IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs
IMF News, December 16, 2021
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- Published: December 16, 2021
Economic performance and outlook
- CEMAC experienced a smaller-than-anticipated economic contraction in 2020 as non-oil activity recovered in late 2020.
- Growth:
- "A progressive recovery is expected to have started in 2021 with growth reaching 1.9 percent of GDP in 2021."
- "Growth is expected to rebound to 2.8 percent in 2022 and continue to pick up gradually to around 4.1 percent in the medium term."
- Inflation:
- "Inflation is projected to stay below the regional convergence criterion of 3 percent" as monetary policy remains appropriately tight.
- Reserves and external balances:
- "CEMAC is ending 2021 in a fragile external position with external reserves just slightly above three months of prospective imports."
- "After a sharp deterioration in 2020, the external current account deficit is expected to improve ... and reach 2.1 percent of GDP in 2021."
- "Reserves are projected to reach the equivalent of five months of imports by 2026."
Fiscal and debt dynamics
- Fiscal deficit and public debt:
- "The overall fiscal deficit (excluding grants) is projected to narrow by 0.5 percentage points to 2.7 percent of GDP in 2021 compared to 2020."
- "Public debt would decline by 3.8 percentage points, to 56.2 percent of GDP in 2021."
- Drivers of improvement:
- Higher oil prices, strong global growth, and significant fiscal adjustment are expected to strengthen external balances and support foreign reserves accumulation in 2022.
- The recovery in oil prices coupled with stronger revenue mobilization efforts should help narrow fiscal deficits and curb debt levels significantly by 2024.
Monetary, banking, and regional central bank measures
- BEAC actions in 2021:
- Strengthened liquidity management framework and resumed liquidity absorption operations.
- Unwound relaxation of the collateral framework for government securities, bringing haircuts back to pre-pandemic levels.
- Phased out the government securities purchase program at end-August 2021 as planned.
- In November 2021, BEAC "tightened monetary policy, increasing the policy rate by 25 basis points," and raised the rate of its liquidity absorption window in December.
- Prudential regulation: capital requirement increased by 50 basis points in August 2021.
- Directors' monetary recommendations:
- Welcome recent monetary policy tightening; further tightening "would be needed if international reserves continued falling."
- Recommend returning to the pre-crisis liquidity management framework and restricting normal liquidity operations to solvent banks.
- Welcome BEAC commitment to not extend direct monetary financing to its member states.
- Note implementation of foreign exchange regulation would support foreign reserve accumulation.
Financial sector soundness and supervision
- Directors' views:
- Support planned withdrawal of temporary relaxation of prudential regulations.
- Call to move towards risk-based supervision, contain risks from banks’ sovereign exposure, address high non-performing loans, strengthen regulatory compliance, and accelerate bank resolution.
Structural, governance, and transparency reforms
- Momentum and expectations:
- Heads of States renewed commitments to accelerate structural, transparency and governance reforms.
- Directors "called on the authorities to accelerate the implementation of structural, transparency, and governance reforms."
- Specific emphasis on "ensuring full transparency in public finances and the hydrocarbon sector" and strengthening the regional surveillance framework.
- Expected medium-term impact:
- Reforms are assumed to slowly take hold and contribute to non-oil sector growth and improved competitiveness, supporting the projected medium-term growth path.
IMF programs, assumptions, and conditionalities
- Outlook assumptions:
- "This outlook assumes the continuation of IMF-supported programs with Cameroon, Gabon, the Central African Republic and Equatorial Guinea, and approval of two IMF-supported programs with Chad (2021) and Congo (2022)."
- Resumption and prospects:
- Resumption of Fund-supported programs with Cameroon and Gabon and prospects for new programs with Chad and Congo helped secure commitments to fiscal consolidation and broader reforms.
Executive Board assessment and policy recommendations
- Overall assessment:
- Directors agreed with the thrust of the staff appraisal and noted that "despite a more favorable external environment and unprecedented Fund financial support, CEMAC’s external position remains fragile."
- Welcomed the resumption of Fund-supported programs in the region.
- Macro policy mix:
- Emphasized that "a tight macroeconomic policy mix and strong structural reforms that enhance competitiveness are critical to bolster the external position and enable diversified, inclusive, and sustainable growth."
- Fiscal policy recommendations:
- "A carefully calibrated fiscal consolidation is needed to bolster fiscal and external sustainability while safeguarding growth."
- Recommended mobilizing non-oil revenues and increasing expenditure efficiency to finance targeted social spending and growth-friendly investments.
- Called for prudent use of SDR allocations and the fiscal space provided by restructured statutory advances.
- Monetary and external policy recommendations:
- Support for recent monetary tightening; further tightening if reserves fall.
- Endorsement of implementation of foreign exchange regulation to support reserve accumulation.
- Regional supervision and program implementation:
- Noted BEAC was unable to fully implement the policy assurance on accumulation of net foreign assets (NFA) at end-June 2021 due to a shortfall in external financing.
- Directors considered BEAC has "taken the necessary corrective actions to address the underperformance."
- Directors endorsed the updated policy assurance on NFA accumulation for "end-December 2021 and end-June 2022" as outlined in the November 2021 Follow-Up Letter from the BEAC Governor.
- Emphasized that implementation of this assurance is critical for the success of Fund-supported programs with CEMAC member countries.
Press Release No. 21380, IMF Communications Department, December 16, 2021.