Economic performance and outlook: Equatorial Guinea saw very rapid economic growth following the discovery of hydrocarbons in the 1990s. Since 2014, however, the protracted fall in global oil prices, combined with the decline in the country’s output, the large budgetary surpluses that financed important investment programs that continue today have been declining. GDP continued to shrink in 2016 and 2017, and the forecast for 2018 remains unfavourable. The decline is expected to stabilize beginning in 2019. Authorities are relying on the stabilization of public finances and economic diversification to bring about new sources of growth. Consultations are under way with the International Monetary Fund (IMF) on the possible implementation of a program under its Extended Credit Facility.
Macroeconomic evolution: The recession of the past three years remains evident in macroeconomic and budgetary indicators. The decline in hydrocarbon prices directly hit public finances; a contraction of approximately 8% in public revenues was forecast between 2016 and 2017. This contraction adversely affected the current account balance, leading to a deficit of 10.5% of GDP. The net government position with the Central Bank has been negative since July 2017. The arrears accumulated by the government as a result of ambitious public investment programs to support the country’s emergence strategy are a major concern. The government started a medium-term expenditure reduction program; the focus is on its primary expenditure item of public investment, which will have a direct impact on construction and public works, a driver of the economy and employment.
Tailwinds: Equatorial Guinea has enjoyed significant political stability and an excellent security situation. It has substantially modernized its infrastructure in recent years, in accord with its National Economic and Social Development Plan. It has made major strides in human development, particularly in health and education, and is modernizing its public administration by attracting Equatorial Guinean managers trained abroad. Although evolving at a slow pace, economic diversification is moving forward, due largely to advances in construction, agriculture, forestry, fishing, and trade. The October 2017 decision to eliminate the requirements for visas for Central African Economic and Monetary Community citizens is expected to promote regional trade and stimulate economic growth.
Headwinds: At the December 2016 summit in Yaoundé, Cameroon, the CEMAC Heads of State endorsed policies to stop the depletion of BEAC reserves and preserve the fixed exchange-rate arrangement. These included tighter monetary policy and liquidity management, and measures to preserve financial sector stability. Membership in the monetary union helps Equatorial Guinea maintain low inflation rates. But it limits its options for adjusting to negative shocks and ensuring external competitiveness. The lack of economic diversification in Equatorial Guinea remains a major constraint and prevents gains from higher exports in non-oil sectors. Since 2014, the government has accumulated arrears with the private sector, including local small and medium-size enterprises and major international groups active in the country. In October 2017, the IMF estimated these arrears at CFAF 1 trillion. These hinder economic growth and job creation, as well as financial sector development. To truly benefit from its excellent infrastructure, the country needs to improve its business climate and governance.
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 d’achat des obligations
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