Washington, DC: On December 10, 2021, the IMF Executive Board concluded the annual discussions with the Central African Economic and Monetary Community (CEMAC) on Common Policies of Member Countries and Common Policies in Support of Member Countries Reform Programs[1].
CEMAC experienced a smaller-than-anticipated economic contraction in 2020, as non-oil activity recovered in late 2020, supported by the relaxation of containment measures and stronger fiscal stimulus. A progressive recovery is expected to have started in 2021 with growth reaching 1.9 percent of GDP in 2021. The overall fiscal deficit (excluding grants) is projected to narrow by 0.5 percentage points to 2.7 percent of GDP in 2021 compared to 2020, while public debt would decline by 3.8 percentage points, to 56.2 percent of GDP in 2021.
Despite a more favorable external environment, marked by the rebound in global growth, fast-increasing oil prices, and unprecedented Fund financial support, including the SDR allocation, CEMAC is ending 2021 in a fragile external position with external reserves just slightly above three months of prospective imports. After a sharp deterioration in 2020, the external current account deficit is expected to improve significantly, primarily driven by the rebound in global oil prices, and reach 2.1 percent of GDP in 2021.
The regional and national authorities started to tighten the policy mix in 2021. BEAC strengthened its liquidity management framework, resuming liquidity absorption operations; the central bank also unwound the relaxation of the collateral framework for government securities adopted at the onset of the crisis, bringing haircuts back to their pre-pandemic levels; and phased out the government securities purchase program, as planned, at end-August. In November 2021, BEAC tightened monetary policy, increasing the policy rate by 25 basis points, and raised the rate of its liquidity absorption window in December. Prudential regulation, which was temporarily relaxed to cushion the impact of the crisis on the financial sector, is also being progressively normalized, with the capital requirement being increased by 50 basis points in August 2021. At the national level, the resumption of Fund-supported programs with Cameroon and Gabon and prospects for new programs with Chad and Congo helped secure commitments to fiscal consolidation and broader reforms.
Higher oil prices, strong global growth, and significant fiscal adjustment should contribute to stronger overall external balances and foreign reserves accumulation in 2022. Growth is expected to rebound to 2.8 percent in 2022 and continue to pick up gradually to around 4.1 percent in the medium term, mostly due to stronger growth in the non-oil sector, as reforms to improve governance, transparency, and the business climate are assumed to slowly take hold. The recovery in oil prices coupled with stronger revenue mobilization efforts should help narrow fiscal deficits and curb debt levels significantly by 2024. Inflation is projected to stay below the regional convergence criterion of 3 percent as monetary policy would remain appropriately tight to support the external position. Reserves are projected to reach the equivalent of five months of imports by 2026. This outlook assumes the continuation of IMF-supported programs with Cameroon, Gabon, the Central African Republic and Equatorial Guinea, and approval of two IMF-supported programs with Chad (2021) and Congo (2022).
Executive Board Assessment[2]
Executive Directors agreed with the thrust of the staff appraisal. They noted that despite a more favorable external environment and unprecedented Fund financial support, CEMAC’s external position remains fragile. Against this backdrop, they welcomed the resumption of Fund-supported programs in the region. Directors underscored that a tight macroeconomic policy mix and strong structural reforms that enhance competitiveness are critical to bolster the external position and enable diversified, inclusive, and sustainable growth.
Directors stressed that a carefully calibrated fiscal consolidation is needed to bolster fiscal and external sustainability while safeguarding growth. They recommended mobilizing non-oil revenues and increasing expenditure efficiency to help finance targeted social spending and growth-friendly investments. Directors called for a prudent use of SDR allocations and the fiscal space provided by restructured statutory advances .
Directors welcomed the recent monetary policy tightening, which should help stem the decline in reserves and contain inflationary expectations. They generally agreed that further tightening would be needed if international reserves continued falling. Directors recommended returning to the pre-crisis liquidity management framework and restricting normal liquidity operations to solvent banks. They welcomed the central bank’s commitment to not extend direct monetary financing to its member states. Directors noted that the implementation of the foreign exchange regulation would support foreign reserve accumulation.
Directors supported the planned withdrawal of the temporary relaxation of prudential regulations . They underscored the need to move towards risk-based supervision, contain risks stemming from banks’ sovereign exposure, address high non-performing loans, strengthen regulatory compliance, and accelerate bank resolution.
Directors welcomed the reform momentum generated by the Summit of the Heads of States of CEMAC. They called on the authorities to accelerate the implementation of structural, transparency, and governance reforms. In particular, Directors called for ensuring full transparency in public finances and the hydrocarbon sector. They also recommended strengthening the regional surveillance framework.
Directors noted that the Central Bank of Central African States (BEAC) was unable to fully implement the policy assurance on accumulation of net foreign assets (NFA) at end-June 2021, which had been provided in the June 2021 Follow-Up Letter of Policy Support, due to a shortfall in external financing. They considered that BEAC has taken the necessary corrective actions to address the underperformance. Directors endorsed the updated policy assurance on NFA accumulation for end-December 2021 and end-June 2022 outlined in the November 2021 Follow-Up Letter from the BEAC Governor. This assurance is based on BEAC’s commitment to implement an adequately tight monetary policy together with commitments by member states to implement adjustment policies in the context of Fund-supported programs. Directors emphasized that implementation of this assurance is critical for the success of Fund-supported programs with CEMAC member countries.
The views expressed by Directors will form part of the Article IV consultation discussions on individual members of the CEMAC that will take place until the next Board discussion of common policies. It is expected that the next discussion of CEMAC common policies will be held on the standard 12-month cycle.
[1]Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of these bilateral Article IV consultation discussion, staff hold separate annual discussions with the regional institutions responsible for common policies in four currency unions – the Euro Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collects economic and financial information, and discusses with officials the currency union’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board. Both staff’s discussions with the regional institutions and the Board discussion of the annual staff report will be considered an integral part of the Article IV consultation with each member.
[2]At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here:https://www.IMF.org/external/np/sec/misc/qualifiers.htm.