- The CEMAC economy continued to recover, supported by favorable hydrocarbon prices, strengthening its external position.
- Global inflationary pressures have eased somewhat, though remain elevated, while continued tightening of financial conditions could put a dent on economic growth.
- Maintaining fiscal consolidation paths consistent with Fund-supported programs and surveillance advice, and accelerating structural reforms are critical for boosting economic diversification and resilience.
Washington, DC: On December 18, 2023, the IMF Executive Board 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 CEMAC's recovery gained strength in 2022, supported by higher hydrocarbon prices, with real GDP growth accelerating to 3.0 percent. The external position strengthened, with rapid accumulation of foreign exchange (FX) reserves, though still below adequate levels. The positive momentum carried into 2023, as oil prices stayed at a relatively high level. The regional policy assurances on the net foreign assets (NFA) set for end-June 2023 (EUR 4.47 billion) were met by a comfortable margin (EUR 880 million), reflecting the continued increase in hydrocarbon export receipts and improved FX repatriations linked to a stepped-up enforcement of the FX regulations. However, the rise in NFA was reversed in 2023Q3, with NFA falling, driven by a likely deterioration in the current and financial accounts, partly reflecting the combined effects of a steep drop in FX repatriations by the public sector, and dividend payment outflows from the banking sector. Inflation spiked to 6.7 percent at end-2022 and continued to climb in early 2023, as price pressures broadened, but preliminary estimates suggest it decelerated in 2023Q2.
Regional authorities maintained a data-dependent approach to monetary policy decisions, while continuing to advance the reform agenda. The Central Bank (BEAC) left the policy rate unchanged at 5 percent at the September 2023 meeting, after having raised it by a cumulative 175 basis points between November 2021 and March 2023. In addition, it tightened banks' refinancing conditions, discontinuing its weekly liquidity injections at its main refinancing window, and stepped up its liquidity absorption operations. BEAC also continued making progress on the enforcement of the FX regulations. BEAC and the Banking Commission of Central Africa (COBAC) continue to work together to examine the refinancing plans of banks structurally dependent on BEAC's refinancing. The CEMAC Commission has continued its regional surveillance consultations in all member States, while the Permanent Secretariat of CEMAC's Economic and Financial Reform Program (PREF-CEMAC) is overseeing the implementation of the region's structural reforms action matrix.
The outlook remains subject to high uncertainty and hinges on sustained reform implementation, in line with Fund-supported program objectives and staff advice. GDP growth is projected to slow to 2.6 percent in 2023—mainly owing to a contraction in hydrocarbon output. Inflation is projected to decelerate to 4.9 percent by end-2023. This reflects the cooling effects of policy tightening on economic activity and declining global food prices but is somewhat offset by energy-related inflation from fuel subsidy reforms in some member states. The risks to the outlook remain skewed to the downside and include: declining commodity prices; tighter financial conditions; heightened political uncertainty; further fiscal slippages; entrenched inflation; financial instability; slow progress on structural reforms; food insecurity; domestic conflicts and insecurity; and climate-related events.
In the medium term, growth is projected to pick up gradually to around 3.5 percent, mostly owing to a rebound in the non-oil sector, as structural reforms to improve governance, the business climate, and access to finance are expected to pay off. Member states are set to undertake sustained fiscal consolidation in the medium term. Public debt is projected to decline to about 43 percent of GDP by 2028, down from about 54 percent of GDP in 2023. After improving in 2022, the current account balance is projected to deteriorate to -1.9 percent of GDP in 2023, and to about -4 percent of GDP over the medium term. Gross reserves are projected to rise to about 4.7 months of prospective imports in the medium term, slightly below staff's adequate metrics for a resource-rich monetary union (5 months). This is assuming forceful actions to tighten liquidity conditions, greater compliance of member countries with foreign exchange regulations, stronger fiscal discipline, and acceleration of structural reforms.
Executive Board Assessment[2]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed the continued strengthening of the region's recovery and external position during the first half of this year, amid favorable hydrocarbon prices. With risks tilted to the downside, Directors urged CEMAC authorities to renew fiscal prudence to enhance resilience to shocks while protecting the vulnerable, and stressed the need for prudent macroeconomic policies and structural reforms to preserve macroeconomic and financial stability.
In light of recent fiscal slippages, Directors stressed the importance of bringing policies back in line with fiscal consolidation paths consistent with Fund-supported programs and surveillance advice to strengthen resilience to shocks. This will require efforts to improve non-oil tax revenue mobilization and expenditure efficiency and rationalization, including by reforming inefficient energy subsidies while protecting the poor. Directors also called for strengthening debt management and addressing fiscal risks from SOEs.
Directors welcomed BEAC's data-dependent approach to monetary policy and the tightening of liquidity conditions. BEAC should stand ready to further tighten monetary policy as needed to anchor inflation expectations and bring reserves back to adequate levels. Directors welcomed BEAC's decision to further increase the interest rate on its liquidity-absorbing operations and its commitment to align this interest rate with the policy rate within a relatively short timeframe, to strengthen monetary policy transmission. Continued enforcement of FX regulations transparently and consistently also remains a priority.
Directors stressed the need for strong collective action from national and regional authorities to preserve financial stability. They urged CEMAC regional and country authorities to swiftly address COBAC's longstanding supervisory capacity limitations, strictly enforce regulations for non-compliance, resolutely resolve weak banks, ensure banks adequately account for sovereign exposure and strengthen the AML/CFT framework. Directors also urged CEMAC authorities to strengthen the supervisory framework and capacity to monitor and manage new risks posed by digital payments and assets.
Directors reiterated their concerns about the delayed adoption of the draft new sanction mechanism for breaches of regional surveillance rules and encouraged renewed efforts towards swift adoption.
Directors reiterated the importance of accelerating structural reforms in the areas of governance and regulation, which would help bolster economic diversification and inclusiveness, as well as resilience to shocks, including climate shocks.
Directors considered that BEAC met the policy assurance on the NFA for June 2023 provided in the June 2023 follow-up letter, which reflectedinter alia the improvement in the trade balance, greater FX repatriations, and tighter monetary policy. Directors endorsed the updated policy assurance on NFA accumulation for end-December 2023 and end-June 2024 outlined in the December 2023 Follow-up Letter from the BEAC Governor. They emphasized that implementation of this assurance is critical for the success of Fund-supported programs with CEMAC member countries.
[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 consultations, 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, 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' authorities. An explanation of any qualifiers used in summing up can be found here:http://www.IMF.org/external/np/sec/misc/qualifiers.htm.
