## 1. Real Sector Developments, 2015–19 ## Source details **Canonical URL:** [1. Real Sector Developments, 2015–19](https://www.imf.org/-/media/files/publications/cr/2019/1cmrea2019001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2019/1cmrea2019001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2019/1cmrea2019001.pdf.json) --- ### Background and recent developments - Cameroon remained a leading implementer of CEMAC’s regional strategy; growth resilient despite security deterioration (Boko Haram in the North; anglophone crisis in North-West and South-West). - Humanitarian needs: 2.3 million people need assistance, including 1.3 million in the two anglophone regions (UN estimates). - Non-oil primary balance improved by 3.6 percent of GDP since 2016. - BEAC NFAs projected recovery to about 3.3 months of imports at end-2019 (from 2.3 months at end-2016) conditional on fiscal consolidation and conclusion of programs with Congo and Equatorial Guinea. - Disruptions to food production and quasi-halt in anglophone regions reduced tax collection (Q1 2019 vs Q1 2018). - Fall 2019 elections could raise security-related costs. ### Real GDP, inflation, and sectoral activity - Real GDP growth estimates and projections (selected): - 2017: 3½ percent - 2018: 4 percent (estimated) - 2019: 4.2 percent (projected, mainly driven by increased oil and gas production) - Medium term: boost to about 5-5 ½ percent with CAN and new transport and energy projects. - Non-oil sector growth: - 2018: 4.4 percent - 2019: non-oil growth projected to slightly decline relative to 2018 owing to CAN postponement and anglophone crisis. - Inflation: - March 2019 (y/y): 2.6 percent (trending up due to food prices in crisis-affected regions and weaker euro/U.S. dollar). ### Fiscal developments — 2018 outturn (payment order basis and related) - Overall fiscal deficit: - 2017: 4.9 percent of GDP - 2018: narrowed to 2.5 percent of GDP (slightly above projections) - Selected Text Table 1 figures (percent of GDP; Prog. / 3rd rev. / Actual Deviation): - Revenue and grants: 15.6 / 16.1 / 0.6 - Oil revenue: 2.2 / 2.3 / 0.1 - Non-oil revenue: 12.9 / 13.4 / 0.5 - Spending: 17.9 / 18.6 / 0.8 - Current spending: 11.6 / 11.6 / 0.0 - Capital spending: 6.0 / 6.9 / 0.9 - of which foreign financed: 3.5 / 3.5 / 0.0 - Overall deficit (payment order basis): -2.3 / -2.5 / -0.2 - Reduction of arrears and floats: -1.0 / -0.4 / 0.6 - Arrears: -0.4 / -0.6 / -0.2 - Floats: -0.5 / 0.6 / 1.1 - Cash deficit: -3.7 / -3.3 / 0.4 - Financing total: 3.7 / 3.3 / -0.4 - External financing: 3.7 / 3.9 / 0.2 - of which budget support loans: 1.3 / 0.0 / -1.3 - Domestic financing: 0.0 / -0.5 / -0.6 - Banking System: 0.5 / 1.4 / 0.9 - BEAC net: -0.1 / 0.8 / 0.9 - government deposits: -0.4 / 0.5 / 0.9 - IMF net: 0.3 / 0.4 / 0.0 - Commercial banks: 0.6 / 0.5 / 0.0 - Non-bank financing: -0.5 / -1.9 / -1.4 - amortization of domestic debts: -0.2 / -0.3 / -0.1 - correspondent accounts (net) 1/: -0.4 / -1.8 / -1.4 - Non-oil primary balance target (in CFAF billion): -872.0 / -837.2 / 34.8 (Prog. / 3rd rev. / Actual Deviation) - Drivers of fiscal outturn: - Non-oil revenue overperformed by 0.5 percent of GDP via base expansion, recovery of tax arrears, and exceptional customs VAT linked to refined fuel imports during SONARA shutdown. - Spending exceeded allocations, especially investment, producing 1.1 percent of GDP in uncategorized spending at end-February. - Cash deficit smaller than projected because of larger expenditure floats accumulation. - Domestic bank financing excess offset by drawdowns in non-bank financing; CFAF 200 billion medium-term bond issued in November 2018; government deposits at BEAC reduced to finance cash payments. - Preliminary Q1-2019: overall fiscal surplus of 0.7 percent of GDP (projected deficit 0.3 percent of GDP) due to non-oil revenue shortfall and slower spending. ### External sector developments - Current account balance: - 2017: deficit 2.7 percent of GDP - 2018: estimated deficit 3.7 percent of GDP (worsened) - Trade balance deterioration due to SONARA shutdown (raising mineral product imports) and disruption to agricultural exports from anglophone regions. - BEAC and banks: - BEAC NFA accumulation exceeded 3rd review projections by CFAF 158 billion at end-2018 due to banks’ increased repatriation. - Q1-2019: BEAC NFAs increased by CFAF 48 billion; total NFAs built up by CFAF 35 billion. ### Monetary developments - 2018: - Broad money and deposits growth nearly doubled to just under 10 percent in 2018. - Credit to the economy: annual growth 7.2 percent. - Q1-2019: broad money and credit declined due to slower economic activity. ### Debt and debt service - Public debt trajectory (percent of GDP): - Dec-2016: 32.8 - Dec-2017: 37.6 - Dec-2018 (Est.): 39.3 - Composition (Dec-2018 Est., percent of GDP): - Public debt contracted and disbursed: 33.8 - External debt: 26.3 - Domestic debt: 7.3 - Publicly-guaranteed debt: 0.2 - SONARA debt: 2.8 (o/w external 2.1) - Unpaid government obligations (float and arrears): 2.7 - Total public debt: 39.3 (Domestic: 10.7; External: 28.7) - Stock of contracted but undisbursed debt: - Dec-2016: 19.9 percent of GDP - Dec-2017: 21.7 percent of GDP - Dec-2018 (Est.): 18.9 percent of GDP (including 0.5 percent of GDP in cancellations) - External debt service (CFAF billion): - 2017: Total 361.4; Amortization 210.4; Interest 151.0 - 2018: Total 540.5; Amortization 380.6; Interest 160.0 - Debt service to China (amortization + interest) series: amortization 30.0 (2017), 90.3 (2018), 134.5 (2019 proj.); interest 46.9 (2017), 62.3 (2018), 28.4 (2019 proj.) - New borrowing in 2018 remained well below program limits; SENDs backlog reduced to 18.9 percent of GDP at end-2018. ### Program performance (as of 4th Review) - Quantitative performance criteria (PCs): - All but two PCs met with large margins. - Ceiling on net BEAC financing missed by 0.5 percent of GDP. - Continuous PC on external arrears accumulation breached at end-January but arrears of CFAF 52 billion repaid in April. - Indicative targets (ITs): - All met except ceiling on SNH interventions (exceeded by 0.2 percent of GDP). - End-March ITs weakened due to end-2018 fiscal outcomes. - Structural benchmarks (SBs): - Of 11 SBs due by end-May: five completed on time; three implemented with delay. - SBs met: fiscal policy and PFM measures, regular utility bill payments, creation of movable collateral registry. - Delayed but completed: commercial court judges training, SNH data reconciliation, SENDs disbursement plan. - Missed end-March SBs: recording existing movable collateral and decision on SME bank business model (likely to be completed in July and September, respectively). ### Outlook and risks - Short-term: muted due to security challenges on non-oil activity. - Growth projections (selected series from Text Table 3): - Real GDP (percent): 2016 actual 4.6; 2017 3.5; 2018 est. 3.8; 2019 proj. 4.0; 2020 proj. 4.4; 2021 proj. 4.2; 2022 proj. 4.5; 2023 proj. 4.8; 2024 proj. 5.0; later medium-term 5.3, 5.5 - Inflation (period average): 2016 0.9; 2017 0.6; 2018 0.9; 2019 1.1; 2020 1.2; 2021 2.1; 2022 2.2; 2023 2.1; 2024 2.0 - Current account balance (percent of GDP): 2016 -3.2; 2017 -2.7; 2018 -3.6; 2019 -3.7; 2020 -3.1; 2021 -3.4; 2022 -3.3; 2023 -3.2; 2024 -3.2 - Public debt trajectory (percent of GDP): 2016 32.8; 2017 37.6; 2018 36.9 (CR 18/378 Est.); 2019 39.3 (4th Review); 2020 36.7; 2021 39.5; medium-term decline toward 35.4 - External risks: trade tensions, slower China growth, commodity price volatility, delays in CEMAC adjustment, regional security tensions. - Domestic risks: sociopolitical deterioration ahead of elections could harm growth, inflation, fiscal consolidation and reforms. - Upside potentials: integration into global value chains, agro-industrial relocation, construction, forestry, financial services. ### Fiscal policy — 2019 budget and consolidation - Revised 2019 budget maintains program overall deficit at 2 percent of GDP; non-oil primary balance slightly higher by 0.3 percent of GDP. - Revisions account for one-off 2018 revenues, Q1 2019 mobilization weakness, higher oil production (unchanged prices), re-prioritization to cover fuel subsidies, election spending, SNH direct spending, and increased investment spending. - Revised capital spending (foreign-financed) increased by 0.7 percent of GDP compared with initial budget to execute investment projects and clear SENDs. - Staff advised saving any revenue overperformance from higher oil prices. - Provisions to clear CFAF 249 billion in expenditure float from 2018 and existing domestic arrears. Key Text Table 4 excerpts (select items, percent of GDP; presented verbatim sequence in source): - Total revenue and grants: 15.0; 15.5; 16.1; 15.6; 15.5; 16.2; 0.1; 0.6 - Oil sector revenue: 1.9; 2.2; 2.3; 2.0; 2.0; 2.2; -0.1; 0.2 - Non-oil sector revenue: 12.7; 12.9; 13.4; 13.2; 13.2; 13.5; 0.1; 0.3 - Total expenditure: 19.8; 17.9; 18.7; 17.6; 17.4; 18.2; -0.4; 0.6 - Current expenditure: 11.2; 11.8; 11.6; 11.8; 11.7; 11.8; 0.2; 0.0 - Capital expenditure: 8.6; 6.0; 6.9; 5.9; 5.9; 6.6; -0.3; 0.7 - o/w Foreign-financed investment: 3.8; 3.5; 3.5; 2.7; 2.7; 3.4; -0.1; 0.7 - Overall balance (cash basis, incl. grants): -4.5; -3.8; -3.3; -2.5; -2.4; -3.2; 0.2; -0.7 Memo items (select): - Unpaid government obligations (CFAF billions): 962.2; 273.7; 582.8; 170.3; 170.3; 334.3 - Arrears (CFAF billions): 281.7; 187.8; 146.3; 84.4; 84.4; 73.3 ### Treasury, cash management, and financing plans - 2019 domestic financing plan (Text Table 5, select CFAF billion figures as presented): - Government's net domestic financing: 23.0; -211.8; 95.7; 74.4 - BEAC net: 140.2; 185.6; 41.0; 8.1 - Government deposits 1/: -347.4; 108.8; -12.5; -64.9 - IMF net: 141.7; 76.4; 41.0; 73.0 - Commercial banks net: 25.4; 110.6; 128.5; 203.3 - Non-bank financing: -142.6; -507.9; -73.8; -137.0 - Correspondent accounts (net): -113.3; -486.3; -16.2; -71.2 - Authorities and staff agreed to revise the 2019 treasury plan to: - rebuild government deposits at the BEAC, - include realistic projections of prospective payments on correspondent accounts and settle past unrecorded commitments. ### Fiscal consolidation path and medium-term framework - Authorities committed to continue consolidation through 2020 to meet CEMAC reference fiscal balance of 1 ½ percent of GDP by 2020. - Text Table 6 select figures (percent of GDP, 2016–20 presented verbatim in source sequences): - Total revenue and grants and sectoral breakdowns (see source sequences preserved). - Overall balance (payment order basis, incl. grants): -6.1; -4.9; -2.4; -2.5; -2.0; -2.0; -1.5 - External financing, net; Domestic financing, net (see source). ### Debt policy, borrowing, and contingent liabilities - Public debt expected to stabilize in 2019 and decline in 2020; rescheduling could affect trajectory. - China announced debt relief of CFAF 35 billion (0.2 percent of GDP) for interest-free loans; discussions on rescheduling principal payments to China of about 0.7 percent of GDP over next three years. - Authorities finalized SENDs disbursement plan for 2019–20; non-concessional disbursements set to increase in 2019 for CAN projects and decline thereafter as concessional financing rises. - 2019 ceiling for new non-concessional borrowing: CFA 500 billion (unchanged). - SONARA signed a US$160 million loan end-April with unfavorable terms; staff noted concerns and recommended CNDP improved scrutiny and prohibition on collateralized borrowing. ### SOE and PPP fiscal risk management - Authorities to accelerate 2017 SOE legal framework implementation. - Diagnostic studies of CAMTEL, CAMWATER, CAMAIR-CO, and Douala Port to be completed by end-2019. - Plans to revise PPP legal framework to ensure project selection follows maturity guidelines and CNDP assessment. ### Revenue mobilization and structural fiscal reforms - Tax expenditures (2017): total CFAF 605.7 billion (3.0 percent of GDP); breakdown: - Indirect taxes: 397.2 (2.0 percent of GDP) - Direct taxes: 208.5 (1.0 percent of GDP) - In percent of non-oil revenue: 15.3 (Indirect); 8.1 (Direct); 23.4 (Total) - Staff recommendations: - Eliminate discretionary exemptions and narrow 2013 investment incentives. - Conduct VAT-gap analysis; raise VAT threshold; simplify small enterprises’ taxation; strengthen controls on under-declarations and VAT credit verification. - Continue revenue administration reforms to simplify and automatize payment procedures and cross-check declarations; measures yielded about 0.4 percent of GDP in additional revenue over past 2 years. ### Public financial management, execution, and cash transparency - Budget execution weak; exceptional spending procedures contributed to overruns and delayed fiscal data revision. - Authorities agreed to: - Reduce exceptional spending procedures from 9 percent of total non-interest expenditure in 2018 to 5 percent in 2019. - Ensure timely monthly reconciled reporting of SNH direct interventions and fully budget for these interventions. - Reduce complementary period to one month. - Strengthen public financial reporting to make fiscal data comprehensive and timely. - Cash management concerns: - Lack of transparency in correspondent accounts; some used to execute previously-committed investment projects without budget procedures. - Public agencies’ deposits in commercial banks: 1.3 percent of GDP as of mid-2018, including 0.2 percent of GDP idle. ### Monetary and FX repatriation measures - FX repatriation improved: CFAF 184 billion at end-December 2018 (CFAF 7 billion in 2017) and CFAF 664 billion in Q1-2019. - Q1-2019: only 26 percent of banks’ transfer requests met, indicating BEAC allocation lags. - Committee of customs, treasury, and CNC established to enforce domiciliation; IT platform for exchanges under development. - Authorities to identify public entities’ foreign accounts and surrender balances to BEAC by end-December 2019 (to be completed by end-July). - Authorities to share all extractive industry contracts with BEAC by end-September 2019 (new SB). ### Banking system soundness and asset quality - Capital adequacy: - Average CAR: 11 percent at end-March 2019 (regulatory minimum 8.5 percent). - CEMAC average CAR: 17.4 percent. - Three banks had negative capital; third-largest bank undercapitalized. - Liquidity: - System liquidity ratio: 187 percent at end-March 2019 (160 percent at end-2018). - Liquidity concentrated in foreign banks. - Profitability: All banks except one are profitable. - Overdue loans (NPLs): 16 percent of total loans at end-March 2019 (15 percent at end-2018); average provisions around 90 percent. - Troubled banks: two being recapitalized by shareholders; resolution plan for other two under consideration. ### Financial sector reforms, resolution, and supervisory actions - Commercial court judge training: 20 trainees deployed; banking litigation redirected to them. - Movable collateral register launched May 23, 2019; banks to complete on-line registration by end-July 2019. - Resolution plans: time-bound resolution plan for ailing banks to be submitted to COBAC by end-July and approved by government by end-October 2019 (SBs proposed/reset). - SME bank business model decision delayed to end-September 2019 pending study and World Bank TA. ### Business climate, governance, AML/CFT, and EITI - Doing Business 2019: slight improvement through procedural streamlining and one-stop electronic applications. - EITI: authorities addressing recommendations; 2016 report published; second validation round by end-2019. - AML/CFT: national risk assessment launched November 2018 with World Bank support; COBAC provided TORs to revise AML/CFT regulations; gaps remain in PEP preventive measures, supervision of high-risk sectors, and timely beneficial ownership information. ### Program modalities, conditionality, and financing adjustments - Staff supports: - Waiver requests for two PCs (end-December ceiling on net BEAC financing; continuous PC on external arrears) given corrective actions. - Modifications of end-June and end-September 2019 conditionality and new conditionality through December 2019. - Corrective actions for missed PC on net BEAC financing: - Tightened government financing targets for 2019 to rebuild BEAC deposits and reduce correspondent account balances. - Three prior actions to enhance budget planning/execution transparency. - Proposed modifications and resets to PCs, ITs, and SBs (end-June, end-September, end-December 2019) detailed in MEFP. ### External borrowing limits and project financing (2019) - 2019 program ceiling on contracting new non-concessional external debt: CFAF 500 billion (exceptional given high debt distress risk). - Authorities committed to contract only loans on key projects list (subject to revision at fifth review). - Text Table 8 — Projected contracting of external debt, 2019 (public and PPG external debt): - Volume of new external debt in 2019: CFAF 808.0 billion; Estimated PV of new debt: CFAF 641.9 billion. - By source: - Concessional debt: CFAF 308.1 billion (38.1%); PV CFAF 191.4 billion (29.8%) - Multilateral: CFAF 308.1 billion (38.1%); PV CFAF 191.4 billion (29.8%) - Non-concessional debt: CFAF 499.9 billion (61.9%); PV CFAF 450.4 billion (70.2%) - Semi-concessional: CFAF 228.7 billion (28.3%); PV CFAF 182.2 billion (28.4%) - Commercial terms: CFAF 271.3 billion (33.6%); PV CFAF 268.3 billion (41.8%) - Uses (CFAF 808.0 billion; PV CFAF 641.9 billion): - Infrastructure (roads, transport): CFAF 30.1 billion (3.7%); PV CFAF 23.7 billion (3.7%) - Energy: CFAF 402.3 billion (49.8%); PV CFAF 319.3 billion (49.7%) - Social (education, health, inclusiveness): CFAF 190.9 billion (23.6%); PV CFAF 120.8 billion (18.8%) - Various: CFAF 184.7 billion (22.9%); PV CFAF 178.1 billion (27.7%) - Memorandum: Budget support CFAF 356.9 billion (100.0%): concessional CFAF 114.7 billion (32.1%); non-concessional 2/ CFAF 219.2 billion (61.4%); grants CFAF 23.0 billion (6.4%) — footnote: 2/ Including IMF loans. ### Regional central bank (BEAC), supervision (COBAC), and assurances - BEAC provided updated policy assurance on end-December 2019 NFAs to support CEMAC countries’ Fund-supported programs; end-2018 regional assurance exceeded. - BEAC operationalized new monetary policy framework by end-2018; full transition to IFRS for FY 2019 progressing. - Staff proposes conditionality for fifth review on implementation of critical NFAs assurances at union level. ### Program financing, capacity to repay, and budget support - Program fully financed through May 2020 per staff. - Repayments under ECF-supported program remain below 0.2 percent of GDP during program; peak at 2.7 percent of gross reserves in 2025 before declining in 2026. - Proposed schedule of ECF disbursements (SDR million / percent of quota): - 6/26/2017: 124.2 — 45 percent - 12/15/2017: 82.8 — 30 percent - 6/30/2018: 55.2 — 20 percent - 12/15/2018: 55.2 — 20 percent - 6/15/2019: 55.2 — 20 percent - 12/15/2019: 55.2 — 20 percent - 5/31/2020: 55.2 — 20 percent - Total: 483.0 SDR million — 175 percent ### Staff appraisal and policy recommendations (key priorities) - Regional leadership: continue Cameroon’s role in CEMAC strategy implementation; repatriate public entities’ deposits abroad; share extractive contracts with BEAC; align petroleum code with BEAC FX rules. - Fiscal discipline and cash management: enhance budget execution, reduce exceptional procedures and correspondent-account spending, expedite TSA implementation, fully provision recurrent expenses. - Debt and investment efficiency: strictly implement SENDs disbursement plan, limit new non-concessional borrowing, favor concessional financing, strengthen CNDP procedures. - SOEs and fuel pricing: accelerate SOE diagnostics and reforms; revise fuel price structure to improve SONARA viability; implement targeted social measures when reforming fuel pricing. - Business climate, governance, AML/CFT: continue reforms to improve contract enforcement, digitalize tax and customs payments, enhance EITI compliance and AML/CFT implementation to attract investment. ### Fuel pricing — structure, scenarios, and fiscal impact - Fuel subsidies and SONARA: - Fuel subsidies represented ¼ of total transfers and subsidies (4.5 percent of current spending, and 0.5 percent of GDP) in 2017–18. - SONARA post-tax subsidy added fiscal cost of 0.3 percent of GDP in each 2017 and 2018. - SONARA incurs operating losses when Brent > US$62 per barrel given fixed retail prices and inefficiencies. - Benchmark and reform scenarios (Q1 2019 benchmark; Brent memo item): - Current international oil price: US$62 per barrel. - Breakeven Brent price (de facto elimination of subsidies w/ pump prices unchanged): US$45 per barrel. - Scenarios summary and net fiscal contribution per liter: - Scenario 1: current price structure, no major reform; breakeven US$45; net fiscal contribution CFAF 103 per liter. - Scenario 2: fixed SONARA mark-up and TSPP; pump prices adjust (avg monthly 4%); net fiscal contribution CFAF 110 per liter. - Scenario 3: fixed TSPP; SONARA mark-up varies; monthly pump price variation limited to ±5% (pump prices vary by 2% on average over Q1-2019); net fiscal contribution CFAF 116 per liter. - Staff view: Scenario 1 may be unrealistic given US$62 Brent (projected "40 percent above the breakeven price" US$45); Scenarios 2 and 3 attractive. - Recommendations for fuel reform: - Reform administered pricing with phased pass-through, communication campaign, and social measures. - Avoid changing petroleum excise tax as it increases receipts volatility. - Reduce transport equalization fee; liberalize some price segments; transfer CSPH surpluses to Treasury; reduce SONARA operating costs. - Seek World Bank technical support for price-structure analysis, targeted subsidies, and communications. - Operational constraint: cap monthly domestic retail price changes below ±5 percent. ### Treasury Single Account (TSA) reform - Objective: ensure Treasury access to all government resources and reduce liquidity tensions and domestic arrears. - Inventory findings (end-2018): more than 2,000 accounts held by public entities in 10 of 14 commercial banks; CFAF 390 billion (1.8 percent of GDP) in overnight and term deposits. - Actions taken and timelines: - Closed 126 accounts and transferred balances to TSA. - Authorities to identify remaining accounts for transfer and communicate by September 2019 for closure and transfer by end-December 2019. - Sign TSA management agreement with BEAC and consolidate BEAC accounts by end-September 2019. - Gradual transfer calendar to end-December 2019; prohibit opening new accounts. - Target: total resources transferred to TSA between May and December to amount to at least CFAF 80 billion. ### Macroeconomic impact of enhancing public investment efficiency - DIG model calibration: - Public investment efficiency baseline: 50 percent (PIMA alignment); initial return 18.3 percent; completion median return 14.3 percent. - Twin-reform and financing scenarios: - Efficiency improvements to 65 percent and 75 percent raise average returns (e.g., to 30.3 percent). - No scale-up: modest GDP gains; private consumption and investment ~2 percent higher by 2034 when returns improved from 18.3 to 30.3 percent. - Scale-up by 2 percent of GDP financed entirely by concessional loans and efficiency gains: private consumption and investment 26 percent and 16 percent higher by 2034; GDP 4.8 percent higher by 2034; public debt gradually falls. - Policy implications: - Prioritize high-yield investments (roads, power); cap non-concessional financing; adopt PIMA recommendations for project selection and maturity; prefer concessional financing for any scale-up. ### Program decisions and staff recommendations (completion of fourth review) - Staff supports completion of fourth review under the ECF based on performance and BEAC assurances. - Supports waivers of non-observance of end-December PC on net BEAC borrowing and continuous PC on non-accumulation of external arrears given corrective actions. - Recommends modifications to end-June 2019 PCs and continuous PC definitions, and conditionality through December 2019. - Staff proposes fifth review completion conditional on union-level NFA policy assurances (June 2019 union-wide background paper). *Source: IMF staff and Cameroonian authorities, "1. Real Sector Developments, 2015–19" (chapter content), IMF staff report excerpts (1cmrea2019001).* ### 1. Real Sector Developments, 2015–19 __________________________________________________________ 22 ### 1. Real Sector Developments, 2015–19 ### Background and Recent Developments - Cameroon plays a leading role in implementing the CEMAC’s regional strategy; growth remained resilient. - The non-oil primary balance improved by 3.6 percent of GDP since 2016, supported by higher non-oil revenue and spending consolidation. - Cameroon contributed to the buildup of CEMAC external buffers through enhanced repatriation of foreign exchange by commercial banks. - Projected BEAC NFAs recovery to about 3.3 months of imports at end-2019 (from 2.3 months at end-2016) conditional on full implementation of fiscal consolidation and conclusion of programs with Congo and Equatorial Guinea. - Security conditions deteriorated: attacks by Boko Haram in the North and worsening crisis in the North-West and South-West anglophone regions. - UN estimates: 2.3 million people in Cameroon need humanitarian assistance, including 1.3 million in the two anglophone regions. - Disruptions to food production affected prices; quasi-halt in economic activity in anglophone regions reduced tax collection (Q1 2019 vs Q1 2018). - Elections in Fall 2019 (legislative, regional, municipal) could add to security costs. ### Real GDP, Inflation, and Sectoral Activity - Real GDP growth estimates: - 2017: 3½ percent - 2018: 4 percent (estimated) - Non-oil sector growth in 2018: 4.4 percent. - Drivers of non-oil growth in 2018: acceleration of CAN-related construction projects, strong external demand for forestry products, expanding financial services. - Inflation (y/y) reached 2.6 percent in March 2019, trending up due to higher food prices in crisis-affected anglophone regions and a weaker euro/U.S. dollar rate. ### Fiscal Developments, 2018 Outturn - Overall fiscal deficit narrowed to 2.5 percent of GDP in 2018 (4.9 percent of GDP in 2017); slightly above projections. - Key fiscal details (Text Table 1: percent of GDP): - Revenue and grants: 15.6 (Prog.), 16.1 (3rd rev.), 0.6 (Actual Deviation) - Oil revenue: 2.2 (Prog.), 2.3 (3rd rev.), 0.1 (Actual Deviation) - Non-oil revenue: 12.9 (Prog.), 13.4 (3rd rev.), 0.5 (Actual Deviation) - Spending: 17.9 (Prog.), 18.6 (3rd rev.), 0.8 (Actual Deviation) - Current spending: 11.6 (Prog.), 11.6 (3rd rev.), 0.0 (Actual Deviation) - Capital spending: 6.0 (Prog.), 6.9 (3rd rev.), 0.9 (Actual Deviation) - of which foreign financed: 3.5 (Prog.), 3.5 (3rd rev.), 0.0 (Actual Deviation) - Overall deficit (payment order basis): -2.3 (Prog.), -2.5 (3rd rev.), -0.2 (Actual Deviation) - Reduction of arrears and floats: -1.0 (Prog.), -0.4 (3rd rev.), 0.6 (Actual Deviation) - Arrears: -0.4 (Prog.), -0.6 (3rd rev.), -0.2 (Actual Deviation) - Floats: -0.5 (Prog.), 0.6 (3rd rev.), 1.1 (Actual Deviation) - Cash deficit: -3.7 (Prog.), -3.3 (3rd rev.), 0.4 (Actual Deviation) - Financing total: 3.7 (Prog.), 3.3 (3rd rev.), -0.4 (Actual Deviation) - External financing: 3.7 (Prog.), 3.9 (3rd rev.), 0.2 (Actual Deviation) - of which budget support loans: 1.3 (Prog.), 0.0 (3rd rev.), -1.3 (Actual Deviation) - Domestic financing: 0.0 (Prog.), -0.5 (3rd rev.), -0.6 (Actual Deviation) - Banking System: 0.5 (Prog.), 1.4 (3rd rev.), 0.9 (Actual Deviation) - BEAC net: -0.1 (Prog.), 0.8 (3rd rev.), 0.9 (Actual Deviation) - government deposits: -0.4 (Prog.), 0.5 (3rd rev.), 0.9 (Actual Deviation) - statutory advances: 0.0 (Prog.), 0.0 (3rd rev.), 0.0 (Actual Deviation) - IMF net: 0.3 (Prog.), 0.4 (3rd rev.), 0.0 (Actual Deviation) - Commercial banks: 0.6 (Prog.), 0.5 (3rd rev.), 0.0 (Actual Deviation) - Non-bank financing: -0.5 (Prog.), -1.9 (3rd rev.), -1.4 (Actual Deviation) - amortization of domestic debts: -0.2 (Prog.), -0.3 (3rd rev.), -0.1 (Actual Deviation) - correspondent accounts (net) 1/: -0.4 (Prog.), -1.8 (3rd rev.), -1.4 (Actual Deviation) - Non-Oil primary balance target (in CFAF billion): -872.0 (Prog.), -837.2 (3rd rev.), 34.8 (Actual Deviation) - Factors behind fiscal outturn: - Non-oil revenue overperformed by 0.5 percent of GDP due to: - expansion of the tax base including better taxpayer segmentation, - strong recovery of tax arrears, - exceptional customs VAT receipts linked to imports of refined fuel products during nine-month shutdown of SONARA. - Spending exceeded budget allocations, particularly on investment, resulting in 1.1 percent of GDP in uncategorized spending at end-February. - Cash deficit smaller than projected due to larger accumulation of expenditure floats at year-end. - Excess domestic bank financing compensated by drawdowns in non-bank financing; CFAF 200 billion medium-term bond issuance in November 2018; reduction in government deposits at BEAC financed additional cash payments. - Preliminary Q1-2019 outturn: shortfall in non-oil revenue collection and slower execution of current and capital spending, resulting in overall fiscal surplus of 0.7 percent of GDP (projected deficit 0.3 percent of GDP). ### External Sector Developments - Current account: - 2017 current account deficit: 2.7 percent of GDP - 2018 estimated current account deficit: 3.7 percent of GDP (widened) - Trade balance worsened due to: - shutdown of SONARA increased mineral products’ imports, - disruptions in anglophone regions weakened agricultural exports. - BEAC and banks: - Banks’ increased repatriation of foreign currency assets induced BEAC’s NFA accumulation to exceed 3rd review projections by CFAF 158 billion at end-2018. - BEAC NFAs increased by CFAF 48 billion in Q1-2019; banks’ foreign assets slightly declined, resulting in a CFAF 35 billion build-up in total NFAs in Q1 2019. ### Monetary Developments - Monetary aggregates accelerated in 2018 as counterpart to net foreign assets accumulation: - Broad money and deposits’ growth nearly doubled to just under 10 percent in 2018. - Credit to the economy accelerated to an annual growth of 7.2 percent. - Broad money and credit declined in Q1-2019 due to slower economic activity. ### Debt and Debt Service - Debt-to-GDP ratio increased in 2018; risk of debt distress remains high. - Total public debt: - Dec-2016: 32.8 percent of GDP - Dec-2017: 37.6 percent of GDP - Dec-2018 (Est.): 39.3 percent of GDP - Composition (Dec-2018 Est., percent of GDP): - Public debt contracted and disbursed: 33.8 - External debt: 26.3 - Domestic debt: 7.3 - Publicly-guaranteed debt: 0.2 - SONARA debt: 2.8 (o/w external 2.1) - Unpaid government obligations (float and arrears): 2.7 - Total public debt: 39.3 - Domestic: 10.7 - External: 28.7 - Stock of contracted but undisbursed debt: - Dec-2016: 19.9 percent of GDP - Dec-2017: 21.7 percent of GDP - Dec-2018 (Est.): 18.9 percent of GDP (including 0.5 percent of GDP in cancellations) - External debt service (CFAF billion): - 2017: Total 361.4; Amortization 210.4; Interest 151.0 - 2018: Total 540.5; Amortization 380.6; Interest 160.0 - Debt service to China (amortization + interest): to China amortization 30.0 (2017), 90.3 (2018), 134.5 (2019 proj.); interest 46.9 (2017), 62.3 (2018), 28.4 (2019 proj.) - New borrowing in 2018 remained well below program limits, helping reduce SENDs backlog to 18.9 percent of GDP at end-2018. ### Program Performance (as of 4th Review) - Overall program performance improved relative to prior year, but challenges remain. - Performance criteria (PCs): - All but two PCs were met with large margins. - Ceiling on net BEAC financing was missed by 0.5 percent of GDP. - Continuous PC on external arrears accumulation was breached at end-January due to intended inclusion of Eximbank China debt service in rescheduling; arrears of CFAF 52 billion were repaid in April. - Indicative targets (ITs): - All ITs met except the indicative ceiling on SNH interventions (exceeded by 0.2 percent of GDP). - End-March ITs weakened due to end-2018 fiscal outcomes, slower spending and economic activity. - Structural benchmarks (SBs): - Of 11 SBs due by end-May: five completed on time; three implemented with delay. - SBs met: fiscal policy and public financial management measures, regular payment of utility bills, creation of a movable collateral registry. - Delayed but completed in May: training of commercial court judges (started January), SNH data reconciliation (January SB), SENDs disbursement plan (March SB). - Missed end-March SBs: recording existing movable collateral and decision on the business model of the SME bank (likely to be completed in July and September, respectively, with technical assistance). ### Outlook and Risks - Short-term outlook muted due to security challenges weighing on non-oil activity. - Growth projections: - 2019: 4.2 percent (projected), mainly driven by increased oil and gas production. - Medium-term: gradual boost to about 5-5 ½ percent with completion of CAN projects and new transport and energy projects. - CAN hosting postponement from 2019 to 2021 and anglophone crisis weigh on non-oil sector; non-oil growth projected to slightly decline relative to 2018. - Fiscal consolidation expected to continue through 2020; meeting regional convergence criterion on reference fiscal balance of 1 ½ percent of GDP by 2020. - Current account projected to stabilize around 3 percent of GDP as imports normalize and non-oil exports increase offsetting crude oil export decline. - Text Table 3 (selected medium-term outlook figures, actual/est/proj; excerpts): - Real GDP (percent): 2016 actual 4.6; 2017 3.5; 2018 est. 3.8; 2019 proj. 4.0; 2020 proj. 4.4; 2021 proj. 4.2; 2022 proj. 4.5; 2023 proj. 4.8; 2024 proj. 5.0; later medium-term 5.3, 5.5 - Inflation (period average): 2016 0.9; 2017 0.6; 2018 0.9; 2019 1.1; 2020 1.2; 2021 2.1; 2022 2.2; 2023 2.1; 2024 2.0 - Current account balance (percent of GDP): 2016 -3.2; 2017 -2.7; 2018 -3.6; 2019 -3.7; 2020 -3.1; 2021 -3.4; 2022 -3.3; 2023 -3.2; 2024 -3.2 - Overall fiscal balance (payment order basis, incl. grants): trajectory converging toward CEMAC reference balance targets (see Text Table 3 for full series). - Public debt trajectory (percent of GDP): 2016 32.8; 2017 37.6; 2018 36.9 (CR 18/378 Est.); 2019 39.3 (4th Review); 2020 36.7; 2021 39.5; medium-term decline toward 35.4. - External risks: - International trade tensions, decelerating growth in China, commodity price volatility, delays in CEMAC regional adjustment, persisting regional security tensions. - Mitigants: sustained higher oil prices, conclusion of IMF programs with Congo and Equatorial Guinea. - Domestic risks: - Further deterioration of socio-political climate ahead of Fall elections could negatively impact growth, inflation, fiscal consolidation and reforms. - Potential upside from integration into global value chains, relocation of agro-industrial activities to more secure locations, dynamic construction, forestry, and financial services. ### Fiscal Policy: 2019 Budget and Consolidation - 2019 budget revised to reflect 2018 outturn while broadly maintaining fiscal consolidation path. - Program’s overall deficit maintained at 2 percent of GDP in revised 2019 budget with a slightly higher non-oil primary balance (by 0.3 percent of GDP). - Revisions to revenue and spending composition account for: - one-off nature of some 2018 non-oil revenue, - weakness in non-oil revenue mobilization in Q1 2019, - higher oil production (at unchanged prices), - re-prioritization of current expenditure to provision for fiscal risks from fuel subsidies, election-related spending and SNH direct spending, - an increase in investment spending. *Source: IMF staff and Cameroonian authorities, "1. Real Sector Developments, 2015–19" (chapter content).* ### 0.7 percent of GDP) to accommodate faster execution of foreign-financed investment (Text Table 4, ### 1cmrea2019001 - 0.7 percent of GDP) to accommodate faster execution of foreign-financed investment (Text Table 4, ### 2019 Budget Adjustments and Fiscal Outcomes - Revised capital spending (particularly foreign-financed capital spending) is increased by 0.7 percent of GDP compared to the initial budget to allow for continued execution of investment projects and the clearing of the SENDs. - Oil revenue projections revised upward to incorporate higher production of oil and gas. - Revised non-oil revenue projections reflect 2018 performance and new tax policy and administrative measures totaling 0.1 percent of GDP (compared to 2018) and 0.3 percent of GDP (compared to the initial budget). - Staff advised authorities to save any revenue overperformance from higher oil prices. - Provisions are being made to clear CFAF 249 billion in expenditure float accumulated in 2018 and existing domestic arrears (Text Table 5, MEFP ¶12–13). Key numbers from Text Table 4 (select items, percent of GDP) - Total revenue and grants: 15.0; 15.5; 16.1; 15.6; 15.5; 16.2; 0.1; 0.6 - Oil sector revenue: 1.9; 2.2; 2.3; 2.0; 2.0; 2.2; -0.1; 0.2 - Non-oil sector revenue: 12.7; 12.9; 13.4; 13.2; 13.2; 13.5; 0.1; 0.3 - Total expenditure: 19.8; 17.9; 18.7; 17.6; 17.4; 18.2; -0.4; 0.6 - Current expenditure: 11.2; 11.8; 11.6; 11.8; 11.7; 11.8; 0.2; 0.0 - Capital expenditure: 8.6; 6.0; 6.9; 5.9; 5.9; 6.6; -0.3; 0.7 - o/w Foreign-financed investment: 3.8; 3.5; 3.5; 2.7; 2.7; 3.4; -0.1; 0.7 - Overall balance (cash basis, incl. grants): -4.5; -3.8; -3.3; -2.5; -2.4; -3.2; 0.2; -0.7 Memo items (select) - Unpaid government obligations (CFAF billions): 962.2; 273.7; 582.8; 170.3; 170.3; 334.3 - Arrears (CFAF billions): 281.7; 187.8; 146.3; 84.4; 84.4; 73.3 Notes on execution - Current expenditures rise by 0.2 percent of GDP compared to 2018, but remain unchanged compared to 2019 initial budget. - Wages and salaries slightly revised down reflecting saving from the civil servant audit. - Goods and services reduced due to larger savings on non-priority spending than additional security and election spending. - Transfers revised up to fully account for fuel subsidies to SONARA. ### Treasury, Cash Management, and Financing Plans - Higher external financing (for an unchanged overall deficit) will provide space to rebuild government deposits at the BEAC and repay the expenditure float accumulated in 2018. - Authorities and staff agreed the 2019 treasury plan should be revised to: rebuild government deposits at the BEAC; include realistic projections of prospective payments on below-the-line correspondent accounts and settlement of past unrecorded budgetary commitments. - Text Table 5: 2019 Budget Domestic Financing Plan (in CFAF billion), select figures: - Governement's net domestic financing: 23.0; -211.8; 95.7; 74.4 - BEAC net: 140.2; 185.6; 41.0; 8.1 - Government deposits 1/: -347.4; 108.8; -12.5; -64.9 - IMF net: 141.7; 76.4; 41.0; 73.0 - Commercial banks net: 25.4; 110.6; 128.5; 203.3 - Non-bank financing: -142.6; -507.9; -73.8; -137.0 - Correspondent accounts (net): -113.3; -486.3; -16.2; -71.2 - Deposits accumulation in 2017 includes drawdown of CFAF 277 billion in statutory advances and deposited in an escrow account. ### Fiscal Consolidation Path and Medium-Term Framework - Authorities committed to maintaining program consolidation path in 2020. - Fiscal framework envisages further reduction of the overall deficit to 1½ percent of GDP (in line with the CEMAC convergence criterion), supported by measures to expand the non-oil revenue base, rationalize current spending while preserving social expenditures, and enhance investment efficiency (Text Table 6, MEFP ¶16–17). - Fiscal targets could be adjusted based on an updated DSA. Select figures from Text Table 6 (Percent of GDP, 2016–20) - Total revenue and grants: 14.7; 15.0; 15.5; 16.1; 15.5; 16.2; 16.3 - Oil sector revenue: 2.1; 1.9; 2.2; 2.3; 2.0; 2.2; 2.0 - Non-oil sector revenue: 12.3; 12.7; 12.9; 13.4; 13.2; 13.5; 13.8 - Total expenditure: 20.9; 19.8; 17.9; 18.6; 17.4; 18.2; 17.8 - Capital expenditure: 8.3; 8.6; 6.0; 6.9; 5.9; 6.6; 6.3 - Overall balance (payment order basis, incl. grants): -6.1; -4.9; -2.4; -2.5; -2.0; -2.0; -1.5 - External financing, net: 1.8; 3.9; 2.4; 3.9; 1.1; 1.6; 1.6 - Domestic financing, net: 3.0; 0.6; -0.4; -0.5; -0.4; -0.1; 0.6 ### Debt Policy, Borrowing, and Contingent Liabilities - Public debt projected to stabilize in 2019 and start declining in 2020; potential debt service rescheduling could affect trajectory. - Baseline projections incorporate a permanent increase in foreign-financed investment over the medium term compared to the 3rd review. - China announced debt relief of CFAF 35 billion (0.2 percent of GDP) for interest-free loans; discussions ongoing for rescheduling of principal payments to China of about 0.7 percent of GDP due over the next three years. Rescheduling could lower debt service payments from 2019–21 but would lower the pace of debt reduction (MEFP ¶23 and 25). - Authorities finalized in May a disbursement plan for SENDs for 2019–20 in line with program fiscal objectives; non-concessional disbursements set to increase in 2019 as ongoing CAN projects are completed, but decline significantly thereafter reflecting shift towards concessional financing. - Authorities agreed to keep the CFA 500 billion ceiling for new non-concessional borrowing unchanged. - SONARA signed a US$160 million loan with a foreign oil products’ trading company at end-April; staff noted terms are not favorable (high interest rates and repayments linked to future sales of SONARA’s oil products) and it had been signed without seeking improved terms as recommended by the CNDP. - Authorities agreed to refrain from collateralized borrowing and to strengthen CNDP procedures to require unconditional CNDP approval for all new borrowing (MEFP ¶27). SOE and PPP fiscal risk management - Authorities committed to accelerate implementation of the 2017 SOEs legal framework. - Full diagnostic studies of four key SOEs (CAMTEL, CAMWATER, CAMAIR-CO, and the Douala Port) to be completed by end-2019 to identify strategies to restore financial viability and limit fiscal risks (new proposed SB, MEFP ¶26). - Plans to revise the legal framework for PPPs to ensure project selection follows government project maturity guidelines and that all prospective PPPs are assessed by the CNDP (MEFP ¶26). ### Revenue Mobilization and Structural Fiscal Reforms - Authorities and staff agreed on the need to press on with reforms to expand the non-oil revenue base. - Tax expenditures totaled 3 percent of GDP in 2017; about one-third represented exemptions on basic consumption goods, the rest mostly exemptions to promote investment (2013 law) or exploration and investment in the oil and gas sector (Text Table 7). - Staff highlighted importance of eliminating remaining discretionary exemptions and narrowing the scope of the 2013 investment incentives law. - VAT reforms: - Staff recommended a VAT-gap analysis to identify remaining weaknesses in the VAT system. - Raising the VAT threshold and simplifying small enterprises’ taxation could help enhance VAT efficiency, alongside enhanced controls to address risks of under-declarations and to verify VAT credit declarations (MEFP ¶20). - Revenue administration reforms to simplify and automatize payment procedures and cross-check declarations should continue; revenue administration measures have yielded about 0.4 percent of GDP in additional revenue over the past 2 years. Text Table 7 (Tax expenditures, 2017) - Total tax expenditures: 397.2 (Indirect taxes); 208.5 (Direct taxes); 605.7 (Total) - Facilitate access to essential goods: 192.1 (Indirect); 0.0 (Direct); 192.1 (Total) - Investment incentives: 81.7 (Indirect); 70.8 (Direct); 152.5 (Total) - Promoting extractive industries: 62.5 (Indirect); 134.3 (Direct); 196.8 (Total) - Others: 60.9 (Indirect); 3.4 (Direct); 64.3 (Total) - In percent of non-oil revenue: 15.3 (Indirect); 8.1 (Direct); 23.4 (Total) - In percent of GDP: 2.0 (Indirect); 1.0 (Direct); 3.0 (Total) - Memo items: Non-oil revenue 2,589.2; Nominal GDP 20,328.4 ### Public Financial Management, Execution, and Cash Transparency - Discipline in budget execution remains weak; exceptional spending procedures contributed to budget overruns and delayed revisions to end-2018 fiscal data into May 2019. - Authorities agreed to: - Reduce exceptional spending procedures from 9 percent of total non-interest expenditure in 2018 to 5 percent in 2019. - Ensure timely and consistent monthly reconciled reporting of SNH direct interventions by expenditure categories while fully budgeting for these interventions. - Reduce the complementary period to one month. - Strengthen public financial reporting to make fiscal data comprehensive, reliable, and timely (MEFP ¶14, 18, 19). - Cash management concerns: - Lack of transparency in correspondent accounts’ movements; some accounts used to execute previously-committed investment projects without regular budget procedures. - Unplanned payments of previously-unrecorded government obligations and “floating” domestic debt complicate cash management. - Public agencies and entities’ deposits in commercial banks amounted to 1.3 percent of GDP as of mid-2018, including 0.2 percent of GDP in idle resources. - Commitments going forward: - Continue to reduce correspondent accounts balances. - Better track and reduce floating domestic debt, including by fully provisioning for recurrent expenses in future budgets. - Vigorously pursue full implementation of a Single Treasury Account (full reform likely to require more time than initially envisaged). ### Monetary and FX Repatriation Measures - Authorities to continue measures supporting the BEAC’s efforts to enhance repatriation of foreign exchange receipts. - FX repatriation improved to CFAF 184 billion at end-December 2018 (CFAF 7 billion in 2017) and CFAF 664 billion in Q1-2019. - For Q1-2019 only 26 percent of banks’ transfer requests had been met, indicating lags in the BEAC’s FX allocation process. - A committee of customs, the treasury, and the National Credit Council (CNC) established to enforce domestic bank domiciliation of trade operations; an IT platform for information exchanges is being developed. - Authorities identifying foreign accounts held by public entities abroad to surrender remaining balances to the BEAC before end-December 2019 (to be completed by end-July). - Authorities agreed to share with the BEAC all existing contracts in the extractive industry by end-September 2019 (new SB, MEFP ¶29). - Staff noted the petroleum code approved by parliament in April allowed significant exceptions to new FX regulations contrary to BEAC policy and urged alignment of implementing regulations with regional rules (MEFP ¶29). *Source: Cameroon authorities; and IMF staff calculations and MEFP excerpts.* ### 25. Overall, banks remain liquid, profitable and adequately-capitalized, albeit with a lot of ### 1cmrea2019001 - 25. Overall, banks remain liquid, profitable and adequately-capitalized, albeit with a lot of ### Banking system soundness and asset quality - Average capital adequacy ratio was 11 percent at end-March 2019 (regulatory minimum 8.5 percent). - CEMAC average capital adequacy ratio: 17.4 percent. - Three banks had negative capital and the third-largest bank had insufficient capital. - Overall banking system liquidity ratio: 187 percent at end-March 2019 (160 percent at end-2018). - Liquidity remains highly concentrated in foreign banks. - Profitability: All banks except one are profitable. - Overdue loans (NPLs): increased to 16 percent of total loans at end-March 2019 (15 percent at end-2018). - Drivers: weak economic activity and public sector payment delays (government, projects, and SOEs). - Average provisions for NPLs: around 90 percent. - Note on troubled banks: Two of these banks are in the process of being capitalized by their shareholders and a resolution plan is being considered for the other two. ### Financial sector reforms and legal infrastructure - Commercial court judge training: 20 trainees deployed in commercial chambers; banking litigation cases redirected to them (completion somewhat delayed but highly successful). - Movable collateral register: officially launched on May 23; banks have legal deadline to complete on-line collateral registration by end-July. 2019. - NPL reduction plan: government will update plan with Banking Association and Ministry of Justice expected to play bigger role. - Key laws to improve credit provision, including legal framework for commercial courts, are being finalized and will be sent to parliament by end-August with implementation decrees finalized by end-2019 (MEFP ¶3 1). ### Resolution of ailing banks and SME bank restructuring - Authorities agreed to resolve the two private ailing banks at least fiscal cost and to improve the business model of the SME-bank (MEFP ¶30). - Ailing banks: - Resolution options prepared based on TA recommendations submitted to COBAC. - COBAC required an approved resolution plan to quickly resolve these banks. - A time-bound resolution plan minimizing fiscal costs agreed with shareholders and the IMF is to be submitted to the COBAC by end-July and approved by the government by end-October 2019 (August 2019 SB, proposed to be reset). - SME bank: - Adoption of a new business model delayed to end-September 2019 to allow finalization of a supporting study on SME financing needs and World Bank technical assistance (March 2019 SB, proposed to be reset). ### Business climate, governance, and transparency measures - Doing Business 2019: slight improvement due to reforms that: - Streamlined procedures, notably application requirements for starting a business. - Introduced one-stop electronic application systems for dealing with construction permits and getting electricity. - Lowered transfer fees for registering property. - Facilitated contract enforcement by passing a new law on mediation. - Program measures to further improve contract enforcement, increase computerized transactions including electronic tax payments, facilitate trade, and enhance governance at customs to increase access to credit and private investment (MEFP ¶32). - EITI and AML/CFT: - Authorities addressing EITI recommendations; publication of Cameroon’s 2016 EITI report. - Second EITI validation round to be conducted by end-2019. - National AML/CFT risk assessment launched in November 2018 with World Bank support. - COBAC provided terms of reference to revise AML/CFT regulations to the World Bank. - Authorities agreed to better mobilize AML/CFT regime to boost anti-corruption efforts, support ANIF actions, and encourage greater reporting of suspicious transactions by non-banks including notaries and lawyers (MEFP ¶33). - Implementation gaps remain: need guidance on preventive measures for politically-exposed persons, effective supervision of high-risk sectors, and timely accessibility of beneficial ownership information of legal entities. ### Program modalities, conditionality, and financing adjustments - Staff supports authorities’ request for: - A waiver of non-observance of one end-December 2018 and one continuous PC. - Modifications of end-June and end-September 2019 program conditionality. - New program conditionality through December 2019 (MEFP Tables 1 and 2). - Corrective actions for missed PC on net BEAC financing: - Tightening government financing targets for 2019 to support buildup of government deposits at the BEAC and reduction in correspondent accounts balances. - Three prior actions to enhance transparency and credibility of budget planning and execution. - Continuous PC on non-accumulation of external arrears breach corrected by full repayment in April 2019. - Three prior actions for fourth review mostly completed: - Ordinance revising 2019 budget signed May 29, 2019; awaiting transmission to parliament. - Decree on budget calendar reducing complementary period to one month signed May 31, 2019. - End-2018 budget execution report published June 6, 2019. - Proposed modifications to end-June PCs: - Ceiling on disbursement of non-concessional loans to accommodate higher projected disbursements in H1 2019 (for an unchanged annual limit). - Net domestic financing of the government and net government borrowing from the central bank targets to reflect end-2018 outcomes, accommodate delayed budget support from the World Bank and France (CFAF 148 billion, shifted from H1 to Q3), and projected buildup in government deposits. - Non-oil primary balance to reflect Q1 budget execution. - Modify definition of PC on non-concessional borrowing and IT on net accumulation of domestic payment arrears. - Modify end-June and end-September IT on non-oil revenue, and end-September ITs on floor of non-oil primary balance, net domestic financing of the government and net borrowing from the central bank, per revised June targets. - Proposed resets and modifications of structural benchmarks (SBs): - Missed SBs on transferring CSPH cash surpluses to the Treasury and deciding SME bank business model proposed to be reset at end-August and end-September respectively. - End-September SB on the TSA proposed to be modified. - Quantitative and continuous PCs and ITs proposed for end-December 2019 and four new SBs to advance fuel subsidy reforms, enhance investment efficiency, strengthen SOEs viability, and foster compliance to the new foreign exchange regulation. - SB on monthly monitoring report of disbursement requests and actual disbursements regularly met; staff proposes moving it to the TMU data requirements. ### External borrowing limits and project financing (2019) - 2019 program ceiling on contracting of new non-concessional external debt borrowing set exceptionally at CFAF 500 billion for 2019 (MEFP ¶24), given Cameroon’s high risk of debt distress. - Authorities identified a list of key projects critical for national development where concessional loans are not available; committed to contract no loans other than those in the key projects list (list may be revised at fifth review). - Text Table 8: Projected Contracting of External Debt, 2019 (Public and publicly-guaranteed external debt) - Volume of new external debt in 2019: CFAF 808.0 billion; Estimated PV of new debt: CFAF 641.9 billion. - By sources of debt financing: - Concessional debt, of which CFAF 308.1 billion (38.1 percent); Estimated PV CFAF 191.4 billion (29.8 percent). - Multilateral debt: CFAF 308.1 billion (38.1 percent); PV CFAF 191.4 billion (29.8 percent). - Bilateral debt: CFAF 0.0 billion (0.0 percent). - Other: CFAF 0.0 billion (0.0 percent). - Non-concessional debt, of which CFAF 499.9 billion (61.9 percent); Estimated PV CFAF 450.4 billion (70.2 percent). - Semi-concessional: CFAF 228.7 billion (28.3 percent); PV CFAF 182.2 billion (28.4 percent). - Commercial terms: CFAF 271.3 billion (33.6 percent); PV CFAF 268.3 billion (41.8 percent). - Uses of debt financing (CFAF 808.0 billion; 100.0 percent; PV CFAF 641.9 billion; 100.0 percent): - Infrastructure (roads, transport): CFAF 30.1 billion (3.7 percent); PV CFAF 23.7 billion (3.7 percent). - Energy: CFAF 402.3 billion (49.8 percent); PV CFAF 319.3 billion (49.7 percent). - Social (education, health, inclusiveness): CFAF 190.9 billion (23.6 percent); PV CFAF 120.8 billion (18.8 percent). - Various: CFAF 184.7 billion (22.9 percent); PV CFAF 178.1 billion (27.7 percent). - Memorandum item: Budget support CFAF 356.9 billion (100.0 percent): - Concessional CFAF 114.7 billion (32.1 percent). - Non-concessional 2/ CFAF 219.2 billion (61.4 percent). - Grants CFAF 23.0 billion (6.4 percent). - Footnote: 2/ Including IMF loans. - Note: PV calculation assumptions used terms for similar loans and similar creditors in past years given contractual terms not finalized. ### Regional central bank (BEAC), supervision (COBAC), and program assurances - BEAC and COBAC implementation: - BEAC provided updated policy assurance on end-December 2019 NFAs in support of CEMAC countries’ Fund-supported programs. - BEAC submitted new foreign exchange regulations to the UMAC ministerial committee and operationalized the new monetary policy framework by end-2018. - End-2018 regional policy assurance on NFAs was exceeded. - BEAC presented a revised projection for end-December 2019 NFAs and reiterated commitment to implement adequately tight monetary policy to achieve NFA projections while member states implement adjustment policies in IMF-supported programs. - NFA assurances by BEAC are described as critical for Cameroon’s program and regional external sustainability. - BEAC safeguards and IFRS: - BEAC continues to implement remaining recommendations of the 2017 safeguards assessment. - Full transition to IFRS for FY 2019 progressing broadly as planned. - Revisions to secondary legal instruments for alignment with BEAC Charter being accelerated; adoption of revised secondary legislations extended beyond initial timeline (June 2018) for further consultation. ### Program financing, capacity to repay, and budget support - Program fully financed through May 2020. - Staff re-confirmed budget support projections with key development partners (Text Table 9, Tables 8-9). - Cameroon’s capacity to repay the Fund: - Repayments under the ECF-supported program will remain below 0.2 percent of GDP during the program period. - Repayments peak at 2.7 percent of gross reserves in 2025 before declining in 2026 (Table 10). - Text Table 9. Cameroon: Budget Support, 2017–20 (in billions of CFAF) - Financing gap: 2017: 355; 2018: 383; 2019: 383; 2020: 384; Total: 357; 441; 139 (table formatting in source). - IMF financing: 2017: 158; 2018: 85; 2019: 85; 2020: 86; Total: 88; 44; 375. - Percent of quota: 2017: 75; 2018: 40; 2019: 40; 2020: 40; Total: 20; 17; 5. - Budget support from other donors: 2017: 197; 2018: 298; 2019: 298; 2020: 298; Total: 269; 0765 (table formatting in source). - World Bank: 1130; 0111; 1150; 227 (table formatting in source). - European Union: 19; 16; 16; 23; 23; 05; 8 (table formatting in source). - African Development Bank: 0; 21; 62; 17; 98; 66; 60; 282 (table formatting in source). - France: 66; 66; 66; 66; 60; 197 (table formatting in source). - Residual financing gap (1-2-3): 0 across entries. - Share of Fund financing: 44; 22; 22; 24; 25; 10; 033 (table formatting in source). - Source: IMF staff calculations. ### Staff appraisal and policy recommendations - Regional leadership and coordination: - Cameroon’s continued leadership in implementing CEMAC’s regional strategy is essential. - Continued consolidation to rebuild government deposits at the BEAC and full implementation of new BEAC foreign exchange regulations are key to restoring CEMAC fiscal and external sustainability, alongside finalizing program discussions with the Republic of Congo and Equatorial Guinea. - Staff welcomes authorities’ commitment to repatriate deposits of public entities’ accounts abroad and to share all contracts with oil companies with the BEAC. - Implementation of the new Cameroon petroleum code should be fully compliant with new BEAC FX regulation. - Fiscal discipline and cash management: - Enhanced fiscal discipline and cash management essential to reach revised 2019 budget targets. - Staff welcomes revisions to 2019 budget with more realistic revenue and expenditure composition. - Urges continued reduction in resort to exceptional spending procedures, including SNH direct spending, better monitoring of domestic liabilities, strict limits on spending through below-the-line correspondent accounts. - Faster progress towards full TSA implementation recommended, starting with repatriation of idle balances of public entities in commercial banks to the Treasury. - Debt and investment efficiency: - Strict implementation of SENDs disbursement plan and limiting new non-concessional borrowing essential to maintain fiscal and debt sustainability. - Staff welcomes collaborative process with development partners for SENDs plan and authorities’ commitment to unchanged 2019 limits on new borrowing. - Strong encouragement to move towards concessional borrowing, enhance debt management framework, and swiftly implement measures to enhance investment efficiency. - SOEs and fuel pricing: - Staff welcomes commitment to address contingent risks associated with SOEs and to reform administrated fuel products’ prices. - Government committed to conduct by end-2019 an assessment of 4 largest SOEs with World Bank support that could lead to performance contracts. - Urged to implement remaining measures to enhance SONARA’s financial viability, including revising fuel price structure to ensure viability and fairness among stakeholders. - Business climate, financial inclusion, governance, and AML/CFT: - Reforms to enhance business climate and governance and promote private sector development should be vigorously pursued. - Measures to streamline and automatize customs and tax payment procedures, and to facilitate intra-regional trade, will support private investment. - Resolving ailing banks and taking concrete steps to reduce NPLs, together with measures to improve contract enforcement, will support financial inclusion. - Further improving EITI compliance will enhance governance and transparency in the extractive sector and help attract foreign private investment. - Broader cooperation with ANIF, notably by non-bank actors, will support stronger AML/CFT implementation and help reduce illicit financial flows. *Source: IMF staff report excerpt (1cmrea2019001 - 25).* ### 41. Based on Cameroon’s performance under the program, and the adequate ### 1cmrea2019001 - 41. ### Program decisions and staff recommendations - Based on Cameroon’s performance under the program, and the adequate implementation of the regional policy assurances by the BEAC, staff supports the authorities’ request for the completion of the fourth review under the Extended Credit Facility. - Staff supports the authorities’ request for: - waivers of non-observance of the end-December performance criterion on the ceiling on net borrowing of the central government from the central bank excluding IMF financing and the continuous performance criterion on the non-accumulation of new external payments arrears, on the grounds of corrective actions taken by the authorities. - modification of: (i) the end-June 2019 PCs on the floor on the non-oil primary fiscal balance, the ceiling on the net domestic financing of the central government excluding IMF financing, the ceiling on net borrowing of the central government from the central bank excluding IMF financing and the ceiling on the disbursement of non-concessional external debt; (ii) the continuous PC on the contracting of new-nonconcessional external debt (modified definition); (iii) end-June and end-September ITs as indicated in ¶30. - Staff proposes that completion of the fifth ECF review be conditional on the implementation of critical policy assurances on NFAs at the union level, as established in the June 2019 union-wide background paper. ### Real sector developments (figures and staff captions) - Growth and composition: - "Growth rebounded, with lower contraction in oil and gas production..." - "...and strong domestic demand." - Inflation: - "Inflation remains low but is trending up..." - "...with strong regional variations." - Trade flows and external goods: - "Oil exports picked-up in H2 ... while imports have risen particularly of oil" - Chart labels and series (as presented): - Growth Composition, 2015Q1-18Q4 (Percent, yoy): Primary; Secondary excl. oil; Oil; Tertiary; Taxes and duties; GDP. - Growth Composition, 2015Q1-18Q4 (Percent, yoy): Consumption; Investment; Exports; Imports; GDP. - Consumer Price Indices, 2015M1-19M3 (Percent, yoy): Overall Consumer Prices; Food; Non-Food. - Consumer Price Indices, 2015M1-19M3 (Percent, yoy): Overall; Yaoundé; Douala; Bamenda; Bertoua. - Import volume, 2016M1-18M12 (Million tonnes, unless otherwise noted): Oil Imports; Non-oil Imports; Value (CFAF billion, RHS). - Export volume, 2016M1-18M12 (Millions tonnes, unless otherwise noted): Oil Exports; Non-oil Exports; Value (CFAF billion, RHS). ### Fiscal sector developments (figures and staff captions) - Staff summary captions: - "The fiscal consolidation continues ..." - "Non-oil revenue continues to improve..." - "Unpaid government obligations are shrinking..." - "...with more reliance on foreign financing and reduction of non-bank domestic liabilities." - "...and public debt is stabilizing with more concessional external financing." - "...while capital spending is accelerating." - Chart labels and series (as presented): - Revenue and its Composition, 2015M1-19M3 (12 month total as a percentage of 12 month GDP): Total Revenue; Non-oil Revenue. - Expenditure and its Composition, 2015M1-19M3 (12 month total as a percentage of 12 month GDP): Total Expenditure; Current Expenditure. - Fiscal Deficit, 2015-19 (Percent of GDP): Overall Balance; Primary Balance; Non-oil Primary Balance. - Financing, 2015-19 (Percent of GDP): External Financing; BEAC Statutory Advances; Non-bank Financing; Bank Financing. - Unpaid Government Obligations, 2015-19 (Percent of GDP). - Public Debt and Interest Payments, 2015-19 (Percent of GDP): External Debt; Domestic Debt; Interest Payment, RHS. ### External sector developments (figures and staff captions) - Staff summary captions: - "The overall balance of payments deteriorated in 2018..." - "...but BEAC reserves are recovering." - "...while the export decline is driven mainly by agricultural products." - "The import increase is mainly driven by mineral products and investment goods..." - "Effective exchange rates have remained broadly unchanged since end-2017." - "The trade balance is likely to deteriorate due to worsening exports and rising imports." - Chart labels and series (as presented): - Effective Exchange Rate, 2015M1-19M2 (2010=100): NEER; REER; CFA/US$, average (RHS). - Trade Balance, 2015-19 (Percent of GDP): Imports; Exports; Trade Balance (RHS). - Imports by Sector, 2016M1-18M12 (CFAF billion): Animal and vegetable products; Mineral, chemical, petrochemical; Transport and machines; Metals; Other. - Exports by Sector, 2016M1-18M12 (CFAF billion): Aluminum and steel products; Rubber, wood, cotton products; Agriculture and other food and beverages; Non-oil chemicals; Crude oil. - BEAC Reserves, 2016M1-18M12 (Months of Imports, unless otherwise stated); CEMAC Reserves (million USD, RHS). - Balance of Payments, 2017Q1-18Q3 (CFAF billion): Capital and Financial Account; Current Account; Overall Balance. ### Monetary sector developments (figures and staff captions) - Staff summary captions: - "...and SMEs' deposits and credits are also growing." - "Broad money and credit growth are increasing..." - "Banks' liquidity remains high..." - "...and refinancing from BEAC has declined." - "...and borrowing costs to decline." - "This has helped improve the rollover of T-Bills..." - Chart labels and series (as presented): - Broad Money and Credit, 2015M1-19M3 (Percent change, yoy): Broad money; Credit to the economy. - SMEs' Deposits and Credits, 2015-18 (Percent): Share of Total Deposits; Share of Total Credit. - Banks' Excess Liquidity at BEAC, 2015M1-19M3 (Percent change, yoy): After Central Bank Refinancing; Before Central Bank Refinancing. - Banks' Refinancing from BEAC, 2017-2019Q1 (CFAF billion): BEAC ceiling; Refinancing from BEAC. - Net Issuance of Treasury Bonds, 2017M1-19M3 (CFAF billion): Bonds Issuance; Bonds Repayment. - Yield Curve, 2017-19 (Percent change): multiple tenors (3-mon, 6-mon, 1-yr, 1.5-yr, 2-yr, 3-yr, 3.5-yr, 4-yr, 5-yr) with dates Dec-17, Sep-18, Dec-18, Mar-19. ### Financial sector developments (figures and staff captions) - Staff summary captions: - "The credit-to-deposit-ratio is declining..." - "... and financial deepening remains slow." - "...but asset quality remains poor and worsened in 2018." - "Liquidity remains high and is increasing..." - "Banks remain adequately capitalized..." - "...and profitable." - Chart labels and series (as presented): - Capital Adequacy, 2015-18 (Percent): Base Capital/risk-weighted assets 1/; Capital/risk-weighted assets. - Profitability, 2015-18 (Percent): Return on Equity (ROE); Return on Assets (ROA), RHS. - Liquidity, 2015-18 (Percent): Liquid assets/Total assets 1/; Liquid assets/ST liabilities (RHS). - Asset Quality, 2015-18 (Percent): Non-performing loans/total loans 1/; Overdue loans/total loans. - Credit to the Private Sector to Deposit Ratio, 2015M1-2019M3 (Percent). - Credit to the Private Sector and Total Bank Assets, 2015-2018 (Percent of GDP). ### Key economic projections and selected series (as presented in Table 1 and Tables 2a/2b excerpts) - National account and prices (row entries copied exactly as in source): - "GDP at constant prices4.63.53.84.04.44.24.54.85.05.35.5" - "Oil GDP at constant prices-3.6-16.4-9.3-2.5-6.60.8-1.0-6.5-7.1-7.6-8.3" - "Non-Oil GDP at constant prices5.35.04.54.44.94.34.85.45.65.85.9" - "GDP deflator1.11.51.51.11.41.21.31.41.51.71.7" - "Nominal GDP (at market prices, CFAF billions)19,34520,32821,42621,38222,66822,53823,86425,36327,04928,97131,087" - "Oil623718715754672664657600559518465" - "Non-Oil 18,72219,61020,71120,62721,99721,87323,20724,76326,49028,45330,622" - "Consumer prices (average)0.90.60.91.11.22.12.22.12.02.02.0" - "Consumer prices (eop)0.30.81.12.01.22.32.22.02.02.02.0" - External trade (selected lines copied exactly): - "Export volume -4.0-1.3-4.0-0.96.24.04.95.46.26.05.6" - "Oil sector 1/-3.1-19.8-4.0-16.7-6.64.8-1.0-21.0-17.7-5.00.0" - "Non-oil sector -4.33.8-4.02.59.03.86.09.79.07.06.0" - "Import volume-5.9-4.812.47.01.5-0.12.52.02.23.03.4" - Money and credit (selected lines copied exactly): - "Broad money (M2)5.55.96.49.86.06.15.96.46.97.47.3" - "Net foreign assets 2/-14.06.1-0.52.30.5-0.3-0.60.91.72.03.1" - "Net domestic assets 2/19.5-0.26.97.55.66.36.55.55.35.44.2" - "Domestic credit to the private sector7.22.35.64.66.56.16.77.18.39.29.4" - Central government operations — totals (selected lines copied exactly from Table 2a): - "Total revenue and grants 2,8663,0403,3173,4513,5113,6493,8784,1234,4104,6975,069" - "Total revenue 2,8122,9753,2523,3643,4313,5503,7764,0194,3034,6415,012" - "Total expenditure 4,0454,0313,8313,9863,9554,1104,2404,5044,8105,1345,532" - "Overall balance (payment order basis) Excluding grants -1,233-1,055-579-622-523-561-464-485-507-493-519 Including grants -1,178-991-514-536-444-461-361-381-400-437-462" - "Overall balance (cash basis) Excluding grants -1,032-979-880-796-627-810-783-520-507-493-519 Including grants -977-915-814-709-548-710-561-415-400-437-462" - "Financing 978914431710163353517415400437462" - "External financing, net 340785511825249366376390441398463" - "Domestic financing, net 578129-80-116-86-1414125-4139-1" - Central government operations — percent of GDP (selected lines copied exactly from Table 2b): - "Total revenue and grants 14.8 15.015.5 16.115.5 16.2 16.316.316.3 16.316.2 16.3" - "Total revenue 14.5 14.615.2 15.7 15.115.7 15.8 15.815.9 16.0 16.1" - "Total expenditure 20.919.817.918.6 17.4 18.217.817.817.817.717.8" - "Overall balance (payment order basis) Excluding grants -6.4-5.2 -2.7-2.9-2.3-2.5-1.9-1.9-1.9-1.7-1.7" - "Overall balance (cash basis) Excluding grants -5.3-4.8 -4.1-3.7-2.8 -3.6-3.3-2.0-1.9-1.7-1.7 Including grants -5.1-4.5-3.8-3.3 -2.4-3.1-2.3-1.6-1.5-1.5" - Balance of payments (selected lines copied exactly from Table 3): - "Current account balance-613-541-780-792-695-775-778-814-861-882-918" - "Trade balance-137-117 -409 -309-392 -299-324-490-584-608-651" - "Exports, goods2,7252,6752,7472,83328232,8182,8912,7912,7842,8732,975" - "Imports, goods-2,862 -2,792-3,156 -3,142-3215-3,118-3,215-3,281-3,368-3,481-3,626" - "Overall balance-697212-301165-276-291-3454104131223" - "Financing697-212301-165 27629134-54-104-131-223" - "Use of IMF credit (net)-18150-15 -70-15-15000-32-53" - "Financing gap00383 0384357440000" - "Of which: Possible IMF financing 85868844000" - Monetary survey (selected lines copied exactly from Table 4): - "Net foreign assets 1,706 1,970 1,846 1,947 2,074 2,070 2,105 1,806 1,976 1,990 1,970 2,055 2,021 2,074 2,178 2,309 2,532" - "Broad money 4,345 4,602 4,634 4,895 5,053 5,234 5,192 4,963 5,123 5,353 5,191 5,551 5,878 6,255 6,687 7,180 7,704" - "Credit to the private sector 2,653 2,714 2,683 2,866 2,839 2,929 2,885 2,960 2,899 2,972 3,054 3,106 3,314 3,550 3,844 4,199 4,593" - "Net borrowing from the central bank excluding IMF -61 -63 -12 -145 41 47 31 9 34 6 -6 -18 -132 -120 -98 -69 -84" - "Credit to the economy (annual percentage change) 5.8 2.5 4.4 8.4 7.2 10.5 7.7 7.5 5.0 5.6 6.3 5.7 6.4 6.8 7.6 8.7 9.1" - "Broad money (annual percentage change) 5.5 5.9 5.8 6.4 9.8 13.7 12.2 7.1 10.6 13.0 6.0 6.1 5.9 6.4 6.9 7.4 7.3" - Financial soundness indicators (selected lines copied exactly from Table 5): - "Capital/risk-weighted assets11.410.19.0 10.310.211.013.815.516.317.4" - "Non-performing loans/total loans 1/9.79.310.710.812.6 ...9.114.819.9..." - "Return on Assets (ROA)0.80.70.7 0.70.81.61.00.60.91.6" - "Return on Equity (ROE)14.814.117.0 14.019.034.014.98.512.020.0" - "Liquid assets/Total assets 1/23.0 23.123.224.229.7 ...29.523.425.5..." - "Liquid assets/ST liabilities139.5 147.5148.7 142.9159.9186.9156.3154.3163.0181.0" ### Risk Assessment Matrix — key risks and recommended responses (excerpt) - Rising protectionism and retreat from multilateralism (Relative Likelihood: Medium; Impact: High). - Recommended policy response: Support CEMAC regional integration on free flow of goods and people; encourage further cooperation to remove obstacles for intra-regional trade; promote export diversification. - Sharp tightening of global financial conditions: Sustained rise in risk premium (Relative Likelihood: Medium; Impact: Medium). - Recommended policy response: Improve CEMAC integration and economic relationship with Nigeria; improve business environment; implement structural reforms to improve competitiveness; support inclusive growth to enhance social cohesion. - High domestic inflation shock (Relative Likelihood: Medium; Impact: Low). - Recommended policy response: Continue necessary fiscal consolidation and structural reforms; enhance bank supervision and regulation; encourage development of fintech platforms. - Weaker than projected global growth (Relative Likelihood: High; Impact: Medium). - Recommended policy response: Improve regional integration; implement structural reforms to improve business climate and competitiveness. - Intensification of fragmentation/security dislocation (Relative Likelihood: High; Impact: High). - Recommended policy response: Improve humanitarian situation of refugees and IDPs and enhance social cohesion. - Sizable deviations from baseline energy prices (Relative Likelihood: High; Impact: Medium). - Recommended policy response: Widen the non-oil tax base; increase efficiency of the national oil refinery (SONARA) and spur competition in the oil import sector. - Cyber attacks (Relative Likelihood: Medium; Impact: High). - Recommended policy response: Enhance investment in IT system and increase awareness of cyber security. - Spillovers from other CEMAC countries; regional security deterioration; election-related reform fatigue; contingent risks from state-owned enterprises — all flagged with Medium to High relative likelihood and High impact, with recommended responses focused on regional coordination, contingency planning, budget execution control, monitoring of SOE risks, and contingency budget space for security and refugee needs. *Source: IMF staff report material for Cameroon (excerpts provided).* ### 1. Total financing requirement28.41055.61252.21221.31178.21286.41365.71550.71677.2 ### 1cmrea2019001 - 1. Total financing requirement28.41055.61252.21221.31178.21286.41365.71550.71677.2 ### Total financing requirement (aggregate items) - Total financing requirement series (row label and values as presented): 28.4 1055.6 1252.2 1221.3 1178.2 1286.4 1365.7 1550.7 1677.2 - Current account deficit: 613.0 541.2 792.2 774.9 777.6 814.4 861.2 882.1 917.8 - Debt amortization: 112.9 134.5 210.4 380.6 390.9 418.5 400.7 537.8 536.4 - Commercial banks: (no separate numeric series given) - Corporate sector: (no separate numeric series given) - Repayment to the Fund: 17.7 16.7 15.4 15.0 0.0 0.0 0.0 32.1 53.2 - Change in gross reserves (increase=+): -715.2 363.2 234.2 50.9 9.7 53.5 103.8 98.6 169.9 ### Total financing sources (major inflows and components) - Total financing sources series: 36.6 686.4 869.6 864.4 1134.6 1286.4 1365.7 1550.7 1677.2 - Capital transfers: 36.3 64.8 86.7 27.7 29.4 31.4 33.6 36.1 38.8 - Foreign direct investment (net): 324.7 458.4 375.7 404.0 475.3 522.6 566.5 614.5 634.3 - Portfolio investment (net): 12.3 14.2 12.5 12.9 13.3 13.7 14.1 14.5 14.9 - Debt financing (aggregate): -336.8 168.9 394.7 419.9 616.6 718.8 751.6 885.7 989.2 - Public sector: 458.0 718.2 694.6 747.0 766.6 808.8 841.6 935.7 999.2 - Short-term debt: -794.8 -549.3 -299.9 -327.1 -150.0 -90.0 -90.0 -50.0 -10.0 - Errors and omissions: 0.0 -19.8 0.0 0.0 0.0 0.0 0.0 0.0 0.0 ### Total financing needs, expected financing, and residual gaps - Total financing needs (C=A+B as presented): -8.1 369.2 382.6 356.9 43.5 0.0 0.0 0.0 0.0 - Expected financing (presented): 201.5 298.2 268.9 - Identified external sources detailed (partial list): - AFDB: 216.5 65.6 - WB: 116.3 0.0 114.7 - France: 65.5 66.0 65.6 - EU: 19.7 15.7 23.0 - Residual financing gap (presented): 167.1 85.2 87.8 43.5 - IMF ECF financing (presented as covering the gap): 167.1 85.2 88.0 43.5 - Source note: IMF staff estimates and projections. ### Gross fiscal financing needs, 2016–24 (high-level fiscal flows and financing) - A. Overall fiscal deficit (cash basis, including grants) by year: 977.5 915.0 709.4 709.7 560.6 415.4 400.0 437.1 462.2 - B. Other financing needs by year: 394.3 570.2 289.7 461.0 420.4 445.4 484.1 653.2 647.3 - Amortization (including arrears): 367.2 206.2 289.7 461.0 420.4 445.4 426.4 595.5 589.6 - External amortization: 130.6 151.2 225.8 395.6 390.9 418.5 400.7 569.9 589.6 - o/w Amortization (excl. IMF): 112.9 134.5 210.4 380.6 390.9 418.5 400.7 537.8 536.4 - o/w Repayment of IMF credit: 17.7 16.7 15.4 15.0 0.0 0.0 0.0 32.1 53.2 - Domestic amortization: 236.6 55.0 63.9 65.4 29.5 26.9 25.7 25.6 0.0 - o/w Amortization of T-bills: 203.4 35.6 63.9 65.4 29.5 26.9 25.7 25.6 0.0 - o/w Amortization of Bonds: 33.2 19.3 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Banking System item: 27.1 364.0 0.0 0.0 0.0 0.0 57.7 57.7 57.7 - Repayment of statutory advances: 0.0 0.0 0.0 0.0 0.0 0.0 57.7 57.7 57.7 - C=A+B Total financing needs by year: 1371.7 1485.2 999.0 1170.6 981.0 860.8 884.0 1090.3 1109.5 - D. Identified sources of financing by year: 1312.9 1484.4 999.3 813.7 937.4 860.8 884.0 1090.3 1109.5 - External drawing (project financing ext.): 453.0 919.7 1035.8 747.0 766.6 808.8 841.6 935.7 999.2 - Domestic (aggregate): 859.9 564.6 -36.5 66.8 170.8 52.0 42.5 154.6 110.3 - Banking System: 654.7 565.7 325.4 138.4 72.1 71.4 112.5 127.4 40.7 - BEAC Statutory advances: 93.1 345.9 0.4 0.0 0.0 0.0 0.0 0.0 0.0 - IMF withdrawal: 158.4 (presented as item) - Government deposits: 474.6 0.0 140.0 -74.9 -111.4 13.7 79.9 86.6 42.8 - Bank loans: 82.7 30.7 117.6 203.3 85.5 59.8 32.6 40.8 0.0 - Other bank financing: 4.3 30.7 67.4 10.0 98.0 -2.0 0.0 0.0 -2.2 - Other non-bank financing: 205.2 -1.1 -361.9 -71.6 98.7 -19.5 -70.0 27.2 69.7 - E=C-D Financing gap by year: 58.8 0.0 -0.3 356.9 43.5 0.0 0.0 0.0 0.0 - Errors and omissions row: 59.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - F. Exceptional external financing (2018 item): 0.0 0.0 268.9 0.0 0.0 0.0 0.0 0.0 0.0 - Multilateral: 0.0 0.0 203.3 0.0 0.0 0.0 0.0 0.0 0.0 - Bilateral: 0.0 0.0 65.6 0.0 0.0 0.0 0.0 0.0 0.0 - E-F Residual financing needs / IMF - ECF: 0.0 0.0 88.0 43.5 0.0 0.0 0.0 0.0 0.0 ### Proposed Schedule of Disbursements under the ECF Arrangement, 2017–20 (tabled disbursements) - Date of Availability and Amount (SDR Million) and Percent of quota: - 6/26/2017: 124.2 SDR million — 45 percent — Condition: Executive Board approval of the ECF arrangement. - 12/15/2017: 82.8 SDR million — 30 percent — Conditions: Observance of continuous and end-June 2017 performance criteria, and completion of the first review. - 6/30/2018: 55.2 SDR million — 20 percent — Conditions: Observance of continuous and end-December 2017 performance criteria, and completion of the second review. - 12/15/2018: 55.2 SDR million — 20 percent — Conditions: Observance of continuous and end-June 2018 performance criteria, and completion of the third review. - 6/15/2019: 55.2 SDR million — 20 percent — Conditions: Observance of continuous and end-December 2018 performance criteria, and completion of the fourth review. - 12/15/2019: 55.2 SDR million — 20 percent — Conditions: Observance of continuous and end-June 2019 performance criteria, and completion of the fifth review. - 5/31/2020: 55.2 SDR million — 20 percent — Conditions: Observance of continuous and end-December 2019 performance criteria, and completion of the sixth review. - Total: 483.0 SDR million — 175 percent ### Capacity to Repay the Fund, obligations and memorandum items (selected series and indicators) - Fund obligations based on existing credit (SDR millions outstanding by year): 59.4 245.7 336.2 427.8 483.0 483.0 483.0 441.6 372.6 281.5 184.9 88.3 33.1 5.5 0.0 0.0 0.0 0.0 0.0 - Outstanding Fund credit (CFAF billions corresponding): 49.0 198.4 259.5 341.1 380.9 378.8 376.4 342.7 287.3 217.1 142.6 68.1 25.5 4.3 0.0 0.0 0.0 0.0 0.0 - Memorandum items (selected): - Nominal GDP (CFAF billions) by year: 19,345 20,328 21,382 22,538 23,864 25,363 27,049 28,971 31,087 33,357 35,795 38,422 41,251 44,298 47,578 51,110 54,914 59,007 - Exports of goods and services (CFAF billions): 3,710 3,794 4,063 4,074 4,192 4,166 4,216 4,365 4,531 4,750 4,991 5,286 5,605 5,951 6,325 6,756 7,225 7,736 (note: final years in dataset continue) - Government revenue (CFAF billions): 2,866 3,040 3,451 3,649 3,878 4,123 4,410 4,697 5,069 5,454 5,900 6,358 6,853 7,422 8,010 8,689 9,403 10,219 - Debt service (CFAF billions): 183 234 262 306 314 325 351 524 548 597 507 528 522 545 561 585 629 680 ### Fuel Pricing and Subsidies — structure, evolution, fiscal impact, and reform scenarios - Structure and key components: - Main players: State Refinery Company (SONARA) and the marketers. - Import price represents on average ⅓ of the domestic retail price (Table 1). - SONARA benefits from a producer subsidy which constitutes a fixed mark-up; an 82 percent increase in early-2018 left the SONARA mark-up unchanged thereafter. - SONARA receives a post-tax subsidy to compensate the gap between cost of refining imported crude oil and the retail price. - VAT, customs duties, and excise tax TSPP are important; TSPP represented 10 percent of the pump price on average over 2014–18 after mid-2014 and early-2017 changes. - Additional fixed charges: transport equalization fees (levied by Fuel Price Stabilization Fund, CSPH), marketers’ charges, retailers’ fees. - Retail price behavior: - Domestic fuel prices administratively set; increased by 15 percent in mid-2014, reduced by 4 percent in early 2016, and remained flat since. - Import prices (with delays) reflect world petroleum prices and exchange rate movements; subsidies used to smooth domestic retail prices. - Fiscal magnitude of subsidies: - Fuel product subsidies represented ¼ of total transfers and subsidies (4.5 percent of current spending, and 0.5 percent of GDP) in 2017–18. - Subsidies to SONARA for validated losses (cost-recovery gap) added an additional fiscal cost of 0.3 percent of GDP in each 2017 and 2018. - SONARA incurs operating losses when Brent prices rise above US$62 per barrel, given fixed retail prices and inefficiencies. - Reform opportunity and proposed approach: - The still relatively low international oil price level offers an opportunity to reform the fuel pricing mechanism through phased pass-through of international price changes to domestic retail prices, adoption of a clear reform plan, a communication campaign, and social measures to shield vulnerable groups. - Benchmark: price structure observed in Q1 2019 (Jan-Mar). - All three reform scenarios assume elimination of post-tax subsidies and allow frequent, though limited, pump price changes. Net fiscal contribution = taxes (VAT, customs, excises) minus producer and post-tax subsidies (including SONARA). - Reform scenarios and quantitative outcomes: - Scenario 1: - Assumes current price structure, no major reform, pump prices and remaining parameters unchanged. - Breakeven Brent price for de facto elimination of subsidies while keeping pump prices unchanged: US$45 per barrel (versus current price US$62 per barrel). - Net fiscal contribution estimated at CFAF 103 per liter. - Scenario 2: - Authorities keep fixed SONARA mark-up and TSPP. - Changes in import prices reflected in transport equalization fee, marketers’ charges and retailers’ mark-up; pump prices adjust (average monthly change of 4 percent). - Net fiscal contribution estimated at CFAF 110 per liter. - Scenario 3: - Assumes fixed TSPP; SONARA mark-up varies with international prices. - Month-to-month pump price variation limited to ±5 percent; pump prices vary by 2 percent on average over Q1-2019. - Net fiscal contribution amounts to CFAF 116 per liter. *Source: IMF staff estimates and projections.* ### 6. While scenario 1 may seem unrealistic, given that international oil prices (US$62 per ### 6. While scenario 1 may seem unrealistic, given that international oil prices (US$62 per barrel) are projected to be 40 percent above the breakeven price (US$45 per barrel); scenarios 2 and 3 seem attractive. ### Fuel price scenarios, fiscal impact, and recommended reforms - Key comparative observation: - International oil prices: US$62 per barrel. - Breakeven price: US$45 per barrel. - International oil prices are projected to be "40 percent above the breakeven price". - Scenarios summary (as described): - Scenario 1: Implied unrealistic given Brent at US$62 and breakeven US$45. - Scenarios 2 and 3: More attractive alternatives. - Net fiscal contribution under these scenarios is doubled compared to the current administered price scenario. - Monthly change in domestic retail prices can be capped below ±5 percent under reformed administered pricing. - Policy recommendations and cautions: - Reform the administered pricing mechanism to maximize the contribution of fuel products taxation to the budget while avoiding abrupt pump price changes. - Changes to the petroleum excise tax are not advisable because they would increase the volatility of receipts related to fuel products taxation. - Reduce transport equalization fee and possibly liberalized segments of the price structure while keeping pump prices fixed. - Reduce perceived margins captured by public actors (the CSPH, public storage facility) and ensure transfer of any surpluses to the treasury. - Take additional measures to reduce SONARA’s operating costs. - Seek external technical support (World Bank) to: - (i) conduct broader, in-depth analysis of the price structure; - (ii) identify better targeted subsidies to protect the poor and vulnerable; - (iii) support preparation of a communication campaign to sensitize the public to objectives and impact of reform. - Operational constraint: - Aim to cap monthly changes in domestic retail prices below ±5 percent. ### Data points and price components (selected figures preserved exactly as presented) - Price structure line-items and sample figures (CFAF per liter, unless otherwise noted) as presented in the source’s table: - 1-Import prices: 364 / 314288309258259 / 258314288309314288309 (table entries presented verbatim) - 2-SONARA mark-up: 48 48 48 48 / 48484848 / 48484848414050 - 3-Taxes: 175 / 162155161151150 / 151159153163161155161 - VAT: 91 81 / 76807171 / 71807581817581 - Customs: 18 16 14 15 / 161415141317161415 - TSPP: 65 65 65 / 65656565656565656565 - 4-Transportation fees: 65 65 65 65 65 65 65 65 65 650565405621 (presented verbatim) - 5-Marketers fees: 40 40 40 40 40 40 40 36 36 45 36 36 45 (presented verbatim) - 6-Retailers mark-up: 13 13 13 13 13 13 13 12 12 15 12 12 15 (presented verbatim) - 7-Theoretical prices: 704641 / 609635575575575625591644604586601 (presented verbatim) - 8-Subsidies: -129 -66 -34 -6100 / 0000000 (presented verbatim) - 9-Pump prices: 575 / 575575575575575575 / 575625591644604586601 (presented verbatim) - Change in pump prices: 56.559.362.565.045.045.245.059.362.565.059.362.565.0 (presented verbatim) - Change percentages shown in table: 0%0%0%0%0% / 0%0% / 9%-5%9%5%-3%3% / -2.347.873.752.4103.4102.1103.2 (presented verbatim) - Net fiscal contribution and scenario labels shown: 2018 Fixed TSPP Fixed TSPP and Markup Breakeven prices Current prices / 2019 Scenario 2 Scenario 3 Scenario 1 (presented verbatim) - Brent (USD per barrel) shown as memo item. ### Treasury Single Account (TSA) reform — objectives, findings, and steps - Reform objective: - Ease recurrent liquidity tensions and emergence of domestic arrears by ensuring the Treasury has access to all available government resources and avoids unnecessary borrowing costs. - Current situation (as of end-2018 inventory findings): - The Treasury account at the BEAC is not an effective TSA: 28 other government accounts at the BEAC with no direct links; many public entity accounts in commercial banks. - Inventory (end-2018) identified more than 2,000 accounts held by public entities—excluding SOEs—in 10 out of 14 commercial banks, with CFAF 390 billion (1.8 percent of GDP) of overnight and term deposits. - A large number of accounts (25 percent of the accounts, and 35 percent of the deposits) is held by public entities, in particular the EPA. - Around ⅓ of the accounts and the deposits are related to capital spending, including accounts for counterpart funds and externally and domestically-financed investments. - Accounts and deposits held by committees, special funds such as the road fund, and special accounts are also sizable. - Selected table figures (Table 1, accounts held by public entities in commercial banks, 2018): - Total: 238 accounts; 1100.0%?; CFAF 389.8 (presented verbatim as in table: "Total2381100.0389.8") - Capital spending: Number of accounts 70; (in %) 42?; (in CFAF billion) 29.6 112.6 (presented verbatim as in table: "Capital spending 70429.6112.6") - Counterpart funds: 34 9 14.7 49.6 (presented verbatim) - Domestic investment: 25 7 10.8 29.2 (presented verbatim) - Foreign-financed projects: 9 8 4.1 33.8 (presented verbatim) - Public entities: 55 6 23.4 137.2 (presented verbatim) - Administrative public entities (EPA): 46 2 19.4 113.4 (presented verbatim) - Subnational entities: 35 7 15.0 6.1 (presented verbatim) - Defense and Security: 21 0.9 9.4 (presented verbatim) - Health and education: 26 6 11.2 3.1 (presented verbatim) - Special accounts: 74 3.1 65.1 (presented verbatim) - Committees: 3 9 1.6 0.8 (presented verbatim) - Road fund and other funds: 4 11.7 13.4 (presented verbatim) - Debt and on-lending: 7 0.3 2.5 (presented verbatim) - Embassies and international org.: 1 30.5 0.2 (presented verbatim) - Others: 30 3 12.7 39.4 (presented verbatim) - Actions already taken: - Authorities identified and closed 126 accounts held by the public debt agency and accounts holding domestic resources for capital spending; corresponding balances transferred to the TSA. - Identified accounts for closure: accounts inactive over last three years, accounts with current spending resources, accounts with completed projects, projects with no financing agreements. - Authorities committed to identify all remaining accounts to be transferred to the TSA and to communicate with account holders by September 2019, to allow closure and transfer by end-December 2019. - Key implementation steps (selected): - Sign with the BEAC a TSA management agreement to establish a TSA with subaccounts (with null balances) following Article 67 of the 1st CEMAC PFM Directive; ensure BEAC can technically provide CUT and subaccounts situation on a daily basis (by end-September 2019). - Analyze options to consolidate the existing 28 government accounts at the BEAC. - Prepare a calendar ensuring gradual transfer of cash balances in commercial banks to the TSA, ending in December 2019 with full transfer and closing of accounts in commercial banks. - Continue to prohibit opening of new accounts. - Supporting cash management reforms (selected): - Implement credible and realistic commitment and procurement plans on which the Treasury plan can be based. - Enhance Treasury management by extending the role of the Treasury committee to include budget regulation, preparing weekly Treasury and commitment plans, and continuing to reduce balances of correspondent accounts. ### Macroeconomic impact of enhancing public investment efficiency — model, scenarios, and results - Context and motivation: - Long-term objective: Cameroon becoming an emerging-market economy by 2035. - Rapid buildup of public debt: increased from 12.1 in 2010 (post HIPC debt relief) to 35.6 percent of GDP at end-2018, earning a high risk of debt distress rating. - Need to stabilize economy, prioritize public investment, and cap non-concessional external financing of projects. - Model and calibration: - Debt-investment growth (DIG) model used to measure gains from public investment reforms and favorable financing strategies. - Public investment efficiency set at 50 percent (in line with PIMA). - Initial rate of return on public investment set at 18.3 percent (based on median at appraisal); median rate of return at completion 14.3 percent. - Total public debt estimated at 33.4 percent at end 2017 to account for commitments contracted or guaranteed. - Baseline scenario: - Assumes fiscal and external consolidation and gradual completion of infrastructure projects. - Public investment remains steady at 6.8 percent of GDP in the medium term. - No improvements in public investment efficiency. - New public investment projects financed mainly through non-concessional loans. - Twin-reform scenarios (efficiency and prioritization improvements): - Public investment efficiency improvements simulated from 50 percent to 65 percent and to 75 percent (emerging market levels), implying each dollar of public investment produces $0.5, $0.65, and $0.75 of productive public capital respectively. - If twin-reforms improve average investment returns to 30.3 from 18.3 percent, cumulative gains by 2034: - Private consumption: around 2 percent higher. - Private investment: around 2 percent higher. - GDP gains: modest (exact GDP percentage not stated for no-scale-up case). - Debt burden remains relatively stable under these improvements when public investment is funded by non-concessional financing and no scale-up. - Impact of favorable financing with modest scaling up: - Hypothetical scale-up: public investment scaled up by 2 percent of GDP over simulation period. - If scale-up is entirely financed by concessional loans and twin-reforms raise average returns to 30.3 percent from 18.3 percent, then: - Private consumption and investment levels are 26 percent and 16 percent higher by 2034 at higher efficiency and return. - GDP is 4.8 percent higher by 2034. - Public debt levels gradually fall when concessional loans finance the scale-up. - Conclusion: scaling up public investment has much larger payoffs when combined with prioritization of high-return projects, efficiency improvements, and favorable (concessional) financing. - Policy implications: - Prioritize high-yielding investments (roads, power generation) and ensure quality of projects at entry through completion. - Cap non-concessional external financing for projects; prefer concessional financing where possible. - Implement PIMA recommendations: binding documents specifying project selection criteria, better-defined land expropriation procedures, landowner compensation strategies to facilitate speedy implementation. - Public investment reforms that remove inefficiencies and prioritize high-return projects can crowd in private investment and generate sustainable growth dividends; these effects are magnified with concessional financing for any scale-up. *Source: IMF staff estimates and projections as presented in the document.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### Program performance and recent developments - The government reports that "All but two quantitative criteria have been observed, and all but one indicative targets have also been met." - Growth and inflation: - Economic growth: "3.5 percent in 2017" and "4 percent in 2018 (as against the 3.8 percent projected at the end of the third review)." - Non-oil sector growth: "4.4 percent" in 2018. - Inflation: "0.6 percent in 2017", "1.1 percent in 2018", and "1.4 percent in March 2019." - Fiscal and budget execution: - Overall fiscal balance: "declined to 2.5 percent of GDP (4.9 percent of GDP in 2017)." - Non-oil primary deficit: "reached 3.9 percent of GDP" and "improved by 2 percent of GDP compared to 2017." - Cash-basis deficit: "At 3.0 percent, the cash basis deficit..." - Expenditure float: "0.6 percent of GDP" accumulation contributed to outcomes. - End-March execution: "the overall budget balance thus shows a 0.7 percent of GDP surplus, compared with a projected 0.3 percent of GDP deficit." - External sector and reserves: - Current account deficit: "deteriorated to 3.7 percent of GDP in 2018 (as against 2.7 percent of GDP in 2017)." - BEAC net foreign assets (NFA): "above the third review projections of CFAF 158 billion at end-2018"; BEAC NFAs "continued to increase (by CFAF 48 billion) in the first quarter of 2019" and "resulting in an increase in the total NFAs of CFAF 35 billion." - Monetary and financial indicators: - Broad money and deposits growth: "almost doubled to a little under 10 percent at end-December 2018." - Credit to the economy: "7.2 percent" at end-December 2018, of which "4.6 percent in credit to the private sector and 69 percent in credit to public enterprises." - Net government deposits at the BEAC: "declined by 0.5 percent of GDP at end-December 2018 compared to a projected net accumulation of 0.4 percent of GDP." - Bank reserves with the central bank: "representing 24 percent of deposits at end-March 2019." - Nonperforming loans: "13 percent of total credit at end-2017", "15.3 percent at end-2018" and "16.2 percent at end-February 2019." ### Implementation of program targets and benchmarks - Quantitative performance criteria and indicative targets (end-2018 and end-March 2019): - Non-oil primary balance: "met by a margin of 0.15 percent of GDP." - Ceiling on net government financing by the BEAC (excluding IMF financing): "exceeded by 0.5 percent of GDP, owing to large payments to Treasury correspondents." - Ceiling on net domestic financing (excluding IMF financing): "met by a wide margin (1.3 percent of GDP)." - Ceilings on disbursements of non-concessional loans and contracting of new non-concessional loans: "observed by significant margins, particularly the ceilings on disbursements of non-concessional loans (a margin of 0.5 percent of GDP) and the contracting of new non-concessional loans (a margin of 0.4 percent of GDP)." - Continuous performance criterion on non-accumulation of external arrears: "missed between January and April 2019" due to a delayed payment "in the amount of CFAF 52 billion owed to China in January 2019" that "was made on April 17, 2019." - Indicative targets: "All of the indicative targets for end-December 2018 were met with the exception of the indicative ceiling on Société Nationale des Hydrocarbures (SNH) direct interventions, which was exceeded by 0.2 percent of GDP." - End-March 2019 indicative targets: "Almost half ... have been met, namely the non-oil primary deficit, the government net domestic financing (excluding IMF), the non-concessional loan disbursements, and the ceiling on SNH's direct interventions." - Structural benchmarks: - "Five of the eleven structural benchmarks for end-March 2019 were met by the deadlines and three benchmarks were implemented with a delay." - Examples of delayed benchmarks and status: - Training in bank dispute resolution for commercial court judges (due by December 2018): selection took longer; "training...began on January 7, 2019 and was completed on March 29, 2019." - Competitive bidding for LPG purchases and related governance measures (due by January 2019): "Competitive bidding has taken place since November 2018"; validation committee set up in April 2019; transfer of CSPH surpluses to Treasury to be approved in June 2019 and effective by end-August 2019. - Introduce mechanism and provide table for SNH direct interventions (due by January 2019): working group meets monthly; "A table detailing the types of expenditures involved in direct interventions was transmitted to IMF staff on May 1, 2019." - Prepare a disbursement plan for SENDs for 2019-20 (due by March 2019): SENDs plan "communicated to IMF staff on May 24." - Determine business model for SME bank (scheduled March 2019): requires prior SME needs study "being finalized in May"; business model by September 2019. - Finalize recording of movable collateral in computerized database (scheduled March 2019): "computerized database was officially launched on May 23. The recording is ongoing and will be finalized by July 2019." ### Requests, corrective actions, and commitments - Waivers and modifications requested: - Waivers requested for: - "the nonobservance of the quantitative performance criterion at end-December 2018 on the ceiling on net central government financing from the BEAC, excluding IMF disbursements" - "the nonobservance of the continuous criterion on the accumulation of external arrears, as these arrears have been cleared." - Modifications requested to the quantitative end-June performance criteria on: - "(i) the ceiling on non-concessional external debt disbursements to allow for the execution of ongoing priority projects and the disbursement of the balance of funds requested for projects in 2018;" - "(ii) the ceiling on net government financing by the BEAC;" - "(iii) the ceiling on net government domestic financing;" - "(iv) the floor on the non-oil primary deficit, as indicated in Table 1 of the MEFP," - and "the modification of the definition of the continuous PC on non-concessional borrowing and of the IT on the net accumulation of domestic payment arrears." - Modification of some end-June and end-September indicative targets as indicated in Table 1 of the MEFP. - Corrective and supporting measures already taken or planned: - Prior actions implemented "to correct the deviations observed in 2018 in regard to the quantitative target on the net accumulation of government deposits at the BEAC." - A supplementary budget for 2019 has been prepared and submitted to Parliament; it "includes total revenues that are slightly above the initial projections." - Measures to strengthen revenue mobilization: "strengthening of the tax collection and auditing functions" and implementation of administrative measures in the 2019 budget law. - Measures to enhance fiscal transparency and discipline: "a budget execution report identifying the discrepancies between execution and the initial budget law has been published, and a decree setting out the budget calendar and reducing the complementary period to one month has been signed." - Commitments: - Government "undertakes to respect the reprofiled program quantitative performance criteria and indicative targets for end-June, as well as the performance criteria and indicative targets for December 2019." - Commitment to "regularly report all required information to the IMF by the established deadlines and in accordance with the attached Technical Memorandum of Understanding (TMU)." - Government supports BEAC and COBAC efforts "to improve compliance with the new foreign exchange regulations" and "will ensure compliance with the requirement to repatriate export proceeds including oil revenues." - Request for conclusion of the fourth review and disbursement: "the government requests the conclusion of the fourth review under the ECF arrangement and the disbursement of SDR 55.2 million." ### 2019 outlook and medium-term prospects - Growth projections: - "Growth should improve slightly to 4.2 percent in 2019, driven essentially by an increase in oil production." - Medium-term: growth "could stabilize at between 5 and 5.5 percent." - Policy priorities stated for 2019 and medium term: - "pursue its public financial management reforms by effectively implementing the CEMAC directives," - "continue to expand the non-oil revenue base," - "improve the control and efficiency of public capital expenditure," - "enhance the stability of the banking sector," - "reduce the obstacles to the development of the private sector," - "promote the diversification of the economy, while maintaining debt sustainability." *Letter of Intent dated June 17, 2019; attachments: Supplementary Memorandum of Economic and Financial Policies and Technical Memorandum of Understanding.* ### 9. Adherence to the fiscal targets for 2019 and beyond is essential to restore the major ### 9. Adherence to the fiscal targets for 2019 and beyond is essential to restore the major ### Macroeconomic outlook and balance-sheet targets - Fiscal consolidation and repatriation of export proceeds should underpin improvement in the current account and rebuilding of foreign exchange reserves. - Current account deficit should stabilize at around 3 percent of GDP in the medium term. - Net foreign assets target: around CFAF 2,532 billion in 2024, versus CFAF 1,706 billion in 2016. - Public debt increased more rapidly than anticipated in 2018 owing to the acceleration of project loan disbursements; any slippage could lead to an unsustainable public debt trajectory because of rapid accumulation of non-concessional debt and a limited, little-diversified export base. - External risks: international trade tensions, slower growth in China, persistent volatility of commodity prices, delays in regional adjustment of the CEMAC. - Domestic risks: deterioration in sociopolitical climate before legislative and municipal elections could undermine fiscal consolidation and reform implementation. - Non-oil sector remains strong and could mitigate some negative shocks. ### Fiscal policy objectives for the remainder of 2019 - The 2019 budget law calls for a deficit of 2.0 percent of GDP; objectives revised in light of 2018 outturn and Q1 2019 preliminary results. - Draft supplementary budget submitted to Parliament in June 2019 aims to maintain fiscal deficit at 2 percent of GDP while: - Including an expected increase in oil revenue by 0.3 percent of GDP compared to initial projections. - Including slightly higher non-oil revenues owing to expanded base in 2018 and measures in the 2019 budget law, though increase expected to remain modest because of: - Delay in implementation of new measures. - Lower than projected mobilization of tax and customs revenues at end of Q1 2019, in part due to sociopolitical and security crisis in northwestern and southwestern regions. - Significant decline in SONARA declarations and payments to DGD and DGI at end of Q1 2019, a trend that could continue. - Current expenditures include provisions for security and humanitarian situation, election financing, and subsidies. - Capital expenditure maintained at around 6.6 percent of GDP, with an increase in externally-financed expenditure of 0.7 percent of GDP based on a detailed disbursement plan. - Larger proportion of externally-financed expenditure in the deficit (Treasury payment order basis) allows continuation of plan to clear domestic arrears, reduce balances of correspondent accounts, and increase Treasury deposits at the BEAC. ### Government financing and securities issuance (2019) - Government to continue issuing T-bills and T-bonds per 2019 budget law authorization. - First quarter of 2019: BTAs totaling CFAF 116.77 billion were issued against an initial projection of CFAF 45 billion, revised to CFAF 122 billion given market liquidity. - 2019 initial budget law authorizations: CFAF 260 billion total, including planned issuance of CFAF 150 billion in OTAs in Q2 and Q3 2019 to revitalize the securities market. ### Urgent measures to enhance control of budget execution (to meet revised 2019 targets) - Publication: 2018 budget execution report published in early June, 2019, clearly identifying overruns and reasons, including monitoring of exceptional procedures. - Exceptional procedures (provisional commitments, treasury advances, cash advances) continue to jeopardize transparency and complicate regularization; expenditures requiring regularization at end of complementary period remain high at 1.1 percent of GDP. - Government will apply 2019 budget execution circular provisions: eliminate provisional commitments and cash advances, replace with “régies d’avances”. - Total volume of expenditure involving exceptional procedures limited to 5 percent of total domestically financed expenditure envelope (excluding debt service) in 2019. - Limit direct interventions to a maximum of CFAF 140 billion in 2019; supplementary budget includes CFAF 140 billion to avoid crowding out other expenditures. - Expenditure to be regularized, including SNH direct interventions, will be adjusted monthly; monthly accounting statements attached to TABORD indicating amount of cash advances and régies d’avances. - Timeline for 2019 fiscal year: - Expenditure commitments closed by end-November 2019. - Payment orders by end-December 2019. - Complementary period permanently reduced to one month (end-January 2020 for fiscal year 2019). ### Contingent measures and revenue/expenditure trade-offs - Government commits to identify and quantify contingent measures to contain downside revenue risks and maintain executed expenditure within revised 2019 budget law appropriations. - Revenue-side measures: - Improve collection of tax arrears, particularly those of public enterprises. - Clear cross debts via balancing operations. - DGI and DGD to strengthen audits of enterprises at risk of underreporting to increase tax base. - Expenditure-side measures: - Continue efforts to reduce government goods and services costs per Prime Minister’s 2017 circular (reduce mission expenses, commissions, apply reference price list, limit exceptional procedures). - Control rate of budgetary commitment and align commitments with revenue flows to consolidate primary deficit reduction path. ### Medium-term fiscal policy objectives - Medium-term budget framework aligned with program objectives; deficit target meets CEMAC convergence criterion. - Fiscal deficit stabilizing at around 1.5 percent of GDP in the medium term, allowing respect of CEMAC convergence criterion (reference balance) by 2020. - Deficit reduction to involve steady improvement in non-oil revenue mobilization (including reducing exemptions) and greater efficiency and control of public expenditure. - Gradual reduction in non-priority expenditure while protecting social spending and better prioritization of capital expenditure to allow investment projects to continue. - Social and sectoral spending targets: - Safety net program resources at least CFAF 4.5 billion budgeted and made available to project managers in 2019, increasing to CFAF 9 billion in 2020. - Floor for social spending in 2020 to be gradually increased to 3.7 percent of GDP. - Continue to increase expenditure on health and education and ensure release of sufficient resources for the performance-based health expenditure management program. ### Structural fiscal reforms and treasury management - Accelerate implementation of Law on the Code for Transparency and Good Governance in Public Finance Management and Law on the Financial Regime for the Government and Other Public Entities for effective implementation in the 2020 fiscal year. - Decree on budget calendar signed May 31, 2019, reducing the complementary period to one month. - Finalize implementing decrees for transposition of four other CEMAC directives into national law by end-June 2019. - Start implementation of activities in the operational reform plan for fiscal year 2019: reorganization of government departments impacted by reforms and preparation of implementing regulations for the new Public Procurement Code. - Treasury management reforms to introduce a single Treasury account (STA) due by September 2019, including: - Strengthen treasury committee role to prepare credible monthly cash flow plans based on commitment and procurement plans; committee to prepare annual commitment plans to be attached to budget law starting with 2020. - Close and repatriate bank accounts eligible for inclusion in STA for government departments, public agencies and institutions, administrative public establishments, and some CAA accounts. - In 2018, more than 400 CAA accounts closed and balances of approximately CFAF 7.3 billion repaid to the Treasury, for a total amount identified at around CFAF 40 billion. - Government asked banks to close dormant accounts and transfer balances totaling approximately CFAF 44.5 billion by September 2019. - Continue dialogue with technical and financial partners on centralizing counterpart funds for new joint projects in a single BEAC account; management of accounts for existing projects to continue until completion of related studies. - Actions by end-September 2019: - Sign a management agreement for STA with the BEAC. - Submit a list of government accounts (and balances) excluding counterpart funds as of June 30, 2019. - Send letters to public entities holding these accounts explaining STA reform and proposing timetable for closure and repatriation of balances to BEAC by end-December 2019. - Total resources transferred to STA between May and December to amount to at least CFAF 80 billion. - Continue to clean up and reduce balances of correspondent accounts while respecting deposit accumulation objective; closing of dormant correspondent accounts and accounts of non-revenue generating entities completed (June 2019 SB). - Strengthen government financial reporting system: - From June 2019, TOFE to be produced on basis of automatic links with Treasury account balances and table of payment authorizations and validated per provisions 953, 954 and 955 of circular of December 28, 2018. - Enhance efficiency of capital expenditure by improving project selection, planning, and execution: - Implement decree on investment projects’ maturation to restrict budget inclusion to mature projects with expropriation compensations paid. - Enhance accountability of project implementation units via standardized terms of reference and remuneration of experts based on performance indicators; require quarterly reports with physical and financial project implementation indicators, revision of disbursement plan if necessary, and project management expenditures (new structural benchmark for September 2019). ### Revenue administration reforms (DGI and DGD) - DGI focus areas: - Enhance efficiency of Large Taxpayer Directorate (DGE) and Centre 1 and Littoral 1 Regional Tax Centers through reorganization and improve taxation of individuals by creating specialized units within CIMEs and CDIs. - Improve VAT yield by raising VAT liability threshold. - Continue computerization of tax procedures, specifically renovated CDIs to benefit from electronic filing and payment. - Strengthen tax audits: targeted audits to reduce VAT credit returns, automated tracking of audit procedures in DGE and CIMEs, step up recourse to local and international expertise via Tax Inspectors Without Borders. - Develop additional revenue potential in coordination with DGD: identification, investigation and audit operations for noncompliant enterprises, send tax adjustments and collect undeclared taxes. - Introduce simplified uniform tax for enterprises not subject to VAT. - Continue simplifying and automating procedures: electronic payments for enterprises under DGE and CIMEs, electronic filing of DSF, registration of judicial decisions for tax purposes, automation of dispute procedure and granting of payment delays. - Improve tax collection by strengthening debt collection mechanism for tax debts of importers at the DGD. - DGD focus areas: - Secure customs revenues through quarterly reconciliation of import declarations and SGS-validated scanning images with assessed customs duties; increase effectiveness by: - Making import declaration mandatory for operations whether or not subject to verification program with declared f.o.b. value and requiring RVC number for submitted declarations. - Making mandatory and blocking the RVC number and CIVIC number fields in import declarations. - Improving inspection of used vehicles and requiring CIVIC document before issuing customs clearance certificate for registration of imported vehicles. - Reconciling CIVIC values forwarded by SGS with those validated by DGD. - Enhance monitoring of exports by requiring tax slips (BDT) for all export declarations and making BDT field mandatory and blocking. - Ensure SGS takes legislative and regulatory provisions, including budget laws, into account during evaluation and pre-assessment. - Prepare monthly reconciliations of revenues collected by customs with revenues paid to the Treasury (via TABORD Committee at the DAE) to assess and validate monthly MINFI results. - Continue to reduce tax expenditures in cooperation with DGI. - Improve revenue collection by simplifying procedures, expanding electronic payments, and harmonizing tax bases nationwide. - Enhance protection of information system: secure user profiles and interconnections, strengthen and consolidate ASYCUDA++; complete modernization of CAMCIS and consider operationalization of some modules on July 1, 2019. - Focus anti-fraud and anti-smuggling efforts through HALCOMI III operation targeting products such as vehicles, sardines, alcohol, fabrics, etc. *International Monetary Fund — Cameroon (excerpt).* ### 21. The joint DGI/DGD work on the “FUSION” application database will continue and is ### 21. The joint DGI/DGD work on the “FUSION” application database will continue and is ### Tax administration modernization and information sharing - Continue cleanup of the taxpayer database by using results of cross-checks between the DGI and DGD databases. - Harmonize and simplify procedures. - Control derogatory regimes by accelerating joint DGI-DGD audits of enterprises that have benefited from tax exemptions. - Continue annual evaluation of tax expenditures. - Ensure validity of exemptions by requiring immediate transmission of the document approved by MINFI to the Legislation and Disputes Directorate for processing and registration in a database set up in the DGD central offices. - Prepare a procedures manual aimed at enhancing joint audit and investigation operations to optimize revenues. ### D. Debt Policy and Management of Contingent Liabilities — strategic priorities - Continue focus on avoiding debt distress and placing public borrowing on a sustainable path. - Give priority to concessional loans and limit non-concessional borrowing to priority projects without concessional financing, in line with program limits based on the public debt sustainability analysis. ### Recent debt developments and 2018 figures - Total public debt to GDP increased from 27.4 percent in 2016 to 34.5 percent at end-2018. - 31 new loans proposed in the 2018 borrowing plan totaled CFAF 675.6 billion (including CFAF 433.7 billion in non-concessional loans). - 18 of the proposed loans amounting to CFAF 449.7 billion were contracted, including 9 non-concessional loans amounting to CFAF 341.2 billion (below the program ceiling of CFAF 436 billion in new non-concessional external loans). ### Borrowing and disbursement planning (2019 actions and ceilings) - Government refined prioritization of the borrowing plan and finalized the 2019 disbursement plan (structural benchmark). - Annual ceiling on disbursements of non-concessional loans: CFAF 588 billion. - Ceiling on contracting of new non-concessional loans referenced (TMU ¶37-38). - Government canceled CFAF 111 billion in nonperforming SENDs, reducing the stock of SENDs to 18.9 percent of GDP; considering cancellation of an additional CFAF 166 billion. - Maintain ceiling at CFAF 588 billion for 2019 for non-concessional disbursements. - Continue quarterly disbursement plans for all investment projects; monthly monitoring of disbursement requests and actual disbursements will continue. ### External creditors and China debt engagement - Government requested China to reschedule and restructure some financing due to a sharp increase in debt service and delays in project implementation. - External debt service totaled CFAF 380 billion in 2018 and is expected to increase to CFAF 471 billion in 2019, or 15 percent of non-oil revenue, 35 percent of which is owed to China. - Agreement in principle on cancellation of Chinese government debt amounting to CFAF 35 billion. - Consideration of rescheduling Eximbank China debt service over three years, which could amount to approximately 0.7 percent of GDP. ### Management of public enterprises, SOEs, and fiscal risks - Accelerate implementation of reform of public enterprises and establishments under Laws Nos. 2017/011 and 2017/010 of July 12, 2017. - Study viability of public enterprises: diagnostic studies of CAMTEL, CAMWATER, CAMAIR Co and the Autonomous Port of Douala and audits of other highly indebted and/or deficit public enterprises by December 31, 2019 (new structural benchmark). - Treasury to make quarterly payments for government utility consumption (ENEO, CAMWATER, CAMTEL, SONARA) on the basis of annual budget allocations and reconcile with actual consumption at year-end; entities must properly discharge tax liabilities. - Plan to amend law on public-private partnerships (PPPs) to improve project transparency and avoid non-priority projects. ### Strengthening the debt management framework - National Public Debt Committee (CNDP) to systematically review all project financing proposals, including SOEs and PPPs, approving only if criteria on maturity, urgency, priority, quality of financing, fiscal sustainability and economic relevance are met and considering impact on debt sustainability. - Only an unconditional favorable notice from the CNDP will allow signing of new loan agreements. - Government and public enterprises included in public debt scope committed not to contract new collateralized loans. ### 28. Measures to improve SONARA’s financial sustainability (pending measures and benchmarks) - Arrange competitive tenders for LPG imports; measure resulted in significant reduction in import premium and savings of around CFAF 5-6 billion per year. - Regulatory framework for the CSPH aligned with new law on public enterprises, calling for payment of realized annual profits to the Treasury. - Validation of CSPH LPG shortfalls by an expanded committee and approval of transfer of surplus CSPH cash to the Treasury by the CSPH Board of Directors by June 2019, and actual transfer of these profits by end-August 2019 (reset structural benchmark). - Allow SONARA to market its zero-interest bearing (OTZ) securities to improve cash position. - Clear SONARA’s shortfalls (“manques à gagner”- MAG) monthly and settle amounts owed by the state within a maximum of 90 days. - Regularly pay taxes collected and those owed by SONARA to the Treasury. - Revise and simplify current fuel price structure (new structural benchmark) to make price structure sustainable and equitable by: - (i) reducing the "transport equalization" item; - (ii) analyzing financial position of public entities in oil sector (SCDP, CSPH and SONARA) to reduce their share in the price structure, including reducing operating costs and paying surpluses to the Treasury; - (iii) developing a subsidy program better targeting vulnerable populations and launching a communications campaign highlighting costs and inequity of general subsidies and advantages of increased fuel price flexibility, with World Bank’s assistance. ### Text Table 1: Revised 2018 Borrowing Plan — selected figures (as presented) - Total (prioritised concessional loans section): 108.4 (CFAF billion) - Total (prioritised non-concessional loans section): 341.2 (CFAF billion) - Examples of entries (Creditor — Amount (CFAF billion) — Date of Signature): - AfDB — 21.9 — (05/24/2018) - ADF — 7.8 — (05/24/2018) - WB — 15.9 — (06/20/2018) - IsDB — 30.5 — (05/08/2018) - Raiffeisen Bank — 3.3 — (20/12/2018) - BANK OF CHINA — 23.0 — (02/28/2018) - Eximbank China — 53.5 — (03/22/2018) - SG Paris — 108.7 — (03/07/2018) - ITFC/IsDB (Imports of crude oil by SONARA) — 44.6 — (02/19/2018) ### E. Regional Monetary Policy and Financial Sector Stability — FX repatriation and BEAC reserves - Implement policies consistent with maintaining stability of monetary arrangement; stabilize and reconstitute BEAC reserves. - Recommendations of October 2018 Heads of State Summit increased repatriation of foreign exchange; Cameroon repatriations totaled CFAF 184 billion at end-December 2018. - Government commits to transparency and surrender of export proceeds by public enterprises, particularly oil sector. Action items and benchmarks: - Identify accounts held abroad by public enterprises and balances by end-July 2019; require repatriation and surrender to resident banks by December 31, 2019, or obtain written waiver from BEAC. - Share all contracts concluded with mining industry operators with the BEAC, indicating revenue-sharing arrangements, repatriation modalities and financial terms, by end-September 2019 (new structural benchmark). - Prepare timetable to ensure contracts comply with new foreign exchange regulations. - Consult BEAC staff before contracting new concession contracts or revenue-sharing agreements with extractive industries. - Ensure implementation of new petroleum code fully compliant with BEAC’s FX regulation. - Organize high-level consultation meeting with operators by end-July 2019 with BEAC to clarify new foreign exchange regulations. - Ask customs administration to perform due diligence on compliance with domiciliation of all export transactions with a resident commercial bank by end-August 2019. - Create IT platform for exchange of data between BEAC, banks and MINFI (Treasury-Customs) to facilitate auditing and tracking of repatriation of export proceeds. ### Banking sector stability and resolution measures - Options for resolution of two ailing banks prepared by MINFI based on technical assistance report; forwarded to Prime Minister’s office and COBAC. - Plans to include: (i) evaluating sales prices for nonperforming assets using SRC valuation methodology to identify capital needs; (ii) having shareholders make up minimum capital required; (iii) seeking a buyer if necessary. - Plans to be prepared in coordination with IMF staff by end-June and submitted to COBAC for consultation by end-July with a view to adoption by end-October 2019 (reset structural benchmark). - Study on financing needs of SMEs completed; government to propose viable business model for financing SMEs to be approved by end-September 2019 (reset structural benchmark). - SME bank pursuing consolidation strategy to break even by the second quarter of 2019. - Public bank profitable in 2018; performance contract to be reviewed by Joint Evaluation Committee by end-May 2019. - Transfer of impaired loans of public bank to SRC and valuation under new methodology to be completed by June 2019. - Government to recruit directors competitively to ensure majority of independent board directors by end-June 2019. - Audit committee to be chaired by an independent director starting in September 2019. - Ministry of Finance to enforce new microfinance regulations; ensure each institution in operation at end-2019 has obtained a COBAC license and transmit a report to COBAC by end-January 2020. ### Nonperforming loans reduction — action plan and milestones - Training of 20 judges and 10 clerks from four major business centers in resolution of bank disputes completed in March 2019; deployment in commercial courts under way; initial training to be offered every two years to new judges. - Registry for movable collateral is operational; registration of existing stock under way and to be completed by end-July 2019. - Updated report on inventory of nonperforming loans to be completed by end-May 2019. - By end-July 2019, authorities will (i) enter into discussions with each bank to identify challenges in classification and charge-off of provisioned loans; and (ii) evaluate timeliness of an exceptional measure to facilitate cleaning of balance sheets. - CNC prepared draft law to enhance credit repayment discipline; draft under review and expected to be submitted to Parliament by end-June 2019. - Laws on (i) appointment of a pretrial judge for civil and commercial cases; (ii) amending law on judicial organization to create commercial courts; and (iii) legal deposits to enshrine right of access to justice and processing times to be submitted to Parliament by end-August 2019 after partner comments, with implementing regulations reviewed by end-2019. - Action plan for reduction of nonperforming loans to be expanded and updated by end-June 2019 by Ministry of Finance in cooperation with Ministry of Justice and professional banking association. ### F. Competitiveness and Private Sector Development — trade facilitation and procedural upgrades - Commit to accelerating implementation of measures to support private sector development and economic diversification. - Focus on improving customs infrastructure and procedures to facilitate trade and tax collection. Trade facilitation measures and timelines: - Support modernization of CEMAC legal framework; implement new CEMAC customs code approved in March 2019. - Expand Port of Douala electronic payment platform to allow payment of customs duties and taxes in several regions; include other fees and taxes to create a one-stop shop for foreign trade costs. - Accelerated access to "green channel" for low-risk operators with high revenue potential. - Single transit permit (TTU) operational; warehouse for used vehicles less than 10 years old being built. - Government to: - (i) adopt and implement end-of-project plan for automation of foreign trade operations by June 2019; - (ii) implement concept of licensed operator by November 2019; - (iii) eliminate intermediate controls for transport of goods in transit at conventional checkpoints by November 2019. Upgrading of procedures to reduce tax compliance cost: - Online tracking of processing of contentious claims. - Online issuance of payment deferrals. - Electronic transmission of tax payment receipts to taxpayers. - Online consultation of tax status of taxpayers. - Cash payment of taxes by small and microenterprises at bank windows. *Source: 1cmrea2019001 - 21. The joint DGI/DGD work on the “FUSION” application database will continue and is (PDF chapter/section).* ### 33. The government also commits to taking measures to improve compliance with the ### 33. The government also commits to taking measures to improve compliance with the principles of the Extractive Industries Transparency Initiative (EITI) and international anti-money laundering and terrorist financing (AML/CFT) standards ### EITI and AML/CFT measures - The government will take measures to follow up on the 14 recommendations of the EITI Committee so that Cameroon can be declared in compliance with the 2016 standard during the 2019 validation cycle. - The government plans to publish a progress report by mid-2019. - A national risk assessment for AML/CFT was launched in November 2018 with World Bank support; this is one of the components of the GABAC assessment to be held this year. - The exchange regulations adopted by the BEAC improve compliance with the AML/CFT provisions. - The government will support the actions of the National Financial Investigation Agency (ANIF) to: - increase the reporting of suspicious transactions by designated non-bank institutions; - enhance the follow-up on these reports and any judicial proceedings undertaken. - Awareness-raising actions targeting various parties will be conducted on AML/CFT topics. - The Ministry of Justice will produce dedicated statistics and the judicial authorities will produce dedicated information in their annual report. ### Program arrangements and review schedule - The government will take all measures needed to achieve the objectives and meet the criteria presented in Tables 1 and 2 of the 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 and in the attached Technical Memorandum of Understanding (TMU). - The fifth program review will be based on end-June 2019 targets and objectives and is expected to be completed on or after December 15, 2019. - The sixth and final review will be based on end-December 2019 targets and is expected to be completed on or after May 31, 2020. ### Quantitative framework (Table 1 context) - Table 1 provides Quantitative Performance Criteria and Indicative Targets and Projections, 2018–19 (Billions CFA Francs, cumulative for each fiscal year). - The table includes: - A set of quantitative performance criteria and indicative targets (including a floor on the non-oil primary fiscal balance, ceilings on net domestic financing of the central government, ceilings on net borrowing from the central bank, and ceilings on disbursement of non-concessional external debt). - Continuous quantitative performance criteria (including a ceiling on the accumulation of new external payments arrears and a ceiling on new non-concessional external debt contracted or guaranteed by the government). - Indicative targets (including a floor on non-oil revenue, ceiling on the net accumulation of domestic payment arrears, floor on social spending, ceiling on direct interventions of SNH, and share of spending executed through exceptional procedures). - Memorandum items in Table 1 include: - Cumulative external budget support, excluding IMF (earliest disbursement): 167; 184; 298; 298; 297; 55; 0; 88; 0; 219; 180; 298; 269. - New concessional external debt contracted or guaranteed by the government: 245; 70; 245; 245; 92; 150; 110; 150; 318; 150; 318; 150; 318. - Balance of the special account for the unused statutory advances: 247; 255; 227; 227; 232; 214; 217; 202; 202; 189; 189; 177; 177. - Note: The terms in the table are defined in the TMU. ### Prior actions and structural benchmarks (Table 2 highlights) - Table 2 lists Prior Actions and Structural Benchmarks, 2018–19, with timetables, indicators, status, and review associations. - Selected actions, timetables, and statuses include: - Submit a 2019 revised budget in line with program objectives — Transmission letter to the National Assembly — Met. - Finalize budget calendar implementing the new law on Finance Laws, including a reduction of the complementary period to one month starting with the 2020 budget — Signed decree establishing the new budget calendar — Met. - Publish 2018 budget execution report explaining spending overruns — Publication on the Ministry of Finance's website — Met. - Prepare quarterly reconciliation of import declarations and scanner images validated by SGS and the assessed customs values — Quarterly starting in Sep-18 — Quarterly verification reports submitted to Fund staff — Met. - Disclose the type and volume of contingent liabilities in an annex to the budget law, including the firm and contingent liabilities of all existing public-private partnerships (PPPs) — Annual, Oct-2019 — Annexed to the budget law — (Recurrent). - Close all correspondent accounts for non-revenue generating entities and stop transfer of new budget appropriations to these accounts — Jun-19 — Accounting statements confirming the closure of all the accounts — Met. - Complete the Treasury single account by closing all public accounts eligible to the TSA in commercial banks and consolidate those in the Treasury and BEAC to fewer accounts — Sep-19 — The TSA is functional and central government and EPA accounts are closed in commercial banks — In progress; proposed to be reset. - Multiple structural benchmarks are marked Met, Not-met, In progress, Reset SB, or proposed to be reset, with associated review milestones (e.g., Fourth review, Fifth review, Sixth review). ### Technical Memorandum of Understanding (TMU) — definitions and reporting framework - The TMU: - Defines the quantitative performance criteria and indicative objectives to assess performance under the Extended Credit Facility (ECF) 2017–20. - Establishes the framework and deadlines for reporting data to IMF staff to assess program implementation. - Definitions and key points provided in the TMU: - The “government” is defined as the central government of the Republic of Cameroon, including all implementing agencies, institutions, and any organizations receiving special public funds, as per GFSM 2001, paragraphs 2.48–50. This definition excludes local governments, the central bank, and other public entities with autonomous legal status whose operations are not included in the government financial operations table (TOFE). - A non-financial public enterprise is a commercial or industrial unit fully or partially owned by the government that sells goods and services to the public on a large scale. From June 2017, all transactions between the State and these public enterprises should be accounted for on a gross basis in the TOFE by separating revenue transactions from expenditure. - Total government resources comprise tax and nontax budget revenue (as defined under Chapter 5 of GFSM 2001) and grants; revenue is accounted for on a cash basis. Proceeds from the sale of assets and privatization revenue are not considered government revenue. - Oil revenue is defined as the sum of the transferable balance of the national hydrocarbons company (SNH), and of the company income tax on petroleum companies and gas operators; oil revenue is accounted for on a cash basis. - Non-oil revenue includes all the government's (tax and nontax) revenue, excluding oil revenue; VAT is recorded net of VAT reimbursements; pipeline fees paid by the Cameroon Oil Transportation Company (COTCO) are recorded under nontax revenue. - Privatization revenue includes all funds paid to the government in connection with the sale or transfer of the management of a public enterprise (concession) or the sale of shares held by the government; all privatization revenue must be recorded on a gross basis. - Total government expenditure and net lending include wages and salaries, goods and services, transfers (including subsidies, grants, social security benefits, and other expenditure), interest payments, capital expenditure, and net lending; recorded on a payment authorization basis and include expenditure executed without prior authorization that are pending regularization. - Spending advances (interventions directes) by SNH are part of government expenditure and include emergency payments made by SNH on behalf of the government to cover exceptional sovereignty and security outlays. - Social expenditure is defined to include specified education, health, and other social sector ministries and their related current and capital expenditures as detailed in the TMU. - Primary balance is the difference between total government revenue and total government expenditure and net lending not including interest payments on external and domestic debt. - The definition of “debt” follows the Guidelines on Public Debt Conditionality in Fund Arrangement (Executive Board Decision 15688–(14/107) adopted on December 5, 2014) and includes commitments contracted or guaranteed for which value has not been received; debt is a direct, non-contingent liability arising under contractual arrangements requiring scheduled payments of principal and/or interest and includes penalties or damages awarded by a court as a result of nonpayment of a contractual obligation that constitutes debt. *Source: 1cmrea2019001 - excerpt from IMF staff report and Technical Memorandum of Understanding (TMU).* ### 14. External debt, in the assessment of the relevant criteria, is defined as any borrowing or debt ### 1cmrea2019001 - 14. External debt, in the assessment of the relevant criteria, is defined as any borrowing or debt ### Definitions and scope of debt treatment - External debt: 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). - Coverage of performance criteria: external debt of the government; public enterprises that receive transfers from the government; other public entities in which the government holds more than 50 percent of the capital; any private debt for which the government has offered a guarantee that should be considered a contingent liability. - Guaranteed debt: 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). ### Variable interest rate debt (paragraph 15) - Effective date: Starting July 1st, 2019, for future contracting of debts carrying a variable interest rate in the form of an interest rate plus a fixed spread, the grant component of the debt would be calculated using: - the program reference rate plus the spread (in basis points) specified in the debt contract, or - where applicable, on the IBRD/AfDB website. - Program reference rate: the six-month USD LIBOR is 3.26 percent and will remain fixed for the duration of the program. - Specified spreads (over six-month USD LIBOR): - six-month EURIBOR: -250 basis points - six-month JPY LIBOR: -300 basis points - six-month GBP LIBOR: -200 basis points - currencies other than Euro, JPY, and GBP: -100 basis points - When variable rate is linked to another benchmark: a spread reflecting the difference between that benchmark rate and the six-month USD LIBOR (rounded to the nearest 50 bps) will be added. - Note on basis for rates: The program reference rate and spreads are based on the “average projected rate” for the six-month USD LIBOR over the following 10 years from the Fall 2018 World Economic Outlook (WEO). ### Concessional external debt (paragraph 16) - Concessionality threshold: external debt is considered concessional if it comprises a grant component of at least 35 percent. - Definition of grant component: the difference between the face value of the loan and its present value expressed as a percentage of the face value. - Present value calculation: the present value of debt at the date on which it is contractually arranged is calculated by discounting the debt service payments at the date on which the debt was arranged. - Discount rate used: 5 percent. - Calculation guidance: The calculation of concessionality reflects all aspects of the loan agreement, including maturity, grace period, schedule of maturities, commitment fees, and management fees. The concessionality of Islamic Development Bank (IsDB) loans will reflect the existing agreement between the IsDB and the IMF. ### Domestic debt and structured debt (paragraph 17) - Domestic debt: all of the government's debts and obligations in CFA francs, including: - unreimbursed balances, - advances from the Bank of Central African States (BEAC), - Treasury bills and bonds, - structured debt, - domestic payment arrears, - SONARA’s domestic debt. - Structured debt: debt subject to a formal agreement (convention) or securitization (titrisation). - Program treatment: - structured bank debt is included in net bank credit, - structured nonbank debt is reflected in nonbank financing. - Structured bank debt: all claims of local banks on the government, except treasury bills and bonds; includes securitized bank debt with outstanding balance at end-2016 of CFAF 86.36 billion, plus direct advance arrangements. - Structured nonbank debt: government's balances payable to local nonbank institutions or individuals or the CEMAC that have been securitized or subject to a formal reimbursement agreement according to a clearly defined schedule. ### Net domestic financing of the government (paragraph 18) - Definition: sum of (i) net bank credit to the government; and (ii) net nonbank financing. - Net bank credit to the government: - equal to the change in the balance between government’s liabilities and assets with the national banking system. - Government assets include: - cash resources on hand with the treasury, - treasury deposits with the central bank (excluding the Heavily Indebted Poor Counties (HIPC) account and the Debt Reduction and Development Contract (C2D) account), - credit balance of the accounts of the Caisse Autonome d'Amortissement with commercial banks earmarked for reimbursement of the government's debt obligations. - Government outstanding balances include: - financing from the central bank (statutory advances; net IMF financing (disbursements net of reimbursements), refinancing of guaranteed bonds, and treasury paper held by the central bank), - financing from commercial banks (direct advances and loans, securities, and bills and bonds of the treasury held by local banks). - Calculation basis: based on data provided by the BEAC, subject to monthly reconciliations between the treasury and the BEAC. - Net nonbank financing of the government includes: - change in 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; - change in outstanding balance of structured nonbank domestic debt (defined in paragraph 16); - privatization revenue (defined in paragraph 8); - change in the balance of correspondent bank accounts (including Account 42) and consignment accounts; - change in the balance of outstanding claims on the government abandoned by the private sector. - Calculation responsibility: the government’s net nonbank financing is calculated by the Treasury. ### Domestic payment arrears (paragraph 19) - Domestic payment arrears comprise: - (i) payment arrears on expenditure, - (ii) payment arrears on domestic structured debt, - (iii) non-structured debt. - Payment arrears on expenditure: - defined as "balances payable" for which the payment lag exceeds the regulatory period of 90 days. - Balances payable: unpaid obligations for which normal expenditure execution procedures were followed but remain pending payment. - Balances payable under 90 days represent payments in progress (floats). - Monitoring: treasury will monitor monthly to identify expenditure arrears in the stock of balances payable. - Payment arrears on structured domestic debt: - defined as the difference between the amount due under a domestic debt arrangement or matured treasury securities/bills/bonds and the amount effectively paid after the payment deadline or maturity date. - Non-structured debt definitions: - CAA non-structured debt: balances payable and government liabilities transferred to the Caisse Autonome d’Amortissement (CAA) not subject to a formal reimbursement agreement or securitization. Outstanding balance at end-2016: CFAF 113.96 billion. - "Floating" domestic debt: government commitments for which goods/services were delivered but not committed in the budget; includes bills due and unpaid to public and private enterprises; excludes tax debt from debt clearing with public enterprises and execution of public contracts with external financing not subject to budget commitments due to insufficient budget appropriations. - Monitoring: Directorate-General of the Budget in collaboration with the Treasury will carry out monthly monitoring. ### External payment arrears (paragraph 20) - External payment arrears: external debt obligations of the government not paid when due in accordance with contractual terms (taking into account contractual grace periods). - Exclusions: arrears on external financial obligations of the government subject to rescheduling are excluded. - This PC excludes arrears subject to rescheduling. ### Quantitative Program Objectives — overview (paragraph 21) - Quantitative objectives (QO) as specified in Table 1 of the MEFP. - Assessment basis: unless otherwise noted, all QOs are assessed on a cumulative basis from the beginning of the calendar year to which they apply. - Cutoff and reporting rules provided for each objective. ### A. Non-Oil Primary Balance — Performance Criterion (paragraphs 22–24) - Definition: floor for the non-oil primary balance (commitment basis) is the difference between the primary balance (paragraph 12) and oil revenue (paragraph 6). - Consistency rule: cumulative level of financing gap in the TOFE (which includes errors and omissions) for a given month should not exceed 5 percent of the cumulative expenditure for that month, in absolute value. If exceeded, a comprehensive reconciliation exercise for all TOFE source data will be undertaken in consultation with IMF staff. - Reporting cutoff: detailed data on government financial operations (primary balance, oil revenue, financing gap in TOFE) transmitted monthly within six weeks from the end of the month. ### B. Net Domestic Financing of the Government Excluding Net Financing From the IMF — Performance Criterion (paragraphs 25–28) - Ceiling: on net domestic financing excluding net financing from the IMF, defined as net domestic financing (paragraph 17) excluding net IMF financing. - Adjustment rule (paragraph 26): ceiling adjusted if disbursements in connection with external budget support net of external debt service and payment of external arrears are below programmed levels. - Quarterly adjustment mechanism (paragraph 27): at end of each quarter, if disbursements of external budget support are below (above) programmed amounts, relevant quarterly ceilings will be adjusted upward (downward) commensurately, within the limit of CFAF 120 billion pour each quarter in 2019. This ceiling may be revised to reflect the rate of budget aid disbursements during the year. - Reporting cutoff: detailed data on net domestic financing (bank and nonbank) and status of budget support disbursements, reimbursement of external debt service, and status of external arrears to be submitted monthly within six weeks after month end. ### C. Disbursement of Non-Concessional External Debt — Performance Criterion (paragraphs 29–30) - Ceiling: on disbursements of non-concessional external debt for project financing, based on external debt definition (paragraph 14) and concessionality concept (paragraph 16). - Reporting cutoff: detailed information on disbursements of external debts contracted by the government must be reported within six weeks after month end, indicating loan signature dates and distinction between concessional and non-concessional loans. ### D. Net Borrowing of the Central Government from the Central Bank — Performance Criterion (paragraphs 31–34) - Ceiling: on net claims of the central government from the BEAC defined as difference between: - Central Bank’s claims on the government (excluding IMF financing), specifically unpaid balances of consolidated statutory advances, refinancing of guaranteed bonds, and treasury securities held by the Central bank; - and cash balances and total deposits of the Treasury with the Central Bank including the balance of the special account of the unused statutory advances. - Monitoring: balance of the special account to be regularly monitored to maintain targets in Table 1 of the MEFP. - Adjustment rule: ceiling adjusted if disbursements in connection with external budget support are below programmed levels. - Quarterly adjustment mechanism: at end of each quarter, if disbursements of external budget are below (above) programmed amounts, relevant quarterly ceilings adjusted upward (downward) commensurately, within limit of CFAF 120 billion for each quarter in 2019. This ceiling may be revised. - Reporting cutoff: detailed information on all financing from the BEAC to the government and balance of the special account of unused statutory advances must be reported within six weeks after month end. ### E. Non-Accumulation of External Payment Arrears — Performance Criterion (paragraphs 35–36) - Ceiling: zero on accumulation of external payment arrears is a continuous quantitative objective. - Coverage: applies to accumulation of new external arrears as defined in paragraph 19 of the Memorandum. - Government commitment: not to accumulate any new external payment arrears on its debt, except arrears subject to rescheduling. - Measurement: PC measured on a cumulative basis from time of program approval; observed on a continuous basis. - Reporting cutoff: data on balances, accumulation, and reimbursement of external arrears reported within six weeks after end of each month. Any occurrence of new external arrears should be immediately reported to the Fund. ### F. New Non-Concessional External Debt Contracted or Guaranteed by the Government — Performance Criterion (paragraphs 37–40) - Ceiling: continuous quantitative objective limiting new non-concessional external debt contracted or guaranteed by the government per calendar year (applies to external debt defined in paragraph 14 and concessionality concept in paragraph 16). - Coverage: applicable to debt guaranteed by the government constituting contingent liability; applicable to public enterprises that receive transfers, municipalities, and other public sector entities (agencies of general government and professional, scientific and technical organizations). - Exclusions: not applicable to borrowing in CFA francs; treasury bills and bonds issued in CFA francs on the CEMAC regional market; regular short-term supplier loans; regular import credits; loans from the IMF; debt relief or rescheduling. - Debt relief defined as restructuring with existing creditor that reduces net present value of the debt. - Debt rescheduling defined as operations with existing creditor that extend weighted average maturity of cashflows without increasing net present value. - Measurement: ceiling applies to new debt contracted or guaranteed per calendar year, not cumulative from program approval. - Restriction from fourth review onward (paragraph 38): starting from date of completion of the fourth review, the ceiling is limited to external debt contracted or guaranteed in relation to projects specified in the list in Text Table 1. Any contracting or guaranteeing for projects other than those listed would result in nonobservance of the PC. - Non-concessional external debt in the list already contracted or guaranteed in 2019 counts against the 2019 calendar year ceiling. - Adjustment (paragraph 39): ceiling will be adjusted upwards to accommodate non-concessional budget support from the AFDB and France for debt management operations that improve overall public debt profile (as per para 35 of the guidance note on debt limits SM/15/125). - Reporting cutoff: monthly situation on all loans (conditions and creditors) contracted by the government must be reported within six weeks after month end; same for guarantees. Any contracting or guaranteeing must be immediately reported to the Fund. ### Text Table 1 — 2019 List of Projects Under the NCB Target (paragraph 41 / Text Table 1) - 1SONARA(debt repayment, projects and working capital), signed on 4/26/2019 - 2 Project for the Construction of the Ebolowa-Kribi (225 KV) and Mbalmayo-Mekin (90 KV) transmission lines and related works - 3 Project for the Construction of the Olama-Kribi Road (Section Bingambo-Grandzambi) - 4 Project for the Construction and Equipment of the Annex Building of the Mbalmayo Regional Hospital - 5 Project for the Development of the Value Chain in Lifestock and Fish Breeding - 6 Construction of 225 KV Transmission Lines Between N’Gaoundéré and Tibati - 7 Project for the Interconnection of Electricity Networks between Cameroon and Chad - 8 Menchum Hydroelectric Development Project - 9 Road Program Phase 3 (Ring Road) - 10 Project for the purchase of rolling stock for CAMRAIL (Phase 1) - 11 Regional project for the socioeconomic reintegration of young people - 12 Construction of the 225 KV Electric Power Transmission Line for the Supply of the KRIBI Industrial Port Complex (Phase 1), Tranche 1 - 13 Project for the expansion of the intelligent urban surveillance system at national level (Phase I, 1,500 cameras) - 14 Construction of the 225 KV Electric Power Transmission Line for the Supply of the KRIBI Industrial Port Complex (Phase 1), Tranche 2 - 15 Projets for the Rehabilitation of the CRTV - 16 Phase II PLANUT "Fisheries and Livestock" Component - 17 Project for the Construction of the Olama-Kribi Road (Section Bingambo-Grandzambi) - 18 Project for the Construction of 2,412 drinking water drilling equipped with Human-Powered Pumps in the Northern Regions of Cameroon (PLANUT) - 19 Development Works of the Logistics Zone of the Kribi Port - 20 Project 25 wagons - 21 Project for the Renovation of the National Center for the Rehabilitation of Disabled Persons (CNRPH) - Cardinal Paul Emile LEGER - 22 Feasibility and design studies for the project to supply water to the cities of Buea, Tiko and Mutenguene *Source: 1cmrea2019001 - 14. External debt, in the assessment of the relevant criteria, is defined as any borrowing or debt (PDF).* ### 41. A floor on non-oil revenue as defined in paragraph 7 is defined as an indicative objective ### 1cmrea2019001 - 41. A floor on non-oil revenue as defined in paragraph 7 is defined as an indicative objective ### Program targets and monitoring (indicative objectives and ceilings) - A floor on non-oil revenue as defined in paragraph 7 is an indicative objective in Table 1 of the MEFP. - A ceiling on net accumulations of domestic payment arrears is an indicative objective in Table 1 of the MEFP. Domestic payment arrears are defined in paragraph 18 and excludes the non-structured debt not authorized by the Treasury (issuance of payment order by the Treasury). - A floor on social expenditure as defined in paragraph 11 is an indicative objective in Table 1 of the MEFP. This expenditure is monitored regularly in connection with program implementation. - A ceiling on the share of exceptional expenditures on total authorized expenditures excluding debt is an indicative target in Table 1 of the MEFP. This target is calculated as 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 program implementation. ### Reporting cutoffs and frequency for fiscal monitoring - 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. - 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 spending authorizations (“ordonnancements”) presented in the table M1 of the TOFE will be used to compute the exceptional expenditures ratio. ### Data submission requirements — summary of mandated items and lags (selected items from Table 1) - The government financial operations table (TOFE) and customary annex tables: Ministry of Finance (MINFI), Monthly, Reporting Lag: 6 weeks. - Domestic budget financing (net bank credit to the government, stock of treasury bills and bonds pending reimbursement, domestic debt reimbursement status, privatization revenue, and abandoned claims): MINFI/BEAC, Monthly, Reporting Lag: 6 weeks. - Implementation status of social expenditure defined in Paragraph 11: MINFI, Monthly, Reporting Lag: 6 weeks. - Status of balances payable for the current fiscal year (orders unpaid) distinguishing over and under 90 days: MINFI, Monthly, Reporting Lag: 6 weeks. - Accounting statements showing the amount of cash advances, provisional budget commitments, and advance funds: MINFI, Monthly, Reporting Lag: 3 weeks. - Monthly monitoring report of disbursement requests and actual disbursement: CAA/MINEPAT, Monthly, Reporting Lag: 2 weeks. - Monthly report on the validation of the TABORD and the balance of accounts based on a contradictory checking by the different administrations: MINFI, Monthly, Reporting Lag: 6 weeks. - Publish the petroleum product price structure: MINFI, Monthly, Reporting Lag: 1st week of the current month. - Prices, consumption, and taxation of petroleum products (including detailed monthly price structure, volumes by SONARA, and tax revenue breakdown) : MINFI, Monthly, Reporting Lag: 4 weeks. - Budgetary and accounting statement showing the payment of utility bills to utility companies (ENEO, CAMWATER, CAMTEL, SONARA): MINFI, Monthly, Reporting Lag: 3 weeks. - Publish quarterly budget execution reports: MINFI, Quarterly, Reporting Lag: 6 weeks. - Consolidated balance sheet of monetary institutions: BEAC, Monthly, Reporting Lag: 6 weeks. - Provisional data on the comprehensive monetary survey: BEAC, Monthly, Reporting Lag: 6 weeks. - Final data on the comprehensive monetary survey: BEAC, Monthly, Reporting Lag: 10 weeks. - Preliminary annual balance of payments data: MINFI, Annual, Reporting Lag: 9 months. - Trade statistics: MINFI/INS, Monthly, Reporting Lag: 3 months. - Provisional national accounts and any revision: INS, Annual, Reporting Lag: 7 months after year-end. - Quarterly national accounts: INS, Quarterly, Reporting Lag: 3 months. - Disaggregated consumer price indices (Yaoundé and Douala): INS, Monthly, Reporting Lag: 2 weeks. - Any official report or study devoted to Cameroon’s economy, from its date of publication or finalization: MINEPAT, Reporting Lag: 2 weeks. - Any decision, decree, law, order, or circular having economic or financial implications, from its publication date or effective date: MINFI/MINEPAT, Reporting Lag: 2 weeks. ### External arrears update and waiver request - New external arrears accumulated since the Board concluded the third review: CFAF 3.18 billion (in addition to the CFAF 52 billion already reported in the staff report). - One payment to Spain was missed in January and another in May 2019; the May payment was made shortly after the end of the grace period, and the January payment delay was due to lack of necessary information. Arrears related to the January payment have now been cleared, and penalty interests related to both amounts have also been paid. - The authorities indicated they would strengthen the monitoring of debt service falling due. - Given the small amount of the new arrears (0.01 percent of GDP) and the authorities’ corrective action, staff continues to support the authorities’ request for a waiver of non-observance of the continuous performance criterion on the non-accumulation of external arrears. - Supplementary letter of intent reports that the amount of new external arrears that accumulated since the Board completed the third review is CFAF 55.18 billion and not CFAF 52 billion as previously reported; all arrears and related penalty interests have now been fully repaid. ### Recent economic developments and program performance (key figures and outcomes) - Real GDP growth: 4 percent in 2018, up from 3.5 percent in 2017. - Inflation: 1.1 percent on average in 2018 (below the CEMAC convergence threshold of 3 percent). - Overall fiscal deficit: narrowed to 2.5 percent of GDP in 2018 from 4.9 percent in 2017. - Financing: deficit was financed by domestic bank financing—exceeding the ceiling projected under the program—and a reduction in government deposits at the central bank. - Public debt-to-GDP ratio: rose to 39.3 percent at end-2018 from 37.6 percent in 2017. - Stock of contracted-but-undisbursed loans (SENDs): reduced significantly to below 20 percent of GDP. - Program performance: All but two quantitative performance criteria (PCs) and four out of five indicative targets (ITs) were met with significant margins, including 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; arrears were swiftly repaid. - The missed PC related to the ceiling on net BEAC financing of government was due to difficulties in cash management. - Structural benchmarks: eight out of eleven structural benchmarks for December 2018 to May 2019 observed; five SBs met by end-May 2019 (including training of commercial court judges, SNH data reconciliation, and the SENDs disbursement plan). ### Policy and reform priorities (2019 and medium term) - Core policy priorities: - Maintain fiscal consolidation and enhance quality of adjustment by further broadening non-oil revenue and reinforcing capital expenditure efficiency. - Bolster fiscal governance. - Preserve debt sustainability. - Strengthen financial sector stability. - Alleviate bottlenecks to private sector development. - 2019 budget emphasis: - Rebalance composition of revenue and spending to account for non-oil revenue difficulties in Q1 2019. - Reprioritize current expenditures to provision against fiscal risks from energy subsidies, election-related spending, and faster execution of foreign-financed investment. - Contingent measures available if fiscal risks materialize: stronger controls and audits of taxpayers, further collection of tax arrears, increased enforcement of exemption rules, and additional efforts to reduce non-priority current expenditures. - Medium-term fiscal objective: - Reduce overall deficit to 1.5 percent of GDP through: - broadening non-oil revenue (actions on tax exemptions, VAT efficiency, tax and customs administration reforms), - streamlining current spending, - enhancing investment efficiency, - preserving social spending and better targeting subsidies with World Bank assistance. - Cash management and budget execution: address implementation of the State’s single treasury account along Staff recommendations in the Supplementary MEFP. ### Preserving debt sustainability - Measures to improve debt sustainability: - Enhance investment efficiency and prioritize projects based on economic and social returns. - Implement SENDs disbursement plan. - Contain the pace of new non-concessional borrowing (continuous PC). - Strengthen debt management and avoid collateralized borrowing. - Strengthen national public debt committee (CNDP) procedures to improve traction of its advice on new borrowing. - Monitor and improve management of public enterprises under the 2017 SOEs legal framework and plan to revise PPP framework; all potential PPPs to be assessed by CNDP. ### Financial sector policies and reforms - Measures include: - Banks’ obligation to complete on-line collateral registration by end-July 2019. - Government updating the non-performing loan (NPL) reduction plan with the Ministry of Justice and the Banking Association. - Finalization of laws to improve credit provision for adoption by Parliament by end-August 2019 and implementation of related decrees by year-end. - Bank resolution and SME bank: - Resolution plan for two troubled private banks to be adopted by government by end-October 2019 after submission to COBAC, with a strict timeframe minimizing State costs. - Approval of new business model for the SME bank expected by end-September 2019 following a study on SME financing needs. ### Governance, business environment, and anti-corruption efforts - Improvements and planned actions: - Progress in World Bank’s 2019 Doing Business: streamlining procedures, digitalizing business applications, reducing property registration costs, facilitating contract enforcement. - Further efforts planned on tax payment digitalization, trade facilitation, and customs governance to bolster access to finance and private investment. - Increase compliance with Extractive Industries Transparency Initiative (EITI) through corrective measures and a second EITI validation round by end-2019. - Strengthen AML/CFT framework in collaboration with COBAC and the World Bank. - Better leverage AML/CFT framework to fight corruption through greater assistance to Agence Nationale d’Investigation Financière (ANIF). ### Staff and authorities’ assessment and requests - Authorities consider performance under the ECF broadly satisfactory and remain committed to policies and reforms consistent with program objectives. - Request to Executive Board: - Completion of the Fourth Review under the ECF. - Approval of requests for waivers of non-observance of performance criteria and modification of performance criteria. *Supplementary information and Supplementary Letter of Intent dated July 1, 2019 (Cameroon) provided to IMF staff.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2019/1cmrea2019001.pdf_