Abstract
First Review Under the Extended Credit Facility Arrangement Requests for Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; Supplementary Information; and Statement by the Executive Director for Cameroon
Oil price developments in recent years significantly impacted the economic situation in CEMAC countries, including Cameroon—albeit a more diversified economy relative to its peers. The Extraordinary Summit of CEMAC Heads of States held in December 2016 in Yaoundé has been a pivotal point in developing and implementing a regional strategy to restore macroeconomic and external stability in the region, with Fund assistance. In the context of their arrangement under the Extended Credit Facility (ECF), the Cameroonian authorities have been advancing their policy and reform agenda in line with this regional strategy and their Growth and Employment Strategy Paper (GESP). While they pursue the implementation of the ECF-supported program, they look forward to the Fund’s valuable support and catalytic role as well as timely assistance from technical and financial partners.
Recent Economic Developments and ECF Program Implementation
Following an economic growth rate of 4.5 percent last year, activity has slowed down somewhat this year and is expected to reach 3.7 percent, notably thanks to lower-than-expected oil production. Fiscal consolidation efforts continue and mid-year performance in this regard has been strong owing to improved non-oil revenue collection and restraint on domestically-financed capital spending. Public debt remains manageable, and is estimated to be about 31 percent of GDP as of end-September 2017.
In the external sector, the completion of large infrastructure projects and the increased supply of local products such as food, cement and aluminum have contributed to reducing imports. On the other hand, strong export receipts have been generated by favorable trade in agricultural and manufacturing products as well as the recovery in oil prices. These developments contributed to reduce significantly the current account deficit which, along with positive net capital flows allowed a build-up of net foreign assets.
The implementation of Cameroon’s program under the Extended Credit Facility (ECF) has been strong. All quantitative performance criteria (QPCs) at end-June 2017 and indicative targets (ITs) have been me, including the zero ceiling on the accumulation of new external payment arrears. The ceiling on new non-concessional borrowing (continuous (QPC) was exceeded as the authorities had to advance to November 2017 the entry into force of a loan initially envisaged in the 2018 borrowing plan. Consequently, the authorities propose to reduce by the equivalent amount the ceiling in the 2018 budget, to ensure that the overall new non-concessional external borrowing for both years combined remains unchanged.
Likewise, the implementation of structural measures planned under the program has been satisfactory, with all but two structural benchmarks met at end-November 2017. Reforms already implemented include measures to advance regional integration, improve revenue mobilization, enhance transparency in the oil sector, strengthen public financial management, and promote financial sector stability. Missed structural benchmarks have been modified and rephrased, including those related to unpaid government obligations, the adoption and submission to the regional banking commission (COBAC) of a resolution plan for distressed banks, and the collection of the land tax.
Policies and Reforms Going Forward
The Cameroonian authorities remain committed to implementing policies and reforms notably with a view to maintaining macroeconomic stability, promoting strong and private sector-led growth, and reducing poverty.
Pursuing Fiscal Consolidation
The authorities concur that sustaining fiscal consolidation will be critical to achieve macroeconomic and external stability objectives going forward. In pursuing fiscal consolidation, the authorities are determined to maintain adequate level of social spending and implement social protection arrangements.
Their efforts will continue to center around mobilizing more non-oil revenue and reprioritizing spending. On the revenue side, the authorities will enhance the collection of tax arrears by end-2017 through joint tax controls and investigation efforts by the tax and customs administrations as well as scaled up monitoring of taxpayers’ reporting obligations. The authorities will also endeavor to enhance domestic revenue mobilization, including through greater coordination of revenue agencies.
On the expenditure side, efforts are being made to curb current spending and some capital outlays. Delays in budget support disbursements, which complicate cash management, will be addressed through adequate Treasury bills issuances—benefitting from improved bank liquidity conditions—and prudent cash flow management. Limited and temporary use of statutory advances before their phasing-out will be reimbursed by the budget support disbursements as soon as available.
Looking further ahead, the 2018 budget law is consistent with program objectives. Revenue mobilization actions will include measures to broaden the tax base and rationalize tax expenditures and increases in various airport duty and excise taxes as well as higher excise duties on gambling activities. In addition, all additional ax policy measures aimed at improving the efficiency of the revenue administrations will be implemented, as laid out in the MEFP. On the expenditure front, the authorities intend to strengthen the control of the wage bill and expenditures on goods and services; and streamline subsidies granted to public entities. Efforts to prioritize investment projects will continue.
Strengthening Public Financial and Debt Management
The authorities greatly appreciate the assessment of Cameroon’s public financial management (PFM) system under the PEFA and recognize that there is ample room for strengthening the system. Public financial management reforms will build on progress already made in transposing the 2011 CEMAC PFM guidelines, streamlining the budget preparation process and integrating the Medium-Term Budget Framework with budget laws, producing and publishing mid-term budget execution reports, and strengthening public investment management.
Additional structural measures will include reducing the exceptional procedures by prohibiting new replenishments of some correspondent accounts in subjecting investment projects to normal budget procedures. Efforts will also be made to enhance the monitoring of fiscal risks linked to state-owned enterprises, including those incurred by the enterprises engaged in public-private partnerships.
The authorities have been successful in containing public debt to manageable levels. Going forward, they are determined to pursue prudent debt management with a view to keeping public debt on a sustainable path. Financing of the 2018 budget strikes a good balance between domestic and external lending, while taking into account absorptive capacity. Most projects selected for external financing in 2018 comprise much-needed road and energy infrastructure.
Fostering Financial Sector Stability
The financial sector remains resilient amid the sovereign crisis, owing to the relatively diversified economy and weaker sovereign-bank nexus. The authorities will continue their close collaboration with the regional supervisor, with the aim of resolving distressed banks, and thus limiting their fiscal costs. In this vein, the plan submitted to COBAC will be strengthened, and detailed time-bound action plans will be developed to clear bad loans. In the meantime, judges will be trained on addressing banking disputes and assigned to the country’s main business centers.
Promoting Private Sector-Led Growth
The authorities will pursue stronger growth objectives over the medium to long term. In this vein, their 2018–20 strategy framework under the country’s GESP is articulated around the following pillars: (i) infrastructure development; (ii) modernization of production capacity; (iii) regional integration and trade diversification; (iv) social progress through policies in the areas of health, education, gender and social safety nets); (v) employment: and (vi) governance and strategic public management.
To promote private sector development and economic diversification, a number of steps are planned, including the implementation of several important projects in the transportation and energy sectors as well as agro-industries. Cameroon has made recent progress in in the World Bank’s Doing Business even though it still lags a number of peers. Going forward, the authorities will continue implementing measures to improve the business climate, notably in the areas of customs tariffs, land registry, credit registry, reimbursement of VAT credits, government processing times, and land reform, with the support of technical and financial partners.
Conclusion
The Cameroonian authorities remain steadfast in implementing their policy and reform agenda in the context of the ECF-supported program and in line with the regional strategy designed by the CEMAC authorities. In this endeavor, they look forward to continued Fund engagement and timely delivery of assistance from technical and financial partners which are critical to achieving program objectives.
In light of the above, we would appreciate Directors’ support for the Cameroonian authorities’ request for the completion of the first review under the ECF arrangement.