Macroeconomic performance: Despite rising oil prices, real GDP contracted by an estimated 7.9% in 2018, compared with 2.9% in 2017, continuing a recession due to lower oil prices and weak economic diversification that led to a total contraction of about 29% from 2015 to 2018. The primary factor in the decline was reduced yields at working oil wells, which lowered oil output by 14%. The country still depends heavily on hydrocarbons, which in 2017 accounted for 56% of GDP, 95% of exports, and 80% of fiscal revenues.
The budget deficit fell to 0.9% of GDP in 2018, from 2.9% in 2017 and 8.6% in 2016, thanks to substantially lower government spending (capital and operating expenditures) combined with improved revenue col- lection. Inflation was moderate at an estimated 0.6% in 2018, down from 0.7% in 2017, thanks to Central African Economic and Monetary Community (CEMAC) membership and lower prices of foodstuffs and nonal- coholic beverages.
Tailwinds and headwinds: The CEMAC strategy for reducing fiscal and external imbalances caused by lower oil prices should con- tinue to have positive impacts in Equatorial Guinea. After reducing the fiscal deficit to a projected 0.5% of GDP in 2019, the budget balance is projected to turn to a surplus of 0.3% in 2020. Inflation is projected to be 1.4% in 2019 and 1.9% in 2020, below CEMAC’s 3% requirement.
Real GDP is projected to further contract by 2.7% in 2019 and 2.5% in 2020 due to lower hydrocarbon production and fiscal adjustments. The government is relying on additional foreign direct investment in the oil sector to boost production in the medium term, with positive growth expected from 2021.
Additional government efforts are needed to con- tinue macroeconomic consolidation undertaken with the International Monetary Fund, particularly with regard to external accounts; enhance human capacities over- all, and particularly in public policy design and imple- mentation; transform agriculture to diversify the econ- omy; ensure efficient use of the improved infrastructure the country has acquired in recent years; and revive the hydrocarbon sector, the driving force of the economy, to fully capitalize on rising oil prices.
Like other CEMAC countries, Equatorial Guinea faces serious challenges, including low reserves, weak economic activity, and insufficient protection for the most vulnerable groups of the population. To overcome these challenges and shore up progress, the country must remain aligned with the coordinated efforts of CEMAC countries and continue the fiscal consolida- tion already under way. To this end, Equatorial Guinea must protect priority expenditures and continue reforms aimed at improving the business climate and gover- nance to stimulate growth and diversification, with the private sector becoming the main growth catalyst.
Governance also presents a challenge. Weaknesses include limited access to information; procedural inef- ficiencies in public finance management in planning, execution, oversight, transparency, and accountability; and inadequate institutional resources and systems, particularly a lack of qualified staff to ensure good day- to-day administrative management and implementation of reforms.
Over the past two decades, Equatorial Guinea has used oil revenues to invest heavily in infrastructure (such as transport and energy) to sustain an upward develop- ment trajectory.
In line with the community efforts of CEMAC coun- tries, authorities now seem prepared to implement additional reforms to promote growth and economic diversification. In 2019, they will revise the National Eco- nomic and Social Development Plan to stimulate nonoil growth. The updated plan aims to diversify the econ- omy and improve the business climate.
The CEMAC securities yield curve extended to 5 years with 9 benchmark points along the curve (3m-6m-1-1.5-2-3-3.5-4 and 5 years).
The issuance strategy is based solely on funding the budget. Constructing the yield curve is not taken into account in the issuance strategy. The issuance methods used are the auction method and the underwriting method.
CEMAC states may issue new lines on the financial market in Libreville or in Douala. They can also use the auction market for government securities which is organized by the Central Bank, the Banque des Etats de l’Afrique Centrale (BEAC). The states have no proper debt strategy in place.
There are 9 benchmarks maturities for government securities in local currency in the CEMAC zone: 3m-6m-1-1.5-2-3-3.5-4 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 Brandt interpolation method is used in the CEMAC region.
Yield curve managed by
The BEAC is responsible for calculating the yield curve on a monthly basis.
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.
- Lack of issuance strategy in CEMAC states
- Lack of reliable data
- Lack of long-term maturity
- Two countries had never issued on the domestic market as of end-2015
Guide to Buying Bonds
Procedures for market participation
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.
Rating Agency Current rating Outlook
Moody’s No rating No outlook
Fitch No rating No outlook
Standard and Poor’s No rating No outlook
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 p