IMF Executive Board Concludes Annual Discussions on CEMAC Common Policies, and Common Policies in Support of Member Countries Reform Programs
December 18, 2017
On December 15, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the annual discussions with the Central African Economic and Monetary Community (CEMAC) on Common Policies of Member Countries and Common Policies in Support of Member Countries Reform Programs.[1]
The sharp decline in oil revenues since 2014 continues to impair the regional economic situation. Growth has sharply declined since 2014 to -1 percent in 2016, reflecting a deterioration in oil production (-6 percent) and subdued non-oil GDP growth (around 1 percent). This stemmed from a sizeable reduction in public spending by most countries and the large accumulation of budget arrears over that period. The short-term outlook for the region continues to be weak, with growth projected to remain negative at -½ percent in 2017, due to reduced public spending and further declining oil production. Inflation remains low as economic activity is weak.
Reflecting the continuation of fiscal consolidation efforts, the average non-oil primary fiscal deficit would continue to decline to about 8 ½ percent of non-oil GDP in 2017 from 13 ½ percent in 2016. The estimated total public debt-to GDP ratio for the region has been revised upwards to just above 50 percent of GDP at end-2016, up from 28 percent at end-2014. The current account deficit is projected to decline from 10 percent of GDP in 2016 to about 5 percent of GDP in 2017, due to larger oil and non-oil exports and compression in imports. Following a rapid decline in the external reserves coverage ratio from 5.8 months of imports at end-2014 to 2.2 months at end-2016, external reserves have stabilized and picked up in the third quarter of 2017, reflecting a combination of IMF disbursements and underlying fiscal adjustment by member countries. Meanwhile, the financial sector continues to show signs of weaknesses, with declining bank deposits, flat credit to the economy and increasing non-performing loans.
CEMAC’s national authorities and regional institutions have taken initial steps to restore external and fiscal stability following the sharp drop in oil prices. They have resolved to put in place a strong and coordinated policy response by all member countries and each agreed to seek IMF support for implementing this strategy. Three countries (Cameroon, Chad, and Gabon) have adopted new IMF-supported programs, while CAR has adjusted an existing one. The regional central bank (BEAC) and the regional banking supervisor (COBAC) have started implementing supportive policies to help rebuild regional reserves and ensure financial sector stability, as part of a comprehensive package of policy commitments. In particular, the BEAC has pursued tighter monetary policy, with an increase in its policy rate in March 2017 and a strict control on bank refinancing, and decided to eliminate statutory advances by end-2017. COBAC has taken initial steps to enhance risk-based supervision and address several banks in difficulty.
The medium-term outlook remains challenging. It foresees a gradual improvement in the economic and financial situation in the region, assuming full implementation of policy commitments by CEMAC member states and regional institutions. It assumes continued fiscal consolidation (about 6 percent of GDP improvement in the overall fiscal balance from 2016 to 2019), initially through cuts in non-priority public investment and a gradual increase in non-oil budget revenue. Policies to diversify the economies by improving the business environment, including through enhanced governance and transparency, would support higher growth in the medium term. The monetary policy stance would be kept tight as needed to support external stability and reserves accumulation. This outlook entails important risks related to the global economic developments and its impact on oil prices, possible weaker-than-expected policies owing to constraints and/or lack of political support, possible delays in concluding programs with the remaining CEMAC countries, and still difficult security conditions.
Executive Board Assessment [2]
Executive Directors noted that the sharp decline in oil revenues since 2014 continues to impair the region, with regional economic growth turning negative, and fiscal and external imbalances widening in the past two years. While the acute phase of the crisis has somewhat lessened, the outlook will continue to face substantial risks. Directors stressed that full implementation of policy commitments by CEMAC member states and regional institutions would be essential to support a gradual improvement in the regional economic and financial situation over the medium term.
Directors welcomed the initial steps taken by CEMAC countries’ national authorities and the regional institutions to avert a crisis and restore external and fiscal stability. They noted that the implementation of national budget policies under Fund‑supported programs has been broadly satisfactory and, along with BEAC’s tighter monetary policy and financial support from development partners, have contributed to a recovery in BEAC’s foreign exchange reserves.
Directors urged CEMAC countries’ national authorities to fully implement their commitment to steadfast fiscal adjustment to restore the external sustainability of individual members. Continued efforts to diversify the economy, including in the context of the regional program for economic and financial reforms, would also help reduce vulnerabilities to oil price shocks and pave the way for sustained and inclusive growth. Directors noted that the regional strategy remains incomplete until all CEMAC members have embarked on reform programs that could be supported by development partners. In this context, they encouraged BEAC to continue to mitigate risks of undue pressure on regional reserves from some member countries.
Directors commended BEAC’s resolve to support the regional strategy and implement reforms to enhance its effectiveness. They supported the monetary policy tightening in 2017 and welcomed the early decision to eliminate statutory advances. They welcomed BEAC’s commitment to consider a further monetary policy tightening should reserves accumulation fall short of BEAC’s objectives. Directors noted that the modernization of the monetary policy framework will help strengthen monetary policy transmission, and welcomed the steps taken to implement the outstanding safeguards recommendations. Continued efforts to strengthen implementation of foreign exchange regulations will also be important.
Directors welcomed the initial actions taken by the regional banking supervisor to mitigate risks to the financial sector. They encouraged COBAC to implement more forcefully its measures to address weaknesses in the banking sector, in particular to work with banks on reducing nonperforming loans, enhance enforcement of prudential rules, and resolve insolvent banks. They also welcomed the shift to risk‑based supervision.
Directors noted that the new regional convergence framework could help strengthen macroeconomic policies in member countries but would need to be better enforced. They urged the regional institutions to continue to enhance their macroeconomic management capacity and address shortcomings in regional statistics.
Directors considered that BEAC and COBAC have implemented the policy assurances provided in the June 2017 Letter of Policy Support, and endorsed the actions outlined in the follow‑up letter from the BEAC Governor. They emphasized the importance of regularly assessing the union‑level policy actions and seeking additional union‑level policy assurances if material policy or reform changes were to become necessary. They welcomed staff’s intention to report regularly on their discussions with the regional authorities on their policies in support of CEMAC countries’ reform programs.
The views expressed by Directors today will form part of the Article IV consultation discussions on individual members of the CEMAC that take place until the next Board discussion of CEMAC common policies. It is expected that the next discussion of CEMAC common policies will be held on the standard 12‑month cycle.
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CEMAC: Selected Economic and Financial Indicators, 2014-21 |
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[1] Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of these bilateral Article IV consultation discussion, staff hold separate annual discussions with the regional institutions responsible for common policies in four currency unions – the Euro Area, the Eastern Caribbean Currency Union, the Central African Economic and Monetary Union, and the West African Economic and Monetary Union. For each of the currency unions, staff teams visit the regional institutions responsible for common policies in the currency union, collects economic and financial information, and discusses with officials the currency union’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis of discussion by the Executive Board. Both staff’s discussions with the regional institutions and the Board discussion of the annual staff report will be considered an integral part of the Article IV consultation with each member.
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
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