CEMAC’s financial sector shows signs of persistent weaknesses - IMF

Bangui, Central African Republic (PANA) – Due to the sharp decline in oil revenues since 2014 which continues to impair the Central African Economic and Monetary Community (CEMAC) member countries, regional economic growth has turned negative, with fiscal and external imbalances widening in the past two years, according to the International Monetary Fund (IMF).

“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,” the IMF Executive Board said in a statement on Tuesday after concluding annual discussions on CEMAC common policies and reform programmes.

Deterioration of the economic situation, “stemmed from a sizeable reduction in public spending by most countries and the large accumulation of budget arrears over that period,” the Board observed.

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

The IMF has noted that three countries (Cameroon, Chad, and Gabon) have adopted new IMF-supported programmes, while Central African Republic (CAR) has adjusted an existing one.

In the meantime, 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 their assessment of the situation, the IMF 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,” said the statement.

“They noted that the implementation of national budget policies under Fund supported programmes 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.”

In the Directors’ view, continued efforts to diversify the economy, including in the context of the regional programme for economic and financial reforms, would also help reduce vulnerabilities to oil price shocks and pave the way for sustained and inclusive growth.

Encouraging BEAC to continue to mitigate risks of undue pressure on regional reserves from some member countries, the Directors noted that the regional strategy remains incomplete until all CEMAC members have embarked on reform programmes that could be supported by development partners.

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.

According to the IMF assessment, 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, reflecting the continuation of fiscal consolidation efforts.

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.
-0- PANA AR 19Dec2017

19 december 2017 18:41:39

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