1. Context
The Central African Economic and Monetary Community (CEMAC) is a subregional economy in Africa made up of 6 countries: Cameroon, Central African Republic, Chad, Congo, Gabon, and Equatorial Guinea. Several frequent and uncommon shocks to member states have influenced recent macroeconomic trends in the CEMAC zone. The COVID-19 epidemic, the conflict in Ukraine, worldwide inflation and the ensuing tightening of international financial conditions, the decline in oil prices between 2018 and 2020, the escalation of geopolitical tensions, and security tensions in some nations are the most significant of these. Government performance has been impacted by these shocks, and the subregion’s economic recovery is still being hampered by some latent consequences.
Figure 1: Total COVID-related spending (billions)
Source: World Bank, ITU Africa, ILO
Between 2010 and 2019, economic growth averaged 2.6%, despite contracting to -1.5% in 2020 following the onset of the COVID-19 pandemic. Regional governments ramped up support measures for businesses and the health care sector as part of the EU post-recovery plan (Fig 1) – reaching 2% of GDP in countries like Cameroon but averaging FCFA 150 billion across the region. As a result, real GDP rose to 1.8% in 2021, 3.3% in 2022 and 2.3% in 2023. Growth has returned to pre-pandemic levels over the last three years, despite a continued difficult environment for businesses and households.
Cameroon Remains the Most Economically Significant and Diversified Economy in the Region, while equatorial Guinea has performed poorly, especially as its economy is dependent on oil (40% of GDP). GDP growth is stabilizing in Congo after it recorded negative rates since 2015.
2. Growth has returned to Pre-Pandemic Levels
Professional Forecasters Expect GDP Growth to Reach 3.7% in 2024 and 3.0% in 2025, on the back of higher oil prices and related exports and strong growth in non-oil production especially agricultural and agri-food sectors (Fig. 2). A mix of subsidies, import duties, and business incentives are supporting sector-specific growth across much of the region. Cameroon and Chad will outperform their regional peers due to their diversified economies and oil exports.
Figure 2: The Structure of Economies in the CEMAC region
Source: World Bank (2024) & Authors
3. Inflation is Easing
About inflation, countries have consistently outpaced the CEMAC threshold of 3% since 2022, due to high food prices linked to the war in Ukraine. Inflation reached 5.3% in 2022 and accelerated to 5.4% in 2023. Although higher fuel prices boosted transport costs, food prices remain a concern for many households.
In Cameroon, fuel prices at the pump rose by 14.5% on average between 2023 and 2024 – causing it to record the highest level of inflation across the region. However, inflation in the CEMAC zone is set to fall progressively as a result of lower interest rates from the central bank and a rise in domestic supply in the sub-region. However, inflation will likely remain well above the 3% threshold at 4% – 4.5% in 2024 and 3% – 4% in 2025.
4. Fiscal Consolidation is Improving Government Balances
With regard to public finances, after a sharp deterioration in fiscal deficits (excluding grants) between 2012 and 2016, when it reached -7.3%, there has been a notable improvement. The current account balance stood at -0.8% in 2019 following the implementation of IMF mandated structural reforms. Removing fuel subsidies and prioritizing investment is a practice that should continue across the sub-region. Overall, the improvement in public finances was driven by a reduction in expenditure than an improvement in revenues.
Due to the COVID-19 pandemic, the budget balance widened to 3% in 2020 before narrowing to -0.5% in 2023. We should note that it stood at (+2%) in 2022, a positive situation not seen since 2011 as state revenue was on a downturn driven by major imbalances in Equatorial Guinea and Congo, and to a lesser extent in Cameroon. However, both countries have recorded surpluses since 2018, except 2020. The consolidation in public spending across the region has, therefore, been effective even as investments should be executed more forcefully.
The CEMAC budget balance will likely remain in deficit at -0.7% in 2024 and -1.9% in 2025, driven by higher spending in Gabon linked to reforms and other development measures being implemented by authorities to stimulate the private sector.
5. Public Debt has Peaked
Public debt peaked at 57.2% of GDP in 2020, which nevertheless remains below the multilateral convergence criterion of 70%, which was reached due to the acceleration of Cameroon’s indebtedness from 2016 onwards, as well as that of Congo and Gabon. Resources resulting from the implementation of economic and financial programs agreed with the IMF and structural reforms supported by budget support from other partners (World Bank, European Union, AFD, AfDB), as well as facilities obtained as part of the fight against the pandemic in 2020, have contributed to the easing of financing constraints.
Governments took action to strengthen debt sustainability, which caused debt levels to fall in 2023, even as higher interest rates in advanced economies and the appreciation of the dollar hampered efforts. According to the IMF’s latest debt sustainability analysis (DSA), the public debt of CEMAC countries remains viable, even if the risks of over-indebtedness, for both total and external debt, remain elevated. Implementing reforms from the IMF will cause debt levels to fall further, leaving the debt to-GDP ratio to fall back towards 50% and 45% in governments’ focus on reducing their sizes and digitizing procedures.
Figure 3: CEMAC Current account Balance Development
Source: INS (2024)
6. Current Account Balance is Stabilizing Slowly
Regarding the external account, after a sharp deterioration in the current account balance over the 2013-2016, following a fall in commodity prices, the balance has since improved to reach -12.2% of GDP in 2016 to -0.8% of GDP in 2019. Higher fertilizer, wheat and sunflower prices have held back the total balance. This deterioration was led by Congo and Equatorial Guinea even as they were previously absorbed following the implementation of IMF programs from 2017.
By 2023, the CEMAC current account balance has stabilized above -1% until 2023, with a significant surplus recorded in 2022 (3.7%) due to the spike in commodity prices – especially oil. The evolution of the current account balance in the CEMAC region should equally be seen in the context of falling exchange reserves. After falling from 5.9 months of imports to 2.2 months between 2014 and 2016, the Bank of Central African States (BEAC) has slowly rebuilt reserves to reach 4.2 months in 2023.
The rebuilding of reserves is driven by the improvement in the current account balance and the new exchange rate policy implemented by the Central Bank in 2019. However, the level of reserves remains below 5 months recommended by the IMF for a monetary union rich in natural resources and a widely accepted standard across the CEMAC region.
“While CEPI does not unilaterally align with capital controls, anti-money laundering requirements and declarations of FX transfers above FCFA 1 million have created incentives for reinvestment in local economies”
The current account deficit will deteriorate in 2024 and 2025 as international commodity prices stabilize – leaving reserves to average 4.6 and 4.2 months respectively in 2024 and 2025. If CEMAC countries fail to reform or implement the foreign exchange regulation, FX reserves could fall to 3 months of imported goods and services over the next five years. On the other hand, there was a sharp fall in inward foreign direct investment (FDI) between 2016 and 2018, from 6.9% of the subregion’s GDP to -3.6%, which is explained by a drop in Congo and Equatorial Guinea.
Conclusion
In summary, here are the key macroeconomic facts about the CEMAC zone to remember;
– Economic growth has picked up again following the pandemic and should reach 3.7% in 2024 (compared with 2.3% in 2023) and 3.0% in 2025. This is driven by higher oil prices and the development of non-oil sectors, especially in Cameroon. Yet, economic growth is below our regional peers across Sub-Saharan Africa as the CEMAC region remains dependent on oil and extractive industries especially in Congo and Equatorial Guinea. Overall, the regions are more vulnerable to external shocks.
– Since 2022, almost all countries have failed to meet the inflation threshold of the CEMAC region. However, inflation is falling and will drop from 5.4% in 2023 to 4.0% and 3.3% in 2024 and 2025 respectively. Rising food and transport costs as well as soaring global prices will provide tailwinds to inflation across the region.
– CEMAC’s budget balance has improved since 2018, with deficits averaging 0.8% of GDP (excluding the period of the pandemic). This is driven by falling government spending, and revenue mobilization is still not satisfactory (governments are imposing more taxes on citizens and businesses). CEPI forecasts a deterioration in the budget balance over the medium term, especially if the dollar strengthens further and unregulated currency outflows persist. Despite having a fairly robust economy, recent costly reforms could cause a deterioration in its balance and pull the region down further.
Public debt is falling after peaking in 2020 due to COVID-19-related expenses. The IMF finds that risks of over-indebtedness remain high, increasing debt-related vulnerabilities across many countries.
– CEMAC’s external position is set to deteriorate in the medium term and BEAC (the Central Bank) must ensure reserves do not fall to 3 months of imports of goods and services. They must reduce the dependence of reserves on oil price dynamics.
– Foreign direct investment (FDI) has been increasing since 2019, reaching 2.0% of GDP in 2023, which is still lower than the 5.3% average seen in 2010-2016. Finally, bank exposure to sovereign risk (on loans and securities) remains high, rising from 10% at end-2015 to 31% of total assets at end-2023 – most are dollar-denominated.
Policy Recommendations
- Private-Sector Led Growth: We recommend suspending tax payments for newly registered businesses for 3-5 years (after consulting with the largest business group in Cameroon and the sub-region). Suspension of import duties for machinery destined for the agriculture, energy, manufacturing, and transport sectors.
- Subsidies Should be Linked to Production: All firms receiving government subsidies should show a production increase of 20 – 30% each year and at least 10% of their output should be sold across the subregion. If the government intervened, it had better boost exports.
- Quarterly Updates Should be Provided Regarding Developments in Regional Infrastructure, from roads to fiber optic cables. The government should liberalize the communications sector to improve access to low-cost Internet.
- Faster Implementation of Free Trade Agreements: With the AfCFTA protocols now approved by the African Union, member states should outline action plans to implement these effectively. Governments should commit to boosting regional trade under the AfCFTA by 20 – 30% over the next five years. Export procedures should be clear on all websites of the Ministry of commerce to help small and medium-sized enterprises (SMEs).
- Local currency trade will boost Macroeconomic Stability: Cross-border trade across the CEMAC region should take place in the Franc CFA. Meanwhile, international trade should be diversified to reduce the dollarization of member states and reduce the incidence of dollar-driven currency or banking crises.
- Governments Should Accelerate Efforts to Digitize Public Service Delivery: Taxation, social security registration, and public service should be digitized to reduce administrative burdens and the cost of compliance for businesses.
- Property Rights: Regional government should ensure that property rights are respected and that women’s rights are enforced in both rural and urban centers.
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