(Business in Cameroon) – The heads of state from the six CEMAC countries are scheduled to meet on December 16 in Yaoundé, Cameroon’s capital. This summit, confirmed by sources within the Ministry of Finance and the Bank of Central African States (BEAC), will focus on the growing economic challenges in the region. The gathering is so serious that a session of BEAC’s Monetary Policy Committee set for the same day has been postponed.
The leaders will particularly discuss the region’s declining foreign exchange reserves, which are crucial for funding imports of goods and services. These reserves managed collectively and partly (50%) held in the French Treasury’s Operations Account, have dropped significantly. Currently, they can only cover 2.1 months of imports, excluding the budgetary support already received.
In September 2024, BEAC projected that reserves would cover 4.5 months of imports by the end of the year, down from 4.8 months in 2023. However, these projections included the budgetary support already received and expected, particularly from the International Monetary Fund (IMF), for Cameroon, Congo, and the Central African Republic. However, the funds, which should further improve the external reserves of CEMAC states, have not yet been disbursed. The summit is therefore scheduled to address these challenges and find ways to stabilize the region’s economy.
A Crisis with Multiple Causes
The Economic Policy Training Program (GPE) of the University of Yaoundé II, led by Professor Viviane Ondoua Biwole, has raised concerns that Cameroon, Congo, and the Central African Republic may not receive the expected IMF support unless regional leaders commit to reforms aimed at reducing macroeconomic instability. Kristalina Georgieva, the Managing Director of the IMF, is also expected to attend this crucial summit.
The decline in CEMAC’s foreign exchange reserves is mainly due to the low repatriation of export earnings by companies in the extractive industries. Despite efforts from BEAC to enforce new regulations, these companies have been slow to comply. Official sources reported that only 35% of export earnings in foreign currencies have been repatriated.
It is also important to point to Gabon’s decision in November 2024 to prepay 50% of a Eurobond. This early repayment, totaling CFA180 billion out of a CFA376 billion debt, was funded through local borrowing in CFA francs. This move reduced the foreign currency reserves managed by CEMAC countries at the French Treasury.
The Republic of Congo’s debt restructuring plan is also raising concerns. Congo plans to reschedule the repayment of CFA2,314 billion in treasury bonds over the next 10 years. This operation raises concerns about the risks it could pose to the CEMAC banking sector, which holds about 80% of the public securities issued by the states in the community. Banks act as Primary Dealers (SVT) on the BEAC securities market and, through their brokerage firms, on the unified CEMAC financial market (BVMAC), based in Douala, Cameroon.
A Fragile Banking System
“If the debt restructuring is not well managed, the government could accumulate arrears, leading to penalties and higher interest rates in the future. This could damage Congo’s reputation with investors and creditors, making it harder to secure new financing,” says Professor Viviane Ondoua Biwole.
In a recent report, Critical Situation in the CEMAC Zone: The Sword of Damocles Wielded by the IMFpublished on December 11, she warns that the debt restructuring could weaken the region’s financial system. With banks holding a large portion of the public debt, poor management or delays in repayment could cause financial losses and undermine their stability and ability to lend.
The CEMAC banking system is already in a fragile state, with rising non-performing loans. In Cameroon, the region’s largest economy, such loans increased by nearly 11% in one year, reaching CFA774.11 billion by June 30,.
The American credit rating agency Standard & Poor’s (S&P) has downgraded Congo’s credit rating due to the announced debt restructuring. In October 2024, S&P lowered the country’s rating by four levels, from “B-” to “CC,” just two steps above default. S&P predicts that the interest rates for Congo’s debt restructuring will be higher than originally planned, and investors may reject the offer. If this happens, Congo would have to stick to the original repayment plan, which requires nearly CFA1,500 billion to be paid by the end of 2026.
This would worsen Congo’s financial situation, increasing the likelihood of default. The country is already spending over 60% of its domestic revenue on debt servicing. According to IMF projections, Congo’s debt-to-GDP ratio is expected to reach 94.5% by the end of 2024, well above the CEMAC threshold of 70%.
This crisis mirrors a similar situation in December 2016, when CEMAC heads of state met to address economic vulnerabilities. At that time, 21 resolutions were made to stabilize the region’s economy. Reflecting on the current situation, Professor Ondoua Biwole questions whether the return to instability in 2024 indicates a failure of the reforms put in place after that summit.
