Abstract
The staff report examines Cameroon’s Sixth Review Under the Three-Year Arrangement Under the Poverty Reduction and Growth Facility and Request for Waiver of Performance Criterion. The authorities stressed their interest in a successor IMF program to support Cameroon’s medium-term economic objectives. Sound oil revenue management helped contain money growth, and inflation remained generally low. The government significantly lowered its indebtedness to the banking system, which helped to contain money growth despite a large increase in international reserves.
On behalf of my Cameroonian authorities, I would like to express my appreciation to the Executive Board and Management for their continued support to Cameroon’s efforts to achieve sustained growth and economic development. I would also like to thank staff for constructive policy dialogue and fruitful exchanges during their recent visit to Yaounde. As has been the case with staff reports on previous reviews, the authorities have expressed their consent to the publication of staff reports on the sixth review.
Since embarking on a PRGF-supported program in 2005, my authorities have made significant progress in economic reforms. Noticeable improvements have been achieved in fiscal performance, public finance management and the preservation of macroeconomic stability. Fiscal measures adopted in March 2008 to respond to social unrest have helped restore stability and reduce price pressures. Going forward, my authorities are fully aware of the need to urgently address medium-term economic challenges, including structural reforms to foster economic growth and diversification of the economy to make-up for declining commodity prices. To address these challenges, my authorities are preparing an ambitious economic program in the context of the PRSP update. They are hopeful they can continue to count on Fund assistance to support their medium-term economic objectives and intend to hold program discussions with the Fund in the first half of 2009 to determine the type of engagement needed to support their reform program.
I. RECENT ECONOMIC DEVELOPMENTS
In 2008, my authorities continued their efforts to consolidate the macroeconomic framework and structural reforms. As a result, economic activity showed some resilience in the face of the global economic slowdown. Real GDP growth bounced to 3.9 percent in 2008 from 3.5 percent in 2007, thanks to a pick-up in nonoil economic activity, which offset slower demand for timber and oil exports. Inflation went down to 4.9 percent, reflecting the fuel price freeze and lower food prices. Continued accumulation of government deposits helped slow money growth and credit to the private sector picked up, expanding by 17 percent. In public finance, the overall fiscal surplus was larger than expected, owing to lower-than programmed expenditures. Capital investment also increased considerably, albeit remaining below program levels, due to lower than expected foreign-financed investment.
As regards program implementation, most quantitative criteria and benchmarks for end- June 2008 were met. However, three quantitative targets were missed and the authorities took corrective measures. The nonoil primary deficit was higher than expected due to a shortfall in nonoil revenues and the authorities are requesting a waiver for the noncompliance with this performance criterion. To correct this situation, the authorities have stepped up their ongoing revenue administration efforts in the 2009 budget. The benchmark on the floor on payments to the national rail company was also missed because the company’s claims on the government turned out to be lower than projected.
Implementation of structural reforms was broadly satisfactory. The measures related to government finance and the financial sector were implemented, albeit with delays in some cases. A quarterly report on the financial operations of CAMPOST was produced and a strategy adopted. The interconnection between tax and customs administrations and the deployment of the new civil service computerized management system were implemented with delays because equipments were not delivered on time. To improve the business environment, an electronic one-stop shop was established at customs and the law on electronic commerce was finalized. Public enterprise reform continued to proceed satisfactorily, as CAMAIR ceased operations in May 2008 and its liquidation is taking place as scheduled.
II. ECONOMIC AND FINANCIAL POLICIES IN 2008
The macroeconomic framework has become more challenging in the second half of 2008, with lower-than expected nonoil real GDP, declining inflation and widening current account stemming from the global economic slowdown and declining commodity prices. In spite of this difficult environment, my authorities are determined to consolidate the results already achieved and to combat poverty more effectively while bolstering growth prospects. To this end, they have adopted a medium-term economic strategy aimed at preserving fiscal sustainability and economic stability, while expanding priority spending to accelerate growth and poverty reduction.
Fiscal policies
In line with the medium-term strategy, the 2008 supplementary budget incorporates an appropriation to finance the emergency package adopted by the government in March 2008 to respond to social unrest and new investment projects in agriculture, transports and mining to boost food production, help launch Camairco and a cobalt mining project. To maintain fiscal sustainability and macroeconomic stability, the authorities have decided to maintain positive nonoil current and overall fiscal balances.
The 2009 budget will be more challenging, as fiscal revenue are expected to decline by 2.5 percent from their 2008 levels, reflecting lower oil prices. To address these challenges, my authorities have adopted a number of guiding principles. First, in the face of declining oil revenues, my authorities intend to step up their ongoing efforts to improve tax and customs administration, so as to mobilize additional revenue equivalent to 0.2 percent of GDP. Such measures include inter alia, finalizing the interconnection between tax and customs departments, consolidating the progress recently made in reorganizing the taxpayer management units by size and combating smuggling more effectively. Second, the authorities will maintain a positive nonoil current fiscal balance, implying that current spending would be fully covered by nonoil revenues. In this context, my authorities intend to primarily finance capital projects in priority sectors such as agriculture, energy, roads, education and health through oil revenues and judicious debt management. Third, my authorities are determined to improve the effectiveness of public spending. In this regard, they will focus on enhancing the administrative capacity to prepare, execute and monitor investment projects. They will also use the opportunity of declining international oil prices to gradually eliminate subsidies on retail fuel prices and reduce transfers to redeploy budgetary resources to priority sectors. Should oil revenues be substantially lower-than budgeted, my authorities are prepared to reduce nonpriority spending, mobilize additional nonoil revenues and if needed, draw on government deposits at the central bank or take any other measures deemed necessary in consultation with the Fund.
Structural reforms
My authorities are committed to stepping up efforts to accelerate the implementation of structural reforms. The draft e-commerce law will be presented to the parliament by June 2009. With regard to the air transport sector, my authorities intend to accelerate their efforts to promote an effective and reliable transportation service and reduce the burden on public finance. To this end, the authorities have accelerated the setting up of CAMAIRCO, by selecting a new management team of the new airline company and the bids will be launched in early 2009 to select a strategic partner. Under these circumstances and in order to settle a dispute with international creditors resulting from leasing contracts, the authorities have decided to purchase the only remaining aircraft in the fleet of CAMAIR. As regards the cobalt and nickel mining venture, given the strategic importance of these sectors for economic growth and setbacks already incurred, the authorities have decided to acquire an equity participation in the company to accelerate its startup. A handover to the private sector will occur on due time in a transparent manner and the authorities will start working with the World Bank on a mining sector strategy in the first half of 2009.
To improve the business environment, my authorities are preparing a private sector development plan in collaboration with private sector representatives, the World Bank and the AfDB, while increasing investment on infrastructure. In the financial sector, the authorities, are implementing an action plan to deepen financial intermediation. In this context, they are considering the best way to provide financial services to rural areas and move ahead with the restructuring of CAMPOST. On trade, my authorities agreed to urge CEMAC partners to liberalize regional trade by reducing the maximum external tariff from 30 to 20 percent, removing exemptions, surchages and export taxes and harmonizing the rules of origin.
III. CONCLUSION
My Cameroonian authorities have continued to implement the PRGF-supported program in a satisfactory manner in spite of a difficult domestic and international environment. Over the last three years, they have achieved significant progress in the implementation of reforms, thanks to strong commitment to macroeconomic stability and fiscal sustainability stemming from good ownership of the program.
In light of their track record of policy and reform implementation and corrective steps taken, I would like to request, on behalf of my authorities, the completion of the sixth review under the current PRGF arrangement, as well as the Board’s support for a waiver for the nonobservance of the performance criterion related to the floor on the nonoil primary balance. In view of the appropriate debt policies pursued by my authorities, including prudent borrowing policies and their good-faith efforts to reach agreements with the remaining two private creditors, I also request the Board’s support for the completion of the financing assurances review. My Cameroonian authorities look forward to the continuation of Fund assistance to support their development goals. They have already taken a number of forward-looking steps to prepare a new economic program to be discussed with the Fund.