Cameroon
2011: Article IV Consultation: Staff Report; Debt Sustainability Analysis; Informational Annex; Public Information Notice 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:
01 Sep 2011
eISBN:
9781463902810
Language:
English
Keywords:
ISCR; CR; price; authority; food price inflation; nonoil GDP; oil price revenue windfall; payment obligation; nonoil revenue mobilization; Budget planning and preparation; Arrears; Global
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In this study, Cameroon’s economic recovery, low inflation, and positive economic prospects have been ascribed. Efforts to improve non-oil revenue by broadening the tax base, streamlining exemptions, and increasing the efficiency of tax and customs administration are outlined. The need to rebuild fiscal buffers, strengthen the budget execution process, and accelerate efforts to operationalize the medium-term expenditure framework are emphasized. The importance of redoubling efforts to address the severe infrastructure gap and improve the business climate and competitiveness are also provided.

Abstract

In this study, Cameroon’s economic recovery, low inflation, and positive economic prospects have been ascribed. Efforts to improve non-oil revenue by broadening the tax base, streamlining exemptions, and increasing the efficiency of tax and customs administration are outlined. The need to rebuild fiscal buffers, strengthen the budget execution process, and accelerate efforts to operationalize the medium-term expenditure framework are emphasized. The importance of redoubling efforts to address the severe infrastructure gap and improve the business climate and competitiveness are also provided.

I. Background: Weak Growth Performance and Stagnant Poverty Rates

1. In recent years, Cameroon’s growth performance has remained weak and the economy vulnerable to exogenous shocks. Macroeconomic stability has been preserved, and debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) helped firm up debt sustainability. However, there was no growth in per capita terms over the last five years, despite a relatively diversified productive base (Text Table 1 and Figure 1)1 Poverty rates stagnated at close to 40 percent, with strong regional disparities and 87 percent of the poor living in rural areas (Figure 2). Growth has been constrained by underinvestment in critical infrastructure, an unfavorable business climate, poor public financial management, a shallow financial sector, and weak regional trade integration. The country has remained dependent on commodities for export earnings and fiscal revenues, and is thus vulnerable to external shocks, as shown during the recent global financial crisis.2 Its nonoil government revenue, as a ratio to nonoil GDP, has remained lower than the average of other sub-Saharan African oil exporters (Figure 3).

Text Table 1.

Cameroon: Economic and Social Indicators

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Sources: IMF, African Department and WEO databases; and The World Bank, World Development Indicators database, 2010.
Figure 1.
Figure 1.

Cameroon: Comparative Indicators and Economic Structure, 1980–2010

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Sources: World Bank (WDI); Cameroonian authorities; and IMF staff estimates.
Figure 2.
Figure 2.

Cameroon: Evolution of Poverty, 1996-2007

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: Cameroon, National Institute of Statistics, National Poverty Survey, December2008
Figure 3.
Figure 3.

Nonoil Government Revenue

(In percent of nonoil GDP)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: IMF staff estimates.

2. The political situation is currently stable. However, social unrest (as seen in 2008) could re-emerge ahead of presidential (October 2011) and legislative (mid-2012) elections, given widespread poverty, youth unemployment, and increasing income and wealth inequalities.

Cameroon: Response to Recent Fund Advice

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3. Data provision to the IMF is broadly adequate for surveillance, but important gaps exist in fiscal, external, and financial sector information. Government financial operations on a commitment basis (consistent with accounts on a cash basis) and financial sector soundness indicators are not regularly available. The quality and timeliness of balance of payments statistics need to be improved. Monetary data availability is subject to unusually long delays. The authorities have adopted and started implementing, with donors’ technical assistance, a strategy for improving national statistics.

II. Recent Economic Developments: Gradual Recovery and Low Inflation, but Recurrent PFM Problems in 2010

4. The economy continues to recover from the global crisis, and inflation remains contained. Real GDP growth in 2010 is estimated at 3.2 percent, up from 2 percent in 2009, despite a sizeable drop in oil output. The recovery is driven by nonoil, export-oriented sectors, reflecting external demand and tax incentives granted by the authorities to boost production in agriculture and forestry. Average annual inflation was contained at 1.3 percent, compared with 3 percent in 2009 (Figure 4). Food price inflation was 2.3 percent, down from 5.9 percent a year before, with the recent sharp increase in international commodity prices having so far a limited impact.3

Figure 4.
Figure 4.

Cameroon: CPI Inflation, 2006–10

(Percent)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: Cameroon, National Institute of Statistics.

5. External accounts have benefited from the rebound in export demand. This generated an increase in 2010 of 3.5 percent in nonoil export volume. In contrast, import volume growth is estimated at 8.2 percent, in response to domestic demand. The external current account deficit (including grants), at 2.8 percent of GDP, is estimated to have declined by about one percentage point of GDP.

6. Fiscal accounts on a cash basis show a limited overall budget deficit in 2010. Domestic revenue was close to the supplementary budget target (16.8 percent of GDP), because the oil revenue windfall generated by the recent oil-price surge compensated for a shortfall in nonoil revenue (0.6 percent of GDP). In terms of composition of spending, current expenditure was higher than budgeted (14.5 against 13.9 percent of GDP), while capital expenditure suffered from delays in issuing government bonds and mobilizing external financing, and from implementation capacity constraints. The deficit on a cash basis, after accounting for the clearing of outstanding government obligations accumulated in previous years, was relatively modest (2.3 percent of GDP) and below the 3.5 percent of GDP targeted in the supplementary budget (Text Table 2 and Table 3).

Text Table 2.

Cameroon: Key Fiscal Indicators, on a Cash Basis, 2008–10

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Sources: Cameroonian Authorites; and IMF staff estimates.
Text Table 3.

Cameroon: Government Arrears and Other Payment Obligations, 2008–10

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The 2009 partial audit unveilled a stock of CFAF 90 billion new arrears. These new arrears are included in end-2009 stock of audited arrears. A new partial audit conducted in 2010 revealed a stock of about CFAF 18 billion new arrears, which are included in end-2010 stock.

The government settled CFAF 90 billions of arrears to SONARA in July 2010. This is reflected in end-2010 government’s obligations to the company.

UPOs accumulated by the central government excluding its decentralized services.

Payments of previous years’ UPOs accumulated by the central government, including its decentralized services.

The end-2010 figure does not include earmarked proceeds from the 2010 bond issuance (CFAF 197.5 billion)

means not available.

7. Some efforts were made to deal with the legacy of PFM problems incurred in 2009 and to rein in spending programs. Budget data were reconciled between departments to assess the nature and level of unsettled payment orders (UPOs). Out of a total stock of CFAF 260 billion (2.5 percent of GDP) of UPOs at end-2009, CFAF 240 billion were cleared in 2010 through cash payment or accounts reconciliation. Most end-2009 arrears to the oil refinery were settled, through borrowing from the BEAC against the proceeds from the general SDR allocation.4 In addition, a supplementary budget taking into account likely shortfalls in revenue and the need to reduce and reallocate expenditure was adopted by presidential decree in September 2010.

8. However, budget execution in 2010 was affected by the same problems and on a similar scale (Text Table 3 and Figure 5):

Figure 5.
Figure 5.

Cameroon: Accumulation and Payment of UPOs and Government Usable Deposits 2008-10

(CFAF billion)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Sources: Cameroonian authorities; and BEAC.

  • Following the decision to keep retail oil prices stable despite the increase in world prices for petroleum products, arrears to SONARA at end-2010 amounted to some CFAF 136 billion (1.2 percent of GDP).5 SONARA in turn accumulated tax arrears close to CFAF 45 billion to the government.

  • The flow of UPOs on 2010 operations reached CFAF 250.6 billion (2.3 percent of GDP) by end-year, a level much higher than in 2009. The end-2010 stock stood at CFAF 271 billion (2.4 percent of GDP).

  • Fiscal buffers were significantly eroded. The level of government usable deposits at the BEAC declined to the equivalent of 0.2 months of public spending at end-2010, from 1 month at end-2009. The near depletion of usable deposits reflected the lack of budgetary allocations (in the 2010 budget) for the clearance of pre-existing UPOs and the tight liquidity situation associated with delays in the first-time placement of government bonds (Box 2).6

Cameroon’s Experience with a First-Time Issuance of Government Bonds

The 2010 budget financing relied on the issuance of government bonds (CFAF 200 billion; about 1.8 percent of GDP) on the regional market. Because of delays in setting up the required infrastructure at the BEAC for such a market, the authorities decided to issue the bonds on the domestic market, through the Douala Stock Exchange. A syndicate of three local banks was selected to promote the operation.

Preparations were slower than expected. The decree authorizing the Minister of Finance to negotiate with the bank syndicate was signed in September, earmarking the proceeds to specific infrastructure projects.

The issuance operation was launched on November 18, and subscriptions were to take place in December. The terms of the issue were a maturity of five years, an interest rate of 5.6 percent, and a one-year grace period for repayment. The subscription outcome was officially validated on December 29 by the Financial Market Commission. Total subscriptions amounted to CFAF 203.2 billion, of which only the CFAF 200 billion authorized by the 2010 Budget Law were accepted. Intermediaries’ fees and commissions (CFAF 2.5 billion, or 1.25 percent), left net proceeds of CFAF 197.5 billion, which were deposited in a special treasury account at the BEAC.

Notwithstanding he delays in preparation, the issuance was a success, paving the way for further mobilization of local savings in the future. The operation was however quite expensive, taking into account the relatively high interest rate.

Cameroon: Results of the 2010 Bond Issuance

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9. Conditions in the banking system are troubled, reflecting (i) the difficult financial position of 3 out of the 12 commercial banks; (ii) excessive credit concentration and insufficient loan provisioning; and (iii) the impact of government domestic arrears on bank borrowers (Appendix II). Financial sector soundness indicators deteriorated in 2010, as shown by the drop in the system-wide average capital to risk-weighted assets ratio (from about 10 percent in 2009 to 7 percent in 2010), the increase in the ratio of nonperforming loans (NPLs) to total loans (from about 13 percent to 15 percent) and the decline in the ratio of provisions to NPLs (from 79 percent to 75 percent) (Table 6).

Table 1.

Cameroon: Selected Economic and Financial Indicators, 2009–16

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

WEO price in US$ per barel, minus a discount for price uncertainty and the quality of Cameroon’s oil.

Percent of broad money at the beginning of the period.

Estimations are based on the revised DSA, using the LIC Debt Sustainability Framework methodology.

Note: … = not available.
Table 2.

Cameroon: Central Government Operations on a cash basis, 2009–16

(CFAF billion, unless otherwise indicated)

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

Rehabilitation and participation includes a provision for the recapitalization of a distressed bank in 2011.

Includes grants, but excludes selected payment of government obligations.

WEO price in US$ per barel, minus a discount for price uncertainty and the quality of Cameroon’s oil.

Table 3.

Cameroon: Selected Fiscal Indicators, on a cash basis, 2009–16

(Percent of GDP, unless otherwise indicated)

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

Rehabilitation and participation included a provision for the recapitalization of a distressed bank in 2011.

Includes grants, but excludes selected payment of government obligations.

Table 4.

Cameroon: Balance of Payments, 2009-16

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Sources: Cameroonian authorities; and IMF staff estimates and projections.
Table 5.

Cameroon: Monetary Survey, 2009–16

(Billions of CFA francs, unless otherwise noted)

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Sources: BEAC; and IMF staff estimates and projections.

Deposits that are readily available for government operations.

Excluding foreign-financed investment.

Table 6.

Cameroon and CEMAC: Indicators of Banking System Soundness, 2008-10

(In percent, unless otherwise indicated)

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Source: COBAC.

The regulatory capital is sometimes lower than the core or Tier 1 capital if there are significant nonvalues in the bank portfolios.

Gross NPLs/gross loans.

NPLs net of provision/outstanding loans.

Aggregate ROA and ROE are negative.

III. Medium-Term Outlook: Positive Growth Prospects with Balanced Risks

10. Economic growth is expected to pick up gradually under current policies. Real GDP growth in 2011 is projected at 3.8 percent and is expected to increase to 5 percent in 2014 (Text Table 4). The positive outlook is driven by the ongoing recovery of the global economy, the execution of infrastructure programs, and current initiatives to improve the business climate:7

Text Table 4.

Cameroon: Selected Macroeconomic Indicators, 2009–16

(Units indicated)

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

Percentage change.

Percent of GDP.

Percent of nonoil GDP.

  • Oil production is expected to contribute to real GDP growth in 2012–14, with National Oil Company (SNH) projections pointing to a sizeable increase in production (about 23 percent on average during that period), followed by a resumption of the declining trend. The projected increase reflects the coming on-stream of ongoing investments, after successful exploration efforts during the last three years.

  • Nonoil growth is to be supported by ongoing major projects to boost agricultural productivity and competitiveness, construction related to the public investment program, and implementation of planned measures to improve the business environment (Box 3).

11. Inflation is expected to remain below the regional convergence criterion of 3 percent. Ongoing initiatives to boost agricultural production and subsidize imports of food are likely to moderate the impact of world food prices. Inflation could, however, temporarily overstep the convergence target if the current policy of freezing retail fuel prices were to be revisited.

12. The external current account deficit is projected to remain manageable, within the range of 3 to 4 percent. The combination of gradual improvement in nonoil exports; a jump in oil production starting in 2012; and persistent high oil prices would tend to offset the expected increase in import volumes. A broadly stable current account deficit is expected to be financed mainly by private flows and new public foreign borrowing.

13. Medium-term fiscal projections are predicated on continued efforts on the part of the authorities to strengthen revenue mobilization, contain nonpriority spending, and address infrastructure gaps. A gradual strengthening in revenue mobilization is expected to improve the ratio of nonoil revenue to nonoil GDP by about 1 percentage point from 2011 to 2016. Efforts to tackle infrastructure bottlenecks should result in a sustained increase in capital spending, while maintaining the nonoil primary deficit within the range of 5 percent to 6 percent of nonoil GDP to anchor the fiscal stance. A steady flow of oil revenue, resulting from the projected increase in oil production and high international oil prices, would gradually lower the overall budget deficit, turning it into a surplus after 2013. Projected new borrowing would increase total public debt from about 12 percent of GDP in 2010 to 15.5 percent in 2016 without jeopardizing debt sustainability.

14. Risks to the medium-term outlook are broadly balanced. These include (i) the uncertain pace and strength of the global recovery; (ii) a vulnerable banking sector that may generate fiscal liabilities and affect the real sector; and (iii) potential delays in the implementation of reforms in a protracted election environment. On the upside, a faster and more effective implementation of the new large public infrastructure projects would generate nonoil sector growth higher than projected under the baseline.

IV. Policy Discussions : Maintaining Macroeconomic and Financial Stability and Fostering Growth

15. The authorities recognize that pressures on the budget, the erosion of fiscal buffers, continued weaknesses in PFM and the financial sector have increased risks to macroeconomic stability. Policy discussions therefore centered on (i) containing risks to the 2011 budget; (ii) improving PFM conditions; (iii) ensuring stability in the financial system; (iv) addressing infrastructure gaps while preserving debt sustainability; and (v) boosting competitiveness and economic growth.

A. Controlling Risks for the 2011 Budget

16. The 2011 budget adopted in November 2010 was broadly as discussed with staff in September 2010 (Tables 2 and 3). The budget projects nonoil revenue to reach 14.1 percent of nonoil GDP (up from 13.3 percent in 2010), supported by new administrative and tax policy measures.8 Expenditure will remain at 2010 levels (18.7 percent of GDP) with a constant level of overall subsidies (3.1 percent of GDP). A large increase in capital spending is compensated by declining current spending, mainly in goods and services. The overall budget deficit (2.6 percent of GDP), together with amortization of external and domestic debt (0.8 percent of GDP), is expected to be financed by (i) external project financing (1.3 percent); (ii) drawings from government deposits (0.4 percent);9 and (iii) issuance of government bonds (1.3 percent) and treasury bills (0.4 percent).

17. While the 2011 budget is benefiting from the oil price revenue windfall, it is coming under pressure from multiple factors, including:10

  • Arrears to the domestic oil refinery and increasing fuel subsidies. The 2011 budget did not incorporate an allocation to clear the stock of past obligations to the oil refinery (CFAF 136 billion at end-2010). Also, at current world market prices, maintaining the present retail fuel price policy will require a subsidy of about CFAF 240 billion in 2011, CFAF 108 billion more than foreseen in the budget (Appendix I).

  • Resources needed to clear remaining UPOs accumulated in previous years. The clearing of UPOs could require resources as high as CFAF 225 billion (out of a stock of about CFAF 271 billion at end-2010), taking into account the ongoing verification process. The budget provision is less than half of this amount.

  • Costs linked to the “Mission for the Regulation of the Supply of Staple Goods” (MIRAP) and not incorporated into the budget. The institutional framework for this initiative is yet to become operational. According to its instituting decree, MIRAP has several mandates, including providing information on food market conditions, building and maintaining stocks, and supplying markets with staple goods at a ‘fair’ price level.11

  • Potential expenditure overruns on goods and services spending to cover costs of the election process and other upcoming national events, in light of the 2010 experience (overruns reached 1.2 percent of GDP).

  • Contingent claims from the restructuring of distressed banks. At present, these contingent claims are difficult to quantify and dependent on the authorities’ ongoing asset recovery efforts.12 The 2011 budget does not provide resources to cover this kind of expenditure.

  • Uncertainty regarding the capacity of the regional market to absorb the second bond issuance.13 The absorption capacity of the regional securities market is weakened by uncertainty surrounding the enforcement of the prudential standard for risk concentration.14

18. Incorporating these risks in fiscal projections implies that there could be a residual financing gap of up to 2.7 percent of GDP. To reduce the financing needs, staff advised the authorities to (i) clarify with the regional bank supervisor the ambiguous regulatory treatment of sovereign bonds in bank portfolios that could adversely affect demand for the new bonds and start preparing the 2011 issuance as soon as possible; (ii) implement a strict treasury plan and identify nonpriority spending that could be contained; (iii) step up administrative efforts to improve nonoil revenue collection; (iv) in case it becomes evident that the bond issuance is unlikely to be completed this year, start preparing a contingency plan involving postponement of new public projects and addressing the risk of accumulating new arrears, which could undermine future bond issuances; and (v) pursue a reassessment of the fuel price formula and, as soon as political conditions allow, gradually restore the automatic adjustment of retail fuel prices to international prices to reduce subsidies, redeploy the associated resources to achieve higher benefits for the poor through targeted social protection mechanisms, and avoid new arrears to the refinery (Appendix I).

19. The authorities indicated their determination to implement a tight treasury management plan, but were reluctant to consider the adoption of further corrective measures ahead of the coming elections. With a tight treasury situation, there is a significant risk of large domestic arrears accumulation and/or of further postponing the realization of public infrastructure projects. If materialized, this risk would result in disorderly fiscal developments, heighten financial sector vulnerabilities, and adversely affect economic growth. BEAC statutory advances remain a last-resort source of financing.15 However, the use of statutory advances would send inconsistent signals at a time when BEAC is promoting the development of a regional market for government securities.

20. The mission encouraged the authorities to accelerate the implementation of ongoing administrative reforms to widen the tax base. Cameroon’s nonoil revenue performance is still among the weakest in the region. Given that tax rates on capital income, labor, and consumption are already high, broadening the tax base through tax administration reforms is a key priority. Actions should therefore be directed to (i) helping taxpayers through improved services offered by the medium- and small-enterprise tax payer centers; (ii) further simplifying tax and customs procedures; and (iii) rationalizing tax incentive schemes by formalizing eligibility criteria, and improving monitoring and evaluation of beneficiaries of such incentives.

B. Improving PFM Conditions

21. Staff encouraged the authorities to strengthen public expenditure management and improve expenditure efficiency. The authorities concurred that special attention should be paid to (i) tackling the existing stock of arrears and other payment obligations; (ii) preventing further accumulation of government payment obligations; (iii) strengthening cash management; and (iv) enhancing the quality of public spending.

22. Staff welcomed the start of an exhaustive audit of arrears and other central government payment obligations. The new audit follows four partial ones implemented in 2005–10, from which a stock of about CFAF 178 billion (1.6 percent of GDP) is outstanding. The mission stressed also the importance of defining and implementing a clear schedule for the gradual settlement of audited arrears.

23. To prevent further arrears and payment obligations, staff recommended the following actions:

  • Establish a mechanism to monitor the level of commitments by (i) reducing the number of authorizing officers; (ii) recentralizing the management of budget commitments; and (iii) mandating a budget execution reporting system throughout the expenditure chain.

  • Implement the 90-day rule for the definition of government arrears as recommended under the CEMAC directive.

  • Maintain in future budgets the mechanism introduced in the 2011 budget to control DENOs by requiring that those accumulated by a public entity in the current year be paid the following year through the budget allocation for the entity responsible.

  • Pursue ongoing efforts to prepare the monthly fiscal reporting table (TOFE) on a payment order basis, to improve the monitoring of payment obligations.

24. There is also scope for improving cash management. Staff recommended revising the current methodology used in preparing cash-flow plans by taking available information on the pipeline of outstanding spending commitments and UPOs into account systematically, in addition to budgeted expenditures. Staff emphasized also the need to abide by the single treasury account rule, notably by limiting the use of the SNH as a payment window for government operations.16

25. The implementation of the medium-term plan for the modernization of public expenditure, adopted in 2009 with the support of donors, should be accelerated. As progress so far remains insufficient, staff underscored the need to:

  • Implement a concrete strategy to improve absorptive capacity for public investment programs, and build continuity for investment financing through multiyear commitment appropriations. Staff thus welcomed the authorities’ plan to establish a central unit for project feasibility studies and evaluation (SEDEF), and encouraged using the incoming civil servants’ recruitment to strengthen execution capacities.

  • Ensure that the public procurement process is competitive and minimize the incidence of single-source contracts.

  • Pursue efforts to make the medium-term expenditure framework (MTEF) operational to facilitate the translation of PRSP priorities into annual budgets.

C. Safeguarding Financial System Stability

26. Staff reiterated the risks to public finances and the economy arising from banking sector vulnerabilities. It noted that the longer the current situation in financially weak banks persists, the higher could become the costs to the government, and to the credibility of supervisory institutions.

  • The authorities indicated their intention to pursue the restructuring of financially weak banks, notably through (i) recovery of loans granted to borrowers related to the main shareholders; (ii) removal of nonperforming loans; and (iii) recapitalization through reputable investors taking a majority share in the capital of banks involved. They underscored, however, the potential social and political costs associated with these restructurings.

  • Staff advised the authorities to (i) closely monitor liquidity conditions to avoid any suspension of payments by these banks; (ii) require full loss absorption by previous shareholders; and (iii) pursue maximum recovery of loans owed by related parties to minimize the financial costs to the government.

27. The authorities agreed on the importance of reviewing the regulatory framework and strengthening the supervision of financial institutions. Weaknesses in the current framework for dealing with distressed banks have become increasingly apparent with respect to (i) delays in the coordination between regional and national authorities on corrective measures; (ii) lack of clear rules and triggers for intervention; (iii) long delays in legal procedures; and (iv) the significant opportunity for interference afforded to shareholders of insolvent banks. The authorities concurred with staff on the need to engage CEMAC members in (i) strengthening the regional supervisor’s capacity; (ii) gradually reducing the prudential ratios for credit risk concentration; (iii) improving regulations on loan provisioning to allow for earlier recognition of expected losses; and (iv) defining clear rules and decision mechanisms for the treatment of banks in difficulty.

28. There has been some progress in removing obstacles to access to bank credit. A central credit registry for banks is now in operation. A law on leasing, which would help improve access of SMEs to credit, was enacted in December 2010. The Ministry of Finance has established the obligation of publishing the list of licensed microfinance institutions. However, work remains to be done on establishing a central credit registry for microfinance institutions and improving contract enforcement by setting up a court for commercial matters and facilitating out-of-court settlements.

29. Staff and the authorities discussed the risks of creating state-sponsored specialized financial institutions for agriculture and SME financing. These inherently involve undiversified sectoral loan portfolios and risks of undue interference in their management. The authorities recognized these risks but noted that the current problems of access to credit could justify creating such institutions, with appropriate safeguards to address the weaknesses and avoid the failures experienced in the past.

D. Addressing Infrastructure Gaps while Preserving Debt Sustainability

30. Efforts are underway to alleviate infrastructure bottlenecks in energy, roads, ports, water supply, and telecommunications. Projects in these sectors are expected to be financed by a mix of external loans, domestic borrowing, and public-private partnership (PPP).17 The authorities’ agenda to raise public capital spending will initially translate into higher deficits and debt, but the resulting nonoil growth dividends should contribute to maintaining a sustainable fiscal position. Staff analysis indicates that keeping the nonoil primary deficit (in percent of nonoil GDP) in the range of 5 to 6 percent as an anchor for fiscal policy during 2011-16 would be consistent with maintaining a sustainable public debt profile and preserving a low risk of debt distress.

31. While the DSA suggests Cameroon’s risk of debt distress remains low, there are indications of vulnerability to external shocks. Public debt indicators remain at comfortable levels, and external debt ratios are below the policy-dependent thresholds under the baseline scenario and most stress tests. However, in the case of a large export shock, the present value of external debt to exports ratio would result in small and temporary breach of the threshold.18 In projecting new external borrowing, the DSA takes into account sizeable new commitments that have been signed by the authorities in 2010 and in 2011, for which disbursements are assumed to be spread out over several years.19 The authorities concurred with staff that avoiding renewed debt vulnerabilities would require keeping nonconcessional borrowing in check, strengthening debt management practices, and widening the export base.

32. The authorities are committed to strengthening public debt management. In this context, staff therefore emphasized the need to

  • Strengthen monitoring by setting up a database on public enterprise debt (with and without government guarantee) and conducting periodic audits of domestic arrears.

  • Enhance the capacity of the National Public Debt Committee (CNDP) to coordinate and monitor the implementation of the national public debt strategy.

  • Continue to work with regional institutions to make the regional market for government securities fully operational.

E. Boosting Competitiveness and the Business Environment

33. Staff’s estimates based on four methodologies in line with the CGER approaches do not provide compelling evidence of real effective exchange rate (REER) misalignment (Appendix III). The REER depreciated by about 6 percent in 2010 (annual average) following a depreciation of the nominal effective exchange rate by 4.5 percent (owing to the depreciation of the euro against other major currencies during most of the year) and a negative inflation differential (about 2 percent) between Cameroon and its trading partners. The country’s external competitiveness is, however, clearly hampered by nonprice factors, especially a weak business environment.

34. Staff welcomed the authorities’ initiatives to strengthen the dialogue with the private sector, in particular the Cameroon Business Forum. Efforts under way to improve governance and transparency of the government budget, and to hold managers of public resources accountable, could reduce the uncertainty surrounding the business and regulatory framework (Box 3). Staff emphasized the need to support these efforts with reforms preventing the accumulation of domestic government arrears.

Ongoing Initiatives to Improve the Business Climate

The authorities’ actions have been focused on (i) intensifying the dialogue with the private sector and implementing an agreed action plan; (ii) fighting corruption; and (iii) pursuing public enterprise reforms.

Implementing the action plan to improve business climate. With IFC assistance, the Cameroon Business Forum (CBF), created in 2009 as a platform for dialogue with the private sector, adopted a matrix of measures to be implemented in 2010–11. These include several actions focused on simplifying regulations and procedures for starting a business, paying taxes, dealing with commercial litigation, cross-border trading, obtaining construction permits, and property access and protection. A recent assessment concluded that half of the envisaged actions have been completed. In particular, the number of steps to start a business have been reduced; procedures for paying taxes simplified; services offered by the one-stop window for external trade have been improved; the time required for provision of construction permits has been shortened; laws on e-commerce were enacted; and regional one-stop windows for delivery of property titles were introduced.

Fighting corruption. Efforts in this area have intensified since 2009, leading to prosecution of high-level officials charged with misappropriation of public funds. The authorities also stepped up an anticorruption campaign.1 These efforts have still to generate tangible results in international rankings.2

Public enterprise reforms. Progress has been mixed. The sale of 51 percent of the telephone company (CAMTEL) and the selection of a strategic partner were inconclusive, and a new divestiture strategy is being prepared. The restructuring of the postal service company (CAMPOST) is ongoing, and the government signed a partnership agreement with a foreign company in March 2010. The liquidation of the old public aviation company (CAMAIR) is being completed. A new national airline (CAMAIR CO) launched its operations in March 2011 under new management.

1The adoption of the national anti-corruption strategy is, however, pending. 2Cameroon’s rank on the Corruption Perceptions Index of Transparency International was 146th out of 178 countries in 2010. The World Bank Governance Indicators continue to rank Cameroon in the bottom 25th quartile.

35. Progress on trade liberalization could help boost a more diversified nonoil export base. Private investment and productivity growth remain constrained by high customs duties and nonuniform implementation of regional trade regulations.20 Progress needs to be made in regional negotiations on reducing the level and range of the common external tariff (CET), harmonizing the rules of products’ country of origin, and limiting CET exemptions. The authorities broadly agreed, but noted the slow progress in coming to an agreement with regional partners, and concerns over the potential reduction in customs revenues.

V. Staff Appraisal

36. The economy is gradually recovering from the global crisis, and inflation remains contained. While the overall macroeconomic situation is broadly stable, significant risks stem from (i) uncertainty on the strength and duration of the global recovery; (ii) persistent weaknesses in the public finances; (iii) increasing vulnerabilities in the banking sector; (iv) failure to reach the projected increase in oil production; and (v) possible delays in the implementation of needed reforms, given electoral concerns.

37. Risks to the 2011 budget need to be urgently addressed. The 2011 budget is under pressure from unsettled payment obligations and arrears to the oil refinery accumulated in 2010, rising subsidies to support the freeze in retail fuel prices, and uncertainty in mobilizing budgeted domestic financing through a second bond issuance. A sizable financing gap could materialize. Fiscal policy in 2011 should be guided by a reprioritization of current and capital spending and strict treasury management in order to close any residual financing gap while avoiding a further accumulation of domestic arrears or an undue compression of public investment.

38. Improving PFM conditions and nonoil revenue mobilization remain critical to maintaining stability. The authorities are encouraged to complete a comprehensive audit of outstanding arrears, strengthen treasury management, rebuild fiscal buffers gradually, and establish mechanisms to monitor the level of commitments and to improve the tracking of spending flows through the budget execution process. Scope exists for pursuing higher nonoil revenue by broadening the tax base, streamlining tax exemptions, and further increasing the efficiency of tax and customs administration.

39. The authorities need to remain vigilant against banking sector risks. The financially-weak condition of some domestic banks and the accumulation of unsettled payment obligations by the government continue to pose a risk to financial stability. In collaboration with the regional supervisory institution, the authorities are advised to take resolute steps to (i) monitor vulnerabilities through regular analysis of banking sector soundness indicators; (ii) promote a sound and rapid restructuring plan for banks in difficulty, while minimizing costs for the public finances; and (iii) champion a reform of the legal framework for bank resolution.

40. Strengthening regional financial institutions remains a priority for Cameroon. Staff encourages the authorities to continue to press for BEAC governance reforms, through their various representatives in the regional bank governance bodies, and to support BEAC’s program to strengthen risk mitigating safeguards.

41. Addressing the severe infrastructure gaps and improving the business climate are critical to achieving higher and sustained growth over the medium term. Achieving these objectives will require defining and implementing a concrete strategy to raise the execution rate for public investment, deepening the dialogue with the private sector and implementing actions agreed within the Cameroon Business Forum, improving governance, and tackling corruption. Staff estimates do not provide evidence of exchange rate misalignment for Cameroon, but competitiveness remains hampered by a weak business environment and insufficient provision of public services.

42. Maintaining a prudent borrowing policy is necessary to preserve debt sustainability. The updated LIC-DSA shows that Cameroon’s risk of debt distress remains low. However, the recent surge in nonconcessional borrowing to finance major infrastructure projects, if not used wisely, could jeopardize public debt sustainability in the medium to longer term. The authorities need to rely, to the extent possible, on grants and highly concessional loans for financing their investment program. They are also encouraged to work closely with regional institutions in developing a regional market for government securities, a key step in reducing vulnerability to external financing shocks.

43. Staff recommends that the next Article IV consultation take place within 12 months.

Table 7.

Cameroon: Millennium Development Goals, 1990-2009

article image
Source: World Development Indicators, The World Bank.

APPENDIX I—Fuel Subsidies: Current Issues and the Way Forward

A. Current Issues Regarding Fuel Subsidies

1. Since the February 2008 social unrest, fuel prices at the pump have not been adjusted to reflect developments in international market conditions. The price freeze was accompanied by a decision to compensate the domestic oil refinery (SONARA) for the shortfall between the notional retail price derived from the existing oil pricing formula and the administratively fixed price at the pump.1

2. Cameroon exports the bulk of its heavy domestic crude oil production. SONARA’s current processing capacity is approximately 2.1 million tons of light crude.2 Because its current technology is unsuitable for using Cameroon’s crude oil, about 90 percent of processed crude oil is imported from Nigeria and Equatorial Guinea. The refinery produced about 1.8 million tons of refined products in 2009, of which 63 percent was sold domestically. The remainder was sold mostly to other CEMAC countries.3

3. The government has been accumulating substantial arrears on compensating SONARA for the shortfall since 2008. These arrears amounted to CFAF 98 billion (about 0.9 percent of GDP) at end-2009. In 2010, although the government paid the refinery CFAF 107 billion, cumulative payment obligations to SONARA reached about CFAF 136 billion at year-end (1.2 per cent of GDP).

4. The fuel subsidy adds a significant burden to the budget. According to the authorities’ calculations, were international fuel prices to remain at March 2011 levels (US$100 a barrel) and the regulated pricing mechanism not revisited (Box 1), the subsidy would amount to CFAF 240 billion (2 percent of GDP) in 2011, markedly exceeding the CFAF 132 billion provision made in the 2011 budget.4 Putting these data into context, the estimated shortfall for 2011 is equivalent to 10 percent of total government expenditure, more than one third of the public sector wage bill, or half of domestically-financed government capital expenditure.

Calculating the Fuel Subsidy

The fuel subsidy is calculated through a pricing formula in place since 2007.1 In the absence of a competitive local market for fuel products, the formula calculates a local wholesale price for final products (g) by adding to the prevailing world reference price (a):

  • international transport and insurance costs (b) to arrive at an import parity price (c);

  • an adjustment coefficient (e) of 15 percent of the import parity price to provide compensation (de facto a producer subsidy) to SONARA;2

  • taxes (d) including a 10 per cent customs duty and 19.25 percent VAT; and

  • coastal navigation costs (f).

The notional retail price (j) is calculated by adding distribution costs and margins (h) and a specific tax (i)—for gasoline and diesel only—to the wholesale price. The formula calculates the shortfall (subsidy) per liter of final product (l) as the difference between the notional retail price and the fixed pump price (k).3

Table 1.

Cameroon Fuel Pricing Formula March 2011

(In CFAF per liter)

article image

Source: Platts’ European Marketscan.

1The formula was developed in collaboration with the IMF and is applied to three products: gasoline, kerosene, and diesel. The subsidy per liter is recalculated on a monthly basis. 2The adjustment factor reflects mostly the higher costs of the local refinery (SONARA) compared to internationally-competitive refineries. Part of the reason for SONARA’s lower efficiency is its low production volume. With significant investment, SONARA intends to increase production capacity to a level that would bring production volumes to the efficiency threshold. 3Margins for transport and distribution are de facto fixed.

5. The fuel subsidy is badly targeted, and the associated resources could be redeployed to generate significantly higher benefits for the poor. A 2007 IMF assessment showed that more than 70 percent of fuel price subsidies accrue to the richest 40 percent of households.5 The study also showed that the poorest 20 percent of households receive less than 1 percent of the subsidy for gasoline. And even in the case of kerosene subsidies, which are typically assumed to be pro-poor, the poorest 20 percent of households receive only 13 percent of the subsidy. In addition, the consumption of kerosene is small compared to the consumption of gasoline and diesel. Eliminating subsidies on gasoline and diesel only—at the baseline price of US$100 a barrel—would free resources equivalent to 1.8 percent of GDP for alternative use, including social spending to mitigate the impact of fuel price increases on the poor. The remaining subsidy on kerosene would cost about 0.2 percent of GDP to the budget.

6. The oil sector remains a net contributor to the government budget, but its contribution is on a declining trend because of the rising cost of the fuel subsidy mechanism. From 2008 to 2010, revenue from crude oil declined from 7.6 percent to 4.5 percent of GDP. The projected increase in revenue from crude oil in 2011 will be more than offset by the rising cost of the required fuel subsidy under the current fuel price policy (Table 2). Tax revenues on refined petroleum products have contributed on average 1.7 percent of GDP.

Table 2:

Net Contribution from Oil Sector to the Budget

(In billions of CFAF)

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7. If the international fuel price were to rise by 30 percent, compared to the baseline price, the cost of the subsidy could amount to 3.4 percent of GDP (CFAF 408 billion). Figure 1 shows the variation in the cost of the subsidy under different assumptions for world oil prices. Staff estimates indicate that international fuel prices would have to fall by about 50 percent on average, compared to the March 2011 level, to eliminate the subsidy.

Figure 1.
Figure 1.

Fuel Subsidy by Product as a Function of World Market Fluctuations

(Annual amount in billions of CFAF)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

8. The fuel pricing formula also raises two important issues:

  • The margin for SONARA increases with climbing world market prices. Setting the margin on an ad valorem basis leads to increasing government transfers to SONARA as international fuel prices increase, even at constant volumes of domestic consumption.6

  • The impact of any price fluctuation in world markets on the shortfall is magnified by the link between the world market price, the tax structure, and the margin for SONARA. An increase of 10 percent in the import parity price leads to an increase of at least 23 percent in the shortfall (taking account of the additional impact of customs and VAT as well as the adjustment coefficient for SONARA).

B. The Way Forward

9. The government intends to revise the pricing formula to reduce the cost of the subsidy. Options under consideration include (i) reducing the supplementary margin for SONARA and/or (ii) revising or eliminating other cost factors in the calculation of import parity, for example the cost of using SONARA’s port facilities or the dead freight. Staff estimates indicate that if the margin for SONARA had been reduced from 15 percent to 10 percent at end-2010, the estimated shortfall for 2011 would be reduced from CFAF 240 billion to CFAF 218 billion (a reduction of 9 percent).

10. More comprehensive reforms would be required to significantly reduce the burden of fuel subsidies on the budget, and to use limited resources more efficiently. These reforms could include

  • Modifying the margin for SONARA and effectively liberalizing imports of refined oil products. To solve the subsidy problem, the link between local and international price levels should be reestablished. In a first step the supplementary margin should be delinked from international fuel price levels by setting (based on the SONARA cost structure) a specific nominal transfer per liter of final product. In a second step, SONARA should be competing with international providers and thus selling its products domestically at international prices. Any consequent losses should be financed through direct budgetary transfers, preferably within a clear medium-term strategy for reforming the structure of the petroleum product sector. This reform should take into account SONARA’s ongoing efforts to reduce its costs by upgrading its equipment.

  • Gradually phasing out the fuel subsidy by moving to automatic price adjustment and establishing an effective social protection mechanism. A substantially more cost-effective approach to protecting the income of the poor would involve putting in place targeted transfer programs at the same time as fuel prices are increased in line with international price levels. Thus, the automatic pricing mechanism for consumer prices should be reintroduced, removing the subsidies according to a clear timeline. At the same time, targeted mitigating measures should be put in place to compensate the poor for the loss in purchasing power. Given the need to develop the capacity of the various ministries to design and implement effective and well-targeted transfer and expenditure programs, a gradual approach to fuel subsidy reform is warranted.

APPENDIX II—Banking System Vulnerabilities

A. Structure of the Deposit-Taking Financial System

1. Twelve commercial banks operate in Cameroon and together represent more than 40 percent of assets and deposits in the CEMAC region. At end-2010, more than half of Cameroon’s gross commercial bank credit was concentrated in five subsidiaries of large international banking groups, with the three largest (subsidiaries of French banks, with minority shareholdings by the Cameroon government) accounting for most of that market share (Table 1). Three domestically-controlled banks, including the second largest bank in the country, had a joint market share of 32 percent of banking system credit and about 27 percent of total bank deposits. The remaining 13 percent of the credit market was covered by four relatively small subsidiaries of Nigerian and Togolese banking groups. There are no state-owned commercial banks in Cameroon.

Table 1.

Cameroon: Banking System Structure

article image
Sources: COBAC; and staff calculations.

2. Nonbank deposit-taking institutions play a relatively minor role. The microfinance sector as of end-2008 comprised 460 institutions with total deposits and loans equivalent to about 11 percent of the corresponding banking system totals. There is also a public nonbank deposit-taking institution, Crédit Foncier du Cameroun (CFC), which was created to finance social housing and was historically financed mostly by a 2.5 percent deduction from public and private sector salaries. Its customer deposits amount to less than 1 percent of banking system deposits.

B. Banking System Soundness and Vulnerabilities

3. Aggregate bank financial soundness indicators show a significant deterioration during 2010. On a system-wide average basis, the capital adequacy ratio (CAR) went down from about 10 percent in 2009 to 7 percent in 2010 of risk-weighted assets, partly reflecting the recognition of losses in two financially-weak banks. Nonperforming loans (NPLs) went up from 13 percent to 15 percent of total gross loans, the ratio of total provisions to NPLs fell from 79 percent to 75 percent, leading to an increase in uncovered NPLs (i.e., net of total provisions) from 24 percent to 44 percent of net worth. The low level of coverage of NPLs by provisions at some banks suggests that their reported CARs may overstate their actual capitalization conditions.

4. A few domestically-or regionally-controlled banks are in weak financial condition. Two institutions need to be recapitalized and some banks have vulnerabilities stemming from low provisioning for NPLs. In contrast, the five subsidiaries of large international banking groups covering 56 percent of Cameroon’s bank credit market appear robustly capitalized. All banks show relatively high liquidity (the ratio of liquid assets to deposits averaged 47 percent in 2010).

5. Credit concentration with respect to public enterprises is important. As of end-2010, total risk-weighted credit exposure to the three strategic public enterprises represented more than 70 percent of regulatory capital in five banks.1 However, risk-weighted credit exposure to individual public enterprises exceeded the regulatory credit concentration limit of 45 percent of regulatory capital at three banks (in all three cases to the oil refinery).

6. Delays in government payments may be affecting private sector bank borrowers. Such accumulated government payment obligations amounted to about 2.4 percent of GDP at end-2010. As a result, the repayment capacity of affected borrowers could be compromised. Data were not available to assess the magnitude of these affected exposures to the banking system.

7. Banking sector vulnerabilities are also heightened by the poor business climate. Risks in lending to the private sector (especially to SMEs) are increased by uncertain property rights and weak enforcement of creditor rights. The result is a bias toward concentration of credit risks in a few large companies (mostly state-owned) and toward related-party lending.

C. Regional Framework for Bank Regulation, Supervision, and Resolution

8. Important shortcomings in key prudential regulations and in supervisory capacities identified in the 2006 FSAP and 2008 FSAP update remain unaddressed. Provisioning rules allow for up to four years before NPLs are fully provisioned. Moreover, staffing constraints at the regional supervisory institution result in on-site examinations of Cameroonian banks at an average frequency of between three and four years, leaving scope for insufficient loan-loss provisioning and for inadequate identification of risks. Further, the limit on exposure to a single borrower and related parties of 45 percent of the regulatory capital is much higher than best practice (15 percent to 25 percent) and is routinely expanded to up to 90 percent for “strategic enterprises.”

9. Weaknesses in the regional bank resolution framework have become more evident through recent difficulties in dealing with distressed banks. These weaknesses relate to (i) the potential for coordination problems between regional and local authorities to delay required prompt corrective action; (ii) the lack of clear rules and triggers for intervention; (iii) excessively long delays before key decisions can be made; and (iv) excessive room for interference by shareholders of insolvent banks in restructuring cases. The regional supervisor is currently working on a reform of the bank resolution framework.

APPENDIX III—External Competitiveness in Cameroon

The results of four different quantitative methodologies used to assess Cameroon’s real effective exchange rate (REER) are inconclusive, and the estimates tend to be associated with wide confidence intervals. There is thus no compelling evidence to suggest that Cameroon’s REER is misaligned. These methodologies were complemented by a range of survey data, showing that Cameroon’s competitiveness remains clearly hampered by structural obstacles, mostly related to a weak business environment, corruption, and high costs of services.

A. REER Assessment

1. During 2010, Cameroon’s nominal effective exchange rate (NEER) depreciated by 4.5 percent, while the real effective exchange rate (REER) based on the Consumer Price Index (CPI) depreciated by 6.3 percent. This offset the appreciation registered between 2006 and 2009 (Figure 1). The decline in the NEER primarily resulted from the depreciation of the euro (to which the CFAF is pegged) against other major currencies. Cameroon’s REER, as measured using unit labor costs in the manufacturing sector, shows a similar trend, and also registered a depreciation of around 6 percent in 2010.

Figure 1:
Figure 1:

Evolution of Cameroon’s NEER and REER: 2005-10

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: International Financial Statistics, International Monetary Fund.

2. The exchange rate assessment, using four different methodologies, shows mixed results. The external sustainability and macroeconomic balance approaches point to an overvalued REER, while the equilibrium REER and the Balassa-Samuelson approaches suggest an undervalued REER.1 The macroeconomic balance approach estimates a current account norm using some of the fundamental determinants of the current account balance (CAB) to GDP ratio.2 Staff estimates resulted in a norm equivalent to a current account deficit of 1 percent of GDP. The estimated adjustment necessary in the REER to close the gap between the norm and the staffs projected CAB at the end of the WEO projection period (2016) suggests that a REER depreciation of around 15 percent would be required. However, the 90 percent confidence interval is wide and includes zero.

3. For oil-producing countries, alternative methodologies have been developed to take into account the expected return on oil wealth in deriving the current account norm in the macroeconomic balance approach. While oil continues to be important for Cameroon in terms of exports, accounting for close to 55 percent of total exports during 2000–09, it represents a relatively small share of total output, accounting for around 7.4 percent of GDP in the same period. Moreover, oil production is projected to decline gradually. These two elements make the conclusions in terms of exchange rate misalignment relatively insensitive to the inclusion of the return on oil wealth in the estimation of the current account norm.

4. The external sustainability approach, which estimates the CAB to GDP ratio needed to stabilize the net foreign asset (NFA) position of a country at Cameroon’s NFA position in 2009,3 finds that the REER would need to depreciate by around 13 percent.

5. The equilibrium REER approach, which is based on the estimation of the medium-term relationship between the REER and its fundamentals,4 suggests that Cameroon’s REER is undervalued by almost 13 percent. Again, the 90 percent confidence interval is wide and includes zero.

6. The fourth approach is based on the Balassa-Samuelson effect, according to which countries with higher levels of per capita income experience higher productivity growth in the tradable goods sector and thus a more appreciated level of the REER.5 The results of this approach suggest that the REER in Cameroon is undervalued by 12 percent. Again, the 90 percent confidence interval is very wide and includes zero.

Figure 2.
Figure 2.

Cameroon: Required change in the REER to bring it to equilibrium level

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: Staff estimates.

B. Survey Data Analysis

7. Traditional methods for the exchange rate assessment were complemented with a range of survey data, to avoid drawing inferences based on a single, specific indicator.

8. The Global Competitiveness Index (GCI) ranks Cameroon 110 out of 139 surveyed countries. Cameroon ranks lower than the sub-Saharan African (SSA) average for all the dimensions of the index, especially for quality of institutions, degree of local market competition, and financial market development (Figure 3). With respect to the business environment, Cameroon slightly improved its ranking in the 2011 World Bank Doing Business Indicators (to 168, from 171 in 2010), although it again ranks below the SSA average (Table 1). According to the World Bank Enterprise Survey (2009), Cameroonian firms identify practices undertaken by competitors in the informal market, tax administration, and access to finance and to electricity as major constraints (Figure 4). Access to credit, taxation, and corruption are seen as major impediments in the Recensement General des Enterprises (2009), conducted by Cameroon’s Ministry of Economy. The 2010 Enabling Trade Index (ETI) ranks the country below the SSA average (Figure 5), with transport and communications’ infrastructure identified as major constraints.6

Figure 3.
Figure 3.

Global Competitiveness Index 2011

(ranking out of 139)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: World Economic Forum, 2010
Table 1.

Doing Business Indicators 2011

(ranking out of 183)

article image
Source: World Bank, World Development Indicators, 2011
Figure 4.
Figure 4.

Top 10 Constraints to Firm Investment 2009

(% of firms identifying problem as their greatest obstacle)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: World Bank, Enterprise Survey, 2009
Figure 5.
Figure 5.

Enabling Trade Index 2010

(ranking out of 125)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: World Economic Forum, 2010.

9. Patterns for cross-country comparisons of infrastructure endowment and costs are mixed. World Bank infrastructure access indicators place Cameroon better than or in line with CEMAC and SSA’s LICs for mobile telephone lines but below for internet access (Table 2). The country’s road density is, however, substantially lower than the SSA average (Figure 6). In terms of costs of infrastructure, Cameroon has one of the highest tariffs for power and road freight in SSA, while charges for mobile communication, internet access, and container freight are close to the SSA countries’ average (Table 3).

Table 2.

Telecom Access in Cameroon

article image
Source: World Bank, Cameroon Economic Update, Issue No 1, January 2011.
Figure 6.
Figure 6.

Road Density, 2004

(km of road per 100 sq. km of land area)

Citation: IMF Staff Country Reports 2011, 266; 10.5089/9781463902810.002.A001

Source: World Bank, World Development Indicators, 2010.
Table 3.

Cost of Infrastructure in Cameroon

article image
Source: World Bank; Cameroon Economic Update, Issue No 1, January 2011.

10. Data from the World Bank Enterprise Survey indicate that more than 60 percent of Cameroonian firms surveyed identify corruption as a major constraint to business (for all SSA, this share is 35 percent). Most enterprises surveyed claim they are expected to provide informal payments to public officials or to give gifts to secure a government contract, with the incidence of this phenomenon much higher than for all SSA (Table 4).

Table 4.

Enterprise Survey on Corruption.1 Percentage of Firms…

article image
Source: World Bank, Enterprise Survey, 2009.

Data are for 2006, 2007, and 2009, depending on the economy. For Cameroon these are for 2009.

Excluding Central African Republic and Equatorial Guinea, for which data are not available.

11. In sum, most of these survey data show that Cameroon’s overall business environment is holding back its competitiveness.
1

All figures are at the end of the text.

2

The impact of the crisis was mitigated by (i) measures taken in 2009 to protect distressed sectors (forestry and cotton); (ii) the recovery of world commodity prices as of mid-2009; and (iii) financial support from the IMF under the Rapid-Access Component of the Exogenous Shocks Facility (RAC-ESF).

3

This is due in particular to good harvests for certain crops, the freeze of retail fuel prices, and the impact of price controls through understandings signed between the government and economic operators to keep a lid on retail prices and prevent shortages of basic goods.

4

The Treasury made direct transfers to commercial banks in early July 2010, proportionate to each bank’s exposure to the oil refinery. This removed a source of systemic risk for most commercial banks. The exposure of these banks had reached 80 percent of their capital on average, and in one case was three times the level of capital.

5

Out of an allocation of CFAF 120 billion for fuel subsidies in the 2010 supplementary budget, only CFAF 17 billion was paid to SONARA.

6

Government deposits were boosted in December by the proceeds of the bond issuance (CFAF 197.5 billion, about 1.8 percent of GDP). These proceeds were, however, earmarked to specific infrastructure spending and thus not included as usable deposits.

7

The baseline scenario assumes a gradual moderate increase in private investment from 12.6 percent of GDP in 2010 to 13.8 percent in 2016.

8

The key measures foreseen in the 2011 budget and currently being implemented include (i) reversing temporary rate reductions granted to sectors hit by the global crisis in 2008–09; (ii) enforcing the special tax on tobacco and alcohol products; and (iii) reinstating VAT withholding at source procedures.

9

At the time of the preparation of the 2011 budget, drawings from government deposits were projected on the basis of end-August 2010 stock, which was close to 1 percent of GDP.

10

The authorities’ decision in February 2011 to launch a special civil service recruitment of 25,000 new graduates is not among these factors. Staff concurred with the authorities that there is enough space in the budgeted wage bill for 2011 to absorb the cost of the new recruitment (estimated at about CFAF 15 billion).

11

The fiscal cost of actions under the MIRAP initiative is uncertain at this moment.

12

Recapitalization needs have been estimated at CFAF 60 billion (0.5 percent of GDP) for one distressed bank and are still uncertain in the case of two smaller banks also in weak financial conditions. Government contribution to the banks’ recapitalization has been estimated tentatively at 0.2 percent of GDP in the staff fiscal projections for 2011.

13

In light of this uncertainty, staff projections assume that one third (CFAF 50 billion) of the budgeted bond issuance could be placed on the regional market and subscribed by banks that did not take part in the first issuance.

14

Regional regulations would require banks that took part in the first issuance for their own account to be barred from underwriting a second issue without first increasing their capital. Information on the potential impact is not yet available, but banks that have recorded the securities they hold as “transaction securities” have only six months before enforcement of the risk concentration ratios begins. The liquidity of government bonds is also limited by the absence of a sizeable secondary market and of an option to refinance the bonds at the BEAC.

15

Cameroon could still access up to CFAF 335 billion (2.8 percent of GDP).

16

The mission estimated, in the absence of official data, that payments made by SNH on behalf of the government totaled almost 1 percent of GDP in 2010.

17

A legal framework on PPPs, in place since 2006, still needs to be improved as it lacks provisions for monitoring fiscal obligations of PPP contracts and for independent audits of PPP projects.

18

This assessment is slightly different from the 2010 DSA, which found the projected external debt ratios under an export shock to approach but stay below the relevant threshold under the baseline scenario and all the stress tests.

19

Since the beginning of 2010 through end-April 2011, the authorities have signed 30 borrowing agreements for a total amount equivalent to almost 6 percent of the 2010 GDP. At least fifteen of these new loans (about 4 percent of GDP) are nonconcessional.

20

With tariff rates of up to 30 percent and an unweighted average of about 19 percent, the CEMAC CET rates are high in comparison with other countries and country groups, including those in Africa (See Kees Martijn and Charalambos G. Tsangarides, “Trade Reform in the CEMAC: Developments and Opportunities,” IMF Working Paper 07/137).

1

SONARA is the only significant supplier to the local market because imports are limited to 20 percent of total consumption. Owing to importers’ difficulties in recovering the subsidies, only about one quarter of the import quota has been used.

2

It is useful to compare SONARA’s output of refined oil products with that of the Ivory Coast’s refinery, which produces 4 million tons a year, and the smallest French refinery, which produces 10 million tons.

3

SONARA, Annual Report 2009.

4

The calculation assumes a monthly consumption of 39, 7, and 49 million liters for gasoline, kerosene, and diesel, respectively.

5

IMF, 2007, PSIA aide-mémoire “Cameroon: Fiscal and Distributional Implications of Alternative Fuel Pricing Policies.”

6

SONARA exports refined products to the extent that they are not absorbed by the domestic market. These products are sold at international market prices.

1

In 2010, the three companies were the oil refinery (SONARA), the electricity company (AES-SONEL), and the cement company (CIMENCAM).

1

The estimates of each of the four methods are presented in the lines in Figure 2, which shows the point estimates as well as the upper and lower bounds of the 90 percent confidence interval around each of the estimates.

2

The determinants included in the regression as independent variables are the relative old age dependency ratio, relative population growth, relative income, relative output growth, oil trade balance, relative fiscal balance, initial net foreign assets, aid inflows, and remittance inflows. See Francis Vitek (2011), “Exchange Rate Assessment Tools for Advanced, Emerging, and Developing Economies,” mimeo, International Monetary Fund, April 2011.

3

This NFA position is for Cameroon’s economy as a whole, not just for the banking system. Data are taken from the updated and extended version of the Lane and Milesi-Ferretti (2007) dataset. See Lane and Milesi-Ferretti (2007), “The External Wealth of Nations Mark II: Revised and Extended Estimates of Foreign Assets and Liabilities, 1970–2004,” Journal of International Economics, Vol. 73, November 2007, pp. 223-250. Data for 2010 are not yet available.

4

The determinants included in the regression as independent variables are the terms of trade, relative productivity, relative government consumption, initial net foreign assets, aid inflows, and remittance inflows. See Vitek (2011), op. cit.

5

See a presentation of this approach in Peter Isard, “Equilibrium Exchange Rates: Assessment Methodologies,” IMF WP/07/296.

6

On border administration, the World Bank Enterprise Survey (2009) shows that in Cameroon the average time for import clearance is 24 days, almost the double of the time needed in the rest of SSA countries (12.7 days). Furthermore, regarding the inefficiencies of port administration, a World Bank study indicates that the dwell time in the port of Douala exceeded 20 days on average in 2010, compared to a global benchmark of 3 to 4 days agreed on by sector experts, and 11 days set in the concession contract signed in 2005 with the port management entity. See Refas and Cantens, “Why Does Cargo Spend Weeks in African Ports? The Case of Douala, Cameroon,” Policy Research Working Paper 5565, The World Bank, February 2011.

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Cover IMF Staff Country Reports
Cameroon: 2011: Article IV Consultation: Staff Report; Debt Sustainability Analysis; Informational Annex; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for Cameroon
Author:
International Monetary Fund
Volume/Issue:
Volume 2011: Issue 266
Publisher:
International Monetary Fund
ISBN:
9781463902810
ISSN:
1934-7685
Pages:
83
DOI:
https://doi.org/10.5089/9781463902810.002
  • Figure 1.
    View in gallery
    Figure 1.

    Cameroon: Comparative Indicators and Economic Structure, 1980–2010

  • Figure 2.
    View in gallery
    Figure 2.

    Cameroon: Evolution of Poverty, 1996-2007

  • Figure 3.
    View in gallery
    Figure 3.

    Nonoil Government Revenue

    (In percent of nonoil GDP)

  • Figure 4.
    View in gallery
    Figure 4.

    Cameroon: CPI Inflation, 2006–10

    (Percent)

  • Figure 5.
    View in gallery
    Figure 5.

    Cameroon: Accumulation and Payment of UPOs and Government Usable Deposits 2008-10

    (CFAF billion)

  • Figure 1.
    View in gallery
    Figure 1.

    Fuel Subsidy by Product as a Function of World Market Fluctuations

    (Annual amount in billions of CFAF)

  • Figure 1:
    View in gallery
    Figure 1:

    Evolution of Cameroon’s NEER and REER: 2005-10

  • Figure 2.
    View in gallery
    Figure 2.

    Cameroon: Required change in the REER to bring it to equilibrium level

  • Figure 3.
    View in gallery
    Figure 3.

    Global Competitiveness Index 2011

    (ranking out of 139)

  • Figure 4.
    View in gallery
    Figure 4.

    Top 10 Constraints to Firm Investment 2009

    (% of firms identifying problem as their greatest obstacle)

  • Figure 5.
    View in gallery
    Figure 5.

    Enabling Trade Index 2010

    (ranking out of 125)

  • Figure 6.
    View in gallery
    Figure 6.

    Road Density, 2004

    (km of road per 100 sq. km of land area)

Figure 1.

Cameroon: Comparative Indicators and Economic Structure, 1980–2010
Figure 2.

Cameroon: Evolution of Poverty, 1996-2007
Figure 3.

Nonoil Government Revenue

(In percent of nonoil GDP)
Figure 4.

Cameroon: CPI Inflation, 2006–10

(Percent)
Figure 5.

Cameroon: Accumulation and Payment of UPOs and Government Usable Deposits 2008-10

(CFAF billion)
Figure 1.

Fuel Subsidy by Product as a Function of World Market Fluctuations

(Annual amount in billions of CFAF)
Figure 1:

Evolution of Cameroon’s NEER and REER: 2005-10
Figure 2.

Cameroon: Required change in the REER to bring it to equilibrium level
Figure 3.

Global Competitiveness Index 2011

(ranking out of 139)
Figure 4.

Top 10 Constraints to Firm Investment 2009

(% of firms identifying problem as their greatest obstacle)
Figure 5.

Enabling Trade Index 2010

(ranking out of 125)
Figure 6.

Road Density, 2004

(km of road per 100 sq. km of land area)