Introduction

My Cameroonian authorities would like to thank the IMF team for the open and constructive discussions during the mission and the useful analysis and recommendations included in the staff report. The report presents a balanced assessment of the strengths and risks faced by the Cameroonian economy. My authorities value the advice of the staff on the different sectors of the economy. This advice is an important input in the design of their policies. My Cameroonian authorities broadly concur with staff’s assessment and welcome the recognition that the authorities are making progress, but still face low but rising macroeconomic risks to achieve their ambitious goal of becoming an emerging market by 2035.

Recent Economic Developments

Cameroon’s macroeconomic performance improved further in 2012, with real GDP growth reaching 4.4 percent, and projected to reach 4.8 percent in 2013. The increase is due mainly to a turnaround in oil production, strong growth of the non-oil sector (agriculture and forestry), and a robust domestic demand. Inflation continues to be moderate at 2.4 percent, and the fiscal deficit was reduced. The external debt remains low and sustainable with all external debt ratios staying below their respective thresholds.

On the fiscal side, the overall fiscal deficit was reduced to 2 percent of GDP in 2012 (from 3.6 percent in 2011) as revenue exceeded budget projections. This deficit reduction was driven by higher-than-expected non-oil revenue, mostly because of a stronger yield of the corporate income tax, while expenditure was in line with budget appropriations. However, the stock of government arrears increased on account of rising fuel subsidies, although the government did settle all outstanding arrears at end-2011 toward the national refinery (SONARA). Delayed payments of taxes by corporations are an important factor in the accumulation of arrears, and my authorities will continue to take steps to improve their treasury management to limit further arrears.

Developments and Policies in 2013 and over the Medium Term

Based on their policies and continued reforms as well as the implementation of a number of important public projects, my authorities expect annual average real growth to be about 6 percent over the medium term. This reflects conservative assumptions regarding the pace of execution of large infrastructure and power supply projects, as well as ongoing investment in the hydrocarbon sector and efforts to raise agricultural production. However, following legislative and municipal elections, the political uncertainty is expected to be removed which should enable a strengthening of policies and an improvement in the business environment thus leading to stronger growth. Inflation is expected to be kept under control below 3 percent, although it could be affected by volatile food prices which are an important component of the inflation basket.

The fiscal deficit is likely to show an increase over the medium term, reflecting higher capital expenditure linked to the large infrastructure projects and a projected decline in revenue from oil. However, non-oil revenue is expected to increase on account of tax and customs administrations reforms. On the issue of fuel subsidies, my authorities agree with staff that they should be reined in through a number of measures, including a gradual adjustment in pump prices. However, the authorities would like to point out that it is a very sensitive issue with direct social impact and needs to be implemented cautiously. Reforms will have to be carefully prepared with extensive consultation and accompanied by mitigating measures so as to build a consensus and preserve social peace.

Nevertheless, my Cameroonian authorities agree with staff that they should take steps to rebuild fiscal buffers and ensure fiscal sustainability over the medium term. In this regard, they will continue to take measures to raise non-oil revenue. They are also thankful to staff for the detailed recommendations of structural measures aimed at strengthening medium term fiscal sustainability. This will be helpful in the formulation of their fiscal policies. In the same spirit of strengthening fiscal control, my Cameroonian authorities have also embarked upon an ambitious plan to strengthen and modernize Public Financial Management. In this regard, they welcome staff’s recommendations. Although the introduction of the reforms are challenging, as they require a fundamental change in administrative culture, the authorities intend to implement them, albeit gradually.

The financial system is broadly sound. My Cameroonian authorities will continue to take steps to address the weaknesses in the system and are working with the regional bank regulator (COBAC) to strengthen supervision.

My authorities agree with staff that the overarching policy issue is how to spur reform momentum to set Cameroon on a higher growth path, while mitigating low but growing risks to macroeconomic stability. Developing Cameroon’s growth potential requires continuous reforms in fiscal policy, public finance management, and the business climate and tackling barriers to greater competitiveness and sustainable growth. My authorities believe that the acceleration of the pace of the large infrastructure development on the way, and the continuous improvement of the business environment will remove these impediments and place the country on a higher GDP growth path that is inclusive and sustainable. These reforms will also help in the efforts to reduce poverty.

Debt and Development

As the DSA shows, the level of debt distress remains low. The authorities are mindful of the need to maintain debt sustainability. They take this into full consideration in the broader context of achieving the country’s long-term growth through their ambitious public investment program. That said, given the needs of the country, and the global financial conditions, it has become very difficult to obtain financial grants or concessional loans to finance these vital projects. The authorities will, nevertheless, always endeavor to secure concessional financing as much as possible, and will contract non concessional loans only in the absence of such concessional resources and for projects that are of critical importance to the development of the country. They will also take into consideration the returns on the projects. As hinted above, the authorities are also of the view that the country’s competitiveness will greatly benefit from the completion of the large public investment projects, and would like to stress that financing of most of the projects have already been mobilized or under negotiations. They are also working closely with the World Bank regarding the ceiling on contracted nonconcessional loans.

Conclusion

Cameroon is at a cross roads, and the authorities understand the need to maintain prudent policies to ensure macroeconomic stability while developing the growth potential of the country. In their efforts, they will be guided by the need to maintain debt sustainability and ensure external competitiveness. Domestic stability continues to be anchored by membership to the Zone franc, which has served the economy well. Already the country has been able to significantly raise its real rate of growth, the policies being followed by the authorities are intended to raise this growth further and make it inclusive. They are hopeful to benefit from Fund’s continued assistance in this endeavor.