Abstract
This paper discusses key findings of the Second Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility for Cameroon. 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 inflation pressures while contributing to an improvement in the fiscal position and external current account balance. Budget execution and implementation of structural measures related to public financial management were also satisfactory.
This statement provides an update on recent economic developments based on information received after the staff report was issued. This information does not alter the thrust of the staff appraisal.
1. The rise in inflation is continuing, primarily reflecting the impact of higher fuel prices. Inflation in the 12-month period through September was 5.0 percent, up from 3.9 percent in June.
2. Fiscal performance in the first nine months of 2006 was broadly satisfactory, although nonoil revenues were lower than expected in the third quarter. Based on very preliminary data, the overall fiscal balance was significantly higher than projected owing to higher oil prices and strict control over expenditures. The underperformance in nonoil revenues in the third quarter reflected lower-than-projected direct and nontax revenues. The decline in nonoil revenue was mostly offset by lower spending. Nonetheless, the structural benchmark on the nonoil primary balance, as defined under the program, was missed by 0.1 percent of GDP. The shortfall in the primary balance does not reflect a loosening of fiscal policy, and the authorities are taking steps to (i) strengthen nonoil revenue collection by tightening controls and (ii) monitor spending closely.
3. Structural reform implementation proceeded broadly as planned. The 2007 budget was approved by Parliament in line with the program (performance criterion for end December). Based on preliminary information, the new customs management system in the coastal province (which accounts for about 95 percent of imports) is expected to be in use by year end as planned (structural performance criterion). The authorities have completed the census of government employees and have been cleaning up the payroll records based on the data collected (structural benchmark). Publication of the first EITI report is on track and expected by end-December, as planned (structural benchmark).