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

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The IMF Executive Board concludes annual discussions on CEMAC common policies and common policies in support of member countries’ reform programs. The pandemic crisis which lasted nearly two years left CEMAC in a fragile external position. A tougher political stance, high oil prices and renewed commitments from heads of state to accelerate structural, transparency and governance reforms are expected to support a stronger external position from 2022, as the region recovers from crisis.

On December 10, 2021, the IMF Executive Board concluded annual discussions with the Central African Economic and Monetary Community (CEMAC) on common policies of member countries and common policies in support of reform programs of member countries. [1] .

CEMAC experienced a weaker than expected economic contraction in 2020, as non-oil activity recovered at the end of 2020, supported by the easing of containment measures and the strengthening of fiscal stimulus measures. A gradual recovery is expected to have started in 2021 with growth reaching 1.9% of GDP in 2021. The overall budget deficit (excluding grants) is expected to narrow by 0.5 percentage point to 2.7% of GDP in 2021 compared to by 2020, while public debt would decline by 3.8 percentage points, to 56.2% of GDP in 2021.

Despite a more favorable external environment, marked by the rebound in global growth, the rapid rise in oil prices and unprecedented financial support from the IMF, including the allocation of SDRs, CEMAC ends 2021 in a fragile external position with external reserves barely exceeding three months of potential imports. After a sharp deterioration in 2020, the external current account deficit is expected to improve significantly, mainly thanks to the rebound in world oil prices, and reach 2.1% of GDP in 2021.

Regional and national authorities began to tighten the policy mix in 2021. The BEAC strengthened its liquidity management framework, resuming liquidity absorption operations; the central bank also unwound the relaxation of the government securities guarantee framework adopted at the start of the crisis, reducing the haircuts to their pre-pandemic levels; and ended the government securities purchase program, as planned, at the end of August. In November 2021, the BEAC tightened its monetary policy, increasing the policy rate by 25 basis points, and raised the rate for its liquidity absorption window in December. Prudential regulations, which have been temporarily relaxed to cushion the impact of the crisis on the financial sector, are also gradually normalized, with the capital requirement being increased by 50 basis points in August 2021. At the national level, the resumption of the programs with Cameroon and Gabon and the prospects for new programs with Chad and Congo have made it possible to secure commitments in favor of budgetary consolidation and broader reforms.

Rising oil prices, strong global growth and a significant fiscal adjustment are expected to help strengthen overall external balances and the accumulation of foreign exchange reserves in 2022. Growth is expected to rebound to 2.8% in 2022 and continue. to recover gradually to reach around 4.1% in the medium term. , mainly due to stronger growth in the non-oil sector, as reforms aimed at improving governance, transparency and the business climate are expected to slowly take hold. The recovery in oil prices, coupled with increased revenue mobilization efforts, is expected to help reduce budget deficits and significantly reduce debt levels by 2024. Inflation is expected to remain below the regional convergence criterion of 3%, because monetary policy would remain tight enough to support the external position. Reserves are expected to reach the equivalent of five months of imports by 2026. This outlook assumes the continuation of IMF-supported programs with Cameroon, Gabon, the Central African Republic and Equatorial Guinea, and the approval of two IMF-supported programs with Chad (2021) and Congo (2022).

Board assessment [2]

The executive directors approved the direction of the staff appraisal. They noted that despite a more favorable external environment and unprecedented financial support from the IMF, CEMAC’s external position remains fragile. In this context, they welcomed the resumption of IMF-supported programs in the region. Directors stressed that a strong mix of macroeconomic policies and strong structural reforms that improve competitiveness are essential to strengthen the external position and enable diversified, inclusive and sustainable growth.

Directors stressed that carefully calibrated fiscal consolidation is needed to strengthen fiscal and external sustainability while sustaining growth. They recommended mobilizing non-oil revenues and increasing spending efficiency to help finance targeted social spending and growth-friendly investments. Directors called for prudent use of SDR allocations and the fiscal space provided by restructured statutory advances.

Directors welcomed the recent tightening of monetary policy, which should help stem the decline in reserves and contain inflation expectations. They generally agreed that further tightening would be necessary if international reserves continued to decline. Directors recommended reverting to the pre-crisis liquidity management framework and restricting normal liquidity operations to solvent banks. They welcomed the central bank’s commitment not to extend direct monetary financing to its member states. Directors noted that the implementation of foreign exchange regulations would promote the accumulation of foreign exchange reserves.

Directors supported the planned withdrawal of the temporary easing of prudential regulations. They stressed the need to move towards risk-based supervision, contain the risks associated with banks’ sovereign exposure, deal with high non-performing loans, strengthen regulatory compliance and accelerate bank resolution.

Directors welcomed the reform momentum generated by the CEMAC Heads of State Summit. They called on the authorities to accelerate the implementation of structural, transparency and governance reforms. In particular, the directors called for ensuring full transparency of public finances and the hydrocarbon sector. They also recommended strengthening the regional monitoring framework.

Directors noted that the Central Bank of Central African States (BEAC) was unable to fully implement the insurance policy on the accumulation of net foreign assets (AFN) at the end of June. 2021, which was provided in the June 2021 follow-up policy letter. Support, due to lack of external funding. They felt that the BEAC took the necessary corrective measures to remedy the underperformance. The Trustees approved the updated NFA Accumulation Insurance Policy for late December 2021 and late June 2022 outlined in the November 2021 follow-up letter from the BEAC Governor. This assurance is based on the BEAC’s commitment to implement a sufficiently strict monetary policy as well as on the commitments of the member states to implement adjustment policies in the context of programs supported by the IMF. Directors stressed that the implementation of this assurance is essential for the success of IMF-supported programs with CEMAC member countries.

The views expressed by the Trustees will form part of the Article IV consultation discussions on individual CEMAC members that will take place until the next Council discussion on common policies. It is expected that the next CEMAC common policy discussion will be held on the standard 12-month cycle.

[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with its members, usually annually. As part of these bilateral Article IV consultations, staff hold separate annual discussions with regional institutions responsible for common policies in four currency unions – the euro area, the Eastern Caribbean Monetary Union, the Union Central African Economic and Monetary Union and the African Economic and Monetary Union. For each of the monetary unions, teams of staff visit regional institutions responsible for common policies in the monetary union, collect economic and financial information and discuss with those responsible for economic developments and policies of the monetary union. Back at headquarters, the staff prepare a report, which forms the basis for the Board’s discussion. Staff discussions with regional institutions and Council discussions on the annual staff report will be considered an integral part of the Article IV consultation with each member. [2] At the end of the discussion, the Managing Director, in his capacity as Chairman of the Board, summarizes the points of view of the Executive Directors, and this summary is sent to the country’s authorities. An explanation of all the qualifiers used in the abstracts can be found here:

Distributed by APO Group on behalf of the International Monetary Fund (IMF).

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