## 1caeea2023001 ## Source details **Canonical URL:** [1caeea2023001](https://www.imf.org/-/media/files/publications/cr/2023/english/1caeea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1caeea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1caeea2023001.pdf.json) --- ### EXECUTIVE SUMMARY — context, recent developments, and near-term risks - CEMAC is broadly benefiting from a positive terms of trade shock amidst the fallout from Russia’s war in Ukraine. - Post-pandemic recovery is taking hold, supported by high oil prices and lifting of COVID-19 containment measures. - Real GDP growth: - Expected to reach 3.4 percent in 2022. - Rebounded to 1.2 percent in 2021 and is forecasted to reach 4.1 percent in 2022 (paragraphs present mixed statements in source). - Inflation and prices: - Global inflation pressures passed through to domestic prices; inflation picked up in 2022 after slowing to 2.6 percent at end-2021. - Food prices (~40 percent of CPI) increased 10.5 percent y.o.y. in June, up from 7.8 percent y.o.y. in March. - For end-2022, inflation is projected at 4.6 percent. - External reserves and buffers: - External reserves have started to build up but remain short of desired levels, partly owing to costly untargeted energy and food subsidies. - Gross external reserves projected to rise to 3.5 months of imports by end-2022; reserve coverage projected to increase to around 4½ months of imports in the medium-term (staff adequacy target: 5 months). - Key near-term risks: - Food security, debt vulnerabilities, and tightening global financial conditions. - Reform and program implementation: - About 42 percent of the PREF-CEMAC action matrix implemented through 2022Q3, with heterogeneity across members. - Mixed progress on Fund-supported programs; some reviews concluded (Cameroon, Congo, Gabon), others delayed (Chad, C.A.R., Equatorial Guinea). ### EXTERNAL POSITION, RESERVES, AND FINANCING - Current account and balances: - CAB expected to reach a surplus of 1.6 percent of GDP for 2022, following a deficit of 2.3 percent of GDP in 2021. - 2022 CAB projection modestly lowered by CFAF 96 billion. - Capital and financial account: - Projection revised down by CFAF 1,000 billion, driven by higher debt service (notably Congo) and payments to large external commercial creditors. - Overall balance deteriorates by about CFAF 1,100 billion relative to July projections. - Policy assurances and targets: - Regional policy assurance on NFA for end-June 2022 (EUR 2.81 billion) estimated met with a margin (CFAF 248 billion / EUR 378 million depending on paragraph). - Annual NFA accumulation in 2022 on track to be the largest ever, by factor of more than two. - Revised policy assurances: NFA target reduced to €3.39 billion at end-December 2022 and set at €3.93 billion at end-June 2023. - Reserve coverage: - Gross external reserves projected to reach 3.5 months of imports by end-2022; projected to reach about 4½ months in the medium term, slightly below staff’s adequacy target for a resource-rich monetary union (5 months). ### MACROECONOMIC OUTLOOK AND PROJECTIONS - Growth and inflation: - Real GDP growth projected to reach 3.4 percent in 2022 (downward revision of 0.7 percentage points relative to mid-2022). - Inflation projected at 4.6 percent at end-2022 and projected to revert to below the 3 percent convergence criterion from 2024 on, provided inflation expectations remain anchored. - External position outlook: - CAB projected to deteriorate to -1.2 percent of GDP in 2023 (0.4 percentage points lower than previous projection). - CAB gradually reverts to just below its historical average (-3.1 percent of GDP) over the medium term on account of lower oil prices and production. - Capital inflows expected to offset deterioration and sustain reserve accumulation via lower debt repayments from 2024 onwards and continuing increases in FDI. - Fiscal and public debt projections: - Region’s overall fiscal balance (excluding grants) for 2022 projected at 0.7 percent of GDP (0.4 percentage points lower than previously projected). - Non-oil primary fiscal deficit (including grants) projected to deteriorate by 0.8 percentage points to 7.6 percent of non-oil GDP in 2022; expected to improve to 4 percent of non-oil GDP in medium term through structural measures. - Public debt expected to decline to 52.8 percent of GDP in 2022 and then gradually to 40 percent over the medium term. - Donor support: - Donor support remains critical to strengthen external stability and diversify financing. ### FISCAL COSTS: FUEL SUBSIDIES (based on current oil price projections) - Fuel subsidies cost — Percent of GDP / CFAF billion: - Cameroon: 1.8% / 480; 2.4% / 298; 0.9% / 271; 0.7% / 253 - C.A.R.: 0.8% / 12; 0.7% / 12; 0.6% / 10; 0.5% / 9 - Chad: 1.1% / 86; 1.1% / 85; 1.0% / 84; 1.0% / 83 - Republic of Congo: 2.8% / 251; 1.4% / 125; 0.8% / 71; 0.9% / 84 - Equatorial Guinea: 0.7% / 69; 0.7% / 59; 0.6% / 46; 0.5% / 42 - Gabon: 1.1% / 150; 0.7% / 100; 0.2% / 30; 0.1% / 15 - CEMAC total: 1.5% / 1048; 1.0% / 679; 0.7% / 512; 0.6% / 486 ### MONETARY POLICY, LIQUIDITY, AND BEAC OPERATIONS - BEAC policy actions: - Policy rate increased to 4.5 percent in September 2022. - Marginal financing window rates increased to 6.25 percent to keep a 175-basis point corridor unchanged. - Liquidity injections scaled back from CFAF 250 billion (June 2021) to CFAF 50 billion (November 2022); three long-term liquidity operations discontinued after October 2022. - Liquidity absorption rate at 0.75 percent (increase of only 55-basis points through February 2022). - Staff recommendations on monetary stance and liquidity instruments: - Stand ready to tighten monetary policy further if inflation rises, reserve path deviates, or fiscal slippages occur. - Improve attractiveness of liquidity absorption operations: raise rates to maintain historical spread with main policy rate; explore other modalities (e.g., full allotment); raise deposit facility rate (currently 0 percent); better remunerate reserve requirements (coefficients at 7 and 4.5 percent; remuneration at 0.05 percent). - Move expeditiously to strengthen liquidity management and transmission; conduct comprehensive consultations with banks in 2023. - Balance-sheet, collateral, and operational safeguards: - Restrict access to standard weekly liquidity window to banks compliant with prudential obligations. - Adjust haircuts on collateral and establish exposure limits by bank and/or country. - Avoid excessive balance-sheet exposure via arrears securitization; maintain scheduled repayments of past statutory advances and COVID-era bond stock. ### BANKING SECTOR SUPERVISION, SOVEREIGN EXPOSURE, AND FINANCIAL STABILITY - COBAC actions and prudential normalization: - July 2022: ended temporary COVID-related forbearance measures; capital conservation buffer increased by 50 basis points to 2.5 percent. - Capital adequacy improved to 14.7 percent on average in 2022 (aided by dividend suspensions). - Reported NPL ratio increased to 19.4 percent of total gross loans in 2022Q1; overall liquidity ratios at 171 percent of short-term liabilities in 2022Q1; banks’ loan portfolio grew 7.7 percent in 2022Q1 from end-2021. - Sovereign exposure: - Sovereign exposure averaged about 30 percent of total assets as of June 2022, up from 19 percent in 2019; rose to 31 percent in 2022Q3 (34 percent including SOEs). - Drivers: bank-based financial system, rising share of sovereign assets with zero-risk weight backed by escrow accounts with zero-risk weight, rampant non-compliance with concentration limits, and financing needs during COVID-19. - Staff recommendations for COBAC and coordination with BEAC: - Conduct thorough post-COVID asset quality reviews and stress tests; estimate loan-loss provisions and capital shortfalls. - Require undercapitalized banks to submit credible recapitalization plans; establish NPL reduction strategies; consider early intervention/resolution. - Progressively enforce concentration limits; move away from zero-risk weight on government exposure or restrict zero-risk weights conservatively. - Coordinate access to BEAC liquidity operations with supervisory judgments. ### SURVEILLANCE, INTEGRATION, AND STRUCTURAL REFORMS - Regional surveillance and program implementation: - Consultations under CEMAC Commission resumed April 2022 and completed by July 2022 for all six members. - Faster transposition of regional directives and PFM modernization (TSA rollout, integrated financial information systems, program-based budgeting, internal and budget controls) needed. - New sanction mechanism for regional convergence framework yet to be adopted by HOS Conference. - Growth diversification and food security: - Staff supported PREF-COPIL import-substitution strategy to enhance food security; financing constraints necessitate donor cooperation. - Remove intra-regional transit and non-tariff barriers; step up AfCFTA and PAPSS implementation; avoid FX or trade restrictions. - Structural and fiscal reform priorities: - Save part of oil windfall; avoid pro-cyclical spending; favor temporary and limited recalibrations; phase out inefficient untargeted fuel subsidies. - Improve non-oil revenue collection by phasing out tax exemptions and broadening tax base; adopt and transpose regional tax directives; move toward more direct taxation (CIT, PIT, property tax). - Improve spending composition and efficiency; rationalize public wage bills; reform SOE governance; upgrade public investment efficiency via PIMA. - Accelerate PFM reforms: TSA implementation, integration with BEAC platform and SWIFT; improve external statistics and BOP data collection. ### CRYPTOASSETS, DIGITAL PAYMENTS, AND REGULATORY COORDINATION - Regulatory landscape and inconsistencies: - COBAC Decision D-2022/071 prohibited the use of cryptocurrencies by entities under its remit. - UMAC’s ministerial committee adopted a COSUMAF-led regulation (No-01-2022) governing digital assets (July 2022), raising clarity/consistency concerns with COBAC’s decision and BEAC’s payments mandate. - C.A.R.’s cryptoasset law inconsistent with the CEMAC Treaty; UMAC ministerial committee urged compliance. - Staff recommendations and planned actions: - Enhanced coordination among BEAC, COBAC, and COSUMAF to harmonize digital asset regulation and communication. - Joint working groups to harmonize regulatory approaches and assess CBDC desirability/feasibility (in line with BEAC Executive Board recommendation). - Fund stands ready to support efforts; upcoming Article IV mission will discuss alignment in C.A.R. ### RISK ASSESSMENT MATRIX — key risks, likelihoods, and policy responses - Conjunctural/high-likelihood risks: - Commodity price shocks — Likelihood: High. Impacts: boost oil income but raise food/fertilizer costs, threaten food security, and build inflationary pressures. Policy responses: prioritize targeted social spending; adhere to program deficit targets; implement structural reforms; implement FX law fully. - Systemic social unrest — Likelihood: High. Impacts: growth slowdown, populist policies, fiscal deterioration. Policy responses: use oil windfalls to rebuild buffers; protect social spending; build safety nets. - Conjunctural/medium-likelihood risks: - Abrupt global slowdown — Likelihood: Medium. Impacts: lower oil prices, worse fiscal and current account positions. Policy responses: strengthen FX repatriation; adhere to fiscal targets; design contingency plans; implement diversification measures. - De-anchoring of inflation expectations and stagflation — Likelihood: Medium. Policy responses: stand ready to tighten monetary policy; adhere to program deficit targets. - Local COVID-19 outbreaks — Likelihood: Medium. Policy responses: continue vaccination programs and health improvements. - Structural/high-likelihood risks: - Missed window for structural transformation — Likelihood: High. Impacts: narrowing opportunity for diversification; higher poverty. Policy responses: deep governance and structural reforms; invest in education/upskilling; create social safety nets. - Slow progress on corruption and governance issues — Likelihood: High. Policy responses: implement deep governance reforms and partner support. - Natural disasters/climate change — Likelihood: Medium. Policy responses: free fiscal space for mitigation/adaptation; work with partners on risk assessments and mitigation. - External sector assessment highlights: - EBA-lite CA model suggests CA gap -3.9 percent of GDP in 2021 implying REER overvaluation of 16.8 percent; REER model suggests mild undervaluation of 1.7 percent. - NFA position declined to 2.8 percent of GDP in 2021 (from 3.8 percent in 2020); gross reserves at end-2021: 3.0 months of GNFS (adequacy benchmark: 5 months for resource-rich union). - Policy responses: prudent fiscal and monetary policies; full implementation of FX regulations; strengthen revenue collection; remove intra-union non-trade barriers; deepen structural reforms. ### IMPLEMENTATION PRIORITIES, CONDITIONALITIES, AND MONITORING - Fund-supported programs: - Progress mixed; completion of program reviews varied across countries; delays mainly due to reform implementation challenges and debt treatment discussions. - Chad’s Common Framework debt restructuring allowed progress on ECF reviews; C.A.R.’s SMP expired; Article IV mission planned. - Monitoring and readiness: - BEAC and COBAC will maintain diligent monitoring of member countries’ Fund-supported program status and consult with Fund staff on developments affecting external stability through end-December 2022 and end-June 2023. - BEAC stands ready to tighten monetary policy and liquidity management if high inflation persists, fiscal slippages occur, or reserves path deviates. *Source: Content unit 1caeea2023001 — IMF.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context and risks - CEMAC is broadly benefiting from a positive terms of trade shock amidst the fallout from Russia’s war in Ukraine. - Post-pandemic economic recovery is taking hold, albeit slowly, supported by high oil prices and the lifting of COVID-19 containment measures. - Real GDP growth is expected to reach 3.4 percent in 2022. - External reserves have started to build up but remain short of the desired level, owing in part to costly untargeted energy and food subsidies. - Global inflation pressures have passed through to domestic prices, putting pressure on real incomes; inflation picked up in 2022 after slowing to 2.6 percent at end-2021. - Key near-term risks: food security, debt vulnerabilities, and tightening of global financial conditions. - Rebuilding buffers and sustaining a recovery that protects the most vulnerable will require stricter adherence to budget and reform plans consistent with Fund-supported programs and policy advice. ### Policy recommendations (summary) - Monetary policy and FX management: - Stand ready to tighten monetary policy further given prospects of inflationary pressures and further ECB tightening. - Improve liquidity absorption attractiveness. - Continue to implement the foreign exchange (FX) regulations transparently and consistently. - Fiscal and external stability: - Ensure a coherent policy mix by saving part of the oil windfall. - Reform subsidies and provide targeted safety nets to protect poorer groups from high food and energy prices. - Growth, food security and resilience: - Step up efforts on growth diversification, regional trade integration, non-oil revenue collection, and governance reforms. - Financial sector supervision: - Strengthen COBAC’s supervisory capacity with thorough post-COVID asset quality reviews. - Ensure banks adequately account for rising sovereign exposure. - Tackle liquidity-stressed banks. - Monitor new risks from digital payments and cybersecurity. - Cryptoassets and digital assets: - Collaborate on settling the legal inconsistency between C.A.R.’s cryptoasset law and CEMAC Treaty. - Ensure consistency across regional regulatory frameworks related to digital assets and transactions, and strengthen communication. ### Progress on reforms and programs - Implementation of the August 2021 Heads of State (HOS) summit recommendations has been mixed; governance and transparency reforms advancing unevenly. - Quarterly reporting to the PREF-CEMAC Secretariat points to about 42 percent of the action matrix being implemented through 2022Q3, with heterogeneity across member countries. - Consultations under CEMAC Commission’s regional surveillance resumed in April 2022 and were completed by July 2022 for all six member countries. - Areas needing improvement: transcribing regional directives, PFM systems modernization (rolling out Treasury Single Accounts and integrated financial information management systems, switching to program-based budgeting, advancing internal and budget controls), and strengthening debt management and arrears clearance strategies. - The new sanction mechanism for compliance with the regional convergence framework is yet to be adopted by the HOS Conference. ### Fund-supported programs: status and challenges - Progress on Fund-supported programs has been mixed; some reviews completed, others delayed due to reform implementation challenges and recalibration needs. - Program reviews with Cameroon, Congo, and Gabon were concluded in the summer of 2022 largely as expected. - A staff-level agreement was reached with Congo allowing Board consideration in February. - Chad’s first program review was delayed by several months because of ongoing debt treatment discussions; recent Common Framework debt restructuring agreement paved way for conclusion of first and second reviews under the ECF arrangement with Chad. - In C.A.R., the 2nd review under the SMP could not be completed; SMP was extended to end-September 2022 but subsequently expired; an Article IV mission is planned for December 2022. - An EFF-supported program with Equatorial Guinea approved in 2019 had no reviews completed and is expected to expire in December 2022; authorities expressed interest in a follow-up program. ### Recent economic and fiscal developments - Economic activity strengthened in the first half of 2022 after real GDP growth of 1.1 percent in 2021; the upturn owes largely to a buoyant oil sector, partly offset by lower production in Gabon due to OPEC+ compliance. - Non-oil sector grew moderately, supported by improved non-oil terms of trade (notably manganese, wood, gas), lifting of COVID-19 containment measures, and spillovers from high oil revenues. - Inflation drivers: - Global commodity price shock and global inflationary pressures from supply disruptions, supply chain bottlenecks, and sharp increases in international energy and food prices. - Food prices represent around 40 percent of the CPI basket and increased 10.5 percent y.o.y. in June, up from 7.8 percent y.o.y. in March. - For end-2022, inflation is projected at 4.6 percent. - Fiscal balances: - Overall fiscal deficit (excl. grants) narrowed to 1.7 percent of GDP in 2021, helped by expenditure compression in C.A.R. and Equatorial Guinea and higher oil revenue collection (except in Chad, Gabon and C.A.R.). - Regional public debt declined to 57.6 percent of GDP at end-2021. - Non-oil primary fiscal balance (incl. grants) was about 7 percent of non-oil GDP in 2021, broadly unchanged from 2020. - Overall fiscal balance (excl. grants) estimated to have continued to improve in 2022H1. - Debt vulnerabilities remain elevated, notably in low-income member countries (C.A.R., Chad, and Congo). ### Monetary policy, liquidity, and banking sector developments - BEAC tightened monetary policy and liquidity management over 2021 and 2022 as inflationary pressures rose: - Policy rate was increased to 4.5 percent in September 2022. - Marginal financing window rates were increased to 6.25 percent to keep the 175-basis point corridor unchanged. - Weekly liquidity injections scaled back from CFAF 250 billion in June 2021 to CFAF 50 billion in November 2022. - Three long-term liquidity injection operations were discontinued following maturation of the last remaining one in October 2022. - Broad money decreased by 1.7 percent of GDP in 2022H1, driven by lower net credit to government more than offsetting the contribution of NFA accumulation over 2022H1. - BEAC’s liquidity absorption operations have struggled: - Absorption rate at 0.75 percent (with an increase of only 55-basis points through February 2022); operations largely failed due to unattractive rates and a segmented market with few banks holding large excess liquidity. - Autonomous factors of banking liquidity (AFBL) rose in 2022H2, driven by net redemption of public securities, declining financing needs, and rising NFA amid high oil prices. - COBAC prudential normalization: - In July 2022, COBAC ended temporary COVID-related forbearance measures and increased the capital conservation buffer by 50 basis points to 2.5 percent. - Capital adequacy modestly improved on average in 2022 to 14.7 percent, aided by suspension of dividend distributions. - Reported NPL ratio increased to 19.4 percent of total gross loans in 2022Q1, even with forbearance; ratio likely to increase further following normalization and on-site inspections. - Overall liquidity ratios at 171 percent of short-term liabilities in 2022Q1; banks’ loan portfolio grew 7.7 percent in 2022Q1 from end-2021. - Banks’ sovereign exposure: - Sovereign exposure averaged about 30 percent of total assets as of June 2022, up from 19 percent in 2019. - Drivers: bank-based financial system, rising share of sovereign assets with zero-risk weight backed by escrow accounts with zero-risk weight, rampant non-compliance with concentration limits, and high financing needs during COVID-19. ### Surveillance, integration, and institutional notes - Progress continued on the unified financial market: improved public issuance schedule; submissions from member countries (except Chad) of SOEs proposed for listing on BVMAC; clarification of ownership structure of the company managing the single central depository. - Mission logistics and staffing: - Discussions were held in-person during November 2–4 and November 7–15, 2022, in Libreville (Gabon) and Yaoundé (Cameroon). - Staff team included Mr. Mills (head), Messrs. Tapsoba, Lautier, and Dalmau, and Ms. Belianska (all AFR); Mr. Dehmej (MCM); and Ms. Mendez (SPR); assisted by resident representatives and local economists. - The term “authorities” refers to regional institutions responsible for common policies in the currency union. - CEMAC covers six countries: Cameroon, Chad, Congo, Gabon, Equatorial Guinea, and Central African Republic. *Source: 1caeea2023001 - EXECUTIVE SUMMARY (December 7, 2022).* ### 10. CEMAC’s external position strengthened in 2022H1, thanks to the positive terms of ### 10. CEMAC’s external position strengthened in 2022H1, thanks to the positive terms of ### External position and reserves - The current account balance (CAB) is expected to reach a surplus of 1.6 percent of GDP for 2022, following a deficit of 2.3 percent of GDP in 2021. - The 2022 CAB projection has been modestly lowered by CFAF 96 billion, due largely to lower net transfers for Cameroon and Chad (despite higher net income from Gabon) and despite a slightly stronger projected trade balance. - The projection for the capital and financial account was revised down significantly by CFAF 1,000 billion, on account of substantially higher debt service, particularly from Congo to G20 DSSI creditors, and larger payments to two large external commercial creditors. - Compared to the July projections, the overall balance deteriorates by about CFAF 1,100 billion. - Budget support is expected to fall short of expectations by CFAF 172 billion, mostly due to delays in IMF-supported program reviews. - After an initial decline in early 2022, gross FX reserves bounced back in 2022Q2, reflecting the lagged impact of improved terms of trade and the SDR allocation. - The regional policy assurance on net foreign assets (NFA) for end-June 2022 (EUR 2.81 billion) is estimated to have been met with a good margin (CFAF 248 billion). - Annual NFA accumulation in 2022 is on track to be the largest ever, by factor of more than two, with gross external reserves projected to rise to 3.5 months of imports by end-2022. - Reserve coverage ratio is projected to increase to around 4½ months of imports in the medium-term, slightly below staff’s adequacy target for a resource-rich monetary union (5 months, Annex III). ### Outlook and macroeconomic projections - Real GDP growth is projected to reach 3.4 percent in 2022, a downward revision of 0.7 percent points relative to projections from mid-2022, owing to lower oil production in Congo in H1 and in Equatorial Guinea in Q4. - Inflation is projected at 4.6 percent at end-2022, and is projected to revert to below the 3 percent convergence criterion from 2024 on, provided inflation expectations remain firmly anchored. - After improving in 2022, CEMAC’s external position is expected to weaken gradually over the medium term: - The CAB is projected to deteriorate to -1.2 percent of GDP in 2023, 0.4 percentage points of GDP lower than the previous projection. - The weakening is driven by deterioration in net income in Equatorial Guinea and Gabon due to oil investment income outflows. - The capital and financial account is expected to improve in 2023 (but revised slightly downward from the previous projection), thanks to lower outflows in Congo, and modest improvements in FDI. - The CAB gradually reverts to just below its historical average (-3.1 percent of GDP) over the medium term, on account of lower oil prices and production. - Capital inflows are expected to offset this deterioration and sustain reserve accumulation over the medium-term, through lower debt repayments from 2024 onwards (mostly by Congo and Chad) and continuing increases in foreign direct investment (FDI). - Donor support remains critical for strengthening external stability and diversifying the region’s financing mix. - Fund exposure to the region is highlighted (Text Figure 2). ### Fiscal outlook and public finances - The region’s overall fiscal balance (excluding grants) for 2022 is projected at 0.7 percent of GDP—while stronger than 2021, this forecast is 0.4 percentage points lower than previously projected, owing to surging energy subsidies (1.5 percent of GDP) and lower non-oil revenue collection. - The non-oil primary fiscal deficit (including grants) is projected to deteriorate by 0.8 percentage points to 7.6 percent of non-oil GDP in 2022. - The non-oil primary deficit is expected to improve to 4 percent of non-oil GDP in the medium term, driven by structural revenue and expenditure measures. - Public debt is expected to decline to 52.8 percent of GDP in 2022 and then gradually to 40 percent over the medium term. - Debt dynamics remain vulnerable to negative oil price shocks, calling for stepped-up fiscal consolidation and debt reduction over the medium term. ### Key risks (tilted to the downside) - Higher food and fertilizer prices could lead to larger and longer-than-expected surges in food subsidies and delay reserve accumulation to adequate levels. - Inflation pressures could weigh on growth, threaten food security for low-income households, entrench inflation expectations, and raise social tensions. - A larger-than-forecast decline in oil and other commodities’ prices linked to a stronger slowdown in global demand would lower demand for CEMAC exports and adversely affect public finances, external stability, and social indicators, requiring significant policy adjustments. - Failure to enhance spending efficiency or improve non-oil tax revenue collection could worsen elevated debt vulnerabilities and external fragility, especially if multiple Fund-supported programs go off-track. - A greater-than-expected tightening of global financial conditions could sharpen risk premia, raise debt service and rollover risks, narrow market borrowing capacity, hinder growth and reserves buildup, and could require faster monetary policy tightening by BEAC if ECB raises interest rates faster than assumed. - Persistence or worsening of security challenges (C.A.R. and Chad), weak governance (including shortcomings in AML/CFT frameworks), high corruption perceptions, and possible post-election political instability may weigh on growth prospects—risks acute in fragile and conflict-affected states. - Climate-related shocks and a broader shift in energy preferences away from hydrocarbons could exacerbate vulnerabilities due to high poverty, food insecurity, political instability, and conflicts. - Slow progress on structural reforms and failures to adhere to Fund-supported program targets may delay IMF and other donor financing, generate external financing shortfalls, and postpone growth benefits. - Low vaccination rates and weak health infrastructure leave growth vulnerable to new waves or variants of COVID-19. - Materialization of these risks could weaken banks’ balance sheets, tighten the banks-sovereign nexus, and potentially trigger systemic risks. - Upside risks: stricter compliance with FX regulations could increase repatriation of export proceeds; larger-than-expected investments in the extractive sector and rekindled reform momentum could raise growth and reduce vulnerabilities more rapidly. ### Food security, import-substitution, and regional cooperation - PREF-CEMAC’s steering committee (PREF-COPIL) proposed an import-substitution strategy to enhance food security by bolstering domestic agricultural, animal-raising, and fishing production. - Financing is a constraint; staff encouraged cooperation with donors (World Bank, UN Food and Agricultural Organization, African Development Bank, etc.) to secure concessional resources, including to promote domestic fertilizer production. - Promising initiatives include irrigation projects and more climate resilient seeds and practices. - Staff supported PREF-COPIL’s call to remove intra-regional transit and non-tariff barriers and to step up implementation of AfCFTA and PAPSS, along with structural regulatory and business climate reforms, to boost inter-African trade in food products. - Staff cautioned against any related foreign exchange or trade restrictions. ### Fuel subsidies: estimated fiscal costs (based on current oil price projections) - Fuel subsidies cost (2022, 2023, 2024, 2025) — Percent of GDP and CFAF billion: - Cameroon: 1.8% / 480; 2.4% / 298; 0.9% / 271; 0.7% / 253 - C.A.R.: 0.8% / 12; 0.7% / 12; 0.6% / 10; 0.5% / 9 - Chad: 1.1% / 86; 1.1% / 85; 1.0% / 84; 1.0% / 83 - Republic of Congo: 2.8% / 251; 1.4% / 125; 0.8% / 71; 0.9% / 84 - Equatorial Guinea: 0.7% / 69; 0.7% / 59; 0.6% / 46; 0.5% / 42 - Gabon: 1.1% / 150; 0.7% / 100; 0.2% / 30; 0.1% / 15 - CEMAC total: 1.5% / 1048; 1.0% / 679; 0.7% / 512; 0.6% / 486 ### Policy recommendations and reform priorities - Prudent management of oil windfalls: - Rebuild fiscal and external buffers, possibly through explicit saving targets. - Avoid pro-cyclical spending and fiscal slippages; ensure coherence with monetary policy and adherence to objectives under Fund-supported programs. - Use part of windfalls to address social needs, while favoring temporary and limited fiscal recalibrations and plans to phase out additional fuel subsidies. - Reduce debt servicing costs by pre-paying BEAC’s past statutory advances or paying off expensive debts. - Low-income CEMAC countries should resort to non-concessional external financing only if consistent with debt sustainability and program limits. - Improve debt transparency, particularly on non-guaranteed SOEs’ debt, and avoid non-transparent borrowing guaranteed by future natural resource deliveries. - Better targeting social assistance: - Targeted, transparent, and time-bound subsidies where possible. - If generalized subsidies are unavoidable, limit them to essential food items and fuel consumed by the poorest groups (e.g., kerosene rather than petroleum). - Use existing infrastructure (e.g., school food programs) where feasible to deliver assistance. - Gradually phase out inefficient untargeted fuel subsidies, enforce automatic fuel price adjustment mechanisms, and roll out targeted cash transfers—requiring investments to improve social registries. - Consider accompanying measures (e.g., subsidized public transportation) and a communication strategy explaining the merits of subsidy reforms. - Structural and fiscal reforms: - Improve non-oil revenue collection by phasing out tax exemptions and broadening the tax base, including advancing interest limitation rules and measures to better assert taxing rights over multinationals’ income. - Adopt and transpose new regional tax directives, and move gradually towards more direct taxation (CIT, PIT, property tax). - Improve spending composition and efficiency, rationalize public wage bills and non-priority recurrent spending, and reform SOE governance to reduce costly transfers to SOEs. - Upgrade public investment efficiency via accelerated implementation of PIMA recommendations and conduct PIMA where not yet done. - Accelerate PFM reforms, notably Treasury Single Accounts (TSA) implementation and integration of Treasuries’ information systems with BEAC’s platform and SWIFT. - Improve external statistics and BOP data collection and compilation through planned Fund capacity development to reduce oil revenue and external flows forecasting errors. - Monetary policy: - Balance domestic needs and external pressures (section continues beyond the supplied content). *Source: Content unit 1caeea2023001 — IMF.* ### 20. Staff commended BEAC’s monetary ### 20. Staff commended BEAC’s monetary policy tightening and recommended that it stand ready to tighten further ### Monetary policy stance, policy rate spread, and liquidity management - Staff commended BEAC’s monetary policy tightening and recommended that it stand ready to tighten further in response to rising inflation and the need to build external buffers. - BEAC concurred that additional evidence of rising inflation, deviations from the targeted reserve path, or fiscal slippages would warrant further policy rate increases and tightening liquidity. - BEAC noted it takes prospects of future ECB tightening into account but clarified that further increases in ECB’s policy rate would not automatically warrant further hikes in BEAC’s policy rate and liquidity tightening; decisions need to be balanced with regional inflation expectations and the external reserve path. - Staff argued the regional-Euro area inflation differential was partly due to fuel subsidies; BEAC highlighted regional inflation was much lower than in the Euro area. - BEAC indicated the spread between BEAC’s policy rate and the Euro area policy rate (Text Figure 3) has not proven to be a key factor driving capital flow movements, given CEMAC’s restricted capital account. - Staff advocated assigning greater weight to maintaining the spread at least at its historical average (3.25 bps) in a forward-looking approach amid heightened external uncertainties. - Staff welcomed BEAC’s intention to pursue progressively more active liquidity management and noted a dedicated working group was created (Decision n°371/GR/2022, November 2022) to diagnose banks’ liquidity situation and propose steps to ensure better resource allocation in the monetary market. ### Recommended liquidity instruments and operational details - Staff recommended BEAC explore additional instruments to ensure a more active management of liquidity and to strengthen monetary policy transmission: - Gradually raise the rates on liquidity absorption operations, at least to maintain the historical spread with the main policy rate, to absorb excess liquidity and strengthen transmission. - Explore other absorption modalities (e.g., full allotment). - Raise the deposit facility rate (maintained at 0 percent). - Boost and better remunerate reserve requirements: coefficients maintained at 7 and 4.5 percent on sight and term deposits, respectively; remuneration currently stands at 0.05 percent. - BEAC cautioned that banks’ excess liquidity holding decisions were shaped by parent-bank investment policies and precautionary motives (incompressible reserves), not profitability; BEAC expressed concerns that raising the rate on liquidity absorptions could crowd out interbank market transactions and that raising reserve requirement coefficients could disproportionately penalize liquidity-stressed banks given segmented liquidity. - Staff stressed moving expeditiously on strengthening liquidity management and transmission, welcomed BEAC’s plan to conduct a more thorough analysis and comprehensive consultations with banks in 2023, and reiterated priorities: more resolutely tackling weak banks, strengthening supervision, and improving capital adequacy to build confidence. - BEAC and staff concurred on proactive engagement with banks facing high liquidity needs but below the 10 percent of liabilities dependency threshold, ideally in collaboration with COBAC; addressing these banks’ liquidity woes ultimately requires governments’ ability to run primary fiscal surpluses or find other sustainable financing to settle domestic arrears. - Staff welcomed BEAC’s steady reduction of weekly liquidity injections in the main monetary operations window, along with the increase in the haircut on collateral from two countries since May 2022, with a view to discontinuing weekly injections gradually in 2023 and focusing on liquidity absorption operations, building on AFBL. ### Balance sheet risks and collateral policy - Staff welcomed BEAC’s commitment to containing risks to its balance sheets and agreed only banks compliant with prudential obligations should access the standard weekly liquidity window. - Liquidity-stressed banks should gradually reduce dependence on BEAC’s support, including through submitting credible refinancing plans, to contain risks from a durable increase in BEAC’s balance sheet exposure. - Staff supported BEAC continuing adjustment of haircuts on collateral to reflect risks and establishing exposure limits by bank and/or country. - BEAC and staff concurred on keeping scheduled repayments of past statutory advances and the stock of bonds bought under BEAC’s COVID-related bond purchase program, which started maturing in 2022Q2. - Staff welcomed BEAC’s readiness to retire its COVID-related credit line to the regional development bank (BDEAC) for undrawn amounts and as credits get amortized. - Staff cautioned that arrears securitization exercises, while useful, could weaken fiscal discipline, reinforce the bank-sovereign nexus, and lead to excessive buildup of government securities on BEAC’s balance sheet through refinancing; such securities should not thwart BEAC’s liquidity management objectives. - Staff called on national authorities to strengthen expenditure commitment controls and cash management to prevent resurgence of new domestic payment arrears. ### Foreign exchange regulations and extractive sector treatment - Stronger enforcement of FX regulations has increased repatriation and surrender of export proceeds to BEAC, though some sectors reported concerns about slower processing times and burdensome verification for external clients. - BEAC has engaged in ongoing dialogue with commercial banks and businesses to ensure appropriate application of the regulation that does not hamper the business climate or delay current account payments. - Staff encouraged BEAC to continue dialogue to reduce undue delays and to deploy sufficient human resources to ensure FX requests are processed speedily; BEAC indicated it had increased resources and would continue to do so. - Effective application of FX regulations to the extractive sector is paramount: - The repatriation and surrender requirements adapted to the extractive sector came into effect in January 2022. - The adaptation provides for the repatriation of 35 percent of export proceeds (against 70 percent for other sectors) and possibility for extractive sector companies, including transporters and subcontractors, to hold accounts in foreign currencies in CEMAC banks (after BEAC’s authorization). - BEAC is not yet enforcing sanctions for non-compliance pending resolution of technical difficulties raised by the sector, including in opening and operating foreign currency accounts in the CEMAC region. - Discussions continue among BEAC, operators, and regional banks on the mechanism to repatriate required 35 percent of proceeds and funds set aside for rehabilitation of oil sites. - Staff noted complexity and urged cooperative and pragmatic solutions that comply with existing regulation to allow the sector to contribute FX flows. ### Institutional safeguards and governance - An updated safeguards assessment of BEAC finalized in April 2022 found BEAC maintained strong governance arrangements and transitioned to international financial reporting standards (IFRS). - Staff recommended BEAC strengthen internal audit mechanisms and risk management, as well as cyber-resilience and business continuity frameworks. ### Strengthening financial sector policies, supervision, and banks’ balance sheets - Staff welcomed COBAC’s unwinding of temporary forbearance measures and urged more post-COVID supervisory reviews and a prudent approach to dividend distribution. - COBAC should conduct comprehensive and rigorous asset quality reviews to estimate loan-loss provisions and capital shortfalls, prepare for early intervention/corrective actions for fragile banks, and consider prudent dividend distribution policies until post-COVID uncertainties abate. - Staff recommended stress tests to take a forward-looking perspective on banks’ risks and losses and inform dividend distribution authorizations. - Staff advocated COBAC ensure undercapitalized banks submit credible medium-term recapitalization plans and establish a strategy for NPLs reduction; if delays occur, COBAC should escalate actions using available tools including early intervention, sanctions, and resolution powers. - Coordination between BEAC and COBAC should be reinforced so liquidity-stressed banks’ access to monetary operations windows is informed by COBAC’s supervisory judgment and review of recapitalization and funding plans. - COBAC largely concurred but noted resource limitations may delay strengthening policies; COBAC currently opts for a case-by-case approach for dividend authorization due to limited capacity for numerous thorough asset quality reviews. ### Sovereign exposure, concentration limits, and market structure - Banks’ sovereign exposure rose to 31 percent in 2022Q3 (34 percent when including SOEs), with large heterogeneity across banks. - Staff advised COBAC to progressively enforce existing concentration limits, especially for banks with excessive exposure, and to encourage prudent internal risk management with exposure limits. - Staff recommended moving away from zero-risk weight on government exposure; if not feasible, restrict zero-risk weights conservatively (e.g., to banks complying with concentration limits, conditioned on properly structured and audited escrow accounts only in countries with operational single treasury account). - COBAC and BEAC should ensure primary dealers, mostly banks, do not hold to maturity more than 70 percent of sovereign new issuances, as stated in contracts. - Staff reiterated advice against segmentation of the government issuance market; market dualism between the primary market (BEAC) and the stock exchange (BVMAC) would hamper secondary market development and securities liquidity. - Staff encouraged BEAC to intensify awareness campaigns on innovative provisions in the amended 2018 regulatory framework (longer maturities, syndicated loans-type operations, securities repurchasing operations) to channel issuance towards the primary market. - Staff urged BVMAC and COSUMAF to design strategies to raise investors’ appetite for 17 SOEs’ stocks set to be listed on BVMAC and to operationalize the management company of the single central depository by end-2022, as planned. - Staff recommended lengthening securities’ maturities and diversifying the investor base, including non-bank institutional investors, personal investors from the diaspora, and non-resident investment funds; addressing FX repatriation concerns would help attract non-resident investors. - BEAC agreed with staff recommendations and emphasized BVMAC should concentrate on the secondary market; BVMAC noted its platform for government securities attracted activity because it met needs not met elsewhere. ### Digital payments, financial inclusion, and cryptoassets - The digital finance ecosystem has steadily evolved in CEMAC; mobile money has sparked rising user appetite. - Staff encouraged regional authorities to enable a regulatory framework that supports innovation, financial inclusion, consumer protection, and safeguards financial integrity. - BEAC should unlock mobile money potential by revising the current tariffication that burdens small transactions and deepen financial intermediation, including accelerating the establishment of a regional credit bureau and a financial statements’ repository for CEMAC companies. - Given rising interest in digital assets, staff urged development of regulations to tackle supervisory challenges from digital assets expeditiously to support innovation and inclusion while preserving financial stability, protecting consumers, and ensuring AML/CFT compliance. - Staff urged national and regional authorities to settle the legal inconsistency between C.A.R.’s cryptoassets-related law and the CEMAC treaty; UMAC’s July 2022 ministerial committee resolutions are initial steps and should be implemented in a timely manner. - During the upcoming Article IV mission to C.A.R., staff and authorities will discuss plans for aligning the cryptoasset law, including legal tender and convertibility provisions, with CEMAC legislation. *1caeea2023001 - 20. Staff commended BEAC’s monetary policy tightening and recommended that it stand ready to tighten further* ### 32. Staff also reiterated the need for enhanced coordination between BEAC, COBAC, and ### Staff recommendations on coordination between BEAC, COBAC, and COSUMAF ### Crypto-related regulatory coordination - Staff reiterated the need for enhanced coordination between BEAC, COBAC, and the capital markets regulator (COSUMAF) to advance crypto-related regulatory frameworks. - Relevant actions and instruments cited: - COBAC’s Decision D-2022/071 prohibiting the use of cryptocurrencies by entities under its remit. - UMAC’s ministerial committee adopted a COSUMAF-led regulation (No-01-2022 relative to the organization and functioning of CEMAC’s financial market) in July 2022 that included a provision governing the use of digital assets. - Concerns and next steps: - Adoption of the COSUMAF-led regulation raised clarity and consistency concerns with respect to COBAC’s earlier decision and BEAC’s mandate on payments. - Staff recommended that regional supervisors (BEAC, COBAC, COSUMAF) work collectively to come up with a consistent approach on regulation of digital assets across their respective purviews and enhance communication to provide users with a coherent framework. - BEAC indicated joint working groups, involving stakeholders from all regional supervisors, are expected to be set up soon to: - Come up with options to harmonize regulatory approaches across CEMAC. - Assess the desirability and feasibility of introducing a central bank digital currency (CBDC), in line with BEAC Executive Board’s recommendation. - Staff indicated the Fund’s readiness to support efforts as needed on both fronts. ### Regional surveillance framework and convergence - Completion and recommendations: - Staff welcomed the completion of regional surveillance consultations in July 2022 for all six countries, after their post-COVID resumption by the CEMAC Commission in April 2022. - Staff reiterated adherence to regional convergence criteria is essential for the credibility of the regional surveillance framework. - Staff advocated for the HOS Conference to adopt the new sanction mechanism for breaches of regional surveillance rules expeditiously, as this would strengthen enforceability. - Staff encouraged the Commission to carry out the first internal analysis of the early warning system as planned in 2023, and stressed importance of member countries submitting updated triennial convergence plans. - Implementation priorities: - Faster progress needed to transcribe regional PFM and the newly adopted VAT directives into national legislations, with support of Fund technical assistance. - Pressing ahead with unfinished reform priorities in member countries, notably: - Rolling out treasury single accounts (TSA) and integrated financial information management systems. - Strengthening internal and budget controls. - Switching into program-based budgeting. - Implementing comprehensive strategies for domestic arrears clearance and medium-term debt management. ### External position, competitiveness, and reserves - Assessment and model output: - CEMAC’s external position in 2021 is assessed as weaker than the level implied by medium-term fundamentals and desirable policies. - Based on the EBA-lite model, the current account gap is -3.9 percent of GDP, implying exchange rate overvaluation and prevalence of Dutch Disease effects. - Recent dynamics: - Price competitiveness improved in 2022: during 2022H1, the regional real effective exchange rate (REER) depreciated by 7.5 percent. - The REER depreciation reflected a weaker euro against the dollar and negative inflation differentials vis-à-vis external partners, though the latter is partly driven by price controls. - Reserves and NFA developments: - Regional policy assurance on NFA set for end-June 2022 was EUR 2.81 billion; outcome was met with a comfortable margin (EUR 378 million). - BEAC requested a downward revision to the regional policy assurance on the NFA for end-December 2022 (to EUR 3.39 billion) to account for exogenous factors. - Meeting the NFA target for end-December 2022 (EUR 3.73 billion) could be difficult due to shortfalls in external financing and an increase in financing needs by the equivalent of EUR 1.2 billion. - Relative to projections underlying the previous NFA target, budget support is expected to fall short by EUR 260 million; BEAC requested an additional modest adjustment of EUR 80 million. - Despite the revision request, the NFA annual accumulation in 2022 will be the largest ever, by factor of more than two. - Consistent with staff projections accounting for the expected NFA deviation, the proposed end-June 2023 NFA target covered by the updated policy assurances was set at EUR 3.93 billion. - Staff projections of NFA accumulation in 2023 have been revised down relative to projections during the July 2022 Staff Report, owing to a deterioration in the financial account, but 2023 would still be the second largest after 2022. - In the medium term, gross reserves are projected to reach 4½ months of imports. - Risks to these targets include volatility in the oil market and delays in donor support disbursements. ### Monetary and prudential policy recommendations - BEAC: - BEAC’s tightening to date is welcome; it increased its policy rate three times in less than a year to stem the decline in reserves and respond to inflationary pressures. - BEAC reinforced its liquidity management framework, returning gradually to pre-crisis focus on the autonomous factors of banking liquidity. - Staff recommended BEAC should stand ready to tighten monetary policy further if it observes evidence of rising inflation, deviations from the targeted reserve path, or fiscal slippages. - BEAC should absorb more excess liquidity to strengthen monetary policy transmission. - A transparent and consistent implementation of the FX regulation should help ensure greater FX repatriation while fostering trade and investment. - COBAC: - COBAC normalized prudential regulations by ending temporary forbearance measures and increasing the capital conservation buffer by 50 basis points to 2.5 percent. - Staff recommendations for COBAC: - Conduct thorough asset quality reviews in the banking sector to estimate needed loan-loss provisions and detect capital shortfalls. - Be prepared for early intervention and/or corrective actions for fragile banks if needed. - Reduce and eventually shift away from zero-risk weight on government exposure to ensure banks account adequately for rising bank-sovereign risk. - Prudently implement dividend distribution policy given heightened uncertainties. - Scale up efforts to ensure undercapitalized banks submit credible medium-term recapitalization plans and establish strategies for NPLs reduction. - If delays persist, signal gradual escalation using all available tools. - Address long-standing under-staffing issues and supervisory capacity constraints to resume implementation of Basel II/III, risk-based prudential and AML/CFT-compliant supervision, and to cope with emerging risks. ### Coherence of digital assets regulation and legal alignment - Staff assessment and guidance: - The coherence of the region’s approach towards regulating digital assets should be boosted through enhanced coordination among BEAC, COBAC, and COSUMAF. - The most important inconsistency to address is that between C.A.R.’s cryptoasset law and the CEMAC Treaty, through implementing UMAC ministerial committee’s resolutions. - COBAC’s decision prohibiting cryptocurrency usage by banks addressed related risks, but a coordinated regulatory approach should resolve the lack of clarity between this decision and the COSUMAF-led regulation governing digital assets. - C.A.R. authorities are encouraged to complete examination of options for aligning their crypto assets law, including legal tender provisions, with CEMAC legislation. - Going forward, regulatory frameworks for digital assets should be coordinated and coherent, with goals of: - Preserving the single currency. - Mitigating risks including ML/TF risks in line with the FATF standards for AML/CFT. - Protecting consumers. - Creating space for legitimate innovation. ### Fiscal and structural reform priorities - Fiscal resilience and oil windfalls: - Going forward, progressively strengthening non-oil primary balances and accelerating reforms is critical for boosting the region’s resilience. - Enhancing economic resilience through rebuilding external and fiscal buffers is a top priority, given favorable conditions amid rising uncertainties. - A significant part of the oil windfall from historically high prices should continue to be saved. - Reform priorities include: - Resolutely improving non-oil tax revenue collection. - Upgrading public spending efficiency. - Reforming energy subsidies while moving rapidly toward targeted, transparent, and time-bound social assistance to protect vulnerable populations. - Deep structural reforms: - Deep structural reforms remain essential for diversified, inclusive, and sustainable growth, aligned with priorities from the 2021 HOS Summit. - Priority objectives include: - Strengthen human capital. - Improve the business climate to boost investment in new sectors and develop local production capacities. - Better adapt to climate change. - Enhance social protection. - Reinforce banking sector solidity. - Foster regional trade integration. - Raise productivity and competitiveness, including in the agriculture sector. - On agriculture, careful implementation of regional import-substitution strategy—while avoiding foreign exchange or trade restrictions—could strengthen food security. *IMF staff report excerpt (CEMAC) provided in source content.* ### 47. Overall, staff: (i) notes that BEAC met the policy assurance on the NFA provided in the ### 1caeea2023001 - 47. Overall, staff: (i) notes that BEAC met the policy assurance on the NFA provided in the ### Summary findings and policy assurance - Staff notes that BEAC met the policy assurance on the NFA provided in the July 2022 follow-up letter, reflecting greater FX repatriation and tighter monetary policy. - Staff supports the updated policy assurance on NFA accumulation to bring NFA to: - €3.39 billion at end-December 2022, and - € 3.93 billion at end-June 2023. - Meeting the proposed policy assurance on NFAs is critical to allowing the continuation of (or approval of new) financial support as part of the Fund-supported programs with CEMAC members. - Building up external reserves will depend on timely disbursements of external financing for member countries. ### Macroeconomic performance and projections - Real GDP: - Rebounded to 1.2 percent in 2021 and is forecasted to reach 4.1 percent in 2022. - Fiscal balance: - Overall fiscal deficit is estimated to have narrowed to 1.6 percent of GDP in 2021. - Projected to turn into a surplus of 0.9 percent of GDP in 2022. - Public debt: - Public debt declined to 57.2 percent of GDP in 2021, and should decline further to 52.7percent in 2022. - Oil prices: - The oil prices forecast was revised upwards to $69 and $107 for 2021 and 2022, respectively. ### External sector, reserves, and balance of payments - Terms-of-trade shock: - Overall, the terms-of-trade shock is expected to have a positive effect on CEMAC trade balance, and the overall balance of payments is expected to turn positive in 2022, reducing financing needs except for C.A.R. and Cameroon. - Reserves: - While external reserves are projected to increase in 2022 assuming CEMAC countries meet their fiscal targets, reserve build-up will depend on timely external financing disbursements. - Balance of payments (selected figures from Table 4a, Billions of CFA francs): - Current Account Balance (2017–22 examples): -2,738; -877; -607; -1,479; -1,326; 1,184; 1,089 (series as presented). - Total exports (2017–22 examples): 15,938; 19,469; 19,195; 13,738; 19,040; 28,168; 27,083. - Total imports (2017–22 examples): 16,486; 17,285; 17,086; 14,096; 16,828; 21,938; 20,716. - Oil exports (2017–22 examples): 9,351; 12,716; 12,772; 7,982; 12,017; 19,586; 19,091. - Net foreign assets and gross foreign assets (memorandum): Nominal GDP (2022) 68,186; Gross foreign assets (end of period) examples 6,026; 6,996; 7,884; 8,399; 8,194; 8,992. ### Monetary developments and BEAC operations - SDR allocation: - A large part of the SDR allocation has been drawn. - BEAC liquidity and operations: - BEAC tightened liquidity injections related to main monetary policy operations. - Weekly liquidity injections steadily declined in 2022. - Monetary aggregates (selected figures from Tables 6 and 7): - Net Foreign Assets (selected): 2,322; 2,509; 2,667; 1,871; 1,186; 1,724; 1,839 (series as presented, Billions of CFA francs). - Broad Money (selected): 10,512; 11,363; 12,031; 13,361; 15,046; 15,882; 15,361 (Billions of CFA francs). - Credit to private sector (selected): 6,955; 7,243; 6,988; 6,994; 7,815; 7,831; 8,360 (Billions of CFA francs). - Net credit to government (selected): 2,937; 3,464; 4,266; 6,385; 7,493; 8,293; 6,917 (Billions of CFA francs). - Central bank summary (selected): - Base Money (selected): 4,197; 4,695; 5,046; 5,439; 5,982; 6,721; 6,264 (Billions of CFA francs). - IMF credit (selected): 491; 798; 1,020; 1,528; 1,849; 2,059; 2,159 (Billions of CFA francs). ### Structural, fiscal, and policy context - Member states, anchored by Fund-supported programs and Fund policy advice, intend to: - Maintain macroeconomic stability, including through appropriate fiscal policy measures. - Implement ambitious structural, transparency, and governance measures to unlock growth potential and diversify away from fossil fuel dependence. - Enhance food security. - Risks and caveats: - Government deposits increased only moderately despite high oil prices, in part because of accelerated repayment clauses in some debt contracts. - Heavy maturities drove net issuances into negative territory in government securities markets. - Net credit to government from commercial banks remained flat in the period illustrated. *Source: Authorities' data; and IMF staff estimates and projections.* ### Annex I. Risk Assessment Matrix ### Annex I. Risk Assessment Matrix ### Overview - The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). - Likelihood categories: "low" = probability below 10 percent; "medium" = probability between 10 and 30 percent; "high" = probability between 30 and 50 percent. - Conjunctural shocks and scenario: risks likely to materialize over a shorter horizon (between 12–18 months) given the current baseline. - Structural risks: risks likely to remain salient over a longer horizon. - Non-mutually exclusive risks may interact and materialize jointly. - RAM reflects staff views on the source of risks and overall level of concern at the time of discussions with the authorities. ### Conjunctural shocks and scenario — key risks, impacts, and policy responses - Commodity price shocks - Description: A combination of continuing supply disruptions (e.g., due to conflicts and export restrictions) and negative demand shocks causes recurrent commodity price volatility. - Likelihood: High - Expected impact: - Upside: High commodity prices boost income from oil and commodity production. - Downside: Costly food imports negatively affect the spending of the urban middle class and endanger food security in poor households. High fertilizer prices affect agriculture and negatively impact future harvests. Inflation builds up and threatens the recovery. - High oil prices partially offset rising food and fertilizer prices and buoy fiscal and external positions, but inflation pressures could build up and fiscal positions could worsen if food insecurity is addressed through widespread price controls and significant subsidies. Revenues underperform due to lower consumption and imports. Food insecurity in urban areas could result in social tensions. - Proposed policies to mitigate risks: - Prioritize targeted social spending to the most vulnerable. Where social safety nets are not well developed and price controls are needed, offset spending by strengthening tax collection, broadening tax bases, and phasing out exemptions. - Adhere to the program deficit targets to contain inflation, lower debt, and build back fiscal space for the next commodity downturn; streamline/target spending, including through PFM. - Implement structural reforms and encourage intra-region trade to diversify and reduce reliance on oil and commodity prices. - To help decouple reserve accumulation from oil revenue, implement fully the new FX law and strengthen repatriation efforts, including from SOEs. - Abrupt global slowdown or recession - Description: Global and idiosyncratic risk factors combine to cause a synchronized sharp growth slowdown, with outright recessions in some countries, spillovers through trade and financial channels, and downward pressures on some commodity prices. For EMDEs, tighter global financial conditions lead to spiking risk premia, wider external imbalances, fiscal pressures, capital outflows, and potential sudden stops, and debt and financial crises across EMDEs. - Likelihood: Medium - Expected impact: High - Weaker global growth would lead to lower oil prices, worsening fiscal and current account positions in oil-dependent CEMAC countries, ultimately weighing on the reserves position. Higher interest rate payments could increase debt and deteriorate public finances, crowding out social spending. - Proposed policies to mitigate risks: - Fully implement the FX law; strengthen repatriation efforts, including from SOEs. - Adhere to IMF-supported fiscal targets to create space for rising debt costs. - Design fiscal contingency plans to address deterioration of the current account. - Implement structural measures to diversify the economy, enhance competitiveness, and deepen regional integration. - Systemic social unrest - Likelihood: High - Expected impact: High - Rising inflation, declining incomes, and worsening inequality amplify social unrest and political instability, slowing economic growth, and giving rise to socially and economically damaging populist policies (e.g., preserving fossil fuel subsidies). Political uncertainty could affect market confidence, private investment, and financing flows, delay economic and policy reforms, and weaken institutions. Rising tensions could delay fiscal adjustments, with negative consequences for external stability. - Proposed policies to mitigate risks: - Use oil windfalls to reduce macroeconomic instability and rebuild external and fiscal buffers to maintain market confidence and attract private investment. - Maintain effective social dialogue, protect social spending, and build social safety nets to reduce poverty. - Increase social investment in health, education, welfare, and youth upskilling. - Local COVID-19 outbreaks - Likelihood: Medium - Expected impact: - Disruptions to economic activity could delay the economic recovery; further lockdowns would impact educational outcomes hurting productivity. - Proposed policies to mitigate risks: - Continue with the government vaccination programs and health-sector improvements. - De-anchoring of inflation expectations and stagflation - Likelihood: Medium - Expected impact: - High inflation hurts household purchasing power, exacerbating poverty. Interest rate hikes are higher to rein in inflation, hurting growth. - Proposed policies to mitigate risks: - Adhere to the program deficit targets to contain inflation. - Stand ready to tighten monetary policy pre-emptively to check inflation. ### Structural risks — key risks, impacts, and policy responses - Missed window of opportunity for structural transformation - Likelihood: High - Expected impact: High - Changes in consumption reduce demand for hydrocarbons. Future trends in industry and labor (digitization, automation, Internet-of-Things) raise the bar for competition on non-oil sectors. Lower hydrocarbon demand renders the engine of growth (oil) obsolete. The window of opportunity to compete on non-oil sectors narrows, lowering the likelihood of diversification and the potential for inclusive growth. This could increase poverty and widen already-high wealth disparities. - Proposed policies to mitigate risks: - Implement deep governance, structural, and growth-enhancing reforms. - Invest in education/upskilling, enhance the business climate and infrastructure (including for digital development) to improve competitiveness. - Accelerate efforts to establish social safety nets to protect vulnerable populations from future shocks and transitions. - Natural disasters related to climate change - Likelihood: Medium - Expected impact: - More frequent natural disasters deal severe damage to infrastructure (especially in smaller vulnerable economies) and amplify supply chain disruptions and inflationary pressures, causing water and food shortages and reducing medium-term growth. - Examples: More frequent floods and draughts (CAM, TCD). Rising sickness (e.g., meningitis) and poor harvests due to dryer weather (C.A.R., EQN). Higher sea levels, dry rivers/lakes (GAB, EQN, TCD) displace populations and destroy capital. - Proposed policies to mitigate risks: - Improve the business climate to boost investment in new sectors and encourage diversification. - Free up fiscal space to invest in mitigation and adaptation infrastructure. - Work with partners to identify vulnerable populations and regions, conduct risk assessments, plan disaster mitigation measures. - Slow progress in tackling corruption and governance issues - Likelihood: High - Expected impact: - Systemic corruption could affect market confidence, private investment, and financing flows, delay economic and policy reforms, and weaken institutions. - Proposed policies to mitigate risks: - Implement deep governance, structural, and growth-enhancing reforms. - Work with partners to identify measures to address governance weaknesses and appropriate response. ### External sector assessment — summary findings and policy recommendations - Overall assessment: The external position of CEMAC in 2021 was weaker than the level implied by medium term fundamentals and desirable policies. - Current account and reserves (selected figures and dynamics): - CEMAC’s current account balance (CAB) recovered steadily from the 2015 oil shock, with a dip in 2020 caused by the COVID-19 pandemic, reaching -2.3 percent of GDP in end-2021. - The CAB is expected to peak in 2022, with the current account achieving a surplus of 1.6 percent of GDP. - Regional gross reserves declined through 2021 despite Fund emergency financing, IMF-supported program disbursements, and the SDR allocation. - Background quantitative indicators: - Net foreign asset (NFA) position declined to 2.8 percent of GDP in 2021 (from 3.8 percent of GDP in 2020). - Gross reserves at end-2021 stood at 3.0 months of imports of goods and non-factor services (GNFS), from 3.2 months of GNFS in 2020. - Historical peak reserves reached 6.8 months of GNFS prior to the Great Financial Crisis. - The quantitative assessment using the Fund’s EBA-lite Current Account methodology suggests over-valuation of CEMAC’s real effective exchange rate (REER) of 16.8 percent in 2021, while the REER model suggests mild under-valuation. - Coverage at end-2021 (3.0 months of GNFS) is less than half the level adequate for a resource-rich monetary union exposed to volatile commodity prices (5 months of GNFS). - 2022 and medium-term outlook: - During 2022, gross external reserves have accumulated faster due to higher oil prices and tighter fiscal and monetary policies, a more stringent application of FX regulations, and inflows driven by the commodity price rally. - Reserve coverage is expected to strengthen by end-2022 to 3.5 months of GNFS. - Going forward, reserves are expected to increase but remain just below the adequate benchmark, in tandem with a projected decline in the current account to its historical average of -3.5 percent of GDP in the medium-term. - Drivers of weak external position: - Repeated deposit drawdown at the BEAC by member countries. - Low oil prices and lower oil production in certain members. - Poor trade dynamics and under-developed non-oil exports due to low productivity, lack of infrastructure and qualified human capital, weak private sector credit, and weak governance and public investment management. - A relatively restrictive capital control environment compared to peers. - Policy responses recommended to strengthen external position: - Prudent fiscal and monetary policies that foster macro-economic stability. - Deep structural and governance reforms to improve productivity and competitiveness and encourage diversification to shield reserves from hydrocarbon volatility. - Removing non-trade barriers within the union. - Stronger revenue collection to improve capacity to repay. - Full implementation of FX regulations, particularly of hydrocarbon market players. - Sustain fiscal consolidation in line with IMF-supported programs to restrain deposit drawdown and prevent loosening elsewhere. - Improve compliance with existing foreign exchange (FX) regulations, particularly from SOEs. - Improve trade dynamics and more frequent and internally consistent external statistics (including availability of IIP data). *Source: 1caeea2023001 - Annex I. Risk Assessment Matrix* ### 2.6 in percent in 2021 and 5.5 percent ### 1caeea2023001 - 2.6 in percent in 2021 and 5.5 percent ### External position and competitiveness - Real and nominal effective exchange rates shown for 2010–2022 (index, 2010=100). - Notwithstanding recent gains, governance remains weak and has deteriorated in recent years; improvements in business environment have been less rapid than in peers. - Technological advances (automation, IoT, robotics) are lowering input costs and raising barriers for export-led growth strategies, risking that CEMAC countries will be left behind in non-oil sectors. ### Capital inflows, financial account, and official financing - FDI peaked at 8.8 percent of GDP during the decade prior to the GFC (driven by the oil price rally). - Capital inflows remained low though stable around 3 percent of GDP in 2020–21. - Other investment outflows halved in 2021 from 2020 following Eurobond issuances (Cameroon, Gabon), despite the SDR allocation in 2021. - Medium-term baseline projections: - Portfolio outflows are expected to surpass inflows. - FDI inflows will increase modestly from 3.3 to about 4 percent of GDP. - Net portfolio investment stabilizes near balance. - Completion of debt repayments by Chad and Congo (2022–24) would drive other investment to near-balance by 2025. - Official financing, including balance of payments support from the Fund, other IFIs and bilateral donors, is expected to continue. - Capital flows from both private and official sources remain subject to significant uncertainty. ### Assessment methodology and model estimates - Approach based on the Revised EBA-Lite’s Current Account (CA) model. - Model calibration reflects: - (i) a projected cyclically-adjusted fiscal balance reflecting recommended medium-term fiscal objectives; - (ii) public health expenditures at 2.3 percent of regional GDP; - (iii) a revised desired change in reserves positioning CEMAC to reach 5 months of import coverage at end-2026; - (iv) private sector credit level at around 20 percent of GDP; - (v) assumption of stable regional capital controls. - Estimation includes potential impact of natural disasters and conflicts on the CAB. - Elasticity of the current account to REER at -0.23 (average of countries’ elasticities). - EBA-Lite CA model applied to 2021 data: - Cyclically-adjusted CA: -3.5 percent of GDP. - CA norm (from model): 0.3 percent of GDP. - CA gap: -3.9 percent of GDP (implies an overvaluation of 16.8 percent). - REER model shows a mild undervaluation of 1.7 percent. - Final assessment anchored on the CA model as better fit for medium-sized economies. ### Text table (CEMAC: EBA-Lite Model Estimates, 2021) — key lines preserved - CA model / REER model - CA-Actual -2.3 - Cyclical contributions (from model) (-)0.2 - COVID-19 adjustor (-) 2/0.6 - Additional temporary/statistical factors (-)0.0 - Natural disasters and conflicts (-)0.5 - Adjusted CA -3.5 - CA Norm (from model) 3/0.3 - Adjustments to the norm (-)0.0 - Adjusted CA Norm 0.3 - CA Gap -3.9 -0.4 - o/w Relative policy gap 1.5 - Elasticity -0.23 - REER Gap (in percent) 16.8 1.7 ### Policy recommendations - Implement an appropriate policy mix of prudent fiscal and monetary policies to foster macro-economic stability. - Advance deep structural and governance reforms to improve productivity and competitiveness and encourage diversification. - Remove trade restrictions within the union to spur growth in non-oil sectors (such as agriculture) and lower dependence on food imports, strengthening the CA. - Fully implement FX regulations, particularly for SOEs, to strengthen reserves. - Attract sustainable, longer term capital inflows (from both official and private sources) to finance growth-friendly projects. ### BEAC actions, monetary policy, and fiscal developments (Yaoundé, December 1, 2022 follow-up) - Inflation accelerated to around 4.6 percent in 2022, above the 3 percent convergence criterion. - BEAC tightened monetary policy: raised main policy rate by 50 basis points in March and subsequently in September to reach 4.5 percent. - Liquidity absorption rate raised by 25 basis points to 0.75 percent. - Weekly liquidity injections reduced from CFAF 250 billion in 2021 to CFAF 50 billion in November 2022; discontinued all three long-term liquidity injection operations. - Two banks structurally dependent on BEAC liquidity were granted access exclusively to the marginal lending facility window (November 2022). - Haircuts on public securities used in monetary operations for half of CEMAC member countries were tightened in May 2022. - BEAC did not provide direct monetary financing to Member States and stands ready to continue tightening monetary policy if inflation surges. - Fiscal projections for 2022: overall fiscal balance (excluding grants) expected to improve to 0.7 percent of GDP in 2022. - Non-oil primary deficit expected to remain stable at around 7 percent of non-oil GDP in 2022. - Fiscal cost of fuel subsidies projected at 1.5 percent of GDP at end-2022 and poses major risks to budgets. - Total public debt expected to decline to 52.7 percent of GDP in 2022 (4.9 percentage points lower than estimated level in 2021). - Current account balance expected to improve from a deficit of 2.3 percent of GDP in 2021 to a surplus of 1.6 percent by end-2022. - Regional NFA assurance for end-June 2022: EUR 2.81 billion, met with a margin of EUR 378 million. ### Banking supervision, payment arrears, and cryptoassets - In July 2022, COBAC lifted temporary COVID-related measures and intensified onsite inspections. - COBAC stands ready to monitor banks’ refinancing needs and accelerate resolution procedures for undercapitalized banks. - Following normalization of prudential regulations, COBAC will adopt a cautious approach regarding dividend distribution. - Government support needed for strengthening government-owned banks and implementing plans to clear domestic payment arrears based on transparency and PFM enhancements. - COBAC decision on May 6, 2022: prohibited entities under its remit to hold and carry out transactions in cryptocurrencies and strengthened reporting requirements. - Extraordinary meeting of UMAC’s Ministerial Council in July 2022 noted inconsistency of C.A.R.'s cryptoassets law with the Convention of the Central African Monetary Union and urged compliance. - BEAC assigned coordination for the design of a regulatory framework to resolve inconsistencies between C.A.R.’s cryptoassets law and the regulation governing cryptoassets and digital payments; plans to set up two working groups in coordination with COBAC, COSUMAF and GABAC. ### Outlook, risks, and targets - Macroeconomic outlook: firmer economic recovery driven by rebound in non-oil sector activity, improved terms of trade on non-oil products (manganese, wood, gas), and positive spillovers of high oil prices onto services. - Outlook conditional on continued prudence managing the oil windfall, accelerated reform implementation, donor budget support, and progress in external debt restructuring for Congo. - Key uncertainties: tightening global financial conditions, soaring food prices, donor support, governments’ indebtedness, higher subsidy costs from global inflation, security and socio-political situations in Cameroon, C.A.R., and Chad. - Regional NFA forecast deviation from initial target at end-December 2022 stands at around EUR 341 million. - It was agreed to revise downwards the regional NFA target at end-December 2022 from EUR 3.73 billion to EUR [text ends here]. *International Monetary Fund — CEMAC section (excerpts).* ### 3.39 billion. In addition, the NFA target for end-June 2023 is proposed to be set at EUR 3.93 billion. It ### 3.39 billion. In addition, the NFA target for end-June 2023 is proposed to be set at EUR 3.93 billion. It ### Recent developments and macroeconomic outlook - Growth in the CEMAC region accelerated in 2022 and is expected to reach 3.4 percent, up from 1.2 percent in 2021. - Inflation is projected to pick up to 4.6 percent (end of period) from 2.6 percent in 2021. - The overall fiscal deficit is projected to reach a surplus in 2022. - Total public debt is set to decline to 52.8 percent of GDP down from 57.6 percent in 2021 (CEMAC convergence threshold: 70 percent). - The current account balance is expected to recover from a deficit of 2.3 percent of GDP in 2021 to a surplus of 1.6 percent. - Foreign exchange reserves should cover more than 3.5 months of imports of goods and services by the end of the year. - Regional NFA assurances for the end of June 2022 (EUR 2.81 billion) were reached with a margin of EUR 378 million. ### Policy assurances on Net Foreign Assets (NFA) - Target on NFAs at the end of December 2022 reduced from EUR 3.73 billion to EUR 3.39 billion. - NFA target at the end of June 2023 is set at EUR 3.93 billion. - These projections depend on external financing assumptions (including exceptional financing, excluding IMF financing) of EUR 412 million during the second half of 2022 and EUR 163 million during the first half of 2023. ### Monetary and prudential policy actions - BEAC raised its policy rate by 50 basis points in September 2022 to 4.5 percent. - Liquidity absorption rate was increased by 25 basis points to 0.75 percent. - BEAC reduced weekly liquidity injections from CFAF 250 billion in 2021 to CFAF 50 billion in November 2022. - BEAC ended the last of three long-term liquidity injection operations in October 2022. - Since November 2022, two remaining structurally dependent banks have access only to the marginal lending facility window. - BEAC refrained from providing direct monetary financing to member states and stands ready to adjust policy to safeguard internal and external stability. ### Financial sector reforms and supervision - COBAC normalized prudential regulations since July 2022 and accelerated on-site supervision missions. - COBAC will monitor banks’ refinancing needs, accelerate resolution procedures for undercapitalized banks, and adopt a cautious case-by-case approach to dividend distribution. - Actions needed: strengthen weak public banks, implement domestic payment arrears clearance plans, and reduce sovereign risk on bank balance sheets. - Work underway to harmonize and regulate crypto-assets in coordination with COBAC, COSUMAF, and GABAC. ### Structural reforms and regional measures - Implementation of 2019 foreign exchange regulations advancing; operational modalities of repatriation funds for rehabilitation of oil extraction sites being strengthened. - Establishment of an IT platform to facilitate deployment of treasury single account systems (implementation phase in pilot countries). - Adoption of a regional strategy for import-substitution of raw products to foster intra-Community trade and diversify economies. - A regional brigade for surveillance of CEMAC trade corridors has been set up to limit tariff and non-tariff barriers. - Authorities emphasize the need to improve targeting of social protection programs to reduce subsidy costs. ### Risks and conditionalities - Downside risks: fragmentation from geopolitical tensions, fragility of global recovery, indeterminate Covid developments, tightening financial conditions, and rising global inflation leading to higher fuel and food subsidy costs. - Domestic risks: persistence of security and socio-political tensions that could exacerbate food insecurity and reverse poverty reduction progress. - Outlook conditional on: maintaining prudence in managing increased oil revenues, accelerating implementation of reforms under IMF-supported programs to increase fiscal space, strengthen public financial management (PFM), and improve governance and transparency. - Regional authorities anticipate formal Fund-supported arrangements with Equatorial Guinea and Central African Republic (CAR) in 2023 and progress in debt restructuring in Congo and Chad to help meet external financing needs. ### Implementation, monitoring, and readiness to act - BEAC and COBAC will maintain diligent monitoring of CEMAC member countries’ Fund-supported program status and continue close cooperation with Fund staff. - Institutions stand ready to notify and consult with Fund staff in a timely manner on developments affecting external stability through end-December 2022 and end-June 2023 and to take corrective measures, including monetary policy adjustments, in the event of unfavorable developments. - BEAC stands ready to tighten monetary policy and liquidity management should high inflation persist or in the event of fiscal slippages or deviations from the targeted reserve path; ECB tightening and other factors will be considered in monetary policy committee meetings. - The regional multilateral framework has been strengthened: CEMAC Commission resumed regional surveillance; first early warning exercise planned for 2023. *Prepared By The African Department (In consultation with other Departments), December 16, 2022.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1caeea2023001.pdf_