On behalf of my Cameroonian authorities, I would like to express my appreciation to the Executive Board and Management for their assistance to Cameroon in 2009 under the Exogenous Shocks Facility to help them cope with the adverse effects of the global financial and economic crisis on the Cameroonian economy. I would also like to communicate my authorities’ appreciation to staff for their continued constructive policy dialogue and advice. They share the view that the staff report reflects the fruitful exchanges that took place in Cameroon in March-April and pursued in Washington DC in late April 2010.
Cameroon strengthened its macroeconomic performance under the last PRGF arrangement which was completed in January 2009. Following debt relief in 2006 under the HIPC Initiative and the MDRI, Cameroon has managed to maintain low ratios of external and total debt owing to prudent borrowing policies. Careful fiscal policy allowed a significant build up of government deposits at the regional central bank (BEAC) while enabling the authorities to raise investment and normalize relations with creditors. Nevertheless, Cameroon continues to face daunting growth challenges due to limited infrastructure and declining human capacity. Growth performance falls below the potential of the economy, which also remains vulnerable to exogenous shocks given the dependence of its exports on external demand and world prices. As a result of insufficient growth performance, economic indicators depict a fragile situation, even though efforts on the social front place Cameroon above the Sub-Saharan Africa averages in social indicators.
Addressing the infrastructure and human capacity needs will require significant investments in roads, electricity and telecommunications, as well as training and skills development, notably in the areas of agriculture and engineering. In particular, my authorities put great emphasis on the need to boost agricultural production, facilitate transport of products within the country and towards neighboring countries, thereby enhancing exports and nonoil growth and revenue. They also aim at promoting private sector development through efforts to clear arrears and enhance financial intermediation through financial sector deepening. These objectives and strategy have been laid out in their new poverty reduction strategy paper and are consistent with the recommendations by the Fund’s Executive Board during the completion of the 2009 Article IV consultation.
In view of achieving their long-term objectives, my authorities are already taking steps to address the weaknesses identified in public financial management (PFM) and deal with the capacity constraints facing the economy. Regarding PFM, my authorities have pursued reforms in tax and customs administrations, notably by streamlining tax exemptions, improving the computerized customs system and introducing a GPS-based mechanism to track merchandise in transit and reduce tax evasion. Fully cognizant of the fiscal burden stemming from the current fuel subsidies, my authorities are reflecting on its overhaul, with the view to better target the most vulnerable segments of the population, while at the same time stressing the importance of garnering the necessary social consensus in order to prevent the king of social unrest that took place in 2008. On financial sector stability, my authorities acknowledge delays in settling payment obligations due to cash flow tensions. Building on the lessons learned, they continue to work closely with the regional supervisor (COBAC) to find an adequate and durable solution for the distressed bank with systemic importance, by seeking an investor with track record in banking activity. As regards structural reforms, steps have been taken in restructuring public companies in air transportation and postal services. My authorities have also stepped up efforts to improve governance and enhance the business environment with the involvement of the private sector, including through concrete measures designed during a forum for government-private sector dialogue. Moreover, they pursue discussions with regional partners within the CEMAC to further advance trade liberalization. My Cameroonian authorities will pursue their policy and reform agenda, fully recognizing the remaining weaknesses in the areas of PFM, data provision, and human capacity. They hope they can count on Fund’s enhanced technical assistance to help them address these deficiencies. Furthermore, to help support the implementation of their overall agenda, my authorities intend to strengthen their cooperation with the Fund, in the form of a medium-term program which they need to reflect upon going forward.
I – RECENT DEVELOPMENTS AND PERFORMANCE
The global crisis has slowed the pace of economic activity in Cameroon, through trade and financial channels. This resulted in real GDP growth decelerating to 2 percent in 2009 from about 3 percent in 2008. To deal with the crisis, my authorities have used fiscal space to protect priority spending (investment, health, education) and support sectors in distress (forestry, cotton and agriculture) while containing the overall fiscal deficit. They have responded to the crisis by obtaining Fund assistance under the rapid access component of the ESF, and putting in place a three-pronged strategy aimed at reducing the vulnerability of the economy to exogenous shocks while maintaining macroeconomic stability. This strategy include: (i) stepping up efforts to increase nonoil revenue; (ii) improving PFM in order to achieve savings that can be reallocated to priority outlays; and (iii) developing alternative sources of domestic financing, notably through a domestic bond market, while strengthening the debt management capacity to preserve Cameroon’s sustainable debt profile.
While recognizing that more efforts are needed to fully implement this medium-term agenda, my authorities share a more optimistic view than staff, and they view the implementation thus far of the related measures as being encouraging. In a difficult external environment and challenging domestic social conditions, they have maintained nonoil revenue in 2009 at around their level before the impact of the crisis (at 13.6 percent of nonoil GDP) and limited overall fiscal deficit at 0.2 percent of GDP; achieved some gains in PFM as indicated earlier; streamlined the number of tax forms; and strengthened efforts in the governance area, notably by stepping up cases of prosecution against misappropriation of public funds. They have also managed to preserve Cameroon’s low risk of debt distress. My authorities acknowledge however the deficiencies in PFM identified by staff as well as the resulting deterioration in the banking system soundness due to a permissive regional bank regulatory framework. As indicated earlier, my authorities seek a durable solution to the distressed bank for which an audit was completed and a restructuring plan is under consideration. More broadly, my authorities recognize the macroeconomic policy challenges facing the Cameroonian authorities, and they continue to seek Fund technical assistance and policy advice in addressing them.
II – MEDIUM-TERM POLICY AND REFORMS
Going forward, my authorities strive to tackle the remaining PFM weaknesses—hoping to count on sustained Fund and other donor assistance—and reduce impediments to stronger growth by promoting a healthy and stable financial sector, favoring the development of a local bond market, boosting infrastructure, enhancing human resources and ensuring an investment climate conducive to the expansion of the private sector.
Public Financial Management
The authorities share staff’s view on the need to correct the weaknesses in expenditure and cash management. In this vein, they have already undertaken adequate actions, notably a reconciliation of fiscal data between government departments with the view to gauge the level and nature of unsettled payment orders accumulated in recent years, and the settlement of a large part (70%) of those payment orders. They intend to use the SDR allocation to settle other payment obligations, notably those due to the national oil refinery, SONARA.
Furthermore, the authorities will address existing budget execution problems by implementing their medium-term plan for the modernization of PFM adopted in 2009. In the same context, they pursue efforts to enhance transparency, accountability and efficiency in the use of public resources.
To ensure realism of the budget, my authorities stand ready to make the necessary adjustments when required. For 2010, they are preparing a supplementary budget to take into account notably the need to prevent any further accumulation of arrears to the oil refinery, the government’s participation in the recapitalization of the distress bank, the country’s absorption capacity in the execution of public investment projects, and the limited depth of the domestic financial market in the issuance of government bonds. Following its approval by the government, the supplementary budget will be submitted to the Parliament in September for adoption.
Fiscal and Debt Sustainability
To ensure fiscal sustainability in the face of the considerable infrastructure needs which need to be addressed, my authorities emphasize the need to increase nonoil revenue through broadening the tax base, and in this vein, they share the recommendations laid out by staff in the areas of taxation of large enterprises and SMEs, tax and customs procedures, elimination of tax exemptions and special tax regimes, customs fraud and VAT compliance and refunds.
The space provided by the authorities’ prudent debt management since the HIPC completion point allows for increased external borrowing to meet the country’s public investment needs. At the same time, the authorities remain vigilant to ensure that the low risk of debt distress is preserved. In this vein, they have stepped up efforts to strengthen the debt management framework in accordance with the CEMAC guidelines and consistent with joint Bank-Fund technical assistance. They will put in place the National Debt Committee which has already been instituted.
Financial Sector Stability and Deepening
On financial sector stability, my authorities broadly agree with staff on the urgency of mitigating the risks posed by the protracted arrears to state-owned enterprises, which are compounded by the bank regulatory framework. Besides seeking solution to the unsettled payment orders mentioned above, they continue to work with COBAC in closely monitoring the evolution of banking sector vulnerabilities, notably systemic risks and bank exposures to major borrowers. They also engage the COBAC in strengthening the prudential ratios on risk concentration.
Moreover, my Cameroonian authorities will accelerate the implementation of their action plan—based on the recommendations of the 2007 FSAP update—to deepen financial intermediation. In the vein of mobilizing alternative sources of funding, they also pursue their plan to develop a local bond market.
Infrastructure and Capacity Building, Structural Reforms, and Economic Growth
Enhancing growth is the key pillar of Cameroon’s new PRSP. In this vein, the authorities intend to tackle forcefully the key impediments, notably underinvestment in infrastructure, under-spending in human capacities, weaknesses in the business environment and insufficient trade integration. On the latter issue, they agree with staff advice to reduce the level and range of the common external tariff (CET), harmonize the rules of origin in supporting regional integration, streamline CET exemptions, and conclude a regional economic partnership agreement with the EU. They will continue to push forward issues of regional trade liberalization with their CEMAC partners.
III – CONCLUSION
My Cameroonian authorities continue to make progress in the implementation of reforms, in spite of a challenging international environment and difficult social conditions. To pursue their structural agenda, they intend to move to a new Fund-supported program articulated around the country’s new PRSP. They view such medium-term program as the reflection of a homegrown strategy which needs to garner the broadest domestic consensus possible. In pursuing their objectives, my Cameroonian authorities continue to count on their close cooperation with the Fund and other development partners.