Economic Performance Prior to the Covid-19 Pandemic

In a challenging environment marked by slowing global trade and growth, a difficult situation in the two Anglophone regions of the country and the intricacies encountered by the state-owned oil refinery SONARA, growth reached 3.9 percent in 2019 (against an initial projection of 3.7 percent) and was expected to remain in this territory over the medium term. Efforts were being made to further strengthen fiscal and external buffers and stabilize public debt through scaling up non-oil revenue, addressing the financial viability of SONARA and contributing to the regional efforts to repatriate export proceeds. The strength of the non-oil sector boded well with the need for greater economic resilience considering the volatile oil prices.

Impact of the Pandemic and Commodity Price Shocks

The effects of the Covid-19 outbreak outside Cameroon were already been felt before the disease reached the country as trade with main partners was disrupted through broken supply chains and lower external demand, reduced tourism and decreased remittances. On March 5^th, the first case of Covid-19 was found and the disease has spread considerably since. To halt the outbreak, the authorities have taken strong measures, including shutting borders and international flights—except for the import of consumer goods and essential products and equipment—closing schools, bars and restaurants; cancelling all public events, including the Soccer African Nations Championship; proscribing large gatherings; and restricting the movement of the population. Moreover, in coordination with, and support of, the World Health Organization, the authorities have elaborated a Covid-19 preparedness and response plan to investigate cases and respond swiftly, provide adequate care and medical supplies, ensure proper infection prevention and control, and raise public awareness. At the same time, Cameroon is harshly affected by the collapse in international oil prices although this economy is relatively diversified.

As a consequence of the dual shocks and ensued containment and mitigation measures, the Cameroonian economy is now projected to enter a recession this year, with real GDP expected to contract by 1.2 percent against growth of 3.8 percent projected at the time of the last ECF review. While the uncertainty associated with the disease pose a challenge to the projections on public finances, fiscal deficit is anticipated to widen dramatically on the back of a shortfall in domestic revenue equivalent to 1.3 percentage point of GDP in 2020 while total expenditures will increase significantly to accommodate most needed Covid-19-related outlays. This deterioration of public finances is expected despite efforts to intensify spending controls and reprioritize investment projects.

The resulting additional fiscal needs are estimated at 2.2 percent of GDP. On the external front, the additional BOP financing gap stemming from the wider current account deficit and decreased non-official capital inflows, will amount to 2.8 percent of GDP.

Policy Response and Request for Emergency Assistance

The authorities’ priority is to contain the spread of the pandemic and address its humanitarian and economic impact. Besides the preparedness and response plan mentioned above, fiscal measures will aim notably at enhancing existing social safety nets and providing support to the vulnerable segments of the population and affected businesses, including through a payment moratorium. At the same time, the authorities endeavor to adjust their policies to the oil price and pandemic shocks through a prudent fiscal stance as possible. They plan to alleviate the large revenue losses in 2020 through strengthening the tax and customs administrations. Actions in this regard include an expansion of online services and mobile payments for taxpayers, extended payment arrangements to affected enterprises, on-site monitoring, a simplification of clearance procedures for necessity goods, and scaling up collection in 2021 as the crisis wanes.

As regards monetary and macro-financial policies, the regional central bank BEAC has announced measures to prevent liquidity tensions, with a view to preserving financial stability while also safeguarding the external stability of the monetary union. These measures include the suspension of liquidity absorption operations; monetary policy easing with a reduction of the policy rate while narrowing the interest rate corridor; increased liquidity provision; and expansion of the set of private financial instruments accepted as collateral for central bank refinancing. The BEAC’s Monetary Policy Committee also recommended that the central bank reduce haircuts to instruments used for the latter operations and allow a one- year moratorium on repayments by members states to BEAC. The Committee also encouraged the continuity of financial services, including through ATMs, remote banking, and reduced fees. The regional supervisory body COBAC is closely monitoring the impact of the dual shock on the quality of portfolios and the profitability of financial institutions in CEMAC as borrowers face weaker repayment capacity. Moreover, COBAC has issued recommendations to financial institutions on prudent and transparent loan restructuring.

To support these efforts and help meet the urgent financing needs, the Cameroonian authorities are requesting a disbursement under the RCF in the amount equivalent to 60 percent of quota. They will comply strictly with the provisions on budgetary procedures and controls comprised in domestic laws on transparency, good governance and public finance management to ensure that these funds are used for their intended purposes of containing the Covid-19 and mitigating its economic and financial consequences.

Additional financing from the World Bank, the African Development Bank, France and the regional development bank BDEAC has been identified. Fund’s emergency assistance will also catalyze further financing to cover the remaining gap. In this vein, the Cameroonian authorities are already actively seeking such funding, including considering the G-20 moratorium on bilateral debt service in favor of some low-income countries. The authorities are also determined to maintain debt sustainability. To this end, they will pursue a financing strategy based on grants and concessional resources.

Conclusion

Cameroon’s utmost priority is to fight off the health crisis, its economic effects as well as the impact of the terms-of-trade shock. Going forward, the authorities remain strongly committed to the objectives of the ECF arrangement, which implementation they will resume forcefully as the pandemic abate while sustaining the economic recovery. They also look forward to continued engagement with the Fund beyond the current arrangement.

To support their immediate efforts against the dual shocks, the authorities count on the Executive Board to approve their requests for an emergency assistance under the RCF, an extension of the ongoing ECF and a rephasing of access under this arrangement.