## 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

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### Key issues, context, and risks
- Regional strategy has helped avert an immediate crisis but faces headwinds: two countries have yet to enter financing arrangements with the Fund; regional reserves underperformed despite higher-than-projected oil prices; projected recovery of non-oil growth has still to materialize; security, social, and political context remains challenging.
- Medium-term structural constraints: poor business environment; high perception of corruption; poor infrastructure and public services; shallow financial markets and low financial inclusion; limited regional integration.
- Institutional progress: BEAC tightened its policy rate and advanced monetary policy framework modernization and draft foreign exchange regulations; COBAC began implementing risk-based supervision and strengthened prudential enforcement.
- Outlook summary: gradual improvement in the medium term but subject to substantial downside risks, including delays in approvals of financial arrangements with Congo and Equatorial Guinea, lower oil prices, and tighter global financial conditions.

### Recent institutional actions and operational reforms
- BEAC actions:
  - Eliminated statutory advances.
  - Established an emergency liquidity assistance system.
  - Provided refinancing through competitive auctions.
  - New collateral mechanism with differentiated haircuts fully operational.
  - Calibration of monetary policy operations based on forecasts of autonomous liquidity factors operational.
  - Since June 2018, liquidity supply conducted through auctions/multi-rate tenders.
  - Interest rate corridor comprising marginal deposit and borrowing facilities formally established.
  - Adoption of a new accounting system for monetary transactions well advanced and expected to be finalized by end-2018.
  - BEAC increased its policy rate by 55 bps to 3.50 percent on October 31.
- COBAC/SG-COBAC actions and plans:
  - Initiated risk-based supervision (RBS); RBS focal point of 2019–21 strategic plan.
  - Strengthened prudential enforcement; sanctioned 11 banks in September for forex-position breaches.
  - Withdrawn license of one undercapitalized systemic institution and requested withdrawal of another.
  - Strategic plan objectives: strengthen supervisory framework and tools; ensure prompter resolution of distressed banks; prompt banks to prepare and implement NPL reduction plans.
  - Planned regulatory adoptions: payment systems (by end-year); deposit guarantee fund (FOGADAC) regulations (by mid-2019); AML/CFT revisions; consumer protection; leverage ratio; consolidated supervision.
  - Introduce more constraining financial penalties system; plan to adopt immediately applicable fines by mid-June 2019.

### Recent developments and 2018 outlook — growth, inflation, external sector, reserves, and fiscal performance
- Growth and inflation:
  - Non-oil growth projected to decline from 2.6 percent in 2017 to 1.0 percent in 2018.
  - Oil GDP projected rebound of +7.3 percent in 2018; overall growth from 1.0 percent in 2017 to 2.2 percent in 2018.
  - Inflation projected to remain low, at about 2 percent at end-year.
- External sector and reserves:
  - Oil export receipts projected to increase by 4 percentage points of GDP in 2018.
  - Current account deficit projected to decline to 1.9 percent of GDP in 2018 (from 4.1 percent in 2017).
  - End-June net foreign assets (NFAs) were about € 290 million lower than staff projections.
  - End-September NFA shortfall widened to about € 480 million, largely due to exceptional external financing shortfalls of € 375 million.
  - BEAC projected € 430-million end-2018 NFA shortfall fully associated with postponement of IMF-supported programs with Congo and Equatorial Guinea (previous projections assumed these countries would receive € 440 million of external budget support in 2018).
  - BEAC’s NFA projected to increase by € 509 million during Q4 2018 (predicated on external budget financing of € 770 million being saved).
  - Under assumption that new IMF-supported programs with Congo and Equatorial Guinea are approved, NFAs projected to increase by € 1.1 billion in 2019 and return to projected path.
- Fiscal performance:
  - Cameroon, CAR, and Chad met end-June and end-September fiscal deficit targets; Equatorial Guinea met end-July target.
  - Gabon missed its end-June deficit target but by a smaller margin than at second review; end-September indicative target met.
  - Congo's non-oil deficit larger than expected owing to lower non-oil revenue and higher current spending.
  - Regional non-oil fiscal balance expected to broadly meet expectations in 2018; regional overall balance would exceed expectations due to higher oil revenue.
  - Net arrears repayments (actual and projected) remain broadly in line with previous projections in all CEMAC countries.
- Banking sector:
  - NPLs rose to 17 percent in September (from 15 percent at end-2017).
  - Credit to the private sector: +2.1 percent y-o-y in September.
  - Deposits: +4.6 percent y-o-y.
  - Several banks remain in breach of key prudential indicators despite some improvements since end-2017.
  - Except for a few institutions under close supervision, all banks are adequately capitalized.

### Medium-term outlook, core assumptions, and projections
- Core assumptions:
  - Full implementation of policy commitments by CEMAC member states and regional institutions (continued fiscal consolidation and structural reforms by member states; tight monetary policy and enforcement of foreign exchange regulations by BEAC; further strengthening by COBAC).
  - New IMF arrangements with Congo and Equatorial Guinea are adopted during the first half of 2019.
  - Upward revision of oil price projections.
- Projected macro path under assumptions:
  - Overall fiscal balance (excluding grants) around equilibrium from 2019 onward, reflecting further decline in non-oil primary fiscal deficit (excluding grants) and higher (but still declining) oil revenue.
  - Public debt would decline to below 44 percent of GDP by end-2020.
  - Non-oil growth would gradually recover to 4½ percent by 2021.
  - Inflation would remain under the regional convergence criterion of 3 percent.
  - Current account deficit would be about 1 percent of GDP lower than previously envisaged, averaging 1¾ percent of GDP over 2019–21.
  - Reserves coverage projected to reach close to 4 months of imports by 2020, reflecting gradual reserve accumulation.
- Key macroeconomic indicator excerpts (as presented):
  - Reserve coverage: Baseline — 4.2 months of imports by 2021; Alternative (downside) — 3.6 months of imports by 2021.
  - Net foreign assets (in billion CFAF) — 2016: 2,254; 2017: 2,131; 2018: 2,552; 2019: 2,994; 2020: 3,358; 2021: 5,982.
  - Net foreign assets (annual change in billion CFAF) (current projections) — 2016: -3,294; 2017: -123; 2018: 421; 2019: 443; 2020: 363; 2021: 625.
  - GDP at constant prices — 2016: -0.7; 2017: 0.9; 2018: 2.7; 2019: 3.4; 2020: 3.2; 2021: 2.7.
  - Oil GDP — 2016: -6.8; 2017: -3.5; 2018: 5.9; 2019: 2.3; 2020: -1.1; 2021: -5.2.
  - Non-oil GDP — 2016: 1.9; 2017: 3.6; 2018: 4.2; 2019: 4.6; 2020: 1.3; 2021: 2.6.
  - Consumer prices (period average) — 2016: 1.3; 2017: 0.8; 2018: 1.6; 2019: 1.8; 2020: 2.2; 2021: 2.4.
  - Current account, including grants — 2016: -13.7; 2017: -4.5; 2018: -2.6; 2019: -2.3; 2020: -2.4; 2021: -4.1.
  - Primary fiscal balance — 2016: -6.1; 2017: -2.6; 2018: 1.1; 2019: 1.5; 2020: 1.1; 2021: -5.9.
  - Total public debt — 2016: 53.2; 2017: 54.5; 2018: 52.3; 2019: 51.6; 2020: 49.8; 2021: 47.6.

### Major downside risks and downside scenario (Box 1)
- Major downside risks identified:
  - Further delays in approval of financial arrangements with Congo and Equatorial Guinea could compromise attainment of regional NFA accumulation objectives.
  - A $10-per-barrel decline in the oil price would reduce the region’s net oil exports receipts by around 2 percent of GDP (about € 1½ billion) and government revenues by about 1 percent of GDP.
  - Deterioration of the security situation could negatively affect activity, increase military spending, and trigger capital outflow pressures.
  - Tighter global financial conditions (e.g., sharper-than-expected increase in U.S. interest rates) could raise debt service and refinancing risks.
- Downside scenario assumptions and implications:
  - Assumption: No agreement is found on Fund-supported programs with Congo and Equatorial Guinea in the near future.
  - Mechanism: Financing constraints would lead these countries to replace external budget financing by accumulation of domestic and external arrears and deposits withdrawal (or lower accumulation of deposits).
  - Projected implications:
    - Regional growth would be slightly lower.
    - Gross public debt would be lower (as the two countries rely on deposit withdrawals instead of borrowing).
    - Current account deficit would be slightly lower, reflecting lower growth and investment.
    - NFA accumulation substantially lower; reserve coverage increasing to only 3.6 months of imports by 2021, compared with 4.2 months under the baseline.
  - Caveats: Scenario does not assume more deteriorated fiscal positions or contagion; contagion would worsen outcomes.
  - Policy implication: If downside materializes and programs are substantially delayed, the regional strategy would need to be revisited.

### Recommended policy actions and corrective measures
- Fiscal and forex enforcement:
  - Member states must continue to implement strictly their fiscal consolidation plans while supporting BEAC and COBAC’s stricter enforcement of foreign exchange regulations to bring NFA back to the initially envisaged path.
  - Deliver projected reduction in non-oil primary deficit from 7½ percent of non-oil GDP in 2018 to 4 percent of non-oil GDP in 2021.
  - Improve quality of adjustment: stronger non-oil revenue mobilization; limit fuel subsidies; save oil revenue windfalls to rebuild fiscal buffers.
  - Urgently finalize and implement arrears repayment plans and better coordinate arrears reimbursement.
  - National actions to support forex regulation enforcement, including: (i) providing copies of contracts/agreements with extractive companies by end-2018; (ii) strictly controlling domiciliation of export transactions with resident banks; (iii) providing BEAC with copies of all export licenses; (iv) ensuring public entities repatriate and surrender forex receipts and do not hold unauthorized deposit accounts abroad; (v) replacing by mid-2019 any escrow accounts held abroad with BEAC accounts; (vi) reviewing hydrocarbon and mining codes to align with forex regulations by end-2019; and (vii) committing to apply for EITI membership if not already a member.
  - BEAC to compile a list of exempted companies to better monitor forex repatriation.
- Monetary policy and liquidity:
  - With the new monetary policy framework essentially in place, BEAC needs to focus on reducing excess liquidity and developing the interbank market.
  - BEAC to continue tightening monetary policy as needed and modernize operational framework (liquidity management, collateral framework, asymmetric interest rate corridor, repurchase agreements, accounting schemes).
  - Amend BEAC’s Charter to provide better response mechanisms (including increased haircuts on government securities used as collateral and reductions of BEAC refinancing when reserves fall under specified thresholds).
- Banking supervision and resolution:
  - COBAC’s strategic plan for 2019–21 should strengthen risk-based supervision, focus on NPLs reduction, prompter resolution of banks in distress, and stricter enforcement of prudential regulations.
  - SG-COBAC should request member state government arrears repayment plans, request and assess banks’ individual NPL resolution plans, oversee implementation, and develop prudential treatment of sovereign arrears depending on duration and economic cost of carry for a bank.
  - Evaluate earlier use of provisional administrators and early evaluations of resolution scenarios; ensure only fit and proper investors as bank owners.
  - Strengthen BEAC–COBAC coordination on enforcement of eligibility for refinancing facilities and monitoring banks’ prudential compliance.
- Structural reforms and growth:
  - Intensify efforts to restore sustained inclusive growth through: more prominence to non-oil revenue-enhancing measures in fiscal consolidation; support development of financial markets; improve governance; promote regional integration.
  - Merge two regional stock markets with physical unification planned for end-2018 and alignment of procedures expected for mid-2019.
  - Improve public securities markets and secondary market functioning; strengthen transparency, audits, and checks and balances.
- Contingency corrective actions if risks materialize:
  - Prompt consultations to consider: acceleration of fiscal adjustment; acceleration of structural reform efforts; further tightening of monetary stance.

### Surveillance, program relations, and technical assistance
- Surveillance:
  - Surveillance discussions with CEMAC authorities will remain on a 12-month cycle in accordance with Decision No. 13654-(06/1), adopted January 6, 2006.
  - Agreed principle to hold semi-annual tripartite consultations involving national authorities, regional institutions and the IMF to assess progress.
- Relations with the IMF and program status:
  - Four countries implementing Fund-supported programs; Equatorial Guinea under an SMP; two countries (Equatorial Guinea and Republic of Congo) yet to formally benefit from full arrangements.
  - Cameroon: Three-year ECF approved June 26, 2017 for SDR 483 million.
  - CAR: Three-year ECF approved July 20, 2016 for SDR 83.55 million, augmented to SDR 133.68 million.
  - Chad: Three-year ECF approved June 30, 2017 for SDR 224.32 million.
  - Republic of Congo and Equatorial Guinea: delays on new arrangements; Congo’s approval pending explicit financing assurances from external official creditors.
- Technical assistance (selected, 2011–17):
  - Multiple MCM, FAD, STA, LEG missions and resident advisors covering lender-of-last-resort frameworks, reserve management, monetary policy design, bank supervision, IFRS implementation, central bank governance, liquidity forecasting, debt management, financial soundness indicators, and PFM directives.

### Monitoring, safeguards, and governance commitments
- Safeguards:
  - Full safeguards assessment for BEAC completed in August 2017.
  - BEAC implementing remaining recommendations, including alignment of secondary legal instruments with Charter amendments and transition to IFRS beginning with 2018 financial statements.
  - BEAC no longer subject to annual monitoring of IMF safeguards “rolling measures” established in 2009, in light of progress.
- Governance and institutional commitments:
  - BEAC to implement remaining safeguard recommendations; Board assessment required on governance reforms at BDEAC before additional financing.
  - CEMAC Commission to create a unit to monitor and report progress and weaknesses in implementation of CEMAC directives on PFM.
  - Authorities call on international community for financing assurances and technical assistance to ensure regional strategy success.

*December 5, 2018 — INTERNATIONAL MONETARY FUND staff report on CEMAC common policies (cr1901).*

### 2018. They considered that BEAC and COBAC have taken satisfactory corrective measures to

### 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

### Key issues
- Context and risks:
  - The regional strategy has helped to avert an immediate crisis but continues to face headwinds: two countries have yet to enter financing arrangements with the Fund; regional reserves have underperformed despite higher-than-projected oil prices; the projected recovery of non-oil growth has still to materialize; and the security, social, and political context remains challenging.
  - Medium-term challenges to diversify the economy include a poor business environment, high perception of corruption, poor infrastructure and public services, shallow financial markets and low financial inclusion, and limited regional integration.
- Recent institutional actions:
  - BEAC tightened its policy rate and made substantial progress toward finalizing modernization of the monetary policy operational framework and drafting of new foreign exchange regulations.
  - COBAC has started implementing risk-based supervision and strengthened prudential enforcement, including actions to resolve banks in distress.
- Outlook summary:
  - Medium-term outlook sees gradual improvement but is subject to substantial downside risks, including further delays in the approval of financial arrangements with Congo and Equatorial Guinea, lower oil prices, and tighter global financial conditions.

### Policy recommendations
- Fiscal and forex enforcement:
  - Member states must continue to implement strictly their fiscal consolidation plans while supporting the BEAC and COBAC’s efforts to enforce more strictly the foreign exchange regulations, as both are critical to bringing NFA back to the initially envisaged path.
- Monetary policy and liquidity:
  - With the new monetary policy framework essentially in place, the BEAC needs to focus on reducing excess liquidity and developing the interbank market.
- Banking supervision and resolution:
  - COBAC’s strategic plan for 2019–21 should aim at strengthening risk-based supervision.
  - COBAC should also focus on NPLs reduction, prompter resolution of banks in distress, and stricter enforcement of prudential regulations.
- Growth and structural reforms:
  - National and regional authorities should intensify efforts to restore sustained inclusive growth, including through:
    - giving more prominence to non-oil revenue-enhancing measures in fiscal consolidation;
    - supporting the development of financial markets;
    - improving governance; and
    - promoting regional integration.

### Background and recent developments
- Regional strategy status:
  - Two years after adoption, the regional strategy helped avert immediate crisis but is not yet fully delivering on objectives.
  - Regional reserves have underperformed despite higher-than-projected oil prices.
  - Two countries have yet to enter financing arrangements with the Fund, delaying budget support expected by end-2018 and lowering reserves accumulation.
- Program implementation:
  - Program performances in Central African Republic (CAR), Chad, Cameroon, and Gabon are broadly on track; reviews scheduled for Executive Board discussion in December.
  - Equatorial Guinea: first review under staff-monitored program concluded in August; the second review and possible EFF financing arrangement postponed to next year due to delays in governance reforms.
  - Congo: approval of new IMF-supported program delayed pending explicit financing assurances from external official creditors, including debt relief, to restore debt sustainability; additional steps needed on 2019 draft budget law and governance/transparency reforms.
- BEAC and COBAC reforms and enforcement:
  - BEAC eliminated statutory advances, established an emergency liquidity assistance system, and provided refinancing through competitive auctions.
  - COBAC initiated risk-based supervision and strengthened prudential enforcement; enforcement of regional surveillance framework and regional integration progress limited.

### Recent developments and 2018 outlook (selected findings and figures)
- Growth and inflation:
  - Non-oil growth projected to decline from 2.6 percent in 2017 to 1.0 percent in 2018.
  - Oil GDP projected rebound of +7.3 percent in 2018; overall growth from 1.0 percent in 2017 to 2.2 percent in 2018.
  - Inflation projected to remain low, at about 2 percent at end-year.
- External sector and reserves:
  - Oil export receipts projected to increase by 4 percentage points of GDP in 2018.
  - Current account deficit projected to decline to 1.9 percent of GDP in 2018 (from 4.1 percent in 2017).
  - End-June net foreign assets (NFAs) were about € 290 million lower than staff projections.
  - End-September NFA shortfall widened to about € 480 million, driven largely by shortfalls in exceptional external financing of € 375 million.
  - BEAC projected € 430-million end-2018 NFA shortfall fully associated with postponement of IMF-supported programs with Congo and Equatorial Guinea (previous projections assumed these countries would receive € 440 million of external budget support in 2018).
  - BEAC’s NFA projected to increase by € 509 million during Q4 2018 (predicated on external budget financing of € 770 million being saved).
  - Under assumption that new IMF-supported programs with Congo and Equatorial Guinea are approved, NFAs projected to increase by € 1.1 billion in 2019 and return to projected path.
- Monetary policy response:
  - In response to lower-than-targeted reserves accumulation and NFA underperformance, BEAC increased its policy rate by 55 bps to 3.50 percent on October 31.
  - COBAC and BEAC strengthened enforcement of banks’ forex position limits and sanctioned in September 11 banks in breach; banks reportedly reduced foreign asset positions by about CFAF 120 billion during Q3 and surrendered these to BEAC, bringing banks’ NFA back to about CFAF 140 billion.
- Fiscal performance:
  - Cameroon, CAR, and Chad met end-June and end-September fiscal deficit targets; Equatorial Guinea met end-July target.
  - Gabon missed its end-June deficit target but by a smaller margin than at second review; end-September indicative target met.
  - Congo's non-oil deficit larger than expected owing to lower non-oil revenue and higher current spending.
  - Regional non-oil fiscal balance expected to broadly meet expectations in 2018; regional overall balance would exceed expectations due to higher oil revenue.
  - Net arrears repayments (actual and projected) remain broadly in line with previous projections in all CEMAC countries.
- Banking sector:
  - NPLs rose to 17 percent in September (from 15 percent at end-2017).
  - Credit to the private sector: +2.1 percent y-o-y in September.
  - Deposits: +4.6 percent y-o-y.
  - Several banks remain in breach of key prudential indicators despite some improvements since end-2017.
  - Except for a few institutions under close supervision, all banks are adequately capitalized.
  - COBAC withdrew the license of one undercapitalized systemic institution and requested national authorities to withdraw the license of another undercapitalized institution.

### Medium-term outlook and risks (assumptions and projections)
- Core assumptions:
  - Full implementation of policy commitments by CEMAC member states and regional institutions: continued fiscal consolidation and structural reforms by member states; tight monetary policy and enforcement of foreign exchange regulations by BEAC; further efforts to strengthen the financial sector by COBAC.
  - New IMF arrangements with Congo and Equatorial Guinea are adopted during the first half of 2019.
  - Upward revision of oil price projections.
- Projected macro path under assumptions:
  - The overall fiscal balance (excluding grants) would be around equilibrium from 2019 onward, reflecting a further decline in the non-oil primary fiscal deficit (excluding grants) and higher (but still declining over the medium term) oil revenue.
  - Public debt would decline more rapidly than previously envisaged to below 44 percent of GDP by end-2020, owing to stronger overall fiscal balances and higher nominal oil GDP.
  - Non-oil growth would gradually recover to 4½ percent by 2021, supported by reforms to improve the business environment and governance, financial-sector strengthening, lower drag from fiscal adjustment, and repayment of government arrears.
  - Inflation would remain under the regional convergence criterion of 3 percent.
  - Current account deficit would be about 1 percent of GDP lower than previously envisaged, averaging 1¾ percent of GDP over 2019–21.
  - Reserves coverage projected to reach close to 4 months of imports by 2020, reflecting gradual reserve accumulation.

*December 5, 2018 — INTERNATIONAL MONETARY FUND staff report on CEMAC common policies*

### 12.      The outlook remains subject to significant downside risks, including:

### 12.      The outlook remains subject to significant downside risks, including:

### Major downside risks identified
- Further delays in the approval of financial arrangements with Congo and Equatorial Guinea could compromise again the attainment of the regional NFA accumulation objectives and bring into question the eventual success of the regional strategy. The projected accumulation of government deposits is key to the achievement of the 2019 NFA targets.  
- A decline in oil prices would put additional pressure on fiscal and external balances and on the financial sector given the region’s heavy dependence on oil receipts/revenue. Back-of-the-envelope estimates indicate that a $10-per-barrel decline in the oil price would reduce the region’s net oil exports receipts by around 2 percent of GDP (about € 1½ billion) and government revenues by about 1 percent of GDP. While part of this impact would be compensated by lower debt repayments (as part of oil price-contingent restructuring agreements) and lower services imports by oil industries, the remainder would need to be addressed through additional macroeconomic and structural corrective measures.  
- A deterioration of the security situation would negatively affect economic activity and might lead to increased military spending and capital outflow pressures. While the situation has improved around the Pool region in Congo, tensions persist in CAR and in Cameroon’s anglophone regions.  
- Tighter global financial conditions, e.g., a sharper-than-expected increase in U.S. interest rates or other shocks, could raise debt service and refinancing risks, putting pressures on the capital account and weakening NFA accumulation.

### Box 1 — CEMAC: Downside scenario (assumptions and implications)
- Assumption: No agreement is found on Fund-supported programs with Congo and Equatorial Guinea in the near future.  
- Mechanism: Financing constraints would force the two countries to pursue fiscal policies broadly similar to the baseline but replace external budget financing by accumulation of domestic and external arrears and deposits withdrawal (or lower accumulation of deposits).  
- Projected implications under these assumptions:
  - Regional growth would be slightly lower, reflecting lower domestic and foreign investment.  
  - Gross public debt would be lower, as the two countries would rely on deposit withdrawals instead of borrowing to finance their deficits.  
  - The current account deficit would be slightly lower, reflecting lower growth and investment.  
  - NFA accumulation would be substantially lower, with the reserve coverage ratio increasing to only 3.6 months of imports by 2021, compared with 4.2 months under the baseline.  
- Caveats: The scenario does not assume more deteriorated fiscal positions (which would likely further increase arrears and public debt and negatively affect banking sectors through higher NPLs). It also does not assume contagion to other CEMAC countries; contagion would produce direr consequences, notably for growth and NFA accumulation.  
- Policy implication: If this downside scenario materializes and programs with Congo and Equatorial Guinea are substantially delayed, the regional strategy would need to be revisited.

### Key macroeconomic indicators and financing-related figures (as presented)
- Reserve coverage: Baseline — 4.2 months of imports by 2021; Alternative (downside) — 3.6 months of imports by 2021.  
- Net foreign assets (in billion CFAF): 2016: 2,254; 2017: 2,131; 2018: 2,552; 2019: 2,994; 2020: 3,358; 2021: 5,982 (Current projections table).  
- Net foreign assets (annual change in billion CFAF) (current projections): 2016: -3,294; 2017: -123; 2018: 421; 2019: 443; 2020: 363; 2021: 625.  
- Selected national income and fiscal indicators (current projections): GDP at constant prices — 2016: -0.7; 2017: 0.9; 2018: 2.7; 2019: 3.4; 2020: 3.2; 2021: 2.7. Oil GDP — 2016: -6.8; 2017: -3.5; 2018: 5.9; 2019: 2.3; 2020: -1.1; 2021: -5.2. Non-oil GDP — 2016: 1.9; 2017: 3.6; 2018: 4.2; 2019: 4.6; 2020: 1.3; 2021: 2.6. Consumer prices (period average) — 2016: 1.3; 2017: 0.8; 2018: 1.6; 2019: 1.8; 2020: 2.2; 2021: 2.4. Current account, including grants — 2016: -13.7; 2017: -4.5; 2018: -2.6; 2019: -2.3; 2020: -2.4; 2021: -4.1. Primary fiscal balance — 2016: -6.1; 2017: -2.6; 2018: 1.1; 2019: 1.5; 2020: 1.1; 2021: -5.9. Total public debt — 2016: 53.2; 2017: 54.5; 2018: 52.3; 2019: 51.6; 2020: 49.8; 2021: 47.6. (All figures as presented in the source tables.)

### Recommended corrective actions if risks materialize
- Member states and regional institutions should promptly consult on necessary corrective actions, which could include:
  - An acceleration of fiscal adjustment.  
  - An acceleration of structural reform efforts.  
  - A further tightening of the monetary stance.  
- Specific fiscal and institutional measures emphasized elsewhere in the text to support the regional strategy include:
  - Delivering the projected reduction in the non-oil primary deficit from 7½ percent of non-oil GDP in 2018 to 4 percent of non-oil GDP in 2021 to rebuild international reserves and put public debt on a declining path.  
  - Improving the quality of adjustment, notably through stronger non-oil revenue mobilization and limiting fuel subsidies; saving any oil revenue windfall to rebuild fiscal buffers.  
  - Urgently finalizing and implementing arrears repayment plans and better coordinating arrears reimbursement to limit negative impacts on NFA accumulation and banking solvency/liquidity.  
  - Amending BEAC’s Charter to provide better response mechanisms (including increased haircuts on government securities used as collateral and reductions of BEAC refinancing when reserves fall under specified thresholds).  
  - BEAC continuing to tighten monetary policy as needed and modernize its operational framework (including liquidity management, collateral framework, asymmetric interest rate corridor, repurchase agreements, and accounting schemes).  
  - Strengthening BEAC–COBAC coordination on enforcement of eligibility criteria for access to refinancing facilities and on monitoring banks’ prudential compliance.  
  - Submitting revised foreign exchange regulations to the UMAC Ministerial Council by end-year to clarify requirements, strengthen reporting, broaden BEAC/SG-COBAC controls, and adopt more enforceable sanctions; consistently and transparently enforcing CFMs (repatriation and surrender requirements) alongside macroeconomic adjustments.  
  - National actions to support forex regulation enforcement, including: (i) providing copies of contracts/agreements with extractive companies by end-2018; (ii) strictly controlling domiciliation of export transactions with resident banks; (iii) providing BEAC with copies of all export licenses; (iv) ensuring public entities repatriate and surrender forex receipts and do not hold unauthorized deposit accounts abroad; (v) replacing by mid-2019 any escrow accounts held abroad as part of project financing agreements with BEAC accounts; (vi) reviewing hydrocarbon and mining codes to align with forex regulations by end-2019; and (vii) committing to apply for EITI membership if not already a member.  
  - BEAC compiling a list of exempted companies to better monitor forex repatriation.

*Source: IMF Staff Estimates (Country Report No.18/210).*

### 22.      The Secretariat General of COBAC (SG-COBAC) will make risk-based supervision (RBS)

### 22.      The Secretariat General of COBAC (SG-COBAC) will make risk-based supervision (RBS)

### Strategic plan and priorities (2019–21)
- SG-COBAC will make risk-based supervision (RBS) the focal point of its 2019–21 strategic plan.
- The plan will be finalized by end-2018, building on a thorough assessment of the 2016–18 plan implementation.
- Plan objectives include:
  - strengthening the supervisory framework and tools;
  - ensuring prompter resolution of distressed banks;
  - prompting banks to prepare and implement NPL reduction plans.
- Other recommendations to be incorporated:
  - consolidated supervision;
  - strengthening the framework on concentration risk, governance and internal control, and sovereign exposure;
  - supporting enforcement of the new forex and microfinance regulations;
  - preparing for the transition to Basel 2/3 and IFRS.

### Strengthening supervisory approach and enforcement
- SG-COBAC developments welcomed by staff:
  - further development of RBS with targeted inspections focused on loan portfolio reviews, AML/CFT, liquidity and foreign exchange repatriation;
  - training on banking and credit dispute resolution for judges;
  - support for development of legal frameworks on credit protection.
- Compliance enforcement measures:
  - introduction and application of a more constraining financial penalties system;
  - plan to adopt by mid-June 2019 a new framework of immediately applicable fines in case of breach or repeated breach.
- Planned prudential reviews:
  - assessment of the need to strengthen prudential treatment of concentration excesses, including those resulting from loans to related parties.

### Non-performing loans (NPLs) — guidance and oversight
- SG-COBAC actions:
  - asked banks to submit strategies to reduce NPLs and will review those by end-year.
- Staff advice to SG-COBAC to guide NPL resolution processes:
  - (i) request member state’s government arrears repayment plans;
  - (ii) request and assess banks’ individual NPL resolution plans;
  - (iii) oversee the implementation of these plans;
  - (iv) develop a proposal for a prudential treatment of sovereign arrears depending on the arrears’ duration and the economic cost of carry for a bank.

### Bank resolution and investor suitability
- Progress noted toward resolving insolvent banks, with recommendation to reduce future resolution costs by shortening delays in resolution decisions.
- Staff suggested:
  - evaluating whether COBAC could make earlier use of its power to nominate provisional administrators and conduct early evaluations of resolution scenarios when a bank faces stress;
  - remaining vigilant to allow only fit and proper investors with a credible plan as bank owner.

### Regulatory and governance enhancements
- Planned regulatory adoptions:
  - by end-year: new regulations on payment systems;
  - by mid-2019: regulations implementing the deposit guarantee fund (FOGADAC);
  - revisions to the AML/CFT COBAC regulations for banks to implement the 2016 COBAC regulation;
  - regulations on consumer protection, leverage ratio and consolidated supervision.
- Additional staff advice:
  - explore preparing a dashboard to monitor banks’ compliance with regulations on internal control and governance;
  - revisit FSAP recommendations to ensure the highest degree of expertise and independence of COBAC members.

### Human resources and operational effectiveness
- Staffing needs:
  - reinforcement of SG-COBAC’s human resources by early 2019 will be key to meeting objectives.
  - recent staff moves left SG-COBAC understaffed in some areas.
- Constraints and measures:
  - BEAC and SG-COBAC budget constraints will limit possible new hiring;
  - SG-COBAC should enhance human capacity to fulfill existing and future responsibilities as envisaged in the strategic plan and new regulations;
  - review options for simplifying, automating, or delegating procedures to improve effectiveness.

*Source: cr1901 - 22.      The Secretariat General of COBAC (SG-COBAC) will make risk-based supervision (RBS)*

### 49.      The surveillance discussions with the CEMAC authorities will remain on a 12-month

### cr1901 - 49.      The surveillance discussions with the CEMAC authorities will remain on a 12-month

### Surveillance framework
- 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.

### 2017–18 economic developments and 2018 outlook
- After a limited recovery in 2017, economic activity is expected to accelerate in 2018 on account of a rebound in oil production, while non-oil growth would decline.
- Oil production and oil prices:
  - Oil production (thousands of barrels per day): 2016 = 881.3; 2017 = 827.2; 2018 = 874.6; 2019 = 860.8; 2020 = 882.4; 2021 = 871.3; 2022 = 823.0; projection 2022 = 802.5.
  - Oil prices (US dollars per barrel, brent): 2016 = 44.0; 2017 = 71.9; 2018 (value shown as "71.9..."): entries include 71.9, 72.3, 69.4, 66.8, 65.0 in the table.
- Non-oil sector:
  - Non-oil GDP growth (CEMAC): 2016 = 2.6; 2017 = 1.9; 2018 = 1.0; 2019 = 3.6; 2020 = 4.2; 2021 = 4.5; 2022 = 4.7 (annual change, in percent).

### Fiscal performance and projections
- Fiscal consolidation and revenue:
  - The non-oil fiscal deficit is projected to decline further in 2018, reflecting the continued rationalization of non-priority spending by member states, and some progress in increasing non-oil revenue.
  - These fiscal consolidation efforts, along with higher oil prices, will contribute to a sizeable reduction in the current account deficit.
- Key fiscal aggregates (CEMAC, percent of GDP unless indicated):
  - Total revenue, excluding grants: 2016 = 16.4; 2017 = 16.1; 2018 = 17.8; 2018 (CR 18/210) = 17.5; 2019 = 17.9; 2020 = 17.9; 2021 = 17.4; 2022 = 17.4.
  - Government expenditure: 2016 = 24.4; 2017 = 20.6; 2018 = 19.1; 2018 (CR 18/210) = 18.1; 2019 = 17.6; 2020 = 17.4; 2021 = 17.5; 2022 = 17.3.
  - Primary fiscal basic balance: 2016 = -4.1; 2017 = -0.5; 2018 = 2.4; 2018 (CR 18/210) = 3.1; 2019 = 3.9; 2020 = 4.3; 2021 = 3.8; 2022 = 3.8.
  - Overall fiscal balance, excluding grants: 2016 = -8.0; 2017 = -4.6; 2018 = -1.3; 2018 (CR 18/210) = -0.6; 2019 = 0.3; 2020 = 0.4; 2021 = -0.1; 2022 = 0.1.
  - Non-oil overall fiscal balance, excluding grants (percent of non-oil GDP): 2016 = -16.3; 2017 = -12.8; 2018 = -10.2; 2018 (CR 18/210) = -10.0; 2019 = -8.6; 2020 = -7.2; 2021 = -6.3; 2022 = -5.4.
  - Non-oil primary fiscal balance, including grants (percent of non-oil GDP): 2016 = -13.8; 2017 = -10.2; 2018 = -7.4; 2018 (CR 18/210) = -7.4; 2019 = -5.9; 2020 = -4.6; 2021 = -4.0; 2022 = -3.2.
  - Total Public Debt (percent of GDP): 2016 = 52.6; 2017 = 53.5; 2018 = 52.3; 2018 (CR 18/210) = 49.5; 2019 = 46.2; 2020 = 43.7; 2021 = 41.8; 2022 = 39.2.
- Country-level fiscal balances (overall fiscal balance excluding grants, percent of GDP, selected):
  - Cameroon: 2015 = -4.5; 2016 = -6.4; 2017 = -5.2; 2018 = -2.9.
  - Central African Republic: 2015 = -7.8; 2016 = -4.4; 2017 = -6.5; 2018 = -6.6.
  - Chad: 2015 = -7.8; 2016 = -4.9; 2017 = -4.4; 2018 = -3.4.
  - Congo, Republic of: 2015 = -25.6; 2016 = -21.0; 2017 = -7.9; 2018 = 6.6.
  - Equatorial Guinea: 2015 = -15.1; 2016 = -10.8; 2017 = -2.5; 2018 = -0.9.
  - Gabon: 2015 = -1.0; 2016 = -5.0; 2017 = -2.6; 2018 = -0.7.

### External sector and reserves
- Current account and balance dynamics:
  - Current account, including grants (percent of GDP): 2016 = -11.0; 2017 = -4.1; 2018 = -2.6; 2018 (CR 18/210) = -1.8; 2019 = -1.4; 2020 = -1.7; 2021 = -2.4; 2022 = -4.0.
  - Balance on goods and services (percent of GDP): 2016 = -6.1; 2017 = 0.9; 2018 = 2.2; 2018 (CR 18/210) = 4.0; 2019 = 4.1; 2020 = 3.0; 2021 = 1.7; 2022 = -0.4.
- Trade flows (billions of CFA francs, Table 3a):
  - Total exports: 2016 = 13,724; 2017 = 16,257; 2018 = 16,834; 2018 (CR 18/210) = 19,045; 2019 = 19,621; 2020 = 19,252; 2021 = 18,595; 2022 = 18,548.
  - Total imports: 2016 = 16,521; 2017 = 15,844; 2018 = 15,742; 2018 (CR 18/210) = 16,988; 2019 = 17,395; 2020 = 17,561; 2021 = 17,605; 2022 = 18,792.
- Net foreign assets and reserves:
  - Net foreign assets (end of period, billions CFAF): 2016 = 2,254; 2017 = 2,131; 2018 = 2,552; 2019 = 2,273; 2020 = 2,367; 2021 = 2,500; 2022 = 2,621 (Table 3a/6/8).
  - Gross official reserves (end of period, Millions of U.S. dollars): 2016 = 4,972; 2017 = 5,807; 2018 = 7,513; 2018 (CR 18/210) = 6,468; 2019 = 8,495; 2020 = 10,171; 2021 = 11,786; 2022 = 13,299.
  - Months of imports of goods and services (less intra regional imports): 2016 = 2.3; 2017 = 2.3; 2018 = 3.1; 2018 (CR 18/210) = 2.6; 2019 = 3.3; 2020 = 3.9; 2021 = 4.2; 2022 = 4.9.

### Monetary and banking sector developments
- Monetary conditions and credit:
  - Broad money (CFAF billions): 2016 = 10,556; 2017 = 10,512; 2018 = 10,261; 2018 (CR 18/210) = 10,440; 2019 = 10,622; 2020 = 11,190; 2021 = 11,042; 2022 = 10,884 (Table 6).
  - Credit to the private sector (CFAF billions): 2016 = 7,082; 2017 = 6,955; 2018 = 6,833; 2018 (CR 18/210) = 6,869; 2019 = 7,056; 2020 = 7,069; 2021 = 7,096; 2022 = 7,027.
  - Net foreign assets (as percent of beginning-of-period broad money): 2016 = -31.4; 2017 = -0.9; 2018 = 0.3; 2018 (CR 18/210) = 2.0; 2019 = 0.2; 2020 = 4.0; 2021 = 1.2; 2022 = 2.1.
- Central bank (BEAC) liquidity and operations:
  - BEAC's credit to governments: advances and consolidated debt reported as broadly constant at 2,773 (CFAF billions) in several periods; statutory advances are now frozen.
  - Governments deposits with BEAC increased less than projected during 2018Q2–Q3.
  - Banking sector excess reserves remained broadly stable as credit to the private sector started recovering.
  - Reserve coverage of broad money (percent): 2016 = 29.3; 2017 = 30.6; 2018 = 35.3 (select entries shown); later periods include 33.1, 39.2, 43.2 in tables.
- Banking sector soundness and ratings:
  - COBAC bank ratings (June 2018): across CEMAC (52 banks), rating distribution shown as categories 1, 2, 3, 4, 5 with counts 1, 15, 23, 8, 5 respectively.
  - Financial soundness (selected indicators):
    - 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; Dec-17 = 16.1; Aug-18 = 17.5.
    - 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; Dec-17 = 14.6; Aug-18 = 16.2.
    - Return on equity (percent): 2010 = 18.2; 2011 = 23.9; 2012 = 23.2; 2013 = 27.2; 2014 = 20.3; 2015 = 16.4; 2016 = 23.5; Dec-17 = 27.6 (Dec-17 entry shown with trailing hyphen).

### Key risks and financing dynamics
- External financing and reserve accumulation:
  - Owing to delays in the approval of Fund-supported program in two countries, NFA accumulation would be lower than previously envisaged.
  - Change in Net Foreign Assets (CFAF billions, selected flows): CEMAC change in NFA: 2015–2018 chart indicates variations by country (Cameroon, CAR, COG, GAB, GNQ, TCD) with aggregate changes shown in tables (Table 3a: Reserve assets accumulation and exceptional financing).
  - Overall balance and financing (billions CFAF, Table 3a):
    - Overall Balance: 2016 = -3,467; 2017 = -1,020; 2018 = -1,040; 2018 (CR 18/210) = -883; 2019 = -468; 2020 = 105; 2021 = 318; 2022 = 414.
    - Financing: 2016 = 3,467; 2017 = 1,020; 2018 = 1,040; 2018 (CR 18/210) = 883; 2019 = 468; 2020 = -105; 2021 = -318; 2022 = -414.

### Policy focus and recommended measures (as reflected in source)
- Fiscal consolidation effort will remain the main engine for restoring external stability, supported by:
  - Expenditure rationalization.
  - Non-oil revenue-enhancing measures over the medium term.
- Medium-term priorities implied by projections:
  - Continue fiscal consolidation to reduce non-oil fiscal deficits (non-oil overall fiscal balance path: 2018 = -10.2; 2019 = -10.0; 2020 = -8.6; 2021 = -7.2; 2022 = -6.3).
  - Stabilize and gradually reduce public debt (Total Public Debt: 2018 = 52.3; 2019 = 49.5; 2020 = 46.2; 2021 = 43.7; 2022 = 41.8; later projection 39.2).
  - Support non-oil sector growth to underpin overall growth over the medium term.

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

### Annex I. Response to Past IMF Advice

### Annex I. Response to Past IMF Advice

### Policy mix
- Recommendation: Sizeable fiscal adjustment in each member country.
- Recommendation: Structural reforms to diversify the economy and restore sustained growth.
- Authorities’ response:
  - Member states have pursued their fiscal consolidation efforts, contributing to a sizeable decline in fiscal deficits in 2017.
  - If some slippages were observed in Cameroon and Gabon in early 2018, they have since been addressed.
  - While some progress has been made with regard to PFM and tax policy reforms, the PREF’s overall implementation is lagging behind, with gaps in strengthening governance of tax authorities and improving the business environment.

### Monetary policy and safeguards reform
- Recommendation: Consider a tightening of the monetary stance would reserve accumulation fall short of objectives.
- Recommendation: Modernize BEAC’s liquidity management and monetary policy instruments.
- Authorities’ response:
  - In response to the end-June NFA under-performance, the BEAC has tightened its monetary stance and, along with COBAC, strengthened the enforcement of foreign exchange regulations.
  - Much progress has been made on this front, including:
    - the elimination of the statutory advances;
    - liquidity management being now based on autonomous factors forecasts;
    - liquidity being provided through competitive auctions;
    - government securities used as collateral being now subject to differentiated haircuts reflecting the issuing countries’ sovereign risks;
    - and the emergency liquidity assistance system fully operational.

### Macrofinancial linkages and the financial sector
- Recommendation: Put banking supervision on a full risk-basis.
- Recommendation: Enhance enforcement of prudential rules.
- Recommendation: Deliver resolution of insolvent banks.
- Authorities’ response:
  - With the assistance of the World Bank and IMF, the COBAC has started formalizing risk-based supervision processes, while its 2018 inspection missions were largely targeted on risk management.
  - Risk-based supervision be the key theme of COBAC’s 2019-21 strategy plan.
  - As the intensity of the Banking Commission’s disciplinary sessions has increased, non-compliance has started to decline.
  - COBAC is strengthening its sanctioning framework to include monetary fines, with implementation expected in 2019.
  - Progress remains limited in the area of bank resolution. While resolution decisions are expected soon, procedures remain long, especially for state-owned banks.

### Regional integration and convergence framework
- Recommendation: Strengthen enforcement of the regional surveillance framework.
- Recommendation: Reinforce efforts to deepen regional integration.
- Authorities’ response:
  - Little progress in this area, with member states having still to provide the Commission with three-year fiscal convergence plans.
  - Progress was limited in this area, consisting mainly of the facilitation of intra-regional mobility through reduced visa requirements and the adoption of the external common tariff in Cameroon and Gabon.

*Source: cr1901 - Annex I. Response to Past IMF Advice*

### 8.5 percent in 2018.

### 8.5 percent in 2018.

### External position and valuation
- EBA-Lite’s Current Account (CA) model comparison indicates:
  - An estimated overvaluation of about 7 percent.
  - The 2018 current account deficit is estimated at 1.9 percent of GDP against a norm of 0.1 percent GDP surplus (assuming an elasticity of the current account to REER of -0.26).
  - The unexplained residual is 1.7 percentage point lower than in previous CA gap estimates.
- The external position at end-2018 is assessed to be moderately weaker than implied by fundamentals and desirable policies.
- The change in reserves in 2018 is considered to be below what is needed to achieve the medium-term target of 5 months of extra-regional imports by 2022.
- The previously estimated policy gap at end-2017 has almost closed in 2018, though some policy objectives remain a concern.
- Health expenditure contributes negatively to the policy gap despite a positive contribution from the adjustment in the fiscal balance.

### Structural competitiveness and business environment
- World Bank “Doing Business Indicators” findings for CEMAC:
  - CEMAC countries continue to underperform relative to comparable countries, indicating ample room for strengthening the business environment.
  - Progress in Doing Business ranking between 2015 and 2018 is heterogeneous: some progress in Cameroon, Central African Republic and Chad; little progress or deterioration in other countries (e.g., Gabon).
  - CEMAC countries lag behind WAEMU peers, and are comparable to SSA oil exporters.
  - Pronounced impediments appear in: starting a business; getting electricity; dealing with construction permits; enforcing contracts; and trading across borders.
  - Lack of adequate infrastructure and reliable energy supply remain a challenge; procedures for paying taxes and registering properties remain cumbersome.
- Governance indicators:
  - Governance indicators suggest disappointing performance for CEMAC countries.
  - CEMAC countries are behind WAEMU peers and emerging economies according to the World Bank’s “Governance Indicators”.
  - Governance in CEMAC is weaker even after accounting for income per capita levels.

### BEAC and COBAC corrective measures and operational reforms
- Corrective and supportive measures undertaken to rebuild foreign exchange reserves and enforce regulation:
  - Strengthened enforcement of foreign exchange regulation, including disciplinary sanctions by COBAC on 11 banks for non-compliance with rules on surrendering foreign assets and on their external position.
  - BEAC established a mechanism to monitor transfers to respond quickly to banks' justified requests for foreign exchange.
  - Tightening of monetary policy: BEAC’s Monetary Policy Committee raised its policy rate by 55 basis points to 3.50 percent at its October 31, 2018 meeting.
  - BEAC aims to gradually reduce the amount of its liquidity auctions over the coming months to support interbank market development and enhance monetary policy effectiveness.
- Operational reforms implemented or advanced:
  - New BEAC collateral mechanism for bank refinancing operations, including a discount system on government securities by risk, is fully operational.
  - Calibration of monetary policy operations based on forecasts of autonomous liquidity factors is operational.
  - Since June 2018, BEAC’s supply of bank liquidity is conducted through auctions/multi-rate tenders.
  - An interest rate corridor comprising the marginal deposit and borrowing facilities has been formally established.
  - Adoption of a new accounting system for recording monetary transactions is well advanced and expected to be finalized by end-2018.
  - Reform of foreign exchange regulation revised to strengthen repatriation provisions and monitoring/enforcement powers of BEAC and COBAC; draft revised regulation submitted to stakeholders and partners for comments with adoption expected by end-year.
- Additional institutional actions:
  - COBAC to finalize by end-2018 its Strategic Plan for 2019-21, with objectives including continued implementation of risk-based supervision, acceleration of the fight against money laundering and financing of terrorism, and modernization of some prudential rules.
  - BEAC and COBAC will continue close monitoring of program developments and work with IMF staff to support the regional crisis exit strategy.
  - Principle of semi-annual consultations involving national authorities, regional institutions, and IMF staff approved; first consultations to be held during the first half of 2019.

### Reserves, projections, and external financing assumptions
- BEAC net foreign assets and projections:
  - Actual accumulation: euro 2.94 billion at end-June 2018, below projections of euro 3.10 billion.
  - Target/projections: BEAC’s net foreign assets expected to reach euro 3.45 billion by end-2018.
  - Further projections: euro 3.50 billion at end-June 2019 and euro 4.60 billion at end-December 2019.
- Causes of shortfall in accumulation of net foreign assets:
  - Delays in disbursements of external budget support (euro 50 million).
  - Non-repatriation of deposits held abroad estimated at euro 70 million.
  - Insufficient repatriation and surrendering of foreign currency by some commercial banks.
  - Postponement of programs with Congo and Equatorial Guinea and related budget support.
- External budget support and financing assumptions needed for objectives:
  - Expected other external (non-project) financing: euro 0.89 billion in the second half of 2018, euro 0.63 billion in the first half of 2019, and euro 1.28 billion over the whole of 2019.
  - Additional exceptional financing from commercial and bilateral sources expected to cover a substantial part of debt service due by Congo in 2019 and following years.
- Dependencies and conditions:
  - Achievement of reserve and macro objectives depends on satisfactory implementation of fiscal consolidation and structural reform programs by member states, rapid approval of IMF-supported programs in all member states, and preparation/implementation of domestic arrears repayment strategies.

### Regional governance, safeguards, and institutional positions
- Commitments on safeguards and governance:
  - BEAC to implement remaining recommendations of the 2017 safeguard assessment, including consistency of BEAC's secondary legal instruments with its revised Charter and transition to IFRS.
  - Board assessment required on effective implementation of governance reforms at BDEAC before any additional financing.
- Authorization:
  - The BEAC Governor authorizes the IMF to make legal and pertinent use of the letter and to publish it.

### Relations of CEMAC member countries with the IMF (selected program facts)
- Membership and Article VIII status:
  - Cameroon, Central African Republic (CAR), Chad, Republic of Congo, and Gabon joined the IMF in 1963; Equatorial Guinea joined in 1969.
  - All CEMAC members accepted the obligations of Article VIII, Sections 2, 3 and 4 of the IMF Articles of Agreement on June 1, 1996.
- Recent IMF arrangements and program reviews:
  - Cameroon: Three-year arrangement under the Extended Credit Facility (ECF) approved June 26, 2017 for SDR 483 million (about US$666.2 million, or 175 percent of Cameroon’s quota). On July 6, 2018, the Executive Board concluded the 2018 Article IV consultation and completed the second review under the ECF. Cameroon is on a 24-month consultation cycle.
  - Central African Republic (CAR): Three-year ECF approved July 20, 2016 for SDR 83.55 million (about US$116.5 million, 75 percent of CAR’s quota). The ECF was augmented to a total of SDR 133.68 million (about $123.7 million, or 120 percent of CAR’s quota). On July 2, 2018, the Executive Board completed the fourth review under the ECF. CAR is on a 24-month consultation cycle; the 2018 Article IV consultation was expected during December 2018.
  - Chad: Three-year ECF approved June 30, 2017 for SDR 224.32 million (about US$312.1 million, or 160 percent of Chad’s quota). On July 27, 2018, the Executive Board completed the second review under the ECF. On April 29, 2015, IDA and IMF Executive Boards decided Chad had reached the completion point under the HIPC Initiative and supported debt relief of US$1.1 billion. Chad is on a 24-month consultation cycle.
  - Republic of Congo: Last Article IV consultation concluded July 17, 2015. Congo has been on a 12-month consultation cycle; conclusion of the 2016 Article IV consultation delayed by discussions of a possible new three-year arrangement.
  - Equatorial Guinea: Last Article IV consultation on August 29, 2016. On May 10, 2018, the Managing Director approved an SMP for Equatorial Guinea covering January–July 2018.
  - Gabon: On August 1, 2018, the Executive Board completed the second review of Gabon’s economic program supported by an EFF. On June 19, 2017, the Executive Board approved a three-year EFF with Gabon.

*Source: cr1901 - 8.5 percent in 2018.*

### 464.4 million (about US$642 program. The last Article IV consultation was concluded on

### cr1901 - 464.4 million (about US$642 program. The last Article IV consultation was concluded on

### Safeguards Assessments
- The Bank of the Central African States (BEAC) is the regional central bank of CEMAC.
- A full safeguards assessments (SA) under the periodic four-year cycle for regional central banks was completed in August 2017.
- The assessment noted:
  - Positive steps taken by the BEAC to complete amendments to its Charter to strengthen governance provisions.
  - Plans to enhance financial reporting transparency through full transition to the international financial reporting standards (IFRS) beginning with the 2018 financial statements.
- The BEAC is implementing remaining recommendations of the 2017 safeguards assessment, including:
  - Alignment of its secondary legal instruments (including by-laws and codes of ethics and deontology) with the governance-focused amendments of its Charter adopted in 2017.
  - Full transitioning to IFRS, beginning with the 2018 financial statements.
- Staff will maintain close engagement with the BEAC as it embarks on operational implementation of governance reforms and transition to IFRS.
- Footnote: In light of its progress on governance reforms and adoption of IFRS as its accounting framework, the BEAC is no longer subject to annual monitoring of IMF safeguards “rolling measures” established in 2009.

### Exchange System
- CEMAC’s currency is the CFA franc.
- From 1948 to 1999, it was pegged to the French franc.
- Since the euro was introduced in 1999, it has been pegged to the euro at the rate of CFAF 655.957 per euro.

### Article IV Consultation discussions
- Following an Executive Board decision in January 2006, discussions with monetary unions have been formalized and are part of the Article IV consultation process with member countries.
- The consultation discussions reported are in relation with Article IV consultations with the six CEMAC member countries.
- The Executive Board concluded the last Article IV consultation discussion on common policies of CEMAC members on December 15, 2017.
- Such Article IV consultation discussions are held on a 12-month cycle.

### FSAP Participation and ROSCs
- The first regional Financial Sector Assessment Program (FSAP) was carried out during January–March 2006.
- Regional Reports on Observance of Standards and Codes (ROSCs) were done in June 2006 in:
  - Monetary and financial policy transparency.
  - Banking supervision.
  - Anti-money laundering and combating the financing of terrorism (AML/CFT).
- A FSAP update took place during November 2014–January 2015.

### Technical Assistance to the Bank of the Central African States, 2011–17
- November 2017: MCM TA on the BEAC framework for lender of last resort/emergency assistance facility
- October 2017: MCM TA on Reserve Management.
- June 2017: MCM TA on Reserve Management.
- June 2017: MCM TA on the BEAC framework for lender of last resort/emergency assistance facility.
- May 2017: MCM TA on BEAC Central Banking Operations, Monetary Policy Design, and Implementation.
- April 2017: FAD participation on in a CEMAC workshop on Parliament oversight.
- April 2016: MCM workshop on banking supervision to the COBAC.
- February 2016: MCM technical assistance (TA) on IFRS implementation.
- November 2015: LEG TA on BEAC Charter reform.
- June 2015: MCM TA on Liquidity forecasting and management.
- June 2015: MCM TA on central bank accounting.
- June 2015: MCM TA (AFRITAC Central) on liability management.
- April 2015: MCM TA on bank supervision and regulations and financial stability.
- November–December 2014: MCM TA bank supervision and regulations.
- October 2014: MCM TA risk-based supervision.
- May 2014: MCM TA liability management.
- April 2014: MCM TA debt management.
- March 2014: MCM TA financial soundness indicators.
- December 2013: MCM TA sub-regional course on macroeconomic management and debt issues.
- July 2013: MCM TA on prudential framework update.
- May 2013: MCM TA on central bank governance.
- March–April 2012: MCM advisory mission on central bank accounting, monetary operations, and stress testing.
- March 2012: STA TA on development and improvement of monetary and financial statistics and financial soundness indicators.
- October 2011: MCM resident advisor assigned at the COBAC.
- July 2011: MCM advisory mission on monetary policy design and implementation.
- May 2011: MCM resident general advisor assigned to the Governor of the BEAC on governance, accounting, and internal controls.

### Technical Assistance to the Central African Economic and Monetary Community Commission, 2011–16
- August 2017: FAD TA on CEMAC PFM directives implementation.
- January 2016: FAD support to CEMAC public financial management (PFM) directives implementation.
- November 2015: FAD public financial management advisor.
- November 2015: FAD customs administration CEMAC regional workshop.
- November 2014: FAD customs administration CEMAC regional workshop.
- June 2014: FAD support to CEMAC directives implementation.
- January 2014: FAD CEMAC customs administration workshop.
- March–June 2013: FAD TA missions on CEMAC’s PFM directives implementation.
- May, June, and November 2012: TA missions on CEMAC’s PFM directives implementation.
- May 2012: CEMAC customs administration workshop.
- April 2012: FAD and STA participation in the CEMAC workshop on the design of an implementation strategy for new PFM directives and implementation of the GFSM 2001 directive.
- March 2012: FAD TA on the development of technical guides.
- March 2012: STA TA on the preparation of guidelines for the Tableau des opérations financières de l’État (TOFE) directive.
- July 2011: FAD TA on assessment of CEMAC’s technical assistance needs.
- February and April 2011: FAD and STA participation in workshops on the design of new PFM directives and the draft TOFE.
- February 2011: STA participation in the CEMAC workshop on the analysis of macroeconomic aggregates.

### Statement by Mr. Mohamed-Lemine Raghani and Mr. Regis N'Sonde — Executive Board Meeting, December 17, 2018
- Authorities thanked the Executive Board, Management and Staff for continued support since adoption in December 2016 of the regional strategy to exit the crisis.
- Security context: continuous terrorist threats in three of the six countries.
- Four countries are implementing Fund-supported programs; two countries have yet to formally benefit (Equatorial Guinea and Republic of Congo), which account for 15% and 11% of CEMAC’s GDP respectively.
- Extraordinary Summit in N’Djamena (October) produced a public Resolution renewing commitment to an orderly, concerted and solidary exit from crisis.
- Regional institutions (BEAC, COBAC, CEMAC Commission) provided policy assurances and support to the strategy.
- Regional authorities agree with staff’s assessment of situation, outlook, and significant risks; call on the Fund and development partners to strengthen support.

### Recent Developments and Outlook
- Oil GDP rebounded more than expected in the region in 2018.
- Overall growth is projected at 2.2 percent this year.
- Inflation is under control, below 2 percent at end-year.
- Higher oil exports improved the external current account and overall balance of payments, which recorded significantly lower deficits.
- Large shortfalls in external financing, notably due to delays in adoption of Fund-supported programs for Congo and Equatorial Guinea, have left net foreign reserves at levels below expectations.
- Fiscal performance:
  - Four countries implementing Fund-supported programs and one under staff-monitored program (SMP) have continued satisfactory performance.
  - Next program reviews for Cameroon, Gabon, Central African Republic and Chad expected to be completed in December 2018.
  - Equatorial Guinea’s fiscal performance assessed positively under the second review of its SMP.
  - The region as a whole is expected to meet targets on non-oil fiscal balances albeit some difficulties in boosting non-oil revenue.
  - Encouraging progress in net arrears repayments by all CEMAC countries.
- Monetary policy and supervision:
  - BEAC tightened policy stance by raising the policy rate last October.
  - BEAC and COBAC strengthened enforcement of foreign exchange regulations, including sanctions on non-complying banks.
  - Banks reduced foreign assets positions and surrendered them to the BEAC.
  - BEAC emphasizes need to enforce repatriation of foreign exchange export proceeds and plans to submit a draft on stronger regulations to the Central African Monetary Union’s Ministerial Committee by year-end.
- Banking sector:
  - Non-performing loans (NPLs) have risen and hampered banks’ liquidity positions.
  - Banks are generally well capitalized except for a few under close supervision; two banks have had licenses withdrawn or requested to withdraw by COBAC.
  - Banks in the region are generally profitable.
- Medium-term prospects:
  - Expected gradually recovery of non-oil growth.
  - Rapid decline in public debt-to -GDP ratios.
  - Narrowing of current account deficits.
  - Gradual reserve accumulation up to 4 months of import coverage by 2020.
- Risks that could jeopardize strategy:
  - Recent oil price developments, if they persist.
  - Further delays in approval of Fund-supported programs for Congo and Equatorial Guinea.
  - Protracted security challenges.
- Authorities emphasize need for timely conclusion of financial arrangements for Congo and Equatorial Guinea and flexibility in program design to accommodate adverse oil price movements and heightened security tensions.

### Ensuring the Success of the Regional Strategy
- Agreed priorities between authorities and staff:
  - (i) Country members to implement thoroughly their fiscal consolidation plans.
  - (ii) BEAC to continue monitoring liquidity conditions and mop up excess liquidity as needed while strictly enforcing enhanced foreign exchange regulations with the overarching objective of rebuilding reserves buffers.
  - (iii) COBAC to finalize and implement its 2019-21 strategic plan focused on risk-based supervision while also revising AML/CFT regulation.
  - (iv) The CEMAC Commission, along with national authorities, to deepen and improve coordination of efforts to implement the CEMAC Economic and Financial Reform Program (PREF).
- Fiscal consolidation measures emphasized:
  - Improve quality of adjustment with greater emphasis on strengthening non-oil revenue mobilization.
  - Curb tax exemptions and strengthen tax and customs administrations.
  - Rationalize fuel subsidies.
  - Save oil revenue windfalls to rebuild buffers or reduce domestic arrears to reinvigorate activity and reduce NPLs.
  - BEAC and COBAC to monitor countries’ arrears repayment plans and assess macroeconomic impact.
  - Ongoing amendment to BEAC’s Charter to tailor government securities used as collateral for monetary operations or reduce central bank refinancing as required by the level of reserves.
- Monetary policy actions:
  - BEAC ready to tighten further policy stance if needed.
  - Finalize modernization of monetary policy operational framework and adopt a new accounting system for recording monetary transactions by end-year.
  - Implement a new bank sanctions framework for monetary operations and for non-compliance with reserve requirements.
  - Deepen the interbank market by reducing excess liquidity, developing the trading platform, encouraging repurchase agreements, and widening the interest rate corridor.
- Financial sector reforms:
  - SG-COBAC’s strategic plan to strengthen banking supervision framework, promote timely resolution of troubled banks, encourage banks to implement NPL reduction plans, support enforcement of enhanced foreign exchange regulations and new microfinance prudential rules, and prepare transition to Basel II/III and IFRS.
  - Fund advice welcomed on guiding NPL resolution processes, minimizing costs of protracted resolution decisions, ensuring expertise and independence of COBAC members, and enhancing SG-COBAC’s effectiveness through enhanced human capacity.
- Structural and governance reforms:
  - Promote economic diversification and foster regional integration.
  - Merge two regional stock markets with physical unification planned for end-2018 and alignment of procedures expected for mid-2019.
  - Improve functioning of public securities markets and the secondary market.
  - Strengthen governance: more transparency, full disclosures, internal and external audits of the public sector, and full implementation of system of checks and balances in CEMAC legislation.
  - CEMAC Commission to create a unit to monitor and report progress and weaknesses in implementation of CEMAC directives on PFM.
  - PREF measures include strict compliance of extractive industry contracts with regional transparency directives, improving business environment, and strengthening regional convergence criteria.
- Monitoring:
  - Agreed principle to hold semi-annual tripartite consultations involving national authorities, regional institutions and the IMF to assess progress at regional and national levels.
  - Authorities request Fund help to harmonize tax frameworks and strengthen regional surveillance framework through increased technical support.

### Conclusion
- The CEMAC region is at a crossroads: progress has been made in advancing the regional strategy to exit the crisis, but further efforts are needed to finalize negotiations for Fund-supported programs for two remaining countries.
- Success depends on steadfast implementation of the exit strategy by national and regional authorities and timely, adequate support from external partners, notably the Fund and other multilateral and bilateral creditors.
- Authorities call on the international financial community to provide needed financing assurances and step up financial and technical assistance.
- Authorities request the Board’s support for their requests.

*Source: cr1901 PDF content provided*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/cr1901.pdf_