Macroeconomic performance and outlook
Congo’s economic growth has remained on track despite a still weak domestic environment. The growth upturn in 2018 (1.6%) accelerated slightly in 2019 to 2.2%, attributable to the oil sector, which grew 5.5%, and construction and public works, up by 0.8%.
Inflation remains contained below the community target at an estimated 1.8% in 2019 versus 1.2% in 2018, in line with the fiscal adjustment and the continu- ing implementation of a prudent monetary policy.
Efforts to consolidate fiscal and foreign accounts as part of the CEMAC regional economic and financial reform program produced a fiscal surplus of 8.8% of GDP in 2019 (from 6.8% in 2018) and a current account surplus of 8% of GDP in 2019 (from 6.7% in 2018).
The debt ratio was 88% of GDP including 62% for external debt, despite a restructuring obtained from China. Facing problems servicing its debt, the country had arrears climb to 21% of GDP in 2019, from 8% in 2018.
The social situation is marked by persistent poverty (40.9%) and income inequality (with a Gini index of 0.46 in 2011). The local workforce is characterized by inade- quate training relative to labor market needs, explained by the meager availability of technical and vocational training.
Tailwinds and headwinds
Congo’s economic prospects will be marked by the implementation of the National Development Plan 2018–22 and reforms under the IMF’s Extended Credit Facility. Real GDP growth is expected to be 4.6% for 2020 and 1.8% for 2021. The fiscal and current account balances should remain in surplus, thanks to fiscal and external consolidation. Inflation should remain con- tained at an average of 2.2% over the next two years.
These prospects will be supported by continuing reforms, dividends from investments, and economic diversification.
Congo has major agricultural potential as well as enormous natural resources not yet fully exploited (oil, iron, lead, zinc, potash, copper, uranium, diamonds, phosphates, magnesium, and hydropower).
The economy remains heavily dependent on the oil sector, which accounts for 55% of GDP, 85% of exports, and 80% of tax revenue.
Two factors are having a negative impact on busi- ness productivity: the lack of stable, high-quality elec- tricity supply, and the length of time to process requests to connect to the grid.
And the slowness in paying the country’s domestic debt could jeopardize economic recovery.
Better debt management remains a major challenge. The debt viability analysis by the IMF in 2017 concluded that the country was suffering from a debt overhang. Similar to the restructuring agreement with China, one is necessary with trade creditors to ensure debt’s viabil- ity in the long term.
The debt ratio remains very high in Congo. In 2019, the debt ratio stood at 88% of GDP (62% of which is external debt), although in the CEMAC region, the debt-to-GDP ratio is expected to remain below 70%. In its fiscal policy for 2020-2022, the Congolese government aims at promoting the restoration of financial sector stability and supporting public debt.
According to the budgetary framework 2020-2022, the public debt stock will, on average, be CFAF 4,770.5 billion with a decline in domestic debt that will fall at an average annual rate of CFAF 736.3 billion. The external debt would decline at an annual rate of -3.1% from CFAF 3,809.6 billion in 2020 to reach CFAF 3,748.2 billion in 2021 and CFAF 3,580.3 billion in 2022. The financing of the budget deficit will be mainly short-, medium- and long-term loans which would average CFAF 109.3 billion in 2020-2022.
Congo has not defined a limited number of benchmarks. The State issues on the maturities of 13, 26 and 52 weeks for short-term securities, but also on the long-term maturities 2 years, 3 years and 5 years.
Yield curve calculation models
The BEAC prepared its own in-house method for computing its yield curve: the implied yield curve. The curves are mainly constructed from the primary market's data and secondary market transactions, when these are significant.
For primary market data for BTA and OTA auctions or syndication of TOs, issues with amounts greater than or equal to 1 billion CFA are used. With regard to TOs, and as far as possible, it is the effective exit rate which will be taken into account when drawing up the yield curve. With regard to the secondary market, all transaction data are taken into account on the basis of the clean price (trading price from which the accrued coupon is subtracted).
In the CEMAC region, the model used is the Nelson-Siegel ones and the estimation approach is based on the generalized gradient reduction algorithm method which is intended for the optimization of nonlinear problems.
Yield curve managed by
The yield curves drawn up by the BEAC are updated and published on a monthly basis. They are communicated to national public treasuries and other market players through the National Directorates of the Central Bank and published on the BEAC website (www.beac.int). In addition, the data used to develop these curves will also be published on the BEAC website at the same time as the curve.
Challenges in building an efficient yield curve
- Illiquid and limited secondary market: buy-and-hold investors
- Narrow investor base: only banks are involved in the bond market
- Coexistence of three agencies for issuing bonds and bills: the Douala Stock Exchange (DSX) and the Bourse des Valeurs Mobilières de l’Afrique Centrale (BVMAC) are in charge of syndication. The Banque des Etats de l’Afrique Centrale (BEAC) is responsible for auctions.
Guide to Buying Bonds
Procedures for market participation
The BEAC organizes the auction on behalf of the states. The auction takes place at the asking price. Orders are served retained interest rates or the price offered by the bidders within the maximum interest rate or maximum price decided by the government.
At the end of the auction, the general information, including the amount of bids expressed the amounts used and the rate and limit price selected are disseminated through the press.
The methods of creating, presenting and counting of the tenders shall be determined by agreements on the one hand, between BEAC and National Treasuries, and secondly, between the BEAC and the Primary Dealers (PD). Subscriptions to government securities are firm and irrevocable. They are paid in a single payment by debiting the account of the PDs at the BEAC and credited to a special Treasury account opened for this purpose.
Given that the debt market is under developed, the optimal schedule has been adopted as part of regular program.
The six National Treasures issue in turn at regular intervals. Each National Treasury will issue T-Bills weekly on Wednesday. The amounts are generally low to allow all states to issue at the same time, resulting in each State having fifty-two issues of T-Bills per year. Each National Treasury can issue T-Bonds monthly. The auctions are scheduled to take place every Wednesday. However, given the nature of the instrument and the expected volume of transactions in relation to the needs for public investment, treasuries are not able to issue on the set day.
A shift schedule was developed for planned Wednesday auction sessions:
- Cameroon: 1st Wednesday of the month
- Central Africa - Congo: 2nd Wednesday of the month
- Gabon: 3rd Wednesday of the month
- Equatorial Guinea-Chad: 4th Wednesday of the month
These emissions will occur at regular time intervals and are publicly known.
The total amount of the twelve issuances will be released in the Finance Act each year. For each fiscal year, this amount will be communicated to the market by the Minister of Finance no later than November 30th of the previous year. This communication from the Minister responsible for finance may take the form of a conference, briefing or a press release. The amount of the emission will not be announced at this time.
However, the amount to be raised for each auction is specified in the auction announcement in accordance with National Treasury issuance calendar.
On the secondary market, the T-Bills are traded OTC and the T-Bonds are traded on the DSX and the BVMAC.
The settlement of transactions takes place at T+3.
The level of taxation pursuant to Regulation No. 14/07 - UEAC-175-CM-15 instituting a specific tax regime applicable to the transactions listed on the Securities of Central Africa (BVMAC) "are exempt from income Tax Securities (IRVM) or any other taxes or levies of a similar nature, interest obligations of States for residents of the CEMAC." Subscribers residing outside the CEMAC zone must comply with income tax laws of their country of residence. The Issuer shall levy any withholding tax on loan repayments.
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Auctions of Government securities are exclusively reserved for Primary Dealers. Each CEMAC state has its own network of Primary Dealers. However, a credit institution, which meets the eligibility requirements, may be a Primary dealer only for the country they belong to or upon request, all the states. The Ministers of Finance, select Primary Dealers from all the credit institutions in CEMAC that meet specifications adopted by the Committee of Ministers, after consulting the Monetary Policy Committee.
Openness to international investors
Foreign investors can access the debt market under the same terms as nationals of the zone. There are no rules that discriminate foreign participants in the market.
This is no restriction on foreign ownership in the CEMAC zone.
Restrictions on FX and profit repatriation
There are no restrictions on obtaining foreign exchange.
The regional central bank, the BEAC, issues CFA for circulation among the members of the CEMAC. Although the Central African franc is at par with the West African CFA franc, the two currencies are not usually accepted for payment in each other’s zones.
Foreign investors have the right to repatriate earnings and the profits from sales of financial instruments. There are no restrictions on converting or transferring funds associated with investments, including remittances of investment capital, earnings, loan repayments, and lease payments.