## cr18256 ## Source details **Canonical URL:** [cr18256](https://www.imf.org/-/media/files/publications/cr/2018/cr18256.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2018/cr18256.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2018/cr18256.pdf.json) --- ### Estimating the Fiscal Multipliers for Cameroon - Context and motivation: - Public investment averaged 5.1 percent of GDP over 2008–15, more than twice the 2000–07 average. - Real GDP growth averaged 4.4 percent per annum during 2008–15 (4.3 non-oil GDP growth), versus 3.1 percent previously (4.9 non-oil GDP growth). - Public debt rose from 10 percent of GDP after HIPC debt relief in 2009 to 33 percent of GDP in 2015; external debt accounts for 24.5 percent of GDP. - Objective: estimate fiscal multipliers for Cameroon separately for revenue, government consumption, and investment using quarterly data 1999 Q1–2015 Q4. - Model and data: - Quarterly fiscal revenue and expenditure data provided by the Ministry of Finance of Cameroon and seasonally adjusted. - Structural vector autoregressive (SVAR) with endogenous vector in order: capital expenditure, current expenditure, total government revenue, and real GDP; robustness checks include changing ordering and local projections. - Key quantitative results (cumulative multipliers; exact estimates reported): - Cumulative revenue multiplier: not statistically different from zero during the first three years; peaks at 0.37 after three years (medium-run). - Cumulative current expenditure multiplier: 1.97 (cumulative after 12 quarters). - Cumulative capital expenditure multiplier: 1.10 (cumulative after 12 quarters). - Implications and interpretation: - Small revenue multiplier may reflect low tax base and limited capacity to raise revenues. - Capital expenditure multiplier (1.10) is consistent with literature and slightly higher than SSA average. - Unusually high current expenditure multiplier (1.97) may reflect low productivity of public investment, delays in capital project implementation, import leakages of capital goods, and PIMA-identified efficiency gap (~50%). ### Box 1 — Tax Potential and Spending Efficiency - Tax potential: - Tax-to-GDP ratio averaged around 13 percent over the last 5 years, about 3 percent below the SSA average. - Cross-country evidence indicates countries with similar conditions can attain a tax-to-GDP ratio up to 21 percent. - Fund technical assistance identified up to 2½ percent of GDP of potential additional revenue gains through enhanced tax administration. - Spending efficiency: - Administrative costs burden current spending by 16 percent of total current expenditure and capital spending by 29 percent of total capital expenditure. - Only two thirds of investment spending contribute to the formation of the capital stock. - 2016 PIMA found an efficiency gap of 51 percent (SSA average gap 40 percent; elsewhere noted as 50%). - Baseline SVAR cumulative multipliers (Estimates and 90% CI by quarter): - Quarter 0: Revenue 0.08 (‐0.13, 0.25) | Current Expenditure 0.82 (0.53, 1.04) | Capital Expenditure 0.07 (‐0.32, 0.36) - Quarter 1: Revenue 0.09 (‐0.19, 0.28) | Current Expenditure 0.98 (0.63, 1.22) | Capital Expenditure 0.16 (‐0.28, 0.47) - Quarter 2: Revenue 0.11 (‐0.22, 0.33) | Current Expenditure 1.09 (0.69, 1.34) | Capital Expenditure 0.27 (‐0.22, 0.60) - Quarter 3: Revenue 0.13 (‐0.25, 0.38) | Current Expenditure 1.20 (0.76, 1.47) | Capital Expenditure 0.38 (‐0.17, 0.71) - Quarter 4: Revenue 0.15 (‐0.28, 0.43) | Current Expenditure 1.29 (0.81, 1.57) | Capital Expenditure 0.47 (‐0.12, 0.82) - Quarter 5: Revenue 0.18 (‐0.31, 0.48) | Current Expenditure 1.39 (0.87, 1.67) | Capital Expenditure 0.56 (‐0.09, 0.92) - Quarter 6: Revenue 0.21 (‐0.34, 0.53) | Current Expenditure 1.48 (0.92, 1.77) | Capital Expenditure 0.65 (‐0.06, 1.02) - Quarter 7: Revenue 0.23 (‐0.37, 0.58) | Current Expenditure 1.57 (0.97, 1.86) | Capital Expenditure 0.74 (‐0.03, 1.12) - Quarter 8: Revenue 0.26 (‐0.40, 0.63) | Current Expenditure 1.65 (1.02, 1.95) | Capital Expenditure 0.82 (‐0.02, 1.20) - Quarter 9: Revenue 0.29 (‐0.43, 0.68) | Current Expenditure 1.74 (1.07, 2.03) | Capital Expenditure 0.89 (‐0.003, 1.29) - Quarter 10: Revenue 0.32 (‐0.47, 0.73) | Current Expenditure 1.82 (1.11, 2.12) | Capital Expenditure 0.97 (0.004, 1.37) - Quarter 11: Revenue 0.34 (‐0.51, 0.78) | Current Expenditure 1.89 (1.14, 2.20) | Capital Expenditure 1.04 (0.01, 1.44) - Quarter 12: Revenue 0.37 (‐0.55, 0.82) | Current Expenditure 1.97 (1.18, 2.27) | Capital Expenditure 1.10 (0.00, 1.51) - Robustness: - Local projections find broadly similar multipliers; capital expenditure multiplier peaks at 1.2 six quarters after the shock. - Local projections estimate current expenditure shock may have non-significant impact on output (difference from SVAR). - Policy implications (from Box and chapter): - Revenue-based consolidation would be less harmful to growth in the medium term given near-zero revenue multiplier in short run and peak 0.37 after three years. - Fiscal consolidation should be biased toward increasing government revenue to limit negative growth impact while addressing rising debt. - Short-term rationalization of capital and current expenditure necessary as revenue measures take time. - Improve public investment efficiency to achieve greater productivity at lower spending and limit need for deep cuts in government consumption. - Strengthen and accelerate efforts to widen the tax base and increase domestic non-oil revenue. ### Social Spending and Fiscal Incidence (ECAM 4, 2014) - Overall social spending and composition: - Social assistance less than 0.1 percent of GDP (among the lowest in SSA). - In-kind transfers account for 70 percent of social protection instruments; fee waivers 20 percent. - Redistribution and impact: - Personal income taxes and cash transfers had almost no impact on poverty and inequality due to small size. - In-kind transfers (education and health) reduce national poverty by 5 percentage points at final income level and reduce Gini from 44 to 41. - Urban: poverty declines from 12 to 7 percent from consumable to final income. - Rural: poverty declines from 59 to 52 percent from consumable to final income. - Targeting and shares: - Bottom half: indirect transfers from energy subsidies represent 1.3 percent of disposable income; in-kind services 13.1 percent (education) and 4.1 percent (health). - Rural bottom half: education+health in-kind shares 18.7 percent of disposable income; urban 18.2 percent. - Bottom 5 deciles received ~55 percent of education in-kind transfers and 48 percent of health in-kind transfers. - Urban areas: richer households benefited more from in-kind transfers; rural areas: bottom 5 deciles received 70 percent of education transfers and 67 percent of health transfers. - Energy subsidies and VAT exemptions: - 2014: top 50 percent received around 78 percent of electricity subsidies, 96 percent of gasoline subsidies, and 67 percent of kerosene subsidies (national). - Fiscal cost of household energy subsidy programs: 1.1 percent of GDP; total electricity and fuel subsidies exceeded 2 percent of GDP in 2014. - Fiscal cost from VAT exemptions on fish, flour, milk, and rice: 0.2 percent of GDP; cost for all exemptions: 1.6 percent of GDP. - Eliminating all VAT exemptions would increase poverty by 1.4 percentage points and leave inequality almost unchanged (effective VAT rate 8.4 percent vs statutory 17.5 percent). - Simulations on transfers: - To reduce poverty from 37.5 to 15 percent: fiscal costs range between 2.3 to 3.9 percent of GDP. - To halve the poverty gap: fiscal cost around 3 percent of GDP (more than CFAF 65 000 per poor person). - Reallocating savings from eliminating exemptions or subsidies to targeted cash transfers can attenuate poverty increases and reduce inequality (detailed scenarios with collection-efficiency and transfer-reuse reported). - Recommendations: - Increase coverage of cash and near-cash transfers with better targeting. - Improve targeting of indirect transfers (VAT exemptions, energy subsidies) and eliminate inefficient exemptions/subsidies to create fiscal space. - Improve spending efficiency in education and health and re-target resources to poorer regions/households. - Complement expenditure reforms with revenue mobilization (non-oil revenue). ### Gender Gaps, Macroeconomic Effects, and Policy Priorities - Macroeconomic relevance: - Closing gender gaps could raise GDP per capita growth by ¼ percentage point if GII brought to SSA average; by more than 1 percentage point if brought to Asean5 or LAC5 averages. - Decomposition exercise: female legal equity contributed ½ percent of GDP points to the growth deficit with SSA; gender inequality contributed ¼ percentage point. - Labor market and earnings: - Male labor participation: from 80 to 82 percent (1990–2016); female labor participation: from 55 to 72 percent. - Women receive about 67 percent of men’s earnings for similar jobs; women earn 66 percent of estimated men’s income in PPP terms. - Female-to-male unemployment ratio: 1.4 in 2015; youth ratio 1.2. - Health and education: - Maternal mortality declined from 728 to 596 deaths per 100,000 live births (1990–2015); SSA average 474. - Births attended by skilled health personnel: 65 percent. - Fertility rate: 4.7 children per woman; unmet family planning: 24 percent of married women. - Education spending: 3 percent of GDP in 2015 (share of total spending on education declined from 14.6 to 12.5 percent between 2014 and 2016). - Regional disparity: education spending per student in Far North is 2.2 times lower than in the Littoral; Far North primary enrollment rate 65 percent. - Legal and institutional gaps: - New penal code (July 2016) improves some protections but civil code still sets legal marriage age at 15 for women vs 18 for men. - 2018 Women, Business and the Law notes regulations restricting women’s employment (permission requirements). - Policy recommendations: - Enact and operationalize legal and institutional reforms to remove discriminatory provisions and equalize marriage age. - Strengthen health spending effectiveness and regional allocation; increase primary health financing to reduce maternal mortality and unmet family planning. - Sustain and expand programs to increase female labor force participation in formal and higher-paying sectors, and enhance bargaining power. - Address regional disparities in education; target juvenile pregnancies and early marriage barriers. - Promote financial innovation and fintech to expand women’s access to accounts and formal credit. - Maintain and build political empowerment to increase representation in senior public positions. ### Financial Sector Risks, SOEs, and Banking System Vulnerabilities - Sovereign exposure and capital adequacy thresholds: - A sovereign default rate of 12.4 percent would bring the system-wide capital below the minimum requirement for Cameroonian debt. - If haircut on Cameroonian debt exceeds 65 percent, each of the 14 banks, except two, fail to respect capital adequacy ratio. - For non-Cameroon CEMAC sovereign defaults, a default rate of 15.2 percent is the threshold that will bring system-wide capital below the minimum requirement. - Government borrowing and crowding out: - Large government borrowing between 2014 and 2017 accompanied by a 3 percentage points decline in the share of private sector credit to total credits. - Credits to SMEs declined by 47 percent in 2017; SMEs’ share of total private sector credit fell by 10 percentage points between 2014 and 2017. - Implementation of the Treasury Single Account (TSA) could remove low-cost deposits and complicate liquidity for 10 of 14 banks; authorities favor gradual implementation. - SOEs deterioration and contingent liabilities: - 8 of the 12 SOEs experienced net losses in 2016; two had negative capital (including SONARA). - SOEs’ value added ratio to GDP declined by more than half between 2011 and 2016 due to a sales contraction of 35 percent and a wage bill increase of 29 percent. - SOEs’ arrears almost doubled since 2013 to reach 3.4 percent of GDP (1.8 percent of GDP in 2013); SONARA accounts for 53 percent of SOE arrears and CAMTEL 13 percent. - Total contingent liabilities (total debt plus non-tax arrears) averaged 9.4 percent of GDP between 2014–16; short-term contingent liabilities about 6.5 percent of GDP (57 percent held by SONARA). - After SOEs’ own funds, contingent liabilities remain above 7.3 percent of GDP at end-2016. - Direct SOE-bank nexus and stress outcomes (selected numbers reported in text): - Ratio of total SOE deposits to banks’ assets: 1.4 percent (end-2017). - Ratio of total SOE credits to banks’ assets: 2.3 percent (end-2017). - Short-term instruments dominate SOE deposits and credits (90 percent of sight deposits; 73.4 percent of short-term debt). - Reported counts from bank-level stress outcomes: Positive net exposure to the 12 SOEs: 108; to SONARA: 56; Liquidity Ratio not respecting (baseline): 35; Liquidity Ratio not respecting after 12 SOEs or SONARA withdraw deposits: 47; Capital Adequacy Ratio not respecting (baseline): 33; after 12 SOEs default: 87; after SONARA defaults: 76; after SONARA defaults on net exposure: 66; Large exposure to a single borrower (45 percent of capital): 22. - Among 6 banks with net positive exposure to SONARA: one bank has negative capital; three banks will fail to meet minimum capital requirement if SONARA defaults; two banks will lose 85 percent and 50 percent of their respective excess capital. - External and regional exposures: - Cameroonian banks’ exposure to other CEMAC countries increased from 5 to 8 percent of total assets between 2015 and 2017; 57.5 percent of that exposure toward Chad and Congo. - Stress scenario: all banks would fail to respect minimum capital requirement if CEMAC countries (excluding Cameroon) defaulted, except for 3 banks not exposed. - Regulatory and market developments: - COBAC non-zero risk weight rules raised Cameroon’s sovereign risk weight to 85 percent due to non-compliance with arrears and fiscal deficit criteria; COBAC allows derogation for up to three years for countries with an IMF program (October 2017). - Policy rate increased by 50 basis point to 2.95 percent in March 2017; 3-month T-bill rate rose from 2.85 to 3.52 percent between January and December 2017. - Unresolved ailing banks create contingent liabilities estimated at 0.7 percent of GDP; nationalization and transfer of impaired loans generated a 0.3 percent of GDP long-term government bond. - Stress test results: - System-wide RWA would decline by 4.4 percent following a 25 percent haircut on Cameroonian government debt. - RWA would decline by 3.5 percent due to a 25 percent haircut on other CEMAC countries’ debt. - RWA would decline by 2.7 percent due to full default on SONARA. - Banks remain vulnerable to increased NPLs from worsening economic conditions and fiscal stress. ### Risks from MFIs, Mobile Banking, and Tontines (Njangui) - Bank–MFI interdependence: - MFIs place bulk of deposits in commercial banks; banks provide credits to MFIs, creating strong interdependence. - Largest MFI with 25 percent market share authorized to operate as a bank. - MFIs suffer from weak capacity and governance, lax supervision, large related-party exposure, and high credit risk. - Interdependence amplifies systemic risk as MFIs lose market share to mobile money and their balance sheets weaken. - Mobile financial services: - Mobile money penetration increased from 8 to 29 percent of the adult population (other reported figures: 9 percent in 2012 to 28 percent in 2016; accounts reached 6.4 million with half operational in 2017). - Volume of mobile money transactions increased from CFAF 7.5 billion to CFAF 3,447 billion in 2012–17 (alternate estimate CFAF 3.5 trillion in 2017). - Rapid mobile expansion requires security controls and regulatory measures to preserve financial stability and limit fraud, money laundering, and terrorism financing. - Tontines (Njangui): - Traditional group saving/credit mechanisms; instruments include periodic contributions, savings and loans with interest rates around 3–5 percent per month (36–60 percent annually), and solidarity funds. - Tontines’ funds often transit through bank/MFI accounts held by group leaders; mobile money and platforms like i-Djangui (since 2016) facilitate transactions and formalization. - MFIs represented 15 percent of total bank assets and served about 11 percent of the adult population at end-2016; loans in arrears ~¼ of total loans in MFI sector. - Mobile money transactions estimated at CFAF 3.5 trillion (17.5 of GDP) in 2017 up from 0.3 trillion in 2016. - Mobile money regulatory caps: CFAF 3 million per day; CFAF 5 million a week; CFAF 10 million a month. - Only 5 out of 14 banks use mobile banking; MFIs not yet authorized to use it; government approval of two mobile money licenses in early-2018 will bring third mobile operator and extend service to two additional banks. - Policy implications: - Implement regulatory framework for mobile financial services that preserves financial stability and limits fraud, money laundering, and terrorism financing. - Strengthen supervision and governance of MFIs; closely monitor bank–MFI nexus to mitigate contagion risk. - Leverage mobile platforms to channel informal tontine activity into formal sector while addressing governance weaknesses of graduating tontines. *Source: cr18256.* ### 1. Tax Potential and S ### ESTIMATING THE FISCAL MULTIPLIERS FOR CAMEROON ### A. Introduction - Cameroon increased public investment to address a large infrastructure gap; closing it to the level of middle-income peers had the potential to increase growth by 3.3 percentage points (Dominguez-Torres and Foster, 2011; IMF, 2014). - Government launched Vision 2035 in 2009 to reach emerging market status via large public investments. - Public investment averaged 5.1 percent of GDP over 2008–15, more than twice the 2000–07 average. - Real GDP growth averaged 4.4 percent per annum during 2008–15 (4.3 non-oil GDP growth), versus 3.1 percent previously (4.9 non-oil GDP growth). - Population growth has been around 3 percent a year. - Public debt rose from 10 percent of GDP after HIPC debt relief in 2009 to 33 percent of GDP in 2015; external debt accounts for 24.5 percent of GDP (including foreign denominated debt and intra-CEMAC debt). - The rapid shrinking of fiscal space amid commodity price shocks has highlighted the need to rationalize spending while creating an environment for higher growth. - Objective: estimate fiscal multipliers for Cameroon using a novel long quarterly dataset, separately for revenue, government consumption, and investment. ### B. Fiscal Multipliers: Theory, Model and Estimation - Theoretical channels: - Neoclassical: taxes create negative wealth effects causing increased labor supply and lower real wages; government spending funded by future taxes can raise current output via intertemporal substitution of labor. - New Keynesian: government spending raises aggregate demand; multiplier size depends on marginal propensity to consume. - Determinants of multiplier size: - Larger multipliers associated with more industrialized economies, lower debt, fixed/pegged exchange rates, and higher investment efficiency. - Evidence on openness is mixed. - Multipliers may be larger during periods of low or negative growth (some studies), though other evidence (e.g., US) suggests little difference by slack. - Policy-type dependence: - Spending multipliers generally larger than tax/revenue multipliers in many studies, though some emerging-market evidence reverses this. - In developing countries, government investment tends to have greater growth impact than consumption spending. - Tax composition matters: personal income taxes often have stronger negative effects than corporate or property taxes in middle/high-income countries; in low-income countries the relationship is ambiguous. - Empirical context and comparative estimates: - In developing economies, multipliers are often below one and can be negative; e.g., Ilzetzki et al. (2013) estimate a consumption multiplier of -0.4 and investment multiplier of 1.6 for low-income countries at three years. - Other studies: spending multipliers between 0.4 and 0.5 (Kraay), consumption multiplier 0.63 (Ilzetzki and Végh). - Sub-Saharan Africa average: a one percent rise in public investment increases output by about 0.7 percent medium-term; a one percent rise in consumption increases output by about 0.5 percent; rise in government revenues has no significant effect on output (IMF, 2017). - Country-specific examples: South Africa multipliers 0.4–0.9; Uganda 0.15 on impact; Nigeria 1 percent over two years and 5 percent over five years. - Data and model: - Quarterly fiscal revenue and expenditure data provided by the Ministry of Finance of Cameroon and seasonally adjusted. - Estimated a structural vector autoregressive (SVAR) model with endogenous vector: capital expenditure, current expenditure, total government revenue, and real GDP (in that order), using quarterly data 1999 Q1–2015 Q4. - Robustness: results robust to changing ordering of endogenous variables and to exclusion of exogenous variables. ### C. Estimation Results - Impulse response functions computed for real GDP following a one standard deviation shock to: - Revenue (panel a) - Capital expenditure (panel b) - Current expenditure (panel c) - Key quantitative findings (cumulative multipliers; exact values reported in text): - Cumulative revenue multiplier is not statistically different from zero at any point during the first three years following a shock. - In the medium-run the cumulative revenue multiplier peaks at 0.37 after three years. - Cumulative current expenditure multiplier: 1.97. - Cumulative capital expenditure multiplier: 1.10. - Interpretation and potential explanations: - Small revenue multiplier may reflect a low tax base and limited government capacity to raise revenues. - The capital expenditure multiplier (1.10) is consistent with literature estimates and slightly higher than the sub-Saharan African average. - The unusually high current expenditure multiplier (1.97) may reflect: - Low productivity of public investment in Cameroon. - Frequent delays in capital project implementation. - Leakages through imports of capital goods. - The 2016 Public Investment Management Assessment (PIMA) found Cameroon's relative efficiency gap with respect to the efficiency frontier is around 50%, larger than the SSA average efficiency gap of 40%. ### D. Implications for Fiscal Policy (findings relevant to calibration of consolidation) - Given the fiscal consolidation underway in the IMF-supported program, policymakers face trade-offs: - Need to rationalize spending to preserve fiscal sustainability as debt rose from 10 percent of GDP in 2009 to 33 percent of GDP in 2015. - Calibration of consolidation should consider differential multipliers: - Current expenditure shocks have larger cumulative GDP effects (multiplier 1.97) than capital expenditure shocks (multiplier 1.10). - Revenue increases have limited short-run impact on GDP (revenue multiplier not statistically different from zero in first three years; peaks at 0.37 after three years). - The evidence suggests prioritizing improvements in public investment efficiency (PIMA gap ~50%) to enhance growth payoff from capital spending and reduce leakage that may inflate current spending multipliers. *Prepared by Kadima Kalonji, Margaux MacDonald and Moussé Sow.* ### Box 1. Tax Potential and Spending Efficiency ### Box 1. Tax Potential and Spending Efficiency ### Tax potential - Cameroon’s tax-to-GDP ratio has averaged at around 13 percent over the last 5 years, about 3 percent below the SSA average. - A cross-country empirical study found that countries with similar macroeconomic conditions and institutions than Cameroon can attain a tax-to-GDP ratio of up to 21 percent. - Fund technical assistance has identified up to 2½ percent of GDP of potential additional revenue gains through enhanced tax administration efforts. ### Spending efficiency - IMF (IMF 2018) and World Bank (World Bank 2018) technical assistance findings: - Administrative costs burden current spending by 16 percent of total current expenditure. - Administrative costs burden capital spending by 29 percent of total capital expenditure. - Public investment is characterized by low efficiency: only two thirds of the investment spending contribute to the formation of the capital stock. - The 2016 PIMA found an efficiency gap of 51 percent (almost double the average gap in low-income and emerging market countries). ### Fiscal multipliers — baseline and robustness checks - Methodology highlights: - Structural vector autoregressive (SVAR) model with recursive (Cholesky) identification; quarterly data 1999 Q1–2015 Q4. - Main ordering: expenditure, revenue, and GDP. - Model estimated in levels with two lags. - Local projections robustness check finds broadly similar multiplier estimates to the SVAR. - The cumulative total revenue multiplier is significant for approximately the first year after the shock, but over the medium-term horizon becomes statistically insignificant. - The estimated capital expenditure fiscal multiplier is roughly equal to that of the SVAR model, peaking at 1.2 six quarters after the shock. - The main difference from the SVAR model is that the current expenditure shock is estimated to have a non-significant impact on output. - Baseline model: cumulative fiscal multipliers (Estimates and 90% CI by quarter) - Columns: Revenue Shock | Current Expenditure Shock | Capital Expenditure Shock - Quarter 0: 0.08 (‐0.13, 0.25) | 0.82 (0.53, 1.04) | 0.07 (‐0.32, 0.36) - Quarter 1: 0.09 (‐0.19, 0.28) | 0.98 (0.63, 1.22) | 0.16 (‐0.28, 0.47) - Quarter 2: 0.11 (‐0.22, 0.33) | 1.09 (0.69, 1.34) | 0.27 (‐0.22, 0.60) - Quarter 3: 0.13 (‐0.25, 0.38) | 1.20 (0.76, 1.47) | 0.38 (‐0.17, 0.71) - Quarter 4: 0.15 (‐0.28, 0.43) | 1.29 (0.81, 1.57) | 0.47 (‐0.12, 0.82) - Quarter 5: 0.18 (‐0.31, 0.48) | 1.39 (0.87, 1.67) | 0.56 (‐0.09, 0.92) - Quarter 6: 0.21 (‐0.34, 0.53) | 1.48 (0.92, 1.77) | 0.65 (‐0.06, 1.02) - Quarter 7: 0.23 (‐0.37, 0.58) | 1.57 (0.97, 1.86) | 0.74 (‐0.03, 1.12) - Quarter 8: 0.26 (‐0.40, 0.63) | 1.65 (1.02, 1.95) | 0.82 (‐0.02, 1.20) - Quarter 9: 0.29 (‐0.43, 0.68) | 1.74 (1.07, 2.03) | 0.89 (‐0.003, 1.29) - Quarter 10: 0.32 (‐0.47, 0.73) | 1.82 (1.11, 2.12) | 0.97 (0.004, 1.37) - Quarter 11: 0.34 (‐0.51, 0.78) | 1.89 (1.14, 2.20) | 1.04 (0.01, 1.44) - Quarter 12: 0.37 (‐0.55, 0.82) | 1.97 (1.18, 2.27) | 1.10 (0.00, 1.51) ### Conclusion and policy implications - Key analytic conclusions: - Revenue and capital expenditure multipliers in Cameroon are small and comparable to those of other sub-Saharan African and low-income countries. - The revenue multiplier is close to nil, implying revenue-based fiscal consolidation would be less harmful to growth in the medium term. - Compared to peers in sub-Saharan Africa, Cameroon’s revenue multiplier is smaller and its tax burden is lower relative to the regional average. - Government expenditure can more significantly affect output in the medium term, although the consumption multiplier is unexpectedly much higher than the investment one. - The capital expenditure multiplier in Cameroon is comparable to that of other SSA countries, but the current expenditure multiplier is much higher. - Policy recommendations: - Fiscal consolidation should be biased towards increasing government revenue to limit negative growth impact while addressing rapidly increasing public debt and rebuilding fiscal and external buffers. - In the short-term, rationalizing capital and current expenditure will be necessary as revenue measures take time to yield results. - Improve the efficiency of public investment to allow for greater productivity at lower levels of spending and to limit the need for deep cuts in government consumption while preserving current spending in social sectors. - Strengthen and accelerate efforts to widen the tax base and increase domestic revenue to better align it with potential. *Source: IMF staff analysis in "Box 1. Tax Potential and Spending Efficiency" (cr18256).* ### 6. Social spending is low compared to regional peers. Although spending on education, health ### 6. Social spending is low compared to regional peers. Although spending on education, health and social protection represents the largest share of the budget ### Data and Methodology - Fiscal incidence analysis constructs: - Market income (pre-fiscal income). - Disposable income: market income + cash and near cash transfers − direct personal income taxes and social contributions. - Consumable income: disposable income + indirect subsidies − indirect taxes. - Final income: consumable income + in-kind transfers (education and health) − copayments/user fees. - Microeconomic household data: 4th Cameroon Household Survey (Enquête Camerounaise Auprès des Ménages, ECAM 4, 2014). - Supply and use table used to estimate effective rates of indirect taxes. - Direct and indirect taxes and public transfer information from detailed 2014 fiscal data. ### Main Findings - Overall social spending and composition - Social assistance is among the lowest in SSA at less than 0.1 percent of GDP. - Pensions, social assistance (90 percent health-related) and subsidies represent the bulk of social protection; labor market programs are small. - Main policy instruments are in-kind transfers (70 percent) and fee waivers (20 percent), which are less efficient than cash transfers. - Redistribution effects - Personal income taxes and cash and near cash transfer programs had almost no impact on poverty and inequality due to small size. - Indirect transfers (VAT exemptions and energy subsidies) had very small impact; poverty slightly increased at the consumable income level because indirect tax burden exceeded indirect transfers. - Impact of in-kind transfers - At final income level, poverty declined by 5 percentage points nationally. - Gini coefficient declined from 44 to 41 (national). - Urban: poverty declined from 12 to 7 percent from consumable to final income. - Rural: poverty declined from 59 to 52 percent from consumable to final income. - Gini: rural declined from 39 to 36; urban declined from 36 to 35. - Distributional shares and net cash position - Indirect transfers from energy subsidies accounted for 1.3 percent of total disposable income for the bottom half of the population. - In-kind services represented 13.1 percent from education and 4.1 percent from health for the bottom half. - In rural areas these in-kind shares were 18.7 percent of disposable income (education+health), versus 18.2 percent in urban areas. - Net cash position deteriorated by 6.1 percent for the bottom half of the urban population and 5.2 percent for the rural bottom half. - Energy subsidies are captured disproportionately by richer households - 2014: top 50 percent received around 78 percent of electricity subsidies, 96 percent of gasoline subsidies, and 67 percent of kerosene subsidies (national). - Urban: 86 percent electricity, 96 percent gasoline, 86 percent kerosene. - Rural: 93 percent of total gasoline subsidies went to the wealthiest 50 percent. - Rural households received 34 percent of total electricity subsidies, 13 percent of total gasoline subsidies, and 61 percent of total kerosene subsidies. - In-kind transfer targeting - The bottom 5 income deciles received around 55 percent of in-kind transfers in education and 48 percent in health (total). - Urban areas received 35 percent of total spending; in urban areas richer households benefited more from in-kind transfers. - Rural areas: bottom 5 deciles received 70 percent of education transfers and 67 percent of health transfers. ### Policy Simulations and Fiscal Costs - Expanding cash/near cash transfer coverage - To reduce poverty from 37.5 to 15 percent: fiscal costs range between 2.3 to 3.9 percent of GDP (targeted programs more cost-effective). - To halve the poverty gap: fiscal cost around 3 percent of GDP, equivalent to more than CFAF 65 000 per poor person. - Current total social assistance spending: less than 0.1 percent of GDP. - Current total (current) spending: around 12 percent of GDP. - VAT exemptions and fiscal costs - Fiscal cost from VAT exemptions on fish, flour, milk, and rice: 0.2 percent of GDP. - Fiscal cost for all exemptions: 1.6 percent of GDP. - Eliminating all VAT exemptions would increase poverty by 1.4 percentage points and leave inequality almost unchanged (effective VAT rate 8.4 percent vs statutory 17.5 percent). - If collection efficiency increased to 15 percent and 30 percent, poverty could worsen by 5 and 9 percentage points respectively. - If savings from eliminating exemptions are transferred to the poor: - Poverty impact could be reduced from 0.5 to 0.2 with 15 percent efficiency improvement. - Poverty impact could change from 0.9 to -4.4 percentage points with 30 percent efficiency improvement. - Rural: poverty reduced by .6 percentage points even with transfers and 30 percent efficiency improvement; Gini coefficient reduction of 9.6. - Energy subsidies - Fiscal cost for household energy subsidy programs: 1.1 percent of GDP. - Total electricity and fuel subsidies reached more than 2 percent of GDP in 2014. - Eliminating energy subsidies alone would raise poverty slightly by 0.9 percentage point and leave inequality largely unchanged. - Redirecting savings to cash transfers for the poor: - Poverty increases can be attenuated and inequality would decline. - Rural: poverty could increase by 0.9 percentage points if subsidies removed but Gini coefficient could decrease by 2.2 when savings are reallocated to the poor. - Urban impacts smaller. ### Efficiency and Targeting of Education and Health Spending - In-kind transfers in education and health are effective in reducing poverty and inequality. - Efficiency improvements that redirect educational resources toward needy regions/households and decentralize health spending to primary care in poorer regions would enhance redistributive impact without additional resources. - Further augmentation of education and health spending should enhance poverty and inequality reduction, especially if better targeted. ### Conclusions and Policy Recommendations - Major reform opportunities: - Increase coverage of cash and near cash transfers with better targeting. - Improve targeting of indirect transfers (VAT exemptions and energy subsidies) to make them more progressive. - Eliminate inefficient VAT exemptions and energy subsidies to create fiscal space for targeted transfers. - Improve spending efficiency in education and health and focus resources on poorer regions and households. - Complement expenditure reforms with revenue mobilization (non-oil revenue) to finance increased direct transfers and in-kind services. - Price liberalization in sectors such as electricity and fuel to reduce market distortions, over-consumption, and subsidy spending. - Distributional strategy: - Use a mix of revenue and expenditure reforms to balance fiscal costs and gains in poverty and inequality reduction. - Tailor policy mixes to reduce the urban-rural poverty gap; addressing the large disparity between urban and rural groups is essential for reducing national inequality. *International Monetary Fund — Cameroon: fiscal incidence analysis (ECAM 4, 2014; IMF staff calculations).* ### 1. The government’s growth and employment strategy recognizes the promotion of gender ### cr18256 - 1. The government’s growth and employment strategy recognizes the promotion of gender ### Key findings: framing, macroeconomic relevance, and scope - The government’s 2035 Vision of Emerging Cameroon states that "Cameroon, an emerging country, builds on the principles of good governance where women and men can enjoy the same rights and participate equally and in an equitable manner to the development”. - Rapid reduction of Cameroon’s Gender Inequality Index (GII) in recent years to just above the Sub-Saharan Africa (SSA) average. - Staff estimates on macroeconomic gains from closing gender gaps: - GDP per capita growth could increase by ¼ percentage point if Cameroon’s GII score was brought down to the SSA average. - GDP per capita growth could increase to more than 1 percentage point if Cameroon’s GII score was brought to the average of the 5-main emerging Asian countries (Indonesia, Malaysia, Thailand, Philippines and Vietnam) or the 5 leading Latin American economies (Brazil, Chile, Colombia, Mexico and Peru). - Chapter purpose: map and benchmark key gender gaps in opportunities and outcomes, assess macroeconomic cost of gender gaps, and outline policy considerations aimed at ensuring a level playing field. ### Gender inequality: overview and indices - Cameroon’s GII improved markedly between 1995 and 2015, nearly catching up with the SSA average; significant improvements in 2010–12 and further decline in 2013. - 2017 Global Gender Gap Index (GGGI) ranking: Cameroon above CEMAC and WAEMU countries and about average for SSA on overall GGGI and sub-indexes. - OECD Social Institutions and Gender Index (SIGI) highlights needs to improve legal and institutional systems especially regarding non-land assets ownership and violence against women, and ensure application of statutory laws. ### Women’s economic empowerment and labor market outcomes - Labor participation (1990–2016): - Male labor participation: from 80 to 82 percent. - Female labor participation: from 55 to 72 percent. - Women’s earnings and income: - Women receive about 67 percent of men’s earning for similar jobs. - Women earn only 66 percent of the estimated men’s income in PPP dollar terms. - Contributing factors to earnings gap: - Weak bargaining power for better pay. - Concentration of women in low-skilled and low-paying jobs. - High women’s unemployment: female-to-male unemployment ratio of 1.4 in 2015 (UNDP); ratio declines to 1.2 among youths. - Enterprise-level indicators (2016 and most recent): - Larger share of women owners of business, full-time workers, and among top managers compared to peers, except for Rwanda. - Political representation and public-sector positions: - Parliament: 31 percent women in 2017 (13.9 percent in 2010). - Senate: 20 percent (26 percent with the newly elected senate). - Town councils: 16 percent female representation. - Mayors: 8 percent female. - Cabinet positions: 17 percent women. - Regional governors: no women. - Legal professionals: women represent a ¼ of judges, bailiffs, notaries, and lawyers. ### Health outcomes and health spending - Maternal mortality rate (1990–2015): declined from 728 to 596 deaths per 100,000 live births; remains above SSA average (474). - Births attended by skilled health personnel: 65 percent. - HIV prevalence rate for women: 5.6 percent in 2016, almost twice that of men. - Fertility and family planning: - Fertility rate: 4.7 children per women. - Unmet family planning: 24 percent of married women. - Violence and early marriage: - 51 percent of women report having experienced physical or sexual violence in their lifetime (OECD). - Early marriage: 13.4 percent of girls married before age 15; 38.4 percent before age 18. - Health spending and inefficiencies: - Health spending: 1.2 percent of GDP in 2015 (below SSA average of 2.3 percent of GDP). - Wages account for about 1/5 of total health budget. - In 2016, 44 percent of non-wage budgets was spent at the central level (up from 22 percent in 2014). - Primary health facilities receive less than 50 percent of their intended funds (World Bank, Public Expenditure Review 2018). - Out-of-pocket health spending is higher in Cameroon relative to peers. - Addressing inefficiencies in health spending could bring gains in health-adjusted life expectancy of little more than 4 years, the 7th largest in SSA (Grigoli and Kapsoli (2013)). ### Education: access, disparities, and public finance - Policies: mandatory and free primary education; programs targeting vulnerable groups including girls; introduction of Master's Degree in Gender and Development; free primary schooling contributed to increased girl-to-boy enrollment ratios. - Education gender gaps: - Larger gender gap in primary and secondary education compared with peers; narrower gap in tertiary education. - Regional disparities: - Education spending per student in Far North is 2.2 times lower than in the Littoral. - Primary enrollment rate in Far North: 65 percent. - Female-to-male ratio in primary enrollment less than 80 percent in northern regions versus around 100 percent in the Littoral. - Public education spending: - Share of total spending on education declined from 14.6 to 12.5 percent between 2014 and 2016. - Education spending: 3 percent of GDP in 2015 compared to 7.3 percent in Senegal and 5.2 percent in Kenya. - Barriers to female education: poverty, juvenile pregnancies, early marriage. ### Financial inclusion and access to finance - Account ownership and gender gaps (2014 Global FINDEX): - Female account ownership: 10.2 percent (Cameroon) versus 26.2 percent for SSA countries. - Gender gap in account ownership: 4 percent in Cameroon versus 6.8 percent for average SSA. - Gender gap for borrowing from a financial institution: drops to 2.2 percent. - Patterns by socioeconomic groups: - Negative gender gap (women higher than men) in account ownership for: the poor (first two income quintiles), completed tertiary education, and those who received a salary in the last 12 months. - Women’s use of informal financial services is as high as men’s. - Financial innovation: - Proportion of women using a credit card, having a mobile account, and using a mobile phone to perform a transaction is larger compared to men in almost all socio-economic categories, indicating fintech’s beneficial role for women’s access to finance. ### Legal and institutional environment - International commitments: Cameroon signed CEDAW in 1994 and its Optional Protocol in 2005; signed the Maputo Protocol on the Rights of Women in Africa in 2012. - Domestic law and gaps: - Labor code and general statute of the civil service prohibit discrimination including on gender. - 2017 criminal code and 1981 civil code continue to include discriminatory provisions against women and do not fully protect women against domestic violence. - Legal marriage age: 15 for women compared to 18 for men. - 2018 Women, Business and the Law identifies regulations that restrict women’s employment (including requirements to obtain permission to get a job, apply for a passport, or obtain a national identity card). - Husbands can prevent wives from working for the household’s interest and have the right to administer, sell or mortgage shared marital properties without the wife’s consent. ### Policy considerations and implications - Existing policies and progress: - 2012 electoral code increased women’s representation in municipal, legislative and senatorial elections. - 2015 National Gender Policy (NGP) relies on Sustainable Development Goal no 5 and four pillars: (i) social protection and equitable access to social services, (ii) equal rights and opportunities in resource control, (iii) equal participation in development actions, (iv) institutionalization of gender in public/private affairs. - Progress includes amendments to the Criminal Code against gender discrimination and sexual harassment; free primary schooling; collective weddings to reduce vulnerabilities linked to unrecognized cohabitation. - Recommended focus areas implied by assessment: - Ensure level playing field through legal and institutional reforms addressing discriminatory provisions (civil and criminal codes) and unequal marriage age. - Strengthen health spending effectiveness and regional allocation to reduce maternal mortality, fertility, and unmet family planning. - Sustain and expand programs that increase female labor force participation in formal and better-paying sectors and strengthen women’s bargaining power. - Address regional disparities in education spending and enrollment; target barriers such as poverty, juvenile pregnancies, and early marriage. - Promote financial innovation and fintech to expand women’s access to accounts and formal credit. - Maintain and build on political empowerment gains to increase representation in senior public positions, including regional governance. *Prepared by Mamadou Barry and Du Prince Tchakote; IMF staff calculations and referenced data as presented in the chapter.* ### 15. In addition, customs and traditions weigh heavily against implementing and improving ### cr18256 - 15. In addition, customs and traditions weigh heavily against implementing and improving ### Social, cultural, and legal barriers to gender equality - Cameroon is described as a socially, culturally and religiously diverse country with two legal systems (English common law and the French civil law). - In rural areas, customary laws are often used to settle domestic and property disputes which often tend to deprive women from their rights. - Inheritance practices: "most cultures in Cameroon tend to provide a larger share to men, despite the legal provisions that grant equal right to women and men." - Prevalence of gender based violence is high: "51 percent of surveyed women" (Time, 2014), often unreported because it "remains widely and socially accepted." ### Key gender indicators (Cameroon and comparators; 2016 and most recent available data) - Human development index ranking: Cameroon 153, Kenya 146, Rwanda 159, Senegal 162, Gabon 109 - Population growth: Cameroon 2.6, Kenya 2.5, Rwanda 2.4, Senegal 2.8, Gabon 2.3 - Fertility rate (number of child per women): Cameroon 4.71, Kenya 3.85, Rwanda 3.89, Senegal 4.77, Gabon 4.43 - Women's unmet demand for family planning: Cameroon 24, Kenya 26, Rwanda 21, Senegal 30, Gabon 26.5 - Child married by 15: Cameroon 13.4, Kenya 6.2, Rwanda 0.8, Senegal 12, Gabon 5.6 - Child married by 18: Cameroon 38.4, Kenya 26.4, Rwanda 8.1, Senegal 32.9, Gabon 21.9 - Parity of parental rights in marriage: Cameroon yes/part, Kenya part, Rwanda part, Senegal no, Gabon no - Parity of parental rights after divorce: Cameroon part/yes, Kenya yes, Rwanda yes, Senegal part, Gabon no - Female-male labor participation rate: Cameroon 88, Kenya 86, Rwanda 105, Senegal 64, Gabon 72 - Labor participation female: Cameroon 72.1, Kenya 62.9, Rwanda 88.4, Senegal 33.6, Gabon 42.9 - Labor participation male: Cameroon 82, Kenya 72.7, Rwanda 84.1, Senegal 52.8, Gabon 59.4 - Firms with women top managers (female/male): Cameroon 30, Kenya 15, Rwanda 25, Senegal 16 - Wage equality for similar work (female/male): Cameroon 67, Kenya 68, Rwanda 86, Senegal 69 - Women access to land: Cameroon part, Kenya part, Rwanda part, Senegal part, Gabon part - Women access to non‐land assets: Cameroon no part, Kenya part, Rwanda part, Senegal part - Own account worker ratio (female/male): Cameroon 128, Kenya ... , Rwanda 111, Senegal 115 - Female employment in agriculture: Cameroon 62, Kenya 75, Rwanda 75, Senegal 57, Gabon 27 - Unemployment share (female/male): Cameroon 142, Kenya 135, Rwanda 106, Senegal 173, Gabon 200 - Female, male literacy rate: Cameroon 83, Kenya 88, Rwanda 89, Senegal 64, Gabon 95 - Female, male net primary education enrollment rate: Cameroon 90, Kenya 104, Rwanda 102, Senegal 110, Gabon 97 - Female, male net secondary education enrollment rate: Cameroon 88, Kenya 94, Rwanda 116, Senegal 77 - Female, male tertiary gross enrollment ratio: Cameroon 77, Kenya 70, Rwanda 76, Senegal 60 - Maternal mortality rate: Cameroon 596, Kenya 510, Rwanda 290, Senegal 315, Gabon 291 - Adolescent fertility rate (per 1000 women aged 15-19): Cameroon 104.6, Kenya 90.9, Rwanda 26.3, Senegal 78.6, Gabon 99.9 - Prevalence of gender violence in lifetime: Cameroon 51, Kenya 41, Rwanda 56, Senegal ..., Gabon 54 - Birth attended by skilled health personnel: Cameroon 64.7, Kenya 61.8, Rwanda 90.7, Gabon 89.3 - Women in parliament: Cameroon 31.1, Kenya 19.4, Rwanda 61.3, Senegal 41.8, Gabon 14.2 - Women in ministerial positions: Cameroon 17.1, Kenya 22.7, Rwanda 47.4, Senegal 20 ### Macroeconomic impact of gender gaps - "Economic gains from further reducing gender inequality could be significant." - A decomposition exercise using IMF (2015) estimates across 115 economies shows: - "female legal equity contributed to ½ percent of GDP points to the growth deficit with SSA" - "the gender inequality contributed to ¼ percentage point." - Compared to Asean5 or LAC5 these contributions could reach "1¼ percentage point." - Gender gaps and access to finance: - Narrowing the gender gap in financial inclusion by "10 percentage points could decrease gender gap in labor participation rates by 2 to 3 percentage points." - Aslan et al (2017) found gender gaps in access to financial services are positively and significantly related to income inequality. ### Box: The New Penal Code and Women’s Empowerment - New penal code adopted in July 2016 replaced the 1967 version; public opinion recognizes improvement. - Article 361: "equal criminalization and lifting of discrimination regarding adultery" — "both men and women are subject to the same sentence." - Polygamy remains the default matrimonial regime and "adversely differentiate women against men." - The new penal code punishes instigators of early and forced marriages, "recognized as such for every boy and girl under 18." - Civil code under revision still "differentiates the legal age of marriage at 15 for girls and 18 for boys." - The new criminal code now punishes: genital mutilation, sexual harassment, preventing girl from attending school, eviction from the matrimonial home and excessive demand for bride-price for marrying a girl. ### Policy recommendations (summary) - Pursue efforts to translate approved international treaties that promote gender equality into domestic laws and issue implementation decrees to operationalize existing laws. - "Widespread implementation of the new penal code will ensure better protection of women against violence and harassment." - Implement training (to judges, local officials, and traditional leaders) and awareness campaigns on legal rights and regulation changes, especially in rural areas, to support shift from customary laws to statutory laws. - Move to more gender responsive budgets while increasing budgetary resources and allocations to the education and health sectors. - Implement the 2017 social protection strategy combined with scaling-up of the cash transfers project and performance based financing in health. - Increase education and health spending with allocation across regions that reflects funding needs and "a higher share of spending allocated to primary education and health care." - Encourage women’s entrepreneurship and access to formal work, eliminate remaining legal barriers to women’s access to property, and enhance women’s education to improve national revenue through better access to well-paid jobs, business investment, and access to credit. - Continue to support increased women’s political participation. - "The 2018 senatorial elections resulted in more elected women." - Maintain the trend in legislative and municipal elections scheduled later in the year to help accelerate legal and institutional reforms. - Promote women at cabinet level and upper managerial positions in the civil service. *Source: cr18256 - 15. In addition, customs and traditions weigh heavily against implementing and improving* ### 12.4 percent on Cameroonian debt, the banking system’s capital adequacy ratio will fall below the ### 12.4 percent on Cameroonian debt, the banking system’s capital adequacy ratio will fall below the minimum requirement ### Fiscal risks, sovereign exposure, and bank soundness - A sovereign default rate of 12.4 percent is identified as "the default rate that will bring the system-wide capital below the minimum requirement." - If the haircut on Cameroonian debt exceeds 65 percent, each of the 14 banks, except two, fail to respect the capital adequacy ratio. - Application of COBAC non-zero risk weights (introduced in 2017) on debt issued by CEMAC countries not respecting convergence criteria: - 20 percent for missing the fiscal balance criterion, - 65 percent for missing the arrears criterion, - 10 percent for missing the debt ceiling criterion, - 5 percent for missing the inflation criterion. - For non-Cameroon CEMAC sovereign defaults, a default rate of 15.2 percent is the threshold "that will bring the system-wide capital below the minimum requirement." ### Government borrowing, crowding out, and Treasury Single Account (TSA) risks - Large government borrowing between 2014 and 2017 accompanied by: - a 3 percentage points decline in the share of private sector credit to total credits. - Credits to SMEs declined by 47 percent in 2017. - A reduction of SMEs’ share of total private sector credit of 10 percentage points between 2014 and 2017. - Implementation of the TSA could adversely impact banks: - Transfer of government deposits to the TSA will remove virtually no-cost resources that banks built business models around. - Liquidity conditions would be complicated for 10 of the 14 banks. - Authorities favor a gradual approach: census of all accounts, closing dormant accounts, and preparing a calendar for gradually closing existing accounts. ### Government arrears and indirect credit risks - Government arrears and payment delays have been associated with higher bank loans in arrears: - Loans in arrears increased from 13 to 15 percent in the first quarter of 2018 following the large end-2017 accumulation of expenditures float. - Banks’ mitigation measures included restructuring overdue loans, limiting new loans to SMEs, and providing smaller loan amounts. - Authorities conducted an audit of the end-2016 stock of domestic arrears at end-2017 and prepared a plan to gradually repay them. ### State-Owned Enterprises (SOEs): financial deterioration and contingent liabilities - SOEs play a key role despite value added of less than 1 percent of GDP and account for about one sixth of total public jobs. - SOEs’ financial deterioration and costs: - 8 of the 12 SOEs experienced net losses in 2016, including two with negative capital (including SONARA). - SOEs’ value added ratio to GDP declined by more than half between 2011 and 2016 owing to a sales contraction of 35 percent and a wage bill increase of 29 percent. - Cumulative overall net profit of the SOE sector has been negative since 2012. - SOEs’ arrears and composition: - SOEs’ arrears almost doubled since 2013 to reach 3.4 percent of GDP (1.8 percent of GDP in 2013), driven by SONARA (53 percent) and CAMTEL (13 percent). - About two-thirds of these arrears are tax arrears. - Other categories of arrears of about 1 percent of GDP associated with supplier debt of about 2 percent of GDP could affect private sector balance sheets and lead to rising NPLs. - Contingent liabilities and exposure: - Total contingent liabilities (total debt plus non-tax arrears) averaged 9.4 percent of GDP between 2014–16. - Short-term contingent liabilities are about 6.5 percent of GDP (57 percent held by SONARA). - After accounting for SOEs’ own funds, contingent liabilities remain above 7.3 percent of GDP at end-2016. - SONARA accounts for 65 percent of SOEs’ deposits and 62 percent of SOEs’ credits and has 87.9 percent of its debt maturing within a year. ### Direct SOE-bank nexus and vulnerabilities - The 12 SOEs in the sample (representing about 90 percent of the 26 SOEs’ total capital and total debt) are net debtors: - Ratio of total SOE deposits to banks’ assets: 1.4 percent (end-2017). - Ratio of total SOE credits to banks’ assets: 2.3 percent (end-2017). - Short-term instruments dominate SOE deposits and credits (90 percent of sight deposits; 73.4 percent of short-term debt). - Bank-level impacts (selected outcomes from Table 4 and text): - Positive net exposure to the 12 SOEs: 108 (number reported). - Positive net exposure to SONARA: 56 (number reported). - Liquidity Ratio not respecting (baseline): 35 (number of banks). - Liquidity Ratio not respecting after the 12 SOEs withdraw all their deposits: 47 (number of banks). - Liquidity Ratio not respecting after SONARA withdraws all its deposits: 47 (number of banks). - Capital Adequacy Ratio not respecting (baseline): 33 (number of banks). - Capital Adequacy Ratio not respecting after the 12 SOEs default: 87 (number of banks). - Capital Adequacy Ratio not respecting after SONARA defaults: 76 (number of banks). - Capital Adequacy Ratio not respecting after SONARA defaults on its net exposure to banks: 66 (number of banks). - Large exposure to a single borrower (45 percent of capital): 22 (number of banks). - Among the 6 banks with net positive exposure to SONARA: one bank has negative capital; three banks will fail to meet minimum capital requirement if SONARA defaults; two banks will lose 85 percent and 50 percent of their respective excess capital. ### External linkages and regional sovereign exposure - Cameroonian banks’ exposure to other CEMAC countries increased from 5 to 8 percent of total assets between 2015 and 2017. - 57.5 percent of that exposure is held toward Chad and Congo (48 percent combined toward Chad and Congo referenced). - In H1-2017, forced rollover of Chadian and Congolese bonds and delays in Cameroonian government payments strained Cameroonian banks’ liquidity; the situation reverted after program approval in late June. - Stress scenario: "all banks would fail to respect the minimum capital requirement if CEMAC countries (excluding Cameroon) defaulted," except for 3 banks not exposed to these countries. ### Monetary, regulatory, and structural sector risks - Monetary policy and regulatory changes affected banks’ appetite for government bonds: - Policy rate increased by 50 basis point to 2.95 percent in March 2017. - 3-month T-bill rate rose from 2.85 to 3.52 percent between January and December 2017. - COBAC’s non-zero risk weight rules raised Cameroon’s sovereign risk weight to 85 percent due to non-compliance with arrears and fiscal deficit criteria, causing a large deterioration of banks’ solvency ratios. - COBAC allowed banks in countries with an IMF program to request a derogation for up to three years provided corrective measures are taken (October 2017). - Unresolved ailing banks create contingent liabilities estimated at 0.7 percent of GDP; some materialized with nationalization of a bank and transfer of its impaired loans to the government asset management company (SRC) in exchange for a 0.3 percent of GDP long-term government bond. - Structural constraints: - High and structural NPLs reduce credit supply and raise borrowing costs. - Interdependence between banks and MFIs and rapid mobile banking growth without proper regulation increase vulnerability. ### Stress test results and asset-quality risks - Stress test using end-2017 balance sheets shows sovereign risks dominate and asset quality deterioration is significant: - System-wide risk-weighted assets ratio (RWA) would decline by 4.4 percent following a 25 percent haircut on Cameroonian government debt. - RWA would decline by 3.5 percent due to a 25 percent haircut on other CEMAC countries’ debt. - RWA would decline by 2.7 percent due to full default on SONARA. - Banks are also vulnerable to increased NPLs stemming from worsening economic conditions and fiscal stress. *International Monetary Fund: CR18256 (excerpt).* ### Box 1. Risks to the Financial Sector Stemming from Microfinance Institutions and Mobile ### Box 1. Risks to the Financial Sector Stemming from Microfinance Institutions and Mobile Banking ### Bank–MFI interdependence and vulnerabilities - MFIs put the bulk of their deposits in commercial banks and commercial banks in return provide them credits, creating strong interdependence. - Some banks are owned by MFIs, while big banks increasingly use MFIs (sponsorship and/or direct ownership) to access a larger customer base. - The largest MFI, with a 25 percent market share, was recently authorized to operate as a bank, reinforcing the interrelation. - MFIs suffer from weak capacity and governance, lax supervision, large exposure to connected parties, and high credit risk. - The increased interdependence between banks and the less supervised MFIs could represent a source of vulnerability to the financial sector. - As MFIs lose market share to mobile money providers, their balance sheets are weakening. ### Mobile financial services: rapid growth and associated risks - Mobile money penetration increased from 8 to 29 percent of the adult population. - Volume of mobile money transactions increased from CFAF 7.5 billion to CFAF 3,447 billion in 2012–17. - Mobile banking expansion has been long constrained by low competition in the telecom and internet markets but is now offering an increasing number of financial services. - Rapid growth in mobile financial services requires security controls and regulatory measures to: - preserve financial stability; - limit fraud and abuse; - limit money laundering and terrorism financing in a region experiencing insurgency and terrorist activities. - With easy access to mobile money services and expanding services offered, MFIs and money transfer institutions are losing market share, weakening their balance sheets. ### Key risks summarized - Weak governance and supervision of MFIs combined with strong linkages to commercial banks amplify systemic risk. - Concentration risks arising from large MFI market shares and ownership links with banks. - Operational and integrity risks from rapidly expanding mobile money services without an adequate regulatory framework. - Financial stability risks from potential contagion through bank–MFI credit and deposit channels as MFIs face weakening balance sheets. ### Policy implications highlighted in the box - Implement an enabling regulatory framework for mobile financial services that preserves financial stability and limits frauds. - Deploy security controls and regulation to prevent fraud and abuse and to limit money laundering and terrorism financing given regional security concerns. - Closely monitor the complex bank–MFI nexus to mitigate risks to the financial sector. *Box 1. Risks to the Financial Sector Stemming from Microfinance Institutions and Mobile Banking. CAMEROON — INTERNATIONAL MONETARY FUND.* ### Box 1. “Tontines” and Financial Inclusion ### Box 1. “Tontines” and Financial Inclusion ### Description and purpose of tontines (Njangui) - Also known as Njangui in the Anglo-Saxon culture, the “tontines” broadly refers to a group of persons sharing common ties—region, tribe, friendship, colleagues—who decide to meet on a regular basis to put together their savings to provide financial solutions to their members or community. - Originally intended to provide in-kind support to a member such as collective work in farming, building a house or during celebrations. - Expanded in the wake of the 1990’s CEMAC banking crisis. - Authorities recognize tontines’ prevalence and complementarities with the financial sector and intend to leverage them in the revised NSFI. ### Instruments offered by tontines - Periodic contributions - Channel members’ contributions to a different beneficiary until a round is closed. - Example: a Njangui of 12 participants with a monthly stake of $5 per person will distribute $60 (=$5*12 persons) every month to a beneficiary drawn in advance. The total turnover of the round is $720 ($60*12 months). - Saving and loans - Provide an opportunity to save and access credit. - Typical interest rates hover around 3–5 percent per month equivalent 36–60 percent annually. - Maturities do not exceed 3 months. - Solidarity funds - Function as an insurance policy covering issues including health and family events for members and predefined relatives, provided the member is contributing regularly. ### Interaction with formal financial system and digital payments - Tontines’ funds mostly transit through tontines’ dedicated accounts in banks and MFIs held by the group leader. - Mobile money facilitates tontine transactions and could help bring more tontine users to the formal financial sector via the creation of the i-Djangui platform since 2016. - Belonging to a Njangui offers loan opportunities from banks and MFIs via collective and moral guarantees. - Some tontines will move to MFI (category 1—collecting saving and extending loan to members only) as they gain a sound financial base. - Footnote: Some first category MFIs (which receive deposits from and lend to members only) originate from graduating unregulated tontines making it difficult for the owners to adjust and embrace good management and governance practices. ### Relevant statistics and market context (selected) - MFIs represented 15 percent of total bank assets and was serving about 11 percent of the adult population at end-2016. - Loans in arrears remains around ¼ of total loans in the MFI sector. - Mobile money penetration increased from 9 percent of adults in 2012 to about 28 percent in 2016. - Mobile money transactions are estimated to have reached CFAF 3.5 trillion (17.5 of GDP) in 2017 up from 0.3 trillion in 2016. - Mobile money regulatory caps: CFAF 3 million per day; CFAF 5 million a week; and CFAF 10 million a month; transaction costs across operators could increase up by 5–10 times. - Telecom regulatory agency identified 19.5 million mobile phone subscriptions with the three mobile operators in 2016 with 3.8 million mobile accounts created in 2016. The number of accounts reached 6.4 million, with only half operational in 2017. - Only 5 out of 14 banks are using mobile banking and MFIs are not yet authorized to use it. - Government approval of two mobile money licenses in early-2018 will bring the third mobile operator to the market and extend the service to two additional banks. ### Regulatory and supervisory developments affecting MFIs and tontines - Approval of a new regional MFIs’ regulation in 2017 could reinforce oversight and credibility of the sector. - The 2017 regulation clearly divides roles between stakeholders: MFIs’ owners organize internal and external controls; the ministry of finance operates administrative control; and COBAC is solely in charge of supervision. - The regulation caps credit to individual clients, increases minimum capital required, frames conditions for granting loans to related parties and requires category-1 MFIs to regroup under umbrella bodies (comprising a minimum of 5 MFIs) within a 24 months period. - Specific regulations framing these requirements are yet to be enacted by COBAC. ### Key implications for financial inclusion - Tontines provide widely used informal financial intermediation that integrates with banks, MFIs, and mobile money. - Mobile money growth and platforms like i-Djangui present an opportunity to channel informal tontine activity into the formal financial sector. - Governance weaknesses among MFIs that emerge from unregulated tontine graduates risk undermining financial-sector stability unless addressed. *Source: cr18256 - Box 1. “Tontines” and Financial Inclusion.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18256.pdf_