en
en
Bitcoin
97,730
Bitcoin
$ 102,797
Bitcoin
97,730

The Franc CFA to be affected by the covid-19 pandemic

The CFA Franc used within the Central African Economic and Monetary Community (CEMAC) is on the list of potential victims of the covid-19 epidemic which is currently raging in the world. This possibility, already mentioned by the Central Bank of this sub-region (BEAC), is also shared by the rating agency Fitch Ratings.

In its monetary policy report at the end of March 2020, the BEAC already estimated that a rapid and large-scale spread of the covid-19 crisis would notably lead to a fall in foreign exchange reserves, in monetary terms, resulting in a rate of external hedging of the currency which would drop to 52.7% against the hard-hit level of 71.6% at the end of December 2019. “Such a development would result in a real threat to the external stability of the currency, stressing thus the fact that in the absence of budgetary adjustment and consequent mobilization of external financing, the BEAC would again be subject to the same risks on the parity of its currency as at the end of 2016 “, indicated the institution of ‘monetary issue.

Fitch Ratings follows the same logic in an analysis note indicating that the fall in oil prices is exerting strong pressure on the fixed parity of the CFA from the CEMAC zone to the Euro. “If the external solvency of the CEMAC countries continues to deteriorate due to an ever weaker external environment or a lack of external financing, we think that France is unlikely to provide Euros at the fixed parity rate indefinitely … A devaluation of the local currency would increase oil tax revenue in terms of CFA, “says the rating agency.

Normally, support from France as provided by the unlimited guarantee of the currency entered in the monetary agreements with the CEMAC would solve the problem. However, despite his declarations favorable to Africa, President Macron who is strongly criticized by a large part of his public opinion could manage a new controversy, if French public resources are put to the benefit of foreign countries, in these times of crises sanitary and economic of unequaled scope.

For the moment, the question of devaluation does not arise yet. By the end of February 2020, the CEMAC foreign exchange reserves had consolidated, reaching $ 8.5 billion representing 3.5 months of imports. Cameroon, which is the economic engine of the sub-region, continues to resist well. The health cost of covid-19 remains under control there (8.8 billion FCFA as of April 20, 2020) as part of spending that solved current problems, but also enabled expectations. The country has also opted for partial containment, easing restrictions and implementing support mechanisms in the fiscal sector.

The sub region can also count on the support of international partners if necessary and the economic programs which expire this year may strengthen the foreign exchange resources.

× Contact Us