Statement by Mr. Raghani, Executive Director for Cameroon, and Mr. N’Sonde, Senior Advisor to the Executive Director July 17, 2019

Fourth Review under the Extended Credit Facility Arrangement and Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon


Fourth Review under the Extended Credit Facility Arrangement and Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon

1. On behalf of our Cameroonian authorities, we would like to reiterate our appreciation to Staff, Management and the Executive Board for the continued support to Cameroon which has been playing a significant role in the implementation of the regional crisis exit strategy. The authorities remain committed to the regional objective of safeguarding internal and external stability through the strengthening of foreign reserves— as reiterated by the CEMAC Heads of State in their March 24th, 2019 meeting held in N’Djamena—as well as their national program towards sustained, inclusive growth and economic transformation.

2. Recent macroeconomic developments bode well for favorable prospects in Cameroon. The country’s performance under the Extended Credit Facility (ECF) arrangement remains satisfactory, despite a challenging domestic and external environment. Most quantitative performance criteria and indicative targets (ITs) under the Fourth Review have been met. The implementation of structural measures envisaged under the program is also proceeding with eight out of the eleven structural benchmarks (SBs) for December 2018 to May 2019 having been observed.

3. Going forward, the authorities are determined to pursue policies and reforms that are consistent with the program objectives. Against the backdrop of their accomplishments and commitment to the program, they request the completion of the Fourth Review under the ECF. They would also appreciate the Executive Board’s approval of their requests for waivers of nonobservance of PC and modification of PCs.

Recent Economic Developments and Program Performance

4. Real GDP growth picked up in 2018 to reach 4 percent from 3.5 percent in 2017, driven by greater-than-expected oil and gas production as well as continued robust activity in the non-oil sector. The acceleration of construction projects, notably under the Africa Cup of Nations (Coupe Africaine des Nations, CAN), the expansion in financial services and buoyant exports have carried much weight. In the meantime, inflation remained low at 1.1 percent on average in 2018, well below the CEMAC convergence threshold of 3 percent.

5. Regarding fiscal developments, consolidation has progressed, notably through the broadening of the tax base, actions to recover tax arrears, and customs VAT revenues. These helped exceed non-oil revenue projections. On the spending side, however, some overruns on capital expenditures took place by the end of the complementary period (end-February 2019). All in all, the overall fiscal deficit narrowed to 2.5 percent of GDP from 4.9 percent in 2017. The deficit was financed by domestic bank financing—exceeding the ceiling projected under the program—as well as a reduction in government deposits at the central bank.

6. As a result of swift project implementation and valuation adjustments, the public debt-to- GDP ratio grew to reach 39.3 percent at end-2018 from 37.6 percent in 2017. That said, the authorities highlight that new borrowing remained largely below program limits in 2018, including the continuous PC on new non-concessional (NC) external debt, the ceiling on disbursement of NC external debt under the program was not exceeded either, and the stock of contracted-but-undisbursed loans (SENDs) was reduced significantly to below 20 percent of GDP.

7. On the external front, the drop in agricultural production coupled with increased imports in energy products, have adversely affected the trade balance. Nevertheless, the regional central bank (BEAC)’s net foreign assets (NFA) have accumulated significantly at end- 2018 on the back of stricter enforcement of foreign exchange regulations which boosted the repatriation and surrender to BEAC of foreign currency assets. This helped meet the BEAC policy assurances and their stated objective on NFA at end-2018 in their 2018 Follow-up Letter of Support to the Recovery and Reform Programs Undertaken by CEMAC Member Countries.

8. In this context, program performance has improved. All but two quantitative PCs and four out of five ITs were met with significant margins, including the PCs on the non-oil primary fiscal balance, net domestic financing, non-concessional external debt, new non- concessional external debt contracted or guaranteed by the government, and floor on social spending. The continuous PC on the accumulation of new external payment arrears was breached only temporarily as the authorities planned to incorporate debt service due to a major creditor in the rescheduling package under discussion but they swiftly made full repayment of those arrears. The only missed PC relate to the ceiling on net BEAC financing of government was the result of difficulties in cash management.

9. On the structural front, program reforms are also progressing albeit delays often due to capacity constraints. Five SBs have been met by end May 2019, including those on training of commercial court judges to help resolve banking disputes; the state hydrocarbon public enterprise SNH data reconciliation; and the plan on SENDs disbursement. The missed SBs will be implemented in the context of next reviews.

Policy and Reform Priorities for 2019 and the Medium Term

10. Looking ahead, Cameroon will continue to contribute to the implementation of CEMAC regional strategy through fiscal consolidation and support to BEAC’ s efforts to enforce foreign exchange regulations, which will further build external reserves. While prospects are positive, the authorities will strive to mitigate downside risks by enhancing the economy’s resilience to external shocks, notably through stronger buffers, greater financial sector stability and development, and economic diversification.

11. As stated in their Supplementary MEFP, the authorities remain steadfast in implementing their program for the remainder of the arrangement period and will take all necessary steps to meet their commitments. They will notably (i) maintain fiscal consolidation and enhance the quality of adjustment by further broadening the non-oil revenue and reinforcing capital expenditure efficiency; (ii) bolster fiscal governance; (iii) preserve debt sustainability; (iv) strengthen financial sector stability; and (v) alleviate bottlenecks to private sector development.

Fiscal Policy and Reforms

12. The revised 2019 budget puts emphasis on rebalancing the composition of revenue and spending to account for difficulties in non-oil revenue mobilization in the first quarter of 2019 and on reprioritizing current expenditures to provision against fiscal risks stemming from energy subsidies, election-related spending and faster execution of foreign-financed investment to maintain the growth momentum. The government stands ready to take contingent measures in case fiscal risks came to materialize. These include potentially stronger controls and audits of taxpayers that are likely to underreport their income, further collection of tax arrears, increased enforcement of exemption rules, and additional efforts to reduce non-priority current expenditures.

13. Beyond 2019, the overall deficit will be further reduced to 1.5 percent of GDP through well-identified measures to: (i) broaden non-oil revenue, with actions in the areas of tax exemptions, VAT efficiency, and tax and customs administration reforms; (ii) streamline current spending; and (iii) enhance investment efficiency. In so doing, care will continue to be taken to preserve social spending. In this regard, efforts are also underway to better target subsidies to the poor and vulnerable populations, with the assistance of the World Bank. Challenges related to budget execution and cash management, notably the implementation of the State’s single treasury account, will also be addressed along the lines recommended by Staff and elaborated in the Supplementary MEFP.

Preserving Debt Sustainability

14. While public debt-to-GDP is projected to stabilize this year and decline thereafter, measures will be taken to improve debt sustainability. These include notably enhancing investment efficiency; prioritizing projects, including concessional ones, based on economic and social returns and in line with the country’s development program; implementing the SENDs disbursement plan; containing the pace of new non- concessional borrowing (a continuous PC under the program); and further strengthening of debt management. Collateralized borrowing will also be avoided while the national public debt committee (CNDP)’s procedures will be strengthened to improve the traction of its advice on all new borrowing. Regarding contingent liabilities, the government is stepping up the monitoring of public enterprises and improving their management through the implementation of the 2017 SOEs legal framework and plan to revise that for public-private partnerships (PPPs). All potential PPPs will be assessed by the CNDP.

Financial Sector Policies

15. Beside the training of commercial court judges, financial sector measures will encompass: (i) banks’ obligation to complete on-line collateral registration by end-July 2019; (ii) the government updating the non-performing loan (NPL) reduction plan with the Ministry of Justice and the Banking Association; and (iii) the finalization of laws to improve credit provision for adoption by the Parliament by end-August 2019 and the implementation of related decrees by year-end.

16. Actions will be pursued towards the resolution of the two troubled private banks. In this regard, the resolution plan containing a strict timeframe and minimizing costs for the State will be adopted by the government by end-October 2019 after submission to the banking commission, COBAC. Regarding the SME bank, the approval of its new business model elaborated with World Bank technical assistance is now expected by end- September 2019 following a study on SME financing needs.

Fostering Governance and a Conducive Business Environment

17. Cameroon has made progress in the World Bank’s 2019 Doing Business, notably in streamlining procedures, digitalizing business applications, reducing property registration costs, and facilitating contract enforcement. The authorities will build on these achievements to further improve the business climate, notably in the areas of tax payment digitalization, trade facilitation, and customs governance, with a view to bolstering access to finance and private investment.

18. The authorities also endeavor to increase compliance with the Extractive Industries Transparency Initiative (EITI) through corrective measures, notably a second EITI validation round by end-2019 to assess the country’s compliance with the initiative’s requirements. Actions are also ongoing to strengthen the AML/CFT framework, in collaboration with COBAC and the World Bank. The government will better leverage the framework to fight corruption, notably through greater assistance to the national body in charge of investigating financial crimes (Agence Nationale d’Investigation Financière, ANIF).


19. Our Cameroonian authorities have demonstrated strong resolve in implementing their policy and reform program in support of their development agenda and the regional strategy, amid challenging circumstances. The performance under the ECF has been broadly satisfactory and, going forward, the authorities remain fully committed to putting in place policies and reforms that are consistent with the program objectives. On their behalf, we would appreciate the Executive Board’s completion of the Fourth Review under the ECF and its approval of their requests for nonobservance and modification of performance criteria.

Cameroon: Fourth Review under the Extended Credit Facility Arrangement and Requests for Waivers of Nonobservance of Performance Criteria and Modification of Performance Criteria-Press Release; Staff Report; and Statement by the Executive Director for Cameroon
Author: International Monetary Fund. African Dept.