## 1. Selected Social Indicators ## Source details **Canonical URL:** [1. Selected Social Indicators](https://www.imf.org/-/media/files/publications/cr/2021/english/1caeea2021002.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1caeea2021002.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1caeea2021002.pdf.json) --- ### Background and key vulnerabilities - The pandemic could have a long-lasting impact on CEMAC’s growth potential, which is already curtailed by structural, governance, and transparency issues. - A deadlier second wave has been tearing through the region since December; vaccination campaigns have started but uptake may be slow and distribution difficult because of logistical, infrastructure, supply, and financing challenges. - The economic shock is undoing progress from the first generation of Fund-supported programs and drastically weakened the external position. - Some countries face debt sustainability issues aggravated by the COVID-19 shock. - Social conditions remain dire, with elevated poverty levels and a simmering security crisis in Chad, parts of Cameroon, and the Central African Republic. - The Fund supported the region’s urgent balance of payments needs during the pandemic with emergency assistance to Cameroon, the Central African Republic, Chad, and Gabon, totaling SDR 653 million. Chad and the Central African Republic benefited from debt relief under the CCRT (SDR 23.1 million). ### Recent developments (2020–early 2021) - Growth and activity: - Overall GDP shrank by 2.6 percent in 2020. - Non-oil GDP receded by 2.8 percent in 2020. - Oil GDP decreased by 2.1 percent in 2020. - Congo contracted by 7.8 percent in 2020. - Equatorial Guinea contracted by 4.9 percent in 2020. - Prices: - Inflation remained contained at 2.7 percent (below the regional convergence criterion). - Fiscal and public debt developments: - Overall fiscal deficit (including grants) worsened to -2.1 percent of GDP in 2020 from -0.3 percent of GDP in 2019. - The deterioration was primarily due to lower revenues (1.9 percent of GDP). - Oil revenue declined sharply, by about 30 percent from 2019. - Overall public debt increased by 5.5 percentage points of GDP to 58.1 percent of GDP at end-2020. - External sector and reserves: - The current account is estimated to have deteriorated by 1.7 percent of GDP from 2019 to -5.2 percent of GDP in 2020. - Balance on capital and financial accounts deteriorated by 1.6 percent of GDP due to lower direct investment and larger capital outflows, offset by larger exceptional financing. - The NFA target at end-December 2020 was missed by CFAF 185 billion (around €280 million). - This shortfall is traced to much lower net financing than expected (by close to CFAF 900 billion in other long- and short-term investments net) while the current account deficit was lower than expected by close to CFAF 600 billion. - Reserves rebounded since end-March 2021 but were projected to miss the previous end-June 2021 NFA objective by €0.4-0.5 billion. - Monetary and financial sector developments: - Broad money grew at 11.1 percent in 2020. - Excess liquidity declined from mid-2020 reflecting net external financial outflows. - Demand for BEAC’s weekly liquidity injections increased sharply, raising interest rates for BEAC liquidity. - Credit to the private sector was flat in 2020 but began picking up in early 2021. - With temporary relaxation of prudential requirements since mid-2020: - Reported NPL ratio declined slightly to 19 percent in 2020 Q4. - COVID-19 crisis-related impaired loans classified separately are estimated at 4 percent of total loans. - Banks’ exposure to sovereign risk increased to 27 percent of total banking sector assets in 2020 (from 16 percent at end-2018). - The outstanding stock of government securities increased by 75 percent from end-2019 to March 2021, and banks own 95 percent of these securities. ### Medium-term outlook and projections (baseline) - Growth and inflation: - Overall real GDP growth is expected to recover to 2.6 percent in 2021. - Non-oil activity is expected to rebound by 3.3 percent in 2021. - Inflation is expected to remain below the 3 percent convergence criterion. - Fiscal and debt projections: - The overall fiscal deficit (excluding grants) is projected to narrow by 0.9 percent of GDP to 2.4 percent of GDP in 2021. - CEMAC’s total public debt ratio is projected to decrease by 2.7 percentage point of GDP to 55.4 percent. - The outlook foresees a gradual repayment of domestic government arrears as per agreed strategies. - External sector projections: - The external current account deficit would improve to 3.1 percent of GDP in 2021, mostly due to higher oil exports (4. 3 percent of GDP). - Imports are projected to rebound by 1.6 percentage point of GDP. - External gross reserves are projected to recover to the equivalent of 3.4 months of imports at end-2021 on the back of projected fiscal consolidation and higher oil prices. (This projection excludes the envisaged new SDR allocation, which could add the equivalent of 0.5 months of imports to gross reserves if fully saved.) - The cumulative overall balance of payments deficit would amount to €2.1 billion over 2021–23. - Projected balance of payments financing (including successor Fund-supported programs and disbursements from IFIs and bilateral partners) is projected at €4.8 billion over 2021–23. - External financing should be concessional or grants for low-income members, and debt relief should materialize where needed to avoid deterioration in debt sustainability. ### Key statistics and targets (exact values from source) - Real GDP: contracted 2.6 percent in 2020; forecasted 2.6 percent growth in 2021. - Non-oil GDP change in 2020: -2.8 percent. - Oil GDP change in 2020: -2.1 percent. - Inflation: 2.7 percent in 2020. - Overall fiscal deficit (including grants): -2.1 percent of GDP in 2020. - Revenue shortfall contribution: 1.9 percent of GDP. - Oil revenue decline: about 30 percent from 2019. - Public debt: 58.1 percent of GDP at end-2020; projected 55.4 percent in 2021 (decrease by 2.7 percentage point). - Current account: -5.2 percent of GDP in 2020; projected -3.1 percent of GDP in 2021. - NFA shortfall at end-December 2020: CFAF 185 billion (around €280 million). - Reserves projection: 3.4 months of imports at end-2021; SDR allocation could add 0.5 months of imports if fully saved. - Cumulative balance of payments deficit: €2.1 billion over 2021–23. - Projected balance of payments financing: €4.8 billion over 2021–23. ### Risks to the outlook - Downside risks: - Deterioration in the security situation (e.g., Central African Republic, Chad). - Social discontent and political instability. - Another COVID-19 wave and slower vaccination uptake delaying the recovery. - Difficulties in raising adequate external support, including planned Eurobond issuances, forcing larger spending cuts affecting priority social expenditure. - Prolonged debt restructuring negotiations delaying new IMF-supported programs. - Materialization of these risks would likely result in lower external reserves, higher recourse to domestic financing, and increased financial sector risks, including elevated capacity-to-repay risks to the Fund. - Upside risks: - Higher international oil prices. - Effective implementation of foreign exchange regulation for extractive sectors. - A possible new general SDR allocation. ### Implementation of the regional strategy and policy recommendations - Overall strategic aim: stronger coordinated commitment to reforms to prepare for recovery; accelerate structural, transparency, and governance reforms to support diversification, private sector growth, and regional integration. - Monetary policy: - Staff advised that BEAC consider a measured and gradual tightening of monetary conditions to support the recovery in external reserves. - Fiscal policy: - Fiscal policy should bolster external sustainability while prioritizing key health and social needs, including vaccine rollout and support for the most vulnerable. - Fiscal consolidation should aim to significantly reduce public debt ratios over the medium term while cushioning the pandemic’s long-term effects on households and firms and financing priority social spending and growth-enhancing investments. - Staff-level agreements on possible new Fund-supported programs include strategies: - develop social safety nets in Chad, - a floor on social protection spending in Gabon, - revised budget law in Cameroon envisaging higher COVID-19 related spending and capital spending than the initial budget. - Anchoring policy in medium-term frameworks in line with staff projections—a primary fiscal surplus of 1 percent of GDP on average by 2023—would help balance short-term support with medium-term consolidation and limit debt vulnerabilities. - Structural reforms: - Implement a decisive acceleration of structural, transparency, and governance reforms more forcefully and ambitiously than in the past. - A coordinated regional strategy is needed to address reform bottlenecks essential to boost private sector growth, economic diversification, and regional integration. - Financial sector: - Continue addressing financial sector weaknesses and preserve financial stability as CEMAC exits the crisis, given increased bank exposure to sovereign risk and elevated NPLs when relaxation of prudential requirements is reversed. ### Monetary operations, liquidity management, and FX regulation (selected operational points) - BEAC policy stance and operations: - Staff recommended BEAC stand ready to tighten monetary policy, including through a modest increase in its policy rate, conditional on developments in international reserves. - Staff advised BEAC to combine liquidity absorption operations (at fixed rate and full allotment) with 12-month liquidity injections, and gradually phase out current weekly injections. - Staff suggested BEAC signal the change early and start implementing the new policy by end-August 2021, when the first of the existing long-term liquidity injections matures. - BEAC agreed changes could improve transmission and targeted system readiness by the time the SDR allocation could become effective. - Government securities purchase program: - Program envelope: CFAF 600 billion. - As of early May, Cameroon, Chad, Congo, and Gabon met conditions for participating; BEAC has bought CFAF 188 billion (face value). - Staff and authorities agreed BEAC should not extend further its purchase program after expiration in September 2021. - Treasury Single Accounts (TSAs): - BEAC expects the new IT platform for managing TSAs to be fully operational by November 2021. - Staff encouraged coordination to identify accounts to be moved to TSAs, aiming to become fully operational possibly by end-2021. - FX regulation and extractive sectors: - BEAC aims to implement the FX regulation for extractive sectors by end-2021. - BEAC is considering authorizing extractive sector foreign currency accounts in CEMAC protected against abusive seizure and with low operation costs. - Final report from external consultants expected in mid-2021 to finalize adaptations, including determination of the share of export receipts to be repatriated. - BEAC is pushing for speedy repatriation of funds saved by companies to cover oil fields rehabilitation costs, which could be transferred into foreign currency deposits at BEAC in the near future. ### Financial sector policies and reforms (selected) - Temporary relaxation of prudential regulations: - Staff encouraged SG-COBAC to develop and timely communicate a strategy and a transparent process to end temporary relaxation of prudential regulations by end-2021, barring adverse developments. - At end-2020, COVID-impacted loans reportedly amounted to around 5 percent of gross loans in CEMAC, of which about 60 percent were already restructured. - SG-COBAC advised to require banks to comply fully with asset classification and provisioning from early 2022; undercapitalized banks to submit credible recapitalization plans. - COBAC suspended dividend distribution during 2020–22; staff advised allowing dividends on a case-by-case basis only when banks remain fully capitalized and regulatory compliant after all COVID-impacted loan losses accounted for. - Regulatory compliance and bank resolution: - At end-2020, 17 banks out of 50 (representing half of total banking assets) comply with all prudential ratios based on regulatory capital. - At end-December 2020, 12 banks out of 50 had solvency ratios lower than 9.5 percent (the current regulatory minimum). - Staff suggested a dashboard to track governance and risk management compliance and starting to apply financial sanctions. - Progress on resolving insolvent banks noted but COBAC urged to apply the resolution framework without unwarranted repeated delays. - Sovereign-bank nexus measures: - Banks’ exposure to sovereign in March 2021 amounted to more than a quarter of banking assets. - Staff recommendations include: - Maintain non-zero risk weights on government securities based on regional convergence criteria. - Specify conditions for zero-risk weight issuances (e.g., use of escrow accounts). - Broaden investor base for government securities towards nonbanks and accelerate reforms to deepen the secondary market. - Enforce primary dealers’ requirement to sell at least 30 percent of holdings within 6 months. - Increase transparency by publishing issuance calendars and auction results and issuing on multiple days to avoid crowding out smaller issuers. - Financial inclusion and systems: - BEAC launched prequalification for credit bureaus in April 2021; bidding to select a first credit bureau before end-2021. - Projects on credit and corporate registries delayed by travel restrictions but expected to be completed in 2021. - BEAC completed diagnostic for a regional financial inclusion strategy; first draft expected by end-2021. ### NFA targets, corrective actions, and staff appraisal - NFA targets (exact values): - €2.8 billion at end-June 2021. - €3.2 billion at end-December 2021. - Staff appraisal and corrective measures: - Staff notes BEAC missed the end-December 2020 NFA policy assurance, largely due to lower external financing. - Staff considers BEAC is taking satisfactory corrective measures: reversing easing of monetary conditions and supporting reserve accumulation. - Corrective actions include adapting liquidity management to re-introduce liquidity absorption and ending the public securities purchase program in September 2021. - Staff supports updated policy assurance to bring NFA to €2.8 billion and €3.2 billion at end-June 2021 and end-December 2021, respectively. - Meeting the policy assurance on NFAs is critical to allow continuation of (or approval of new) financial support as part of Fund-supported programs. ### Priority reforms for higher and more inclusive growth (Annex I — selected) - Executive summary: - PREF defines reforms around five pillars to foster diversified, inclusive, private-sector-led growth and improved public-sector governance. - The note identifies priority reforms to underpin second-generation IMF/WBG-supported programs. - Key regional macro facts (as reported): - Economic recession in 2020: 2.1 percent (reported). - Growth in 2019: about 2.1 percent. - Increase in the regional budget deficit in 2020: 4.1 percent of GDP. - Increase in the regional external deficit in 2020: 5.9 percent of GDP. - Tripartite consultation held on May 21, 2021. - Selected reform actions and timeframes (preserving institutions and timeframes as in source): - Public financial management: - Hiring public finance specialists — CEMAC Commission — End-2021. - Evaluation publication of regional directives — CEMAC Commission — Every semester starting January 2022. - Operationalize TSAs and IT system — Implement new IT system for TSA operations — 2021 Q3; Operationalize TSAs for all CEMAC countries — End-2021/mid-2022. - Ensure adequate financing of social sectors — Ministries of Finance / Social Ministries — 12-24 months. - Management of PIP, SOEs, business climate, tax and customs administration, regional market and agriculture, financial sector development and inclusion, human capital, education, social protection — specific steps with timeframes from Immediate up to 36 months as listed in Annex I. - Tripartite meeting recommendations include commitment of highest authorities to renew reform dynamics, vaccine access via COVAX, implement budgetary policies to reduce public debt, and mobilize pledged financing for priority infrastructure projects. - Procedural note: participants agreed to hold the next tripartite meeting during the fourth quarter of 2021. ### Appendix I: follow-up to the Letter of Support (selected highlights) - 2020 outcomes: - Real GDP: recorded a 2.6 percent recession in 2020. - Fiscal balances: deteriorated to a deficit of 3.3 percent on average (December 2020 summary) and elsewhere noted increase to a fiscal deficit of 2.1 percent of GDP owing mainly to lower oil revenues. - External current account deficit: widened to 5.2 percent of GDP in 2020. - Inflation: 1.7 percent (end-of-period), below the convergence criterion of 3 percent. - External reserves: rose above 4 months of imports in first half of 2020 then declined during the pandemic and began to recover since end-March 2021. - BEAC monetary and liquidity measures (selected values and dates): - Policy rate cut by 25bp to 3.25 percent. - Longer maturity injections for CFAF 150 billion and weekly liquidity injections for CFAF 250 billion. - Purchase program of public securities totaling FCFA 600 billion (stop when it expires end-August 2021). - Proposal to implement by end-August 2021 a one-month deposit facility with a deposit rate indexed to the policy rate. - NFA and external financing assumptions: - Projected NFA: €2.8 billion at end-June 2021 and €3.2 billion at end-December 2021. - External financing assumptions underlying projections: €275 million in first half of 2021 and €1,125 million for whole of 2021 (including exceptional financing but excluding IMF financing). ### Conclusion (selected) - Despite the pandemic, the region has made progress in implementing the regional strategy to strengthen internal and external stability. - All policy commitments in the December 2020 Follow up Letter of Support were implemented except the one on NFAs. - Authorities reiterated policy commitments in support of second-phase reform programs as stated in the updated Follow up Letter of June 2021. - They are starting to withdraw some pandemic-related support measures and policies as the recovery is underway. - Authorities look forward to Fund support to make further inroads towards achieving macroeconomic stability and meeting the reserve accumulation objectives under the regional strategy. *Source: 1caeea2021002 - 1. Selected Social Indicators (CEMAC), IMF — https://www.imf.org/-/media/files/publications/cr/2021/english/1caeea2021002.pdf* ### 1. Selected Social Indicators ______________________________________________________________________________ 5 ### 1. Selected Social Indicators ### Background and key vulnerabilities - The pandemic could have a long-lasting impact on CEMAC’s growth potential, which is already curtailed by structural, governance, and transparency issues. - A deadlier second wave has been tearing through the region since December; vaccination campaigns have started but uptake may be slow and distribution difficult because of logistical, infrastructure, supply, and financing challenges. - The economic shock is undoing progress from the first generation of Fund-supported programs and drastically weakened the external position. - Some countries face debt sustainability issues aggravated by the COVID-19 shock. - Social conditions remain dire, with elevated poverty levels and a simmering security crisis in Chad, parts of Cameroon, and the Central African Republic. - The Fund supported the region’s urgent balance of payments needs during the pandemic with emergency assistance to Cameroon, the Central African Republic, Chad, and Gabon, totaling SDR 653 million. Chad and the Central African Republic benefited from debt relief under the CCRT (SDR 23.1 million). ### Recent developments (2020–early 2021) - CEMAC experienced its worst recession in 20 years in 2020. - Overall GDP shrank by 2.6 percent in 2020. - Non-oil GDP receded by 2.8 percent in 2020. - Oil GDP decreased by 2.1 percent in 2020. - Congo and Equatorial Guinea contracted by 7.8 percent and 4.9 percent, respectively. - Inflation remained contained at 2.7 percent (below the regional convergence criterion). - Fiscal and public debt developments: - Overall fiscal deficit (including grants) worsened to -2.1 percent of GDP in 2020 from -0.3 percent of GDP in 2019. - The deterioration was primarily due to lower revenues (1.9 percent of GDP). - Oil revenue declined sharply, by about 30 percent from 2019. - Overall public debt increased by 5.5 percentage points of GDP to 58.1 percent of GDP at end-2020. - External sector and reserves: - The current account is estimated to have deteriorated by 1.7 percent of GDP from 2019 to -5.2 percent of GDP in 2020. - Balance on capital and financial accounts deteriorated by 1.6 percent of GDP due to lower direct investment and larger capital outflows, offset by larger exceptional financing. - The NFA target at end-December 2020 was missed by CFAF 185 billion (around €280 million). - This shortfall is traced to much lower net financing than expected (by close to CFAF 900 billion in other long- and short-term investments net) while the current account deficit was lower than expected by close to CFAF 600 billion. - Reserves rebounded since end-March 2021 but were projected to miss the previous end-June 2021 NFA objective by €0.4-0.5 billion. - Monetary and financial sector developments: - Broad money grew strongly at 11.1 percent in 2020. - Excess liquidity declined from mid-2020 reflecting net external financial outflows. - Demand for BEAC’s weekly liquidity injections increased sharply, raising interest rates for BEAC liquidity. - Credit to the private sector was flat in 2020 but began picking up in early 2021. - With temporary relaxation of prudential requirements since mid-2020: - Reported NPL ratio declined slightly to 19 percent in 2020 Q4. - COVID-19 crisis-related impaired loans classified separately are estimated at 4 percent of total loans. - Banks’ exposure to sovereign risk increased sharply in 2020, now accounting for 27 percent of total banking sector assets, up from 16 percent at end-2018. - The outstanding stock of government securities increased by 75 percent from end-2019 to March 2021, and banks own 95 percent of these securities. ### Medium-term outlook and projections (baseline) - Growth and inflation: - Overall real GDP growth is expected to recover to 2.6 percent in 2021. - Non-oil activity is expected to rebound by 3.3 percent in 2021. - Inflation is expected to remain below the 3 percent convergence criterion. - Fiscal and debt projections: - The overall fiscal deficit (excluding grants) is projected to narrow by 0.9 percent of GDP to 2.4 percent of GDP in 2021. - CEMAC’s total public debt ratio is projected to decrease by 2.7 percentage point of GDP to 55.4 percent. - The outlook foresees a gradual repayment of domestic government arrears as per agreed strategies. - External sector projections: - The external current account deficit would improve to 3.1 percent of GDP in 2021, mostly due to higher oil exports (4. 3 percent of GDP). - Imports are projected to rebound by 1.6 percentage point of GDP. - External gross reserves are projected to recover to the equivalent of 3.4 months of imports at end-2021 on the back of projected fiscal consolidation and higher oil prices. (This projection excludes the envisaged new SDR allocation, which could add the equivalent of 0.5 months of imports to gross reserves if fully saved.) - The cumulative overall balance of payments deficit would amount to €2.1 billion over 2021–23. - Projected balance of payments financing (including successor Fund-supported programs and disbursements from IFIs and bilateral partners) is projected at €4.8 billion over 2021–23. External financing should be concessional or grants for low-income members, and debt relief should materialize where needed to avoid deterioration in debt sustainability. ### Risks to the outlook - Considerable uncertainty and significant downside risks include: - Deterioration in the security situation (e.g., Central African Republic, Chad). - Social discontent and political instability. - Another COVID-19 wave and slower vaccination uptake delaying the recovery. - Difficulties in raising adequate external support, including planned Eurobond issuances, forcing larger spending cuts affecting priority social expenditure. - Prolonged debt restructuring negotiations delaying new IMF-supported programs. - Materialization of these risks would likely result in lower external reserves, higher recourse to domestic financing, and increased financial sector risks, including elevated capacity-to-repay risks to the Fund. - Upside risks: - Higher international oil prices. - Effective implementation of foreign exchange regulation for extractive sectors. - A possible new general SDR allocation. ### Implementation of the regional strategy and policy recommendations - Overall strategic aim: stronger coordinated commitment to reforms to prepare for recovery; accelerate structural, transparency, and governance reforms to support diversification, private sector growth, and regional integration. - Monetary policy: - Staff advised that BEAC consider a measured and gradual tightening of monetary conditions to support the recovery in external reserves. - Fiscal policy: - Fiscal policy should bolster external sustainability while prioritizing key health and social needs, including vaccine rollout and support for the most vulnerable. - Fiscal consolidation should aim to significantly reduce public debt ratios over the medium term while cushioning the pandemic’s long-term effects on households and firms and financing priority social spending and growth-enhancing investments. - Staff-level agreements on possible new Fund-supported programs include strategies: - develop social safety nets in Chad, - a floor on social protection spending in Gabon, - revised budget law in Cameroon envisaging higher COVID-19 related spending and capital spending than the initial budget. - Anchoring policy in medium-term frameworks in line with staff projections—a primary fiscal surplus of 1 percent of GDP on average by 2023—would help balance short-term support with medium-term consolidation and limit debt vulnerabilities. - Structural reforms: - Implement a decisive acceleration of structural, transparency, and governance reforms more forcefully and ambitiously than in the past. - A coordinated regional strategy is needed to address reform bottlenecks essential to boost private sector growth, economic diversification, and regional integration. - Financial sector: - Continue addressing financial sector weaknesses and preserve financial stability as CEMAC exits the crisis, given increased bank exposure to sovereign risk and elevated NPLs when relaxation of prudential requirements is reversed. *Source: 1caeea2021002 - 1. Selected Social Indicators (CEMAC), IMF — https://www.imf.org/-/media/files/publications/cr/2021/english/1caeea2021002.pdf* ### 12. Staff emphasized that domestic revenue mobilization efforts need to become much ### 12. Staff emphasized that domestic revenue mobilization efforts need to become much more effective to preserve essential expenditure and support external stability ### Domestic revenue mobilization and transparency - Priority to deliver significant and quick progress on non-oil revenue and broadening the tax base to: - insulate revenue from changes in oil prices, - substitute for uncertain donor support, - limit the bank-sovereign nexus. - Greater transparency in oil revenue would reduce leakages. - Staff-level agreement in Chad and Gabon includes provisions to save part of any potential upside in oil prices to incentivize non-oil revenue mobilization and accelerate buffer re-building. - Recommendations and institutional actions: - National authorities to streamline tax exemptions. - CEMAC Commission to support modernization of customs administration by promoting process reengineering in line with international standards, introducing automated solutions in goods clearing procedures, and adopting the Community tax procedures code. - Fully independent Supreme Audit Institutions, in line with regional directives, could help improve value-for-money and governance of capital investments by developing capacity for specialized audits of infrastructure projects, including audits of public procurement processes and contracts. ### Monetary policy stance and operations - Monetary policy should be geared at addressing the region’s external position, which remains very weak, despite the rebound in reserves observed since end-March. - Room for monetary policy to further support the recovery is limited without endangering the credibility and the stability of the exchange rate arrangement. - Staff recommended BEAC stand ready to tighten monetary policy, including through a modest increase in its policy rate, conditional on developments in international reserves. - Authorities noted the economy is still weak following the exceptional shock from the pandemic, that reserves were expected to decline to cushion this shock and that inflation remains below the regional convergence criteria; they agreed tightening would be necessary if external reserves were to markedly decline again following their recent rebound. - Liquidity management adjustments: - Banking sector context: structural liquidity surplus masking a segmented market—part (mainly foreign-owned) has accumulated a surplus while another is dependent on BEAC refinancing and has increased demand for refinancing. - Staff advised BEAC to combine operations aimed at liquidity absorption (at fixed rate and full allotment) together with 12-month liquidity injections, better suited to banks with structural recourse to BEAC refinancing to manage maturity differences. Current weekly injections would be gradually phased out. - Staff suggested BEAC signal the change early and start implementing the new policy by end-August 2021, when the first of the existing long-term liquidity injections matures. - Staff recommended BEAC monitor the impact on transmission and prepare an assessment by end-2021. - BEAC agreed changes could improve transmission of its policy rate to banks’ rates and that the system should be in place by the time the SDR allocation could become effective, given it will likely lead to an increase in banks’ excess liquidity. The BEAC Governor committed to support these changes at the next monetary policy committee meeting scheduled at end-June. - Government securities purchase program: - Staff and authorities agreed BEAC should not extend further its purchase program of government securities after expiration in September, even if the full envelope is not fully utilized. - Program envelope: CFAF 600 billion. - As of early May, four countries (Cameroon, Chad, Congo, and Gabon) have met the conditions for participating, and BEAC has bought CFAF 188 billion (face value). - Staff congratulated BEAC for refraining from extending any type of direct monetary financing to member states, per its charter. - Treasury Single Accounts (TSAs): - Progress welcomed; BEAC expects the new IT platform for managing TSAs to be fully operational by November 2021. - Staff encouraged coordination with national Treasuries to identify all accounts to be moved to the TSAs, to become fully operational possibly by end-2021. - Safeguards and BDEAC refinancing facility: - BEAC’s nonrenewable credit line of CFAF 90 billion to BDEAC is available to finance COVID-19 related well-identified and approved projects. - Payments to three CEMAC national treasuries did not comply with all conditions; internal review led to disciplinary actions for involved BEAC staff. - Staff encouraged BEAC to ensure future payments respect facility terms and offered assistance to strengthen internal controls if necessary. - Staff followed up with the three countries to highlight importance of independent audits for COVID-related expenses financed by BDEAC; an update safeguards assessment of BEAC would need to be conducted in late 2021. - Regional mechanisms for a possible new SDR allocation: - UMAC ministerial committee decided at its May 2021 meeting to use a mechanism similar to 2009: SDR would be deposited with BEAC, which would retrocede an equivalent amount in CFA francs to member countries if requested. - Possible use to be discussed case-by-case in Fund-supported program reviews and surveillance consultations; use must be consistent with regional policy objectives including regional reserves build-up, while taking into account possible additional urgent pandemic-related needs and domestic financing constraints. ### Enforcement of the foreign exchange regulation - BEAC continues to firmly enforce the foreign exchange (FX) regulation. - In April, it reminded banks and companies about documentation required for FX demands. - Some importers still complain about such requirements although processing times for transactions abroad have been reduced following implementation of the “e-transfer” platform in September 2020. - Monitoring repatriation of deposits held abroad remains difficult; staff advised BEAC to continue seeking countries’ cooperation to identify government agencies and public enterprises that might still have accounts abroad. - FX regulation for extractive sectors: - BEAC aims to implement the FX regulation for extractive sectors by end-2021. - After consultations in early 2021, BEAC is considering authorizing the extractive sector to hold foreign currency accounts in CEMAC protected against abusive seizure and with low operation costs. - Once final report from external consultants is received in mid-2021, BEAC expects to finalize adaptations, including determination of the share of export receipts to be repatriated. - BEAC is pushing for speedy repatriation of funds saved by companies to cover oil fields rehabilitation costs, which could be transferred into foreign currency deposits at BEAC in the near future. ### Financial sector policies and reforms - Temporary relaxation of prudential regulations: - Staff encouraged SG-COBAC to develop and timely communicate a strategy and a transparent process to end temporary relaxation of prudential regulations by end-2021, barring adverse developments. - At end-2020, COVID-impacted loans reportedly amounted to around 5 percent of gross loans in CEMAC, of which about 60 percent were already restructured. - Staff advised SG-COBAC to closely monitor lending and asset quality and conduct a bank-by-bank study to assess the possible impact of an exit strategy at end-2021. - The strategy would request banks to comply fully with regulations on asset classification and provisioning from early 2022, to restore financial transparency, and undercapitalized banks to submit credible recapitalization plans. - Pending results, a further release of capital buffers or a short phase-in period may be considered; timing could be revisited in case of new adverse developments. - Staff commended COBAC’s decision to suspend dividend distribution during 2020–22 and advised allowing dividends on a case-by-case basis only when the applying bank remains fully capitalized and regulatory compliant after all losses from COVID-impacted loans have been fully accounted for. - Staff encouraged SG-COBAC to cooperate with countries on domestic arrears clearance plans and request banks to update NPL resolution strategies in early 2022. - Authorities noted positive impact of temporary measures and that good bank performance in 2020 was partly due to tax rebates in some countries. SG-COBAC emphasized exit is a difficult policy challenge and temporary measures might have to be extended into 2022. - Regulatory compliance and bank resolution: - Progress slow partly due to the pandemic. - At end-2020, only 17 banks out of 50, representing half of total banking assets, comply with all prudential ratios based on regulatory capital. - Staff suggested a dashboard to track progress on governance and risk management compliance and suggested starting to apply financial sanctions. - Some progress noted with resolution of insolvent banks but need for COBAC to duly apply the resolution framework and avoid unwarranted repeated delays. Staff noted withdrawal of a bank’s license by a national authority in 2020 and encouraged lessons to be drawn for resolving small banks. - At end-December 2020, 12 banks out of 50 had solvency ratios lower than 9.5 percent, the current regulatory minimum. - SG-COBAC regulatory efforts and capacity constraints: - SG-COBAC adopted regulations on risk concentration and consumer protection in 2020 and is developing regulations for AML/CFT, Islamic banking, and enhancing FOGADAC to be adopted in 2021. - Nearly finalized a new rating system to prepare for risk-based prudential supervision. - Progress on Basel roadmap and new stress testing methodology limited; stress tests’ results with the new methodology are not expected before the first half of 2022. - Staff encouraged continued work on a revised short-term liquidity ratio and to implement the leverage ratio from mid-2021 and accelerate implementation of past technical assistance recommendations. - Resumption of onsite inspections and disciplinary sessions in 2021 Q1 was commended; SG-COBAC needs support to strengthen capacity, including larger staff and capability for virtual on-site inspections. Plans to enhance systems to improve quality of reported data with World Bank support were welcomed. - Sovereign-banks nexus and related measures: - Banks’ exposure to the sovereign in March 2021 amounted to more than a quarter of banking assets, a much higher level than in WAEMU. - Staff recommendations: - Urged SG-COBAC to (i) maintain non-zero risk weights on government securities based on regional convergence criteria; (ii) specify conditions for zero-risk weight on certain issuances, such as use of escrow accounts by the issuing country; and (iii) step up enforcement of regulatory compliance (concentration risks, and solvency and liquidity requirements), including with banks building significant sovereign exposures. - Advised BEAC, in collaboration with each CEMAC government, to (i) develop a strategy to broaden the investor base for government securities towards nonbanks and accelerate reforms to develop a deeper secondary market; and (ii) gradually enforce the existing requirement for primary dealers to sell at least 30 percent of their holdings within 6 months. - Called on BEAC and national authorities to increase transparency and predictability of market processes by publishing issuance calendars and announcements in advance and publishing auction results on the same day; staff also suggested issuing on several days of the week rather than just Wednesdays to avoid crowding out smaller issuers. - Financial inclusion and transparency initiatives: - BEAC launched in April a process to set the shortlist of interested applicants to become credit bureaus; it will launch the bidding process in summer 2021 to select a first credit bureau before end-2021. - Due to travel restrictions, projects on the credit and corporate registry are delayed but expected to be completed in 2021. - BEAC completed the diagnostic phase for a regional financial inclusion strategy. The first draft, including definition of basic financial services, is expected by end-2021. ### Enhancing the regional surveillance framework - Staff welcomed UMAC’s decision to maintain the regional convergence criteria and urged the Commission to emphasize adherence within a reasonable timeframe as essential for credibility of the regional surveillance framework. - A new sanction mechanism for breaches of regional surveillance rules is pending adoption by the Heads of States Conference; staff stressed the importance of strong implementation mechanisms. - Implementation of early warning tools of macroeconomic imbalances postponed to 2023; authorities argued implementation in the complicated current context could send negative signals about performance. - Staff stressed the difficult economic context highlights importance of monitoring such risks and will look forward to the first report for internal use planned for 2021 Q3. ### Reforms for higher and more inclusive growth - Regional strategy should aim to radically transform the region by urgently accelerating structural, transparency, and governance reforms to speed up growth. - Given limited fiscal space, prioritize budget-neutral governance and structural reforms. - Fund and World Bank staff presented conclusions and proposed incremental priority reforms at the Tripartite Meeting to guide second-generation Fund-supported programs (Annex I). - Staff encouraged the steering committee of PREF CEMAC to integrate proposed incremental reforms in the updated matrix to secure short-term gains while gathering momentum for more ambitious reforms. - Mission commended Commission for progress on transposition and implementation of regional PFM directives during the pandemic and will encourage Equatorial Guinea to accelerate transposition; Commission to follow up on implementation of the budget transparency directive. _Italic: IMF staff report excerpt (section 12–27) contained in the provided PDF content._ ### 28. At the CEMAC tripartite meeting in May 2021, there was broad support for the regional ### 1caeea2021002 - 28. At the CEMAC tripartite meeting in May 2021, there was broad support for the regional ### Regional strategy, vaccine rollout, and coordination - Broad support for the regional strategy and agreement to prioritize policies to bolster CEMAC’s external sustainability and lay the basis for a diversified, inclusive, and sustainable growth (Annex II). - National and regional authorities stressed the importance of rolling out the vaccination program as the only way to halt the impact of the pandemic. - Consensus that the second phase of the regional strategy should focus on growth and development, and that all member countries are expected to coordinate policies, including through Fund-supported programs. - Authorities supported recommendation to hold a Heads of States conference in the near future to discuss and firm up commitments at the highest level to a more ambitious structural reform program as the core of the regional strategy going forward. - IFIs and development partners stressed the importance of budget-neutral transparency and governance reforms with high growth potential. - Regional and national authorities flagged large financing needs and urged partners to provide financing for investment projects. ### BEAC and COBAC policy implementation and NFAs - BEAC and COBAC pursued implementation of policy commitments from the December 2020 Follow-up to the Letter of Support to the Recovery and Reform Programs but progress was negatively affected by the pandemic. - BEAC left monetary policy unchanged following moderate easing in 2020; however, with lower external reserves and higher demand for BEAC’s liquidity, monetary conditions tightened with the interbank rate increasing by about 70 bp since end-2020. - The NFAs target at end-December 2020, a policy assurance set in a context of unusually high uncertainty, was missed; the shortfall appeared largely due to lower external financing. - External reserves rebounded since end-March, supported by higher oil prices, tighter fiscal stances, and somewhat tighter monetary conditions. - Consultations with extractive sector companies on implementation of foreign exchange regulations progressed well; full implementation expected by end December 2021. - Operationalizing TSAs is expected to be finalized by end-2021. - SG-COBAC is finalizing a new risk rating system to prepare for modern risk-based prudential supervision but this lags original plans, partly due to capacity constraints. - Validation of cash-flow recovery plans of two banks to reduce dependence on BEAC refinancing within two years has been slow. ### Revised NFA targets and BEAC corrective actions - The attached follow-up letter describes revised NFA targets through December 2021 proposed as modified regional policy assurances and other policy intentions by regional institutions in support of national program objectives. - BEAC committed to maintain an appropriate monetary policy stance to support external reserves build-up, including through an increase in its policy rate if reserves were to fall markedly again. - Corrective actions by BEAC include: - (i) adapt liquidity management and re-introduce liquidity absorptions to reduce the excess liquidity, stimulate the interbank market, and improve monetary policy transmission; and - (ii) discontinue its public securities purchase program in September 2021. - BEAC will continue to work towards effective implementation of the foreign exchange regulation by finalizing adaptations for the extractive sector by end-2021. - Consistent with staff projections, the end-June 2021 and end-2021 proposed NFA targets covered by the updated policy assurance were set to €2.8 and €3.2 billion, respectively. - In the event of a deviation from the stated NFA accumulation targets which would not be assessed by staff as minor or of a temporary nature, the follow-up letter reiterates the commitment to identify and adopt any additional corrective measures deemed necessary at the national and/or regional policy levels, including a further tightening of monetary policy, to allow the continuation of (or approval of new) financial support as part of the Fund-supported programs with CEMAC members. ### Staff appraisal: macroeconomic outlook and vulnerabilities - The COVID-19 pandemic may have long-lasting effects on CEMAC’s growth potential, and fiscal and external adjustments will be slower than envisaged before the pandemic struck. - 2020 marked the region’s worst recession in 20 years; fiscal and external deficits worsened significantly; foreign reserves dropped sharply, and the external position deteriorated further than expected. - A moderate recovery is expected in 2021, but the outlook indicates that external financing needs, although revised significantly down from previous projections, remain large and that reserves will build up more slowly than pre-pandemic. - The region remains vulnerable to oil price shocks and a large share of the projected reserves accumulation in coming years would stem from borrowed funds such as successor Fund-supported programs and disbursements from IFIs and other bilateral partners. ### Policy recommendations and sequencing - Regional authorities should start preparations for gradually withdrawing the emergency measures taken at the start of the pandemic. - CEMAC members should adjust non-oil fiscal primary balances as targeted to help achieve the regional NFA targets, saving any upside in the near term from higher oil revenue. - Monetary policy would need to be quickly tightened if international reserves were to fall markedly. - BEAC’s program of public securities purchases should expire as scheduled by end-September 2021 to start reversing the easing of financial conditions. - COBAC should develop and timely communicate a strategy and a transparent process to exit the temporary easing of prudential regulations by end-2021 barring new adverse developments. - SG COBAC’s strategy should ensure that banks comply fully with regulations on asset classification and provisioning from early 2022 and do not distribute dividends until all losses from COVID-impacted loans have been fully accounted for. ### Liquidity management, FX regulation, and financial sector stability - BEAC should adapt its liquidity management to strengthen monetary policy transmission and stimulate the interbank market by resuming liquidity absorption operations combined with long-term liquidity injections. - Full operationalization of TSAs would help this strategy and national treasuries should work with BEAC to implement them. - Full implementation of the foreign exchange regulation by end-2021 should help support NFA accumulation; BEAC envisages allowing oil and mining companies to hold foreign currency accounts in CEMAC and is pushing for repatriation of funds saved by companies to cover oil fields rehabilitation costs. - BEAC expects to finalize adaptations to the extractive sector before the end of 2021, which should lead to higher repatriation of exports proceeds and support NFA accumulation. - Processing times for FX transfers outside the monetary zone have been reduced; FX surrendering levels are satisfactory, but repatriation compliance of deposits held by public entities abroad remains difficult to assess. - To limit risks to financial stability, regulatory compliance and bank resolution should be accelerated and risks from the sovereign-bank nexus contained: - Banks’ compliance with prudential standards remains weak and resolution of problem banks has been slow. - Tackling the high level of NPLs and achieving progress on arrears clearance plans remain key for financial stability. - Regional and national authorities should cooperate to limit further increase in banks’ sovereign exposure, particularly by diversifying the investor base for CEMAC public securities away from banks. - Progress towards risk-based prudential supervision, the Basel roadmap, the new stress testing methodology and establishing a framework for risk-based AML/CFT supervision should be accelerated. - COBAC should continue to improve data quality, enhance its process effectiveness, and find a way with BEAC to address longstanding under-staffing issues. ### Structural, transparency, and governance reforms - CEMAC must decisively focus on implementing structural, transparency, and governance reforms to lay the basis for a diversified, inclusive, and sustainable growth. - The second phase of the regional strategy, with three possible new Fund-supported programs already agreed at staff level, should address reform bottlenecks based on strong commitment at the highest policy making level. - Cost-neutral governance and transparency reforms, including fully and consistently implementing existing laws and empowering existing governance structures, should be prioritized to boost private sector growth and increase non-oil revenues. - Modernization of tax administrations along with efforts to broaden the tax base would help support external and debt sustainability. - The CEMAC Commission should continue to promote budget transparency through the effective implementation of all CEMAC PFM directives and strengthen the regional surveillance framework, including with an early warning system and a sanction scheme for non-compliant countries. *International Monetary Fund.* ### 37. Overall, staff: (i) notes that BEAC missed the policy assurance on the NFA provided in ### 37. Overall, staff: (i) notes that BEAC missed the policy assurance on the NFA provided in ### Findings on NFA and policy assurances - Staff notes that BEAC missed the policy assurance on the NFA provided in the December 2020 follow-up letter, largely due to lower external financing in 2020. - Staff considers that BEAC is taking satisfactory corrective measures to address the end-December NFA underperformance by starting to reverse the easing of monetary conditions while the recovery has still to materialize. - Staff supports the updated policy assurance on NFA accumulation: to bring NFA to €2.8 billion and €3.2 billion at end-June 2021 and end-December 2021, respectively. - Other policy commitments provided in the December 2020 follow-up letter were implemented, albeit with delays due to the COVID-19 pandemic. - Meeting the policy assurance on NFAs is critical to allow the continuation of (or approval of new) financial support as part of the Fund-supported programs with CEMAC members. ### Monetary policy corrective measures and commitments - BEAC commitment to maintain an appropriately tight monetary policy. - Corrective actions to support the reserve position include: - Adapting liquidity management by re-introducing liquidity absorptions to reduce the excess liquidity. - Ending its public securities purchase program in September 2021. - These actions are expected to underpin the projected NFA accumulation. ### Macroeconomic projections and near-term indicators - Real GDP contracted 2.6 percent in 2020 and is forecasted to reach 2.6 percent growth in 2021, with recovery in all oil-producing countries; the Central African Republic’s security situation deteriorated. - In 2021, the overall fiscal deficit is projected to improve to -1.6 percent of GDP, whereas the non-oil fiscal deficit will remain stable at -9.5 percent of GDP. - The current account deficit will slightly improve to 3.1 percent of GDP in 2021, whereas the net foreign reserves position is forecasted to increase after a significant deterioration in 2020. - The NFA declined sharply in Q4-2020, bringing the reserves coverage below 3 months of imports in the first quarter of 2021. - Deposits of governments and banks at BEAC decreased starting in Q4-2020, whereas banks’ use of the BEAC’s refinancing line sharply increased in recent months. - Banking sector indicators in 2021-Q1: banking sector’s excess reserves after monetary operations is increasing on the back of refinancing operations at the BEAC and a segmented interbank market; credit to the private sector growth slowed down in 2021-Q1. ### Risks and conditionality - The projected build-up in external reserves will remain contingent on external support to CEMAC countries being in line with expectations. - Member states intend to maintain macroeconomic stability through appropriate fiscal policy measures and to implement quickly and decisively ambitious structural, transparency and governance measures to unlock the growth potential of the region. ### Key statistics and targets (exact values as in source) - NFA targets: €2.8 billion (end-June 2021), €3.2 billion (end-December 2021). - Real GDP: contracted 2.6 percent in 2020; forecasted 2.6 percent growth in 2021. - Overall fiscal deficit (2021 projection): -1.6 percent of GDP. - Non-oil fiscal deficit (2021 projection): -9.5 percent of GDP. - Current account deficit (2021 projection): 3.1 percent of GDP. - Reserves coverage: below 3 months of imports in the first quarter of 2021. - BEAC actions timing: end public securities purchase program in September 2021. *Italic: Source — extract from IMF staff assessment and CEMAC data as presented in the supplied content.* ### Annex I. Priority Reforms for Higher and More Inclusive ### Annex I. Priority Reforms for Higher and More Inclusive Growth ### Executive summary: shocks, context, and objectives - The CEMAC region suffered two major shocks: a first shock in 2015–16 triggered by a sharp decline in oil prices and a second shock in Q1 2020 from the COVID-19 pandemic and another collapse in oil prices. - The second crisis occurred before fiscal and external buffers had fully recovered from the first shock and risks erasing prior gains. - CEMAC’s core vulnerability is an undiversified economic basis overly dependent on oil. The PREF (CEMAC Economic and Financial Reform) defines reforms around five pillars to foster diversified, inclusive, private-sector-led growth and improved public-sector governance. - The note identifies priority reforms to underpin second-generation IMF/WBG-supported programs and to address growth bottlenecks. - Political buy-in, including at the highest level, is highlighted as a potential obstacle to successful reform implementation. ### Key regional macroeconomic facts (as reported) - Economic recession in 2020: 2.1%. - Growth in 2019: about 2.1%. - Increase in the regional budget deficit in 2020: 4.1% of GDP. - Increase in the regional external deficit in 2020: 5.9% of GDP. - Tripartite consultation held on May 21, 2021. ### Main recommendations by reform pillar (selected, preserving responsible institutions and timeframes) - Public financial management - Strengthen the Directorate of Public finances at the CEMAC Commission. - Step 1. Hiring of public finance specialists to oversee the implementation of the regional directives. — CEMAC Commission — End-2021 - Step 2. Conduct and publication of an evaluation of the implementation of the regional directives. — CEMAC Commission — Every semester starting January 2022 - Step 3. Conduct of strategic thinking on new reforms at the regional level. — CEMAC Commission — Mid-2022 - Boost countries’ efforts to implement the regional directives on public finances. — CEMAC Commission / MoF at each CEMAC country - Step 1: Adoption of reform strategies in every country consistently with the 2024 deadlines and the regional guidelines established in collaboration with the WB. — Early 2022 - Step 2: Establishment of units in charge of following-up the strategies. — Early 2022 - Establishing and strengthening Supreme Audit Institutions (Cour des comptes). — CEMAC Countries - Step 1: Generalization of institutional and legal conditions for effective SAI in every country (e.g., new legal framework). — Mid-2021 - Step 2: Develop SAI’s capacities to produce audits consistent with INTOSAI standards. — End-2024 - Expand comprehensiveness of Treasury Single Accounts and improve timeliness, accuracy and disaggregation of Budget Execution Reports. — CEMAC Countries — End-2021 - Step 1: Drafting of a standardized template of a convention between the Central bank and national Treasuries to provide a common operational framework. — Mid-2021 - Step 2: Implement a new IT system for TSA operations. — 2021 Q3 - Step 3: Operationalize TSAs for all CEMAC countries. — End-2021/mid-2022 - Ensure adequate financing of social sectors, education, health, and social protection to address immediate effects of COVID-19 and build more resilient and effective systems. — Ministries of Finance / Social Ministries — 12-24 months - Management of Public Investment Projects (PIP) - Strengthen national legal frameworks of PIM to establish clear procedures and responsibilities. — MoF, with coordination with CEMAC Commission (reflecting CEMAC PFM directives) — Medium Term - Improve and centralize project planning functions and project implementation monitoring. — Medium Term - Publish project selection criteria and selected contractors. — Short Term - Improve budget documentation, to better estimate fiscal risks associated with Public investment projects. — Medium Term - Management and reform of SOEs - Build capacity of the ministries of finance to monitor the performance of SOEs and prepare aggregate reports on the SOE portfolio. — MoF — Short/Medium Term - Publish audited financial statements of all systemically important SOEs. — MoF and SOEs — Short Term - Publish annual aggregate (portfolio-wide) report on SOE performance and financial situation. — Cabinet/MoF — Medium Term - Business climate - Define, under coordination by the CEMAC Commission, a regional strategy to revise the tax regime to simplify the tax structure and implementing online solutions to allow online tax filing and payments. — Ministries in charge of Finance / Tax Authorities — Two to three years - Revise the code of civil and commercial procedures to incorporate international best practices of commercial justice. — Ministries in charge of Justice — Two to three years - Enhance the judiciary system and commercial courts by building specific capacity to deal with commercial and financial crimes. — Ministries of Justice — Two to three years - Tax and Customs administration - Improve customs modernization and introduce automated solutions in the goods clearing procedures, through the Adoption of a Community tax procedures code and the establishment of the Regional Observatory. — Ministries of Finance/Customs/Commission — One year - Approve regulation and customs procedures to ensure application of the FX regulation and agree on data exchange procedures for implementation. — Ministries of Finance/Customs/BEAC — One to two years - Step up capacity to monitor oil trade by tracking flows and exchanging data with importing jurisdictions. — Ministries of Finance/Customs/BEAC — Two to three year - Regional market and agriculture - Fully and effectively operationalize the single transit regime. — Ministries in charge of customs and transportation, custom agencies and CEMAC Commission — TBD - Financial sector development and inclusion - Ensure payments systems interoperability. — GIMAC/BEAC — 12 months - Promote digital financial services through Fintechs/ Rollout of Financial Inclusion Action Plans. — BEAC/COBAC/National Governments — 18 months - Activate capital markets through regular, market-based Government issuances and consideration of partial listing of viable SOEs. — BEAC/COSUMAF/National Ministers of Finance — 12–18 months - Enhance the enforcement of collateral by establishing effective registries and commercial courts. — BEAC, COBAC, MoF/Justice — 12–24 months - Promote the creation of partial credit guarantee schemes to support viable SME and MSME development in growth sectors. — MoFs/National governments — 12–24 months - Promote market discipline in the financial sector by revising transparency and disclosure requirements for banks. — BEAC, COBAC — 12–24 months - Unlocking human capital: protecting and investing in people - Ensure broad access to COVID vaccines via COVAX and other sources, mobilize financing, and develop robust deployment plans. — Ministry of Finance, Ministry of Health — Immediate - Expand and reprioritize domestic financing of the health system in keeping with commitments under the Africa Leaders’ Meeting Declaration. — Ministry of finance — 12–26 months - Strengthen health systems with a focus on primary health care. — Ministry of Health — 12–24 months - Enhance capacity to prevent, detect and respond to public health emergencies. — All relevant Ministries accounting to a joint action plan — 12–24 months - Address multisectoral drivers of nutrition and health outcomes, including pro-health taxes (e.g. alcohol and tobacco) and expanding access to water and sanitation services. — All relevant Ministries accounting to a joint action plan — 12–24 months - Boost learning outcomes and skills systems - Ensure safe return to full-time education and provide remedial programs for lost learning. — Ministries of education and relevant stakeholders — Immediate - Protect education funding while improving efficiency and transparency of resource allocation and funds flow within education sector. — Ministries of finance and education — Immediate - Strengthen governance, management, planning and accountability of the sector, including teachers/civil service reforms. — Ministries of finance and education, possibly public administration — 12–24 months - Address equity and resilience in access to quality education, scale up technology and remote learning. — Ministries of finance and education — 12–36 months - Enhance digital skills development across the whole system. — Ministries of Finance; Social Ministries (e.g. Education, Labor, Skills Development, etc.) — 12–24 months - Strengthen post-basic education for economic diversification and market relevance of skills programs, ensure employer involvement. — Ministries of Finance; Social Ministries — 12–24 months - Build and/or expand social protection systems - Continue expanding coverage prioritizing the most vulnerable. — Ministries of Finance, with Ministries in charge of social affairs — Immediate - Diversify social protection instruments and expand vertical coverage to support non-poor informal sector workers currently excluded. — Ministries of Finance, with Ministries in charge of social affairs — Immediate - Expand fiscal space for social protection and redirect funding to poverty-targeted social assistance away from regressive spending (energy subsidies, public pensions). — Ministries of Finance, with Ministries in charge of social affairs — 12–24 months - Leverage social safety nets to incentivize investments in human capital. — Ministries of Finance, with Ministries in charge of social affairs — 12–24 months - Build inclusive and shock-responsive delivery systems (social registries, foundational ID systems) and accelerate adoption of digital payments. — Ministries of Finance, with Ministries in charge of social affairs — 12–24 months - Strengthen strategic and institutional frameworks for designing, implementing, and managing social protection programs. — Ministries of Finance, with Ministries in charge of social affairs — 12–24 months - Invest in high-return cross-cutting investments for human capital - Invest in early years: malnutrition, Early Childhood Development (ECD), and pre-school education. — Ministries of planning with relevant sectoral ministries — 12–24 months - Pursue comprehensive strategies to empower girls and women and tackle early pregnancies. — 12–24 months ### Tripartite meeting (May 21, 2021) — policy commitments and recommendations - Member States recommendations (selected) - Request commitment of highest authorities to renew reform dynamics and complete negotiations with IMF for second-generation programs. - Take advantage of international initiatives to access affordable COVID-19 vaccines and ensure widespread vaccination. - Implement budgetary policies to reduce public debt, prioritize expenditures, and improve domestic revenue mobilization. - Carry out priority structural reforms (strengthen governance, fight corruption, broaden tax base, improve business climate). - Strengthen sectoral policies to ensure structural transformation (infrastructure, digitization, access to energy). - Use IMF and WBG support and international initiatives (including G20 debt suspension and common framework) to manage debt and financing. - Use IMF's new general SDR allocation to consolidate foreign exchange reserves, reduce domestic debt, cover urgent COVID-19 expenses or partially finance investment spending in sectors with high value-added. - Regional institutions recommendations - BEAC: - Maintain an appropriate monetary stance and adequate bank liquidity management to guarantee external stability and improve monetary policy transmission. - Deepen analysis for a coordinated strategy to phase out exceptional pandemic measures. - Continue deepening CEMAC money and securities markets and develop a regional financial inclusion strategy. - Finalize discussions with extractive industries and ensure equitable implementation of foreign exchange regulations. - COBAC: - Preserve financial stability while considering phasing out exceptional easing of prudential regulations for credit and microfinance institutions. - Ensure banks comply with prudential standards, modernize the regulatory framework, and apply regulations to resolve troubled banks. - CEMAC Commission: - Ensure application of regional public finance directives to limit accumulation of payment arrears. - Ensure effective implementation of the regional surveillance framework, including sanctions mechanisms. - Mobilize pledged financing for priority infrastructure projects. - Establish institutional coordination and monitoring framework for regional structural reform program with an appropriate timetable. - Recommendations to development partners - Support implementation of second-generation, growth-oriented programs and stronger implementation of priority structural reforms. - Promote an adequate and realistic balance between fiscal and external adjustments, an adequate pace of structural reforms, and appropriate budget support levels. - Mobilize more resources for budget support and suitably resolve domestic and external debt-related issues of member states. - Transform budget support into project support if program reviews are persistently incomplete to avoid loss of funding. - Consider security situations when assessing IMF program performance for some CEMAC countries. - Prioritize programs promoting structural transformation (energy, transport, digital transformation), industrialization for local transformation of raw materials, and appropriate sequencing of disbursement conditionalities. - Ensure close coordination of external public and private creditors to facilitate international initiatives on debt treatments and preserve/restore debt sustainability. - Maintain funding to CEMAC countries following the new allocation of SDRs envisaged. - Procedural note: participants agreed to hold the next tripartite meeting during the fourth quarter of 2021. *Source: Annex I. Priority Reforms for Higher and More Inclusive Growth; Annex II. Policy Commitments at the May 2021 Tripartite Discussions (May 21, 2021).* ### Appendix I. Follow-up to the Letter of Support to the Recovery ### Appendix I. Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries ### Overview - Update of assurances provided in December 2020 by CEMAC community institutions; reflects discussions held virtually from May 6 through May 21, 2021 during regional consultations by IMF Staff with CEMAC institutions. - Region deeply affected by the socio-economic impact of the COVID-19 pandemic. ### Macroeconomic impact and outlook - 2020 outcomes: - Real GDP: recorded a 2.6 percent recession in 2020. - Fiscal balances: deteriorated to a deficit of 3.3 percent on average (December 2020 summary) and elsewhere noted increase to a fiscal deficit of 2.1 percent of GDP owing mainly to lower oil revenues (subsequent statement). - External current account deficit: widened to 5.2 percent of GDP in 2020. - Inflation: remained at 1.7 percent (end-of-period), below the CEMAC convergence criterion of 3 percent. - External reserves: after increasing to above the equivalent of 4 months of imports in the first half of 2020, reserves declined during the pandemic and had begun to recover since end-March 2021 but at a slower pace than before the pandemic. - Country growth contrast: Congo and Equatorial Guinea, which did not receive Fund emergency assistance, recorded the worst contractions. - 2021 outlook and projections: - Overall real GDP growth expected to rebound to 2.6% in 2021, on average. - Overall budget deficit expected to narrow by 1.1% of GDP in 2021. - External current account deficit expected to improve to 3.1% of GDP in 2021. - End-June 2021 NFA target is expected to be missed despite rebound in April 2021. - Projected NFA levels tied to external financing assumptions: targets of 2.8 billion euros at end-June 2021 and 3.2 billion euros at end-December 2021 based on external financing assumptions of 275 million euros during the first half of 2021 and 1,125 million euros for the whole of 2021 (excluding IMF financing). ### Policy responses and institutional measures - BEAC monetary policy and liquidity support: - Policy rate cut by 25bp to 3.25 percent. - Active liquidity injections including longer maturity injections for CFAF 150 billion and weekly liquidity injections for CFAF 250 billion. - Purchase program of public securities on the secondary market totaling FCFA 600 billion (to improve countries’ financing conditions; will stop when it expires at end-August 2021). - BEAC maintained an easing stance to meet banks’ liquidity needs; stands ready to tighten monetary policy if external position deteriorates, including recommending rapid withdrawal of easing measures and increasing the monetary policy rate if needed. - BEAC foresees return to liquidity management based on autonomous liquidity factors; proposal to implement by end-August 2021 a one-month deposit facility with a deposit rate indexed to the policy rate for banks with excess liquidity. - Liquidity injections at longer maturities to be maintained during transition to support banks in need. - Prudential and supervisory measures: - COBAC relaxed certain regulations to allow banks to mitigate losses due to the pandemic; conducted an impact analysis of the relaxation; follows monthly evolution of asset quality and monitors banking liquidity weekly. - On-site inspections resumed in 2021; reform of process and development of tools for risk-based prudential supervision and compliance with Basel standards continues despite delays. - Exit strategy from temporary prudential easing to be discussed at next commissioners meeting; as measures are withdrawn COBAC will ensure banks comply with asset classification and provisioning rules and will require recapitalization plans if necessary. - COBAC will accelerate problem bank resolution procedures and monitor sovereign-bank nexus; will ensure plans are in place to reduce NPLs including through operationalization of government arrears clearance strategies. - Regional institutional reforms and technical implementations: - Full and equitable implementation of foreign exchange regulations (including for extractive sectors) maintained as objective by end of 2021; consultations with oil and mining sectors resumed in October 2020. - BEAC finalizing proposal to adapt implementation allowing extractive sectors to hold foreign currency accounts in CEMAC as needed. - Implementation of the “e-transfer” platform on September 1, 2020 reduced processing times for transactions abroad. - Roll-out of Treasury Single Accounts: contract with IT platform provider finalized; launch expected by November 2021; centralization of all government accounts by end-2021 for countries ready. - Financial transparency: prequalification notice for the credit information bureau launched in April 2021 (selection in second half of 2021); credit risks registry modernization project production planned by end-2021. - Government domestic arrears repayment plans: health crisis hampered progress; gradual repayment envisaged post-COVID. ### Banking sector and financial stability - Financial sector status: - Sector impacted by the pandemic but remains broadly sound. - Credit to the private sector stable in 2020 and increased in early 2021. - Non-performing loans (NPLs) estimated to have increased with temporary easing of prudential regulations. - Banks’ exposure to sovereign debt has continued to expand. - Supervisory priorities: - Ensure compliance with asset classification and provisioning as temporary measures withdrawn. - Monitor and reduce NPLs; operationalize domestic arrears clearance strategies. - Accelerate problem bank resolution, strengthen regulatory implementation, and carefully monitor sovereign-bank nexus. ### Targets, financing assumptions, and program engagement - NFA and external financing assumptions: - Projected NFA: 2.8 billion euros at end-June 2021 and 3.2 billion euros at end-December 2021. - External financing assumptions underlying projections: 275 million euros in first half of 2021 and 1,125 million euros for whole of 2021 (including exceptional financing but excluding IMF financing). - Fund-supported programs and financing needs: - Emergency financing from the Fund to four CEMAC countries in 2020 helped ease the shock; Fund-supported programs for Cameroon, Chad, Congo, and Gabon expired. - At the time of the letter, Fund-supported programs with Cameroon, Chad, Congo and Gabon had not yet been renewed; Equatorial Guinea engaged in discussions for emergency assistance. - Coverage of external financing needs depends on approval of new Fund-supported programs and reviews unlocking IMF and development partner support. - Policy conditionality and sequencing: - Monetary policy will be data dependent and geared to reserve accumulation and strengthening transmission; willingness to tighten if required by NFA developments. - BEAC will stop government securities purchase program when it expires end-August 2021 even if the full envelope of CFAF 600 billion is not utilized. ### Policy recommendations and regional priorities - Short- and medium-term priorities: - Strengthen internal and external stability; accelerate reform momentum to increase competitiveness and growth potential. - Implement priority infrastructure projects to support economic transformation. - Phase out pandemic-related support policies as conditions permit; recalibrate liquidity management to absorb excess liquidity while supporting banks in need. - Finalize implementation of foreign exchange regulations and Treasury Single Accounts by end-2021. - Preserve financial stability via strengthened supervision, recapitalization plans where necessary, and NPL reduction measures. - CEMAC Commission to promote stronger public financial management, monitor transposition of regional public finance directives, and operationalize sanction mechanism for multilateral surveillance rules (adopted by Ministerial Committee in January 2021; pending approval by the Conference of Heads of State). - Establish institutional coordination and monitoring framework for regional structural reform program and mobilize financing pledged for regional infrastructure projects. - International engagement and instruments: - Continued Fund engagement deemed indispensable for sustaining reforms and mobilizing external support. - Authorities welcome international initiatives on debt treatment (G20 DSSI and Common Framework) and urge close coordination between external public and private creditors. - Full endorsement of the proposed new general allocation of SDRs; planned use of SDRs: consolidate foreign exchange reserves, reduce stock of domestic debt, cover urgent COVID-19 expenses, and partially finance investment spending in sectors with high economic returns. *Source: Appendix I. Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries (June 17, 2021; related statements June 30, 2021).* ### Conclusion ### Conclusion ### Implementation progress - Despite the pandemic, the region has made progress in the implementation of the regional strategy to strengthen internal and external stability. - All policy commitments in the December 2020 Follow up Letter of Support, except the one on NFAs, implemented. ### Policy commitments and follow-up - The authorities have reiterated their policy commitments in support of countries’ reform programs in the second phase of the regional strategy, as stated in the updated Follow up Letter of June 2021. ### Withdrawal of pandemic-related support - Consistent with those commitments, they are starting to withdraw some pandemic-related support measures and policies as the recovery is underway. ### Fund support and objectives - They look forward to Fund support to make further inroads towards achieving macroeconomic stability and meeting the reserve accumulation objectives under the regional strategy. *Source: Conclusion, 1caeea2021002 - Conclusion* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1caeea2021002.pdf_