## _cr05164 ## Source details **Canonical URL:** [_cr05164](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05164.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05164.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05164.pdf.json) --- ### Introduction and program context - Presidential elections in early October 2004; President Biya reelected for a seven-year term. - Cabinet restructuring in early December 2004 merged the Ministries of Economy and Finance. - The 2000 PRGF arrangement lapsed after the fourth and last review in December 2003. - Authorities plan a staff-monitored program (SMP) for 2005 to build a track record; successful SMP implementation and a successor PRGF arrangement could allow reaching the HIPC completion point in 2006. ### Recent economic performance (through 2004) - Real GDP and non-oil activity - Nonoil growth maintained at 4½–5 percent in 2003–04. - Per capita income gains about 1½ percent per year. - Growth spread across primary (forestry, agriculture), secondary (electricity), and tertiary (transport, communications, retail trade) sectors. - Oil sector - Oil output: 90,000 barrels/day in 2004. - Oil sector share in total value added: 10 percent; oil accounted for 40 percent of exports in 2004. - Oil output fell by half over last two decades; average decline accelerated to 5 percent over the last 5 years. - Output expected to rise by 5 percent in 2006-07 and to remain stable in 2008-10. - Differential against WEO benchmark rose to US$5 per barrel in the last quarter of 2004 versus previous average of US$2 per barrel. - SNH receives about 70 percent of total output; operating costs equally split with oil companies; SNH transfers oil revenue (after deducting costs) to the Treasury. - Fiscal performance - Overall fiscal balance deteriorated to a deficit of 0.7 percent of GDP and arrears accumulated. - Nonoil revenue weakened substantially; overall spending broadly as planned but public investment fell short while overruns on current spending occurred. - Financial situation of large public enterprises worsened, increasing actual and contingent fiscal liabilities. - Monetary, financial, and external indicators - Credit growth to private sector: 9 percent in 2003 to 2 percent in 2004. - Average inflation fell to ½ percent in 2003–04. - CFA franc nominal appreciation vs U.S. dollar: 25 percent in 2003–04; real effective exchange rate appreciated by 3.3 percent. - External current account deficit improved to about 2 percent of GDP in 2004. - Cameroon violated two of four CEMAC convergence criteria in 2004 (nonnegative basic balance and no new arrears); met inflation (<3 percent) and external debt (<70 percent of GDP) criteria. - Banks held significant liquidity above prudential requirements; two small banks under close watch by COBAC. ### Social indicators and human development - Tangible progress in health and education through 2001: improvements in school enrollment, immunization rates, and child mortality (no later data available). - Income levels remain far below pre-1994 levels; Cameroon ranked 141 out of 177 on the UNDP Human Development Index. ### Constraints to sustainable growth and risks - Main constraints: - Weak fiscal performance and public financial management threatening macro stability and debt sustainability. - Impediments to private sector growth: inadequate infrastructure, poor services from troubled state enterprises, weak governance, low financial intermediation. - Public enterprise vulnerabilities and arrears increased contingent fiscal liabilities. - Insufficient coordination between the Treasury and the debt agency (CAA) contributed to intermittent external arrears despite higher-than-anticipated debt relief. ### SMP design and 2005 policy responses - Fiscal program objectives - Mobilize non-oil revenue amid secular oil decline. - Contain noninterest current expenditure. - Increase public investment, especially funded through HIPC resources. - Restructure and/or privatize key loss-making public enterprises. - SMP contingency for oil/external support - Oil revenue exceeding program targets to be used to reduce domestic debt. - Net domestic borrowing adjusted upward by half of any revenue shortfall. - Ceiling on net bank credit to central government adjusted: upward by half the lower-than-programmed oil revenue; upward/downward by half the lower/higher-than-programmed external budget support including debt relief; other adjustments per TMU. - Governance, transparency, and financial management - Emphasis on strengthening financial management and transparency, particularly in the oil sector. - Authorities intend to adhere to the Extractive Industries Transparency Initiative (EITI). - Structural reform priorities - Infrastructure improvements (transport, communications, electricity). - Strengthen legal system and governance to improve business climate and investor confidence. - Privatization/restructuring timetable for major public enterprises (CAMAIR, CAMTEL, SNEC, CAMPOST, CDC, SODECOTON) with specific deadlines in 2005. ### Fiscal outcomes, revenue, and expenditure details (selected exact figures and projections) - Fiscal deterioration and financing - Nonoil revenue fell by 1 percent of non-oil GDP in 2004 instead of increasing as planned. - Overall fiscal balance including grants deteriorated by 1½ points during 2003-04 to a deficit of 0.7 percent of GDP. - Nonoil primary deficit deteriorated by over 1 point to 2½ percent of non-oil GDP in 2004. - Cumulative HIPC interim relief and additional bilateral debt relief since 2000: CFAF 239 billion at end-2004 (3.1 percent of 2004 GDP). - Treasury arrears to the HIPC account at end-2004: CFAF 77 billion. - Cumulative use of HIPC relief as of end-2004: CFAF 61 billion. - Medium-term fiscal strategy (selected projections, in percent of GDP) - Revenue: 2003 18.1; 2004 16.4; 2005 17.1; 2006 17.4; 2007 17.4; 2008 17.5; 2009 17.6; 2010 17.7. - Oil revenue: 2003 4.5; 2004 4.3; 2005 3.5; 2006 3.3; 2007 3.1; 2008 2.7; 2009 2.5; 2010 2.2. - Non-oil revenue: 2003 13.1; 2004 12.0; 2005 13.5; 2006 13.8; 2007 14.2; 2008 14.6; 2009 15.1; 2010 15.4. - Expenditure (total): 2003 16.5; 2004 17.0; 2005 16.1; 2006 16.1; 2007 16.2; 2008 16.4; 2009 16.6; 2010 16.6. - Capital expenditure: 2003 2.1; 2004 1.8; 2005 2.9; 2006 3.1; 2007 3.3; 2008 3.5; 2009 3.7; 2010 3.8. - Overall balance (incl. grants): 2003 1.6; 2004 -0.6; 2005 1.1; 2006 1.3; 2007 1.2; 2008 1.1; 2009 1.0; 2010 1.0. - Non-oil revenue in percent of non-oil GDP: 2003 14.5; 2004 13.5; 2005 14.4; 2006 14.9; 2007 15.3; 2008 15.7; 2009 16.1; 2010 16.3. - Non-oil primary balance (percent of non-oil GDP): 2003 -0.6; 2004 -2.4; 2005 0.1; 2006 0.1; 2007 0.3; 2008 0.3; 2009 0.5; 2010 0.6. - 2005 tax measures (staffed yield estimates) - Tax measures of 0.9 percent of non-oil GDP in 2005 budget including: - increase VAT rate by ½ percentage point (yield 0.2 percent of non-oil GDP); - elimination of VAT and excise exemptions (0.4 percent); - adjusting various stamp taxes (0.1 percent); - strengthening tax administration (0.2 percent). - Half of the VAT surcharge collected on behalf of local governments will be retained at the central level (0.3 percent of non-oil GDP) in 2005 (subject to reconsideration). - Staff welcomed these measures but raised concerns about reintroduction of VAT payment interruptions and potential distributional impacts. ### Treasury, cash management, domestic debt, and HIPC operations (selected actions and deadlines) - Treasury and cash controls - Limit payments for bills incurred in 2004 to small amounts; commission audit to take stock of domestic arrears at end-2004 and develop repayment plan. - Curtail SNH advances: SNH advances were 0.8–0.9 percent of GDP in 2003–04; as of January 2005 SNH can only make advances after Minister of Finance authorization; stop all advances as of July 2005 except for sovereign spending. - Single Treasury account at BEAC to be completed before end-June 2005; close many government accounts in commercial banks (no new accounts after March 31, 2005). - Quarterly commitment ceilings for 2005: Q1 CFAF 190 billion; Q2 CFAF 222 billion. - Domestic debt audit and repayment plans - Finalize audit of domestic debt by end-March 2005; prepare multiyear settlement plan for identified arrears by end-April 2005; prepare multi-year settlement plan for all domestic debt beyond 2005 by end-June 2005. - HIPC account and resources - Deposit all HIPC interim assistance and related additional debt relief obtained in 2005 into HIPC account at BEAC. - Repayment plan for HIPC-account arrears (CFAF 76–77 billion at end-2004) to be established by end-June 2005. ### Public enterprises, privatization, and utility reform (selected measures and timelines) - Privatization/restructuring commitments and timelines (selected) - CAMAIR: IFC hired; detailed strategy and time-bound action plan by end-June 2005; implementation to start August 2005. - CAMTEL: privatization advisor hired before end-March 2005; privatization strategy adopted by end-July 2005; search for private majority investor to begin by December 2005. - SNEC: adopt privatization plan in May 2005; launch PPP bid in December 2005; increase water tariffs gradually to reach cost recovery. - CAMPOST: audit by end-June 2005; preliminary balance sheet by end-August 2005; initiate separation of postal and financial activities in August 2005. - CFAF 45 billion allocated in 2005 budget for privatization/restructuring of large companies and CAMPOST (use conditional on approved strategy and consultation with IMF/World Bank). - Downstream oil sector - Reinstate fully the fuel pricing formula; add margin to allow SONARA to recoup 2004 losses. - Authorities argue continued above-market fuel pricing in short term to protect SONARA with plan to reduce protection over time; staff recommended stronger SONARA management and possible PPP. ### Monetary policy, financial sector, and microfinance - Monetary policy stance - Support BEAC monetary policy to maintain CFA franc peg to the euro and contain inflation. - Monetary program for 2005: increase net bank claims on central government by CFAF 35 billion at end-2005; expand credit to private sector by 6.1 percent; contribute CFAF 15 billion to BEAC net foreign assets by end-2005; money supply (M2) expected to increase by 7.6 percent in 2005. - Financial institutions and microfinance - Microfinance registration: all microfinance institutions to be registered by Ministry of Economy and Finance and supervised by COBAC by end-March 2005. - CAMPOST: pay new deposits into special BEAC account; audit by end-June 2005; preliminary balance sheet by end-August 2005; consultant team by end-September 2005; separation and licensing steps beginning August–September 2005. - Credit Foncier: strict implementation of 2003 restructuring plan under COBAC; study on housing finance participation in 2005. - Financial sector safeguards - Two small banks under close watch by COBAC; banks held significant liquidity above prudential requirements. ### Debt sustainability analysis (DSA) — baseline, HIPC scenario, and stress tests - Coverage and caveats - DSA based on government and government-guaranteed external and domestic debt; external debt of public enterprises and some domestic arrears data incomplete; authorities undertaking audit to address gaps. - Baseline assumptions (selected) - Real annual growth: 3.9 percent in 2005, gradually accelerating to just over 5 percent through 2020. - Inflation (GDP deflator): around 1.5 percent. - Current account deficit: around 2 percent of GDP. - Oil revenue declines from 3.5 percent of GDP in 2005 to 0.6 percent by 2020; non-oil revenue increases from 13.5 to 17.4 percent of GDP. - Discount rate for thresholds: uniform 5 percent. - Baseline results (selected exact figures) - External debt (nominal) — percent of GDP: 2004 49.6; 2005 45.3; 2006 43.9; 2007 42.6; 2008 41.3; 2009 39.9; 2010 38.5; 2020 26.6. - NPV of PPG external debt (percent of GDP): 2004 43.4; 2005 35.9; 2006 31.4; 2007 27.9; 2008 25.0; 2009 22.3; 2010 20.2; 2020 10.3. - NPV of PPG external debt (percent of exports): 2004 165.6; 2005 146.8; 2006 129.5; 2007 118.5; 2008 108.7; 2009 97.7; 2010 89.4; 2020 50.1. - PPG debt service-to-exports ratio (percent): 2005 22.5; 2006 22.0; 2007 20.1; 2008 16.4; 2009 14.5; 2010 13.2; 2020 5.6. - Total public sector debt-to-GDP: 2004 56 percent; projected decline to 33 percent by 2010 under baseline. - HIPC completion point scenario (assumes completion point in 2006) - NPV of debt-to-GDP falls to 21 percent in 2006. - NPV of debt-to-exports falls to 89 percent in 2006. - Debt service ratio falls to some 9 percent of exports in 2006 and declines thereafter. - Stress tests - Standardized stress tests and alternative scenarios: debt ratios remain well below critical thresholds under most scenarios; a combination of sustained negative shocks could have more serious impact. - Bound tests include one-time 30 percent real depreciation and increases in other debt-creating flows; largest impact from 30 percent real depreciation (e.g., B4 shows NPV/Debt-to-GDP rising to 58 in 2005 then 53, 49...). - Conclusion: debt profile "appears manageable and relatively robust to a variety of shocks" with caveat on incomplete debt coverage. ### Macroeconomic projections (selected series, exact figures preserved) - National income and prices (annual percentage changes; nominal GDP in billions CFA francs; oil output in thousands of barrels a day) - GDP at constant prices: 2002 4.2; 2003 4.5; 2004 4.3; 2005 proj. 3.9; 2006 proj. 4.6; 2007 proj. 4.8; 2008 proj. 4.9. - Of which non-oil GDP: 2002 4.6; 2003 4.8; 2004 4.7; 2005 4.3; 2006 4.6; 2007 4.8; 2008 5.0. - Consumer prices (12-month average): 2002 2.8; 2003 0.6; 2004 0.3; 2005 proj. 2.0; 2006 proj. 2.0. - Nominal GDP (billions CFAF): 2002 6,869; 2003 7,260; 2004 7,620; 2005 7,858; 2006 8,367; 2007 8,883; 2008 9,439. - Oil output (thousands b/d): 2002 102; 2003 98; 2004 98; 2005 98; 2006 28; 2007 79; 2008 191. - External sector and prices (selected) - Average oil export price (US$ per barrel): 2002 23.6; 2003 27.3; 2004 35.0; 2005 35.5; 2006 35.0; 2007 33.0; 2008 32.0. - Export volume: 2002 -7.0; 2003 6.9; 2004 6.1; 2005 1.9; 2006 4.5; 2007 4.9; 2008 4.0. - Money and credit (end-period) - Credit to private sector (annual % change): 2002 11.6; 2003 8.9; 2004 2.0; 2005 proj. 6.1; 2006 proj. 8.9; 2007 proj. 9.2; 2008 proj. 8.1. ### Risks and downside scenarios - Key risks identified - Vulnerability to exogenous shocks, particularly deterioration in terms of trade. - Further real effective exchange rate appreciation combined with unfavorable commodity prices could reduce growth. - Large fiscal adjustment in 2005 requires strong political will and capacity; slippages could generate new arrears and undermine investor confidence. - Fragile financial position of utilities and public enterprises; failure to strengthen them would undermine fiscal consolidation. - Institutional capacity limitations could delay public investment and structural reforms and hinder effective use of HIPC resources. - Staff view: successful implementation of SMP and follow-on programs critical for restoring fiscal discipline, strengthening debt sustainability prospects, and advancing toward HIPC completion point. ### Data, transparency, and reporting improvements - Fiscal reporting and public finance management - SIGEFI implemented since 2003; expenditure classification adopted in 2003 not yet fully integrated. - Authorities to compile preliminary Treasury balances no later than 3 weeks after reporting month; prepare TABORD on cash and commitment basis beginning end-February 2005 data. - Monthly budget execution monitoring documents to begin by end-June 2005. - Oil sector transparency - Publish quarterly information on total oil production, prices, and government revenue for 2004 and Q1 2005 before end-June 2005 and update quarterly thereafter. - Publish main elements of SNH audit reports for 2000/01, 2001/02, transitional 2002, and 2003 on SNH and Prime Minister websites by June 2005. - Statistical improvements - National accounts compilation revised toward SNA93; STA missions in 2003 and 2004 supportive though weaknesses in coverage remain, especially oil GDP, agriculture, manufacturing, and services. - Balance of payments statistics weak; recommendation to consider BEAC compiling BOP statistics as in other CEMAC countries. - Ongoing census preparations and efforts to strengthen National Statistics Institute. ### Staff appraisal and Executive Board views (high-level policy recommendations) - Strengthen fiscal performance to ensure debt sustainability: mobilize non-oil revenue, contain non-priority current spending, and increase infrastructure and social investment. - Pursue tax reforms to broaden tax base, reduce exemptions, strengthen Large Taxpayer Unit (DGE), and enhance tax and customs administration with technical assistance. - Establish transparent fiscal rule for use of windfall oil revenue; allocate windfalls to debt repayment and HIPC-account replenishment. - Restrain non-interest expenditures, improve composition toward infrastructure and social sectors, and expedite restructuring/privatization of state-owned enterprises to limit quasi-fiscal losses. - Reinstate fuel price adjustment mechanism fully and transparently; phase out extra-budgetary spending by SNH. - Strengthen public financial management, improve timeliness and accuracy of fiscal reporting, operationalize SIGEFI and TABORD reporting, and conduct domestic debt audit and realistic debt-servicing plan. - Intensify governance and anti-corruption measures; make Audit Office and Constitutional Council operational and focus on enforcement and results. - Continue technical assistance to improve national accounts, balance of payments, and other statistical systems. *Source: _cr05164 — IMF staff report materials and MEFP excerpts as provided.* ### Executive Summary ...................................................................................................... ### _cr05164 - Executive Summary ### Introduction - Presidential elections were held in early October 2004; President Biya, in power since 1982, was reelected for a seven-year term. - A cabinet restructuring in early December merged the Ministries of Economy and Finance (reversing their separation in 2002/03). - The 2000 PRGF arrangement could not be completed due to weak fiscal performance and lapsed after the fourth and last review in December 2003. - The authorities plan a staff-monitored program (SMP) for 2005 to build a track record of policy implementation; successful SMP implementation and a successor PRGF arrangement could allow reaching the HIPC completion point in 2006. ### Recent economic performance (through 2004) - Real GDP and nonoil activity - Nonoil growth was maintained at 4½–5 percent in 2003–04. - Resulting per capita income gains were about 1½ percent per year. - Growth was spread across primary (forestry, agriculture), secondary (electricity), and tertiary (transport, communications, retail trade) sectors. - Oil sector - Oil output amounted to 90,000 barrels/day in 2004. - The oil sector’s share in total value added was 10 percent, and oil accounted for 40 percent of exports in 2004. - Oil output fell by half over the last two decades; the pace of decline accelerated to an average of 5 percent over the last 5 years. - Output is expected to rise by 5 percent in 2006-07 and to remain stable in 2008-10. - The differential against the WEO benchmark rose to US$5 per barrel in the last quarter of 2004, versus a previous average of US$2 per barrel. - SNH receives about 70 percent of total output; operating costs are equally split with oil companies. SNH transfers oil revenue (after deducting costs) to the Treasury. - Fiscal performance - The overall fiscal balance deteriorated to a deficit of 0.7 percent of GDP and arrears accumulated. - Fiscal weakening was particularly pronounced on the nonoil revenue side. - Overall spending was broadly as planned, but public investment fell short of targets while there were overruns on current spending. - The financial situation of large public enterprises worsened considerably, adding to actual and contingent fiscal liabilities. - Monetary, financial, and external indicators - Credit growth to the private sector dropped from 9 percent in 2003 to 2 percent in 2004. - Average inflation fell to ½ percent in 2003–04. - The CFA franc appreciated nominally by 25 percent against the U.S. dollar in 2003–04; the real effective exchange rate appreciated by 3.3 percent. - The external current account deficit improved to about 2 percent of GDP in 2004. - Cameroon violated two of the four CEMAC convergence criteria in 2004 (nonnegative basic balance and no new arrears) but met the inflation criterion (less than 3 percent) and the external debt criterion (less than 70 percent of GDP). - Cameroon continued to benefit from the regional central bank (BEAC) prudent monetary policy; banks held significant liquidity above prudential requirements, though two small banks were under close watch by COBAC. ### Social indicators and human development - Tangible progress in health and education: improvements in school enrollment, immunization rates, and child mortality (progress through 2001; no later data available). - Despite improvements, income levels remain far below pre-devaluation years (pre-1994) and Cameroon ranked 141 out of 177 countries on the UNDP Human Development Index. ### Constraints to sustainable growth and risks - Main constraints identified: - Weak fiscal performance and public financial management that could threaten macroeconomic stability and debt sustainability over the longer term. - Impediments to sustained private sector growth: inadequate infrastructure, poor service delivery from troubled state enterprises, a business climate affected by poor governance, and low levels of financial intermediation. - Public enterprise vulnerabilities and arrears increased contingent liabilities for the fiscal position. - Insufficient coordination between the Treasury and the debt agency (CAA) contributed to intermittent external arrears despite higher-than-anticipated debt relief. ### Policy responses and SMP design - The authorities adopted an ambitious 2005 fiscal program under the SMP to restore fiscal position: - Mobilize nonoil revenue in the context of secular decline in oil output. - Contain noninterest current expenditure. - Increase public investment significantly, especially funded through HIPC resources. - Restructure and/or privatize key loss-making public enterprises. - SMP contingency in the oil sector: - Oil revenue exceeding program targets will be used to reduce domestic debt. - Net domestic borrowing will be adjusted upward by half of any revenue shortfall. - Governance, transparency, and financial management: - The SMP emphasizes strengthening financial management and enhancing transparency, particularly in the oil sector. - The authorities intend to adhere to the Extractive Industries Transparency Initiative. - Structural reform priorities to remove impediments to private sector growth: - Infrastructure improvements. - Measures to strengthen the legal system and governance to enhance the business climate and investor confidence. ### Staff assessment highlights - Macroeconomic performance through 2004 was broadly robust except for significant weakening in fiscal performance. - Progress has been made on structural reforms in public financial management, transport, forestry, health, and education, but less progress in improving governance. - Successful implementation of the SMP and follow-on programs is critical for restoring fiscal discipline, strengthening debt sustainability prospects, and advancing toward the HIPC completion point. *Source: _cr05164 - Executive Summary* ### 8. The underlying fiscal performance weakened significantly, particularly on the ### _cr05164 - 8. The underlying fiscal performance weakened significantly, particularly on the ### Fiscal performance and revenue developments - Non-oil revenue fell by 1 percent of non-oil GDP in 2004 instead of increasing as planned to offset the long-term decline in oil revenue. - Decline in non-oil revenue was driven largely by weak VAT and excises performance and larger-than-expected revenue losses from the January 2004 personal income tax reform. - Contributing factors cited: weakening of tax administration, lower tax compliance in an election year, and a shift from formal to informal sector activity following completion of the Chad-Cameroon pipeline in 2003 (authorities’ view). - Oil revenue continued its secular decline due to a downward trend in output, increasing discounts on Cameroon’s heavy petroleum, and the dampening effect of the CFA franc appreciation against the U.S. dollar on the impact of the rise in international oil prices. ### Expenditure, public investment, and fiscal management - Overall spending was broadly as planned, but decline in public investment did not correspond to PRSP priorities. - Domestically-financed investment declined by 0.4 percent of GDP in each 2003 and 2004. - Noninterest current expenditure (excluding HIPC spending) rose by 0.7 percent of GDP in 2004. - Weakening of expenditure control led to increased off-budget spending and an increase in the float (accumulation of expenditure committed during past fiscal years but not yet paid). - Social spending (health and education) probably increased slightly (functional expenditure data incomplete). - Use of HIPC relief picked up slowly. ### Fiscal balances and financing outcomes - Overall fiscal balance including grants deteriorated by 1½ points during 2003-04 to a deficit of 0.7 percent of GDP. - The non-oil primary deficit deteriorated by over 1 point to 2½ percent of non-oil GDP in 2004. - The 2004 deficit was financed by foreign financing/debt relief, a drawdown of cash resources, and accumulation of domestic and external arrears. - Available cash resources dropped sharply; the government met only around 30 percent of its non-bank domestic debt obligations. - Transfers from the Treasury to the designated HIPC account at the BEAC lagged behind debt relief received. ### HIPC relief and related fiscal flows - Cumulative HIPC interim relief and additional bilateral debt relief obtained since the decision point in 2000: CFAF 239 billion at end-2004 (3.1 percent of 2004 GDP). - The Treasury had arrears of CFAF 77 billion to the HIPC account at end-2004. - Cumulative use of HIPC relief as of end-2004: CFAF 61 billion. - Approved HIPC projects exceed CFAF 300 million in eligible projects, but allocation and administrative delays limited disbursements through end-2004. - Authorities plan to transfer all HIPC relief received in 2005 into the account and establish a plan to replenish past arrears. ### Public enterprises and contingent liabilities - Financial situation of largest public enterprises weakened considerably, increasing actual and contingent fiscal liabilities. - CAMAIR sustained large budget support and appears bankrupt. - Government arrears to CAMTEL undermined its ability to operate competitively. - SNEC unable to pay some suppliers, notably other public enterprises/utilities. - SONARA incurred substantial losses in 2004 partly due to slowing/suspending the mechanism for adjusting domestic fuel prices to changes in international oil prices. - The postal savings bank faced a liquidity crisis; merger into CAMPOST required government cash injections to meet strong cash withdrawal demand. ### Structural reforms and governance progress - Public financial management reforms continued (implementation of SIGEFI since 2003), but improvements in fiscal reporting accuracy and speed remain limited due in part to insufficient coordination within the Ministry of Finance. - Expenditure classification adopted in 2003 not yet integrated into all financial reports. - Tax reform created a large taxpayer unit; start-up problems (change from check to bank transfer) delayed expected revenue strengthening. - Payroll database (SIGIPES) piloted in four ministries eliminated “ghost workers” and improved personnel management. - Progress on non-fiscal reforms: Douala port reform (commercial activity transferred to private operators, reduced transaction costs and clearance time); forestry sector improvements; stock exchange set up (limited activity); microfinance licensing underway; education enrollment and gender disparity improvements; reduced treatment prices for major diseases and increased immunization rates; decline in child mortality rates. - Governance reforms: new institutions created (constitutional court, audit office, ministerial anti-corruption units) but not all operational; new public procurement code adopted September 2004 with need for stronger follow-up; limited progress in strengthening the judiciary. ### Economic prospects, risks, and policy priorities - Authorities’ policy strategy aims for macroeconomic stability, sustainable growth, debt sustainability, and MDG progress, relying on prudent fiscal policy and structural reforms. - Key priorities identified: - Mobilize non-oil revenue to offset secular decline in oil revenue. - Strengthen expenditure management and transparency of government operations (including oil sector). - Restructure public enterprises to limit quasi-fiscal losses. - Define a fiscal path smoothing volatility from oil price fluctuations. - Increase public investment in transport, communications, and electricity. - Improve business climate: legal system, payment of government arrears, and increased bank lending for business activities. - Macroeconomic projections and targets: - Non-oil real GDP growth projected to accelerate to 5–5½ percent over the medium term. - In 2005, non-oil real GDP growth projected to decelerate slightly due to temporary fiscal retrenchment and slower traditional agricultural exports. - Inflation targeted to stay below 2 percent over the medium term. - External current account deficit projected to stabilize at 2–2½ percent of GDP. - Monetary objectives provide sufficient room for private sector credit growth. ### Medium-term fiscal strategy (Box 3) — key elements and selected projections - Strategic aims: - Ensure fiscal and external sustainability; public sector external debt ratios projected to fall to 20 percent of GDP by 2010 and 89 percent of exports, with a debt service ratio of 10 percent. - Smooth spending volatility by setting fiscal balance at a long-term average oil price and saving/one-off allocating windfalls. - Staff proposes long-term average oil price for Cameroon’s heavy crudes at €21/barrel. - Aim gradually at an overall surplus of ½ to 1 percent of GDP at the long-term average oil price. - Expand capital expenditure while keeping tight control on current spending; capital spending to double over 2004-10. - Raise non-oil revenue by almost 3 percent of non-oil GDP over 2004-10, with an effort front-loaded. - Selected fiscal projection highlights (In percent of GDP, unless otherwise indicated): - Revenue: 2003 18.1; 2004 16.4; 2005 17.1; 2006 17.4; 2007 17.4; 2008 17.5; 2009 17.6; 2010 17.7. - Oil revenue: 2003 4.5; 2004 4.3; 2005 3.5; 2006 3.3; 2007 3.1; 2008 2.7; 2009 2.5; 2010 2.2. - Non-oil revenue: 2003 13.1; 2004 12.0; 2005 13.5; 2006 13.8; 2007 14.2; 2008 14.6; 2009 15.1; 2010 15.4. - Expenditure (total): 2003 16.5; 2004 17.0; 2005 16.1; 2006 16.1; 2007 16.2; 2008 16.4; 2009 16.6; 2010 16.6. - Capital expenditure: 2003 2.1; 2004 1.8; 2005 2.9; 2006 3.1; 2007 3.3; 2008 3.5; 2009 3.7; 2010 3.8. - Overall balance (incl. grants): 2003 1.6; 2004 -0.6; 2005 1.1; 2006 1.3; 2007 1.2; 2008 1.1; 2009 1.0; 2010 1.0. - Non-oil real indicators and targets: Non-oil revenue in percent of non-oil GDP — 2003 14.5; 2004 13.5; 2005 14.4; 2006 14.9; 2007 15.3; 2008 15.7; 2009 16.1; 2010 16.3. - Non-oil primary balance in percent of non-oil GDP: 2003 -0.6; 2004 -2.4; 2005 0.1; 2006 0.1; 2007 0.3; 2008 0.3; 2009 0.5; 2010 0.6. ### Debt sustainability outlook - Public debt appears sustainable over the medium term though debt data are not fully comprehensive. - Satisfactory implementation of the 2005 program would likely allow resolution of liquidity constraints in 2005 through another Paris Club flow rescheduling. - Baseline scenario (assumes a Paris Club rescheduling in 2005 but no HIPC completion point) and most standardized stress tests: debt-to-GDP ratios for public and publicly guaranteed debt remain well below 40 percent; NPV of debt-to-exports falls well below 150 percent; debt service falls steeply. - Assuming HIPC completion point achieved in 2006: NPV of debt ratio falls to 21 percent of GDP in 2006 and to 89 percent of exports; debt service falls to some 9 percent of exports and declines thereafter. - Caveat: no comprehensive data on external debt of public enterprises not guaranteed by the government; authorities undertaking an audit to determine this debt. - Recorded domestic debt stood at about 12 percent of GDP at end-2004, excluding domestic arrears to be established by the ongoing audit. *Source: IMF staff report content as provided.* ### 19. Nonetheless, there are important risks to Cameroon’s economic outlook. The ### 19. Nonetheless, there are important risks to Cameroon’s economic outlook ### Risks to the outlook - The economy remains vulnerable to exogenous factors, particularly a deterioration in the terms of trade. - A further appreciation of the real effective exchange rate, combined with unfavorable developments in commodity prices, could reduce growth. - The debt sustainability analysis illustrated some of the potential effects on the debt outlook. - The authorities’ program for 2005 is ambitious and prospects are open to a number of downside risks: - The size of the fiscal adjustment in 2005 is large, reflecting in part tight financing constraints. Thus, strong political will and determined efforts will be needed to mobilize revenue and to keep a lid on current expenditure. Slippages would likely generate new arrears and undermine investor confidence. - The financial position of utilities and major public enterprises is fragile. A failure to strengthen their position would undermine fiscal consolidation and weaken confidence and growth prospects. - Institutional capacity limitations remain. These need to be addressed effectively to avoid continued delays in the implementation of the public investment program and structural reforms. In particular, the authorities’ ability to spend the available HIPC resources on quality programs to improve human and physical capital will be critical to foster growth. ### V. POLICY DISCUSSIONS — overarching challenges and 2005 program - Primary policy challenges: improving fiscal performance to maintain macroeconomic stability and removing impediments to private sector growth. These challenges remain largely unchanged from those identified by Executive Directors at the time of the 2002 Article IV Consultation. - The authorities’ economic program for 2005 (see the Letter of Intent for the SMP and MEFP in Appendix I) constitutes an important step toward meeting these challenges. - The authorities emphasized determination to build a strong macroeconomic track record to pave the way for a new PRGF arrangement and subsequently reach the completion point under the HIPC Initiative. ### A. Strengthening Fiscal Performance and Management — objectives and program size - The authorities’ fiscal program for 2005 is ambitious with an improvement in the non-oil primary deficit of 2.5 percentage points of non-oil GDP. - The overall balance is targeted to improve to a surplus of 0.4 percent of GDP. - The size of the fiscal adjustment reflects tight financing constraints. The adjustment is to be achieved in equal parts through a substantial mobilization of non-oil revenue and strict expenditure restraint. ### Financing constraints and donor/external support - Domestic financing is limited due to: - the government’s low cash operating balances, - the almost full use of advances from the BEAC (the statutory ceiling is 20 percent of government revenue of the previous year), - little access to voluntary commercial bank credit as a result of the diminished creditworthiness of the government due to recurrent past arrears. - External financing: significant donor support is projected through project and program financing as well as debt relief. - The authorities acknowledged that building a solid policy track record and the prospect of a new PRGF arrangement with the Fund would strengthen a request they plan to make for a new Paris Club rescheduling. - The 2005 program assumes the rescheduling of pre-cutoff date maturities falling due on bilateral debt (about three fourths of scheduled debt service). ### Revenue mobilization and tax measures - Authorities and staff agreed on the need to increase non-oil revenue. - Staff welcomed tax measures of 0.9 percent of non-oil GDP in the 2005 budget, which aim mostly at broadening the tax base and include: - an increase by ½ percentage point in the VAT rate (yield 0.2 percent of non-oil GDP); - elimination of VAT and excise tax exemptions on specific goods and services (0.4 percent); - adjusting various stamp taxes (0.1 percent); - strengthening tax administration (0.2 percent). - Half of the VAT surcharge collected on behalf of local governments will be retained at the central level (0.3 percent of non-oil GDP). - Staff expressed concerns about the reintroduction of extensive interruptions of the VAT payment chain at the level of large enterprises; the authorities will review this with the upcoming FAD technical assistance mission. - Authorities indicated readiness to take additional tax measures if needed but cautioned that efforts to raise additional non-oil revenue might reduce the purchasing power of low-income households, domestic consumption, and thus government revenue. - Staff recommended expediting the sale of government assets, particularly minority shares in profitable companies. - The authorities indicated that the national oil company (SNH) would increase its dividend payments to the government. ### Revenue administration and tax enforcement - Staff urged close monitoring of revenue administration. - Authorities confident that strengthening tax audits and other measures would overcome difficulties in implementing the new personal income tax and managing the large taxpayer unit encountered in 2004. - Measures were introduced to limit tax fraud in the forestry sector. - Authorities consider it important to reduce tax evasion and improve taxation of the informal sector, and requested FAD’s assistance. ### Expenditure policy and public investment - Noninterest current expenditure would need to bear the brunt of expenditure restraint; public investment would be increased. - Authorities will impose tight limits on commitments under the 2005 budget; cuts would focus on travel expenses, non-priority construction, and vehicle acquisition. - The bulk of the planned increase in investment spending would be funded by an acceleration of the use of HIPC resources. - Staff noted past patterns where capital expenditure typically fell short of budgetary objectives, while non-interest current spending exceeded them. - To prevent recurrence, authorities are strengthening institutional capacities to accelerate investment spending, and tightening budgetary control, particularly for spending on goods and services. - The 2005 budget provides for a significant increase in outlays for the restructuring/privatization of ailing public enterprises. ### Treasury management, cash controls, and advances - Need to strengthen Treasury management to cope with tight liquidity constraints and support macroeconomic sustainability. - Authorities’ measures: - Strictly control cash spending (MEFP paragraphs 13–15). In early 2005 they limited payments for bills incurred in 2004 to small amounts and commissioned an audit to take stock of domestic arrears at end-2004 and develop a repayment plan. - Curtail advances from the national oil company (SNH). In the past these advances (0.8–0.9 percent of GDP in 2003–04) circumvented normal budgetary procedures. Since January 2005, SNH can only make advance payments after authorization by the Minister of Finance and against available budgetary allocations. The authorities committed to stop all advance payments as of July 2005 except for sovereign spending (MEFP paragraph 14). - Rein in extra-budgetary spending. A ceiling was set on SNH’s quasi-fiscal expenditure in 2005 (MEFP paragraph 14). - Complete implementation of a single Treasury account and close numerous accounts still held by government entities in commercial banks (MEFP paragraph 18) to improve cash management and expenditure tracking. ### Debt regularization, arrears, and creditor relations - Debt regularization and payment of arrears are important to prevent further weakening of investor sentiment. - Government creditworthiness undermined by non-payment of domestic debt obligations during the last two years. - Based on a new audit, authorities will formulate a comprehensive multiyear settlement plan, in consultation with major creditors, for outstanding domestic debt and arrears (MEFP paragraph 16). - Given tight financial constraints, authorities will not be able to fully replenish the arrears to the HIPC account in 2005, but will transfer current debt relief received and establish a plan for the full replenishment of the account. - Cameroon will not be able to meet fully its obligations to external creditors in 2005. Authorities intend to request a new Paris Club rescheduling once a new PRGF arrangement has been approved. - Efforts to communicate with commercial creditors who did not participate in the commercial debt buyback of 2003 are underway, but one non-participating creditor successfully sued and effectively seized official assets of some US$43 million (0.3 percent of GDP) in 2004. ### Fiscal data, monitoring, and decentralization - Authorities concurred that improving the quality of fiscal data is essential. - Provision of budgetary data deteriorated in 2004; staff encouraged better use of the Integrated Information and Management System and consistent application of the 2003 expenditure classification. - Authorities have begun to prepare preliminary fiscal accounts within three weeks of the reporting month; they have undertaken to better monitor spending on a cash and a commitment basis, and to assess the float. - Staff advised proceeding cautiously on fiscal decentralization. Authorities intend to entrust local governments with responsibilities and related funding before the parliamentary election in early 2007. - Staff view: prior to decentralization, a clear framework for allocation of responsibilities needs to be defined, capacity built at the local level, and proper safeguards put in place. - Staff cautioned that retaining at the central level half of the local government surcharge on the VAT in 2005 was likely to have negative implications for local governments; authorities agreed to reconsider this in the context of future redefinition of revenue sharing (MEFP paragraph 24). ### B. Improving the Performance of Public Enterprises — objectives and measures - Financial situation and service quality of key public enterprises need improvement. Decisive restructuring and privatization will reduce fiscal burdens (MEFP paragraphs 26–28). - Authorities will seek to divest most large loss-making enterprises, pay utility bills on a timely basis, and regularize government debt to enterprises as part of the domestic debt settlement strategy. - Privatization actions: - CAMAIR: IFC hired to advise; intend to liquidate nonperforming assets and transfer viable assets to a new company in which the government would hold only a minority share. Staff cautioned this could entail further budgetary costs if no private investor is found. - CAMTEL: intend to offer for sale by end-2005; consider measures to facilitate privatization, such as a minimum investment program. - SNEC: launch bid for a public-private partnership; authorities agreed to increase water tariffs gradually to reach cost recovery levels in the context of finalizing the public-private partnership. - Downstream oil sector liberalization needed to reduce fuel costs over the medium term (MEFP paragraph 39), including fuel storage and distribution. - Short term: authorities agreed to reinstate fully the fuel pricing formula and add a margin to allow SONARA to recoup the losses incurred in 2004. - Authorities argued fuel prices will continue to be set above international market prices to protect SONARA in view of its strategic importance, with a plan to reduce protection over time. - Staff concerned about the extent of losses and costs that high fuel prices impose on the economy; recommended strengthening SONARA’s management and efficiency and possibly seeking a public-private partnership. - Government-owned financial institutions: - Need decisive restructuring (MEFP paragraphs 29–30). - CAMPOST is thought to be bankrupt; the size of government liabilities due to a full guarantee of all savings deposits remains to be fully ascertained. Authorities agreed to establish a preliminary balance sheet and progress toward a split-up of postal and banking activities to allow COBAC prudential/regulatory supervision of banking activities. - Staff concerned about viability of a postal savings bank given Cameroon’s well-developed microfinance sector; authorities consider the postal network essential for financial services to remote areas. - Authorities agreed to review the role of the housing financing institution (CFC) in light of its high non-performing loan recovery ratio notwithstanding subsidized loan rates. - Authorities undertook to improve operations of the loan recovery agency (SRC) to accelerate recoveries on the remaining loan portfolio. - Transparency and accountability: - Authorities agreed to update the database assessing the overall financial situation of the 20 largest public enterprises. - Monitoring of poorly performing companies under performance contracts should be strengthened. - Very little information is disseminated on oil sector operations; authorities indicated interest in adhering to the Extractive Industries Transparency Initiative (EITI). Staff suggested steps to publish information following the example of the Republic of Congo (MEFP paragraph 21). ### C. Removing Impediments to Private Sector Growth — infrastructure and trade - Infrastructure commitments (MEFP paragraphs 42–43): - Additional electric power generation capacity will be needed by 2006–07 to avoid power supply shortages. Government committed to work with the World Bank to accelerate preparations for a gas-fired plant and develop a strategy for strengthening power supply. - Road network needs better maintenance and expansion. Government committed to improving administration of the Road Fund and stepping up road maintenance to secure grants offered by the European Union. - Port reform will continue, including upgrading information technology used at the port of Douala. - Rail transport needs strengthening. Government agreed to meet its obligations toward the private operator (CAMRAIL) in accordance with the concession contract. - External trade constraints and policy: - Exports of goods and services amount to about 25 percent of GDP. - Constraints to further growth include poor infrastructure and inadequate services to support international trade and meet international quality standards. - Improvements have been made in trade facilitation (port facilities and customs administration) and efforts should continue. - Staff agreed with authorities’ near-term focus on seeking a reduction in the CEMAC common external tariff and the number of tariff headings. - Cameroon’s simple average tariff is 18 percent, with 4 basic tariff categories of 5, 10, 20, and 30 percent in line with CEMAC regulations. - It has no significant non-tariff barriers, although there is an export ban on certain exotic timber varieties and an export tax on timber and logs. *Source: _cr05164 - 19. Nonetheless, there are important risks to Cameroon’s economic outlook.* ### 37. To contribute to a stable business environment, the authorities will continue to ### _cr05164 - 37. To contribute to a stable business environment, the authorities will continue to ### Monetary policy, financial sector, and microfinance - Authorities will continue to support the BEAC’s monetary policy aimed at maintaining the peg of the CFA franc to the euro and containing inflation (MEFP paragraph 29). - Objective: allow an increase in credit to the private sector consistent with economic growth projections. - Authorities will seek to address financial difficulties of government-owned financial institutions. - Authorities will cooperate with COBAC in the supervision of microfinance institutions. ### Governance, transparency, and anti-corruption measures - Decisive action is needed to improve transparency and governance (MEFP paragraphs 34–35). - Government plans: - Adhere to the EITI. - Update the National Governance Program. - Accelerate implementation of the priority action plan for judicial reform. - Prepare legislation allowing the application of the UN convention against corruption. - Make the Audit Office (Chambre des comptes) and the Constitutional Council operational. - Further improve governance in the forestry sector (MEFP paragraph 41). - Staff urged authorities to focus less on general policy intentions and more on generating results, including enforcing penalties against proven cases of corruption. ### PRSP review and social sector policies - Authorities agreed with staff on the need to review key elements of the PRSP and improve monitoring and reporting on PRSP implementation (MEFP paragraphs 36–38). - Elements to be reviewed include: - The medium-term macroeconomic framework. - Poverty projections. - Sectoral strategies. - Timing and linkage: - Review important for preparation of the next annual PRSP progress report (expected in mid-2005), the 2006 budget, and medium-term projections. - Need to tighten linkage between PRSP and medium-term sectoral strategies, annual budgeting of expenditure, and the outcomes sought. - Monitoring improvements: - Enhance monitoring of demographic and poverty trends by strengthening the National Statistics Institute and initiating a new census. - Education and health: - Recent efforts have led to improvements in key indicators, but more needs to be done to improve outcomes. - Authorities are implementing medium-term sectoral strategies with the World Bank to improve the efficiency of public spending and progress toward the MDGs. ### Staff appraisal: macroeconomic outlook and growth challenges - Cameroon maintained solid growth and low inflation in recent years, but weak fiscal performance and public financial management could threaten macroeconomic stability and debt sustainability in the longer term. - Recent slowdown of economic growth creates an urgent need to address fiscal issues and remove impediments to private sector growth. - Growth-enhancing priorities: - Increase investment in basic infrastructure (electricity, transport and communications). - Improve the overall investment climate, including by tackling corruption. - Political context: - New government of December 2004 committed to an ambitious program for 2005 and to reaching the completion point under the HIPC Initiative as early as possible. - Reorganization of ministries aimed to focus economic decision making in the new Ministry of Economy and Finance. ### Fiscal performance, revenue, and expenditure policy - Fiscal challenges: - Slippages in revenue performance in 2003–04 were large; strong actions in the government’s program for 2005 are essential. - Proposed scale of adjustment is ambitious and the program is subject to risks including external shocks, weakening political will, and institutional capacity limitations. - Revenue mobilization: - Raising revenue collections is crucial. - Planned technical assistance in tax policy and tax and customs administration should help. - Important tax reforms undertaken in 2004 need effective implementation. - Tax rates, in particular for the VAT, are already high; focus should be on broadening the tax base through reducing exemptions and improving tax incidence in the informal sector. - Expenditure priorities: - Prioritizing public expenditure within overall expenditure restraint is important. - A sharp compression in non-interest spending is essential in 2005, while improving composition of expenditure is crucial. - New public procurement reform should contribute to more effective expenditure. - Public investment remains very low despite the increase planned for 2005; lack of basic infrastructure limits private sector opportunities, particularly away from coastal areas. - Channeling spending toward social sectors is essential for PRSP priorities and the MDGs. ### Public financial management, debt, and public enterprises - Public financial management: - Some improvements made, but further progress needed to support macroeconomic stability. - Investment in a financial management system has been significant but benefits in speed, accuracy, and comprehensiveness of fiscal reporting are not yet fully realized; early progress is crucial with initial signs encouraging. - Reporting on receipt and use of HIPC relief has lacked transparency; efforts under way to address this. - Civil service reform progressing, including streamlining payroll of some ministries; plans to expand measures to all ministries are welcome. - Debt management: - Needs improvement; past domestic debt restructurings were not fully implemented and new arrears have been incurred, undermining government credibility. - Audit of domestic debt as of end-2004 is an important step toward regularization; government must develop a realistic debt-servicing plan and implement it fully. - External payments arrears on non-reschedulable debt should be avoided. - Public enterprises: - Poor management has resulted in large actual and potential fiscal costs. - Transparent privatization remains a priority to limit quasi-fiscal losses and improve service quality. - Prompt action needed, especially with respect to CAMAIR, CAMTEL, SNEC, and CAMPOST. - Progress important for improving domestic fuel pricing and financial performance of SONARA. ### Data, transparency, and oil sector - Staff welcomes intention to enhance transparency in the oil sector and adhere to the EITI; encouraged authorities to publish detailed information on oil sector operations and the national oil company. - Data provision to the Fund: - Remains adequate for surveillance purposes, but significant room for improvement. - Efforts to enhance national accounts and fiscal data and plans to improve poverty and social indicators with donor assistance are welcomed. - Other real sector indicators remain weak, and BOP statistics are compiled with long delays. *Source: _cr05164 - 37. To contribute to a stable business environment, the authorities will continue to* ### 53. It is proposed that the next Article IV consultation with Cameroon take place on the ### _cr05164 - 53. It is proposed that the next Article IV consultation with Cameroon take place on the ### Proposed Article IV consultation timing - It is proposed that the next Article IV consultation with Cameroon take place on the standard 12-month cycle. ### National income and prices (Annual percentage changes; nominal GDP in billions of CFA francs; oil output in thousands of barrels a day) - GDP at constant prices: 4.2 (2002), 4.5 (2003 est.), 4.3 (2004 est.), 3.9 (2005 proj.), 4.6 (2006 proj.), 4.8 (2007 proj.), 4.9 (2008 proj.) - Of which: non-oil GDP: 4.6, 4.8, 4.7, 4.3, 4.6, 4.8, 5.0 (2002–2008) - GDP deflator: 1.9, 1.1, 0.7, -0.8, 1.8, 1.3, 1.3 (2002–2008) - Consumer prices (12-month average): 2.8, 0.6, 0.3, 2.0, 2.0, 2.0, 2.0 (2002–2008) - Consumer prices (end of period): 2.4, -0.1, 1.9, 2.0, 2.0, 2.0, 2.0 (2002–2008) - Nominal GDP (in billions of CFA francs): 6,869 (2002), 7,260 (2003), 7,620 (2004), 7,858 (2005), 8,367 (2006), 8,883 (2007), 9,439 (2008) - Oil output (in thousands of barrels a day): 102 (2002), 98 (2003), 98 (2004), 98 (2005), 28 (2006), 79 (2007), 191 (2008) ### External trade and prices - Export volume: -7.0 (2002), 6.9 (2003), 6.1 (2004), 1.9 (2005), 4.5 (2006), 4.9 (2007), 4.0 (2008) - Of which: non-oil sector export volume: -6.6, 12.3, 12.2, 4.3, 4.3, 4.8, 5.0 (2002–2008) - Import volume: 1.9, -0.6, 7.4, 4.9, 4.8, 4.6, 4.4 (2002–2008) - Average oil export price (U.S. dollars per barrel): 23.6 (2002), 27.3 (2003), 35.0 (2004), 35.5 (2005), 35.0 (2006), 33.0 (2007), 32.0 (2008) - Terms of trade: 0.0, -0.8, 0.2, -1.4, -0.7, -3.1, -2.5 (2002–2008) - Non-oil export price index (in CFA francs): 2.8, -5.5, -7.5, -5.2, 1.6, 1.0, 1.4 (2002–2008) ### Money and credit (end of period; annual percentage changes unless indicated) - Net domestic assets (contribution to growth of broad money, percent of beginning period broad money): 4.1, 1.8, 0.3, 5.6, 5.1, 6.5, 6.2 (2002–2008) - Net credit to the public sector (in percent of broad money at the beginning of the period): 1.0, -0.6, -0.2, 2.5, 0.7, 1.9, 2.2 (2002–2008) - Credit to the private sector (annual percentage change): 11.6, 8.9, 2.0, 6.1, 8.9, 9.2, 8.1 (2002–2008) - Broad money (M2) (annual percentage change): 18.3, -0.9, 7.3, 7.6, 7.6, 9.4, 8.8 (2002–2008) - Velocity (GDP/average M2): 5.4, 5.3, 5.3, 5.1, 5.1, 4.9, 4.8 (2002–2008) - Discount rate (end of period; in percent): 6.5 (2002), 6.0 (2003), 6.0 (2004) (later years not reported) ### Central government operations (percent of GDP and levels in CFA francs) - Total revenue (excl. grants): 17.9 (2002), 17.5 (2003), 16.3 (2004), 17.0 (2005), 17.2 (2006), 17.3 (2007), 17.4 (2008) - Oil revenue: 5.4, 4.5, 4.3, 3.5, 3.3, 3.1, 2.7 (2002–2008) - Non-oil revenue: 12.5, 13.1, 12.0, 13.5, 13.8, 14.2, 14.6 (2002–2008) - Non-oil revenue (in percent of non-oil GDP): 14.2, 14.5, 13.5, 14.7, 15.1, 15.3, 15.7 (2002–2008) - Total expenditure: 17.3, 16.8, 17.1, 16.8, 16.8, 16.5, 16.6 (2002–2008) - Noninterest total expenditure: 13.7, 13.6, 14.1, 13.4, 13.5, 13.9, 14.3 (2002–2008) - Capital expenditure: 2.2, 2.1, 1.8, 2.9, 3.1, 3.3, 3.5 (2002–2008) - Overall fiscal balance (excl. net changes in arrears) - Excluding grants: 0.5, 0.7, -0.9, 0.2, 0.3, 0.7, 0.7 (2002–2008) - Including grants: 0.8, 1.3, -0.7, 0.4, 0.5, 0.9, 0.8 (2002–2008) - Primary balance (excluding external grants and privatization proceeds): 4.2, 4.0, 2.1, 3.6, 3.6, 3.4, 3.1 (2002–2008) - Non-oil primary balance (in percent of non-oil GDP): -1.3, -0.6, -2.4, 0.1, 0.3, 0.3, 0.3 (2002–2008) - Nominal GDP (in billions CFA francs): 6,869 (2002), 7,260 (2003), 7,620 (2004), 7,858 (2005), 8,367 (2006), 8,883 (2007), 9,439 (2008) - Non-oil nominal GDP (in billions CFA francs): 6,061 (2002), 6,528 (2003), 6,808 (2004), 7,192 (2005), 7,673 (2006), 8,205 (2007), 8,790 (2008) ### External sector and debt indicators - Current account balance (including grants; percent of GDP): -7.0 (2002), -2.4 (2003), -1.6 (2004), -1.9 (2005), -2.1 (2006), -2.3 (2007), -2.9 (2008) - Current account balance (excluding grants; percent of GDP): -7.3, -3.0, -1.7, -2.0, -2.1, -2.3, -2.9 (2002–2008) - NPV of public external debt (in percent of exports of goods and services): 54.8, 42.5, 43.4, 35.9, 31.4, 27.9, 25.0 (2002–2008) - Net present value (NPV) of external public debt: 170.5, 166.5, 165.6, 146.8, 129.5, 118.5, 108.7 (2002–2008) - External debt service (before debt relief, scheduled): 27.9, 26.1, 22.5, 22.0, 20.1, 16.4, 14.5 (2002–2008) - External debt service (scheduled, in percent of government revenue): 42.8, 38.2, 37.9, 33.2, 29.8, 24.0, 20.8 (2002–2008) - External debt service (after debt relief): 10.0, 8.8, 6.9, 10.0, 7.5, 7.4, 6.8 (2002–2008) ### Balance of payments (levels in billions of CFA francs; selected items) - Current account balance: -482 (2002), -176 (2003), -124 (2004), -153 (2005 proj.), -176 (2006 proj.), -208 (2007 proj.), -274 (2008 proj.) - Trade balance: 55 (2002), 137 (2003), 131 (2004), 69 (2005), 58 (2006), 19 (2007), -26 (2008) - Exports, f.o.b.: 1,380 (2002), 1,370 (2003), 1,425 (2004), 1,346 (2005), 1,415 (2006), 1,462 (2007), 1,507 (2008) - Oil and oil products: 604, 551, 576, 506, 524, 519, 503 (2002–2008) - Non-oil sector: 776, 819, 850, 841, 891, 943, 1,004 (2002–2008) - Imports, f.o.b.: -1,326 (2002), -1,233 (2003), -1,295 (2004), -1,277 (2005), -1,356 (2006), -1,443 (2007), -1,533 (2008) - Services (net): -628, -428, -324, -300, -314, -315, -338 (2002–2008) - Interest due on public debt: -178, -155, -139, -117, -112, -98, -85 (2002–2008) - Transfers (net): 92 (2002), 156 (2003), 97 (2004), 87 (2005), 98 (2006), 100 (2007), 102 (2008) - HIPC assistance (flows): 243 (2002), 63 (2003), 73 (2004), 31 (2005), 24 (2006), 19 (2007), 14 (2008) - Overall balance: -198 (2002), -363 (2003), -222 (2004), -189 (2005), -191 (2006), -109 (2007), -88 (2008) - Financing: 198, 363, 222, 189, 191, 109, 88 (2002–2008) ### Millennium Development Goals and social indicators (selected series) - Population (in millions): 11.7 (1990), 13.4 (1995), 15.1 (2001), 15.8 (2002) - GDP per unit of energy use (PPP $ per kg oil equivalent): 3.9 (1990), 3.7 (1995), 4.7 (2001) - Adult literacy rate (% ages 15 and over): 57.9 (1990), 64.9 (1995), 71.3 (2001) - Total fertility rate (births per woman): 6.0 (1990), 5.2 (1995), 4.8 (2001), 4.6 (2002) - Life expectancy at birth (years): 54.2 (1990), 53.6 (1995), 50.1 (2001), 43.4 (2002) - Goal-specific indicators (selected) - Population below $1 a day (%): 17.1 (1990) - Prevalence of child malnutrition (% of children under 5): 15.1 (1990); [7.6] (2015 target bracket) - Net primary enrollment ratio (% of relevant age group): (no values for 1990–2002 shown) - Ratio of girls to boys in primary and secondary education (%): 82.5 (1990), 84.4 (1995), 85.0 (2001); [100] (2015 target bracket) - Under 5 mortality rate (per 1,000): 139.0 (1990), 156.0 (1995), 166.0 (2001), 166.0 (2002); [46.3] (2015 target bracket) - Infant mortality rate (per 1,000 live births): 85.0 (1990), 92.0 (1995), 95.0 (2001), 95.0 (2002); [28.3] (2015 target bracket) - Immunization, measles (% of children under 12 months): 56.0 (1990), 46.0 (1995), 62.0 (2001), 62.0 (2002); [18.6] (2015 target bracket) - Maternal mortality ratio (modeled estimate, per 100,000 live births): 730.0 (2000s entry) - Births attended by skilled health staff (% of total): 58.4 (1990); 60.0 (2015 target bracket) - Prevalence of HIV, female (% ages 15-24): 12.7 (2001) - Incidence of tuberculosis (per 100,000 people): 145.0 (1990), 187.7 (2001) - Forest area (% of total land area): 56.0 (1990); 51.3 (2001) - Access to an improved water source (% of population): 51.0 (1990); 58.0 (2001) - Fixed line and mobile telephones (per 1,000 people): 3.5 (1990), 5.1 (1995), 27.1 (2001), 49.7 (2002) - Personal computers (per 1,000 people): 1.5 (1995), 3.9 (2001), 5.7 (2002) ### Savings–investment balances (percent of GDP at market prices) - Total economy (current account balance): -7.0 (2002), -2.4 (2003), -1.6 (2004), -1.9 (2005), -2.1 (2006), -2.3 (2007), -2.9 (2008) - Gross national savings: 11.3, 14.5, 14.9, 15.1, 15.4, 15.6, 15.6 (2002–2008) - Gross domestic investment: 18.3, 16.9, 16.6, 17.0, 17.5, 18.0, 18.5 (2002–2008) - Private sector: -8.6, -3.9, -1.2, -3.7, -3.9, -4.2, -4.7 (private sector net savings/investment split, 2002–2008) - Non-oil sector (gross domestic investment): 16.4, 14.9, 14.6, 14.3, 14.7, 15.1, 15.5 (2002–2008) - Oil sector (gross domestic investment): 0.3, 0.4, 0.6, 0.6, 0.5, 0.4, 0.3 (2002–2008) - Central government (gross domestic investment): 1.6, 1.5, 1.4, 2.2, 2.3, 2.5, 2.6 (2002–2008) *Source: Cameroonian authorities; and staff estimates and projections.* ### 1. Production, sales, and exports ### _cr05164 - 1. Production, sales, and exports ### 1. Production, sales, and exports — volumes and values - 1.a. Production and sales (in millions of barrels) - Production: 37.4 35.6 32.7 30.1 31.6 33.2 33.2 - Percentage change: -5.0 -4.7 -8.3 -7.8 5.0 5.0 0.0 - Sales: 36.8 34.8 33.1 30.1 31.6 33.2 33.2 - Exports: 36.8 34.8 31.1 29.1 30.7 32.2 32.2 - By SNH 1/: 24.1 22.2 19.3 18.2 19.1 20.1 20.1 - By petroleum companies: 12.7 12.6 11.9 11.0 11.5 12.1 12.1 - Sales by SNH to SONARA 2/: ...... 2.0 1.0 1.0 1.0 1.0 - 1.b. Value of sales (in billion of CFA francs) - Total value of sales: 607.0 551.1 612.3 522.2 540.2 534.4 518.3 - Exports: 607.0 551.1 576.7 505.7 523.9 519.1 503.5 - By SNH: 393.9 350.6 352.4 315.3 327.0 324.3 314.5 - By petroleum companies: 213.0 200.5 224.3 190.4 197.0 194.9 189.0 - Sales by SNH to SONARA: ...... 35.6 16.5 16.2 15.3 14.8 ### 2. SNH and oil companies' accounts - 2.a. SNH accounts (CFA francs, values shown as in source) - Revenue: 393.9 350.6 388.0 331.8 343.2 339.6 329.3 - Expenditure: -97.1 -90.6 -113.9 -107.0 -105.7 -109.4 -110.5 - Cost sharing of 50 percent with oil companies: -61.4 -59.5 -63.0 -60.6 -63.6 -66.9 -67.8 - Projects: -46.4 -43.4 -44.7 -43.1 -46.1 -49.4 -50.4 - Investment: -1.9 -6.6 -9.2 -9.1 -9.1 -9.1 -9.1 - Financial costs: -1.6 -0.9 -0.9 -0.8 -0.8 -0.8 -0.8 - Debt amortization: -11.5 -8.6 -8.2 -7.5 -7.5 -7.5 -7.5 - Other costs 3/: -22.4 -21.6 -26.9 -34.8 -29.9 -29.9 -29.9 - Payments to oil companies by government to ensure minimum 13 percent profit margin: -13.2 -9.5 -23.9 -11.6 -12.1 -12.6 -12.8 - Disposable income: 296.8 260.0 274.2 224.8 237.5 230.2 218.8 - 2.b. Oil companies' accounts - Export receipts: 213.0 200.5 224.3 190.4 197.0 194.9 189.0 - Expenditure: -113.6 -113.1 -114.3 -103.3 -107.1 -110.3 -104.5 - Cost sharing of 50 percent with government: -61.4 -59.5 -63.0 -60.6 -63.6 -66.9 -67.8 - Effective tax obligations: -52.2 -53.7 -51.3 -42.7 -43.5 -43.5 -36.7 - Disposable income: 99.4 87.3 110.0 87.1 89.8 84.5 84.5 ### 3. Contribution to government budget - 3.a. Calculated on the basis of contractual arrangements 4/ - Total: 352.9 312.2 327.8 276.1 280.2 273.6 258.9 - SNH: 296.8 260.0 274.2 224.8 237.5 230.2 218.8 - Oil companies' profit tax: 56.0 52.2 53.7 51.3 42.7 43.5 40.1 - 3.b. Actual (cash basis) 5/ - Total: 368.7 324.2 325.2 ............ - SNH's contribution: 295.1 272.0 275.4 ............ - Oil companies' profit tax: 73.6 52.2 49.8 ............ - Memorandum items: - Oil price (U.S. dollars per barrel) - World Economic Outlook series: 25.0 28.9 37.8 40.5 38.0 36.0 35.0 - Discount for lower quality of Cameroon's crude: 1.4 1.5 3.0 5.0 3.0 3.0 3.0 - Price for Cameroon's crude: 23.6 27.4 34.8 35.5 35.0 33.0 32.0 - Exchange rate (CFA francs per U.S. dollar, average): 696.7 580.8 528.0 ............ - Notes present in source: - 1/ National oil company (Société Nationale des Hydrocarbures). - 2/ National oil refinery. - 3/ Other costs in 2005 amount to CFAF 32 billion in the MEFP para. 14 because a different exchange rate was used (SNH's budget is prepared in US$) - 4/ Based on data provided by SNH. - 5/ As reported in the government's fiscal reporting system. ### Economic situation (MEFP summary) - Recent performance and macro indicators: - Real GDP growth averaged 4½ percent during 2000-2004. - Per capita GDP income gains of 1.7 percent per year. - Growth-constraining electricity shortages eased in 2004, but signs of slowdown appeared late in 2004 (decline in growth rate of bank credit to the private sector to 2 percent from some 10 percent in 2003). - Consumer price inflation fell below 1 percent in 2003-04. - Current account deficit narrowed to below 2 percent of GDP. - External debt fell below 50 percent of GDP. - Fiscal performance in 2004: - Non-oil primary deficit widened from 0.6 percent of GDP in 2003 to 2.4 percent in 2004. - Total revenue was almost 1.2 percentage point of GDP below its 2003 level. - Cash expenditure increased by 0.3 percentage point of GDP despite a decline in budget allocations by 0.4 percentage point. - Overall budget balance (including grants) weakened by 2 percentage points of GDP to a deficit of 0.7 percent of GDP. - Public enterprises and structural reforms: - Financial situation of CAMAIR and CAMPOST remained very worrisome. - Continued implementation of SIGEFI since 2003; new expenditure classification adopted in 2003 not fully integrated. - Tax reforms in 2004 (personal income tax reform; Large Taxpayer Unit (DGE)) implemented but full effects pending. - Progress in port reform (Douala), forestry sector reform, establishment of Douala Stock Exchange, licensing microfinance institutions, and updated privatization plans for CAMTEL and SNEC. - Governance and social sectors: - New public procurement code adopted in September 2004. - Priority action plan to reform judiciary approved end-2003; laws for Audit Office and Constitutional Court passed April 2003 and April 2004. - Anti-corruption units established in all ministries and government bodies. - President ratified the UN convention against corruption in May 2004. - Education: updated districting, recruited part-time primary school teachers, constructed classrooms; gross enrollment improved though repetition and dropout remain high. - Health: malaria, HIV/AIDS, medication and immunization programs implemented; infant mortality fell to 74 per 1000, child mortality to 142 per 1000; HIV/AIDS prevalence estimated at 5.5 percent of the adult population. ### Program for 2005 — objectives and fiscal policy - Key objectives for 2005: - Preserve macroeconomic stability through fiscal consolidation. - Strengthen investment and economic growth. - Improve social conditions. - Mobilize non-oil revenue to offset secular decline in oil output. - Strengthen public expenditure management and public investment. - Enhance transparency in government operations, including oil sector, and further restructure/privatize public enterprises. - Improve governance and business climate. - Fiscal targets and expected outcomes: - Non-oil primary deficit is expected to improve by 2.5 percentage points of non-oil GDP in 2005. - Overall balance (including grants) projected at a surplus of 0.4 percent of GDP. - Measures to mobilize additional non-oil revenues (2005 budget law and administrative actions): - Expected increase in non-oil revenue by 1.2 percentage point of non-oil GDP (or 0.9 percent excluding one-time effects) to a level of 14.7 percent of non-oil GDP. - Tax policy measures listed: - Increase VAT rate by 0.5 percentage point from 17 to 17.5 percent. - Abolish VAT exemptions on computer equipment and some food items (meat, frozen fish and sugar). - Abolish partial excise tax exemption for locally-produced alcoholic beverages and tobacco. - Increase taxation of gambling. - Impose a 5 percent registration fee on Government orders below CFAF5 million. - Increase stamp duties and automobile registration fees (vignettes). - Central government to temporarily retain at the central level half of the VAT surcharge for local governments (centimes additionels). - Tax and customs administration measures: - Complete implementation of the global income tax and establishment of the Large Taxpayer Unit (DGE); increase DGE material and human resources; aim to increase tax compliance to 100 percent. - Better organized and more systematic tax audits for personal income taxes, VAT and excises. - Improve forestry taxation to combat tax evasion through fraudulent exports and informal timber processing. - Strengthen customs administration, eliminate discretionary exemptions, and shift from PAGODE to automated ASYCUDA system (with a valeur record). - Contingent measures and technical assistance: - Government ready to take further revenue measures if needed; to discuss measures with planned FAD technical assistance in April/May 2005. - Government will discuss IMF staff concern about reintroduction of withholding at source (retenue à la source) on VAT with FAD experts. - Considering introduction of a stamp tax (vignette) on imported tobacco to prevent revenue losses due to smuggling. *Source: Cameroonian authorities; and staff estimates and projections.* ### 12. The Government will also strive to maximize oil revenue. Oil revenue is projected to ### 12. The Government will also strive to maximize oil revenue. Oil revenue is projected to ### Oil revenue and SNH transfers - Oil revenue is projected to decline by 0.8 percentage points of GDP due to: - a decline in production volumes, - an increase in the discount for Cameroonian petroleum, - an appreciation of the CFA franc against the US dollar. - The Government will ensure the timely transfer to the Treasury of the surplus of the national oil company (SNH), in accordance with current arrangements. - The Government will ascertain that the SNH establishes the required provisions for the decommissioning of oil fields. ### Budget expenditure priorities and projections - The Government is determined to keep expenditure within the 2005 budget limits and respect PRSP-identified poverty-reducing sector priorities. - Program projections: - non-interest current expenditure will decline by 1.6 percentage points of GDP, - public investment will be increased by 1.1 percentage point of GDP to attain 3 percent of GDP. - Acceleration of public investment will be funded essentially through the use of HIPC resources, which is expected to increase by 0.7 percent of GDP due to a streamlining of public investment expenditure procedures. - Current expenditure restraint measures include containing non-priority spending: travel expenses, construction in non-priority sectors, and acquisition of transport equipment. ### Expenditure control measures - The Government will not resort to payments for spending not yet committed within the 2005 budget law or earlier budget laws (except for judicial costs (frais de justice) that will be strictly monitored). - Expenditure commitments will only be made against budget allocations corresponding to the nature of the actual spending at the ministry level. - SNH “direct interventions” (interventions directes): - Require prior authorization of the Minister of Economy and Finance since early 2005. - Can be authorized only against remaining budget allocations consistent with the nature of the spending. - Will be discontinued, with the exception of sovereign spending, as soon as possible, but no later than by July 1, 2005. - Other SNH spending (autres charges) of a quasi-fiscal nature will be limited to CFAF 32 billion in 2005. ### Quarterly commitment limits and Treasury cash management - To ensure expenditures correspond to the Government’s cash position, quarterly commitment limits will be set for Ministries. - Ceilings for 2005: first quarter CFAF 190 billion; second quarter CFAF 222 billion. - The Treasury’s resources will be consolidated in a single Treasury account at the BEAC before end-June 2005. - Accounts maintained by government entities in commercial banks (except for those accounts listed in paragraph 23 of the TMU) will be closed and balances transferred to the single Treasury account at the BEAC. - No new accounts will be opened in commercial banks after March 31 (except those listed in paragraph 23 of the TMU). - Only the Treasury will be entitled to open sub-accounts and make transactions at the BEAC to facilitate internal Treasury operations. - A government entity could open a deposit account within the single Treasury account if operationally necessary. ### Financing constraints, arrears, and domestic debt plans - Despite efforts to mobilize non-oil revenue and restrain expenditure, the Government will face tight financing constraints in 2005 and will not be able to meet in full its external obligations. - The Government intends to clear technical arrears accumulated at end-2004 and will request a new rescheduling of Cameroon’s bilateral and commercial debt obligations later in 2005. - Domestic debt management actions and timelines: - Prepare by end-February 2005 a draft payment plan for the medium-term for domestic arrears/debt identified in previous audits and not yet paid, consistent with the quarterly fiscal program. - Initiate negotiations with some nonbank creditors, including the social security system (CNPS), by end-February 2005. - Finalize an audit of domestic debt by end-March 2005 to establish arrears/debt accumulated since previous audits. - Formulate a settlement plan for 2005 by end-April 2005 for arrears not yet settled at that time, consistent with quarterly budgetary programming. - Prepare a multi-year settlement plan for all domestic debt beyond 2005 by end-June 2005. ### Additional resource mobilization: dividends and asset sales - The Government intends to raise additional resources by: - maximizing payment of dividends by profitable public enterprises, - selling part of the Government’s minority shares in certain companies, including through the Douala Stock Exchange. - Initial list of five companies identified for potential partial sale/divestiture: - SEMC (mineral water production and distribution), - SOSUCAM (production and marketing of cane sugar), - SOCATRAL (production of corrugated aluminum sheets), - ALUBASSA (production of aluminum household articles), - SAFACAM (oil palm, rubber, forestry). ### Transparency in fiscal management and data systems - Strengthen data management and monitoring of budgetary execution by using SIGEFI more efficiently and establishing missing computerized links (particularly for investment spending) in 2005. - Fiscal reporting improvements and timelines: - Compile a preliminary version of the Treasury balances no later than 3 weeks after the reporting month. - Beginning with end-February 2005 data, prepare a government operations table (TABORD) on a cash basis consistent with Treasury balances and a preliminary expenditure table showing spending committed (ordonnancements) or paid but not yet attributed to a budget allocation. - Based on final Treasury balances, starting with end-February data, prepare an updated TABORD on a cash basis and a TABORD on a commitment basis within two months after the reporting month. - Begin publishing monthly budget execution monitoring documents by end-June. ### Civil service payroll management - Provide results of the implementation of the civil service employment register (SIGIPES) in four pilot ministries (public administration, economy and finance, health, and education) by end-March 2005. - Stabilize the system in pilot sites and assure full functioning by end-2005. ### Oil sector transparency initiatives - The Government has announced its intention to adhere to the Extractive Industries Transparency Initiative (EITI). - Publication commitments and timelines: - Publish before end-June 2005 on the website of SNH and that of the Prime Minister’s Office quarterly information on total oil production, prices, and revenue of the Government for the year 2004 and the first quarter of 2005, and update quarterly thereafter. - The Government and SNH will publish on their web sites, no later than in June 2005, the main elements of the audit reports of SNH for both its own activities and those on behalf of the Government (mandat), the related accounts and the opinion of the financial auditor for 2000/01, 2001/02, Transitional 2002, and 2003. - The Government will strive to obtain the agreement of the oil companies operating in Cameroon to on the publication of the main elements of the production sharing agreements. ### HIPC resources management and transparency - Improve use and transparency of HIPC debt relief resources: - Follow up on the 2004 audit results (covering activities in 2001-03) by end-March 2005 and clarify and prioritize the list of projects approved by the HIPC Consultative Committee (CCS). - HIPC funds will remain in treasury accounts and will no longer transit through the government debt agency (CAA), except for counterpart funds governed by bilateral agreements. - Close all existing CAA accounts for HIPC projects (except counterpart funds) and transfer balances to the Treasury. - No payment of expenditure that has not been effectively committed. - Organizational and audit actions: - Reorganization of December 8, 2004 strengthens interministerial coordination and will give a new impulse to the interministerial HIPC Project Implementation Committee (CSR). - Launch an audit of the use of HIPC relief in 2004 by end-May 2005, consistent with HIPC completion point triggers. - HIPC account and arrears: - Deposit into the HIPC account opened in the Bank of Central African States (BEAC) all HIPC interim assistance and related additional debt relief obtained in 2005. - By end-June 2005, in consultation with IMF staff, establish a plan for making late payments into the HIPC account of amounts owed for earlier interim assistance; these arrears amounted to CFAF 76 billion at end-2004. ### Fiscal decentralization approach - Follow a cautious approach for fiscal decentralization and consult IMF staff before major changes in the fiscal framework. - Prepare the basis for a solid decentralization framework by assessing financial impacts of alternative schemes before adoption and implementation. - Preserve the central government’s ability to guide overall fiscal policy and introduce adequate controls over local borrowing. - Build administrative capacity at the local level for timely preparation, implementation, and auditing of local budgets. - In 2005, temporarily retain at the central level half of the surcharge on VAT for local governments; reconsider once future revenue sharing is specified. ### Public enterprises: losses, privatization, and monitoring - Reduce public enterprise losses and restore financial discipline through timely Government payments of utility and transport bills to enterprises (including CAMAIR, SNEC, CAMRAIL, AES-SONEL, CAMTEL). - CFAF 45 billion allocated in the 2005 budget for privatization of large companies and restructuring of CAMPOST; these resources to be used only when a privatization strategy and/or action plan has been adopted after consultation with IMF and World Bank staffs. - Specific privatization and restructuring actions and timelines: - CAMAIR: - Government decided in December 2004 to proceed with privatization strategy (scission/liquidation/privatisation). - IFC designated as main consultant. - Detailed strategy and time-bound action plan to be prepared by end-June 2005 with IFC, approved by Government by end-July 2005, implementation to start from August 2005. - Interim administrator appointed in February 2005 to implement privatization process. - CAMTEL: - Privatization advisor to be hired before end-March 2005. - Privatization strategy adopted by end-July 2005. - Search for a private majority investor to begin by December 2005 in a manner agreed with the World Bank. - SNEC: - Adopt a privatization plan in May 2005 and launch invitation to bid for a public/private partnership (PPP) in December 2005. - Water tariffs, unchanged since 1994, will be increased gradually to reach cost recovery levels; modalities to increase charges for water distributed by SNEC planned for the second half of 2005 on the basis of simulations using a financial model prepared in the PPP bidding process. - CDC (three remaining branches: palm oil, rubber, banana): - Privatization strategy validated before end-May 2005. - Hire an investment bank and launch complementary studies before end-August 2005. - Approve and launch bidding documents in December 2005. - SODECOTON: - Recruit an independent internationally renowned firm to review sector organization and international market constraints and conduct a diagnostic study to identify privatization options by end-2005. - Monitoring improvements: - Identify cross-liabilities between the Government and public enterprises by end-June 2005 as part of the domestic debt audit. - Establish a detailed record of external debt of public enterprises for HIPC completion point and debt sustainability analysis and monitor external debt annually. - Carry out an assessment of the consolidated position of the 20 largest public companies based on 2004 financial accounts by end-June 2005 and update regularly. ### Monetary policy and financial sector measures - Monetary policy objectives: ensure low inflation and secure the peg of the CFA franc to the euro. - Monetary program for 2005 foresees: - an increase in net bank claims on the central government of CFAF 35 billion at end-2005, - an expansion of credit to the private sector by 6.1 percent, - a contribution by Cameroon to the net foreign assets of the BEAC by CFAF 15 billion by end-December 2005. - Money supply is expected to increase by 7.6 percent in 2005. - Strengthen the financial sector by addressing difficulties of government-owned financial institutions: - CAMPOST: - Pay all new deposits received as of January 2005 into a special account at the BEAC. - Complete an audit by end-June 2005 to assess liabilities and establish a preliminary balance sheet by end-August 2005 separating postal and financial activities. - Hire a consultant team to assist restructuring by end-September 2005. - Elaborate a social plan by end-July 2005 and implement during 2005. - Initiate separation of financial and postal activities in August 2005. - Requested COBAC prepare analysis of conditions required for CAMPOST to obtain a license as a financial institution; CAMPOST to initiate the licensing process from September 2005. - Credit Foncier: - Strictly implement the 2003 restructuring plan under COBAC supervision, with quarterly monitoring. - Renewed efforts to recover nonperforming loans. - Launch in 2005 a study on (i) participation of the banking sector in financing private housing (currently mostly financed by Credit Foncier) and (ii) how the subsidy now allocated to Credit Foncier and funded from an earmarked income tax surcharge could be directed toward financing social housing. *Source: _cr05164 - 12. The Government will also strive to maximize oil revenue. Oil revenue is projected to; APPENDIX I, ATTACHMENT I.* ### 31. The Government will continue to implement at the national level the ongoing regional ### _cr05164 - 31. The Government will continue to implement at the national level the ongoing regional ### Financial sector reforms and microfinance - All microfinance institutions will be registered by the Ministry of the Economy and Finance under the supervision of COBAC by end-March 2005 latest. - Licensed microfinance institutions will be subject to a basic financial and accounting supervision by COBAC in collaboration with the Ministry of Economy and Finance until an appropriate accounting framework is put in place. - The Government will see to the effective closure of those microfinance institutions that are denied a license. - Cooperation with the national association of Microfinance institutions (ANEMCAM) will be strengthened. - The authorities have undertaken to create a national Financial Intelligence Unit (ANIF) by end-May 2005 in accordance with CEMAC’s regulation on combating money laundering and the financing of terrorism. ### External sector: debt management and trade policy - In light of tight budgetary constraints, the Government will not be able to fully meet obligations due to bilateral and commercial creditors in the near future. - The Government intends to request a new Paris Club rescheduling later in 2005 once a 3-year economic program that can be supported by the IMF under a new PRGF arrangement has been approved by the IMF Board. - To reduce arrears to commercial creditors, the Government will continue to seek agreement on comparable terms with commercial creditors who did not participate in the buyback operation of August 2003. - Trade policy: Cameroon intends to promote strengthening regional integration in the CEMAC, seek a reduction in the common external tariff and the number of tariff headings, and establish in 2005 the practical and operational modalities of the investment charter it adopted in line with the common CEMAC charter. ### Governance and institutional reforms - By end-June 2005, with donor assistance, the Government will complete a comprehensive update of its National Governance Program. - The Government will continue implementing its priority action plan for judicial reform to fight corruption by improving enforcement of laws, ensuring the independence of the judiciary and improving working conditions of judiciary employees. - The Government will prepare enabling legislation to apply the UN convention against corruption in Cameroon. - The Government intends to make the Audit Office (Chambre des comptes) operational by end-December 2005 and continue implementing the action plan for setting up the Constitutional Council. - The 2005 budget contains allocations for the purchase and adaptation of premises for the Audit Office, staff training and the drafting of procedure manuals. ### Social policies, PRSP follow-up and statistics - The first annual PRSP progress report (covering April 2003-March 2004) was submitted to the Fund and World Bank in July 2004. - The Government will continue to prepare annual progress reports and enhance analytical quality in line with the Technical Committee for the Monitoring and Evaluation of PRSP Implementation Activities. - A study to improve participatory monitoring: terms of reference prepared and submitted to development partners and civil society for comments; will be finalized by end-March 2005. - Next annual PRSP progress report will be finalized by end-September 2005. - By end-June 2005 the Government will revise some main PRSP elements in preparation for the 2006 budget and a 3-year economic program for which it intends to request a new PRGF arrangement. These elements include: - (i) an update of the medium-term macroeconomic framework and poverty rate projections; - (ii) an update of the PRSP section on the sources of growth and the role of the private sector; - (iii) outlines of the medium-term sectoral strategies (e.g., industrial and trade development; tourism; mines; energy; post and telecommunications; and decentralization); - (iv) the development of a comprehensive medium-term expenditure framework drawing on new sectoral components. - The Government is finalizing a social development strategy paper focusing on employment, social security and national solidarity, promotion of gender equity and equality, satisfaction of basic needs, social education and specific urban development problems. - Statistical framework and census: - The Government is gradually putting into place a statistical framework capable of producing indicators for PRSP and MDG monitoring, with support of development partners. - The Government will make the National Statistics Institute fully functional by putting into place its governing bodies. - Preparations for a new census have started; data collection will be completed by end-2005. ### Sectoral reforms: petroleum, forestry, energy, transport - Downstream petroleum sector: - Government intends to further liberalize downstream activities while maintaining SONARA for domestic energy security. - Imports are limited to 20 percent of domestic demand and a surcharge above world market prices is applied to protect SONARA’s products. - Government will allow SONARA to recoup sizeable losses incurred in 2004; fuel prices were raised in December 2004 and January 2005. - The monthly domestic petroleum product price adjustment mechanism will be reinstated fully as of February 2005 and a loss-recovery element will be added during 2005 to fully recoup the losses incurred in 2004. - Government will continue to monitor the performance contract with SONARA. - National petroleum storage company (SCDP): - Government will pursue an action plan elaborated with the World Bank and adopt it by May 2005 with the objective of privatizing SCDP. - Forestry sector: - By end-June 2005 the Government will: - (i) sign (or issue a motivated rejection of) acts that provide clarity of land ownership status in a total of 38 forest management units (décrets de classement); - (ii) sign final concession contracts with companies found in compliance with legal and regulatory requirements; - (iii) sign a new three-year contract with an Independent Observer while maintaining uninterrupted use of the present Independent Observer’s field support until the new Independent Observer is operational. - Energy sector: - Government is working with the World Bank and the AFD to strengthen medium- and long-term energy supply. - Government will work closely with the World Bank to accelerate preparations for the possible construction of a natural gas-fired plant at Kribi and to develop a comprehensive energy sector study to identify optimal sequencing of generation plants based on cost and environmental impact. - Transport sector: - Completion of port sector reform in 2005, including upgrading capacities through introduction of information technology in port operations. - Rail: Government will meet obligations toward CAMRAIL and pay the annual subsidy of CFAF 2.5 billion for traveler service as agreed on the basis of the audit report; it will also ensure payment of related arrears. - Road: Government committed to (i) applying the memorandum of understanding agreed with the European Union in May 2004; (ii) securing increase of maintenance funding; and (iii) implementing institutional reforms including that of the Road Fund. Government will seek available external funding including EU grants. ### Program monitoring, benchmarks and contingency arrangements - A prior action (Table 1) critical for ensuring timely implementation of the Staff Monitored Program (SMP) for 2005 must be in place prior to discussion by the IMF Executive Board. - The Government established structural benchmarks (Table 1) and quantitative benchmarks (Table 2) and will review program implementation quarterly with IMF staff. - Built-in contingency mechanisms are included in the program to address uncertainties surrounding oil prices, external budget support, external debt relief and privatization receipts; mechanisms are explained in the Technical Memorandum of Understanding (TMU). - Program supervision: - Program implementation will be regularly reviewed in interministerial cabinet meetings (Conseils de Cabinet) chaired by the Prime Minister. - The Minister of Economy and Finance will supervise program implementation with assistance of the Technical Committee for the Monitoring of Economic Programs (CTS). - The CTS will provide IMF staff, within TMU deadlines, with all data necessary to monitor the program. - Data improvement: - Authorities will continue efforts to expand data coverage and improve data quality and timeliness, particularly under the General Data Dissemination System (GDDS). - Government compiled a new official national accounts series in accordance with SNA93; government and IMF staff will adopt the new series after revision of some data as soon as possible. ### Table 1: Prior action and structural benchmarks (selected items) - Prior Action: - 1. Sign contract with advisor on the privatization (scission/liquidation/privatisation) of CAMAIR. - Structural Benchmarks (selected deadlines and actions): - 1. Based on SIGEFI data for end-February 2005, prepare by end-March 2005 the TABORD on a cash basis consistent with the Balance des Comptes du Trésor, and a preliminary TABORD on a commitment basis. - 2. Prepare and adopt a detailed time-bound action plan for the privatization (scission/liquidation/privatisation) of CAMAIR by end-June 2005. - 3. Suspend opening of government accounts in commercial banks by March 31, 2005 and close the existing ones by end-June 2005. - 4. Based on the audit of domestic debt as of end-2004, prepare by end-June 2005 a timetable for the repayment of the identified amounts of domestic debt over time. - 5. Prepare by end-June 2005 a plan to replenish arrears to the HIPC account at the BEAC. - 6. Suspend all budgetary spending advances by SNH (interventions directes), except for sovereign spending, by July 1, 2005. - 7. Enhance transparency in the oil sector by publishing by end-June 2005 the main elements of SNH audit reports through 2003, and, subject to agreement by the oil companies concerned, the main elements of production-sharing and concession agreements. - 8. Initiate the process of separating the financial and the postal activities of CAMPOST by end-August 2005, including through the preparation of a preliminary balance sheet. - 9. Update national action plan to improve governance by end-June 2005. ### Table 2: Quantitative benchmarks (selected figures and ceilings; in billions of CFA francs; cumulative from January 1, 2005, unless otherwise indicated) - Program targets (End-March / End-June / End-Sept. / End-Dec.): - Ceiling on the increase in net claims of the banking system on the central government: -53 -43 -48 -20 - Floor on the non-oil primary budget balance: 37 20 12 4 - Ceiling on the accumulation of external payments arrears of the central government: 0 0 0 0 - Ceiling on new medium- and long-term nonconcessional external debt contracted or guaranteed by the central government: 0 0 0 0 - Ceiling on the net disbursement of external debt contracted or guaranteed by the central government with a maturity of less than one year: 0 0 0 0 - Floor on non-oil revenue of the central government: 28 15 31 79 11057 - Floor on reduction of domestic debts — Structured debt: 23 34 69 80 - Floor on reduction of domestic debts — Non-structured debt: 1 2 3 4 - Floor on the replenishment of the HIPC account: 4 9 12 18 - Floor on payments to utility companies: - SNEC: 2 4 6 7 - AES SONEL: 2 3 5 6 - CAMTEL: 3 6 9 12 - CAMRAIL: 1 2 3 4 - Memorandum items: - Oil revenue: 56 12 92 02 22 76 - Assumed external debt relief: 3 5 11 21 47 216 - External program financing: 0 0 17 23 - of which: IMF: 0 0 1 10 - Privatization proceeds: 0 0 0 0 - Stock of net credit to the central government: 230 240 235 263 - Note: Table figures and definitions refer to the TMU (paragraph references provided in source). ### Enhanced HIPC Initiative Completion Point Triggers — progress through end-2004 (summary) - The interim note provides a factual update through end-2004 on progress toward HIPC completion point triggers. - Good progress noted on social sectors and combating HIV/AIDS, while improvements in governance were less satisfactory. - Government was unable to implement fully the PRGF arrangement that expired in December 2004. - Enhancements in public expenditure management achieved via establishment of an integrated financial management system; further integration into normal government operations and fiscal reporting recommended. - PRSP implementation since April 2003 has been less than comprehensive. - Several committees established to oversee PRSP implementation, HIPC triggers and use of HIPC relief for social expenditures, but committee operations suffered from inadequate coordination with normal government operations. *Source: IMF staff report content (appendix and annex excerpts) in _cr05164 - 31. The Government will continue to implement at the national level the ongoing regional* ### 1. The full PRSP has been prepared and satisfactorily implemented for at least one year. ### _cr05164 - 1. The full PRSP has been prepared and satisfactorily implemented for at least one year. ### PRSP preparation and implementation - The full PRSP was completed in April 2003. - In July 2003, the Executive Boards of the IMF and the World Bank concluded it provided a satisfactory framework for implementation of the authorities’ poverty reduction strategy. - The first Annual Progress Report (covering April 2003 to March 2004) was submitted in July 2004. - The progress report provides a relatively non-critical evaluation: progress has been good in some areas but modest elsewhere. - A particular concern: capital expenditure has consistently fallen short of that needed to achieve PRSP objectives, undermining Cameroon’s medium-term growth prospects given strong infrastructure needs (energy, water provision, and roads). ### Macroeconomic environment and PRGF implementation - Recent years: growth and inflation performance described as solid. - Fiscal performance weakened considerably in 2004. - Non-oil revenue fell from 14½ percent of non-oil GDP in 2003 to 13½ percent in 2004. - The non-oil primary deficit deteriorated by almost 2 percentage points of GDP to reach 2.4 percent of GDP. - Payments on domestic public debt and utility bills continued to fall behind; financial situation of some large public enterprises deteriorated. - As a result, the PRGF arrangement went off-track. ### Use of budgetary savings from debt relief (HIPC) - Decision point requires identification of poverty-reduction programs/projects to allow separation from other budgetary spending; this was done but overall poverty-related expenditure cannot be easily extracted due to incomplete functional breakdown of expenditure. - A special Treasury account for HIPC budgetary savings was established and mechanisms for using it have been operating. - Government fell behind in transferring realized HIPC relief to the special account. - An audit on use of HIPC resources for July 2001–December 2003 was conducted and presented to the HIPC Consultative Committee in September 2004. - Another audit is being contracted for the use of HIPC resources in 2004. - A monitoring committee (donors and civil society) was established in October 2002; its 2002–03 work focused on selection of eligible projects, but implementation was hampered by inadequate integration of HIPC spending in the budget execution cycle and slow disbursement; process improved substantially in 2004. - An inter-ministerial committee published voluminous quarterly financial and technical reports and discussed them with the monitoring committee; reports remain largely descriptive and lack analysis of progress toward poverty reduction goals. - Regional seminars required by the decision point have not been held. - The full PRSP details involvement of donors and stakeholders in use and monitoring of debt resources. ### SAC III conclusion and reforms implemented - SAC III concluded in March 2004; supported politically complex and ambitious reforms in transport, financial and forestry sectors and privatization. - Long implementation period (since 1998) led to stronger ownership of the reforms. Subsections: - Financial sector - All financial sector conditions linked to SAC III were satisfactorily implemented. - Banking and insurance systems were successfully restructured, improving quality and availability of financial services. - Privatization - Tangible progress under World Bank’s SAC II and SAC III; mixed progress since the decision point. - Telecommunications: sector opened to competition by issuing two cellular licenses, improving service and lowering costs. - Agro-industrial privatizations (SOCAPALM, CAMSUCO, tea component of CDC) led to increased planted surface and production. - SONEL privatization encountered severe difficulties due to lack of managerial competence and financial resources. - No bids for sale of three remaining crops of CDC; negotiations for CAMTEL and SNEC fell through. - Government remained committed to privatization of telecoms, water and agroindustrial complex; with IDA assistance, reviewed approach and relaunched process. - Transport sector - Road sector: an autonomous Road Fund was established in 1998 to secure funding and timely disbursement for road maintenance by the private sector; amount and quality of road maintenance financed by the Road Fund have steadily increased over the last three years, although services still lag far behind needs. - Port reform: institutional reforms completed, resulting in reduced costs and clearance times and streamlined operations. - Forestry sector - Cameroon implemented complex forestry reforms to improve governance; SAC III–supported reforms created a policy and regulatory environment and incentive framework conducive to environmentally sustainable development. ### Governance and anti-corruption (I-PRSP priority strategy and action plan) - Judicial reform - The Chambre des Comptes (audit office) and the Conseil Constitutionnel have been created. - A technical diagnostic study identified obstacles to judicial performance; an operational action plan was developed and adopted in December 2003. - The law specifying responsibilities, organization, and functioning of the Chambre des Comptes was adopted in 2003. - The president and 2 members of the audit office were nominated in April 2004; nomination of remaining financial magistrates is necessary for the office to become operational. - Laws specifying responsibilities, organization, and functioning of the Constitutional Council were adopted by the National Assembly in March 2004; a revised action plan to make the council operational is to be prepared. - Public procurement - Public procurement system reformed: new public procurement code, fully operational oversight agency, special oversight committees, and regular ex-post audits for public contracts. - Audits for the preceding fiscal year have been completed and appropriate follow-up actions implemented, in accordance with the law. - Focus should now be on taking sanctions against identified misconduct. - Budgetary execution and service delivery - Budget tracking exercises and beneficiary assessments for education and health have been published and relevant recommendations implemented. - National Governance Program (PNG) approved in June 2000; Priority Action Plan adopted in August 2000. - Government tackled abusive attachment of bank accounts (saisie attribution) that threatened financial sector and business confidence in 2001/02. ### Regulatory agencies for key sectors - Regulatory agencies have been set up in telecoms and electricity. - In telecoms, an independent regulatory authority has been established, legally and functionally separate from the postal ministry, with its own sources of finance; this regulator is functioning effectively. ### Education sector - Sector strategy implementation highlights: - (i) 2500 new classrooms have been built (noting later text: as of March 2004, over 2800 classrooms had been built and resources for further construction have been budgeted). - (ii) Teacher management has been effectively decentralized and new teacher statutes have been adopted and implemented. - School enrollment rates increased significantly after abolition of school fees in public primary schools and allocation of instructional materials. - Repetition and drop-out rates remain very high; only 60 percent of children complete primary education. - A law promoting private education institutions was approved by Parliament. - Decentralization of resource management is underway according to a timetable agreed with IDA; school councils (beneficiaries, local communities, parents, students and teachers) have responsibility for budget supervision and control of school operations. - Education sector governance watchdog (Observatoire de la Gouvernance) created and reported on several corruption cases leading to sanctions. - As of March 2004, over 2800 classrooms had been built. ### Health sector - Sector strategy implementation highlights: - (i) Child immunization rates for DPT have been increased to 70 percent. - (ii) Knowledge about protection and prevention measures against malaria will have substantially increased, i.e., 50 percent of pregnant women are using impregnated bed-nets. - All health district teams have been put in place and provided with operating budgets; decentralization to provincial and peripheral levels is very advanced. - Government started subcontracting NGOs for service delivery in remote areas. - Expanded Program on Immunization (EPI) improved immunization rates: DPCT3 from 43 percent in 2001 to 72 percent in 2003. - Malaria program restructured and reinforced; HIPC resources helped distribute free impregnated bed nets to pregnant women; government measures to improve availability and use of bed nets implemented. ### HIV/AIDS prioritization and results - Government adopted a strategic plan for 2000–05 to combat HIV/AIDS, mobilizing and funding over 3,000 communities through public-private-religious partnerships. - Key accomplishments: - Expanded voluntary counseling and testing. - Reduced mother-to-child HIV transmission. - Promotion of ARV therapy through 18 designated centers nationwide and cost reduction of ARV treatment by 70 percent. - Some 7,500 patients placed under ARV treatment, including 700 low-income patients. - Communication activities and condom distribution targeted truck drivers, port workers, soldiers (target: 50 percent use) and commercial sex workers (target: 70 percent use). - HIV/AIDS infection rate estimate revised downward to 5.5 percent of the adult population in 2004. ### Technical Memorandum of Understanding (definitions for SMP targets and contingency mechanism) - Introduction - Memorandum sets out understandings between Cameroonian authorities and IMF staff on definitions of SMP targets, contingency mechanism, exchange rate projection, and data-reporting requirements. - Definitions: External debt - “Debt” has the meaning set out in point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements (Decision No. 12274–00/85, dated August 24, 2000). - Concessionality of external debt - Debt is concessional if it includes a grant element equivalent to 35 percent or more, calculated on the basis of the commercial interest reference rate (CIRR) and following the methodology set out in the staff paper approved by the IMF Executive Board on April 15, 1996. - Cash relief from external debt rescheduling - For the program, only debt relief that leads to an effective reduction in programmed debt service is subject to the contingency mechanism. - Excludes relief on debt in drawn-out rescheduling/negotiations with non-Paris Club creditors for which no debt service has been paid in the past year (e.g., debts to be considered under debt- and debt-service reduction operations with commercial creditors), and for which no provision for debt service has been made in the fiscal program (except for up-front costs). - Domestic debt: Structured debt - Structured debt is the stock of debt as of end-December 2004 resulting from the multiyear settlement plan for public domestic arrears as recorded by the Caisse Autonome d’Amortissement (CAA). - At end-December 2004, the stock of this debt (excluding BEAC’s advances) amounted to CFAF590.1 billion. - Such debt comprises securitized debt and nonsecuritized debt. - Securitized debt comprises consolidated BEAC debt and bank debt, cross debt supported by a formal agreement, insurance company debt, securitized public works (BTP) debt and securitized wage arrears. - Nonsecuritized debt includes nonsecuritized public works (BTP) debt, debt to the public, semipublic and private enterprises; and wage arrears (Rompus). - Structured debt service consists of principal and interest. - Domestic debt: Nonstructured debt - Nonstructured domestic debt was contracted by the state and specified in the multiyear settlement plan as recorded by the CAA. - As of end-December 2004, this debt amounted to CFAF179.8 billion. - Nonstructured debt is defined as debt not yet subject to a formal agreement (convention), cash payment, or securitization. - Nonstructured debt service consists of principal and interest. - Arrears identified in early 2005 debt audit - All payments made for expenses incurred in 2004 or earlier, including payments of arrears established in the early 2005 audit of domestic debt, are included as budgetary expenditures and recorded within the expenditure items described, except payments made under the CAA’s multiyear settlement plan. - Government financial operations table (TOFE) - (TOFE referenced in memorandum as part of data-reporting; definitions and specifics provided in the memorandum.) *Source: _cr05164 - 1. The full PRSP has been prepared and satisfactorily implemented for at least one year.* ### 8. The Treasury balance (Balance des comptes du Trésor) shows Government revenue ### _cr05164 - 8. The Treasury balance (Balance des comptes du Trésor) shows Government revenue ### Treasury balance: scope and recording - Shows Government revenue and expenditure posted in: - Class 6 accounts (current expenditure) - Class 7 accounts (current revenue) - Class 2 accounts (investment operations) - Debt-related operations recorded in: - Class 1 accounts (debt operations) - Partly in Class 5 (financial operations) - Financial operations data must be consistent with the treasury account at the BEAC. - Provisional revenue and expenditure operations and deposits of treasury correspondents recorded in Class 4 accounts (plan comptable). - Government operations not carried out through the treasury must be added to treasury-carried operations. - Revenue and expenditure recorded on a cash basis. - Carryover operations (opérations de journée complémentaire), if any, are recorded in the final month of the fiscal year. ### Non-oil revenue and related items - Non-oil revenue comprises all central Government (tax and non-tax) revenue, excluding revenue from oil companies and the redevance pétrolière. - VAT is recorded net of VAT refunds. - The pipeline fee is recorded as part of non-tax revenue. - Privatization proceeds: - Defined as all funds received by central Government from sale/concessioning of public companies/organizations or publicly owned facilities to private entities (including companies fully controlled by foreign Governments, private organizations, or individuals). - Include sale of Government-owned shares in private companies or public enterprises. - Recorded on a gross basis; costs incurred in connection with sale/concessioning recorded separately as expenditure. - Privatization proceeds recorded as a financing item in the fiscal operations table. ### Non-oil primary budget balance - Calculated (on a cash basis) as central Government non-oil revenue, excluding external grants, less all expenditure other than: - interest payments, - foreign-financed investment expenditure, - restructuring expenses, - separation grants. ### Net bank credit to the Government - Net claims on the central Government by the banking system = stock of all outstanding claims on central Government (loans, advances, Government debt instruments such as long-term Government securities) by the banking system, less all deposits held by the central Government with the banking system, excluding the HIPC account. ### HIPC account and payments to utilities - Replenishment of the HIPC account: - Target considered observed if the HIPC account at the BEAC receives the quarterly transfers indicated in Table 2 of the MEFP, and transfers from this account are used solely for paying HIPC projects. - Payments to utility companies: - Target considered observed if payments to utilities (water, electricity, fixed-line telephones, and railway company) are made in quarterly amounts as indicated in Table 2 of the MEFP. - Exclude fiscal compensation. - Assessed on the basis of cash disbursements. - Registered as current expenditures in the TOFE. ### SNH: budgetary spending advances and quasi-fiscal spending - Budgetary spending advances (interventions directes) by SNH: - Defined as advance payments by SNH on behalf of its Government mandate in oil operations (mandat). - Deducted from monthly cash revenue transferred by SNH to the Government. - From July 2005, such advances will be strictly limited to sovereign expenditure. - Interventions directes imputed in TOFE monthly on revenue and expenditure side. - Quasi-fiscal spending by SNH (autres charges): - Spending to cover costs not shared with other oil companies under production-sharing agreements (e.g., decommissioning costs). - Other elements not related to SNH’s oil sector activities and quasi-fiscal in nature (e.g., cost of operating the Chad-Cameroon oil pipeline). ### Contingency mechanism for adjusting ceiling on net bank credit to the Government - Ceiling adjustments: - Upward by half the amount of lower-than-programmed oil revenue; - Upward/downward by half the amount of lower/higher-than-programmed external budget support including debt relief; - Downward by the full amount of lower-than-programmed restructuring expenditure; - Downward by the full amount of lower-than-programmed payments of domestic debt (as defined). - Allocation of excesses: - Higher-than-programmed oil revenue and all privatization proceeds allocated to repayments of domestic debt and/or replenishment of the HIPC account above program targets. - Consultation trigger: - If shortfall/excess in oil revenue, external budget support (including debt relief), privatization revenue, and/or adjustments in the ceiling on net bank credit to the Government exceed a cumulative 0.2 percent of GDP, the Government will consult with IMF staff to formulate corrective policies and adjust program targets. ### Program exchange rates (quarterly 2005) - First quarter 2005: US$1.5403 per SDR and CFAF 488.46 per U.S. dollar - Second quarter 2005: US$1.5403 per SDR and CFAF 488.38 per U.S. dollar - Third quarter 2005: US$1.5404 per SDR and CFAF 488.34 per U.S. dollar - Fourth quarter 2005: US$1.5407 per SDR and CFAF 488.34 per U.S. dollar - IMF liabilities included in net claims on the central Government by the banking system will be valued at these exchange rates. - Any deviation from the exchange rate will lead to a full upward or downward adjustment of the value of the stock of IMF liabilities at the central bank and a similar adjustment of the ceiling on net bank claims. ### Prior action: CAMAIR privatization contract - Prior action on signing a contract on privatization (scission-liquidation-privatisation) of CAMAIR considered observed when: - Contract between Government and the advisor formally signed by both parties. - Contract includes terms of reference and length of mandate (will not exceed 18 months altogether). - Terms of reference indicate: - (i) existing company CAMAIR will be liquidated; - (ii) if a new airline is established with viable assets, the Government will hold a minority share; - (iii) Government will not inject in 2005 any other budgetary support beyond (a) costs related to liquidation of existing company, and (b) transferring viable assets to the new airline if established. - Terms of reference submitted for consideration to IMF and World Bank staffs prior to signing. ### Structural benchmarks (timelines and conditions) - Suspension of budgetary spending advances by SNH except for sovereign spending: - Observed if, as of July 1, 2005, SNH no longer makes advance payments on behalf of the Government other than sovereign spending. - From July 2005, monthly cash transfer to Treasury by SNH should equal transferable balance less sovereign expenditure as calculated by SNH and agreed with the Ministry of Economy and Finance. - Consolidation of Government accounts into single Treasury account at the BEAC: - Observed if no new government accounts at commercial banks opened from March 31, 2005 and all government accounts closed by end-June 2005. - Excludes accounts managed by public legal management committees and those required for externally-funded projects. - Treasury report documenting closure and transfer of remaining balances to single BEAC Treasury account to be submitted to IMF staff. - Domestic arrears payment plan: - Observed upon receipt by IMF staff of a detailed plan specifying arrears repayment schedule over time. - Plan based on audit undertaken in early 2005 compiling all Government arrears and debt as of end-2004 not established by previous audits. - Plan specifies repayment schedule by main creditor categories, including public enterprises and autonomous Government agencies. - Schedule specified on a quarterly basis in 2005 and on an annual basis beyond 2005. - Preparation of consistent fiscal reports: - Observed by end-March 2005 following receipt by IMF staff of a TABORD consistent with Treasury balances and SIGEFI data and a table tracking consistency of SIGEFI data. - Consistency required between: - (i) preliminary Treasury balances (end-February 2005) and TABORD on a cash basis using new chart of accounts; - (ii) preliminary data reported by the Budget Directorate including budgetary commitments (ordonnancement) and operations outside normal procedures, and payments on account of fiscal year 2005 reported by preliminary Treasury balances; - (iii) Budget Directorate data on budgetary commitments (ordonnancement) in fiscal year 2005 and payments on account of fiscal year 2005 as reported by preliminary Treasury balances; - (iv) data from the CAA and preliminary Treasury balances. - Replenishment of HIPC account: - Observed following completion of a plan by end-June 2005 specifying repayment schedule of the counterpart of debt relief under enhanced HIPC Initiative not transferred to HIPC account at BEAC at end-December 2004; this amounted to CFAF76 billion. - Repayment schedule will consider quarterly financial programming of the 2005 budget and quantitative replenishment targets and medium-term budget projections. - Action plan on privatization of CAMAIR: - Observed upon receipt by IMF staff of a detailed time-bound action plan adopted by the Government and drawn up with the advisor specifying timeline allowing completion of privatization and complying with prior-action guiding principles. - Action plan to be submitted to IMF and World Bank staffs prior to Government approval. - Separation of postal and financial activities of CAMPOST: - Observed by end-August 2005 following: - (i) establishment of two separate preliminary balance sheets for postal and financial activities based on audit of savings accounts of CAMPOST by June 2005 that ascertains level of savings deposits; and - (ii) a government decision instructing CAMPOST Board to initiate separation into two legally and financially autonomous agencies. - World Bank to be consulted in preparation. - Publication of SNH audits and production sharing agreements: - Observed by end-June 2005 following publication by Government or SNH on a website of: - (i) main elements of existing audits covering SNH’s activities for fiscal years 2000/01, 2001/02, transitory 2002, and 2003 (main elements include financial and management accounts and attachments); - (ii) after obtaining agreement of concerned oil companies, the main elements of all production sharing and similar contracts between SNH and other oil companies currently in place in Cameroon (main elements include provisions on production, cost sharing, and the tax regime). - Update National Governance Action Plan: - Observed upon receipt by IMF staff of an updated national action plan on governance prepared in collaboration with the UNDP under its new governance project with Cameroon by end-June 2005. ### Reporting requirements (selected deadlines and frequencies) - Financial and monetary data: - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey: Monthly — 25th of the month for previous month’s data. - Net credit by the banking system to the central government: Monthly — 10th of the month for previous month’s data for the preliminary series; 25th of the month for the previous month’s data for the final series. - Interest rates: Irregular — One week after new rates announced. - Transactions through the HIPC Initiative account at the BEAC, including credit and debit: Monthly — 10th of the month for previous month’s data. - Status report on all government deposits at the BEAC: Monthly — 10th of the month for previous month’s data. - Fiscal data: - Government financial operations table (TOFE), including revenues, expenditure, financing, and domestic debt payments (including settlement of domestic arrears): Monthly — Three weeks after end of month for preliminary series; Eight weeks after end of month for final series. - Treasury balances of a given month: Monthly — Three weeks after end of month for preliminary series; Eight weeks after end of month for final series. - Report on implementation of domestic debt settlement plan: Monthly — 25th of the month for previous month’s data. - VAT refunds’ balances (requested and paid): Monthly — 25th of the month for previous month’s data. - Investment budget execution report: Quarterly — Two months after end of month concerned. - Expenditure reports by selected ministries: Quarterly — Two months after end of quarter concerned. - Public companies: - SNH operations (export volumes, exchange rates, prices, values, operating costs including detailed list of autres charges, autres engagements, transferable balance, interventions directs, balance transferred on cash basis): Monthly — 25th of the month for previous month’s data. - HIPC spending in budget execution (engagements, ordonnancement, paiements): Monthly — 25th of the month for previous month’s data. - Payments of bills to public enterprises (SNEC, CAMTEL, AES SONEL, CAMRAIL): Monthly — 20th of the month for previous month’s data. - Payments made to or on account of CAMAIR (bills, subsidies, loans, arrears ...): Monthly — 20th of the month for previous month’s data. - Real sector: - Consumer price index, Yaoundé and Douala: Monthly — 20th of the month for previous month’s data. - National consumer price index: Quarterly — Six weeks after end of quarter concerned. - Index of industrial production: Quarterly — Two months after end of preceding quarter. - National accounts: - Flash series: Annual — Twelve months after end of year. - Provisional series: Annual — Eighteen months after end of year. - Final series: Annual — Twenty four months after end of year. - Balance of payments: - Imports by use and major export products, trade balance: Monthly — 25th of the month for previous month. - Price and volume indices of imports and exports: Quarterly — One month after end of quarter concerned. - Consolidated balance of payments summary estimates: Annual — Six months after end of year. - External debt: - Debt-service due before and after debt relief: At the beginning of the year; updates as needed. - Debt service paid cash: Monthly — 25th of the month for previous month’s data. - Debt service table by loans (“access table”): Monthly — 25th of the month for previous quarter’s data. - Stock of outstanding debt and arrears: Monthly — 25th of the month for previous quarter’s data. - New loans, specified by creditor and project, with quarterly projection of disbursements for next eight quarters: Monthly — 25th of the month for previous quarter’s data. - External grants: - Disbursements: Monthly — 25th of the month for previous month’s data. - General reporting obligation: - Cameroonian authorities will send data as per Table 1 within the time limits set out and supply, on a timely basis, any additional information IMF requests for program monitoring. ### Debt sustainability note - Preliminary DSA indicates Cameroon’s debt situation is manageable and not highly vulnerable to shocks. - Caveats: available debt data not fully comprehensive — external debt data for public enterprises not available and data on domestic arrears are incomplete. - Efforts underway to develop comprehensive debt data. *Source: _cr05164 - 8. The Treasury balance (Balance des comptes du Trésor) shows Government revenue* ### 32. The Cameroonian authorities felt the low-income debt sustainability framework ### 32. The Cameroonian authorities felt the low-income debt sustainability framework ### DSA methodology and caveats - The DSA involved four steps: - develop a medium- and long-term baseline scenario for balance of payments and fiscal positions; - compute debt ratios for baseline scenarios, assuming no HIPC completion point relief; - apply standardized stress tests to assess vulnerability to alternative macroeconomic assumptions and exogenous shocks; - devise alternative scenarios with slightly different underlying assumptions, including one where Cameroon reaches the HIPC completion point in early 2006. - Separate templates were used to analyze external debt and total public sector debt. - Missing data that limited the analysis: external debt of public enterprises; private sector external debt; complete data on domestic arrears. The analysis therefore reflects only government and government-guaranteed external and domestic debt. - The low-income debt sustainability framework can produce different results from HIPC Initiative calculations because methodologies for computing NPVs differ; caution is needed interpreting framework results for HIPCs in the interim period between decision and completion points. ### Size and origins of public sector debt — External debt - External debt increased sharply between 1985 and 2004 due to severe terms of trade shocks in the mid-1980s, a long economic depression, and a fiscal crisis in the early 1990s. - Cameroon had six rescheduling agreements with the Paris Club between 1989 and 2001; Paris Club treatments were on debt service flows only. - At end-1999, the nominal stock of public external debt was US$7.6 billion (about 85 percent of GDP) and remained around the same nominal level through end-2004, though it dropped to around 52 percent of GDP owing to strong GDP growth and valuation changes. - Average relief provided on debt service payments averaged about 4.2 percent of GDP in 2003-2004, including interim HIPC relief and additional bilateral relief (together some US$49 million in 2004). - Due to an extremely tight fiscal position in 2005, Cameroon was expected to accrue arrears on all debt service resulting from pre-cut off date debt. - Assuming a PRGF arrangement in 2005, authorities intended to seek a seventh Paris Club rescheduling, which could render around 2.7 percent of GDP in debt relief for 2005. - Creditor composition: - Paris Club members: 70 percent of the stock of nominal debt. - Multilaterals: around 30 percent. - Commercial creditors: around 3 percent (about US$200 million), all in arrears and owed to creditors who did not participate in the 2003 London Club agreement. - A creditor successfully sued and seized some US$43 million in 2004. ### Size and origins of public sector debt — Domestic debt - Total domestic debt is estimated at 12.2 percent of GDP at end-2004. - An estimated 60–65 percent of domestic debt was contracted prior to 1994. - The total domestic debt includes arrears of CFAF 179.8 billion (2.3 percent of GDP) identified in previous audits. - About 41 percent of the total domestic debt was securitized, all prior to 2000. Securitized debt includes debt to commercial banks, part of the debt to insurance companies, and a large part of civil service wage debt. - Non-securitized non-bank sector creditors include CNPS and ONCPB. - Table 9 (extract): - Structured debt: 763.9 (CFAF billions), 80.9 percent of total, 9.9 percent of GDP - Banking system: 323.6 (CFAF billions), 34.3 percent of total, 4.2 percent of GDP - Non-banking sector: 440.3 (CFAF billions), 46.7 percent of total, 5.7 percent of GDP - Securitized: 376.0 (CFAF billions), 40.0 percent of total, 4.9 percent of GDP - Non-securitized: 64.3 (CFAF billions), 6.8 percent of total, 0.8 percent of GDP - Arrears: 179.9 (CFAF billions), 19.1 percent of total, 2.3 percent of GDP - Total: 943.7 (CFAF billions), 100.0 percent of total, 12.2 percent of GDP ### Government actions on domestic debt - The government is undertaking a new audit to improve transparency and effective management of domestic debt. - Based on audit results, authorities will prepare a payment plan to clear domestic arrears. - A second step of the audit will identify cross liabilities between public enterprises and the government, and public enterprises’ external debt obligations. ### Underlying DSA baseline assumptions - Real annual growth: 3.9 percent in 2005, gradually accelerating to just over 5 percent through 2020. - Inflation (GDP deflator): around 1.5 percent. - Current account deficit: around 2 percent of GDP. - Fiscal path: non-oil primary balance increases from a surplus of 0.1 percent of non-oil GDP in 2005 to 1.0 percent in 2020. - Oil revenue declines from 3.5 percent of GDP to 0.6 percent of GDP (2005 to 2020), partially offset by non-oil revenue increase from 13.5 to 17.4 percent of GDP. - Non-interest expenditure projected to increase from 13.4 percent to 16.4 percent of GDP. - Scheduled debt service on existing external debt decreases from around US$860 million in 2005 to US$275 million in 2020. - New financing assumed to remain just under 1 percent of GDP per year through 2025, with a grant element of 35 percent. - Discount rate used in threshold calculations: uniform 5 percent. ### HIPC completion point scenario - Same balance of payments, fiscal framework, and level of new financing as baseline. - Key difference: projected debt service from existing debt is reduced sharply from 2006 onward due to HIPC completion point relief. - Scheduled debt service payments decline to US$315 million in 2006 and to US$150 million in 2020. ### Results — External debt (baseline) - Under the baseline scenario: - NPV of debt-to-exports falls from 165 percent in 2004 to 130 percent in 2006, and to 89 percent by 2010. - Debt service-to-exports ratio: 22.5 percent in 2005, reduced to around 10 percent in 2010. - Debt service ratio reflects scheduled debt service rather than expected actual payments (does not reflect Paris Club rescheduling or HIPC interim assistance). - Debt service ratio payable after debt relief is in the single digits in all years. - Table 10 (selected rows, exact figures preserved): - External debt (nominal) 2004: 49.6 (percent of GDP) - External debt (nominal) 2005: 45.3 - External debt (nominal) 2006: 43.9 - External debt (nominal) 2007: 42.6 - External debt (nominal) 2008: 41.3 - External debt (nominal) 2009: 39.9 - External debt (nominal) 2010: 38.5 - External debt (nominal) 2020: 26.6 - NPV of PPG external debt (percent of GDP) 2004: 43.4; 2005: 35.9; 2006: 31.4; 2007: 27.9; 2008: 25.0; 2009: 22.3; 2010: 20.2; 2020: 10.3 - In percent of exports: 2004: 165.6; 2005: 146.8; 2006: 129.5; 2007: 118.5; 2008: 108.7; 2009: 97.7; 2010: 89.4; 2020: 50.1 - PPG debt service-to-exports ratio (in percent): 2005: 22.5; 2006: 22.0; 2007: 20.1; 2008: 16.4; 2009: 14.5; 2010: 13.2; 2020: 5.6 - Key macroeconomic assumptions (selected): - Real GDP growth in US dollar terms (in percent): 2004: 4.3; 2005: 4.2; 2006: 3.9; 2007: 4.6; 2008: 4.8; 2009: 4.9; 2010: 5.1; 2020: 5.3 - GDP deflator in US dollar terms (change in percent): 2004: 10.7; 2005: 2.3; 2006: 7.3; 2007: 1.8; 2008: 1.4; 2009: 1.3; 2010: 1.5; 2020: 1.5 - Growth of exports of G&S (US dollar terms, in percent): 2004: 16.6; 2005: 6.7; 2006: 4.2; 2007: 5.3; 2008: 3.2; 2009: 3.8; 2010: 5.8; 2020: 6.1 - Grant element of new public sector borrowing (in percent): 35.1 (applies through projection years) ### Stress testing and sensitivity - Stress tests assume a shock of one standard deviation below the average in 2004-2005 for GDP growth, export value growth, GDP deflator, other BOP inflows, and a combination of these effects; and a one-time 30 percent nominal depreciation of the currency in 2004. - Under virtually all tests, debt ratios remain manageable through the medium-term. - The NPV of debt-to-exports does exceed 150 percent very slightly two years after the end of the export shock. - The analysis was carried out through 2025 and all ratios continue to improve from 2010 through 2025. - Sensitivity table highlights (Table 11, selected exact figures): - NPV of debt-to-GDP ratio, Baseline: 2005: 36; 2006: 31; 2007: 28; 2008: 25; 2009: 22; 2010: 20 - NPV of debt-to-exports ratio, Baseline: 2005: 147; 2006: 130; 2007: 119; 2008: 109; 2009: 98; 2010: 89 - Debt service ratio, Baseline: 2005: 22; 2006: 20; 2007: 16; 2008: 14; 2009: 13; 2010: 10 - Alternative scenarios and stress testing for total public sector debt were slightly different but based on same basic assumptions. - The threshold calculations are very sensitive to assumptions in the discount rate; this analysis used a uniform 5 percent discount rate. ### Impact of HIPC completion point scenario - Assuming HIPC completion point in 2006 (alternative scenario): - NPV of debt-to-GDP drops to 21 percent in 2006. - NPV of debt-to-exports drops to 89 percent in 2006. - Debt service ratio drops to well below 10 percent in 2006. ### Total public sector debt - Given the relatively modest size of domestic debt, total debt results are similar to external debt results. - Under the baseline, Cameroon’s total debt-to-GDP ratio is expected to decline from 56 percent of GDP in 2004 to 33 percent of GDP in 2010. - Stress tests on total debt indicate no exploding debt path under a variety of shocks; the largest impact is from a 30 percent real exchange rate depreciation. - Debt service-to-revenue ratios are not significantly affected by alternative assumptions, but can be strongly affected in a single year by a sharp increase in debt-creating flows. *Source: IMF staff simulations and Cameroonian authorities as presented in the document.* ### 44. Based on this preliminary debt sustainability exercise, the debt profile of ### _cr05164 - 44. Based on this preliminary debt sustainability exercise, the debt profile of ### Debt sustainability main finding - Based on this preliminary debt sustainability exercise, the debt profile of Cameroon "appears manageable and relatively robust to a variety of shocks." - Caveat: "debt coverage is not comprehensive and a combination of negative shocks, if sustained, could have a more serious impact." ### Indicators and projections (2004–2020) - Source: "Staff projections and simulations." - Revenue definition note: "Revenue including grants." and footnote "Revenues are defined inclusive of grants." - Figure series shown (titles preserved): - "NPV of debt-to-GDP ratio" - "NPV of Debt-to-Revenue Ratio 1/" - "Debt Service-to-Revenue Ratio 1/" - Scenario labels appearing in charts and tables: - Baseline - Historical scenario - Most extreme stress test - Actual (2004–2010 shown in table) - Alternative scenarios: - A1. Real GDP growth and primary balance are at historical averages - A2. Primary balance is unchanged from 2004 - A3. Permanently lower GDP growth 1/ - Bound tests: - B1. Real GDP growth is at historical average minus one standard deviations in 2005-2006 - B2. Primary balance is at historical average minus one standard deviations in 2005-2006 - B3. Combination of B1-B2 using one half standard deviation shocks - B4. One-time 30 percent real depreciation in 2005 - B5. 10 percent of GDP increase in other debt-creating flows in 2005 ### Key numeric series extracted from tables (preserved exactly as presented) - Actual (2004–2010) — row titled "Actual": - 2004 56 2005 49 2006 44 2007 41 2008 38 2009 35 2010 33 - Alternative scenarios (first NPV/Debt-to-GDP block): - A1. 52 43 38 34 31 27 25 - A2. 52 44 40 38 35 33 31 - A3. 52 43 39 36 33 31 29 - Bound tests (same block): - B1. 52 44 40 37 34 33 30 - B2. 52 44 41 37 35 32 30 - B3. 52 44 40 36 33 31 29 - B4. 52 58 53 49 46 42 40 - B5. 52 53 48 44 41 38 36 - Baseline (other tables, preserved sequences): - Baseline 33 92 85 25 52 35 23 5 52 35 21 8 9 (Note: numbers are shown in source across multiple table blocks; preserved as presented) - NPV of Debt-to-Revenue Ratio / NPV of Debt-to-GDP Ratio / Debt Service-to-Revenue Ratio blocks contain additional year-by-year sequences in the source; see source tables for full numeric detail and alignment. ### Footnotes on assumptions - Footnote 1/ : "Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of 20 (i.e., the length of the projection period)." - Footnote 2/ : "Revenues are defined inclusive of grants." ### Cameroon: Relations with the Fund (As of January 31, 2005) - Membership: "Joined 07/10/1963; Article VIII" - General Resources Account (SDR million): - Quota 185.70 (%Quota 100.00) - Fund holdings of currency 185.05 (%Quota 99.65) - Reserve position in Fund 0.65 (%Quota 0.35) - SDR Department (SDR million): - Net cumulative allocation 24.46 (%Allocation 100.00) - Holdings 0.43 (%Allocation 1.77) - Outstanding Purchases and Loans: - PRGF arrangements 214.69 (%Quota 115.61) - Financial Arrangements (type / approval date / expiration date / Amount approved (SDR million) / Amount drawn (SDR million)): - PRGF: 12/21/2000 — 12/20/2004 — 111.42 — 79.59 - ESAF/PRGF: 08/20/1997 — 12/20/2000 — 162.12 — 162.12 - Stand-By Arrangement: 09/27/1995 — 09/26/1996 — 67.60 — 28.20 ### Projected payments to Fund (SDR million; based on existing use of resources and present holding of SDRs, with Board-approved HIPC assistance) - Forthcoming payments by year: - Principal: 2005 26.99 2006 35.61 2007 40.38 2008 37.05 2009 29.34 - Charges/interest: 2005 1.56 2006 1.41 2007 1.22 2008 1.02 2009 0.86 - Total: 2005 28.55 2006 37.02 2007 41.60 2008 38.08 2009 30.29 ### HIPC Initiative implementation (Enhanced framework) - Decision point date: 10/11/2000 - Assistance committed (NPV terms): Total assistance (US$ million) 1,260 - Of which: Fund assistance (US$ million) 36.90 (SDR equivalent in millions 28.51) - Delivery of Fund assistance (SDR million): - Amount disbursed 5.55 - Interim assistance 5.55 - Completion point date: "Floating" ### Safeguards assessment (BEAC) - A safeguard assessment of the BEAC completed on August 30, 2004 found improvements since 2001 but "further progress needs to be made in key areas." - Main recommendations (applicable to BEAC institution): - Prepare financial statements "in full accordance with an internationally recognized accounting framework, initially the ECB guidelines." - "Publication of its full financial statements, together with the auditor’s report, starting with the 2003 financial statements." - "Formulation of Board-approved formal guidelines under which the BEAC Governor is authorized to make exceptional advances to BEAC member countries." - "Annual review by the BEAC internal audit department of the process of program data reporting of member countries to the IMF." - "Implementation of a risk-based audit approach, and finalization of a charter, for the internal audit function." - "Systematic follow-up of all recommendations pertaining to the BEAC’s system of internal controls to be coordinated by the internal audit department, with regular reporting to the Audit Committee and the BEAC Governor." - Other priority, country-specific recommendations: - Clarify statutory basis for member countries holding foreign reserves outside the BEAC and ensure transparency of reserve reporting. - Establish mechanism to prevent arrears to the IMF through advance acquisitions of SDRs and authorization to debit an SDR account. - Cooperate with members to reconcile and confirm Treasury balances so BEAC credit to government aligns with Treasuries' accounts. ### Exchange arrangements and related data - Exchange rate peg: "Cameroon's currency, the CFA franc, is pegged to the euro at the fixed rate of CFAF 655.957 per euro." - Local currency equivalent: "CFAF 761.59 = SDR 1, as of February 4, 2005." - "Cameroon maintains an exchange system free of restrictions on the making of payments and transfers for current international transactions." ### Article IV, FSAP, ROSCs, and technical assistance - Article IV: "The last Article IV consultation with Cameroon was concluded by the Executive Board on September 18, 2002." - FSAP / FSSA: "The Financial System Stability Assessment (FSSA) report of May 24, 2000 is based on the findings of the joint IMF-World Bank mission that visited Cameroon during February 29–March 14, 2000." - ROSC on fiscal transparency and transparency of monetary and financial policies: issued June 16, 2000. - ROSC data module: issued August 24, 2001 (CR/01/150). - Selected recent technical assistance missions (dates and topics preserved): - December 2004: "STA mission on the compilation of national accounts and follow-up by FAD expert on public expenditure management." - October 2003: "STA mission on the compilation of national accounts." - September 2003: "FAD mission on non-oil revenue mobilization and follow-up by FAD expert on public expenditure management." - June 2003: "FAD mission on public expenditure management." - March 2003: "FAD mission on public expenditure management." - November 2002: "FAD mission on public expenditure management." - May 2002: "FAD mission on public expenditure management." - April 2002: "FAD mission follow-up on the personal income tax system." - March 2002: "FAD mission on the implementation of the action plan for government revenue and expenditure." - October–November 2001: "FAD mission on tax and customs administration." - (Additional missions listed in source for 1999–1998 and earlier; see source for full chronology.) ### Resident representative status - "The post of resident representative has been maintained in Yaoundé continuously since early 1989." - "Mr. Keller’s assignment as IMF Resident Representative ended on October 1, 2004 and he returned to headquarters. The recruitment of a successor is ongoing." ### Relations with the World Bank (As of March 2005) - Government strategy: PRSP communicated April 2003 "articulated along seven pillars" (detailed in IDA/SecM2003–0434). - Joint IDA-IFC Country Assistance Strategy (CAS) presented September 11, 2003 covering FY04–06 with two main axes: - (i) "strengthen the institutional framework for improved pro-poor economic management and service delivery" - (ii) "support private sector development, leading to the diversification of the economy and growth" - Expected CAS outcomes include (verbatim phrases preserved): - "improvement in the transparency and accountability in the mobilization and use of public resources" - "improvement in the use of public resources in education, health, and forestry" - "improvement in service delivery in key sectors" - "enhancement of the response of vulnerable groups in over 300 communities to the threat of HIV/AIDS" - "reduced burden (cost, time, etc.) on private sector companies arising from regulatory, administrative, and infrastructure constraints" - SACIII: "closed by end March 2004" with two remaining tranches released after Board approval on March 16, 2004; outcome rated satisfactory and confirmed by OED independent evaluation. - World Bank planned analytical and policy support areas include monitoring socioeconomic developments, climate investment survey, governance reviews, public expenditure reviews (PERs), Country Procurement Assessment Review, and Poverty Assessment. - Bank’s portfolio (As of March 4, 2005): - "7 projects with total commitments of around US$228 million, of which about US$53.4 million is the IBRD’s." - "A total amount of US$125 million was disbursed as of March 4, 2005." - "Implementation of all projects but one was rated satisfactory." - Bank Group portfolio numeric summary (As of March 4th, 2005): - IDA Total (US$ m) 174.4 - Sectoral Composition (%) listed: Transport 45, Community Dev 11, Public Private Partnership 12, Environment 3, Capacity Building 29, HIV/AIDS Multi-Sector (numbers preserved as in source) - Undisbursed IDA amount (US$ mil) 102.7 - IBRD (US$ mil) 53.4 - IFC Total (US$ mil) 150.9 with sector breakdowns: Energy 86.8, Information 6.4, Textiles 2.7, Wholesale & Retail 2.4, Other 1.7 - MIGA: "No investment guarantees issued." - IMF-World Bank collaboration areas: "monitoring of HIPC Initiative completion point triggers and the PRSP process; analyses and reforms in public financial management; and other governance reforms, including the customs, legal, and judicial systems." - Table 13 summary (Areas of Bank/Fund Collaboration) — areas and roles preserved: - HIPC completion point reforms: "Regular Bank supervision missions; Joint preparation of HIPC 'Tracking Poverty-Related Spending' assessment and action plan; Reforms linked to budgetary accounting and controls; Reforms in education, health, transport, rural infrastructure sector, and forestry; Judicial sector reform; Public procurement reform; Budget tracking in social sectors." - Public financial management: "Bank and Fund missions analyzing various aspects of fiscal management; Tax analysis and reform, strengthening of control organs; expenditure management; Expenditure monitoring and analysis, especially in sectors important for poverty reduction." - Other governance reforms: "Coordination of Bank/Fund staff work with UNDP on development of implementation plans; Customs reform; Anticorruption agenda and decentralization." - Division of lead roles: - Fund lead areas: "(i) overall macroeconomic policy and short- and medium-term financial programming; (ii) tax policy and administration; (iii) information and financial management systems for government revenue and expenditure; (iv) budgetary accounting; and (v) treasury procedures." - Bank lead areas: "(i) institutional and human capacity building for economic management...; (ii) specific sector advice in the areas in which the Bank has active lending operations...; and (iii) support and monitoring of the implementation of the privatization program." - World Bank outputs in support: "Education Status Report (joint with GOC and AFD); Urban Sector Review; Development Policy Review (June 2004); Poverty Assessment (started FY04); Public Expenditure Review (started FY04)." *Source: IMF staff projections, simulations, and appendices in the provided document.* ### 9. Both Bank and Fund have responsibility for policy advice on (i) budgetary ### _cr05164 - 9. Both Bank and Fund have responsibility for policy advice on (i) budgetary ### Statistical issues — overview and findings - Data provision to the Fund remains adequate for surveillance purposes, but there is significant room for improvement in data quality, coverage, and timeliness. - Cameroon participates in the General Data Dissemination System (GDDS); metadata and an action plan were submitted and are available on the Fund’s Dissemination Standards Bulletin Board (DSBB). - The National Institute of Statistics (INS) is the principal data provider, but a lack of clarity about the INS’s coordinating role has hampered implementation of statistical standards and classifications across government. - Recent production of standard economic statistics may have suffered from a focus on social statistics. - Technical assistance will remain essential in the coming years given remaining deficiencies in national economic and social data. ### National accounts — methodology, weaknesses, and actions - INS has compiled and published national accounts using 1968 SNA concepts and also produced revised estimates based on the 1993 SNA; GDDS metadata (2001/02) pertain to the revised estimates. - STA missions (October 2003 and December 2004) judged methodology, analytical tools, and adjustments to be generally appropriate and in accordance with the 1993 SNA; national accounts staff were found to be of high caliber. - Remaining weaknesses identified, particularly for oil GDP; staff decided not to switch to the new series until weaknesses are addressed. - Data sources exhibited shortcomings in coverage, quality, and timeliness; the enterprise statistics framework is weak, complicating assessment of industrial structure. - Data problems are serious in agriculture, manufacturing, retail and wholesale trade, local government, and services. - The Production Index needs a thorough overhaul, updating, and integration with annual national accounts components. - Major concerns include a lack of information on employment and representative price indices for deflation. ### Consumer prices - Authorities intend to revise the monthly consumer price index (CPI) by extending the underlying survey to rural areas; to date CPI is based on surveys in five main cities: Yaoundé, Douala, Bafoussam, Bamenda and Garoua. - Authorities intend to contribute to production of a regional CPI in the CEMAC area with a larger basket geographically limited to Yaoundé and Douala. ### Sociodemographic indicators - ECAM II (2001) household survey provides comprehensive data used to update Cameroon’s poverty profile. - Education map (carte scolaire) and healthcare map (carte sanitaire) updated beginning in 2004; preparatory work for a new household survey initiated with data collection planned for 2005. ### Public finances — deficiencies and reform measures Findings on fiscal data weaknesses: - (i) incomplete compilation of budget implementation data on a commitment and, to some extent, on a cash basis; - (ii) lack of information on financial information of local governments; - (iii) poor monitoring of cross-liabilities in the public sector and of public enterprise debt; - (iv) lack of transparency of financial operations by the national oil company; - (v) lack of information on the financial information of public enterprises more generally. Key reforms introduced in 2003-04 and intended outcomes: - Introduction of a new accounting system to identify expenditures by function and evaluate the “float” (spending committed but not yet paid). - Integrated financial management system (SIGEFI) expected to substantially improve accuracy and timeliness of fiscal data on both a commitment and a cash basis. Planned 2005 actions: - Based on SIGEFI, preliminary fiscal accounts began to be prepared 3 weeks after the end of the reported month (compared with only final data after 2 months in 2004). - Plan to elaborate comprehensive fiscal accounts on a commitment basis and to monitor the float. - Ongoing audit of government domestic debt to cover cross-liabilities in the public sector and public enterprise external debt, expected to strengthen debt data. - Efforts to enhance transparency of financial operations in the oil sector. - Efforts underway to collect data on operations of the largest 20 public enterprises. ### Monetary accounts - Monetary statistics for Cameroon are reported monthly to the Fund by the BEAC; reporting lag varies and can reach two months. - Coverage is comprehensive, but data quality may be affected by large cross-border currency movements among CEMAC member countries. - About three quarters of the currency circulating in Cameroon is issued nationally, and almost 90 percent of the currency issued by Cameroon remain within the national territory. ### Balance of payments - Balance of payments statistics produced by Cameroonian authorities are very weak and have been used little by Fund staff. - The unit in the Ministry of the Economy and of Finance responsible for these statistics lacks qualified staff and equipment. - Recommendation: authorities should consider having balance of payments statistics prepared by the BEAC, as in other CEMAC countries. ### Common Indicators Required for Surveillance — data status (selected items) - Exchange Rates: Date of latest observation Dec 31, 2004; Date received Feb 28, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness O; Data Quality – Accuracy and reliability O. - International Reserve Assets and Reserve Liabilities: Date of latest observation Dec 31, 2004; Date received Feb 10, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - Reserve/Base Money: Date of latest observation Dec 31, 2004; Date received Feb 10, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - Broad Money: Date of latest observation Dec 31, 2004; Date received Feb 10, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - Central Bank Balance Sheet: Date of latest observation Dec 31, 2004; Date received Feb 10, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - Consolidated Balance Sheet of the Banking System: Date of latest observation Dec 31, 2004; Date received Feb 10, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - Interest Rates: Date of latest observation Dec 31, 2004; Date received Feb 28, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness O; Data Quality – Accuracy and reliability O. - Consumer Price Index: Date of latest observation Dec 31, 2004; Date received Jan 31, 2005; Frequency of Data Q; Frequency of Reporting Q; Frequency of publication Q; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - Central Government Revenue, Expenditure, Balance and Composition of Financing: Date of latest observation Dec 31, 2004; Date received Jan 31, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication Not published; Data Quality – Methodological soundness LNO; Data Quality – Accuracy and reliability LNO. - Stocks of Central Government and Central Government-Guaranteed Debt: Date of latest observation Dec. 31,2004; Date received Jan 31, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication M; Data Quality – Methodological soundness LO; Data Quality – Accuracy and reliability LO. - External Current Account Balance: Date of latest observation Dec 31, 2002; Date received Jan 31, 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication NA; Data Quality – Methodological soundness NO; Data Quality – Accuracy and reliability NO. - Exports and Imports of Goods and Services: Date of latest observation Dec 31, 2004; Date received Jan 31, 2005; Frequency of Data M; Frequency of Reporting M; Frequency of publication NA; Data Quality – Methodological soundness O; Data Quality – Accuracy and reliability O. - GDP/GNP: Date of latest observation Dec 31, 2003; Date received Jan 31, 2005; Frequency of Data A; Frequency of Reporting A; Frequency of publication NA; Data Quality – Methodological soundness O; Data Quality – Accuracy and reliability LO. - Gross External Debt: NA across date/receipt/frequency/publication; Data Quality – Methodological soundness NO; Data Quality – Accuracy and reliability NO. ### IMF staff updates, developments, and program monitoring (Statement by staff representative, April 22, 2005) Recent program developments and staff observations: - Authorities observed the prior action for the Staff Monitored Program (SMP) by hiring an advisor (the International Finance Corporation) for restructuring/privatization of CAMAIR. - Authorities met two structural benchmarks for end-March 2005: (i) provision of preliminary budget execution tables (TABORD) for end-February 2005 on a cash and a commitment basis; (ii) notification to commercial banks that no new government accounts should be opened. - Authorities provided final data for budget execution in 2004 broadly in line with preliminary data. - Oil prices projected for the remainder of the year have increased relative to the program, pushing up oil export earnings and fiscal revenue from oil; estimated fiscal revenue in 2005 would be at least 0.7 percentage points of GDP higher than previously envisaged. - Adjustment of domestic fuel prices in line with world market developments has not been fully reinstated; fuel prices were adjusted marginally from the beginning of March and prices for some products are below import cost; authorities suspended an additional fuel price component introduced in January 2005 intended to allow the domestic refinery to recoup 2004 losses. - Early indications on budgetary execution in January-February present a mixed picture: non-oil revenue grew somewhat but remained weaker than programmed, while expenditure was strongly compressed. - The end-March quantitative benchmark on non-oil revenue may be missed unless annual corporate profit tax payments (due in March and April) perform particularly well; all other quantitative benchmarks seem within reach. - Progress made in improving financial management by relying more fully on the Financial Management and Information System and by speeding up preparation of budget execution reports. - Authorities announced intention to adhere to the Extractive Industries’ Transparency Initiative (EITI) and pledged at the EITI Conference in London that Cameroon would begin publishing quarterly information on total oil production, prices and revenue before end-June. - Authorities discussed steps with World Bank and Fund staffs to meet HIPC completion point triggers. ### Executive Board Public Information Notice (PIN) No. 05/57 — Executive Board conclusions (April 22, 2005) Executive Board views and recommendations: - Directors welcomed good economic performance: solid growth, low inflation, narrowing external current account deficit, and progress on structural reforms. - Directors noted serious remaining challenges: strengthening fiscal performance to ensure debt sustainability; removing impediments to private sector growth (infrastructure, human capital, troubled state enterprises, weak governance). - Directors supported authorities’ decision to implement an ambitious reform program monitored by Fund staff (SMP) and stressed the importance of building a convincing track record under the program to pave the way for a PRGF arrangement and reaching HIPC completion point. - Directors emphasized need for increased revenue mobilization via tax reforms to broaden the tax base, reduce exemptions, and enhance tax collection in the informal sector; technical assistance to be used effectively. - Directors urged establishment of a transparent fiscal rule for use of windfall oil revenue. - On expenditure: restrain non-interest expenditures, improve composition toward infrastructure and social sectors, and expedite restructuring/privatization of state-owned enterprises. - Concern expressed about suspension of fuel price adjustment to world market prices and the need to streamline payrolls/improve personnel management. - Urged improvements in timeliness, comprehensiveness, and accuracy of fiscal reporting, strengthened debt management, avoidance of domestic arrears and external arrears on non-reschedulable debt, settlement of arrears to the HIPC-account, and development/implementation of realistic debt-servicing plan. - Called for clarification of external debt position of public enterprises for comprehensive debt-sustainability assessment. - Emphasized priority of removing impediments to private sector growth (infrastructure, legal system, governance); urged intensifying implementation of the National Governance Program and making Audit Office and Constitutional Council operational. - Welcomed plans to enhance transparency, particularly in the oil sector, by phasing out extra-budgetary spending and adhering to EITI. - Welcomed progress in national accounts and fiscal data; stressed need to strengthen other real sector data, in particular balance of payments data. ### Selected economic and financial indicators (Cameroon, 2002–04) — key figures Annual percentage changes; unless otherwise indicated: - GDP at constant prices: 2002 4.2; 2003 4.5; 2004 4.3. - Of which: non-oil GDP: 2002 4.6; 2003 4.8; 2004 4.7. - GDP deflator: 2002 1.9; 2003 1.1; 2004 0.7. - Consumer prices: 2002 2.8; 2003 0.6; 2004 0.3. - Nominal GDP (in billions of CFA francs): 2002 6,869; 2003 7,260; 2004 7,620. - Oil output (in thousands of barrels a day): 2002 102; 2003 98; 2004 89. External trade: - Export volume: 2002 -7.0; 2003 6.9; 2004 6.1. - Of which: non-oil sector export volume: 2002 -6.6; 2003 12.3; 2004 12.2. - Import volume: 2002 1.9; 2003 -0.6; 2004 7.4. - Average oil export price (U.S. dollars per barrel): 2002 23.6; 2003 27.3; 2004 35.0. - Real effective exchange rate: 2002 5.9; 2003 2.9; 2004 0.4. - Terms of trade: 2002 0.0; 2003 -0.8; 2004 0.2. Money and credit (end of period): - Broad money (M2): 2002 18.3; 2003 -0.9; 2004 7.3. - Velocity (GDP/average M2): 2002 5.4; 2003 5.3; 2004 5.3. - Discount rate (end of period; in percent): 2002 6.5; 2003 6.0; 2004 6.0. In percent of GDP: - Gross national savings: 2002 11.3; 2003 14.5; 2004 14.9. - Gross domestic investment: 2002 18.3; 2003 16.9; 2004 16.6. Central government operations (in percent of GDP): - Total revenue (excl. grants): 2002 17.9; 2003 17.5; 2004 16.3. - Oil revenue: 2002 5.4; 2003 4.5; 2004 4.3. - Non-oil revenue: 2002 12.5; 2003 13.1; 2004 12.0. - Non-oil revenue (in percent of non-oil GDP): 2002 14.2; 2003 14.5; 2004 13.5. - Total expenditure: 2002 17.3; 2003 16.8; 2004 17.1. - Noninterest total expenditure (excluding foreign-financed investment, restructuring expenditure and separation grants): 2002 13.7; 2003 13.6; 2004 14.1. - Capital expenditure (excluding restructuring expenditure): 2002 2.2; 2003 2.1; 2004 1.8. - Overall fiscal balance (excl. net changes in arrears) excluding grants: 2002 0.5; 2003 0.7; 2004 -0.9. - Overall fiscal balance including grants: 2002 0.8; 2003 1.3; 2004 -0.7. - Primary balance (excluding external grants and privatization proceeds): 2002 4.2; 2003 4.0; 2004 2.1. - Non-oil primary balance (in percent of non-oil GDP): 2002 -1.3; 2003 -0.6; 2004 -2.4. External sector: - Current account balance (including grants): 2002 -7.0; 2003 -2.4; 2004 -1.6. - NPV of external debt: 2002 54.8; 2003 42.5; 2004 43.4. External debt service (in percent of exports of goods and services): - Before debt relief: 2002 27.9; 2003 26.1; 2004 22.5. - After debt relief: 2002 10.0; 2003 8.8; 2004 6.9. ### Policy priorities and recommendations (as reflected in Board and staff views) - Strengthen fiscal performance to ensure debt sustainability by mobilizing non-oil revenue and containing non-priority expenditure while increasing investment spending. - Pursue tax reforms to broaden the tax base by reducing exemptions and enhancing tax collection in the informal sector; enhance Large Taxpayer Unit (DGE) capacity. - Establish a transparent fiscal rule for the use of windfall oil revenue. - Restrain non-interest expenditures and reorient spending toward infrastructure and social sectors to improve the business climate and reduce poverty. - Promptly restructure and privatize state-owned enterprises to limit quasi-fiscal losses and improve service delivery. - Reinstate fuel price adjustments in line with world market developments and phase out extra-budgetary spending in the oil sector. - Improve financial management, timeliness, comprehensiveness and accuracy of fiscal reporting; operationalize SIGEFI and continue rollout of TABORD reporting. - Strengthen debt management, avoid domestic and external arrears, settle HIPC-account arrears, and clarify external debt of public enterprises. - Intensify governance and anti-corruption measures; operationalize the Audit Office and Constitutional Council and implement the National Governance Program with a results focus. - Continue technical assistance to improve statistical systems, national accounts, and balance of payments statistics; consider BEAC preparation of BOP statistics. *Source: IMF staff report materials, April 2005, as provided in the supplied content.* ### 17.5 percent; abolishing further VAT exemptions, and the excise tax exemption for locally ### _cr05164 - 17.5 percent; abolishing further VAT exemptions, and the excise tax exemption for locally ### Fiscal measures and revenue mobilization - Proposals include: 17.5 percent; abolishing further VAT exemptions, and the excise tax exemption for locally produced alcoholic beverages and tobacco; increasing taxation on gambling and increasing stamp duties and automobile registration fees. - Monthly adjustment mechanism for domestic fuel prices to track international oil market prices will be implemented cautiously to avoid social pressure and protect public consensus on the program. - Authorities recognize the budgetary implications of any partial cost recovery from fuel pricing. ### Expenditure management and cash control - Adopted cash-basis management of the budget to ensure expenditures correspond to the Government’s cash position. - Expenditure control will be a key priority in 2005. - All SNH’s interventions directes will require prior authorization of the Minister of Finance and only against available budget allocations in the relevant ministerial budget. - Authorities are committed to discontinue SNH’s interventions directes by July 1, 2005. - Consolidation of the single Treasury account at the regional central bank (BEAC): most government accounts in commercial banks will be closed; no new account will be opened in commercial banks as of March 31, 2005. - Publication of monthly budget execution monitoring documents to begin by end-June 2005. ### Structural reforms and privatization - Continue and deepen PRSP-envisioned structural reforms with focus on tasks critical to macroeconomic stability and SMP commitments. - Actions taken or planned: - Strengthen public expenditure management and revenue collection. - Audit domestic debt aiming to establish a settlement plan. - Speed up privatization of publicly owned enterprises. - Improve production and distribution of electricity. - Civil service payroll streamlining and progressive expansion of SIGIPES usage; more efficient use of SIGEFI to enhance accuracy and timeliness of fiscal data. - Privatization process reinitiated with World Bank support after prior negotiations for CAMTEL and SNEC fell through. - Expedited privatization of CAMAIR; IFC selected as main consultant (a prior action of the SMP). ### Oil sector and related transparency - Oil sector remains significant for economic activity and budgetary revenues, but production is projected to decline further. - Authorities will ensure timely transfer to the Treasury of SNH surplus. - Commitment to improve transparency in the oil sector, including: - Publishing information about exploration, production and sales of crude oil, revenue generated and transferred to the Treasury, and main elements of SNH audit reports. - Publishing quarterly information on total oil production, prices, and Government revenue on SNH and Prime Minister’s Office websites. - Seeking agreement of oil companies to publish main elements of production sharing agreements. ### Financial sector and microfinance - Licensing of microfinance institutions to be completed under COBAC supervision. - Intend to strengthen the financial sector further despite banking sector being in good health. - Address financial situation of government-owned financial institutions including CAMPOST and Crédit Foncier. ### Governance, accountability, and judicial reform - Government committed to adhere to the Extractive Industries Transparency Initiative (EITI). - Make the Audit Office (Chambre des comptes) operational by end-December 2005. - Continue implementation of the action plan of the judicial reform to enhance accountability in public resource management. ### Debt strategy and domestic debt resolution - DSA suggests external debt manageable in the medium-term after completion point, but tight budgetary situation may limit ability to fully meet obligations to bilateral and commercial creditors in 2005. - Authorities view negotiation of a new PRGF arrangement as decisive for a new Paris Club debt rescheduling. - Domestic public debt hampers private sector development; authorities will establish a settlement plan with creditors as soon as the ongoing audit is completed. - Ongoing audit on domestic debt will be used to identify cross-liabilities between the government and public enterprises by end-June 2005. ### Assessment of program implementation (EPA) and ownership - Authorities welcome EPA discussions and broadly concur with assessment of Cameroon’s relationship with the Fund and implementation of Fund-supported policies. - Acknowledge significant progress during 1997 to 2004 in fiscal and structural reforms, contributing to macroeconomic stabilization and improved external debt profile. - Agree higher investment is needed to lift growth and make progress toward the MDGs; will promote private sector-led growth through streamlining regulations, enhancing rule of law, and improving infrastructure including electricity and roads. - Note that slippages in 2003 and 2004 were partly due to weaknesses in program coordination and fiscal management; they dispute lack of ownership, attributing slippages to burgeoning conditionality and targets above Cameroon’s capacity. ### PRSP implementation and medium-term planning - Preparing the second annual PRSP report; commit to improving implementation, monitoring, and evaluation of PRSP activities. - Ensure HIPC resources are adequately disbursed, improve analytical quality of reports, and participatory monitoring. - Committed to replenishing the HIPC account. - Revise key PRSP elements, including the medium-term macroeconomic framework in the context of the 2006 budget preparation. - Intend to request a new PRGF arrangement as soon as possible and prepare a 3-year economic program. ### Conclusion and policy stance - Authorities concur that program conditionality should target outcomes rather than process to reinforce ownership. - Assert determination to implement the current SMP and satisfy conditions; a satisfactory implementation during the first 6 months could pave the way for a rapid agreement with the Fund on a new PRGF-supported program and proceeding to the completion point. - Newly appointed government has brought management changes and is determined to address immediate challenges and further diversify the economy. - Committed to improving the business climate and competitiveness and taking measures to lay the ground for sustainable growth to accelerate progress toward the MDGs. - Request support for the authorities’ program and for an early transition to a program supported by a PRGF arrangement. *Source: _cr05164 - 17.5 percent; abolishing further VAT exemptions, and the excise tax exemption for locally.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05164.pdf_