Abstract
This 2007 Article IV Consultation highlights that a number of factors have constrained Cameroon’s growth potential relative to the group of lower-middle-income economies, including lower investment rate, shallower financial depth, less open trade; weaker infrastructure and human capital base; and weaker business environment. Growth picked up somewhat in 2006, following a rebound in construction activities, oil output, and forestry production. The outlook for 2007 and the medium term is encouraging. Economic activity is expected to pick up further in 2007, reflecting stronger performance in the forestry, construction and tertiary sectors.
On behalf of my Cameroonian authorities, I would like to thank Executive Directors and Management for their continued support to Cameroon’s efforts towards sustained growth and economic development. I would also like to thank staff for the constructive policy dialogue and fruitful exchanges during their recent visit to Yaoundé.
Cameroon continues to exhibit good overall macroeconomic performance. Economic growth picked up in 2006, close to 4 percent, and external development were favorable owing to higher prices and production and increased nonoil export volume. The contribution of nonoil activity to this outlook is encouraging, particularly in the construction and forestry sectors. The nonoil activity, which grew by 3.5 percent in 2006, has made a solid contribution to the rebound in economic growth last year. Despite the erosion of preferential treatment granted by the European Union to the country’s agricultural exports, and the increased competition faced by local production from finished products from lower cost producing countries, the external balance has improved owing to oil prices and production.
Efforts by the Cameroonian authorities on fiscal policy continue to bear fruits. Good outturn in both oil revenue and nonoil revenue collection, combined with reduced current spending. Bottlenecks in aid disbursement under the debt relief initiative, coupled with difficulties in procurement procedures, have led to lower-than-planned capital expenditure. At a time when grants and concessional borrowing should be made more available to low-income countries, it should also be noted that concessional resources have been scarce to Cameroon, making even more difficult for the country to meet its daunting infrastructure and social needs. While efforts are underway to improve the use of resources freed by HIPC and MDRI debt relief, additional resources are needed to address the energy issue.
As for debt management, Cameroon has committed to the Paris Club to offer comparable treatment to creditors that did not participate in the 2003 debt buy-back operation. Negotiations with private creditors are ongoing, and some of the creditors have already agreed to forgo accumulated interest and penalties.
On the monetary front, my authorities have reduced government liabilities to the banking system, whose health has strengthened overall. The reduction in net bank credit to the government contributed to containing money supply growth and inflation amid higher prices for petroleum products.
Regarding structural reforms, my Cameroonian authorities have, in line with the program target, submitted a draft 2007 Budget Law which was adopted by end-2006. The authorities have started to implement the customs information system in the Littoral province, which is aimed at curbing customs fraud and boosting revenue. In addition, tax centers for mediumsized enterprises have been established in the two main cities, Yaoundé and Douala, with the view to improve the efficiency of tax monitoring. On the expenditure side, the tracking summary tables, which also covers pro-poor spending, are produced on a regular basis. As part of efforts to streamline the size of civil service, the government completed its census of civil servants and used results to clean up the payroll.
Regarding public enterprises reforms, the authorities are pursuing their agenda with assistance from the World Bank and the IFC. International invitation for bids for the privatization of the national telephone company (CAMTEL) and the public-private management contract of the national water company (SNEC), respectively, were launched. As for the airline company, CAMAIR, the government has already issued a new tender for its privatization. In the meantime, agreement has been reached with Fund staff on subsidies to the company.
In the financial sector, a management team for CAMPOST was recruited and assumed operations in February 2007. The government took actions to ensure the reconstitution of the assets of the company, including depositing at the central bank the transfer it made to CAMPOST as part of its domestic debt settlement and ensuring a quarterly supervision report on the company by the unit within the Ministry of Finance in charge of the oversight of nonbank financial institutions.
Further efforts have been made to enhance governance and transparency in the management of public resources, notably in the oil, public enterprises and anti-corruption areas. My authorities have continued to implement the Extractive Industries Transparency Initiative (EITI) principles and publish the quarterly budget-execution reports, the operating reports of the national oil company, the financial aggregates of the main public enterprises, statistical data, debt analysis, and judicial decisions and administrative penalties against corrupt government employees. Members of the National Anti-Corruption Commission (CONAC) were appointed and the Commission is now operational. As for the functioning of the Commission planned as part of the implementation of asset disclosure by senior government officials, the implementing regulations under the related law have been adopted, and my authorities are currently visiting other countries for comparison purposes. On a different front, my authorities are working, in collaboration with the World Bank, to put in place an appropriate procurement system.
My authorities’ sustained efforts have allowed them to meet most of the program’s quantitative criteria and benchmarks at end-December 2006. The missed performance criterion on the increase in net claims of the banking system on the central government is due to exceptional circumstances, notably contingent obligation related to the provision of economic and social (education, health, clean water) infrastructure in the Bakassi peninsula. This was in accordance with the conditions laid down by the United Nations international arbitration ruling on the peninsula. As my Cameroonian authorities had no revenue provisions, they were compelled to use windfall revenue from the oil company. My Cameroonian authorities have however committed to ensure that such extrabudgetary expenditure does not occur again. They request a waiver for the nonobservance of this criterion and the modification into a performance criterion of the structural benchmark on cash payments by the national oil company on account of the government.
In view of overall satisfactory program performance and the commitments made in the Prime Minister’s Letter of Intent and the government’s Memorandum of Economic and Financial Policies for the period ahead, I request, on behalf of my Cameroonian authorities, the Board to approve the requested waiver, the completion of the third review and the completion of the financing assurances review.
Economic Policies and Structural Reforms Going Forward
Going forward, my authorities will continue to act within the medium-term macroeconomic framework. In this framework, annual GDP growth should remain above 4 percent, inflation contained below 2 percent, fiscal position favorable notably with nonoil primary deficit stabilized around 2.2 percent and overall budget balance (commitment basis, excluding grants) in surplus, and the current account current account weaken due to lower oil prices. This positive outlook owes to the beneficial impact of debt relief under the HIPC Initiative and the MDRI and better prospects for forestry, construction and tertiary sectors. Nonoil activity is also expected to grow at levels above 4 percent.
Fiscal policy
It is my authorities’ intention to meet the fiscal objectives of the 2007 program. Based on their determination and recent results, they feel confident that the nonoil revenue objective, set at 12.5 percent of GDP will materialize. On the expenditure side, two-thirds of noninterest spending in 2007 will be allocated to capital expenditures on which the authorities will put much focus. They will invite donors and lenders in discussions at budget conferences in order to improve the execution of poverty reduction expenditure while accelerating the latter. In the same vein, the government will prepare a road map toward executing a multiyear investment budget. Furthermore, starting next year, my authorities will enter as priority items in the budget for the following year all expenditure items that have been committed but for which payment has not been authorized by the end of the fiscal year.
My authorities commit to continue using any windfall in oil revenue to accelerate payments on domestic debt and arrears, repurchase debt held by external commercial creditors who did not take part in the commercial debt repurchase initiative within the London Club, and finance investment projects in priority sectors of infrastructure development, education, health, and rural and urban development. The financing of these projects will be made after consultation with IMF staff.
Structural reforms
As underscored above, my authorities commit to maintaining budget transparency and make further efforts to enhance budgetary procedures and continuing the fiscal reforms envisaged in the context of the PRGF-supported program. These include measures to boost tax and customs revenue and broaden the tax base within this year, notably by: (i) connecting online the IT systems of the tax and customs directorates; (ii) establishing the electronic one-stop window to facilitate foreign trade; (iii) eliminating the minimum administrative values for all imported products while taxing imported goods in accordance with CEMAC rules; (iv) pursuing efforts to control and reduce duty exemptions and improve ex-post controls; (v) mproving the implementation and control of customs and economic regimes; (vi) increasing the number of taxpayers covered by the tax centers for medium-sized enterprises in Yaoundé and Douala; (vii) streamlining taxpayer identification; (viii) completing the implementation of a tax-related information management software (AREN); (ix) creating a commission in charge of reviewing domestic tax and foreign trade taxation, which will make recommendations aimed at boosting revenues from these taxes. The authorities also intend to increase forestry revenue by restoring the capacity to monitor sectoral data and control the tax base. On the expenditure side, they remain committed to strengthen the monitoring of public expenditure through consistent monthly budget execution tables on a cash basis and on a payment order basis, as well as monthly expenditure table broken down by economic function to track spending in priority sectors. Finally, the government will also pursue its public procurement reforms by periodically assessing the public procurement system and systematically publishing the penalties imposed on offenders.
Reforms will also be pursued in the civil service. The government’s objectives in this area is to establish a solid basis for determining staffing levels and the payroll, secure and harmonize the related data and increase the efficiency of the civil service. As regard the payroll, it plans to give priority to adjusting the salaries for promotions using the savings from the census and clean-up of the payroll.
Concerning fuel pricing, the policy began in 2005 which transfers resources to the national refinery, SONARA, will be pursued this year. Regarding SONARA, measures to bolster its financial position will be pursued. No further investments will be made unless their economic viability is proven and their financing maintains a fiscal sustainability.
Turning to the public enterprise reform, it is my authorities’ firm intention to continue implementation of its public enterprise privatization and restructuring programs, including for CAMTEL, SNEC and CAMAIR. Specific timetables have been set in this regard, as specified in their new Memorandum of Economic and Financial Policies.
On the financial sector, initiatives to facilitate credit access will be encourage, notably by improving financial reporting, simplifying the procedures for calling in collateral, and establishing a commercial court. As alternative source of financing, its is envisaged to develop the securities market with the issuance of new stocks and bonds and the transfer of secondary market transactions on treasury bonds to the financial market. As for the financial sector assessment, the authorities of Cameroon fully support the BEAC in implementing the recommendations made by the regional FSAP.
External debt management
My authorities will pursue a prudent debt policy going forward, one that will be consistent with the medium-term macroeconomic framework and fiscal objectives. My authorities will ensure that loans are contracted on concessional terms. Moreover, bilateral agreements with the various Paris Club member creditors will be signed while good-faith negotiations to clear arrears with private creditors will proceed with continued concern for comparable treatment.
Business environment
My authorities remain committed to their efforts to enhance transparency and good governance and combat corruption, with the view to improve the business environment. The initial results obtained reinforce their resolve in this area. With the assistance of the World Bank and the IFC, they intend to put in place a Business Forum—modeled on the example of Vietnam—to coordinate public-private partnerships (PPPs).
Trade liberalization and boosting the volume of foreign trade remains important objectives for Cameroon. In this vein, subregional integration within the CEMAC is an important component of their strategy. My Cameroonian authorities intend to use their central position within the Community to advance reforms aimed at removing barriers to intracommunity trade, lowering the maximum common external tariff (CET), revising the CET exemptions, and reducing nontariff obstacles to the development of intraregional trade.
Conclusion
My authorities have once again demonstrated their commitment to policies and reforms defined in the PRGF-supported program. Since the HIPC completion point, there have been significant achievements in putting in place needed policy measures. Their ownership of the needed measures remain intact. In view of the satisfactory macroeconomic policies since the last review under the PRGF-supported program, the broadly smooth implementation of the structural reform agenda, the overall satisfactory program performance as reconfirmed in the most recent staff update, and the renewed commitments made by the Cameroonian authorities on policy and reform implementation for the period ahead, I will appreciate the Board’s support for the completion of the third review under the PRGF for Cameroon. In addition, in light of the appropriate debt policies pursued by my authorities, including prudent borrowing policies and their good-faith efforts to reach agreements with the private holders of the country’s debt, I also request the Board’s support for the completion of the financing assurances review.