On July 14, 2010, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Cameroon.1
Cameroon’s macroeconomic stability was strengthened under the PRGF arrangement completed in January 2009, and debt relief under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Reduction Initiatives firmed up debt sustainability. However, despite the country’s vast potential, its growth performance in recent years has remained constrained by poor infrastructure, unfavorable business environment; limited absorption capacity; a shallow financial sector; and obstacles to trade. In per capita terms, real GDP stagnated in 2005-09, and the incidence of poverty remained broadly unchanged. Cameroon is highly dependent on commodities for export earnings and fiscal revenues and thus remains vulnerable to external shocks.
The global crisis slowed the pace of Cameroon’s economic activity in 2009, mainly via lower demand and prices for some of the main exports. Real GDP growth decelerated to 2 percent, from 2.9 percent in 2008. The impact on external accounts was, however, less than anticipated, in part because some nonoil exports have rebounded. As a result, the external current account deficit widened by about 1 percentage point of GDP and the overall external balance remained positive.
The overall budget deficit, on a cash basis, was limited to 0.2 percent of GDP in 2009, despite a shortfall in total revenue. However, the composition of expenditure shifted from capital to current spending. In addition, public financial management worsened significantly as there was a surge in unsettled government payment obligations, including delayed payment for losses incurred by the national oil refinery, unsettled payment orders, and expenditure for which services have been provided but no payment orders issued. Banking system soundness deteriorated, reflecting both public financial management and regulatory problems that have heightened excessive credit concentration, as well as the impact of the global crisis.
Cameroon’s economic outlook is likely to improve, as a result of the expected recovery of the global economy, the projected increase in public capital spending, and the ongoing initiatives to improve the business climate. Barring new exogenous shocks, real GDP growth is projected to gradually increase from 2.6 percent in 2010 to above 4.5 percent in 2014, in part reflecting the coming to fruition of recent investments in the oil sector. Inflation is expected to remain below 3 percent, in line with the regional convergence criterion. There are, however, downside risks to these projections, should the global economic recovery prove to be weaker or slower than anticipated.
Executive Board Assessment
Executive Directors welcomed the incipient signs of growth recovery in Cameroon, following the adverse impact of the global financial crisis. Growth is expected to increase but there are significant downside risks arising from uncertain global economic recovery and issues related to the projected fiscal financing gap.
Directors expressed concern about weaknesses in public financial management as reflected in the surge in unsettled government obligations and the use of the National Hydrocarbon Company to fund spending operations. They emphasized that it was critical to strengthen expenditure and cash management to maintain fiscal and financial stability, ensure effectiveness of public spending, and enhance budget transparency. Directors commended the authorities for their efforts to assess the nature and level of outstanding payment obligations and settle a sizeable proportion of these obligations. They called for continued progress toward establishing effective mechanisms to track expenditure flows through the budget execution process and preventing new accumulation of domestic arrears.
Directors welcomed the steps being taken to address concerns about the viability of the 2010 budget. They encouraged the authorities to adopt resolute measures to close the remaining financing gap. In this regard, Directors considered it important to protect priority capital spending, make vigorous efforts to mobilize revenues, and gradually phase out fuel subsidies. They also stressed the need to avoid depleting the fiscal buffer of usable government deposits at the regional central bank.
Directors recognized that it was necessary to scale up public investment to address the severe infrastructure gaps which are constraining growth. They agreed that Cameroon’s low risk of debt distress offers some space to accommodate such capital spending. At the same time, Directors underscored the importance of exercising prudence to preserve fiscal sustainability. They encouraged the authorities to work with the central bank to establish a regional security market, and rely, to the extent possible, on concessional resources to meet investment financing needs.
Directors noted that domestic banks were relatively insulated from the global financial crisis. They welcomed the recent corrective steps taken by the authorities to reduce bank exposure to the oil refinery. Given the still excessive concentration of bank exposure in a few large enterprises, protracted delays in settling government payments obligations and inadequate supervisory standards, Directors called for further determined actions to ensure financial stability. They encouraged the authorities, in collaboration with the regional supervisor, to closely monitor the evolution of bank vulnerabilities and promote a gradual adoption of best practices to mitigate concentration risks.
Directors emphasized that concrete measures were needed to tackle the structural impediments to growth. Addressing these challenges will require in particular improving the execution of public investment, making the business environment more attractive, strengthening governance and accelerating regional integration. In addition improving the quality and provision of fiscal, financial, and balance of payments data will be crucial.
Public Information Notices (PINs) form part of the IMF’s efforts to promote transparency of the IMF’s views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.
|(Annual percentage chaniges, unless, otherwise indicated)|
|National income and prices|
|GDP at constant prices||2.9||2.0||2.6||2.9|
|Consumer prices (12-month average)||5.3||3.0||3.0||2.7|
|Of which: nonoil sector||1.7||-2.4||2.0||6.5|
|Terms of trade ("-" = deterioration)||-2.1||-15.0||9.2||-4.3|
|Money and credit (end of period)|
|Net domestic assets 1||1.6||4.2||6.2||4.9|
|Net credit to the public sector 1||-6.5||3.5||6.3||1.0|
|Credit to the private sector||19.6||7.1||7.1||8.1|
|Broad money (M2)||13.4||6.9||7.0||7.5|
|Central government operations|
|Total revenue (excluding grants)||20.0||17.6||16.5||16.4|
|Nonoil revenue (percent of nonoil GDP)||13.7||13.5||13.7||13.9|
|Fiscal balance (including net changes in arrears)|
|Nonoil primary balance (percent of nonoil GDP)||-5.5||-4.9||-5.9||-5.0|
|Current account balance (including grants)||-1.8||-2.7||-4.2||-4.3|
|imputed reserves (percent of broad money)||63.2||68.0||64.2||62.2|
Percent of broad money at the beginning of the period.
Percent of broad money at the beginning of the period.
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.