Statement by Kossi Assimaidou Executive Director for Cameroon

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-Introduction

I would like to thank staff and management for the constructive discussions held in Douala and Yaoundé with my Cameroonian authorities under the 2011 Article IV consultations. My authorities broadly share the thrust of the staff report, which underscores the key challenges facing the country in achieving higher and sustainable economic growth, reducing poverty and enhancing Cameroon’s competitiveness.

The implementation of prudent macroeconomic policies has led the Cameroonian economy to gradually recover from the recent global crisis. The authorities are determined to step up their efforts with a view to significantly increasing economic growth in per capita terms, reducing the economy’s vulnerability to shocks, and deepening regional integration. In this respect, they remain committed to pursuing the implementation of their economic program through further improvement in the fiscal situation and reforms focused on safeguarding the stability of the financial system, preserving public debt sustainability and boosting the competitiveness of the economy. In their efforts, the authorities are hopeful that they will continue to benefit from policy advice and support from the Fund and the international community.

II-Recent Economic Developments

Despite the fall of oil production and uncertainty surrounding the global recovery, economic growth is estimated to have reached 3.2 percent in 2010 against 2.0 percent in 2009. This encouraging performance is mainly attributed to growth in the non-oil sectors, notably the agriculture and forestry activities. Due in particular to the substantial decrease in food prices, average annual inflation was contained at 1.3 percent compared with 3 percent a year earlier.

On the fiscal side, domestic revenue mobilization reached the supplementary budget objective while current expenditure was higher than budgeted. In this context, the fiscal deficit on cash basis stood at 2.3 percent of GDP, well below the 3.5 percent of GDP targeted in the supplementary budget. In addition, substantial efforts were made in 2010 to clear the outstanding government obligations accumulated in previous years. This step was part of the authorities’ efforts to deal with public finance management problems incurred in 2009 and their determination to rein in spending. It is also important to note that in November 2010 the authorities issued for the first time on the national and regional market a government bond whose proceeds will finance public infrastructure projects.

To address the vulnerabilities stemming from the weak financial condition of some domestic banks, the authorities in close collaboration with regional institutions are committed to review the regulatory framework and strengthen the supervision of financial institutions.

III. Policies and Reforms in 2011

Fiscal and Debt Policies

The authorities’ efforts will be strengthened in 2011 to further improve the public finance management and preserve debt sustainability. To this end, ongoing reforms in the fiscal area will be aimed at increasing revenue mobilization, and containing non-priority spending. The 2011 budget projects nonoil revenue to reach 14.1 percent of nonoil GDP mainly supported by new administrative and tax policy measures. Expenditure will be maintained at 2010 levels with a large increase in capital spending compensated by cuts in outlays for goods and services. The overall budget deficit is projected at 2.6 percent of GDP, which will be financed through a combination of drawings from government deposits and issuance of government bonds.

Although the 2011 budget is benefiting from the increase in world oil prices, the authorities are facing considerable fiscal pressures, notably arrears to the domestic oil refinery, fuel subsidies, contingent claims from the restructuring of distressed banks, and uncertainties regarding the capacity of the market to absorb the second bond issuance. To address these issues, the authorities will pursue the reassessment of the fuel price formula and reduce subsidies to retail fuel prices by gradually restoring the automatic adjustment of retail fuel prices to world prices over the medium-term. They will also implement a tight treasury management plan to avoid new domestic arrears. In addition, the authorities have undertaken an exhaustive audit of arrears and other government payments obligations. Efforts to further improve cash management, improve expenditure efficiency will be further pursued. In this regard, my authorities will implement—with the support of donors—the modernization of public expenditure.

On the revenue side, my authorities are determined to accelerate the implementation of ongoing fiscal reforms with a view to widen the tax base. The tax administration reform, including measures to simplify tax and customs procedures and rationalize tax incentives schemes is a key priority as such reform will help raise Cameroon’s nonoil revenue.

My authorities welcome the debt sustainability analysis prepared by staff. They share the view on the need to maintain a prudent borrowing policy. In this respect, their efforts will be geared towards widening the exports base and rely to the extent possible on grants and highly concessional loans for the financing of public investments. Furthermore, they intend to work closely with regional institutions in developing a regional market for government securities and therefore reduce vulnerabilities to external financing shocks.

Financial Issues

The Cameroonian authorities are determined to develop a vibrant financial sector and improve access to finance. To this end, efforts to finalize the restructuring of financially weak banks will be pursued notably with (i) the recovery of loans granted to borrowers related to main shareholders, and (ii) banks’ recapitalization through reputable investors.

The authorities will push further, under the regional currency cooperation, for reviewing the regulatory framework and strengthening the supervision of financial institutions. In particular, the CEMAC institutions will be involved in strengthening the regional supervisor’s capacity and improving regulations and rules governing mechanisms for the treatment of banks in difficulty.

As regards access to credit, encouraging progress has been made in improving the regulatory framework. Not only a central credit registry has been established and is operational but also a law on leasing was enacted in December 2010 to help the SMEs have access to credit. The authorities intend also to establish specialized financial institutions to finance agricultural and SME activities. The development of these activities will help reduce youth unemployment. The management of such specialized financial institutions will be based on market rules with appropriate safeguards put in place.

Competitiveness and Structural Reforms

Improving the competitiveness of the Cameroonian economy remains a key priority of the authorities. In this regard, they agree on the necessity to improve the business environment in the context of the economic and monetary union. Their efforts will continue to focus on removing the non-price factors that hamper the business environment, fighting corruption and reforming public enterprises.

With the support of the IFC, the authorities established in 2009 the Cameroon Business Forum as a platform for dialogue with the private sector. Under this Forum, measures to simplify regulations and procedures for starting a business, enhance cross border trading, promote access to, and protection of, property have been successfully implemented.

The authorities are also addressing the infrastructure needs of the country and the insufficient provision of public services. They are intensifying their efforts under the CEMAC framework to further liberalize customs duties and accelerate regional trade liberalization.

IV. Conclusion

Macroeconomic stability continues to be preserved while the recovery of the Cameroon economy is underway. The authorities are determined to consolidate this recovery and intend to speed up their reform efforts towards better fiscal management, greater competitiveness, stronger growth and poverty reduction. In these endeavors, they will seek the support of the international community, including the Fund, with a view to formulating and implementing the needed policies and reforms.

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