reforms.

A. Strengthening Resilience While Protecting Vulnerable Populations

16. Prudent management of the oil windfalls is pivotal for enhancing CEMAC’s resilience while protecting vulnerable populations and supporting the recovery. Given their volatility, staff reiterated the criticality of seizing the unique opportunity offered by persistently high oil prices to strengthen resilience to potential shocks, by rebuilding fiscal and external buffers, including possibly through explicit saving targets. Staff urged national authorities to fend off the temptation of pro-cyclical spending and avoid fiscal slippages to ensure coherence with the monetary policy stance, through improved adherence to objectives under Fund-supported programs. Staff recommended that the oil windfalls could also be used in part to address social needs (see below). In light of the social impact of external shocks (especially food and fuel prices), fiscal stances in the region are being recalibrated in the near-term to cushion the impact, while maintaining debt reduction and reserve accumulation; all other things equal, the recalibration of fiscal policies in some member countries, largely to protect vulnerable people from price increases, will tend to slow these positive trends, although the magnitude of the impact is not clear yet. To limit procyclicality of fiscal policy and avoid long-term impact on fiscal sustainability, staff advocated for temporary and limited fiscal recalibrations and for plans to phase out additional fuel subsidies, accounting for countries’ specific circumstances. Debt servicing costs could be reduced by pre-paying BEAC’s past statutory advances or paying off expensive debts. Moreover, staff stressed that CEMAC’s low-income countries should resort to non-concessional external financing only if consistent with safeguarding debt sustainability and debt limits under Fund-supported programs. All CEMAC countries could benefit from continuing efforts to improve debt transparency, particularly on non-guaranteed SOE’s debt, and through avoiding non-transparent borrowing guaranteed by future natural resource deliveries.

17. Better targeting social assistance is critical for protecting vulnerable populations from high energy and food prices while preserving fiscal sustainability. Staff reiterated that more targeted assistance is critical for protecting the poorest groups while avoiding consuming oil windfalls in a prolonged surge in generalized subsidies (Text Table 3). Staff recommended that subsidies be targeted, transparent and time-bound where possible. Generalized subsidies, where unavoidable, should ideally be limited to essential food items and fuel consumed by the poorest groups, like kerosene rather than petroleum. To the extent that targeting mechanisms are limited, the needed social assistance could be delivered through existing infrastructure such as those for school food programs where feasible. Staff advocated for gradually phasing out inefficient untargeted fuel subsidies, through stricter enforcement of automatic fuel price adjustment mechanisms to increase the pass-through of global energy prices to domestic retail fuel prices, while at the same time rolling out targeted cash transfers; the latter requires investments to improve social registry to identify the most vulnerable. Other accompanying measures (for example, subsidized public transportation where feasible) should be considered, and a communication strategy should explain the merits of reforming energy subsidies, including their highly regressive nature.

Text Table 3.

CEMAC: Estimations of Oil Windfall (SR December 20211 vs September 2022) CEMAC: Projections of Net Oil Windfalls Estimates 2022–242

(Percent of GDP)

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Source: IMF Staff Calculations 1 Refers to the projections published in the IMF Country Report No 22/208. 2 At current oil prices forecast (2022-25), oil windfall is estimated at 2.3 percent of GDP annually. Although subject to uncertainties, fuel subsidies (incl. implicit ones), if maintained, are estimated at 1.2 percent of GDP annually (Annex 3). 3 Refers to a GDP PPP weighted average of oil prices used in country frameworks 4 Chad aggregate does not include implicit fuel subsidies and only includes direct transfer to the national electrical company to produce electricity from fuel subsidies.

18. The CEMAC region has developed an import-substitution strategy to tackle food insecurity amid global supply disruptions from the fallout of the war in Ukraine. Given risks of regional food shortages (Annex II), PREF-CEMAC’s steering committee (PREF-COPIL) put forth an import-substitution strategy, intended to enhance food security, including through bolstering domestic agricultural, animal-raising, and fishing production. While implementation has begun, financing is a constraint, and staff encouraged national and regional authorities to step up cooperation with donors (World Bank, UN Food and Agricultural Organization, African Development Bank, etc.) to secure concessional resources, including to promote domestic fertilizer production, which should help boost domestic agriculture productivity, especially if coupled with well-designed research and development activities; promising initiatives include irrigation projects and more climate resilient seeds and practices. Staff also supported PREF-COPIL’s call to remove intra-regional transit and non-tariff barriers, as well as supply chain bottlenecks. Staff encouraged stepping up implementation of the Africa Continental Free Trade Agreement (AfCFTA) and Payment Settlement System (PAPSS),11 along with structural regulatory and business climate reforms, to boost inter-African trade, including in food products, which would help tackle food insecurity.12 But staff cautioned against any related foreign exchange or trade restrictions.

19. Staff emphasized that key structural measures are necessary to meet the region’s medium-term development objectives while preserving fiscal sustainability.

  • Non-oil revenue collection should be steadily improved to delink much-needed priority social and infrastructure spending from hydrocarbon price volatility. Efforts should focus on phasing out tax exemptions (especially related to COVID-19) and broadening the tax base, including through advancing interest limitation rules and measures geared towards better asserting taxing rights over income from multinationals (e.g., permanent establishment rules and withholding taxes). New regional tax directives (including CEMAC’s Community Tax Procedures Code) should be adopted in a timely manner and subsequently transcribed into national legislations, while moving gradually towards more direct taxation, notably corporate income tax (CIT), personal income tax (PIT), and property tax.13

  • Improved spending composition along with greater spending efficiency are key to creating more fiscal space. In addition to subsidy reforms, savings could be gained from rationalization of various outlays, including the public wage bill and non-priority recurrent spending, such as costly transfers to SOEs, which could be supported by reforms enhancing SOEs’ governance and by stronger government management of SOE-related fiscal risks.14 Public investment efficiency should be also continually upgraded through accelerating the implementation of recommendations from Public Investment Management Assessment (PIMA) carried out in Cameroon, Gabon, and Chad, and conducting PIMA exercises in countries where they have not taken place yet (C.A.R., Congo, and Equatorial Guinea).15

  • Faster progress on other PFM reforms, notably on Treasury Single Accounts (TSA), would help ensure a more efficient use of public resources. Cameroon and Gabon have made stronger progress after resolving initial IT difficulties. BEAC developed cash management guidelines and an IT platform, which was integrated into Cameroon Treasury’s information system and is set to be integrated into the other Treasuries’ information systems by end-2022 (Gabon, Congo, Chad and C.A.R.) and early 2023 (Equatorial Guinea). Related standard conventions are expected to be signed between BEAC and all Treasuries by end-2022.16

  • Ongoing efforts to improve external statistics, including with planned Fund’s capacity development, are critical for accelerating BOP data collection and compilation, which would ultimately help reduce oil revenue and external flows forecasting errors.

B. Monetary Policy: Balancing Domestic Needs and External Pressures

20. Staff commended BEAC’s monetary policy tightening and recommended that it stand ready to tighten further. Rising inflation and the need to build external buffers required policy responses, both in rates and liquidity management. BEAC concurred with Fund staff that additional evidence of rising inflation, deviations from the targeted reserve path, or fiscal slippages would warrant further policy rate increases and tightening liquidity. Although BEAC indicated that it took prospects of future ECB tightening into account in its analysis guiding monetary policy decisions, it clarified that further increases in ECB’s policy rate would not automatically warrant further hikes in BEAC’s policy rate and liquidity tightening, as this needs to be balanced in the context of the main factors informing monetary policy decisions (regional inflation expectations and the external reserve path). BEAC also pointed out that regional inflation was much lower than in the Euro area, although staff argued that the differential was partly due to fuel subsidies. In addition, BEAC highlighted that the spread between BEAC’s policy rate and the Euro area policy rate (Text Figure 3) has not proven to be a key factor driving capital flow movements between CEMAC and Euro area markets, given limited integration of both markets owing to CEMAC’s restricted capital account. While seeing merit in balancing all factors informing monetary policy decisions, staff nuanced by advocating that a greater weight should be assigned to maintaining the spread at least at its historical average (3.25 bps), especially in a more forward-looking approach in the current context of heightened external uncertainties.

Text Figure 3.
Text Figure 3.

BEAC-ECB Policy Rate Spread and CEMAC Gross External Reserves (RHS)

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

Sources: BEAC, ECB, IMF Staff Calculations

21. Staff recommended that BEAC explore additional instruments to ensure a more active management of liquidity and to strengthen monetary policy transmission. Staff recommended that BEAC gradually raise the rates on its liquidity absorption operations, at least to maintain the historical spread with the main policy rate, to absorb excess liquidity and strengthen monetary policy transmission. Staff also recommended that BEAC explore other absorption modalities (e.g., full allotment) and additional instruments, including raising the deposit facility rate (maintained at 0 percent) as well as boosting and better remunerating reserves requirements (coefficients were maintained at 7 and 4.5 percent on sight and term deposits, respectively; the remuneration currently stands at 0.05 percent).

  • BEAC indicated that it intended to pursue a progressively more active liquidity management and is currently weighing all relevant options (including those mentioned above) in the context of its new operational framework for the conduct of monetary policy—specifically through a recently created dedicated working group.17 That said, findings from their preliminary consultations with banks with excess liquidity show that these banks’ liquidity holding decisions were shaped not by profitability, but rather by parent-bank’s investment policies and precautionary motives (incompressible reserves). BEAC also expressed concerns over likely crowding out of transactions in the interbank market—which is critical for ultimately improving monetary policy transmission—from raising the rate on liquidity absorptions. In addition, BEAC pointed out that given segmented liquidity in the banking system, raising reserves requirement coefficients would disproportionately penalize liquidity-stressed banks, worsening the segmentation. Staff stressed the need to move expeditiously on strengthening further liquidity management and monetary policy transmission, while welcoming the direction of BEAC’s plans—including conducting a more thorough analysis and comprehensive consultations with banks in 2023 to better inform its future choice of more active liquidity management instruments—and acknowledging concerns over the interbank market dynamics. To combat liquidity segmentation across banks, staff reiterated the priorities of more resolutely tackling weak banks (see below), as well as generally strengthening supervision and capital adequacy to build confidence among banks.

  • BEAC and staff concurred on the importance of engaging proactively with banks facing high liquidity needs but standing below the 10 percent of liabilities dependency threshold, to tackle head-on their liquidity needs before they become structurally dependent on BEAC’s support, ideally in collaboration with COBAC. They also agreed that ultimately, effectively addressing these banks’ liquidity woes requires governments’ ability to run primary fiscal surpluses or find other sustainable financing to settle domestic arrears, which are one of the root causes of their liquidity stress. Staff welcomed BEAC’s steady reduction of weekly liquidity injections in the main monetary operations window—along with the increase in the haircut on collateral from two countries since May 2022—with a view to discontinuing them gradually in 2023 and focusing on liquidity absorption operations, building on AFBL.

22. Staff welcomed BEAC’s commitment to containing risks to its balance sheets. BEAC and staff agreed that only banks compliant with prudential obligations should be granted access to the standard weekly liquidity window and that liquidity-stressed banks should gradually reduce their dependence on BEAC’s support, including through submitting credible refinancing plans, to contain risks from a durable increase in BEAC’s balance sheet. Staff supported BEAC continuing adjustment of the haircuts on collateral to reflect risks and establish exposure limits by bank and/or country. BEAC and staff concurred with the need to keep repaying, as scheduled, past statutory advances and the stock of bonds bought in the context of BEAC’s COVID-related bond purchase program, which started maturing in 2022Q2. Staff welcomed BEAC’s continued readiness to retire its COVID-related credit line to the regional development bank (BDEAC) for undrawn amounts and as credits get amortized. Although arrears securitization exercises in member countries (Text Table 4) are a welcome means for clearing domestic arrears, staff reiterated concerns about any unintended consequences, including weakening fiscal discipline, reinforcing the bank-sovereign nexus, and an excessive buildup of government securities on BEAC’s balance sheet through refinancing. Staff argued that such securities should not be allowed to ultimately thwart BEAC’s liquidity management objectives and called on national authorities to step up efforts to strengthen expenditure commitment controls and cash management to prevent the resurgence of new domestic payment arrears.

Text Table 4.

CEMAC: Past Domestic Arrears Securitization Experiences

(Billions of CFAF)

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23. The stronger enforcement of FX regulations is beginning to bear fruit, with room for improvement on some aspects of implementation. As recommended by staff, BEAC has implemented a large number of actions aimed at boosting the repatriation of export proceeds, and the amounts surrendered to BEAC have increased steadily. However, several sectors have expressed concerns about slower processing times in the provision of FX by BEAC and suggest that the process could be more efficient and less onerous—particularly for external clients, who in most cases have already complied with the Know-Your-Client (KYC) requirements of correspondent banks. The private sector nevertheless acknowledged that enforcement of the legislation was necessary to strengthen external stability. Acknowledging that the verification and approval process of FX requests could be burdensome in some cases, BEAC has conducted an ongoing dialogue with commercial banks and businesses to ensure an appropriate application of the regulation in a way that does not hamper the business climate or limit or delay current account payments. BEAC also explained that some delays stemmed from other parties in the transactions. Staff encouraged BEAC to continue the ongoing dialogue with the private sector to reduce undue delays, including by ensuring a consistent and predictable application of the regulation. These measures will avoid causing possible foreign exchange restrictions. Staff also recommended that BEAC deploy sufficient human resources to ensure that FX requests are examined and processed speedily, smoothly, and efficiently; BEAC noted that it had increased resources already and would continue to do so as needed.

24. Effective application of FX regulations to the extractive sector is paramount to ensuring the success of the regulation framework.18 Although the repatriation and surrender requirements of the FX regulations adapted to the extractive sector came into effect in January 2022,19 BEAC is not yet enforcing sanctions for non-compliance, pending the resolution of technical difficulties raised by the sector, including in opening and operating foreign currency accounts in the CEMAC region. Discussions continue among BEAC, operators, and regional banks regarding the appropriate mechanism to repatriate both the sector’s required 35 percent of proceeds (compared to 70 percent for non-extractive sectors) and the funds set aside for the rehabilitation of oil sites.20 Staff noted the complexity of the issues involved and expressed hope that all parties would continue to work together to find cooperative and pragmatic solutions that comply with the existing regulation and allow the sector to contribute their share of FX flows.

25. An update safeguards assessment of BEAC was finalized in April 2022. Findings indicate that BEAC maintained strong governance arrangements and transitioned to international financial reporting standards (IFRS). Nonetheless, staff recommended that BEAC strengthen its internal audit mechanisms and risk management, as well as its cyber-resilience and business continuity framework.

C. Strengthening Financial Sector Policies and Banks’ Balance Sheets

26. Staff welcomed COBAC’s unwinding of temporary forbearance measures, while urging more post-COVID supervisory reviews and a prudent approach on dividend distribution. With the normalization of prudential supervision, COBAC should conduct comprehensive and rigorous asset quality reviews in the banking sector, with a view to estimating needed loan-loss provisions and subsequent capital shortfalls; these reviews would also help prepare for any early intervention and/or corrective actions needed for fragile banks. Until post-COVID uncertainties on asset quality and profitability have abated, a prudent dividend distribution policy is advisable regarding important breaches of regulatory measures (capital adequacy and concentration limits) that are detrimental for distribution. Stress tests could help get a forward-looking perspective on banks’ risks and losses and inform better dividend distribution authorizations. Staff advocated for COBAC to pursue efforts to ensure undercapitalized banks submit credible medium-term recapitalization plans and establish a strategy for NPLs reduction; it further stressed that in case of delays in addressing weaknesses, COBAC should escalate its actions by gradually using all the available tools, including early intervention, sanctions, and resolution powers when needed. The coordination between BEAC and COBAC should be reinforced to ensure liquidity-stressed banks’ access to the monetary operations windows are informed by COBAC’s supervisory judgment and the review of recapitalization and funding plans. COBAC largely concurred with staff advice, while noting that resource limitations may delay strengthening policies as desired. Regarding dividend distribution, pointing to its limited capacity to conduct numerous thorough asset quality reviews, COBAC explained opting for a case-by-case approach for the time being, in line with the current regulations, which stipulate that only banks meeting capital adequacy and concentration ratios could do so.

27. Staff reiterated the need to ensure banks account for sovereign risk adequately. Banks’ sovereign exposure has continued to rise, reaching 31 percent in 2022Q3 (34 percent when including SOEs), with a large heterogeneity between banks. Staff advised that COBAC should start to progressively enforce the existing concentration limits, especially for banks with excessive exposure. Banks should also be encouraged to implement prudent internal risk management, with exposure limits. Also, building on CEMAC Commission’s resumed regional surveillance, COBAC should move more systematically away from zero-risk weight on government exposure; in the absence of this move, it would be advisable to at least define their conditions very conservatively (e.g., restricting zero-risk weights to banks complying with concentration limits, conditioned on properly structured and audited escrow accounts only in countries with operational single treasury account). COBAC and BEAC should work together to ensure that primary dealers, mostly banks, do not hold to maturity more that 70 percent of sovereign new issuances, as stated in their contracts. Although BEAC and COBAC largely concurred with staff on risks and the direction of policy recommendations, they highlighted the need both to consider financing needs for governments and to enhance fiscal discipline as a way to contain risks, in addition to banking regulatory measures.

28. COBAC should prioritize its work agenda to focus on risk-based prudential and AML/CFT-compliance supervision, modernizing regulatory and risk management frameworks, and improving banks’ governance. Moreover, staff and COBAC concurred on the need to swiftly address COBAC’s long-standing under-staffing issues and strengthen its supervisory capacity. Its current capacity does not appear adequate, given the large number of banks, microfinance and other financial companies under its supervision, the delays in implementing Basel framework, as well as the emergence of new risks.

29. Staff reiterated its advice against the segmentation of the government issuance market. Government issuances on the stock exchange (BVMAC) continued, with such securities rising as a share of government securities issued through the primary market (BEAC) (Text Figure 4). Staff stressed again that this market dualism would hamper the development of the secondary market and securities liquidity. Going forward, staff encouraged BEAC to intensify awareness campaigns, including through the consultation framework set up in collaboration with AFRITAC Center, on innovative provisions introduced in the amended 2018 regulatory framework to overcome initial shortcomings that were diverting stakeholders away from the primary market towards BVMAC, notably the availability of longer maturities and syndicated loans-type and securities repurchasing operations in the primary market. Staff also urged BVMAC and COSUMAF to design and implement a strategy towards raising investors’ appetite for the 17 SOEs’ stocks set to be listed on BVMAC, including through operationalizing the management company of the single central depository by end-2022, as planned. Staff also called for clearing arrears vis-à-vis BVMAC, in line with recommendations from the August 2022 meeting of PREF-CEMAC steering committee (PREF-COPIL). Lastly, it also recommended lengthening securities’ maturities and diversifying the investor base, including through enhanced financial literacy towards individual investors and stepping up awareness campaigns to broaden the investor base, which would ultimately help foster the secondary market development. Promising investors include non-bank institutional investors (pension funds, insurance companies, asset managers), personal investors from the diaspora, and non-resident investment funds; the latter would benefit from addressing FX repatriation concerns. BEAC fully agreed with staff recommendations, emphasizing the need for BVMAC to concentrate on the secondary market. BVMAC also largely agreed, except for arguing that its platform for government securities was attracting activity because it responded to needs not met elsewhere.

Text Figure 4.
Text Figure 4.

CEMAC: Stock of Government Securities

Monthly – CFAF Billion

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

D. Using Digital Payments for Innovation and Inclusion While Tackling Related Risks

30. The digital finance ecosystem has steadily evolved, with the CEMAC region steadily tapping into digitalization to foster innovation and financial inclusion. Particularly, mobile money has sparked rising appetite from users. Given the rising interest in digital assets, staff encouraged regional authorities to enable a regulatory framework that supports innovation, financial inclusion, consumer protection, and safeguards financial integrity. BEAC should unlock the potential of mobile money by revising the current tariffication that burdens small transactions and deepen financial intermediation, including through accelerating the ongoing establishment of a regional credit bureau and a financial statements’ repository for CEMAC companies. Over the past few years, the digital payment ecosystem has widened, with growing appetite for new forms of digital assets, including cryptoassets.

31. Staff urged national and regional authorities to settle the legal inconsistency between C.A.R.’s cryptoassets-related law and the CEMAC treaty.21 The resolutions from UMAC’s (Monetary Union of Central Africa) July 2022 ministerial committee’s meeting for settling the legal inconsistency from C.A.R.’s adoption of cryptoassets as legal tender are initial steps in the right direction. Staff encouraged national and regional authorities to implement them in a timely manner. During the upcoming Article IV mission to C.A.R., staff and the authorities will discuss the plans for aligning the cryptoasset law, including the legal tender and convertibility provisions, with the CEMAC legislation. Staff also advised that regulations tackling supervisory challenges from digital assets be developed expeditiously, to ensure they support innovation and financial inclusion while preserving financial stability, protecting consumers, and fostering compliance with AML/CFT standards.

32. Staff also reiterated the need for enhanced coordination between BEAC, COBAC, and the capital markets regulator (COSUMAF) to advance crypto-related regulatory frameworks. Following COBAC’s Decision D-2022/071 prohibiting the use of cryptocurrencies by entities under its remit, UMAC’s ministerial committee adopted a COSUMAF-led regulation (No-01-2022 relative to the organization and functioning of CEMAC’s financial market) in July 2022 that included a provision governing the use of digital assets. The adoption of this regulation raised clarity and consistency concerns with respect to COBAC’s earlier decision and BEAC’s mandate on payments.22 Staff recommended that regional supervisors (BEAC, COBAC, COSUMAF) work collectively to come up with a consistent approach on regulation of digital assets across their respective purviews and enhance communication to provide users with a coherent framework on the matter. BEAC assured staff that joint working groups, involving stakeholders from all regional supervisors, are expected to be set up soon. They would be tasked with coming up with options to harmonize regulatory approaches across CEMAC and to assess the desirability and feasibility of introducing a central bank digital currency (CBDC), in line with BEAC Executive Board’s recommendation. Staff indicated Fund’s readiness to support efforts as needed on both fronts.

E. Pressing Ahead With the Regional Surveillance Framework

33. Staff welcomed the completion of regional surveillance consultations in July 2022 for all six countries, after their post-COVID resumption by the CEMAC Commission in April 2022. Staff reiterated that adherence to regional convergence criteria is essential for the credibility of the regional surveillance framework. Staff advocated for the HOS Conference to adopt the new sanction mechanism for breaches of regional surveillance rules expeditiously23, as this would strengthen the enforceability of the regional surveillance framework.24 Staff encouraged the Commission to carry out the first internal analysis of the early warning system as planned in 2023, stressing the importance of member countries submitting updated triennial convergence plans. Faster progress is needed to transcribe regional PFM and the newly adopted VAT directives into national legislations, with the support of Fund technical assistance. Staff seconded the CEMAC Commission’s emphasis on pressing ahead with unfinished reform priorities in member countries, including most notably: rolling out treasury single accounts (TSA) and integrated financial information management systems, internal and budget controls, switching into program-based budgeting; and implementing comprehensive strategies for domestic arrears clearance and medium-term debt management.

Harnessing External Tailwinds for Growth Diversification and Resilience

34. Staff stressed that favorable external conditions provided an opportunity to accelerate reform plans. Moreover, rising uncertainties make it urgent to step up efforts to boost resilience. Staff welcomed progress on reforms under PREF-CEMAC’s supervision, while noting that much remains to be done (¶2 and 16); the authorities largely concurred, while noting capacity constraints. Boosting competitiveness through productivity gains over the medium-term is vital to sustained non-oil growth and resilience.

35. CEMAC’s external position in 2021 is assessed as weaker than the level implied by medium-term fundamentals and desirable policies. Based on the EBA-lite model, the current account gap is -3.9 percent of GDP, implying exchange rate overvaluation consistent with prevalence of Dutch Disease effects in a region with structural competitiveness issues (Annex III). BEAC staff agreed with Fund staff on the drivers of CEMAC’s external position, highlighting competitiveness and fiscal discipline as key to bring it in line with fundamentals. BEAC staff also considers the application of the FX regulation, including to the extractive sector, coupled with greater efforts to repatriate the public sector’s proceeds, as essential to narrow imbalances.

36. Price competitiveness improved in 2022. During 2022H1, the regional real effective exchange rate (REER) depreciated by 7.5 percent, reflecting a weaker euro against the dollar and negative inflation differentials vis-à-vis external partners, though the latter is partly driven by price controls. The real depreciation effect is unified across CEMAC countries. Although inflation risks could reverse these gains, the recent REER dynamics provide a window of opportunity to advance diversification from oil through stepped-up reforms (¶15–17).

37. Deep structural reforms are essential for laying the foundations for a more diversified, inclusive, and sustainable growth. In line with priorities set out by the 2021 HOS Summit, progress on this front requires re-invigorated implementation of deep structural, governance, transparency and regulatory reforms with a range of priority objectives: strengthen human capital, improve the business climate to boost investment in new sectors and develop local production capacities, better adapt to climate change, enhance social protection, reinforce banking sector solidity, foster regional trade integration, and raise productivity and competitiveness, including in the agriculture sector. On the latter particularly, a careful implementation of regional authorities’ import-substitution strategy—while avoiding foreign exchange or trade restrictions— could pave the way to strengthening food security.

Monitoring of Regional Policy Assurances

38. The regional authorities moved forward with the policy commitments from the June 2022 follow-up to the Letter of support to member countries’ recovery and reform programs. BEAC maintained an appropriate monetary and liquidity stance (¶ 5 and 19), hiking its policy rate to tame inflationary pressures and tightening further liquidity management. The adaptation of FX regulation to the extractive sector came into effect in January 2022, although BEAC is not yet enforcing sanctions for non-compliance, pending resolution of concerns over technical difficulties raised by the sector for opening/operating foreign currency accounts in the CEMAC. Discussions are ongoing to finalize implementation of the framework for the repatriation of rehabilitation funds. COBAC normalized the prudential regulations, ending the temporary forbearance prudential requirements in place since mid-2020 and increasing the capital conservation buffer by 50 basis points to 2.5 percent. With these efforts, the regional policy assurance on NFA set for end-June 2022 (EUR 2.81 billion) was met with a comfortable margin (EUR 378 million).

39. BEAC requests a downward revision to the regional policy assurance on the NFA for end-December 2022 (to EUR 3.39 billion) to account for exogenous factors. Meeting the NFA target for end-December 2022 (EUR 3.73 billion) set at the July 2022 Board meeting could be difficult due to shortfalls in external financing, while financing needs increased as the projected overall balance deteriorated relative to the previous forecast (by the equivalent of EUR 1.2 billion, ¶10). Relative to the projections underlying the previous NFA target, budget support is expected to fall short by EUR 260 million. BEAC thus requests to revise the end-December 2022 policy assurances to account for the shortfall in donor financing as well as an additional modest adjustment to help offset higher financing needs (EUR 80 million). Despite this revision, the NFA annual accumulation in 2022 will be the largest ever, by factor of more than two. Staff and BEAC agreed that rapid accumulation is desirable, particularly in a context of high oil prices. BEAC also indicated that its efforts to strengthen FX repatriation were still ongoing and would yield further fruit, even as procedural burdens were reduced.

40. The attached follow-up letter describes the proposed revision to the end-December 2022 NFA target, the proposed June 2023 NFA target, and associated regional institutions’ policy intentions in support of national programs. Consistent with staff projections, which accounted for the expected NFA deviation from its initial target for end-December 2022 owing to the above-highlighted factors (¶39), the proposed end-June 2023 NFA target covered by the updated policy assurances was set at EUR 3.93 billion, respectively (Text Table 5). The target is in line with staff advice and consistent with program projections at the time of the mission. Staff projections of NFA accumulation in 2023 have been revised down relative to projections during the July 2022 Staff Report, owing to a deterioration in the financial account (with large debt repayments linked to higher oil prices and more costly debt amortization, partly due to the stronger dollar), but it would still be the second largest—by far— after 2022. In the medium term, gross reserves are projected to reach 4½ months of imports. That said, as in the past, these proposed NFA targets for end-December 2022 and end-June 2023 remain subject to risks from heightened external uncertainties, including volatility in the oil market and delays in donor support disbursements.

Text Table 5.

CEMAC: Regional Policy Assurance on NFAs, 2022–23

(Billions of euros)

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Staff Appraisal

41. High oil prices, coupled with prudent management of oil windfalls, are expected to support strengthening CEMAC’s external position amid heightened risks. The positive terms-of-trade shock linked to Russia’s war in Ukraine has reinforced the external position and the nascent post-pandemic recovery. The outlook for 2023 is on balance positive, driven by high oil prices, the lifting of COVID-19 containment measures, and assumed continued prudent management of the oil windfalls in the context of Fund-supported programs and policy advice. However, this outlook is also subject to headwinds and heightened uncertainties stemming from stubbornly elevated debt vulnerabilities, risks of persistently high inflationary pressures, the prospect of continued tightening of global financial conditions, and regional security issues.

42. In this context, BEAC’s tightening to date is welcome and it should stand ready to tighten monetary policy further in anticipation of pressures. BEAC increased its policy rate three times in less than a year to stem the decline in reserves and respond to inflationary pressures, which is welcome. In addition, it reinforced its liquidity management framework, returning gradually to the pre-crisis focus on the autonomous factors of banking liquidity. BEAC rightly stands ready to tighten monetary policy further if it observes evidence of rising inflation, deviations from the targeted reserve path, or fiscal slippages. Staff considers that decisions should also account for the impact of continued tightening by the ECB, with a view to preserving further external reserves accumulation. BEAC should also absorb more excess liquidity to strengthen monetary policy transmission. A transparent and consistent implementation of the FX regulation should help ensure greater FX repatriation while fostering trade and investment.

43. COBAC’s normalization of the prudential regulation is welcome. Following the appropriate discontinuation of COVID-related forbearance prudential measures, COBAC should conduct thorough asset quality reviews in the banking sector, to estimate needed loan-loss provisions and detect capital shortfalls. Based on this information, it should be prepared for early intervention and/or corrective actions for fragile banks if needed. COBAC should also reduce and eventually shift away from zero-risk weight on government exposure, to ensure banks accounts adequately for the rising bank-sovereign risk. The dividend distribution policy should be prudently implemented, given heightened uncertainties from previous forbearance and rising sovereign. COBAC should scale up efforts to ensure that undercapitalized banks submit credible medium-term recapitalization plans and establish strategies for NPLs reduction. In case of delays in addressing weaknesses, it should signal that it would gradually escalate its actions by using all the available tools. COBAC’s long-standing under-staffing issues and supervisory capacity should be addressed, to allow achieving its mandate, to resume the implementation of Basel II/III, risk-based prudential and AML/CFT-compliant supervision, and to coping with emerging risks.

44. The coherence of the region’s approach towards regulating digital assets should be boosted, drawing on enhanced coordination among regional supervisors (BEAC, COBAC, COSUMAF). The most important inconsistency to address is that between C.A.R.’s cryptoasset law and the CEMAC Treaty, through implementing UMAC ministerial committee’s resolutions. COBAC’s decision prohibiting cryptocurrencies usage by banks appropriately helped address related risks, but a coordinated regulatory approach should address the lack of clarity between this decision and the regulation governing digital assets recently adopted under COSUMAF’s leadership. C.A.R. authorities are encouraged to complete examination of their options for aligning their crypto assets law, including the legal tender provisions, with the CEMAC legislation. Going forward, regulatory frameworks for digital assets should be coordinated and coherent, with the goals of preserving the single currency, mitigating risks including ML/TF risks in line with the FATF standards for AML/CFT, and protecting consumers, while at the same time creating space for legitimate innovation.

45. Going forward, progressively strengthening non-oil primary balances, along with accelerating reforms, is critical for boosting the region’s resilience. Enhancing economic resilience through rebuilding external and fiscal buffers is a top priority currently, given favorable conditions amid rising uncertainties. Although fiscal positions are being recalibrated in 2022 and 2023 in the face of the social impact of inflation pressures, it is vital that a significant part of the oil windfall from historically high prices continues to be saved. Reform priorities include resolutely improving non-oil tax revenue collection, upgrading public spending efficiency, reforming energy subsidies while moving as rapidly as possible toward targeted, transparent, and time-bound social assistance to protect vulnerable populations from the rising cost of living and growing food insecurity.

46. Deep structural reforms remain essential for laying the foundations for a more diversified, inclusive, and sustainable growth. In line with priorities set out by the 2021 HOS Summit, achieving progress requires re-invigorated implementation of deep structural, governance, transparency, and regulatory reforms, with the multiple goals of strengthening human capital, improving the business climate, better adapting to climate change, enhancing social protection, reinforcing banking sector solidity, fostering regional trade integration, and raising productivity and competitiveness, including in the agriculture sector. On the latter particularly, a careful implementation of regional authorities’ import-substitution strategy—while avoiding foreign exchange or trade restrictions—could pave the way to strengthening food security.

47. Overall, staff: (i) notes that BEAC met the policy assurance on the NFA provided in the July 2022 follow-up letter, reflecting greater FX repatriation and tighter monetary policy; (ii) supports the updated policy assurance on NFA accumulation (to bring NFA to €3.39 billion and € 3.93 billion at end-December 2022 and end-June 2023, respectively). Anchored by Fund-supported programs and Fund policy advice, member states also intend to maintain macroeconomic stability, including through appropriate fiscal policy measures, and to implement ambitious structural, transparency, and governance measures to unlock the growth potential of the region and diversify the economies away from fossil fuel, while enhancing food security. Nonetheless, building up external reserves will depend on timely disbursements of external financing for member countries. Meeting the proposed policy assurance on NFAs is critical to allowing the continuation of (or approval of new) financial support as part of the Fund-supported programs with CEMAC members.

Figure 1.
Figure 1.

CEMAC: Selected Economic Indicators, 2001–22

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

Sources: CEMAC authorities; and IMF staff estimates.
Figure 2.
Figure 2.

CEMAC: Selected Economic Indicators, 2006–25

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

Sources: GAS Live, CEMAC authorities; and IMF staff estimates.
Figure 3.
Figure 3.

CEMAC: Recent Monetary Developments

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

Figure 4.
Figure 4.

CEMAC: An Overall Positive Terms of Trade Shock

Citation: IMF Staff Country Reports 2023, 001; 10.5089/9798400227455.002.A001

Table 1.

CEMAC: Selected Economic and Financial Indicators, 2017–27

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Sources: Authorities' data and IMF staff estimates and projections. 1 Estimated after rebasing the national real GDP series to 2005. 2 Using as weights the shares of member countries in CEMAC'S GDP in purchasing power parity in US dollars. 3 Excluding gransts and foreign-financed investment and interest payments. 4 Refers to the projection published in the IMF Country Report No 22/208.
Table 2.

CEMAC: National Accounts, 2017–27

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Sources: Authorities' data; and IMF staff estimates and projections.

Refers to the projection published in the IMF Country Report No 22/208.

Table 3a.

CEMAC: Fiscal Indicators, 2017–27

(Percent of GDP)

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Sources: Authorities' data; and IMF staff estimates and projections.

The reference fiscal balance is defined as the overall budget balance minus 20 percent of oil revenue and minus 80 percent of the oil revenue in excess of the average observed during the 3 previous years.

Refers to the projection published in the IMF Country Report No 22/208.

Table 3b.

CEMAC: Fiscal Indicators, 2017–27

(Percent of Non-Oil GDP)

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Sources: Authorities' data; and IMF staff estimates and projections.

Overall fiscal balance excluding grants and foreign-financed investment.

Refers to the projection published in the IMF Country Report No 22/208.

Table 4a.

CEMAC: Balance of Payments, 2017–27

(Billions of CFA Francs)

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Sources: BEAC; and IMF staff estimates and projections.

Staff revised the BOP table historical data and projections, which results in an upward revision to the current account balance 2018-2023. Other historical Bop data and projections remain unchanged. Changes to projections from 2024 onwards are minor. The revisions modified the overall balance, mostly upward for historical data and estimates through 2021 and downward for projections 2022-23. Revised July SR refers to a revised projection from the one published in the IMF Country Report No 22/208 for 2022 and 2023.

FDI data have been revised, including to better reflect the flows linked to the construction of the Moho-Nord platform in Congo.

Does not reflect reserve accumulation by BEAC's central services.

Table 4b.

CEMAC: Balance of Payments, 2017–27

(Percent of GDP)

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Sources: BEAC; and IMF staff estimates and projections.

Staff revised the BOP table historical data and projections, which results in an upward revision to the current account balance 2018-2023. Other historical Bop data and projections remain unchanged. Changes to projections from 2024 onwards are minor. The revisions modified the overall balance, mostly upward for historical data and estimates through 2021 and downward for projections 2022-23. Revised July SR refers to a revised projection from the one published in the IMF Country Report No 22/208 for 2022 and 2023.

FDI data have been revised, including to better reflect the flows linked to the construction of the Moho-Nord platform in Congo.

Does not reflect reserve accumulation by BEAC's central services.

Table 5.

CEMAC: Compliance with Convergence Criteria, 2016–27

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Sources: Authorities' data; and IMF staff estimates. Note: For the first criteria, the number of countries violating them reflects the estimates from the CEMAC Commission until 2017, and IMF staff estimated going forward. For the criteria on nonaccumulation of arrears, the number of countries violating the criteria reflects IMF Staff estimates.

Until 2016, the basic fiscal balance (i.e. the overall budget balance, excluding grants and foreign-financed investment) had to be positive. From 2017 onward, the reference fiscal balance (i.e. the overall budget balance minus 20 percent of oil revenue and minus 80 percent of the oil revenue in excess of the average observed during the 3 previous years) must exceed -1.5 percent of GDP.

Change in the stock of arrears-to-GDP ratio. Includes external and domestic payments arrears, and based on data reported by country authorities (which may differ from CEMAC teams' findings).

Assessment by the CEMAC Comission based on: (i) the non-accumulation of new arrears during the current year; and (ii) the gradual repayment of existing arrears in line with a published schedule.

Refers to the projection published in the IMF Country Report No 22/208.

Table 6.

CEMAC: Monetary Survey, 2017–27

(Billions of CFA francs, unless otherwise indicated)

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Sources: BEAC; and IMF staff estimates.

Data on the commercial banks’ foreign liabilities have been revised to include the medium- and long-term liabilities (hitherto reported in the other items, net).

Refers to the projections published in the IMF Country Report No 22/208.

Includes a reclassification of the regional deposit insurance fund (FOGADAC) as a domestic liability from June 2022.

Table 7.

CEMAC: Summary Accounts of the Central Bank, 2017–27

(Billions of CFA francs, unless otherwise indicated)

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Sources: BEAC. Note: Includes a reclassification of the regional deposit insurance fund (FOGADAC) as a domestic liability from June 2022.

Gross foreign reserves, including gold, foreign currency reserves, IMF reserve position, and net overall balance of the operations account at the French Treasury.

Refers to the projection published in the IMF Country Report No 22/208.

Includes cash in vault and deposits of commercial banks with the BEAC.

Includes a reclassification of the regional deposit insurance fund (FOGADAC) as a domestic liability from June 2022.

Table 8.

CEMAC: Net Foreign Assets of the Central Bank, 2017–27

(Billions of CFA francs)

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Sources: BEAC and IMF staff projections. 1 Refers to the projections published in the IMF Country Report No 22/208.
Table 9.

CEMAC: External Financing Sources, 2017–23

(Billions of CFA francs)

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1 After projected/targeted change in gross reserves. 2 Refers to the projections of the IMF CR 22/208 (June 2022 SR). 3 Includes external financing from the BDEAC in CFAF.

Annex I. Risk Assessment Matrix1

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Annex II. Food Security in CEMAC Countries

uA001fig02
Source: FAO (Food and Agriculture Organization), FEWSNet, and USAID.

Annex III. External Sector Assessment

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NIIP data is only available for Cameroon (-30 percent at end-2020, based on 2019 data). The Republic of Congo submits IIP data in domestic currency to the IMF, but technical delays have precluded publication of the results. Preliminary NIIP data have been compiled for Equatorial Guinea and Gabon, but these are not yet disseminated to the Fund. Chad’s IIP data suffers from inconsistencies and is not submitted yet; C.A.R. does not produce IIP data.

The five-month benchmark continues to be appropriate for a resource-rich monetary union exposed to volatile commodity prices. Cost-benefit scenario analysis indicates the optimal level of reserves for CEMAC could range between 6.3 to 9.7 months of imports depending on the scenario. See also CEMAC—Common Policies in Support of Member Countries Reform Programs—Staff Report and Statement by the Executive Director, IMF Country Report No. 21/21 and Dabla-Norris, E. J, I. Kim, and K. Shoran, “Optimal Precautionary Reserves for Low-Income Countries: A Cost-Benefits Analysis” IMF Working Paper 11/249, 2011.

See also CEMAC—Common Policies in Support of Member Countries Reform Programs—Staff Report and Statement by the Executive Director, IMF Country Report No. 22/208 (IMF/CR/22/208).

Following Gabon’s Eurobond issuance in 2021 the baseline does not assume any further Eurobond placements.

The calibration relies on gross foreign assets statistics from the BEAC’s monetary survey and the most recent CEMAC macro framework projections.

Appendix I. Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries

Yaoundé, December 1, 2022

Madame Kristalina Georgieva

Managing Director

International Monetary Fund

700 19th Street, NW

Washington, DC 20431

USA

Subject: Follow-up to the letter of support for the recovery and reform programs undertaken by the CEMAC member countries

Dear Madame Managing Director:

This letter renews the assurances provided in June 2022 by the regional institutions in support of the economic recovery and reform programs undertaken by the Member States of the Economic and Monetary Community of Central Africa (CEMAC). It reflects the commitments made during the discussions held during the regional consultations taking place from November 2 to 15, 2022 between Fund Staff and CEMAC institutions.

In 2022, National and Regional Authorities continued their economic policy and macroeconomic stabilization efforts against the background of the fallout from the war in Ukraine just as the sub-region was exiting the COVID-19 crisis. In this context marked by inflation accelerating to around 4.6 percent in 2022, above the 3 percent convergence criterion, the normalization of monetary easing measures, mentioned in our last letter of assurance, has been pursued. Accounting for the expected magnitude of inflationary pressures, BEAC continued the proactive tightening of its monetary policy, initiated in end-2021, to preserve price stability and external reserves. In 2022, BEAC raised its main policy rate by 50 basis points in March, and subsequently in September to reach 4.5 percent. In addition, the liquidity absorption rate was raised by 25 basis points to 0.75 percent. BEAC continued scaling down its weekly liquidity injections, which were brought down from their highest level of CFAF 250 billion in 2021 to CFAF 50 billion in November 2022 and discontinued all three of its long-term liquidity injection operations. In November 2022, two banks structurally dependent on BEAC liquidity were granted access exclusively to the marginal lending facility window. Haircuts on public securities used in the monetary operations for half of CEMAC member countries were tightened in May 2022. In accordance with its statutes, BEAC did not provide direct monetary financing to the Member States. BEAC stands ready to continue tightening its monetary policy in the event of surging inflationary pressures, to ensure internal and external monetary stability in an appropriate manner, including by adjusting its key policy rate and tightening liquidity.

Moreover, fiscal projections for 2022 are encouraging––the sub-region’s overall fiscal balance (excluding grants) is expected to gradually improve to 0.7 percent of GDP in 2022. The non-oil primary deficit is expected to remain stable at around 7 percent of non-oil GDP in 2022. Nonetheless, the fiscal cost of fuel subsidies, projected at 1.5 percent of GDP at end-2022, along with their sustainability, pose major risks to the budgets. Structural fiscal measures––notably non-oil tax revenue collection, public spending restraint and efficiency, PFM improvement, and reduction of non-targeted subsidies––should help improve fiscal balances in 2023. Total public debt remains contained below the convergence threshold of 70 percent of GDP and is expected to decline to 52.7 percent of GDP in 2022, 4.9 percentage points lower than its estimated level in 2021. The current account balance is also expected to improve significantly, from a deficit of 2.3 percent of GDP in 2021 to a surplus of 1.6 percent, reflecting the positive impact of high hydrocarbon prices in the sub-region’s oil-producing countries, combined with a very modest increase in imports by end-2022.

Owing to tighter monetary policy and improved overall fiscal balances on account of strong oil export proceeds, the external position improved during 2022Q2, reflected by an increase in net foreign assets (NFA) since their trough of end-2021. This performance is also due to CEMAC Member States with stronger fiscal positions and better market access, saving part of their exceptional 2021 SDR allocation. The regional NFA assurance for end-June 2022 (EUR 2.81 billion) was therefore met with a margin of EUR 378 million.

The macroeconomic outlook is marked by a firmer economic recovery—albeit of lower magnitude than projected during the previous Fund staff visit owing to the slight downward revision of oil price forecast in the World Economic Outlook (WEO). The recovery will thus be driven by a rebound in non-oil sector activity due to the lifting of COVID-19 containment measures, improved terms of trade on non-oil products (manganese, wood, gas) and positive spillovers of high oil prices onto the services sector.

This outlook, while favorable, is conditional on continued prudence in managing the oil windfall and accelerating reform implementation momentum under Fund-supported programs. However, this outlook is subject to high uncertainties, notably in relation to the tightening of global financial conditions (which accentuate vulnerabilities to refinancing risks), soaring food prices, donor support, and the rate of government’s indebtedness. The rise in global inflation could also lead to higher subsidy costs (fuel and food products), which could significantly weigh on budgets, thus eroding the oil windfall and ultimately weighing on BEAC’s external reserves. The recovery will also be conditional on the reviews of ongoing Fund-supported programs, as well as the materialization of expected budget support from other donors and progress in the external debt restructuring for Congo, in the context of the magnitude of the sub-region’s external financing needs. Moreover, the outlook is susceptible to internal developments, notably on the security and socio-political situations in Cameroon, C.A.R. and Chad, which may affect the implementation of Fund-supported programs. In this macroeconomic context marked by uncertainties, BEAC will continue to implement necessary measures to strengthen the sub-region’s internal and external stability, in accordance with its mandate.

BEAC is also proceeding with efforts to fully implement the foreign exchange (FX) regulations. These efforts, which have started to bear fruit, have been reflected in the strengthening external monetary stability. To further encourage compliance with the provisions in force and in particular with the FX surrender requirements, we are in an ongoing dialogue with banking sector and other economic actors with a view to refine the process. Regarding the oil sector and the application of the agreements reached in end-2021, the processes for authorizing the opening of foreign currency accounts are continuing, and more than 500 accounts have already been approved to facilitate the repatriation of a significant part of export proceeds. These accounts can be used flexibly at low cost and are protected from seizure-attribution and/or seizure of a bank account. BEAC is also continuing discussions with oil companies regarding the operational modalities for the repatriation of the funds set aside for the rehabilitation of oil sites. Beyond the application of the FX regulations to the oil sector, Member States’ support and cooperation will be essential to guarantee and promote the repatriation of export revenues, including by SOEs, to strengthen the region’s external stability.

BEAC continued its efforts to contribute to a more efficient PFM, notably by establishing an IT platform to facilitate the roll-out of treasury single accounts, which is in its implementation phase in some pilot countries.

Concerning banking supervision, in July 2022, COBAC lifted the temporary COVID-related measures and intensified onsite inspections over the recent months. COBAC stands ready to monitor banks’ refinancing needs and to accelerate resolution procedures for undercapitalized banks. COBAC reiterates its readiness to continue collaborating with BEAC to examine the refinancing plans of banks structurally dependent on BEAC’s refinancing and provide all necessary supervisory information. In addition, following the normalization of prudential regulations, COBAC will adopt a cautious approach regarding dividend distribution, in line with the banking regulations.

Government support will be necessary for strengthening banks with government ownership and implementing plans to clear domestic payment arrears, which should be based on transparency principles, and backed by PFM-enhancing measures, to avoid the resurgence of new domestic payment arrears that continue to threaten financial stability. Government support will be also essential to reduce the risk to banks’ balance sheets from exposure to the sovereign.

Given emerging cryptoasset-related risks in the region following C.A.R.’s adoption of a cryptoasset law giving legal tender status to crypto-currencies, COBAC took a decision on May 6, 2022 prohibiting entities under its remit to hold and carry out transactions in cryptocurrencies and strengthening the reporting requirements to which these entities are subject. An extraordinary meeting of UMAC’s Ministerial Council in July 2022 reiterated the inconsistency of C.A.R.’s cryptoassets law with the Convention of the Central African Monetary Union and urged the country to comply. BEAC is looking forward to working with C.A.R.’s Authorities, when they are ready, to assess the range of possibilities for consistency with the Monetary Union Convention. Also, the Coordination in the design of a regulatory framework to resolve the inconsistency between C.A.R.’s cryptoassets law and the regulation governing cryptoassets and digital payments has been assigned to BEAC. We envisage to set up two working groups which will start work as soon as possible and in close coordination with COBAC, COSUMAF and GABAC, to ensure a more concerted, common, and coherent position on digital assets regulation.

The above-mentioned measures, combined with the continuing fiscal consolidation and the implementation of structural, transparency and governance-enhancing reforms by the Member States, as well as donor budget support under ongoing Fund-supported programs, have contributed to the consolidation of net foreign assets (NFA). Nonetheless, despite recent improvements in the external position, the downward revision of oil prices forecast, possible deterioration of fiscal balances caused by fuel subsidies, possible delays in disbursements of budget support in some member countries, and growing external financing needs owing to higher-than-expected debt service (notably in Congo) could weigh on external reserves build-up in the second half of 2022 (which could be lower than projected). The forecast deviation from the initial NFA target at end-December 2022 stands at around EUR 341 million. Had it not been for these factors, NFA at end-December 2022 would have reached the level projected during the last review of regional policies. It was thus agreed to revise downwards the regional NFA target at end-December 2022 from EUR 3.73 billion to EUR 3.39 billion. In addition, the NFA target for end-June 2023 is proposed to be set at EUR 3.93 billion. It should be noted that these projections remain dependent on external financing assumptions (including exceptional financing, excluding IMF financing) of EUR 412 million during the second half of 2022 and EUR 163 million during the first half of 2023.

BEAC and COBAC will maintain their efforts to ensure a diligent monitoring of CEMAC member countries’ Fund-supported program status and will continue to work in close cooperation with Fund staff to support the economic recovery. These institutions stand ready to notify and consult with Fund staff in a timely manner on economic developments which may affect CEMAC’s external stability through end-December 2022 and end-June 2023 and to take the necessary corrective measures, including with respect to monetary policy, in the event of unfavorable developments.

As I remain available to work alongside the IMF and the CEMAC Member States with the aim of achieving an improvement in macroeconomic balances in the sub-region, please accept, Madame Managing Director, the expression of my highest consideration.

/s/

ABBAS MAHAMAT TOLLI
3

BVMAC (40 percent), BEAC (20 percent), BDEAC, brokerage firms and primary dealers (SVTs) (10 percent each), asset managers and enterprises operating in the CEMAC (5 percent each).

4

Regional debt-to-GDP ratio is calculated as a weighted average by individual countries’ GDP.

5

“AFBL” refers to Central Bank (CB)’s balance sheet items that affect banks’ reserves at the CB, but that are beyond its control. The AFBL components are the NFA, net credit to government, currency in circulation and other items net.

6

Staff revised the presentation of certain historical BOP data and projections in Tables 4a and 4b, specifically for current account balance, overall balance and residual financing gap. However, other macroeconomic data and historical projections (including NFA) remain unchanged.

7

Other CEMAC member countries used most of the 2021 allocated SDR to meet social and development spending (including food insecurity), repay domestic debt and clear domestic payment arrears, improve domestic financing composition, and offset external budget support shortfalls, broadly in line with staff’s guidance (Figure 3, Panel I).

8

The assumed World Economic Outlook (WEO) oil prices are below the previous forecasts from the spring, by about 8 percent for 2022 and 2023, and about 3 percent over the medium term.

9

This is in line with assumptions under ongoing Fund-supported programs and requires their timely implementation.

10

See also Box 1. Possible Spillover Channels of the War in Ukraine on CEMAC in CR/22/208.

11

Launched in 2022, the PAPSS is a centralized payment and settlement system for intra-African trade.

12

Key elements of such regulatory and business climate reforms could include harmonizing taxation within the region, removing key bottlenecks, aligning the treatment of firms in the formal and informal sectors, reducing red tape, promoting fair competition, and improving governance and transparency in the extractive sector.

13

Excise taxes on goods (tobacco, alcohol, high sugar content product) could also bring rapid tax revenues and foster public health, although they may prove detrimental to long-term growth.

14

Key reforms could include redefining SOE’s strategic role, reducing their involvement in activities better performed by the private sector, and levelling the playing field.

15

Congo requested a PIMA.

16

Subsequently, each Treasury’s information system should be interfaced with BEAC’s one and SWIFT for regional and international transfers, respectively.

17

The working group, created in November 2022 through Decision n°371/GR/2022, is tasked with diagnosing banks’ liquidity situation and proposing steps to ensure better resources allocation in the monetary market.

18

The stricter enforcement of forex regulations (since 2018) is a tightening of a capital flow management measure (CFM), which continues to be appropriate for ensuring further external reserves build-up.

19

The adaptation provides for the repatriation of 35 percent of export proceeds (against 70 percent for other sectors) and the possibility for extractive sector companies, including transporters and subcontractors, to hold accounts in foreign currencies in CEMAC banks (after BEAC’s authorization). The agreement provides for the protection of these accounts, which can be used with great agility and at low cost, against the risk of abusive seizures.

20

The sector is required to repatriate funds set aside for the rehabilitation of oil sites in long-term foreign currency escrow accounts in the CEMAC within three years.

21

See IMF’s Country Report No. 2022/208 (Annex I) for a related detailed discussion.

22

The regulation’s implementation texts are pending.

23

The new sanction mechanism was adopted by the council of ministers in January 2021.

24

Member countries met at least two out of four convergence criteria in 2021, except Gabon and C.A.R., which met only one criterion (inflation and debt, respectively). No country has met the criterion related to the non-accumulation of domestic payment arrears.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern at the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. The conjunctural shocks and scenario highlight risks that may materialize over a shorter horizon (between 12–18 months) given the current baseline. Structural risks are those that are likely to remain salient over a longer horizon.

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Cover IMF Staff Country Reports
Central African Economic and Monetary Community: Staff Report on the 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
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2023: Issue 001
Publisher:
International Monetary Fund
ISBN:
9798400227455
ISSN:
1934-7685
Pages:
68
DOI:
https://doi.org/10.5089/9798400227455.002
Text Figure 1.

CEMAC: Regional Daily Reserves, 2017–22

(Billions of CFA francs)
Text Figure 2.

CEMAC: Credit Outstanding to the IMF

(SDR, percentage of SDR quota)
Text Figure 3.

BEAC-ECB Policy Rate Spread and CEMAC Gross External Reserves (RHS)
Text Figure 4.

CEMAC: Stock of Government Securities

Monthly – CFAF Billion
Figure 1.

CEMAC: Selected Economic Indicators, 2001–22
Figure 2.

CEMAC: Selected Economic Indicators, 2006–25
Figure 3.

CEMAC: Recent Monetary Developments
Figure 4.

CEMAC: An Overall Positive Terms of Trade Shock