## 1caeea2025001-print-pdf ## Source details **Canonical URL:** [1caeea2025001-print-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1caeea2025001-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1caeea2025001-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1caeea2025001-print-pdf.pdf.json) --- ### Executive summary and recent developments - Real GDP expanded by 3.2 percent in 2024, supported by a rebound in hydrocarbon output. - Real GDP growth was 2.5 percent in 2023. - Inflation remained persistently high at 4.3 percent in September 2024, exceeding the regional convergence criterion. - Reserve coverage remained around 4 months of prospective imports, below the adequacy metric of 5 months. - Regional policy assurances on net foreign assets (NFA) for end-June 2024 (EUR 4.5 billion) were not met, falling short by EUR 4.43 billion reported in one place and by EUR 70 million (EUR 0.07 billion) reported elsewhere for end-June 2024; preliminary data suggest the end-December 2024 policy assurances on NFA are unlikely to have been met. - Persistent and significant fiscal slippages intensified pressures on regional government debt markets and tightened domestic financing conditions. - PREF-CEMAC reported an execution rate of 65 percent at the end of October 2024 (from 62 percent in 2023Q4). - Progress on some regional reforms (including full operationalization of the single central depository) has been delayed relative to earlier plans. ### Macroeconomic outlook and risks - Near term projections: - Real GDP growth projected to slow to 2.8 percent in 2025, primarily due to weaker oil output. - Inflation projected to decline to 3.1 percent by end-2025. - Medium term projections: - Growth projected to strengthen to 3.6 percent by 2029. - Public debt projected to decline to 42 percent of GDP by 2029, down from 50.9 percent of GDP in 2024 (staff projection) and 52.1 percent of GDP in 2023 in other tables. - Current account balance projected to deteriorate to -2.2 percent of GDP by 2029, from about -1.2 percent of GDP in 2024 (and -0.4 percent of GDP in 2023 in some series). - Reserve coverage expected to stabilize at around 4.3 months of prospective imports in the medium term, below staff’s adequacy metric of 5 months. - Key downside risks: - Delays in addressing fiscal slippages. - Declining commodity prices and tighter global financial conditions. - Heightened political uncertainty amid a busy 2025 election calendar. - Persistent inflation, financial instability, slow structural reform progress, food insecurity, domestic conflicts, and climate-related disruptions. ### Fiscal outlook, public debt, and government debt market pressures - Non-oil primary fiscal deficit (including grants) stood at 9.8 percent of non-oil GDP in 2023 (narrowed from 10.8 percent in 2022). - Overall fiscal balance (excluding grants) estimated to have declined to 0.2 percent of GDP in 2023 from 1.9 percent of GDP in 2022 in one series; other series report overall fiscal balance (excluding grants) of -0.5 percent of GDP in 2023 and projected -1.1 percent of GDP in 2024. - Public debt-to-GDP ratio: 52.1 percent in 2023 (edging up from 51.0 percent in 2022); other tables report 52. percent of GDP in 2023 and 51.2 percent of GDP in 2024 or 47.3 percent of GDP in 2024 in alternative series—aggregate figures mask heterogeneity across member states. - Government securities market stress: - Average subscription rates for government securities fell to 43.5 percent at end-October 2024, compared to 80.4 percent a year earlier. - Average yields on government bonds (OTA) and bills (BTA) reached nearly 10 percent and 7 percent, respectively, at end-October 2024. - Failed auctions have become increasingly frequent, notably in Chad, Congo, Gabon. - CEMAC countries face heavy debt repayment schedule in 2025–26; Congo undertook a debt reprofiling in October 2024. ### Monetary policy, liquidity conditions, and BEAC operations - BEAC policy rate (Tender Interest Rate or TIAO) left unchanged at 5 percent at the September 2024 MPC meeting (a cumulative 175 basis points increase between November 2021 and March 2023). - Marginal lending facility rate remained at 6.75 percent, keeping the 175-basis point corridor. - BEAC resumed weekly liquidity injections in June 2024; weekly injection volumes rose from approximately CFAF 90 billion at end-June to around CFAF 260 billion by end-September. - Oversubscription rates at BEAC weekly operations exceeded 175 percent in the latest operation in September 2024. - Borrowing at the marginal lending facility amounted to about CFAF 708 billion at end-September 2024, down from CFAF 830 billion in June 2024. - Average outstanding liquidity injections increased to CFAF 1,055 billion in September 2024, up from about CFAF 993 billion in June 2024. - Outstanding interbank market activity declined to about CFAF 558 billion in September 2024 from CFAF 565 billion in June 2024. - Average interbank interest rates remained elevated, around 6.5 percent at end-September 2024. - From February to September 2024, BEAC issued short-term securities with maturities of 14 and 28 days at interest rates of 2.5 percent and 3.5 percent, respectively; these operations were suspended in early September 2024 after moderate success and many unsuccessful auctions. - Excess reserves contracted to around CFAF 531 billion at end-July 2024 (down from CFAF 814 billion at end-June 2024), then increased slightly to CFAF 895 billion by end-September 2024, below end-2023 level of approximately CFAF 1000 billion. - Staff assessment: monetary policy stance broadly neutral with real interest rate close to its neutral rate (around 1 percent in 2023); staff recommended BEAC maintain a tightening bias and continue regular refinancing operations to mitigate liquidity pressures while being vigilant about price and external stability. ### Banking sector soundness, sovereign exposure, and supervisory recommendations - Regulatory capital to risk-weighted assets declined from 14.6 percent to 11.8 percent at end-2023. - Reported non-performing loan (NPL) ratio was 15.7 percent at end-2023, down from 17.7 percent 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. - Only 42 percent of banks complied with all prudential requirements at end-2023. - Banks’ total assets grew by 11.6 percent year-on-year in 2023Q4; banks’ loan portfolio grew annually by 8.3 percent in the last quarter of 2023. - Total exposure of banks to the sovereign increased from 10 percent at end-2015 to about 31 percent of total assets at end-2023; several banks have sovereign exposure above 50 percent. - Staff policy recommendations: - Strengthen COBAC’s supervisory capacity and strictly enforce regulations for non-compliant banks. - Trigger resolution of non-viable banks and address liquidity-stressed institutions. - Avoid further delays in government-led bank recapitalization where necessary. - Ensure banks adequately account for sovereign exposure by phasing out systematic zero risk weights on government exposures. - Progressively enforce concentration limits and consider additional capital charges for high concentrations. ### Congo’s domestic debt reprofiling (PNOT): size, execution, and financial-stability implications - Objective: voluntary exchange to extend maturity of government securities to address debt service peak in 2025–26. - Operation size and significance: - CFAF 2,314 billion (US$ 3.8 billion; 43 percent of total local currency debt; 26 percent of GDP) of outstanding domestic debt obligations targeted. - First phase announced exchange: CFAF 1,236 billion (including CFAF 191 billion in Treasury bills and CFAF 1,045 billion in Treasury bonds) by end-November 2024. - Execution as of end-December 2024: CFAF 914.7 billion executed (including CFAF 80.7 billion in Treasury bills and CFAF 833.9 billion in Treasury bonds) by the CEMAC Central Securities Depository. - Estimated financial impact: - Staff estimates a 6.8 percent opportunity cost in NPV terms for treasury holders. - Current regional accounting standards allow fair valuation only for securities held for transaction purposes not exceeding six months; such securities account for 60.9 percent of treasury bills involved in the PNOT. - The PNOT would imply accounting losses of approximately 2.2 percent, which should be reflected in profit and loss statements of participating banks and could reduce profitability and slightly erode capital if not offset by earnings. - Liquidity and maturity structure effects: - Maturity gap for CEMAC banks expected to increase by an average of two and half months due to the PNOT. - Maturity transformation ratio would decline by 14.4 percentage points to 52.2 percent, nearing COBAC’s regulatory minimum of 50 percent. - The PNOT freezes substantial liquidity from the banking system for extended periods without corresponding inflows of long-term resources, exacerbating maturity mismatch risks and tightening liquidity conditions. ### External position, reserves, and NFA developments - Current account balance shifted to a deficit of 0.4 percent of GDP in 2023, from a surplus of 3.6 percent of GDP in 2022. - Gross reserves stabilized at 4.3 months of prospective imports in 2023; other estimates put reserve coverage at 4.2 months in 2024 and projected to stabilize around 4.3 months over the medium term. - Net foreign assets (NFA) rebounded in 2023Q4 but declined in 2024H1, falling short of the end-June 2024 regional policy assurance target of EUR 4.5 billion, reaching EUR 4.43 billion in one series and EUR 4.43 billion noted elsewhere. - Drivers of NFA decline: lower oil prices, ongoing fiscal slippages, reduced compliance with FX regulations, decline in FX repatriations by the public sector, and increase in FX outflows by some member states. - Policy assurances and targets for 2025H1: - End-March 2025 target: three-month average of EUR 4.5 billion. - End-June 2025 target: three-month average of EUR 4.7 billion. - Staff projections conditional on corrective measures indicate NFA could improve to a three-month average of EUR 5.5 billion at end-December 2025. ### Fund support, program status, and political commitments - Fund program status highlights: - Reviews under ongoing programs with Cameroon and Congo expected to be completed in 2025Q1. - RSF arrangement for Cameroon approved in January 2024; first review set to be completed in 2025 Q1. - C.A.R. expected to complete third review of its ECF arrangement in 2025 Q1. - Chad’s ECF arrangement lapsed in June 2024 after 18 months without concluding a review. - IMF Executive Board concluded Chad’s Article IV consultations in December 2024. - Gabon’s Article IV concluded in May 2024; IMF-supported program with Gabon expired in July 2024 with only two reviews completed. - IMF Management approved a 12-month Staff Monitored Program (SMP) with Equatorial Guinea in June 2024; first review remains on hold. - Political commitments from December 2024 extraordinary Summit: - Heads of State reaffirmed commitment to fiscal and external stability, decisive macroeconomic adjustments, strengthened regional institutions, and regular complete macrofinancial data provision to the Fund. - Report analysis predicated on the Heads of State commitment to address fiscal slippages and implement structural reforms. ### Structural reform priorities and regional strategy - Structural priorities: - Strengthen AML/CFT frameworks, governance, regulatory policies, human capital, the business climate, the rule of law, financial inclusion, and regional infrastructure. - Accelerate reforms to improve tax policy, tax administration, extractive sector compliance, public expenditure efficiency, debt management, arrears prevention and clearance, and deployment of Treasury Single Account (TSA). - Specific tax and revenue measures: - Modernize tax policy and administration through e-procedures and mobile tax payments. - Broaden tax base, improve progressivity of personal income tax, strengthen taxing rights over multinational income, and timely implement regional tax and VAT directives. - Improve tax compliance risk management in the extractive sector and accelerate digitalization of tax and customs procedures. - Public expenditure and debt management: - Phase out inefficient subsidies while implementing targeted social safety nets. - Strengthen fiscal risk monitoring from SOEs and improve cash management and public investment management (PIMA). - Carefully manage debt levels, enhance debt transparency, and avoid non-concessional external financing that endangers debt sustainability. - TSA deployment timeline: - Final testing phase scheduled for the first quarter of 2025 with production launch by September 2025 in one description; other text notes production by third quarter of 2025. ### Financial sector policy, supervision, digital assets, and CBDC - Supervisory and resolution actions: - COBAC to be strengthened, enforce regulations, conduct onsite inspections, and rigorously sanction non-compliant banks. - COBAC to ensure undercapitalized banks submit credible medium-term recapitalization plans and to trigger resolution when necessary. - Move away from systematic zero risk weights on government exposures. - Market development: - Intensify efforts to develop a secondary market for government securities, improve issuance predictability and transparency, diversify the investor base, and operationalize the single central depository. - Digital payments and crypto-assets: - Monitor and manage emerging risks from crypto-based digital payments and assets; advance regulatory frameworks aligned with FSB, IOSCO, BCBS, CPMI. - BEAC exploring CBDC; IMF CD requested and technical assistance scheduled for March 2025; CBDC work should be based on a cost-benefit analysis. - BEAC and regional supervisors to provide legal opinion on C.A.R.’s law allowing tokenization of resource wealth and assess implications for BEAC’s exclusive currency issuance right. ### Regional surveillance, sanctions mechanism, and data challenges - Directors called for stronger regional surveillance, including adoption of the draft sanction mechanism for breaches of regional surveillance rules. - Monitoring and data issues: - Data quality and production face significant challenges due to limited country resources; large revisions and poor high-frequency statistics remain problems. - Central African Republic and Republic of Congo have yet to launch National Summary Data Pages under the IMF’s Data Standards Initiative. - COBAC banking data quality temporarily deteriorated after a recent system upgrade. - Surveillance deliverables: - Multilateral Surveillance Reports for 2022 and provisional 2023 report approved; 2024 and 2025 perspectives expected in October 2024. - Commission instructed to refine Concept Note for proposed multilateral stabilization fund; staff stands ready to provide CD support. - Sanction mechanism and prerequisites for convergence compliance: - Expedite adoption of draft sanction mechanism; require submission of medium-term convergence plans, operational national surveillance units, credible arrears clearance strategies, timely transposition of tax and PFM directives, and accelerated 2021–30 regional statistical program. ### Risk assessment — selected highlights and key statistics - Selected risk metrics and external sector: - Net foreign assets (NFA) at end-2023: 4.7 percent of GDP (up from 4.6 percent in 2022); NFA in 2024 (by August): 3.9 percent of GDP. - Foreign assets fell from 9.8 percent of GDP in 2022 to 8.5 percent by August 2024; foreign liabilities remained around 4.7 percent of GDP. - Gross foreign reserves at end-2023: US$11.4 billion, equivalent to 4.3 months of imports. - 2024 reserve coverage estimate: 4.2 months. - Current account balance: end-2022 surplus of 3.6 percent of GDP; end-2023 -0.4 percent of GDP; 2024 -1.2 percent of GDP (projected/warning series). - Oil exports: 2022: 26.7 percent of GDP; 2023: 19.9 percent of GDP; 2024: 18.2 percent of GDP (through 2024Q3). - Brent oil price assumptions: US$79/bbl in 2024 (average), US$80.6/bbl in 2023 in comparison. - Risk Assessment Matrix — selected high-likelihood/high-impact risks: - Intensification of regional conflict(s): Likelihood: High; Expected Impact: High. - Commodity price volatility: Likelihood: High; Expected Impact: Medium. - Social discontent: Likelihood: High; Expected Impact: High. - Further fiscal slippages / Additional spending pressures: Likelihood: High; Expected Impact: High. - Deepening geoeconomic fragmentation: Likelihood: High; Expected Impact: Medium. - Cyberthreats: Likelihood: High; Expected Impact: Medium. - Climate change: Likelihood: Medium; Expected Impact: High. - Policy messages for external stability: - Strengthened reserves require sustained fiscal consolidation and improved compliance with FX regulations, particularly among SOEs. - Reaching escrow agreements with the extractive sector and timely conclusion of IMF program reviews can catalyze donor support. ### Key timelines, targets, and operational commitments - NFA policy assurances and targets: - End-March 2025: three-month average EUR 4.5 billion. - End-June 2025: three-month average EUR 4.7 billion. - Staff will assess end-March 2025 target during review scheduled for June 2025. - COBAC staffing and legal reform timelines: - SG COBAC to submit five-year staffing needs assessment by end of first half of 2025; BEAC to start recruitment based on SG COBAC short-term needs by June 2025. - BEAC to review assessment and provide corresponding human resources by June 2026, filling two thirds of the identified staffing gap by December 2025. - COBAC to complete framework document by December 2025 to underpin a modern banking law proposal for UMAC ministerial committee approval in 2026. - TSA and RES deadlines: - TSA final testing scheduled for first quarter of 2025 and production launch by September 2025 in one series; elsewhere pilot phase with production by third quarter of 2025. - Signing of escrow account agreements for RES funds targeted by April 30, 2025. - BEAC reporting commitments: - BEAC to share with IMF Statistics Department by March 2025 data on foreign exchange reserves, including country breakdown for quota calculations. - BEAC to notify IMF staff by end-June and December 2025 of developments likely to affect external stability. *Source: CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON THE COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS (Excerpt).* ### 2.5 percent. The external position weakened as the accumulation of foreign ### CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON THE COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS ### Executive summary and recent developments - 2.5 percent. The external position weakened as the accumulation of foreign exchange (FX) reserves slowed, leaving them below adequate levels. - Real GDP expanded by 3.2 percent in 2024, supported by a rebound in hydrocarbon output. - Regional policy assurances on net foreign assets (NFA) for end-June 2024 (EUR 4.5 billion) were not met, falling short by EUR 4.43 billion. - Preliminary data suggest that the end-December 2024 policy assurances on NFA are unlikely to have been met. - Inflation remained persistently high at 4.3 percent in September 2024, exceeding the regional convergence criterion. - Reserve coverage remained broadly steady at around 4 months of prospective imports, below the adequacy metric of 5 months. - Persistent and significant fiscal slippages intensified pressures on regional government debt markets and tightened domestic financing conditions. - PREF-CEMAC reported an execution rate of 65 percent at the end of October 2024 (from 62 percent in 2023Q4). - Progress on some regional reforms (including full operationalization of the single central depository) has been delayed relative to earlier plans. ### Macroeconomic outlook and risks - Near term: - Real GDP growth is projected to slow to 2.8 percent in 2025, primarily due to weaker oil output. - Inflation is projected to decline to 3.1 percent by end-2025, reflecting lagged effects of past policy tightening and lower global commodity prices. - Medium term: - Growth is projected to strengthen to 3.6 percent by 2029, mainly owing to a rebound in the non-oil sector. - Public debt is projected to decline to 42 percent of GDP by 2029, down from 50.9 percent of GDP in 2024. - The current account balance is projected to deteriorate to -2.2 percent of GDP by 2029, from about -1.2 percent of GDP in 2024. - Reserve coverage is expected to stabilize at around 4.3 months of prospective imports in the medium term, slightly below staff’s adequacy metric of 5 months for a resource-rich monetary union. - Key downside risks: - Delays in addressing fiscal slippages. - Declining commodity prices and tighter global financial conditions. - Heightened political uncertainty amid a busy 2025 election calendar. - Persistent inflation, financial instability, slow structural reform progress, food insecurity, domestic conflicts, and climate-related disruptions. ### Fiscal, monetary, financial, and structural policy recommendations - Fiscal policy: - Implement strong corrective measures to address persistent fiscal slippages and restore fiscal prudence. - Intensify efforts to boost non-oil tax revenue collection and enhance spending efficiency. - Adhere to renewed regional coordination to address fiscal imbalances and safeguard external stability. - Monetary policy: - Staff assesses the monetary policy stance to be appropriate and recommended that BEAC maintain a tightening bias. - BEAC should continue regular refinancing operations to mitigate growing liquidity pressures faced by banks while remaining vigilant about price and external stability. - Maintain efforts to address fragmentation within the banking system. - Financial sector policy: - Strengthen COBAC’s supervisory capacity and strictly enforce regulations for non-compliant banks. - Trigger resolution of non-viable banks and address liquidity-stressed institutions. - Avoid further delays in government-led bank recapitalization where necessary. - Ensure banks adequately account for sovereign exposure by phasing out systematic zero risk weights on government exposures. - Monitor emerging risks from new digital payments and assets. - Structural reforms: - Accelerate reforms to strengthen AML/CFT, governance, regulatory policies, human capital, the business climate, the rule of law, financial inclusion, and regional infrastructure. - Regional strategy: - Urgent collective action by national and regional authorities is needed to ensure the burden of adjustment for external stability and financial sector stabilization is equitably shared across countries. ### Policy assurances, implementation, and surveillance - Directors regretted that BEAC did not meet the authorities’ policy assurance on NFA for June 2024, and that the December 2024 target is unlikely to be met, as committed in June 2024. - Directors assessed that authorities undertook and committed to sufficient corrective action during the December 2024 Heads of State meeting and endorsed policy assurances on NFA accumulation for end March 2025 and end June 2025 as committed in February 2025. - Directors supported new policy assurances on financial stability and emphasized that implementation of these assurances is critical for the success of Fund supported programs with CEMAC member countries. - Directors called for stronger regional surveillance, including adoption of the draft sanction mechanism for breaches of regional surveillance rules. ### Executive Board assessment (summary of views) - Executive Directors agreed with staff appraisal noting loss of economic momentum from contraction in hydrocarbon production and slower non-oil growth. - Given the weakening external position, large fiscal imbalances, heightened stress in the regional debt market, and elevated uncertainty, Directors underscored the urgency of a well-calibrated macroeconomic policy mix and sustained reform efforts. - Directors urged swift fiscal consolidation in line with regional commitments, including enhancing non-oil tax revenues, improving expenditure efficiency, completing energy subsidy reforms with targeted social safety nets, strengthening public financial management, reinforcing debt management, and addressing arrears. - Directors concurred that BEAC should maintain a tightening monetary policy bias and only reduce interest rates if there is clear evidence of inflation converging toward the regional convergence criterion and diminishing risks to external stability. - Directors reiterated the need for strong collective action to preserve financial stability and to strengthen COBAC’s supervisory capacity, recapitalize or resolve weak banks, ensure banks account for sovereign exposure, and strengthen the AML/CFT framework. - Directors stressed accelerating structural reforms to boost potential growth, economic diversification, and resilience. *Source: CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON THE COMMON POLICIES OF MEMBER COUNTRIES, AND COMMON POLICIES IN SUPPORT OF MEMBER COUNTRIES REFORM PROGRAMS (Excerpt).* ### 3. Fund support to CEMAC countries and regional institutions continues but progress is ### 3. Fund support to CEMAC countries and regional institutions continues but progress is mixed. ### Fund support and program status - Reviews under ongoing programs with Cameroon and Congo are expected to be completed in 2025Q1. - Resilience and Sustainability Facility (RSF) arrangement for Cameroon approved in January 2024; first review set to be completed in 2025 Q1. - C.A.R. expected to complete the third review of its ECF arrangement in 2025 Q1. - Chad’s ECF arrangement lapsed in June 2024 after 18 months without concluding a review, due notably to fiscal slippages and slow progress on addressing weak banks. - The IMF’s Executive Board concluded Chad’s Article IV consultations in December 2024, welcoming authorities’ reengagement. - The IMF’s Executive Board concluded Gabon’s Article IV consultations in May 2024; outlook clouded by political transition, external debt arrears, fiscal slippages, and slow structural reforms. IMF-supported program with Gabon expired in July 2024 with only two reviews completed. - IMF Management approved a 12-month Staff Monitored Program (SMP) with Equatorial Guinea in June 2024; first review remains on hold. The SMP aims to rebuild a track record of policy implementation as a steppingstone to a potential Fund-supported financing arrangement. ### Political commitments and assumptions for the analysis - At the December 2024 extraordinary Summit, the Heads of State (HoS): - reaffirmed strong commitment to fiscal and external stability; - committed to decisive actions to address macroeconomic imbalances, strengthen regional institutions, and prioritize structural reforms to ensure equitable burden-sharing and enhance the monetary union’s external stability; - committed to providing regularly complete and reliable macrofinancial data to the Fund. - The report’s analysis is predicated on the HoS commitment to address fiscal slippages, restore fiscal discipline, and implement structural reforms. - Warning: delays in fully implementing these high-level political commitments could undermine progress toward economic diversification and resilience. ### Recent economic activity and inflation - Real GDP growth is estimated to have decelerated to 2.5 percent in 2023, driven by a contraction in hydrocarbon production and moderation in non-oil growth. - Headline inflation decelerated slowly into 2024Q3 but remained persistently elevated at 4.3 percent y-o-y in September 2024, above the regional convergence criterion. ### Fiscal positions, deficits, and public debt - Non-oil primary fiscal deficit (including grants) stood at 9.8 percent of non-oil GDP in 2023, slightly narrowing from 10.8 percent of non-oil GDP in 2022. - The overall fiscal balance (excluding grants) is estimated to have declined to 0.2 percent of GDP in 2023 from 1.9 percent of GDP in 2022, reflecting large fiscal slippages and data revisions in Gabon, Equatorial Guinea, and Chad. - Public debt-to-GDP ratio edged up from 51.0 percent in 2022 to 52.1 percent in 2023, driven by large increases in Gabon and Congo. - Aggregate figures mask significant heterogeneity across member states, with non-oil fiscal deficits widening in half of the member states. ### Government debt market pressures and financing - Average subscription rates for government securities fell to 43.5 percent at end-October 2024, compared to 80.4 percent a year earlier. - Average yields on government bonds (OTA) and bills (BTA) reached nearly 10 percent and 7 percent, respectively, at end-October 2024. - Elevated yields reflect excessively high discount rates on new issuances in some countries, notably Chad, Congo, Gabon. - Failed government debt auctions have become increasingly frequent, particularly in Chad, Congo, Gabon. - CEMAC countries face a heavy debt repayment schedule in 2025–26; Congo undertook a debt reprofiling operation in October 2024 to extend maturities. ### Liquidity conditions and BEAC operations - BEAC policy rate (Tender Interest Rate or TIAO) left unchanged at 5 percent at the September 2024 MPC meeting (a cumulative 175 basis points increase between November 2021 and March 2023). - Marginal lending facility rate remained at 6.75 percent, keeping the 175-basis point corridor. - BEAC resumed weekly liquidity injections in June 2024; weekly injection volumes rose from approximately CFAF 90 billion at end-June to around CFAF 260 billion by end-September. - Oversubscription rates at BEAC weekly operations exceeded 175 percent in the latest operation in September 2024. - Marginal interest rates on these operations reached the marginal lending facility rate of around 6.75 percent in the last operation of September. - Borrowing at the marginal lending facility amounted to about CFAF 708 billion at end-September 2024, down from CFAF 830 billion in June 2024. - Average outstanding liquidity injections increased to CFAF 1,055 billion in September 2024, up from about CFAF 993 billion in June 2024. - Outstanding interbank market activity declined to about CFAF 558 billion in September 2024 from CFAF 565 billion in June 2024. - Average interbank interest rates remained elevated, around 6.5 percent at end-September 2024. ### BEAC short-term securities and excess reserves - From February to September 2024, BEAC issued short-term securities with maturities of 14 and 28 days at interest rates of 2.5 percent and 3.5 percent, respectively, to absorb excess liquidity; these operations were suspended in early September 2024 after moderate success and many unsuccessful auctions. - Excess reserves contracted sharply to around CFAF 531 billion at end-July 2024 (down from CFAF 814 billion at end-June 2024), then increased slightly to CFAF 895 billion by end-September 2024, remaining below the end-2023 level of approximately CFAF 1000 billion. - The majority of excess reserves are held by a small number of banks, primarily subsidiaries of foreign financial institutions; most of the banking system is experiencing a liquidity deficit. - Autonomous factors of banking liquidity declined in Q3 2024, primarily driven by lower net foreign assets (NFA) and other items net. ### Banking sector soundness and vulnerabilities - Regulatory capital to risk-weighted assets (capital adequacy) declined from 14.6 percent to 11.8 percent at end-2023. - Reported non-performing loan (NPL) ratio was 15.7 percent at end-2023, down from 17.7 percent 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. - Only 42 percent of banks complied with all prudential requirements at end-2023. - Banks’ total assets grew by 11.6 percent year-on-year in 2023Q4; banks’ loan portfolio grew annually by 8.3 percent in the last quarter of 2023. - Total exposure of banks 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 sovereign exposure above 50 percent, posing risks of cross-country contagion and crowding out the private sector. - Maturity mismatch risks have increased as securities maturities lengthened while liabilities remain dominated by sight deposits, and the liquidity of these securities remains very low in the absence of a dynamic secondary market. ### External position and reserves - Current account balance shifted to a deficit of 0.4 percent of GDP in 2023, from a surplus of 3.6 percent of GDP in 2022, mainly due to lower hydrocarbon exports. - Gross reserves stabilized at 4.3 months of prospective imports in 2023. - Net foreign assets (NFA) rebounded in 2023Q4 but resumed a downward trend in 2024H1, falling short of the end-June 2024 regional policy assurance target of EUR 4.5 billion, reaching 4.43 EUR billion instead. - The downward trend in reserves reflects lower oil prices, ongoing fiscal slippages, and possibly reduced compliance with FX regulations, especially by the public sector; high-frequency data point to a decline in FX repatriations by the public sector and a sharp increase in FX outflows by some member states. ### Box — Congo’s domestic debt reprofiling (PNOT) and regional financial stability implications - Objective: voluntary exchange to extend maturity of government securities to address a peak in domestic debt service payments due in 2025–26. - Operation size and significance: - CFAF 2,314 billion (US$ 3.8 billion; 43 percent of total local currency debt; 26 percent of GDP) of outstanding domestic debt obligations targeted. - First phase conclusion (authorities’ announcement): agreed exchange of CFAF 1,236 billion (including CFAF 191 billion in Treasury bills and CFAF 1,045 billion in Treasury bonds) by end-November 2024. - Execution as of end-December 2024: CFAF 914.7 billion executed (including CFAF 80.7 billion in Treasury bills and CFAF 833.9 billion in Treasury bonds) by the CEMAC Central Securities Depository. - Estimated financial impact on treasury holders and banks: - Staff estimates suggest a 6.8 percent opportunity cost in net present value (NPV) terms for treasury holders. - Current regional accounting standards allow fair valuation only for securities held for transaction purposes not exceeding six months; such securities account for 60.9 percent of treasury bills involved in the PNOT. - The PNOT would imply accounting losses of approximately 2.2 percent, which should be reflected in profit and loss statements of participating banks and could reduce profitability and slightly erode capital if not offset by earnings. *Source: BEAC and IMF staff calculations (chapter excerpts).* ### Box 1. Congo’s Domestic Debt Reprofiling Operations: Implications for Regional Financial ### Box 1. Congo’s Domestic Debt Reprofiling Operations: Implications for Regional Financial Stability (concluded) ### Impact of the PNOT on banking liquidity and maturity structure - The maturity extension of government securities (PNOT) exacerbates existing maturity mismatches and related liquidity risks in the banking system. - The PNOT worsens the maturity mismatch in the CEMAC banking system and its related liquidity risks. - The maturity gap for CEMAC banks is expected to increase by an average of two and half months due to the PNOT. - The maturity transformation ratio would decline by 14.4 percentage points to 52.2 percent, nearing COBAC’s regulatory minimum of 50 percent. - These maturity mismatches underscore an over-reliance of CEMAC banks on short-term funding to finance long-term credits, tightening liquidity conditions in an already-weak regional banking system. - The PNOT freezes substantial liquidity from the banking system for extended periods without corresponding inflows of long-term resources into banks’ balance sheets. - Even in a fixed-rate environment where interest rate risks are mitigated, mismatched maturities pose vulnerabilities: changes in interest rates could generate income volatility and affect the market value of assets and liabilities, particularly when maturities differ. - Some banks involved in the operation were not compliant with the exposure concentration limit as of end-2023. ### Indirect financial-stability consequences and bank-sovereign nexus - By extending the maturity of government securities on banks’ balance sheets, the operation may further exacerbate the already-significant bank-sovereign nexus in the region by failing to reduce exposures and by issuing new bills to pay commission fees. - The PNOT could lead to an increase in regulatory breaches, given weak enforcement of the regulatory framework. ### Regional macroeconomic outlook and key projections - Brent oil price projections and growth: - Brent oil prices are expected to average around US$79/bbl in 2024, following US$80.6/bbl in 2023. - Real GDP growth is projected to strengthen to 3.2 percent in 2024, primarily driven by a strong rebound in oil output. - Non-oil GDP is expected to expand by 3.5 percent in 2024, up from 2.9 percent in 2023. - Regional real GDP growth rate is projected to accelerate to 3.6 percent by 2029. - Inflation and monetary outlook: - Inflation is projected to moderate to 3.8 percent by end-2024. - Inflation is expected to return to the regional 3 percent convergence criterion by 2026. - Fiscal and debt dynamics: - The non-oil primary fiscal deficit, including grants (NOPFD), is projected to worsen by 0.4 percentage points to 7.6 percent of non-oil GDP in 2024. - The NOPFD is expected to improve by approximately 3.2 percentage points of non-oil GDP between 2023 and 2029, driven by structural revenue and expenditure measures. - The region’s overall fiscal balance (excluding grants) is forecast to shift from a surplus of 0.2 percent of GDP in 2023 to a deficit of 1.1 percent of GDP in 2024, and stabilizing around that level in the medium term. - Public debt is projected to decline from 52.1 percent of GDP in 2023 to around 50.9 percent of GDP in 2024, and continuing downward to approximately 42 percent of GDP by 2029. - External sector and reserves: - The current account (CA) deficit is projected to widen from 0.4 percent of GDP in 2023 to 1.2 percent of GDP in 2024. - Over the medium term, the CA balance is expected to weaken further to about -2.2 percent of GDP. - The Fund’s share of external financing for the region was around 7 percent in 2023. - Reserve coverage ratio is projected to remain broadly steady at about 4.2 months in 2024 and stabilize at around 4.3 months over the medium term (below the staff-estimated adequacy target of 5 months). - Risks and uncertainty: - Projections hinge on successful program completion in C.A.R., Cameroon, Congo and Equatorial Guinea, improved policies in Chad, and a policy turnaround in Gabon during 2025. - The balance of risks is skewed to the downside, including delays in fiscal consolidation, declining commodity prices, tighter financial conditions, political uncertainty from upcoming elections, entrenched inflation, financial instability, food insecurity, domestic conflicts, and climate-related events. ### Divergent BEAC and IMF staff views - BEAC projections: - BEAC projects weaker GDP growth at 2.7 percent in 2024 (up from about 2 percent in 2023) and growth at 3.2 percent in 2025. - BEAC projects headline inflation falling below the 3 percent convergence criterion by 2025. - BEAC forecasts reserve coverage improving to about 5 months of imports by 2025. - Over the medium term, BEAC projects GDP growth accelerating to about 4.6 percent by 2029 (one percentage point higher than staff’s estimates). - Staff and BEAC broadly agree on downside risks but differ on the near-term macroeconomic trajectory and fiscal outlook; BEAC assumes a primary fiscal balance surplus starting in 2024, while staff’s projections are more cautious. ### Policy recommendations to preserve macroeconomic and financial stability - Strengthen and diversify revenue sources away from oil: - Modernize tax policy and tax administration through e-procedures and mobile tax payments. - Broaden the tax base: implement more efficient tax incentive regimes, improve progressivity of personal income tax, enhance governance in tax policymaking, strengthen taxing rights over multinational income. - Timely endorsement and rapid implementation of new regional tax directives and the new VAT directive by member states, in collaboration with the CEMAC Commission. - Strengthen tax administration capacity, including in international taxation, develop a regional domestic revenue mobilization strategy, and address understaffing at the CEMAC Commission. - Improve tax compliance risk management in the extractive sector: - Adopt customs processing for extractive industry inputs and outputs (in line with CEMAC Extractive Industry Customs Procedures Guide). - Establish dedicated tax administration teams with access to third-party information and independent audit capacity for multinational enterprises. - Accelerate digitalization of tax and customs procedures for extractive sector companies and suppliers. - Ensure systematic information exchange among tax administration, customs, ministerial authorities, and SOEs. - Strengthen risk analysis and adopt tailored compliance improvement plans. - Improve transparency and control oversight in the extractive industries, including SOEs and their suppliers’ tax operations. - Enhance public expenditure efficiency: - Phase out inefficient subsidies while implementing updated, targeted social safety nets to protect the vulnerable. - Eliminate unwarranted reliance on emergency or off-budget spending; rationalize wage bill, non-priority recurrent spending, and costly transfers to SOEs. - Strengthen monitoring of fiscal risk associated with SOEs by systematizing fiscal risk statements and address corporate governance and oversight in SOEs. - Conduct or update Public Investment Management Assessments (PIMA), potentially with the Climate Change Assessment (CCA) module, and accelerate implementation of PIMA recommendations. - Improve cash management practices: more accurate cash flow forecasting, cash optimization, liquidity and risk management to prevent temporal arrears accumulation or defaults on domestic debt obligations. - Improve debt management: - Carefully manage debt levels and implement sound debt management policies to reduce borrowing costs and create fiscal space. - Low-income member countries should only consider non-concessional external financing if it safeguards debt sustainability and adheres to debt limits under Fund-supported programs. - Enhance debt transparency, especially regarding non-guaranteed SOE debt, and avoid collateralized debts backed by natural resources. - Honor sovereign domestic debt repayment deadlines to avoid negative consequences of missed payments. - Prevent and clear arrears: - Swiftly implement comprehensive arrears clearance and medium-term debt management strategies in line with Fund-supported programs. - Enhance fiscal discipline by aligning expenditure commitment plans with cash forecasts and procurement plans. - Increase transparency and monitoring of arrears by tracking expenditures throughout the year, reporting arrears stocks in fiscal reports, and strengthening internal controls; record all expenditure in IFMIS at the liquidation stage. - Accelerate deployment of the Treasury Single Account (TSA): - Urge BEAC to expedite implementation of its IT platform for deploying the TSA in member states. - Final testing phase is scheduled for the first quarter of 2025 and should lead to a production launch by September 2025. - Deployment will enable gradual transfer of banks’ treasury account balances to the TSA at BEAC. *Source: IMF staff analysis in Box 1, “Congo’s Domestic Debt Reprofiling Operations: Implications for Regional Financial Stability (concluded).”* ### 23. Staff underscored that the recent tight liquidity conditions in the banking system ### 23. Staff underscored that the recent tight liquidity conditions in the banking system ### Liquidity conditions and recommended BEAC operations - Recent tight liquidity conditions in the banking system warrant continuation of liquidity injection operations. - Staff advised BEAC to: - Continue its regular refinancing operations to alleviate increased volatility of liquidity conditions. - Maintain its weekly liquidity-providing operations, at least at the current level of the TIAO. - Conduct regular lending operations using a fixed-rate full allotment procedure, taking into account market and macroeconomic conditions, to strengthen monetary policy transmission. - Persist in efforts to address fragmentation within the banking system. - Evidence of tightening: - Substantial borrowing at the marginal lending facility by an increasing number of banks. - Continued decrease in excess liquidity over recent months, indicating a significant tightening of monetary conditions in CEMAC. - Risks and safeguards: - BEAC, in collaboration with COBAC, should ensure strict application of prudential regulations on concentration limits to avoid worsening banks' exposure to sovereign risk. - Vital to move away from the systematic zero weighting of government securities. - To address liquidity segmentation, staff urged BEAC to tackle weak banks more resolutely and strengthen supervision and capital adequacy. - Staff urged addressing the small number of financial institutions not participating in the money market. ### Authorities’ views on liquidity management (BEAC) - BEAC concurred with maintaining the current liquidity management strategy to alleviate ongoing bank pressures. - Actions reported by BEAC: - Discontinued all liquidity-absorbing operations and issuance of short-term debt securities. - Increased the volume of liquidity injections in line with developments in autonomous liquidity factors. - Conducted a study in August 2024 among credit institutions in the CEMAC region diagnosing banks’ situations, including those excessively dependent on BEAC refinancing and those holding excess reserves. - Study findings on causes of money market tightening: - High demand for credit from governments through the public securities market or direct loans. - Decline in deposits (especially from public sector enterprises). - Extension of maturities by governments in the public securities market. - Challenges in attracting deposits in an increasingly competitive environment. - Collateral selection by certain counterparties in the interbank market. - Arrears from some private sector clients (reflecting government-related arrears). - Behavioral note from study: - Most banks with excess liquidity consider themselves to be in a position of sufficient liquidity and maintain a constant balance of 200 percent of their required reserves in their current account at BEAC as precautionary reserves. - Measures to reduce fragmentation: encourage banks dependent on BEAC’s refinancing to restore healthy liquidity positions and urge those with excess liquidity to contribute more actively to money market liquidity. ### Monetary policy stance and guidance - Current policy rate: - The main policy rate remains appropriate at 5 percent. - Staff recommends maintaining a tightening bias and remaining data-dependent, including timely evaluation of the impact of liquidity normalization. - Staff estimates: - The stance of monetary policy is broadly neutral in CEMAC, with the real interest rate close to its neutral rate (estimated at around 1 percent in 2023). - Conditional advice: - Staff advised BEAC against cutting interest rates until there is clear evidence that inflation is sustainably receding toward the regional convergence criterion (3 percent) and when risks to external stability have faded. - Concerns and risks: - Maintain a tightening bias given the downward trend in reserve accumulation and uncertainty about the inflation trend. - Risk of persistent inflationary pressure remains high due to heightened uncertainty around global commodity prices, persistence of inflation in CEMAC, possible second-round effects of fuel subsidy reforms, and deterioration in fiscal positions in many countries. - Monitoring liquidity operations: - While resumption of main refinancing operations is expected to ease liquidity pressures, BEAC should carefully monitor potential unintended consequences, including impacts on the functioning of the interbank market. ### Authorities’ views on monetary stance - BEAC indicated it maintains a tightening bias and readiness to tighten policy if necessary. - Notes from BEAC: - Inflation remains persistent due to external and domestic factors, including climate-related shocks. - Weekly liquidity injections are consistent with a tight monetary policy stance because the marginal rate on these operations has remained significantly higher than the TIAO. - Strong demand was exacerbated by liquidity-stressed banks; excluding these banks from main refinancing operations reduced oversubscription and marginal rates, though rates remained elevated. - Concern that fixed-rate full allotment with regular liquidity-providing operations could affect interbank market functioning and encourage banks to invest more in government securities, reinforcing the sovereign-bank nexus. - FX regulations targeting the extractive sector are expected to be an effective tool to address external stability risks. - BEAC-ECB policy rate spread has little influence on BEAC’s decisions due to imperfect capital mobility and the region’s limited attractiveness. ### Bank-specific supervision, conditionality, and resolution - Staff urged BEAC (with COBAC) to maintain engagement with banks experiencing high liquidity needs and address lack of progress since the previous Staff Report. - Recommendations for structurally liquidity-stressed banks: - Tighten conditionality, including requesting credible refinancing plans. - Consider triggering resolution in case of continued non-compliance, in cooperation with COBAC. - Restrict access to central bank interventions for liquidity-stressed banks (e.g., suspend participation in main refinancing operations, limit access to marginal lending facility). - Root cause emphasis: - Effectively addressing banks’ liquidity difficulties depends on governments securing sustainable financing to settle domestic arrears, identified as a root cause. - Authorities’ reported actions: - Requirement for six structurally liquidity-dependent banks to submit financing plans (four have done so, three submitted to COBAC). - Monetary Policy Committee implemented exceptional measures restricting access to central bank interventions for liquidity-stressed banks. ### BEAC balance sheet risk management and collateral framework - Staff recommendations for BEAC to mitigate balance sheet risks: - Continue to adjust haircuts on collateral to reflect underlying risks and provision for potential losses. - Apply: (i) collateral framework in line with risk equivalence (including differential haircuts); (ii) no exemptions from reserve requirements; (iii) funding plan framework where a bank becomes excessively dependent on BEAC refinancing; and, if necessary, (iv) emergency liquidity assistance framework with strict conditionality and enhanced supervisory oversight. - Closely monitor repayments of past statutory advances and the stock of bonds purchased during the COVID-related bond purchase program, which began maturing in 2022Q2. - Monitor exposure to the regional development bank (BDEAC). - Authorities’ views: - BEAC agreed to maintain the current approach of adjusting haircuts and setting exposure limits by bank and/or country. - Haircuts determined within existing framework, including monitoring credit rating changes and joint World Bank/IMF debt sustainability analysis. - BEAC will consider recent sovereign rating changes, specifically the downgrade of Congo's rating and the first evaluation of Chad by Standard & Poor’s. - BEAC reported exposure to BDEAC's credit risk has been steadily decreasing in line with repayments. ### FX regulation enforcement and extractive sector repatriation - Staff urged revamping and intensifying efforts to improve enforcement efficiency of FX regulations: - Reduce technical delays by maintaining dialogue with banks and businesses and deploying additional resources if necessary. - Strengthen monitoring of compliance by public and extractive sectors with FX repatriation and surrender requirements. - Strengthen capacity to map FX accounts held abroad by governments, SOEs, and other public entities—possibly with support from the Bank of International Settlements. - Resume constructive engagements with the extractive sector to ensure efficient enforcement of repatriation of funds dedicated to rehabilitation of oil sites (RES) and resolve remaining issues, including litigation terms. - Authorities’ status and views: - Verification and approval for FX requests has improved, but processing affected by administrative issues at commercial banks (incomplete cases and backlogs). - Compliance with FX regulations by commercial banks is high and monitored; indicators such as effective rate of retrocession and processing times have been improving. - Remaining issues: repatriations via better control of XAF accounts held by non-residents and prepaid cards showing unusual credit flows. - Discussions with extractive companies on escrow agreement ongoing; deadline for signing extended to April 2025, with sanctions possible for non-compliance. - BEAC suggested increasing repatriation rate for extractive companies (currently set at 35 percent) could boost FX repatriations. ### Data, staffing, and safeguards - Staffing and data recommendations: - Staff urged BEAC to address recruitment issues to ensure sufficient human resources for internal data collection (annex V) and management procedures to enhance monetary policy analysis and communication. - Increasing data availability will strengthen analytical capacity and policy formulation. - Authorities’ views on data: - BEAC acknowledged poor availability of high-frequency statistics (monthly and quarterly) across the region but noted improvements such as harmonized CPI statistics. - Resource constraints in some countries (notably Congo) limit capacity to compile aggregate regional data and transmit regularly to the Fund. - Significant deficiencies in quarterly balance of payments statistics, except for Cameroon. - Banking and monetary policy data are granular but quality and regular publication have deteriorated recently due to transition to a new reporting system. - BEAC has established a dedicated team to collect and transmit macro-financial data to the Fund in line with December 2023 Letter of Assurances; COBAC SG committed to provide banking data per an IMF-proposed schedule. - Safeguards assessment: - 2022 safeguards assessment: BEAC maintained strong governance and external audit arrangements, while internal audit and risk management needed strengthening. - Safeguards monitoring mission at end-2023 recommended strengthening onboarding of new senior management and Board members and establishing an enhanced delegation framework for executive decision-making. - Staff notes progress on these recommendations has been slow and is engaging authorities to accelerate progress. ### Safeguarding financial stability amid widening macroeconomic imbalances - Staff reiterated the need for strong collective action from national authorities, BEAC, and COBAC to safeguard financial stability. - Priority actions recommended by staff: - Urgently provide COBAC SG with adequate human and financial resources to step up onsite inspections. - Rigorously sanction or take supervisory corrective actions when banks systematically fail to comply with regulations within a short timeframe. - Strictly enforce BEAC’s refinancing policies for liquidity-stressed banks. - Rigorously assess classification and provisioning of non-performing exposures and potential capital shortages by undertaking a comprehensive program of onsite supervision of bank credit portfolios (at least for systemically important banks) using a prioritized, risk-based approach. - Accelerate implementation by national governments of a comprehensive domestic arrears clearance and prevention strategy. - On undercapitalized banks and recapitalization/resolution: - COBAC should strictly enforce its regulatory framework and support national authorities in independent evaluations of weak and undercapitalized banks to develop credible recapitalization solutions. - Regional supervisors and national authorities should ensure undercapitalized banks submit credible medium-term recapitalization plans in a short timeframe, establish an NPL reduction strategy, and recapitalize or resolve weak banks without delay. *CEMAC — INTERNATIONAL MONETARY FUND excerpt.* ### 37. Staff renewed its recommendation for COBAC to ensure that banks adequately reduce ### 1caeea2025001-print-pdf - 37. Staff renewed its recommendation for COBAC to ensure that banks adequately reduce ### Sovereign risk and concentration in banks - Staff recommended COBAC ensure banks adequately reduce and account for sovereign risk. - Key supervisory actions advised: - Progressively enforce existing concentration limits. - Carefully monitor banks’ sovereign risk concentrations. - Consider targeted measures, such as additional capital charges, to tackle concentrations when necessary. - Encourage banks to adopt prudent internal risk management practices. - Policy shift recommended: - Move more systematically away from the zero-risk weight on government exposure. - Market structure concern: - COBAC and BEAC should collaborate to ensure primary dealers (mostly banks) do not hold all new sovereign issuances as stipulated in their contracts. - Develop a sizeable non-bank investor base to mitigate risks of under-subscription. ### Strengthening COBAC’s mandate, independence, and legal framework - Staff recommended overhauling CEMAC banking legislation to: - Strengthen COBAC’s independence. - Expand COBAC’s supervisory and resolution powers. - Provide COBAC with a clear, consistent mandate supported by an effective legal framework to act without political interference. - Legal consolidation advised: - Amend and consolidate the two CEMAC conventions (on harmonizing banking regulation and on the creation of COBAC) and subsequent CEMAC regulations into a unified banking legislation. - Eliminate ministerial involvement in licensing, supervision, and resolution processes. ### AML/CFT deficiencies and regional coordination - Staff urged COBAC, GABAC, BEAC, and national authorities to continue addressing strategic AML/CFT deficiencies identified in mutual evaluations. - Risks of inaction: - Potential or existing FATF grey listing consequences, including reduced international trade capacity and potential loss of correspondent banking relationships. - Recent regulatory development: - COBAC regulation R2023/01 on AML/CFT promulgated in July 2024 strengthens preventive measures for supervised financial institutions. - Staff encouraged COBAC to continue developing subsequent specific AML/CFT-related guidelines. - National responsibilities: - National authorities should address strategic AML/CFT deficiencies within their remit and work closely with regional bodies to close remaining gaps and prepare for the next mutual evaluation round. ### Prudential supervision, accounting standards, and Basel transition - Staff advice for COBAC’s prioritized work agenda: - Adopt risk-based prudential and AML/CFT supervision. - Modernize regulatory framework, including amending accounting standards to integrate fair asset valuation in line with international best practices. - Establish a reasonable timeline to transition to IFRS implementation. - Make progress on the transition to Basel II/III. - Strengthen the bank resolution framework. - Develop stress tests. - Improve risk management and bank governance. - COBAC actions and plans noted: - Working group addressing transition to Basel II/III standards. - Plan to propose a legislation project on a single regional banking licensing process at the banking commission’s meeting in December 2024. - Intends to increase statutory capital requirements. - Exploring adoption of a single banking law across CEMAC. - Submitted a specific request to BEAC for additional staffing; Fund technical assistance scheduled for early 2025. - Engaged a consulting firm to develop its 2025–29 strategic plan; presentation planned for December 2024. ### Development of secondary market for government securities and capital markets - Staff reiterated recommendation for BEAC and stakeholders to intensify efforts to develop a secondary market for government securities. - Observed market issue: - Increasing issuance on the regional stock exchange (BVMAC) has led to market dualism that could hamper secondary market development and limit securities liquidity. - Key capacity-building and reform recommendations (listed in source as "Key recommendations include"): - (i) improving predictability and transparency of CEMAC member government securities’ issuance; - (ii) developing the regulatory framework; - (iii) enhancing transparency by providing the market with an adequate infrastructure; - (iv) diversifying the investor base. - Diagnostic and regulatory actions: - A local-currency bond market diagnostic could identify bottlenecks and facilitate a prioritized reform action plan. - Staff welcomed BVMAC’s draft revised general regulations submitted in March 2024 to COSUMAF for approval. - Renewed call for BVMAC to raise investor interest in stocks from 17 SOEs (2 of which are listed) set to be listed on BVMAC. - Urged BVMAC, BEAC, and COSUMAF to ensure the single central depository manager becomes operational following the implementation delay at end-2024. - Encouraged member countries that have not yet submitted their SOEs for listing to do so swiftly. - Pricing and market microstructure: - Recommend greater progressivity in BVMAC pricing compared to current flat-rate pricing, which penalizes small transactions. - Validate and adopt the revised pricing project drawn up by GIMAC. ### Emerging digital payments, crypto-assets, and CBDC considerations - Staff advised BEAC and regional supervisors (BEAC, COBAC, COSUMAF, GABAC) to: - Monitor and manage emerging risks associated with crypto-based digital payments and assets. - Advance a regulatory framework for crypto-related activities aligned with global standards and FSB, IOSCO, BCBS, CPMI recommendations. - Enhance coordination on issuance of laws and regulations to support innovation and financial inclusion while preserving financial stability and AML/CFT compliance. - Specific legal action: - BEAC and regional supervisors urged to promptly share a legal opinion with C.A.R. authorities regarding C.A.R.’s law allowing tokenization of resource wealth with mandatory payment use of crypto assets; the opinion should: - (i) assess whether the law violates BEAC’s exclusive right to issue currency in the CEMAC; and - (ii) examine concerns related to risks to financial integrity, market integrity, governance, consumer protection, and compliance with AML/CFT standards. - CBDC guidance: - BEAC’s exploration of a CBDC—for which it requested Fund CD—should be based on a cost-benefit analysis considering impact on bank intermediation, costs of maintaining a dual payment system, and quality and access to digital infrastructure. - Urged BEAC to intensify efforts to unlock financial inclusion potential of electronic and mobile money and to validate/adopt the revised pricing project by GIMAC. - Operational steps: - BEAC indicated a multidisciplinary working group (BEAC, COBAC, COSUMAF) to develop crypto-assets strategy is being established; the CBDC working group is also being set up. - IMF technical assistance for CBDC feasibility and related work is scheduled for March 2025. ### Authorities’ views and actions - COBAC: - Broadly agreed with staff recommendations. - Requested additional staffing from BEAC; BEAC included commitment in the LOA. - Acknowledged data collection challenges linked to transition to a new reporting system; requested Fund technical assistance scheduled for early 2025. - Implementing risk-based supervision and AML/CFT reporting module in new financial reporting system. - Working on IT risk management project for approval in December 2024. - COSUMAF: - Agreed that diversifying the investor base would support secondary market development. - Working with BVMAC on eligibility criteria for SMEs in draft revised general regulations; re-submission planned. - Continuing initiatives including financial education sessions to enhance market attractiveness. - BEAC: - Views ongoing liquidity stress in the regional government securities market as partly a temporary uptick exacerbated by poor cash management in a few countries. - Agreed deterioration of public finances across the region underlies increased market volatility. - Noted discounts ("décotes") on new issuances have increased; these discounts represent a component of return. - Highlighted a large volume of reimbursements concentrated over the period 2025-2026 across all countries, creating refinancing risks. - Assisted countries in extending maturity of government debt; on Congo’s reprofiling, assisted treasury in assessment but did not and would not participate in exchange of securities. - Working with national treasuries to strengthen implementation of issuance calendar regulatory guidelines; a new guideline scheduled to be signed by the governor in November 2024 will allow rejection of issuances not in the issuance calendar, with a few exceptions. - Regional supervisors: - Share the view on need for consistent regional regulatory framework and strengthened supervisory capacity to manage digital payment risks. - Noted IMF CD in March 2025 will help explore CBDC feasibility and strengthen digital asset regulation. ### Strengthening the regional surveillance framework and convergence - Sanction mechanism: - Staff urged the Commission to expedite adoption of the draft sanction mechanism for breaches of regional surveillance rules and align it with international best practices. - Suggested sanctions could include monetary penalties or premiums on government securities for breaches of fiscal deficit or debt-related multilateral surveillance rules and should include escape clauses for exceptional circumstances. - Surveillance deliverables and timelines: - Welcomed approval of final Multilateral Surveillance Reports for 2022 and the provisional report for 2023, and expected release of the 2024 and 2025 perspectives in October 2024. - Called for member countries to share medium-term convergence plans and conduct first internal analysis of the early warning system on macroeconomic imbalances by 2025. - Prerequisites to enhance compliance with regional convergence criteria: - i) Urge member countries to submit updated post-COVID triennial convergence plans. - ii) Ensure full operationalization of national multilateral surveillance units. - iii) Adopt and implement comprehensive and credible national domestic arrears clearance and debt management strategies, including implementing the recently adopted simplified methodology to prevent accumulation of arrears. - iv) Timely transpose regional tax and PFM directives (stock and fixed assets accounting). - v) Accelerate progress on the 2021–30 regional statistical program. - Statistics and reporting: - Ongoing Fund and World Bank support crucial to accelerate BOP data collection and reduce forecasting errors related to oil revenue and external flows. - COBAC and BEAC should regularly report updated financial soundness indicators and monetary and financial statistics to the IMF for dissemination. - Address recurrent statistical issues, including weak interagency coordination between BEAC and national statistical agencies and continued poor track record in implementing TA recommendations due to inadequate staffing/resources. - Multilateral stabilization fund: - Staff encouraged Commission, BEAC, and PREF-CEMAC Secretariat to develop a unified perspective on feasibility and modalities of a proposed multilateral stabilization fund, which could be partially funded by oil windfalls; Fund staff stands ready to provide CD support. - Transformational plan: - Staff welcomed Council of Ministers’ endorsement of the CEMAC Commission’s Transformation Plan validated on October 30, 2023, focused on: - i) improving governance and human capital quality; - ii) modernizing operational processes and digital infrastructure; - iii) strengthening coordination with other regional institutions. - Commission has formally requested Fund support in implementing the plan. *Source: IMF staff report excerpt.* ### 50. At the regional level, data quality and production face significant challenges mainly ### CEMAC: Accelerating Structural Reforms to Unlock Economic Potential ### Data quality and regional data production - Data quality and production at the regional level face significant challenges mainly due to limited resources at the country level (Annex V). - Data inconsistencies and errors, sometime large, often require multiple revisions. - Country-level issues in quality, timeliness and coverage notably weaken regional data relevance and coverage for price and external sector statistics. - The Central African Republic and the Republic of Congo have yet to launch the National Summary Data Page under the IMF’s Data Standards Initiative. - A recent system upgrade at COBAC has deteriorated banking data quality, at least temporarily. ### Authorities’ views, governance, and surveillance framework - The CEMAC Commission agreed enhancing the credibility and enforceability of the regional surveillance framework is crucial. - The Commission revised the draft Additional Act on the sanction mechanism following feedback from IMF staff (March 2024); this draft will be consulted with BEAC, BDEAC, COBAC, COSUMAF, and BVMAC before submission to the Conference of Heads of State of CEMAC after further UMAC review. - The Commission continues efforts to ensure all member states share their medium-term convergence plans. - The next multilateral surveillance mission is scheduled between mid-January and March 2025. - The 2022–23 Multilateral Surveillance Report and the 2024–25 Outlook were presented for approval at the UMAC Council of Ministers session on October 11, 2024. - The Council adopted the Economic Policy Guidelines for 2025 and the simplified methodology for assessing non-accumulation of arrears in current financial management. - The early warning system for macroeconomic imbalances will begin to be analyzed starting with the next Multilateral Surveillance Report. - The CEMAC Multilateral Surveillance College instructed the Commission to refine the Concept Note for the proposed multilateral stabilization fund in close collaboration with BEAC. ### Structural reforms, human capital, and food security - Staff emphasized the urgent need for accelerated structural reforms to unlock the region’s economic potential and enhance resilience. - Key areas requiring faster progress: strengthening AML/CFT frameworks, governance, regulatory oversight, and anti-corruption measures. - Complementary reforms include enhancing human capital, improving the business climate, promoting financial inclusion, and developing regional infrastructure. - Staff welcomed some member states’ progress in increasing investments in education, health and social protection in the 2024 and 2025 budgets but emphasized these increases must be fully directed toward improving the quality of education. - Food security challenges identified: i) conflict and political instability, ii) climate change vulnerabilities (e.g., droughts, floods, and extreme weather events), iii) limited or inadequate infrastructure (roads and storage facilities), iv) other economic shocks (e.g., high food prices). - Recommended actions to strengthen food security: - Advance the regional food self-sufficiency strategy under PREF-CEMAC’s steering committee while avoiding FX or trade restrictions. - Support with well-designed research and development activities and coordinated actions to enhance resilience to climate shocks. - Enhance cooperation with development partners to secure concessional resources and fulfill financial pledges for the second generation of priority investment projects to accelerate implementation by the end of December 2024. - Streamline intra-regional transit, remove non-tariff barriers, and accelerate construction of one-stop border posts. - Staff reiterated recommendation for the Commission to conduct a climate change risk assessment to coordinate actions in developing the regional climate adaptation strategy. - The Commission requested World Bank support for the regional strategy; the strategy could leverage the Regional Sustainable Forest Economies Program for the Congo Basin. - Cameroon was the first CEMAC member to benefit from the RST in January 2024. ### Monitoring of regional policy assurances and NFA developments - BEAC resumed weekly liquidity injections in June 2024 to alleviate volatility in banking system liquidity, while maintaining a tightening bias. - Progress on FX regulation implementation has stalled, with technical delays on FX requests and substantial volatility of the surrender effective rate in the past year. - NFA outcomes and targets: - NFA level at end-June 2024 was EUR 4.43 billion, EUR 70 million below the regional policy assurance set for this date (EUR 4.5 billion). - Preliminary high-frequency data suggest the end-December 2024 NFA target (EUR 5.0 billion) fell short by EUR 320 million. - The end-June and end-December 2024 underperformance reflects widening fiscal and external imbalances; the downward NFA trend observed since 2023Q2 resumed in the first half of 2024 and persisted at least until 2024Q3. - Drivers of NFA decline: decline in net FX inflows (mainly lower public sector repatriations consistent with lower hydrocarbon receipts) and sharp increase in FX outflows by some member states. - Policy intentions and new 2025 targets: - Additional target date of March 2025 introduced to closely track NFA trajectory. - 2025H1 targets represent a three-month average of EUR 4.5 billion at end-March and of EUR 4.7 billion at end-June 2025. - Staff will assess whether the end-March 2025 target is met during the review scheduled for June 2025. - Achieving 2025H1 targets assumes reversal of recent fiscal slippages, recommitment to gradually comply with convergence criteria, and sustained implementation of the FX regulation. - Staff projections (subject to heightened uncertainty) indicate NFA should improve in 2025H2, reaching a three-month average of EUR 5.5 billion at end-December 2025, conditional on consistent corrective measures and structural reforms and heightened compliance with the FX regulation. ### Policy assurances on financial stability and supervisory capacity - COBAC staffing and BEAC commitments: - BEAC will start the recruitment process based on SG COBAC short-term needs by June 2025. - SG COBAC will submit an assessment of its five-year staffing needs by the end of the first half of 2025. - BEAC will review this assessment and as appropriate provide corresponding human resources by June 2026, filling two thirds of the identified staffing gap by December 2025. - COBAC will complete a framework document outlining objectives of a reform to strengthen CEMAC’s supervision and resolution framework, in consultation with the IMF and other partners. - That framework will serve as basis for a modern banking law proposal to align CEMAC convention and regulations with international best practices, to be submitted for approval to the UMAC Ministerial Committee in 2026. - These policy assurances are critical because the mandate for safeguarding financial stability primarily resides with regional authorities. ### Staff appraisal: macroeconomic outlook, risks, and policy recommendations - Recent developments and outlook: - The CEMAC economy lost momentum in 2023, driven largely by a contraction in hydrocarbon production. - FX reserves remained steady at around 4 months of prospective imports—still below the adequate level. - Staff projects GDP growth to accelerate to 3.2 percent in 2024, supported by elevated oil prices and a strong rebound in oil output. - Over the medium term, sustained regional growth of around 3.6 percent depends on effective structural reforms to lift potential output. - Major downside risks: delays in addressing fiscal slippages, declining commodity prices, tighter financial conditions, heightened political uncertainty amid a busy election calendar in 2025, entrenched inflation, financial instability, slow progress on structural reforms, food insecurity, domestic conflicts and insecurity, and climate-related events. - Fiscal and external stability recommendations: - All countries should swiftly undertake fiscal consolidation in line with commitments made by the Heads of State at the December 2024 extraordinary Summit. - Measures include boosting non-oil tax revenue collection, improving spending efficiency, phasing out inefficient energy subsidies, and providing targeted safety nets. - Meaningful adjustment efforts are expected over the medium term to stabilize reserve coverage at around 4.3 months of prospective imports. - Monetary policy and banking sector recommendations: - Policy rate remains appropriate at 5 percent; BEAC should continue regular refinancing operations to alleviate banking liquidity volatility. - The stance of monetary policy is broadly neutral with the real interest rate close to its neutral rate (around 1 percent in 2023). - BEAC should maintain a tightening bias and reduce interest rates only if clear evidence shows inflation is sustainably receding toward the regional convergence criterion (3 percent) and external stability risks have diminished. - BEAC and COBAC should ensure strict application of prudential regulations on concentration limits to prevent liquidity injections from worsening banks' exposure to sovereign risk. - Priority actions to preserve financial stability: i) urgently provide COBAC SG with adequate human and financial resources; ii) take appropriate measures to reduce banks’ exposures to sovereigns; iii) rigorously sanction or implement supervisory corrective measures when banks systematically fail to comply with regulations; iv) strictly enforce BEAC’s refinancing policies for liquidity-stressed banks; v) thoroughly assess adequacy of non-performing exposures’ classification and provisioning; vi) ensure national governments recapitalize or resolve weak banks; vii) accelerate implementation of comprehensive domestic arrears clearance and prevention strategy by national governments. - Surveillance, crypto, and CBDC: - Expedite adoption of the draft sanction mechanism for breaches of regional surveillance rules and coordinate with BEAC, BDEAC, COBAC, COSUMAF and BVMAC. - Regional supervisors should advance a regulatory framework for crypto-related activities and enhance coordination on issuance of laws and regulations. - BEAC and regional supervisors should promptly share a legal opinion with C.A.R. authorities regarding their law allowing tokenization of resource wealth with mandatory payment use of crypto assets. - BEAC should account for risks posed by crypto-based digital payments and assets on its operations and monetary policy implementation. - BEAC’s exploration of a CBDC—for which it requested Fund CD—should be based on a cost-benefit analysis. *Source: IMF staff report (CEMAC chapter).* ### 66. Prioritizing the implementation of structural reforms is essential to lifting the region’s ### Prioritizing the implementation of structural reforms is essential to lifting the region’s potential output ### Key structural reforms and complementary policies - Strengthen the AML/CFT frameworks. - Improve governance and regulatory oversight. - Combat corruption. - Complementary ambitious policies to: - Enhance human capital. - Improve the business climate. - Promote financial inclusion. - Develop regional infrastructure. - Intensify efforts to develop a comprehensive climate change adaptation strategy in collaboration with the World Bank. ### NFA policy assurances and targets - BEAC supports the updated policy assurances on NFA accumulation, to bring NFA to average EUR 4.5 billion in 2025Q1 and EUR 4.7 billion in 2025Q2. - The policy assurances on NFA provided in the June 2024 follow-up letter were not met for June 2024 and are unlikely to be met for December 2024. ### Actions essential to meet NFA targets for 2025H1 - i) Member states must strictly implement offsetting policy measures, consistent with the region’s highest-level political commitments to address macroeconomic imbalances and enhance external stability. - ii) BEAC should intensify efforts to monitor and enforce repatriation and surrender requirements under the FX regulations. - iii) BEAC should maintain a tightening bias in its monetary policy to safeguard both price and external stability. - Building up FX reserves will also depend on timely disbursements of external financing. - Adherence to high-level political commitments to the regional strategy and strengthened engagement with the Fund will be crucial to catalyzing donor support and reinforcing external stability. ### Implications for Fund-supported programs - Meeting the proposed policy assurances on the NFA is critical for securing the continuation or approval of new financial support under Fund-supported programs with CEMAC member countries. *CEMAC INTERNATIONAL MONETARY FUND 37* ### 68. BEAC has agreed to provide additional policy assurances to strengthen COBAC’s ### 1caeea2025001-print-pdf - 68. BEAC has agreed to provide additional policy assurances to strengthen COBAC’s ### Strengthening banking supervision and BEAC assurances - BEAC agreed to provide additional policy assurances to strengthen COBAC’s supervisory capacity. - Staffing and timelines: - BEAC must review SG COBAC’s assessment of its short-term and five-year staffing needs and, as appropriate, allocate the necessary human resources by June 2026. - COBAC must complete by December 2025 a framework document that will serve as the basis for preparing a modern banking law proposal, to be submitted for approval to the UMAC ministerial committee in 2026. ### Real economy: growth and composition - Real GDP growth: - Real GDP is projected to accelerate to 3.2 percent in 2024, from 2.5 percent in 2023. - Acceleration mainly reflects improvement across the region, especially in Equatorial Guinea, Cameroon and Congo, despite a deteriorated outlook in Chad. - Selected country shares (nominal GDP, 2024 national shares shown in figure): 42%, 2%, 17%, 12%, 10%, 17% (as presented in the source figure). ### Fiscal outlook and public debt - Overall fiscal balance: - Projected to deteriorate from -0.5 percent of GDP in 2023 to -1.1 percent of GDP in 2024, driven by lower hydrocarbon revenue and spending overruns in some member countries. - Non-oil and primary balances: - Non-oil Primary Fiscal Balance (including grants), 2021–24 shown in figures and tables (see tables for country-level detail). - Public debt: - Projected to decline to around 52. percent of GDP in 2023, and 51.2 percent of GDP in 2024, with the downward trend expected to continue in the medium term, reflecting significant consolidation efforts across the region. ### External sector and commodity prices - Current account: - Projected to slightly deteriorate from -0.5 percent of GDP in 2023 to -1.1 percent of GDP in 2024, mainly reflecting a decline in hydrocarbon exports. - Reserves: - Reserves accumulation is expected to continue in 2024, but to decline in the medium term (figures show International Reserves, 2021–24 in Billions of USD). - Oil price assumptions: - The oil price path was revised downward to $ 79 per barrel on average in 2024 in the latest WEO submission (vs. $80.6 per barrel in late 2023). - Lower oil prices and a contraction in hydrocarbon production contributed to lower export receipts and slowing non-oil GDP growth in 2023. ### Monetary and liquidity developments - BEAC operations and liquidity: - BEAC resumed its weekly liquidity injections but borrowing at the marginal lending facility remained elevated in 2024Q3, while excess liquidity declined (Total Liquidity Operations and Banking System’s Reserves shown in figures). - Government securities and deposits: - Net issuances of government securities increased driven by stronger issuances from Gabon and Congo. - Governments’ deposits at the BEAC continued to moderate in 2024, partly reflecting lower oil fiscal revenues. - Money and credit: - Money supply continued to expand in 2024, reflecting higher net foreign assets and credit to the private sector (Broad and Base Money figures). - Credit to the public and private sectors shown as Percent of GDP in figures and tables. ### Key selected numeric indicators and projections (selected exact values from tables and text) - Real GDP (CEMAC aggregate): - 2023: 2.5 - 2024 projection: 3.2 - Overall fiscal balance (CEMAC aggregate, excluding grants): - 2023: -0.5 percent of GDP - 2024 projection: -1.1 percent of GDP - Current account (including grants, percent of GDP): - 2023: -0.5 percent of GDP - 2024 projection: -1.1 percent of GDP - Public debt (Total public debt, percent of GDP, CEMAC): - 2023: 52. percent of GDP - 2024: 51.2 percent of GDP - Oil price assumption: - 2024 average Brent: $ 79 per barrel (revised); comparison value $80.6 per barrel (late 2023) - Gross official reserves (end of period, Millions of U.S. dollars) (selected series from Table 1): - 2018: 6,555 - 2019: 7,390 - 2020: 7,779 - 2021: 8,060 - 2022: 11,064 - 2023: 11,446 - 2024 (SR 24/193 projection shown): 12,173.2 - Broad money growth (annual change, percent of beginning-of-period broad money) (Table 5): - 2020: 11.1 - 2021: 12.6 - 2022: 13.5 - 2023: 8.8 - 2024 (SR 24/193): 11.6 - Net foreign assets (annual change, percent of beginning-of-period broad money) (Table 5): - 2023: 0.4 - 2024 (SR 24/193): 3.2 ### Policy implications and timelines - Strengthen COBAC capacity: - Immediate actions: BEAC review and allocation of human resources by June 2026 to address understaffing. - Regulatory reform: COBAC to finalize a framework document by December 2025 to underpin a modern banking law proposal for UMAC ministerial committee approval in 2026. - Fiscal consolidation and reserve management: - Medium-term expectations hinge on hydrocarbon revenue trajectories and fiscal discipline across member countries to sustain the projected decline in public debt and preserve reserves accumulation in 2024. *Sources: CEMAC authorities; BEAC; and IMF staff estimates and projections.* ### 1. External financing needs ### 1. External financing needs ### Neutral real interest rate (r*) - Definition: the level of the real policy rate consistent with output at potential and inflation at target, once cyclical shocks have dissipated. - Methodology: staff uses a range of empirical methodologies (univariate time series, reduced-form econometric models, semi-structural models accounting for small-open economy characteristics) and reports the average of the neutral rate estimates across all methodologies. ### Summary of r* estimates and evolution - Staff's estimates indicate: - r* peaked around 2 percent by the end of 2007. - r* declined below 1 percent during the 2008–09 Global Financial Crisis (GFC). - r* remained relatively stable thereafter and increased slightly to around 1 percent during 2017–19. - r* estimates declined slightly during the pandemic. - The average of the estimates was around 1.1 percent at the end of 2023. - Annex I. Table 1: CEMAC: Summary of the R* Estimates by Methodology (selected entries) - Sample averages (2023Q4): 1.31 - Hodrick-Prescott filter: 2007Q4 = 1.87; 2019Q4 = 1.09; 2023Q4 = 1.00 - Christiano-Fitzgerald filter: 2007Q4 = 1.91; 2019Q4 = 1.28; 2023Q4 = 0.97 - Taylor rule: 2007Q4 = -; 2019Q4 = -0.71; 2023Q4 = 0.79 - Reduced-form model: 2007Q4 = 2.78; 2019Q4 = 0.83; 2023Q4 = 1.72 - TVP-VAR model: 2007Q4 = 0.96; 2019Q4 = 1.03; 2023Q4 = 0.72 - HLW model: 2007Q4 = 2.95; 2019Q4 = 0.81; 2023Q4 = 1.51 - Average of methods: 2007Q4 = 1.96; 2019Q4 = 1.06; 2023Q4 = 1.09 ### Monetary policy stance (interest rate gap) - Metric: interest rate gap = actual ex ante real interest rate minus the neutral rate (mean of all estimated r-stars, excluding the Taylor rule). - Interpretation: real rate below r* = expansionary; real rate above r* = restrictive. - Findings: - The policy stance turned restrictive over 2021–23. - By end-2023, the real policy rate was close to the neutral rate, suggesting a broadly neutral monetary policy stance for CEMAC. ### Financial conditions and transmission - Financial Conditions Index (FCI) construction: - Components: i) the policy rate; ii) quantity indicators—monetary aggregates (year-on-year growth rates of the monetary base and broad money) and credit aggregates (year-on-year growth rates of credit to the private and public sectors); iii) the nominal effective exchange rate; iv) global financial risk indicators (US volatility index (VIX) and the Emerging Market Bond Index (EMBI) spread). - Notes: interest rate series (bank deposit/lending rates, government bond rates) are not available for CEMAC; the FCI relies primarily on quantity indicators. An equal-weighted approach is used. - An increase in the FCI denotes a tightening of financial conditions. - Co-movement: - Episodes of restrictive (positive interest rate gaps) or accommodative (negative interest rate gaps) monetary policy have coincided with tighter or looser financial conditions, respectively (e.g., during the GFC and post-GFC periods; 2021–23 tightening corresponded with tighter financial conditions). - Transmission speed and size: - Monetary policy shocks tighten financial conditions with a lag; transmission is relatively slow. - A one percentage point increase in the policy rate typically leads to a tightening of financial conditions by about 2 points in the index, with the peak effect observed in the sixth quarter following the hike. - Local projections (Jordà, 2005) are used to estimate impulse responses of the FCI to monetary policy shocks over 8 quarters; shaded areas represent 90 percent confidence bands. - Impairments to transmission in CEMAC: - Bank-based economy with underdeveloped financial markets (nascent/inefficient interbank market; absence of secondary markets for government securities). - Fragmented banking system with excess liquidity and limited competition. - FCI does not incorporate interest rates directly, excluding the interest rate channel from its scope. ### Policy recommendations to improve effectiveness and transmission - Strengthen BEAC independence and credibility by improving governance and continuing to modernize its framework. - Enhance BEAC communication strategies with market participants and the public. - Improve data collection, processing, and analysis at BEAC. - Conduct all monetary policy operations (injections and absorptions) at the main policy rate, preferably using a fixed-rate full allotment procedure, to improve interest rate transmission. - Develop a well-functioning secondary market for government securities, including with support from Fund-capacity building initiatives, to enable more effective central bank influence on financial markets. - Address banking system fragmentation to enhance interbank market functioning and competition so banks can pass on changes in policy rates to lending and deposit rates. *Source: IMF staff calculations and analysis (Annex I: Assessing the Monetary Policy Stance in CEMAC).* ### Annex II. Risk Assessment Matrix ### Annex II. Risk Assessment Matrix ### Conjunctural risks - Intensification of regional conflict(s) - Likelihood: High - Expected Impact if Realized: High - Key observations: - Escalation or spread of the conflict in Gaza and Israel, Russia’s war in Ukraine, and/or other regional conflicts or terrorism disrupt trade (e.g., energy, food, tourism, supply chains), remittances, FDI and financial flows, payment systems, and increase refugee flows. - Limited direct trade and financial links to Russia and Ukraine. However, higher global energy and food prices could: - increase inflation, - intensify food insecurity leading to increased poverty and inequality, - heighten spending pressures, including on fuel subsidies and tax exemptions in some member states, putting additional pressures on reserves, and further hindering fiscal consolidation. - Inflows of refugees: notably the influx of refugees in Chad, 630,000 since April 2023. - In the CEMAC region, political uncertainty may slow down reform momentum, disrupt regional trade and financial integration, and weigh on growth prospects; security challenges and weak governance exacerbate risks. - Recommended Policy Response: - Accelerate fiscal adjustment to create fiscal space for policies to mitigate supply shocks. - Prioritize and provide targeted support to vulnerable households to mitigate the impact of higher fuel and food prices. - Promote security, strengthen social safety nets, and facilitate job creation in the private sector. - Commodity price volatility - Likelihood: High - Expected Impact if Realized: Medium - Key observations: - Supply and demand fluctuations (e.g., due to conflicts, export restrictions, OPEC+ decisions, and green transition) cause recurrent commodity price volatility, external and fiscal pressures and food insecurity in EMDEs, cross-border spillovers, and social and economic instability. - A sharp slowdown in global demand and the global transition to low-carbon economies could lower demand for CEMAC exports, adversely affecting public finances, external stability, and social indicators. - Short-term higher oil prices could increase export and fiscal revenues but could also build inflation pressures and worsen fiscal positions if food security is addressed through price controls and subsidies. - Recommended Policy Response: - Restore fiscal discipline and rebuild buffers in line with Fund advice. - Prioritize and target social spending to the most vulnerable. - Where price controls are needed, offset spending by strengthening collection, broadening tax bases, and phasing out exemptions. - Implement structural reforms and encourage intra-regional trade to diversify and reduce reliance on oil and commodity prices. - Social discontent - Likelihood: High - Expected Impact if Realized: High - Key observations: - High inflation, real income loss, spillovers from conflicts (including migration), and worsening inequality stir social unrest, drive populist policies, and increase resistance to reforms. - Social tensions could delay fiscal adjustments, disrupt agricultural production, affect market confidence and financing flows, and reduce private investment. - Recommended Policy Response: - Rebuild external and fiscal buffers to boost market confidence and attract private investment. - Maintain effective social dialogue, protect and prioritize social spending, and build social safety nets to reduce poverty. - Increase social investment in health, education, welfare, and youth upskilling. - Global growth surprises (Slowdown / Acceleration) - Slowdown - Likelihood: Medium - Expected Impact if Realized: High - Key observations: - Growth slowdown in major economies could reduce demand from trade partners and lower oil prices, worsening fiscal and current account positions and weighing on reserves. - Recommended Policy Response: - Adjust fiscal policy to anchor expectations. - Design fiscal contingency plans to address deterioration of the current account. - Enforce FX regulation; strengthen repatriation efforts, including from SOEs. - Acceleration - Likelihood: Low - Expected Impact if Realized: High - Key observations: - Positive supply-side surprises and stronger EMDE performance could raise global demand and ease financing conditions. - Recommended Policy Response: - Fiscal and structural reforms to entrench gains from global growth acceleration. - Calibrate monetary policy. - Monetary policy calibration by major central banks - Likelihood: Medium - Expected Impact if Realized: Medium - Key observations: - Too-loose stances could hinder disinflation; too-tight stances could stifle growth and trigger capital-flow and exchange-rate volatility in EMDEs. - Rate cuts by major central banks exert downward pressure on local interest rates, potentially leading to higher inflation and de-anchored inflation expectations. - Recommended Policy Response: - BEAC should keep monetary policy with a tightening bias and remain vigilant to adjust the monetary stance as needed. - Restore a prudent fiscal policy stance to protect the peg and alleviate crowding-out. - Accelerate structural reform agenda to support capital flows, especially FDI. - Systemic financial instability - Likelihood: Medium - Expected Impact if Realized: Medium - Key observations: - High interest rates, asset repricing, and elevated policy uncertainty could trigger market dislocations with cross-border spillovers affecting weak banks and NBFIs. - Tightening global financial conditions and spiking risk premia would raise borrowing costs and increase debt vulnerabilities. - Existing vulnerabilities include a tight bank-sovereign nexus and high NPLs. - Recommended Policy Response: - Enhance banking supervision and enforce prudential regulations. - Improve debt and collateral collection processes. - Create fiscal space to absorb financial shocks. - BEAC (with COBAC) to engage proactively with banks facing liquidity needs. - COBAC to ensure undercapitalized banks submit credible medium-term recapitalization plans and establish an NPL reduction strategy. - Sovereign debt distress - Likelihood: Medium - Expected Impact if Realized: High - Key observations: - Domino effects from high global interest rates, deteriorating debt sustainability, unfunded fiscal spending, and disorderly debt events could cause capital outflows, rising risk premia, loss of market access, and contraction of growth and social spending. - Recommended Policy Response: - Continue fiscal and structural reforms to reduce external imbalances and vulnerabilities, enhance competitiveness, deepen regional integration, and improve investor confidence. ### Structural risks - Deepening geoeconomic fragmentation - Likelihood: High - Expected Impact if Realized: Medium - Key observations: - Inward-oriented policies and weakened international cooperation could fragment trade, FDI, payments systems, and lower growth. - Could reduce supply of external concessional financing, adding to budget support shortfalls and slowing reserve accumulation. - Recommended Policy Response: - Boost resilience of the economy and key supply chains, including through diversification. - Cyberthreats - Likelihood: High - Expected Impact if Realized: Medium - Key observations: - Cyberattacks on physical or digital infrastructure (including digital currency and crypto assets), technical failures, or misuse of AI could trigger financial and economic instability and disrupt public services. - Recommended Policy Response: - Create contingent plans for cyberattacks. - Assess risk and impact of cyberattacks on public services and public IT systems. - Climate change - Likelihood: Medium - Expected Impact if Realized: High - Key observations: - Extreme climate events cause loss of life, infrastructure damage, food insecurity, supply disruptions, lower growth, and financial instability. - Near-term fiscal risks through heightened food insecurity and post-disaster rehabilitation needs. - Regional vulnerabilities: more frequent floods and droughts (CAM, TCD); rising sickness and poor harvests due to dryer weather (CAR, EQN); higher sea levels, dry rivers/lakes (GAB, EQN, TCD). - Recommended Policy Response: - Create a CEMAC-wide adaptation strategy to climate change that includes: - Improve capacity for monitoring and strengthened early warning systems. - Improve shock response mechanisms to cope with floods and droughts. - Work with partners to identify vulnerable populations and regions, conduct risk assessments, and design disaster mitigation measures. - Free up fiscal space to invest in climate mitigation and adaptation infrastructure. - Mitigate impact on the poor through targeted fiscal transfers and other public spending. ### Domestic risks (in CEMAC region) - Further fiscal slippages / Additional spending pressures - Likelihood: High - Expected Impact if Realized: High - Key observations: - Adverse impact on debt sustainability, slow reserve accumulation, heighten debt vulnerabilities; may warrant aggressive monetary tightening with adverse growth impact. - Sovereign rollover and financing risks could increase. - Political transition in Gabon could compound the financing squeeze in the regional market. - Recommended Policy Response: - Aggressive monetary tightening to safeguard price and external stability. - Restore fiscal discipline and rebuild buffers in line with Fund advice. - Implement structural reforms and FX regulations. - Downside: Slow progress on structural reforms; failure to restore fiscal discipline; non-predictable application of FX regulations - Likelihood: High - Expected Impact if Realized: High - Key observations: - Potential delays on donor support, heightened economic vulnerabilities, delayed growth benefits, decreased investor confidence, capital outflows, lower FDI, and rising risk premia. - Recommended Policy Response: - Accelerate structural reforms and restore fiscal discipline in line with Fund advice, with emphasis on strengthening AML/CFT frameworks, governance, regulatory oversight, and anti-corruption measures. - Intensify efforts to reduce technical delays in FX requests so they are processed quickly and efficiently in line with regulation. - Resume constructive engagements with the extractive sector to ensure efficient enforcement of the repatriation of funds dedicated to oil-site rehabilitation (RES). - Upside: Stricter compliance with FX regulations or higher oil prices; reform acceleration - Key observations: - Could increase repatriation of export proceeds and bolster economic resilience to shocks. - Recommended Policy Response: - Rebuild buffers in line with Fund advice. ### Key statistics and external sector observations (selected) - Net foreign assets (NFA) at end-2023: 4.7 percent of GDP (up from 4.6 percent in 2022). - NFA in 2024 (by August): 3.9 percent of GDP. - Foreign assets fell from 9.8 percent of GDP in 2022 to 8.5 percent by August 2024; foreign liabilities remained around 4.7 percent of GDP. - Gross foreign reserves at end-2023: US$11.4 billion, equivalent to 4.3 months of imports of goods and non-factor services (GNFS). - 2023 reserve coverage benchmark: adequate level is 5 months for a resource-rich monetary union. - 2024 reserve coverage estimate: 4.2 months. - CEMAC’s current account balance (CAB): - End-2022: surplus of 3.6 percent of GDP. - End-2023: -0.4 percent of GDP. - 2024: -1.2 percent of GDP. - Oil exports: - 2022: 26.7 percent of GDP. - 2023: 19.9 percent of GDP. - 2024: 18.2 percent of GDP (through 2024Q3). - Medium-term projection: current account deficit projected to widen progressively, reaching 2.2 percent by 2029. - CAB historical average over the past decade: -2.2 percent of GDP. - Estimated CA gap (EBA-lite CA model): - 2022: -1.5 percent of GDP. - 2023: -2.8 percent of GDP (estimated). - Policy messages for external stability: - Strengthened reserves require sustained fiscal consolidation and improved compliance with foreign exchange regulations, particularly among state-owned enterprises. - Reaching agreements with the extractive sector on escrow accounts for oil site rehabilitation funds and timely completion of IMF-supported program reviews and Fund surveillance advice can catalyze donor support and diversify financing. - Removing trade restrictions within the region can promote non-oil growth and reduce reliance on food imports. - Steady implementation of long-standing structural reforms is essential to attract durable foreign capital inflows and encourage diversification. *Source: Annex II. Risk Assessment Matrix (1caeea2025001-print-pdf)* ### 6.7 percent, compared to 2 percent in 2022. ### 1caeea2025001-print-pdf - 6.7 percent, compared to 2 percent in 2022. ### Exchange rate dynamics and REER assessment - Real effective exchange rate (REER) appreciation: - REER appreciated in 2023 and continued to appreciate in 2024. - Over the longer term, the REER has remained broadly stable with annual fluctuations not exceeding 10 percent. - Inflation dynamics: - Domestic inflation was 6.7 percent, compared to 2 percent in 2022. - Inflation decreased from 6.5 percent at the end of 2022 to 4.7 percent at the end of 2023. - Domestic inflation declined to an estimated 3.8 percent at the end of 2024. - Valuation assessment: - The EBA-lite CA model estimates an overvaluation of 13.2 percent in 2023. - The REER model suggests an overvaluation of 11.2 percent in 2023. - Staff assessment: the REER is assessed to be overvalued. - Non-price competitiveness measures (governance and doing business) show little improvement over recent years and support the overvaluation assessment. - Policy implication: correcting the estimated REER overvaluation requires structural reforms that improve competitiveness in the medium term. ### Capital and financial accounts: flows, projections, and drivers - Recent flows and recovery: - In 2022, financial inflows hit their lowest level in 5 years at -2.5 percent of GDP. - In 2023, financial inflows began to recover to -0.9 percent of GDP, and continued to do so in 2024. - Improvement attributed to recovery of foreign direct investment (FDI) and a sharp drop in long-term other investment outflows. - Medium-term outlook and projections: - Net capital inflows expected to continue rising through lower debt repayments starting in 2024. - FDI is expected to stabilize at around 2 percent of GDP—significantly below the region’s pre-2017 long-term average of 5.5 percent. - Net financial inflows are projected to recover modestly in the medium term, reaching 2.3 percent of GDP by 2029. - FDI inflows as a share of GDP are projected to show a slight drop from 2.16 percent of GDP in 2023 to 1.8 percent in 2027. - The modest drop in FDI is driven by subdued flows into the hydrocarbon sector owing to depletion of hydrocarbon resources and potential realization of diminished oil and gas prices; risks to a steeper decline are high. - Historical drivers of subdued inflows: - Decline in oil prices from 2014 to 2017. - Political instability in some member states. - Stricter capital controls introduced in 2018. - Challenging investment climate marked by weak infrastructure and governance issues. - Resulted in FDI falling to its lowest recorded level of -3 .9 percent. - Market and policy risks: - In 2023, market perceptions were mixed with growing concerns on public financial management, stricter capital control regulations, and political instability that could hamper market access. - In 2024, concerns continued and intensified, partly due to the Congolese domestic debt reprofiling operation that took place in October 2024. - Conditions for attracting durable foreign capital: - (i) addressing fiscal imbalances; - (ii) improving efficiency in enforcing FX regulations to process requests swiftly and smoothly; - (iii) advancing the steady implementation of long-standing structural reforms to enhance the business environment and regional competitiveness. ### Monetary policy, liquidity operations, and forex enforcement - BEAC policy stance and actions: - BEAC maintained its main policy interest rate (the auction rate—TIAO) at 5.0 percent since March 2023 (a cumulative increase of 175 basis points since November 2021), with a tightening bias. - BEAC tightened refinancing conditions for banks by suspending active weekly liquidity injections on the money market at the beginning of March 2023, and began weekly liquidity absorption operations. - BEAC resumed its liquidity injection operations in June 2024 to alleviate increased volatility of liquidity conditions in the banking system. - BEAC has continued implementation of its IT platform to facilitate deployment of the Treasury Single Account (TSA) systems; pilot phase in Cameroon and Gabon, with full migration expected in2025. - FX regulation and extractive sector: - BEAC’s dialogue with banks and businesses helped streamline verification and approval process of FX requests over time. - BEAC addressed extractive sector concerns about the draft model contract of the escrow account attached to the RES funds and anticipated further discussions with the sector. - Recommendation from consultation: enforce the forex (FX) regulation to ensure full repatriations of export proceeds, notably by the public sector, and continue discussions regarding repatriation mechanisms for the extractive sector’s required 35 percent of proceeds and RES funds. ### Macrofinancial stability, banking sector, and supervisory reforms - Banking sector exposures and risks: - Bank exposure to the sovereign was about 31 percent of total assets at end-2023, up from 10 percent at end-2015, with several banks having exposure above 50 percent to CEMAC governments. - Supervisory capacity and reforms: - Resource constraints and understaffing explain significant reduction of onsite inspections in recent years. - BEAC committed to address COBAC longstanding understaffing issues. - Several regulatory projects in progress: - COBAC regulations on AML/CFT revised to incorporate recent FATF developments; new COBAC regulation R2023/01 on AML/CFT entered into force in July 2024. - COBAC implementing recently adopted risk-based supervision. - COBAC has started work on transposing the Basel framework with Fund support, including interest rate risk in the banking book (IRRBB) and the Basel III liquidity coverage ratio (LCR). - BVMAC launched its first composite stock index (BVMAC All Share Index) in December 2023 to enhance appeal to international investors. - BEAC continuing work on legal opinion regarding consistency of C.A.R.’s law on tokenization with regional legal/regulatory frameworks. - Policy recommendations and supervisory actions from consultations: - Sanction or take supervisory corrective actions when banks are systematically non-compliant. - Strictly enforce BEAC’s refinancing policies for liquidity-stressed banks. - Assess adequacy of NPEs’ classification and provisioning, and ensure undercapitalized banks submit credible medium-term recapitalization plans. - Prioritize risk-based prudential and AML/CFT-compliance supervision, modernize regulatory and risk management frameworks, and improve banks’ governance. - Address segmentation of the government issuance market and monitor risks from digital payments and assets. ### Regional integration, reform progress, and data issues - Regional integration and surveillance: - Adoption of the draft sanction mechanism by the Conference of Heads of States is still pending. - Final Multilateral Surveillance Reports for 2022 and provisional report for 2023, along with perspectives for 2024 and 2025 (expected to be released in October 2024) were approved in April 2024. - Reform implementation progress: - Progress on the region’s reform agenda (second phase 2021–25): 62 percent of the action matrix implemented as of end-2023Q4, up from 59 percent in 2023Q3. - Most CEMAC member countries started phasing out fuel subsidies. - Data adequacy and reporting: - No comprehensive union-wide net international investment position (NIIP) is available due to disparities and significant lags in external data reporting among CEMAC members; NIIP data available only for Cameroon which reported -29.8 percent at end-2020. - Cost-benefit scenario analysis indicates the optimal level of reserves for CEMAC could range between 6.3 to 9.7 months of imports depending on the scenario; to cover a two standard deviation current account shock, import coverage should amount to about 7 months of imports for the average country. - All CEMAC countries are e-GDDS participants. - Cameroon, Chad, Equitorial Guinea and Gabon publish data on a National Summary Data Page (NSDP); Central African Republic and the Republic of Congo have not launched an NSDP yet. ### Macroeconomic outlook and fiscal context (from Appendix I letter) - Growth and inflation: - After a slowdown in 2023 (2.0 percent compared to 3.0 percent in 2022), real GDP growth reached 2.7 percent in 2024, mainly due to strength of domestic demand and non-oil sector activities. - Growth projection for 2025: 3.2 percent, driven by performance of all sectors notwithstanding recessionary effects of fiscal consolidation. - Inflation trend noted: annual average declined from 5.6 percent at end-2023 to around 4.4 percent at end-2024, and remains above the 3 percent community standard. - Fiscal developments and recommendations from regional consultation: - Tackle fiscal slippages and pursue fiscal consolidation, including through improved non-oil tax revenue mobilization and better management of tax compliance risks in the extractive sector. - Faster progress on PFM reforms, notably on Treasury Single Accounts (TSA). - Gradually phase out inefficient untargeted subsidies while rolling out targeted social safety nets. - Accelerate structural reforms to improve governance, financial integrity, and diversify economies away from oil price fluctuations. - Authorities’ responses and implementation status: - Non-oil primary fiscal balance (incl. grants) deteriorated more than projected at the time of the previous Article IV (1.2 percent of GDP lower than projected). - Underlying fiscal positions expected to improve slightly in 2024, thanks to subsidy reforms and subsequent structural fiscal measures, but remain well below the previously projected balance by 1.3 percent of GDP. - TSA migration in pilot phase in Cameroon and Gabon, with full migration expected in2025 and subsequent extension to other member treasuries. *Source: 1caeea2025001-print-pdf - 6.7 percent, compared to 2 percent in 2022.* ### 1.1 percent of GDP in 2024, from 1.4 percent in 2023 and 5.7 percent in 2022, due to lower oil prices. ### 1caeea2025001-print-pdf - 1.1 percent of GDP in 2024, from 1.4 percent in 2023 and 5.7 percent in 2022, due to lower oil prices. ### Recent macroeconomic developments - Growth and inflation - Growth rate stood at 3.2 percent in 2024, following 2.5 percent in 2023 and 3.3 percent in 2022, "in line with sustained public demand and robust oil production." - By 2025, growth is expected to return to 2.5 percent due to fiscal consolidation efforts, "despite positive oil sector growth." - Inflation fell from 4.8 percent at end-2023 to around 3.8 percent at end-2024. - Alternative summary from CEMAC authorities: economic growth increased to 2.7 percent in 2024; inflation declined in 2024 to around 4 percent but remains above the regional convergence criterion of 3 percent. ### External position and reserves - Net foreign assets and reserves - The Central Bank's net foreign assets (NFA) recorded a decline of 25 percent between April 2023 and October 2024. - Gross reserves fell by 14 percent over the same period. - Total reserve coverage by end-2024 is estimated at around 4.2 months of imports of goods and services. - Reserve coverage fell by about 0.1 months of imports between 2023 and 2024. - The regional NFA target for end-June 2024 (EUR 4.5 billion) was missed with a gap of EUR 0.07 billion. - NFA in June 2024 was 0.07 billion euros below the target set at 4.5 billion euros. - BEAC expects an accumulation of NFA in the first half of 2025, reaching an average minimum baseline value of EUR 4.5 billion in the first quarter of 2025 and EUR 4.7 billion in the second quarter of 2025. ### Fiscal balances, non-oil balance, and public debt - Fiscal outcomes - Management of fiscal balances resulted in a small surplus of 0.3 percent of GDP in 2024, compared to -0.3 percent of GDP in 2023 and 2.2 percent in 2022. - The non-oil primary fiscal balance deficit remains high at 6.8 percent of GDP in 2024, despite improvement efforts. - IMF projects the non-oil primary fiscal balance to widen to around -7.7 percent of GDP, compared to -7.1 percent in 2023. - Public debt and debt service - CEMAC's public debt ratio declined slightly to 47.3 percent of GDP in 2024. - The ratio of debt service to total budget revenues increased from 45.5 percent in 2023 to nearly 47.5 percent in 2024, reflecting higher borrowing costs. - Increased vulnerabilities manifested in payment incidents in the government securities market and rising arrears. ### Liquidity, monetary policy, and banking sector - Liquidity management - BEAC resumed weekly liquidity injections in June 2024. - Central Bank injections increased to about CFAF 260 billion at end-September 2024, compared to about CFAF 90 billion at end-June 2024. - Oversubscription rates exceeded 175 percent during the last operation in September 2024; average subscription rate from October to December 2024 was 91.29 percent for a volume of injections of 200 billion CFA as of end-December 2024. - Excess reserves: CFAF 814 billion at end-June 2024; contracted to CFAF 531 billion at end-July 2024; reached about CFAF 895 billion at end-September 2024; well below end-2023 levels (CFAF 1000 billion). - In response to the downturn in liquidity, the Central Bank suspended issuance of short-term BEAC debt securities ("BEAC Bills"). - As of January 27, 2025, BEAC had executed securities exchanges for CFAF 914.7173 billion. BEAC had not exchanged any securities under the PNOT as of January 29, 2025. - Monetary policy stance - BEAC will maintain a tight, data-dependent monetary policy and consider easing only once inflation deceleration is firmly anchored towards the 3 percent target and external stability risks have abated. - BEAC plans to maintain weekly refinancing operations and may use a fixed-rate full-allotment procedure for active liquidity injection operations depending on market and macroeconomic conditions. - Banking supervision - COBAC lifted transitional forbearance measures in July 2022 and lifted the suspension on dividend distributions in June 2023. - Banking sector remains fragile with breaches of prudential standards; BEAC and COBAC will review refinancing plans and tighten refinancing conditionality, monitor banks' sovereign exposure, and phase out systematic zero weights for new government securities issuances. ### Foreign exchange regulations and public financial management - Foreign exchange - Implementation of foreign exchange regulations has improved compliance by commercial banks, with improved effective surrender rate and processing times in 2024. - BEAC will continue strengthening cooperation with member states to ensure public and extractive sectors comply with repatriation and surrendering requirements. - Signing of escrow account agreements for domiciliation of RES funds for restoration of oil and mining sites is targeted by April 30, 2025. - Conference of Heads of State (December 16, 2024) invited IMF, World Bank, and partners to support repatriation and domiciliation of oil revenues. - Public financial management - BEAC established an IT platform to facilitate implementation of Treasury Single Accounts (TSAs); pilot phase in Cameroon and Gabon faced technical delays; system expected in production by third quarter of 2025 and to be extended to other Member States. ### Regional institutions, reforms, and governance actions - Commitments from extraordinary summit (December 16, 2024) - Pursue fiscal policies consistent with debt sustainability and the external position of CEMAC. - Strengthen independence of the central bank, COBAC, and other regional institutions. - Reduce banks' over-exposure to the sovereign and establish COBAC credibility as banking supervisor. - Enforce foreign exchange regulations, including repatriation and escrow account agreements for RES funds by April 30, 2025. - Accelerate structural reforms and ensure transparency and reliability of fiscal, economic, and financial data. - Institutional capacity and regulatory reform - BEAC committed to launching a specific recruitment process for COBAC by June 2025; SG-COBAC to submit a five-year human resources needs assessment by end of first half of 2025. - BEAC aims to provide corresponding human resources by June 2026, with a target to fill two-thirds of required positions by December 2025. - COBAC will complete by December 2025 a framework document for reforming supervision and resolution; a modern banking law proposal to be submitted to the UMAC Ministerial Committee in 2026. - Digital assets and payments - Regional supervisors (BEAC, COBAC, COSUMAF and GABAC) will jointly develop a regulatory framework for crypto assets. - BEAC is examining compliance of Law No. 23-010 of July 24, 2023 (Central African Republic) with community regulations. - BEAC will reconfigure the working group on a central bank digital currency (CBDC) and is awaiting IMF technical assistance. ### Regional surveillance, data sharing, and program monitoring - Surveillance and sanctions mechanism - BEAC will work with the CEMAC Commission and PREF-CEMAC to expedite adoption of a new sanction mechanism for violations of multilateral surveillance rules; adoption targeted in 2025. - Data sharing commitments - BEAC to share with the IMF Statistics Department by March 2025 data on foreign exchange reserves, including a breakdown by country for quota share calculations for 2023. - COBAC to provide IMF staff with necessary banking system information every six months, at least two months before review missions. - Program monitoring and conditionality - BEAC will monitor CEMAC countries' programs and notify IMF staff by end-June and December 2025 of developments likely to affect external stability and take corrective measures as needed. ### Outlook, risks, and conditionalities - Main risks and uncertainties - Oil price volatility, persistent inflationary pressures, climate change impacts, tightening of global financial conditions, risks of refinancing and debt distress, geopolitical escalation, food security, and financial instability. - Security and sociopolitical situations in some CEMAC countries and humanitarian and security repercussions from neighboring crises. - Conditions for recovery - Recovery could benefit from timely conclusion of reviews of Fund-supported programs and predictable disbursement of budget support from development partners. - Countries and development partners should work to ensure greater predictability of budget support disbursements, including financing pledges from the November 2023 donor roundtable in Paris for second-generation CEMAC priority integration projects. ### Key statistics (as stated) - Growth: 3.2 percent in 2024; 2.5 percent in 2023; 3.3 percent in 2022; expected 2.5 percent in 2025. - Inflation: 4.8 percent at end-2023; around 3.8 percent at end-2024; CEMAC authorities report around 4 percent in 2024. - NFA decline: 25 percent between April 2023 and October 2024. - Gross reserves fall: 14 percent over same period. - Reserve coverage: around 4.2 months of imports by end-2024; decline of about 0.1 months of imports between 2023 and 2024. - Regional NFA target (end-June 2024): EUR 4.5 billion; missed by EUR 0.07 billion. - Fiscal balance: surplus of 0.3 percent of GDP in 2024; -0.3 percent of GDP in 2023; 2.2 percent in 2022. - Non-oil primary fiscal balance: deficit of 6.8 percent of GDP in 2024; IMF projects around -7.7 percent of GDP. - Public debt: 47.3 percent of GDP in 2024. - Debt service to total budget revenues: 45.5 percent in 2023; nearly 47.5 percent in 2024. - BEAC injections: about CFAF 90 billion at end-June 2024; about CFAF 260 billion at end-September 2024. - Excess reserves: CFAF 814 billion at end-June 2024; CFAF 531 billion at end-July 2024; about CFAF 895 billion at end-September 2024; CFAF 1000 billion at end-2023. - Weekly injection subscription rate (Oct–Dec 2024): average 91.29 percent for volume of injections of 200 billion CFA as of end-December 2024. - BEAC securities exchanges executed as of January 27, 2025: CFAF 914.7173 billion. - Target dates and commitments: escrow account agreements for RES funds by April 30, 2025; TSA platform production by third quarter of 2025; COBAC recruitment process by June 2025; SG-COBAC HR assessment by end first half of 2025; BEAC to review HR and provide resources by June 2026 (fill two-thirds by December 2025); COBAC framework document by December 2025; banking law proposal to UMAC in 2026; BEAC to share reserves data with IMF by March 2025; BEAC to notify IMF by end-June and December 2025 on external stability developments. *Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1caeea2025001-print-pdf.pdf* ### 0.1 months to 4.2 months of imports of goods and services at the end of 2024. The regional banking ### CEMAC — RECENT DEVELOPMENTS AND PROSPECTS ### Recent developments and macroeconomic outlook - Economic growth rate in CEMAC increased to 2.7 percent in 2024, driven by strong domestic demand and non-oil sector activities (agriculture, construction, manufacturing, and market services). - Inflation declined in 2024 to around 4 percent but remains above the regional convergence criterion of 3 percent. - Current account balance contracted due to lower oil prices. - The NFA target for end-June 2024 (€4.5 billion) was narrowly missed by €0.07 billion; preliminary information indicates the same for the December 2024 target. - Total reserve coverage fell by about 0.1 months to 4.2 months of imports of goods and services at the end of 2024. - Regional banking sector remains fragile and highly exposed to the sovereign; some CEMAC countries are planning measures to address weak banks and the bank-sovereign nexus. - Regional authorities assess a better fiscal position than staff’s estimates for 2024 but agree debt vulnerabilities have increased ahead of large debt repayments scheduled in 2025 and 2026 amid tight global and regional financial conditions. - Primary fiscal balance remains positive region-wide, while the non-oil primary fiscal deficit remains elevated with strong disparities across countries. - Overall debt-to-GDP ratio decreased slightly in 2024, but the debt service to total fiscal revenue ratio has increased due to higher borrowing costs. - Payment incidents on the government securities market were recorded as some countries faced difficulties managing debt service peaks in 2024-2026. - Congo undertook a debt reprofiling operation in October 2024 to extend the maturity of its government securities. - PREF-CEMAC action matrix execution rate was 65 percent in October 2024 against 62 percent at end-2023. - UMAC Ministerial Council adopted the Guidelines for Economic Policies (GOPE) in October 2024 for 2025. - Implementation of an IT platform at BEAC to facilitate Treasury Single Accounts (TSAs) in pilot countries Cameroon and Gabon was delayed from end-2024 to the third quarter of 2025 due to technical difficulties. - Authorities expect growth to reach 3.2 percent in 2025, contrary to IMF staff projections, supported by good performance across sectors despite recessionary effects from fiscal consolidation. - Disinflation process expected to continue in 2025, but outlook subject to increased uncertainty from oil price volatility, persistence of inflationary pressures, climate change impacts, tightening global financial conditions, geopolitical tensions, food insecurity, and financial instability. - Regional security and socio-political risks remain high and could delay inflation returning below 3 percent in 2025 as projected by BEAC. - Regional authorities emphasize the need for effective implementation of Heads of State commitments, timely conclusion of ongoing Fund-supported program reviews, predictable disbursement of budget support from development partners, and fulfillment of funding pledges from the November 2023 donor roundtable in Paris. - Authorities stress strengthening public finances and debt management, accelerating structural reforms to boost growth potential by strengthening governance, improving the business climate, diversifying the economy, and fostering private sector development. ### Monetary policy and liquidity management - BEAC will continue a data-driven monetary policy and active liquidity management to preserve internal and external currency stability. - BEAC’s monetary policy committee kept policy rates unchanged in its September 2024 meeting, maintaining a restrictive monetary policy stance. - BEAC resumed weekly liquidity injections in June 2024 to mitigate increased volatility of liquidity conditions in the banking system. - BEAC suspended issuance of its short-term debt securities which had limited success in mopping up excess liquidity. - BEAC plans to maintain weekly refinancing operations to ease liquidity pressures and may consider full-allotment procedures at a fixed rate depending on market conditions and the macroeconomic situation. - BEAC will continue full and transparent implementation of foreign exchange regulations; progress was made on retrocession rate and processing times in 2024. - BEAC will strengthen cooperation to ensure compliance of public and extractive sectors with repatriation and return obligations for foreign currency. - Discussions on petroleum site restoration funds (RES funds) with the extractive sector continue; signing of agreements is expected by April 2025. - Regional import-substitution strategy operationalization is important to limit pressure on foreign exchange reserves from imports of goods produced within CEMAC. ### Banking supervision and regulation - BEAC and COBAC are addressing large human resources needs; a recruitment process at COBAC should bring substantial additional specialist staff by the end of 2025. - With additional resources, COBAC will intensify on-site inspection missions and accelerate resolution procedures for undercapitalized banks. - AML/CFT supervision and the regulatory framework will be strengthened, including gradual application of sanctions and requiring undercapitalized banks to submit credible recapitalization plans within a short timeframe, per existing regulations. - BEAC and COBAC will examine refinancing plans of structurally dependent banks and commit to tightening refinancing conditions. - The two institutions will closely monitor risks from banks’ sovereign exposure and take appropriate measures. - COBAC will ensure strict application of prudential concentration limits. - COBAC is examining a gradual elimination of the zero-risk weight for new issues of government securities backed by an escrow account arrangement; conclusions will be submitted to the UMAC Ministerial Committee. - Member countries’ support is needed to strengthen state-owned banks, implement comprehensive strategies for clearing domestic payment arrears, and avoid recurrence of new arrears that affect financial stability. - Regional supervisors (BEAC, COBAC, COSUMAF, GABAC) will monitor risks related to digital payments and assets; they will develop coherent regulatory frameworks for digital assets and a possible digital currency. - BEAC has requested technical support from the IMF regarding its digital currency project. ### Multilateral surveillance and program monitoring - CEMAC Commission will consult other regional institutions to finalize a revised draft of a new sanctions mechanism for breaches of multilateral surveillance rules, envisaged for adoption by competent bodies in 2025. - Regional institutions will continue implementing measures to support country reform programs, strengthen capacities and institutional and operational frameworks, and advance the regional strategy in line with Heads of State commitments and their mandates. - Regional institutions will continue to share economic and financial statistics with the IMF for close monitoring, including country-specific foreign exchange reserve data needed for IMF quota calculations. ### Policy assurances on Net Foreign Assets (NFA) and financial stability - Measures expected to contribute to consolidation of NFAs in 2025 include improved fiscal positions in some member countries, full repatriation of foreign deposits by public entities, concluding RES Funds discussions, and timely delivery of budget support under ongoing IMF-supported programs. - Under these conditions, the region is expected to record an accumulation of NFAs in the first half of 2025 to reach: - an average minimum reference value of €4.5 billion in the first quarter of 2025, and - €4.7 billion in the second quarter of 2025. - These amounts correspond to targets for end-March 2025 and end-June 2025; the March 2025 target is introduced on an exceptional basis to ensure progress after 2024 challenges. - BEAC and COBAC provide two financial stability assurances: - Reduce COBAC’s human resources deficit as quickly as possible by the end of 2025 to enable effective mission delivery. - COBAC will complete by December 2025, in consultation with the IMF and other partners, a framework document to prepare a modern banking bill aligning CEMAC conventions and regulations with international best practices. *Source: IMF — CEMAC: Recent Developments and Prospects (excerpts).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1caeea2025001-print-pdf.pdf_