IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs

IMF News, December 22, 2022

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IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs

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• Published: December 22, 2022

Key findings on recent developments

• The positive terms-of-trade shock amidst the fallout from Russia’s war in Ukraine has broadly benefited CEMAC, reinforcing its external position and gradual post-pandemic recovery.
• Real GDP growth expected to reach 3.4 percent in 2022, mostly supported by high oil prices and the lifting of COVID-19 containment measures.
• External reserves have started to build up, with gross reserves expected to reach 3.5 months of prospective imports at end-2022.
• The regional policy assurance on net foreign assets (NFA) for end-June 2022 (EUR 2.81 billion) was met with a good margin (EUR 378 million).
• Regional inflation expected to reach 4.6 percent by end-2022, reflecting pass-through of global inflation to domestic prices and putting pressure on real incomes and threatening food security.

Policy actions and institutional responses in 2022

• Monetary policy and liquidity operations:
  • BEAC increased its policy rate three times in less than a year to respond to inflationary pressures and support reserves levels.
  • BEAC reinforced its liquidity management framework: steadily scaling back weekly liquidity injections at its monetary operations window, discontinuing all three long-term liquidity injection operations upon their maturation, and gradually returning to the pre-COVID liquidity management framework.
• Prudential regulation and banking supervision:
  • COBAC normalized prudential regulation, ending the temporary COVID-related prudential forbearance as planned in July 2022.
  • COBAC increased the capital conservation buffer by 50 basis points to 2.5 percent.
• Regional surveillance:
  • The CEMAC Commission completed regional surveillance consultations for all six member countries in July 2022, after the post-COVID resumption in April 2022.

Outlook and projections

• 2023 near-term outlook:
  • Inflation is projected to slow to 3.3 percent in 2023 and to revert to below the 3 percent convergence criterion from 2024 on, as monetary policy is expected to remain appropriately tight.
  • After improving in 2022, the current account balance is expected to fall to -1.2 percent of GDP in 2023.
• Medium-term projections:
  • Growth expected to rise gradually to above 3.5 percent, mostly owing to a stronger rebound in the non-oil sector as governance, transparency, and business climate reforms progress.
  • Public debt is expected to decline to close to 40 percent of GDP by 2026, down from about 53 percent of GDP in 2022.
  • Current account balance expected to be about -3 percent of GDP over the medium term.
  • Gross reserves are projected to reach about 4½ months of prospective imports by 2026, slightly below staff’s adequate metrics for a resource-rich monetary union (5 months), assuming more active liquidity management and greater foreign exchange repatriations, including from governments, state-owned enterprises, and the extractive sector.
• Risks and headwinds:
  • Elevated debt vulnerabilities.
  • Risks of persistently high inflationary pressures.
  • Prospect of continued tightening of global financial conditions.
  • Regional security issues.
  • Near-term fiscal recalibration to cushion social impacts may slow public debt reduction and reserve accumulation.

Executive Board assessment and recommendations

• Overall assessment:
  • Directors welcomed the strengthening of CEMAC’s external position and gradual post-COVID recovery amid the positive terms-of-trade shock linked to Russia’s war in Ukraine.
• Macroeconomic and fiscal policy guidance:
  • Urged CEMAC authorities to manage oil windfalls prudently, rebuild buffers, and sustain a recovery that protects the most vulnerable, including through reforming energy and food subsidies while implementing targeted social safety nets.
• Monetary and external policies:
  • Welcomed BEAC’s monetary policy tightening and encouraged BEAC to tighten further should it observe evidence of rising inflation, deviations from the targeted reserve path, or fiscal slippages.
  • Encouraged BEAC to work to absorb excess liquidity more effectively and implement the FX regulation transparently and consistently.
• Digital assets and legal consistency:
  • Encouraged regional and country authorities to cooperatively resolve the inconsistency between C.A.R.’s cryptoasset law and the CEMAC Treaty.
  • Urged regional supervisors to step up coordination to ensure greater capacity in regulating digital assets, to preserve the single currency, mitigate risks, protect consumers, and create space for legitimate innovation.
• Banking sector supervision and stability:
  • Welcomed normalization of prudential regulation and urged COBAC to conduct thorough asset quality reviews following the normalization, to better monitor and tackle NPLs, and appropriately address undercapitalized banks.
  • Advised COBAC to pursue a prudent approach on dividend distribution and to ensure banks account for sovereign risks adequately.
• Structural and governance reforms:
  • Noting mixed progress in ongoing Fund-supported programs and likely delays in completing a number of upcoming reviews, Directors underscored the importance of accelerating progress on deep structural and governance reforms, which, if coupled with prudent management of the oil windfall, should lay the foundations for more diversified, inclusive, and sustainable growth.
• Policy assurances:
  • Directors considered that BEAC met the policy assurance on the NFA for June 2022 provided in the July 2022 follow-up letter.
  • They endorsed the updated policy assurance on NFA accumulation for end-December 2022 and end-June 2023 outlined in the December 2022 Follow-up Letter from the BEAC governor.
  • Directors emphasized that implementation of this assurance is critical for the success of Fund-supported programs with CEMAC member countries.

IMF Communications Department — Press Release No. 22/457, December 22, 2022

References

• Republic of Congo and the IMF
• Republic of Equatorial Guinea and the IMF
• Cameroon and the IMF
• Central African Republic and the IMF
• Chad and the IMF
• Gabon and the IMF
• IMF Policy Advice -- A Factsheet
• Press Releases
• PRESS CENTER
• http://www.IMF.org/external/np/sec/misc/qualifiers.htm
• https://www.imf.org/en/home