## 1. Performance and Revised Projections Against Original Objectives of the Regional Strategy

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### Background and recent developments
- Regional strategy contributed to stabilization through:
  - Significant fiscal consolidation by CEMAC countries supported by tighter monetary policy and external financial assistance in IMF-supported programs.
  - Recent pick-up in regional external reserves.
  - Public debt starting to trend downward.
- Remaining challenges:
  - Continued dependence on oil revenues and little progress in economic diversification.
  - Under-performing budget non-oil revenues.
  - Non-oil growth too low to provide enough jobs and income to a young and growing population.
  - Persistent financial sector vulnerabilities.
- March 24th, 2019 N’Djamena meeting outcomes:
  - Heads of State urged adherence to fiscal adjustment targets agreed under IMF-supported programs.
  - Encouraged Congo and Equatorial Guinea to conclude IMF-supported programs as soon as possible.
  - Supported strong implementation of the CEMAC foreign exchange regulation.
  - Decision to set-up a Tripartite consultative forum; first meeting on April 2nd agreed to high-level policy actions.

### Implementation of policy assurances and country programs
- Regional assurances (BEAC Governor letter, December 2018):
  - Revised foreign exchange regulation adopted by BEAC’s Board and UMAC Ministerial Committee in December 2018; effective in March 2019 (economic actors have 6 months to conform).
  - Modernization of BEAC's monetary policy operations framework implemented by end-2018 (new accounting plan introduced in June 2018).
  - Objective for end-2018 regional NFAs was exceeded (overperformed end-December objective by 170 millions of euros).
- Country program performance through end-2018:
  - Programs on track in Cameroon, Chad and Central African Republic with most quantitative targets for end-December met.
  - Gabon: macroeconomic imbalances narrowed in 2018, but program performance remained weak; authorities continued to accumulate new external arrears but stated commitment to keep program on track.
  - Congo: reached agreement with China on debt restructuring, enabling consideration of a new IMF-supported program.
  - Equatorial Guinea: positive steps toward EITI application completed; discussions on a new IMF-supported program would start following submission of such application.

### Recent economic developments (2018–early 2019)
- Growth and inflation:
  - Regional growth increased to 2.5 percent in 2018 (from 1 percent in 2017).
  - Oil sector growth: +5.3 percent in 2018.
  - Non-oil growth: 1.8 percent in 2018 (from 2.4 percent in 2017).
  - Inflation ended 2018 at close to 3 percent (y-o-y) and stabilized in early 2019.
- Fiscal performance:
  - Fiscal policies remained tight; regional overall fiscal position close to balance driven mainly by spending cuts (largely investment programs) and a moderate increase in revenues (mainly oil-related).
  - Congo and Equatorial Guinea (not yet under Fund-supported programs) implemented strong fiscal consolidation, recording surpluses of their overall fiscal balances.
  - Average public debt-to-GDP ratio declined by about 2 ½ percentage points, to 50 percent of GDP.
- Key fiscal figures (as shown in Text Figure 2):
  - Overall fiscal balance (excl. grants): -4.5, -0.6, -0.5.
  - Government revenue (excl. grants): 16.0, 17.5, 17.5.
  - Government expenditures: 20.6, 18.1, 18.0.

### Monetary and financial sector developments
- BEAC monetary stance and liquidity:
  - Policy rate increased in October 2018 by 55bp.
  - Gradual reduction in liquidity injections, but not keeping pace with build-up of excess liquidity.
  - Bank deposits increased by 8 percent; credit growth remained moderate at 4 percent.
  - Excess liquidity reached about CFAF 1.5 trillion in 2019Q1.
  - BEAC’s total liquidity injections decreased by about CFAF 100 billion between June 2018 and May 2019.
  - Weighted average liquidity auction rate increased from 3.52 to 5.85 percent.
  - Increased recourse to the marginal lending facility at a 6 percent interest rate.
- Liquidity concentration and interbank market:
  - Excess liquidity highly concentrated in few (mostly foreign-owned) banks.
  - A few systemic banks in Chad and Equatorial Guinea remain liquidity-stressed due to direct or indirect sovereign exposure.
  - Interbank market remains segmented and lacking confidence; interbank repo transactions rose somewhat in Q1 2019 but driven largely by intra-group transactions.
- Banking sector asset quality and regulatory compliance:
  - Ratio of overdue loans increased by 4 percentage points in 2018 to 21 percent.
  - Defaults on loans with direct or indirect sovereign guarantees increased by 45 percent.
  - Only 20 out of 51 banks comply with the concentration risk limit.
  - Resolution of small ailing banks remains slow due to delays by national authorities.
- Domestic arrears and NPLs:
  - Non-performing loans, October 2018: 21 percent of gross loans.
  - Estimated stock of domestic arrears as of May 2019 presented in Text Figure 7 (Percent of GDP).

### External position, reserves, and net foreign assets (NFA)
- 2018 external developments:
  - Oil exports grew by 28 percent in 2018; moderate import increase.
  - External current account deficit declined by 2.1 percent of GDP.
  - Overall balance of payments deficit declined by 1.3 percent of GDP.
  - Gross reserves buildup; imports cover reached 2.7 months at end-2018.
  - End-year objective for regional NFAs exceeded by €170 million (increase in private sector’s monetary holdings with banks).
  - Reserves have increased further since end-2018; reserves import coverage remains below levels appropriate for a resource-rich currency union.
- Comparison to previous assessments:
  - External sector assessment from last regional consultation (moderately weaker than implied by fundamentals and desirable policy settings) remains appropriate absent significant new external sector developments for end-2018.

### Medium-term outlook and projections (2019 and beyond)
- Baseline assumptions for 2019:
  - Full implementation of country programs through end-2019, including fiscal adjustment to preserve non-oil primary balance targets.
  - Gradual repayment of domestic arrears once credible arrears reduction strategies are validated through mid-year.
  - New IMF-supported programs expected to be approved in July for Congo and by end-year for Equatorial Guinea.
- Growth and inflation projections:
  - Overall growth projected to pick up to 3.4 percent in 2019.
  - Non-oil growth projected to increase by 1 percentage point from last year to 2.7 percent in 2019.
  - Growth projected to decline slightly in following years due to return to a declining trend in oil production.
  - Inflation projected to remain below the regional convergence criteria.
- Fiscal and debt projections:
  - Further fiscal consolidation expected to reduce the regional non-oil fiscal deficit by about 1 ½ percent of non-oil GDP in 2019.
  - Public debt-to-GDP ratio projected to decline to 49 percent of GDP in 2019 and below 40 percent by 2023.
- NFA and external sector projections for 2019:
  - NFA accumulation through end-2019 would be slightly below previous projections by about €90 million due to lower oil prices than assumed at end-2018.
  - External current account deficit projected at about 2.7 percent of GDP (1 ¼ percent of GDP above previous projections).
  - Reserves-to-imports ratio projected to reach 3.3 months at end-2019.
  - NFA accumulation in 2019 would be more than double that of 2018.
  - NFA accumulation over 2017–19 would significantly exceed the objective set 2 years ago despite lower budget aid (by €880 million over the period); oil prices (in €) on average 3 percent higher over the period compared with 2017 projections.
- Footnote on NFA path:
  - The NFA path does not assume potential positive impact of greater efforts to repatriate funds held abroad by public entities and is based on oil price assumptions conservative relative to current prices.

### Risks: downside and upside
- Downside risks:
  - Weaker program implementation slowing repayment of domestic debt and arrears, impacting financial sector stability and growth; possible postponement of program reviews and delay of associated external budget support.
  - Delays in approval of a financial arrangement with Equatorial Guinea could reduce external financing disbursed in 2019 by development partners (currently projected at €0.1 billion).
  - Prolonged decline in oil prices would pressure fiscal and external balances and the financial sector.
  - Deterioration in security situation could reduce economic activity, increase military spending needs, and prompt capital outflows.
- Upside risks:
  - Strict implementation of the new foreign exchange regulation could result in higher NFAs.
  - Oil prices turning higher than the conservative projections could contribute to larger NFA accumulation. Staff scenario based on oil price futures as of mid-May 2019 indicates:
    - Possibly larger NFA accumulation by an additional €500 million in 2019 and a cumulative €1.2 billion by end-2020.
- Policy response if downside risks materialize:
  - Member states and regional institutions should promptly consult on necessary corrective actions, possibly including acceleration of fiscal adjustment and structural reforms and further tightening of monetary policy.

### Alternative scenario under higher oil prices (summary)
- IMF staff estimates indicate an alternative scenario where higher oil prices yield:
  - Additional NFA accumulation of €500 million in 2019.
  - Cumulative additional NFA accumulation of €1.2 billion by end-2020.

### Monetary policy stance and liquidity management (staff view)
- BEAC maintained monetary policy focused on external stability after an October 2018 policy rate increase.
- Staff recommendations:
  - Anchor monetary policy to external stability; remain vigilant and ready to tighten policy if external reserve pressures or inflation increase strongly.
  - Swiftly move to sterilize increasing excess liquidity; start absorbing liquidity through open-market operations within a few months.
  - Possibly increase reserve requirement ratios only slightly; calibrate target absorption amount in line with neutral liquidity allocation, autonomous liquidity projections, and precautionary liquidity level.
  - Define a revised short-term prudential liquidity ratio by end-2019.
- BEAC preferred a more gradual approach: stop liquidity injections by end-2019 and initiate liquidity absorbing operations in 2020.

### Dealing with liquidity-stressed banks and banking-sector reforms
- BEAC developing a regulation (expected adoption by end-July 2019) to:
  - Define "liquidity-stressed" banks (criteria such as dependence on BEAC liquidity or repeated breaches).
  - Require submission of a credible funding strategy to reduce BEAC liquidity needs over a reasonable period.
  - Mandate COBAC monitoring and sanctions for noncompliance.
- COBAC plans to revise prudential liquidity ratio towards international standards by end-2019.
- Staff recommendations:
  - Define ratio by end-2019 and align supervisory approach with treatment of banks highly dependent on BEAC refinancing.
  - Review options to treat NPLs on credit to finance companies implementing government projects as regular NPLs and set time limits for bank resolution processes.
  - Conduct a review of write-off and forbearance practices in banks by end-September 2019.
  - Consider one-off actions to clean up fully provisioned loans on bank balance sheets.
- Bank resolution status:
  - 9 banks under resolution (up from 6 a year ago).
  - Staff suggested setting time limits for resolution processes for small banks and defining criteria and minimum conditions for bridge banks.

### Implementing the revised foreign exchange regulation
- Key measures and timelines:
  - Regulations related to banks surrendering forex holdings to BEAC may be adopted by end-June.
  - Regulations related to domiciliation of export receipts to be issued after consultation with customs and capacity solutions identified.
  - Implementing regulations expected to enable disciplinary action and financial sanctions from September 2019.
  - BEAC to consult extractive industry representatives and accelerate outreach (World Bank to provide technical assistance for communication strategy).
- National authorities commitments (selected):
  - Ensure all public entities repatriate and surrender all forex receipts with a resident bank by end-2019 (following a stock-taking).
  - Share with BEAC and the CEMAC Commission by end-September 2019 copies of all contracts/arrangements signed with companies in extractive industries.
  - Refrain from creating or authorizing exemptions inconsistent with BEAC implementing regulations.

### Enhancing regional surveillance and fiscal discipline mechanisms
- CEMAC Commission actions:
  - Pursuing full implementation of key directives in public financial management and harmonizing fiscal revenue mobilization (Directive on excise duties, revised Customs Code, Multilateral Tax Treaty on non-double taxation of personal income tax).
  - Finalizing an early warning system project (with World Bank assistance) to detect breaches of convergence criteria.
  - Developing a binding sanctions regime for breaches of regional surveillance rules (Heads of State request).
- Deadlines and requirements:
  - Heads of State required member states to submit Triennial Convergence Programs by 31 July 2019 and adopt domestic arrears clearance strategies by end-2019.
  - BEAC to consult IMF staff on planned Charter amendment before submission to Executive Board.

### Tripartite consultations (Douala, April 2, 2019) — commitments and operational measures
- Commitments for Member States (selected):
  - Congo and Equatorial Guinea: make every effort to meet requirements for IMF-supported programs.
  - Continue economic recovery efforts to meet non-oil deficit targets for 2019.
  - Strengthen discipline and create fiscal room through increased expenditure rationalization and increased mobilization of non-oil revenues; prioritize public spending in favor of social sectors; reduce tax exemptions.
  - Assess stock of domestic arrears and define a credible arrear clearance strategy.
  - Support BEAC's FX regulation by fully repatriating export earnings and centralizing foreign currency holdings in BEAC's books.
- Commitments by community institutions (selected):
  - BEAC: pursue elimination of excess liquidity, strictly apply foreign exchange regulations, accelerate unification of CEMAC financial markets, set up debt management capacity-building framework, establish coordination platform between member states and BEAC.
  - COBAC: strengthen micro-prudential supervision and work with member states and BEAC on banking sector restoration and NPL reduction.
  - CEMAC Commission: accelerate sectoral reforms, reinforce regional integration, implement regional surveillance framework and sanctions.
- Follow-up actions and timelines (selected):
  - New foreign exchange Regulation entered into force on March 1, 2019.
  - BEAC Governor's instructions expected to be adopted by the end of June 2019.
  - Outreach missions in June–July 2019 in collaboration with CEMAC Commission among operators in banking, mining, oil and forestry sectors.
  - BEAC to submit regulations on resolution of banks with liquidity problems to Monetary Policy Committee of July 2019; provisions to come into effect as of September 2019.
  - Next tripartite discussions scheduled second half of 2019 to assess progress and identify corrective measures if significant deviations from net foreign assets projections occur.

### Key statistics and selected series (as presented)
- GDP at constant prices: -0.3 1.0 2.5 3.4 2.9 -0.3 1.0 2.5 3.4 2.9
  - Oil GDP: -6.1 -4.7 5.3 6.2 0.1 -6.1 -4.7 5.3 6.2 0.1
  - Non-oil GDP: 1.3 2.4 1.8 2.7 3.6 1.3 2.4 1.8 2.7 3.6
- Consumer prices (period average): 1.3 0.8 2.1 2.4 2.5 1.3 0.8 2.1 2.4 2.4
- Current account, including grants: -12.8 -4.4 -2.3 -2.6 -2.3 -12.8 -4.4 -2.3 -1.8 -1.6
- Primary fiscal balance: -5.9 -2.4 1.5 2.0 2.3 -6.0 -2.5 1.5 2.8 3.0
- Non-oil primary fiscal balance, including grants (percent of non-oil GDP): -13.8    -10.2 -7.5 -6.2 -5.0 -13.8    -10.3 -7.5 -6.3 -5.1
- Total public debt: 51.5 52.5 49.9 48.1 45.8 51.5 52.5 49.9 46.8 44.5
- Gross official reserves (end of period) months of imports of goods and services: 2.3 2.4 2.7 3.3 3.9 2.3 2.4 2.7 3.6 4.5
- Net foreign assets (annual change in billion CFAF): -3,294 -123 248 584 687 -3,294 -123 248    1,014    1,061
- Net foreign assets (in billion CFAF): 2,254    2,131    2,379    2,963    3,651 2,254    2,131    2,379    3,393    4,454
- Gross official reserves (end of period, Millions of U.S. dollars): 4,972; 5,807; 6,468; 6,554; 8,495; 8,265; 9,938; 11,988; 13,616; 15,122
- Months of imports of goods and services (end of period): 2.3; 2.4; 2.6; 2.7; 3.3; 3.3; 3.9; 4.4; 5.1; 5.5
- Oil prices (U.S. dollars per barrel, brent) memorandum: 445 471 626 244 547 169 66

### Financing and external support (summary lines as presented)
- Financing gap (summary line): 1,227  228   924 1,154   290  1,179 1,470  783  4,634
- IMF financing (summary line): 329   46   245  29090   310  400  231  1,250
- Budget support from other donors (summary line): 798  183   347  531   275   861 1,137  370  2,836
  - World Bank (line): 261   1436   50    185   321   506   119   936
  - African Development Bank (line): 338   159    109   27066   335   401   184  1,192
  - European Union (line): 45   1047   570    58   59   31   192
  - France (line): 1550    154   15425   146   171   36   516
- Other exceptional financing (line): 100    0   175  175    -22   114   92  182   549
- Other external (non-project) financing (line): 0    0   158  158    -53  -105  -158    00
- Residual financing gap (line): 0    00    000    0    00

### Staff appraisal and policy priorities
- Staff appraisal:
  - Regional strategy has helped stabilize the regional economic position, but challenges remain.
  - Reductions in fiscal and external current account imbalances were broadly as expected, and NFA accumulation at end-2018 exceeded previous objectives.
  - Regional growth rebounded but remains subdued.
  - Possible IMF program approvals in 2019: Congo mid-2019; Equatorial Guinea possibly by year-end.
- Policy priorities for member states:
  - Strictly adhere to respective IMF-supported program objectives.
  - Promptly address fiscal slippages through corrective measures.
  - Create fiscal space for priority development and social spending through enhanced non-oil revenue mobilization.
  - Address governance issues and improve business climate.
  - Promote regional integration.
- Regional institutions’ role:
  - BEAC monetary stance, member states’ fiscal consolidation and development partners’ budget support should support further accumulation of regional reserves to reach coverage above 3 months of imports by end-2019.
  - BEAC should strengthen monetary policy transmission and be ready to tighten if external pressures emerge and NFAs diverge significantly from projections.
  - Better enforcement of foreign exchange regulations and national support (repatriation/surrender of foreign assets, domiciliation of export proceeds) expected to contribute to reserve accumulation.
  - COBAC to pursue risk-based supervision, IFRS transition, and faster resolution of small ailing banks.

*Source: IMF staff appraisal and follow-up letter describing policy intents by regional institutions in support of national program objectives (Content unit 1caeea2019003).*

### 1. Performance and Revised Projections Against Original Objectives of the Regional Strategy ____9

### 1. Performance and Revised Projections Against Original Objectives of the Regional Strategy ____9

### Background and Recent Developments
- The regional strategy contributed to stabilization through:
  - Significant fiscal consolidation by CEMAC countries supported by tighter monetary policy and external financial assistance in IMF-supported programs.
  - Recent pick-up in regional external reserves.
  - Public debt starting to trend downward.
- Remaining challenges noted:
  - Continued dependence on oil revenues and little progress in economic diversification.
  - Under-performing budget non-oil revenues.
  - Non-oil growth too low to provide enough jobs and income to a young and growing population.
  - Persistent financial sector vulnerabilities.
- March 24th, 2019 N’Djamena meeting outcomes:
  - Heads of State urged adherence to fiscal adjustment targets agreed under IMF-supported programs.
  - Encouraged Congo and Equatorial Guinea to conclude IMF-supported programs as soon as possible.
  - Supported strong implementation of the CEMAC foreign exchange regulation.
  - Decision to set-up a Tripartite consultative forum; first meeting on April 2nd agreed to high-level policy actions (see Annex 1).

### Implementation of Policy Assurances and Country Programs
- Regional assurances (BEAC Governor letter, December 2018) implementation:
  - Revised foreign exchange regulation adopted by BEAC’s Board and UMAC Ministerial Committee in December 2018; effective in March 2019 (economic actors have 6 months to conform).
  - Modernization of BEAC's monetary policy operations framework implemented by end-2018 (all monetary transactions and related collateral recorded according to new accounting plan introduced in June 2018).
  - Objective for end-2018 regional NFAs was exceeded (overperformed end-December objective by 170 millions of euros).
- Country program performance through end-2018:
  - Programs on track in Cameroon, Chad and Central African Republic with most quantitative targets for end-December met.
  - Gabon: macroeconomic imbalances narrowed in 2018, but program performance remained weak; authorities continued to accumulate new external arrears but stated commitment to keep program on track.
  - Congo: reached agreement with China on debt restructuring, contributing to debt sustainability and allowing consideration of a new IMF-supported program.
  - Equatorial Guinea: positive steps toward EITI application completed; discussions on a new IMF-supported program would start following submission of such application.

### Recent Economic Developments (2018–early 2019)
- Growth and inflation:
  - Regional growth increased to 2.5 percent in 2018 (from 1 percent in 2017).
  - Oil sector growth: +5.3 percent in 2018.
  - Non-oil growth: 1.8 percent in 2018 (from 2.4 percent in 2017).
  - Inflation ended 2018 at close to 3 percent (y-o-y) and stabilized in early 2019.
- Fiscal performance:
  - Fiscal policies remained tight; regional overall fiscal position close to balance driven mainly by spending cuts (largely investment programs) and a moderate increase in revenues (mainly oil-related).
  - Congo and Equatorial Guinea (not yet under Fund-supported programs) implemented strong fiscal consolidation, recording surpluses of their overall fiscal balances.
  - Average public debt-to-GDP ratio declined by about 2 ½ percentage points, to 50 percent of GDP.
- Key fiscal figures presented:
  - Overall fiscal balance (excl. grants) examples: -4.5, -0.6, -0.5 (as shown in Text Figure 2).
  - Government revenue (excl. grants): 16.0, 17.5, 17.5 (as shown in Text Figure 2).
  - Government expenditures: 20.6, 18.1, 18.0 (as shown in Text Figure 2).

### Monetary and Financial Sector Developments
- BEAC monetary stance and liquidity:
  - Policy rate increased in October 2018 by 55bp.
  - Gradual reduction in liquidity injections, but not keeping pace with build-up of excess liquidity.
  - Bank deposits increased by 8 percent; credit growth remained moderate at 4 percent.
  - Excess liquidity reached about CFAF 1.5 trillion in 2019Q1.
  - BEAC’s total liquidity injections decreased by about CFAF 100 billion between June 2018 and May 2019.
  - Weighted average liquidity auction rate increased from 3.52 to 5.85 percent.
  - Increased recourse to the marginal lending facility at a 6 percent interest rate.
- Liquidity concentration and interbank market:
  - Excess liquidity highly concentrated in few (mostly foreign-owned) banks.
  - A few systemic banks in Chad and Equatorial Guinea remain liquidity-stressed due to direct or indirect sovereign exposure.
  - Interbank market remains segmented and lacking confidence; interbank repo transactions rose somewhat in Q1 2019 but driven largely by intra-group transactions.
- Banking sector asset quality and regulatory compliance:
  - Ratio of overdue loans increased by 4 percentage points in 2018 to 21 percent.
  - Defaults on loans with direct or indirect sovereign guarantees increased by 45 percent.
  - Only 20 out of 51 banks comply with the concentration risk limit.
  - Resolution of small ailing banks remains slow due to delays by national authorities.
- Domestic arrears and NPLs (as reported):
  - Estimated stock of domestic arrears as of May 2019 presented in Text Figure 7 (Percent of GDP).
  - Non-performing loans, October 2018: 21 percent of gross loans (Text Figure 8).

### External Position, Reserves, and Net Foreign Assets (NFA)
- 2018 external developments:
  - Oil exports grew by 28 percent in 2018; moderate import increase.
  - External current account deficit declined by 2.1 percent of GDP.
  - Overall balance of payments deficit declined by 1.3 percent of GDP.
  - Gross reserves buildup; imports cover reached 2.7 months at end-2018.
  - End-year objective for regional NFAs exceeded by €170 million (increase in private sector’s monetary holdings with banks).
  - Reserves have increased further since end-2018 (Text Figure 9 shows daily reserves and staff projections).
  - Reserves import coverage remains below levels appropriate for a resource-rich currency union.
- Comparison to previous assessments:
  - External sector assessment from last regional consultation (moderately weaker than implied by fundamentals and desirable policy settings) remains appropriate absent significant new external sector developments for end-2018.

### Medium-term Outlook and Risks (2019 and beyond)
- Baseline outlook assumptions for 2019:
  - Full implementation of country programs through end-2019, including fiscal adjustment to preserve non-oil primary balance targets.
  - Gradual repayment of domestic arrears once credible arrears reduction strategies are validated through mid-year.
  - New IMF-supported programs expected to be approved in July for Congo and by end-year for Equatorial Guinea.
- Growth and inflation projections:
  - Overall growth projected to pick up to 3.4 percent in 2019.
  - Non-oil growth projected to increase by 1 percentage point from last year to 2.7 percent in 2019.
  - Growth projected to decline slightly in following years due to return to a declining trend in oil production.
  - Inflation projected to remain below the regional convergence criteria.
- Fiscal and debt projections:
  - Further fiscal consolidation expected to reduce the regional non-oil fiscal deficit by about 1 ½ percent of non-oil GDP in 2019.
  - Public debt-to-GDP ratio projected to decline to 49 percent of GDP in 2019 and below 40 percent by 2023.
- NFA and external sector projections for 2019:
  - Due to lower oil prices than assumed at end-2018, NFA accumulation through end-2019 would be slightly below previous projections by about €90 million.
  - External current account deficit projected at about 2.7 percent of GDP (1 ¼ percent of GDP above previous projections).
  - Reserves-to-imports ratio projected to reach 3.3 months at end-2019.
  - NFA accumulation in 2019 would be more than double that of 2018.
  - NFA accumulation over 2017–19 would significantly exceed the objective set 2 years ago despite lower budget aid (by €880 million over the period); oil prices (in €) on average 3 percent higher over the period compared with 2017 projections.
- Footnote on NFA path:
  - The NFA path does not assume potential positive impact of greater efforts to repatriate funds held abroad by public entities and is based on oil price assumptions conservative relative to current prices.

### Risks: Downside and Upside
- Downside risks (could affect attainment of regional NFA projections):
  - Weaker program implementation slowing repayment of domestic debt and arrears, impacting financial sector stability and growth; possible postponement of program reviews and delay of associated external budget support.
  - Delays in approval of a financial arrangement with Equatorial Guinea could reduce external financing disbursed in 2019 by development partners (currently projected at €0.1 billion).
  - Prolonged decline in oil prices would pressure fiscal and external balances and the financial sector.
  - Deterioration in security situation could reduce economic activity, increase military spending needs, and prompt capital outflows.
- Upside risks:
  - Strict implementation of the new foreign exchange regulation could result in higher NFAs.
  - Oil prices turning higher than the conservative projections could contribute to larger NFA accumulation. A scenario based on oil price futures as of mid-May 2019 indicates:
    - Possibly larger NFA accumulation by an additional €500 million in 2019 and a cumulative €1.2 billion by end-2020.
- Policy response if downside risks materialize:
  - Member states and regional institutions should promptly consult on necessary corrective actions, possibly including acceleration of fiscal adjustment and structural reforms and further tightening of monetary policy.

### Alternative Scenario Under Higher Oil Prices (summary)
- IMF staff estimates indicate an alternative scenario where higher oil prices yield:
  - Additional NFA accumulation of €500 million in 2019.
  - Cumulative additional NFA accumulation of €1.2 billion by end-2020.

*Sources: CEMAC authorities; and IMF staff estimates.*

### 1. Financing gap1,227  228   924 1,154   290  1,179 1,470  783  4,634

### 1. Financing gap

### Summary of financing items (as presented)
- 1. Financing gap 1,227  228   924 1,154   290  1,179 1,470  783  4,634
- 2. IMF financing 329   46   245  29090   310  400  231  1,250
- 3. Budget support from other donors 798  183   347  531   275   861 1,137  370  2,836
  - World Bank 261   1436   50    185   321   506   119   936
  - African Development Bank 338   159    109   27066   335   401   184  1,192
  - European Union 45   1047   570    58   59   31   192
  - France 1550    154   15425   146   171   36   516
  - Other 00000
- 4. Other external (non-project) financing 0    0   158  158    -53  -105  -158    00
- 5. Other exceptional financing 100    0   175  175    -22   114   92  182   549
- 6. Residual financing gap 0    00    000    0    00

### National income, prices, and external sector (selected series)
- GDP at constant prices -0.3 1.0 2.5 3.4 2.9 -0.3 1.0 2.5 3.4 2.9
  - Oil GDP -6.1 -4.7 5.3 6.2 0.1 -6.1 -4.7 5.3 6.2 0.1
  - Non-oil GDP 1.3 2.4 1.8 2.7 3.6 1.3 2.4 1.8 2.7 3.6
- Consumer prices (period average) 1.3 0.8 2.1 2.4 2.5 1.3 0.8 2.1 2.4 2.4
- Current account, including grants -12.8 -4.4 -2.3 -2.6 -2.3 -12.8 -4.4 -2.3 -1.8 -1.6

### Government and public debt indicators
- Primary fiscal balance -5.9 -2.4 1.5 2.0 2.3 -6.0 -2.5 1.5 2.8 3.0
- Non-oil primary fiscal balance, including grants (percent of non-oil GDP) -13.8    -10.2 -7.5 -6.2 -5.0 -13.8    -10.3 -7.5 -6.3 -5.1
- Total public debt 51.5 52.5 49.9 48.1 45.8 51.5 52.5 49.9 46.8 44.5

### Reserves and external assets
- Gross official reserves (end of period) months of imports of goods and services 2.3 2.4 2.7 3.3 3.9 2.3 2.4 2.7 3.6 4.5
- Net foreign assets (annual change in billion CFAF) -3,294 -123 248 584 687 -3,294 -123 248    1,014    1,061
- Net Foreign assets (in billion CFAF) 2,254    2,131    2,379    2,963    3,651 2,254    2,131    2,379    3,393    4,454

### Memorandum item
- Oil prices (U.S. dollars per barrel, brent) 445 471 626 244 547 169 66

---

### A. Monetary policy stance
- BEAC maintained monetary policy focused on external stability after an October 2018 policy rate increase.
- Rationale: still moderate inflation, sluggish non-oil growth, ailing credit market, and external reserves on an upward path.
- Staff view:
  - Agreed to anchor monetary policy to external stability.
  - Urged BEAC to remain vigilant and ready to tighten policy if external reserves pressures emerge or inflation increases strongly.
  - Noted reserve coverage, while increasing, remains below what is adequate for an oil exporting economic area.

### B. Sterilizing excess liquidity
- BEAC aims to strengthen interest rate transmission via active liquidity management to steer the interbank rate towards the policy rate.
- Risks identified:
  - Excess liquidity could be a risk for external stability and inflation and could lead to capital outflows if transmission did not strengthen.
  - Interest rates on bank deposits reportedly remained broadly unchanged after policy rate increase.
- Staff recommendations:
  - Swiftly move to sterilize increasing excess liquidity.
  - Start absorbing liquidity through open-market operations within a few months.
  - Possibly increase reserve requirement ratios only slightly.
  - Calibrate target absorption amount in line with neutral liquidity allocation, autonomous liquidity projections, and precautionary liquidity level.
- BEAC position:
  - Favored a more gradual approach: stop liquidity injections by end-2019 and initiate liquidity absorbing operations in 2020.
  - Cited concerns: potential impediment to interbank market development, stress on liquidity-stressed banks, excess liquidity largely held by foreign-owned banks, upcoming removal of liquidity from single treasury account reforms, and cost of liquidity absorption possibly causing BEAC operating losses.
- Staff urged readiness to accelerate absorption if external pressures emerge.
- Note: "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."

### C. Dealing with liquidity-stressed banks
- About 80 percent of total BEAC liquidity injections provided to three systemic liquidity-stressed banks; these banks have sufficient collateral to access normal monetary operations.
- BEAC developing a regulation (expected adoption by end-July 2019) to:
  - Define "liquidity-stressed" banks (criteria such as dependence on BEAC liquidity or repeated breaches).
  - Require submission of a credible funding strategy to reduce BEAC liquidity needs over a reasonable period.
  - Mandate COBAC monitoring and sanctions for noncompliance.
- COBAC plans to revise prudential liquidity ratio towards international standards by end-2019.
- Staff recommended:
  - Define ratio by end-2019 and align supervisory approach with treatment of banks highly dependent on BEAC refinancing.

### D. Implementing the revised foreign exchange regulation
- Authorities committed to strict implementation; BEAC finalizing implementing regulations.
  - Regulations related to banks surrendering forex holdings to BEAC may be adopted by end-June.
  - Regulations related to domiciliation of export receipts to be issued after consultation with customs and capacity solutions identified.
  - Implementing regulations expected to enable disciplinary action and financial sanctions from September 2019.
- Provisions to allow certain economic agents (e.g., extractive companies) to hold accounts abroad or in foreign currency with resident banks under justified conditions and strict monitoring.
- Observations and concerns:
  - Deposits held abroad by CEMAC residents, as reported by BIS, appear excessively large at end-2018; BEAC cannot scrutinize all these accounts.
  - Strong concerns by some banks and extractive operators about implementation; perception of FX rationing in certain countries.
- Staff recommendations:
  - Accelerate outreach and organize consultations by economic sector.
  - Engage with extractive industry representatives to clarify conditions for holding accounts abroad and provide transparency on exemptions.
  - World Bank to provide technical assistance for communication strategy.
- National authorities commitments:
  - Request customs domiciliation of all external transactions with a bank in the region.
  - Ensure all public entities repatriate and surrender all forex receipts with a resident bank by end-2019 (following a stock-taking).
  - Share with BEAC and the CEMAC Commission by end-September 2019 copies of all contracts/arrangements signed with companies in extractive industries.
  - Refrain from creating or authorizing exemptions inconsistent with BEAC implementing regulations.
- These commitments are part of IMF-supported country programs.

### E. Strengthening financial sector stability
- COBAC's 2019–21 strategic plan:
  - Focuses on risk-based supervision, modernizing and aligning regulatory framework to Basel standards, introducing consolidated supervision, and strengthening reporting and supervisory tools.
  - Includes monitoring NPLS reduction, strengthening risk management and internal controls, and enhancing compliance with prudential, AML/CFT, and FX regulations.
- Staff recommendations and observations:
  - Review options to treat NPLSs on credit to finance companies implementing government projects as regular NPLs and set time limits for bank resolution processes.
  - Monitor and define supervisory actions on banks' NPL reduction strategies submitted in early 2019.
  - Request national authorities to provide government arrears repayment plans to assess impact on bank balance sheets.
  - Conduct a review of write-off and forbearance practices in banks by end-September 2019.
  - Discuss possibility of one-off actions to clean up fully provisioned loans on bank balance sheets.
- Liquidity supervision:
  - COBAC aims to revise short-term prudential liquidity ratio to provide a more meaningful measure of true liquidity of assets, including government securities.
  - Staff advised to define this ratio by end-2019.
- Bank resolution process:
  - 9 banks under resolution (up from 6 a year ago).
  - Causes: non/late implementation of COBAC decisions by national authorities, delays by national authorities and bank shareholders, and COBAC accommodating delays.
  - Staff suggested: set time limits for resolution processes for small banks; define criteria and minimum conditions for bridge banks; improve information exchange with BEAC on systemic problem bank cases.
- Regional development bank (BDEAC):
  - Reforms endorsed by General Assembly in January 2019: separation of Chairman and CEO functions; operational credit and remuneration committees.
  - Reduction of nonperforming loans and return to profitability in 2018 reported by BDEAC’s CEO.
  - Staff view: BEAC should not, as a matter of principle, finance BDEAC; encouraged BDEAC to pursue reforms to seek financing on regional or international markets.

### F. Enhancing regional surveillance and fiscal discipline mechanisms
- CEMAC Commission actions:
  - Pursuing full implementation of key directives in public financial management and harmonizing fiscal revenue mobilization.
  - Specific measures: approval of Directive on excise duties, revised Customs Code, Multilateral Tax Treaty on non-double taxation of personal income tax.
  - Objective: support increase in non-oil tax revenue under the regional Economic and Financial Reform Program (PREF).
- Staff encouraged stronger implementation of PREF elements: (i) addressing governance issues, (ii) improving the business climate, (iii) promoting regional integration.
- Multilateral surveillance:
  - Commission finalizing an early warning system project (with World Bank assistance) to detect breaches of convergence criteria and identify corrective measures.
  - Following Heads of State request to develop a binding sanctions regime for breaches of regional surveillance rules.
  - Heads of State required member states to submit Triennial Convergence Programs by 31 July 2019 and adopt domestic arrears clearance strategies by end-2019.
- BEAC Charter amendment:
  - Work ongoing to amend Article on mechanisms to protect regional reserves to account for new monetary policy operations framework.
  - Technical work to identify national thresholds for external reserves under which automatic mechanisms to tighten monetary conditions would trigger.
  - BEAC plans to consult staff when draft amendment ready before submission to Executive Board.

### Monitoring of regional developments and policies
- BEAC and COBAC have pursued implementation of policy commitments from December 2018 Follow-up to the Letter of Support to the Recovery and Reform Programs.
- Implementation highlights:
  - BEAC continued a tight monetary policy.
  - COBAC continued efforts to move to risk-based supervision, stricter application of supervisory rules, and resolution of banks in difficulty.
  - Continuous engagement with IMF staff has enabled close monitoring and assessment of policy implementation.

*INTERNATIONAL MONETARY FUND*

### 32.      The attached follow-up letter describes the policy intents by the regional institutions

### 32.      The attached follow-up letter describes the policy intents by the regional institutions

### Regional monetary and foreign-exchange policy intents
- BEAC is committed to maintain an appropriately tight monetary policy.
- BEAC will focus efforts 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; the June 2019 projection was unchanged.
- The follow-up letter reiterates the commitment that, in the event of a significant deviation from the stated NFA accumulation projections, authorities will identify and adopt any additional corrective measures as necessary (including via the newly established semi-annual Tri-partite discussions) to allow the continuation of (or approval of new) IMF financial support as part of the IMF-supported programs with CEMAC members.

### Progress on BEAC governance, accounting, and legal alignment
- 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.
- Efforts are being stepped up to accelerate revisions to the secondary legal instruments for alignment with the BEAC Charter.
- 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 — regional performance and risks
- The regional strategy has helped stabilize the regional economic position, but challenges remain.
- Reductions in 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.
- Possible policy developments expected in 2019:
  - Adoption of an IMF-supported program with Congo around mid-2019.
  - Work towards a similar program for Equatorial Guinea possibly by year-end.
- Persistent development challenges include: diversified and inclusive growth, job creation for a fast-growing working-age population, and social development.

### Policy priorities for member states
- Member states need to strictly adhere to their respective IMF-supported program objectives; this is critical for both national sustainable development and regional strategy success.
- They should promptly address any fiscal slippages through corrective measures.
- Key requirements to establish conditions for sustained and inclusive growth:
  - (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;
  - (iii) promoting regional integration.
- Renewed commitments by national authorities at the first Tri-partite discussions (national authorities, regional institutions, and IMF staff) are welcome.

### Regional institutions’ role and reserve objectives
- Regional institutions continue to support the regional strategy effectively.
- BEAC’s monetary policy stance, combined with member states’ fiscal consolidation and development partners’ budget support, should support further accumulation of regional reserves to reach a coverage above 3 months of imports by end-2019.
- If oil prices in 2019 were higher than assumed in the current baseline, BEAC’s target would be expected to be exceeded because IMF-supported program design ensures oil revenue windfalls result in reduced net debt.
- BEAC should aim to strengthen monetary policy transmission and be ready to tighten its stance if external pressures emerge and NFAs diverge significantly from projections.

### Liquidity management and banking-sector measures
- BEAC will need to manage liquidity with the primary objective of enhancing monetary policy transmission.
- BEAC continued and accelerated its gradual reduction of liquidity injections, but this was not enough to offset a recent large increase in banks excess liquidity.
- BEAC should be ready to significantly accelerate the move toward liquidity absorption if external or inflationary pressures require rapid tightening of monetary conditions.
- Recommendations to improve BEAC operational efficiency:
  - Efficient management of BEAC’s reserves and lower operational costs could help cover increased monetary policy costs.
- BEAC plans to develop a new regulation to monitor and support liquidity-stressed banks; the framework will:
  - Require liquidity-stressed banks to implement time-bound funding plans aimed at restoring liquidity;
  - Provide powers to COBAC and BEAC for monitoring these plans and applying sanctions in case of non-compliance.

### Foreign-exchange regulation enforcement
- Better enforcement of foreign exchange regulations should contribute to further external reserves accumulation.
- Regional institutions commit to strict implementation of these regulations.
- National-authority support is needed to:
  - Ensure repatriation and surrendering of foreign assets held by public companies;
  - Domiciliate all export proceeds with banks in the region;
  - Facilitate review of contracts with companies in extractive industries.
- BEAC should strengthen communication efforts to ensure smooth, transparent implementation without negatively affecting economic activity and external transactions.

### Banking supervision and COBAC strategic priorities
- COBAC should pursue efforts to address banking sector weaknesses under its new 2019–21 strategic plan.
- COBAC’s more assertive strategy to monitor NPLs reduction by banks, supported by concrete short-term actions, is positive.
- COBAC should accelerate resolution processes for small ailing banks.
- Reforms under the strategic plan should strengthen banking supervision and prudential compliance, including:
  - (i) implementing more effective, risk-based supervision;
  - (ii) modernizing and gradually aligning CEMAC’s regulatory framework to Basel standards;
  - (iii) introducing consolidated supervision, and strengthening reporting and supervisory tools;
  - (iv) strengthening the framework on risk management and internal controls.

### CEMAC Commission surveillance and governance tools
- 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 detect signs that a country may be in breach of the convergence criteria and rapidly identify corrective measures.
- The Commission should pursue development of an effective sanction framework, as requested by Heads of States.
- To support the Commission’s regional surveillance role, member states should swiftly submit their Triennial Convergence Programs.

*Source: IMF staff appraisal and follow-up letter describing policy intents by regional institutions in support of national program objectives.*

### 41.      Overall, staff: (i) considers that BEAC has implemented the policy assurances provided

### 41. Overall staff assessment and regional macrofinancial developments

### Staff assessment of BEAC policy assurances
- Staff considers that BEAC has implemented the policy assurances provided in the December 2018 follow-up letter.
- Staff 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.

### Growth, fiscal adjustment, and external sector developments
- Overall CEMAC growth has increased since the crisis peak but "remains well below what is needed to support sustained job creation and to address the regional development needs."
- The region has undergone a sizeable fiscal adjustment, including the two countries currently not under Fund-supported programs, but "this adjustment was largely achieved by cuts in capital spending."
- The fiscal adjustment has contributed to a sharp reduction in the current account deficit and reverted the drainage in external reserves.
- Gross official reserves (end of period, Millions of U.S. dollars): 4,972; 5,807; 6,468; 6,554; 8,495; 8,265; 9,938; 11,988; 13,616; 15,122 (series shown in Table 1).
- Months of imports of goods and services (end of period): 2.3; 2.4; 2.6; 2.7; 3.3; 3.3; 3.9; 4.4; 5.1; 5.5 (series shown in Table 1).
- Net foreign assets (end of period, Billions of CFA francs): 2,379 (2019 est.), with projections to 3,190 (2020), 3,013 (CR 19/1 est.), 3,707 (2019 est. quarterly series) as reported across balance of payments and monetary tables.

### Outlook and projections
- Oil prices are projected to remain broadly flat going forward, "heightening the role of non-oil sector to support growth going forward" (Figure 3).
- Selected projection highlights from Table 1 (CEMAC aggregates, 2016–23):
  - Gross national savings: 15.8; 20.8; 23.3; 21.8; 24.8; 23.2; 23.9; 24.1; 24.4; 25.1.
  - Gross domestic investment: 28.6; 25.2; 25.1; 24.0; 26.1; 25.7; 26.2; 26.5; 28.4; 27.7.
  - Total Public Debt (percent of GDP): 51.5; 52.5; 49.5; 49.9; 46.2; 48.1; 45.8; 43.7; 41.2; 38.5.
  - Exports of goods and nonfactor services (percent of GDP): 29.7; 36.8; 36.3; 36.1; 34.8; 33.9; 32.2; 30.7; 29.5 (series in Table 1).
  - Current account, including grants (percent of GDP): -12.8; -4.4; -1.8; -2.3; -1.4; -2.6; -2.3; -2.5; -4.0; -2.6.

### Monetary policy and banking sector developments
- Under the program, reserves have stopped their sharp decline and started to accumulate while the BEAC has ended the monetary financing of CEMAC budget (Figure 4).
- BEAC’s credit to governments: Advances and consolidated debt remain large (Advances and consolidated debt shown as 2,446; 2,770; 2,773; 2,773; ... in monetary tables).
- Government deposits at the BEAC have plateaued after a long decline to finance past deficits while total bank deposits have increased, reflecting large forex repatriation at end 2018.
- Excess reserves have built-up in recent months, reflecting shallow credit opportunities, and are largely concentrated in foreign-owned banks.
- Monetary aggregates and banking-sector indicators (Table 6 and monetary survey):
  - Broad money (CFA francs, selected entries): 10,556; 10,512; 10,261; 10,440; 10,622; 11,042; 11,358; 11,242; 11,098; 11,283; 12,057; 12,274; 13,175.
  - Net credit to the private sector (Billions of CFA francs): 7,082; 6,955; 6,833; 6,869; 7,056; 7,096; 7,243; 6,852; 6,961; 7,078; 7,412; 7,572; 8,052.
  - Reserve coverage of broad money (percent): 30.6; 30.2; 29.4; n.a.; 33.1; 33.3; 34.6; n.a.; n.a.; 39.2; 38.4; 42.7; 47.3; 49.6; 50.9; 50.9 (memorandum in Table 7).

### Fiscal balances, convergence, and vulnerabilities
- The region recorded a sizeable fiscal adjustment, but much of it was achieved through cuts in capital expenditure (figures and charts indicate capital expenditure fell substantially).
- CEMAC: Overall fiscal balance (excluding grants) series (Table 4a and 4b) show improvements from large deficits toward smaller deficits and near-balance in aggregate:
  - CEMAC overall fiscal balance (excluding grants, percent of GDP): -8.4; -8.0; -4.5; -1.3; -0.6; -0.5; 0.3; -0.2; 0.1; 0.3; 0.5; 0.6 (series in Table 4a).
- Compliance with convergence criteria remains mixed across member states (Table 5), with multiple countries exceeding the public debt threshold and other criterion violations noted in annual country-by-country series.

*Source: IMF staff and CEMAC authorities (extracted from the provided CEMAC chapter and tables).*

### Annex I. Policy Commitments at the First Tripartite Discussions

### Annex I. Policy Commitments at the First Tripartite Discussions

### Context and assessment
- Tripartite consultation held on 2 April 2019 in Douala, Republic of Cameroon, between Ministers in charge of Finance and the Economy of the CEMAC Member States, sub-Regional Institutions and IMF staff to assess performance under the crisis exit strategy and IMF-supported programs.
- Noted encouraging signs of stabilization of the macroeconomic framework, particularly regarding the replenishment of foreign exchange reserves.
- Highlighted persistent delays in approving IMF-supported programs for Congo and Equatorial Guinea and vulnerability to recent decline in oil prices and the deterioration of the security situation in some countries.
- Specific macroeconomic observations:
  - 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.
  - Adjustment of budgets has been mainly driven by reduced spending.
  - Non-oil revenue dynamics remain below expected performance.
  - Replenishment of foreign exchange reserves expressed in months of imports of goods and services is still to be accelerated.
- Risks to internal and external balances include risks to (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.
- Reaffirmed commitment to accelerate implementation of the crisis-resolution strategy in a spirit of community and solidarity.

### Commitments and recommended actions for 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.
  - Tax exemptions should be reduced.
  - Strengthen 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.

### Commitments by Community institutions

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.

### Follow-up actions, timelines, and operational measures
- New foreign exchange Regulation adopted in December 2018 by the Ministerial Committee of the Central African Monetary Union (UMAC) entered into force on March 1, 2019.
- BEAC drafting of implementing legislation and Governor's instructions (implementing legislation) to define reporting requirements and penalties; Governor's instructions expected to be adopted by the end of [June] 2019.
- 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; outreach missions to be carried out in June–July 2019 in collaboration with the CEMAC Commission among operators in the banking, mining, oil and forestry sectors.
- BEAC measures on monetary policy:
  - Continue gradual reduction of liquidity injections until the end of the year and proceed to a neutral liquidity allocation to achieve external stability of the currency.
  - New system of accounting for monetary transactions adopted before the end of 2018.
  - Submit to the Monetary Policy Committee of July 2019 specific regulations on the resolution of banks with liquidity problems; provisions to come into effect as of September 2019.
  - New sanctions framework and private sector securities framework, eligible as collateral for monetary operations at BEAC, to be submitted in July 2019 to the Monetary Policy Committee for adoption; BEAC to consult banks on new eligibility criteria for access to the money market in May–June 2019.
- COBAC Secretariat General focusing on implementation of its new Strategic Plan 2019–21 with priority actions including risk-based supervision, strengthening the fight against money laundering and terrorist financing, and modernization of prudential rules.
- Next tripartite discussions scheduled to take place in the second half of 2019 to assess progress and identify corrective measures if significant deviations from net foreign assets projections occur.

### Key statistics, fiscal and reserve targets, and financing assumptions
- Economic growth in the subregion in 2018 estimated at 1.7 per cent (BEAC services).
- Congo and Equatorial Guinea implemented budgetary adjustments and recorded surpluses which stood respectively at 7.1% of GDP and 2.8% of GDP.
- Net foreign assets stood at 3.63 billion euros at the end of 2018, surpassing by 170 million euros the projections presented in the December 2018 letter.
- Coverage of reserves brought to 2.7 months of imports.
- BEAC regional policy assurances: € 3.50 billion at the end of June 2019 and at least € 4.50 billion at the end of 2019.
- External financing and exceptional external financing assumed in projections: 0.42 billion euros in the first half of 2019 and 1.31 billion euros in the second half of 2019.
- Assumptions/conditions for achieving targets include that oil prices do not go below current assumptions and that the Congo and Equatorial Guinea programs are adopted during 2019 to allow associated budget support disbursements.

### Closing statements and acknowledgements
- Ministers and heads of sub-regional institutions thanked the IMF for its commitment to support Member States in improving transparency and management of hydrocarbon and mining revenues and in strengthening capacity to monitor oil exports.
- CEMAC authorities reiterated unwavering commitment to the regional strategy; Heads of State provided strict guidance for full observance of national fiscal adjustment objectives and strict compliance with enhanced foreign exchange regulations.
- Semi-annual Tripartite consultations established to monitor progress and discuss contingency measures; first meeting held on April 2, 2019 in Douala, Cameroon.

*Annex I. Policy Commitments at the First Tripartite Discussions — Tripartite Discussions between States, CEMAC Institutions and the IMF Staff (Douala, April 2, 2019); follow-up material and statements dated June 10, 2019 and June 24, 2019.*

### 5. While regional growth in 2018 remained below pre-crisis levels, it nevertheless

### 5. While regional growth in 2018 remained below pre-crisis levels, it nevertheless

### Macroeconomic outcomes and key statistics
- Real GDP growth rebounded to 2.5 percent in 2018 from 1 percent in 2017, aided by a stronger oil sector activity.
- PPP GDP-weighted average inflation reached 2.1 percent driven by adjustments in administered prices to streamline energy and other subsidies.
- The regional primary fiscal position moved into surplus and the overall fiscal position was close to balance.
- The average public debt-to-GDP ratio declined to 50 percent.
- BEAC increased its policy rate by 55 basis points in October 2018 and continued gradual reduction of liquidity injections.
- Gross reserves covered 2.7 months of imports at the end of 2018; gross reserves have continued to increase thereafter.

### Policy actions implemented
- Fiscal consolidation implemented through significant spending cuts and increases in revenue across CEMAC countries, including those yet to conclude a Fund arrangement.
- BEAC measures:
  - Tight monetary policy stance since October 2018.
  - Gradual reduction of liquidity injections, which raised the weighted average auction rate and improved banks’ use of the marginal lending facility, though excessive liquidity in the banking sector remains partly unaddressed due to autonomous factors and moderate credit growth.
- Regional institutional actions:
  - Adoption and operationalization of revised foreign exchange regulations.
  - Modernization measures for the central bank’s monetary policy operational framework.
  - Achievement (and exceeding) of the end-2018 regional target on regional net foreign assets (NFAs).

### Outlook and projections
- CEMAC outlook described as broadly favorable with specific projections:
  - Real GDP growth expected to stabilize around 3 percent over the medium term.
  - Public debt-to-GDP ratio projected to continuously decline to below 40 percent by 2023.
  - External imbalances expected to narrow and, with strict enforcement of foreign exchange regulations, contribute to reserve accumulation up to 5 months of import cover by 2022.
- Authorities acknowledge downside risks including:
  - Weaker program implementation.
  - Further delays in approval of IMF arrangements with Equatorial Guinea and Republic of Congo.
  - A significant decrease in oil prices.
  - An increase in security challenges.
- Authorities stand ready to take corrective actions and consult promptly, including under the Tripartite forum as needed, to design and implement contingent policies.

### Policy recommendations and regional commitments
- Priorities emphasized by CEMAC authorities and Staff:
  - Continue tight monetary policy with strengthened interest rate transmission.
  - Reduce excessive liquidity in the banking sector while supporting liquidity-stressed banks.
  - Ensure strict compliance by state-owned enterprises in extractive industries, private exporters and banks with foreign exchange regulations, notably required repatriation and surrender of foreign exchange receipts to the central bank.
  - National authorities to support regional institutions and help communicate regulations to alleviate private sector concerns.
- Fiscal and governance measures:
  - Satisfactory implementation of member countries’ fiscal consolidation plans and reforms is critical to achieving regional objectives.
  - Reforms to improve public financial management (PFM) and reinforce public sector governance, including checks-and-balances in CEMAC legislation.
  - CEMAC Commission values implementation of regional directives on PFM and harmonization of fiscal revenue mobilization.
- Monetary operations and financial sector stability:
  - BEAC to pursue gradual neutral liquidity absorption to enhance transmission channels, while accounting for interbank and public securities market development, banks under liquidity stress, and potential central bank operating losses.
  - Single treasury account reforms and restructuring of distressed banks expected to remove potentially large amounts of liquidity from banks.
  - New BEAC regulation on distressed banks to include:
    - Specific criteria to identify liquidity-stressed banks that extensively use BEAC refinancing.
    - Obligation for such banks to develop, submit and implement a credible funding strategy monitorable by COBAC to reduce central bank liquidity reliance.
    - Sanctions for noncompliance. The adoption of the new regulation is expected by end-July 2019.
  - COBAC to continue ensuring banks’ compliance with exchange regulations and prudential standards.
  - SG-COBAC Strategic Plan 2019-21 to implement risk-based supervision reforms, modernize prudential norms, strengthen anti–money laundering and terrorism financing efforts, require NPL reduction plans from troubled banks, and prepare transition to Basel II/III and IFRS standards.
- Institutional reforms:
  - BDEAC adopted significant governance and internal control reforms to restore financial soundness and lessen recourse to central bank financing.
  - Regional reform program (Programme de Réformes Economiques et Financières, PREF) to advance economic diversification, foster regional integration, enforce compliance of extractive industry contracts with transparency directives, and improve the business environment.
  - CEMAC Commission to strengthen multilateral surveillance and elaborate a binding sanctions scheme for breaches of norms.
  - Member countries required to submit triennial convergence programs by end of July 2019 and credible domestic arrears clearance plans by end-2019.

### Conclusion and operational notes
- CEMAC authorities reaffirm commitment to the regional crisis exit strategy and provided new policy assurances to support restoration of internal and external stability.
- Authorities stress the importance of timely disbursements of budget support from external partners and swift conclusion of IMF financial arrangements with Congo and Equatorial Guinea.
- CEMAC authorities continue to appreciate the Fund’s support to their reform efforts.

*Source: IMF content unit 1caeea2019003*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1caeea2019003.pdf_