## 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 ## Source details **Canonical URL:** [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](https://www.imf.org/-/media/files/publications/cr/2022/english/1caeea2022001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1caeea2022001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1caeea2022001.pdf.json) --- ### Medium-term outlook and key projections - Growth: - "4.1 percent in the medium term, mostly due to stronger growth in the non-oil sector, as reforms to improve governance, transparency, and the business climate are assumed to slowly take hold." - Fiscal and debt outlook: - Recovery in oil prices coupled with stronger revenue mobilization efforts should help narrow fiscal deficits and curb debt levels significantly by 2024. - Inflation and reserves: - Inflation is projected to stay below the regional convergence criterion of 3 percent as monetary policy would remain appropriately tight to support the external position. - Reserves are projected to reach the equivalent of five months of imports by 2026. - Program assumptions: - Outlook assumes continuation of IMF-supported programs with Cameroon, Gabon, the Central African Republic and Equatorial Guinea, and approval of two IMF-supported programs with Chad (2021) and Congo (2022). ### Executive Board assessment and policy guidance - Overall assessment: - Executive Directors agreed with the thrust of the staff appraisal and noted that despite a more favorable external environment and unprecedented Fund financial support, CEMAC’s external position remains fragile. - Policy mix and reforms: - Directors underscored that a tight macroeconomic policy mix and strong structural reforms that enhance competitiveness are critical to bolster the external position and enable diversified, inclusive, and sustainable growth. - Fiscal policy recommendations: - Carefully calibrated fiscal consolidation is needed to bolster fiscal and external sustainability while safeguarding growth. - Mobilize non-oil revenues and increase expenditure efficiency to help finance targeted social spending and growth-friendly investments. - Prudent use of SDR allocations and the fiscal space provided by restructured statutory advances. - Monetary and financial sector recommendations: - Return to the pre-crisis liquidity management framework and restrict normal liquidity operations to solvent banks. - Further monetary tightening if international reserves continue falling. - Central bank commitment to not extend direct monetary financing to its member states welcomed. - Support implementation of the foreign exchange regulation to support foreign reserve accumulation. - Withdrawal of temporary relaxation of prudential regulations supported; move towards risk-based supervision, contain risks from banks’ sovereign exposure, address high non-performing loans, strengthen regulatory compliance, and accelerate bank resolution. - Regional reforms and transparency: - Accelerate implementation of structural, transparency, and governance reforms; ensure full transparency in public finances and the hydrocarbon sector; strengthen the regional surveillance framework. - Policy assurances: - Noted BEAC was unable to fully implement the policy assurance on accumulation of net foreign assets (NFA) at end-June 2021 due to a shortfall in external financing. - Directors endorsed updated policy assurance on NFA accumulation for end-December 2021 and end-June 2022 as outlined in the November 2021 Follow-Up Letter from the BEAC Governor, contingent on adequately tight monetary policy and member states’ adjustment policies. ### Key issues, risks, and recent developments - Context and vulnerabilities: - Despite rebound in global growth and fast-increasing oil prices, CEMAC is ending 2021 in a fragile external position. - Net external reserves fell throughout 2021 to their lowest level in decades; gross reserves are just above three months of imports of goods and services (below the 5 months considered adequate for CEMAC). - Pandemic and health: - Third wave of COVID-19 in 2021Q3 was as deadly as the second wave; vaccination rates generally low and uneven. - Fund financial support and reserve dynamics: - Fund financial support (including the SDR allocation) to the region in 2021 totaled more than EUR 1.5 billion (CFAF 1,000 billion) at end-November 2021. - Net foreign assets fell by around [22 percent, (EUR 888 million)] throughout 2021. - SDR allocations in late August unlocked CFAF 797 billion for the region. - Macroeconomic outcomes: - Total real GDP contraction was 1.9 percent in 2020. - Oil real GDP growth: -3 percent in 2020. - Non-oil real GDP growth: -1.6 percent in 2020. - CEMAC’s budget deterioration in 2020 was 2.2 percent of GDP. - Overall public debt increased by 7.7 percentage points to 60 percent of GDP at end-2020. - Structural strategy: - August 2021 Heads of States summit launched second phase of regional strategy with commitments to accelerate structural, transparency, and governance reforms. - Progress uneven: notable progress in foreign exchange regulation implementation and domestic arrears clearance; limited progress in resolving failing banks; increased bank sovereign nexus; limited progress in domestic revenue mobilization in 2021. - Risks: - Possible adverse pandemic developments, oil price volatility, possible fiscal slippages, shortfall in external financing, and security issues. ### SDR allocations, reserve impact, and guidance on use - SDR allocations and immediate reserve impact: - SDR allocations totaled CFAF 797 billion and initially boosted gross reserves by 0.5 months of imports of goods and services. - Country actions on SDRs: - Chad drew the full SDR allocation upon receipt for budget financing. - Congo drew its balance of the 2009 SDR allocation and the entire 2021 allocation with the intent to use them to partially finance the 2022 budget. - Gabon and Cameroon indicated desire to draw on the SDR allocation to offset undisbursed budget support, substitute for domestic financing, and finance public investment in the health sector within broadly unchanged fiscal deficits. - Equatorial Guinea plans to use a significant portion of the SDR allocation to clear its internal debt arrears. - CAR has not indicated its intentions yet. - Staff recommendation on SDR use: - Use SDR allocations prudently given low external reserves. - Countries with stronger fiscal positions and better market access should save about half of their allocations to strengthen CEMAC’s external position. - Allocations should ideally substitute for domestic financing within unchanged fiscal envelopes to limit further pressure on reserves. - Annex IV details: - BEAC is the fiscal agent for CEMAC’s allocations of SDR 1,019 million (CFAF 797 billion, about 96 percent of quota). - CEMAC — SDR Allocation (SDR Million): Cameroon 265; Chad 134; CAR 107; Congo 155; Eq. Guinea 151; Gabon 207; CEMAC 1019. - Observed use: Chad withdrew entirety of its SDR allocation; Congo withdrew balance of its 2009 allocation and entirety of 2021 allocation. - Policy guidance: about half of allocations should be saved in countries that haven’t fully used their allocations to bolster reserves; allocations best used to finance investment or replace high-cost debt and not to delay corrective fiscal or structural actions. ### Monetary policy, liquidity management, and BEAC actions - Liquidity and operations: - BEAC tightened monetary policy and strengthened liquidity management amid still high but declining liquidity. - Broad money increased by 11.1 percent in June 2021. - Demand for BEAC’s weekly liquidity injections, fixed at CFAF 250 billion from March 2020, outpaced supply since March 2021. - From end-August BEAC resumed liquidity absorption operations and conducted limited longer-term (12 weeks) liquidity injections. - In September 2021 BEAC unwound relaxation of the collateral framework for government securities, bringing haircuts back to pre-pandemic levels, and ended its government securities purchase program as planned. - On November 25, the Monetary Policy Committee increased the policy rate by 25 basis points. - BEAC increased the rate on liquidity absorptions operations by 30 basis points and reduced weekly liquidity injections from CFAF 250 billion to CFAF 230 billion. - Operational recommendations: - Staff recommended normalization to pre-crisis framework based on autonomous factors of banking liquidity (AFBL) with differentiated access: - Only banks compliant with prudential obligations allowed standard weekly liquidity window (guichet A). - Structurally dependent banks should gradually reduce exposure and use marginal liquidity window during adjustment. - Banks in breach with credible restructuring plans eligible only for emergency liquidity assistance with conservatory measures. - BEAC expects the new IT platform for managing TSAs to be fully operational by December 2021; initially Cameroon and Gabon to move ahead. - Statutory advances: - In September 2021, UMAC Ministerial Committee accepted BEAC’s offer to reschedule repayment of statutory advances. - Stock of statutory advances consolidated at CFAF 2,779 billion. - New schedule (September 2021) provides repayment over 20, 30 or 40 years, at countries’ discretion, with a grace period of 3 years, and interest rates of 2.77, 2.88 or 2.94 percent respectively. ### Financial sector status, supervision, and reforms - Banking sector metrics: - Reported NPL ratio declined slightly to 19 percent in 2020 Q4 under temporary relaxation of prudential requirements extended to end-June 2022. - COVID-19 crisis-related impaired loans estimated at approximately 4 percent of total loans by SG COBAC, based on bank reports. - Banks’ exposure to the sovereign: sovereign exposure accounted for 27 percent of total banking sector assets at end-June 2021, up from 16 percent at end-2018. - Outstanding stock of government securities more than doubled between end-2019 and September 2021; at end-September 2021 ownership: banks 86 percent, BEAC 10 percent, non-bank investors 4 percent. - COBAC and supervisory actions: - In August 2021, the SG COBAC increased the capital requirement by ½ percentage point to 10 percent, starting to bring capital requirements back to the pre-crisis level of 10.5 percent. - COBAC to decide on an exit strategy by end-2021 for implementation starting in July 2022. - Staff recommendations and timelines: - Set an end-date, preferably at end-December 2021, for eligibility of new loans to the temporary measures to freeze the stock of pandemic-impacted loans at end-2021. - Avoid postponement of the exit beyond July 2022. - Set an end-date, preferably by end-2022, at which temporary measures would be entirely lifted and appropriate reclassification and provisioning done. - Require undercapitalized banks to submit credible medium-term recapitalization plans and avoid delaying resolution of banks that were insolvent prior to the pandemic. - Supervisory capacity and enforcement: - At end-April-2021, only 14 banks out of 50, representing less than half of total banking assets, complied with all prudential ratios. - Staff reiterated recommendation to use full array of regulatory measures including financial penalties. - COBAC intensified inspections related to sovereign risk and took disciplinary decisions to enforce compliance with foreign exchange and AML/CFT regulations. - Financial inclusion and infrastructure: - BEAC launched pre-qualification for the Credit Information Bureau (CIB) in June 2021 and selected two candidates; CIB selection planned in the first half of 2022. - New credit risk registry piloting in Gabon before extension in first half of 2022. ### External sustainability assessment — key projections and risks (Annex I) - External position: - External position at end-2021 assessed to be significantly weaker than implied by fundamentals and desirable policy settings. - Current account deficit declined from 5.2 percent of GDP in 2020 to about 2.1 percent of GDP in 2021. - Medium-term current account deficit projected to widen to about 4.8 percent of GDP by 2026. - Reserves and NFAs: - Net foreign assets are at historical lows in 2021. - With gradual return in external financing, fiscal adjustment, and reforms, external gross reserves projected to recover from 3.4 months of imports at end-2021 to 5 months of imports by 2026. - BEAC reserves coverage: 3.1 months of prospective extra regional imports at end-2020; expected to improve to 3.4 months at end-2021. - At end-2021, reserves amounted to no more than 60 percent of the IMF reserve adequacy metric. - Capital flows and FDI: - FDI net inflows remained lower than 2019 levels in 2021. - FDI inflows projected to increase gradually, reaching about 4.5 percent of GDP by 2026. - CA and REER assessment: - EBA-Lite CA model results for 2021 suggest an overvaluation of about 21 percent. - Cyclically adjusted current account deficit estimated at 4.8 percent of GDP against a balanced current account norm. - REER broadly stable since late 1990s; in 2020 REER appreciated by about 6.5 percent relative to the previous year and remained broadly unchanged over 2021. - Policy recommendations: - Fiscal: implement prudent fiscal adjustment, strengthen revenue mobilization, publish cost of tax exemptions, lift unjustified exemptions, and improve public investment management. - Monetary/external: tighten monetary policy, return to liquidity management based on autonomous factors, fully implement and communicate the foreign exchange law including extractive industries, and strengthen repatriation and surrendering of foreign exchange receipts. - Structural/governance: accelerate structural reforms to improve competitiveness, diversify the economy, and deepen regional integration. - Use of windfalls: rebuild external and fiscal buffers and implement structural measures if commodity prices increase. - Risks and shock scenarios (selected): - High-likelihood, high-impact: uncontrolled Covid-19 local outbreaks and subpar/volatile growth — mitigation: reprioritize fiscal spending for vaccines, seek external support. - Medium-likelihood, high-impact: global resurgence of Covid-19 — mitigation: strengthen FX law implementation, fiscal contingency planning, structural diversification. - Other risks: fiscal slippages, larger-than-expected drawdowns on SDR allocations, deterioration in security situation, lower-than-expected concessional financing. ### NFA performance, policy assurance, and BEAC corrective actions - NFA policy assurance: - BEAC did not implement the policy assurance on the NFA provided in the June 2021 follow-up letter, largely due to lower external financing in the first half of 2021. - Staff supports updated proposed policy assurance on NFA accumulation: euro 2.2 billion at end-2021 and euro 2.78 billion at end-June 2022. - Meeting proposed policy assurance on NFAs is critical to allow continuation or approval of financial support as part of Fund-supported programs. - Monetary corrective actions taken by BEAC: - 25 basis point increase in the policy rate (TIAO) and the marginal lending facility rate, approved at the November 25 extraordinary MPC meeting. - 30 basis point increase in the interest rate of the liquidity absorption window. - Weekly liquidity injections reduced from CFAF 250 billion to CFAF 230 billion. - Fiscal and structural commitments: - Member states intend to maintain macroeconomic stability through appropriate fiscal policy measures and to implement ambitious structural, transparency, and governance measures. - Key numeric policy targets and figures (preserved exactly): - Updated NFA accumulation targets: euro 2.2 billion at end-2021 and euro 2.78 billion at end-June 2022. - Policy rate (TIAO): 25 basis point increase. - Interest rate of liquidity absorption window: 30 basis point increase. - Weekly liquidity injections: reduced from CFAF 250 billion to CFAF 230 billion. - Real GDP: contracted 1.9 percent in 2020; forecasted to reach 1.9 percent growth in 2021. - Overall fiscal deficit (2021 projection): -2.7 percent of GDP. - Non-oil fiscal deficit (2021): -9.9 percent of GDP. - Current account deficit (2021 projection): 2.1 percent of GDP. - Reserves coverage: below 3 months of imports in 2021. - Public debt: increased to 60 percent of regional GDP in 2020; projected to decline below 50 percent in 2024. ### Implementation status, regional coordination, and commitments - Regional surveillance and governance: - CEMAC Commission advanced work to strengthen regional surveillance (early warning system and sanction scheme) but measures not yet fully effective; adoption of sanction mechanism urged. - Only three countries (Cameroon, Congo, and Chad) have shared national triennial convergence plans with the Commission; others urged to complete plans quickly. - Heads of State summit (August 18, 2021) commitments: - Launched second phase of regional strategy, emphasized non-oil revenue mobilization, improved public finance management, governance, and regional integration priorities. - Reaffirmed commitment to pursue second cycle of economic and financial programs backed by IMF and partners aiming for "strong, green, resilient and inclusive growth." - Coordination and Fund engagement: - Effective implementation of Fund-supported reform programs is critical to success; Fund engagement uneven with only two countries having active arrangements and a third expecting approval imminently. - BEAC and COBAC will continue close cooperation with IMF staff and stand ready to notify and consult IMF staff on developments likely to affect external stability through end-June 2022. - Authorities reiterated readiness to implement TSAs and other operational tools to support liquidity management and reserve accumulation. *Staff Report on the Common Policies of CEMAC Member Countries, December 1, 2021.* ### 4.1 percent in the medium term, mostly due to stronger growth in the non-oil sector, as ### 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 ### Medium-term outlook and key projections - Growth: - "4.1 percent in the medium term, mostly due to stronger growth in the non-oil sector, as reforms to improve governance, transparency, and the business climate are assumed to slowly take hold." - Fiscal and debt outlook: - Recovery in oil prices coupled with stronger revenue mobilization efforts should help narrow fiscal deficits and curb debt levels significantly by 2024. - Inflation and reserves: - Inflation is projected to stay below the regional convergence criterion of 3 percent as monetary policy would remain appropriately tight to support the external position. - Reserves are projected to reach the equivalent of five months of imports by 2026. - Program assumptions: - Outlook assumes continuation of IMF-supported programs with Cameroon, Gabon, the Central African Republic and Equatorial Guinea, and approval of two IMF-supported programs with Chad (2021) and Congo (2022). ### Executive Board assessment and policy guidance - Overall assessment: - Executive Directors agreed with the thrust of the staff appraisal and noted that despite a more favorable external environment and unprecedented Fund financial support, CEMAC’s external position remains fragile. - Policy mix and reforms: - Directors underscored that a tight macroeconomic policy mix and strong structural reforms that enhance competitiveness are critical to bolster the external position and enable diversified, inclusive, and sustainable growth. - Fiscal policy recommendations: - Carefully calibrated fiscal consolidation is needed to bolster fiscal and external sustainability while safeguarding growth. - Mobilize non-oil revenues and increase expenditure efficiency to help finance targeted social spending and growth-friendly investments. - Prudent use of SDR allocations and the fiscal space provided by restructured statutory advances. - Monetary and financial sector recommendations: - Return to the pre-crisis liquidity management framework and restrict normal liquidity operations to solvent banks. - Further monetary tightening if international reserves continue falling. - Central bank commitment to not extend direct monetary financing to its member states welcomed. - Support implementation of the foreign exchange regulation to support foreign reserve accumulation. - Withdrawal of temporary relaxation of prudential regulations supported; move towards risk-based supervision, contain risks from banks’ sovereign exposure, address high non-performing loans, strengthen regulatory compliance, and accelerate bank resolution. - Regional reforms and transparency: - Accelerate implementation of structural, transparency, and governance reforms; ensure full transparency in public finances and the hydrocarbon sector; strengthen the regional surveillance framework. - Policy assurances: - Noted BEAC was unable to fully implement the policy assurance on accumulation of net foreign assets (NFA) at end-June 2021 due to a shortfall in external financing. - Directors endorsed updated policy assurance on NFA accumulation for end-December 2021 and end-June 2022 as outlined in the November 2021 Follow-Up Letter from the BEAC Governor, contingent on adequately tight monetary policy and member states’ adjustment policies. ### Key issues, risks, and recent developments - Context and vulnerabilities: - Despite rebound in global growth and fast-increasing oil prices, CEMAC is ending 2021 in a fragile external position. - Net external reserves fell throughout 2021 to their lowest level in decades; gross reserves are just above three months of imports of goods and services (below the 5 months considered adequate for CEMAC). - Pandemic and health: - Third wave of COVID-19 in 2021Q3 was as deadly as the second wave; vaccination rates generally low and uneven. - Fund financial support and reserve dynamics: - Fund financial support (including the SDR allocation) to the region in 2021 totaled more than EUR 1.5 billion (CFAF 1,000 billion) at end-November 2021. - Net foreign assets fell by around [22 percent, (EUR 888 million)] throughout 2021. - SDR allocations in late August unlocked CFAF 797 billion for the region. - Macroeconomic outcomes: - Total real GDP contraction was 1.9 percent in 2020. - Oil real GDP growth: -3 percent in 2020. - Non-oil real GDP growth: -1.6 percent in 2020. - CEMAC’s budget deterioration in 2020 was 2.2 percent of GDP. - Overall public debt increased by 7.7 percentage points to 60 percent of GDP at end-2020. - Structural strategy: - August 2021 Heads of States summit launched second phase of regional strategy with commitments to accelerate structural, transparency, and governance reforms. - Progress uneven: notable progress in foreign exchange regulation implementation and domestic arrears clearance; limited progress in resolving failing banks; increased bank sovereign nexus; limited progress in domestic revenue mobilization in 2021. - Risks: - Possible adverse pandemic developments, oil price volatility, possible fiscal slippages, shortfall in external financing, and security issues. ### Implementation of regional policy measures and recent actions - Statutory advances: - In September 2021, UMAC Ministerial Committee accepted BEAC’s offer to reschedule repayment of statutory advances. - Stock of statutory advances consolidated at CFAF 2,779 billion. - New schedule (September 2021) provides repayment over 20, 30 or 40 years, at countries’ discretion, with a grace period of 3 years, and interest rates of 2.77, 2.88 or 2.94 percent respectively. - Monetary policy and liquidity management: - BEAC tightened monetary policy and strengthened liquidity management amid still high but declining liquidity. - Broad money increased by 11.1 percent in June 2021. - Demand for BEAC’s weekly liquidity injections, fixed at CFAF 250 billion from March 2020, outpaced supply since March 2021. - About 80 percent of weekly liquidity is provided to a small number of banks with large structural liquidity needs and limited interbank market access. - From end-August BEAC resumed liquidity absorption operations and conducted limited longer-term (12 weeks) liquidity injections. - In September 2021 BEAC unwound relaxation of the collateral framework for government securities, bringing haircuts back to pre-pandemic levels, and ended its government securities purchase program as planned. - Financial sector reforms: - Recommended normalization of prudential framework, improved regulatory compliance by COBAC, and accelerated bank resolution. - Regional surveillance: - CEMAC Commission advanced work to strengthen regional surveillance (early warning system and sanction scheme for convergence breaches) but measures not yet effective. ### Staff appraisal highlights - Recovery prospects: - Resumption of program engagements with the Fund, combined with high oil prices and significant fiscal adjustments in 2022, should allow for a turnaround and build-up in external reserves in 2022. - Policy priorities: - Tight macroeconomic policy mix, sustained fiscal consolidation consistent with IMF-supported programs, tighter monetary policy to contain excess liquidity, strengthened banking supervision and resolution, and acceleration of structural, transparency, and governance reforms to support diversified, inclusive, and sustainable growth. *Staff Report on the Common Policies of CEMAC Member Countries, December 1, 2021.* ### 9. The SDR allocations (CFAF 797 billion) initially boosted gross reserves by 0.5 months of ### 9. The SDR allocations (CFAF 797 billion) initially boosted gross reserves by 0.5 months of ### SDR allocations and immediate reserve impact - SDR allocations totaled CFAF 797 billion and initially boosted gross reserves by 0.5 months of imports of goods and services. - CEMAC authorities agreed on a framework for SDR on-lending similar to that of 2009 (Annex IV). - Country actions on SDRs: - Chad drew the full SDR allocation upon receipt for budget financing. - Congo drew its balance of the 2009 SDR allocation and the entire 2021 allocation with the intent to use them to partially finance the 2022 budget. - Gabon and Cameroon indicated desire to draw on the SDR allocation to offset undisbursed budget support, substitute for domestic financing, and finance public investment in the health sector within broadly unchanged fiscal deficits. - Equatorial Guinea plans to use a significant portion of the SDR allocation to clear its internal debt arrears. - CAR has not indicated its intentions yet. - Staff recommendation on SDR use: - Use SDR allocations prudently given low external reserves. - Countries with stronger fiscal positions and better market access should save about half of their allocations to strengthen CEMAC’s external position. - Allocations should ideally substitute for domestic financing within unchanged fiscal envelopes to limit further pressure on reserves. ### Reserves, BEAC operations, and regional NFAs - BEAC bought CFAF 430 billion of public securities from 5 CEMAC countries. CAR did not apply for the program. - NFAs trajectory: - BEAC’s NFAs rebounded between March and early June 2021, then declined since June 2021. - The NFA target at end-June 2021 was missed by 120 million euros (FCFA 79 billion), corresponding to lower than expected and delayed external financing in H1. - A larger-than-expected increase in broad money (FCFA 202 billion) likely facilitated higher imports when economies reopened. - Gross reserves: - Gross reserves were just below three months of imports of goods and services at end-June 2021, before rebounding following the SDR allocation. - Monetary operations and liquidity management: - On November 25, the Monetary Policy Committee increased the policy rate by 25 basis points. - BEAC increased the rate on liquidity absorptions operations by 30 basis points and reduced weekly liquidity injections from CFAF 250 billion to CFAF 230 billion. - Staff recommended reducing maturity of liquidity absorption window and possibly tightening further if external position fails to strengthen or inflation durably exceeds regional criteria. - Staff recommended normalization to pre-crisis framework based on autonomous factors of banking liquidity (AFBL) with differentiated access: - Only banks compliant with prudential obligations allowed standard weekly liquidity window (guichet A). - Structurally dependent banks should gradually reduce exposure and use marginal liquidity window during adjustment. - Banks in breach with credible restructuring plans eligible only for emergency liquidity assistance with conservatory measures. - BEAC set weekly liquidity injections to CFAF 250 billion in March 2020 and reduced injections to CFAF 230 billion in November 2021. - BEAC expects the new IT platform for managing TSAs to be fully operational by December 2021; initially Cameroon and Gabon to move ahead. ### Banking sector balance sheets and sovereign exposure - Reported NPL ratio declined slightly to 19 percent in 2020 Q4 under temporary relaxation of prudential requirements extended to end-June 2022. - COVID-19 crisis-related impaired loans estimated at approximately 4 percent of total loans by SG COBAC, based on bank reports. - Banks’ exposure to the sovereign: - Increased sharply in 2020 and again in 2021. - Sovereign exposure accounted for 27 percent of total banking sector assets at end-June 2021, up from 16 percent at end-2018. - Outstanding stock of government securities more than doubled between end-2019 and September 2021. - At end-September 2021, ownership of these securities: banks 86 percent, BEAC 10 percent, non-bank investors 4 percent. ### Medium-term outlook and key macro projections - Overall economic activity: - Expected rebound by 1.9 percent in 2021 (0.7 percentage points less than previously envisaged). - Rebound driven by 3 percent growth in the non-oil sector. - Oil sector contraction of 3.4 percent in 2021 due to lower production. - Inflation expected at 2 percent, below the 3 percent regional convergence criterion. - Fiscal outlook: - Overall fiscal deficit (excluding grants) projected to narrow by 0.5 percentage points to 2.7 percent of GDP in 2021 compared to 2020. - Improvement in fiscal deficit of 1.4 percent of GDP projected in 2022. - Fiscal balance projected in equilibrium by 2025. - Public debt: - Projected to decline by 3.8 percentage points compared to 2020, to 56.2 percent of GDP in 2021. - Projected to decline to 45.7 percent of GDP in 2025. - Figures include gradual repayment of arrears by national governments in line with agreed strategies. - External sector: - External current account deficit expected to improve to 2.1 percent of GDP in 2021. - Current account deficit projected to widen to 4.6 percent of GDP in 2025 as oil production declines and imports increase. - External gross reserves projected to recover to 3.3 months of prospective imports at end-2021, 3.9 months in 2022, and five months by 2026 (level deemed adequate for CEMAC). - External financing needs and Fund role: - External financing needs of about EUR 3.1 billion over 2022–24; roughly EUR 200 million remains to be identified. - Fund support has exceeded donor budget support in both 2020 and 2021, bringing total IMF credit and loans outstanding to around 8.7 percent of total external debt or around 2.8 percent of CEMAC total GDP. - To avoid deterioration in debt sustainability, external financing should be concessional or in the form of grants for low-income members. ### Risks and scenarios - Significant downside risks identified: - Protracted health crisis due to slow vaccine rollout, new waves, or variants could jeopardize rebound. - Lower-than-expected oil prices would have significant negative implications. - Fiscal slippages and setbacks in increasing non-oil fiscal revenue could jeopardize debt sustainability and weigh on imports and external reserves. - Larger-than-expected drawdowns on SDR allocations, or use of fiscal space from restructuring BEAC consolidated advances for additional deficits, would inject liquidity and weigh on reserve buildup. - Lower-than-expected availability of concessional financing or difficulties meeting conditionality could compromise growth, revenue mobilization, and reserve accumulation. - Larger-than-expected pandemic impact on banks could generate systemic risks and limit credit supply. - Deterioration in security situation (Central African Republic, Chad), social discontent, or political instability could weigh on growth. - Delays/slippages in restoring or preserving debt sustainability could impact ability of Fund programs to proceed. - Upside risks: - Higher oil prices. - Accelerated reform implementation and faster progress on FX repatriation by oil and mining companies leading to larger reserve accumulation. ### Policy recommendations and regional strategy implementation - Fiscal policy: - Balance external and debt sustainability with need to minimize pandemic’s long-term effects and support development objectives. - Fiscal consolidation critical to rebuild international reserves and put public debt on a declining path. - Emphasize non-oil revenue-enhancing measures and rationalize current expenditure to create space for priority social and growth-enhancing spending. - Accelerate arrears clearance plans to strengthen private and banking sectors. - Improve efficiency of spending, transparency, governance, and business climate reforms. - Publish cost of tax exemptions and lift unjustified exemptions. - Implement regional directives on PFM, tax policy, customs and tax administration, budget control, and fiscal risks and projections. - Statutory advances: - Staff urged containing impact of newly rescheduled statutory advances; recommended rescinding the decision to limit risk of fiscal slippages. - Countries with sufficient fiscal space, especially under IMF programs, should repay statutory advances per original schedule. - If not rescinded, use new fiscal space to change composition of financing to reduce domestic bank financing of deficits and ease bank-sovereign nexus. - Monetary policy and liquidity: - Tighten monetary policy to stem decline in reserves and anchor expectations. - Normalize liquidity management and revert to pre-crisis framework, while addressing banks with structural liquidity needs and reserving normal liquidity window for liquid and solvent banks. - Implement TSAs to absorb banking system liquidity and facilitate monetary operations. - Financial sector: - Address financial sector weaknesses to preserve financial stability and support private-sector growth. - Limit indiscriminate access to BEAC liquidity and focus support on banks with credible restructuring and governance improvements. *International Monetary Fund, CEMAC chapter excerpt* ### 23. BEAC continues to firmly enforce the foreign exchange (FX) regulation ### 23. BEAC continues to firmly enforce the foreign exchange (FX) regulation ### FX regulation enforcement and compliance - Since March, BEAC has reminded banks and companies about: - the documentation required for FX demands, and - the need to clear past transfer transactions, which should normally be done within three months. - A significant number of sanctions were applied to noncompliant economic agents. - Monitoring the obligation to repatriate deposits held abroad remains difficult. - Staff advised BEAC to continue to seek countries’ cooperation for identifying government agencies and public enterprises that might still have accounts abroad. ### Application to the extractive sector (from 2022) - BEAC is on track to apply the FX regulation to the extractive sector from 2022. - Extractive sector companies will be required to repatriate a significant portion of their export earnings. - To facilitate transactions, extractive companies will be allowed to hold foreign currency accounts in CEMAC banks: - These accounts will be protected against abusive seizure and will incur low operation costs. - The agreement entails an ongoing dialogue between stakeholders to ensure effective implementation and attention to the constraints of the sector. - From 2022, funds set aside by companies to cover oil fields rehabilitation costs will be transferred into long-term foreign currency deposits in CEMAC over three years. - BEAC believes these amounts could be substantial and contribute to a significant increase in BEAC's foreign exchange reserves. - Staff recommendation: quickly communicate the changes, new provisions and obligations to all actors, including BEAC’s own staff, to minimize implementation delays and difficulties. - Processing times for FX transfers outside of 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; governments should support BEAC in identifying government agencies and public enterprises that might still have accounts abroad. ### Financial sector policies and reforms - COBAC exit from temporary pandemic measures and prudential normalization: - In August 2021, the SG COBAC increased the capital requirement by ½ percentage point to 10 percent, starting to bring capital requirements back to the pre-crisis level of 10.5 percent. - COBAC is to decide on an exit strategy by end-2021 for implementation starting in July 2022. - SG COBAC plans inspections to fine-tune understanding of pandemic impact on banks’ loan books and solvency. - Staff emphasized priority to restore financial transparency and avoid further accumulation of latent NPL losses. - Staff recommendations (practical measures and timelines): - Set an end-date, preferably at end-December 2021, for the eligibility of new loans to the temporary measures to freeze the stock of pandemic-impacted loans at end-2021. - Avoid postponement of the exit beyond July 2022 to allow rapid return to balance sheet transparency while maintaining financial stability. - Set an end-date, preferably by end-2022, at which the temporary measures would be entirely lifted, and appropriate reclassification and provisioning done. - COBAC’s impact studies indicate that, as of April 2021, the total estimated provisioning needs could lie slightly above one year of the sector’s net income. - Encourage banks, on a voluntary basis, to exit temporary measures early, and only allow dividend distribution for banks that remain fully compliant with solvency requirements after all losses from NPLs are accounted for. - Require undercapitalized banks to submit credible medium-term recapitalization plans and avoid delaying resolution of banks that were insolvent prior to the pandemic. - Work with countries on domestic arrears clearance plans and assess their potential impact on banks. - Supervisory compliance, enforcement, and bank resolution: - Regulatory compliance deteriorated slightly post-pandemic; bank resolution remains slow. - Banks’ compliance with minimum solvency, individual exposure limit, and short-term liquidity requirements deteriorated marginally from end-2020. - At end-April-2021, only 14 banks out of 50, representing less than half of total banking assets, complied with all prudential ratios based on regulatory capital (compared to 17 at end-2020). - Staff reiterated recommendation to use the full array of regulatory measures as needed, including financial penalties. - Recent progress: setting closure dates for two liquidations; recommended that post-liquidation recovery procedures be in place by the closure date. - COBAC disciplinary and supervisory actions: - COBAC took strong disciplinary decisions to enforce compliance with foreign exchange and AML/CFT regulations and intensified inspections related to sovereign risk. - Staff suggested a dashboard to track governance and risk management compliance and recommended starting to apply financial sanctions. - Resumption of on-site inspections noted despite staffing constraints; persistent capacity issues need urgent addressing. - Regulatory modernization and risk-based supervision: - COBAC is finalizing regulations to strengthen the regional AML/CFT framework, introduce Islamic banking, and enhance FOGADAC operations to be adopted by end-2021. - Revision of the short-term liquidity ratio and implementation of the leverage ratio are planned for 2022. - Progress on the Basel roadmap and the new stress-testing methodology has been more limited. - Staff encouraged SG-COBAC to update its Basel roadmap and timeline to implement risk-based supervision, restart timely reporting of financial sector indicators to the IMF Statistics department, limit risks related to the sovereign-banks nexus (banks’ exposure to the sovereign continued to increase in 2021 to more than a quarter of banking assets), broaden investor base for government securities towards nonbanks, and accelerate reforms to develop a deeper secondary market. - Financial transparency and inclusion initiatives: - BEAC launched a pre-qualification for the Credit Information Bureau (CIB) in June 2021 and selected two candidates for a tender to be launched at the end of 2021; CIB selection planned in the first half of 2022. - New credit risk registry is piloting in Gabon before extension to other countries in the first half of 2022; corporate financial statement registry is delayed. - An external consultant presented diagnostics of financial inclusion in each country in the first half of 2021; first draft of the strategy (including definition of basic financial services) expected by end-2021. ### Enhancing the regional surveillance framework - Staff discussions with the CEMAC Commission emphasized: - Adherence to regional convergence criteria within a reasonable timeframe is essential for credibility. - Only three countries (Cameroon, Congo, and Chad) have shared national triennial convergence plans with the Commission; other CEMAC members should complete their plans quickly. - Staff recommended rapid adoption by the Heads of States Conference of the new sanction mechanism for breaches of regional surveillance rules. - Staff reiterated support for macroeconomic imbalances early warning tools, becoming effective in 2023 (based on 2022 data). ### Monitoring of regional developments and policy assurances - BEAC and COBAC implementation status: - BEAC left monetary policy unchanged after moderate easing in 2020; with lower external reserves and higher demand for BEAC liquidity, monetary conditions tightened with the interbank rate increasing by about 200 bp since end-2020. - The NFA target at end-June 2021, a policy assurance set amid high uncertainty, was missed; shortfall appeared largely due to lower external financing, though abundant liquidity likely also played a role. - Consultations with the extractive sector on FX regulation implementation progressed; full implementation expected by end-December 2021. - The platform for operationalizing TSAs expected to be ready by end-2021. - SG-COBAC is finalizing a new risk rating system for modern risk-based prudential supervision, albeit with delays partly due to capacity constraints. - Validation of cash-flow recovery plans of two banks to reduce BEAC refinancing dependence within two years has been slow. - Corrective actions and policy adjustments to support reserve position: - A 25 basis points increase in the policy rate (TIAO) was approved at an extraordinary MPC meeting on November 25 following a recommendation from BEAC. - BEAC increased the interest rate of liquidity absorptions by 30 basis points to reduce excess liquidity, stimulate the interbank market, and improve monetary policy transmission. - BEAC reduced its weekly liquidity injections from CFAF 250 billion to CFAF 230 billion. - BEAC will continue to work towards effective application of the foreign exchange regulation, including agreed adaptations for the extractive sector from 2022. - Proposed regional NFA targets covered by updated policy assurance (consistent with staff projections and national fiscal intentions): - end-December 2021: euro 2.2 billion - end-June 2022: euro 2.78 billion ### Staff appraisal — key findings and recommendations - External position and prospects: - CEMAC’s fragile external position is expected to improve in 2022 but projections remain highly uncertain. - High oil prices, strong global growth, and significant fiscal adjustment should contribute to foreign reserves accumulation in 2022 but uncertainty remains. - Appropriate policy mix and conditional actions: - The contemplated tighter policy mix is appropriate to bolster CEMAC’s external position. - Region’s external sustainability will hinge on sustained fiscal consolidation aligned with Fund-supported programs (Cameroon, Gabon, Equatorial Guinea) and possible Fund-supported programs (Chad, Congo). - Saving oil price windfalls would help insulate CEMAC from downside risks including external financing shortfalls. - Fiscal policies should limit the impact of using SDR allocations and restructuring statutory advances on liquidity and domestic demand. - Enhanced collaboration with other donors would help catalyze more external financing on appropriate terms. - Monetary and liquidity management: - Recent monetary policy tightening should help stem the decline in reserves and contain inflation expectations. - Liquidity management framework should revert to pre-crisis focus on autonomous factors of banking liquidity; normal liquidity operations should be restricted to liquid and solvent banks. - In case of a non-minor or non-temporary deviation from revised NFA accumulation targets, BEAC and CEMAC member states should stand ready to identify and adopt additional corrective actions, including further monetary policy tightening by BEAC if needed. - BEAC and COBAC should address banks with structural liquidity needs and/or difficulties meeting prudential requirements within a separate framework geared towards strengthening or restructuring these banks. - Full operationalization of TSAs would facilitate liquidity management; national treasuries should work with BEAC to implement them. - Financial stability and supervisory priorities: - Full implementation of the FX regulation by end-2021 should support NFA accumulation in the medium term. - To limit risks to financial stability as the region exits the crisis, COBAC should improve regulatory compliance and accelerate bank resolution. - COBAC should end eligibility of new loans to temporary easing by end-December 2021, decide on a transparent exit strategy by the same date, and aim to lift entirely the temporary measures by end-2022. - Ensure banks comply fully with regulations on asset classification and provisioning as they exit temporary measures. - Tackle high NPLs and progress on arrears clearance plans remain key for financial stability. - Accelerate progress on risk-based prudential supervision, the Basel roadmap, the new stress testing methodology, improving data quality, and establishing a framework for risk-based AML/CFT supervision. - Address longstanding under-staffing issues to carry out the workload. - Structural, transparency, and governance reforms: - Decisive acceleration of cost-neutral structural, transparency, and governance reforms is critical to external viability given limited policy space. - Priorities: implement reform commitments from Heads of States (PREF-CEMAC matrix), improve public finance and oil and gas sector transparency, strengthen revenue mobilization, improve public investment management and PFM directive implementation, enhance regional tax policy monitoring and customs procedures, and focus on business-friendly reforms via the Business Climate Observatory. - Increase non-oil revenue, modernize tax administrations, broaden tax base to support external and debt sustainability. - Disseminate macroeconomic and financial data more timely to increase transparency and monitor progress. - CEMAC Commission and PREF CEMAC should continue to monitor and encourage rapid implementation of key reforms and promote budget transparency and a strengthened regional surveillance framework with an early warning system and sanction scheme for non-compliant countries. *Source: IMF staff report excerpt on CEMAC regional policies and reforms.* ### 39. Overall, staff: (i) notes that BEAC did not implement the policy assurance on the NFA ### 1caeea2022001 - 39. Overall, staff: (i) notes that BEAC did not implement the policy assurance on the NFA ### Staff assessment of NFA performance and policy assurance - BEAC did not implement the policy assurance on the NFA provided in the June 2021 follow-up letter, largely due to lower external financing in the first half of 2021. - Staff considers that BEAC has taken sufficient corrective actions to address the end-June NFA underperformance by starting to reverse the easing of monetary conditions while the recovery has still to materialize. - Staff supports the updated proposed policy assurance on NFA accumulation to bring NFA to euro 2.2 and euro 2.78 billion at end-2021 and end-June 2022, respectively. - Meeting the proposed 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. - The build-up in external reserves will remain contingent on external support to CEMAC countries being in line with expectations. ### Monetary policy corrective actions taken by BEAC - 25 basis point increase in the policy rate (TIAO) and the marginal lending facility rate, approved by the November 25 extraordinary MPC meeting on the recommendation of BEAC. - 30 basis point increase in the interest rate of the liquidity absorption window to reduce excess liquidity, stimulate the interbank market, and improve monetary policy transmission. - Reduction in the weekly liquidity injections from CFAF 250 billion to CFAF 230 billion. - These corrective actions underpin the NFA accumulation. ### Fiscal, structural, and governance commitments - Member states intend to maintain macroeconomic stability, including through appropriate fiscal policy measures. - Member states plan to implement quickly and decisively ambitious structural, transparency, and governance measures to unlock the growth potential of the region, in the context of program or pre-program engagement with the Fund. - Other policy commitments provided in the June 2021 follow-up letter were implemented, albeit with delays due to the COVID-19 pandemic. ### Macro outcomes and near-term projections (selected) - Real GDP contracted 1.9 percent in 2020 and is forecasted to reach 1.9 percent growth in 2021, mostly due the recovery in the non-oil sector. - In 2021, the overall fiscal deficit is projected to improve slightly to -2.7 percent of GDP. - The non-oil fiscal deficit will remain stable at -9.9 percent of GDP. - More favorable terms of trade will bring the current account deficit to 2.1 percent of GDP in 2021, but the net foreign reserves position is forecasted to continue deteriorating. - The NFA declined sharply since mid-2020, bringing the reserves coverage below 3 months of imports in 2021. - The recovery in oil prices, rapid global growth, and significant fiscal adjustments in 2022 should allow for the build-up in net external reserves to resume. - With widening deficit, public debt increased to 60 percent of regional GDP in 2020 and should progressively decline below 50 percent in 2024. ### Key numeric policy targets and figures (preserved exactly) - Updated NFA accumulation targets: euro 2.2 billion at end-2021 and euro 2.78 billion at end-June 2022. - Policy rate (TIAO): 25 basis point increase. - Interest rate of liquidity absorption window: 30 basis point increase. - Weekly liquidity injections: reduced from CFAF 250 billion to CFAF 230 billion. - Real GDP: contracted 1.9 percent in 2020; forecasted to reach 1.9 percent growth in 2021. - Overall fiscal deficit (2021 projection): -2.7 percent of GDP. - Non-oil fiscal deficit (2021): -9.9 percent of GDP. - Current account deficit (2021 projection): 2.1 percent of GDP. - Reserves coverage: below 3 months of imports in 2021. - Public debt: increased to 60 percent of regional GDP in 2020; projected to decline below 50 percent in 2024. *Source: IMF staff assessment and CEMAC regional data as presented in the cited content unit.* ### Annex I. External Sustainability Assessment ### Annex I. External Sustainability Assessment ### Overview — Key findings - The external position of the CEMAC region at end-2021 is assessed to be significantly weaker than implied by fundamentals and desirable policy settings. - The current account deficit improved in 2021 after a sharp deterioration in 2020 but the improvement is temporary; the medium-term current account deficit is projected to widen to about 4.8 percent of GDP by 2026. - Net foreign assets are at historical lows in 2021, reflecting fragility and a sharp decrease in external financing over the last two years, notably in FDI, and a shortfall of budget support relative to expectations. - With gradual return in external financing, fiscal adjustment, and reforms, external gross reserves are projected to recover from 3.4 months of imports at end-2021 to 5 months of imports by 2026 (the level considered adequate for CEMAC currency union). ### A. Current Account developments and reserves adequacy - 2020–21 developments: - Current account deficit declined from 5.2 percent of GDP in 2020 to about 2.1 percent of GDP in 2021, driven by higher oil exports and a more gradual rebound in imports. - Improvement occurred in all CEMAC countries except Central African Republic (improvement expected in 2022). - Congo: current account reached a 12 percent of GDP surplus in 2021 after a 0.1 percent of GDP deficit in 2020. - Medium-term projection (2022–26): - Current account deficit projected to widen to 2.5 percent of GDP in 2022 and further to 4.8 percent of GDP by 2026, driven by significantly lower oil exports (both in volume and value terms). - Net capital inflows expected to improve significantly while prudent fiscal policy keeps import levels broadly constant as percent of GDP. - Reserve levels projected to improve to about 5.2 months of imports by 2026, from 3.4 months of imports at end-2021. - Reserves adequacy and metrics: - BEAC reserves coverage: 3.1 months of prospective extra regional imports at end-2020; expected to improve to 3.4 months at end-2021 (supported by new SDR allocations). - Benchmark deemed adequate for CEMAC: 5 months of prospective extra-regional imports. - At end-2021, reserves amounted to no more than 60 percent of the IMF reserve adequacy metric, below the 100–115 percent range deemed broadly adequate. - Other ratios at end-2021: in percent of broad money = 35; in percent of short-term liabilities = 178; minimum thresholds: broad money 20, short-term liabilities 100. - Preconditions and assumptions for medium-term recovery: - Projections assume Cameroon and Gabon meet end-2021 fiscal targets, approval of financial arrangements for Congo and Chad, and SMP approval for CAR by the end of the year. - Policy mix required to rebuild reserves: fiscal consolidation, tighter monetary policy mindful of growth and financial stability, return to liquidity management based on autonomous factors, normalization of prudential stance on COVID-19 affected bank credit portfolios. - Implementation of foreign exchange regulation extended to the oil sector from 2022 to improve repatriation of foreign exchange earnings. ### B. Capital inflows and risks - 2021 capital flow developments: - Net capital inflows increased slightly from 2020; most of the increase due to higher long-term other investment inflows reflecting the SDR allocation. - FDI net inflows remained lower than 2019 levels. - Medium-term projections and risks: - Net portfolio inflows expected to be close to zero over 2022–26. - FDI inflows projected to increase gradually, reaching about 4.5 percent of GDP by 2026. - Downside risks: net capital inflows could remain durably lower; outflows may surpass inflows; normalization of monetary policy abroad could pressure portfolio inflows; concerns about debt sustainability and fragile recovery could limit return of direct investments; official creditor financing may be less than during COVID-19 crisis. ### C. Current account and exchange rate assessment (EBA-Lite and REER) - EBA-Lite CA model results for 2021: - The model suggests an overvaluation of about 21 percent. - Cyclically adjusted current account deficit estimated at 4.8 percent of GDP against a balanced current account norm (assuming elasticity of the current account to REER of -0.22). - Implied CA gap: -4.8 percent of GDP under current policies (Adjusted CA -4.8; CA Norm 0.0; CA Gap -4.8). - Components and calibrations preserved in the model: - Projected cyclically adjusted fiscal balance reflecting recommended medium-term fiscal objectives. - Public health expenditures at 2.0 percent of regional GDP. - Revised desired change in reserves to reach 5 months of import coverage at end-2026. - Private sector credit level at about 14 of GDP. - Assumption of less restrictive regional capital controls. - Calibration relies on BEAC gross foreign assets statistics and recent CEMAC macro framework projections; includes potential impacts of natural disasters and conflicts and a COVID-19 adjustor for tourism and remittances. - REER developments: - REER broadly stable since late 1990s after 1994 devaluation, with year-to-year fluctuations not exceeding 10 percent. - In 2020, the REER appreciated by about 6.5 percent relative to the previous year and remained broadly unchanged over 2021, reflecting nominal appreciation of the Euro vis-à-vis USD. - Measures of REER for the CEMAC region have accuracy limitations due to scarce data on intra-regional trade; EBA-lite REER approach does not fit REER evolution very well. ### D. Policy recommendations to strengthen external position - Fiscal and macro policy: - Implement prudent fiscal adjustment and maintain a tighter fiscal stance over the medium term. - Strengthen revenue mobilization to improve debt service capacity. - Design fiscal contingency plans to address possible deterioration of the current account balance. - Monetary and external sector measures: - Tighten monetary policy and return to liquidity management based on autonomous factors. - Normalize prudential stance on COVID-19 affected bank credit portfolios. - Fully implement and communicate the new foreign exchange law, including with extractive industries; extend FX regulation enforcement to the oil sector. - Strengthen repatriation and surrendering of foreign exchange receipts, including repatriation of foreign accounts held abroad by SOEs. - Structural and governance reforms: - More forceful implementation of structural reforms to improve competitiveness and business climate. - Advance long-overdue structural reforms, diversify the economy, and deepen regional integration. - Improve governance and transparency, including commitments made at a CEMAC Heads of States meeting convened in August 2021 for coordinated regional strategy. - Use of windfalls: - If commodity prices increase, take the opportunity to rebuild external and fiscal buffers and implement structural measures to avoid entrenching the “resource curse”. ### E. Risks and shock scenarios (selected from the Risk Assessment Matrix) - Uncontrolled Covid-19 local outbreaks and subpar/volatile growth: - Likelihood: High; Expected impact: High. - Potential effects: large adverse human effects, disruptions in oil and non-oil sectors, large economic impact. - Proposed mitigation: reprioritize fiscal spending for vaccine acquisition and distribution; seek additional external support; implement vaccination strategy and increase public health measures. - Global resurgence of Covid-19: - Likelihood: Medium; Expected impact: High. - Potential effects: lower oil prices, weaker growth, worsening fiscal and current account positions, pressure on reserves. - Proposed mitigation: strengthen external sustainability via FX law implementation, repatriation efforts, fiscal contingency planning, structural diversification. - Widespread social discontent and political instability: - Likelihood: Medium; Expected impact: Medium. - Potential effects: reduced market confidence, delayed reforms, weakened institutions, delayed fiscal adjustments. - Proposed mitigation: maintain social dialogue; protect priority social spending. - Rising commodity prices amid volatility: - Likelihood: Medium; Expected impact: High. - Potential effects: upside for fiscal consolidation and reserve build-up, but risk of slowed diversification. - Proposed mitigation: rebuild buffers and implement diversification and competitiveness-enhancing reforms. - Higher frequency and severity of natural disasters related to climate change: - Likelihood: Medium; Expected impact: Medium. - Potential effects: lower agricultural production, food security and income impacts, potential global GDP effects. - Proposed mitigation: strengthen food security and rural development programs; invest in climate-resilient infrastructure; establish social safety nets. *Source: Annex I. External Sustainability Assessment (CEMAC), IMF staff document.* ### 2021. Efforts are ongoing to broaden the investor base and ### 1caeea2022001 - 2021. Efforts are ongoing to broaden the investor base and ### Investor base and primary dealer requirement - Ongoing efforts to broaden the investor base and gradually enforce the existing requirement for primary dealers to sell at least 30 percent of their holdings within 6 months. - Partly due to the pandemic, progress in regulatory compliance and bank resolution has been slow in 2021. ### Regional integration and convergence framework - Strengthen enforcement of the regional surveillance framework. - A sanction scheme for countries non-compliant with the regional convergence framework was adopted. - Implementation of the early warning tools of macroeconomic imbalances has been postponed to 2023. ### Annex IV — Treatment and Use of the SDR Allocations: Background and status - BEAC is the fiscal agent for CEMAC’s allocations of SDR 1,019 million (CFAF 797 billion, about 96 percent of quota). - Existing SDR holdings: SDR 892.4 billions. - Outstanding purchases and loans: CFAF 1,236 billion as of end-October 2021. - CEMAC’s quota: SDR 1,063.1 million. - Last SDR allocations in 2009: SDR 469.2 million (partly drawn by Cameroon, Chad, and CAR; recently by Congo — SDR 43 million in August 2021). - 2021 SDR allocations drawn by: - Chad: SDR 134 million in August 2021 - Congo: SDR 155 million in September 2021 - CEMAC — SDR Allocation (SDR Million): - Cameroon 265 - Chad 134 - CAR 107 - Congo 155 - Eq. Guinea 151 - Gabon 207 - CEMAC 1019 ### Annex IV — Framework for national use of SDR allocations - Framework established in May 2021. - Individual member countries entitled to request all or part of their SDR allocations; request granted upon signing an on-lending (“retrocession”) convention with BEAC. - On-lending form: perpetuity loan in CFAF. - Countries assume responsibility for servicing the loan, which bears the CFAF-equivalent of the SDR rate. - If SDR allocations are recalled, governments are responsible for returning them. - SDR service guaranteed with a provision equivalent of 5 years of interest and charges held in an escrow account at BEAC. - Accounting implications: - Under latest accounting guidelines, Gross International Reserves (GIR) are expected to increase as a result of the SDR allocations. - Allocations have no impact on net foreign assets (NFA) as they entail an increase in both foreign assets and liabilities. - SDR position shown on BEAC’s balance sheet. - On-lent SDRs will show as domestic debt on governments’ balance sheets. - SDR on-lending will be accounted for in CEMAC members’ DSAs according to issued guidance. - Note on SDR interest rate: "The SDR interest rate is a weighted average of interest rates on 3-month debt in the money markets of the five SDR basket currencies (the U.S. dollar, yen, Euro, pound sterling, and the Chinese RMB) and is adjusted weekly. The current SDR rate is very low by historical standards as the SDR interest rate has averaged 5.5 percent over the last 30 years." ### Annex IV — Use of the allocations: observed use and guidance - Observed use: - Chad withdrew the entirety of its SDR allocation upon receipt. - Congo withdrew the balance of its 2009 allocation and the entirety of the 2021 allocation in the Fall of 2021. - Use of Cameroon, Equatorial Guinea, and Gabon’s allocations to be discussed during upcoming program reviews; use should preserve debt sustainability. - Policy guidance and recommended principles: - Large remaining part of the allocations should be consistent with regional policy objectives while supporting countries exiting the crisis. - About half of the allocations should be saved in countries that haven’t fully used their allocations to bolster CEMAC’s still weak reserve position. - Any on-lending that results in net liquidity injections is highly likely to lead to a loss in NFA through the impact on reserves of additional imports. - Allocations could be used to ease financing constraints and support the recovery; pace and details to be discussed with individual countries in program or surveillance consultations. - Use should be aligned with countries’ absorptive capacity (multi-year use may be more appropriate than one-off spending). - Allocations carry a (variable) cost; best used to finance investment or replace high-cost debt; financing recurrent spending is not recommended. - Allocations should not be used to delay corrective action on fiscal policy and/or structural reforms. - Large share of allocations warranted in countries with extremely tight liquidity constraints and elevated social needs. - Countries with market access or Fund-supported programs should contribute to external sustainability and avoid drawing extensively on allocations. - Any use should consider expectation that spending supported by allocations would need to be monitored and reported on. - Governance and transparency recommendations: - Follow best international practices in governance and transparency on use and accounting of SDR allocations, including: - Consistency with a credible and sustainable medium-term framework. - Resources used to finance high-quality spending following best governance principles. - Any spending and its financing transparently recorded in the budget in accordance with the IMF's Fiscal Transparency Code. ### Annex V — Heads of States Summit on Macroeconomic Situation in CEMAC and Recovery Measures (August 18, 2021): Main recommendations and commitments - Overall assessments: - Congratulated PREF-CEMAC Chair for progress up to 2019 in implementing the Programme. - Noted consolidation of community foreign currency reserves at above 3 months of import. - Noted recession in 2020 and deterioration of macroeconomic and financial balances due to the pandemic; macroeconomic outlook in 2021 is positive overall but with lingering challenges and uncertainties. - Commended exceptional response measures by States and community institutions (CEMAC Commission, BEAC, COBAC, BDEAC, OCEAC). - Public health and vaccination: - Affirmed determination to step up vaccination campaigns and enlisted international support for wide and equitable access to vaccines and promotion of a regional pharmaceutical industry. - Economic support measures: - Urged careful and gradual lifting of exceptional economic support measures, considering lingering health crisis effects. - Welcomed international support initiatives: emergency financing, the Debt Service Suspension Initiative, debt restructuring and relief, and establishment of the G20 Common Framework. - Commended IMF's general allocation of SDRs of US$ 650 billion and advocated for on-lending of developed countries’ SDRs to developing countries and for an ambitious replenishment of IDA-20 resources by at least US$ 100 billion. - Recovery plan and policy priorities: - Urged adoption of the CEMAC Community Post-COVID Economic Recovery Plan and called on partners to support implementation. - Reaffirmed commitment to community solidarity to preserve public finance viability and strengthen CEMAC’s external position. - Called on Member States to implement appropriate fiscal policies based on increased mobilization of non-oil revenue, stepping up public expenditure quality and effectiveness, and rigorous public debt management. - Urged States to streamline the financial system and formulate credible arrears payment strategies consistent with program commitments. - Reaffirmed commitment to strengthening external currency stability through prudent monetary policy and judicious application of exchange rate regulations; encouraged BEAC to pursue actions in this area. - Reiterated brainstorming on the framework and conditions for new monetary cooperation with France. - Financial market and structural reforms: - Congratulated PREF-CEMAC Steering Committee and BEAC on first phase of merger of CEMAC financial markets; encouraged completion of restructuring and operationalization of unified financial market and revitalization toward broad-based mobilization of community savings. - Decided to implement priority policies and reforms as part of second phase of PREF-CEMAC to achieve structural transformation and industrialization. - Urged improvements in public institutions, governance and transparency, public finance management (particularly investment quality), and monitoring of fiscal and debt risks in public enterprise management. - Encouraged development of human capital with adequate financing for education, vocational training and health, and strengthening social protection systems. - Recommended mobilization of hybrid external financing in new programs, prioritizing concessional resources and public-private partnerships (PPPs). - Resolved to continue environmental policies to combat climate change and mobilize related financing. - Reaffirmed determination to promote and deepen regional integration: free movement of persons and goods, promoting digital economy, constructing regional infrastructure, ensuring sustainable access to energy, implementing eleven priority integration projects financed at Paris Round Table in November 2020, and leveraging AfCFTA. - Agreed to accelerate business climate improvements to attract foreign direct investment to finance major structuring projects supporting industrialization. - IMF and partners engagement: - Decided to give strong impetus to regional recovery strategy through second-generation economic and financial programs to be concluded with the IMF, backed by World Bank, African Development Bank, France, among others. - Emphasized increased coordination of multilateral and regional partner operations to mobilize financing and enhance economic, financial and social impact. - Urged relevant Member States to finalize and conclude programs with the IMF to give the regional recovery strategy community and supportive character with support from IMF, World Bank, AfDB, France and other partners. - Final declaration: - Heads of State expressed firm desire to pursue efforts since 2016 as part of a second cycle of economic and financial programs backed by the IMF and other partners, aiming for "strong, green, resilient and inclusive growth" to create more wealth and jobs. *Source: 1caeea2022001 - 2021. Efforts are ongoing to broaden the investor base and* ### 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 ### Key findings on recent developments - GDP growth should reach 1.9 percent in 2021, driven primarily by the non-oil sector. - GDP growth is projected to improve to 2.8 percent on average in 2022, thanks to rising oil prices and greater non-oil growth. - Fiscal deficits are expected to stand at 2.7 percent on average in 2021. - Fiscal positions should improve by approximately 0.5 percentage point in 2021, largely owing to rising oil revenues. - Public debt should decline to 56.2 percent of GDP in 2021, 3.8 percentage points below the 2020 level. - Public debt is projected to fall to 54.1 percent of GDP in 2022, down 2.1 percentage points from its 2021 level. - The external current account deficit narrowed from 5 percent of GDP in 2020 to 2.1 percent of GDP in 2021. - The external current account deficit is projected to deteriorate slightly to 2.6 percent of GDP in 2022 owing to a slight decline in oil exports in 2022. - Inflation remains under control at 2 percent in 2021, well below the regional convergence criterion. ### External financing, reserves, and SDRs - The region received the allocation of Special Drawing Rights (SDR) that took effect in August 2021. - Foreign exchange reserves deteriorated significantly from end-June 2021; the region’s target for net foreign assets (NFA) was not met primarily owing to a shortfall in disbursements of external budgetary support of CFAF 87.9 billion in the first half of 2021. - Were it not for this shortfall, net reserves at end-June 2021 would have reached the level projected during the last review of regional policies. - Gross reserves stand slightly above three months of imports owing to the SDR allocation, but are barely maintaining the level achieved at the end of August. - The rate of coverage of the foreign exchange reserves temporarily fell below the threshold of 60 percent in June and July and rose only with the help of the SDR allocation; a further decline in gross reserves could cause them to drop below the 60 percent threshold again. - Projections to consolidate net foreign assets to 2.20 billion euros at end-December 2021 and a reserves target of 2.78 billion euros for end-June 2022. - These projections are based on external financing hypotheses (including exceptional financing but excluding IMF financing) in the amount of 229 million euros in the second half of 2021 and 213 million euros in the first half of 2022. ### Monetary policy and liquidity management measures - In a context where most central banks adopted a highly accommodative monetary policy stance, the BEAC— in accordance with its charter—refrained from providing direct monetary financing to the member states. - To support reserve accumulation, authorities began to tighten monetary policy in 2021: - The government securities purchase program expired in September 2021. - Liquidity absorption operations were resumed at the end of August 2021 after a temporary suspension at the beginning of the pandemic. - The rate on liquidity absorption operations was raised in mid-October 2021 to increase attractiveness due to limited bank interest. - Haircuts applied to government securities for monetary operations were raised in September 2021 after being reduced at the beginning of the pandemic in 2020. - COBAC increased the capital conservation buffer from 1.5 percent to 2 percent (August 2021 meeting). - Further planned actions: - Convene a special Monetary Policy Committee (CPM) meeting in late November 2021 to recommend an increase in the policy rate. - Propose an additional increase in the rate on liquidity absorption operations to the Money Market Committee (CMM) to increase attractiveness while limiting potential crowding out effects. ### Banking sector supervision and prudential measures - Prudential and monetary easing measures implemented earlier have moderated the impact of the crisis while limiting risks. - On-site inspections were resumed in 2021. - Reform of processes and tools for implementation of risk-based supervision and alignment of certain prudential rules with the Basel standards is ongoing. - COBAC conducted an impact analysis of the COVID crisis and noted a substantial increase in COVID-impacted assets. - COBAC is monitoring asset quality monthly and bank liquidity weekly. - The strategy for exiting temporary relaxation of prudential measures should be discussed during the next meeting of commissioners in December 2021. - When temporary measures are lifted, COBAC will: - Ensure banks comply with asset classification and provisioning rules and submit recapitalization plans if necessary. - Closely monitor changes in nonperforming loans (NPLs) and require banks to have plans to reduce NPLs, including strategies to clear government arrears. - Closely monitor recapitalization procedures, accelerate bank resolution procedures, and step up application of related prudential regulations. - Monitor the evolution of the sovereign-bank nexus. ### Foreign exchange regulations and extractive sector arrangements - Objective of full implementation of the foreign exchange regulations by the end of 2021 is being maintained. - Agreement reached with mining and oil companies on application of foreign exchange regulations in the extractive industries sector starting in January 2022: - Agreement calls for a gradual process and continuing dialogue to ensure effective implementation adapted to sector constraints. - Includes repatriation of a significant portion of export receipts. - Allows extractive industries to hold foreign currency accounts in CEMAC banks that could be used more flexibly at lower costs and would be sheltered from bank account seizures and/or garnishments. - Funds set aside for the rehabilitation of oil sites should be repatriated to long-term foreign currency accounts in the CEMAC within three years. - Although no precise estimates are available, authorities believe the volume of funds that could be repatriated would be substantial and contribute to a significant increase in BEAC foreign exchange reserves. ### Public finance management, transparency, and structural measures - BEAC continued work to support more effective public finance management. - Establishment of an IT platform to facilitate management of the Single Treasury Accounts at the BEAC was slightly delayed but expected to be in place in December 2021 for countries that are ready. - BEAC continued implementation of its financial transparency strategy: - A prequalification phase for credit information bureaus (BIC) was held in June 2021; two candidates were selected for a call for bids to be launched by end-2021 with a view to selection of the BIC in the first half of 2022. - The new credit risk registry is being piloted in Gabon before expansion to other countries. - Regional strategy actions: - Corrective actions, partial withdrawal of some policy easing measures, and strong implementation of the foreign exchange regulation have been taken to support reserve accumulation. - A Summit of Heads of State in August 2021 launched a second phase of the regional strategy focused on raising growth and making it more inclusive and renewed policy assurances in November 2021. ### Risks and dependencies - Near-term risks to the outlook include: - Future course of the pandemic in the region and vaccination rates, which could slow the economic recovery. - Rapid global spread of the Omicron variant could lead to more stringent containment measures, stall the nascent economic recovery, and limit progress in implementation of the regional strategy. - High security-related risk in several countries of the region, which compounds health risks. - Greater-than-expected drawings of SDR allocations or use of fiscal space created by recent structuring of consolidated advances to governments for supplementary expenditures could have a negative impact on external reserves. - The moderate recovery will depend on: - Approval of new programs with the IMF for countries that have requested them. - Reviews of programs already under way. - Anticipated financial assistance from other development partners. ### Commitments and cooperation - The BEAC and COBAC will: - Maintain close monitoring of the status of CEMAC countries’ programs. - Continue to work in close cooperation with IMF staff to support the regional strategy to exit the crisis. - Stand ready to notify and consult IMF staff in a timely manner on economic developments likely to affect CEMAC external stability through end-June 2022. - Regional authorities reaffirmed availability to work alongside the IMF and CEMAC member states to restore macroeconomic balances in the region. *Appendix I. Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries (Yaoundé, November 15, 2021) — Statement and follow-up dated December 10, 2021* ### 2022. Inflation has remained subdued in 2021 despite higher global inflation and freight charges, ### 1caeea2022001 - 2022. Inflation has remained subdued in 2021 despite higher global inflation and freight charges, ### Recent economic developments and outlook - Inflation has remained subdued in 2021 despite higher global inflation and freight charges, and should stay low in 2022, well below the regional 3-percent convergence criterion. - Growth: - Expected to reach 1.9 percent in 2021. - Expected to increase to 2.8 percent in 2022. - Public debt: - Projected to decline by 3.8 percentage points of GDP in 2021. - External sector: - Current account deficit should improve in 2021 and slightly increase with lower oil exports in 2022. - Health and security risks: - Vaccination has progressed with a rate that has more than doubled in the past three months, but remains well below those achieved elsewhere on the African continent. - Rapid global spread of the Omicron variant could lead to more stringent containment measures, stall the economic recovery, and limit implementation of the regional strategy. - Health risks are concomitant with high security-related risk in several countries of the region. - Downside risks highlighted: - Uncertainty about the path of the pandemic. - Slower than expected progress in vaccination. - Insufficient external support. ### External position and reserve developments - Net foreign assets (NFAs): - The end-June 2021 target for NFAs could not be met due to lower-than-expected external financing from development partners. - Decline of NFAs since June 2021 led this indicator to historically low levels in the second half of the year. - The initial end-December 2021 target for NFAs is expected to be missed as well. - Special Drawing Rights (SDR) allocation: - Has helped maintain gross foreign assets above 3 months of imports, which nonetheless remain well below the 5 months considered adequate for the monetary union. - Reserve targets signaled by authorities: - Reach 2.20 billion euros at the end of December 2021. - Consider a significantly higher reserve target, around 2.78 billion euros at the end of June 2022. - External financing needs: - Remain substantial over the medium term. - Lower-than-projected Fund support and limited catalytic effect on additional external financing from development partners could trigger higher use of the SDR allocation for budgetary purposes and further weaken the international reserve position in 2022. ### Monetary and financial sector policies - Pandemic response measures: - Unconventional monetary and prudential policy measures were adopted to ensure sufficient liquidity in the banking system and support businesses. - Regional authorities refrained from monetary financing of the deficit despite large liquidity needs since the inception of the crisis. - UMAC Ministerial Committee decision: - In September 2021 decided a rescheduling of repayments of statutory advances set to start in 2022 to address high risk of advance repayment default and its potential negative impact on the central bank’s balance sheet. - Authorities recommended member states use this space to reduce bank financing, while acknowledging this could hinder reserve accumulation if member states increase spending instead. - Normalization steps: - Central bank stopped its asset purchase program in September 2021 as announced in June 2021. - Monetary authorities started liquidity absorption operations in the third quarter of 2001, and the related interest rate has been regularly reviewed upwards to increase attractiveness of those operations. - Last month, the Monetary Policy Committee (CPM) increased the policy rate and the marginal lending rate by 25 basis points each, while keeping the refinancing rate unchanged. - The Money Market Committee (CMM) increased the liquidity absorption rate by 30 basis points and lowered liquidity injections by CFAF 20 billion. - Authorities will examine feasibility of adapting differentiated access to BEAC refinancing based on financial indicators. - Banking supervision: - COBAC is developing a strategy to phase out temporary prudential easing measures by June 2022. - COBAC has carried out impact studies of the COVID crisis and notes a significant increase in affected loans. - Close monitoring of asset quality and bank liquidity will help finetune an exit strategy from easing measures. - As temporary prudential measures are lifted, COBAC will ensure banks comply with asset classification and provisioning rules and submit recapitalization plans if necessary. - COBAC will closely monitor development of non-performing loans (NPLs), recapitalization procedures, bank resolution procedures, application of prudential regulations, and evolution of banks' exposure to sovereign risk. ### Structural reforms and governance - Foreign exchange regulation: - Set to be fully implemented starting in 2022, expected to contribute to a significant increase in the BEAC's foreign exchange reserves. - Central bank reached agreement with oil and mining companies for application of foreign exchange regulations to the extractive sector from January 2022. - Agreement includes repatriation of a significant portion of export earnings. - Possibility for extractive sector companies to hold foreign currency accounts in CEMAC banks. - Funds dedicated to rehabilitation of extractive fields must be repatriated to long-term foreign currency accounts in CEMAC within three years. - Dialogue with oil and mining companies will continue to ensure appropriate implementation. - Other reforms: - Improvements in public financial management, risk management, and financial supervision. - BEAC modernization of IT system to support operationalization of countries’ Treasury Single Account. - BEAC shortlisted two candidates for establishment of a credit bureau and launched a pilot of its new risk credit registry in Gabon. - COBAC resumed on-site inspection missions in 2021 after virtual missions during the health crisis. - Continued reform of processes and tools for risk-based supervision and aligning prudential rules with Basel standards. - Regional surveillance enhancements: - Adoption of an early warning system and a sanction scheme for countries breaching the regional convergence framework. - Harmonization and adoption of regional directives. - Development of an action matrix with performance indicators and a detailed timeline reflecting reform commitments from the Heads of State Summit and recommendations from the World Bank and the Fund. - Each CEMAC country will set up a dedicated unit to oversee fiscal issues, IMF-supported reforms, and national structural reform agendas. ### Policy assurances, conditionality, and Fund engagement - Regional policy focus: - Main objective to ensure internal and external stability of the currency while recognizing health challenges. - Regional institutions will monitor global and regional economic and health developments and adapt policies accordingly. - Stand ready to step up net international reserve accumulation if the declining trend persists. - Monthly liquidity absorption operations will continue, with gradual increases in the related interest rate if needed until excess liquidity is mopped up. - Support for Fund-supported programs: - Regional authorities commit to further adjust monetary policy as needed and support fiscal consolidation policies pursued in Fund-supported programs. - The effective implementation of Fund-supported reform programs is critical to success of the regional strategy. - Fund engagement in the form of UCT-quality programs is necessary to catalyze resources needed to complement domestic policies, notably on the fiscal front. - Fund engagement with CEMAC countries is uneven: only two countries have active arrangements and a third expects an arrangement approved in a few days. - BEAC and COBAC will continue to work closely with IMF staff to support the regional crisis exit strategy. - The CEMAC Commission will encourage countries with Fund-supported programs to submit convergence plans based on agreed macroeconomic frameworks with the Fund. ### Conclusions and commitments - Despite the pandemic and security shocks, progress has been achieved in implementing the regional strategy to improve internal and external stability and support reform programs. - Monetary and prudential policies were tightened recently and some support measures withdrawn to reverse the downward trend of NFAs observed since June 2021. - In November 2021, BEAC authorities reiterated policy commitments with revised targets for NFAs in the Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries. - Authorities stand ready to notify and consult IMF staff in due course on economic developments likely to affect the external stability of CEMAC. *Statement by Mr. Aivo Andrianarivelo, Executive Director for the Central African Economic and Monetary Community; Mr. Regis N'Sonde, Alternate Executive Director; and Mr. Thierry Paul Nguema-Affane, Senior Advisor to the Executive Director* ### 2.78 billion euros at the end of June 2022. ### 2.78 billion euros at the end of June 2022. ### Fund engagement and program implementation - Effective implementation of Fund-supported reform programs is critical to the success of the regional strategy. - Fund engagement with CEMAC countries is uneven: - Only two countries have active arrangements with the Fund. - A third country is expecting to have an arrangement approved in a few days. - The CEMAC Commission will encourage countries with Fund-supported programs to submit their convergence plans based on agreed macroeconomic frameworks with the Fund. ### Reserve position and SDR use - Authorities agree that lower-than-projected Fund support and limited catalytic effect on additional external financing from development partners will: - Certainly trigger higher use of the SDR allocation for budgetary purposes. - Hence, further weaken the international reserve position in 2022. ### Institutional coordination and crisis exit strategy - BEAC and COBAC will continue to work closely with IMF staff to support the regional crisis exit strategy. - BEAC authorities stand ready to notify and consult IMF staff in due course on economic developments likely to affect the external stability of CEMAC. ### Progress, policy tightening, and NFAs - Despite the pandemic and security shocks, progress has been achieved in implementing the regional strategy to improve internal and external stability and in policy commitments to support countries’ reform programs. - To meet stability objectives: - Monetary and prudential policies were tightened recently. - Some support measures were withdrawn to reverse the downward trend of NFAs observed since June 2021. - In November 2021, the BEAC authorities reiterated their policy commitments with revised targets for NFAs in the Follow-up to the Letter of Support to the Recovery and Reform Programs Undertaken by the CEMAC Member Countries. *Source: 1caeea2022001 - 2.78 billion euros at the end of June 2022.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1caeea2022001.pdf_