Cameroon: Third Review Under the Extended Credit Facility Arrangement and Requests for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria—Press Release; Staff Report; and Statement by the Executive Director for Cameroon
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International Monetary Fund. African Dept.
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Publication Date:
27 Dec 2018
eISBN:
9781484392003
Language:
English
Keywords:
ISCR; CR; authority; executive board discussion; administration; debt service; renewed commitment; CFT regime; BEAC financing of the government; financial support; Fiscal stance; Budget planning and preparation; Arrears
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Third Review Under the Extended Credit Facility Arrangement and Requestsfor a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon

Abstract

Third Review Under the Extended Credit Facility Arrangement and Requestsfor a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon

Context

1. The CEMAC regional economic situation remains challenging, with shortfalls in reserves accumulation. Regional growth could improve to 2.2 percent in 2018 (1 percent in 2017), largely from a rebound in oil production. However, end-September BEAC’s net foreign assets (NFAs) were significantly below projections, caused by delays in external financing, mixed program performances, and slow repatriation of export proceeds. In response to this shortfall, the BEAC took corrective actions, increasing its policy rate from 2.95 to 3.5 percent on October 31st, and enhancing implementation of the existing foreign exchange regulation. On October 25 in N’djamena, CEMAC heads of state reiterated their commitment to the Yaoundé summit’s regional strategy, and to strengthen their cooperation to restore external and fiscal stability in the region.

2. The socio-political situation remains difficult. President Biya was re-elected for a seventh seven-year term, with low turnout and tight security controls in anglophone regions. While Boko Haram attacks at the border of Nigeria and Chad continue, the deteriorating security conditions in the anglophone regions are taking a toll on the economy: exports of cocoa and coffee, mainly produced in the anglophone regions, dropped by 28 percent and 26 percent respectively at end-September 2018 (y/y); tax collection declined by 8.4 percent in 2017 and by 2.5 percent in the first 10 months of 2018 (y/y) while growing nationwide; and total credit declined by 12.7 percent (4.2 percent increase nationwide) in Q1-Q3. The International Organization for Migration estimates the number of refugees and internally-displaced people to exceed 500,000.

Recent Developments

3. Growth is recovering only gradually, mostly owing to the continued decline in oil production (MEFP ¶2). After decelerating to 3½ percent in 2017, growth improved to 3.8 percent in H1 2018 (y/y), mainly driven by construction activity related to large infrastructure projects and the Africa Cup of Nations (CAN).1 While non-oil growth remained resilient at 4.6 percent, the oil sector continued to contract, declining by 8.8 percent in H1–2018 (y/y). End-September inflation remained contained at 0.8 percent (y/y) (Table 1, Figure 1).

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.

Figure 1.
Figure 1.

Cameroon: Real Developments, 2015–18

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

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

4. Budget execution at end-September remained on track. The overall fiscal deficit reached 1.2 percent of GDP as projected. A 0.3 percent of GDP revenue shortfall, half of which caused by the delay in subsidy payments to the state oil refinery (SONARA)—needed to cover its tax liabilities— was compensated by lower recurrent and capital spending. The cash deficit was somewhat higher than projected owing to larger-than-anticipated arrears and float clearance (MEFP ¶3, Text Table 1, Tables 2a-b, Figure 2).

Text Table 1.

Cameroon: 2018 Budget Execution

(Percent of GDP)

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About 1.1% of GDP of 2017 floats mainly related to unfunded subisidies, tranfers, and projects’ conterpart funds that became arrears in Q1 were cancelled in Q2.

Sources: Cameroonian authorities; and IMF staff estimates and projections.
Table 2a.

Cameroon: Central Government Operations, 2016–23

(CFAF billion, 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.

Include adjustment for payment orders issued in 2016 for investment to be executed in 2017 and 2018.

The end-2017 audit of the stock of demestic arrears incurred prior to 2016 resulted in the cancelation of CFAF 68 billion of arrears. In 2018, More arrears mainly related to unfunded subisidies, tranfers, and projects’ conterpart funds were cancelled for about CFAF 233 billion.

Table 2b.

Cameroon: Central Government Operations, 2016–23

(Percent of GDP)

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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.

Include adjustment for payment orders issued in 2016 for investment to be executed in 2017 and 2018.

The end-2017 audit of the stock of demestic arrears incurred prior to 2016 resulted in the cancelation of CFAF 68 billion of arrears. In 2018, More arrears mainly related to unfunded subisidies, tranfers, and projects’ conterpart funds were cancelled for about CFAF 233 billion.

Figure 2.
Figure 2.

Cameroon: Fiscal Developments, 2014–18

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: Cameroonian authorities; and IMF staff calculations.

5. The balance of payments is worsening. The current account deficit widened to 2 percent of GDP in H1 2018 (compared to 0.9 percent of GDP in H1 2017), driven by weaker-than-projected agricultural exports due to the worsening security situation in anglophone regions and temporarily higher imports of oil products and investment goods caused by the shutdown of the oil refinery in April-November and acceleration of CAN and infrastructure projects. In addition, private capital outflows increased significantly in Q2 due to heightened domestic uncertainty. The current account deficit is likely to remain large in H2 as the trends observed in H1 continue. Private capital outflows are projected to gradually decline with strengthened confidence and export proceeds’ repatriation efforts (MEFP ¶32). NFAs declined from CFAF 1,970 billion at end-2017 to CFAF 1,821 billion at end-September 2018, while still accounting for more than half of the regional reserves (MEFP ¶4, Text Figure 1, Table 3, Figure 3).

Text Figure 1.
Text Figure 1.

Cameroon: Contributions to the Regional Adjustment, 2014–18

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: CEMAC authorities; BEAC; and IMF staff calculations.
Table 3.

Cameroon: Balance of Payments, 2016–23

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

Excluding prospective IMF financing

Figure 3.
Figure 3.

Cameroon: External Sector Developments, 2012–18

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

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

6. Private-sector credit growth rebounded in Q3 on the back of improved liquidity conditions. Broad money increased by 8.3 percent and deposits by 7.2 percent at end-September (y/y), with rising net government borrowing and credit to the public enterprises, mainly driven by SONARA’s difficult liquidity situation. Private sector credit growth rebounded to 5.2 percent, up from -0.6 percent at end-June (y/y). Bank reserves remained high at 20 percent of deposits, although foreign banks remain more liquid than local banks. The interest rate on government bonds has been declining (MEFP ¶5, Figures 4–5, Tables 4–5).

Figure 4.
Figure 4.

Cameroon: Monetary Developments, 2014–18

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: Cameroonian authorities; BEAC; and IMF staff calculations.
Figure 5.
Figure 5.

Cameroon: Financial Sector Developments, 2012–18

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: Cameroonian authorities; BEAC; and IMF staff calculations.
Table 4.

Cameroon: Monetary Survey, 2016–23

(CFAF billion, unless otherwise indicated)

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Sources: BEAC; and IMF staff estimates and projections.

Credit to the economy includes credit to the public enterprises, financial institutions and private sector.

Table 5.

Cameroon: Financial Soundness Indicators, 2014–18

(Percent)

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Sources: BEAC; COBAC; and IMF Financial Soundness Indicators.

Data from the IMF Financial Soundness Indicators database. August 2018 data is used for Q3.

Program Performance

7. Program performance has been broadly satisfactory.

  • All but one end-June performance criteria (PCs) were comfortably met (MEFP ¶7, Table 1). The ceiling on net BEAC financing to the government was missed by a small margin. All but one end-June indicative targets (ITs) were met. The floor on non-oil revenue was missed slightly mainly due to delayed subsidy payments to SONARA which in turn delayed payments of its taxes and custom duties. Preliminary data suggest that all but one end-September ITs were met, including the new IT on containing spending through exceptional procedures. Net BEAC financing to government exceeded the program ceiling again as a planned CFAF 150 billion infrastructure bond was issued after the October Presidential election.

  • Structural reforms have advanced (MEFP ¶8–9, Table 2). All but four structural benchmarks (SBs) due by end-November were completed, although two were implemented with delay. The adoption of an action plan on SENDs has been proposed as a prior action, the assessment of restructuring options for two ailing private banks is ongoing and is expected to be finalized in the coming weeks, and the SBs on the closure of correspondent accounts and on SME bank are proposed to be reprogrammed. The collection of the land tax through electricity bills (December SB) was not included in the 2019 budget partly for technical reasons and replaced by an extension of the tax amnesty on property income.

Policy Discussions

A. Outlook and Risks

8. Short-term growth prospects remain positive but somewhat dimmer than anticipated. Growth is expected to improve gradually from 3.8 percent in 2018 to 4.4 percent in 2019 (4.5 percent in the 2nd review), and to rebound to 5–5 ½ percent in the medium term, driven by new natural gas production and the coming on stream of transport and energy projects (Text Table 2, MEFP ¶11).

Text Table 2.

Cameroon: Medium-Term Outlook, 2016–23

(Percent of GDP, unless otherwise indicated)

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

Includes the cumulative financing gap.

Projections are taken from an updated Debt Sustainability Analysis (DSA), which excludes the stock of debt on which France provided debt relief under the “Contrat de desendettement et de developpment” (C2D).

9. External and domestic risks could affect the outlook (Table 6). External risks mainly include spillovers from the global tightening conditions, volatility in major emerging markets, continued security threats, and delays in the CEMAC regional adjustment. Domestically, potential fiscal slippages from higher security spending, the 2019 legislative and municipal elections, and the completion of large infrastructure projects could derail fiscal consolidation. Continued escalation of the anglophone crisis could further dampen economic activity. Activity in 2019 could also be lower than anticipated owing to the postponement of the CAN, but, with slower implementation of related projects, risks on the 2019 budget might be reduced. On the upside, higher oil prices and still-resilient non-oil sector activity could help cushion unexpected shocks (MEFP ¶13).

Table 6.

Cameroon: Risk Assessment Matrix 1/

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The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term” and “medium term” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

10. The authorities shared staff’s assessment of growth prospects while noting some positive factors that could lead to more favorable outcomes. In particular, they considered that growth in 2019 and over the medium term would benefit from a larger positive impact of the connection to the electricity grid of the Memvele hydro-power plant starting end-2018, and the ramping up of gas production and of activity at the Kribi port (MEFP ¶11).

B. Fiscal Policy: Preserving the Fiscal Consolidation Path

11. Medium-term fiscal policy aims at maintaining the program consolidation path and converging to the regional deficit target by 2021. Continued improvement of non-oil revenue mobilization and further rationalization and prioritization of both domestically-financed and foreign-financed investments will support achievement of fiscal objectives in 2018–19. Over the medium term, the stabilization of public investment should limit import growth while enhanced transport and energy supply should boost non-oil exports, leading to the gradual recovery of external reserves and eventual stabilization of the current account deficit at around 3 percent of GDP (Text Figure 2, MEFP ¶12).

Text Figure 2.
Text Figure 2.

Cameroon: Cumulative Fiscal Adjustment, 2017–20 (Percent of GDP)

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: Cameroonian authorities,” and IMF staff calculations.

Reaching the 2018 Revised Budget Objectives

12. Staff and the authorities agreed that the end-December program targets can be reached with strict controls on spending and additional revenue measures.

  • Staff estimates that subsidies needed for SONARA in 2018 would likely exceed the currently budgeted amount by CFAF 60 billion (0.3 percent of GDP) and could lead to non-oil revenue slippages. The authorities indicated that this gap can be largely covered by unplanned non-tax receipts collected from the port operator in September (CFAF 32 billion), and by additional tax administration measures amounting to CFAF 23 billion, including accelerating ongoing audit operations, recovery of tax arrears, collection of excess taxes raised on behalf of public entities, and better control of transit regimes at customs (Text Table 3, MEFP ¶14). The authorities also indicated that they had identified savings on goods and services as well as salaries (following the physical count of public employees), which would allow additional subsidy payments to SONARA (MEFP ¶15–16).

  • Staff highlighted the significant risks stemming from the acceleration of foreign-financed investment projects, with CFAF 583 billion already disbursed as of end-October (including CFAF 390 billion on non-concessional loans) and another CFAF 219 billion in disbursement requests, against total budgeted disbursements of CFAF 596 billion. The authorities indicated that they had made a project-by-project prevision of disbursements to meet the target on non-concessional disbursements and that they intended to prioritize domestically-financed investment to maintain total investment spending unchanged.

  • SNH direct interventions reached CFAF 175 billion in October, above the annual ceiling (IT) of CFAF 156 billion.2 The authorities agreed to limit these interventions until the end of the year as they displace other budgeted expenditures, including using accelerated budgetary procedures to expedite the execution of urgent security-related spending (MEFP ¶7).

  • Domestic bond issuances and additional budget support eased the liquidity pressures in H2. The CFAF 150 billion medium-term infrastructure bond issued in November was oversubscribed by CFAF 54 billion. Together with the improved rollover of short-term bonds and additional AfDB budget support in 2018 this would support deposit accumulation as projected at the time of the 2nd ECF review. Non-bank financing will continue to be dominated by domestic debt repayments and the reduction of correspondent accounts balances (MEFP ¶17).

Text Table 3.

Cameroon: SONARA Subsidies’ Needs and Tax Liabilities (CFAF billion)

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Sources: Cameroon authorities, and IMF staff calculations.

The SONARA loss reflects the difference between the price reflecting movements in international oil price and taxation, and the administered prices of oil-related products.

SONARA agreed to use additional subsidies to cover its tax liabilities and arrears.

Due to higher-than-expected oil prices, SONARA subsidy needs exceed the amount budgeted by 0.3 percent of GDP, of which 0.1 percent of GDP remains unbudgeted.

Text Table 4.

Cameroon: Domestic Arrears Clearance

(CFAF billion)

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Sources: Cameroonian authorities; and IMF staff calculations.

The reduction in the float includes CFAF 68 billion cancellation in 2017 and CFAF 233 billion cancellations in H1–2018.

2019 Budget Framework and Key Measures

13. The 2019 draft budget is in line with program objectives. The overall deficit will decline to 2 percent of GDP, with non-oil revenue mobilization of 0.3 percent of GDP, as envisaged at the 2nd review, and spending consolidation of 0.5 percent of GDP (prior action, MEFP ¶18, Text Table 5). Staff regretted however that the pace of removing tax exemptions was slower than envisaged in the 2nd ECF review, and that the proposal to collect the land tax through electricity bills had not been included in the budget submitted to parliament.

  • Key revenue measures aim at (i) broadening the tax base by gradually removing tax exemptions, and expanding the base for collecting existing taxes; (ii) increasing registration fees on public contracts and collecting taxes on foreign-financed projects (MEFP ¶19, Text table 6).

  • Expenditure consolidation preserves social spending (MEFP ¶18, 20). This comes mainly from efficiency improvements in goods and services, continued gains from the payroll cleanup; limits on non-wage compensation and other low-priority recurrent spending; and further rationalization of capital spending. Subsidies and transfers will accommodate additional social spending in line with the higher 2019 floor (3.3 percent of GDP).

Text Table 5.

Cameroon: Fiscal Framework, 2016–20

(Percent of GDP)

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

In percent of non-oil GDP.

Text Table 6.

Cameroon: New Tax Measures in the 2019 Budget

(CFAF billion, unless otherwise indicated)

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Sources: Cameroonian authorities and IMF staff estimates

Elimination of tax reduction on alcohol. Increase of the registration fees on public contracts.

Elimination of VAT exemptions on insurance contracts, on social portion of electricity and water bills and on processed wood.

Excise tax on used clothes, used tires, on all merchandises, on tabacco products, on vehicles, on sodas; and increase of slaughter tax.

Suppression of tax rebate on new tires, re-introduction of the tax base on tabacco, alcohol and weapons, and increase of the specific excise tax on alcohol.

14. Staff and authorities discussed risks to the 2019 budget. Staff highlighted risks from the continuing security challenges in the anglophone regions, the municipal and legislative elections, and rising fuel subsidies. The authorities noted that the 2019 budget already included allocations for these expenditures, as well as a cash reserve of 0.35 percent of GDP. They would also continue with their current practice of holding 20 percent of recurrent spending commitments, and committed to identifying additional revenue and spending measures should the need arise (MEFP ¶20).

C. Strengthening Fiscal Governance: Bosting Non-Oil Revenue Mobilization and Improving Public Financial Management

15. The authorities are accelerating non-oil revenue mobilization efforts. Staff welcomed recent progress, notably on enhancing transparency and governance at customs and the improved cooperation between the tax and customs administrations, but noted that additional efforts would be needed to reap the full potential of these measures. The authorities indicated that they were developing the following measures, based on TA recommendations (MEFP ¶24–25).3

  • Operationalizing the medium-size enterprises tax centers (CIME);

  • Operationalizing the web-based interface between the active taxpayers’ database and the tax software;

  • Broadening e-filing in all large and medium-sized enterprises’ tax units;

  • Enhancing customs revenue through cross-checking imports declarations and scanned images of imports, tracking informal transactions, improving customs’ IT system, and enhancing controls and streamlining exemptions.

16. Measures to enhance public financial management (PFM) are starting to bear fruit and the authorities will deepen these reforms in the 2019–21 PFM reform strategy (MEFP ¶22–23).

  • The June circular on budget execution has led to visible improvements, including the elimination of treasury advances, a reduction in unallocated spending, and better monitoring of foreign- financed investment. This circular will be renewed in 2019 to ensure that exceptional procedures are limited to 5 percent of authorized domestically financed spending. Transparency of SNH direct interventions will also be enhanced, through monthly reconciliation and regularization of these spending (new January 2019 SB) (MEFP ¶20–22).4

  • The 2019 budget follows the new CEMAC directive on finance laws, and the government plans to accelerate the adoption of the four remaining directives to further strengthen the credibility and the transparency of the budget.

  • Treasury management is supported by the continued reduction of the balances of correspondent accounts and the closure of inactive public entities’ accounts in commercial banks. The authorities also reiterated their commitment to have a fully functional TSA by September 2019 (MEFP ¶23).

  • The authorities would continue to improve the efficiency and the quality of capital spending based on the PEFA recommendations. They intend to ensure effective implementation of the project maturation guide and to continue to closely monitor external disbursements to ensure their pace of execution remains consistent with the program’s fiscal framework (MEFP ¶23).

D. Debt Policies: Maintaining Debt Sustainability and Controlling Contingent Risks

17. The public-debt-to-GDP ratio has remained stable in 2018, but external debt continues to rise fast (Text Table 7). Total public debt stood at 36.8 percent of GDP at end-September as the clearance of expenditure float was offset by an increase in external debt, resulting from faster-than-expected execution of CAN and large infrastructure projects. New non-concessional loans signed reached CFAF 267.1 billion (annual ceiling of CFAF 436 billion) at end-September, while concessional borrowing stood at CFAF 88.8 billion (MEFP ¶27).

Text Table 7.

Cameroon: Public and Publicly-Guaranteed Debt, 2016-September 2018

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Sources: Cameroonian authorities; and IMF staff calculations.

18. The updated Debt Sustainability Assessment (DSA) under the new LIC DSF indicates that Cameroon remains at high risk of debt distress. Cameroon’s debt carrying capacity has been increased from weak to medium under the new CI score, which significantly raises several thresholds. However, in line with the new methodology SONARA’s debt service including short-term supplier debt has been included in the debt stock as it generates significant fiscal risks. As a result, both external debt service thresholds are breached under the baseline, also due to the Eurobond’s maturation in 2023–25. Stress tests continue to point to significant risks.

19. The authorities have taken concrete steps to address problematic undisbursed loans, but will need to carefully manage the pace of disbursements (Text Figure 3). Total signed-but-undisbursed loans (SENDs) declined to 19.1 percent of GDP at end-September. The authorities prepared an evaluation of problematic SENDs in May which identifies about 1 percent of GDP of non-performing projects, but only approved an action plan to reduce them on November 21 (July SB, prior action). Staff welcomes the discussions initiated with project managers and creditors to implement the plan. However, given the large share of problematic SENDs classified for continued disbursement (about 12.7 percent of GDP), the recent acceleration of foreign-financed spending, and the high risk of debt distress, staff urged the authorities to formulate a disbursement plan for all remaining SENDs in line with the fiscal framework (new SB for March 2019, MEFP ¶29). Based on preliminary discussions with the authorities and development partners on the 15 largest projects amounting to 50 percent of total SENDs, and factoring in the need to fulfill pre-disbursement conditions including mobilizing adequate counterpart funds and finalizing expropriation procedures, staff’s assessment is that most of the SENDs are likely to be disbursed slowly, over a span of up to 8 years.

Text Figure 3.
Text Figure 3.

Cameroon: Disbursement and Signing of Loans

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: Cameroonian authorities; and IMF staff calculations.

20. Staff and the authorities agreed on the 2019 ceiling on contracting of non-concessional borrowing. The CFAF 500 billion ceiling is based on financing needs for projects integral to the authorities’ development program. The authorities concur with staff on the need to continue to seek more concessional financing, enhance investment efficiency, and improve prioritization of projects towards those with potential to crowd in private investment (MEFP ¶27).

21. Contingent liabilities should be closely monitored. Staff welcomed the updated fiscal risks’ annex to the budget. The financial situation of SOEs, particularly of the public utilities with administered prices set below cost recovery, remains difficult with weak payment discipline, particularly from the government and other public entities. Staff welcomed the authorities’ commitment to quarterly payments of its utility bills (September SB) and encouraged them to take more forceful measures, such as making monthly payments, seeking external audits of the largest loss-making SOEs and setting performance contracts to restore their viability. Staff also noted rising fiscal costs of contingent liabilities PPPs, especially with the addition of a 3.5 percent of GDP contingent liability for the Nachtigal hydro-power project (Text table 8).

Text Table 8.

Cameroon: Public-Private Partnerships

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Sources: Cameroonian authorities; and IMF staff calculations.

22. The authorities agreed with the need for prudent debt management but viewed the debt sustainability outlook more positively. They noted that excluding mostly SONARA’s short term supplier debt, which they do not consider as part of public debt, should significantly improve the debt profile. However, they agreed with the need to prioritize and limit non-concessional borrowing to critical projects (MEFP ¶26), and carefully manage disbursements of SENDs (MEFP ¶29). They also pointed out that addressing problematic SENDs will require close collaboration with project managers and creditors. The authorities agreed to continue to improve SOEs’ data provision, including cross-debts (MEFP ¶30) and to have the CNDP systematically review all PPP project proposals (MEFP ¶23).

E. Monetary and Financial Sector Policies: Accelerating Reforms and Expanding Financial Access

23. The government is committed to implementing policies that support the stability of the financial and the monetary arrangement especially the recovery of BEAC’s reserves. BEAC’s reserve accumulation reportedly suffers from the non-repatriation of all export earnings, including oil and mining revenues. In this regard, the government will support the BEAC’s efforts by: (i) transmitting to the BEAC all contracts with foreign oil and mining companies by end-2018; (ii) ensuring that all public entities including customs collaborate with BEAC to enforce foreign exchange regulations in terms of domiciliation and repatriation of exports proceeds; (iii) closing all foreign accounts held by public entities, except those authorized by the BEAC whose statements will be regularly reported to BEAC; (iv) sending to the CEMAC Commission by end-2018 the 2019–21 convergence plan consistent with IMF and regional commitments (MEFP ¶32).

24. Staff welcomed recent progress in addressing ailing banks (Annex I). At end-September; banks appear adequately capitalized, profitable and liquid, but overdue loans remain elevated at 14.8 percent of total loans. With World bank’s support, the authorities are finalizing the plan to resolve the private ailing banks at the least fiscal cost while preserving financial inclusion and agreed to fully implement it by end-August 2019 (new SB), including the transfer of impaired assets to the state asset management company (SRC) using the recently updated pricing methodology. The government will provide the public bank with an independent governance structure by end-June 2019 in line with its performance contract finalized in October. The SME bank’s revised business model will be adopted by end-March 2019 (SB, MEFP ¶33).

25. Measures to address NPLs are being implemented. The authorities are implementing their action plan, and drafted bills for: (i) establishing a commercial court to be adopted by June 2019 (new SB) and estimating its cost; (ii) the creation of a case preparation chamber; and (iii) enhancing credit repayment discipline. The authorities are training 20 judges and 10 court clerks in banking conflicts (December SB) to be deployed in major business centers. The movable collateral registry will be computerized by December 2018 (MEFP ¶34).

26. The AML/CFT framework needs to be strengthened and vigorously implemented. While the volume of suspicious transaction reports (STRs) to the National Agency for Financial Investigation (NAFI, Cameroon’s financial intelligence unit) is gradually increasing, 90 percent are from banks. STRs from other financial institutions, as well as from designated non-financial businesses and professions and relevant authorities remain scarce. Transparency on the outcome of law enforcement actions remains weak. Staff encouraged the authorities to promptly address these weaknesses and identified deficiencies in the AML/CFT regime in anticipation of the AML/CFT assessment to be conducted in September 2019 (MEFP ¶35).

F. Structural Policies and Governance: Enhancing Private Sector-Led Growth

27. Weak governance and corruption hamper private sector development and competitiveness and are contributing to high trade costs.5 The current ECF-supported program focuses on key macro-critical governance areas, essential to reach program’s objectives, namely fiscal governance and the business environment (Annex II). The dialogue on governance with the anti-corruption body (CONAC) and customs initiated in the 2nd ECF review continued, as trade costs in Cameroon are much higher than for peers and hamper regional integration. The authorities noted that in addition to their efforts to enhance transparency at customs, they were also implementing trade facilitation reforms, by extending the electronic trade platform, implementing a customs’ risk management mechanism, and expanding availability of the unique transit title (MEFP ¶35).

28. While transparency in extractive industries has improved, significant gaps remain. The 2017 EITI assessment noted meaningful progress made by Cameroon in implementing the 2016 standard, including through frequent publications by SNH and reforms in the mining sector. However, several areas require corrective actions, including more comprehensive data publication on government ownership of extractive companies, production values, allocation of extractive industry revenues within and outside the budget, subnational transfers, and quasi-fiscal expenditures. The authorities are committed to remain EITI compliant by implementing all recommendations by end-2019 (Annex II, MEFP ¶35).

29. Staff encouraged the authorities to review the fuel pricing mechanism. The financial situation of SONARA is worrisome, given rapidly increasing fuel subsidies. Staff encouraged the authorities to promptly implement identified short-term measures to simplify and compress the hydrocarbons price structure, including by lowering costs of LPG subsidies by allowing open bids for LPG purchases and validating LPG subsidy by committee, while transferring profits of the Hydrocarbon Prices Stabilization Agency (CSPH) to the Treasury (January 2019 SB). The authorities also agreed with staff to start planning a gradual move towards cost-recovery and more flexible fuel price, while protecting the poor through targeted social transfers, although they reiterated the sensitivity of the issue. They expressed openness to examining various options and would start a communication campaign in 2019 to raise public awareness (MEFP ¶31).

Program Modalities

30. Staff supports the authorities’ request for a waiver for nonobservance of one end-June PC, modification of two PCs, and proposals for new program conditionality (MEFP Tables 1 and 2).

  • The PC on net BEAC financing of the government was missed by a small amount not affecting program objectives, and the deviation is expected to be more than corrected by end-year as budget support and additional domestic financing become available. Accordingly, the end-2018 PC on net BEAC financing of the government is proposed to be modified. The adjustor to the continuous PC on contracting of new non-concessional external debt is also proposed for modification to eliminate the possible impact of changes in the calendar of non-concessional budget support disbursements on the PC.

  • The two prior actions for the third review have been completed: (i) the draft 2019 budget submitted to parliament on November 15 is in line with program objectives; (ii) the Minister of Finance (head of the National Public Debt Committee) has adopted a time-bound plan to reduce the SENDs on November 21.

  • The missed SBs on the SME bank business model and closure of correspondent accounts (both end-August SBs) are proposed to be reset to March 2019 and June 2019 respectively (MEFP ¶9). In addition, the SB on computerization of the movable collateral registry (end-December SB) is proposed to be reset to March 2019 (MEFP ¶34).

  • Quantitative and continuous PCs and quarterly ITs till end-September 2019 are proposed in line with program quarterly projections (MEFP Table 1). New SBs are proposed in the areas of SNH interventions, CSPH dividend repatriation and LPG fuel compensations, disbursement plan of SENDs, resolution of banks in difficulty, and completion of single treasury account.

  • The two SBs on monthly reporting of gross SNH revenue and direct interventions, on fuel price structure, the SB on quarterly budget execution report, and the SB on joint quarterly DGI-DGD report are routinely met and staff proposes to move them to the TMU data requirements.

31. The BEAC and COBAC have pursued the implementation of their policy commitments and provided updated policy assurances in support of CEMAC countries’ programs. In response to the lower NFA accumulation, the BEAC took corrective actions, increasing its policy rate and strengthening the enforcement of foreign exchange regulations. Consistent with the June 2018 policy assurances, by end-year the BEAC will also submit for adoption new foreign exchange regulations to the UMAC ministerial committee and make the new monetary policy framework fully operational. The updated policy assurances present new projections for regional NFAS, with the end-2018 projection revised downward but the end-2019 projection broadly unchanged. To achieve these projections, the BEAC reiterated its commitment to implement an adequately tight monetary policy, while member states will implement adjustment policies in the context of IMF-supported programs. Starting in the first half of 2019, semi-annual consultations between the member states, the regional institutions, and IMF staff will be held to review the regional strategy implementation and, if necessary, identify and adopt any additional corrective measures at the national and/or regional policy levels to allow the continuation of (or approval of new) IMF financial support as part of the IMF-supported programs with CEMAC members. These policy assurances are critical for the success of Cameroon’s program as they will help bolster the region’s external sustainability, and hence Cameroon’s. The BEAC also continues to implement the remaining recommendations of the 2017 safeguards assessment.6

32. The program is fully financed through end-2019. Annual budget support commitments of CFAF 298 billion for 2018 and the same for 2019 have been confirmed, with CFAF 184 billion already disbursed in 2018 (Text Table 9, Tables 7–9).

Text Table 9.

Cameroon: Budget Support

(CFAF billion)

article image
Source: IMF staff calculations.
Table 7.

Cameroon: External Financing Requirements, 2016–23

(CFAF billion, unless otherwise indicated)

article image
Sources: IMF staff estimates and projections.

IMF ECF loan disbursed CFAF 167.1 billion in 2017, and CFAF 42.5 billion in July 2018.

Table 8.

Cameroon: Gross Financing Needs, 2016–23

(CFAF billion, unless otherwise indicated)

article image
Sources: IMF staff estimates and projections.

For 2018, AfDB disbursed CFAF 118 billion in January, France disbursed CFAF 66 billion in July and IMF-ECF disbursed CFAF 42.5 billion in July.

Table 9.

Cameroon: Proposed Schedule of Disbursements Under the ECF Arrangement, 2017–20

article image
Source: IMF staff calculations.

Cameroon’s current quota is SDR 276.0 million. As of October 31, 2018 the outstanding credit was SDR 281.037 million.

33. Cameroon’s capacity to repay the Fund remains adequate. Repayments under the ECF-supported program will remain below 0.2 percent of GDP during 2018–20, and peak at 1.6 percent of exports in 2026 (Table 10).

Table 10.

Cameroon: Capacity to Repay the Fund, 2016–32

article image
Source: IMF staff estimates and projections.

On October 3, 2016, the IMF Executive Board approved a modified interest rate setting mechanism which effectively sets interest rates to zero on ECF and SCF through December 31, 2018 and possibly longer. The Board also decided to extend zero interest rate on ESF till end 2018 while interest rate on RCF was set to zero in July 2015. Based on these decisions and current projections of SDR rate, the following interest rates are assumed beyond 2018: projected interest charges between 2019 and 2020 are based on 0/0/0/0.25 percent per annum for the ECF, SCF, RCF and ESF, respectively, and beyond 2020 0/0.25/0/0.25 percent per annum. The Executive Board will review the interest rates on concessional lending by end-2018 and every two years thereafter.

Total debt service includes IMF repurchases and repayments.

Staff Appraisal

34. The CEMAC regional strategy has helped to avert an immediate crisis but continues to face headwinds. Uneven program implementation, insufficient repatriation of export proceeds and delays in securing IMF-supported programs with two member countries have contributed to the underperformance of reserve accumulation, despite higher-than-projected oil prices. Regional socio-political and security conditions remain difficult, and growth weak. However, the BEAC and COBAC have made progress in delivering on their policy assurances, including by taking corrective actions in response to the NFA underperformance.

35. Cameroon’s continued leadership of the concerted regional efforts to restore fiscal and external sustainability is essential. Cameroon’s full support of the BEAC’s enhanced measures to enforce the foreign exchange regulations and ensure adequate repatriation and surrendering of export proceeds is essential to the recovery of regional reserves. In that regard, staff welcomes the authorities’ commitment to communicate to the BEAC all contracts signed with companies in extractive industries, and to ensure adequate coordination and exchange of information between banks, customs and the BEAC on domiciliation and repatriation of export proceeds.

36. Continued efforts to mobilize non-oil revenue while prioritizing foreign-financed capital spending will be key to meeting the 2018 fiscal targets. Following the end-2017 fiscal slippages, program implementation has improved so far in 2018. However, the current account is worsening, and reaching end-year fiscal consolidation objectives may be complicated by revenue shortfalls and an acceleration in public investment spending. Hence, staff welcomes the authorities’ renewed commitment to implement forceful measures to maintain public investment within budget limits and mobilize additional non-oil revenue. This will require difficult decisions on project prioritization and ensuring that SONARA can cover part of its tax liabilities.

37. The draft 2019 budget envisages an overall deficit reduction of about ½ percent of GDP, supported by measures aimed at expanding the non-oil revenue base and enhancing spending efficiency. While adequate to deliver projected revenue gains, the package of tax measures doesn’t contribute to broaden the non-oil revenue base to the extent envisaged at the time of the second ECF review. Further efforts to reduce costly exemptions and develop the potential of personal income taxation through enhanced collection of the land tax will be needed going forward. Continued efforts to rationalize spending, and enhanced planning and transparency in budget execution, will also support the fiscal consolidation. Staff welcomes the authorities’ commitment to identify specific contingent revenue and spending measures to keep the fiscal consolidation on track.

38. Ongoing public financial management reforms need to be entrenched and deepened. Staff welcomes the authorities’ commitment to finalize the transposition of the 4 remaining CEMAC PFM directives and to extend to 2019 the provisions of the June circular limiting exceptional spending procedures. Staff also encourages the authorities to continue to limit SNH direct interventions and enhance their transparency. Full implementation of a single treasury account ought to be accelerated, and correspondent account balances should continue to decline.

39. Resolving problematic SENDs and limiting non-concessional borrowing are essential to maintaining public debt on a sustainable path. Cameroon remains at high risk of debt distress, and the acceleration of foreign-financed investment illustrates the continued risk posed by the large amount of SENDs on debt sustainability. The action plan on non-performing SENDs needs to be implemented in a timely manner, including by reaching agreement with development partners on a disbursement plan for remaining projects consistent with the macro-fiscal framework.

40. Staff encourages the authorities to continue to enhance the monitoring of SOE debt and contingent liabilities and initiate a dialogue on liberalizing administered prices. The situation of a number of large SOEs remains difficult, and SONARA’s losses in particular significantly worsened in 2018. Performance improvement plans based on audits of the key loss-making SOEs ought to be approved in 2019. Staff also urges the authorities to implement agreed short-term measures to reduce SONARA’s costs, while starting to prepare for a gradual adjustment in pump and other administered prices.

41. Staff welcomes the completion of some key delayed financial sector reforms and encourages the authorities to sustain their efforts. The signature of the amended contract with the public bank, the adoption of the new pricing methodology for the transfers of impaired assets to the state, progress towards adopting a resolution plan for two private ailing banks and the decisions taken to cut costs and revise the SME bank’s strategy are important steps. However, strict and timely implementation will need to follow. Staff also encourages the authorities to continue to implement the action plan to reduce nonperforming loans and to promptly initiate concrete steps towards the creation of commercial courts. In anticipation of its next AML/CFT assessment, identified deficiencies in Cameroon’s AML/CFT regime should be addressed promptly.

42. Reforms to improve governance and enhance competitiveness and financial inclusion will support private sector-led sustainable and inclusive growth and reduce the scope for corruption. The authorities’ ECF supported program is predicated upon significant reforms to enhance transparency and governance in tax and customs administration as well as in budget execution and reporting. Further reforms to facilitate trade and improve the business environment and financial inclusion are advancing. Staff urges the authorities to secure progress against the EITI standard on the issues identified in the 2018 EITI validation report.

43. Based on Cameroon’s performance under the program, good progress towards the end-December regional policy assurances and corrective actions taken in response to the end-June NFA underperformance, staff supports the authorities’ request for the completion of the third review under the Extended Credit Facility. Staff also supports the authorities’ requests for (i) a waiver of nonobservance of the end-June quantitative performance criterion on net BEAC financing of the government on the grounds that the deviation is minor; (ii) modification of the end-December criterion on net BEAC financing of the government; and (iii) modification of the performance criterion on the contracting or guaranteeing of new non-concessional external debt; and (iv) the modification of end-March ITs. Staff proposes that completion of the fourth ECF review be conditional on the implementation of critical policy measures at the union level, as established in the December 2018 union-wide background paper.

Annex I. Progress in Financial Sector Reforms

1. Cameroon’s financial sector remains resilient, albeit shallow and weakened by a few ailing banks and an elevated level of overdue loans. Cameroon’s banking sector is the largest in the CEMAC and has been more resilient to the oil price shock, thanks to greater economic diversification. However, the country experiences low levels of credit penetration (14.4 percent of GDP at end-2017), combined with a low access to financial services: about 35 percent of the adult population has an account (41 percent for the average SSA ).1 Whereas most banks appear adequately capitalized, profitable and liquid, overall asset quality is weak with a high level of overdue loans. Four ailing banks2 (about 13–14 percent of total bank assets, Annex I, Figure 1) have long been present in the financial sector, with a fifth small bank recently experiencing losses.

Annex I. Figure 1.
Annex I. Figure 1.

Cameroon: Ailing Banks-Key Financial and Prudential Indicators 1/

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

Sources: COBAC; and IMF staff calculations.1/ Before 2016 there were 3 ailing banks, the newly-created bank was added since 2016 but represents less than 0.4 percent of bank total assets).

2. To address these issues and promote private sector-led inclusive growth, strengthening financial sector stability while boosting access to financial services are key objectives of Cameroon’s ECF program. The program includes several financial sector structural benchmarks to be implemented with the support of other development partners, focusing in three areas: (i) resolving the ailing banks at least fiscal cost and strengthening the management of the public bank to enhance financial stability; (ii) addressing the structurally-high overdue and non-performing loans to boost credit provision; and (iii) removing barriers to access to financial services to strengthen financial inclusion and boost private investment.

3. However, progress in implementing the financial reforms has been uneven due to a combination of factors. Specifically,

  • The NPLs’ reduction strategy prepared at end-2017 is being implemented. An inventory of NPLs in the banks was conducted; 20 judges and 10 court clerks are being trained in banking and credit litigations, and will be deployed in major business centers (end-2018 SB); a study of out-of-court restructuring of NPLs is being conducted; and several bills have been drafted including: for the creation of case preparation chamber, for enhancing credit discipline, and for establishing commercial courts to be adopted by June 2019.

  • Reforms to enhance access to financial services are ongoing. The authorities timely granted access to the creditor database to all MFIs. The computerization of the movable collateral registry, supported by the World bank, should be effective by end-2018 (SB).

  • The decision process for the resolution of two private ailing banks has been slow. The initial resolution plan, prepared with delay, lacked financial projections and sound valuation of the NPLs, whose transfer to the SRC was central to the plan. The IMF TA report updating the SRC pricing methodology (June 2018 SB) was sent to the authorities in August 2018. With World Bank’s support the authorities are in the process of adopting a sound resolution plan to be fully implemented by end-August 2019.

  • The performance contract of the resolved public bank signed in July did not reflect staff’s comments (July-2018 SB), thus required an amendment to strengthen its governance, transparency, and define proper incentive mechanisms, that was signed in October. The government will provide to the bank an independent governance structure by end-June 2019 when the terms of existing board members expire.

  • The draft business model for the SME bank (August-2018 SB) did not provide long-term viability for the bank. Following staff’s recommendations, the SME bank conducted its first shareholder meeting in November adopting (i) a consolidation strategy to break even over the coming quarters and (ii) steps to strengthen governance and compliance. Its revised business model geared towards indirect lending shall be finalized by end-March 2019 (new SB) following a study of SMEs financing needs by end-January 2019.

4. Staff maintains a close dialogue with the authorities and other partners to ensure progress with financial sector reforms. The World bank has recently approved a one-year financial stability project to support the SRC and the resolution of the private ailing banks, and to strengthen the management of the resolved public bank. Staff is in contact with other development partners to expedite the definition of a viable business model for the SME bank.

Annex II. Corruption and Governance in Cameroon

1. Despite improvements over time, weak governance and corruption contribute to the difficult business environment and hamper private sector development. According to the Worldwide Governance Indicators, perception of Cameroon’s regulatory quality and government effectiveness has improved over the last twenty years and lies close to the average for sub-Saharan Africa (see Annex Figure 1). However, perceptions regarding the rule of law and the control of corruption remain weak and almost half of Cameroon’s households perceived corruption as having increased over the previous year in the latest household survey from 2014. The business census from 2016 suggests that corruption is less of an obstacle than in 2009, but incidence and depth of bribes for firms remain above the sub-Saharan African average according to the World Bank Enterprise Survey.

Annex Figure 1.
Annex Figure 1.

Cameroon: Governance and Corruption 1/

Citation: IMF Staff Country Reports 2018, 378; 10.5089/9781484392003.002.A001

1/ Data for Cameroon uses the 95 percent -confidence interval where available.2/ Bribery incidence is percent of firms experiencing at least one bribe payment request. Bribery depth is percent of public transactions where a gift or informal payment was requested.

2. Cameroon has taken steps to address corruption and has put in place key anti-corruption institutions.

  • The 1996 Constitution includes an obligation for both elected and appointed officials to declare their assets and property (Article 66), which was translated into law in 2006. However, neither the constitutional nor statutory provisions for asset disclosure are in force, owing to the absence of an implementation decree.

  • In 2016, a new Penal Code was adopted which internalized some of the offences provided for in the Merida Convention.

  • After the United Nations Convention Against Corruption (UNCAC) went into force in 2006, Cameroon set up the National Agency for Financial Investigations (NAFI), the country’s financial intelligence unit, and the National Anti-Corruption Commission (CONAC) to complement existing institutions. From 2015 to 2016 Cameroon was assessed in cycle I of a two-cycle peer review mechanism.1 The CONAC publishes an annual status report that describes the activities carried out by all anti-corruption stakeholders.2 CONAC received 2,400 denunciations in 2016 and key investigations included regional treasury accounts, customs,3 the National Cocoa and Coffee Board and road projects. Recent initiatives by CONAC comprised the introduction of a free hotline for denunciations as well as a public awareness campaign to highlight that public services in Cameroon are free for citizens.

  • The customs general directorate has also taken measures, by introducing a code of conduct, a hotline to report corruption cases, and an independent Ethics and Governance Committee.

  • However, according to Global Integrity’s Africa Integrity Indicators of 2016 the judiciary and supreme audit institution operated under executive influence and anti-corruption bodies are not effective or independent. The CONAC produces anti-corruption reports and investigates corruption cases, but there is no automatic follow-up nor prosecution. The constitutional and statutory provisions on asset and property declaration are not in force, and the Chamber of Auditors is not independent.

3. Cameroon has made meaningful progress in implementing the 2016 EITI Standard but needs to take important corrective actions to avoid suspension. A 2005 decree provides the legal basis for EITI implementation and established the EITI multi-stakeholder group. Validation against the 2016 EITI Standard found that meaningful progress was made in implementation in June 2018, but that Cameroon is failing on a significant number of mandatory clauses. Three areas were flagged with inadequate progress (MSG governance, subnational transfers and SOE quasi-fiscal expenditures) and 14 corrective actions were outlined that Cameroon needs to address by December 29th, 2019 (see below). Failure to achieve meaningful progress would result in suspension.4 In response to the assessment, the government set up a committee to monitor the implementation of the standard in July and plans to revise its three-year working plan to include the corrective measures. FAD has provided technical assistance in extractive industries’ taxation in 2016 but the uptake is unclear.

4. The ECF program supports the country’s efforts in enhancing governance and reducing corruption through advice, capacity building, quantitative targets and structural benchmarks. The program addresses issues in key state functions guided by the new Governance Framework for Enhanced Fund Engagement, which was adopted in April 2018.

A. Fiscal Governance

5. Main weaknesses: Weaknesses in fiscal governance are multifold and lead to potential inefficiencies in the use of public resources and rent-seeking and corruption, within the government or in transactions with the private sector.

  • On the revenue side, complex and sometimes manual procedures, lack of reconciliations between the tax and customs administrations, and inadequate risk management create incentives for corruption and fraud.

  • A 2017 PEFA update found significant weaknesses in public financial management, including (i) significant resort to nontransparent exceptional spending procedures including SNH direct interventions and treasury advances, (ii) inadequate supervision and monitoring of public institutions and local and regional authorities, (iii) an inefficient control system that does not meet international recommendations and standards and (iv) insufficient access to information on public procurement and lack of separation between functions in the procurement process.

  • Personnel records and payroll data are not integrated and there are irregularities on the reconciliation of budget and treasury data. There was also a lack of transparency as fiscal data (budget execution reports or fiscal statistics) were not published until mid-2017. While a single treasury account exists, it does not cover the full central government.

  • The recent EITI assessment from June 2018 found gaps on a significant number of mandatory clauses and has asked for 14 corrective actions. These include public data provision on (i) licenses pertaining to oil and gas companies, (ii) extractives companies in which the government, or any SOE, holds equity and the specific level of government ownership, (iii) the production value of each mineral commodity, and (iv) volumes collected as the state’s in-kind revenues, volumes sold and related revenues. The assessment also calls for the role of SOEs, including transfers between SOEs and other government agencies, being comprehensively and publicly addressed. Moreover, Cameroon needs to ensure that there is a clear public indication of which extractive industry revenues are recorded in the national budget and clarify the allocation of revenues not recorded in the national budget. It should undertake a more explicit assessment of the materiality of subnational transfers prior to data collection and ensure that the specific formula for calculating transfers to individual local governments be disclosed.

  • The constitutional and statutory provisions on asset and property declaration by elected and appointed officials are not enforced.

6. Program measures: The second pillar of the ECF program focuses on structural fiscal reforms to improve institutional frameworks and practices, supporting greater transparency and enhanced governance in the collection and use of public resources.

  • Program measures seek to enhance practices in tax and customs administration through e.g., strengthening controls by cross-checking taxpayer information between customs and tax administrations, not clearing import declarations if the importer is not registered with the tax administration, regular reconciliation of declared import values and customs receipts, and implementation of the biometric taxpayer identification.

  • Weaknesses in public financial management are addressed by enhancing the credibility and transparency of the budget and strengthening treasury management. Measures include among others publication of quarterly budget execution reports since June 2017; strict limitation of non-transparent exceptional spending procedures (prior action for 2nd review, IT, SB), the transposition of CEMAC directives into national law (prior action for 2nd review), which importantly provides for strengthening the Chamber of Auditors, and broadening the scope of the Single Treasury Account to address the proliferation of accounts of public entities in commercial banks with little accountability over the use of resources. Indicative targets have been set on the amounts of SNH direct interventions and resort to other exceptional procedures. Monthly regularization of SNH direct interventions (new SB for 3rd review) will also enhance budget transparency.

  • Investment planning and execution improvements will be supported by the update and implementation of the project selection and maturation guide, and the preparation of procurement plans in cooperation with the AfDB and the World Bank. In particular, the Ministry of Economy’s capacity to review and assess projects could be strengthened through training or hands-on review of projects together with World Bank and AfDB experts. The World Bank is supporting efforts to integrate personnel records and payroll data and increase transparency and equity of the civil service pay system. The World Bank has also supported adoption of a new procurement code in 2018, and of two laws governing state-owned enterprises in 2017. These measures are expected to enhance governance and lower the scope for corruption.

B. Market Regulation

7. Main weaknesses: Burdensome and often unclear regulations, complex tax and border compliance procedures and a lack of transparency hamper competitiveness and increase the scope for corruption. For example, the World Bank enterprise survey finds that 24 percent of firms surveyed were expected to give gifts for an import license (compared to 17 percent for peers) and 48 percent for an operation license (compared to 18 percent). In addition, trade facilitation indicators suggest complex procedures and a lack of transparency as major obstacles to trade (see annex IV in Country report 18/235). Customs exemptions have also incentivized rent-seeking behavior as documented in the 2016 CONAC report. According to the World Bank’s 2017 Global Indicators of Regulatory Governance regulatory agencies do develop forward regulatory plans and solicit comments, but they are not available to the general public, nor is there any legal obligation to publish the text of proposed regulations before their enactment. There are also no impact assessments of proposed regulations.

8. Program measures: Measures under the program aim to enhance regulatory frameworks through e.g., easier physical and electronic access, and simpler forms for tax declarations. Staff has also advised the authorities to phase out tax and customs exemptions, which should start with the 2019 budget, and to narrow eligibility under the investment incentives law. These policies will likely lower opportunities for undue discretion and rent-seeking behavior and promote private investment.

C. Rule of Law

9. Main weaknesses: Most serious issues are related to contract enforcement, which incentivizes dishonest behavior and discourages investment. In particular, the amount of days to enforce contracts stood at 800, the costs were 47 percent of the claim and the quality of the judicial process scored low at 6 out of 18 possible points according to the World Bank’s Doing Business Report 2018. In the same report, Cameroon also scored low with regards to protecting minority investors and resolving insolvency. In addition, the peer review of chapter III (criminalization and law enforcement) of the UNCAC in 2016 found significant shortfalls from treaty commitments and identified a range of gaps that needed to be addressed (including the need of keeping records and addressing corruption in procurement).

10. Program measures: The program includes measures on capacity building in business law for judges, clerks, lawyers and bailiffs to ensure better monitoring of judicial procedures and execution of final judicial decisions. Target areas are training in banking disputes, the concentration of bank court cases with an appropriate number of judicial participants, and appointment of a pre-trial judge for civil and commercial cases. Moreover, the authorities are working on a bill for enhancing credit discipline. Computerization of the movable collateral registry and the cadaster are planned for end-December 2018 under the program. These policies will enhance the protection of contractual and property rights and ameliorate the timeliness of their enforcement.

D. AML/CFT

11. Main weaknesses: Corruption has been identified among the key proceeds-generating crimes in Cameroon, and the AML/CFT framework needs strengthening to effectively prevent and deter the laundering of the proceeds of corruption. In this regard, major shortcomings relate to the weak monitoring of transactions performed by politically exposed persons, the lack of transparency of companies enabling their misuse for money laundering, and the absence of dissuasive sanctions. Cameroon’s last assessment by the Task Force on Money Laundering in Central Africa (GABAC) took place in 2008 but was limited to technical compliance to the Financial Action Task Force (FATF) standards of the time.

12. Program measures: Cameroon will undergo an AML/CFT assessment by GABAC in September 2019 (postponed from January) against the 2012 FATF standard on the basis of the 2013 assessment methodology, which emphasizes a risk-based approach to the implementation of the standards and ensuring effectiveness in risk-mitigation. Staff noted slow progress on the implementation of the 2012 FATF standards. A National Risk Evaluation will be launch in November 2018 with support of the World Bank to identify current weaknesses. The authorities will need to take steps to address identified deficiencies in Cameroon’s AML/CFT regime ahead of the next AML/CTF assessment in September.

Appendix I. Letter of Intent

December 6, 2018

Madame Christine Lagarde

Managing Director

International Monetary Fund

700 19th Street N.W.

Washington, D.C. 20431 U.S.A.

Madam Managing Director,

The Government of Cameroon is continuing to implement the measures laid out in its economic and financial program supported by a three-year arrangement under the International Monetary Fund’s Extended Credit Facility (ECF) for the period 2017–20 under difficult economic and security conditions.

Fiscal consolidation continued during the first half of 2018. All performance criteria at end-June were met, except the ceiling on government borrowing from the central bank which was slightly exceeded. All indicative targets were also met, except the floor on non-oil revenues which was slightly below the target. All indicative targets at end-September were met, except the ceiling on government borrowing from the central bank. The successful issuance of the infrastructure bond initially planned for the third quarter would allow to meet this target at end-2018. Besides, fourteen out of the eighteen structural benchmarks between June and November were completed.

The government is committed to successfully implementing the program for the rest of this year, despite risks weighing on non-oil revenue due to the difficulties encountered by SONARA in honoring its tax obligations in a context of rising global oil prices. However, the non-oil revenue shortfall would be partially offset by the end of the year through a better-than-anticipated performance of non-tax revenues, as well as additional measures taken by the tax and customs administrations. The acceleration of externally financed capital spending owing to the need to complete major investment projects and to the preparations for the African Cup of Nations could also lead to an overrun of the corresponding planned budget allocation. However, the government is committed to create equivalent fiscal space, mainly on domestically-financed capital spending.

All these measures would enable the government to meet the program’s quantitative criteria and indicative targets (ITs) at end-December, except for the ceiling on SNH direct interventions that was exceeded in October due to the need to enhance security measures over the recent months. A simplified emergency spending mechanism in the budget will make it possible to contain direct interventions to the level of the last ten months of this year. The government also commits to catch up with the delays in meeting some structural benchmarks, and to implement key measures before end-December, notably reforms aimed at maintaining financial sector stability.

In addition, the Minister of Finance, President of the CNDP, adopted a time bound action plan for validating and reducing non-performing SENDs identified jointly with the various donors. The draft 2019 budget law submitted to Parliament for approval on November 15, 2018, is in line with program objectives. It notably includes measures aiming at reducing tax exemptions and widening the tax base.

The government continues to implement policies aimed at preserving regional external stability, which requires the replenishment of BEAC exchange reserves. Therefore, the government supports the efforts of BEAC and COBAC to enhance compliance with the foreign exchange regulation. To that end, the government will honor its obligations on the repatriation of export earnings, including oil revenues. In addition, in line with its regional commitments, the government will submit to the CEMAC Commission, by the end of the year, its three-year convergence plan for 2019–21.

The memorandum of economic and financial policies (MEFP) attached to this letter of intent describes the economic and financial situation in 2018, sets out the economic and financial policies that the government plans to implement for the rest of the year and for 2019, and establishes the quantitative criteria, structural benchmarks and reforms, as well as indicative targets through end-December 2019.

The government requests a waiver of nonobservance of the end-June quantitative performance criterion on the ceiling on net government borrowing of the central government from the central bank excluding IMF financing on the grounds that the deviation is minor. The government also requests the modification of (i) the end-December quantitative performance criterion on the ceiling on net borrowing of the central government from the central bank excluding IMF financing; and (ii) the continuous performance criterion on new non-concessional external debt contracted or guaranteed by the government (adjustor modified to take into account non-concessional budget support disbursements). The government also requests the modification end-March 2019 ITs as indicated in Table 1 of the MEFP.

Based on progress under the program to date, as well as the commitments set out in the MEFP, the government requests the completion of the third review under the ECF arrangement and the disbursement of SDR 55.2 million.

The government is convinced that the policies and measures set out in the MEFP will enable it to meet the program targets. The government is committed to take any further measures to that end. The Cameroonian authorities will consult with the Fund on such additional measures in advance of any revisions to the policies contained in the MEFP, in accordance with the Fund’s policy on such consultations. To facilitate program monitoring and evaluation, the government undertakes to regularly report all required information to IMF staff in a timely manner and in accordance with the attached Technical Memorandum of Understanding (TMU).

Finally, the government confirms that it agrees to the publication of this Letter, the MEFP, the Technical Memorandum of Understanding (TMU), and the IMF Staff Report on this program.

Sincerely yours,

/s/

Philemon Yang

Prime Minister, Head of Government

Attachments: Supplementary Memorandum of Economic and Financial Policies Technical Memorandum of Understanding

Attachment I. Supplementary Memorandum of Economic and Financial Policies, 2017–19

December 2018

I. Introduction

1. The Government of Cameroon is continuing to implement its economic and financial program supported by the International Monetary Fund (IMF) under difficult socioeconomic circumstances. Five out of six performance criteria at end-June 2018 were met, as well as four out of five indicative targets, and 12 out of 18 structural benchmarks were implemented within the established time frame between end-June and end-October, whereas 2 were delayed. The difficult security context still weighs significantly on the country’s socioeconomic situation. However, the government remains firmly committed to the successful implementation of the program during the rest of the year and next year and will take the necessary measures to honor its commitments.

II. Recent Economic Developments

2. Economic growth has been less sustained than anticipated, owing mainly to the sharp decline in oil production. Contraction of real oil GDP would reach 9.3% in 2018 (against 1 percent growth previously projected) and 6.6 percent in 2019. Despite an increase in gas production, crude oil production is expected to decline, owing to the depletion of some oil wells and low investment following price fall over the previous years. In the non-oil sector, growth in the primary sector is expected to drop, owing notably to slowdown in industrial and agriculture exports, resulting mainly from security challenges in the South West region, one of the major cocoa production basins. However, activities in the non-oil sector will remain buoyant, due to increased activity in trade, hotel and catering, relative to the organization of the CAN. This favorable trend should also be observed in the construction sector, following completion and operation of first-generation projects in the road and energy sectors. Non-oil sector growth is expected to reach 4.5 percent in 2018 (against program projection of 4.2 percent) and 4.9 percent in 2019. Inflation remains low, averaging 1 percent in 2018 and 1.2 percent in 2019.

3. Budget implementation in the first half of the year remains in line with program objectives. The overall fiscal deficit (payment order basis, including grants) reached 0.5 percent of GDP, against 0.9 percent projected in the program, mainly due to slower execution of non-wage recurrent spending. Oil revenues remain in line with projections, with the negative effects of the production decline offset by the price increase. Non-oil revenues were slightly below projections, in particular owing to SONARA’s tax arrears (CFAF 36 billion), due to delays in the payment of its subsidies. Preliminary end-September estimates indicate that non-oil revenues are significantly above the indicative floor. The underperformance of tax and customs revenue due to the nonpayment of SONARA has been partly compensated by other non-tax revenues. The non-oil primary deficit target (payment order basis, including grants), has been met. The acceleration of recurrent spending has been compensated by a slowdown of investment expenditures, notably domestically-financed investment.

4. The current account deficit is widening. Weaker than projected agriculture exports and higher imports of refined petroleum products (SONARA interrupted production over the period April-November for technical reasons) and capital goods related to the Africa Cup of Nations (CAN) organization resulted in a goods trade deficit of CFAF 293 billion in the first half of the year. Increasing volatility in international financial markets also contributed to capital outflows. Consequently, Cameroon’s net foreign assets (NFA) declined from CFAF 1,970 billion at end-2017 to CFAF 1,821 billion at end-September 2018, with Cameroon contributing to 47 percent of the CEMAC’s under-performance regarding net foreign assets’ accumulation. The current account deficit is expected to widen from 2.7 percent of GDP in 2017, to 3.6 percent of GDP in 2018, and to stabilize at 3 percent of GDP in the medium term.

5. Private sector credit growth started to rebound in the third quarter on the back of improved liquidity conditions. Broad money increased by 8.3 percent and deposits by 7.2 percent at end-September (y/y) driven by a significant increase in credit to public enterprises (71 percent), an increase in net claims to the government (33 percent) and the recovery of private sector credit during the third quarter (5 percent compared with – 0.6 percent at end-June). The rescheduling of the treasury bond issuance to the last quarter led to weaker-than-projected accumulation of government deposits. Bank reserves remained high, representing 20 percent of deposits, and their net foreign assets increased by 2.4 percent (y/y).

6. Public debt remains sustainable but with a high risk of debt distress. The stock of public debt was estimated at around 32.6 percent of GDP at end-September 2018, compared with 27.4 percent at end-2016, representing an increase of 5 percentage points of GDP in 21 months, owing mainly to the acceleration of disbursements on externally-financed projects and the conversion of BEAC statutory advances into long-term debt. This estimate includes the SONARA debt to crude oil suppliers, which represents 0.2 percent of GDP.1

III. Implementation of the Economic and Financial Program

7. Performance criteria and benchmarks:

  • All performance criteria at end-June were met, except the ceiling on net central government borrowing from the central bank which was slightly exceeded. (Table 1). The overrun is marginal. All indicative targets were also met except the one floor on non-oil revenue, which was missed by 0.1 percent of GDP mainly owing to the failure by SONARA to pay its taxes and customs duties.

  • All indicative targets at end-September were met, except the ceiling on net central government borrowing from the central bank.

  • However, at end-October 2018, SNH direct interventions amounted to CFAF 175 billion, above the annual indicative target of CFAF 156 billion, owing mainly to the worsening of the security shock over the recent months. The government intends to contain SNH direct interventions at this level by the end of the year, through simplified expenditure procedures at the General Directorate of the Budget for the execution of urgent and sovereignty-related expenditures.

8. Progress was made on structural benchmarks, with 12 out of 18 benchmarks met on time between June and November 2018 (Table 2). All benchmarks related to fiscal reforms and revenue mobilization were met. Most of the public financial management benchmarks were also met, as well as the measure aimed at the quarterly payment of the utility bills of major public entities.

9. However, structural benchmarks related to debt management and financial sector stability were not met or were delayed:

  • Adoption by the Ministers of Finance and Economy of a plan to reduce the stock of SENDs stemming from immature projects, which provides for measures to reduce the stock of SENDS (non-performing) by at least one-third by end-2018 (August structural benchmark that becomes a prior action). A more detailed analysis of non-performing SENDs showed an amount of CFAF 200 billion that could potentially be cancelled. The Minister of Finance who is also the President of the National Public Debt Committee (CNDP) adopted a time-bound action plan in November for the validation of non-performing SENDS, together with development partners, and the reallocation of certain funds to priority projects and the preparation of a disbursement plan in line with the medium-term macroeconomic framework.

  • Close all correspondent accounts for non-resources generating entities (mainly public entities such as line ministries and public agencies); the transfer of new budgetary appropriations to these accounts continues to be prohibited. (August structural benchmark, not met). Correspondent accounts are no longer provisioned using budgetary appropriations. They will be closed gradually after verification of current commitments on the remaining balance (benchmark to be reprogramed in June 2019).

  • Reduce to two months the deadline for processing bills, between commitment and transmission to the treasury for payment (June structural benchmark, implemented in October). The average processing time has been reduced to around 21 days. However, there are still some significant time lags between the different phases of the expenditure chain. The circular on the implementation of the 2019 budget will set the processing time for each actor of the expenditure chain and will ensure compliance by all concerned.

  • Sign a performance contract with the management of the public bank. (July 2018 benchmark, implemented in October). A performance contract was signed on 12 July 2018 and presented to Board members on 27 September 2018. The revised contract was signed on 24 October 2018, taking into account certain aspects related to governance, profit-sharing and publication.

  • Assess (cost and feasibility) options for the resolution of ailing banks (August structural benchmark, implementation ongoing). The World Bank provided technical assistance in September 2018 to help the government consider these options. The government’s options, taking into account World Bank technical assistance and the report will be transmitted to the IMF by end-December 2018.

  • Decide on the economic model of the SMEs bank (August 2018 structural benchmark, not met). The government proposed to extend the deadline for this benchmark to March 2019. It was agreed with IMF staff to assess the financing needs of high-performing SMEs in Cameroon, and to analyze the appropriate financing instruments, including indirect financing. Given the bank’s significant losses, measures have been taken to reduce spending and contain credit risks. To reach profitability as soon as possible, the Board of Directors has adopted a consolidation strategy in November 2018.

IV. Economic and Financial Program in 2018–19 and the Medium Term

A. Program Objectives

10. Notwithstanding the difficult socio-political context, the government reiterates its firm commitment to achieving the program objectives. This involves pursuing public financial management reforms, widening the tax base for non-oil revenues, enhancing the stability of the banking sector, improving the control and efficiency of public investment, and addressing bottlenecks to private sector development and diversification of the economy. Also, to pursue fiscal consolidation aiming at building fiscal and external buffers, while preserving social spending and other social safety net, the government is committed to strengthening fiscal discipline by achieving the objectives of the 2018 supplementary budget as well as the 2019 budget, and by meeting the quantitative objectives and structural benchmarks of the program.

B. Macroeconomic Framework

11. Economic growth prospects remain positive. Growth is expected to improve in 2018, rising to at least 3.8 percent against 3.5 percent in 2017. Growth projections have been adjusted slightly downward, owing to the sharp drop in economic activities in regions with heightened security problems and anticipated drop in oil production. The finalization of construction works related to the CAN and significant improvement in electricity supply should benefit the construction sector and manufacturing and agricultural industries in 2019. In the medium term, growth will pick up and stabilize at around 5–5.5 percent, driven by the completion of large infrastructure projects (such as road and energy projects).

12. Meeting the 2018 and 2019 fiscal objectives remains essential to restore macroeconomic stability in Cameroon and the region. Fiscal consolidation and tighter monetary policy will support improvements in the current account and the rebuilding of the foreign exchange reserves. The current account deficit should stabilize at around 3 percent of GDP in the medium term and net foreign assets at around CFAF 2,256 billion by 2023 against CFAF 1,706 billion in 2016. These efforts are essential to curb public debt increases and keep debt service at sustainable levels. Slippages could lead to unsustainable debt levels, resulting from a rapid accumulation of non-concessional debt given an insufficiently-diversified export base.

13. Risks associated with the baseline scenario remain broadly unchanged with respect to the second review. Progress made with economic stabilization in the CEMAC and the increase in oil prices could accelerate economic growth and revenue mobilization. However, delays in adjustment within CEMAC, persistent setbacks in the finalization of economic reform programs with other CEMAC countries and the worsening security situation in the North West and South West regions could weigh on some sectors of the economy and pose fiscal risks, with an impact on investment and growth.

C. Fiscal Policy

Fiscal Policy Objectives at End-2018

14. The government commits to comply with the floor on the non-oil primary balance at end-2018 (3.9 percent of GDP) and the overall deficit objective (2.4 percent of GDP, payment order basis). Based on preliminary budget outturn of the first ten months of the year, it is critical to improve non-oil revenue mobilization efforts and strengthen control of current and capital spending to achieve program objectives at end-2018. Oil revenues stood at 0.2 percent of GDP above projections. However, at end-October, non-oil revenues were slightly below target, owing to the delayed payments of taxes and custom duties by SONARA caused by higher-than-anticipated subsidy needs following the increase in oil prices. The following measures will be implemented to offset the shortfalls in non-oil revenue:

  • The Directorate General of Taxation (DGI), will ensure close monitoring of contentious tax claims and tax disputes, expedite ongoing controls, and transfer the excess revenue of some public entities to the budget, which should help reduce the projected gap by CFAF 23 billion.

  • The Directorate General of Customs ( DGD) will strengthen administrative measures to optimize revenue collection, including through improving the clearance of imported goods, with better utilization of scanned imports and exports at the ports of Douala and Kribi, pursuing the reconciliation of SGS-DGD-GUCE (single electronic trade platform) data, streamlining tax exemptions, increasing the share of current revenue, improving the recovery of tax arrears vis-à-vis public entities, accelerating public auctions at the Douala port, finalizing ex-post controls, intensifying measures to combat fraud and contraband through the HALCOMI operation.

15. The government will continue to rationalize current expenditures, while preserving social spending. This allows to create space to cover the overrun in direct interventions (at least CFAF 20 billion at end-October) and part of the non-budgeted SONARA losses (estimated at around CFAF 60 billion). The government committed to maintain the 20 percent freeze of current spending, generate additional savings on wages and salaries, stopped spending commitments 15 days before the end-November time limit, and will close complementary period operations at end-February 2019.

16. The acceleration of externally-financed investment will be offset by savings on domestically financed investments. At end-October, disbursements on externally-financed projects amounted to CFAF 583 billion, and an additional amount of CFAF 218.8 billion remained to be disbursed. Given the risk of overrun in disbursements of external financing in 2018, the government has established a platform to control the disbursements of non-concessional financing, except the CAN related infrastructure. This platform includes all the structures involved in management of external financing and approves issuance of new disbursement requests on non-concessional loans, except those linked to infrastructures related to the CAN. This approach will continue in fiscal year 2019 to ensure better control of disbursements. The government will further regulate public investments (domestic and externally-financed) to align with the 2018 supplementary budget objectives.

17. The projected overall cash deficit of 3.8 percent of GDP will also be met thanks to measures to limit the stock of arrears and float at end-2018, including:

  • Limitations on provisional commitments;

  • clearance of arrears, while complying with the objective of accumulation of government deposits at the BEAC;

  • prohibiting the transfer of budget appropriations to correspondent accounts;

  • cancelling unjustified balances upon the inventory of arrears and ensuring consistency with the overall treasury accounts balance.

Fiscal Policy Objectives for 2019 and the Medium Term

18. The draft 2019 budget submitted to the National Assembly is in line with program objectives. The framework targets a reduction of the overall fiscal deficit (payment order basis) from 2.4 percent of GDP in 2018 to 2 percent of GDP in 2019, owing to an increase in non-oil revenues of at least 0.3 percent of GDP, spending adjustments of 0.5 percent of GDP, and a drop in domestic arrears of 0.5 percent of GDP. The medium-term budgetary framework hinges on the improved non-oil revenue mobilization, and the rationalization of public investment. This would help reduce gradually the overall fiscal deficit and meet the CEMAC convergence criteria by 2021.

19. The government intends to implement tax policy measures to improve non-oil revenue mobilization. The following measures are envisaged in the 2019 draft budget:

  • Improving the collection of the land tax by extending the tax amnesty on the land tax and inheritance rights.

  • The action plan to gradually reduce tax exemptions will be implemented starting from the 2019 budget, and will yield at least 0.1 percent of GDP in additional revenues (about CFAF 22 billion).

  • The payment of taxes and custom duties, in particular the VAT on the execution of externally or jointly-financed public investment starting in January 2019.

  • An increase in registration fees on public contracts;

  • The suppression of VAT exemptions on life and health insurance contracts and commissions subscribed by companies and individuals.

  • The limitation of VAT exemptions on the social portion of water and electricity consumption exclusively to households with moderate consumption.

  • Suppression of VAT exemptions on local processing of timber.

  • The reduction from 25 percent to 10 percent of the discounted tax base for duties on beer with 5.5 or less alcohol degree, and further redefinition of the tax base for excise taxes.

  • The introduction of specific excise tax on imported sodas and other non-alcoholic beverages.

  • An increase in excises on tobacco and alcoholic beverages.

  • The elimination of certain tax base discounts.

  • The improvement of custom duties collection on imported mobile phones and certain softwares.

  • Reinforcing the taxation of exported goods.

20. The 2019 budget is in line with the fiscal consolidation aiming at reducing the non-oil primary deficit. The following measures are planned:

  • The cleanup of the payroll will be pursued in 2019, to reduce ghost workers and generate budgetary savings on the wage bill. The government also intends to improve transparency and rationalize allowances and other non-wage compensations related to committees by prohibiting cash payments and reclassifying the related spending under “other personal spending”.

  • Efforts will be pursued to reduce goods and services’ expenditures, based on the circular of the Prime Minister. The reduction of mission allowances, operating costs of commissions and the strict application of the revised official price list could yield 0.1 percent of GDP of additional savings. The precautionary freeze will also be maintained and capped at CFAF 30 billion, to pursue the consolidation objective and the reduction of the non-oil primary deficit.

  • The prioritization of domestically-financed capital spending and enhancing compliance with budget execution rules, notably with the limitation of provisional commitments, will help reduce capital spending.

  • The government will continue to strengthen the programming and monitoring of externally-financed capital spending, in particular the non-concessional financing, to reduce the overall deficit and limit the accumulation of public debt. Quarterly disbursement plans will be prepared for all investment projects, in conjunction with financial partners, and this will serve as the basis for disbursement requests. Effective disbursements and disbursement requests will be monitored on a monthly basis. The government has committed to perform the necessary arbitrations to keep executed capital spending within the overall budget limit.

  • SNH direct interventions will be limited, in line with security challenges facing the country. However, to improve budget execution predictability, these direct interventions will be limited to a maximum of CFAF 140 billion in 2019.

  • Risks to budget execution may arise from the difficult security context, the impact of oil price increase and the completion of the 2019 CAN related projects. The government has committed to build fiscal buffers to meet program objectives should the risks materialize.

21. In the medium term, the government will pursue the fiscal consolidation while preserving priority social spending. For 2019–20, under the growth and employment strategy, the government will implement bold actions to pursue poverty and inequalities reduction. Starting in 2019, the implementation of the national social protection strategy aims at scaling up the social safety net program, with CFAF 4.5 billion of budget resources allocated to the program and made available to program managers. The government will increase resources allocated to health and education and improve their quality, notably through the allocation of sufficient resources (at least 15 percent of the 2018 budget of the Ministry of Public Health) to the performance-based health spending program. The 2019–20 floor on social spending will gradually rise to reach 4 percent of GDP in 2020.

D. Structural Public Financial Management Reforms

22. Regarding budget management, the enforcement of current measures to strengthen budget execution control will continue:

  • The measures of the complementary circular 002 (19 June 2018) aimed at reducing and gradually eliminating exceptional spending procedures (such as provisional commitments, treasury advances, cash advances) and improving fiscal reporting will be pursued, with the 2019 budget execution circular. In particular, spending through exceptional procedures will be limited to 5 percent of domestically-financed spending (excluding debt service). Cash advances and provisional commitments will be eliminated and replaced with regulated advances (“régies d’avances”). In addition, starting in January 2019, the government will start monthly regularization of SNH direct interventions. A mechanism has been implemented to identify and regularize direct interventions by nature. The simplified spending mechanism will help reduce direct interventions (new structural benchmark).

  • The law on transparency and good governance of public financial management and the law on the financial regime of the State and other public entities were approved by Parliament in June 2018. The government is accelerating the effective implementation of these laws for the 2019 budget law.

  • The use of correspondent accounts to safeguard budget appropriations will be prohibited, and the management of counterpart funds will be improved. Public entities’ non-revenue generating accounts will be closed. The transfer of new budget appropriations to these accounts remains prohibited, and the reduction of existing balances will be pursued. This measure previously programmed for August 2018, will be fully implemented in June 2019.

  • The complementary period will be shortened to one month starting from fiscal year 2019.

23. The government will pursue the medium-term reforms aimed at improving the quality of expenditure and treasury management, in line with the public finance reform program. The main focuses of these reforms are:

  • a. Acceleration of the transposition of CEMAC directives into national law and their implementation. The draft decrees for the transposition of the four remaining directives into national law will be finalized by end-March 2019.

  • b. The treasury management reforms will continue and be expanded. In particular, the government will continue to expand the scope of the Treasury single account by closing all non-active accounts and repatriate their balances to the TSA, while avoiding the opening of new accounts. Moreover, the government will ensure that the closing and repatriation of the public entities and CAA accounts (including “idle resources”) are effective. The government also plans to pursue dialogue with donors on the possibility of centralizing in a single account opened at the BEAC all counterpart funds for new joint projects. Management of the accounts already opened for existing projects will continue until the finalization of the related studies (management of counterpart funds) while taking into account the requirements of the various donors. The single treasury account will be fully operational in September 2019.

  • c. Strengthening the financial reporting system to ensure the comprehensiveness, accuracy, reliability, and timeliness of the budgetary and accounting information. In particular, starting in September 2019, the central government fiscal operation tables (TOFE) will be produced using automatic links with the Treasury’s general balances of account and will be available 20 days maximum after the end of each month.

  • d. To improve the efficiency and quality of capital spending, the ministry in charge of public investments will conduct an independent assessment of the maturity of large-scale projects that involve a degree of complexity or strategic challenges, in line with the PEFA recommendations. Moreover, the 2017 assessment of the current spending associated with domestically financed capital expenditures will be expanded to externally financed capital expenditures. This will allow to include in the public investment program only projects contributing to gross fixed capital formation. Options will be proposed for considering these expenditures under the current budget envelop. In the meantime, a mechanism identifying projects that could potentially generate idle resources in commercial banks will be established before end-March 2019.

  • e. Continued improvement of the monitoring of contingent liabilities and consolidation of the financial situation of the main loss-making SOEs, in order to limit fiscal risks. In particular, the government will accelerate the adoption and implementation of the 2017 laws on the strategy to reform SOEs and other public entities. The government also plans to amend the PPP law to improve the transparency and avoid non-priority projects. The CNDP will systematically review all PPP project proposals.

24. The DGI and DGD will continue the efforts initiated to improve non-oil revenue collection, combat fraud and tax evasion, and ensure the integrity of the taxpayers’ database and IT systems.

  • The DGI will focus on:

    • a. The strengthening of tax audits by strengthening collaboration with the DGD and using the Tax Inspectors without Borders initiative. Based on these results, we intend to tap the tax potential to improve non-oil revenue mobilization by accelerating (i) the taxation of importers who have not submitted their tax returns in 2017, and (ii) the control the companies that carried out sales in 2017 but did not file in their tax returns, and (iii) taxation of companies who didn’t pay their company taxes’ advance to customs.

    • b. Improving the VAT yield through the operationalization of the medium-size entreprises’ tax centers, and the recovery of VAT arrears of public enterprises, increasing the VAT threshold and simplifying the tax regime for small businesses; and improving the VAT credit refund mechanism, in particular by enhancing the electronic tracking of VAT credits refund, the gradual clearing of the VAT credits accumulated prior to the establishment of the VAT credits refund escrow account, and the gradual increase of the monthly budget appropriations for VAT credits refund.

    • c. Finalize the connection between the active taxpayers’ database (FISCALIS) and the tax management tool “MESURE”. To date, the connection between FISCALIS and MESURE has been completed. The work towards the development of a module in MESURE for the automatic updates (transfers, closures, mergers, suspensions, creations) and its migration to an online version will be completed by end-June 2019, including for tax centers yet to be computerized.

    • d. Continuing the simplification and automation of procedures by introducing electronic payments for big-size and medium-size enterprises, the electronic filing of tax returns (DSF) and the tax registration of legal documents, the automation of tax disputes monitoring and deferment, as well as the management and monitoring of tax arrears.

    • e. Broadening risk management through the implementation of an integrated risk management system within the DGI which ensures identification, evaluation, prioritization and mitigation of tax evasion, while mitigating institutional and operational risks.

    • f. Improving the recovery of taxes and duties following tax audits, in particular by raising the required deposit at the legal dispute phase, starting in 2019.

  • The DGD will pursue the following measures:

    • a. Securing of tax and customs duties through the quarterly reconciliation of import declarations and scanning images validated by the SGS and the assessed customs duties. A first reconciliation report was prepared in September. For subsequent reports we are planning to amend the reconciliation procedure to increase the effectiveness of this measure, including through (i) the extension of reconciliation at the customs office of the of Yaounde-Nsimalen airport, and to the export operations under the Export Monitoring Sector Program (PSSE); (ii) the verification of all non-reconciled declarations excluded from the scope of the first report (search for RVC, DI, f.o.b. values and images scanning images); (iii) the reconciliation of tax and duties assessed by SGS on imports of used vehicles and the assessed customs duties; (iv) verification of the transit regime by requiring the declaration of final destination; (v) verification of the regimes in PVI by listing f.o.b. values, fully-loaded container and justifications of tax exemptions; (vi) making mandatory and blocking the report on the value and tariff classification (RVC) in import declarations; (vii) presentation of detailed data of the import declarations, notably by separating each type of product.

    • b. Monthly reconciliations between taxes and custom duties collected by Customs and revenues transferred to the Treasury (in the context of the TABORD Committee at the DAE, which reconciles revenue agencies data);

    • c. Pursue the reduction of the tax exemptions in collaboration with the DGI;

    • d. Operationalize at the latest in the first quarter of 2019 the CIVIC Program at borders in at least 3 (three) regions of Cameroon other than Douala;

    • e. Improve revenue collection through the simplification of procedures, further expansion of electronic payments and harmonization of tax bases throughout the country;

    • f. Strengthen the fight against fraud and illicit trafficking through the HALCOMI operation;

    • g. Strengthen protection of the information system by securing user profiles and interconnection with other partners through the enhancement and securing of ASYCUDA++. Concurrently, finalize modernization of the DGD IT system (CAMCIS) and operationalize certain modules by 1 April 2019.

25. The joint DGI/DGD work on the data of the “FUSION” software will continue and is expected to improve data collection and information sharing between the two administrations. Actions will continue to focus on: (i) the continuation of cleaning-up of the taxpayer database using the results of crosschecking between the customs and tax databases, (ii) harmonization and simplification of procedures; (iii) streamlining of tax exemptions, particularly the April 2013 law on tax incentives, and the assessment of tax expenditures, particularly by cleaning-up the lists of goods and equipment to be imported and the use of experts for the validation of types and quantities of equipment and other goods to be approved, and the acceleration of verifications by joint DGI-DGD audits of enterprises having benefited from exemptions, (iv) securing exemptions by requiring the transmission without delay of the document signed by MINFI to the department of legislation and litigation for management and inclusion into a database established at the central services of the DGD, (v) enhanced information sharing between DGD and DGI, particularly the transfer of the tax returns of big-size and medium-size enterprises to the FUSION platform, and the provision of comprehensive information on purchases of tax stickers to allow effective crosschecking during audits; and (v) more effective joint audits and investigations to further improve revenue mobilization.

E. Debt Policy and Cross-Debt Management

26. The government’s debt policy remains focused on the need to avoid debt distress and to keep public debt on a sustainable path. The government will continue to prioritize concessional financing and to limit non-concessional borrowing to priority projects for which no concessional financing is available, and according to the limits set out in the program in accordance with the findings of the public debt sustainability analysis.

27. The government firmly adheres to the borrowing limits of the program. Of the 31 new loans that were envisaged in the 2018 borrowing plan, 10 were contracted, including 5 non- concessional loans for a total amount of CFAF 267.1 billion, and 5 concessional loans for an amount of CFAF 88.8 billion. The others were not yet contracted due to delays in project appraisal. These projects will, in principle, be signed by the end of the year (Text Table 1).

Text Table 1.

Cameroon: Revised 2018 Borrowing Plan

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28. The 2019 non-concessional borrowing has been capped at CFAF 500 billion in the draft budget. The 2019 non-concessional borrowing plan was elaborated in consultation with donors based on medium-term development priorities, in order to also prioritize projects with high economic and social return and financially less expensive. Regarding concessional debt, the government intends to borrow CFAF 150 billion at a very advanced state of preparation, with many already approved by the boards of partner institutions (Table Text 2).

Text Table 2.

Cameroon: Borrowing Plan 2019

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29. The government is implementing measures to permanently contain the SENDs. As specified in the plan to reduce SENDs, disbursements related to ongoing projects will be carried out in line with the fiscal policy objectives and the government will, after consultation with development partners, prepare a detailed SENDs disbursement plan for 2019–20 by March 2019, (new structural benchmark) to avoid the risk of debt distress and safeguard debt servicing capacity.

30. Moreover, the government intends to gradually expand the collection and analysis of public debt data to SOEs and other public entities, including cross debts. Regarding public utility companies (ENEO, CAMWATER, CAMTEL, SONARA), the Treasury will proceed to quarterly payments on the basis of the annual budget allocations to limit the accumulation of cross-debts, and will reconcile these payments with actual consumption at the end of the year. In turn, these companies will honor their tax obligations.

31. The government will take steps to ensure the financial viability of SONARA. This entails:

  • a. revision of the petroleum products price structure by adjusting before April 2019:

  • the transport equalization payment and

  • the liberalized items of the price structure (overhead costs, transport losses);

  • b. revision of the gas price structure to control spending due to revenue losses on LPG and SONARA production. Also, CSPH supply contracts should be revised to optimize the cost of LPG through competitive bidding, the validation of GPL shortfalls by the committee in charge of validation of SONARA shortfalls, and the regular transfer of CSPH cash surpluses to the Treasury (new structural benchmark for January 2019);

  • c. the launch of a communication campaign on the costs of oil prices subsidies and the need for a gradual adjustment of pump prices in response to fluctuations to international prices;

  • d. buyback of SONARA securities (OTZ) by the government to repay the 2013 crude oil suppliers debt that would result in a reduction of financial costs and the restoration of confidence;

  • e. monthly clearance of the revenue shortfalls and the settlement of amounts due within a maximum period of 90 days;

F. Regional Monetary Policy and Financial Sector Stability

32. The government commits to implement policies that are consistent with maintaining the stability of the monetary arrangement, which requires the stabilization and restoration of BEAC reserves. Specifically, the non-repatriation of all export earnings, including oil revenues, contributes to the slower-than-expected replenishment of BEAC’s reserves. In this regard, the government undertakes to support the efforts of BEAC and COBAC to strengthen the implementation of exchange regulations, including:

  • a. ensuring that oil companies comply with the provisions of Articles 64, 65, 66, and 67 of the foreign exchange regulation in force on the domiciliation of export/import transactions, the full repatriation of export earnings, as well as the reporting of all their accounts abroad to the BEAC. To this end, the government will provide by end-2018 to the BEAC copies of all contracts and agreements signed with extractive industries companies;

  • b. the government will ensure, without prejudice to trade activities, that all competent government services, including the customs administration, strictly control exporters’ domiciliation of all their export earnings in resident commercial banks and that they communicate information on all export documents to BEAC;

  • c. the government will ensure that all public entities (including State-owned extractive industries) repatriate and deposit all their foreign exchange earnings with resident commercial banks, do not keep accounts abroad without an authorization from BEAC and, where they have accounts authorized by BEAC, they should regularly give the situation of such accounts to BEAC;

  • d. the government will, by end-June 2019, and in collaboration with BEAC, put the oil and mining codes in conformity with the exchange regulations;

  • e. moreover, and in accordance with its obligations under the regional convergence framework, the government will, by the end of the year, submit its three-year convergence plan for 2019–21 to the CEMAC Commission. This plan will be in line with commitments under the IMF-supported program and will include an arrears clearance plan.

33. The government commits to accelerating reforms aimed at strengthening financial sector stability. Regarding the two distressed banks, the government will, finalize the (cost and feasibility) assessment of the resolution options of distressed banks with the support of technical and financial partners by end-2018 and will implement the option adopted by August 2019 (new structural benchmark. Following the August 2018 IMF technical assistance, the government will validate by end-November 2018 the SRC valuation methodology in order to systematically use it for all the non-productive assets that will be transferred to the State and will be given to it for recovery. The amendment to the contract of the public capital bank was signed in October. The authorities will ensure strict implementation thereof, in particular, the establishment by end-June 2019 of a mostly independent board of directors and a system of governance, committees and internal audit excluding the influence of the shareholder in the management of the bank, with a view to privatizing the bank by 2020. A selective credit policy, in line with market development, will be put in place starting 2019 to strengthen the bank’s financial situation. Regarding the SME Bank, its economic model is currently under review. Authorities will decide on a new model by end-March 2019 (structural benchmark) after consultation with IMF and on the basis of the findings of the study on the evaluation and the level of satisfaction of the financing needs of SMEs in good standing in Cameroon.

34. The government is pursuing the implementation of the plan to reduce non-performing loans. The plan includes (i) the training of 20 judges and 10 court clerks from the main centers of judicial activities, which will begin early December 2018 to conclude its first cycle by end- December 2018, on banking and credit repayment disputes (structural benchmark at end-December 2018) and a continuous training program will be developed by end-June 2019 in cooperation with banks and the national school of magistracy; (ii) the installation of pre-trial judges for civil and commercial cases by August 2019; (iii) the detailed situation of non-performing loans now available; the authorities will get in touch with COBAC to share their findings by end-December 2018. The law on the establishment of commercial courts will be adopted by June 2019 to enable the creation of commercial courts in Yaoundé and Douala by end-June 2020. There will be a review of the situation of arbitration by end-January 2019, in order to encourage its use. In addition, the preliminary draft law on the penalization of non-repayment of credit was forwarded to the Prime Minister’s Office which will considers the comments of the IMF as well as its smooth incorporation into the national and regional legal framework in force. The order establishing the national computerized registry of movable assets, was signed by the Minister of Finance in October 2018 and banks are required to register their sureties starting from the establishment of the registry by end-December 2018 to ensure that a complete database is available by end-March 2019 (reprogrammed structural benchmark).

G. Competitiveness and Private Sector Development

35. The government is committed to accelerating the implementation of measures designed to support the development of the private sector and diversification of the economy. In addition to the lack of infrastructure, the main obstacles to greater economic competitiveness are the unfavorable business climate and the weak private sector’s access to financial services. Several reforms, including in coordination with the regional authorities, are under way to improve the competitiveness and attractiveness of the Cameroonian economy for foreign direct investment and trade. The costs and delays related to foreign trade remain very high, exceeding those observed in the region, and firm measures have been undertaken to reduce the congestion in the port of Douala and to facilitate trade. Further, the government will continue to implement the following measures:

  • a. The government is implementing the 14 recommendations of the Extractive Industries Transparency Initiative (EITI) Committee so that Cameroon can be declared compliant with the 2016 standard by end-2019;

  • b. A National Risk Assessment (NRA), a preparatory step for the GABAC assessment of our anti- money laundering and combatting the financing of terrorism framework (AML/CFT) scheduled for September 2019, will be conducted in November 2018 with World Bank support. In order to enhance implementation of AML/CFT regulations, the National Agency for Financial Investigation (NAFI) will remind banks, members of regulated professions and relevant authorities including regional institutions of their suspicious transaction reporting obligations and conduct training sessions in the first half of 2019. The Ministry of Justice will compile statistics on AML/CFT-related cases starting in 2019;

  • c. The review of the new CEMAC Customs Code has been completed and validated by the Member States within the framework of the dedicated Sub-Regional Committee. The draft reviewed Customs Code will be submitted for adoption at the next session of the Council of Ministers of CAEU. Besides, the CEMAC Customs Tariff according to the 2017 version of the Harmonized System has been adopted by the Council of Ministers of CAEU according to the Regulation No. 10/17-UEAC-CM-010-A-30-SE of 29 October 2017;

  • d. Expansion of geographic coverage of the electronic payment platform, e-manifest and e-force at certain land and sea borders including Idenau, Bota, Cape Limboh, Gaschiga and Dourbeye, and further extension of the one-stop shop for payment of all the royalties of other foreign trade actors;

  • e. Improvement of the quality of customs services through implementation of the risk management system with four control circuits including two immediate control circuits (yellow and red), two post-removal control circuits (green and blue). As a reminder, to date 16 operators are benefiting from the green circuit facility;

  • f. Securing and facilitating transit through the Single Transit Document (STD) already operational for cargo in transit for the sub-region;

  • g. Creation of a warehouse of used vehicles of less than 10 (ten) years of age;

  • h. Respect of concession agreements signed by the State and improvement of public-private dialogue.

36. The government will also continue to implement measures aimed at simplifying tax collection procedures. For this purpose, the regime of assessment for small and micro enterprises will be simplified. The implementation of the telepayment of duties and taxes will be finalized by end-2019.

V. Program Arrangements

37. The government will take all measures needed to achieve the objectives and meet the criteria, as presented in Tables 1 and 2 of this memorandum. The program will be subject to semiannual reviews and performance criteria, indicative targets and structural benchmarks as set out in Tables 1 and 2 of this Memorandum and in the attached Technical Memorandum of Understanding (which also sets out the requirements for reporting the data to Fund staff). The fourth program review will be based on end-December 2018 targets and is expected to be completed on or after June 15, 2019, and the fifth review will be based on end-June 2019 targets and is expected to be completed on or after December 15, 2019.

Table 1.

Cameroon: Quantitative Performance Criteria and Indicative Benchmarks (March 2018–December 2019)

(CFAF billion, cumulative for each fiscal year)

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Sources: Cameroon authorities; and IMF staff estimates and projections. Note: The terms in this table are defined in the TMU.

Program indicators under A are performance criteria at end-December and end-June; indicative targets otherwise.

The ceiling on net domestic financing (excluding payment of arrears) of the budget and the ceiling on the net borrowing from the central bank will be adjusted if the amount of disbursements of external budgetary assistance excluding IMF financing, falls short of or exceeds program forecasts. If disbursements are less (higher) than the programmed amounts, the ceiling will be raised (reduced) pro tanto, up to a maximum of CFAF 120 billion at the end of each quarter.

The targets are set from the beginning of the year.

Excluding ordinary credit for imports and debt relief obtained in the form of rescheduling or refinancing.

For 2018, the ceiling will be adjusted upwards by the amount of non-concessional budget support excluding IMF financing for debt management operations, up to the amounts specified in memorandum item No. 1 below excluding budget support grants. Starting 2019 the adjustment will be equal to the amount of non-concessional budget support approved up to a maximum of CFAF 275 billion.

On a contracting basis in accordance with the IMF’s debt limits policy http://www.imf.org/external/np/pp/eng/2014/111414.pdf.

The PC on the disbursement of non-concessional external debt contracted as of the date of program approval is modified starting September 2018 to include all non-concessional project loans.

This refers to payments made by the Treasury without prior authorization (issuance of payment orders, such as cash advances, provisional budget commitments, and advance funds), excluding debt service payments.

Table 2.

Cameroon: Prior Actions and Structural Benchmarks, 2018–19

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Attachment II. Technical Memorandum of Understanding

Provisions of the Extended Credit Facility (ECF) 2017–20

1. This Technical Memorandum of Understanding (TMU) defines the quantitative performance criteria and indicative objectives that will be used to assess performance in connection with Cameroon’s program supported by the Extended Credit Facility (ECF) approved in June 2017. The ECF establishes the framework and deadlines for reporting data to be used by IMF staff to assess program implementation.

Conditionality

2. The quantitative performance criteria and indicative objectives from end- December 2018 to end-September 2019 are provided in Table 1 of the Memorandum of Economic and Financial Policies (MEFP) attached to the Letter of Intent. The structural benchmarks defined in the program are provided in detail in Table 2 of the MEFP.

Definitions

3. The Government: Unless otherwise noted, “government” is defined as the central government of the Republic of Cameroon, which includes all implementing agencies, institutions, and any organizations receiving special public funds, whose powers are included in the definition of central government under the 2001 Government Finance Statistics Manual (GFSM 2001, paragraphs 2.48–50). This definition does not include local governments, the central bank, and any other public entity belonging to the government that has autonomous legal status and whose operations are not included in the government financial operations table (TOFE).

4. A public enterprise is a commercial or industrial unit fully or partially owned by the government or its bodies, that sells goods and services to the public on a large scale.

Revenue

5. Total government resources are comprised of tax and nontax budget revenue (as defined under Chapter 5 of GFSM 2001) and grants. Revenue is recorded in the accounting system on a cash basis. Proceeds from the sale of assets and privatization revenue (defined in paragraph 8) are not considered government revenue.

6. Oil revenue is defined as the total transferable balance of the SNH (Société nationale des hydrocarbures), the national hydrocarbons company, and income tax on petroleum companies and gas operators. The authorities will notify IMF staff of any changes in the tax systems that may occur that would lead to changes in revenue flows. Oil revenue is recorded in the accounting system on a cash basis.

7. Non-oil revenue includes all the government’s (tax and nontax) revenue, with the exception of oil revenue as defined under paragraph 6. Value-added tax (VAT) is recorded net of VAT reimbursements. Pipeline fees paid by Cameroon Oil Transportation Company (COTCO) are recorded under nontax revenue.

8. Privatization revenue includes all funds paid to the government in connection with the sale or transfer of the management of a public enterprise (concession), agency, or facility to one or more private enterprises (including enterprises fully controlled by one or more foreign governments), one or more private entities, or one or more individuals. The proceeds from privatizations also include, inter alia, all funds deriving from the sale of shares held by the government in private companies or public enterprises. All privatization revenue must be recorded on a gross basis. Any costs that may be involved in the sale or concession must be recorded separately under expenditure.

Expenditure

9. Total government expenditure and net lending include are all wage and salary expenditure for civil servants, goods and services, transfers (including subsidies, grants, social security benefits, and other expenditure), interest payments, and capital expenditure, all of which are recorded in the accounting system on a payment authorization basis, unless otherwise indicated, and net lending (defined in GFSM 2001). Total government expenditure also includes expenditure items executed without prior authorization that are pending regularization.

10. Spending advances [interventions directes] by SNH (National Hydrocarbon Society) are part of government expenditure, and include emergency payments made by SNH on behalf of the government, substantially to cover exceptional security and sovereignty outlays.

11. Social expenditure includes public expenditure recorded in the government budget in connection with priority programs to accelerate attainment of the government’s social development objectives. This item includes (i) for the education sector, total (current and capital) expenditure of the Ministries of Elementary Education, Secondary Education, and Employment and Professional Training; (ii) for the health sector, current expenditure of the Ministry of Public Health; and (iii) for the other social sectors, current expenditure of the Ministries of Labor and Social Security, Youth and Citizenship Education, Social Affairs, and Promotion of Women and the Family.

Balance and Financing

12. Primary balance: The primary balance is defined as the difference between total government revenue (defined in paragraph 5) and total government expenditure and net lending (defined in paragraph 9) not including interest payments in connection with external and domestic debt.

13. Debt: The definition of “debt” is set out in paragraph 8 (a) of the Guidelines on Public Debt Conditionality in Fund Arrangement attached to the Executive Board Decision 15688–(14/107), but also includes commitments contracted or guaranteed, for which value has not been received. For purposes of these guidelines, “debt” is understood to mean a direct, i.e., non-contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including monetary assets) or services, and under which the debtor to is also required to undertake to make one or more payments in the form of assets (including monetary assets) or services, according to an established schedule. These payments will discharge the debtor of the principal and/or interest liabilities undertaken in connection with the contractual arrangement. In accordance with the foregoing definition of debt, any penalties or damages awarded by a court as a result of the nonpayment of a contractual obligation that constitutes debt are debt.

14. External debt, in the assessment of the relevant criteria, is defined as any borrowing or debt service in a currency other than the CFA franc. This definition also applies to debt between countries of the Central African Economic and Monetary Community (CEMAC). The relevant performance criteria apply to external debt of the government, public enterprises that receive transfers from the government and other public entities in which the government holds more than 50 percent of the capital, or any other private debt for which the government has offered a guarantee that should be considered to constitute a contingent liability. Guaranteed debt refers to any explicit legal obligation incumbent on the government to reimburse a debt in the event of payment default by the debtor (whether the payments must be made in cash or in kind).

15. Concessional external debt: External debt is considered concessional if it comprises a grant component of at least 35 percent.1 The grant component is the difference between the face value of the loan and its present value expressed as a percentage of the face value. The present value of debt at the date on which it is contractually arranged is calculated by discounting to present value of the debt service payments at the date on which the debt was arranged.2 A discount rate of 5 percent is used for that purpose.

16. Domestic debt is defined as all of the government’s debts and obligations in CFA francs. This item includes unreimbursed balances, advances from the Bank of Central African States (BEAC), Treasury bills and bonds, structured debt, nonstructured debt, domestic payment arrears, and debt to SONARAs suppliers.

  • Structured debt is defined as debt that has been subject to a formal agreement [convention] or securitization [titrisation]. Under the program, structured bank debt is included in net bank credit and structured nonbank debt is reflected in nonbank financing.

    • i. Structured bank debt is defined as all claims of local banks on the government, with the exception of treasury bills and bonds. This item involves securitized bank debt, the outstanding balance of which at end-2016 was CFAF 86.36 billion, plus direct advance arrangements.

    • ii. Structured nonbank debt is defined as all of the government’s balances payable in connection with local nonbank institutions or individuals or the CEMAC, that have been securitized of subject to a formal reimbursement agreement according to a clearly defined schedule.

  • Nonstructured debt is defined as all balances payable transferred to the national amortization fund [Caisse Autonome d’Amortissement] (CAA) that have not been subject to a formal reimbursement agreement or securitization arrangement. The outstanding balance of nonstructured debt was CFAF 113.96 billion at end-2016. In connection with the program, the stock of nonstructured debt is part of the stock of domestic payment arrears. Accordingly, any payments in connection with nonstructured debt will be deducted from the stock of domestic payment arrears and will therefore have an impact on the primarily balance on a cash basis.

17. Net domestic financing of the government: is defined as the sum of (i) net bank credit to the government; and (ii) net nonbank financing.

  • Net bank credit to the government is equal to the change in the balance between government’s liabilities and assets with the national banking system. These assets include (i) cash resources on hand with the treasury; (ii) treasury deposits with the central bank, not including the Heavily Indebted Poor Counties (HIPC) account and the Debt Reduction and Development Contract (C2D) account; and (iii) the credit balance of the accounts of the Caisse Autonome d’Amortissement with commercial banks earmarked for reimbursement of the government’s debt obligations. The government’s outstanding balances include (i) financing from the central bank, and specifically statutory advances; net IMF financing (disbursements net of reimbursements), refinancing of guaranteed bonds, and treasury paper held by the central bank; and (ii) financing from commercial banks, and specifically direct advances and loans, securities, and bills and bonds of the treasury held by local banks. Net bank credit to the government is calculated based on the data provided by the BEAC. These data should be subject to monthly reconciliations between the treasury and the BEAC.

  • Net nonbank financing of the government includes (i) the change in the outstanding balance of government securities (treasury bills and bonds) issued in CFA francs on the regional financial market and not held by the local banking system; (ii) the change in the outstanding balance of structured nonbank domestic debt (defined in paragraph 16); (iii) privatization revenue (defined in paragraph 8); (iv) the change in the balance of correspondent bank accounts (including Account 42) and consignment accounts; and (v) the change in the balance of outstanding claims on the government abandoned by the private sector. The government’s net nonbank financing is calculated by the public treasury.

18. Domestic payment arrears are the sum (i) of payment arrears on expenditure and (ii) payment arrears on domestic debt:

  • Payment arrears on expenditure are defined as “balances payable” for which the payment lag exceeds the regulatory period of 90 days. Balances payable reflect the government’s unpaid obligations. They are defined as expenditure items for which the normal expenditure execution procedures (commitment, validation, and authorization) has been followed until they were undertaken by the public treasury, but that are still pending payment. These obligations also include invoices due and not paid with public and private enterprises, but they exclude domestic financial debt service (principal and interest). Balances payable under 90 days represent payments in progress. Information used to determine the amount of balances payable is provided in Table 3 of the management indicators (TABORD). The treasury will monitor this information on a monthly basis to identify expenditure arrears in the stock of balances payable.

  • Payment arrears on domestic debt are defined as the difference between the amount due under a domestic debt arrangement (defined in paragraph 11) or the reimbursement of treasury securities, bills, or bonds matured and the amount effectively paid after the payment deadline indicated in the agreement or after the maturity date of the treasury securities, bills, or bonds.

19. External payment arrears are defined as external debt obligations of the government that have not been paid when due in accordance with the relevant contractual terms (taking into account any contractual grace periods). This PC excludes arrears on external financial obligations of the government subject to rescheduling.

I. Quantitative Program Objectives

20. The quantitative objectives (QO) listed below are as specified in Table 1 of the MEFP. Unless otherwise noted, all quantitative objectives will be assessed on a cumulative basis from the beginning of the calendar year to which the quantitative objectives apply. The quantitative objectives and details for their assessment are provided below.

A. Non-Oil Primary Balance

Performance Criteria

21. A floor for the non-oil primary balance (commitment basis) is defined as a quantitative objective in Table 1 of the MEFP. The non-oil primary balance is defined as the difference between the primary balance defined in paragraph 12 and oil revenue defined in paragraph 6.

22. To ensure consistency among data from different sources used to prepare the government financial operations table (TOFE), and particularly between the data on budget operations reported by the treasury and data on financing reported by the BEAC, the CAA, and the treasury, the cumulative level of miscellaneous expenditure not otherwise classified (including errors and omissions in the TOFE) for a given month should not exceed 5 percent of the cumulative expenditure for that month, in absolute value. Should this limit be exceeded, a comprehensive reconciliation exercise for all TOFE source data will be undertaken in consultation with IMF staff.

Cutoff Dates for Reporting Information

23. The detailed data on government financial operations indicating the primary balance, oil revenue, and the level of miscellaneous expenditure not otherwise classified will be transmitted on a monthly basis within six weeks from the end of the month.

B. Net Domestic Financing of the Government Excluding Net Financing from the IMF

Performance Criteria

24. A ceiling on net domestic financing of the government excluding net financing from the IMF is defined as a quantitative objective in Table 1 of the MEFP. For program requirements, net domestic financing of the government excluding net IMF financing will be net domestic financing of the government defined in paragraph 17, not including net IMF financing.

Adjustment

25. The ceiling on net domestic financing of the government excluding net financing from the IMF will be adjusted if the disbursements in connection with external budget support net of external debt service and the payment of external arrears are below the programmed levels.

26. At the end of each quarter, if disbursements of external budget support are below (above) the programmed amounts, the relevant quarterly ceilings will be adjusted upward (downward) commensurately, within the limit of CFAF 120 billion starting from 2017 Q4 onwards. This ceiling may be revised to reflect the rate of budget aid disbursements during the year.

Cutoff Dates for Reporting Information

27. The detailed data on net domestic financing of the government (bank and nonbank) and the status of budget support disbursements, reimbursement of external debt service, and the status of external arrears (to be monitored continuously) will be submitted on a monthly basis within six weeks after the end of the month.

C. Disbursement of Non-Concessional External Debt Performance Criteria

28. A ceiling on disbursements of non-concessional external debt is defined as a quantitative objective in Table 1 of the MEFP. This performance criterion is applicable to contractual debt for projects’ financing. This performance criterion is based on external debt as defined in paragraph 14 and uses the concept of concessionality defined in paragraph 15 of this Technical Memorandum.

Cutoff Dates for Reporting Information

29. Detailed information on disbursements of external debts contracted by the government must be reported within six weeks after the end of the month, indicating the date the loans were signed and making the distinction between concessional and non-concessional loans.

D. Net Borrowing of the Central Government from the Central Bank

Performance Criteria

30. A ceiling on net claims of the central government from the BEAC is defined as a quantitative objective in Table 1 of the MEFP. This criterion is defined as the difference between, on the one hand, the Central Bank’s claims on the government, excluding IMF financing, in particular: unpaid balances of the consolidated statutory advances, refinancing of guaranteed bonds, and treasury securities held by the Central bank, and on the other hand the cash balances and total deposits of the Treasury with the Central Bank including the balance of the special account of the unused statutory advances. The balance of this special account will be regularly monitored in order to maintain the targets defined in Table 1 of the MEFP.

31. The ceiling on net borrowing of the central government from the BEAC will be adjusted if the disbursements in connection with external budget support are below the programmed levels.

32. At the end of each quarter, if disbursements of external budget are below (above) the programmed amounts, the relevant quarterly ceilings will be adjusted upward (downward) commensurately, within the limit of CFAF 120 billion starting from 2017 Q4 onwards. This ceiling may be revised to reflect the rate of budget aid disbursements during the year.

Cutoff Dates for Reporting Information

33. The detailed information on all financing from the BEAC to the government and the balance of the special account of the unused statutory advances must be reported within six weeks after the end of the month.

E. Non-Accumulation of External Payment Arrears

Performance Criteria

34. A ceiling of zero on the accumulation of external payment arrears is defined as a continuous quantitative objective in Table 1 of the MEFP. This performance criterion applies to the accumulation of new external arrears as defined in paragraph 19 of this Memorandum. In connection with the program, the government undertakes not to accumulate any new external payment arrears on its debt, with the exception of arrears subject to rescheduling. The government’s non-accumulation of arrears is a performance criterion to be observed on a continuous basis. This PC would be measured on a cumulative basis from the time of approval of the program.

Cutoff Dates for Reporting Information

35. The data on balances, accumulation, and reimbursement of external arrears will be reported within six weeks after the end of each month. This PC is monitored continuously by the authorities and any occurrence of new external arrears should be immediately report to the Fund.

F. New Non-Concessional External Debt Contracted or Guaranteed by the Government

Performance Criteria

36. A ceiling on new non-concessional external debt contracted or guaranteed by the government is defined as a continuous quantitative objective in Table 1 of the MEFP. The government undertakes on an ongoing basis not to contract or to guarantee any non-concessional external debt above the ceiling indicated in Table 1 of the MEFP. This performance criterion is applicable to external debt as defined in paragraph 14 of this Memorandum. It uses the concept of concessionality as defined in paragraph 15 of this Memorandum. This performance criterion is also applicable to any debt guaranteed by the government that constitutes a contingent liability as defined in paragraphs 14 and 15 of this Memorandum. Moreover, this criterion is applicable to public enterprises defined in paragraph 4 that receive transfers from the government, to municipalities, and other entities of the public sector (including agencies of general government and professional, scientific and technical organizations). However, this performance criterion is not applicable to borrowing arranged in CFA francs, treasury bills and bonds issued in CFA francs on the CEMAC regional market, regular short-term loans from suppliers, regular import credits, or to loans from the IMF, and debt relief obtained in the form of rescheduling or refinancing. This commitment is a performance criterion to be met on an ongoing basis. The ceiling on new non-concessional external debt set out in Table 1 of the MEFP will apply to new debt contracted or guaranteed per calendar year and not on a cumulative basis from the date of program approval.

Adjustment

37. The ceiling on new non-concessional external debt contracted or guaranteed by the government will be adjusted upwards to accommodate the non-concessional budget support from the World Bank, the AFDB, and France for debt management operations. For 2019, the projected amount of non-concessional budget support and the maximum amount of the adjustor will be CFAF 275 billion. The debt management operations are those that improve the overall profile of public debt (as per para 35 of the guidance note on debt limits SM/15/125).

Cutoff Dates for Reporting Information

38. The monthly situation of on all loans (conditions and creditors) contracted by the government must be reported within six weeks after the end of the month. The same obligation is applicable to guarantees issued by the government. This PC is monitored continuously by the authorities and any contracting or guaranteeing of debt should be immediately reported to the Fund.

II. Other Indicative Quantitave Objectives

A. Non-Oil Revenue

39. A floor on non-oil revenue as defined in paragraph 7 is defined as an indicative objective in Table 1 of the MEFP.

B. Net Accumulations of Domestic Payment Arrears

40. A ceiling on net accumulations of domestic payment arrears is defined as an indicative objective in Table 1 of the MEFP. Domestic payment arrears are defined in paragraph 18.

C. Social Expenditure

41. A floor on social expenditure as defined in paragraph 11 is defined as an indicative objective in Table 1 of the MEFP. This expenditure is monitored regularly in connection with program implementation.

Cutoff Dates for Reporting Information

42. The data on the government’s financial position as presented in the government financial operations table, the detailed listing of revenue highlighting oil revenue, domestic payment arrears, and the status of social expenditure execution must be reported within six weeks after the end of the month.

D. Share of Exceptional Expenditures on Total Authorized Expenditures Excluding Debt

43. A ceiling on the share of exceptional expenditures on total authorized expenditures excluding debt is defined as an indicative target in Table 1 of the MEFP. This target will be calculated based on the ratio between exceptional expenditures (expenditures excluding debt service paid without prior authorization which include cash advances, provisional budget commitments, and advance funds) and the total authorized expenditures excluding debt service that are domestically financed (including salaries). Exceptional expenditures will be monitored regularly as part of the program implementation.

Cutoff Dates for Reporting Information

44. Monthly accounting statements showing the amount of cash advances, provisional budget commitments, and advance funds must be reported to IMF staff within 3 weeks of the end of each month. The authorization spending presented in the table M1 of the TABORD will be used to compute this ratio.

III. Data Submission Requirements

45. The quantitative data on the government’s quantitative and indicative objectives will be reported to IMF staff with the periodicity described in Table 1 below. Moreover, all data revisions will be reported immediately to IMF staff. The authorities undertake to report to IMF staff any information or data not specifically addressed in this TMU, but required for program implementation, and to keep IMF staff abreast of the situation in terms of achieving the program objectives.

Table 1.

Cameroon: Summary of Data Reporting Requirements

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1

On November 30 the African Soccer Federation notified Cameroon that the country would no longer host the 2019 CAN due to delays in building the needed infrastructure and the difficult security situation in anglophone regions. There is a possibility that Cameroon could organize the event in 2021, and the authorities have indicated that the construction of stadiums would continue.

2

Part of SNH oil revenue is allocated off-budget to address urgent sovereignty needs, but regularized ex-post within existing budgetary allocations.

3

An FAD tax and customs administration TA mission planned for December will allow to define specific action plans.

4

At present SNH interventions are regularized with significant lags and on the basis of availability of budgetary credits, which blurs budget execution.

5

A World Bank study (Regional Trade Diagnostic Report: Breaking Down the Barriers to Regional Agricultural Trade in Central Africa) indicates that corruption at the border in Cameroon and neighboring countries almost doubles transport costs of agricultural commodities and represents on average 14 percent of the consumer price.

6

CEMAC—Staff Report on the Common Policies of Member Countries, and Common Policies in Support of Member Countries’ Reform Programs.

1

FINDEX 2017.

2

Two of the 4 ailing banks have resolution plans approved by COBAC. One bank was nationalized with its impaired assets transferred to the SRC and the private owner of the other has decided to recapitalize the bank by 2020.

1

Cycle 1 assessed the implementation of Chapter III (Criminalization and law enforcement) and Chapter IV (International cooperation). Cycle II began in 2016 and will run until 2020 assessing the implementation of Chapter II (Preventive measures) and Chapter V (Asset recovery).

2

These include control institutions, courts, ministries, public administrative institutions, public and semi-public companies and private sector and civil society.

3

The report documented multiple cases of illicit enrichment by customs officials.

4

In accordance with the EITI Standard, Cameroon’s MSG may request an extension of this timeframe, or request that Validation commences earlier than scheduled.

1

In its macroeconomic framework and debt sustainability analysis, the IMF includes the Treasury float and the other SONARA debts in these amounts, which brings total public and publicly guaranteed debt to 36.8 percent of GDP at end-September 2018.

1

The link to the IMF website below refers to an instrument used to calculate the grant component for a broad range of financial arrangements: http://www.imf.org/external/np/pdr/conc/calculator.

2

The calculation of concessionality reflects all aspects of the loan agreement, including the maturity, grace period, schedule of maturities, commitment fees, and management fees. The calculation of the concessionality of Islamic Development Bank (IsDB) loans will reflect the existing agreement between the IsDB and the IMF.

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Cover IMF Staff Country Reports
Cameroon: Third Review Under the Extended Credit Facility Arrangement and Requests for a Waiver of Nonobservance of a Performance Criterion and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2018: Issue 378
Publisher:
International Monetary Fund
ISBN:
9781484392003
ISSN:
1934-7685
Pages:
115
DOI:
https://doi.org/10.5089/9781484392003.002
Figure 1.

Cameroon: Real Developments, 2015–18
Figure 2.

Cameroon: Fiscal Developments, 2014–18
Text Figure 1.

Cameroon: Contributions to the Regional Adjustment, 2014–18
Figure 3.

Cameroon: External Sector Developments, 2012–18
Figure 4.

Cameroon: Monetary Developments, 2014–18
Figure 5.

Cameroon: Financial Sector Developments, 2012–18
Text Figure 2.

Cameroon: Cumulative Fiscal Adjustment, 2017–20 (Percent of GDP)
Text Figure 3.

Cameroon: Disbursement and Signing of Loans
Annex I. Figure 1.

Cameroon: Ailing Banks-Key Financial and Prudential Indicators 1/
Annex Figure 1.

Cameroon: Governance and Corruption 1/