Front Matter Page
© 2007 International Monetary Fund
March 2007
IMF Country Report No. 07/129
Cameroon: Second Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility—Staff Report; Staff Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cameroon
In the context of the second review of the three-year arrangement Under the Poverty Reduction and Growth Facility, the following documents have been released and are included in this package:
the staff report for the Second Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, prepared by a staff team of the IMF, following discussions that ended on September 11, 2006, with the officials of Cameroon on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on December 7, 2006. The views expressed in the staff report are those of the staff team and do not necessarily reflect the views of the Executive Board of the IMF;
a staff statement of December 22, 2006, updating information on recent developments;
a Press Release summarizing the views of the Executive Board as expressed during its December 22, 2006 discussion of the staff report that completed the review; and
a statement by the Executive Director for Cameroon.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Cameroon*
Memorandum of Economic and Financial Policies by the authorities of Cameroon*
Technical Memorandum of Understanding*
*Also be included in Staff Report
The policy of publication of staff reports and other documents allows for the deletion of market-sensitive information.
To assist the IMF in evaluating the publication policy, reader comments are invited and may be sent by publicationpolicy@imf.org.
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Front Matter Page
INTERNATIONAL MONETARY FUND
CAMEROON
Second Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility
Prepared by the African Department (In collaboration with other departments)
Approved by David Nellor and Adnan Mazarei
December 7, 2006
Main topics. This report recommends completion of the second review of the PRGF arrangement. The government’s letter of intent (LOI), memorandum of economic and financial policies (MEFP), and technical memorandum of understanding (TMU) may be found in Appendix I. The authorities have agreed to the publication of these documents.
Recent developments and PRGF performance. Economic activity is slowing reflecting a weak business environment, stronger competition from low-cost producers of manufactured products, and reforms to foster sustainable forestry production. Higher world oil prices are leading to inflationary pressures while at the same time contributing to an improvement in the fiscal position and external current account balance. Macroeconomic performance under the PRGF-supported program was satisfactory during January-June 2006 although structural reform implementation was mixed. While budget execution and implementation of structural measures related to public financial management were satisfactory, most public enterprise and governance reforms were implemented with delay while two have yet to be completed.
Program relations and debt relief. The IMF Executive Board completed the first review of the PRGF arrangement in April 2006 and approved a disbursement of SDR 2.65 million. At the same time, Cameroon reached the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and received assistance from the Fund under the Multilateral Debt Relief Initiative (MDRI). In June 2006 Paris Club creditors agreed to cancel nearly 100 percent of their outstanding claims against Cameroon.
Mission discussions. Discussions were held in Yaoundé during August 28–September 11, 2006. The mission met with Prime Minister Inoni; State Minister at the Presidency Antagana Mebara; Finance Minister Abah Abah; and the National Director of the regional central bank (BEAC), Mr. Hayatou. Meetings were also held with representatives of the private sector, labor unions, donors, and the press. The staff team comprised Mr. Ghura (head), Mr. Ioannou, and Mr. Weisfeld (all AFR), Mr. Mansour (FAD), and Mr. Kireyev (PDR). They were assisted by Ms. Kabedi-Mbuyi, resident representative, and Mr. Tchakote, economist, and Ms. Essia Ngang, assistant in the resident representative’s office. Mr. Menye, advisor to the executive director for Cameroon, participated in the discussions (Mr. Menye was appointed deputy minister of finance in charge of the budget in late September). The staff collaborated closely with a parallel World Bank mission.
Contents
Executive Summary
I. Background and Introduction
II. Recent Economic Developments and Program Implementation
III. Broad Objectives under the PRGF
IV. Key Reforms To Achieve the PRGF Objectives
A. Preserving Fiscal Sustainability and Macroeconomic Stability
B. Improving the Business Environment and Enhancing Investment
V. Financing Assurance Review
VI. Program Risks and Monitoring
VII. Staff Appraisal
Boxes
1. Business Environment
2 Governance Indicators
Figures
1. Output, Prices, Savings, and Investments, 2002-08
2. External Sector Developments and Prospects, 2002-08
3. Fiscal Developments and Prospects, 2002-08
Tables
1. Selected Economic and Financial Indicators, 2004-08.
2. Balance of Payments, 2004-08
3. Central Government Operations, 2004-08
3a. Central Government Operations 2006
3b. Central Government Operations 2007
3c. Selected Fiscal Indicators, 2004-08
4. Monetary Survey, December 2004-December 2007
5. Millennium Development Goals, 1990-2015
6. Indicators of IMF Credit, 2004-08
7. Fund Disbursements and Timing of Reviews Under the PRGF, 2007-08
Appendixes
I. Letter of Intent
Attachment I: Memorandum of Economic and Financial Policies
Attachment II: Technical Memorandum of Understanding
II. Relations with the Fund
III. Relations with the World Bank
IV. Table of Common Indicators Required for Surveillance.
Abbreviations and Acronyms
| ARMP |
Public Procurement Regulatory Agency |
| CAMAIR |
Cameroon airline |
| CAMTEL |
Cameroon telephone company |
| CET |
Common external tariff |
| CEMAC |
Central African Economic and Monetary Community |
| EITI |
Extractive Industry Transparency Initiative |
| EPA |
Economic Partnership Agreement |
| EU |
European Union |
| HIPC |
Heavily Indebted Poor Countries |
| IFC |
International Finance Corporation |
| MDRI |
Multilateral Debt Relief Initiative |
| MTEF |
Medium-term expenditure framework |
| NPV |
Net present value |
| PRGF |
Poverty Reduction and Growth Facility |
| PSI |
Policy Support Instrument |
| REER |
Real effective exchange rate |
| SNH |
National oil company |
| SNEC |
National water company |
| SONARA |
National oil refinery |
| UN |
United Nations |
| WAEMU |
West African Economic and Monetary Union |
| WEO |
World Economic Outlook |
Executive Summary
Economic activity has slowed in Cameroon and inflation is picking up, though the external current account position has improved. Nonoil real GDP growth is expected to remain sluggish in 2006 reflecting a weak business environment and acute competition from low-cost producers of manufactured products. Also, reforms to foster sustainable forestry production have led to decreased utilization of forestry permits. Higher oil prices and lower debt service have improved the external current account. Inflation has picked up along with fuel price increases.
Fiscal performance under the PRGF-supported program was satisfactory during January-June 2006 although structural reform implementation was mixed. The non-noil primary fiscal balance objective was achieved, and the target on net credit to the government was met by a large margin. While budget execution and implementation of structural measures related to public finance management were satisfactory, work on measures pertaining to public enterprise and governance reforms was slow, though the government enhanced transparency by publishing information on budget execution and oil transactions.
The goal of the medium-term fiscal strategy is to expand priority spending so as to accelerate growth and poverty reduction while preserving fiscal sustainability. Staff has urged the authorities to implement resolutely reforms in revenue administration and budget execution, especially those geared to strengthen investment procedures and budget tracking.
Determined government action is necessary to revive growth. Completion of the reform of macro-critical public enterprises will help consolidate gains in economic efficiency and open opportunities for private investment. The business environment should be improved; upgrading infrastructure and strengthening the judiciary deserve particular attention. Regional import tariff rates would need to be brought down in a well-articulated medium-term framework.
The momentum for governance reforms seems to have slowed. Though an EITI administrator was selected and the Audit Chamber began operations, members of the National Anti-Corruption Commission, created in early 2006 to investigate allegations of corruption, have not been named, and the law requiring public officials to declare their assets is yet to be enforced.
Risks to the program include possible expenditure overruns in the context of upcoming elections and weakened ownership in view of forthcoming difficult reforms in the areas of governance and civil service. While safeguarding priority outlays, the government should resist excessive spending and persevere with business-friendly structural reforms.
The staff recommends completion of the second review of the PRGF. The authorities have taken steps to improve public finance management and governance, pursued public enterprise reform, and made firm policy commitments for 2007, and therefore the staff recommends that the Board conclude the second review of the PRGF and approve a disbursement in the amount equivalent to SDR 2.65 million.
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December 22, 2006
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Press Release No. 06/300
FOR IMMEDIATE RELEASE
December 22, 2006
International Monetary Fund
Washington, D.C. 20431 USA
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December 22, 2006
