IMF Policy Paper: Cameroon: Staff Report For The 2018 Article IV Consultation, Second Review Under The Extended Credit Facility Arrangement, Requests For Waivers Of Nonobservance Of Performance Criteria And Modification Of Performance Criteria

2018 Article IV Consultation, Second Review Under the Extended Credit Facility Arrangement Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon

Abstract

2018 Article IV Consultation, Second Review Under the Extended Credit Facility Arrangement Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon

Context

1. The CEMAC regional strategy is advancing, with Cameroon continuing to play a prominent role. More than a year after the December 2016 Yaoundé summit, all CEMAC countries are now implementing reform programs supported by the Fund and key development partners. Fiscal and external adjustment are taking place at varying speeds, but regional fiscal and current account deficits have declined in 2017, and BEAC reserves are gradually stabilizing (Text Figure 1).1 For their part, the Cameroonian authorities are pushing ahead with implementation of their ECF-supported program, thus contributing to the recovery of BEAC’s net foreign assets. Longstanding structural reforms in line with the regional economic reform program (PREF-CEMAC) and previous Article IV consultations are also advancing (Annex I).

Text Figure 1.
Text Figure 1.

Cameroon: Contributions to the Regional Adjustment, 2014-18

Citation: IMF Staff Country Reports 2018, 235; 10.5089/9781484370179.002.A001

Sources: CEMAC Authorities; BEAC; and IMF staff calculations.

2. However, the regional recovery is still fragile and it is imperative for Cameroon to stay on course with its fiscal consolidation and reform program. The 2017 fiscal deficit was higher than envisaged, but the authorities are putting in place strong measures to bring the consolidation back on its initial path. The revised 2018 budget submitted to parliament in June is more realistic and incorporates higher non-oil revenue and provisions for expenses related mostly to energy subsidies and the elections. However, program implementation in the second half of 2018 faces significant headwinds, including further spending and borrowing pressures from continuing security concerns in the Lake Chad basin and the worsening crisis in the anglophone regions (Box 1), the organization of the presidential elections in the Fall followed by legislative and municipal elections, and preparations related to Cameroon’s hosting of the 2019 African Nations soccer cup (CAN).

Security Risks and the Anglophone Region Crisis

Cameroon is facing several security-related risks, but the crisis in anglophone regions dominates. In the Far North, the terrorist group Boko Haram continues its attacks against military and civilians but the incidents remain contained. In the East, a large number of refugees contributes to instability. The anglophone crisis in the North West and South West has taken prominence in recent months and has increased concerns about the country’s stability, with rising humanitarian and economic costs.

The current anglophone crisis takes its roots in Cameroon’s unification in 1961. The 1972 constitution replaced federalism with a unitary state. Throughout the years, the anglophone population, which resides mostly in the north-west and south-west regions and account for 20 percent of Cameroon’s total population of 25 million, has demanded more autonomy and rights, while the state has become increasingly centralized. They founded the largest opposition party (Social Democratic Front) in the 1990s.

The crisis has escalated to an armed separation movement with rising humanitarian costs. The crisis started in October 2016 with strikes by lawyers and teachers and was followed by a boycott of schools, protests and ghost towns. It subsequently morphed into an armed movement for independence marked by violence on both sides, which escalated in recent months to killings and detentions, burning and looting of villages, and kidnappings of government officials and civilians. Despite a heavy military presence, the insecurity has spread leading to rising humanitarian costs. The United Nations’ Office for the Coordination of Humanitarian Affairs estimated that more than 20,000 people have fled to Nigeria, and 160,000 have become internally displaced persons (IDPs). This adds to the burden from 340,000 refugees from Nigeria and the Central African Republic. The United Nations High Commission for Refugees estimates that the cost of assisting refugees and IDPs in Cameroon has risen to US$87 million, of which only US$15 million are funded.

Anecdotal evidence suggests that the anglophone crisis is taking a toll on the economy. A rigorous quantification is difficult because of lack of adequate data. However, real exports of coffee and cocoa, grown mostly in the anglophone areas, have decreased by about 10 percent in 2017. Coffee export volumes further declined by 72 percent in the first quarter of 2018 (y/y). Tax revenues decreased by 8-9 percent in both regions in 2017 compared with 2016, due to lower economic activity and difficulties to collect taxes. Additional security expenses amounted to 0.4 percent of GDP in 2017 and at least 0.2 percent of GDP in 2018.

Recent Developments

3. Growth is estimated to be lower than projected in 2017 mainly due to a sharp contraction in oil production (Table 1, Figure 1). Growth slowed to an estimated 3.2 percent in 2017 (3.7 percent in the 1st review), from 4.5 percent in 2016, mostly owing to a 17 percent decline in oil production. Non-oil sector activity remained buoyant, growing at 4.7 percent, led by construction, food industry and services. Inflation declined from 0.9 percent in 2016 to 0.6 percent in 2017, and stayed low at 0.8 percent (y/y) in March, mainly due to low core inflation (MEFP ¶2).

Table 1.

Cameroon: Selected Economic and Financial Indicators, 2016-23

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Sources: Cameroonian authorities; and IMF staff estimates and projections using updated nominal GDP.

Crude oil volumes are augmented as of 2018 with natural gas exports of 60 million standard cubic feet per year.

Percent of broad money at the beginning of the period.

Includes the cumulative financing gap.

Projections are taken from an update to the 2015 Debt Sustainability Analysis (DSA), which excludes the stock of debt on which France provided debt relief under the “Contrat de désendettement et de développement” (C2D).

Figure 1.
Figure 1.

Cameroon: Real Sector Developments, 2015-18

Citation: IMF Staff Country Reports 2018, 235; 10.5089/9781484370179.002.A001

Sources: Cameroonian authorities; BEAC; and IMF staff calculations.

4. Fiscal consolidation continued, but at a slower pace than envisaged (Tables 2a and 2b, Figure 2). The overall deficit (including grants) declined from 6.2 percent of GDP in 2016 to 5.0 percent of GDP in 2017, falling short of the 3.1 percent of GDP program target:

Table 2a.

Cameroon: Central Government Operations, 2016-23

(CFAF billions, unless otherwise indicated)

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Sources: Cameroonian authorities; and IMF staff estimates and projections with updated nominal GDP.

Historical and budget figures exclude direct, custom, and VAT taxes due by SONARA which were subject to cross-cancellations against fuel subsidies due to SONARA (i.e., the revenue is presented on a net basis). From 2016 onward, projections for these taxes are made on a gross basis.

The payment of float and past unpaid obligations was included in individual expenditure lines prior to 2016. From 2016 onward, fiscal data report payment orders for the current fiscal year; payments of the float and unpaid obligations are recorded between the overall deficit on a payment order basis and the overall balance on a cash basis.

Include adjustment for payment orders issued in 2016 for investment to be executed in

The end-2017 audit of the stock of demestic arrears incurred prior to 2016 resulted in the cancelation of CFAF 68 billion of arrears.

Table 2b.

Cameroon: Central Government Operations, 2016-23

(in percent of GDP)

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Sources: Cameroonian authorities; and IMF staff estimates and projections with updated nominal GDP.

Historical a nd budget figures exclude direct, custom, and VAT taxes due by SONARA which were subject to cross-cancellations against fuel subsidies due to SONARA (i.e., the revenue is presented on a net basis). From 2016 onward, projections for these taxes are made on a gross basis.

The payment of float and past unpaid obligations was included in individual expenditure lines prior to 2016. From 2016 onward, fiscal data report payment orders for the current fiscal year; payments of the float and unpaid obligations are recorded between the overall deficit on a payment order basis and the overall balance on a cash basis.

Include adjustment for payment orders issued in 2016 for investment to be

The end - 2017 audi t of tin e stock of demestic arrears incurred prior to 2016 resulted in the cancelation of CFAF 68 billion of arrears.

Figure 2.
Figure 2.

Cameroon: Fiscal Sector Developments, 2013-17

Citation: IMF Staff Country Reports 2018, 235; 10.5089/9781484370179.002.A001

Sources: Cameroonian authorities; IMF staff calculations.
  • Non-oil revenue overperformed by 0.7 percent of GDP, buoyed by strong VAT and trade taxes, and one-off gains from enhanced efforts to collect tax arrears from SOEs (0.4 percent of GDP).

  • Spending accelerated at the end of the year, with a large part executed during the complementary period ending in February 2018.2 Higher security outlays and exceptional payments to settle arrears of the electricity company—the latter a prior action for a budget support operation, explain most of the higher spending (MEFP 17). Foreign-financed investment exceeded the program target by 0.7 percent of GDP.

  • The larger deficit was financed by a lower-than-programmed accumulation of government deposits and an increase in expenditure arrears and float, which reached 3.6 percent of GDP in 2017, although the authorities cleared arrears for 2016 and earlier in an amount of 1.7 percent of GDP (MEFP ¶3,7). As a result, the adjustment in the cash-based deficit was muted at ½ percent of GDP.

5. Fiscal performance was broadly satisfactory in Q1 2018. Weak domestic spending execution led to an overall surplus of 0.6 percent of GDP. Non-oil revenue was 0.3 percent of GDP below the original target, mainly caused by weaker VAT and customs collection, reflecting softening growth and trade. Current spending and domestically-financed investment execution remained below-projections. However, execution of foreign-financed projects continued at a fast pace, with new disbursements totaling CFAF 137 billion as of end-April, of which CFAF 111 billion was on non-concessional terms. The stock of expenditure arrears and float has been reduced to 2.8 percent of GDP as of end-March.

6. The current account improved and net foreign assets are recovering (Table 3, Figure 3). The current account deficit has narrowed to 2.7 percent of GDP in 2017, from 3.2 percent of GDP in 2016. Real imports declined by 4.8 percent, thanks to the fiscal consolidation, while non-oil real exports rose by 5.3 percent, driven by timber, manufacturing and aluminum. Preliminary trade data for Q1 2018 suggest a widening of the goods deficit as exports declined by 10.3 percent, driven by a fall in cocoa and crude oil exports, and imports increased by 17.2 percent (y/y). Lower private capital outflows, better-enforced foreign exchange regulations, and higher-than-anticipated disbursements of foreign financed investments supported a faster-than-anticipated buildup in net foreign assets (MEFP ¶4).

Table 3.

Cameroon: Balance of Payments, 2016-23

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

This line was subsumed in the non-oil line above in previous SR; for 2017, this line may include errors and omissions and financial account

Excluding prospective IMF financing

Nationally imputed reserves are not foreign exchange reserves, since they do not meet the standard set out in the IMF’s Balance of Payments Manual, which requires foreign reserves to be readily available to and controlled by monetary authorities for meeting balance of payments financing needs. However, under the statutes of the BEAC, if a country’s imputed reserves fall below zero the CEMAC Council of Ministers can call for adjustment measures. Private sector access to foreign exchange is not affected by the level of nationally imputed reserves, but only its access to CFAF and the availability or foreign reserves at the level of the union.