Abstract
Cameroon’s 2005 Article IV Consultation reports that tangible progress has been made in the health and education sectors, and a number of social indicators have improved significantly. The deterioration in fiscal performance and related weaknesses in fiscal management could, in the longer term, threaten macroeconomic stability and debt sustainability. Moreover, sustainable private sector growth requires the authorities to address inadequate infrastructure, poor service delivery from troubled state enterprises, an investment climate overshadowed by poor governance and low levels of financial intermediation.
I. Introduction
My Cameroonian authorities are grateful to Management and staff for the continued fruitful discussions on the ongoing reform efforts to improve economic conditions and fight poverty. In this regard, they are determined to enhance their dialogue with Cameroon’s development partners, including the IMF.
After the presidential election that took place early October last year, a new cabinet was appointed in December 2004 with the mandate to address the challenges the country faces, including weak fiscal performance, high level of public debt, inadequate infrastructure, low competitiveness of the economy, and governance issues. As a first step, my authorities are determined to reestablish Cameroon’s macroeconomic fundamentals and to deepen structural reforms including governance, as demonstrated by measures already taken during the last months. Maintaining this concerted effort, they are strongly implementing the SMP with the aim of rapidly reaching a new PRGF agreement.
II. Recent developments
Cameroon’s growth and inflation performance was solid in 2003 and 2004. This growth was broadly distributed across different sectors. Real GDP growth remained strong as non-oil growth averaged more than 4½ percent, consumer price inflation was reduced to about ½ percent, and the current account deficit narrowed to below 2 percent of GDP owing to strong exports of primary goods. Moreover, there was an improvement in electricity production and distribution, transport and communication, thus easing infrastructure constraints on private sector activity. My authorities have also made progress in implementing the PRSP and in completing HIPC Initiative completion point triggers, and they have prepared the first annual report on the implementation of the full PRSP. Although the use of HIPC resources was low, social sector indicators improved. In the education sector, more than 2800 classrooms for primary and secondary schools were constructed and part-time primary school teachers recruited. In the health sector, vaccination campaigns were intensified; the cost of HIV/AIDS treatment was reduced significantly while treatment of tuberculosis became free of charge.
My Cameroonian authorities have continued the implementation of major structural reforms in public finances, including the integrated financial management system (SIGEFI), the reform of the personal income tax and the large taxpayer unit (DGE). On civil service reform, the pilot phase of the implementation of the civil service employment register (SIGIPES) proved to be conclusive. A recent assessment of the implementation of SIGIPES indicates that the system is efficient, and ghost-employees were identified and removed from the payroll.
Structural reforms in other areas have also been made. In the transportation sector, the reform of the Douala Port was implemented successfully, including the management of the container terminal and computerization of the single window for imports and exports clearance (GUCE). Hence, transaction costs and clearance time were reduced significantly. In the forestry sector, the redefinition of the mandate of the forestry agency (ANAFOR), and the allocation of logging rights through competitive bidding in the presence of an independent observer were completed.
On governance, measures implemented include the adoption of the new public procurement code aimed at strengthening the transparency of procedures, and the action plan for the reform of the judiciary system. Moreover, laws establishing the Audit Office for state finances (Chambre des Comptes) and the Constitutional Court were enacted, and the anticorruption units were established in all ministries and other government bodies.
III. Program for 2005
The Government’s key objectives for 2005 are in line with priorities set forth in the PRSP endorsed by the Board in July 2003. My authorities have asked staff to monitor their 2005 program and they are determined to pursue fiscal consolidation to preserve macroeconomic stability, strengthen investment and economic growth, and improve social conditions of the population. This will include improving fiscal revenue and enhancing transparency in government operations, further restructuring and privatization of public enterprises, and improving governance and the business climate to enhance private sector activity and growth.
Fiscal Policy
The 2005 budget framework aims at reestablishing macroeconomic stability through a stricter adherence to fiscal discipline. In this context, my authorities are committed to undertake strong efforts in 2005 to improve substantially the fiscal position by strengthening tax administration, enhancing revenue performance, curtailing and controlling expenditure. My authorities will address contingent fiscal liabilities, including domestic public debt. The non-oil primary deficit is expected to improve by 2.5 percentage points of non-oil GDP, and the overall balance, including grants is projected at a surplus of 0.4 percent of GDP.
As regards tax and customs administration, my authorities will continue to enhance the functioning of the Large Taxpayer Unit (DGE). They will increase material and human resources to the DGE in order to enlarge tax compliance, VAT and excises. Also, the taxation of the forestry sector will be improved by combating fraudulent exports and the informal processing of timber. Furthermore, customs administration will be enhanced, including through the installation of the new automated custom data system (ASYCUD).
My authorities intend to boost the mobilization of additional non-oil revenues through new tax policy measures. The 2005 tax measures include increasing the VAT rate from 17 to 17.5 percent; abolishing further VAT exemptions, and the excise tax exemption for locally produced alcoholic beverages and tobacco; increasing taxation on gambling and increasing stamp duties and automobile registration fees. Concerning the monthly adjustment mechanism of domestic fuel prices in line with the international oil market prices, my Cameroonian authorities are aware of the budgetary implications of any partial cost recovery. However, they intend to implement this mechanism with caution, in order to avoid igniting social pressure that might undermine the public consensus on the program.
On expenditure, the authorities have adopted a cash-basis management of the budget, thus ensuring that the level of expenditures corresponds to the Government’s cash position. Hence, expenditure control will be a key priority in 2005. It is also important to note that all SNH’s interventions directes will now require the prior authorization of the Minister of Finance, and only against available budget allocations in the relevant ministerial budget. The authorities are committed to discontinue these interventions by July 1, 2005.
Structural reforms
My authorities intend to deepen structural reforms envisioned in the PRSP while focusing on tasks critical to macroeconomic stability. They are strongly determined to implement the ambitious fiscal and structural reforms outlined in the SMP. In this regard, actions already taken include firmly establishing fiscal discipline through strengthening public expenditure management and revenue collection, auditing domestic debt with the aim of establishing a settlement plan, speeding up the privatization of publicly owned enterprises, and improving the production and distribution of electricity.
On fiscal management and control, my authorities will pursue the streamlining of the civil service payroll. They intend to expand progressively the use of SIGIPES to other government entities and they are determined to use SIGEFI more efficiently, thus enhancing the accuracy and the timeliness of fiscal data. Moreover, they will begin publishing monthly budget execution monitoring documents by end-June 2005. Another key component of the fiscal program is the consolidation of the single Treasury account at the regional central bank (BEAC). To this effect, most accounts maintained by government entities in commercial banks will be closed to improve the management of public finances. No new account will be opened in commercial banks as of March 31, 2005.
Regarding the oil sector, which contributes significantly to economic activity and budgetary revenues, the authorities will continue to take steps to improve transparency. They will ensure the timely transfer to the Treasury of the surplus of the national oil company (SNH). However, Cameroon remains a modest oil producer and the production is projected to decline further.
My authorities are determined to take vigorous measures aimed at restoring financial discipline in the public enterprise and utilities sector. Therefore, the government’s utility and transport bills will be paid on time. Moreover, the ongoing audit on domestic debt will be used to identify by end-June 2005 the cross-liabilities between the government and public enterprises. On the privatization process, although past negotiations with the bidders for the fixed telecoms (CAMTEL) and water (SNEC) companies fell through, the authorities are committed to make significant progress toward the restructuring and the divestiture of most of the largest companies. In this connection, they have reviewed their approach to privatization and have reinitiated the process with the support of the World Bank. Concerning the airline company (CAMAIR), the authorities will expedite the privatization process. Measures already taken include the selection of the International Financial Corporation (IFC) - a prior action of the SMP- as the main consultant to advise the government.
Financial sector
While efforts will be made to deepen financial intermediation, the authorities will complete the licensing of microfinance institutions. Although the banking sector is in good health, the authorities intend to further strengthen the financial sector. They will step up their efforts to address the financial situation of government-owned financial institutions including the postal savings bank (CAMPOST) and the housing credit organization (Crédit Foncier). Regarding the microfinance sector, the registration of microfinance institutions will be completed under the supervision of the regional banking commission, COBAC.
Governance and transparency
The Government is committed to adhere to the Extractive Industries Transparency Initiative (EITI). In this context, priority will be to publish information about exploration, production and sales of crude oil in Cameroon, as well as the revenue generated and transferred to the Treasury, the main elements of the audit reports of SNH. Moreover, quarterly information on total oil production, prices, and revenue of the Government will be published on the website of SNH and that of the Prime Minister’s Office. In addition, the authorities will make every effort to obtain the agreement of the oil companies operating in Cameroon for the publication of the main elements of the production sharing agreements. In order to enhance accountability in the management of public resources, my authorities will make the Audit Office (Chambre des comptes) operational by end-December 2005 while pressing ahead with the implementation of the action plan of the judicial reform.
Debt issue
Although the DSA exercise suggests that Cameroon’s external debt should be manageable in the medium-term after the completion point, the authorities believe that the tight budgetary situation will limit their ability to fully meet the financial obligations due to bilateral and commercial creditors in 2005. They see the negotiation of a new PRGF arrangement as a decisive step towards a new Paris Club debt rescheduling. Turning to the domestic public debt, which is hampering the development of the private sector, the authorities will establish a settlement plan with its creditors as soon as the ongoing audit is completed.
Ex Post Assessment (EPA)
My Cameroonian authorities welcome the EPA discussions and broadly concur with the assessment of Cameroon’s relationship with the Fund and the implementation of Fund- supported policies. The report acknowledges significant progress that the authorities have made during the period 1997 to 2004 in the area of fiscal and structural reforms. These reforms have contributed to the stabilization of the macroeconomic environment and to the improvement of the external debt profile, thus laying the ground for enhanced growth and poverty reduction. Moreover, my authorities agree that higher investment is needed to lift Cameroon’s growth rate and make substantial progress toward the MDGs. In this regard, they will promote an environment conducive to the private sector-led growth through streamlining administrative regulations, enhancing the rule of law, and improving infrastructure, including electricity and roads.
My authorities recognize that the slippages that occurred in 2003 and 2004 were partly due to weaknesses in program coordination and fiscal management. However, they do not agree that it lacked ownership; instead, burgeoning conditionality and the threat of program suspension caused the authorities to agree to targets that proved to be above the capacity of Cameroon’s economy.
PRSP
My authorities are preparing the second annual report. They are aware of the importance of improving the implementation, and the monitoring and evaluation of PRSP activities. In this connection, they will ensure that HIPC resources are adequately disbursed, that the analytical quality of the reports is enhanced, and the participatory monitoring improved. My authorities are committed to replenishing the HIPC account. Additionally, they recognize the need to improve the linkage between the PRSP, the medium-term strategy and the annual budget process. Thus, key elements of the PRSP will be revised, including the medium-term macroeconomic framework in the context of the 2006 budget preparation, and a 3-year economic program for which they intend top request a new PRGF arrangement as soon as possible.
IV. Conclusion
My Cameroonian authorities concur with the assessment that program conditionality should target outcomes, rather than process as this reinforces program ownership. The staff report underscores successful implementation of Fund supported programs during the period under review by the Cameroonian authorities. Besides, Cameroon has already completed most of completion point triggers. My authorities are fully determined to implementing the current SMP and satisfying the conditions. In this context, they appreciate the consideration by Management that a satisfactory implementation of the SMP during the first 6 months could pave the way for reaching rapidly an agreement with the Fund on a new PRGF supported program, and proceeding to the completion point.
It is noteworthy that the newly appointed government has brought management changes and has confirmed over the last few months its strong determination to address immediate challenges, including further diversifying the economy. My Cameroonian authorities are committed to improve further the business climate and competitiveness, and all necessary measures contributing to lay the ground for a sustainable growth, which is paramount for accelerating progress towards the MDGs. They see the SMP as a starting point in the setting up of an ambitious economic program that will help realize the large potentialities of Cameroon’s economy.
Finally, I would appreciate my colleagues’ support for the authorities’ program, as well as for an early transition to a program supported by a PRGF arrangement.