BEAC expects 115% hike in foreign exchange reserves by end of year.

In the Central Bank’s monetary policy report issued as at March 2023 ending, BEAC stated that as at January 31, 2023, the cumulative reserves stood at 6,771.3 billion FCFA; which is about 10.3 billion Euros. 

Compared to the same period last year, the amount was 4,690 billion FCFA; representing an increase of 2,081.3 billion FCFA, or +43%. 

If this trend is maintained till the end of the year, BEAC projects that the cumulated reserves would witness an increase of not less than 115%.

According to the document, these foreign currency reserves added to assets held in gold reserves, give the CEMAC economies 3.9 months’ coverage of imports of goods and services and a currency coverage rate of 73.1% compared with 64.0% a year earlier.

“Reserves improved mainly thanks to higher crude oil prices and efforts to repatriate export revenues, as well as a sharp increase in foreign exchange on-lending by primary banks on behalf of their extractive sector clients authorised to hold foreign exchange accounts, and for the management of site rehabilitation funds,” the report stated.

BEAC recalls that oil and mining companies have, since early 2022, been required to comply with new exchange regulations. The immediate consequence was an increase of 557 billion FCFA in the volume of foreign exchange retrocession to the central bank. 

The funds repatriated by companies in the extractive sector have been placed in nearly 500 secret accounts approved by the BEAC, as part of the relief measures granted by the monetary authority to this category of companies under the new regulations.

The experts state that such a significant hike in foreign exchange reserves could spur overall growth as foreign investors are encouraged to look favourably on the sub region as a whole, and Cameroon in particular.

Furthermore, BEAC said the new exchange regulations, which have been in force since 2019, prohibit economic agents from holding accounts in offshore or onshore currencies; within CEMAC credit institutions, except for a special waiver. 

Operators are also required to repatriate 70% of their export earnings to the region. The rate is 35% for oil and mining companies. 

The first year of implementation of these regulations has allowed to bring the volume of foreign exchange retrocessions from 8,200 billion FCFA in 2021 to nearly 12,000 billion FCFA in 2022, according to BEAC.

Also worthy of note is that the central bank expects forex retrocessions from the extractive sector to significantly improve this year, leading to a sharp increase in forex reserve within the CEMAC Sub region. 

In detail, BEAC forecasts the volume of foreign exchange reserves to grow to 7, 6391.9 billion FCFA by the end of this year.

While the Bank’s experts inform that foreign exchange repatriation is good for the external position of the sub region, but large outflows for the purchase of goods and services are somewhat detrimental to this dynamic. 

In an internal memo, BEAC reported that more than 10,000 billion FCFA exited the region through outgoing transfers in 2022. In January 2023 alone, more than 1,204 billion FCFA in foreign currency was sent out by economic agents, compared to only 788 billion FCFA in repatriations, making a deficit of 34%.