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Fitch: IMF Programmes Support CEMAC Members' Oil Adjustment

(The following statement was released by the rating agency) LONDON, July 04 (Fitch) IMF programmes for Cameroon (B/Stable) and Gabon (B+/Negative) will reduce financing risk and should support a stabilisation and partial recovery of fiscal and external buffers, Fitch Ratings says. The programmes should further ease pressure on the currency peg of the Central African Economic and Monetary Community (CEMAC) zone to the euro, although this will also depend on oil prices and on developments elsewhere in the CEMAC zone, including in the Republic of Congo (CCC), which is also in negotiations with the IMF. Increased IMF involvement in the CEMAC monetary zone is in line with our expectations, and bolsters our assumption that the probability of a devaluation of the Central African CFA franc exchange rate against the euro in response to the fall in commodity prices since 2014 remains very low. The IMF’s Executive Board approved a USD666 million three-year Extended Credit Facility programme for Cameroon on 26 June, having approved a USD642 million three-year Extended Fund Facility programme for Gabon a week earlier. The IMF initiated country-by-country discussions on potential programmes with all three Fitch-rated members of the CEMAC zone (Cameroon, Gabon and the Republic of Congo) in 1Q17. Some funds will be made available immediately to Cameroon (USD171 million) and Gabon (USD99 million), reducing the near-term risks of external financing gaps emerging. Conditionality appears relatively light; this should reduce implementation risk, although it cannot be discounted given the challenging political environment and shortcomings of the public financial management framework in the region. The IMF highlights the need to implement structural reforms in both Cameroon and Gabon to improve the revenue base, rationalise public investment and minimise fiscal risks from contingent liabilities. The main thrust of the programmes is on improving fiscal sustainability at a national level and reducing external imbalances regionally. Their success will therefore “depend on the implementation of supportive policies and reforms by the regional institutions,” as noted by the IMF. There are some signs that this will be forthcoming. Banque des Etats d’Afrique Centrale (BEAC), the regional central bank, has recently taken steps to support the currency peg, raising its refinancing rate 50bp to 2.95% in March. Meanwhile, statutory advances from BEAC to member countries have been frozen at their 2014 ceiling. BEAC also approved plans for an emergency liquidity facility in May that will enable it to act as a lender of last resort for commercial banks, strengthening the monetary policy framework. The more pro-active approach to the challenge of lower commodity prices since last December’s meeting of CEMAC heads of state in Yaounde, combined with IMF support, boosts the prospects of reversing the fall in collective reserves. The pace of reserves decline slowed in 1Q17, with international reserves decreasing to USD4.7 billion at end-March, from USD4.8 billion in December 2016 and USD10.1 billion in December 2015. The coverage ratio of official reserves to short-term liabilities fell to 56.8% from 65% in the three months to end-2016, but BEAC forecasts it will recover back to 65% over an unspecified timescale. Fitch-rated CEMAC members’ external and fiscal positions should also be supported by recovering oil prices, and in Cameroon’s case the start of gas exports. However, stabilising reserves, which are pooled at BEAC, will depend on the ability of all CEMAC members to address their own macroeconomic imbalances. Even if the Republic of Congo fails to agree and implement an IMF programme, rising oil output means that its contribution to reserves should increase, although this remains highly uncertain. Equatorial Guinea (not rated) is also a significant contributor to the regional reserve pool, and its fiscal settings and outturns will be relevant. Contact: Marina Stefani Associate Director, Sovereigns +44 20 3530 1809 Fitch Ratings Limited 30 North Colonnade London E14 5GN Jan Friederich Senior Director, Sovereigns +852 2263 9910 Mark Brown Senior Analyst, Fitch Wire +44 203 530 1588 The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at All opinions expressed are those of Fitch Ratings. 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