Cameroon
Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Financing Assurances Review, and Requests for Waiver of Performance Criterion, Modification of Performance Criteria and Extension of Arrangement: Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cameroon
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International Monetary Fund
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Publication Date:
12 Aug 2008
eISBN:
9781451808278
Language:
English
Keywords:
ISCR; CR; food price index; government; debt; staff appraisal; privatization program; Nonoil revenue; nonoil GDP; priority spending; broad money; Nonoil GDP growth; Fiscal stance; Fuel prices; Credit
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This paper discusses key findings of the Fifth Review Under the Poverty Reduction and Growth Facility (PRGF) for Cameroon. Non-oil economic activity accelerated somewhat in 2007, and inflation declined. However, rising food and fuel prices starting in late 2007, amidst discussions of possible changes to the constitution, led to violent social unrest in February 2008. Program implementation was satisfactory in the second half of 2007. Most quantitative targets, notably on the non-oil primary fiscal deficit, for end-December 2007, were also met.

Abstract

This paper discusses key findings of the Fifth Review Under the Poverty Reduction and Growth Facility (PRGF) for Cameroon. Non-oil economic activity accelerated somewhat in 2007, and inflation declined. However, rising food and fuel prices starting in late 2007, amidst discussions of possible changes to the constitution, led to violent social unrest in February 2008. Program implementation was satisfactory in the second half of 2007. Most quantitative targets, notably on the non-oil primary fiscal deficit, for end-December 2007, were also met.

I. Background and Recent Economic Developments

1. Security has improved since the February unrest. The turmoil was caused by dissatisfaction with the rising costs of food and fuel amidst discussions of possible changes to the constitution. In March the authorities adopted fiscal measures—exempting some necessities from custom duties, freezing fuel prices, and increasing civil service salaries—that helped improve security. In April, Parliament adopted constitutional amendments, one of which eliminated the two-term limit for presidents.

2. Economic activity picked up in 2007 and external developments were favorable(Tables 1 and 2):

  • Nonoil real GDP growth picked up as construction, agriculture, and forestry activity recovered.

  • The external current account registered a small surplus, despite an increase in the volume of imports resulting from reduced taxation of basic staple goods.

Table 1.

Cameroon: Selected Economic and Financial Indicators, 2005–10

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Sources: Cameroonian authorities; and IMF staff estimates and projections.

Percent of broad money at the beginning of the period.

Excluding foreign-financed investment, restructuring expenditure, and separation grants.

Excluding restructuring expenditure.

Excluding grants, interest, and foreign-financed capital expenditures.

Assumes cancellation of C2D debt in 2006.

NPVs calculated using the LIC DSA methodology.

Actual payments through 2006, and after all expected debt relief thereafter.

Table 2.

Cameroon: Balance of Payments, 2005–10

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Sources: Cameroonian authorities; and IMF staff estimates and projections.
uA01fig01

Cameroon: Oil and Nonoil GDP Growth, 2002–07

(Percent change)

Citation: IMF Staff Country Reports 2008, 279; 10.5089/9781451808278.002.A001

Sources: Cameroonian authorities; and IMF staff estimates.
uA01fig02

Cameroon: External Developments, 2002–07

(Units indicated)

Citation: IMF Staff Country Reports 2008, 279; 10.5089/9781451808278.002.A001

Sources: Cameroonian authorities; and IMF staff

3. Money growth increased in 2007 but for most of the year inflation decelerated. Continued accumulation of net foreign assets and a slower pace of accumulation of government deposits in the banking system led to a rise in money growth (Table 3). Inflation declined, however, because of the partial pass-through of higher oil prices, lower taxation of staple goods, and the euro appreciation. At year-end, inflation headed up as food prices rose. The REER depreciated slightly despite the rise in the terms of trade.

Table 3.

Cameroon: Monetary Survey, December 2005–December 2008

(Billions of CFA francs, unless otherwise noted)

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Sources: BEAC; and IMF staff estimates and projections.
Table 4.

Cameroon: Central Government Operations, 2005–09

(Billions of CFA francs)

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Sources: Cameroonian authorities; and IMF staff estimates and projections.

Beginning in 2008, support provided to SONARA through lower taxes is replaced by an explicit subsidy, with an equivalent increase in nonoil revenues.

Excludes restructuring, HIPC-and C2D-financed expenditures, in addition to grants, interest, and foreign-financed expenditure.

Table 5.

Cameroon: Selected Fiscal Indicators, 2005–09

(Percent of GDP, unless otherwise indicated)

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Sources: Cameroonian authorities; and IMF staff estimates and projections.

Beginning in 2008, support provided to SONARA through lower taxes is replaced by an explicit subsidy, with an equivalent increase in nonoil revenues.

Percent of nonoil GDP.

Excludes restructuring, HIPC-and C2D-financed expenditures, in addition to grants, interest, and foreign-financed capital expenditures.

uA01fig03

Cameroon: Recent Monetary Trends, 2003–07

(Units indicated)

Citation: IMF Staff Country Reports 2008, 279; 10.5089/9781451808278.002.A001

Sources: BEAC and IMF staff estimates.1 Contribution to growth of broad money.2 Year-on-year percent change.
uA01fig04

Cameroon: Consumer Prices and Real and Nominal Effective Exchange Rates, January 2005–January 2008

Citation: IMF Staff Country Reports 2008, 279; 10.5089/9781451808278.002.A001

Source: IMF Information Notice System.

4. Fiscal performance in 2007 was generally satisfactory. Capital spending was much higher than in 2006 as the authorities began to tackle bottlenecks to investment and donors raised disbursements. Nonoil revenues, however, stagnated in relation to nonoil GDP due to a shortfall in nontax revenues. Restraint on current spending and higher than expected oil revenues contributed to the fiscal surplus. Nonetheless, the stock of treasury float1 rose by about 0.3 percent of GDP in 2007, raising questions about public expenditure management.

Cameroon: Key Fiscal Indicators, 2005–07

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Sources: Cameroonian authorities, and IMF staff estimates and calculations.

Excluding grants.

Excludes interests, grants, foreign project loans, HIPC and C2D financed expenditure.

5. Program implementation for July–December 2007 was satisfactory (MEFP, Tables 1–2):

  • Most quantitative program targets for December 2007 were met. Nevertheless, the performance criterion related to domestic debt and the benchmark on nonoil revenues were missed by small margins.

  • The planned structural reforms were completed, and Parliament approved the 2008 budget law. A new formula was adopted for automatic adjustment of fuel prices (performance criterion). The structural benchmark on streamlining taxpayer identification and safeguarding the single taxpayer file was met.

6. Reform of public enterprises is proceeding slowly. The management contract for SNEC was signed in December 2007, and the authorities have selected a privatization advisor for CAMAIR. Technical evaluation of bids on privatizing CAMTEL was completed, and the authorities are assessing next steps (MEFP, ¶6, 36).

II. Policy Discussions

7. Implications of the recent unrest for policy choices and the macroeconomic outlook dominated the discussions. The gross cost of the measures the government adopted is an estimated 1.6 percent of nonoil GDP for 2008 (Box 1). Staff noted that the fuel price freeze and adhoc tariff reductions were second best policy choices that could be accommodated as long as they remained temporary. Two policy challenges have gained urgency since the recent unrest: safeguarding medium-term fiscal sustainability, and accelerating growth and private sector development. The authorities will implement a two-pronged approach to meeting these challenges. First, the tax exemption and fuel price freeze are to be temporary and will be reassessed in the context of the 2009 budget preparation, while simultaneously, measures will be taken to contain budgetary costs. Second, structural reforms and capital outlays will be accelerated to spur agriculture production and pro-poor growth.

Fiscal Impact of March 2008 Measures (Percent of nonoil GDP)

  • ➢ 0.7 percent: increase in civil service wages by 15 percent and adjustment of the housing allowance from 10 to 20 percent of basic salary.

  • ➢ 0.3 percent: exemption of basic commodities (rice, wheat, palm and cooking oil, fish) from import taxes, and reduction in the external tariff on imported cement from 30 to 10 percent.

  • ➢ 0.6 percent: fuel price freeze.

A. Safeguarding Fiscal Sustainability

8. The medium-term fiscal strategy aims to create space for priority outlays while preserving fiscal sustainability. Using conservative oil price assumptions2 it targets (i) a gradual increase in nonoil revenues; (ii) expanded poverty-related spending; and (iii) paying down domestic arrears to improve the business environment. The authorities are committed to a path of fiscal sustainability and to building space for priority spending, particularly on agriculture and infrastructure. Staff sees room for higher outlays than in the baseline scenario (Box 2).

Fiscal Policy Considerations on Additional Spending

  • Higher public spending will contribute to higher growth and improved social conditions. Staff analysis shows room for additional spending of about 1 percent of GDP under a scenario in which current spending is financed by nonoil revenues and capital projects by oil revenues and debt.

  • Higher spending would require closer attention to:

  • ✓ Institutional capacity. Cameroon needs to continue (i) strengthening public expenditure tracking and training personnel accordingly; and (ii) improving capacity to prepare, evaluate, and execute projects. Capital projects would need to be carefully selected to maximize their growth impact. Furthermore, the authorities would need to strengthen debt management, including by finalizing their preliminary debt strategy, in order to contain future risks (MEFP, ¶27).

  • ✓ Absorptive capacity. The inflationary impact of the proposed increase in spending would be modest because economic growth is below potential. Inflationary pressures arising from capital projects would be minimized if outlays were geared toward expanding productive capacity with high import content.

  • The DSA results indicate that the revised macroeconomic forecast, including higher spending, is consistent with fiscal sustainability (Supplement).

9. The fiscal stance in 2008 will be eased by about 1 percent of nonoil GDP relative to the baseline scenario. To contain the costs of the March fiscal measures, the authorities plan to cut spending on goods and services by 0.7 percent of nonoil GDP. Staff cautioned against deep cuts that might endanger government services. The authorities noted, however, that the bulk of the cuts originate from lower prices that have been renegotiated with suppliers, and assured staff that the savings can be achieved without jeopardizing services.

The main changes to the fiscal program relative to the baseline scenario, necessitated by measures taken to address the population’s grievances and the need to contain the costs, are that:

  • Nonoil revenue will be lower because of the reduction of customs tariffs on essential staples and cement. Meanwhile, efforts to improve tax and customs administration will continue (MEFP ¶14).

  • The current expenditure-to-GDP ratio will be higher by about 0.6 percentage point of GDP; higher spending on salaries and fuel subsidies will be partially offset by lower spending on goods and services.

  • Fuel subsidies will be higher by 1.1 percentage point of GDP, because fuel prices are frozen for the rest of 2008 (0.6 percentage point of GDP) and a more transparent price formula is being introduced (0.5 percentage point of GDP).3 If oil prices increase beyond expectations, the authorities will adjust domestic prices, taking into account the social situation (MEFP, ¶23).

10. Fiscal policy will be somewhat more relaxed over the medium term than in the baseline scenario. By 2012, the nonoil primary fiscal balance (program definition) will be about 0.7 percent of nonoil GDP higher than programmed, which is consistent with fiscal sustainability.

uA01fig05

Fiscal Indicators, 2007‐12

(Percent of nonoil GDP)

Citation: IMF Staff Country Reports 2008, 279; 10.5089/9781451808278.002.A001

  • Nonoil revenue. The shortfall between projected and programmed nonoil revenues will be gradually reduced. The authorities agreed to adopt measures in the 2009 budget that would start nonoil revenues heading upward (MEFP, ¶14–15).

  • Priority spending. The authorities plan to increase capital outlays on infrastructure and agriculture but also lower noninterest current spending. They are preparing programs to boost food production and rural infrastructure. Efforts to contain the wage bill and reduce transfers to public enterprises will continue (MEFP, ¶19, 36). They will also resume the pass–through of changes in world oil prices to consumers and reduce subsidies in favor of SONARA. Freed budgetary resources should be used to improve the social safety net. The authorities noted that putting in place a benefit system that targets the poor directly would take time and require technical assistance.

  • Civil service reform. The authorities will continue working to secure the payroll and personnel systems. They will also undertake a diagnostic before designing a civil service reform strategy (MEFP, ¶19).

11. The authorities agreed that public expenditure management needs further work. To strengthen medium-term expenditure planning, budget execution, and tracking, they are moving to prepare the fiscal operations table on a payment order basis. Meanwhile, they have agreed to set a ceiling on the stock of treasury floats (MEFP, ¶20). The new organic law, adopted in December 2007, aims at strengthening budget execution, accounting framework, and control rules. Staff urged the authorities to execute the new law cautiously, while simultaneously reinforcing implementation capacity.

Cameroon: Selected Macroeconomic Indicators, 2007–09

(Units indicated)

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Sources: Cameroonian authorities; and IMF staff estimates and projections.

Based on Country Report No. 07/285.

Percentage change.

Percent of GDP.

Percent of nonoil GDP.

Excluding foreign–financed and debt–relief–financed investment and restructuring spending.

12. The revised macroeconomic framework reflects government priorities since the February unrest. The main effects of the unrest and policy measures are as follows (Tables 1–5):

  • Despite the turmoil’s adverse impact on growth, nonoil oil GDP will grow by 4½ percent. The authorities are of the view that the 2007 growth momentum will continue, driven primarily by agriculture, services, and higher public investment.

  • The reduction in import taxes and expected rise in imports should contain inflationary pressures.

  • The external current account deficit will be smaller because oil exports are higher. Import volume will increase, however, because import taxes are lower.

B. Accelerating Growth and Private Sector Development

13. To revive growth, the authorities recognize that the business environment needs to improve. They will continue to target areas identified in business surveys as core to attracting investment—developing the financial sector, opening trade, and improving transparency and governance.

Financial sector

14. Building on the new medium-term action plan, financial intermediation will be strengthened(MEFP, ¶29-31). The plan proposes measures to create new financial products for small and medium enterprises, improve data collection, strengthen the supervision of microfinance, diversify financing instruments, and create specialized financial institutions. In addition, with a view to developing the securities market, the authorities will limit recourse to new statutory advances and issue publicly-traded government securities. They are also assessing the future financial activities of CAMPOST based on its new business plan (MEFP, ¶33). With regard to specialized financial institutions, the staff noted that past public intervention in the financial sector had proved costly and ineffective. It urged the authorities instead to consider reforms to improve the operating environment (e.g., information flows, accounting standards, and the legal system). The authorities argued that dealing with the structural impediments to financial intermediation would take time, and a well-defined strategy could give the government a role in the interim.

Trade

15. Trade liberalization can expand growth opportunities. The medium-term revenue loss associated with the recently initialed EPA will likely be modest because liberalization will be phased in gradually and apply first to low-taxed goods. To minimize the risk of trade diversion, staff encouraged the authorities to pursue multilateral trade liberalization and deepen regional integration by harmonizing rules of origin and streamlining CET exemptions (MEFP, ¶28).

Business environment

16. To attract investment and revive growth, the business environment should be enhanced. The authorities recognize that progress has been slow; they agreed to work with the private sector to prepare a private-sector development strategy (MEFP,¶34).

Transparency and governance

17. Continued efforts to improve governance would reduce regulatory uncertainty (MEFP,¶35). The authorities recently stepped up their anticorruption efforts by arresting two ex-ministers on corruption charges. They will continue publishing corruption-related court decisions and prepare an anticorruption strategy based on a program developed with donors.

Cameroon: Doing Business Indicators, 20071

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Source: Doing Business Database, 2008 (World Bank)

Indicates ranking out of 178 countries (lower number = higher ranking).

Percent of value.

Lower‐middle‐income countries.

III. Financing Assurances and Program Issues

18. Given Cameroon’s arrears to private external creditors, the mission discussed the issue of financing assurances. Staff reiterated the importance of reaching agreement with all commercial creditors, in line with Cameroon’s commitments to the Paris Club. The authorities expect to finalize negotiations with the three remaining commercial creditors (holding claims of about US$91 million) in 2008.

19. The main risks to the program have to do with fiscal sustainability and growth. Further unrest would test the authorities’ willingness to withstand pressures to spend too much. Slower progress in mobilizing nonoil revenue and uncertainties about reductions in spending on goods and services could also undermine medium-term fiscal objectives. Insufficient improvement in the business environment and poor capital budget execution could jeopardize growth and poverty reduction.

20. The program is monitored twice a year.4 Considering the impact of measures adopted to address popular concerns, the authorities have requested modification of performance criteria and benchmarks for June (MEFP, Table 1). They have also included an indicative target on the stock of treasury floats to reinforce budget management. Since the current arrangement expires in October, they have requested an extension until January 2009 to allow time for completion of the sixth and final review.

IV. Staff Appraisal

21. The government faces the challenge of balancing fiscal sustainability through prudent fiscal policy, addressing the harmful social consequences of rising food and fuel prices, and promoting growth through structural reforms and public investment. Staff believes that the course charted by the authorities, including measures adopted in March in response to the social unrest, is consistent with these goals. Nonetheless, staff sees several areas where policies need to be refined to maintain this balance among these goals.

22. Staff is encouraged by the authorities’ commitment to fiscal sustainability. The increase in the nonoil primary fiscal deficit under the revised scenario is consistent with a sustainable fiscal path. Nonetheless, while welcoming the authorities’ commitment to contain the budgetary impact of the March measures, staff cautions that cuts in spending on goods and services should not jeopardize public services. Also, the authorities will need to be vigilant with regard to institutional capacity constraints to higher spending. In this regard, the government needs to continue strengthening public expenditure management and improve its capacity to prepare and execute projects.

23. Cameroon needs to strengthen policies to protect the poor from rising food and fuel prices. It will be important for fuel prices to reflect world market conditions so that consumption can adjust accordingly. Targeted support for the vulnerable groups (e.g., cash or in-kind transfers) is preferable to generalized subsidies as the latter tend to benefit the rich more than the poor. Ad hoc tariff reductions on food items could hurt incentives for local production, and thus should be limited in time.

24. Staff urges the authorities to intensify efforts to accelerate growth. There is scope for expanding fiscal space for increasing priority spending, including on agriculture and infrastructure, through mobilization of additional nonoil revenues and reduction of support to public enterprises. In addition, concrete measures will need to be implemented to improve financial intermediation, trade, and the business environment.

25. Debt policies should continue to be prudent. While the risk of debt distress remains low, the authorities should continue to borrow on concessional terms and make effective use of borrowed resources. Cameroon is making good faith efforts to reach understandings with commercial creditors, and developments in this area are not interfering with the country’s adjustment efforts.

26. Staff recommends that the Board (i) complete the fifth review under the PRGF arrangement; (ii) grant a waiver for the nonobservance of the performance criterion related to domestic debt given that the target was missed only by a small margin, (iii) modify the June performance criteria to account for the fiscal impact of policies adopted to address the social consequences of rising food prices; (iv) extend the PRGF arrangement through January 2009; and (v) complete the financing assurances review.

Table 6.

Cameroon: Indicators of Capacity to Repay the Fund, 2007–171

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Sources: IMF staff estimates and projections.

Including remaining disbursements under the current PRGF arrangement.

Total debt service includes IMF repurchases and repayments.

Table 7.

Cameroon: Fund Disbursements and Timing of Reviews Under the PRGF Arrangement, 2005-08

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For past disbursements, date refers to actual date of disbursement.

APPENDIX I

Mr. Dominique Strauss–Kahn

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

United States

June 5, 2008

Dear Mr. Strauss-Kahn:

1. In the second half of 2007 the government continued its efforts to restore the soundness of the macroeconomic framework and implement structural reforms in the context of its economic program supported by the International Monetary Fund (IMF) under the Poverty Reduction and Growth Facility (PRGF). Those efforts made it possible to meet most of the program’s quantitative criteria and benchmarks at end-December 2007. A waiver is nonetheless requested for the nonobservance of the performance criterion related to domestic structured debt which was missed by a small margin. Implementation of the structural reforms was generally satisfactory with progress made in strengthening tax administration and in financial sector reforms.

2. Soaring world prices for oil and certain imported staple goods led, however, to an increase in the cost of living and undermined the efforts made in recent years by many countries to improve the living standards of their populations. This situation, which Cameroon was unfortunately unable to avoid, was the cause of the recent transport workers strike, the fallout from which caused not only loss of human life and material damage of all kinds, but also paralyzed economic activity in a number of urban centers in February 2008.

3. As a result of those events, the government had to adopt a series of emergency measures to meet the pressing needs of the population. To ensure the medium-term sustainability of those measures, the government undertakes to reallocate appropriations within the budget, accelerate civil service reform, and strengthen initiatives designed to improve tax administration. However, it will be difficult to accommodate all of the additional costs caused by the emergency measures within the limits of the budget envelope initially programmed for 2008. Hence, the nonoil primary deficit will be lower than the programmed level and the government would like to request a modification of the performance criteria and quantitative benchmarks for end-June.

4. The macroeconomic policies and objectives for the third year of the program and over the medium term remain broadly consistent with the general framework underlying the government’s three–year PRGF-supported program. Thus, the attached Memorandum of Economic and Financial Policies (MEFP) supplements the MEFP attached to the letter of intent of November 29, 2007. It evaluates the implementation of the government’s economic program during the second half of 2007 and presents the economic policies and objectives for 2008.

5. In implementing their economic and financial program, the authorities have set themselves ambitious medium-term objectives, consistent with the macroeconomic framework of the three-year program. They remain convinced that the need to address the considerable increase in the cost of living makes it imperative to expand Cameroon’s production base. In this context, priority will be given to initiatives in favor of agriculture and infrastructure, as well as to improving the business climate. For this purpose, the government intends to step up its efforts to improve the quality of public investment, mobilize nonoil revenue, and combat corruption.

6. The government is convinced that the economic and financial policies described in the attached MEFP will make it possible to meet its economic program targets for 2008. However, it is prepared to take any further measures that may become appropriate for this purpose. The government will consult with the IMF on the adoption of these measures and in advance of revisions to the policies contained in the MEFP, in accordance with the Fund’s policies on such consultations.

7. The government would like to request that the PRGF arrangement be extended until end-January 2009 so as to complete the sixth review. This review will be based on the quantitative and structural performance criteria at end-June 2008.

8. In view of the results obtained so far and the commitments made in the MEFP, the government requests that the sixth disbursement under the PRGF arrangement, an amount equivalent to SDR 2.65 million, be made available upon completion of the fifth review.

9. Finally, the government of Cameroon authorizes the IMF to publish this letter and the attached MEFP.

Sincerely yours,

/s/ Inoni Ephraim

Prime Minister and

Head of Government

Enclosures: –Memorandum on Economic and Financial Policies

–Technical Memorandum of Understanding

APPENDIX I: ATTACHMENT I-Memorandum on Economic and Financial Policies

I. INTRODUCTION

1. This memorandum reviews the achievements for the period from July to December 2007 of the three-year program supported by the IMF under the Poverty Reduction and Growth Facility (PRGF), and describes the economic and financial objectives and policies for 2008 and the medium term.

II. Recent Economic Developments and Results of Implementation of the Prgf–Supported Program

2. Economic activity edged up in 2007, following a pick-up in the construction, agricultural, and forestry sectors. Nonoil real GDP growth was thus 3.9 percent (compared with 2.9 percent in 2006). The import volume grew on account of the reduced taxation on staple goods (rice, flour, and fish), while the surge in oil prices produced a slight surplus in the current account balance.

3. The strong growth in net foreign assets in 2007 combined with a slower pace of net government deposits in the banking system, led to an acceleration of broad money growth. However, inflation continued to decline, because of the partial pass-though of high oil prices, reduced taxation on some essential goods, and appreciation of the euro.

4. The 2007 budget surplus was higher than projected, mainly because of higher than expected oil revenues. The majority of quantitative targets for end-December 2007 were therefore met, with the exceptions of the performance criterion related to domestic debt and the benchmark on nonoil revenues that were missed by small margins. Execution of the capital budget improved significantly compared with 2006, thanks to efforts to improve the efficiency of expenditure management. However, the high level of treasury float at end fiscal 2007 underscores the need to strengthen the monitoring and control of public expenditure.

5. Progress was achieved with the structural reforms for the period July-December 2007:

  • Government finance and fuel pricing policy. Parliament adopted a 2008 Budget Law that was consistent with the objectives of the PRGF-supported program. The single taxpayer identification was also made more secure for large companies. Moreover, the government adopted a new formula for the automatic adjustment of fuel prices (performance criterion for end-December 2007).

  • Financial sector. The CAMPOST accounts for the years 2004 to 2006 were produced in the final quarter of 2007. The draft business plan for the financial activities of CAMPOST was prepared in November 2007. Transactions involving Treasury zero-coupon bonds became possible on the financial market.

6. Public enterprise reform continues, although at a less sustained pace than initially envisaged. The management contract of SNEC was signed in December 2007. A new financial consultant for the CAMAIR privatization was selected and assessment of the technical bids relating to the privatization of CAMTEL was completed.

7. The government also continued implementation of measures to enhance transparency. The quarterly budget execution reports, the quarterly operating reports of the national oil company (SNH), and the annual financial aggregates of the main public enterprises were published. Debt statistics and analyses were published on the CAA website (www.caa.cm). Judicial decisions and administrative penalties against government employees as part of the anti-corruption campaign were also published on the website of the Prime Minister’s Office (www.spm.gov.cm).

III. Economic and Financial Policies in 2008

A. Macroeconomic Framework

8. Soaring world prices for oil and certain imported staple goods led to an increase in the cost of living and undermined the efforts made in recent years by many countries to improve the living standards of their populations. This situation, which Cameroon was unfortunately unable to avoid, was the cause of the recent transport workers strike, the fallout from which caused not only loss of human life and material damage of all kinds, but also paralyzed economic activity in a number cities in February 2008.

9. In spite of those events, the favorable trend in economic activity in 2007 is expected to continue into 2008. Thus, real nonoil GDP growth is projected to be 4.6 percent in 2008, mainly as a result of the recovery in the agricultural and services sectors and to the significant increase in public investment. However, the expected acceleration in growth could be affected if building material costs continue to rise. Moreover, inflationary pressures could re-emerge in 2008 in connection with international food prices.

10. The main budget targets of the program for 2008 are part of a medium-term fiscal strategy to increase priority expenditure and improve its quality in order to accelerate economic growth and poverty reduction, while preserving the stability of the macroeconomic framework and fiscal sustainability. In this regard, starting 2009 the authorities intend to increase substantially the resources allocated to production sectors (mainly agriculture) and infrastructure, so as to stimulate in a timely fashion the domestic supply of agricultural products capable of replacing cereal imports of which international prices have considerably risen, and of increasing exports to neighboring countries.

11. In response to the population’s concerns about the increasing erosion in purchasing power, the authorities have adopted a series of emergency measures designed to raise household incomes and reduce the cost of living. The series of measures includes, in particular: a raise in civil servants’ salaries; suspensions or cuts in taxes and customs duties on some consumer goods; and a decrease in retail prices of petroleum products. It also includes the recruitment of civil servants to improve the efficiency of the civil service.

12. To ensure the sustainability of these measures, the government is committed to: (i) strengthen the mobilization of nonoil revenue; (ii) speed up reform of the civil service, and; (iii) cut expenditure on goods and services and to redirect the freed-up appropriations to priority spending within the budget. For this purpose, ongoing efforts to reduce the reference prices for government orders will allow budget savings to be made without reducing the quantities allocated to the priority sectors. It is, however, difficult to accommodate all of the additional costs stemming from the emergency measures (estimated at CFAF 158 billion) within the limits of the budget envelope initially allocated for 2008. Hence, the nonoil primary deficit will be CFAF 82 billion higher than originally planned, which will be financed by higher oil revenues. The authorities will adopt a supplementary budget to take account of those changes.

B. Government Finance and Fiscal Policy Reforms

13. On the revenue side, the government expects a shortfall of about CFAF 32 billion in nonoil revenues compared with the objectives of the 2008 program because of the tax exemptions granted for certain basic consumer goods. The tax-related measures recently adopted by the government are temporary, and the government is committed to review them during the preparatory work for the 2009 Budget Law. Total revenue (excluding grants) in 2008 should, however, increase by 1.3 percent of GDP compared with 2007, owing to higher oil revenues (1.7 percent of GDP)1. To improve VAT administration, the government will continue to ensure that VAT credits are refunded within the time limits provided by law.

14. The mobilization of nonoil revenue remains a major challenge for the country. To meet its revenue targets, the government is committed to accelerating implementation of a number of administrative measures. For example, the number of tax centers for small taxpayers will be reduced with the establishment of experimental pilot sites in Yaoundé and Douala at end-September 2008; the extension of ASYCUDA to the main collection sectors (Littoral I, Littoral II, South-West, Center) and to the transit corridors will be completed by end-September 2008; the connection of the information systems of the General Directorate of Taxes and the General Directorate of Customs initially planned for March 2008 (benchmark) will be completed in June 2008; the safeguard of the single taxpayer file will be strengthened through incorporation of a specific module for the single identification number in the tax management system (MESURE) by end-September 2008; and by December 2008, the number of taxpayers covered by the tax centers for medium-sized enterprises in Yaoundé and Douala will grow by some 20 percent compared with the tax rolls at January 1, 2008. In 2009, the government will continue its efforts by adopting measures based on the recommendations of the IMF technical assistance mission of April 2008 and on the action plan of the fiscal reform commission.

15. Furthermore, in April 2007 the government set up a commission to review domestic and foreign trade taxation and taxes in order to improve the mobilization of nonoil revenues. The commission, which includes representatives of government, economic operators, and civil society, submitted a summary report on its work and recommendations in December 2007. On the basis of the report, a medium-term tax reform plan will be adopted in the first half of 2008 (benchmark for end-June 2008). The plan is intended to make the current tax system fairer and more efficient and to mobilize nonoil revenues.

16. The government is also committed to improve the collection of property tax, particularly through : (i) a closer monitoring of tax filing by following up systematically on non-compliers and, if needed, by having recourse to presumptive taxation; (ii) a tighter control of the declared valuation of real estate ; and (iii) a stronger recovery. In addition, with the financial assistance of their development partners, the authorities plan to finalize in 2009 the implementation of the fiscal cadastre in Yaoundé and Douala.

17. Furthermore, in order to improve forestry revenue, the government intends to strengthen the role of the Program to Secure Forestry Revenue (PSRF) as the forestry sector’s sole point of contact for taxation. Cooperation protocols will be defined between the PSRF and all other entities involved in supervision of the forestry sector. The cooperation protocols will clearly indicate the information required from these entities, as well as the frequency, deadlines, and modalities for transferring the information. Moreover, by end-September 2008, the government intends to establish an online connection between the Ministry of Forests and Wildlife and the Ministry of Finance. This initiative is essential for restoring the capacity to monitor sectoral economic data and control the tax base. The government is also committed to strengthening forestry taxation with the assistance of the World Bank.

18. On the expenditure side, the government will concentrate its efforts on the priority areas of the PRSP and accelerate public investment, particularly in infrastructure and the agriculture, health, and education sectors. The increase in civil servants’ salaries and the price freeze on petroleum products will entail a supplemental cost for the budget of around CFAF 126 billion. The government will reduce certain expenditures on goods and services and capital expenditures by approximately CFAF 76 billion.

19. The government is committed to continue its efforts to contain wages and staffing. It will ensure consolidation of the harmonized personnel and payroll records. For this purpose, an integrated management system for the civil service and the payroll will be installed in 24 government agencies, covering 80 percent of civil service employees, by end-June 2008 (benchmark). The system will be extended to the remainder of the civil service by end-2008. The government also intends to replace the current computerized payroll system by a more advanced one, particularly in terms of security and access rights. Moreover, it is committed to conduct an assessment of the current system by December 2008 with the help of the World Bank and, together with the World Bank, to prepare a plan to reform the civil service in the next Country Assistance Strategy. The aim is to design a more efficient civil service policy, allowing rationalization of recruitment and a more productive government.

20. The government also intends to continue strengthening the budget reporting system. In this regard, it is committed, in collaboration with its technical and financial partners, to engage in discussions on the preparation of a government financial operations table (TOFE), in the medium-term, on a payment order basis. In order to do so, by end-July 2008 it will conduct a diagnostic study on the measures and the critical path necessary for preparation of the TOFE on a payment order basis for all expenditures, with a detailed costing of the investment required, in particular to equip the various government offices throughout the country. On this basis, the TOFE for the 2007 Budget execution will be produced by end-September 2008. In the meantime, the government will step up its efforts to improve the monitoring and management of treasury float (benchmark at end-June 2008). The government is also committed to finalize, by end-August 2008, a plan to intensify its measures to improve public expenditure management as part of the platform bringing together its technical and financial partners.

21. The government is committed to continue using any windfall in oil revenue exclusively to financing nonrecurrent expenditure, in particular to: (i) accelerate payments on domestic debt and arrears; (ii) buy back debt held by external commercial creditors who did not take part in the commercial debt repurchase initiative within the London Club; and (iii) finance investment in the sectors specified in the PRSP, including the counterpart funds for jointly-financed projects such as infrastructure development (in particular roads and energy) and investment in major sectoral programs (education, health, and rural and urban development).

C. Fuel Pricing Policy

22. The government maintains its commitment to gradually reducing subsidies for the consumption of petroleum products and at the same time applying a policy of periodically adjusting their retail prices in line with developments in market conditions. Accordingly, at end-December 2007 the government adopted a formula for the revision of SONARA ex-refinery prices and a simplified price structure. The new price structure, which came into force in January 2008, is more transparent, eliminating the cross-subsidization and tax distortions present in the previous structure. In particular, an explicit subsidy replaces the support that the government is providing SONARA through lower taxation with an identical increase in revenue.

23. In view of the steep increase in world oil prices, raising strongly voiced concerns from consumers and social partners, the government decided to temporarily freeze the retail prices of petroleum products. It considers that this measure will require a CFAF 61 billion increase in budget transfers to SONARA, bringing total transfers for 2008 to CFAF 133 billion (including CFAF 47 billion from implementation of the new pricing formula). The government is committed to take the appropriate measures to maintain budget transfers to SONARA within the programmed limits. Should world oil prices turn out to be much higher than expected, the government will review this policy and seek appropriate solutions, including a possible adjustment of the retail prices of petroleum products.

24. The government is committed to resume implementation of the mechanism for adjusting the retail prices of petroleum products starting in 2009. Fluctuations in world prices for crude oil will therefore be passed on when determining the retail prices of petroleum products by applying the periodic price review formula. The government is also committed to phase out fuel price subsidies and to use the resulting budget savings to improve the social safety net and increase investment in agriculture, health, and basic education. In this regard, a study will be conducted to determine ways and means of implementing this process.

25. In addition, the government intends to continue implementing measures to strengthen SONARA’s financial position and reduce budgetary transfers. For this purpose, the government is in the process of conducting a feasibility study to determine the cost of the investments needed to improve the refining system, their economic viability, and their financing modalities. In particular, the government undertakes not to make any new investment unless its economic viability has been proven and it can be financed within the framework of a sustainable fiscal policy.

D. External Debt Management and Trade Liberalization

26. As a result of the debt relief granted to Cameroon by the Paris Club in June 2006, the government has finalized the signing of agreements with all bilateral creditors. It will continue to negotiate in good faith with its private creditors to clear its arrears, without overlooking the principle of comparable treatment.

27. The government will conduct a prudent debt policy and ensure that its debt is managed in a sustainable manner. It intends to finalize preparation of a new comprehensive strategy for debt and public debt management, in accordance with the directive of the Council of Ministers of the Central African Economic and Monetary Community (CEMAC), approved in March 2007. For this purpose, it has requested technical assistance from the International Monetary Fund. This strategy, which will be adopted by end-September 2008 at the latest by the Public Debt Coordination and Monitoring Unit, will be developed and updated annually and annexed to the Budget Law. It will be consistent with the macroeconomic framework, the medium-term fiscal objectives, and will include in particular, the following elements: an annual debt ceiling; the contracting of loans on concessional terms; detailed study of the projects for which borrowing is necessary; a debt sustainability analysis (at least once a year) before the signing of any loan for an amount above 0.5 percent of GDP.

28. In the context of the CEMAC institutional reform program and consolidation of subregional integration, Cameroon undertakes to propose to the other member countries: (i) an assessment of and reduction in the obstacles to development of intraregional trade, including the freedom of movement of goods within the CEMAC zone; (ii) continued efforts to contain and reduce exemptions; and (iii) inclusion of this issue on the agenda of the next meeting of CEMAC. Furthermore, after raising these matters with the Community bodies, Cameroon will continue to support CEMAC reforms through a gradual reduction in the CEMAC Common External Tariff from 30 to 20 percent. Moreover, after eliminating the minimum values for fish and salt, Cameroon undertakes to continue to eliminate administrative minimum values for all imported products until June 30, 2008. To facilitate foreign trade transactions, the government also undertakes to finalize the interface between those parties involved in port transactions on June 30, 2008 with a view to the operational implementation of the electronic one-stop shop (benchmark for June 30, 2008). Finally, on December 17, 2007 Cameroon initialed an interim agreement with the European Union with a view to concluding an economic partnership agreement.

E. Financial Sector

29. The government is committed to continue implementing its action plan to strengthen financial intermediation. The plan was prepared in December 2007 on the basis of the recommendations of the Joint IMF-World Bank mission in the context of the Financial Sector Assessment Program (FSAP) and it aims in particular to: (i) increase the banking sector’s resilience to withstand external shocks; (ii) establish a regional government securities market; (iii) strengthen oversight of microfinance; (iv) facilitate access to banking services; (v) improve information on the cost of credit and payment defaults; (vi) strengthen the legal framework; and (vii) diversify financial instruments.

30. In this regard, the list of accredited microfinance institutions (MFIs) was published in February 2008 to better protect depositors. The government is also committed, at the national level, to support initiatives to facilitate access to credit by reducing constraints linked to the business environment, in particular by: (i) significantly improving financial reporting; (ii) simplifying procedures for calling in collateral; and (iii) setting up a commercial court. In addition, the government will ensure that a solution is found for the difficulties of the two intervened banks.

31. The government will also work with the Bank of Central African States (BEAC) to update in the central credit register the list of clients in default of liquidated or restructured banks, by end-December 2008. Moreover, the government undertakes to propose to COBAC that it adopts a regulation requiring credit institutions in the subregion to publish their lending terms on a regular basis in an effort to make credit operations transparent. An appropriate legal framework for factoring, leasing, and venture capital will be adopted and the legislation on the opening and closing of bank branches will be modified by end-December 2008. At the regional level, the government also undertakes to support the BEAC in finalizing implementation of the central credit register (computerization, payment problems register, and financial analysis center).

32. Moreover, the government will continue its efforts to develop the securities market. It undertakes to limit recourse to all new statutory advances and to issue publicly-traded government securities. Transactions involving government securities will take place under the supervision of the Financial Markets Commission (CMF).

33. The government also plans to hold detailed discussions to determine the best way for CAMPOST to offer financial services throughout the country on the basis of the business plan prepared for the company’s financial activities. To safeguard the replenishment of the assets of the company, the authorities undertake to continue ensuring financial supervision of CAMPOST by the unit within the Ministry of Finance in charge of the oversight of nonbank financial institutions, which will produce a quarterly supervision report. The next report, on the operations of the last quarter of 2007, will be available at end-June 2008. Furthermore, transfers to CAMPOST will be limited to the minimum amount needed to meet the required annual working capital, estimated at CFAF 22.5 billion. CAMPOST will also be notified of the requirement to present the accounts for its financial activities separately from those of its postal activities.

F. Business Environment

34. Apart from fiscal and tax policy measures, which address immediate concerns, the government remains convinced that addressing the high cost of living requires the expansion of Cameroon’s production base. To achieve this, emphasis will be placed on accelerating growth, in particular by improving the business climate. For this purpose, by end-December 2008, and in partnership with the private sector and in collaboration with its development partners, the government will prepare a plan to develop the private sector. The government will also introduce, by end-December 2008, a one-stop shop for business creation to reduce the time and expense of setting-up a business. Moreover, the government will consider the possibility of developing certain agricultural sub–sectors with the assistance of the World Bank.

35. The government is determined to strengthen good governance and to fight corruption. Accordingly, it will continue to publish on the Internet a summary of the reports of the local committees monitoring the physical and financial execution of the investment projects in the central government budget, as well as the judicial decisions and administrative penalties against civil servants. Furthermore, the government will continue its work to launch the operations of the Commission planned to implement the asset disclosure process for senior government officials. Moreover, the government will prepare, by end-December 2008, an anti-corruption strategy based on the joint CHOC program (Change Habits-Out with Corruption) of the government and donors, adopted in February 2007.

36. The government will continue implementation of its public enterprise privatization and restructuring programs to improve the performance of these enterprises and lessen the burden they represent both for the budget and the Cameroonian economy in general. In the case of CAMTEL, the government has prepared the financial information for 2006 and taken account of the suggestions made by investors to improve the structure of the transaction originally proposed. The aim is to complete the selection of a provisional successful bidder by end-September 2008. In the case of the airline industry, the government remains determined to eliminate government subsidies for airline companies, including CAMAIR, and to improve the quality of service in air transportation. For this purpose, the government is committed to phase out subsidies for CAMAIR by June 2008, and to complete the splitting-up and liquidation of the company by March 2009. Moreover, the tender to select a private strategic partner will be launched by end-August 2008.

IV. Monitoring Program Implementation

37. Program monitoring from January to end-June 2008 will be based on the performance criteria, quarterly quantitative, and structural benchmarks shown inTables 1–2. However, in view of the events of February 2008, the government would like to request a modification of the performance criteria and quantitative benchmarks for end-June and the PRGF arrangement to be extended until January 2009 so that the sixth review can be completed. The government will report the data necessary for program monitoring to the IMF, in accordance with the Technical Memorandum of Understanding.

Table 1.

Cameroon: Quantitative targets for December 2007–June, 200811

(Billions of CFA francs; cumulative from January 1, unless otherwise indicated)

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Sources: Cameroonian authorities; Bank of Central African States; and IMF staff estimates.

Definitions included in the Technical Memorandum of Understanding.

Applied on a continuous basis.

Excluding reschedulable external payments arrears.

Millions of U.S. dollars.

Excluding normal, import–related credit.

The following will be quantitative benchmarks: floor on non-oil revenue; ceiling on goods and services spending; ceiling on cash spending by SNH/other operating costs; and floors on utility payments. The other targets will be quantitative performance criteria.

The following will be quantitative benchmarks: floor on non-oil revenue; ceiling on goods and services spending; ceiling on cash spending by SNH/other operating costs; ceiling on the stock of treasury float; and floors on utility payments. The other targets will be quantitative performance criteria.

Beginning in 2008, support provided to SONARA through lower taxes is replaced by an explicit subsidy, with an equivalent increase in nonoil revenues.

Table 2.

Cameroon: Structural Performance Criteria and Benchmarks from July 2007 to June 2008

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Table 3.

Cameroon: Quantitative Indicative targets for July–December, 20081

(Billions of CFA francs; cumulative from January 1, unless otherwise indicated)

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Sources: Cameroonian authorities; Bank of Central African States; and IMF staff estimates.

Definitions included in the Technical Memorandum of Understanding.

Applied on a continuous basis.

Excluding reschedulable external payments arrears.

Millions of U.S. dollars.

Excluding normal, import-related credit..

Table 4.

Cameroon: Central Government Operations, 2008

(Billions of CFA francs, unless otherwise indicated)

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Sources: Cameroonian authorities; and IMF staff estimates and projections.

Excludes grants, interest, and foreign-financed capital expenditures. capital expenditures.

Excludes restructuring, HIPC-and C2D-financed expenditures, in addition to grants, interest, and foreign-financed.

APPENDIX I :

ATTACHMENT II : Technical Memorandum of Understanding on the Definitions of the Performance Criteria and Benchmarks of the PRGF–Supported Program for January-June 2008 and the Modalities of Their Adjustment

A. Introduction

1. This memorandum sets out the understandings between the Cameroonian authorities and the International Monetary Fund (IMF) regarding the definitions of the performance criteria and benchmarks of the program and the contingency mechanisms related thereto. It also specifies the program’s exchange rates and the data to be reported to the IMF by the authorities.

B. Definitions
Government

2. Government is defined as central government unless otherwise noted.

External debt

3. External debt shall have the meaning set out in point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements (IMF Executive Board Decision No. 12274-00/85, dated August 24, 2000). External debt is defined on the basis of residency. However, for assessment of the program, debt issued by Cameroonian entities in CFA francs and held by residents of the member countries of the CEMAC zone shall not be considered to be external debt.

Accumulation of external arrears

4. External arrears are considered to be the external nonreschedulable arrears of the government, including public enterprises whose debt is guaranteed by the government. External nonreschedulable arrears includes the servicing of debt which is due and not paid to all multilateral creditors and to bilateral official and commercial creditors with whom a debt rescheduling or restructuring agreement has been concluded. The nonpayment of debt service to bilateral official and commercial creditors with whom a rescheduling or restructuring agreement has not yet been signed is not considered to be an arrear for the purposes of the program, provided that Cameroon is engaged in best efforts to negotiate a rescheduling or restructuring agreement with bilateral official and commercial creditors.

Concessionality of external debt

5. Medium- and long-term debt is considered to be debt with an initial maturity of one year or more. Debt with a maturity of one year or more is considered to be concessional if it includes a grant element equivalent to 35 percent or more, calculated on the basis of the commercial interest reference rate (CIRR) published by the OECD and following the methodology set out in the IMF staff paper entitled “Limits on External Debt or Borrowing in Fund Arrangement - Proposed Change in Implementation of the Revised Guidelines,” approved by the IMF Executive Board on April 15, 1996. Thus, for debt maturing in 15 years or more, the OECD 10-year CIRR is used as the discount rate to assess concessionality. The following margins are added to the two CIRRs for the various repayment periods: 1 percent between 15 and 19 years; 1.15 percent between 20 and 29 years; and 1.25 percent when the repayment period is spread over 30 years or more. Debt rescheduling and restructuring as well as the use of IMF resources are not part of the performance criteria for the issuance or guarantee of nonconcessional debt.

Debt relief

6. For the purpose of the program, the only form of debt relief that will be subject to the contingency mechanism described below is the debt relief that leads to an effective reduction in programmed debt service. This includes, in particular, any relief in the form of rescheduling, forgiveness, restructuring, or a grant under the Heavily Indebted Poor Countries (HIPC) Debt Initiative, the Multilateral Debt Relief Initiative (MDRI), and bilateral initiatives (e.g., C2D—Debt Reduction and Development Contract). Programmed debt relief on debt that has been in drawn-out rescheduling/restructuring negotiations with non-Paris Club creditors, including commercial creditors, is excluded from the contingency mechanism as it does not lead to an effective reduction in programmed debt service.

Domestic debt
Structured debt

7. Structured debt is defined as debt that has been subject to a formal agreement (convention) or securitization (titrisation). For the purposes of the PRGF program, structured debt is limited to the stock of structured debt at end-December 2004 that was included in the audit completed in October 2005 and that is specified in the multiyear settlement plan for public domestic debt as recorded by the National Amortization Fund (CAA). The stock of this debt (excluding the BEAC’s advances) at end-December 2004 amounted to CFAF 956 billion.

Nonstructured debt

8. Nonstructured debt is defined as debt not subject to a formal agreement(convention) or securitization(titrisation). For the purposes of the PRGF program, nonstructured debt is limited to the stock of nonstructured debt at end-December 2004 that was included in the audit completed in October 2005 and that is specified in the multiyear settlement plan for public domestic debt as recorded by the National Amortization Fund. The stock of this debt at end-December 2004 amounted to CFAF 496 billion.

Domestic debt repayments

9. For assessing the observance of the quantitative performance criteria on the reduction of domestic debt, only those repayments of domestic debt are counted that are made to repay the structured and nonstructured domestic debt defined above. These repayments are recorded “below the line” in the Fund’s “Central Government Operations” table. In the case of structured debt, they are (i) the payments on account of the securitized debt to the BEAC and commercial banks, which are entered in the line “Domestic financing, net – Banking System - Banking system excl. HIPC and C2D”; and (ii) other repayments of principal, which are recorded in the line “Domestic financing, net - Amortization”. In the case of nonstructured debt, they are the repayments of principal, which are recorded in the line “Net change in arrears – Domestic”.

Treasury float

10. Treasury float are defined as the difference between payment orders issued by the central services, excluding debt and C2D spending, and payments relating to those orders at the end of the program review period. Payments by external services are excluded. Information to help determine the amount of the treasury float can be found in the table Annex 3 of the TABORD.

Government financial operations table (TOFE)

11. The Treasury balance (Balance des comptes du Trésor) shows government revenue and expenditure posted in Class 6 accounts (current expenditure), Class 7 accounts (current revenue), and Class 2 accounts (investment operations). Debt-related operations are recorded in Class 1 accounts (debt operations) and partly in Class 5 (financial operations). The financial operations data must be consistent with the data in the treasury account at the BEAC. Data on provisional revenue and expenditure operations and deposits of the correspondents of the treasury are recorded in Class 4 accounts of the government’s chart of accounts (plan comptable). Government operations that are not carried out through the Treasury need to be added to the data on operations that are carried out through the Treasury. Revenue and expenditure operations are recorded on a cash basis.

Nonoil revenue

12. Nonoil revenue comprises all government (tax and non-tax) revenue, excluding revenue from oil companies (i.e. companies engaged in crude oil extraction in Cameroon) and oil royalties(redevance pétrolière). VAT is recorded net of VAT refunds. The pipeline fee paid by the Cameroon Oil Transportation Company (CTOCO) is recorded as part of nontax revenue.

Privatization proceeds

13. For the purposes of the program, privatization proceeds will be understood to mean all funds received by the government from the sale or concessioning of the operation of a public company or organization or publicly owned facility to one or more private company(ies) (including companies that are fully controlled by foreign government(s), private organization(s), or individual(s)). Privatization proceeds also include all funds received from the sale of shares owned by the government in private companies or public enterprises. All privatization proceeds should be recorded on a gross basis; if any costs are incurred in connection with the sale or concessioning, these must be recorded separately as expenditure.

Goods and services

14. All budgetary expenditures on account of the purchase of goods and services are recorded in the accounts 4000060, 4000090, 4011, 4010060, 48131, 4810 and 40001205 of the Treasury balance account and shown accordingly in the TABORD. HIPC and C2D spending is excluded.

Nonoil primary budget balance

15. The nonoil primary budget balance (on a cash basis) is calculated as government nonoil revenue, excluding external grants, less all expenditure other than interest payments, foreign-financed investment expenditure, HIPC-financed expenditure, expenditure financed by the Debt Reduction and Development Contract (C2D) and restructuring expenditure.

Net bank credit to the government

16. Net claims on the government by the banking system comprise the stock of all outstanding claims on the government by the banking system (loans, advances, and any other government debt instruments, such as long-term government securities), less all deposits held by the Treasury with the banking system, excluding the HIPC account, the account for the C2D, and the two accounts held by the CAA in a commercial bank to pay the government’s domestic and external debt obligations.

Payments to utility companies

17. The floor relating to “payment to utility companies” will be considered observed if payments to the utility companies (water, electricity, fixed-line telephones, railway and refinery companies) are made in quarterly amounts, as indicated in Table 1 of the MEFP. These payments are to exclude fiscal compensation, and they are assessed on the basis of cash disbursements. They are to be registered as current expenditures in the TOFE.

Public enterprise restructuring expenditure

18. Restructuring expenditures are defined as those expenditures that are made in the context of implementing a privatization strategy (CAMAIR, CAMTEL, CDC), a public-private partnership (SNEC) or a restructuring plan (CAMPOST, SONARA). The classification of an expenditure as “restructuring expenditure” should be made after consultation with the IMF.

Spending advances by SNH (interventions directes)

19. Spending advances(interventions directes) by SNH (Société Nationale des Hydrocarbures) are defined as advance payments by SNH on behalf of the government. They are deducted from the monthly cash revenue transferred by the SNH to the government. There will be no interventions directes in 2006 or thereafter.

Quasi–fiscal spending by SNH (autres charges)

20. SNH’s spending to cover costs that are not shared with the other oil companies as part of the production-sharing agreements are called autres charges (other costs). Some of this is related to SNH’s mission, (e.g. decommissioning costs). Other elements of this spending are not related to SNH’s oil sector activities and are quasi-fiscal in nature (e.g. the cost of operating the Chad-Cameroon oil pipeline).

Subsidy to fuel consumers

21. The amount of budgetary transfer to SONARA to cover the fuel subsidy to consumers will amount to the difference between the retail price applied and the price that would be needed to keep SONARA’s net result on domestic operations at zero, times the volumes sold by SONARA in the domestic market in the course of a given month. This amount will be calculated jointly by SONARA and CSPH and will be paid during the month (t+1) subsequent to the reference month (t) for which it has been calculated. If the budgetary transfer does not suffice to cover in full the consumer subsidy/SONARA’s shortfall, the government will revise retail prices upward so as to prevent losses on domestic operations at SONARA.

C. Modalities of the Contingency Mechanism for the Automatic Adjustment of Targets

22. The floor on the nonoil primary balance will be adjusted upward by the amount of lower-than-programmed transfers made to SONARA.

23. The ceiling on net bank credit to the government will be adjusted:

  • downward up to the amount of higher-than-programmed oil revenue and privatization proceeds that are not used to reduce domestic debt, buy back external debt owed to commercial creditors, or finance one-off investment projects (Country Report No. 07/129, ¶15 of the MEFP);

  • upward/downward by the amount of lower/higher-than-programmed external budget support (grants and loans) and by half of the amount of lower/higher than programmed debt relief (defined in paragraph 6 above); the revision upward will be capped to a cumulative amount of CFAF 15 billion in 2007 and CFAF 7.5 billion in the first half of 2008; for the purpose of the adjuster, budget support is defined as all untargeted grants and loans, excluding C2D, HIPC Initiative and MDRI grants;

  • downward by the amount of lower-than-programmed restructuring expenditure;

  • downward by the amount of lower-than-programmed payments of domestic debt (as defined above), excluding payments of the structured debt held by the domestic banking system, as entered in the line “Domestic financing, net – Banking System – Banking system excl. HIPC and C2D” in the “Central Government Operations” table).

24. Higher-than-programmed oil revenue and all privatization proceeds will be allocated to repayments of domestic debt (as defined above), buyback external debt owed to commercial creditors, or the financing of one-off investment projects (EBS 06/165, ¶15 of the MEFP). The domestic debt repayments will be made within one month following the end of the quarter in which the surplus occurred.

25. In case the shortfall/excess in oil revenue, external budget support (including debt relief), privatization revenue, and/or adjustments in the ceiling on net bank credit to the government exceed CFAF 20 billion, the government will consult with the staff of the IMF to formulate corrective policies.

D. Program Exchange Rates

26. Exchange rates to be applied for the conversion of amounts in SDR or U.S. dollars are US$1.5042 per SDR and CFAF 445.62 per U.S. dollar for the first quarter of 2008; US$ 1.5037 per SDR and CFAF 446.30 per U.S. dollar for the second quarter of 2008. Liabilities to the IMF, which are included in the definition of net bank credit to the government, will be valued at the same exchange rates. Any deviation from the exchange rate will lead to a full upward or downward adjustment, as appropriate, of the value of the stock of IMF liabilities to the BEAC, and to a similar adjustment of the ceiling on net bank credit to the government.

E. Structural Performance Criteria

27. The performance criterion on supervision of CAMPOST will be considered observed if, by end-June 2008, the Ministry of Finance staff responsible for monitoring nonbank financial institutions prepare a report comprising the following data on the final quarter of 2007: (i) number of accounts opened, (ii) their allocation through the CAMPOST network, (iii) trends in balances, (iv) volume of saving invested and by partner, (v) the various characteristics of the investments, (vi) the interest charged on the investments, and (vii) the existence of minimum cash flow sufficient to accommodate withdrawals by savers at any time.

F. Structural Benchmarks

28. The benchmark related to completion of the work to connect the General Directorate of Taxes (ME SURE) to the General Directorate of Customs (ASYCUDA) will be considered observed if by end-March 2008, the physical infrastructure for information exchanges between the General Directorate of Taxes and the General Directorate of Customs is operational, and either module in these systems can share a specific dataset on the imports or exports of individuals or legal entities as well as on their commercial or industrial activities on the Cameroon market.

29. The benchmark pertaining to the installation of the automated integrated management system covering civil servants and payroll (SIGIPES) in 24 ministries will be considered observed if at end-June 2008: (i) the equipment, the protocol for communication between the various SIGIPES sites, and the SIGIPES application are in place in each of these ministries; (ii) staff have been trained in their use; (iii) the SIGIPES is operating effectively in the said ministries; and (iv) the personnel data of these ministries in the SIGIPES are consistent with the data in the payroll management system. The 24 ministries scheduled for SIGIPES software installation are the following: (1) the Office of the Prime Minister, (2) the Ministry of Higher Education, (3) the Ministry of Public Works, (4) the Ministry of Communication, (5) the Ministry of Forests and Wildlife, (6) the Ministry of Employment and Vocational Training; (7) the Ministry of Labor and Social Security, (8) the Ministry of Justice, (9) the Ministry of Economy, Planning, and Regional Development, (10) the Ministry of Environment and the Protection of Nature, (11) the Ministry of Agriculture and Rural Development, (12) the Ministry of Industry, Mines, and Technological Development, (13) the Ministry of Territorial Administration and Decentralization, (14) the Ministry of Water and Energy, (15) the Ministry of the Civil Service, (16) the Ministry of Basic Education, (17) the Ministry of Public Health, (18) the Ministry of Finance, (19) the Ministry of Secondary Education, (20) the Ministry of External Relations, (21) the Superior Audit Office (Contrôle Supérieure de l’Etat), (22) the Ministry of Urban Development and Housing, (23) the Ministry of Social Affairs, and (24) the Office of the General Delegation to the Sûreté Nationale.

30. The benchmark pertaining to the adoption of a medium-term tax reform plan will be considered observed if by June 30, 2008 the following actions have been taken: (1) the commission for the review of domestic and trade taxes has officially submitted its final report, including recommendations, to the Ministry of Finance; (2) a plan for the gradual implementation of the recommendations approved by the authorities is prepared and adopted. This plan will seek to achieve: (i) greater fairness in the tax system; (ii) greater efficiency; and (iii) greater mobilization of nonoil revenues.

31. The benchmark on adjustment of the retail prices of petroleum products and payment of budgetary transfers to SONARA as agreed with Fund staff will be considered met if the authorities raise the prices of the three main fuel products, i.e., premium gasoline, oil, and diesel fuel, and make transfer payments as indicated in paragraph 23 of the MEFP and paragraph 21 above (pertaining to subsidies for fuel consumers). Fuel prices are to be raised on the first business day of the month.

32. The benchmark related to the presentation to Parliament of the law on electronic communications and electronic payments of banks will be considered met if by end-June 2008 the government has submitted to Parliament a law defining the regulatory framework for electronic communications and payments in consultation with World Bank staff, including transactions between individuals or legal entities on the one hand and banks on the other.

33. The benchmark related to completion and implementation of the electronic one-stop-shop at the port of Douala to facilitate foreign trade will be considered met if, by end-June, 2008, the following operations can be truly carried out by e-users at the port of Douala: (i) access to the GUCE portal; (ii) release of the manifest; (iii) settlement of customs taxes and duties; and (iv) production of statistics on port passage times.

G. Reporting Requirements

34. The Cameroonian authorities will send data, as per the attached Tables 1 and 2, to the IMF within the time limits set out in that table. The authorities will supply the IMF, on a timely basis, with any additional information that the IMF requests for the purpose of monitoring the implementation of the program.

Table 1.

Cameroon: Data–Reporting Requirements

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Table 2.

Cameroon —Petroleum Product Prices

(in FCFA per liter, unless otherwise indicated)

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Sources: Cameroon authorities.
1

Difference between payment orders issued and cash payments.

2

Oil price projections are set below WEO prices by a constant prudence factor currently amounting to US$7 dollars a barrel, in addition to a US$3 dollar a barrel quality discount.

3

The formula, which adjusts fuel prices to reflect world market conditions, includes an allowance to cover SONARA’s financial losses stemming from the less than full pass through and the refinery’s inefficiency. The new formula replaces the support that was provided to SONARA through lower taxes by an explicit subsidy, with an equivalent increase in nonoil revenue collection (MEFP, ¶22).

4

The last Annual Progress Report of the PRSP and the accompanying JSAN were submitted to the Board in December 2007.

1

The principle adopted under the program of using cautious oil price projections is maintained. Thus, the price is estimated at a constant prudence factor of US$7 a barrel below the projections in the IMF’s World Economic Outlook (excluding the US$3 per barrel discount on Cameroonian crude).

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Cover IMF Staff Country Reports
Cameroon: Fifth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Financing Assurances Review, and Requests for Waiver of Performance Criterion, Modification of Performance Criteria and Extension of Arrangement: Staff Report; Staff Supplement and Statement; Press Release on the Executive Board Discussion; and Statement by the Executive Director for Cameroon
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 279
Publisher:
International Monetary Fund
ISBN:
9781451808278
ISSN:
1934-7685
Pages:
82
DOI:
https://doi.org/10.5089/9781451808278.002

Cameroon: Oil and Nonoil GDP Growth, 2002–07

(Percent change)

Cameroon: External Developments, 2002–07

(Units indicated)

Cameroon: Recent Monetary Trends, 2003–07

(Units indicated)

Cameroon: Consumer Prices and Real and Nominal Effective Exchange Rates, January 2005–January 2008

Fiscal Indicators, 2007‐12

(Percent of nonoil GDP)