Central African Economic and Monetary Community (CEMAC): Staff Report on the Common Policies in Support of Member Countries Reform Programs

Abstract

Context and risks. The regional strategy has helped stabilize the regional economic position thanks to large fiscal consolidation efforts, a tighter monetary policy, and external financial assistance. The external position improved, and external reserves picked up. However, the region remains dependent on oil revenues, with little progress in economic diversification, under-performing budget non-oil revenues and weaknesses in the financial sector. The policy assurances included in BEAC's letter of December 2018 were implemented as planned and the CEMAC authorities reiterated their full commitment to the strategy and their readiness to implement additional corrective measures if needed. Progress was made towards new IMF-supported program in Congo and Equatorial Guinea. The medium-term outlook foresees further improvement. Downside risks, including: (i) possibly weaker program implementation, and (ii) a deterioration in the security situation, are balanced by upside risks, including: (i) higher oil prices, and (ii) stronger impact on reserves of the stricter implementation of foreign exchange regulations. Policy Recommendations  The BEAC should move to sterilize the increasing excess liquidity in the banking system to mitigate the risk it may represent for external stability and inflation and to strengthen monetary policy transmission. Measures to address liquidity-stressed banks should be implemented as planned.  Stricter implementation of the revised foreign exchange regulations should be well communicated to banks and the business community to avoid negative effects on economic activity.  COBAC should define a more assertive strategy to monitor NPLs reduction by banks and make the process for dealing with problem banks more streamlined.  The regional institution should continue to strengthen CEMAC's multilateral surveillance framework and support economic diversification and regional integration efforts.