## CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON COMMON POLICIES (December 2, 2019) ## Source details **Canonical URL:** [CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON COMMON POLICIES (December 2, 2019)](https://www.imf.org/-/media/files/publications/cr/2019/1caeea2019004.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1caeea2019004.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1caeea2019004.pdf.json) --- ### Context, recent developments, and key risks - Staff report completed on December 2, 2019; Press Release No. 19/471 dated December 18, 2019. - Economic activity and growth: - Non-oil growth slowed to below 2 percent in 2018. - Overall regional growth was 2.5 percent in 2018. - Overall regional growth in 2019 would remain at the same level (2.5 percent), with a slight pick-up in non-oil growth offset by a slowdown in oil production growth. - External balances and reserves: - External current account deficit in 2018: 2.5 percent of GDP. - Overall balance of payments deficit in 2018: 0.4 percent of GDP. - External current account and overall balance of payments deficits in 2019 would remain at their improved 2018 levels (2.5 and 0.4 percent of GDP, respectively). - June 2019 objective for regional net foreign assets was exceeded by more than €800 million. - Reserves remain below the level appropriate for commodity-exporting economies (5 months of imports). - Drivers and constraints: - Tighter macroeconomic and financial policies and stricter implementation of foreign exchange regulations helped reduce external imbalances and increase reserves. - Fiscal consolidation has been tilted towards cuts in public investment, weighing on growth. - Legacy of domestic arrears and volatile security situations in some regions weighed on non-oil activity. - Lack of significant progress in structural reforms (governance, business climate) limits non-oil growth potential. - Key downside risks identified: - A significant slowdown in global growth and associated decline in oil prices. - A deterioration in the security situation in some countries. - Weaker implementation of IMF-supported programs. ### Medium-term outlook and projections - Growth and inflation: - Overall growth projected to increase to 3.5 percent in 2020, mainly driven by the non-oil sector. - Oil sector growth expected to remain stable in 2020 before declining in following years along past trends. - Inflation projected to stay at around 2.5 percent over the medium term. - Fiscal and debt: - Further fiscal consolidation, mainly from enhanced non-oil revenue collection, would reduce the regional non-oil budget deficit by an additional 1 percentage point of non-oil GDP in 2020, then continue to decline gradually. - Public debt-to-GDP ratio expected to decline to 47 percent of GDP in 2020 and to less than 40 percent by 2023. - External sector and reserves: - External current account deficit projected to slightly worsen to 2.8 percent of GDP in 2020. - Regional net foreign assets projected to increase steadily; reserves would reach the equivalent of 5 months of imports of goods and services by 2022. - Stronger enforcement of foreign exchange regulations, external budget support, and some debt relief are expected to improve the capital account and reserves trajectory. - Preconditions for this outlook: - CEMAC countries remain committed to their program objectives. - New programs with Equatorial Guinea and CAR start soon (noted as possible around end-2019). ### Executive Board assessment and priorities - Overall judgment: - CEMAC at a crossroad to consolidate progress and put adjustment efforts on a sustainable path. - Tighter macroeconomic and financial policies helped stabilize conditions and raise gross external reserves, but significant downside risks remain. - Priorities emphasized by Directors: - Strict adherence by national authorities to IMF-supported program objectives to secure domestic and external stability. - Rebalance fiscal consolidation toward increasing non-oil domestic revenue to preserve social spending and public investment. - Implement well-managed government arrears repayment plans to support the private sector and improve banks’ balance sheets. - Ensure BEAC remains ready to tighten monetary policy if external pressures emerge and aim for more rapid absorption of currently large excess liquidity. - Avoid any new financing agreement between BEAC and BDEAC. - Continue implementation and enforcement of foreign exchange regulations, with tailored dialogue with extractive firms as needed. - COBAC should implement a more risk-based supervision, adopt and operationalize the new sanction mechanism, streamline bank resolution, reduce very high non-performing loans, and reinforce capacity and staffing. - Implement more ambitious and effective structural measures to support higher and more inclusive non-oil growth, including governance, business climate, financial sector development, and reduction of non-tariff barriers to regional trade. - Strengthen transparency, accountability in public resource management, and AML/CFT supervision. - Strengthen CEMAC’s multilateral surveillance framework to promote faster convergence. ### Implementation of regional strategy and policy recommendations (selected) - Immediate institutional and policy actions recommended: - BEAC should continue to implement an appropriately tight monetary policy and initiate gradual absorption of excess liquidity starting in early 2020. - BEAC should continue full implementation of the foreign exchange regulation to all economic agents; for extractive sectors, continue discussions to address potential specific business needs when necessary. - COBAC should define a more assertive strategy to support NPL reduction by banks, streamline the bank resolution process for banks in difficulties, and fully implement the risk-based approach to both prudential and AML/CFT supervision as soon as possible. - CEMAC’s regional institutions should define an action plan to bring about tangible improvements in governance and the business climate to enable private-sector-led higher and more inclusive growth. - Implementation status notes: - Directors noted BEAC implemented policy commitments in the June 2019 Follow-up Letter of Policy Support, especially assurance on NFA accumulation, which exceeded the targeted level. - Directors endorsed updated policy assurance in the December 2019 follow-up Letter from the BEAC Governor on achieving projected end-December 2019 and end-June 2020 NFA accumulation, conditional on adequately tight monetary policy and member-state adjustment commitments. ### Fiscal performance through mid-2019 and targets - Program targets and outcomes: - Preliminary data indicate that June 2019 program targets for non-oil fiscal balances were generally achieved. - Overall, government deposits with BEAC at end-June 2019 exceeded previous projections. - Cameroon and Chad: performance through June 2019 remains overall satisfactory, although certain structural benchmarks were missed, particularly with regard to the reduction of government arrears. - Gabon: only three out of six performance criteria achieved by end-June; the non-oil fiscal deficit was less than half the targeted level. - Region-wide: non-oil deficit expected to decline by 1.2 percent of non-oil GDP. - Overall balance expected to improve by close to 1 percent of GDP. - Public debt ratio expected to decline by 2 percentage points of GDP (in 2019). - Composition of adjustment: mainly spending cuts, particularly public investment; little progress in increasing non-oil fiscal revenues; social spending again below targets. - Fiscal consolidation and arrears strategy: - Fiscal targets: reduce the non-oil primary deficit from 8 percent of non-oil GDP in 2018 to less than 6 percent in 2020 and 4 percent by 2022. - Total stock of arrears estimated at about 6 percent of CEMAC’s GDP as of mid-2019. - Well-managed arrears repayment plans (cash vs securities, timing) are central to reviving non-oil growth and restoring confidence. ### Banking sector, financial soundness, and liquidity (mid-2019 assessments) - Liquidity and credit: - Increase in repatriation and surrendering of forex largely fueled an increase in bank deposits. - Broad money growth accelerated to 11 percent (y-o-y) in September 2019. - Credit growth remained very low, close to zero (y-o-y) in September 2019 (after excluding securitization impact in Equatorial Guinea). - Excess liquidity of the banking sector (after monetary operations) equivalent to 2.2 percent of regional GDP. - Asset quality and solvency: - Ratio of overdue loans amounted to 22 percent at end-September 2019 (21 percent at end-2018). - Loans in default with direct or indirect sovereign guarantees remained at 6 percent of total gross loans. - Solvency ratio declined to 18 percent at end-September 2019 from 19 percent at end-2018. - Liquidity ratio declined to 145 percent at end-September 2019 from 164 percent at end-2018. - Interbank market and segmentation: - Persistent segmentation and lack of confidence; a few systemic banks remain dependent on BEAC liquidity provision. ### BEAC regulatory and operational actions (July–November 2019) - Regulation on excessive dependency on central bank refinancing: - Regulation defines banks as excessively dependent when "the share of total central bank refinancing to total assets exceeds 10 percent." - Such banks will be required to submit credible treasury recovery plans to reduce their dependency to below the threshold within two years. - BEAC planned to formally notify the few banks falling under this regulation by end-November 2019. - Plans will be subject to quarterly reviews by BEAC and COBAC. - Modernization of monetary policy operational framework: - CPM adopted a new framework for private claims accepted as collateral based on default probabilities and financial risk levels. - An amendment adopted in November 2019 allows symmetrical interventions for both main weekly and long-term operations. - Staff advised aligning operational timetables and recommended issuance of liquidity absorbing instruments (such as certificates of deposits) to boost the secure interbank market. - Liquidity management statistics and plans: - MPC maintained the policy rate unchanged at 3.5 percent in November 2019. - Autonomous factors of banks’ liquidity exceeded FCFA 2,000 billion in September 2019 from around FCFA 1,700 billion at end-2018. - BEAC partly offset the increase by broadening reserve requirement base and reducing active injections at 20 billion FCFA per month. - Outstanding excess liquidity (after BEAC injections) amounted to FCFA 1,200 billion in September 2019. - BEAC plans initially small absorption operations in January 2020; potential sterilization costs could reach CFAF 30-40 billion per year over the medium term. ### Enforcement of the foreign exchange regulation and extractive sectors - Revised regulation entered into force March 1st, 2019; New Regulation adopted December 21, 2018. - Nine circular letters and a series of 14 application instructions were issued in June 2019. - June 2019: BEAC targets processing time of 48 hours for external transactions. - BEAC engaged in consultations with oil and mining companies; decision issued in November 2019 to extend the deadline for oil and mining companies to fully comply with the forex regulations until end-2020. - Staff recommended: - Share monthly reports on the state of execution of foreign exchange operations. - Explore simplified rules for repatriation and surrendering of foreign exchange receipts, potentially replacing the current 30 percent limit on banks’ retention of repatriated funds with simpler net open position limits. - Establish a cross-checking system between customs and banking data; BEAC indicated customs data sharing limitations. ### Financial markets, supervision, and infrastructure - Interbank money market: - 90 repo agreements signed to date between banks and a trading platform in use. - Interbank transactions have quadrupled in 2019 from the same period last year. - Repo transactions represented about three quarters of total transactions in 2019. - Financial transparency and infrastructure: - Regulation on credit bureaus adopted in 2019; a first credit bureau expected to be selected and start operating in early 2020. - BEAC modernizing existing credit register and establishing a financial statements repository. - Amount of treasury securities increased by 70 percent in the past year and is now equivalent to 3.5 percent of regional GDP. - New regulations require Treasuries market operators to sell at least 30 percent of treasuries bought on the primary market to boost the secondary market. - Centralization of quotations on the RTDM platform should enhance transparency and help establish a secondary market yield curve. - COBAC actions and needs: - COBAC adopted a regulation on payment services and on financial penalties in September 2019 and launched initiatives on consolidated supervision, AML/CFT, consumer protection, supervisory tools, and microprudential stress test approaches. - COBAC adopted a Basel II/III roadmap over 2020–23 and plans to revise the short-term liquidity prudential ratio in early 2020 with IMF technical assistance. - COBAC is understaffed by about one third at the professional or higher levels, limiting capacity for new initiatives. ### Charter amendment, regional surveillance, and institutional reforms - Charter amendment: - Technical work to amend the BEAC’s Charter Article on mechanisms to protect regional reserves is close to completion. - Amendment will define automatic mechanisms to tighten monetary conditions when regional reserves or national imputed reserves fall below thresholds. - Regional surveillance and PFM: - Latest regional surveillance report assessed none of the CEMAC countries was in full compliance with the regional convergence criteria in 2018. - Early warning tool (EWT) drafted with World Bank assistance; adoption planned by end-2019. - Work to define a sanctions mechanism for violations of Multilateral Surveillance rules; draft planned in early 2020. - Progress: approval of revised Customs Code and Uniformized Excise Tax Regulation (March 2019); regional workshop validated draft text revising the VAT Directive (March 2019); revision of the Corporate Income Tax Directive discussed in September 2019. - Institutional reforms and safeguards: - BEAC progressing on recommendations of the 2017 safeguards assessment and full transition to IFRS for FY 2019 is progressing broadly as planned. - COBAC progressing on its 2019–21 strategic plan toward risk-based supervision. ### External sector assessment and reserves adequacy - Recent developments and projections: - Current account deficit improved from 4.9 percent of GDP in 2017 to 2.7 percent of GDP in 2018 and projected at 2.5 percent of GDP at end-2019. - Imports of goods declined by more than 5 percent GDP between 2016–19. - Reserves projected to increase to above 5 months of imports by 2022, from 2.7 months of imports at end-2018. - June 2019 target for net foreign assets was exceeded by more than €800 million. - Reserves adequacy: - Reserve coverage expected to increase above 3 months of prospective extra-regional imports by end-2019 but remains below the benchmark of 5 months of imports. - By end-2019, reserves are projected to be above 60 percent of the IMF reserve adequacy metric, but below the range of 100–150 percent deemed broadly adequate. - Reserves are expected to reach a reserve coverage of 3.3 months of prospective extra-regional imports by end-2019, and then up to 5.2 months of imports by end-2022. - Valuation and gaps: - The REER depreciated throughout 2019 (by about 6 percent). - Using the “EBA-Lite’s” Current Account model: - Overvaluation implied: 11.4 percent. - 2019 Current Account Actual -2.5% - Current Account Norm 0.3% - CA Gap (Actual-Norm) -2.8% - Policy Gap 2.6% (of which fiscal balance 1.0%; of which health expenditure 1.7%; of which change in reserves 0.0%; of which private credit/GDP 0.0%; of which private credit growth 0.0%; of which capital control -0.1%) - Residual -5.4% - Policy advice: - Keep an adequately tight monetary stance while continuing full implementation of the foreign exchange regulation to bring reserves to the recommended benchmark of 5 months of imports. - Do not solely rely on foreign exchange regulations to shore up reserves; engage in structural reforms to increase FDI and restore confidence. ### Tripartite meeting commitments, financing needs, and medium-term targets - Tripartite meeting (October 2, 2019) commitments: - Adhere to non-oil budget targets; accelerate audits of public arrears; ensure repatriation of commodity export earnings; support BEAC implementation of forex regulations; submit triennial convergence plans by end-2019. - Regional external financing requirement and disbursement dependencies: - Regional external financing requirement projected at "5.20 billion euros at end-June 2020." - Timely disbursements projected at "0.98 billion euros in the second half of 2019 and 0.18 billion euros in the first half of 2020" are essential for achievement of targets. - Achievement of targets depends on BEAC actions, satisfactory implementation of fiscal consolidation programs and structural reforms, and timely external partner budget support. - Medium-term quantitative projections: - Growth expected to reach "3.5 percent in 2020 and 2021". - Inflation projected to remain below the "3-percent convergence threshold" over the medium term. - Public debt-to-GDP ratios to decline to below "40 percent by 2023". - Reserves projected to attain "5 months of import coverage by 2022". - End-2019 NFA projection covered by a policy assurance was revised slightly upwards to € 4.70 billion; staff supports updated assurances to bring NFA to €4.70 billion and €5.20 billion at end-December 2019 and end-June 2020, respectively. ### Key numerical series and indicators (selected, preserved exactly as in source) - CEMAC: Real GDP Growth, 2016–19 (Percent): 2016 -0.3 2017 1.0 2018 2.5 2019 3.4 (also presented elsewhere as series 2.5 etc.). - Gross official reserves (end of period), Millions of U.S. dollars: 2016 4,972 2017 5,807 2018 6,555 2019 8,265 2020 8,169 2021 10,460 2022 12,385 2023 13,760 15,025. - Total Public Debt (CEMAC, Percent of GDP): 2016 51.7 2017 52.5 2018 51.0 2019 48.1 2020 49.3 2021 47.2 2022 45.1 2023 42.6 40.0. - GDP at constant prices (CEMAC row, Table 1, annual series): 1 -0.31.02.53.42.53.53.52.53.1 - Oil GDP (Table 1, annual series): 1 -6.1-4.75.36.23.84.1-1.4-3.7-2.7 - Non-oil GDP (Table 1, annual series): 1 1.32.41.82.72.23.34.73.94.4 - Consumer prices (period average) (Table 1): 2 1.20.82.12.42.12.42.42.32.3 - Months of imports of goods and services (Table 1, gross official reserves coverage): 2.32.32.73.33.3 4.14.85.25.5 - Gross foreign assets (end of period, Billions CFAF, Table 3a memo): 3,0933,2183,7774,7144,8016,0957,1547,8998,569 ### Staff appraisal, principal recommendations, and conditionalities - Staff appraisal: - Regional strategy helped avert a deeper financial crisis; coordinated response since 2015 achieved significant reductions in fiscal and external imbalances and reserve accumulation. - Region still needs to buttress external position and achieve higher, more diversified and inclusive growth. - Key policy recommendations and conditions: - CEMAC member countries must strictly adhere to their respective IMF-supported program objectives. - Rebalance fiscal consolidation by expanding the fiscal revenue base to finance priority social and investment spending. - Implement well-managed government arrears repayment plans. - BEAC-specific: continue tight monetary stance (policy rate at 3.5 percent as of November 2019), be ready to tighten if external pressures emerge, avoid new financing agreement with BDEAC, start absorbing liquidity in early 2020, and manage sterilization costs (CFAF 30-40 billion per year potential). - COBAC-specific: pursue 2019–21 strategic plan, implement risk-based supervision, oversee NPLs clearance, ensure timely implementation of banks’ resolution framework, and address understaffing. ### Surveillance, monitoring, and next steps - Surveillance discussions with CEMAC authorities will remain on a 12-month cycle. - Next tripartite meeting scheduled for the first half of 2020. - Continued monitoring priorities: NFA accumulation to €4.70 billion at end-December 2019 and €5.20 billion at end-June 2020; progress on foreign exchange regulation implementation; audits and clearance plans for domestic arrears; implementation of COBAC and BEAC reforms; adoption of triennial convergence plans by member states. *Source: CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON THE COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS (staff report completed December 2, 2019).* ### 2019. Based on information available at the time of these discussions, the staff report was ### CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON COMMON POLICIES (December 2, 2019) ### Context, recent developments, and key risks - Staff report completed on December 2, 2019; Press Release No. 19/471 dated December 18, 2019. - CEMAC’s economic and financial situation improved but remains fragile. - Economic activity: - Non-oil growth slowed to below 2 percent in 2018. - Overall regional growth was 2.5 percent in 2018. - Overall regional growth in 2019 would remain at the same level (2.5 percent), with a slight pick-up in non-oil growth offset by a slowdown in oil production growth. - External balances and reserves: - External current account deficit in 2018: 2.5 percent of GDP. - Overall balance of payments deficit in 2018: 0.4 percent of GDP. - External current account and overall balance of payments deficits in 2019 would remain at their improved 2018 levels (2.5 and 0.4 percent of GDP, respectively). - June 2019 objective for regional net foreign assets was exceeded by more than €800 million. - Reserves remain below the level appropriate for commodity-exporting economies (5 months of imports). - Drivers and constraints: - Tighter macroeconomic and financial policies and stricter implementation of foreign exchange regulations helped reduce external imbalances and increase reserves. - Fiscal consolidation has been tilted towards cuts in public investment, weighing on growth. - Legacy of domestic arrears and volatile security situations in some regions weighed on non-oil activity. - Lack of significant progress in structural reforms (governance, business climate) limits non-oil growth potential. - Key downside risks identified: - A significant slowdown in global growth and associated decline in oil prices. - A deterioration in the security situation in some countries. - Weaker implementation of IMF-supported programs. ### Medium-term outlook and projections - Growth and inflation: - Overall growth projected to increase to 3.5 percent in 2020, mainly driven by the non-oil sector. - Oil sector growth expected to remain stable in 2020 before declining in following years along past trends. - Inflation projected to stay at around 2.5 percent over the medium term. - Fiscal and debt: - Further fiscal consolidation, mainly from enhanced non-oil revenue collection, would reduce the regional non-oil budget deficit by an additional 1 percentage point of non-oil GDP in 2020, then continue to decline gradually. - Public debt-to-GDP ratio expected to decline to 47 percent of GDP in 2020 and to less than 40 percent by 2023. - External sector and reserves: - External current account deficit projected to slightly worsen to 2.8 percent of GDP in 2020. - Regional net foreign assets projected to increase steadily; reserves would reach the equivalent of 5 months of imports of goods and services by 2022. - Stronger enforcement of foreign exchange regulations, external budget support, and some debt relief are expected to improve the capital account and reserves trajectory. - Preconditions for this outlook: - CEMAC countries remain committed to their program objectives. - New programs with Equatorial Guinea and CAR start soon (noted as possible around end-2019). ### Executive Board assessment and priorities - Overall judgment: - CEMAC at a crossroad to consolidate progress and put adjustment efforts on a sustainable path. - Tighter macroeconomic and financial policies helped stabilize conditions and raise gross external reserves, but significant downside risks remain. - Priorities emphasized by Directors: - Strict adherence by national authorities to IMF-supported program objectives to secure domestic and external stability. - Rebalance fiscal consolidation toward increasing non-oil domestic revenue to preserve social spending and public investment. - Implement well-managed government arrears repayment plans to support the private sector and improve banks’ balance sheets. - Ensure BEAC remains ready to tighten monetary policy if external pressures emerge and aim for more rapid absorption of currently large excess liquidity. - Avoid any new financing agreement between BEAC and BDEAC. - Continue implementation and enforcement of foreign exchange regulations, with tailored dialogue with extractive firms as needed. - COBAC should implement a more risk-based supervision, adopt and operationalize the new sanction mechanism, streamline bank resolution, reduce very high non-performing loans, and reinforce capacity and staffing. - Implement more ambitious and effective structural measures to support higher and more inclusive non-oil growth, including governance, business climate, financial sector development, and reduction of non-tariff barriers to regional trade. - Strengthen transparency, accountability in public resource management, and AML/CFT supervision. - Strengthen CEMAC’s multilateral surveillance framework to promote faster convergence. ### Implementation of regional strategy and policy recommendations (selected) - Immediate institutional and policy actions recommended: - BEAC should continue to implement an appropriately tight monetary policy and initiate gradual absorption of excess liquidity starting in early 2020. - BEAC should continue full implementation of the foreign exchange regulation to all economic agents; for extractive sectors, continue discussions to address potential specific business needs when necessary. - COBAC should define a more assertive strategy to support NPL reduction by banks, streamline the bank resolution process for banks in difficulties, and fully implement the risk-based approach to both prudential and AML/CFT supervision as soon as possible. - CEMAC’s regional institutions should define an action plan to bring about tangible improvements in governance and the business climate to enable private-sector-led higher and more inclusive growth. - Implementation status notes: - Directors noted BEAC implemented policy commitments in the June 2019 Follow-up Letter of Policy Support, especially assurance on NFA accumulation, which exceeded the targeted level. - Directors endorsed updated policy assurance in the December 2019 follow-up Letter from the BEAC Governor on achieving projected end-December 2019 and end-June 2020 NFA accumulation, conditional on adequately tight monetary policy and member-state adjustment commitments. ### Institutional engagement and mission details - Discussions held from October 24–November 7, 2019 in Libreville (Gabon) and Yaoundé (Cameroon). - Staff team: Mr. Toujas-Bernaté (head), Mr. Lanci, Mr. Lautier, Mr. Rosa (all AFR); Ms. El Gemayel and Mr. Portier (MCM); assisted by Messrs. Nsengiyumva and Poplawski (Resident Representatives in Cameroon and Gabon), and Mr. Ambassa (local economist in Cameroon); prepared with assistance of Ms. Adjahouinou. - Meetings included Mr. Abbas Mahamat Tolli (Governor of BEAC and Chairman of COBAC), Prof. Clément Belingaba (Commissioner for Economic, Monetary, and Financial Affairs, CEMAC Commission), and other senior officials. - The report is based on annual Article IV consultation discussions with regional institutions responsible for common policies in the currency union. *Source: CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON THE COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS (staff report completed December 2, 2019).* ### 3. Fiscal deficit targets for country Fund-supported programs through mid-2019 were ### 3. Fiscal deficit targets for country Fund-supported programs through mid-2019 were ### Fiscal performance through mid-2019 - Preliminary data indicate that June 2019 program targets for non-oil fiscal balances were generally achieved. - Overall, government deposits with BEAC at end-June 2019 exceeded previous projections. - Cameroon and Chad: performance through June 2019 remains overall satisfactory, although certain structural benchmarks were missed, particularly with regard to the reduction of government arrears. - Gabon: only three out of six performance criteria achieved by end-June; the non-oil fiscal deficit was less than half the targeted level and significant progress was made in implementing structural reforms. Authorities reaffirmed willingness to take all necessary measures to achieve the program's objectives in 2019. - A three-year Extended Credit Facility arrangement was approved with the Republic of Congo in July. - A staff-level agreement for a three-year Extended Arrangement under the EFF with Equatorial Guinea was reached and will be discussed by the IMF Executive Board by end-December 2020. - A new program in the Central African Republic has also been negotiated. ### Recent macroeconomic developments and 2019 outlook - Economic activity: - Non-oil growth slowed to below 2 percent in 2018. - Overall regional growth was 2.5 percent in 2018. - In 2019, overall regional growth expected to remain at 2.5 percent, with a slight pick-up in non-oil growth offsetting a slowdown in oil production growth. - Inflation: - Increased towards end-2018 to around 3 percent, then decelerated to below 2 percent by June 2019. - Fiscal consolidation in 2019: - Fiscal deficit targets at end-June for Cameroon and Chad were met. - Gabon: deficit limited to about half of the program level at end-June. - Congo: deficit improved due to reduction in current expenditure. - Region-wide: non-oil deficit expected to decline by 1.2 percent of non-oil GDP. - Overall balance expected to improve by close to 1 percent of GDP. - Public debt ratio expected to decline by 2 percentage points of GDP (in 2019). - Composition of adjustment: mainly spending cuts, particularly public investment; little progress in increasing non-oil fiscal revenues; social spending again below targets. - External sector and reserves: - 2019 external current account and overall balance deficits expected to remain at 2.5 and 0.4 percent of GDP, respectively (levels of 2018). - June 2019 objective for regional net foreign assets exceeded by more than €800 million. - New shortfall in external budget support for the year as a whole by €250 million; with oil revenue broadly in line with projections, regional net foreign assets at end-2019 would still exceed previous objectives by about €250 million, conditional on no further delay in expected external financing. - Reserves import coverage now above 3 months of imports, below the 5 months of imports considered appropriate. ### Banking sector and financial soundness - Liquidity and credit: - Increase in repatriation and surrendering of forex largely fueled an increase in bank deposits. - Broad money growth accelerated to 11 percent (y-o-y) in September 2019. - Credit growth remained very low, close to zero (y-o-y) in September 2019 (after excluding securitization impact in Equatorial Guinea). - Excess liquidity of the banking sector (after monetary operations) equivalent to 2.2 percent of regional GDP. - Interbank market: persistent segmentation and lack of confidence; a few systemic banks remain dependent on BEAC liquidity provision. - Asset quality and solvency: - Ratio of overdue loans amounted to 22 percent at end-September 2019 (21 percent at end-2018). - Loans in default with direct or indirect sovereign guarantees remained at 6 percent of total gross loans. - Solvency ratio declined to 18 percent at end-September 2019 from 19 percent at end-2018. - Liquidity ratio declined to 145 percent at end-September 2019 from 164 percent at end-2018. ### Medium-term outlook and baseline assumptions - Baseline assumptions: - Full implementation of country programs through end-2019 and pursuit of commitments to further reduce non-oil primary balance deficits relative to 2018. - Domestic arrears to be gradually repaid once credible strategies validated by end-2019. - New IMF-supported programs with Equatorial Guinea and CAR assumed to be approved by IMF Executive Board by end-2019. - Growth and inflation projections: - Overall growth projected to increase to 3.5 percent in 2020, mainly driven by the non-oil sector. - Inflation projected to stay at around 2.5 percent over the medium term. - Fiscal and debt projections: - Further fiscal consolidation, mainly from enhanced non-oil revenue collection, would reduce the regional non-oil budget deficit by an additional 1 percentage point of non-oil GDP in 2020, then decline gradually thereafter. - Public debt-to-GDP ratio expected to decline to 47 percent of GDP in 2020 and to less than 40 percent by 2023. - External sector: - External current account deficit would slightly worsen to 2.8 percent of GDP in 2020 and remain at that level thereafter. - Regional net foreign assets projected to increase steadily; reserves would reach the equivalent of 5 months of imports by 2022. ### Principal risks (tilted to the downside) - A significant slowdown in global growth could lead to a large and sustained decline in oil prices, pressuring fiscal and external balances; conversely, higher oil prices could produce windfalls that IMF-supported programs target to reduce net debt. - Sharp tightening of global financial conditions could raise debt service and refinancing risks. - Deterioration in security situations (notably in CAR and Cameroon’s anglophone regions) could harm activity and raise spending and capital outflow pressures. - Delays in implementing program reforms could negatively affect external financing, reserves accumulation, investor and household confidence, and public debt dynamics. - Lack of commitment to governance and business environment reforms could stall non-oil growth and revenue collection needed as oil production and revenues decline over time. ### Regional strategy implementation — fiscal consolidation and arrears - Fiscal targets: - Reduce the non-oil primary deficit from 8 percent of non-oil GDP in 2018 to less than 6 percent in 2020 and 4 percent by 2022. - Expand fiscal revenue base to finance priority social spending and growth-enhancing investments while meeting consolidation objectives. - Policy measures include streamlining exemptions, improving efficiency of tax and customs administrations, and reforms to enhance governance and the business environment. - Arrears: - Total stock of arrears estimated at about 6 percent of CEMAC’s GDP as of mid-2019. - Well-managed arrears repayment plans (cash vs securities, timing) are central to reviving non-oil growth and restoring confidence; national authorities should prioritize paying down validated arrears in a predictable manner. - Regional institutions can advise on arrears clearance design and communication to support transparency and credibility. - Social and investment risks: - Absent progress on non-oil revenues, contingency measures (notably cuts to public investment) would be needed, undermining the projected rebound in non-oil growth. ### BEAC monetary policy stance and operations - Policy rate and stance: - MPC maintained the policy rate unchanged at 3.5 percent in November 2019. - Staff recommended BEAC remain ready to tighten if pressures on inflation or external reserves emerge. - Liquidity management: - Autonomous factors of banks’ liquidity exceeded FCFA 2,000 billion in September 2019 from around FCFA 1,700 billion at end-2018. - BEAC partly offset the increase by broadening reserve requirement base and reducing active injections at 20 billion FCFA per month. - Outstanding excess liquidity (after BEAC injections) amounted to FCFA 1,200 billion in September 2019, about the same level as a year earlier. - Staff advised a swifter move towards active absorption operations and setting a not-too-distant horizon for neutral liquidity allocation. - BEAC plans and considerations: - BEAC prefers a gradual approach to absorption operations and prepares for initially small absorption operations in January 2020. - An amendment to the monetary operations framework adopted in November 2019 allows symmetrical interventions for both main weekly and long-term operations. - BEAC expects single treasury account reforms in some member countries to reduce excess liquidity by up to FCFA 500–600 billion by mid-2020, though staff received indications of much smaller amounts. - Potential instruments: increase in reserve requirements and issuance of certificates of deposit by auction. - Potential sterilization costs could reach CFAF 30-40 billion per year over the medium term; BEAC seeks to maintain a positive balance on its profit and losses account to avoid recapitalization, which may require generating exceptional profits. *International Monetary Fund — CEMAC regional chapter (mid-2019 assessments and outlook).* ### 18. The BEAC is starting to apply a new regulation adopted in July 2019 to contain excess ### The BEAC is starting to apply a new regulation adopted in July 2019 to contain excess ### BEAC regulation on excessive dependency on central bank refinancing - Regulation (adopted in July 2019) defines banks as excessively dependent when "the share of total central bank refinancing to total assets exceeds 10 percent." - Such banks will be required to submit credible treasury recovery plans to reduce their dependency to below the threshold within two years. - The BEAC was planning to formally notify the few banks falling under this regulation by end-November 2019. - Once adopted by their boards and submitted to BEAC and COBAC, the plans will be subject to quarterly reviews by BEAC and COBAC within their respective mandates and responsibilities. - Staff offered its assistance, if needed, for assessing the credibility of the plans that will be submitted. - BEAC emphasized the critical importance, for the success of some plans expected to be submitted, of national authorities to fully abide by their commitment to reduce their debt to liquidity stressed banks as set in IMF country programs. ### Modernization of the monetary policy operational framework - In July 2019, the CPM adopted a new framework for private claims accepted as collateral in refinancing operations, based on determination of default probabilities associated with the financial position of the corporate and taking into account the level of financial risk. - At its November 2019 meeting, the CPM adopted a regulation establishing a sanction framework for BEAC’s counterparties. - BEAC planned to issue by end-2019 additional instructions to revise eligibility criteria for accessing money market operations, define BEAC’s intervention procedures on the money market and other operational guidelines. - Staff advised aligning operational timetables (reserves requirement maintenance period, weekly main monetary operations and regular operations of long maturity) to facilitate liquidity management for banks. - Staff reiterated view that issuance by BEAC of liquidity absorbing instruments (such as certificates of deposits) could boost the secure interbank market. ### Enforcement of the foreign exchange regulation - Since implementation of the revised regulation in March 2019, BEAC held numerous consultations and in July 2019 changed some operational rules and strengthened administrative capacity to speed up treatment of foreign exchange requests for external transactions. - Provision of foreign exchange was facilitated, though staff noted further progress possible by streamlining procedures and broader usage of computerized systems. - BEAC reported difficulties encountered by banks and fund transfer companies in accessing cash foreign exchange were largely solved. - Staff recommended BEAC share monthly reports on the state of execution of foreign exchange operations with stakeholders to improve monitoring and communication. - Staff recommended exploring simplified rules for ensuring adequate repatriation and surrendering of foreign exchange receipts, replacing current rule (banks can keep foreign exchange only for justifiable needs and not above 30 percent of repatriated funds of their clients) with simpler limits on banks’ net open positions. - Staff suggested establishing a cross-checking system between customs data on exports and banking data on repatriated exports earnings; BEAC indicated it has yet to receive customs data as several customs administrations lack computerized systems for easy automatic sharing. - With a moratorium on rules regarding forex accounts holding running until December 2019, oil and mining companies effectively do not abide by forex repatriation and surrendering requirements. - BEAC initiated direct consultations with oil and mining companies, asked them to share their contracts; companies expressed concerns and were reluctant to share contracts or propose limited exemptions. - BEAC issued a decision in November 2019 to extend the deadline for oil and mining companies to fully comply with the forex regulations until end-2020 and asked these companies to provide all the required documentation for compliance. - Staff indicated it will stand ready to assist BEAC in addressing any exception fully justified and deemed necessary for extractive industries in a clear and transparent manner and agreed on critical importance for national authorities to fully support implementation, including by ensuring public entities comply and by sharing oil contracts as committed under IMF-supported programs. ### Developing financial markets and strengthening the banking sector - Interbank money market developments: - 90 repo agreements signed to date between banks and a trading platform in use. - Interbank transactions have quadrupled in 2019 from the same period last year, albeit from a very low level. - Repo transactions represented about three quarters of total transactions in 2019. - The measure of unsecured market rate is somewhat distorted due to limited 7-days operations and large share of intra-group transactions; BEAC monitors both average secured and unsecured market rates. - Financial transparency and infrastructure: - Regulation on credit bureaus adopted in 2019; a first credit bureau is expected to be selected and start operating in early 2020. - BEAC modernizing existing credit register and establishing a financial statements repository of CEMAC companies accessible to banks and microfinance institutions. - Staff advised COBAC to explore a minimum standard of financial disclosure by banks ahead of Basel III pillar III expected to be implemented by 2022. - Public securities market: - Amount of treasury securities increased by 70 percent in the past year and is now equivalent to 3.5 percent of regional GDP. - New regulations for Treasuries market operators adopted in November 2019 require them to sell at least 30 percent of treasuries bought on the primary market to boost the secondary market. - Centralization of quotations on the RTDM platform, available to all banks, should enhance transparency and help establish a secondary market yield curve. - Institutional and physical merger of the two stock exchanges is now effective. - A draft CEMAC Regulation envisages sale on the stock market of states participations in at least two companies per country by end-2020. - Banking supervision and NPLs: - COBAC adopted a regulation on payment services and on financial penalties in September 2019. - COBAC launched initiatives on consolidated supervision, AML/CFT, consumer protection, supervisory tools, and microprudential stress test approaches. - In September 2019, COBAC adopted a Basel II/III roadmap over 2020–23 and plans to revise the short-term liquidity prudential ratio in early 2020 with IMF technical assistance. - Staff recommended COBAC gather detailed NPL data related to public contracts and creditor-detailed data on government arrears from ongoing audits to cross-check claims and potentially require banks to write off unconfirmed claims. - Staff suggested reviewing write-off and forbearance practices and exploring one-off actions to clean-up fully provisioned loans, while COBAC cautioned about moral hazard. - Staff encouraged COBAC to (i) strictly implement the resolution framework at COBAC’s level without unwarranted delays; (ii) explore setting time limits to resolution processes of small banks; and (iii) define strict criteria and minimum conditions to approve applications for bridge banks. - Staff advised making a quantitative impact analysis on the banking sector’s solvency and liquidity regarding Cameroon’s oil refinery risks and sharing it with Cameroon’s authorities, and to review treatment of so-called strategic companies. - Institutional capacity: - COBAC is understaffed by about one third at the professional or higher levels due to managers and professionals not replaced, limiting capacity for new initiatives and analysis. - Staff emphasized urgency to address understaffing with BEAC, which controls COBAC’s budget, noting BEAC also faces budget constraints. - BDEAC reforms: - BDEAC reported completion of some governance reforms, including making the audit committee operational. - Staff welcomed developments but advised external validation of reforms to assess capacity to access market financing and eliminate dependence on BEAC’s financing. - Staff reiterated view that BEAC should refuse any new financing agreement with BDEAC in the future. ### Enhancing the regional surveillance framework and public financial management - CEMAC Commission preparatory work to strengthen regional surveillance: - Latest regional surveillance report assessed none of the CEMAC countries was in full compliance with the regional convergence criteria in 2018. - Early warning tool (EWT) drafted with World Bank assistance; Commission will reflect IMF staff comments and plans adoption at next ministerial committee meeting by end-2019 to allow use in next year’s regional surveillance report. - Work started to define a sanctions mechanism for violations of Multilateral Surveillance rules; a workshop organized in August 2019 and a draft planned in early 2020. A system of pecuniary sanctions may prove ineffective given weak public finances and propensity for arrears. - Member authorities committed to submit triennial convergence plans by end-2019; to date only Cameroon and Congo have transmitted their convergence plans. - Staff noted degree of transparency, regular data sharing, and reporting included in EWT, sanctions mechanism, and triennial convergence plans will be critical to success and urged sanctions system include strong implementation mechanisms. - Public financial management directives: - CEMAC Commission steers work to implement revised Tax Directives and monitor transposition and implementation of Public Finance Directives. - Progress: approval of revised Customs Code and Uniformized Excise Tax Regulation (March 2019). - Regional workshop in March 2019 validated draft text revising the VAT Directive with IMF TA assistance. - Regional workshop held in September 2019 in Malabo to discuss revision of the Corporate Income Tax Directive. *Source: BEAC and IMF staff calculations.* ### 34. Technical work to amend the BEAC’s Charter Article on mechanisms to protect ### 34. Technical work to amend the BEAC’s Charter Article on mechanisms to protect regional reserves is close to completion ### Charter amendment and monetary mechanisms - Technical work to amend the BEAC’s Charter Article on mechanisms to protect regional reserves is close to completion. - The amendment will define new automatic mechanisms to tighten monetary conditions, consistent with the new monetary policy operations framework, when regional reserves or national imputed reserves would go below certain thresholds. - The BEAC committed to consult with staff before submitting a draft amendment for adoption by its Executive Board. ### Constraints to sustained and more inclusive growth in CEMAC - Staff analysis (drawing from World Bank and other development partners) identifies main constraints to diversified growth: - Poor governance: - Leads to mismanagement of public funds and a general lack of accountability of public actors, raising corruption risks. - Governance indicators are among the lowest in Africa. - Weaknesses include lack of transparency in management of petroleum resources, including sharing of operating conditions governing oil concessions (an obligation under the CEMAC guidelines on public financial management). - Opaque and unpredictable management of revenue related to commodity exports undermines financing of priority social and investment spending. - Poor business climate: - Business establishment and development procedures are cumbersome and costly in time and financial resources compared with other countries/regions in sub-Saharan Africa. - Shallow and weak financial sector: - Hinders contribution of the financial sector to private sector development and financial inclusion. - Addressing this requires improving the judicial and legal system, mobile payment infrastructure and capital markets, alongside broader business and governance improvements. - Weak regional integration: - Hampered by lack of implementation of community taxation (both for external and within CEMAC trade) and pervasive behind-the-border barriers. - These barriers undermine trade opportunities for local production and hinder investment plans to seize economies of scale. - Removing internal barriers would require few resources but could release significant growth potential for trade within CEMAC and the exploitation of the agricultural sector. ### Role of regional institutions and recommended actions - Regional institutions can play an important role in addressing constraints and supporting national authorities. - Recommended CEMAC Commission actions: - Continue to ensure full implementation of CEMAC's public financial management framework, including key provisions on budget transparency. - Prepare an annual report informing the general public on the state of effective implementation of the PFM regulations at the national level and its impact on governance. - Define a strategy to reduce constraints on internal trade, with the help of customs and national authorities. - Authorities broadly concurred with staff analysis, noting many conclusions were not new; effective levers for change and strong political will at all levels will be essential. ### Monitoring of regional developments and policy implementation (BEAC and COBAC) - BEAC and COBAC pursued implementation of policy commitments from the June 2019 Follow-up to the Letter of Support to the Recovery and Reform Programs. - BEAC monetary policy stance: - Remained appropriately tight to support an increase in CEMAC’s external reserve assets. - Together with fiscal consolidation by member states, contributed to an overperformance of the end-June 2019 projection for net foreign assets by about € 800 million (a regional policy assurance). - Gradually reduced liquidity injections and adopted a regulation to deal with banks excessively depending on BEAC’s refinancing. - Foreign exchange regulation implementation: - Became smoother; banks generally repatriated unjustified foreign assets. - BEAC strengthened its capacity to provide forex for legitimate transfers more rapidly. - BEAC engaged in broad communication to clarify procedures and started consultations with oil and mining companies for effective and evenhanded implementation. - Revised NFA projections through June 2020 are described in an attached follow-up letter as modified regional policy assurances and other policy intents. - BEAC committed to maintain an appropriately tight monetary policy. - BEAC will start liquidity absorption operations in January 2020 to better implement the liquidity management framework. - BEAC will continue consultations with oil and mining companies and stands ready to engage in thorough technical discussions with external experts to bring these companies to comply with regulations by end-2020. - End-2019 NFA projection covered by a policy assurance was revised slightly upwards to € 4.70 billion, despite new shortfalls in external budget support, reflecting the overperformance relative to the end-June 2019 projection. - The follow-up letter reiterates commitment to identify and adopt additional corrective measures (including during the semi-annual Tri-partite Meeting) if deviations from the stated NFA accumulation projections are not assessed by staff as minor or temporary. ### Institutional reforms and safeguards - BEAC progress: - Continues to implement remaining recommendations of the 2017 safeguards assessment. - Full transition to IFRS for FY 2019 is progressing broadly as planned. - Efforts are being stepped up to accelerate revisions to secondary legal instruments for alignment with the BEAC Charter. - Adoption of revised secondary legislations was extended beyond the initial timeline (June 2018) to allow further stakeholder consultation, including with IMF staff. - COBAC progress and recommendations: - Progressing on its 2019–21 strategic plan toward risk-based supervision. - New regulation on financial penalties and initiatives on consolidated supervision, AML/CFT and consumer protection are positive steps. - COBAC should pursue these initiatives as a priority and in close cooperation with international donors and experts. - Given the impact of outstanding governments’ domestic arrears on high levels of nonperforming loans, COBAC should, within its mandate: - Provide advice on arrears clearance plans to help national authorities maximize relief impact on the banking sector. - Oversee the process of NPLs clearance in banks. - Ensure strict implementation of the banks’ resolution framework without accommodating unwarranted delays. - BEAC and COBAC should address COBAC’s under-staffing, which limits capacity to launch new initiatives and analysis. ### Staff appraisal and policy recommendations - Regional strategy assessment: - Helped avert a deeper financial crisis; coordinated regional response to the 2015 collapse in oil prices, together with external financing, achieved significant reductions in fiscal and external imbalances. - Gross external reserves increased more rapidly in recent months, overperforming end-June projection by about €800 million. - Approval of an IMF-supported program with Congo in July 2019 and possible approvals for Equatorial Guinea and a new program with the Central African Republic by end-2019 should further support positive trends. - Region still needs to buttress its external position and achieve higher, more diversified and inclusive growth. - This will require more pro-growth fiscal policies and bold measures to enhance governance and improve the business environment. - Key policy recommendations and conditions: - CEMAC member countries must strictly adhere to their respective IMF-supported program objectives. - Achieving fiscal consolidation targets is key to secure internal and external financial stability. - Fiscal consolidation composition should be rebalanced by expanding the fiscal revenue base to finance priority social and investment spending. - Increasing non-oil revenue is critical by streamlining exemptions and improving tax and customs administration. - Implement well-managed government arrears repayment plans to enhance private sector financial position and improve banks’ balance sheets. - BEAC-specific recommendations: - Continue an appropriately tight monetary policy stance to support external reserves (above the equivalent of 3 months of imports). - Be ready to tighten stance if external pressures emerge and NFAs diverge significantly from projected path. - Avoid any new financing agreement with BDEAC in the future that would be similar to government monetary financing. - Tighten liquidity management to enhance monetary policy transmission; start effectively absorbing liquidity in early 2020. - Be ready to absorb larger amounts of excess liquidity if external or inflationary pressures emerge. - Implement new regulation to monitor and support liquidity-stressed banks. - Weigh options to cover gradually higher sterilization costs, which may require in the short term generating exceptional profits to avoid recapitalization needs. - Continue thorough technical consultations with oil and mining companies to enforce foreign exchange regulations while considering sector specificities; companies have a moratorium to comply by end-2020. - COBAC-specific recommendations: - Pursue implementation of the 2019–21 strategic plan, risk-based supervision, consolidated supervision, AML/CFT and consumer protection reforms. - Provide advice on arrears clearance plans and oversee NPLs clearance in banks. - Ensure strict and timely implementation of banks’ resolution framework. - Address under-staffing constraints. ### Policy assurances and NFA targets supported by staff - Staff: - Considers that BEAC has implemented the policy assurance on NFA provided in the June 2019 follow-up letter. - Supports the updated policy assurance on NFA accumulation to bring NFA to €4.70 billion and €5.20 billion at end-December 2019 and end-June 2020, respectively. - Achieving the projected NFA accumulation based on BEAC’s commitment to an adequately tight monetary policy and member states’ commitment to adjustment policies under IMF-supported programs is critical for continuation or approval of IMF financial support for CEMAC members. *IMF staff report excerpt.* ### 48. The surveillance discussions with the CEMAC authorities will remain on a 12-month ### 48. The surveillance discussions with the CEMAC authorities will remain on a 12-month cycle ### Surveillance framework - The surveillance discussions with the CEMAC authorities will remain on a 12-month cycle in accordance with Decision No. 13654-(06/1), adopted on January 6, 2006. ### Recent growth and macroeconomic performance - Growth in 2019 will be broadly unchanged, as large arrear repayments weigh on the private sector and banks. - CEMAC: Real GDP Growth, 2016–19 (Percent): 2016 -0.3 2017 1.0 2018 2.5 2019 3.4 (also presented as series elsewhere: 2.5 3.5 3.5 2.5 3.1). - CEMAC: Nominal GDP, 2019 (National shares): country abbreviations shown CAM CAF TCD COG GNQ GAB CEMAC across charts. ### Fiscal position and adjustment - Overall fiscal balance has improved relative to 2018, largely due to higher oil revenue, while adjustment in terms of non-oil primary balance is mainly driven by spending cut in public investments. - The large fiscal consolidation undertaken by CEMAC countries has been key to address CEMAC’s twin deficit and contribute to reserve accumulation. - Selected fiscal indicator highlights (percent of GDP or as reported in tables): - Government revenue, excluding grants (CEMAC): 2016 16.4 2017 16.0 2018 17.4 2019 17.9 2020 18.0 2021 17.7 2022 17.9 2023 17.8 - Government expenditure (including net lending minus repayments) (CEMAC): 2016 24.4 2017 20.6 2018 18.3 2019 18.1 2020 18.2 2021 17.8 2022 17.8 2023 17.6 - Overall fiscal balance, excluding grants (CEMAC): 2016 -8.0 2017 -4.5 2018 -0.9 2019 -0.2 2020 -0.2 2021 -0.1 2022 0.1 2023 0.2 0.3 (table shows sequence including projections) - Primary fiscal balance, including grants (CEMAC): 2016 -5.9 2017 -2.4 2018 1.2 2019 2.0 2020 1.9 2021 2.1 2022 2.2 2023 2.3 2.2 (table series) ### External sector, reserves, and debt - CEMAC: Current Account, 2016–19 (Percent of GDP): After deficits in earlier years, current account shows improvement toward 2019 (tables provide detailed series). - CEMAC: International Reserves, 2017–19 (Billions of U.S. dollars): Official reserves and months-of-imports coverage increased (detailed figures in tables). - Net foreign assets increased during 2019 and are projected to reach the 5-months threshold by 2022. - Gross official reserves (end of period), Millions of U.S. dollars (Table 1): 2016 4,972 2017 5,807 2018 6,555 2019 8,265 2020 8,169 2021 10,460 2022 12,385 2023 13,760 15,025 (series as listed). - Total Public Debt (CEMAC, Percent of GDP) (Table 1): 2016 51.7 2017 52.5 2018 51.0 2019 48.1 2020 49.3 2021 47.2 2022 45.1 2023 42.6 40.0 (series as listed). ### Banking sector and liquidity - While statutory advances are now frozen, government deposits with BEAC increased less than projected during 2019Q1–Q2. Total deposits have increased over that period. - Banking sector indicators: - Banks’ Excess Reserves, 2014–19: excess reserves remained broadly stable. - Credit to the private sector, 2014–19: credit is declining, reflecting anemic economic activity and the impact of a large stock of payment arrears from the government. - Financial soundness indicators (selected): - Regulatory capital to risk-weighted assets: 2010 14.8 2011 11.2 2012 12.4 2013 13.0 2014 13.7 2015 14.0 2016 13.4 2017 16.1 2018 16.5 2019 16.7 17.4 (table series) - Non-performing loans (gross) to total loans (gross): 2010 6.9 2011 6.8 2012 6.4 2013 8.3 2014 9.1 2015 9.6 2016 11.9 2017 14.6 2018 17.4 2019 19.2 18.6 (table series) ### Medium-term outlook and policy drivers (2006–21 indicators) - Oil prices are projected to stabilize below past peaks over the medium term. - Over the medium term, overall growth will be supported by a more vibrant non-oil sector if the business climate is enhanced. - Fiscal consolidation effort will remain the main engine for restoring external stability, supported by expenditure rationalization and non-oil revenue-enhancing measures over the medium term. - Public debt: After a large increase in 2014–16, public debt is expected to gradually decline over the medium term (Table 1 and related charts). ### Key numerical series (selected, preserved exactly as in source) - GDP at constant prices (CEMAC row, Table 1, annual series): 1 -0.31.02.53.42.53.53.52.53.1 - Oil GDP (Table 1, annual series): 1 -6.1-4.75.36.23.84.1-1.4-3.7-2.7 - Non-oil GDP (Table 1, annual series): 1 1.32.41.82.72.23.34.73.94.4 - Consumer prices (period average) (Table 1): 2 1.20.82.12.42.12.42.42.32.3 - Gross national savings (Table 1): 15.820.822.023.2 23.624.123.824.024.4 - Gross domestic investment (Table 1): 28.725.424.525.7 26.026.926.826.927.2 - Exports of goods and nonfactor services (Table 1): 29.632.335.934.8 35.233.932.431.029.9 - Imports of goods and nonfactor services (Table 1): 37.632.032.631.8 32.332.030.930.029.0 - Months of imports of goods and services (Table 1, gross official reserves coverage): 2.32.32.73.33.3 4.14.85.25.5 - Gross foreign assets (end of period, Billions CFAF, Table 3a memo): 3,0933,2183,7774,7144,8016,0957,1547,8998,569 *Sources: CEMAC authorities; and IMF staff estimates.* ### Annex I. Response to Past IMF Advice ### Annex I. Response to Past IMF Advice ### Policy mix - 2018 Regional Consultation Recommendations: - Sizeable fiscal adjustment in each member country. - Structural reforms to diversify the economy and restore sustained growth. - CEMAC authorities’ Response: - Member states have pursued their fiscal consolidation efforts, contributing to a sizeable decline in fiscal deficits in 2018. Some slippages were observed in Cameroon and Gabon in early 2019, but national authorities agreed on strong measures to avoid their repetition, in some case as prior action. - The PREF’s overall implementation is lagging, with gaps in strengthening governance of tax authorities and improving the business environment. ### Monetary policy and safeguards reform - 2018 Regional Consultation Recommendations: - Consider a tightening of the monetary stance would reserve accumulation fall short of objectives. - Modernize BEAC’s liquidity management and monetary policy instruments. - CEMAC authorities’ Response: - Inflation eased, and reserves accumulation was above objectives; there was thus no need for further tightening. - The BEAC implemented a complete overhaul of its monetary policy framework: - Liquidity management is now based on autonomous factors forecasts. - Liquidity is being provided through competitive auctions. - Government securities used as collateral are now subject to differentiated haircuts reflecting the issuing countries’ sovereign risks. - The emergency liquidity assistance system is fully operational. - The BEAC has gradually tightened its liquidity management and is planning to move to net absorption starting in early 2020. ### Macrofinancial linkages and the financial sector - 2018 Regional Consultation Recommendations: - Put banking supervision on a full risk-basis. - Enhance enforcement of the foreign exchange law prudential rules. - Deliver resolution of insolvent banks. - CEMAC authorities’ Response: - COBAC’s new (2019–21) strategic plan guides future reforms and work programs on the objective to strengthen risk-based supervision. - The BEAC and COBAC have strengthened the enforcement of foreign exchange regulations. COBAC’s disciplinary sessions during last 12 months focused heavily on non-compliant banks with the new foreign exchange regulation. Several sanctions (including pecuniary) have been implemented. - Progress remains limited on delivering resolution of insolvent banks. While resolution decisions are being adopted, procedures remain long, especially for state-owned banks. ### Regional integration and convergence framework - 2018 Regional Consultation Recommendation: - Strengthen enforcement of the regional surveillance framework. - CEMAC authorities’ Response: - Some progress was made: a draft early warning system was prepared and work on a sanction scheme for countries non-compliant with the regional convergence framework was initiated. Two countries submitted triennial convergence plans. ### Risk Assessment Matrix — Key risks, likelihoods, impacts, and proposed mitigation - Delays in the implementation of regional reforms - Likelihood: High (likelihood noted as medium in the short term in text) - Expected impacts: - Weaker implementation of IMF-supported programs or delays in concluding discussions on possible new programs could negatively impact external financing and reserves accumulation, as well as confidence of private investors and households. - The lack of progress in rebuilding regional reserves amidst uncertainty about program implementation and the possibility of new programs could lead to capital outflows and strain the CFA franc’s peg to the Euro. - The absence of significant progress in public finance and financial sector reforms could further constrain private investment and undermine efforts to diversify the regional economy. - Proposed mitigation: - Communicate strong commitment to program objectives to provide continuity of policy stance even as programs are ending and new programs are still to be discussed. - Weaker-than-expected global growth - Likelihood: Medium to high (text: Likelihood: high in the short to medium term) - Expected impacts: - Lower global growth could result in lower demand and commodity prices, resulting in a potentially large terms of trade shock. - Proposed mitigation: - Fast track policies to diversify the growth bases and deepen the regional market. - Save the windfall in case of higher than budgeted oil prices to create buffers. - Deterioration of the security in the region - Likelihood: Medium (text: Likelihood: medium to high in the short term) - Expected impacts: - Undermine fragile economic recovery, negatively affect private sector expectations, weaken the business environment, and bring capital outflow pressures. - Proposed mitigation: - Keep effective social dialogue, ensure that priority spending in social sector is protected. - Large swings in energy prices - Likelihood: Medium - Expected impacts: - Oil price uncertainties could delay investment plans and affect growth; a sharp decline would reduce reserve accumulation and oil revenues. - Proposed mitigation: - Fast track policies to diversify growth and deepen the regional market. - Sharp rise in risk premia - Likelihood: High (text: Likelihood: high in the short term) - Expected impacts: - Higher risk premia cause higher debt service and refinancing risks; stress on leveraged firms, households, and vulnerable sovereigns; capital account pressures; could jeopardize the impact of adjustment policies and external financing on NFA accumulation. - Proposed mitigation: - Keep focus on regional and national policies to preserve external stability, enhance implementation of the foreign exchange law, deepen effort to preserve the stability of the banking sector. - Lack of confidence in implementation of the new foreign exchange regulation - Likelihood: High (text: Likelihood: medium in the short term) - Expected impacts: - Perception of scarcity of foreign exchange and uncertainties could trigger a loss of confidence in the monetary arrangement and capital outflow pressures. - Proposed mitigation: - Step up outreach effort with the commodity export and banking sectors to clarify all questions on the practical implementation of the new regulation. Define and implement a solid communication plans with the public. - Lack of commitment on reforms to enhance governance and improve the business environment - Likelihood: High (text: Likelihood: medium in the short term) - Expected impacts: - Could stall progress towards higher non-oil growth and increased collection of non-oil revenues; depress job opportunities and undermine social cohesion. - Proposed mitigation: - Ensure inclusive processes and participation of civil society in the definition of key governance reforms and mechanisms to report on progress. ### Annex III. External Sector Assessment — Summary findings and policy advice - Overall assessment: - CEMAC’s external position is assessed to be weaker than implied by fundamentals and desirable policy settings at end-2019. - The current account deficit improved significantly from 2016 and stabilized between 2018 and 2019 at around 2.5%. - In the medium term, the current account deficit is projected to stabilize below 3 percent of GDP, supported by ongoing fiscal consolidation, despite lower oil prices. - Reserves increased more rapidly in 2019 but remain below levels deemed appropriate for oil exporting economies according to reserve adequacy metrics. - Authorities should keep an adequately tight monetary stance while continuing the full implementation of the foreign exchange regulation to bring reserves to the recommended benchmark of 5 months of imports considered appropriate for a resource-rich currency union. A. Recent Developments in External Accounts - Key facts and projections: - The current account deficit declined from 4.9 percent of GDP in 2017 to 2.7 percent of GDP in 2018 and projected at 2.5 percent of GDP at the end 2019. - Imports of goods declined by more than 5 percent GDP between 2016–19 due to fiscal consolidation and tight monetary policy reducing domestic demand. - Since 2016, the overall current account balance improved in all countries but is set to remain in the positive territory only for Gabon. - Reserves are projected to increase to above 5 months of imports by 2022, from 2.7 months of imports at end-2018. - The June 2019 target for net foreign assets was exceeded by more than €800 million. - According to the BEAC, repatriation volume has increased fourfold since the implementation of the new FX regulation. - Policy advice: - Do not solely rely on the new foreign exchange regulations to shore up external reserves. - Engage in structural reforms to increase the region attractiveness for foreign direct investment (FDI). - Restore confidence through timely implementation of macroeconomic policies envisaged in IMF-supported programs and reforms to enhance the business climate. B. Reserves Adequacy - Status and benchmarks: - Reserve coverage is expected to increase above 3 months of prospective extra-regional imports by end-2019 but remains below the benchmark of 5 months of imports considered appropriate for a resource-rich currency union. - Cost-benefit analysis for credit constrained economies with a fixed exchange rate indicates an optimal level of reserves should be about 9 months of imports. - By end-2019, reserves are projected to be above 60 percent of the IMF reserve adequacy metric (an increase compared to 2016 when they were below 60% of the metric), but still well below the range of 100–150 percent deemed broadly adequate. - The reserve adequacy assessment appears adequate when considering broad money and short-term liability ratios (respectively 38 and 158 percent, compared to minimum thresholds of 20 and 100 percent). - Caveats: - The assessment does not consider the guarantee by the French Treasury to cover negative reserves positions, which could reduce the need for a higher reserves buffer. - The assessment does not reflect the impact of stronger implementation of the new foreign exchange regulation, which could be large (e.g., foreign holdings of state-owned enterprises participating in commodity export partnerships). - Projections: - Reserves are expected to reach a reserve coverage of 3.3 months of prospective extra-regional imports by end-2019, and then up to 5.2 months of imports by end-2022. C. External Sector Assessment (valuation and gaps) - 2019 assessment: - The REER depreciated throughout 2019 (by about 6 percent), mainly reflecting a weakening of the euro vs the US dollar. - Using the “EBA-Lite’s” Current Account model: - Overvaluation implied: 11.4 percent. - 2019 current account estimated at 2.5 percent of GDP (actual). - Current Account Norm: 0.3 percent GDP surplus (assuming an elasticity of the current account to REER of -0.25). - EBA-lite CA approach table (as reported): - 2019 Current Account Actual -2.5% - Current Account Fitted 2.8% - Policy Gap 2.6% (of which fiscal balance 1.0%; of which health expenditure 1.7%; of which change in reserves 0.0%; of which private credit/GDP 0.0%; of which private credit growth 0.0%; of which capital control -0.1%) - Residual -5.4% - Current Account Norm (Fitted-Policy Gap) 0.3% - CA Gap (Actual-Norm) -2.8% - REER Gap 11.4% - Conclusion: The external position at end-2019 is assessed to be weaker than implied by fundamentals and desirable policies despite positive contribution from adjustment in the fiscal balance, health expenditures and change in reserves. D. Structural Competitiveness - Doing Business and governance diagnostics: - According to World Bank “Doing Business Indicators”, CEMAC countries continue to underperform relative to comparable countries, indicating ample room for strengthening the business environment. - Between 2015 and 2019: - Some progress achieved in Cameroon, Central African Republic and to a lesser extent Equatorial Guinea. - Other countries showed little progress or deterioration, e.g., Chad with a large deterioration in 2019. - CEMAC countries lag behind WAEMU peers, although comparable to SSA oil exporters. - Pronounced impediments: starting a business, getting electricity, dealing with construction permits, enforcing contracts and trading across borders. - Additional challenges: lack of adequate infrastructure, unreliable energy supply, cumbersome procedures for paying taxes and registering properties. - Governance indicators show CEMAC countries are behind WAEMU peers and emerging economies, and governance is weaker even after accounting for income per capita. - Policy implication: - Strengthening governance and the business environment is critical to foster non-oil growth, increase FDI, and support reserve rebuilding and medium-term stability. *International Monetary Fund — Annex I. Response to Past IMF Advice (excerpt).* ### Annex IV. Policy Commitments of the Second Tripartite Meeting ### Annex IV. Policy Commitments of the Second Tripartite Meeting ### Meeting overview and main findings - Meeting: second tripartite meeting between Ministers of Finance and Economy of member countries, CEMAC institutions and IMF staff; held on October 2nd, 2019 in Yaoundé (Republic of Cameroon). - Purpose: assess performance of the crisis exit strategy and implementation of IMF-supported programs aimed at economic and financial recovery of the community. - Positive notes: - Sub-regional exit strategy shows encouraging signs of stabilization of the macroeconomic framework, particularly regarding the replenishment of foreign exchange reserves. - Entry of Congo into a Fund-supported program welcomed; overall satisfactory implementation of recommendations of the first tripartite meeting; revitalization of relations between Equatorial Guinea and the IMF. - Vulnerabilities and concerns: - Process of restoring macroeconomic balances remains vulnerable to weak economic growth, large domestic government arrears, and reluctance to implement exchange rate regulation. - Specific observations: - Economic growth in the subregion, initially projected at 3.0% by the BEAC, has been revised down to 2.7% and remains modest. - Fiscal adjustments have been mainly driven by reduced spending. - Dynamics of non-oil revenues remain below expectations. - Replenishment of foreign exchange reserves (in months of imports) still requires further improvements. - Risk factors that could undermine internal and external balances: improvement in overall fiscal balance and balance of payments, recovery of external assets, and resilience of the banking system. ### Recommendations to Member States - Ensure the successful implementation of IMF-supported programs through continued structural reforms and fiscal adjustment efforts to meet agreed targets. - Equatorial Guinea should make every effort to meet the conditions required for the implementation of an IMF-supported program. - Commit, at the expiration of their respective programs, to engage in discussions with the IMF to start a new cycle of IMF-supported programs. - Share with the CEMAC Commission, by December 2019 at the latest, their respective national convergence plans aimed at ensuring compliance with the convergence criteria by the 2021 deadline. - Accelerate efforts to audit the stock of government expenditure arrears and define a credible arrear clearance strategy in line with international standards to reduce the stock of non-performing bank loans. - Maintain efforts to meet structural benchmarks for the repatriation of export earnings and foreign assets held abroad by state-owned enterprises as agreed under ongoing Fund-supported programs. - Continue support for BEAC's efforts in the implementation of foreign exchange regulations, and share the agreements signed with operators in the oil and mining sector by end October 2019. - Work with the BEAC and COBAC in the implementation of a strategy to reduce outstanding receivables. ### Commitments by Community institutions to support Member States At the BEAC level: - Pursue outreach to all stakeholders on the appropriate implementation of the new exchange regulations. - Continue gradual absorption of excess bank liquidity. - Maintain a tight monetary policy to continue recovery of regional external reserves. - Establish a coordination platform between the member states and BEAC to strengthen the coordination of debt management. At the COBAC level: - Continue implementation of the new sanction mechanism to member states in breaches of regional surveillance rules. - Implementation of the new strategic plan. - Accelerate the process of resolution mechanisms for distressed banks in the sub-region. At the level of the CEMAC Commission: - Accelerate common sectoral policy reforms and reinforce regional integration. - Accelerate the implementation of an early warning system for macroeconomic imbalances in the CEMAC region with the support of the World Bank. - Adopt with member states a system of penalties for the new sanction mechanism for breaches of regional surveillance rules. ### Requests and recommendations to development partners and IFIs At the IMF level: - Accelerate the adoption of a Fund-supported program with Equatorial Guinea, taking into account efforts made by the country in submitting its application for EITI membership; and support Member States to improve transparency and management of oil and mining revenues and build capacity to improve monitoring of export. - Initiate a preliminary results assessment of the first round of Fund-supported program and start negotiations on new program with a stronger focus on structural reforms and growth objectives. At the World Bank and the African Development Bank level: - Disburse financial support on time when conditions are met by Member States. - Increase the level of budget support to help Member states clear government expenditure arrears. - Support Member States in strengthening sectoral policies and improve member states doing business rankings and other performance indicators. To all International Financial Institutions and other Donors: - Strengthen harmonization of conditionalities for budget support. - Agreement reached to hold the next tripartite meeting during the first half of 2020. ### Appendix I — BEAC follow-up letter (summary of key updates and targets) - Date and sender: Office of the Governor, Bank of Central African States (BEAC), Yaounde, November 28, 2019. - Context: Update of assurances provided in June 2019 reflecting discussions during regional consultations by IMF staff with CEMAC institutions from October 24 through November 6, 2019. - Regional macroeconomic snapshot for 2019: - Overall growth expected for the region in 2019 is 2.5 percent. - Non-oil growth expected at 2.2 percent. - External current account deficit expected to be kept at around 2.5 percent of GDP in 2019. - Average inflation expected to be kept below 2.5 percent in 2019. - Net external assets and reserves: - June 2019 projection for regional net external assets, endorsed by the IMF Executive Board as a regional policy assurance, was exceeded by more than 800 million euros, bringing coverage of external reserves to the equivalent of 3.3 months of imports. - Target and outturn: the initial target of 4.50 billion euros at end-2019 is expected to be exceeded and reach 4.70 billion euros. - Foreign exchange regulation and implementation: - New Regulation adopted December 21, 2018; entered into force March 1st, 2019. - Nine circular letters and a series of 14 application instructions were issued in June 2019 to complete the basic legal framework. - Communication actions were carried out, including with support by the World Bank under the project to strengthen the capacity of CEMAC financial institutions (BEAC, COBAC, and GABAC). - BEAC aims to guarantee a processing time of 48 hours at the most to facilitate the flow of external transactions. - Consultations held with operators in mining and oil sectors across six member states to resolve sticking points; BEAC will hire a consulting firm with World Bank assistance to facilitate discussions. - Decision issued to extend the deadline for oil and mining companies to fully comply with the regulations until end-2020. - Member countries expected, within the context of their IMF programs, to make available to BEAC and the CEMAC Commission all contracts concluded with operators in extractive industries to ensure compliance and revise inconsistent national regulations. - Monetary policy and liquidity management: - Monetary policy will remain focused on ensuring the currency’s internal and external stability and will remain tight. - BEAC will pursue actions to optimize management of bank liquidity based on the operational framework effective June 2018. - Excess liquidity of the banking system increased recently, mainly due to autonomous liquidity factors driven by changes in net foreign assets; excess liquidity deemed not to pose a significant inflationary or external position risk at this time. - Reforms to implement treasury single accounts expected to contribute to a reduction in excess liquidity over the medium term. - BEAC committed to gradual implementation of neutral liquidity allocation; continue gradual process of reducing injections of liquidity up to end-2019 and initiate operations to absorb liquidity as of January 2020. - BEAC will review available instruments, including required reserves, to refine and operationalize the surplus liquidity absorption strategy and improve monetary policy transmission channels. - Banking sector measures: - New instruction adopted in June 2019 applicable to counterparties dependent on Central Bank refinancing; three banks identified will be notified to submit credible cash-flow recovery plans within one month to reduce dependence within two years. - COBAC priorities: reform of processes and tools for modern risk-based supervision; strengthen controls on anti-money laundering and counter-terrorist financing regulations; update certain prudential rules; measure risks to financial stability posed by accumulation of domestic government arrears. - General Secretary of COBAC will support and facilitate reduction in nonperforming loans once triennial convergence plans are received, ensuring repayment plans for domestic arrears positively impact banks’ balance sheets. - Overall expectation: - Measures combined with fiscal consolidation programs, pursuit of foreign exchange regulation, and budgetary support from development partners, including program agreements for Equatorial Guinea and the Central African Republic, should promote strengthening of net foreign assets in 2020 (projection truncated in the source text). *Annex IV. Policy Commitments of the Second Tripartite Meeting (Yaoundé, October 2nd, 2019) — Appendix I: BEAC letter dated November 28, 2019.* ### 5.20 billion euros at end-June 2020. ### 1caeea2019004 - 5.20 billion euros at end-June 2020. ### Fiscal and financing targets, dependencies, and risks - Regional external financing requirement projected at "5.20 billion euros at end-June 2020." - Timely disbursements of budget support and other (non-project) external financing projected at "0.98 billion euros in the second half of 2019 and 0.18 billion euros in the first half of 2020" are essential for achievement of targets. - Achievement of targets depends on: - Actions by the BEAC. - Satisfactory implementation of fiscal consolidation programs and structural reforms of the CEMAC countries. - Timely external partner budget support and non-project external financing as specified above. ### Tripartite meetings, commitments, and operational actions - Second semi-annual tripartite meeting held on "October 2, 2019" with national and regional authorities and IMF staff. - Commitments emerging from the meeting: - Adhere to the non-oil budget targets set under IMF-supported programs. - Speed up audits of the stock of public arrears and define strategies to reduce these arrears. - Continue efforts for rapid and regular repatriation of earnings from commodity exports and assets held abroad by state-owned enterprises. - Support BEAC implementation of the foreign exchange regulations, notably through transmission of mining and oil production contracts. - The third tripartite meeting scheduled for the first half of 2020. - BEAC and COBAC will maintain close monitoring of program developments in CEMAC countries and continue cooperation with IMF staff to support the regional strategy. ### Recent macroeconomic developments and indicators - Regional growth increased to "2.5 percent in 2018", with non-oil growth at "1.8 percent" in 2018. - Growth is expected to remain at "2.5 percent" in 2019 with a pick-up in non-oil growth. - Inflation rose to "3 percent" but decelerated to below "2 percent (y-o-y) at end June" 2019 and should remain subdued at year-end. - External current account deficit improved to "2.6 percent of GDP in 2018" from "4.6 percent in 2017" and should further decrease in 2019. - Gross reserves reached coverage of "3.3 months of imports of goods and services". - Regional public debt-to-GDP ratio brought down to "slightly below 50 percent". - Fiscal policy outcomes in first half of 2019: - Fiscal deficit targets met. - Non-oil fiscal deficit as a percentage of non-oil GDP continues to decline. - Overall fiscal deficit anticipated to improve by "around 1 percent of GDP" to reach a position close to balance. ### Monetary policy and BEAC operational stance - BEAC adopted a tight monetary policy stance since increasing its policy rate by "55 basis point" in October 2018. - Monetary Policy Committee maintained the policy rate at "3.5 percent" at its November 2019 meeting. - BEAC adopted a gradual approach to reducing liquidity injections; this has pushed the weighted average auction rate up and improved banks’ use of the marginal lending facility. - BEAC commitments and operational measures: - Preserve a tight monetary policy to support reserves accumulation and contain inflation. - Issue additional guidelines by end of the year to revise eligibility criteria for accessing money market operations and define its intervention procedures. - Continue gradual reduction of liquidity injections and conduct initially small absorption operations in January 2020, with readiness to recalibrate instruments after evaluating feedback and the effect of single treasury account reforms. - Operationalize enhanced foreign exchange regulations; hold consultation meetings with extractive sector operators across six countries; require member states to revise national regulations to align with regional regulations; require transmission of mining and oil contracts. ### Banking sector, COBAC, and regional financial stability measures - Non-performing loans (NPLs) remain a source of concern despite stabilization in portfolio quality. - Solvency and liquidity ratios of banks have deteriorated somewhat since end 2018. - COBAC priorities (embedded in 2019-2021 strategic plan): - Implement risk-based supervision through overhauled processes and tools. - Modernize prudential norms. - Step up efforts against money laundering and terrorism financing. - Require troubled banks to submit an NPL reduction plan. - Continue preparation for transition to Basel II/III and IFRS standards. - BDEAC efforts to improve governance, internal control reforms, and operationalization of the audit committee to strengthen financial independence relative to the central bank. ### Medium-term outlook and quantitative projections - Medium-term outlook includes: - Growth expected to reach "3.5 percent in 2020 and 2021", pulled by non-oil activity. - Inflation projected to remain below the "3-percent convergence threshold" over the medium term. - Gradual decline in public debt-to-GDP ratios to reach an anticipated regional average below "40 percent by 2023". - Narrowing of external imbalances but with some deterioration on grounds of reduced oil export receipts and increased imports aligned with non-oil GDP growth. - Steady increase in regional NFAs and reserves, projected to attain "5 months of import coverage by 2022". ### Policy commitments and reform priorities - Country-level commitments: - Adhere to non-oil budget targets under respective Fund-supported programs. - Accelerate audits of public arrears and set up strategies to reduce these arrears. - Maintain prompt and regular repatriation of commodity export earnings and assets held abroad by state-owned enterprises. - Support BEAC’s implementation of new foreign exchange regulation through transmission of mining and oil contracts. - Regional-level commitments: - BEAC to maintain tight monetary stance, revise money market eligibility criteria, and manage liquidity injections as described above. - COBAC to pursue risk-based supervision, NPL reduction plans, and transition to Basel II/III and IFRS. - CEMAC Commission to strengthen regional surveillance, require member countries to submit a triennial convergence program and credible domestic arrears clearance plans by end-2019, and elaborate a binding sanction scheme with a first draft expected in early 2020. - PREF-CEMAC priorities: strict compliance of extractive industries with regional transparency directives, measures to improve the business environment, governance, financial sector contribution to private sector development and financial inclusion, regional taxation, and removal of internal barriers to trade. *Prepared by The African Department (In Consultation with other Departments) — informational annex (CEMAC).* ### Conclusion ### Conclusion ### Commitment to the regional strategy to exit the crisis - Our CEMAC authorities remain committed to the regional strategy to exit the crisis. - This strategy, which is fully supported by the Fund and other partners has started to bear fruit. ### Policy assurances and multilateral support - The authorities have provided new policy assurances to support member states’ actions to strengthen macroeconomic stability and the stability of the currency union. - They appreciate Fund’s continued support to all member countries of CEMAC. ### Importance of timely external budget assistance - The authorities continue to stress the importance of timely disbursements of budget assistance committed by other external partners. *Source: Conclusion, 1caeea2019004 - Conclusion* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1caeea2019004.pdf_