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Statement by Laurean W. Rutayisire, Executive Director for Cameroon December 19, 2007

Author(s):
International Monetary Fund
Published Date:
January 2008
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On behalf of my Cameroonian authorities, I would like to thank Executive Directors and Management for their continued support to Cameroon’s efforts towards sustained growth and economic development. I would also like to thank staff for constructive policy dialogue and fruitful exchanges during their recent visit to Yaounde. As has been the case with staff reports on previous reviews, the authorities have expressed their consent to the publication of staff reports on the fourth review.

Cameroon’s continued satisfactory implementation of Fund-supported program is a vivid testimony of strong ownership of reforms. Indeed, performance under the PRGF was broadly satisfactory. Real economic growth remained strong, albeit at lower pace. All performance criteria and quantitative targets for end-June 2007 were met, with the exception of the performance criterion on preparatory work for the establishment of a financial subsidiary for the postal services and the benchmark on non-oil revenue. My authorities took swift corrective actions when necessary to maintain the momentum of the reform program. The implementation of structural reforms also moved forward, in particular in the areas of public finance and transparency.

Cameroon’s growth prospects remain favorable. Nonetheless, the key challenge facing the authorities is to foster growth and translate sound economic performance into significant poverty reduction. Indeed, debt relief has generated expectations of civil service salary adjustment and better public service delivery. In this context, a government reshuffle took place in September 2007, following parliamentary elections. The mandate of the new government is to focus on accelerating pro-poor economic growth, while maintaining macroeconomic stability. To this end, the authorities are adopting measures to reorient investment expenditure toward agriculture development and agricultural-related infrastructure projects. As for maintaining macroeconomic stability, the authorities have taken the right policy-mix to offset supply-side shocks and sluggish productivity. In their reform efforts, the authorities are hopeful that they can continue to rely on additional and timely support of the international community.

Recent Economic Developments

Economic performance in the first half of 2007 was not as strong as projected. Real GDP growth dropped to 2.9 percent, owing to poor performance in agriculture stemming from increased competition from low-cost producers, falling prices and productivity in the cotton sector and lower-than-expected public investment. Economic activity picked-up at the end of the first semester, thanks to a recovery in construction and agriculture, as well as timber and higher oil prices. The external sector improved, as higher imports were more than offset by oil and non-oil exports. The latter was driven by the accumulation of non-exported timber in 2005.

In the monetary area, although net foreign assets increased in the first half of 2007, monetary growth was contained by a decline in net credit to government and lower credit to the private sector made possible by the acceleration of domestic debt payments. Inflation declined further, as fuel price increases moderated and the authorities reduced VAT and custom duties on basic food imports (rice, fish and flour), in order to contain inflationary pressures. As a result, average inflation declined further. The REER also continued to appreciate, due to a stronger Euro to which the CFAF is pegged.

As noted by staff, fiscal performance was broadly satisfactory despite slow economic activity. The overall fiscal surplus was higher than projected despite a revenue shortfall, reflecting lower-than-projected expenditure. The benchmark on non-oil revenue was missed due to reduced taxation on some basic imported staples and delays in dividend transfers from some government entities. To maintain the tax collection momentum, the authorities reinforced revenue administration measures. On the expenditure side, program spending was broadly in line with staff projections. While domestically financed investment outlays were on the rise, foreign-financed and MDRI/HIPC investments continued to experience lower-than-budgeted disbursement, due to delays in project planning and implementation.

In the structural area, progress was also noticeable. Significant inroads were achieved in budget management and transparency, notably with the establishment of an IT connection between payroll and civil service files, the publication of budget execution and accounts for the oil sector and SOEs on a regular basis. As expected, the parliament recently approved a new budget organic law. The authorities have also stepped-up the fight against corruption with the setting up of the National Anti-Corruption Commission (CONAC), the launching of its first investigations and the recent conviction to heavy sentences of senior government officials involved in corruption cases. As regards civil service reform, the benchmark to conduct a diagnostic study of the civil service was met in spite of some delays. Indeed, personnel records were harmonized, but the new management system could not be installed as envisaged, due to a change in the choice of information technology. Regarding public enterprise reform, the authorities selected in November 2007 a financial advisor for the privatization of the airline company (CAMAIR). Negotiations are underway with the provisional bidder selected for the management contract of the water company (SNEC), and the technical evaluation of proposals for the privatization of CAMTEL have been finalized.

In the financial sector, the performance criterion related to preparatory work for the establishment of a financial subsidiary for CAMPOST was implemented with delays, as this process has proven more complex than expected, given the legal status of CAMPOST and the nature of its activities. In view of the corrective measures taken by the authorities, I request, on behalf of my Cameroonian authorities, the Board to approve the requested waiver.

Economic Policies and Structural Reforms Going Forward

Prospects for Cameroon’s economy remain favorable, reflecting a stronger economic stimulus stemming from increased capital spending financed by external debt relief under the HIPC Initiative and the MDRI. Non-oil real GDP growth is expected to rebound to 3.4 percent in 2007 and about 4.5 percent in 2008, owing to higher public investment and a recovery in agriculture and services. Inflation will abate, albeit remaining sensitive to food imports. The external situation will weaken, reflecting a declining dollar and the expected decline in oil production.

Fiscal Policy and Reform

The authorities’ medium-term fiscal strategy aims at increasing priority spending to accelerate growth and poverty reduction, while preserving macroeconomic stability. To this end, the 2008 budget recently adopted by the parliament, in line with the medium-term fiscal strategy and the original program aims at increasing non-oil fiscal revenue to create fiscal space for priority outlays, containing current expenditure and increasing capital spending in priority areas such as infrastructure, agriculture, health and education.

On the revenue side, given the expected decline of oil revenue and trade liberalization, increasing non-oil revenue mobilization remains critical in the authorities’ agenda for fiscal sustainability. To this end, the authorities intend to accelerate the implementation of administrative measures, including streamlining of the taxpayer identification to enhance revenue mobilization, upgrading the single identification software and expanding the coverage of taxpayers in the main urban centers. Work related to these measures is proceeding as planned. Should these administrative measures prove insufficient to meet non-oil revenue targets, the authorities stand ready to step up their efforts with policy measures. In this context, the authorities are determined to preserve the tax base by refraining from introducing new tax exemptions or incentives that would result in a revenue loss or potential distortion. They also intend to improve revenue mobilization in the forestry sector and draft a medium-term taxation reform plan with the objective of fostering efficiency and fairness.

On the expenditure side, it is the authorities’ intention to continue to abide by the need for prudence in the conduct of fiscal policy, while accelerating public investment in the priority sectors identified in the PRSP. In this context, my authorities intend to increase capital spending by 1 percentage point of GDP, with a focus on priority outlays. To create room for these outlays and accommodate for the wage bill increase, the authorities will contain current expenditure through lower subsidies and transfers. They will also pursue a prudent hiring policy and gradually increase salaries within a stable and sustainable medium-macroeconomic framework to enhance efficiency of the civil service, combat corruption, and improve the economic welfare of civil servants. To this end, the authorities have regularized the status of about 18,000 contractual employees, mainly in health and education and adjusted wages for incumbent civil servants whose promotions have not been met with salary increases over the last few years. These efforts will be fostered on the basis of a comprehensive diagnostic of the civil service remuneration aimed at correcting wage differences. The authorities are committed to continue using any windfall in oil revenue exclusively for the payment of domestic and external debt and for financing investment projects in the priority sectors.

Improving public finance management and transparency will continue to rank high on the authorities’ agenda. In this regard, the authorities intend to produce the government financial operations table (TOFE) on a commitment basis and pursue procurement reforms, by periodically assessing the public procurement system and systematically publishing the penalties imposed on those who fail to comply with these regulations. The authorities will also step up efforts to accelerate the execution of capital spending, while implementing safeguards to ensure the quality of each project, notably by taking steps to ease constraints on HIPC and C2D financing, to strengthen the government’s capacity for planning, preparing, evaluating and executing projects. They will also ensure the availability of counterpart funds, prepare a roadmap for the multiyear execution of the investment budget and increase the use of public private partnerships to create more fiscal space and improve efficiency for social as well as infrastructure projects.

Structural Reforms

The authorities will continue their ongoing civil service reforms to establish a solid basis for determining staffing levels and the payroll. To this end, they are working closely with the World Bank to devise a strategy for civil service reform. In the petroleum sector, the government intends to adopt a system for full pass-through of fuel prices, gradually eliminate fuel price subsidies and use the resulting budget savings to improve social safety net. Preparations for the adoption of an automatic pricing formula are nearing completion. To reduce budget transfers, the government is also working on the implementation of measures to bolster the financial position of SONARA.

In the financial sector, based on the FSAP recommendations, the authorities have decided to prepare an action plan for strengthening financial intermediation. At the national level, the authorities will take measures to facilitate access to credit. At the regional level, the government will support the establishment of the central credit registry. To provide alternative sources of financing to the economy, the authorities intend to pursue efforts to develop the securities market by allowing the transfer of secondary-market transactions on zero-coupon treasury bonds to the financial market and by replacing Central Bank’s statutory advances to the government with the issuance of publicly-traded government securities. Based on the results of the business plan for CAMPOST financial activities, the government will determine the appropriate structure to put in place, in order to improve access to finance for the poor.

Turning to governance, the authorities are determined to enhance transparency and combat corruption in an effort to improve the business environment and the quality of public expenditure. For the latter, they intend to take steps to facilitate the asset disclosure of senior government officials, keep publishing on the internet the summary of the reports monitoring the physical and financial implementation of capital investment projects as well as judicial decisions and sanctions against civil servants. To improve the business environment, the authorities have decided to implement a one-stop shop for business creation to reduce time and costs involved in setting up a business and to prepare a private sector development strategy.

The authorities also intend to bolster regional integration, by increasing coordination with their CEMAC partners to reduce obstacles to sub-regional trade, implement the Common External Tariff (CET), eliminate the minimum administrative values for all imported products and find a common ground with the European Union on the Economic Partnership Agreement in a way agreeable to all parties.

As regards external debt management, the authorities will pursue a prudent debt policy and ensure that its debt is managed on a sustainable manner. Building on progress achieved thus far, the authorities are planning to clarify the legal and institutional framework of debt management, set an indebtedness ceiling and define priorities for debt management with the assistance of the Fund. They are also in the process of finalizing signature of the bilateral agreement with the last remaining Paris Club creditor.

Conclusion

My authorities have once again demonstrated their commitment to policies and reforms defined in the PRGF Program. Since the HIPC completion point, my authorities have achieved significant progress in the implementation of reforms and their ownership remains intact. In view of the overall satisfactory program performance since the last review under the PRGF-supported program, as reconfirmed in the most recent staff update, the broadly smooth implementation of the structural reform agenda, the corrective measures taken by the authorities to implement the performance criterion on the preparatory work for the establishment of a financial subsidiary of the postal services, and their renewed commitment to stay on course on program implementation for the period ahead, I would like to request, on behalf of my Cameroonian authorities, the Board’s support for the completion of the fourth review under the PRGF and the request for waiver of the performance criterion. In light of the appropriate debt policies pursued by my authorities, including prudent borrowing policies and their good-faith efforts to reach agreements with the remaining private holders of the country’s debt, I also request the Board’s support for the completion of the financing assurances review.

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