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### Executive summary — context and risks
- CEMAC economy lost momentum in 2023; foreign reserves remained around 4 months of prospective imports (below adequate levels of 5 months).
- Real GDP growth: 2.1 percent in 2023; projected 3.6 percent in 2024 driven by still-high oil prices and a strong rebound in oil output.
- Inflation: more than doubled in 2022, peaked in H2 2022, receded to 4.7 percent y-o-y in December 2023; preliminary BEAC data for four countries indicate continued decline in Q1 2024.
- Fiscal revisions show a more deteriorated situation:
  - Non-oil primary fiscal deficit (incl. grants) was 7.9 percent of non-oil GDP in 2023 (instead of 6.6 percent of non-oil GDP); it was 8.6 percent of non-oil GDP in 2022.
  - Overall fiscal balance (excl. grants) estimated to have turned into a deficit of 0.5 percent of GDP in 2023 from a surplus of 2.0 percent of GDP in 2022.
  - Public debt-to-GDP ratio rose from 51.8 percent in 2022 to 53.5 percent in 2023.
- Medium-term risk: without decisive corrective actions and unchanged policies, fiscal and external imbalances are set to widen, threatening reserve accumulation and financial stability.
- Progress on Fund-supported programs is uneven (Cameroon, Congo, C.A.R., Chad, Gabon, Equatorial Guinea noted).

### Recent macro-financial developments
- BEAC monetary stance and liquidity:
  - Policy rate (TIAO) unchanged at 5 percent at March 2024 MPC meeting (fourth time in a row).
  - Marginal lending facility rate remained at 6.75 percent (175-basis point corridor).
  - BEAC had raised policy rates by a cumulative 175 basis points between November 2021 and March 2023.
  - Weekly liquidity injections decreased from about CFAF 925 billion in December 2023 to about CFAF 778 billion in March 2024.
  - Borrowing at marginal lending facility: about CFAF 644 billion at end-March 2024 (down from CFAF 794 billion in December 2023).
  - Interbank market outstanding volume: CFAF 453 billion in December 2023 to CFAF 612 billion in March 2024.
  - Average interbank interest rates: around 6.3 percent at end-March 2024 (up about 90 basis points since discontinuation of main refinancing operations in March 2023).
- BEAC liquidity-absorbing operations and reserves:
  - Monthly average liquidity absorption: monthly average CFAF 240 billion up to September 2023; monthly average CFAF 18 billion in December 2023; monthly average CFAF 28 billion in March 2024.
  - Interest rate on liquidity-absorbing operations: 0.85 percent in September 2023 → 1.25 percent in November 2023.
  - BEAC issued short-term securities since February 2024 with maturities of 14 and 28 days at interest rates of 2.5 percent and 3.5 percent, respectively; few banks have participated so far.
  - Spread between liquidity-absorbing operations and TIAO shrank from 420 basis points in November 2023 to 150 basis points in February 2024.
  - Excess reserves: approximately CFAF 682 billion at end-March 2024 (from about CFAF 1,042 billion in December 2023); peak around CFAF 1,490 billion in early July 2023.
  - Autonomous factors of banking liquidity increased between December 2023 and March 2024 (higher other items net, offsetting lower net credit to governments and net foreign assets).
- Debt vulnerabilities:
  - Elevated in most member states; notable increases in Gabon due to higher debt service costs and newly uncovered payment arrears (including newly recognized domestic arrears in Congo).

### Banking-sector stability — recent developments and risks
- Capital and solvency:
  - Overall capital adequacy declined to 11.8 percent at end-2023; several banks severely undercapitalized or insolvent.
- Asset quality and liquidity:
  - Reported NPL ratio improved to 15.7 percent at end-2023 from 17.7 percent at end-2022.
  - Short-term liquidity ratio: 176.4 percent as of end-2023, but liquidity segmented with several banks below 100 percent.
  - Less than one-third of banks comply with all prudential requirements.
  - Banks’ total assets grew by 11.6 percent year-on-year in 2023Q4.
  - Banks’ loan portfolio grew by 8.3 percent during 2023Q4.
- Sovereign exposure and market risks:
  - Total bank exposure to the sovereign rose from 10 percent at end-2015 to about 31 percent of total assets at end-2023.
  - Several banks have exposure to CEMAC governments above 50 percent.
  - Securities maturities lengthened (short-term bills → long-term bonds), creating maturity mismatch risk while liabilities remain dominated by sight deposits.
  - Securities liquidity is very low in absence of a dynamic secondary market.

### External position, reserves, and projections
- Current account and reserves:
  - CA balance: estimated to have turned into a deficit of 0.6 percent of GDP in 2023, from a surplus of 3.6 percent of GDP in 2022.
  - Gross reserves: about 4.3 months of prospective imports in 2023.
  - End-December 2023 regional policy assurance on the NFA (EUR 3.91 billion) met with a wide margin of about EUR 1 billion.
  - Underlying trend in NFA downward after April 2023 peak, reflecting lower oil prices relative to 2022 and deteriorating fiscal positions.
- Oil price assumptions and growth:
  - Brent oil price: about US$81/bbl in 2024 (after US$82/bbl in 2023); elsewhere revised to $80.6 per barrel on average in 2024 (vs. $82.4 per barrel in late 2023).
  - Real GDP growth: projected 3.6 percent in 2024 (staff) and 3.3 percent in 2024 in some sections; medium-term sustained regional growth projected at about 3.5 percent.
  - Non-oil GDP: projected expansion by 3.7 percent in 2024 (up from 2.6 percent in 2023).
  - Inflation projected to remain broadly unchanged at 4.7 percent by end-2024; expected to return to the regional 3 percent convergence criterion by 2026.
- Fiscal and debt projections:
  - Non-oil primary fiscal deficit (including grants) projected to improve by 0.6 percentage points to 7.3 percent of non-oil GDP in 2024.
  - NOPFD projected to improve by about 2.5 percentage points of non-oil GDP between 2023 and 2029 due to structural measures.
  - Region’s overall fiscal deficit (excluding grants) projected to slightly worsen from 0.5 percent of GDP in 2023 to 1.0 percent of GDP in 2024.
  - Public debt projected to fall to around 51.7 percent of GDP in 2024 from 53.5 percent in 2023; expected to decline to about 47 percent over the medium term.
  - Gabon: public debt expected to hover around 100 percent of GDP in the medium term.
  - CA balance projected to deteriorate from -0.6 percent of GDP in 2023 to -1.0 percent of GDP in 2024, and to about -1.9 percent of GDP over the medium term.
  - Reserve coverage ratio projected to marginally rise to about 4.5 in 2024 but deteriorate to about 3.6 in the medium term (staff-estimated adequacy target: 5 months).

### Scenarios and downside risk illustrations
- Resilient (alternative) scenario (fiscal consolidation by Gabon, Equatorial Guinea, and Chad):
  - Assumed fiscal adjustment of about 4.7 percentage points of non-oil GDP at the regional level between 2023 and 2028 (mainly expenditure reductions and some revenue mobilization).
  - Public debt would fall to about 42 percent of GDP by 2028 (6 percentage points lower than the baseline).
  - Foreign reserves would accumulate to maintain import cover at about 4 months of prospective imports by 2028 (vs. 3.6 months in the baseline).
  - Completion of Fund program reviews would catalyze donor support and strengthen external stability.
- Adverse scenario:
  - Oil prices drop to $60/bbl in 2024 and throughout the forecast horizon → reserve coverage would fall to only 1 month of imports by 2028.

### Fiscal policy recommendations and priorities
- Urgent need for decisive corrective policies to address sustained fiscal slippages and return to fiscal prudence.
- Focus areas:
  - Improve non-oil tax revenue collection: broaden tax base; step up fight against tax and customs fraud; modernize revenue administration (accelerate e-procedures and mobile tax payments); review tax incentive regimes; phase out tax exemptions; enhance progressivity of personal income tax; assert taxing rights over multinationals; implement new VAT directive and endorse regional tax directives.
  - Extractive sector: adopt customs processing per CEMAC EI customs procedures guide; set up dedicated tax administration teams with third-party information access; accelerate digitization; ensure systematic information exchange among tax administration, customs, ministerial authorities, and SOE; strengthen risk analysis and compliance plans; improve transparency of extractive industries and SOEs.
  - Spending efficiency and SOE fiscal risks: phase out inefficient subsidies while rolling out targeted social safety nets (SSN); leverage existing programs and digitalization to improve SSN; complete fuel subsidy reform phases; rationalize wage bill, non-priority recurrent spending, and costly SOE transfers; systematize fiscal risk statements with SOE section; address root causes of SOE financial woes; conduct/update PIMA and accelerate implementation of recommendations.
  - Public financial management and debt strategy: modernize PFM, governance, fiscal discipline, and debt management; low-income members to use non-concessional financing only if consistent with debt sustainability and Fund limits; enhance debt transparency (non-guaranteed SOE debt); avoid non-transparent collateralized debts (natural resource-backed loans); reform domestic debt markets and improve arrears reporting; implement comprehensive domestic arrears clearance and prevention strategies; record all expenditure in IFMIS at liquidation stage.
  - TSA deployment: BEAC to accelerate IT platform (AMS/X solution); pilot in Cameroon and Gabon by 2023Q3; transfer balances of banks’ treasury accounts to TSA at BEAC by end-December 2024; sign standard convention between BEAC and all Treasuries.

### Monetary policy, liquidity management, and BEAC balance-sheet guidance
- Monetary stance:
  - Main policy rate remains appropriate at 5 percent.
  - Staff advised BEAC to resume regular refinancing operations (weekly main refinancing operations) at least maintaining current TIAO level to alleviate volatility and tight liquidity.
  - Conduct regular lending operations using fixed-rate full allotment procedure; use TIAO as floor rate.
  - Continue data-dependent policy and be ready to hike rates if inflationary pressures persist or reserves deviate from path.
- Liquidity instruments:
  - Use short-term BEAC securities issued at rates closer to TIAO to incentivize participation by banks with excess reserves; reassess conditions to enhance appeal.
  - Revamp liquidity injection operations and consider switching to full allotment tender procedures.
- BEAC balance-sheet risk containment:
  - Adjust haircuts on collateral to reflect underlying risks and apply differential haircuts.
  - Apply collateral framework in line with risk equivalence.
  - Apply no reserve requirement exemptions.
  - Implement funding plan framework for banks excessively dependent on BEAC refinancing.
  - Use emergency liquidity assistance with strict conditionality and enhanced supervisory oversight.
  - Conduct a bank collateral assessment.
  - Caution on arrears securitization: may help clear arrears but risk weakening fiscal discipline and increasing bank-sovereign nexus.

### Financial sector supervision, resolution, and market development
- Supervisory priorities:
  - Address COBAC’s supervisory capacity constraints; provide COBAC SG with adequate human and financial resources to step up onsite inspections.
  - Rigorously sanction non-compliant banks and trigger resolution of non-viable banks.
  - Require undercapitalized banks to submit credible medium-term recapitalization plans within a short timeframe; establish NPL reduction strategies; recapitalize or resolve weak banks promptly.
  - Accelerate onsite supervision of credit portfolios for systemically-important banks; reassess NPL classification and provisioning rigorously; evaluate potential capital shortages.
  - Move away from systematic zero risk weights on government exposures; enforce concentration limits strictly.
  - Ensure primary dealers do not hold all new sovereign issuances; develop sizeable non-bank investor base.
- Financial market development:
  - Foster secondary market development and securities liquidity; perform local-currency bond market diagnostic and prioritized reform roadmap.
  - Operationalize the company managing the single central depository by end-2024 with robust governance.
  - BVMAC to raise investor appetite for stocks from 17 SOEs (2 already listed); BVMAC launched BVMAC All Share Index in December 2023.

### Digital finance, crypto, AML/CFT, and statistical/structural reforms
- Digital assets and CBDC:
  - Monitor and manage risks from digital payments and assets while supporting innovation and financial inclusion.
  - Regional supervisors to advance crypto-related regulatory framework and ensure consistency with existing rules (July 2022 regulation No-01-2022; BEAC mandate on payments; COBAC Decision D-2022/071).
  - Mission urged prompt legal opinion on C.A.R.’s law allowing tokenization of resource wealth (assess BEAC’s exclusive currency-issuance right and AML/CFT, governance, consumer protection risks).
  - BEAC’s exploration of a CBDC should be based on cost-benefit analysis; request for IMF CD noted.
  - Intensify efforts to unlock mobile money potential, revise tariffication burdening small transactions, and validate/adopt GIMAC pricing project by end of October 2024.
- AML/CFT:
  - Continue addressing strategic AML/CFT deficiencies from mutual evaluations to mitigate FATF grey listing implications.
  - COBAC regulation R2023/01 on AML/CFT scheduled to enter into force in July 2024.
- Statistical and structural reforms:
  - Accelerate implementation of structural reforms: strengthen AML/CFT, governance, regulatory frameworks; improve human capital, business climate, rule of law, financial inclusion, and regional infrastructure.
  - Progress on regional statistical program to improve external statistics and accelerate BOP data collection to reduce oil revenue and external flows forecasting errors.

### Regional surveillance, governance, and multilateral stabilization fund considerations
- Regional surveillance framework:
  - Strengthen credibility and enforceability of regional surveillance framework; resume adoption of draft sanction mechanism for breaches of regional surveillance rules.
  - Draft sanction mechanism to broaden range of sanctions, clarify scope/procedures, and provide escape clauses for exceptional circumstances.
  - Member countries to submit updated post-COVID triennial convergence plans and fully operationalize national multilateral surveillance units.
  - Commission to ensure member countries share medium-term convergence plans and carry out internal analysis of early warning system by October 2024 (rescheduled).
- Multilateral stabilization fund:
  - Staff recommended Commission work with BEAC and PREF-CEMAC Secretariat to harmonize views on feasibility and modalities of contemplated multilateral stabilization fund (to absorb part of oil windfalls).
  - Commission intends to dispatch a mission to BEAC by end of first half of 2024 to harmonize views and seek consensus on draft concept note.

### NFA targets, assurances, and conditionality
- Proposed NFA targets:
  - End-June 2024 NFA target: EUR 4.50 billion (revised upward from EUR 4.3 billion).
  - End-December 2024 NFA target: EUR 5.0 billion.
  - NFA target assessment based on three-month average starting with end-December 2024 target (three-month period ending December 31st, 2024).
- Recent NFA performance:
  - NFAs assurances at end-December 2023: EUR 3.919 billion achieved with a comfortable margin of about EUR 1 billion.
  - NFAs movements: increased at end-2023 but declined from EUR 4.94 billion at end-December 2023 to EUR 4.22 billion at the beginning of March 2024.
- Actions required to meet NFA targets:
  - Step up enforcement of repatriation and surrender requirements; map FX accounts held abroad by governments, SOEs, and public entities; ensure full repatriation of public entity deposits held abroad.
  - Member countries to tackle fiscal slippages in line with Fund-supported programs and staff advice.
  - BEAC to stand ready to hike interest rates if inflationary pressures persist or external reserves deviate from target path.
- Policy importance:
  - Meeting NFA assurances critical for continuation or approval of financial support under Fund-supported programs with CEMAC member countries.

*Source: IMF staff compilation from the CEMAC regional report (1caeea2024001-print-pdf, excerpts provided).*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and risks
- The CEMAC economy lost some momentum in 2023 and the external position deteriorated somewhat; foreign reserves remained steady at around 4 months of prospective imports (below adequate levels of 5 months).
- Real GDP growth is estimated at 2.1 percent in 2023, driven by a contraction in hydrocarbon production and a moderation in non-oil growth.
- The near-term outlook is one of continued recovery, with growth projected at 3.6 percent in 2024, reflecting still-high oil prices and a strong rebound in oil output.
- Inflation more than doubled in 2022, peaked in the second half of the year, and receded to 4.7 percent y-o-y in December 2023; preliminary BEAC data for four countries indicate continued decline in Q1 2024.
- Updated statistics and revisions reveal a much more deteriorated fiscal situation than originally estimated:
  - Non-oil primary fiscal deficit (incl. grants) was 7.9 percent of non-oil GDP in 2023 (instead of 6.6 percent of non-oil GDP); it was 8.6 percent of non-oil GDP in 2022.
  - The overall fiscal balance (excl. grants) is estimated to have turned into a deficit of 0.5 percent of GDP in 2023 from a surplus of 2.0 percent of GDP in 2022.
  - Public debt-to-GDP ratio rose from 51.8 percent in 2022 to 53.5 percent in 2023.
- Medium-term risks: without decisive corrective actions and with current policies unchanged, fiscal and external imbalances are set to widen, threatening to reverse reserve accumulation and add to financial stability risks.
- Progress on Fund-supported programs is uneven:
  - Reviews for Cameroon and Congo completed in December 2023; an RSF arrangement for Cameroon approved in January 2024.
  - C.A.R. completed first review of its ECF arrangement in October 2023.
  - Chad’s third review delayed and program likely to lapse in June 2024.
  - Gabon’s program set to expire in June 2024 without additional reviews.
  - Discussions on an SMP with Equatorial Guinea are ongoing.

### Recent macro-financial developments
- Liquidity and interest rate dynamics:
  - BEAC left the policy rate (Tender Interest Rate or TIAO) unchanged at 5 percent at the March 2024 MPC meeting (fourth time in a row).
  - Marginal lending facility rate remained at 6.75 percent, maintaining a 175-basis point corridor; BEAC had raised policy rates by a cumulative 175 basis points between November 2021 and March 2023.
  - Weekly liquidity injections decreased from about CFAF 925 billion in December 2023 to about CFAF 778 billion in March 2024.
  - Borrowing at the marginal lending facility stood at about CFAF 644 billion at end-March 2024, down from CFAF 794 billion in December 2023; an increasing number of banks have recurringly borrowed from this facility, which has effectively evolved into the primary refinancing method.
  - Interbank market outstanding volume expanded from CFAF 453 billion in December 2023 to CFAF 612 billion in March 2024.
  - Average interbank interest rates hovered around 6.3 percent at end-March 2024 and have increased by about 90 basis points since discontinuation of main refinancing operations in March 2023.
- BEAC liquidity-absorbing operations and excess reserves:
  - Monthly average of liquidity absorption operations rose until September 2023 (monthly average CFAF 240 billion), fell in H2 2023 (monthly average CFAF 18 billion in December 2023), and ticked up to monthly average CFAF 28 billion in March 2024.
  - Interest rate on liquidity-absorbing operations increased to 1.25 percent in November (from 0.85 percent in September 2023) but participation remained weak.
  - BEAC issued short-term securities since February 2024 with maturities of 14 and 28 days at interest rates of 2.5 percent and 3.5 percent, respectively; few banks have participated so far.
  - Spread between interest rates on liquidity-absorbing operations and the TIAO shrank from 420 basis points in November 2023 to 150 basis points in February 2024.
  - Excess reserves dropped to approximately CFAF 682 billion at end-March 2024 from about CFAF 1,042 billion in December 2023; excess reserves peaked at around CFAF 1490 billion in early July 2023.
  - Autonomous factors of banking liquidity increased between December 2023 and March 2024, driven by higher other items net, offsetting lower net credit to governments and net foreign assets.
- Debt Sustainability and vulnerabilities:
  - Debt vulnerabilities remained elevated in most member states, with notable increases in Gabon due to higher debt service costs and newly uncovered payment arrears (including newly recognized domestic arrears in Congo).
  - Text Table 1 and DSA references indicate varied risk assessments across member states.

### Policy recommendations
- Fiscal policy:
  - Decisive corrective policies are warranted to address sustained fiscal slippages and return to fiscal prudence.
  - Fiscal consolidation should focus on improving non-oil tax revenue collection and enhancing spending efficiency.
  - Renewed concerted regional efforts are needed to address fiscal imbalances to preserve external stability.
- Monetary policy:
  - BEAC should resume its regular refinancing operations to alleviate growing liquidity pressures in the banking system.
  - Continue efforts to address fragmentation within the banking system.
  - Remain vigilant and ready to resume policy rate hikes should inflationary pressures persist, or external reserves deviate from the targeted path.
- Financial sector policy:
  - Address COBAC’s supervisory capacity constraints.
  - Strictly enforce regulations for non-compliant banks and trigger resolution of non-viable banks.
  - Tackle liquidity-stressed banks and avoid further delays in bank recapitalization by governments when needed.
  - Ensure banks adequately account for sovereign exposure by moving away from the systematic zero risk weights on government exposures.
  - Monitor emerging risks from new digital payments.
- Structural reforms:
  - Accelerate reforms to boost potential output: strengthen AML/CFT, governance, and regulatory policies; improve human capital, the business climate, the rule of law, financial inclusion, and regional infrastructure.
- Regional strategy:
  - Reaffirm member states’ political commitment to the regional strategy to contribute collectively to adjustment and financial sector stabilization.

*June 10, 2024 — International Monetary Fund (CEMAC Executive Summary)*

### 8.      Several banking sector stability indicators deteriorated in the fourth quarter of 2023.

### 8.      Several banking sector stability indicators deteriorated in the fourth quarter of 2023.

### Banking-sector stability: recent developments
- Overall capital adequacy declined to 11.8 percent at end-2023, with several banks being severely undercapitalized, or insolvent, highlighting large recapitalization needs.
- Reported NPL ratio improved to 15.7 percent at end-2023 from 17.7 percent of total gross loans at end-2022.
- Short-term liquidity ratio was 176.4 percent as of end-2023, but liquidity is segmented with several banks below 100 percent.
- Less than one-third of banks comply with all prudential requirements.
- Banks’ total assets grew by 11.6 percent year-on-year in 2023Q4 (decelerating from 2023Q2), driven by slowing deposit mobilization.
- Banks’ loan portfolio grew by 8.3 percent during the last quarter of 2023.

### Bank exposure to the sovereign and related risks
- Total bank exposure to the sovereign (loans and securities) increased from 10 percent at end-2015 to about 31 percent of total assets at end-2023.
- Several banks have exposure to CEMAC governments above 50 percent, posing significant risks to financial stability, including cross-country contagion and risks to banking groups.
- The increase in public sector credit suggests a crowding-out risk for the private sector, which could impede economic diversification.
- Securities maturities have lengthened (from short-term treasury bills to long-term bonds), creating maturity mismatch risk while banks’ liabilities remain dominated by sight deposits.
- Liquidity of these securities remains very low in the absence of a dynamic secondary market.

### External position and reserves (2023–medium term)
- Current account (CA) balance estimated to have turned into a deficit of 0.6 percent of GDP in 2023, from a surplus of 3.6 percent of GDP in 2022, mainly due to lower hydrocarbon exports.
- Gross reserves remained unchanged at about 4.3 months of prospective imports in 2023.
- End-December 2023 regional policy assurance on the NFA (EUR 3.91 billion) was met with a wide margin of about EUR 1 billion.
- After a peak in April 2023, the underlying trend in NFA is downward, reflecting lower oil prices relative to 2022 and deteriorating fiscal positions in some countries.

### Growth, inflation, fiscal and debt projections
- Brent oil price assumption: about US$81/bbl in 2024, after US$82/bbl in 2023.
- Real GDP growth projected to pick up to 3.6 percent in 2024, driven by a strong rebound in oil output.
- Non-oil GDP projected to expand by 3.7 percent in 2024, up from 2.6 percent in 2023.
- Inflation projected to remain broadly unchanged at 4.7 percent by end-2024; expected to return to the regional 3 percent convergence criterion by 2026.
- Non-oil primary fiscal deficit including grants (NOPFD) projected to improve by 0.6 percentage points to 7.3 percent of non-oil GDP in 2024.
- NOPFD projected to improve by about 2.5 percentage points of non-oil GDP between 2023 and 2029 due to structural measures.
- Region’s overall fiscal deficit (excluding grants) projected to slightly worsen from 0.5 percent of GDP in 2023 to 1.0 percent of GDP in 2024.
- Public debt projected to fall to around 51.7 percent of GDP in 2024 from 53.5 percent of GDP in 2023; expected to decline to about 47 percent over the medium term.
- Gabon: public debt expected to hover around 100 percent of GDP in the medium term.
- CA balance projected to deteriorate from -0.6 percent of GDP in 2023 to -1.0 percent of GDP in 2024, and to about -1.9 percent of GDP over the medium term.
- Reserve coverage ratio projected to marginally rise to about 4.5 in 2024 but deteriorate to about 3.6 in the medium term (staff-estimated adequacy target for the monetary union: 5 months).

### Resilient (alternative) scenario and impact of fiscal consolidation
- Under an alternative scenario where Gabon, Equatorial Guinea, and Chad reverse fiscal slippages and recommit to consolidation:
  - Assumed fiscal adjustment of about 4.7 percentage points of non-oil GDP at the regional level between 2023 and 2028 (mainly from expenditure reductions and some revenue mobilization).
  - Public debt would fall to about 42 percent of GDP by 2028 (6 percentage points lower than the baseline).
  - Foreign reserves would accumulate to maintain import cover at about 4 months of prospective imports by 2028 (vs. 3.6 months in the baseline).
  - Completion of Fund program reviews would catalyze donor support and strengthen external stability.

### Key downside risk illustration
- In an adverse scenario where oil prices drop to $60/bbl in 2024 and throughout the forecast horizon, reserve coverage would sharply fall to only 1 month of imports by 2028.

### Balance of risks (summarized)
- External risks: adverse commodity price shocks, tighter global financial conditions, geo-economic fragmentation reducing concessional financing.
- Domestic risks: further fiscal slippages, socio-political instability (including influx of refugees, estimated to have reached about 500,000 in Chad), cost-of-living pressures, and financial-stability risks from the tight bank-sovereign nexus and high NPLs.
- Upside: stricter FX compliance, higher oil prices linked to OPEC+ actions, and reform acceleration could improve FX repatriation and resilience.

### Policy recommendations and priorities
- Decisive corrective actions are needed to steer the region toward a resilient outlook:
  - Restore fiscal prudence and discipline, including rebuilding fiscal buffers.
  - Control inflation through appropriate macroeconomic policy.
  - Strengthen prudential supervision and address bank recapitalization needs.
  - Sustain growth while protecting the vulnerable.
  - Complete Fund-supported program reviews to catalyze donor support and diversify external financing.

*Source: IMF staff compilation from the CEMAC regional report (excerpts provided).*

### 19.      Tackling recurrent fiscal slippages and restoring fiscal prudence are critical for

### 19.      Tackling recurrent fiscal slippages and restoring fiscal prudence are critical for

### Fiscal consolidation and buffer buildup
- Urgency to accelerate external and fiscal buffers build-up before favorable oil price tailwinds dissipate.
- Need to bring policies back in line with ambitious fiscal consolidation paths consistent with Fund-supported programs and surveillance advice.
- Robust anti-corruption frameworks recommended to strengthen fiscal discipline and public spending efficiency, particularly in the extractive sector.
- Debt servicing costs could be reduced by pre-paying BEAC’s past statutory advances or paying off expensive debts.

### Non-oil revenue mobilization (staff recommendations)
- Bolster non-oil tax revenue mobilization to break the link between priority social and infrastructure spending and hydrocarbon price volatility.
- Specific policy actions reiterated:
  - Broaden the tax base.
  - Step up the fight against tax and customs fraud.
  - Modernize revenue administration, notably by accelerating implementation of e-procedures and mobile tax payments.
  - Review tax incentive regimes; phase out various tax exemptions; enhance progressivity of personal income tax.
  - Better assert taxing rights over income from multinationals.
  - Swiftly implement the new VAT directive and ensure timely endorsement of new regional tax directives (tax procedures code, income tax, tax expenditures and customs procedures).
- Strengthened revenue administration capacity needed, including an ambitious regional domestic revenue mobilization strategy and addressing longstanding understaffing at the CEMAC Commission.

### Extractive sector tax compliance and transparency
- Better manage tax compliance risks in the extractive sector through:
  - Adopting customs processing of EI inputs and outputs per the CEMAC EI customs procedures guide.
  - Setting up dedicated tax administration teams with access to third-party information and ability to conduct comprehensive audits of multinational enterprises, free of political interference.
  - Accelerating digitization of tax and customs procedures for extractive sector companies and suppliers.
  - Ensuring systematic exchange of information between tax administration, customs, ministerial authorities, and the SOE in charge of the sector.
  - Strengthening risk analysis and adopting a compliance improvement plan tailored to the EI sector.
  - Improving transparency of extractive industries, including SOEs, and their suppliers’ tax operations and performance.

### Spending efficiency and SOE fiscal risks
- Enhance spending efficiency by:
  - Gradually phasing out inefficient subsidies while rolling out targeted social safety nets (SSN) to protect the most vulnerable, possibly with donor support.
  - Leveraging existing programs and digitalization to enhance SSN coverage and targeting where SSNs are weak.
  - Completing fuel subsidy reform phases to realize expected medium-term savings.
  - Seeking further savings by rationalizing the wage bill, non-priority recurrent spending, and costly transfers to SOEs.
- Ministries of Finance urged to systematize production of fiscal risk statements with a specific section dedicated to SOEs.
- Tackle root causes of SOEs’ financial woes to reduce budget transfers.
- Conduct or update Public Investment Management Assessments (PIMA), possibly combined with Climate Change Assessments (CCA), and accelerate PIMA recommendation implementation.

### Public financial management, debt strategy, and arrears
- PFM modernization, governance, fiscal discipline, and debt management practices to be stepped up.
- Debt management strategy:
  - Low-income CEMAC members should only resort to non-concessional external financing if consistent with debt sustainability and Fund-supported limits.
  - Enhance debt transparency, particularly on non-guaranteed SOE debt; avoid non-transparent collateralized debts, especially natural resource-backed loans.
  - Reform and deepen domestic debt markets and improve arrears reporting.
- Arrears clearance and prevention:
  - Swift implementation of comprehensive domestic arrears clearance and medium-term debt management strategies.
  - Strengthen fiscal discipline and align expenditure commitment plans with cash forecasts and procurement plans.
  - Improve in-year tracking and reporting of outstanding domestic payment arrears, new arrears, and arrears paid in monthly, quarterly, and bi-annual budget execution reports.
  - Record all expenditure in IFMIS at the liquidation stage where arrears arise.
- Treasury single account (TSA) deployment:
  - Urged BEAC to accelerate implementation of its IT platform (AMS/X solution) to operationalize TSA.
  - Revised timeline foresaw platform going live in two advanced pilot countries (Cameroon and Gabon) by 2023Q3, with balances of banks’ treasury accounts to be gradually transferred to the TSA at BEAC by the end of December 2024, and then gradually rolled out to the other four treasuries.
  - Requires signing a standard convention between BEAC and all Treasuries.

### Monetary policy stance and liquidity management
- Main policy rate remains appropriate at 5 percent.
- Temporary tight liquidity conditions should be addressed through revamping of liquidity injection operations.
- Staff advised BEAC to resume regular refinancing operations (weekly main refinancing operations) at least maintaining the current level of the TIAO to alleviate volatility and tight liquidity.
- Conduct regular lending operations using a fixed-rate full allotment procedure, taking into account market and macroeconomic conditions, to strengthen monetary policy transmission.
- Ensure strict application of prudential regulations on concentration limits (in collaboration with COBAC) and move away from systematic zero weighting of government securities.
- Use short-term BEAC debt securities, issued at rates closer to the TIAO, to incentivize participation by banks holding ample excess reserves; staff emphasized reassessing conditions associated with these securities to enhance appeal.

### Banking sector fragmentation, supervision, and targeted actions
- Address liquidity segmentation across banks by tackling weak banks more resolutely and strengthening supervision and capital adequacy.
- Encourage participation of small number of financial institutions not active in the money market.
- Staff urged BEAC, with COBAC, to engage with banks facing high liquidity needs and tighten conditionality for structurally liquidity-stressed banks, including requesting credible refinancing plans and considering triggering resolution in case of continued non-compliance.
- Note: five financial institutions are deemed structurally dependent on BEAC’s refinancing (with only one having submitted a refinancing plan to COBAC).

### Data-dependence, inflation risk, and policy readiness
- Monetary policy should remain data-dependent and BEAC should stand ready to hike interest rates again if necessary.
- Staff recommended careful monitoring of effects of normalization of liquidity on interbank market functioning.
- BEAC should cut interest rates only when there is tangible evidence that inflation is sustainably receding toward the regional convergence criterion and risks to external stability have faded.
- Rationale for tightening bias includes projected decline in reserve accumulation, risk of inflation becoming entrenched, possible second-round effects of fuel subsidy reforms, deterioration in fiscal and external positions, and narrowing of BEAC-ECB policy rate spread.

### Containing risks to BEAC’s balance sheet
- Staff advised BEAC to:
  - Adjust haircuts on collateral to reflect underlying risks and provision for potential losses.
  - Apply collateral framework in line with risk equivalence (including differential haircuts).
  - Apply no reserve requirement exemptions.
  - Implement funding plan framework for banks excessively dependent on BEAC’s refinancing.
  - Use emergency liquidity assistance framework with strict conditionality and enhanced supervisory oversight if needed.
  - Conduct a bank collateral assessment to ensure adequacy of collateral and counterparty balance sheets.
- Caution on arrears securitization: may help clear domestic arrears but could weaken fiscal discipline, increase bank-sovereign nexus, and build up government securities on BEAC’s balance sheet through refinancing.
- Monitor repayments of past statutory advances and the stock of bonds bought in the COVID-related bond purchase program (which started maturing in 2022Q2), and monitor exposure to the regional development bank (BDEAC).

*Source: IMF staff assessment and recommendations as presented in the chapter.*

### 28.      Authorities’ views. BEAC concurred with staff’s recommendation to maintain its approach to

### 1caeea2024001-print-pdf - 28.      Authorities’ views. BEAC concurred with staff’s recommendation to maintain its approach to

### Collateral haircuts, exposure limits, and BDEAC credit risk
- BEAC concurred with staff’s recommendation to maintain its approach to adjust haircuts on collateral to reflect risks and set exposure limits by bank and/or country.
- Haircuts are determined in accordance with the current framework, which includes monitoring changes in the credit ratings of CEMAC countries and the joint World Bank/IMF debt sustainability analysis.
- BEAC’s framework enables a comprehensive assessment of all available collateral within the banking system.
- BEAC noted that its exposure to BDEAC's credit risk on its balance sheet has been steadily decreasing, consistent with repayments made under the various facilities extended to BDEAC by the central bank.

### Foreign exchange (FX) regulation enforcement and repatriation
Findings and status
- Staff recognized progress by BEAC on enforcing FX regulations but saw scope for further efficiency gains.
- BEAC reported gradual improvements in the verification and approval process for FX requests owing to continued dialogue with banks and businesses and readiness to provide additional resources, including more staff, if required.
- Following discussions in Paris in July 2023 with the extractive sector on the draft model contract of escrow accounts attached to RES funds, BEAC sent model contract escrow accounts to member states. These contracts were initially scheduled for validation and signing by October 21, 2023, with the deadline extended to February 15, 2024. As of May 2024, BEAC had not received any signed model contract accounts.
- Once signed, RES funds set up before January 1, 2022, are expected to be repatriated to the escrow accounts at BEAC at a rate of at least one third per year from the signature date, and immediately repatriated for those set up after that date. RES funds are anticipated to be set up directly into accounts opened in CEMAC upon signing.

Staff recommendations
- Maintain efforts to reduce technical delays in FX request processing by continuing dialogue with banks and businesses and deploying additional resources if needed to ensure FX requests are processed speedily, smoothly, and efficiently.
- Intensify efforts to ensure a more complete, efficient, consistent, and predictable application of FX regulations, including closer monitoring of compliance by the public and extractive sectors with FX repatriation and surrender requirements.
- Strengthen capacity to map out FX accounts held abroad by governments, SOEs, and other public entities, possibly with support from the Bank of International Settlements, to ensure greater compliance by the public sector with the FX repatriation requirement.
- Continue engaging constructively with the extractive sector to address unresolved points, including: (i) the terms and conditions for remunerating escrow accounts attached to the RES funds; and (ii) the draft model contract escrow account attached to RES funds constituted in the form of accounting provisions.

Note
- The repatriation and surrender requirement on export proceeds is a capital flow management measure (CFM) under the Fund’s Institutional View. The stricter enforcement of this measure (since 2018) is a tightening of an outflow CFM, which continues to be appropriate for ensuring further external reserves build-up.

### Safeguards assessment and governance
- The 2022 safeguards assessment found BEAC maintained strong governance and external audit arrangements, while internal audit and risk management practices needed strengthening.
- A safeguards monitoring mission took place at end-2023 to follow up on outstanding 2022 safeguards recommendations, an external quality assessment of internal audit, and the current implementation of the governance framework.
- Mission preliminary recommendations include onboarding for new members of senior management and the Board and an enhanced delegation framework for executive decision-making.

### Safeguarding financial stability — key supervisory recommendations
Staff reiterated the urgent need for collective action by national authorities and regional supervisors (BEAC and COBAC) amid a deteriorated outlook and growing fiscal and external imbalances. Recommended actions include:
- Provide COBAC SG with adequate human and financial resources without delay to step up onsite inspections.
- Rigorously sanction or take supervisory corrective actions when banks are systematically non-compliant with regulations within a short timeframe.
- Strictly enforce BEAC’s refinancing policies for liquidity-stressed banks.
- Assess adequacy of non-performing exposures’ classification and provisioning rigorously, and evaluate potential capital shortages if loan-loss provisioning is insufficient by undertaking a comprehensive program of onsite supervision of banks’ credit portfolios (at least for systemically-important banks) using a prioritized and risk-based approach.
- Accelerate implementation by national governments of comprehensive domestic arrears clearance and prevention strategy.

Additional supervisory guidance
- COBAC should strictly enforce the regulatory framework and avoid forbearance for undercapitalized banks; support independent and fair evaluations of structurally weak banks to elaborate credible recapitalization solutions.
- Ensure undercapitalized banks submit credible medium-term recapitalization plans within a short timeframe and establish NPL reduction strategies; recapitalize without delay or resolve weak banks in a timely manner.
- Reduce and properly account for sovereign risk: progressively enforce existing concentration limits, move away from zero-risk weight on government exposure, and encourage prudent internal risk management.
- Ensure primary dealers (mostly banks) do not hold all new sovereign issuances as stated in their contracts; develop a sizeable non-bank investor base to prevent under-subscription risks.

### Financial market development — secondary market and BVMAC
Findings and recommendations
- Rise in government securities on regional stock exchange (BVMAC) creates market dualism that could hamper secondary market development and securities liquidity.
- Staff reiterated the need for BEAC and stakeholders to foster the development of a secondary market, including capacity development (CD) recommendations and a local-currency bond market diagnostic to identify bottlenecks and develop a prioritized reform roadmap.
- Staff welcomed BVMAC’s draft revised general regulations submitted in March 2024 to COSUMAF for approval to boost market activities.
- BVMAC should step up efforts to raise investor appetite for stocks from 17 SOEs (2 already listed) set to be listed on BVMAC.
- Urged operationalization of the company responsible for managing the single central depository by end-2024 as scheduled, with robust governance structures and capacity-building support if necessary.
- Encouraged member countries that have not yet submitted their SOEs to be listed to do so swiftly.

BVMAC and BEAC views
- BVMAC concurred that diversifying the investor base would boost market activity; launched its first composite stock index (BVMAC All Share Index) in December 2023.
- BEAC noted continued increase in government issuances, persistent high costs of government securities, and signs of liquidity stress for some countries tapping markets; BEAC is collaborating with national treasuries to enhance issuance calendar implementation to improve planning and visibility.

### Digital payments, crypto, and CBDC considerations
Staff advice and concerns
- BEAC, in coordination with regional and national authorities, should monitor and manage new risks from digital payments and assets while supporting innovation and financial inclusion.
- Regional supervisors (BEAC, COBAC, COSUMAF, GABAC) should advance a crypto-related regulatory framework and enhance coordination to ensure clarity and consistency across existing rules, including reconciling: July 2022 regulation No-01-2022; BEAC’s mandate on payments; and COBAC Decision D-2022/071 prohibiting use of cryptocurrencies by entities under its remit.
- Mission urged BEAC and regional supervisors to promptly issue and transmit to the Fund a legal opinion regarding C.A.R.’s recent law allowing tokenization of resource wealth with mandatory payment use of crypto assets. The legal opinion should: (i) assess whether it violates BEAC’s exclusive right to issue currency in the CEMAC; and (ii) examine risks to financial integrity, governance, consumer protection, and AML/CFT compliance.
- BEAC should diligently account for risks posed by digital payments and assets on its operations and monetary policy.
- BEAC’s exploration of a CBDC—for which it requested Fund CD—should be based on cost-benefit analysis, considering potential impacts on bank intermediation, costs of maintaining a dual payment system, and quality and access to digital infrastructure.
- In the meantime, intensify efforts to unlock financial inclusion potential of mobile money, including revising current tariffication that burdens small transactions and validating/adopting the new revised pricing project by GIMAC by the end of October 2024.

Authorities’ responses
- Regional supervisors shared staff views on need for consistent regulatory framework and strengthened supervisory capacity for digital payments and assets.
- BEAC reiterated that IMF technical assistance will help explore CBDC possibilities and strengthen regulation/supervision of digital assets; BEAC has started work on a legal opinion regarding C.A.R.’s law, anticipated to be signed and shared with C.A.R. authorities by the end of the first half of 2024.

### AML/CFT and mutual evaluation follow-up
- Staff advised national and regional authorities (COBAC, GABAC, BEAC) to continue addressing strategic AML/CFT deficiencies from mutual evaluations to mitigate implications of potential or existing FATF grey listing (e.g., reduced ability to trade internationally and loss of correspondent banking).
- Staff welcomed COBAC regulation R2023/01 on AML/CFT scheduled to enter into force in July 2024 and encouraged continued close work with national and regional authorities to address deficiencies.

### Prioritization and regulatory modernization for COBAC
Staff recommended COBAC prioritize its work agenda with actions including:
- Risk-based prudential and AML/CFT supervision.
- Modernize the regulatory framework, including amending accounting standards to integrate fair valuation of assets, establish a reasonable timeline to transition to IFRS, and progress on Basel II/III transition.
- Strengthen the bank resolution framework, develop stress tests, and improve risk management and bank governance.

### Regional surveillance framework and convergence criteria
Findings and recommended actions
- Staff underscored the need to strengthen credibility and enforceability of the regional surveillance framework and accelerate concertation with regional institutions (BEAC, BDEAC, COBAC, COSUMAF, BVMAC) to resume adoption of the draft sanction mechanism for breaches of regional surveillance rules.
- The draft sanction mechanism should: (i) broaden range of sanctions, including monetary penalties or premiums on government securities for breaches of fiscal deficit or debt-related multilateral surveillance rules; (ii) clarify scope and procedures for addressing non-compliance with budgetary-related surveillance rules; and (iii) provide escape clauses for exceptional circumstances.
- Staff welcomed approval of final Multilateral Surveillance Reports for 2022 and provisional report for 2023, and perspectives for 2024 and 2025 (expected to be released in October 2024).
- Commission should ensure all member countries share medium-term convergence plans and carry out first internal analysis of the early warning system on macroeconomic imbalances by October 2024 (rescheduled).

Prerequisites for compliance with convergence criteria
- Member countries should submit updated post-COVID triennial convergence plans.
- Fully operationalize national multilateral surveillance units.
- Adopt and implement comprehensive credible national domestic arrears clearance and debt management strategies.
- Transpose regional tax and PFM directives (internal and budget controls; switching into program-based budgeting; stock and fixed assets accounting; etc.) in a timely manner.
- Make faster progress on the 2021–30 regional statistical program to improve external statistics and accelerate BOP data collection and compilation to reduce oil revenue and external flows forecasting errors.
- COBAC and BEAC should regularly report updated data on financial soundness indicators and monetary and financial statistics to the IMF for dissemination.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1caeea2024001-print-pdf.pdf*

### 42.      Staff recommended that the Commission work with BEAC and the PREF-CEMAC

### 42.      Staff recommended that the Commission work with BEAC and the PREF-CEMAC Secretariat to come up with a harmonized view on the contemplated multilateral stabilization fund.

### Harmonization on multilateral stabilization fund
- Staff recommended the Commission work with BEAC and the PREF-CEMAC Secretariat to come up with a harmonized view on the contemplated multilateral stabilization fund.
- Importance of harmonizing views on feasibility and modalities for setting such a fund where would abound part of oil windfalls.
- Fund staff stands ready to provide related CD as needed.
- The Commission intends to dispatch a mission to BEAC by the end of the first half of 2024 to harmonize views and seek consensus on the draft concept note relative to the contemplated multilateral stabilization fund.

### Authorities’ views and regional surveillance framework
- The CEMAC Commission agreed that enhancing the credibility and enforceability of the regional surveillance framework is critical.
- Commitment to step up coordination with the UMAC ministerial council to bring back on track adoption of the draft sanction mechanism for breaches of regional surveillance rules, ensuring incorporation of IMF staff comments and alignment with best international practices.
- Subject to timely and satisfactory concertation with other regional institutions, the draft sanction mechanism will be up for discussion at the upcoming in-person meeting of the Heads of State.
- Ongoing efforts to ensure all member countries share their medium-term convergence plans.
- Intention to start analyzing the early warning system on macroeconomic imbalances based on the final Multilateral Surveillance Reports for 2023 and perspectives for 2024 and 2025.
- Progress on strengthening compliance with regional convergence criteria, with support from the IMF’s technical assistance.

### Accelerating structural reforms to boost potential output
- Staff reiterated the importance of accelerating structural reform implementation to lift potential output and enhance resilience to shocks.
- Persistent structural reform delays threaten progress toward objectives associated with the second phase of the regional strategy.
- Faster progress needed on longstanding structural areas including:
  - Strengthening AML/CFT, governance, and anti-corruption frameworks.
  - Regulatory reforms.
  - Improving human capital, business climate, rule of law, financial inclusion.
  - Advancing regional infrastructure projects and stepping up cooperation with development partners to ensure timely disbursements of financing pledges (EUR 9.95 billion) from the November 2023 Paris donors roundtable for implementation of second-generation priority regional integration-enhancing projects.
- Expected benefits: enhance growth diversification and inclusiveness, broaden the non-oil tax base, deepen regional trade integration.
- Progress welcomed on measures to improve human capital, including increased education budgets in some member states; emphasis that budget increases should be channeled toward improving education quality and that other states should be encouraged to increase budgets.

### Food security and agriculture
- Staff encouraged continued regional efforts to enhance food security.
- Carefully advancing the regional food self-sufficiency strategy under PREF-CEMAC’s steering committee—mindful of avoiding FX or trade restrictions—combined with R&D and coordinated climate resilience actions could boost domestic agricultural production and strengthen food security.
- Stepped up cooperation with development partners to secure concessional resources, including delivering on financial pledges for second-generation priority investment projects, could help implement the regional strategy by end-December 2024.
- Additional critical steps: streamlining intra-regional transit, removing non-tariff barriers, accelerating one-stop border post construction.

### Climate change resilience and adaptation
- Mission recommended the Commission perform a climate change risk assessment to define a regional climate adaptation strategy, step up forest and water conservation efforts, and explore distributional impacts and socio-economic benefits.
- Advice to accelerate work toward elaborating a regional climate change adaptation strategy in collaboration with the World Bank.
- Related measures: ensure a sustainable energy sector and climate-resilient agriculture, elaborate contingency plans, adopt best practices in gender- and climate-sensitive budgeting and public financial management.
- Note: Cameroon was the first CEMAC member to benefit from the Resilience and Sustainability Trust (RST) in January 2024; the RST could support climate-related reforms by providing affordable financing.

### Monitoring of regional policy assurances and NFAs
- BEAC maintained a tightening path of monetary policy and liquidity conditions; after discontinuing weekly liquidity injections at its main refinancing window, BEAC continued to mop up excess liquidity by increasing the rate on liquidity-absorbing operations and issuing new short-term securities.
- BEAC has maintained dialogue with banking and private sectors to ensure FX requests are processed speedily; unresolved issues remain on the draft model contract for the escrow account for funds set aside for oil site rehabilitation.
- Some national authorities are making plans to address weak banks and tackle the bank-sovereign nexus.
- End-December 2023 NFA overperformance reflects temporary factors and must be treated with caution; underlying NFA trend remains downward due to lower hydrocarbon and oil prices relative to 2022 and deteriorating fiscal positions.
- High-frequency FX reserves and transfers data for early 2024 point to a reversal of the December uptick; member countries should be ready to implement offsetting policy adjustments.
- Proposed regional NFA targets and methodology:
  - Proposed end-June 2024 NFA target: EUR 4.50 billion.
  - Proposed end-December 2024 NFA target: EUR 5.0 billion.
  - NFA target assessment will be based on a three-month average starting with the end-December 2024 target, computed for the three-month period ending on December 31st, 2024.
- Risks to NFA targets: heightened external uncertainties, oil market volatility, donor support shortfalls, domestic macroeconomic and political risks.
- Recommended actions: accelerate external reserves build-up, ensure full repatriation of public entity deposits held abroad, monitor compliance of public and extractive sectors with FX regulations.

### Staff appraisal: outlook, risks, and policy recommendations
- 2023 performance: CEMAC economy lost some steam in 2023 mainly owing to a contraction in hydrocarbon production; external position weakened though FX reserves remained steady at around 4 months of prospective imports (still below adequate levels).
- Growth projections:
  - Staff projects GDP growth to accelerate to 3.6 percent in 2024, reflecting still-high oil prices and a strong rebound in oil output.
  - Medium-term sustained regional growth projected at about 3.5 percent, masking divergences across the region.
- Downside risks: further fiscal slippages, declining commodity prices, tighter financial conditions, heightened political uncertainty, entrenched inflation, financial instability, slow structural reform progress, food insecurity, domestic conflicts, climate-related events.
- Fiscal policy recommendations to rebuild buffers and reverse NFA decline:
  - Intensify efforts to boost non-oil tax revenue collection.
  - Improve spending efficiency.
  - Phase out inefficient energy subsidies.
  - Ensure provision of targeted safety nets to protect the vulnerable.
- High-level CEMAC meeting under consideration could reaffirm political commitment to share the burden of adjustment and financial sector stabilization across countries.

### Monetary policy and banking sector recommendations
- Policy rate and liquidity operations:
  - Policy rate remains appropriate at 5 percent.
  - Staff advised BEAC to resume weekly liquidity-providing main refinancing operations at least at the level of the TIAO to alleviate temporary tight liquidity conditions.
  - BEAC has raised rates on liquidity-absorbing operations and issued short-term debt securities but banks’ participation has been lackluster.
  - Excess liquidity has continued to decline, with a steep drop in excess reserves in early 2024.
  - BEAC should remain prepared to hike interest rates again if inflationary pressures persist or external reserves deviate from targeted path.
- Financial stability and supervisory actions (collective priorities):
  - Promptly allocate adequate human and financial resources to COBAC SG.
  - Swiftly and rigorously sanction or implement supervisory corrective actions when banks are in systematic non-compliance.
  - Rigorously enforce BEAC’s refinancing policies for liquidity-stressed banks.
  - Assess adequacy of NPL classification and provisioning and potential capital shortages.
  - Recapitalize or resolve weak banks by national governments.
  - Accelerate implementation of comprehensive domestic arrears clearance and prevention strategies.
  - Ensure undercapitalized banks submit credible medium-term recapitalization plans within a short timeframe and establish NPL reduction strategies.
  - COBAC should continue advancing risk-based prudential supervision, AML/CFT supervisory framework, and implement Basel II/III, ensuring banks adequately account for sovereign risk.
  - COBAC should work closely with GABAC and BEAC to address strategic AML/CFT deficiencies identified in mutual evaluations.

### Digital finance and crypto-related risks
- Strengthen supervisory framework and capacity to monitor and manage risks from digital payments and assets.
- Advance crypto-related regulatory framework and coordinate issuance of laws and regulations.
- Promptly issue legal opinion regarding C.A.R.’s law allowing tokenization of resource wealth with exclusive payment use of crypto assets to address concerns about BEAC’s exclusive right to issue currency and impacts on financial integrity, governance, consumer protection, and AML/CFT compliance.
- BEAC should account for potential effects of digital payments and assets on operations, financial stability, and monetary policy.
- BEAC’s exploration of a CBDC should be based on a cost-benefit analysis.

*Source: 1caeea2024001-print-pdf (excerpts)*

### 58.      BEAC met the policy assurance on the NFA provided in the December 2023 follow-up

### 58.      BEAC met the policy assurance on the NFA provided in the December 2023 follow-up

### NFA targets and recent performance
- BEAC supports the updated policy assurance on NFA accumulation to bring NFA to €4.5 billion and €5.0 billion at end-June 2024 and end-December 2024, respectively.
- The end-December 2023 NFA level reflects:
  - a strong rebound in the effective rate of FX repatriation in 2023Q4; and
  - one-off technical factors.
- Building up FX reserves will depend on timely disbursements of external financing.

### Actions required to meet the 2024 NFA targets and reverse the underlying downward trend
- BEAC to step up efforts to monitor compliance with, and enforce, the repatriation and surrender requirements of the FX regulations to consolidate the recovery shown in recent data into a sustainable upward trend.
- Member countries to tackle recent fiscal slippages in line with Fund-supported programs and staff advice.
- BEAC to stand ready to hike interest rates should inflationary pressures persist, or external reserves deviate from the targeted path.
- Member countries, anchored by Fund-supported programs and surveillance advice, should stand ready to:
  - maintain macroeconomic stability, including through appropriate fiscal policy measures;
  - implement structural reforms, including in areas of governance, regulation, AML/CFT and anti-corruption frameworks;
  - pursue ambitious policies to improve human capital and the business climate to enhance economic diversification and resilience.

### Policy importance and conditionality
- Meeting the proposed policy assurances on the NFA is critical for allowing the continuation of (or approval of new) financial support as part of the Fund-supported programs with CEMAC member countries.

### Key macroeconomic projections and indicators cited in the chapter
- Real GDP:
  - projected to accelerate to 3.6 percent in 2024, from 2.1 percent in 2023.
- Overall fiscal balance:
  - projected to deteriorate from -0.5 percent of GDP in 2023 to -1.0 percent of GDP in 2024, driven by lower hydrocarbon revenue and spending overruns in some member countries.
- Current account balance:
  - projected to slightly deteriorate from -0.6 percent of GDP in 2023 to -1.0 percent of GDP in 2024, mainly reflecting a decline in hydrocarbon exports and lower income and transfer balances.
- Reserves accumulation:
  - expected to continue in the near term but to decline in the medium term.
- Oil price assumption:
  - revised downward to $80.6 per barrel on average in 2024 (vs. $82.4 per barrel in late 2023).
- Public debt:
  - expected to decline to around 53.5 percent of GDP in 2023, and 51.7 percent of GDP in 2024, but to remain higher than previously projected in the medium term mainly driven by Gabon.

*Source: 1caeea2024001-print-pdf - 58.      BEAC met the policy assurance on the NFA provided in the December 2023 follow-up*

### 1. External financing needs

### 1. External financing needs

### Recent macroeconomic developments and outlook
- Real GDP growth: 2.3 percent in 2023, down from 2.9 percent in 2022.  
- Inflation (year-on-year): 4.6 percent in 2023, down from 6.7 percent in 2022, and still above the 3 percent convergence criterion.  
- Growth projection: 3.3 percent in 2024 driven by non-oil sector dynamism, a stronger rebound in oil production, and persistently high oil prices.  
- Current account balance (including grants): 4.2 percent of GDP in 2023, down from 8.1 percent of GDP in 2022.  
- FX reserves: unchanged overall in 2023 at 4.3 months of prospective imports.  
- Macroeconomic risks highlighted: volatility of oil markets, persistent inflationary pressures, tighter global financial conditions, refinancing and debt distress risks, geopolitical tensions, food insecurity, financial instability, security and socio-political developments in Cameroon, Central African Republic, Gabon, and Chad, and spillovers from the conflict in Sudan and crises in the Sahel.

### Monetary policy, liquidity management, and FX measures
- BEAC key policy rate (TIAO): increased by 175 basis points since November 2021, reaching 5.0 percent in March 2023.  
- Weekly short-term liquidity absorption operations: peaked at FCFA 120.7 billion in September 2023 and declined to FCFA 12.7 billion toward end-2023.  
- Interest rate on absorption operations: raised from 0.85 percent in September 2023 to 1.25 percent in November 2023.  
- BEAC began issuing short-term debt securities in February 2024 with maturities of 14 and 28 days at interest rates of 2.5 percent and 3.5 percent, respectively.  
- Excess reserves in the banking system: CFAF 1,042 billion at end-December 2023, falling to CFAF 682 billion at end-March 2024.  
- BEAC operational responses under consideration or in implementation:
  - Resume main weekly refinancing operations and determine direction/volume weekly based on liquidity forecasts and autonomous factors.
  - Possibly switch to full allotment tender procedures; use TIAO as floor rate.
  - Use “BEAC Bills” issued at rates closer to TIAO to encourage participation by banks holding bulk of excess reserves.
  - Assess impact of “BEAC Bills” on reducing excess liquidity and defragmenting the interbank market and modify conditions to make them more attractive.
  - Ensure strict application of prudential regulations on concentration limits in coordination with COBAC.
  - Discuss gradual removal of zero risk weighting for new issuances of government securities backed by escrow accounts at the Banking Commission meeting scheduled for July 2024.

### External position, NFAs, and targets
- NFAs assurances at end-December 2023: EUR 3.919 billion achieved with a comfortable margin of EUR 1 billion.  
- NFAs movements: increased at end-2023 but declined from EUR 4.94 billion at end-December 2023 to EUR 4.22 billion at the beginning of March 2024.  
- NFA targets and revisions:
  - Upward revision of the NFA target for end-June 2024 from EUR 4.3 billion to EUR 4.5 billion.
  - NFA target for end-December 2024 set at EUR 5.0 billion.
  - From December 2024 onwards, the NFA target will be assessed on the basis of an average over the previous three months (for end-December 2024, assessed for the three-month period ending December 31, 2024).  
- Measures to strengthen NFAs: more rigorous application of FX repatriation and surrender requirements, enhanced monitoring of public and extractive sectors, full repatriation by public entities of deposits held abroad, and predictable, timely disbursement of budget support by development partners.

### Fiscal position, public debt, and reforms
- Overall fiscal balance (excluding grants): shifted to a deficit of -0.9 percent of GDP in 2023 from a 2.3-percent GDP surplus in 2022 (text also notes elsewhere the overall fiscal balance, excluding grants, turned negative at -0.5 percent of GDP in 2023 in the Statement by authorities).  
- Non-oil primary deficit (including grants): -9.7 percent of non-oil GDP in 2023 (noted as higher than projected at time of previous IMF staff mission); elsewhere the non-oil primary deficit is reported as narrowing slightly from 8.6 to 7.9 percent of non-oil GDP in 2023 in the authorities’ statement.  
- Total public debt: 54.7 percent of GDP at end-2023, an increase of 1.7 percentage points; expected to fall to around 40 percent of GDP in the medium term.  
- Drivers of fiscal deterioration: significant fiscal slippages in some member states driven by political events (elections, national dialogues), security issues, and refugee management related to the war in Sudan.  
- Policy emphasis: rebuild fiscal buffers by correcting fiscal slippages, be more prudent in managing excess oil revenues, and accelerate reforms under IMF-supported programs and PREF-CEMAC.

### Banking sector, supervision, and financial stability
- COBAC supervisory actions:
  - Lifted temporary prudential forbearance measures applied as part of COVID-19 response as of July 2022.
  - Lifted suspension of dividend distribution in June 2023, authorizing dividend distribution for the first time in three years.
- Banking sector conditions: soundness indicators deteriorated in second half of 2023; sector remains fragile with several breaches of prudential standards; increasing recourse by banks to marginal lending facilities.  
- BEAC and COBAC commitments:
  - Intensify on-site supervision missions, speed up resolution procedures for under-capitalized banks, and strengthen AML/CFT supervision and regulatory framework.
  - Escalate sanctions gradually and require under-capitalized banks to submit credible recapitalization plans within a short time frame.
  - Modernize regulatory framework, amend accounting standards to incorporate fair valuation of assets, set timeline for transition to IFRS, and progress toward Basel II/III.
  - Review refinancing plans of banks structurally dependent on BEAC refinancing and tighten conditionality; closely monitor and take steps to reduce banks’ sovereign exposure, including removing systematic zero weights for new government securities issuances.
- Member states’ role: essential to strengthen state-owned banks, implement strategies for clearing domestic arrears based on transparency and strengthened public financial management, and reduce sovereign risk to bank balance sheets.

### Extractive sector, FX repatriation, and escrow arrangements
- Progress with extractive sector: model contracts for escrow accounts attached to RES funds being finalized; expected approval and signing by member states and extractive sector shortly.  
- RES funds treatment:
  - RES funds set up before January 1, 2022: expected repatriation to escrow accounts at BEAC at a rate of at least one-third (1/3) per year from January 1, 2022.
  - RES funds set up after the above date: expected immediate repatriation.
  - RES funds to be set up directly in accounts opened in CEMAC as soon as the agreement is signed.
- Ongoing discussions with extractive sector on: (i) terms and conditions for remunerating escrow accounts attached to RES funds; and (ii) treatment of RES funds constituted as accounting provisions.  
- BEAC will continue dialogue with IMF and World Bank staff to increase extractive sector compliance with FX regulations and enhance transparency.

### Digital assets, CBDC, and regulatory actions
- Crypto-assets: regional supervisors (BEAC, COBAC, COSUMAF, GABAC) will coordinate to achieve a coherent regulatory framework for crypto-assets.  
- Central African Republic law on tokenization: BEAC and regional supervisors will issue an opinion by June 2024 on compliance by the law authorizing tokenization of natural resources with exclusive payment use of crypto-assets, including implications for BEAC’s exclusive right to issue currency and risks to financial integrity, governance, consumer protection, and AML/CFT compliance.  
- Central Bank Digital Currency (CBDC): BEAC working group set up in September 2023 will consult with other subregional supervisors to develop a consistent regulatory framework; BEAC has requested IMF technical assistance.

### Statistical and operational commitments, timelines, and coordination
- TSA IT platform: pilot phase in Cameroon and Gabon; full migration to TSA system planned by end-December 2024, with gradual extension to other member countries’ treasuries.  
- Data sharing and monitoring:
  - BEAC and COBAC committed to broaden economic and financial statistics and accelerate sharing with IMF staff (weekly and monthly dashboards referenced).
  - COBAC to provide IMF staff with information to monitor banking system soundness.
  - BEAC undertakes to share with the IMF Statistics Department by end-2024 data on FX reserves disaggregated by country for calculation of quotas for 2023.
  - BEAC will notify and consult with IMF staff in a timely manner on developments likely to affect external stability by end-June and December 2024 and take corrective measures if required.
- Governance and surveillance framework:
  - The CEMAC Commission will organize consultations to put back on track adoption of the draft new sanction mechanism for breaches of convergence rules, with view to include adoption on the agenda of a Conference of CEMAC Heads of State.
  - Adoption of the mechanism remains crucial to strengthen credibility and enforceability of multilateral surveillance given mixed compliance with convergence criteria in 2022.

*Source: 1. External financing needs (Excerpts and statements from the IMF PDF chapter/section provided).*

### 2.0 percent of GDP in 2022. The significant fiscal slippages in some member states were

### CEMAC: Regional Economic and Financial Developments and Policies

### Macroeconomic outlook and risks
- Growth projections:
  - Growth is expected to accelerate to 3.3 percent in 2024 and 3.7 percent by 2027.
  - Staff’s projections are slightly lower than the authorities’ outlook; the authorities underscore upside risks from sustained reform efforts.
- Inflation and current account:
  - Inflation is projected to continue declining, returning below the 3-percent threshold by 2025.
  - The current account balance should deteriorate in 2024 on account of lower oil prices.
- Key downside risks:
  - Volatility of oil markets.
  - Tight global financial conditions, accentuating refinancing and debt distress risks.
  - Possible escalation of geopolitical tensions, food insecurity, and financial instability.
  - Domestic developments: the security and socio-political situation in Cameroon, the Central African Republic, Gabon, and Chad; continuing humanitarian and security spillovers from the conflict in Sudan; political crises in the Sahel.

### Fiscal outcomes, debt, and fiscal policy recommendations
- Recent fiscal and debt developments:
  - Fiscal slippages in some member states were notably driven by adverse political events and elevated security and refugees care expenditures.
  - Total public debt increased slightly to 54.7 percent of GDP but remains well below the regional convergence criterion of 70 percent of GDP.
  - Public debt is expected to fall to around 40 percent of GDP in the medium term.
- Policy recommendations and priorities:
  - Enhanced fiscal policy prudence, especially in countries with an expansive fiscal policy.
  - Better management of oil windfalls to rebuild fiscal buffers, reduce debt vulnerabilities, and support reserve accumulation.
  - Timely disbursement of budget support expected from development partners to address balance of payments needs and support regional integration projects.
  - Acceleration in implementation of reforms under IMF-supported programs and the PREF-CEMAC reform program to support recovery and progress toward regional economic objectives.

### Banking sector health and financial stability measures
- Banking sector conditions:
  - Banking sector health has weakened with several soundness indicators deteriorating in the second half of 2023 amid tighter liquidity conditions.
  - Regional banks’ high sovereign exposure remains a major concern.
- Supervisory and regulatory actions:
  - COBAC pursuing risk-based supervision after lifting pandemic-related forbearance measures in 2023.
  - COBAC prepared to intensify on-site supervision, speed up resolution procedures for undercapitalized banks, and strengthen AML/CFT supervision and regulatory frameworks.
  - Measures include escalating sanctions, requiring undercapitalized banks to submit credible recapitalization plans, and modernizing accounting standards to incorporate fair valuation of assets and transition to IFRS and Basel II/III.
  - BEAC and COBAC to review refinancing plans of banks structurally dependent on BEAC refinancing and to tighten refinancing conditionality.
  - Steps to address sovereign exposure include removal of systematic zero weights for new issuances of government securities.
- Digital assets and payments oversight:
  - Regional supervisors (BEAC, COBAC, COSUMAF, GABAC) to coordinate for a coherent regulatory framework for crypto-assets.
  - Examining the law in the Central African Republic authorizing tokenization of natural resources with exclusive payment use of crypto-assets to ensure compliance with regional legal and regulatory frameworks.
  - Requesting IMF technical assistance for a central bank digital currency and other digital payment mechanisms.

### Monetary policy, liquidity management, and FX regulation
- BEAC policy stance and operations:
  - BEAC has kept policy rates unchanged since March 2023 while absorbing excess liquidity through greater volumes of weekly short-term liquidity absorption operations and higher interest rates on these operations.
  - Since February 2024 BEAC began issuing short-term debt securities with maturities of 14 and 28 days at interest rates of 2.5 percent and 3.5 percent, respectively, to absorb excess liquidity more effectively.
  - As overall excess liquidity declined sharply and liquidity pressures grew, BEAC resumed weekly liquidity injections in June 2024.
  - BEAC stands ready to tighten monetary policy further should inflationary pressures persist, or net foreign assets (NFA) begin to deviate from the targeted path.
- FX regulation and compliance:
  - BEAC continues efforts to ensure full, transparent, efficient, uniform, and predictable implementation of the FX regulation.
  - Ongoing dialogue with banking and private sectors to make FX market procedures more flexible, expeditious, and efficient and to strengthen compliance with repatriation and surrender requirements.
  - Progress is being made; BEAC will strengthen cooperation with member states to monitor compliance by public and extractive sectors with FX repatriation and surrender requirements.
  - Ongoing discussions with the extractive sector on unresolved issues regarding repatriation of the funds set aside for rehabilitation of oil sites (RES funds).
  - Continued discussions with IMF and World Bank staffs to enhance extractive sector compliance with the FX regulation and improve transparency.

### Public financial management and Treasury Single Account (TSA)
- TSA implementation:
  - Work underway to ensure full migration to a Treasury Single Account system.
  - The IT platform facilitating TSA deployment has experienced delays in Cameroun and Gabon where the IT project is in its pilot phase.
  - BEAC envisages full migration to the TSA system by end-December 2024.

### Regional institutional reforms, surveillance, and collective actions
- Strengthening regional surveillance and enforcement:
  - CEMAC Commission initiated a review of the 2023 regional surveillance reports from the early warning system.
  - Draft new sanction mechanism for breaches of the convergence rules to be submitted to the regional Head of States Conference; adoption and entry into force are crucial given mixed compliance with convergence criteria in 2022 despite favorable oil prices.
  - Consideration of a regional stabilization fund to be filled with oil revenue windfalls; consensus-seeking consultations with regional institutions on a draft concept note.
  - Recommendation to adopt a regional climate change adaptation strategy given vulnerability to climate-related shocks and natural disasters.
- Collective actions requested from member countries:
  - Strengthen regional institutions’ capacity and fiscal performance.
  - Enhance governance of state-owned banks and reduce sovereign risks to bank balance sheets.
  - Expedite submission of comprehensive national strategies for the clearance of domestic arrears to the CEMAC Commission.
  - Update triennial convergence plans, transpose regional tax and public financial management directives into domestic legislation, and comply with regional macroeconomic convergence criteria.

### Policy assurances and NFA targets
- Policy assurances:
  - CEMAC authorities reiterated policy commitments in a June 2024 Follow-up Note to the Letter of Support to the Recovery and Reform Programs.
  - Policies and reforms, enforcement of FX regulations, progress on Fund-supported programs, and timely budget support are expected to contribute to NFA build-up by end-2024.
- NFA targets:
  - Regional policy assurance on the NFA target at end-June 2024 revised upward from EUR 4.3 billion to EUR 4.5 billion.
  - NFA target for end-December 2024 is set at EUR 5.0 billion, considering updated projections of a deterioration in the current account balance in 2024 linked to the expected decline in hydrocarbon export earnings partially offset by stronger FX repatriations.

*Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1caeea2024001-print-pdf.pdf*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1caeea2024001-print-pdf.pdf_