Statement by Damian Ondo Mañe, Executive Director for Cameroon

Macroeconomic performance has been satisfactory, and program implementation under the Poverty Reduction and Growth Facility arrangement has also been good. The medium-term projections have been updated in anticipation of relief under the Multilateral Debt Relief Initiative (MDRI). Despite recent steps, governance remains weak. The slowdown in non-oil real growth is a cause for concern and calls for determined actions by the government. Relief under the enhanced Heavily Indebted Poor Countries Initiative and MDRI would reduce Cameroon’s debt to sustainable levels.

Abstract

Macroeconomic performance has been satisfactory, and program implementation under the Poverty Reduction and Growth Facility arrangement has also been good. The medium-term projections have been updated in anticipation of relief under the Multilateral Debt Relief Initiative (MDRI). Despite recent steps, governance remains weak. The slowdown in non-oil real growth is a cause for concern and calls for determined actions by the government. Relief under the enhanced Heavily Indebted Poor Countries Initiative and MDRI would reduce Cameroon’s debt to sustainable levels.

On behalf of my Cameroonian authorities, I would like to convey their appreciation for the constructive and fruitful discussions they had with the staff, and for the advice and quality of discussions and for the candid and well-balanced set of papers.

I. Recent Developments and Performance under the Program

In 2005, the Cameroonian authorities redoubled their adjustment efforts by implementing strong fiscal consolidation measures and deepening structural reforms. These efforts which have been pursued in 2006 have helped to restore the conditions for macroeconomic stability. However, economic activity weakened, due to a decline in oil production and agro-business output, as well as a significant deceleration in forestry production. Although average inflation remained low at 2 percent, it was higher than in 2004, when inflation was 0.3 percent. This acceleration reflects mainly the pass-through of the increase in world oil prices. Both the fiscal position and the external current account balances strengthened in 2005. Moreover, all quantitative and structural performance criteria and benchmarks through January 2006 were met.

The program placed a major emphasis on strengthening the fiscal position. In this regard, non-oil revenues increased significantly on the basis of measures implemented to strengthen tax and customs administrations. Non-oil revenue, thus, grew by one percentage point of GDP. Oil revenue also increased, reflecting higher international prices. Spending was also tightened, although priority expenditures, especially those in the areas of health and education were increased. Total expenditures, in 2005, were lower than programmed by one percentage point of GDP. As a result, the primary balance strengthened further.

It is to be noted that the government pursued steadfastly the clearing of domestic arrears. The oil revenue windfall was used to reduce domestic arrears and clear arrears in the HIPC account. The authorities place high importance in the clearing of domestic arrears which they view as contributing significantly to improving business confidence and leading to an increase in economic activity.

Progress continued in structural reforms. Privatization strategies for CAMTEL and CAMAIR were adopted. Reforms in the financial sector continued. The authorities made significant strides in the areas of transparency and governance. These include adoption of an updated National Governance Plan (PNG II) which emphasizes high-impact results to be measured through monitorable performance indicators. The PNG II covers democratic, administrative and economic governance, with a specific subcomponent on the fight against corruption. It has led to the adoption of a Law by Parliament requiring public officials, including the President, the Prime Minister, other ministers, high official in government and public enterprises members and members of the National Assembly, to declare their assets. It has also led to the establishment of an independent agency to spearhead the anti-corruption drive. Progress has been made towards implementing the EITI and publication of information on budget execution and oil sector data. Quarterly data on the petroleum sector continue to be published on the websites of the state oil company. (www.snh.cm). The government established a list of performance indicators designed to strengthen the monitoring of the public procurement system. The government also took steps to crack down on corruption. My authorities recognize that more efforts will be needed and they remain committed to pursuing the efforts to improve governance.

II. Economic Policies for 2006 and the Medium-Term

My Cameroonian authorities are aware that achieving the objective of strong and sustainable growth to reduce poverty will require, in the medium-term, diversifying the economy and broadening the export base. The medium-term objectives remain consistent with the macroeconomic framework of the three-year program. For the period 2006–08, average growth in the non-oil economy should be around 4.6 percent per year, and inflation should remain moderate at below 2 percent per annum. The external current account deficit (excluding grants) should be around 3 percent of GDP by 2008.

The authorities remain committed to achieving these objectives, and towards that end, they will pursue steadfastly the fiscal consolidation efforts, strengthen governance, improve the quality and effectiveness of public investment and expedite structural reforms. In that context, the authorities are cognizant that maintaining the real GDP growth in the non-oil sector to at least 4.4 percent per year, on average, is key to reducing poverty. In this regard, they have expanded the preparation of the Medium-Term Public Expenditure Frameworks (MTEF) with the aim of establishing a multi-year budget framework consistent with this medium-term growth objective. To finance the PRSP and the MDG targets, the authorities will make every effort to increase mobilization of internal resources. Given the magnitude of the needs and the limited internal resources available, external financing will continue to play a key role in the development of infrastructures and the fight against poverty.

Fiscal Policy

Prudent fiscal policy will remain the cornerstone of the authorities’ economic program. On the revenue side, the efforts will focus on raising non-oil revenue. In this regard, the tax measures adopted in the 2006 budget include broadening the excise taxes, enhancing the income tax and forestry taxation, and minimizing exemptions to the VAT and imports tariffs. Furthermore, the authorities intend to extend the taxation nets to the informal sector. The strengthening of the tax and customs administration will be pursued. Notably, the Automated System for Customs Data (SYDONIA) will be extended to all main customs offices.

On the expenditure side, the authorities will continue to pursue a policy of prudent spending while taking into account the PRSP priorities. The salary increase in 2006 will remain prudent and together with new recruitment in priority sectors will keep the wage bill at 4.7 percent of GDP. More broadly, the authorities are of the view that they will need to give more attention to the low civil service salaries, which they believe is one of the causes of poor service and corruption. However, they intend to address this issue prudently, and in the meantime, efforts at strengthening the payroll management and monitoring systems will continue. My authorities are committed to raising pro-poor spending by 2 percentage points of GDP to make faster progress towards achieving the MDGs. The authorities also intend to open a special account at the BEAC to deposit MDRI debt relief, and use of these consistent with the PRSP priorities will be closely monitored. The government has taken steps to improve the programming and execution of HIPC-financed projects, including streamlining disbursement procedures, strengthening capacity of the National Consultative Committee and putting in place an information system for monitoring project implementation. Projects targeted were in the construction and rehabilitation of schools, recruitment of temporary teachers, improving immunizations and combating malaria and HIV/AIDS, and rural infrastructure.

It is the intention of the authorities to increase capital spending, as envisaged in the original program to spur growth and strengthen the delivery of social services. In this regard, capital spending, including resources from MDRI, is projected to grow by 2.4 percentage point of GDP, and will include projects related to infrastructure improvement which have been prepared with technical assistance form the donor community. The authorities are taking measures to strengthen capacity to ensure an efficient execution of investment spending. As in 2005, windfall oil revenues will be used to reduce domestic arrears, including arrears on VAT credits.

Monetary policy and Financial Sector Reform

Monetary policy, implemented at the regional level, will continue to focus on strengthening the BEAC external reserves and maintaining inflation at a level compatible with the anchor currency. The actions which began in 2005 to strengthen the financial system and deepen financial intermediation will be continued. Accordingly, in collaboration with the regional bank supervision agency (COBAC) the government will remain vigilant regarding the strengthening of supervision of microfinance institutions. The restructuring of the housing credit agency and of CAMPOST will be pursued.

Structural Reforms

My Cameroonian authorities are resolved to push ahead the agenda of reforms and move toward strengthening growth prospects and boosting efficiency in the use of public resources. To this end, they remain committed to moving forward with initiatives undertaken in 2005 to reduce the government’s role in the productive sector. The measures set out in the action plan for the privatization of CAMAIR and the ongoing reforms of SNEC, CAMTEL, and SONARA will be actively pursued. In the agro-industrial sector, the government is working on a new strategy to ensure the successful privatization of the cotton company (SODECOTON) and the palm oil and rubber plantations of Cameroon Development Corporation (CDC). However, in this area, my authorities call for a cautious approach, given the importance of these entities in Cameroon’s economy and the social implications of the ongoing reform. The World Bank is assisting the authorities in the advancement of this process.

My authorities will continue to take measures to enhance the environment conducive to private sector development. Cameroon’s ranking in the World Bank’s “Doing Business” database of 2005 is an incentive to maintaining the momentum in the reforms initiated and consolidate gains already realized and further improve the business environment. To this end, they will continue implementing in-depth structural reforms and improve the legal, regulatory and judicial frameworks to attract FDI. Institutional development and improved governance and reduced corruption will ensure sound management of public affairs and improve the business environment. At the same time, development of infrastructure will support productive sectors and reinforce public-private partnership. The government will also ensure the continued implementation of the principles of the Extractive Industries Transparency Initiative (EITI).

As regards the judicial sector, I would like to highlight the comment made by the President of Cameroon at the time of EDs’ visit to this country. At that meeting, the President noted the Cameroonian legal system is a blend of the French, English and traditional legal systems. To understand the difficulty of the reform process, he pointed out that the reform started 30 years ago and that the implementation of the new penal code has just started. The difficulty is now training the judges, lawyers, law enforcement officers, and educate the public about the new laws and regulations, and this will take time, but my authorities are determined to do it.

Completion Point Triggers and PRSP

My Cameroonian authorities have implemented satisfactorily the actions required for meeting the Enhanced HIPC completion point triggers. Almost all completion point triggers have been met, as well as satisfactory implementation of the poverty reduction strategy, maintenance of macroeconomic stability, social sector and structural reforms, and actions to improve governance and reduce corruption.

On the trigger points:

  • the full PRSP has been prepared and satisfactorily implemented for one year;

  • macroeconomic stability is being maintained, and the country is implementing a PRGF-supported adjustment program;

  • the budgetary savings from debt relief are being used according to the criteria set forth;

  • SACIII has been satisfactorily concluded and reforms implemented;

  • the priority strategy and action plan for improving governance and combating corruption have been satisfactorily implemented;

  • regulatory agencies for key sectors of water, electricity and telecommunications are autonomous and are operating;

  • the sectoral strategy for the education and health sectors have been satisfactorily implemented.

The only trigger which my authorities could not fulfill and for which they request a waiver is with respect to water regulator agency. The privatization strategy of the water utility (SNEC) was changed after the failure to award a concession in 2003. My authorities would like to underscore that there was limited investor interest in the water sector. Consequently, the government with the assistance of the World Bank, restructured the water utility as a public-private partnership (PPP). The firm implementation of the revised water reform led to the creation of the assets holding company (CAMWATER) that will carry investment responsibilities. In this context, the private partner will operate the facilities and deliver services under a lease contract. The regulatory framework is already in place and will be operational once the operator is selected and lease signed. The prequalification process for private partner - several international operators expressed interest - and the invitation for bids is expected to be launched in mid-2006.

It is to be noted that the authorities have also pursued the implementation of their Poverty Reduction Strategy Paper (PRSP) adopted in 2003 that was prepared in a participatory and consultative manner, involving all stakeholders. An institutional body to oversee the implementation of the PRSP was created and three annual progress reports of the PRSP were produced. Moreover, the authorities have extended the elaboration of Medium-Term Public Expenditure framework in order to enhance the budget preparation process, in particular in the allocation and the monitoring of pro-poor spending.

My Cameroonian authorities, therefore, believe that they have implemented successfully all the measures required for Cameroon to reach the completion point under the HIPC Initiative, and hope that the Board will come to the same conclusion.

Debt Sustainability and Economic Growth

The debt relief that Cameroon will receive under the HIPC and the MDRI will finally put the country’s external debt position on a sustainable path. My authorities will follow prudent fiscal and debt policies, and will continue their efforts to diversify the economy which they hope will strengthen the economy’s resiliency to shocks.

My Cameroonian authorities view the Completion Point as a new step in the country’s development path. They intend to follow policies consistent with their PRSP and that that will ensure macroeconomic stability and high sustainable growth. Reflecting economic stimulus from increased capital spending, and the implementation of structural reforms, real growth is expected to accelerate to 6 percent per annum by 2011. Fiscal policy would be supportive of economic growth and poverty reduction.

III. Conclusion

My Cameroonian authorities reiterate their gratitude to staff, management and the Board for their advice and support. They remain determined to pursue steadfastly the implementation of their poverty-reduction strategy with the aim of accelerating and sustaining growth while making progress towards the achievement of the MDGs. In this endeavor, my authorities will continue to rely on the strong support of their development partners, including the Fund. It is also my authorities’ intention to continue to rely on Fund for advice and technical assistance.