## CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON COMMON POLICIES AND CHALLENGES OF MEMBER COUNTRIES

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### Economic outlook and risks
- Regional growth:
  - 2014: 4.7 percent (estimated).
  - 2015: 2.8 percent (projected).
- Oil sector and exposures:
  - Oil representing more than 81 percent of regional exports and 54 percent of fiscal revenues.
  - Oil prices fell by more than 40 percent since July 2014; oil prices (US dollars per barrel) in table: 2011: 104.0, 2012: 105.0, 2013: 104, 2014: 96, 2015: 59, 2016: 64.
  - Oil production projected to start falling after 2017.
- Security risks:
  - Surge of Boko Haram attacks in the Lake Chad region and continuing civil strife in the Central African Republic could curtail regional infrastructure investment and weaken the business climate.
- Medium-term prospects:
  - Oil prices projected to remain well below pre-shock levels in the medium term, shifting the burden of macroeconomic sustainability to non-oil revenue, prudent public spending, and competitiveness of the non-oil economy.

### Fiscal and external balances (selected figures)
- Fiscal balances:
  - Regional fiscal deficit (overall fiscal balance, excluding grants): 2014: -5.0 percent of regional GDP (estimated); projected 2015: -5.7 percent.
  - Primary basic fiscal balance: 2014: -1.2 percent; 2015: -0.8 percent.
  - Total revenue, excluding grants: 2014: 24.8 percent of GDP; 2015: 21.7 percent.
  - Government expenditure: 2014: 29.7 percent of GDP; 2015: 27.4 percent.
  - Non-oil overall fiscal balance (percent of non-oil GDP): 2014: -26.3; 2015: -19.0.
- External balances:
  - Current account, including grants: 2014: -3.8 percent of GDP (estimated); 2015: -5.8 percent (projected).
  - Exports of goods and nonfactor services: 2014: 50.5 percent of GDP; 2015: 45.4 percent.
  - Imports of goods and nonfactor services: 2014: 40.8 percent of GDP; 2015: 40.5 percent.
  - Balance on goods and nonfactor services: 2014: 9.8 percent of GDP; 2015: 4.9 percent.
  - Gross official reserves (end of period, millions of U.S. dollars): 2014: 17,162; 2015: 15,389; 2016: 15,146.
  - Months of imports of goods and services (less intra regional imports): 2014: 7.0; 2015: 5.8; 2016: 5.5.
  - External public debt: 2014: 17.5 percent of GDP; 2015: 22.0 percent of GDP.

### Monetary policy, reserves, and liquidity
- Inflation:
  - Consumer prices (period average): 2014: 2.7 percent; 2015: 2.6 percent.
  - Consumer prices (end of period): 2014: 2.6 percent; 2015: 2.5 percent.
- Monetary aggregates (annual changes in percent of beginning-of-period broad money):
  - Net foreign assets: 2014: -7.4; 2015: -1.8.
  - Net domestic assets: 2014: 17.0; 2015: 6.9.
  - Broad money: 2014: 9.6; 2015: 5.1.
- Reserve adequacy and governance:
  - Reserve adequacy described as "remains adequate," but Directors warned renewed external shocks or lack of policy response could deplete reserves below appropriate levels.
  - Directors stressed full compliance with pooling of foreign exchange earnings with the regional central bank (BEAC).
  - Staff advice: monitor reserve evolution closely; complete review of reserve management framework; formalize parameters for the optimum level of reserves; raise the remuneration scale of government deposits at the BEAC.
  - Authorities’ views: new agreement with the French Treasury increased remuneration of BEAC’s holdings and allowed BEAC to increase remuneration of government deposits; working on BEAC correspondent accounts in selected international financial institutions to hold government subaccounts.

### Financial sector stability and reforms — findings
- Sector characteristics:
  - Financial sector described as shallow; financial intermediation and inclusion limited.
  - The oil price shock revealed macro-financial linkages and pockets of vulnerabilities.
- FSAP stress test outcomes:
  - If 15 percent of performing loans became NPLs, only about one half of banks would meet the minimum capital adequacy ratio.
  - With a decline of 25 percent in deposits, banks (excluding those in CAR) meeting the minimum liquidity ratio would fall from 64 percent to 36 percent.
- Vulnerabilities and contagion risks:
  - Fall in oil prices led to decline in government revenues, drop in capital expenditure, potential increase in arrears—could erode non-oil growth and raise NPLs.
  - In absence of an effective interbank market, stressed institutions must turn to BEAC as last resort.
  - Potential contagion from subsidiaries to parent banks within regional banking groups.

### Regulatory and supervisory recommendations
- Implement 2015 FSAP recommendations:
  - Stricter enforcement of prudential norms.
  - Undertake an asset quality review of bank assets.
  - Introduce a new bank resolution mechanism.
  - Strengthen cross-border supervision and enforcement.
- Strengthen COBAC:
  - Increase human and financial resources for the regional bank regulator (COBAC) and support capacity-building assistance.
  - Operationalize recent regulations, urgently review framework for connected lending, implement risk-based supervision.
- Other actions:
  - Encourage financial sector development and inclusion.
  - Establish indicators to monitor oil-price impact on banks (e.g., pressures on BEAC’s foreign reserves, increase in NPLs).
  - Improve collateralization systems, develop credit databases, strengthen AML/CFT, promote mobile and internet banking.

### Regional institutions, surveillance, and integration
- Surveillance framework:
  - Authorities’ reform proposal may help manage oil revenue volatility but does not ensure long-term sustainability or provide a good anchor against fiscal pro-cyclicality.
  - Directors encouraged aiming for a budget rule that is simple and transparent and a lower public debt ceiling consistent with safeguarding sustainability.
  - Creation of a regional fiscal unit to monitor, evaluate, and coordinate national policies recommended.
  - Continued progress urged on CEMAC-wide public financial management directives.
- Regional integration and growth:
  - Greater regional integration cited as important to boost non-oil growth and accelerate poverty reduction.
  - Recommended measures: reduce non-trade barriers; harmonize customs procedures, taxes on goods and services, and technical standards; improve competitiveness and the business climate; enhance investor protections; strengthen regional institutions.
- Institutional challenges:
  - Regional institutions face political interference and capacity constraints; concerted national and regional efforts required.

### Country policy responses to the oil price shock (Box 1)
- General:
  - Most countries scaled back 2015 spending plans by reducing public investment and limiting current expenditure; some drew down deposits, used credit lines, or borrowed; all sought advances from the BEAC.
  - Result: regional public debt rising; BEAC temporarily froze programmed reduction in statutory advances.
- Selected country specifics (exact descriptions preserved):
  - Cameroon:
    - Revenue losses largely offset by contraction in fuel subsidies.
    - Authorities have not prepared a revised budget for 2015; continue to use a reference price of US$87 per barrel.
    - Fiscal deficit projected to stay around 10 percent of GDP.
  - Chad:
    - Undertaking a strong fiscal adjustment, expected to reduce expenditures by 9 percent of non-oil GDP in 2015–17.
    - 2015 budget foresees a 25 percent reduction in spending, halving the non-oil primary deficit in terms of non-oil GDP.
  - Congo:
    - Prepared a revised budget for 2015 assuming oil price of US$55 per barrel.
    - Staff expects reduction in domestically financed capital spending of 17 percent of non-oil GDP, compared to 2014.
  - Equatorial Guinea:
    - Prepared a revised budget for 2015; savings measures aim at cutting expenditure by 24 percentage points of non-oil GDP.
  - Gabon:
    - Prepared a revised budget for 2015 assuming oil price of US$45 per barrel; government issued a US$500 million eurobond.

### Medium-term outlook and required adjustment
- Key projections and required fiscal adjustment:
  - Oil prices projected to remain well below pre-shock levels in the medium term.
  - Oil production projected to start falling after 2017 because of depletion of reserves.
  - Magnitude of required adjustment: a reduction of 4.7 percentage points of non-oil GDP in the non-oil primary fiscal balance between 2015 and 2020.
- Risks:
  - Relapse in security in the Lake Chad region or in the CAR could curtail regional infrastructure investment and weaken private investment.

### A. Vulnerable external position — findings and staff advice
- Findings:
  - After a sharp deterioration in 2015, current account balance should recover and stabilize at a deficit of about 3 percent of regional GDP in the medium term.
  - International reserves projected to decline gradually to about 5 months of the following year’s imports and 52 percent of broad money.
  - Both nominal and real effective exchange rates depreciated in the 12 months to April 2015; in 2014 reserves were at 7 months of imports and 70 percent of broad money.
  - For 2015, projected reserves levels are 5.8 months of imports and 71 percent of broad money.
  - CEMAC benefits from a guarantee of the exchange rate peg by the French Treasury.
- Staff advice:
  - Monitor reserve evolution closely; resource-rich and credit-constrained countries with fixed exchange rates require higher reserves.
  - Decline in reserves makes pooling of foreign exchange earnings more pressing; lack of full compliance undermines cooperation.
  - Urged completion of reserve management framework review, formalize parameters for optimum reserves, raise remuneration scale of government deposits at BEAC.

### B. Reformed regional surveillance framework — findings and staff advice
- Findings:
  - Current surveillance framework is no longer fit for purpose: criterion on the basic fiscal balance promotes pro-cyclicality and exclusion of externally financed capital expenditure delinks the budget deficit from debt accumulation.
  - Country analyses point to general deterioration in debt sustainability.
  - CEMAC Commission preparing new surveillance framework; external consultant recommended a new budget rule and new computation methodologies for public debt ceiling and inflation.
- Staff advice:
  - Proposed budget rule based on a three-year average of the overall fiscal balance could help mitigate oil revenue volatility.
  - Staff supported possible reduction in the debt ceiling (staff analysis found regional public debt ceiling of 70 percent of GDP should be reduced to 50 percent).
  - Staff preference: budget rule based either on a primary non-oil budget balance or a structural primary balance best suited to CEMAC’s oil-exporting economy.
  - Implementation requires strengthened monitoring, consider creating a regional fiscal unit.

### C. An ineffective monetary policy — problems and staff advice
- Findings:
  - Monetary transmission mechanisms remain largely impaired; interbank market unable to allocate central bank liquidity; banking system shallow and segmented.
  - Excessive systemic liquidity and shallow sovereign bond markets hamper interest rate and credit transmission.
  - Banks hold large amounts of excess reserves due to lack of safe lending opportunities and absence of appropriate collaterals.
- Staff advice:
  - Resume collecting information on interbank operations; accelerate resolution of troubled banks; continue reforming monetary policy instruments with IMF technical assistance.
  - Strengthen human resources in monetary policy operations.
  - Enhance reliance on market-based mechanisms for financing government deficits and phase out statutory advances to promote sovereign bond markets.
  - Establish effective sterilization procedures to manage systemic liquidity.
- Authorities’ views:
  - BEAC broadly agreed with staff; noted difficult business climate and development needs as inputs in monetary policy formulation.

### D. Financial sector stability and development — findings and recommendations
- Findings:
  - Low oil prices and slow growth elevate credit risks and restrict banking sector liquidity.
  - End-2014 indicators do not show significant deterioration, but commodity price drop poses risks to credit quality and liquidity.
  - 2015 FSAP stress tests show large vulnerabilities if shocks materialize (see earlier FSAP stress test bullets).
- COBAC capacity and reform needs:
  - COBAC increased workforce and inspections; important regulations adopted though not fully operational.
  - Needs: upgrade prudential regulation, review connected lending, strengthen human resources, implement risk-based supervision, undertake asset quality review.
- Staff recommendations:
  - Accelerate resolution of troubled banks; strengthen supervision and enforcement; operationalize regulations; enhance COBAC capacity to address pan-African banking group challenges.

### Banking regulation, supervision, and financial inclusion
- Progress and gaps:
  - Some progress in adopting new banking regulations, but delays remain (e.g., connected lending, MFIs supervision).
  - COBAC staffing nearly doubled; further hiring and training needed.
- Financial inclusion and infrastructure:
  - Ratio of bank credit to regional GDP rose from 9 percent in 2004 to 15 percent in 2015.
  - Less than 15 percent of CEMAC’s adult population holds a bank account.
  - Number of bank branches almost doubled to 466 between 2008 and 2013.
  - Microfinance sector remains marginal in most countries.
- Staff advice on inclusion and infrastructure:
  - Improve collateralization systems; develop training for judges; implement region-wide credit databases; strengthen AML/CFT.
  - Strengthen supervision of MFIs; use indirect public support (partial credit guarantees, project co-financing) for under-served sectors.
  - Harmonize and unify regional stock exchanges; harmonize central securities depositories.
  - Promote mobile and internet banking, electronic signature, biometric identification; allow mobile money transfers between CEMAC countries.

### Institutional autonomy, governance, and safeguards
- Recommendations:
  - Greater operational autonomy and transparency for regional financial agencies (BEAC, COBAC).
  - Replace member states’ intervention in senior appointments with transparent and competitive recruitment procedures.
  - BEAC priority projects to finalize include reform of monetary policy and reserve management; establishment of credit information centers; promotion of electronic transfers; ensure COBAC can act decisively; enforce prudential regulations; implement risk-based supervision; evaluate assets of most vulnerable banks.
- Safeguards:
  - 2013 BEAC assessment: progress needed on governance and controls.
  - April 2015 safeguards visit: mixed progress; priority recommendations delayed; BEAC requested IMF technical assistance.
  - Progress on safeguards is a pre-condition for granting new IMF financial support and review of existing arrangements.

### Key medium-term indicators and projections (selected exact figures)
- Real GDP (annual percent change): 2013: 2.4, 2014: 4.7, 2015: 2.8, 2016: 4.7, 2017: 5.1, 2018: 4.1, 2019: 3.5, 2020: 3.6.
- Oil GDP (annual percent change): 2013: -8.0, 2014: 2.7, 2015: 0.5, 2016: 7.2, 2017: 9.9, 2018: 2.1, 2019: -4.7, 2020: -4.2.
- Non-oil GDP (annual percent change): 2013: 4.6, 2014: 4.7, 2015: 3.6, 2016: 4.3, 2017: 4.4, 2018: 4.5, 2019: 4.6, 2020: 4.7.
- Overall fiscal balance, excluding grants (percent of GDP): 2014: -5.0; 2015: -5.7; 2016: -3.7; 2017: -2.4.
- Current account, including grants (percent of GDP): 2014: -3.8; 2015: -5.8; 2016: -3.8; 2017: -1.9.
- Gross official reserves (end of period, Millions of U.S. dollars): 2014: 17,162; 2015: 15,389; 2016: 15,146.
- Months of imports of goods and services (less intra regional imports): 2014: 7.0; 2015: 5.8; 2016: 5.5.
- Total public debt (percent of GDP): 2014: 27.7; 2015: 33.2; 2016: 33.6.

### Staff appraisal — summary of risks and priorities
- Main risks:
  - Oil price shock adversely impacts short- and medium-term macroeconomic prospects; full effect expected in the current year.
  - Security threats and falling oil production reduce medium-term growth prospects.
  - Slow reform implementation and institutional capacity constraints could worsen fiscal and financial vulnerabilities.
- Priorities for policy action:
  - Fiscal consolidation focused on increasing non-oil revenues and prudent, growth-friendly public spending while safeguarding priority social spending.
  - Reform surveillance framework (consider lower public debt ceiling, simple transparent budget rule, regional fiscal unit).
  - Monetary policy reform to address excessive systemic liquidity and weak transmission channels; promote market-based instruments and sovereign debt market development.
  - Financial sector: implement FSAP recommendations, accelerate troubled bank resolution, strengthen COBAC, undertake asset quality reviews, and expand financial inclusion.
  - Strengthen BEAC governance, complete safeguards reforms, and improve quality of regional statistics.

*International Monetary Fund staff report on CEMAC common policies and challenges (July 1, 2015).*

### 5.7 percent in 2015. The current account deficit, meanwhile, is estimated to have

### CENTRAL AFRICAN ECONOMIC AND MONETARY COMMUNITY (CEMAC) — STAFF REPORT ON COMMON POLICIES AND CHALLENGES OF MEMBER COUNTRIES

### Economic outlook and risks
- Regional growth:
  - 2014: 4.7 percent (estimated).
  - 2015: 2.8 percent (projected).
- Oil sector and exposures:
  - Oil representing more than 81 percent of regional exports and 54 percent of fiscal revenues.
  - Oil prices fell by more than 40 percent since July 2014; oil prices (US dollars per barrel) in table: 2011: 104.0, 2012: 105.0, 2013: 104, 2014: 96, 2015: 59, 2016: 64.
  - Oil production projected to start falling after 2017.
- Security risks:
  - Surge of Boko Haram attacks in the Lake Chad region and continuing civil strife in the Central African Republic could curtail regional infrastructure investment and weaken the business climate.
- Medium-term prospects:
  - Oil prices projected to remain well below pre-shock levels in the medium term, shifting the burden of macroeconomic sustainability to non-oil revenue, prudent public spending, and competitiveness of the non-oil economy.

### Fiscal and external balances (selected figures preserved exactly)
- Fiscal balances:
  - Regional fiscal deficit (overall fiscal balance, excluding grants): 2014: -5.0 percent of regional GDP (estimated); projected 2015: -5.7 percent.
  - Primary basic fiscal balance: 2014: -1.2 percent; 2015: -0.8 percent (table).
  - Total revenue, excluding grants: 2014: 24.8 percent of GDP; 2015: 21.7 percent.
  - Government expenditure: 2014: 29.7 percent of GDP; 2015: 27.4 percent.
  - Non-oil overall fiscal balance (percent of non-oil GDP): 2014: -26.3; 2015: -19.0.
- External balances:
  - Current account, including grants: 2014: -3.8 percent of GDP (estimated); 2015: -5.8 percent (projected).
  - Exports of goods and nonfactor services: 2014: 50.5 percent of GDP; 2015: 45.4 percent.
  - Imports of goods and nonfactor services: 2014: 40.8 percent of GDP; 2015: 40.5 percent.
  - Balance on goods and nonfactor services: 2014: 9.8 percent of GDP; 2015: 4.9 percent.
  - Gross official reserves (end of period, millions of U.S. dollars): 2014: 17,162; 2015: 15,389; 2016: 15,146.
  - Months of imports of goods and services (less intra regional imports): 2014: 7.0; 2015: 5.8; 2016: 5.5.
  - External public debt: 2014: 17.5 percent of GDP; 2015: 22.0 percent of GDP.

### Monetary policy, reserves, and liquidity
- Inflation:
  - Consumer prices (period average): 2014: 2.7 percent; 2015: 2.6 percent.
  - Consumer prices (end of period): 2014: 2.6 percent; 2015: 2.5 percent.
- Monetary aggregates and liquidity (annual changes in percent of beginning-of-period broad money):
  - Net foreign assets: 2014: -7.4; 2015: -1.8.
  - Net domestic assets: 2014: 17.0; 2015: 6.9.
  - Broad money: 2014: 9.6; 2015: 5.1.
- Reserve adequacy:
  - Reserve adequacy described as "remains adequate," but Directors warned that renewed external shocks or lack of policy response could deplete reserves below appropriate levels.
  - Directors stressed full compliance with pooling of foreign exchange earnings with the regional central bank (BEAC).

### Financial sector stability and reforms
- Sector characteristics:
  - Financial sector described as shallow; financial intermediation and inclusion limited.
  - The oil price shock revealed macro-financial linkages and pockets of vulnerabilities.
- Regulatory and supervisory recommendations:
  - Implement 2015 FSAP recommendations: stricter enforcement of prudential norms; undertake an asset quality review of bank assets; introduce a new bank resolution mechanism; strengthen cross-border supervision and enforcement.
  - Encourage financial sector development and inclusion.
  - Increase human and financial resources for the regional bank regulator (COBAC) and support capacity-building assistance.
  - Directors called for stepped-up efforts to implement outstanding safeguards recommendations.

### Regional institutions, surveillance, and integration
- Surveillance framework:
  - Authorities’ reform proposal may help manage oil revenue volatility but does not ensure long-term sustainability or provide a good anchor against fiscal pro-cyclicality.
  - Directors encouraged aiming for a budget rule that is simple and transparent and a lower public debt ceiling consistent with safeguarding sustainability.
  - Creation of a regional fiscal unit to monitor, evaluate, and coordinate national policies recommended.
  - Continued progress urged on CEMAC-wide public financial management directives.
- Regional integration and growth:
  - Greater regional integration cited as important to boost non-oil growth and accelerate poverty reduction.
  - Recommended measures: reduce non-trade barriers; harmonize customs procedures, taxes on goods and services, and technical standards; improve competitiveness and the business climate; enhance investor protections; strengthen regional institutions.
- Institutional challenges:
  - Regional institutions face political interference and capacity constraints; concerted national and regional efforts required.

### Key policy recommendations (as stated)
- Fiscal policy:
  - Embark on fiscal consolidation focusing on increasing non-oil revenues.
  - Prioritize investment carefully to ensure growth-friendly adjustment and safeguard priority social spending.
- Monetary policy:
  - Accelerate reform of the monetary policy framework to address excessive systemic liquidity and mend weak transmission channels.
  - Transition toward a market-based monetary policy aided by development of local debt markets and a more active interbank market.
- Financial sector:
  - Implement FSAP recommendations and strengthen prudential regulation, supervision, resolution frameworks, and financial inclusion efforts.
- Regional governance:
  - Strengthen regional surveillance framework, regional fiscal coordination (including a regional fiscal unit), and compliance with pooling of foreign exchange earnings.

_International Monetary Fund staff report on CEMAC common policies and challenges (July 1, 2015)._

### 5.      CEMAC countries have reacted differently to the oil price shock. Most countries have

### 5. CEMAC countries have reacted differently to the oil price shock. Most countries have

### Heterogeneous fiscal responses and immediate outcomes
- Most countries scaled back their spending plans for 2015 by reducing public investment and limiting current expenditure.
- Fiscal restraint varied across countries; some countries drew down deposits, used existing credit lines, or borrowed.
- All countries sought advances from the BEAC.
- As a result, regional public debt is rising, possibly crowding out credit to the economy.
- BEAC temporarily froze the programmed reduction in statutory advances to maintain financial support to governments.

Box 1 — Country policy responses (exact descriptions preserved)
- Cameroon:
  - Revenue losses largely offset by an equivalent contraction in fuel subsidies.
  - Authorities have not prepared a revised budget for 2015; continue to use a reference price of US$87 per barrel.
  - Public expenditure levels expected to remain high.
  - Fiscal deficit projected to stay around 10 percent of GDP.
  - Financing needs expected to be met by exceptional efforts to increase oil production and non-concessional borrowing.
- Chad:
  - Undertaking a strong fiscal adjustment, expected to reduce expenditures by 9 percent of non-oil GDP in 2015–17.
  - 2015 budget foresees a 25 percent reduction in spending, particularly on public investment, halving the non-oil primary deficit in terms of non-oil GDP.
  - Budget relies on increased financing, particularly from the rescheduling of non-concessional loans.
- Congo:
  - Prepared a revised budget for 2015, which assumes an oil price of US$55 per barrel.
  - Staff expects a reduction in domestically financed capital spending of 17 percent of non-oil GDP, compared to 2014.
  - Medium-term commitment to fiscal consolidation, but pressures exist from the 2016 presidential elections and delayed investment projects.
- Equatorial Guinea:
  - Prepared a revised budget for 2015.
  - Revenue effort focused on rolling back ad hoc tax exemptions, modernizing the tax administration, and privatizing some state assets.
  - Savings measures aim at cutting expenditure by 24 percentage points of non-oil GDP by containing procurement spending, reducing fuel subsidies, rationalizing public sector enterprises, and halving capital spending.
- Gabon:
  - Prepared a revised budget for 2015, which assumes an oil price of US$45 per barrel.
  - Freezes public investment; cuts spending on goods and services; reschedules payment of government suppliers.
  - Government has recently issued a US$500 million eurobond.

### Medium-term outlook and required adjustment
- Oil prices projected to remain well below pre-shock levels in the medium term.
- Oil production projected to start falling after 2017 because of the depletion of reserves.
- Ensuring macroeconomic sustainability requires:
  - boosting non-oil revenue,
  - prudent public spending,
  - improving competitiveness of the non-oil economy.
- Fall in imports related to public investment programs will help improve current account balances.
- Magnitude of required adjustment: a reduction of 4.7 percentage points of non-oil GDP in the non-oil primary fiscal balance between 2015 and 2020.
- Maintaining this course will be a challenge.
- Risks: relapse in security in the Lake Chad region or in the CAR could curtail regional infrastructure investment and weaken the business climate and private investment.

### A. A Vulnerable External Position — findings and staff advice
Findings:
- After a sharp deterioration in 2015, the current account balance should recover and stabilize at a deficit of about 3 percent of regional GDP in the medium term.
- International reserves are projected to decline gradually to about 5 months of the following year’s imports and 52 percent of broad money.
- Both nominal and real effective exchange rates (REERs) depreciated in the 12 months to April 2015, reflecting mostly the evolution of the euro; significant differences exist at the country level.
- In 2014, CEMAC reserves were at 7 months of imports and 70 percent of broad money, slightly below the benchmark suggested in the IMF paper (about 8 months of imports).
- For 2015, projected reserves levels are 5.8 months of imports and 71 percent of broad money.
- CEMAC benefits from a guarantee of the exchange rate peg by the French Treasury, which should lower the need for precautionary reserves.

Staff advice:
- Monitor reserve evolution closely.
- Resource-rich and credit-constrained countries with limited access to international financial markets and a fixed exchange rate require higher reserves levels than traditional approaches suggest.
- Decline in reserves makes pooling of foreign exchange earnings more pressing; lack of full compliance with the surrender requirement undermines cooperation.
- Urged regional authorities to:
  - complete review of the reserve management framework urgently,
  - formalize parameters for the optimum level of reserves,
  - raise the remuneration scale of government deposits at the BEAC.

Authorities’ views:
- BEAC reported progress in reserves management and pooling compliance.
- New agreement signed with the French Treasury increased remuneration of BEAC’s holdings and allowed BEAC to increase remuneration of government deposits.
- Authorities working on a solution to pool reserves without full repatriation: creating BEAC correspondent accounts in selected international financial institutions holding CEMAC government subaccounts to allow governments to keep some foreign exchange earnings abroad. Staff considered this a viable compromise.

### B. Reformed regional surveillance framework — findings and staff advice
Findings:
- Current surveillance framework is no longer fit for purpose: criterion on the basic fiscal balance promotes pro-cyclicality and is not sufficiently binding in times of high oil revenues.
- Exclusion of externally financed capital expenditure delinks the budget deficit from debt accumulation.
- Country-specific analyses point to a general deterioration in debt sustainability.
- CEMAC Commission is preparing a new surveillance framework; an external consultant recommended:
  - (i) a new budget rule;
  - (ii) new computation methodologies for the public debt ceiling and inflation;
  - (iii) a range of additional secondary criteria.

Staff advice:
- Proposed budget rule based on a three-year average of the overall fiscal balance could help mitigate oil revenue volatility.
- Staff supported a possible reduction in the debt ceiling as alluded to by the consultant.
- Staff considered an additional criterion assessing debt development via the divergence between a long-term norm and actual debt levels would be difficult to implement.
- Past IMF recommendations remain valid:
  - staff’s proposal of a budget rule based either on a primary non-oil budget balance or a structural primary balance is best suited to CEMAC’s oil-exporting economy.
  - debt relief has made the current public debt ceiling criterion of 70 percent of GDP non binding amid rapidly rising debt and declining reserves; setting a lower ceiling with credible enforcement would safeguard against debt crisis risk.
- BEAC should monitor negotiations of international sovereign bond issues and warn against potentially abusive clauses not in line with international best practice.
- Implementation requires strengthened monitoring:
  - consider creating a regional fiscal unit to monitor, evaluate, and coordinate national fiscal policies.
  - continue implementing CEMAC’s public financial management directives for harmonization and fiscal cooperation.

Authorities’ views:
- CEMAC Commission to take staff recommendations under advisement; revision of the surveillance framework is a work in progress.
- Intends to prepare a final proposal based on wide consultation for the Zone Franc ministerial meeting in October 2015.
- Commission noted staff recommendation to create a regional fiscal unit.

### C. An ineffective monetary policy — problems and staff advice
Findings:
- Monetary transmission mechanisms remain largely impaired.
- Interbank market unable to allocate central bank liquidity; banking system is shallow and segmented and does not finance economic activity sufficiently.
- Persistence of excessive systemic liquidity and insufficiently deep money and sovereign bond markets hamper interest rate and credit transmission channels.
- Banks hold large amounts of excess reserves due to lack of:
  - safe lending opportunities;
  - trust among interbank market participants due to weak institutions and absence of appropriate collaterals;
  - an appropriate sterilization policy (e.g., effective domestic sovereign bond market).
- Excess liquidity has not affected price stability so far but constrains reliance on market-based monetary policy.
- Recent initiatives: approval of a repo regulation; establishment of regional market of certificates of deposits and commercial papers.

Staff advice:
- Welcome BEAC’s analytical work and initiatives to revitalize regional money markets.
- Urged BEAC to:
  - resume collecting information on interbank operations;
  - accelerate resolution of troubled banks in collaboration with national authorities to boost the interbank market;
  - continue reforming monetary policy instruments and accelerate reforms with IMF technical assistance;
  - strengthen human resources in monetary policy operations.
- Enhance monetary policy effectiveness through stronger reliance on market-based mechanisms for financing government deficits.
- BEAC should continue phasing out statutory advances to promote development of sovereign bond markets.
- Rapid completion of supporting measures (e.g., automation of sovereign bond settlement) necessary for repo market development.
- Establish effective sterilization procedures to manage systemic liquidity.

Authorities’ views:
- BEAC broadly agreed with staff on transmission mechanism issues.
- Pointed to difficult business climate as an added difficulty for monetary policy.
- Noted that large development needs and desire to become emerging economies are important inputs in monetary policy formulation beyond price stability.

### D. Financial sector stability and development — findings and recommendations
Financial stability findings:
- Low oil prices and slow growth elevate macro-financial linkages, increasing credit risks and restricting banking sector liquidity.
- Fall in oil prices led to decline in government revenues, significant drop in capital expenditure, potential increase in arrears—could erode non-oil growth and raise NPLs.
- Enterprises tied to public contracts or receiving public support could face liquidity constraints and deposit reductions.
- End-2014 financial stability indicators do not show significant deterioration, but commodity price drop poses risk to credit quality and liquidity.
- 2015 FSAP stress tests:
  - If 15 percent of performing loans became NPLs, only about one half of banks would meet the minimum capital adequacy ratio.
  - Banks with main business in the CEMAC would be most exposed.
  - With a decline of 25 percent in deposits, banks (excluding those in CAR) meeting the minimum liquidity ratio would fall from 64 percent to 36 percent.
- In absence of an effective interbank market, stressed institutions must turn to BEAC as last resort.
- Potential contagion from subsidiaries to parent banks within regional banking groups.

Other findings and supervisory issues:
- 2015 FSAP identified pockets of vulnerability; some smaller banks are exposed to the oil shock fallout.
- BEAC raised banks' refinancing ceilings for some countries to counter individual liquidity problems amid an overly liquid banking system.
- Emergence of pan-African bank groups poses new challenges to regional supervisor COBAC.

COBAC capacity and reform needs:
- COBAC increased workforce and multiplied on-site inspections; important regulations adopted though not fully operational.
- COBAC still needs to:
  - continue upgrading prudential regulation, urgently review framework for connected lending;
  - strengthen human resources;
  - implement risk-based supervision;
  - undertake an asset quality review of banking assets, starting with the most vulnerable banks;
  - clarify criteria for assessing scope of the special restructuring framework for systemically important banks.

Staff advice (implied in context):
- Accelerate resolution of troubled banks and strengthen supervision and enforcement.
- Operationalize recent regulations and enhance COBAC capacity to address pan-African banking group challenges and systemic risks.

*International Monetary Fund staff report excerpt.*

### 26.      Staff noted some progress made in adopting new banking regulations, but additional

### 26.      Staff noted some progress made in adopting new banking regulations, but additional

### Banking regulation and supervision — findings
- Staff noted some progress in adopting new banking regulations, but additional efforts are needed to mitigate risks to financial stability.
- Delays remain in important regulations, including strengthening the prudential framework of lending to connected parties and the supervision framework of microfinance institutions (MFIs).
- Staff regretted forbearance with ailing banks and expressed concern that CEMAC’s internal process for publishing new regulations is cumbersome, delaying implementation by years.
- COBAC staffing nearly doubled; staffing problems are being addressed but additional hiring (e.g., statistics) and training are needed.
- Authorities are preparing a new text on the definition of banks’ equity based on Basel III and developing additional regulations on:
  - (i) systemic institutions;
  - (ii) MFIs’ internal control;
  - (iii) MFIs’ minimal capital requirements;
  - (iv) consumer protection;
  - (v) connected lending.
- COBAC has commenced training its agents on risk-based and consolidated inspection; COBAC staff noted that the new bank resolution mechanism will give them greater authority in dealing with problem banks.

### Financial sector development — key statistics and findings
- Ratio of bank credit to regional GDP rose from 9 percent in 2004 to 15 percent in 2015.
- Less than 15 percent of CEMAC’s adult population holds a bank account—about half of SSA’s average.
- Number of bank branches almost doubled to 466 between 2008 and 2013.
- The microfinance sector remains a marginal player in most countries.

### Staff advice — regulatory, inclusion, infrastructure, and technology actions
- Create an environment conducive to confidence among market participants as a precondition for financial sector development.
- Identify indicators to monitor the impact of oil prices on banks’ balance sheets (e.g., pressures on BEAC’s foreign reserves or an increase in NPLs) to form a nascent framework for monitoring systemic risks.
- BEAC’s immediate priority: encourage deepening of financial intermediation through rigorous application of micro-prudential regulations and expediting resolution of troubled banks before evolving to a macro-prudential surveillance framework.
- Actions needed (as detailed in the 2015 FSAP):
  - Business environment:
    - Improve system for collateralization of loans.
    - Develop training and specialization of judges.
    - Implement region-wide credit databases.
    - Strengthen fight against money laundering and the financing of terrorism.
  - Financial inclusion:
    - Strengthen supervision of MFIs to enable full provision of financial services.
    - Use indirect public support mechanisms (e.g., partial credit guarantees, project co-financing) to finance under-served economic sectors.
    - Implement recommendations from the March 2015 ECCAS financial inclusion conference.
  - Regional financial infrastructure:
    - Harmonize and unify the two regional stock exchanges (noting delays).
    - Harmonize technologically and regulatorily CEMAC’s three central securities depositories.
  - New technologies:
    - BEAC should promote mobile and internet banking, electronic signature, and biometric identification.
    - BEAC could allow mobile money transfers between CEMAC countries to facilitate trade.

### Operational autonomy and governance recommendations
- Effectiveness of regional financial agencies requires greater operational autonomy.
- Articulate roles of regional and national monetary authorities more effectively.
- Increased centralization should be accompanied by increased transparency and accountability in CEMAC decision-making bodies.
- Monetary authorities should support return of presidency of BEAC’s Board to its governor.
- Replace member states’ intervention in selection and appointment of BEAC’s and COBAC’s senior management with transparent and competitive recruitment procedures.

### BEAC priority projects to finalize
- (i) reform of monetary policy and the management of foreign exchange reserves;
- (ii) establishment of efficient financial and credit information centers;
- (iii) implementation of an action plan to promote electronic transfers;
- (iv) assurance that COBAC can act decisively in case of serious deterioration in solvency of a financial institution;
- (v) enforcement of prudential regulations;
- (vi) implementation of a risk-based supervision, including with respect to AML/CFT;
- (vii) evaluation of the quality of the assets of the most vulnerable banks.

### Regional integration — findings and staff advice
- The oil price shock should prompt CEMAC countries to find alternative sources of growth and income.
- Most CEMAC countries have not experienced a significant increase in per capita GDP in recent years and likely saw an increase in inequality.
- Business climate challenges undermine private investment and total factor productivity growth; obstacles include lack of harmonization of taxes on goods and services, cumbersome customs procedures, different technical standards, and varying national lists of duty-free merchandise.
- Staff urged urgent progress on regional integration to boost growth and productivity, coordinate and prioritize regional investments, and continue efforts to ensure free movement of goods and people.
- Staff urged the Commission to work closely with national authorities and prioritize removal of barriers to trade (e.g., customs procedures, implementation of rules of origin) and lowering the common external tariff.

### Institutional capacity, statistics, and safeguards
- BEAC modernization progress has been slow; BEAC lacks sufficient institutional autonomy, affecting decisions such as human resources.
- CEMAC Commission faces tight personnel and financial constraints, long delays in receiving dues from member states, and past lack of permanent headquarters.
- Quality of statistics needs improvement: balance of payments statistics and validation of national accounts constrained by lack of staff; lack of harmonized methodologies across member states for CPI and national accounts.
- Staff encouraged the Commission to engage national authorities to promote regional integration, coordinate infrastructure plans, and explore additional funding sources including increasing resources of BDEAC.
- Staff welcomed efforts to build capacity at BEAC, COBAC, and the CEMAC Commission and urged member states to accelerate payment of dues.
- 2015 safeguards monitoring visit: BEAC committed to completing its reform plan but progress on safeguards measures has been mixed; implementation of recommendations is reviewed annually and is a pre-condition for granting new IMF financial support and reviewing existing IMF financial arrangements with CEMAC countries.
- BEAC is developing a database of regional economic and financial data to be completed by end-2015; national and regional coordination challenges persist.

### Staff appraisal — summary of risks and priorities
- The oil price shock adversely impacts CEMAC’s short- and medium-term macroeconomic prospects and entails significant downside risks; full effect expected in the current year.
- Planned scaling down of public investment and falling oil production reduce medium-term growth prospects below past decade’s levels.
- With the CFA franc pegged to the euro, countries must rely heavily on fiscal consolidation to ensure macroeconomic stability; BEAC should convey this to member governments.
- Real exchange rate is broadly consistent with the current account norm, but external competitiveness issues remain.
- External reserves remain broadly adequate for the time being; downside risks could bring them below optimal levels.
- BEAC should tackle lack of full compliance with reserves pooling requirement.
- Surveillance framework reform is needed; draft reform proposal is a positive step but envisaged new criteria fall short of IMF recommendations (does not fully address exhaustibility of resources and proposes monitoring mechanisms staff views as difficult to implement).
- Monetary policy remains largely ineffective because of weak transmission channels and excessive systemic liquidity; BEAC has made progress in revitalizing interbank and public debt markets and modernizing instruments, but supporting measures for repo market development are needed.
- Establish conditions for deepening financial intermediation through rigorous micro-prudential regulation and acceleration of troubled bank resolution; develop sound financial market infrastructure and support new technologies (e.g., mobile banking).
- 2015 is critical for BEAC to implement outstanding safeguards recommendations; successful completion of reform plan important to restore credibility and safeguard IMF resources.
- Reform of regional institutions should be accelerated to support CEMAC stability and growth potential; reforms to allow BEAC greater independence are critical.
- Quality of regional statistics must improve; national accounts and balance of payments data affected by lack of coordination and insufficient human resources.

*Source: _cr15222 - 26.      Staff noted some progress made in adopting new banking regulations, but additional*

### 56.      The discussions with the CEMAC authorities will be on a 12-month cycle in accordance

### _cr15222 - 56.      The discussions with the CEMAC authorities will be on a 12-month cycle in accordance

### Institutional arrangement
- Discussions with the CEMAC authorities will be on a 12-month cycle in accordance with Decision No.13654-(06/1), adopted on January 6, 2006.

### Selected economic and financial indicators (CEMAC, 2013–20)
- Real GDP (annual percent change): 2.4 (2013), 4.7 (2014), 2.8 (2015), 4.7 (2016), 5.1 (2017), 4.1 (2018), 3.5 (2019), 3.6 (2020).
- Oil GDP (annual percent change): -8.0 (2013), 2.7 (2014), 0.5 (2015), 7.2 (2016), 9.9 (2017), 2.1 (2018), -4.7 (2019), -4.2 (2020).
- Non-oil GDP (annual percent change): 4.6 (2013), 4.7 (2014), 3.6 (2015), 4.3 (2016), 4.4 (2017), 4.5 (2018), 4.6 (2019), 4.7 (2020).
- Consumer prices (period average): 2.1 (2013), 2.7 (2014), 2.6 (2015), 2.4 (2016), 2.5 (2017), 2.5 (2018), 2.5 (2019), 2.5 (2020).
- Net foreign assets (percent of beginning-of-period broad money): -0.4 (2013), -7.4 (2014), -1.8 (2015), -1.4 (2016), 2.5 (2017), 5.6 (2018), 1.5 (2019), -0.3 (2020).
- Net domestic assets (percent of beginning-of-period broad money): 9.0 (2013), 17.0 (2014), 6.9 (2015), 5.7 (2016), 4.4 (2017), -1.2 (2018), 5.7 (2019), 7.0 (2020).
- Broad money (annual percent change): 9.3 (2013), 9.6 (2014), 5.1 (2015), 4.2 (2016), 6.9 (2017), 4.4 (2018), 7.2 (2019), 6.7 (2020).
- Gross national savings (percent of GDP): 25.1 (2013), 24.4 (2014), 21.7 (2015), 22.2 (2016), 22.7 (2017), 22.8 (2018), 21.8 (2019), 21.7 (2020).
- Gross domestic investment (percent of GDP): 30.6 (2013), 31.3 (2014), 31.2 (2015), 29.2 (2016), 27.1 (2017), 26.4 (2018), 26.1 (2019), 26.2 (2020).
  - Public investment (percent of GDP): 14.5 (2013), 13.2 (2014), 11.9 (2015), 10.4 (2016), 9.5 (2017), 9.1 (2018), 9.3 (2019), 8.9 (2020).
- Total revenue, excluding grants (percent of GDP): 26.8 (2013), 24.8 (2014), 21.7 (2015), 22.4 (2016), 22.5 (2017), 23.4 (2018), 23.2 (2019), 22.8 (2020).
- Government expenditure (percent of GDP): 30.3 (2013), 29.7 (2014), 27.4 (2015), 26.1 (2016), 24.8 (2017), 24.6 (2018), 24.9 (2019), 24.7 (2020).
- Primary fiscal basic balance (excluding grants and foreign-financed investment and interest payments): 0.3 (2013), -1.2 (2014), -0.8 (2015), 1.3 (2016), 1.9 (2017), 2.6 (2018), 2.1 (2019), 1.9 (2020).
- Basic fiscal balance (excluding grants and foreign-financed investment): -0.3 (2013), -1.8 (2014), -1.7 (2015), 0.4 (2016), 0.9 (2017), 1.6 (2018), 1.0 (2019), 0.8 (2020).
- Overall fiscal balance, excluding grants (percent of GDP): -3.5 (2013), -5.0 (2014), -5.7 (2015), -3.7 (2016), -2.4 (2017), -1.2 (2018), -1.8 (2019), -1.9 (2020).
- Primary fiscal balance (percent of GDP): -2.3 (2013), -3.6 (2014), -3.9 (2015), -2.0 (2016), -0.8 (2017), 0.3 (2018), -0.2 (2019), -0.3 (2020).
- Non-oil overall fiscal balance, excluding grants (percent of non-oil GDP): -29.1 (2013), -26.3 (2014), -19.0 (2015), -17.8 (2016), -16.7 (2017), -15.8 (2018), -15.4 (2019), -14.2 (2020).
- Non-oil primary fiscal balance, including grants (percent of non-oil GDP): -27.3 (2013), -24.3 (2014), -16.8 (2015), -15.6 (2016), -14.6 (2017), -13.8 (2018), -13.4 (2019), -12.1 (2020).
- Total public debt (percent of GDP): 23.1 (2013), 27.7 (2014), 33.2 (2015), 33.6 (2016), 32.9 (2017), 33.1 (2018), 33.3 (2019), 33.3 (2020).
- Exports of goods and nonfactor services (percent of GDP): 53.8 (2013), 50.5 (2014), 45.4 (2015), 47.3 (2016), 47.3 (2017), 46.3 (2018), 44.1 (2019), 41.5 (2020).
- Imports of goods and nonfactor services (percent of GDP): 40.4 (2013), 40.8 (2014), 40.5 (2015), 39.7 (2016), 37.8 (2017), 37.0 (2018), 36.2 (2019), 34.7 (2020).
- Current account, including grants (percent of GDP): -1.6 (2013), -3.8 (2014), -5.8 (2015), -3.8 (2016), -1.9 (2017), -1.4 (2018), -2.5 (2019), -2.8 (2020).
- External public debt (percent of GDP): 15.4 (2013), 17.5 (2014), 22.0 (2015), 22.0 (2016), 21.6 (2017), 21.5 (2018), 21.3 (2019), 20.9 (2020).
- Gross official reserves (end of period, Millions of U.S. dollars): 18,222 (2013), 17,162 (2014), 15,389 (2015), 15,146 (2016), 15,097 (2017), 16,034 (2018), 15,879 (2019), 15,805 (2020).
- Months of imports of goods and services (less intra regional imports): 5.8 (2013), 7.0 (2014), 5.8 (2015), 5.5 (2016), 5.2 (2017), 5.3 (2018), 5.2 (2019), 5.2 (2020).
- Percent of broad money (reserves): 81.6 (2013), 70.2 (2014), 71.2 (2015), 66.9 (2016), 61.6 (2017), 62.0 (2018), 56.6 (2019), 52.0 (2020).
- Nominal GDP (billions of CFA francs): 45,576 (2013), 46,717 (2014), 44,294 (2015), 48,044 (2016), 52,496 (2017), 55,381 (2018), 57,905 (2019), 60,325 (2020).
- Oil production (thousands of barrels per day): 893 (2013), 915 (2014), 924 (2015), 981 (2016), 1,066 (2017), 1,081 (2018), 1,028 (2019), 988 (2020).
- Oil prices (US dollars per barrel): 104 (2013), 96 (2014), 96 (2015), 46 (2016), 77 (2017), 71 (2018), 71 (2019), 71 (2020).

### Millennium Development Goals (selected indicators, 1990–2013)
- Employment to population ratio, 15+, total (%): 64 (CEMAC), 63 (SSA).
- Employment to population ratio, ages 15-24, total (%): 50 (CEMAC), 49 (SSA).
- GDP per person employed (constant 1990 PPP $): 2,479 (CEMAC), 2,880 (SSA), 4,040 (other listing).
- Malnutrition prevalence, weight for age (% of children under 5): 18 (CEMAC), ...7 (SSA listing), 14 (other listing).
- Persistence to last grade of primary, total (% of cohort): 40 (CEMAC), 56 (SSA), 57 (other listing).
- Primary completion rate, total (% of relevant age group): 41 (CEMAC), 54 (SSA), 56 (other listing), 68 (other listing).
- Immunization, measles (% of children ages 12–23 months): 56 (CEMAC), 57 (SSA), 68 (other listing), 74 (other listing).
- Mortality rate, infant (per 1,000 live births): 93 (CEMAC), 108 (SSA), 69 (other listing), 61 (other listing).
- Mortality rate, under-5 (per 1,000): 155 (CEMAC), 180 (SSA), 108 (other listing), 92 (other listing).
- Adolescent fertility rate (births per 1,000 women ages 15–19): 163 (CEMAC), 136 (SSA), 118 (other), 99 (other).
- Births attended by skilled health staff (% of total): 58 (CEMAC), ...9 (SSA listing), 16 (other), 9 (other), 69 (other).
- Contraceptive prevalence (% of women ages 15–49): 16 (CEMAC), 16 (SSA), 38 (other), 21 (other).
- Maternal mortality ratio (modeled estimate, per 100,000 live births): 1045 (CEMAC), 995 (SSA), 605 (other), 655 (other), 10 (other).
- Improved sanitation facilities (% of population with access): 21 (CEMAC), 24 (SSA), 27 (other), 34 (other).
- Improved water source (% of population with access): 50 (CEMAC), 48 (SSA), 72 (other), 73 (other).
- Net ODA received per capita (current US$): 9 (CEMAC), 4 (SSA), 3 (other), 5 (other), 5 (other), 1 (other).
- Mobile cellular subscriptions (per 100 people): 0 (CEMAC), 8 (SSA), 76 (other), 6 (other).
- GNI per capita, Atlas method (current US dollars): 849 (CEMAC), 600 (SSA), 1795 (other), 1670 (other).
- Life expectancy at birth, total (years): 52 (CEMAC), 50 (SSA), 55 (other), 58 (other).

### National accounts by country (real GDP, 2013–20)
- Cameroon real GDP (annual percent change): 5.6 (2013), 5.1 (2014), 4.9 (2015), 4.8 (2016), 4.9 (2017), 5.0 (2018), 5.0 (2019), 5.0 (2020).
- Central African Republic real GDP: -36.0 (2013), 1.0 (2014), 5.7 (2015), 7.3 (2016), 7.3 (2017), 7.6 (2018), 5.5 (2019), 5.5 (2020).
- Chad real GDP: 5.7 (2013), 6.9 (2014), 7.6 (2015), 4.9 (2016), 8.3 (2017), 5.0 (2018), 5.1 (2019), 2.9 (2020).
- Congo, Republic of real GDP: 3.3 (2013), 6.8 (2014), 1.0 (2015), 6.5 (2016), 7.0 (2017), 3.4 (2018), -1.6 (2019), 0.3 (2020).
- Equatorial Guinea real GDP: -6.5 (2013), -0.3 (2014), -9.4 (2015), -0.3 (2016), -3.3 (2017), -2.6 (2018), -2.3 (2019), -1.9 (2020).
- Gabon real GDP: 5.6 (2013), 4.3 (2014), 4.4 (2015), 5.5 (2016), 5.6 (2017), 5.7 (2018), 5.7 (2019), 5.9 (2020).
- CEMAC aggregate real GDP: 2.4 (2013), 4.7 (2014), 2.8 (2015), 4.7 (2016), 5.1 (2017), 4.1 (2018), 3.5 (2019), 3.6 (2020).

### External sector (balance of payments, 2013–20; CFAF billions)
- Balance on current account: -740 (2013), -1,765 (2014), -2,549 (2015), -1,816 (2016), -973 (2017), -754 (2018), -1,419 (2019), -1,667 (2020).
- Balance on goods and services: 6,097 (2013), 4,557 (2014), 2,177 (2015), 3,681 (2016), 5,055 (2017), 5,155 (2018), 4,545 (2019), 4,117 (2020).
- Total exports: 24,505 (2013), 23,612 (2014), 20,111 (2015), 22,735 (2016), 24,898 (2017), 25,641 (2018), 25,528 (2019), 25,030 (2020).
  - Oil exports: 18,580 (2013), 17,476 (2014), 13,308 (2015), 15,358 (2016), 16,936 (2017), 17,193 (2018), 16,551 (2019), 15,616 (2020).
  - Non-oil exports: 4,056 (2013), 4,236 (2014), 4,819 (2015), 5,205 (2016), 5,623 (2017), 5,964 (2018), 6,369 (2019), 6,661 (2020).
- Total imports: 18,408 (2013), 19,054 (2014), 17,933 (2015), 19,054 (2016), 19,842 (2017), 20,487 (2018), 20,983 (2019), 20,913 (2020).
- Income, net: -6,879 (2013), -6,709 (2014), -4,846 (2015), -5,594 (2016), -6,115 (2017), -6,041 (2018), -6,099 (2019), -5,940 (2020).
  - Income credits: 186 (2013), 191 (2014), 236 (2015), 231 (2016), 235 (2017), 242 (2018), 252 (2019), 264 (2020).
  - Income debits: -7,066 (2013), -6,899 (2014), -5,082 (2015), -5,826 (2016), -6,349 (2017), -6,283 (2018), -6,351 (2019), -6,204 (2020).
  - Investment income, debit: -1,381 (2013), -2,362 (2014), -1,078 (2015), -1,659 (2016), -2,239 (2017), -2,347 (2018), -2,294 (2019), -2,222 (2020).
  - Interest paid on public debt: -73 (2013), -92 (2014), -126 (2015), -153 (2016), -189 (2017), -206 (2018), -226 (2019), -237 (2020).
- Current transfers, net: 433 (2013), 861 (2014), 199 (2015), 887 (2016), 132 (2017), 136 (2018), 155 (2019).
- Balance on capital and financial accounts: 1,274 (2013), 1,765 (2014), 2,549 (2015), 1,816 (2016), 972 (2017), 754 (2018), 1,419 (2019), 1,667 (2020).
  - Direct investment, net: 2,717 (2013), 2,713 (2014), 2,363 (2015), 2,919 (2016), 2,510 (2017), 2,427 (2018), 2,237 (2019), 2,131 (2020).
  - Other investment, net: -1,261 (2013), -1,659 (2014), -1,162 (2015), -1,515 (2016), -1,806 (2017), -1,394 (2018), -1,176 (2019), -790 (2020).
  - Reserve assets (accumulation -): -341 (2013), 524 (2014), 1,043 (2015), 142 (2016), 28 (2017), -536 (2018), 874 (2019), 1 (2020).
- Memorandum: Gross official reserves (end of period, Millions U.S. dollars): 18,222 (2013), 17,162 (2014), 15,389 (2015), 15,146 (2016), 15,097 (2017), 16,034 (2018), 15,879 (2019), 15,805 (2020).

### Fiscal balances and non-oil fiscal balances (2013–20)
- CEMAC overall fiscal balance (excluding grants, percent of GDP): -3.5 (2013), -5.0 (2014), -5.7 (2015), -3.7 (2016), -2.4 (2017), -1.2 (2018), -1.8 (2019), -1.9 (2020).
- CEMAC overall fiscal balance (including grants, percent of GDP): -3.0 (2013), -4.3 (2014), -4.8 (2015), -3.0 (2016), -1.8 (2017), -0.7 (2018), -1.2 (2019), -1.4 (2020).
- CEMAC basic balance (overall budget balance excluding grants and foreign-financed investment, percent of GDP): -0.3 (2013), -1.8 (2014), -1.7 (2015), 0.4 (2016), 0.9 (2017), 1.6 (2018), 1.0 (2019), 0.8 (2020).
- CEMAC primary fiscal balance (including grants, percent of GDP): -2.3 (2013), -3.6 (2014), -3.9 (2015), -2.0 (2016), -0.8 (2017), 0.3 (2018), -0.2 (2019), -0.3 (2020).
- Memo item: Non-oil revenue (CEMAC): 10.6 (2013), 11.2 (2014), 12.4 (2015), 12.3 (2016), 12.1 (2017), 12.4 (2018), 12.8 (2019), 13.3 (2020).

### Compliance with convergence criteria (2013–20)
- Number of countries violating basic fiscal balance (≥ 0): 4 (2013), 5 (2014), 5 (2015), 3 (2016), 3 (2017), 3 (2018), 3 (2019), 2 (2020).
- Number of countries violating consumer price inflation (≤ 3%): 3 (2013), 3 (2014), 2 (2015), 1 (2016), 1 (2017), 0 (2018), 0 (2019), 0 (2020).
- Number of countries violating level of public debt (≤ 70% GDP): 0 (2013) through 0 (2020) across all years reported.
- Number of countries violating non-accumulation of government arrears (≤ 0): 0 (2013) through 0 (2020) across all years reported.

### Monetary sector (Monetary survey, 2013–20; CFAF billions and percent changes)
- Net foreign assets (CFAF billions): 8,788 (2013), 7,975 (2014), 7,758 (2015), 7,575 (2016), 7,908 (2017), 8,696 (2018), 8,920 (2019), 8,879 (2020).
  - BEAC holdings of reserves (of net foreign assets): 8,123 (2013), 7,720 (2014), 7,060 (2015), 6,893 (2016), 7,196 (2017), 7,914 (2018), 8,117 (2019), 8,080 (2020).
- Net domestic assets (CFAF billions): 2,240 (2013), 4,113 (2014), 4,948 (2015), 5,671 (2016), 6,249 (2017), 6,084 (2018), 6,926 (2019), 8,032 (2020).
- Net credit to private sector (CFAF billions): 5,635 (2013), 6,061 (2014), 4,937 (2015), 5,725 (2016), 6,647 (2017), 7,184 (2018), 8,427 (2019), 9,157 (2020).
- Broad money (CFAF billions): 11,028 (2013), 12,087 (2014), 12,706 (2015), 13,245 (2016), 14,156 (2017), 14,780 (2018), 15,846 (2019), 16,911 (2020).
- Currency outside banks (CFAF billions): 2,998 (2013), 3,098 (2014), 3,180 (2015), 3,454 (2016), 3,686 (2017), 3,935 (2018), 4,299 (2019), 4,646 (2020).
- Bank deposits (CFAF billions): 8,030 (2013), 8,989 (2014), 9,526 (2015), 9,791 (2016), 10,470 (2017), 10,845 (2018), 11,547 (2019), 12,265 (2020).
- Velocity (GDP/broad money): 4.1 (2013), 3.9 (2014), 3.5 (2015), 3.6 (2016), 3.7 (2017), 3.7 (2018), 3.7 (2019), 3.6 (2020).

### Summary medium-term projections (2013–20, selected)
- Real GDP: 2.4 (2013), 4.7 (2014), 2.8 (2015), 4.7 (2016), 5.1 (2017), 4.1 (2018), 3.5 (2019), 3.6 (2020).
  - Oil: -8.0 (2013), 2.7 (2014), 0.5 (2015), 7.2 (2016), 9.9 (2017), 2.1 (2018), -4.7 (2019), -4.2 (2020).
  - Non-oil: 4.6 (2013), 4.7 (2014), 3.6 (2015), 4.3 (2016), 4.4 (2017), 4.5 (2018), 4.6 (2019), 4.7 (2020).
- Nominal GDP (annual percent change): -0.7 (2013), 2.5 (2014), -5.2 (2015), 8.5 (2016), 9.3 (2017), 5.5 (2018), 4.6 (2019), 4.2 (2020).
- Exports, f.o.b (annual percent change): -4.8 (2013), -3.7 (2014), -28.4 (2015), 13.6 (2016), 10.8 (2017), 4.2 (2018), 0.7 (2019), -0.4 (2020).
- Imports, c.i.f. (annual percent change): -1.6 (2013), 3.4 (2014), -20.9 (2015), 6.8 (2016), 5.4 (2017), 4.4 (2018), 3.6 (2019), 1.2 (2020).
- Central government overall balance, including grants (percent of GDP): -3.0 (2013), -4.3 (2014), -4.8 (2015), -3.0 (2016), -1.8 (2017), -0.7 (2018), -1.2 (2019), -1.4 (2020).
- Central government overall balance, excluding grants (percent of GDP): -5.2 (2013), -6.9 (2014), -7.1 (2015), -4.7 (2016), -3.1 (2017), -1.6 (2018), -2.3 (2019), -2.4 (2020).
- Non-oil overall balance, including grants (percent of non-oil GDP): -28.3 (2013), -25.2 (2014), -17.9 (2015), -16.8 (2016), -15.9 (2017), -15.1 (2018), -14.7 (2019), -13.5 (2020).
- Non-oil primary balance, including grants (percent of non-oil GDP): -27.3 (2013), -24.3 (2014), -16.8 (2015), -15.6 (2016), -14.6 (2017), -13.8 (2018), -13.4 (2019), -12.1 (2020).

### Relative size of CEMAC economies and oil sector importance (2013–20)
- Share of CEMAC nominal GDP by country (percent): Cameroon 32.0 (2013), Cameroon 33.4 (2014), Cameroon 37.7 (2015), Cameroon 37.2 (2016), Cameroon 36.4 (2017), Cameroon 37.0 (2018), Cameroon 37.8 (2019), Cameroon 38.9 (2020).
- Nominal oil GDP as percent of each country's nominal GDP (selected): CEMAC aggregate 31.9 (2013), 28.5 (2014), 19.7 (2015), 21.4 (2016), 23.2 (2017), 22.5 (2018), 20.8 (2019), 18.8 (2020).
- Oil exports as percent of each country's total exports (selected): CEMAC aggregate 82.1 (2013), 80.5 (2014), 73.4 (2015), 74.7 (2016), 75.1 (2017), 74.2 (2018), 72.2 (2019), 70.1 (2020).
- Fiscal oil revenue as percent of each country's fiscal revenues (CEMAC aggregate): 59.5 (2013), 54.2 (2014), 42.3 (2015), 44.4 (2016), 45.2 (2017), 46.1 (2018), 43.9 (2019), 41.0 (2020).

### Banking sector indicators and financial soundness (selected, 2013–14)
- Bank ratings (December 2014, number of banks): CEMAC (50): ratings distribution 1: 18, 2: 2, 3: 2, 4: 5, 5: 3, Not Rated: 11.
- Financial soundness indicators (selected country examples, 2013–14):
  - Capital/risk-weighted assets (2013 / 2014): Cameroon 7.9 / 10.6; Central African Republic 39.1 / 42.2; Chad 22.0 / 13.4; Congo 11.9 / 16.1; Equatorial Guinea 22.3 / 25.5; Gabon 12.3 / 9.4.
  - Non-performing loans/total loans (2013 / 2014): Cameroon 10.3 / 9.7; Central African Republic 28.5 / 27.7; Chad 9.8 / 11.7; Congo 1.2 / 2.5; Equatorial Guinea 20.1 / 19.7; Gabon 2.7 / 4.1.
  - Return on Assets (ROA, 2013 / 2014): Cameroon 1.5 / 0.8; Central African Republic -1.1 / 0.8; Chad 2.3 / 1.8; Congo 2.0 / 1.0; Equatorial Guinea 0.6 / 0.7; Gabon 1.6 / 1.7.
  - Liquid assets/Total assets (2013 / 2014): Cameroon 9.4 / 9.0; Central African Republic 14.9 / 22.7; Chad 24.0 / 25.7; Congo 25.2 / 17.1; Equatorial Guinea 17.7 / 15.6; Gabon 20.0 / 19.0.

*Source: IMF staff compilations and tables in the provided document.*

### Annex I. CEMAC: Response to Past IMF Advice

### Annex I. CEMAC: Response to Past IMF Advice

### Policy mix — 2014 regional recommendations and authorities’ response
- Recommendation: Some countries should have a more cautious fiscal stance owing to limited policy buffers.
- Recommendation: Resolve the issue of partial repatriation of reserves by certain member states.
- Authorities’ response:
  - With a few exceptions (Chad, Gabon) macroeconomic policies in 2014 at country level have not been fully consistent with IMF advice. Most countries have continued their expansionary fiscal stance, reducing policy buffers.
  - Most countries have plans to initiate some degree of fiscal consolidation in 2015.
  - The BEAC has been working on a new reserves management system to address the issue of partial repatriation of reserves.

### Fiscal policy coordination
- Recommendation: Review the key fiscal convergence criterion on fiscal balance.
- Recommendation: The 70 percent of GDP debt limit could be revised downward.
- Recommendation: Strengthen compliance with regional surveillance.
- Authorities’ response:
  - CEMAC Commission agreed to review the surveillance framework and an external consultant’s proposal has been put forward.
  - Implementation of CEMAC public financial management directives has continued, but has not been completed; the degree of implementation varies among countries.
  - Not much has been done in strengthening compliance with regional surveillance.

### Monetary operations framework / financial sector development
- Recommendation: Reassess the current framework for monetary policy.
- Recommendation: Continue with the reforms to strengthen the safeguards framework.
- Recommendation: Strengthen the regulatory and supervisory framework to reinforce financial stability.
- Recommendation: Accelerate the creation of regional interbank and debt markets.
- Authorities’ response:
  - Monetary policy remains largely ineffective because of weak transmission mechanisms and excessive systemic liquidity. The reform of monetary policy instruments has been slow.
  - Progress in the implementation of the safeguards framework has continued but progress is uneven.
  - The 2015 FSAP update noted some progress in the reform of the regulatory framework, but authorities should accelerate the implementation of key reforms.
  - The regional authorities have not made much progress in the creation of regional interbank and debt markets.

### Growth / regional integration
- Recommendation: Take measures to support the improvement of the regional business environment.
- Recommendation: Strengthen key regional institutions (i.e., COBAC, CEMAC Commission) to implement regional growth-enhancing policies.
- Recommendation: Enhance the quality of the economic and financial information.
- Authorities’ response:
  - The CEMAC Commission plans to create a unit to support the improvement of the business environment in the region. Certain countries have started reforms to improve the business climate.
  - The COBAC has increased its headcount by more than 50 percent and its operational capacity has improved.
  - The CEMAC Commission is in the process of being repatriated to its headquarters in Bangui, CAR, but it continues to have significant operational challenges.
  - BEAC authorities are working on the creation of a regional CPI index and on improved monetary statistics. Limited progress at national level to improve statistics (e.g., national accounts).

### Risk Assessment Matrix — key risks, likelihoods, and expected impacts
- Protracted period of slower growth in advanced economies (AEs) and emerging economies (EMs):
  - Likelihood: High in AEs and medium in EMs.
  - Expected impact: Medium.
  - Implications:
    - Euro area and Japan: weak demand and persistently low inflation could lead to “new mediocre” growth.
    - Lower oil and other commodity prices will negatively affect regional exports and fiscal revenues; a 50 percent fall in oil prices during second half of 2014 already affected hydrocarbon revenue.
    - Lower remittances, aid flows, and foreign investment; negative effects especially for CAR and Chad.
- Risks to energy prices:
  - Likelihood: High.
  - Expected impact: High.
  - Implications:
    - Increased volatility and possibility of persistently low prices; negative impact on regional exports and fiscal revenues.
- Political fragmentation and security dislocation:
  - Likelihood: Medium.
  - Expected impact: High.
  - Implications:
    - Heightened fragmentation/state failure could cause a sharp rise in oil prices with global spillovers.
    - Continuation/worsening of crises (e.g., Boko Haram, CAR) could displace populations, disrupt investment and trade, increase fiscal security costs, and erode fiscal sustainability (notably in Chad and Cameroon).
- Growth slowdown in China:
  - Likelihood: Medium/Low.
  - Expected impact: Low.
  - Implications:
    - Lower growth in China depresses commodity prices (including oil), negatively affecting regional exports and fiscal revenues; could hamper external financing for infrastructure projects.
- Delays in the implementation of regional and national reforms:
  - Likelihood: High.
  - Expected impact: High.
  - Implications:
    - Low oil prices heighten the need for fiscal sustainability and diversification; weak implementation capacity and poor coordination between BEAC, COBAC, CEMAC Commission, and member states could delay reforms.
    - Slow reform pace could exacerbate BEAC/CEMAC governance and operational weaknesses, create fiscal liabilities from weak financial institutions, constrain private investment, and undermine diversification efforts.

### External Sustainability Assessment — A. Balance of Payments (key statistics and projections)
- Regional current account balance:
  - 2012: -0.1 percent of GDP.
  - 2013: -1.6 percent of GDP.
  - 2014: -3.8 percent of GDP.
  - 2015 (expected): -5.8 percent of GDP.
- Drivers and projections:
  - Deterioration driven mainly by substantial public investment efforts—leading to higher imports—and exacerbated by the fall in oil sales.
  - 2015 country projections: range from -12.2 percent of GDP in the Central African Republic (CAR) to 1.0 percent of GDP in Gabon.
  - Medium-term expectation: contraction in public investments and progressive recovery in oil exports expected to stabilize the regional current account deficit between -2 to -4 percent of GDP.
- External financing composition (last decade averages):
  - Foreign direct investment (FDI): 6 percent of GDP (average).
  - Portfolio investment and official aid: 0.5 percent of GDP (average).
  - Debt-creating flows: 1 percent of GDP (average).
- Net financial inflows have not fully matched external financing needs, inducing a projected decline in official reserve coverage.

### External Sustainability Assessment — B. Reserves Adequacy (key statistics)
- Official reserves coverage projections:
  - Regional official reserves: US$17.2 billion at end-2014.
  - Projected regional official reserves: US$15.4 billion at end-2015.
  - Reserve months of following year’s extra-regional imports: from 7.0 months (end-2014) to 5.8 months (end-2015).
- Other metrics:
  - Gross reserves cover about 70 percent of broad money.
  - Gross reserves cover 900 percent of short-term liabilities.
  - Reserves cover 230 percent of the reserve adequacy ratio.
  - Cost-benefit analysis indicates reserves are at the low end of the optimal reserves range, which varies from 5 months to 13 months of imports.

### External Sustainability Assessment — C. Price Competitiveness (REER and model assessments)
- Regional REER dynamics:
  - REER depreciated by about 7 percent during the 12-month period to April 2015, largely reflecting euro depreciation vis-à-vis the US dollar.
  - Country divergences: 16 percent depreciation in the Congo; 9 percent depreciation in Gabon; 26 percent appreciation in the CAR.
- Model-based REER and current account assessments (Box 1):
  - CGER-based external sustainability method indicates an overvaluation of about 9.5 percent.
  - Bems and Carvalho constant real annuity method indicates an 8.9 percent overvaluation.
  - Araujo et al. model indicates a 5.1 percent overvaluation.
  - Taking into account CEMAC-specific factors (monetary union with pooled reserves) and public investment needs, the statistics do not indicate a fundamental misalignment provided the current account deficit narrows as expected in the medium term.

### External Sustainability Assessment — D. Structural Competitiveness
- Survey-based indicators:
  - World Bank “Doing Business” 2015 indicators: CEMAC countries rank at the bottom of assessed countries; most countries stagnated or regressed in 2015 vs 2014.
  - CEMAC countries lag peers in sub-Saharan Africa and WAEMU on business environment measures.
  - Particular challenges: starting a business; enforcing contracts; trading across borders; inadequate infrastructure and problematic electricity supply; cumbersome tax and property registration procedures.
- Governance indicators:
  - World Bank Governance Indicators (WGI) show CEMAC countries behind peers and relative deterioration in governance over the last five years—lagging in government effectiveness, accountability, and quality of regulation.

*Prepared by IMF staff as contained in the source document.*

### Annex IV. CEMAC: Proposal for a Reformed Regional Surveillance Framework

### Annex IV. CEMAC: Proposal for a Reformed Regional Surveillance Framework

### Budget rule
- External Consultant’s Proposal:
  - A new fiscal rule based on the overall balance with an oil revenues savings rule.
  - The consultant made two proposals: Rule 1= ; Rule 2= .
  - Parameters α and β would be the agreed shares of oil revenues to be saved for each country.
  - The new rule would be based on three-year averages to smooth short-term fluctuations.
- IMF Recommendations / Staff Comments:
  - In the 2013 and 2014 regional discussions reports, staff considered that the current criterion based on the basic balance (i.e., total revenue -net of grants- minus total expenditure excluding foreign-financed capital spending) could contribute to pro-cyclical fiscal policies and recommended adapting a budget rule more consistent with the oil-exporting nature of CEMAC countries.
  - Based on a FAD analysis (Annex IV in the 2013 regional discussions report), staff advised adopting either the non-oil primary deficit or the structural primary deficit for the regional budget rule.
  - Staff view: "Based on staff analysis, an overall balance rule is not the most appropriate for oil-producing countries."
  - Staff reservations: "The new rules are difficult to compute and agreeing on the parameters α and β would be difficult for countries with different levels of oil resources and budgetary dependence on oil revenues."

### Debt ceiling
- External Consultant’s Proposal:
  - A new debt criterion based on the net present value of total public debt with a lower debt ceiling.
  - No specific number was provided, but the report suggested between 50 percent and 70 percent of GDP.
  - A new mechanism would assess the difference between the three-year average debt levels with respect to a long-term norm.
  - The new criterion combines a debt ceiling and a mechanism to limit debt accumulation.
- IMF Recommendations / Staff Comments:
  - In the 2014 regional discussions report, a staff analysis (Annex 3 of the 2014 regional discussions report) found that the regional public debt ceiling of 70 percent of GDP should be reduced to 50 percent to minimize the probability of debt distress.
  - The aim was also to establish consistency among the fiscal surveillance criteria to ensure that an excessively high limit on the primary fiscal balance rule did not lead countries to excessive debt accumulation.
  - Staff view: "Reducing the debt ceiling is a good starting point, but setting a long-term norm would be difficult. Monitoring the deviations with respect to the norm would be difficult for many CEMAC countries because of their limited debt management capacities."

### Other main criteria (inflation and non-accumulation of budgetary arrears)
- External Consultant’s Proposal:
  - Inflation: recommended using a three-year average instead of the yearly average.
  - Non-accumulation of budgetary arrears: No specific recommendation.
- IMF Recommendations / Staff Comments:
  - In October 2014 staff expressed the view that the inflation criterion was more relevant to regional monetary policy, as opposed to national policies, and the non accumulation of budgetary arrears was particularly difficult to monitor.
  - Staff conclusion: N/A.

### Monitoring
- External Consultant’s Proposal:
  - The proposal did not make any recommendation on how to improve CEMAC’s surveillance monitoring.
- IMF Recommendations / Staff Comments:
  - In the 2014 regional discussions report, staff recommended to strengthen monitoring mechanisms to improve the effectiveness of CEMAC’s surveillance framework (Section A “Improving the Regional Surveillance Framework to Ensure the Stability of the Union”).
  - Staff advised greater cooperation between regional and national authorities in the preparation of national budgets, the creation of independent budget units, and enhanced transparency in the dissemination of data on surveillance compliance.
  - Staff view: "Staff considers that an improved surveillance mechanism is essential to create an effective surveillance framework, especially if the CEMAC adopts more complex budget rules and public debt criteria."

### FSAP Key Recommendations (Annex V: 2015 FSAP Recommendations — selected structure)
- By responsible decision-making body — Conference of Heads of State and/or the Ministerial Committee (CM):
  - MC to validate the methodology to assess the optimal level/structure of international reserves.
  - Streamline the procedure for the approval of CEMAC regulations on the financial sector.
  - Formalize cooperation procedures among all the authorities to be involved in a financial crisis.
  - Identify actions to return chairmanship of the BEAC board to the governor.
  - Complete the streamlining of the two competing stock markets.
  - Strengthen the institutional autonomy and accountability of the BEAC and COBAC.
  - Review the rules and practices for appointing senior staff of the regional financial agencies.
- Regional Financial Agencies: BEAC and COBAC:
  - Increase the BEAC’s transparency by adopting an appropriate accounting framework.
  - Adopt a regional approach to credit reporting systems, keeping duplications to a minimum.
  - Accelerate implementation of the monetary policy reform.
  - Initiate an asset quality review, at least of the systemic and the most vulnerable banks.
  - Put in place an appropriate lender of last resort framework.
  - Strengthen and formalize the role of the BEAC’s national branches in financial sector reforms.
  - Strengthen the FOGADAC’s pay box function.
  - Continuously strengthen the SG-COBAC’s staffing.
  - Strengthen the prudential framework of lending to connected parties.
  - Review the tools available to the supervisor for implementing risk-based supervision.
  - Establish a mechanism for monitoring financial inclusion.
  - Implement coordinated actions to promote the use of electronic money.
- National authorities:
  - Ensure that governance of the state-owned banks is consistent with best practices.
  - Streamline mortgage foreclosure procedures within the framework of the OHADA.
  - Secure land rights and strengthen the registration systems.
  - Give preference to official support mechanisms open to all credit institutions.
  - Adopt an AML/CFT prosecution policy (including for predicate offenses).
  - Improve the training/specialization of magistrates and the governance of judicial bodies.
  - Put the national FIUs in Congo and Equatorial Guinea into operation.
- Impact and Time-frame legend (as provided):
  - 1/ S: Stability - D: Development; High Average Neutral
  - 2/ Timeframe for implementation: Less than a year; 1-2 years; Over 2 years

### Relations of CEMAC Member Countries with the Fund
- Membership and Article VIII:
  - Cameroon, Central African Republic (C.A.R.), Chad, Republic of Congo, and Gabon joined the IMF in 1963, and Equatorial Guinea joined in 1969.
  - All CEMAC members accepted Article VIII of the IMF articles of agreement on June 1, 1996.
- Country-specific recent engagement highlights:
  - Cameroon:
    - Last financial arrangement: Poverty Reduction and Growth Facility (PRGF) equivalent to SDR 18.6 million (about US$26.8 million), expired on January 31, 2009.
    - Executive Board approved a SDR 92.9 million (about US$144.1 million) disbursement under the Rapid-Access Component of the Exogenous Shocks Facility on July 2, 2009.
    - Last Article IV consultation concluded on June 30, 2014.
    - Cameroon is on a 12-month consultation cycle.
  - Central African Republic:
    - Executive Board approved financial assistance under the Rapid Credit Facility (RCF) in the amount of SDR 5.57 million (10 percent of quota) on March 18, 2015.
    - Total assistance under the RCF has reached SDR 13.9 million (25 percent of quota).
    - Transition Authorities seeking a new disbursement under the RCF of SDR 8.33 million, equivalent to 15 percent of quota, to cover the remaining fiscal gap for 2015.
    - CAR is on a 12-month consultation cycle; last Article IV consultation concluded on January 30, 2012 (because of civil unrest).
  - Chad:
    - Executive Board approved a three-year Extended Credit Facility (ECF) arrangement amounting to SDR 79.92 million (120 percent of quota) on August 1, 2014.
    - On April 27, 2015, Board completed the first review and approved augmentation of access by SDR 26.64 million (40 percent of quota).
    - IMF and World Bank Boards determined on April 27 and 28, 2015, respectively, that Chad had met requirements to reach the completion point under the HIPC Initiative, paving the way to receive US$1.1 billion in total debt relief.
    - Last Article IV consultation concluded on February 21, 2014. Chad is on a 12-month consultation cycle.
  - Republic of Congo:
    - Executive Board approved a three-year PRGF arrangement equivalent to SDR 8.5 million (about US$12.5 million) on December 8, 2008.
    - Country reached Decision Point on March 8, 2006 and Completion Point on January 27, 2010 under enhanced HIPC.
    - Following completion of three-year ECF arrangement in August 2011, Article IV consultations are on a 12-month cycle.
    - Last Article IV consultation concluded on July 21, 2014. Congo is on a 12-month consultation cycle.
  - Equatorial Guinea:
    - Last financial arrangements (ESAF and SAF) expired on February 2, 1996; country is not eligible for HIPC.
    - Last Article IV consultation concluded on April 30, 2014. Equatorial Guinea is on a 12-month consultation cycle.
  - Gabon:
    - Three-year Stand-By Arrangement equivalent to SDR 77.2 million (about US$117 million) expired on May 7, 2010, with only the first three reviews completed.
    - Gabon is not eligible for HIPC.
    - Last Article IV consultation concluded on February 18, 2015. Gabon is on a 12-month consultation cycle.

### Safeguards Assessments (BEAC)
- BEAC is the regional central bank of CEMAC and subject to a safeguards assessment every four years.
- 2013 quadrennial assessment context:
  - Occurred after significant change at the BEAC to address governance challenges and control failures that emerged in 2009.
  - BEAC embarked on a reform and modernization plan (RMP) to strengthen controls.
  - 2013 assessment concluded that despite some progress, further actions were needed to fully restore sound governance and control, including amendments to the BEAC charter and commitment to achieve the RMP.
  - Assessment recommended maintaining annual monitoring visits to follow up on progress on safeguards “rolling measures.”
- April 2015 safeguards staff visit findings:
  - While BEAC continues the implementation of its reform plan, slippages have occurred and the timeframe of the RMP has been revised.
  - Progress on implementing the safeguards rolling measures has been mixed.
  - Priority recommendations on amendments to the BEAC charter and adoption of an internationally-recognized financial reporting framework (IFRS) are delayed.
  - BEAC has requested IMF technical assistance to advance implementation; steps for prompt delivery have been initiated.
  - Staff note: "Strong actions and close coordination with member states to gain consensus will be needed in the period ahead for the BEAC to conclude its reforms and the outstanding safeguards recommendations."
  - Progress will remain subject to IMF monitoring as a condition to continuing new program requests and reviews for CEMAC member countries.

### Exchange system and Article IV consultations
- Exchange system:
  - Regional currency: CFA franc.
  - From 1948 to 1999, pegged to the French franc.
  - Since the euro introduction in 1999, pegged to the euro at the rate of CFAF 655.957 per euro.
- Article IV Consultation:
  - Following an Executive Board decision in January 2006, discussions with monetary unions are formalized and are part of Article IV consultations with member countries.
  - The Executive Board concluded the last discussion on common policies of CEMAC members on July 25, 2014.
  - Such discussions are held on a 12-month cycle.

### FSAP participation, ROSCs, and Technical Assistance (selected items)
- FSAP and ROSCs:
  - First regional FSAP: January-March 2006.
  - ROSCs in monetary and financial policy transparency, banking supervision, and AML/CFT: June 2006.
  - FSAP update: November 2014–January 2015.
- Selected Technical Assistance to BEAC (2010–14):
  - April 2015: MCM TA on bank supervision and regulations and financial stability.
  - November–December 2014: MCM TA bank supervision and regulations.
  - October 2014: MCM TA risk-based supervision.
  - May 2014: MCM TA liability management.
  - April 2014: MCM TA debt management.
  - March 2014: MCM TA financial soundness indicators.
  - December 2013: MCM TA sub-regional course on macroeconomic management and debt issues.
  - July 2013: MCM TA on prudential framework update.
  - May 2013: MCM TA on central bank governance.
  - March–April 2012: MCM advisory mission on central bank accounting, monetary operations, and stress testing.
  - March 2012: STA TA mission on development and improvement of monetary and financial statistics and financial soundness indicators.
  - Since October 2011: MCM resident advisor to the COBAC.
  - July 2011: MCM advisory mission on monetary policy design and implementation.
  - Since May 2011: MCM resident general advisor to the Governor of the BEAC on governance, accounting, and internal controls.
  - March, April, and May 2011: MCM TA missions on accounting, reserve management, and banking supervision.
  - March 2011: STA TA mission on development of monetary and financial database.
  - November 2010: STA participation in BEAC’s workshop on the economic, monetary, and financial database.
  - January 2010: STA participation in BEAC’s workshop on balance of payments statistics.
- Selected Technical Assistance to the CEMAC Commission (2010–14):
  - November 2014: FAD customs administration CEMAC regional workshop.
  - June 2014: FAD support to CEMAC directives implementation.
  - January 2014: FAD CEMAC customs administration workshop.
  - March–June 2013: FAD TA missions on CEMAC’s PFM directives implementation.
  - May, June and November 2012: TA missions on CEMAC’s PFM directives implementation.
  - May 2012: CEMAC customs administration workshop.
  - April 2012: FAD and STA participation in workshop on implementation strategy for new PFM directives and GFSM 2001 directive.
  - March 2012: FAD TA mission on development of technical guides.
  - March 2012: STA TA mission on preparation of guidelines for the TOFE directive.
  - July 2011: FAD mission on assessment of CEMAC’s technical assistance needs.
  - February and April 2011: FAD and STA participation in workshops on design of new PFM directives and the TOFE draft.
  - February 2011: STA participation in workshop on analyses of macroeconomic aggregates.
  - November 2010: STA TA mission on drafting the TOFE directive.
  - September 2010: FAD TA mission on strategy to redraft regional fiscal directives.

### Statement by the CEMAC Authorities — Key economic developments and outlook
- Context and main risks:
  - The CEMAC region is experiencing a difficult situation due to the combination of the sharp decline in international oil prices that started in mid-2014 and security shocks stemming from terrorists attacks around the Lake Chad and political instability in the Central African Republic (CAR).
  - Region’s high dependence on the oil sector: "more than 80 percent of exports and more than 50 percent of fiscal revenues."
  - Authorities remain committed to prudent fiscal and monetary policies and deepening structural reforms to increase resilience to shocks.
- Economic developments in 2014 (authorities’ report):
  - Regional growth in 2014 is estimated at 4.7 percent against 2.4 percent in 2013.
  - Non-oil sector grew by 4.7 per cent largely sustained by public investment projects.
  - Inflation stood at 2.7 percent in 2014; remained below the convergence criterion of 3 percent.
  - International reserves of the BEAC covered 7 months of imports in 2014 against 5.8 months in 2013.
  - Fiscal deficit widened to 5.0 percent of GDP from 3.5 percent in 2013, following the fall in oil revenues combined with the pursuit of public investments and rising security expenditures.
  - Current account deficit increased from 1.6 per cent of GDP in 2013 to 3.8 percent of GDP in 2014, as oil revenues declined and investment-related imports remained important.
- Policies and structural reforms in 2015 and going forward (authorities’ outlook and intentions):
  - Economic prospects in 2015 will be heavily affected by the slump in oil prices and increases in security related expenditure.
  - Growth is projected to slow down; fiscal and current account deficits will widen further, although most member countries have reduced their public investment and limited current expenditure.
  - This could lead to an increase in the regional public debt to meet the member countries’ financial needs.
  - Authorities’ policy response: pursue implementation of needed reforms; intensify efforts to further strengthen fiscal and debt sustainability, promote a dynamic financial sector and achieve the common market in the CEMAC region, under technical assistance from the Fund and other development partners.

*Prepared by IMF staff based on the content of the Annex IV and associated sections provided.*

### 1. Fiscal and Debt Surveillance

### 1. Fiscal and Debt Surveillance

### Fiscal and Debt Surveillance
- The authorities’ efforts to make the fiscal surveillance framework more efficient will be further enhanced.
- They will continue, with the implementation of CEMAC public financial management directives, to achieve greater harmonization of procedures and promote fiscal cooperation among member countries.
- A proposal revising the surveillance framework and strengthening the monitoring system will be presented at the zone franc ministerial meeting scheduled for October 2015.
- On the debt ceiling, they intend to review its criterion based on the countries’ needs for financing public investment.

### Monetary Policy
- The authorities’ monetary policy is aimed at price stability and supporting the fixed exchange rate of the CFA Franc to the Euro.
- They are mindful of the need to further improve the monetary transmission mechanisms in a context of excess liquidity and large needs of economic activity financing.
- With Fund technical assistance, initiatives to revitalize the regional money markets are underway including:
  - the approval of repo regulation,
  - the introduction of certificates of deposits and commercial papers at the regional level.
- Good progress has been made in bolstering interbank transactions and establishing a liquidity forecasting framework.
- The phasing out of statutory advances to public treasuries will continue in order to promote the development of sovereign bond markets.

### External Sustainability
- The CFA Franc peg to the Euro has served the BEAC member countries very well.
- The authorities will closely monitor its evolution to meet the monetary union requirements.
- Continued efforts to improve reserves management and compliance with pooling rules will be further enhanced.
- An agreement with the French treasury to increase the remuneration of BEAC’s deposits has been signed.
- The BEAC will establish correspondent accounts with selected international financial institutions to hold subaccounts for member countries to help meet both BEAC’s reserve pooling requirement and member countries’ development objectives.

### Financial Sector Reforms
- The CEMAC authorities welcome the 2015 FSAP and value its recommendations as their implementation will help address the vulnerabilities facing the financial sector.
- Based on progress made under the technical assistance, the authorities will pursue reform efforts to mitigate risks to financial stability and enable the sector to play its role in financing the development of CEMAC member countries.
- Specific actions include:
  - developing additional regulations on systemic institutions,
  - implementing measures to enhance the supervision of microfinance institutions,
  - recently adopted regulation to further strengthen financial sector supervision.
- The new bank resolution mechanism will be fully implemented to give greater authority in dealing with banks in difficult situation.
- The authorities intend also to develop a sound financial market infrastructure and allow mobile banking services while developing a surveillance mechanism for the payments system.
- With further improvements in enhancing the business climate, these reform measures will enable the financial sector to increase its contribution to the financing of CEMAC economies.

### Enhancing Growth and Competitiveness
- The authorities are determined to diversify the sources of growth and increase the region’s resilience to shocks, cognizant of the need to reduce the CEMAC countries’ dependence on oil crude production.
- Improving the business environment will be crucial.
- Efforts to remove regulatory bottlenecks to private investment and regional trade will be increased through measures including:
  - the reduction of non-tariff barriers,
  - harmonization of taxes on goods and services,
  - streamlining customs procedures.
- Investments in the infrastructure sector will be further encouraged.
- The authorities are hopeful that the implementation of the regional business climate observatory will help make significant inroads in the process of regional integration.

### Strengthening CEMAC Institutions
- The authorities are committed to further strengthen the regional institutions’ capacity to achieve the CEMAC objectives.
- Good progress has been made in implementing the BEAC’s operational reform plan.
- The authorities are developing a human resources management plan and a new employee charter.
- COBAC human capacity has been increased with the hiring of new staff.
- Coordination between national authorities and CEMAC institutions will be further enhanced to improve economic data collection and policy formulation and implementation.

### Conclusion
- The slump in oil prices in a context of security strong concerns has increased the challenges facing the CEMAC region.
- The authorities remain strongly committed to the regional integration objective and economic growth.
- Progress made in this regard will be consolidated through further efforts to diversify the production and export base while deepening financial intermediation and reinforcing regional institutions capacity.
- The CEMAC authorities are grateful to Fund for its policy dialogue and technical assistance which are helpful in their efforts to achieve the economic regional integration.

*Source: _cr15222 - 1. Fiscal and Debt Surveillance.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2015/_cr15222.pdf_