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International Monetary Fund. African Dept.
Despite a more favorable external environment, marked by the rebound in global growth, fast-increasing oil prices, and unprecedented Fund financial support, CEMAC is ending 2021 in a fragile external position. Net external reserves fell throughout 2021 to reach their lowest level in decades, and gross reserves are just above three months of imports of goods and services. The launch of a second phase of the regional strategy at the August 2021 CEMAC Heads of States summit saw renewed commitments to accelerate structural, transparency, and governance reforms. The resumption of program engagements with the Fund, combined with high oil prices and significant fiscal adjustments in 2022, should allow for a turnaround, and the build-up in external reserves is expected to resume in 2022. Risks include possible adverse pandemic developments, oil price volatility, possible fiscal slippages, shortfall in external financing, and security issues.
International Monetary Fund. African Dept.
Already battered by a still unfolding COVID-19 pandemic, Equatorial Guinea was struck on March 7 by massive accidental explosions at a military compound in Bata, its largest city, that killed over 100 people and caused widespread damage to surrounding neighborhoods. These shocks have adversely impacted economic activity and weakened considerably the fiscal and external positions, relative to the EFF-supported program approved in December 2019, creating a substantial financing gap. With the EFF-supported program off-track, as governance reforms have taken longer than originally envisaged, it is not feasible to effectively respond to the humanitarian crisis within the EFF framework. Bringing the program back on track would take time as the authorities continue to work on outstanding structural measures due to capacity constraints in the pandemic context and need for consensus building. Support provided under the RFI, buttressed by appropriate prior actions on governance and safeguards, would create the fiscal space necessary for the authorities to meet the immediate humanitarian needs, and reinvigorate engagement under the EFF-supported program.
International Monetary Fund. African Dept.
Context and risks. The pandemic may have a long-lasting impact on CEMAC’s growth potential, which is already curtailed by structural, governance, and transparency issues. The policy response from national and regional authorities in 2020 helped mitigate the economic fallout. CEMAC, however, experienced a severe recession in 2020, fiscal and external deficits increased, and public debt rose with some countries having debt sustainability issues. The region is facing an increasing dilemma between internal and external stability, as external reserves fell sharply between mid-2020 and March 2021. A moderate recovery in economic growth is expected from 2021. Supported by lower than previously projected total external financing of €4.8 billion over 2021–23, international reserves build-up would be slower than pre-pandemic. This outlook is highly uncertain and contingent on the evolution of the pandemic and the vaccination program. Other significant risks include delayed implementation of the ongoing or possible new Fund-supported programs, uncertainties in filling large external financing needs, oil prices, and a possible deterioration in the security situation.