Central African Economic and Monetary Community (Cemac): Common Policies of Member Countries and Common Policies in Support of Member Countries Reform Programs
Author:
International Monetary Fund. African Dept.
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Publication Date:
09 Jul 2019
eISBN:
9781498324755
Language:
English
Keywords:
ISCR; CR; CEMAC Commission; CEMAC authorities; BEAC; bank; CEMAC country; liquidity injection; CEMAC heads of state; CEMAC bank; CEMAC residents bank; CEMAC foreign exchange regulation
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Common Policies in Support of Member Countries Reform Programs

Abstract

Common Policies in Support of Member Countries Reform Programs

Background and Recent Developments

A. Context

1. The regional strategy has helped stabilize the regional economic position, but challenges remain. Significant fiscal consolidation efforts by the CEMAC countries supported by a tighter monetary policy stance and aided by external financial assistance in the context of IMF-supported programs have contributed to the improvement in the region’s external position and recent pick-up in regional external reserves. Overall, public debt started to be put on a downward trend. However, the region remains dependent on oil revenues, with little progress in economic diversification and under-performing budget non-oil revenues. Non-oil growth continues to be too low to provide enough jobs and income to a young and growing population. And financial sector vulnerabilities persist. Continued efforts will be required to buttress the region’s external position and address development challenges, notably in terms of diversified and inclusive growth, job creation for a fast-growing working-age population, and social development.

2. Facing these challenges, the CEMAC authorities reiterated their full commitment to the regional strategy and their readiness to implement additional corrective measures if needed. At their March 24th, 2019, meeting in N’Djamena, CEMAC Heads of State urged each member state to adhere to the fiscal adjustment targets agreed under IMF-supported programs; encouraged Congo and Equatorial Guinea to conclude IMF-supported programs as soon as possible; and, among others, supported a strong implementation of the CEMAC foreign exchange regulation. The CEMAC authorities also decided to set-up a Tripartite consultative forum to bring together country authorities, regional institutions, and IMF staff to discuss further policy responses in case of new emerging challenges or weak program implementation. At the first meeting of this forum on April 2nd, the authorities agreed to high-level policy actions to keep the strategy on track (see Annex 1).

B. Implementation of Policy Assurances and Country Programs

3. All regional policy assurances included in BEAC’s Governor letter of December 2018 were implemented as planned. The revised foreign exchange regulation was adopted by BEAC’s Board and UMAC Ministerial Committee in December 2018 and became effective in March 2019 (economic actors will have 6 months to conform with the new regulation). The measures to modernize BEAC’s monetary policy operations framework were implemented by end-2018 (all monetary transactions and related collateral are recorded according to the new accounting plan introduced in June 2018). The objective for end-2018 regional NFAs was exceeded (see below).

4. Performance of country programs through end-2018 was broadly satisfactory in most cases, and progress has been made toward IMF-supported programs in the remaining two countries. CEMAC countries continued to pursue a sizeable fiscal adjustment overall. Programs remain on track in Cameroon, Chad and Central African Republic with most quantitative targets for end-December met. In Gabon, macroeconomic imbalances further narrowed in 2018, but program performance remained weak and the authorities continued to accumulate new external arrears. The authorities, however, clearly stated their commitment to keep the program on track and are taking steps to improve program implementation. In Congo, the authorities reached an agreement with China on debt restructuring, which will contribute to making debt sustainable and allow for consideration of a new IMF-supported program by the IMF executive Board. In Equatorial Guinea, positive steps toward the application for membership of the extractive industries transparency initiative (EITI) have been completed, and discussions on a new IMF-supported program would start following the submission of such application.

C. Recent Economic Developments

5. Economic conditions improved somewhat in 2018. Overall regional growth increased but remained subdued at 2.5 percent (from 1 percent in 2017). This rebound was mainly supported by a significant increase in the oil sector (+5.3 percent following several years of decline) while non-oil growth slowed down (1.8 percent from 2.4 percent in 2017). Inflation increased in 2018 mainly reflecting adjustments in administered prices in several countries to reduce subsidies (including in the energy sector) and increases in food prices due to supply shocks in some regions. It ended the year at close to 3 percent (y-o-y), but has stabilized in early 2019.

7. Fiscal policies continued to be tight. Further fiscal consolidation efforts brought the regional overall fiscal position close to balance. This improvement was mainly driven by spending cuts, largely investment programs, in all CEMAC countries (with the exception of Central African Republic) and a moderate increase in revenues (mainly oil-related). While not yet under Fund-supported programs, Congo and Equatorial Guinea implemented strong fiscal consolidation policies, recording surpluses of their overall fiscal balances. The average public debt-to-GDP ratio declined (for the first time in recent years) by about 2 ½ percentage points, to 50 percent of GDP.

8. Along with the increase in its policy rate in October 2018 by 55bp, the BEAC continued its gradual reduction in liquidity injections, but this is not keeping pace with the build-up of excess liquidity in the banking sector. Liquidity injected by the autonomous factors has been building up in the system through early 2019, driven by the evolution of net foreign assets which contributed to an increase in bank deposits (8 percent). Meanwhile, credit growth remained moderate (4 percent). The excess liquidity appears to be still highly concentrated in few (mostly foreign-owned) banks while a few systemic banks in Chad and Equatorial Guinea remain liquidity-stressed due to their direct or indirect exposure to the sovereign. Persistent segmentation and lack of confidence continue to hinder the development of the interbank market. Interbank transactions based on repo arrangements have picked up somewhat in the first quarter of 2019 but remain essentially driven by intra-group transactions. Against this background, BEAC’s total liquidity injections have decreased only gradually, by about CFAF 100 billion between June 2018 and May 2019, not keeping pace with the build-up of excess liquidity which reached about CFAF 1.5 trillion in the first quarter of 2019. Nevertheless, the reduction in liquidity injections has led to an increase in the weighted average liquidity auction rate (from 3.52 to 5.85 percent) and an increase in the recourse to the marginal lending facility (at a 6 percent interest rate).

9. At the same time, the quality of banks’ portfolios has further deteriorated, largely reflecting the legacy of government arrears. The ratio of overdue loans increased by 4 percentage points in 2018 (to 21 percent), largely due to a 45 percent increase in defaults on loans with direct or indirect sovereign guarantees. The authorities indicated that this mostly mirrors slow repayments of government domestic arrears, leaving companies that rely on public contracts unable to service their bank loans. Regulatory compliance remains weak with only 20 banks out of 51 complying with the concentration risk limit and resolution of small ailing banks remains slow, generally due to delays in actions by national authorities.

10. Tighter policies and higher oil prices helped to reduce external imbalances and increase external reserves. The 28-percent growth in oil exports, together with a moderate increase in imports, contributed to a decline in the deficits of the external current account (2.1 percent of GDP) and of the overall balance of payments (1.3 percent of GDP). As a result, with still large exceptional external financing (although lower than expected two years ago), gross reserves continued to build-up and the imports cover reached 2.7 months at end-2018. The end- year objective for regional net foreign assets was exceeded by €170 million due to an increase in private sector’s monetary holdings with banks. Reserves have increased further since then (see Text Figure 9). Nevertheless, the reserves import coverage remains below levels that are appropriate for a resource-rich currency union. In the absence of significant new external sector developments for end-2018, the external sector assessment carried out during the last regional consultation, which assessed CEMAC’s external position as moderately weaker than implied by fundamentals and desirable policy settings, remains appropriate.

Text Figure 1.
Text Figure 1.

CEMAC: Inflation Rates

(year-on-year)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: BEAC, WEO, and IMF staff calculations.
Text Figure 2.
Text Figure 2.

CEMAC: Fiscal Performance

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: Country authorities and IMF staff estimates.
Text Figure 3.
Text Figure 3.

CEMAC: Evolution of Excess Liquidity (Before Monetary Operations)

(Millions of CFA francs)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: BEAC and IMF staff estimates.
Text Figure 4.
Text Figure 4.

CEMAC: Average Excess Liquidity per bank before refinancing operations, 2019Q1

(Millions of CFA francs)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: BEAC and IMF staff estimates.
Text Figure 5.
Text Figure 5.

BEAC’s Monetary Operations

(Billions of CFA francs)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Source: BEAC.
Text Figure 6.
Text Figure 6.

BEAC Key Interest Rates

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Source: BEAC.
Text Figure 7.
Text Figure 7.

CEMAC: Estimated Stock of Domestic Arrears, as of May 2019.

(Percent of GDP)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: BEAC, country authorities, and IMF staff estimates.
Text Figure 8:
Text Figure 8:

CEMAC: Non-performing Loans, October 2018.

(Percent of gross loans)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: BEAC, country authorities, and IMF staff estimates.
Text Figure 9.
Text Figure 9.

BEAC: Daily Reserves and Staff Projections for December in the June 2018 Staff Report 1/ 2/

(Billions of CFA francs)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Source: BEAC.1/ Excludes the reserve position with the IMF (about CFAF 36 billion), which is not explicitly reported in the situation comptable.2/ The red squares represent the projections at the time of the December 2018 Staff Report.
Text Figure 10.
Text Figure 10.

CEMAC: Deposits Held Abroad by CEMAC Residents Banks and Non-Banks

(outstanding, millions of U.S. dollars)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Source: BIS.Note: Data shows the BIS data series for loans and deposits liabilities with a counterparty in CEMAC countries. As loans liabilities are generally very small, in particular for non-bank sector, staff has considered this data series to show mostly deposits.
Text Figure 11.
Text Figure 11.

CEMAC: Deposits Held Abroad by CEMAC Residents Non-Banks

(outstanding, millions of U.S dollars)

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Source: BIS.Note: Data shows the BIS data series for loans and deposits liabilities with a counterparty in CEMAC countries. As loans liabilities are generally very small, in particular for non-bank sector, staff has considered this data series to show mostly deposits.
Figure 1.
Figure 1.

CEMAC: Performance and Revised Projections Against Original Objectives of the Regional Strategy

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: CEMAC authorities; and IMF staff estimates.

Medium-Term Outlook and Risks

11. The outlook for 2019 foresees further improvement as CEMAC countries remain committed to their program objectives and new programs with Congo and Equatorial Guinea would start:

  • The outlook assumes full implementation of country programs through end-2019, including fiscal adjustment to preserve their non-oil primary balance targets. It also assumes a gradual repayment of domestic arrears, once credible arrears reduction strategies are validated through mid-year. New IMF-supported programs are expected to be approved in July for Congo and by end-year for Equatorial Guinea.

  • Overall growth is projected to pick up to 3.4 percent in 2019 but would decline slightly in the following years due to a return to a declining trend in oil production. Non-oil growth would increase by 1 percentage point from last year (to 2.7 percent in 2019), despite a volatile security situation in various areas, as economic activity in Congo would stabilize. It would continue to increase gradually in the following years reflecting the gradual resolution of the legacy of domestic payment arrears and governance reforms undertaken under new IMF-supported programs. Inflation would remain below the regional convergence criteria, as monetary policy would remain appropriately tight.

  • Further fiscal consolidation would reduce the regional non-oil fiscal deficit by about 1 ½ percent of non-oil GDP in 2019. The non-oil deficit would decline more gradually thereafter supported by a pickup in non-oil revenues. Overall, the public debt-to-GDP ratio would further decline to 49 percent of GDP in 2019 and below 40 percent by 2023.

12. Due to lower oil prices than assumed at end-2018, the accumulation in NFA through end-2019 would be slightly below the projections included in the previous regional policy assurances but still adequate. With significantly lower oil prices and exports relative to previous assumptions (by 12 percent in €/bbl terms and about €1.4 billion, respectively) and a moderate import growth, the external current account deficit is projected at about 2.7 percent of GDP (1 ¼ percent of GDP above previous projections). As a result, NFA will accumulate at a slightly slower pace and fall short of the previous projections by about €90 million. Still, the reserves-to-imports ratio would reach 3.3 months at end-2019 and NFA accumulation this year would be more than double of last year (despite lower oil prices). NFA accumulation over 2017–19 would still significantly exceed the objective set 2 years ago, notwithstanding lower budget aid (by €880 million over the period) while oil prices (in €) would be only 3 percent higher on average over the period compared with the 2017 projections. 1 This is testament of the strong underlying fiscal adjustment efforts, part of which were undertaken outside the perimeter of Fund-supported programs (for Congo and Equatorial Guinea).

13. Downside and upside risks to this outlook are broadly balanced.

  • Downside risks, which could affect the attainment of the regional NFA projections, include:

    • o First, weaker program implementation could slow down the repayment of domestic debt and arrears which has a direct impact on financial sector stability and overall growth. Some program reviews may be postponed if appropriate corrective actions to address slippages were not implemented as planned, which could delay the associated external budget support. Similarly, further delays in the approval of a financial arrangement with Equatorial Guinea could reduce the amounts of external financing effectively disbursed in 2019 by development partners (currently projected at €0.1 billion).

    • o Second, with the region still heavily dependent on oil receipts/revenue, a prolonged decline in oil prices would put additional pressure on fiscal and external balances and on the financial sector (although latest oil price developments point to higher prices than currently projected).

    • o Finally, a deterioration in the security situation, which is volatile in some countries, would negatively affect economic activity and might lead to increased military spending needs and capital outflow pressures.

  • There are also important upside risks:

    • o First, efforts by the national authorities and the regional institutions to ensure strict implementation of the new foreign exchange regulation could result in higher NFAs.

    • o Second, oil prices might turn higher than the conservative level currently projected and contribute to larger NFA accumulation; the design of country programs would ensure that such oil revenue windfall would result in reduced net debt, either in the form of larger government deposits, accelerated payments of audited arrears or lower gross borrowing. A scenario reflecting the possible impact of higher oil prices, based on oil price futures as of mid-May 2019, indicates a possibly larger NFA accumulation by an additional €500 million in 2019 and a cumulative €1.2 billion by end-2020 (see Text Table 2).

  • Would only downside risks materialize and lead to a large deviation in NFA accumulation, member states and regional institutions should promptly consult on the necessary corrective actions, which could possibly include an acceleration of fiscal adjustment and structural reforms and a further tightening of monetary policy.

Text Table 1.

CEMAC: Completion Status of Regional Assurances

article image
Sources: BEAC and IMF staff estimates.
Text Table 2.

CEMAC: Alternative Scenario Under Higher Oil Prices

article image
Source: IMF staff estimates.
Text Table 3.

CEMAC: External Financing

article image
Sources: CEMAC authorities; and IMF staff estimates.

Policy Discussions

A. Monetary Policy Stance

14. BEAC’s monetary policy stance remains focused on external stability. Following the increase in its policy rate in October 2018, the BEAC maintained the monetary policy stance unchanged in a context of still moderate inflation, sluggish non-oil growth, ailing credit market and external reserves being on an upward path. Despite the increase in inflation in the region in 2018, the real effective exchange rate has remained broadly stable. The authorities considered that the increase in inflation last year was largely due to supply-side factors which are not fueling inflationary expectations. In this context, monetary policy will continue to be geared towards supporting external reserves accumulation.

15. Staff concurred with the authorities to anchor monetary policy to the primary objective of external stability and advised BEAC to remain vigilant. In staff’s view, the objective of strengthening external stability warrants close monitoring of economic developments and a readiness to act fast by the BEAC. The reserve coverage, while increasing, remains below what is considered adequate for an oil exporting economic area. While considering the current stance as adequate in view of still moderate inflation and reserves being on their projected path, staff urged BEAC to stand ready to tighten monetary policy should pressures on external reserves emerge or inflation increase strongly.

B. Sterilizing Excess Liquidity

16. BEAC’s commendable overhauling of its monetary policy implementation framework rests on the objective of strengthening the interest rate transmission. By pursuing an active liquidity management, the BEAC aims to steer the interbank rate towards the policy rate. In a context of excess liquidity and decrease in the credit to deposit ratio under a fixed exchange rate regime, absorption operations would better transmit to banks’ deposit rates which in turn would mitigate risks of pressures on external reserves.

17. Staff recommended to swiftly move to sterilize the increasing excess liquidity in the banking system as it could potentially represent a risk for external stability and inflation. Although past evidence does not point to a strong link between excess liquidity and inflationary pressures in CEMAC, staff noted that idle liquidity could easily lead to capital outflows if monetary policy transmission did not strengthen (interest rates on bank deposits reportedly remained broadly unchanged following the increase in the policy rate). In this context, staff recommended to start absorbing liquidity through open-market operations within a few months and possibly increase reserve requirement ratios only slightly. 2 The calibration of the target absorption amount should be determined in line with the neutral liquidity allocation, taking into consideration the autonomous factors of liquidity projections and the precautionary liquidity level. Staff noted that banks still in need of liquidity would see only a marginal impact on their resources cost as interest rates on liquidity injections have moved very close to the rate of the marginal facility.

18. The BEAC agreed with the ultimate objective to move towards neutral liquidity allocation, which would require absorbing excess liquidity, but favored a slightly more gradual approach. The BEAC accelerated recently the reduction in liquidity injections and aims at stopping them by end-2019 before initiating liquidity absorbing operations in 2020. In support of its more gradual approach, BEAC considers that: (i) liquidity absorption could impede interbank market development; (ii) the liquidity-stressed banks (including systemic ones) would be put under further stress; (iii) the excess liquidity, largely held by foreign-owned banks which follow very prudent credit policies, would not pose a significant risk for inflation or external stability; (iv) possibly large amounts of liquidity will be removed from banks in coming months in the context of single treasury accounts reforms implemented by several CEMAC countries; and (v) the cost of liquidity absorption could lead to operating losses for BEAC. Staff urged BEAC to be nevertheless ready to accelerate its move towards liquidity absorption in case external pressures were to emerge.

C. Dealing with Liquidity-stressed Banks

19. In line with staff advice, BEAC is developing a new regulation to monitor and support liquidity-stressed banks. About 80 percent of total BEAC liquidity injections is provided to three systemic liquidity-stressed banks, that have sufficient collateral to access normal monetary operations. A new regulation under preparation, expected to be adopted by end-July 2019, will set specific criteria to define a “liquidity-stressed” bank (such as dependence on BEAC liquidity or repeated breaches of regulatory liquidity requirements) and require such bank to submit a credible funding strategy which would reduce liquidity needs from BEAC over a reasonable period. Implementation of a funding strategy will be monitored by COBAC and banks would be subject to sanctions in case of noncompliance. Separately, COBAC, which oversees bank liquidity in CEMAC, plans to revise the prudential liquidity ratio towards international standards by end-2019.

D. Implementing the Revised Foreign Exchange Regulation

20. The authorities are committed to ensure strict implementation of the new Foreign Exchange (FX) Regulation.3 BEAC is finalizing the implementing regulations. Those related to the obligation of banks to surrender their forex holdings to BEAC are already advanced and may be adopted by end-June. Others related to the obligation of economic agents to fully repatriate their export receipts through domiciliation of transactions with a local bank will be issued after consultation with national customs administrations and possible solutions to operate within the capacity constraints of these administrations will be identified in the coming months. The implementing regulations are expected to ensure an effective monitoring framework so that BEAC can take disciplinary action and apply financial sanctions against non-compliant institutions and individuals from September 2019. In this regard, it will be important that BEAC, in coordination with national authorities, put in place a strong monitoring and enforcement capacity. Internal resources were increased significantly to ensure prompt execution of legitimate foreign exchange requests. The new framework will also allow BEAC to authorize certain economic agents, such as companies of extractive industries, to hold accounts abroad and/or in foreign currency with resident banks under justified conditions in line with the eligibility criteria being specified in the implementing regulations, which will then be strictly monitored by BEAC. Deposits held abroad by CEMAC residents, as reported by BIS, still appear excessively large at end-2018, but BEAC is not able to scrutinize all these accounts.

21. Staff strongly supported the authorities’ commitment in this area, but also urged the regional institutions to define and implement a thorough communication effort. The mission was made aware of strong concerns by some banks and operators of extractive industries about the implementation of the new forex regulation, and there is a growing (unfounded) perception of foreign exchange rationing in certain countries. Staff urged BEAC to accelerate its outreach efforts and organize consultations by economic sector to discuss possible information gaps to support a smooth implementation of the regulation. Staff also encouraged the BEAC to better engage with representatives of the extractive industry and clarify possible conditions, if justified, which would allow them to maintain accounts abroad or FX account in the region and provide transparency on exemptions provided. The World Bank will provide technical assistance to support the communication strategy.

22. National authorities will also support the BEAC and COBAC’s efforts to enforce more strictly the foreign exchange regulation. National authorities committed to request their respective customs authorities to ensure domiciliation of all external transactions with a bank in the region. Moreover, they committed to ensure that all public entities (including SOEs in extractive industries) repatriate and surrender all their forex receipts with a resident bank at the latest by end-2019 (following a stock-taking) and share with BEAC and the CEMAC Commission at the latest by end-September 2019, copies of all contracts/arrangements they have signed with companies in extractive industries (structural benchmarks in country programs) in order to review their compliance with the new forex regulation. National authorities will also support the communication strategy of BEAC and encourage economic agents to consult with BEAC. In addition, national authorities should refrain from creating or authorizing further exemptions to the foreign exchange repatriation and surrendering requirements inconsistent with BEAC’s implementing regulations (including through domestic oil codes or national legislation or regulation). Any action which would be inconsistent with the foreign exchange regulation should be brought into line with it. All these commitments are now part of IMF-supported country programs.

E. Strengthening Financial Sector Stability

23. COBAC has adopted an ambitious 2019–21 strategic plan, focusing on the implementation of a risk-based supervision. The plan also aims at modernizing and gradually aligning CEMAC’s regulatory framework to Basel standards, introducing consolidated supervision, as well as strengthening reporting and supervisory tools. In line with staff recommendations, the strategic plan also includes actions to monitor NPLS reduction in banks, strengthen the framework on risk management and internal controls, and enhance compliance with prudential, AML/CFT, and FX regulations (including through financial sanctions for noncompliant banks). In view of recent developments, staff further suggested to COBAC to review options to treat NPLSs on credit to finance companies implementing government projects as regular NPLs and to set time limits for the bank resolution processes.

24. Staff welcomed COBAC’s more assertive strategy to monitor NPLS reduction by banks, supported by concrete short-term actions. The SG-COBAC is analyzing the NPLS reduction strategies received from banks in early 2019 and will define supervisory actions to monitor them. Additionally, it is requesting all national authorities to provide government arrears repayment plans to assess their impact and their suitability to repair bank balance sheets. COBAC views government arrears repayment plans as critical to enhance confidence in the market and allow CEMAC banks to finance the private sector. Staff further recommended conducting a review of write-off and forbearance practices in banks by end-September 2019 and discuss with national authorities the opportunity of taking one-off actions to clean-up fully provisioned loans on bank balance sheets.

25. Staff welcomed COBAC’s plan to strengthen its supervision of bank liquidity. The COBAC aims to revise the current prudential short-term liquidity ratio. This new ratio may slightly differ from the Liquidity Coverage Ratio definitions to account for regional specificities, but it should allow for a more meaningful measure of the true liquidity of assets, including government securities. Staff advised to define this ratio by end-2019 and align the supervisory approach with the one used to deal with banks highly dependent on BEAC refinancing.

26. Staff considered that the process for dealing with problem banks needs to be made more predictable and streamlined. 9 banks are now under a resolution process, compared with 6 a year ago. This increase is mainly due to (i) the non-(or delayed) implementation of certain COBAC decisions by national authorities; (ii) the delays by national authorities and bank shareholders in complying with COBAC’s instructions; and (iii) a tendency by COBAC to accommodate delays. Staff suggested to (i) set time limits to the resolution processes for small banks; (ii) define criteria and minimum conditions to approve applications for bridge banks; and (iii) to improve information exchange with BEAC on systemic problem bank cases in order for COBAC to better anticipate and monitor restructuring and funding plans.

27. Staff discussed progress made by the regional development bank (BDEAC). The BDEAC indicated that significant reforms were endorsed by its General Assembly in January 2019 to strengthen governance and internal controls. Among others, the functions of BDEAC’s Chairman and CEO are now separated, and both credit and remuneration committees are now operational.

The mission also welcomed the reduction of nonperforming loans and the return to profitability in 2018, as reported by BDEAC’s CEO. While recognizing the essential role of a strong regional development bank to promote inclusive growth, the mission noted that the regional central bank (BEAC) should not, as a matter of principle, be financing the BDEAC. Staff encouraged the BDEAC to continue its reforms process with a view to be able to seek financing on the regional or international financial markets.

F. Enhancing Regional Surveillance and Fiscal Discipline Mechanisms

28. The CEMAC Commission is pursuing the full implementation of the key CEMAC directives in the area of public financial management (PFM). Staff welcomed the important steps taken by the CEMAC Commission to that end and to harmonize fiscal revenue mobilization. Specific measures include the approval of the Directive on excise duties, the revised Customs Code and the Multilateral Tax Treaty on the non-double taxation of personal income tax. Together, these regulations should support the needed increase in non-oil tax revenue, which is a key objective of the regional Economic and Financial Reform Program (PREF). Staff encouraged reinvigorated implementation of other elements of this program, in particular: (i) addressing governance issues, (ii) improving the business climate; and (iii) promoting regional integration.

29. Staff also welcomed the Commission’s work to strengthen its multilateral surveillance framework. The Commission is finalizing an early warning system project, with the assistance of the World Bank, to detect signs that a country may be in breach of the convergence criteria and to rapidly identify corrective measures. The Commission is also following up on CEMAC Heads of State request to develop a binding sanctions regime in case of breaches of regional surveillance rules. Heads of State also required member states to swiftly submit their Triennial Convergence Programs (by 31 July 2019) and to adopt credible and comprehensive domestic arrears clearance strategies by end- 2019 (which will form the basis for assessing the convergence criterion on arrears).

30. Work to amend the BEAC Charter’s Article on mechanisms to protect regional reserves is still ongoing. This amendment is necessary to take into account the new monetary policy operations framework. Technical work continues to identify relevant national thresholds for external reserves under which automatic mechanisms to tighten monetary conditions would be triggered. The BEAC plans to consult with staff when a draft amendment will be ready before submitting it for adoption by its Executive Board.

Monitoring of Regional Developments and Policies

31. BEAC and COBAC have pursued the implementation of the policy commitments provided in the December 2018 Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by CEMAC Member Countries. As indicated above, all regional policy assurances were implemented as planned; BEAC continued to implement a tight monetary policy; and the COBAC continued its efforts to move to a risk-based supervision, ensure a stricter application of certain supervisory rules, and resolve banks in difficulty. The two institutions have also maintained a continuous engagement with staff, allowing for a close monitoring of economic and policy developments and for an assessment on an ongoing basis of the implementation of their policy contents.

32. The attached follow-up letter describes the policy intents by the regional institutions in support of national program objectives. The BEAC is committed to maintain an appropriately tight monetary policy and will focus its efforts in the period ahead to better implement the liquidity management framework and strictly implement the foreign exchange regulation. Consistent with staff projections based on significantly lower oil price projections, the end-2019 NFA projection covered by a policy assurance was revised slightly down, a minor change supported by staff (the June 2019 projection was unchanged). In the event of a significant deviation from the stated NFA accumulation projections, the follow-up letter also reiterates the commitment to identify and adopt, including in the context of the newly established semi-annual Tri-partite discussions, any additional corrective measures that would be deemed necessary at the national and/or regional policy levels to allow the continuation of (or approval of new) IMF financial support as part of the IMF-supported programs with CEMAC members.

33. The BEAC continues to implement the remaining recommendations of the 2017 safeguards assessment. BEAC’s full transition to IFRS for FY 2019 is progressing broadly as planned, and efforts are being stepped up to accelerate the revisions to the secondary legal instruments for alignment with the BEAC Charter. The adoption of the revised secondary legislations was extended beyond the initial timeline (June 2018) to allow for further consultation with stakeholders, including IMF staff.

Staff Appraisal

34. The regional strategy has helped stabilize the regional economic position, but challenges remain. The reductions in the fiscal and external current account imbalances were broadly as expected, and NFA accumulation at end-2018 exceeded their previous objectives. Regional growth rebounded but remains subdued. The possible adoption of an IMF-supported with Congo around mid-2019 and work towards a similar program for Equatorial Guinea possibly by year-end should further support these positive trends. While these commendable efforts averted a much deeper crisis, the region still needs to buttress its external position and address development challenges, notably in terms of diversified and inclusive growth, job creation for a fast-growing working-age population, and social development.

35. Member states need to strictly adhere to their respective IMF-supported program objectives, which will be not only key for the sustainable development of each CEMAC country but also critical to the success of the regional strategy. They should in particular address promptly any fiscal slippages through corrective measures. They will also need to step up their efforts to establish the conditions for sustained and inclusive growth. This will require: (i) creating fiscal space for priority development and social spending through enhanced non-oil revenue mobilization efforts; (ii) addressing governance issues and improving the business climate; and (iii) promoting regional integration. The renewed commitments undertaken by national authorities at the first Tri-partite discussions gathering national authorities, regional institutions and IMF staff are welcome.

36. The regional institutions continue to support effectively the regional strategy. BEAC’s monetary policy stance, combined with member states’ fiscal consolidation efforts and development partners’ budget support, should support the further accumulation of regional reserves to reach a coverage above 3 months of imports by end-2019. If oil prices in 2019 were to be higher than assumed in the current baseline, the BEAC’s target would be expected to be exceeded as the design of IMF-supported programs ensures that the oil revenue windfall would result in reduced net debt. BEAC should continue to aim at strengthening monetary policy transmission and be ready to tighten its stance if external pressures were to emerge and NFAs were to diverge significantly from their projected path.

37. The BEAC will need to manage liquidity with the primary objective of enhancing monetary policy transmission. While BEAC continued and accelerated its gradual reduction of its liquidity injections, this was not enough to offset the recent large increase in banks excess liquidity. Although staff notes the BEAC’s desire for greater gradualism, the BEAC should stand ready to significantly accelerate its planned move toward liquidity absorption in case external or inflationary pressures were to emerge and require a rapid and effective tightening in monetary conditions. An efficient management of BEAC’s reserves and lower operational costs could help cover increased monetary policy costs. At the same time, BEAC’s plan to develop a new regulation to monitor and support liquidity-stressed banks is welcome. The new framework will require liquidity-stressed banks to implement time-bound funding plans aimed at restoring their liquidity situation and provide powers to COBAC and BEAC for monitoring these plans and applying sanctions in case of non-compliance.

38. The better enforcement of foreign exchange regulations should contribute to further external reserves accumulation. The strong commitments of the regional institutions to strictly implement these regulations are welcome. These efforts will need to be supported by national authorities, to ensure in particular the repatriation and surrendering of foreign assets held by public companies and the domiciliation of all exports proceeds with banks in the region and facilitate the review of contracts with companies in extractive industries. In view of some misperception and resistance, the BEAC should strengthen its communication efforts and ensure that the regulation can be smoothly implemented, in a transparent manner, without negatively affecting economic activity and external transactions.

39. COBAC should pursue its efforts to address the banking sector’s weaknesses in the context of its new 2019–21 strategic plan. COBAC’s more assertive strategy to monitor NPLS reduction by banks, supported by concrete short-term actions, is a step in the right direction. It should also find ways to accelerate resolution processes for small ailing banks. Reforms envisaged under the strategic plan should result in a stronger and more effective banking supervision, and better compliance with prudential regulations. These include: (i) implementing a more effective, risk-based supervision; (ii) modernizing and gradually aligning CEMAC’s regulatory framework to Basel standards; (iii) introducing consolidated supervision, as well as strengthening reporting and supervisory tools; and (iv) strengthening the framework on risk management and internal controls.

40. The CEMAC Commission’s work to strengthen its multilateral surveillance framework is welcome. The early warning system being prepared with the World Bank will help detecting signs that a country may be in breach of the convergence criteria and rapidly identifying corrective measures. The Commission should also pursue its work to develop an effective sanction framework, as requested by Heads of States. To support the Commission’s role in the regional surveillance, member states should swiftly submit their Triennial Convergence Programs.

41. Overall, staff: (i) considers that BEAC has implemented the policy assurances provided in the December 2018 follow-up letter; and (ii) supports the updated policy assurance on NFA accumulation (to bring NFA to €3.50 billion and €4.50 billion at end-June and end-December 2019, respectively) provided in the June 2019 follow-up letter. Achieving the projected NFA accumulation based on BEAC’s commitment to implement an adequately tight monetary policy together with the commitment by the member states to implement adjustment policies in the context of IMF-supported programs will be critical for the continuation of (or approval of new) IMF financial support as part of the IMF-Supported programs with CEMAC members.

Figure 2.
Figure 2.

CEMAC: Selected Economic Indicators, 2000–19

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

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

CEMAC: Selected Economic Indicators, 2006–21

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: CEMAC authorities; and IMF staff estimates.
Figure 4.
Figure 4.

CEMAC: Monetary Indicators

Citation: IMF Staff Country Reports 2019, 215; 10.5089/9781498324755.002.A001

Sources: CEMAC authorities; and IMF staff estimates.
Table 1.

CEMAC: Selected Economic and Financial Indicators, 2016–23

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

Estimated after rebasing the national real GDP series to 2005.

Using as weights the shares of member countries in CEMAC’s GDP in purchasing power parity in US dollars.

Excluding grants and foreign-financed investment and interest payments.

Refers to the projections published in the IMF Country Report No 19/1

Table 2.

CEMAC: National Accounts, 2016–23

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

Refers to the projections published in the IMF Country Report No 19/1

Table 3a.

CEMAC: Balance of Payments, 2014–22

(Billions of CFA francs)

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Sources: BEAC; and IMF staff estimates and projections.

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 3b.

CEMAC: Balance of Payments, 2014–23

(Percent of GDP)

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Sources: BEAC; and IMF staff estimates and projections.

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 4a.

CEMAC: Fiscal Balances, 2015–23

(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.

Table 4b.

CEMAC: Fiscal Balances, 2016–23

(Percent of non-oil GDP)

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

Overall budget balance excluding grants and foreign-financed investment.

Table 5.

CEMAC: Compliance with Convergence Criteria, 2015–23

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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 non-accumulation 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.

Table 6.

CEMAC: Monetary Survey, 2016–20

(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).

Table 7.

CEMAC: Summary Accounts of the Central Bank, 2017–23

(Billions of CFA francs)

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Source: BEAC.

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

Table 8.

CEMAC: Net Foreign Assets of the Central Bank, 2016–23

(Billions of CFA francs)

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Sources: BEAC; and IMF staff projections.
Table 9.

CEMAC: Financial Soundness Indicators

(Percent)

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Source: Banking Commission of Central Africa (COBAC).

Current year profits are excluded from the definition of regulatory capital, following the Basel I capital accord guidelines. General provisions are included in Tier 2 capital up to an amount equal to 1.25% of risk-weighted assets. Regulatory capital is the sum of Tier 1 capital, and the minimum of Tier 1 and Tier 2 capital.

The risk-weighted assets are estimated using the following risk weights: 0% – cash reserves in domestic and foreign currency and claims on the central bank; 100% – all other assets.

The ratio of after-tax profits to the average of beginning and end-period total assets.

Annex I. Policy Commitments at the First Tripartite Discussions

TRIPARTITE DISCUSSIONS BETWEEN STATES, CEMAC INSTITUTIONS AND THE IMF STAFF

(Douala, April 2, 2019)

In the framework of the first tripartite consultation between the States, the institutions of the Economic and Monetary Community of Central Africa (CEMAC) and the International Monetary Fund (IMF), the Ministers in charge of Finance and the Economy of the countries Member States, sub-Regional Institutions and IMF staff met on 2 April 2019 in Douala, Republic of Cameroon.

During this meeting, they conducted performance assessments as part of the crisis exit strategy, including through the implementation of IMF-supported programs aimed at economic and financial recovery of the community.

Noting to this effect that the sub-regional exit strategy shows encouraging signs of stabilization of the macroeconomic framework, particularly regarding the replenishment of foreign exchange reserves;

Stressing, however, the persistent delays in approving IMF-supported programs for Congo and Equatorial Guinea, and that the process of restoring macroeconomic balances remains vulnerable to vulnerabilities related to the recent decline in oil prices. the deterioration of the security situation in some countries;

Noting further that (i) economic growth in the subregion, estimated in 2018 at 1.7 per cent by BEAC services, has been insufficient and has not yet resumed as planned, (ii) adjustment budget has been mainly driven by reduced spending, (iii) non-oil revenue dynamics remain below expected performance, and (iv) the replenishment of foreign exchange reserves expressed in months of imports of goods and services is still be accelerated;

Noting that, despite the favorable short-term outlook, risk factors could undermine the internal and external balances of the subregion, in particular (i) the improvement in the overall fiscal balance and the balance of payments, (ii) the recovery of external assets and (iii) the resilience of the banking system;

Reaffirming their commitment to accelerate the implementation of the crisis-resolution strategy, in a spirit of community and solidarity, recommend:

To the Member States:

  • In Congo and Equatorial Guinea, make every effort to meet the requirements for the implementation of IMF-supported programs;

  • Continue economic recovery efforts, particularly in the fiscal area, to meet the non-oil deficit targets for 2019 as defined in recent consultations with the IMF;

  • Ensure the successful implementation of their programs with the IMF;

  • Commit, at the expiration of their respective programs, to discuss with the IMF in order to start a new cycle of programs supported by this institution;

  • Strengthen discipline and create fiscal room through increased expenditure rationalization and increased mobilization of non-oil revenues. To this end, public spending should be prioritized in favor of the social sectors, and tax exemptions should be reduced, while strengthening the capacity and coordination of tax and customs administrations, including by updating computer systems;

  • Significantly improve public financial management and cash management systems with the help of technical and financial partners;

  • Strict application of the legal and institutional framework of debt management in accordance with the Regulation n ° 12/07-UEAC-186-CM-15 of March 19, 2007 on the terms of reference of the public debt and public debt management policy CEMAC Member States;

  • Assess the stock of domestic arrears and define a credible arrear clearance strategy;

  • Accelerate reforms to improve the business climate and promote foreign investment and structural transformation of CEMAC economies;

  • Support BEAC’s efforts in the implementation of foreign exchange regulations, by fully repatriating export earnings and centralizing foreign currency holdings in BEAC’s books, including by ensuring that all public entities repatriate and surrender their foreign currency assets;

  • Improve transparency and management of oil revenues;

  • Support the implementation of actions to clean up the banking system and solve the problem of troubled banks.

To support the Member States in their efforts to end the crisis, Community institutions commit to:

At the BEAC level:

  • Pursue the implementation of reforms aimed at enhancing the effectiveness of monetary policy through the elimination of excess liquidity and the revitalization of the interbank market, and maintain financial stability;

  • Strictly apply the new foreign exchange regulations and enhance communication with economic operators, especially those in the extractive industries sector, while providing foreign exchange for justified transactions;

  • Accelerate the unification of CEMAC’s financial markets with a view to its successful completion as soon as possible.

  • Set up a framework for the capacity-building programs of the administrations in charge of managing debt covering the institutional, legal, strategic, operational and control aspects;

  • Establish a coordination platform between the member states and BEAC to strengthen the coordination of monetary policy with the budgetary policies of the CEMAC member states.

At the COBAC level:

  • Strengthen the micro-prudential supervision of credit institutions to ensure the stability of the regional banking system, through the application of the new sanctions framework;

  • Work with member states and the BEAC to put in place a strategy to restore and consolidate the soundness of the banking sector, in particular to reduce non-performing loans.

At the CEMAC Commission level:

  • Accelerate common sectoral policy reforms and reinforce regional integration;

  • Ensure a more rigorous implementation of the regional surveillance framework, to ensure strict compliance with the convergence criteria and thus promote the coordination of economic policies within the framework of the three-year convergence plans.

  • Establish an annual meeting of experts in charge of public debt to ensure better coordination of debt management policies / strategies in CEMAC.

At the end of this tripartite consultation, the Ministers and the heads of the sub-regional institutions thank the IMF for its commitment to support Member States in improving the transparency and management of hydrocarbon and mining revenues, as well as in strengthening capacity to monitor oil exports.

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

June 10, 2019

Madame Christine Lagarde

Managing Director

International Monetary Fund

700 19th Street, NW

Washington, DC 20431

United States of America

Object: Follow-up to the letter of support to the recovery and reform programs undertaken by the CEMAC Member Countries

Ms. Managing Director,

This letter is an update of the assurances provided in December 2018 by the Community Institutions in support of economic recovery and reform programs undertaken by the Member States of the Economic and Monetary Community of Central Africa (CEMAC). It reflects the discussions held from April 24 to May 3, 2019 between the International Monetary Fund (IMF) staff and the CEMAC institutions.

On this occasion, I am pleased to inform you of the progress of the measures undertaken by the Bank of Central African States (BEAC) and the Banking Commission of Central Africa (COBAC), as well as those they plan to implement in the coming months.

In general, the regional economic situation remains fragile. Non-oil growth slowed in 2018, with major recessions in Congo and Equatorial Guinea. Overall growth was stronger thanks to a recovery in oil production in some countries. Inflation remained moderate, below the Community threshold, but accelerated slightly towards the end of the year. Tighter macroeconomic policies and rising oil prices have helped to reduce domestic and external imbalances and strengthen external reserves.

In this context, the fiscal consolidation efforts of the Member States, together with BEAC and COBAC support measures, in particular the tightening of monetary policy and the effective application of exchange regulations, as well as external financing mobilized in the context of programs with the IMF, had a positive impact on the evolution of net foreign assets. As part of this joint effort, the Congo and Equatorial Guinea, although not yet in program with the IMF, contributed to the consolidation of the macroeconomic stability of the CEMAC. These two countries implemented budgetary adjustments and recorded surpluses, which stood respectively at 7.1% of GDP and 2.8% of GDP. Thus, net foreign assets stood at 3.63 billion euros at the end of 2018, surpassing by 170 million euros the projections presented in my previous letter, bringing the coverage of reserves to 2.7 months of imports.

Also, I would like to inform you that all the measures endorsed by the IMF Executive Board as regional policy assurances and contained in my December 2018 letter have been implemented as planned.

As regards the foreign exchange regulation, the new Regulation adopted in December 2018 by the Ministerial Committee of the Central African Monetary Union (UMAC) entered into force on March 1, 2019.

BEAC is currently finalizing, in consultation with stakeholders, implementing legislation that should facilitate the implementation of, inter alia, the obligations relating to the repatriation and return of export earnings to the Central Bank. Some instructions will define the information to be provided to the BEAC by banks and customs administrations in order to allow the establishment of an effective system for monitoring the process of surrendering of currencies by banks to the BEAC. In addition, other instructions will define the penalties that could be imposed on economic operators who do not comply with the provisions of the foreign exchange regulations. The Governor’s instructions (implementing legislation) will have to be adopted by the end of [June] 2019.

Similarly, the obligations stemming from the exchange regulations will continue to be widely communicated to economic agents as part of a communication and outreach strategy included in the action plan of the CEMAC Financial Institutions Capacity Building Project (BEAC, COBAC and GABAC) financed by the World Bank. In accordance with the recommendations of CEMAC Heads of State, outreach missions will also be carried out in June–July 2019, in collaboration with the CEMAC Commission, among operators in the banking, mining, oil and forestry sectors in the six Member States to foster ownership at the community level.

In this regard, we welcome the commitments made by CEMAC member countries, as part of their IMF-supported programs, to ensure effectiveness of the repatriation by public entities of their assets possibly held outside CEMAC, and to make available to the BEAC and the CEMAC Commission all contracts concluded with extractive industry operators to ensure their compliance with foreign exchange regulations. These provisions will also strengthen our ability to project and assess the link between commodity prices and volumes and the accumulation of foreign assets, which is essential to our monetary arrangement.

With regard to monetary policy, the measures taken to support the implementation of the new operational framework, which came into effect in June 2018, have improved the functioning of the money market, resulting in a reduction in liquidity volumes injected into the market by the central bank, as well as an increase in transactions on the interbank and public securities markets.

However, the excess liquidity of the banking system has increased in recent months. This is why the BEAC has undertaken to progressively proceed to a neutral liquidity allocation to achieve the objective of external stability of the currency. In the current situation, we will continue until the end of the year the gradual process of reducing liquidity injections, the pace of which has been accelerated in recent months. This orientation will lead us to improve the transmission channels of the monetary policy, thus making it possible to better implement our mandate.

In addition, we consider that excess liquidity, held by banks with relatively cautious credit policies, does not pose a significant risk of pressure on CEMAC’s inflation or external position. Moreover, the pursuit of a restrictive monetary policy and the restructuring of banks in difficulty should largely contribute to absorbing a good part of the excess liquidity of the banking system, while preserving the financial stability as well as the financial balance of the Central Bank.

In this vein, the new system of accounting for monetary transactions, which is one of the elements of the modernization of the monetary policy operational framework, was adopted as planned before the end of 2018.

BEAC also plans to submit to the Monetary Policy Committee of July 2019 specific regulations on the resolution of banks with liquidity problems. This framework will establish the criteria for identifying banks facing an acute and structural liquidity problem and making excessive use of BEAC refinancing. It will also define the parameters and criteria of the liquidity recovery plan that these banks will have to submit to BEAC and COBAC, in order to maintain their access to conventional monetary operations. These provisions will come into effect as of September 2019.

Other important reforms of the monetary policy framework are under way. The new sanctions framework and the private sector securities framework, eligible as collateral for monetary operations at BEAC, will be submitted in July 2019 to the Monetary Policy Committee for adoption. BEAC will first consult the banks on the new eligibility criteria for access to the money market in May–June 2019.

All in all, our policies will continue to focus on the primary objective of ensuring the internal and external stability of the currency. To this end, the monetary policy stance will remain restrictive and we will pursue actions aimed at optimizing the management of bank liquidity and the effective application of the new foreign exchange regulations.

All of these measures, combined with the fiscal consolidation programs of the Member States and the budgetary support of development partners, should support the strengthening of net foreign assets and meet the targets provided by BEAC under regional policy assurances, namely € 3.50 billion at the end of June 2019 and at least € 4.50 billion at the end of 2019. The level expected at the end of 2019 is slightly lower than that indicated in my letter of December 2018 due to the lower level of oil prices now assumed for these projections. These forecasts assume, however, that oil prices will not go below current assumptions and that the Congo and Equatorial Guinea programs are adopted during 2019, thus paving the way for disbursements of associated budget support.

As indicated in my previous letters, I wish to emphasize that the achievement of these objectives depends not only on the actions of the BEAC, but also on the satisfactory implementation of the fiscal consolidation programs and structural reforms of the CEMAC countries. The timely disbursements of budgetary support from our external partners, including other exceptional external financing, planned at 0.42 billion euros in the first half of 2019 and 1.31 billion euros in the second half of 2019 will be also essential for achieving these goals.

I am also pleased to inform you of the success of the first semi-annual tripartite discussions attended by the national authorities of the CEMAC countries, the main regional institutions and the staff of the IMF. During these tripartite discussions, key high-level commitments were made to strengthen the implementation of CEMAC’s regional crisis exit strategy.

The next tripartite discussions are scheduled to take place in the second half of 2019. It will be again an opportunity to assess the progress made in implementing the regional crisis exit strategy and — in case of significant deviations from the projections of net foreign assets as set out above — to identify and adopt the necessary corrective measures, both at the regional and national levels, to allow continued IMF financial support or approval of new IMF-supported programs with CEMAC member countries.

For its part, COBAC will continue its efforts to strengthen the stability of the banking sector, notably by ensuring the application of exchange regulations and prudential regulations, to resolve bank failures and to strengthen banking supervision. The Secretariat General of COBAC is now focusing on the implementation of its new Strategic Plan 2019–21. Priority actions include the reform of processes and tools to put in place effective risk-based supervision, strengthening of the fight against money laundering and terrorist financing and the modernization of certain prudential rules.

BEAC and COBAC will pursue their efforts to ensure the close monitoring of developments with the ongoing programs to restore CEMAC countries’ macroeconomic balances and will continue to work closely with IMF staff to support the implementation of the regional strategy.

Remaining available to work alongside the IMF and the CEMAC member States with the aim of achieving the restoration of the macroeconomic balances of the subregion, please accept, Madam Managing Director, the expression of my highest regards.

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1

This NFA path does not assume at this stage the potential positive impact of greater efforts to repatriate funds held abroad by public entities and is based on oil price assumptions which are conservative relative to current prices.

2

A large increase in reserve requirements would raise financial stability risks as a number of banks would face large refinancing needs without enough eligible collateral.

3

The repatriation and surrender requirements (capital flow management measures) and their stricter enforcement, implemented along with other necessary macroeconomic policy adjustments, continue to be appropriate to address the low level of reserves.

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Cover IMF Staff Country Reports
Central African Economic and Monetary Community (CEMAC): Common Policies in Support of Member Countries Reform Programs
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2019: Issue 215
Publisher:
International Monetary Fund
ISBN:
9781498324755
ISSN:
1934-7685
Pages:
46
DOI:
https://doi.org/10.5089/9781498324755.002
  • Text Figure 1.
    View in gallery
    Text Figure 1.

    CEMAC: Inflation Rates

    (year-on-year)

  • Text Figure 2.
    View in gallery
    Text Figure 2.

    CEMAC: Fiscal Performance

    (Percent of GDP)

  • Text Figure 3.
    View in gallery
    Text Figure 3.

    CEMAC: Evolution of Excess Liquidity (Before Monetary Operations)

    (Millions of CFA francs)

  • Text Figure 4.
    View in gallery
    Text Figure 4.

    CEMAC: Average Excess Liquidity per bank before refinancing operations, 2019Q1

    (Millions of CFA francs)

  • Text Figure 5.
    View in gallery
    Text Figure 5.

    BEAC’s Monetary Operations

    (Billions of CFA francs)

  • Text Figure 6.
    View in gallery
    Text Figure 6.

    BEAC Key Interest Rates

  • Text Figure 7.
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    Text Figure 7.

    CEMAC: Estimated Stock of Domestic Arrears, as of May 2019.

    (Percent of GDP)

  • Text Figure 8:
    View in gallery
    Text Figure 8:

    CEMAC: Non-performing Loans, October 2018.

    (Percent of gross loans)

  • Text Figure 9.
    View in gallery
    Text Figure 9.

    BEAC: Daily Reserves and Staff Projections for December in the June 2018 Staff Report 1/ 2/

    (Billions of CFA francs)

  • Text Figure 10.
    View in gallery
    Text Figure 10.

    CEMAC: Deposits Held Abroad by CEMAC Residents Banks and Non-Banks

    (outstanding, millions of U.S. dollars)

  • Text Figure 11.
    View in gallery
    Text Figure 11.

    CEMAC: Deposits Held Abroad by CEMAC Residents Non-Banks

    (outstanding, millions of U.S dollars)

  • Figure 1.
    View in gallery
    Figure 1.

    CEMAC: Performance and Revised Projections Against Original Objectives of the Regional Strategy

  • Figure 2.
    View in gallery
    Figure 2.

    CEMAC: Selected Economic Indicators, 2000–19

  • Figure 3.
    View in gallery
    Figure 3.

    CEMAC: Selected Economic Indicators, 2006–21

  • Figure 4.
    View in gallery
    Figure 4.

    CEMAC: Monetary Indicators

Text Figure 1.

CEMAC: Inflation Rates

(year-on-year)
Text Figure 2.

CEMAC: Fiscal Performance

(Percent of GDP)
Text Figure 3.

CEMAC: Evolution of Excess Liquidity (Before Monetary Operations)

(Millions of CFA francs)
Text Figure 4.

CEMAC: Average Excess Liquidity per bank before refinancing operations, 2019Q1

(Millions of CFA francs)
Text Figure 5.

BEAC’s Monetary Operations

(Billions of CFA francs)
Text Figure 6.

BEAC Key Interest Rates
Text Figure 7.

CEMAC: Estimated Stock of Domestic Arrears, as of May 2019.

(Percent of GDP)
Text Figure 8:

CEMAC: Non-performing Loans, October 2018.

(Percent of gross loans)
Text Figure 9.

BEAC: Daily Reserves and Staff Projections for December in the June 2018 Staff Report 1/ 2/

(Billions of CFA francs)
Text Figure 10.

CEMAC: Deposits Held Abroad by CEMAC Residents Banks and Non-Banks

(outstanding, millions of U.S. dollars)
Text Figure 11.

CEMAC: Deposits Held Abroad by CEMAC Residents Non-Banks

(outstanding, millions of U.S dollars)
Figure 1.

CEMAC: Performance and Revised Projections Against Original Objectives of the Regional Strategy
Figure 2.

CEMAC: Selected Economic Indicators, 2000–19
Figure 3.

CEMAC: Selected Economic Indicators, 2006–21
Figure 4.

CEMAC: Monetary Indicators