## _cr05413 ## Source details **Canonical URL:** [_cr05413](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05413.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05413.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05413.pdf.json) --- ### Executive summary — key findings - Real GDP growth for 2004 was revised down to 3.5 percent. - Growth projections for 2005 are now below 3 percent; 2005 projection cited elsewhere as 2.8 percent. - Per capita income growth slowed to less than 1 percent in 2005. - Inflation projected at about 1 percent in 2005; annual average inflation projected at 1.3 percent in one section. - Broad money grew by 1½ percent in the 12 months to June 2005; projected broad money growth for the remainder of the year is 4½ percent. - Non-oil exports projected to fall by 4 percent in 2005. - CPI-based real effective exchange rate appreciated by less than 1 between 2003 and the first half of 2005. - Terms of trade improved strongly in 2005 because of higher oil and non-oil export prices. ### Fiscal performance and public debt - Fiscal consolidation sustained; public finances improved markedly in H1 2005, exceeding SMP targets. - Revenue gains driven by: high oil prices and revenue, enhanced non-oil revenue collection (including increased corporate tax and dividend payments), and better expenditure control. - Expenditure composition skewed toward current spending; investment remained low and lagged budgeted resources. - Domestic debt/arrears stock at end-2004 estimated at 17 percent of GDP (domestic debt audit). - Government used oil windfall to reduce domestic debt; target met with a one-month delay. - Domestic debt repayment and arrears: - Payments on domestic debt stood at 0.4 percent of GDP at end-July 2005 and projected to reach 0.7 percent by year-end. - Government completed audit of domestic payment arrears in October 2005 and prepared a repayment plan. ### Macroeconomic outlook and external position - Real GDP growth: - 2004: 3.5 percent. - 2005 projection: 2.8 percent (weaker non-oil activity). - Non-oil economy growth: - 2004: 4.7 percent. - 2005 projection: 3.7 percent. - Inflation and credit: - Annual average inflation projected at 1.3 percent. - Credit to private sector growth: 5.2 percent during July 2004–June 2005. - External current account (after grants): - 2004: 3.0 percent of GDP (deficit). - 2005 projection: 2.4 percent of GDP (deficit). - Overall balance of payments deficit projected at 2.1 percent of GDP in 2005; expected to be financed mainly with debt relief from bilateral creditors. - Terms of trade projected to improve by 9 percent in 2005. ### Program design, objectives, and first-year priorities (July 2005–June 2006) - Program aims (consistent with PRSP): fiscal consolidation for debt sustainability, higher-quality public spending (including higher investment), and structural reforms to strengthen growth. - Proposed PRGF arrangement: three-year arrangement with proposed access SDR 18.57 million (10 percent of quota). - Interim HIPC assistance request: SDR 5.70 million. - First-year fiscal priorities: - Strengthen non-oil primary balance by 1.9 percentage points of GDP in 2005–06 (slightly lower than SMP envisaged). - Explicit inclusion of a fuel subsidy of 0.2 percent of GDP in 2005 and capped at 0.2 percent of GDP for 2006. - Total capital spending projected to more than double in 2005–06 to 4.7 percent of GDP; financing mostly from domestic resources and HIPC relief. - Temporary measures in 2005 projected to yield 0.4 percent of non-oil GDP (including retention by central government of part of local government VAT surcharge and exceptional SNH dividends). ### Medium-term fiscal strategy and key projections (selected series from program table) - Non-oil revenue (percent of GDP series as presented): 12.0 (2004), 11.2 (2005), 12.4 (2006), 12.3 (2007), 12.6 (2008), 12.8 (2009), 13.0 (2010), 13.1 (2011), 13.2 (2012). - Noninterest expenditure: 12.3 (2004), 12.6 (2005), 11.6 (2006), 11.7 (2007), 12.7 (2008), 13.1 (2009), 13.8 (2010), 14.3 (2011), 14.4 (2012). - Capital expenditure (domestic finance; excl. debt relief): 1.3 (2004), 1.0 (2005), 1.0 (2006), 1.2 (2007), 1.7 (2008), 2.0 (2009), 2.3 (2010), 2.6 (2011), 2.7 (2012). - Non-oil primary balance: 1/-0.3 (2004), -1.4 (2005), 0.8 (2006), 0.5 (2007), -0.1 (2008), -0.3 (2009), -0.9 (2010), -1.2 (2011), -1.3 (2012). - Oil revenue: 4.1 (2004), 3.9 (2005), 4.5 (2006), 5.5 (2007), 4.4 (2008), 3.7 (2009), 3.3 (2010), 2.9 (2011), 2.7 (2012). - Interest: 2.3 (2004), 2.0 (2005), 1.6 (2006), 1.5 (2007), 1.3 (2008), 1.1 (2009), 0.9 (2010), 0.8 (2011), 0.7 (2012). - Overall balance, excl. net change in arrears, incl. grants: 1.2 (2004), -0.7 (2005), 2.0 (2006), 1.2 (2007), 0.4 (2008), -0.4 (2009), -1.0 (2010), -1.5 (2011), -1.7 (2012). - Financing (net): -1.2 (2004), 0.7 (2005), -1.9 (2006), -1.2 (2007), -0.4 (2008), 0.4 (2009), 1.1 (2010), 1.6 (2011), 1.8 (2012). ### Oil sector prospects and program assumptions (Box 2) - Oil output path (short-term): - Output expected to decline by 9 percent in 2005. - Production increase of 6 percent projected for 2006. - After 2006, declining trend projected to resume. - Price differentials: - Differential of Cameroonian crude against WEO benchmark rose to US$3.6 per barrel in H1 2005 (compared with about US$2 per barrel before 2004). - Program oil-price assumptions (average export prices): US$45.3/48.0/43.3/42.0 per barrel in 2005–08, respectively. - Fiscal share projection: Oil revenue expected to peak at about 30 percent of government revenue in 2006 and decline to about one-fourth in 2007–08. ### Public enterprise reform, fuel pricing, and associated fiscal risks - Restructuring/privatization timetable and status: - CAMAIR privatization postponed; detailed action plan expected by November 2005; retrenchment of about one-third of staff under way. - CAMPOST: audit prepared; account at BEAC established; retrenchment plan implemented; restructuring targets and timelines specified. - CAMTEL: telecom strategy updated; privatization preparation ongoing with World Bank assistance. - SONARA (refinery) losses and subsidy: - Fuel prices only partially adjusted in 2005; continued losses covered by subsidy of 0.2 percent of GDP in 2005; subsidy capped at 0.2 percent of GDP for 2006. - Projected subsidies to consumer (SONARA) cited as CFAF 16.6 billion for 2005; Government intended subsidy of CFAF 20 billion in 2006 and planned fuel price rises (CFAF 20 per liter in February 2006) under a scenario of US$60/barrel and CFAF 520/US$. - Budgetary support for restructuring: - Restructuring allocations of 1.6 percent of GDP programmed in 2005–06. - Specific earmarked amounts: CFAF 40 billion in 2005 and CFAF 82 billion in 2006 for restructuring of public enterprises (used only after consultation with IMF and World Bank staffs). ### Public financial management, transparency, and procurement reforms - Improvements achieved in 2005: - Preliminary cash budget execution data produced monthly within three weeks. - Commitment data consistent with cash data produced covering January–July 2005. - Budget implementation data published for the first time in August covering January–May 2005. - Prime-ministerial decree of September 2005 amended 2005 budget allocations to reflect actual spending patterns. - Functional spending composition (January–July 2005): - Defense: one fourth of total budgetary expenditure. - Other sovereign spending: 10 percent. - Education: 29 percent. - Health: 5 percent. - Infrastructure: 10 percent. - Procurement and capacity-building commitments: - National procurement capacity building action plan to be available before end-December 2005. - Computerized system for planning, procurement and contract management to be designed and installed by end-December 2006 with ARMP website access. - Monthly TABORD reporting benchmarks and single Treasury account completion by end-December 2005. ### HIPC completion point, debt relief, and external financing - DSA and debt relief outcomes: - NPV of public external debt projected to decline from 153 percent of exports (before completion point relief) at end-2004 to 50 percent at end-2006 after completion point relief (table highlights). - NPV of PPG external debt (percent of GDP) after past relief: 2004: 35.8; 2005: 31.1; 2006: 27.5; 2007: 24.6; 2008: 22.1; 2009: 19.7; 2010: 18.0. - With new anticipated debt relief: NPV of PPG external debt (percent of GDP): 2004: 14.6; 2005: 13.0; 2006: 12.9; 2007: 12.6; 2008: 12.3; 2009: 12.0; 2010: 11.8. - Debt service (percent of exports) with anticipated relief: 2004: 8.6; 2005: 7.1; 2006: 3.6; 2007: 4.0; 2008: 4.2; 2009: 4.0; 2010: 3.6. - Eligibility and creditor issues: - Authorities intend to seek Paris Club flow rescheduling on Cologne terms and comparable treatment from other creditors. - Some commercial creditors have not provided comparable relief; litigation and asset attachments reported. - DSA baseline and assumptions: - Completion point assumed in second quarter of 2006 (footnote / staff assumption). - Key macro assumptions include real GDP growth of 2.8 percent in 2005 accelerating to 4–5 percent in the medium term, GDP deflator below 2 percent, average export growth 5 percent in 2005–10, new borrowing about 2 percent of GDP during forecast period. ### Sensitivity analysis and stress tests — selected findings - Scenarios tested include nonconcessional new borrowing, one-time 30 percent nominal depreciation of the CFAF in 2006, shocks to exports, and lower GDP growth. - Selected quantitative indicators from DSA (with values preserved): - NPV of PPG external debt (percent of GDP; anticipated relief series): 2004: 14.6; 2005: 13.0; 2006: 12.9; 2007: 12.6; 2008: 12.3; 2009: 12.0; 2010: 11.8; 2015: 14.3; 2020: 17.0. - NPV of external public debt-to-exports (percent): 2004: 62.3; 2005: 53.5; 2006: 49.8; 2007: 53.5; 2008: 54.6; 2009: 53.8; 2010: 52.9; 2015: 66.9; 2020: 79.5. - PPG debt service-to-exports (percent): 2004: 8.6; 2005: 7.1; 2006: 3.6; 2007: 4.0; 2008: 4.2; 2009: 4.0; 2010: 3.6; 2015: 3.3; 2020: 4.0. - Public sector debt (percent of GDP): 2004: 61.0; 2005: 55.3; 2006: 51.0; 2007: 48.0; 2008: 45.3; 2009: 43.3; 2010: 41.6; 2015: 35.6; 2020: 32.3. - Primary deficit (percent of GDP, selected): -0.2 (2004), -3.1 (2005), 1.9 (2006), -2.7 (2007), -1.9 (2008), -1.3 (2009), -0.5 (2010). - Conclusions from stress testing: - After full delivery of HIPC and anticipated bilateral relief, external debt indicators remain below policy-dependent thresholds and risk of external debt distress is low. - Inclusion of domestic debt increases NPV of debt-to-GDP substantially, but projected repayments reduce it over time. - Prudent borrowing strategy and continued strong macroeconomic policies (real GDP growth of at least 4–5 percent, low inflation, strong tax effort, and primary fiscal surpluses) are essential to maintain sustainability. ### Program monitoring, conditionality, and IMF access - Monitoring based on quantitative performance criteria and indicative benchmarks; structural performance criteria and benchmarks specified with six-monthly reviews (first to cover H2 2005). - Selected structural benchmarks include: 2006 budget law adopted by end-December 2005; closure of government accounts in commercial banks by end-December 2005; TABORD consistency benchmarks; privatization and restructuring timetables for CAMAIR, CAMTEL, CAMPOST, SNEC. - IMF access proposal: SDR 18.57 million (10 percent of quota); projection that Cameroon’s total IMF credit outstanding would decline from 107 percent of quota in August 2005 to 50 percent by end-2008. - Contingency mechanisms defined for adjustments to the non-oil primary balance and ceiling on net bank credit to government, and consultation trigger if deviations exceed cumulative 0.2 percent of 2005 GDP. ### Social, governance, and statistical priorities - Poverty indicators: - Income poverty: 53 percent poor in 1996; 40 percent poor in 2001 (national poverty line: yearly income of CFAF 185,000). - Depth of poverty fell from 19 percent to 14 percent between 1996 and 2001. - Governance and transparency measures: - EITI committee and technical secretariat established; SNH audits and oil production data publication improved (one quarter lag). - Audit Chamber (Chambre des Comptes) to become operational at end-2005 and examine budget execution commencing with 2004. - Statistical improvements and data reporting commitments (Table 1): - Extensive monthly and quarterly reporting schedules to IMF (central bank balance sheet, TOFE, SNH operations, SONARA pricing table, CPI, trade indices, BOP, external debt service, etc.) with specified delivery dates (examples: monthly TOFE preliminary within three weeks; final within eight weeks). *Source: Executive Summary and staff report excerpts, _cr05413._ ### Executive Summary ...................................................................................................... ### _cr05413 - Executive Summary ### Key findings - Cameroon’s economic growth slowed in 2004-05 while inflation remained low. - Real GDP growth for 2004 was revised down to 3.5 percent. - Growth projections for 2005 are now below 3 percent. - Per capita income growth slowed to less than 1 percent in 2005. - Inflation is projected to be about 1 percent in 2005. - Broad money grew by 1½ percent in the 12 months to June 2005; projected broad money growth for the remainder of the year is 4½ percent. - High international oil prices strengthened the overall external position; non-oil exports are projected to fall by 4 percent in 2005. - The CPI-based real effective exchange rate appreciated by less than 1 between 2003 and the first half of 2005. - The terms of trade have improved strongly in 2005 because of higher oil and non-oil export prices. ### Fiscal performance and public debt - Fiscal consolidation was sustained and public finances improved markedly in the first half of 2005, exceeding the SMP targets. - Revenue gains reflected high oil prices and revenue, enhanced non-oil revenue collection (including increased corporate tax and dividend payments), and better expenditure control. - Composition of expenditure remained skewed toward current spending; investment was low and lagged behind budgeted resources. - Government made significant payments on domestic arrears in the first half of 2005. - The domestic debt/arrears stock at end-2004 was estimated at 17 percent of GDP (domestic debt audit). - The target for the use of the oil windfall to reduce domestic debt was met but with a one-month delay. ### Macroeconomic context and vulnerabilities - Economic activity in the non-oil economy was constrained by electricity shortages, weak manufacturing activity, low business confidence, and fiscal consolidation. - Private sector credit grew in line with nominal GDP in the period to June 2005; private sector credit growth is projected to accelerate slightly for the remainder of the year. - Despite strong nominal appreciation of the CFAF against the US$ in 2003-04, Cameroon’s trade-weighted price competitiveness changed little because about two thirds of trade is with the euro area and inflation remained low. ### Poverty and social indicators (Box 1) - Income poverty: 53 percent of the population was poor in 1996; 40 percent was poor in 2001 (national poverty line: yearly income of CFAF 185,000, corresponding to a daily income of about one U.S. dollar at the present market exchange rate). - Depth of poverty fell from 19 percent to 14 percent between 1996 and 2001. - Nonincome indicators: some improvements (school enrollment, school attendance, immunization, child mortality), but life expectancy fell from 51 to 48 years between 1999 and 2002. - Simple simulations: if per capita GDP continued to grow during 2006-15 at its 2000-05 pace of 3.9 percent, the Millennium Development Goal of lowering income poverty to 25 percent by 2015 would be missed by a large margin. ### Structural reforms and implementation - Overall progress in implementing structural reforms was mixed. - Improvements: - Substantial improvements in financial management and transparency in the oil sector. - Data on oil production and main elements of SNH audit reports through 2003 were posted on the web. - Delays and shortcomings: - Restructuring and privatization of key loss-making public enterprises was delayed (privatizations delayed by three to six months). - Privatization of CAMAIR postponed while funding for specialist consultants (including IFC) was identified; a detailed action plan for CAMAIR’s liquidation/privatization was expected by November 2005. - Completion of the domestic debt audit and preparation of a settlement plan were delayed (audit later estimated domestic debt/arrears at 17 percent of GDP). - The benchmark for updating the National Governance Program (NGP) was missed; NGP expected to be completed in the fourth quarter with UNDP assistance. - Specific implementation outcomes under the SMP through June 2005: - Four out of 10 SMP benchmarks fully met at end-June. - Five benchmarks partly observed. - One benchmark missed. - Authorities improved preparation, timeliness, and quality of monthly budget execution data; from early September preliminary data (end-July) presented on a consistent cash and commitment basis; budget implementation data published for the first time in August covering January-May 2005. - Steps taken to limit interventions directs by SNH and payment of legal fees, but SMP targets not fully met. - Significant number of government accounts remained in commercial banks as of end-July 2005 despite closure of many accounts and transfers to the treasury account at BEAC. ### Program design and objectives - Authorities adopted a new medium-term economic program and requested IMF financial support under a PRGF arrangement and additional interim HIPC assistance. - Program focuses (consistent with PRSP objectives): - Fiscal consolidation to establish and maintain debt sustainability and macroeconomic stability. - Higher quality of public spending, including higher investment in physical and human capital. - Structural reforms to strengthen growth prospects. - Fiscal program measures include enhancing non-oil revenue and improving management, quality, and efficiency of spending. - Complementary reforms: improvements in infrastructure and governance, functioning of the judicial system, and public enterprise restructuring and privatization to contribute to productivity gains and improve the business environment. - The proposed PRGF would be Cameroon’s third successive arrangement, entailing low access to PRGF resources. - An updated debt sustainability analysis using the low-income template shows Cameroon’s debt position will be sustainable after HIPC completion point relief. ### Program risks - Success depends on the authorities’ will to strengthen ownership and sustain reforms beyond the HIPC completion point. - Uncertainties remain about the volume of oil production and international oil prices. - Although core fiscal operations were designed to be shielded from these uncertainties, a large drop in oil exports would pose a risk to attaining the program’s macroeconomic objectives. ### Implementation record under the SMP (through June 2005) - All quantitative benchmarks under the SMP through June 2005 were observed; some exceeded by wide margins. - The windfall oil revenue target to reduce domestic debt met with a one-month delay due to data lags. - Expenditure was contained partly because of savings against a generous wage bill allocation and a return to a more normal level of spending on goods and services after an increase of 20 percent in 2004 (excluding debt-relief funded spending). *Source: Executive Summary, _cr05413.* ### 11. The authorities met most other program targets or are working to meet them. ### _cr05413 - 11. The authorities met most other program targets or are working to meet them. ### Program objectives and macroeconomic targets - Medium-term program period: July 2005-June 2008. - Overarching aims: enhance growth and reduce poverty consistent with Cameroon’s PRSP and make progress toward the Millennium Development Goals (MDGs). - Specific goals: - Remove impediments to private sector activity, including accelerating restructuring and privatization of loss-making public enterprises. - Strengthen the fiscal position and increase investment in physical and human capital. - Safeguard longer-term fiscal sustainability (MEFP ¶7-11). - Key macroeconomic targets: - Real GDP growth in the non-oil economy averaging at least 4.4 percent a year during 2005-08. - Inflation below 3 percent. - External current account deficit (excluding official transfers) below 5 percent of GDP by 2008. - Program design notes: - Updated macroeconomic framework prepared for the PRSP consistent with the program. - Program anticipates public investment to target infrastructure and social sectors, use resources freed up by debt relief, and support private-sector confidence via public enterprise reform and improved energy supply and governance. ### Prospects for the oil sector (Box 2) - Cameroon is a small oil producer; output expected to decline over the medium term. - Short-term projections: - Output expected to decline by 9 percent in 2005. - An increase in production of 6 percent is projected for 2006 (in light of recent exploration activity). - After 2006, the declining trend is projected to resume. - Price and quality considerations: - Cameroonian crudes are heavy; price discount relative to the WEO benchmark widened. - Differential of Cameroonian crude against WEO benchmark rose to US$3.6 per barrel in the first half of 2005 (compared with about US$2 per barrel before 2004). - Program oil-price assumptions (conservative): - Average export prices of US$45.3/48.0/43.3/42.0 per barrel in 2005-08, respectively. - Built-in contingency mechanism: oil revenue exceeding program targets used for predetermined purposes (e.g., reduce domestic debt in 2005-06). - Fiscal share projections: - Oil revenue expected to peak at about 30 percent of government revenue in 2006 and decline in 2007 and 2008 to about one-fourth. ### Medium-term fiscal strategy (Box 3 and related text) - Strategic objectives: - Ensure fiscal and external sustainability; gradually reduce external debt ratios through HIPC relief and prudent borrowing. - Base fiscal planning on conservative oil revenue assumptions; use oil windfalls above program for nonrecurrent spending (e.g., reduce domestic debt). - Gradually increase non-oil revenue to compensate for declining oil production and potential loss of tariff revenue from a trade association with the EU (expected to start in 2008). - Expand capital expenditure to boost growth while restraining current spending and improving public services. - Restructure public enterprises to limit budgetary burden (program allows for significant restructuring resources, especially for CAMAIR and CAMPOST). - Regularize domestic arrears using high projected oil revenue (reduce arrears substantially in 2005-06). - Fiscal projections and dynamics (2004–2011 table highlights, in percent of GDP unless otherwise indicated): - Non-oil revenue: 12.0 (2004), 11.2 (2005), 12.4 (2006), 12.3 (2007), 12.6 (2008), 12.8 (2009), 13.0 (2010), 13.1 (2011), 13.2 (2012) [table shows series labeled 2003Est. through 2011]. - Noninterest expenditure: 12.3 (2004), 12.6 (2005), 11.6 (2006), 11.7 (2007), 12.7 (2008), 13.1 (2009), 13.8 (2010), 14.3 (2011), 14.4 (2012). - Capital expenditure (domestic finance; excl. debt relief): 1.3 (2004), 1.0 (2005), 1.0 (2006), 1.2 (2007), 1.7 (2008), 2.0 (2009), 2.3 (2010), 2.6 (2011), 2.7 (2012). - Non-oil primary balance: 1/-0.3 (2004), -1.4 (2005), 0.8 (2006), 0.5 (2007), -0.1 (2008), -0.3 (2009), -0.9 (2010), -1.2 (2011), -1.3 (2012). - Oil revenue: 4.1 (2004), 3.9 (2005), 4.5 (2006), 5.5 (2007), 4.4 (2008), 3.7 (2009), 3.3 (2010), 2.9 (2011), 2.7 (2012). - Interest: 2.3 (2004), 2.0 (2005), 1.6 (2006), 1.5 (2007), 1.3 (2008), 1.1 (2009), 0.9 (2010), 0.8 (2011), 0.7 (2012). - Overall balance, excl. net change in arrears, incl. grants: 1.2 (2004), -0.7 (2005), 2.0 (2006), 1.2 (2007), 0.4 (2008), -0.4 (2009), -1.0 (2010), -1.5 (2011), -1.7 (2012). - Financing (net): -1.2 (2004), 0.7 (2005), -1.9 (2006), -1.2 (2007), -0.4 (2008), 0.4 (2009), 1.1 (2010), 1.6 (2011), 1.8 (2012). - Key medium-term projections and sensitivities: - Non-oil revenue projected to increase gradually from 13 percent of non-oil GDP to reach 13.6 percent by 2008 (Box 3 text). - Domestically-financed capital spending (excluding use of debt relief) is to double from about 1 percent of GDP in 2005. - Wage bill projected to remain below 5 percent of GDP. - Scenario testing sensitivity to lower oil prices: using €25/barrel (i.e., €5/barrel above the 20 year historical average for Cameroonian crude) shows overall balance would turn into a deficit already in 2006 (against 2008 at program oil prices) and domestic debt would begin to increase moderately from 2007 onwards. ### Public enterprise reform and fiscal risks - Ongoing actions: - Preparations for privatization of the state telecommunications company (CAMTEL). - Reduced staff at the postal services and savings bank (CAMPOST) per retrenchment plan; audit of CAMPOST liabilities prepared. - Fuel pricing and SOE losses: - Fuel prices only partially adjusted in 2005, resulting in continued losses at the state oil refinery (SONARA). - Losses to be covered by a subsidy from the budget of 0.2 percent of GDP in 2005. - The subsidy is also capped at 0.2 percent of GDP for 2006. - Program allows for restructuring outlays; significant resources provided for restructuring costs (especially for CAMAIR and CAMPOST). - Key fiscal risks identified: - Government’s ability to ensure efficient and high quality spending. - Uncertainties about the level of domestic government liabilities, especially liquidation/restructuring costs of large enterprises. - Uncertainties about oil reserves and production. - Volatility arising from oil prices. ### Public financial management reforms (Box 4) - Improvements achieved in 2005: - Preliminary cash budget execution data produced monthly within three weeks, consistent with treasury data. - For the first time, commitment data consistent with cash data produced covering January-July 2005. - Prime-ministerial decree of September 2005 amended 2005 budget allocations to accommodate actual spending patterns and anticipated sovereign spending. - 2006 budget intended to set adequate appropriations for each ministry to facilitate execution and monitoring. - Functional budgetary data for January-July 2005 produced (reflecting reclassification under the decree). - Functional spending composition (January-July 2005): - Defense: one fourth of total budgetary expenditure. - Other sovereign spending: 10 percent. - Education: 29 percent. - Health: 5 percent. - Infrastructure: 10 percent. - Further needed reforms: - Sustain and expand production of budget execution data on commitment, cash, and functional bases and present at ministerial level. - Revise budget nomenclature to better identify appropriations for poverty reduction. - Link budget preparation and execution more closely and explicitly to Cameroon’s PRSP objectives and sectoral MTEFs. - Improve expenditure quality, efficiency, control, and absorptive capacity in light of projected large increase in capital spending over 2005-2008. - Address irregularities identified in recent audit of HIPC operations. ### Debt relief, HIPC completion point, and external financing - Objective: meet conditions for HIPC completion point to achieve debt sustainability through debt relief. - Debt projections: - NPV of public external debt projected to decline from 153 percent of exports (before completion point relief) at end-2004 to 50 percent at end-2006 after completion point relief. - Low-income country DSA indicates long-term debt profile after HIPC completion point appears sustainable conditional on continued strong macroeconomic policies and prudent borrowing. - Debt relief strategy and challenges: - Authorities intend to seek Paris Club flow rescheduling on Cologne terms and comparable treatment from other creditors. - Some remaining commercial creditors have not provided comparable relief; some obtained court judgments and attached Cameroonian assets abroad. - Staff advice: strengthen legal representation and persist in efforts to seek settlements on terms at least comparable with Paris Club treatment. - Cameroon would be eligible for debt relief under the multilateral debt cancellation initiative (G8 proposal) upon reaching HIPC completion point. ### The 2005-06 (first-year) program priorities and measures - Program year: July 2005-June 2006; builds on SMP achievements. - Fiscal consolidation: - Non-oil primary balance programmed to strengthen by 1.9 percentage points of GDP in 2005-06 (slightly lower than envisaged in SMP). - Explicit inclusion of a fuel subsidy of 0.2 percent of GDP in light of higher oil prices (MEFP ¶12). - Revenue measures: - Excluding temporary measures, non-oil revenue projected to increase by almost 1 percentage point of non-oil GDP in 2005. - Program provides for additional measures yielding 0.3 percent in 2006, raising non-oil revenue to 13.2 percent of non-oil GDP. - Measures reflect FAD recommendations: strengthen tax and customs administration; eliminate exemptions. - Authorities declined to introduce a cap on wage abatements in the personal income tax (a key FAD recommendation) citing social and political concerns. - Oil revenue projected to increase significantly in 2006 reflecting expected rise in production (MEFP ¶13-16). - Expenditure and investment: - Total capital spending projected to more than double in 2005-06 to 4.7 percent of GDP, including sizable allocations for restructuring major enterprises (MEFP ¶18-20). - Financing mostly from domestic resources, in particular accumulated resources from HIPC relief. - Need to increase government absorptive capacity: better project preparation and more timely implementation to avoid past technical delays. - Domestic arrears and debt-payment agency: - Government completed audit of domestic payment arrears in October 2005 and prepared a repayment plan aligned with the fiscal program. - Plan to be funded through regular budgetary resources and any additional oil revenue windfall. - Debt payment agency to continue servicing and monitoring domestic debt (MEFP ¶22). - Temporary measures in 2005 projected to yield 0.4 percent of non-oil GDP, including: - Retention by central government of part of the local government VAT surcharge. - Payment of exceptional dividends by the SNH. *Source: _cr05413 - 11. The authorities met most other program targets or are working to meet them.* ### 25. The transparency of budgeting and budget implementation will be enhanced. ### _cr05413 - 25. The transparency of budgeting and budget implementation will be enhanced. ### Budget transparency and implementation - Actual spending through July 2005 showed significant overruns for sovereign expenditure (Ministry of Defense and Presidency), necessitating a reallocation of the 2005 budget appropriations. The revised allocations will form the basis for the 2006 budget, to be submitted to parliament at end-October. - Government commitments to improve budget execution: - Follow proper expenditure procedures and make payments only after expenditures have been committed within the appropriate and available budget allocations. - Cash is to be advanced by the SNH only with the approval of the Minister of Economy and Finance; the advances would be authorized only for sovereign spending and discontinued altogether from January 2006. - Build on progress in fiscal reporting and financial management (Box 4; MEFP ¶17, 29-30). - Audit and oversight: - The Audit Chamber of the Supreme Court is to become fully operational at end-2005 and will examine the execution of the budget commencing with 2004. ### Quality of spending and investment execution - Policy orientation: - Investment spending and the use of debt relief are programmed to increase sharply in 2005-06, while current spending is to be contained. - Wage policy to remain prudent with civil service reform and recruitment in priority sectors, including regularization of temporary teachers (MEFP ¶21, 26). - Program measures to improve investment quality and execution: - Better project planning to begin implementation at the start of the year and facilitate multi-year projects. - Stronger monitoring of projects to enhance sectoral MTEFs (MEFP ¶18, 20). ### Public enterprise restructuring (Box 5) - Objectives: reduce budgetary drains from weakly managed public enterprises and improve service quality to support growth; also important for banking sector stability due to large exposures to public enterprises. - Program supported in part by the World Bank and includes: - Privatizing the airline company (CAMAIR), the telephone company (CAMTEL), and the agro-industrial complex (CDC). - Establishing a public-private partnership for the water company (SNEC). - Improving operations of the refinery (SONARA). - Restructuring the illiquid post office and postal saving bank (CAMPOST). - Implementation status and actions: - CAMAIR: delays of three to six months; unlikely to be liquidated before early 2006; since mid-year about one-third of staff is being retrenched. - CAMPOST: audit of liabilities prepared; account established at the BEAC to safeguard new deposits; social plan including staff reductions adopted. - CAMTEL: telecommunications strategy being revised to facilitate privatization. - SONARA: slight financial improvement in H1 2005 due to favorable export prices and some domestic fuel price increases. - To avoid further losses, the government will raise fuel prices further and provide a subsidy for fuel consumers, payable to SONARA in 2005 and 2006; the subsidy is capped to limit its budgetary impact (0.2 percent of GDP). - The government will no longer incur arrears to SONARA, and SONARA has undertaken some cost-cutting measures. An audit of SONARA will be prepared in early 2006. - Budgetary support for restructuring: - Restructuring allocations of 1.6 percent of GDP have been programmed in 2005-06. ### Fuel price adjustments (Box 5, note) - Envisaged price increases would raise the weighted average fuel price by 8 percent during October 2005-February 2006 from their September 2005 levels of: - CFAF 524 (US$0.97)/liter of super gasoline, - CFAF 472 (US$0.87)/liter of diesel, and - CFAF 304 (US$0.56)/liter of kerosene. - A further increase in prices by about 5 percent would be needed to eliminate the subsidy at world oil prices of US$60/barrel. ### HIPC completion point and PRSP reinvigoration - Progress on HIPC triggers: - Government making progress toward meeting completion point triggers; substantial progress in social sectors and HIV/AIDS, less pronounced improvements in governance. Program geared to meeting remaining triggers by early 2006 (MEFP ¶23). - Undertakings to strengthen use of HIPC resources and project implementation: - Clearing all arrears to the HIPC account at the BEAC by the first quarter of 2006. - Setting up a control unit at the HIPC Consultative Committee to monitor project implementation. - Following up on recommendations of the 2004 HIPC audit (MEFP ¶25). - PRSP process: - PRSP follow-up was slow; government restarted donor dialogue in 2005 to improve implementation and monitoring of HIPC projects. - Government has begun compiling public spending data on a functional basis to help monitor consistency with PRSP priorities; donors aim to develop sectorwide approaches and reinvigorate PRSP implementation (MEFP ¶24). - The second annual PRSP progress report covering January 2004-March 2005 has been adopted and will be circulated to the Board as soon as possible. - A supplementary progress report will be needed covering April-December 2005 to establish PRSP implementation leading up to a possible HIPC completion point in the second quarter of 2006. ### Governance, business climate, and statistical base - Governance commitments: - Pursue judicial reform priority action plan; update and better prioritize the National Governance Program by end-November 2005 with UNDP assistance; enforce penalties against proven cases of corruption (MEFP ¶44). - Implement Extractive Industries Transparency Initiative (EITI) principles: EITI committee and technical secretariat established; prepare an action plan with World Bank-funded consultant; publish more timely audits of SNH; oil production and revenue information updated with a one quarter lag (MEFP ¶31). - Address remaining governance issues in forestry sector and improve functioning of new public procurement system with World Bank follow-up (MEFP ¶19, 45). - Financial sector and private intermediation: - Restructure CAMPOST and other reforms to deepen financial intermediation; complete licensing of microfinance institutions and ensure supervision with COBAC; restructure housing credit agency and identify alternatives for financing social housing (MEFP ¶42-43). - Invigorate stock exchange through sale of some government holdings in profitable companies. - Statistics: - Improve statistical base to support PRSP monitoring and MDG progress, including priority action plan with donor assistance and a new census (MEFP ¶51). ### Infrastructure and regional policy - Infrastructure constraints and actions: - Electricity availability and transport system to be improved; additional generation capacity may be needed as soon as 2008. - Plan to adopt a long-term energy sector strategy in consultation with the World Bank (MEFP ¶46). - Carry forward port sector reforms (MEFP ¶47-48); liquidation/privatization of CAMAIR expected to improve air transport services. - Regional trade: - Pursue further regional trade liberalization consistent with multilateral principles and WTO rules; contribute to regional negotiations with the EU on an Enhanced Partnership Agreement expected to enter into force in 2008. - Measures to improve competitiveness given potential impact of trade liberalization and strong increase in terms of trade projected in 2005-06 (MEFP ¶49-50). ### Program risks, monitoring, and IMF access - Key program risks: - Public expenditure management and absorptive capacity remain weak despite CPIA classification as a medium performer. - Need for strong political will to implement fiscal strategy and adhere to budget targets. - Large uncertainties around future oil output and international oil prices; sharp decline in oil exports would pose risk to macroeconomic objectives. - Program monitoring: - Monitoring based on quantitative performance criteria and indicative benchmarks (MEFP Table 3) and structural performance criteria and benchmarks (Box 6, MEFP Table 4); six-monthly reviews, first to cover second half of 2005 (Table 8). - IMF access proposal and projections: - Proposed access over the period of the new PRGF arrangement: SDR 18.57 million, or 10 percent of its quota. - Projection: Cameroon’s total IMF credit outstanding would decline from 107 percent of quota in August 2005 to 50 percent by end-2008 (Table 9). ### Staff appraisal — summary of main assessments and priorities - Fiscal performance and SMP outcomes: - Fiscal performance improved in H1 2005; all quantitative targets of an ambitious SMP were met. - Fiscal consolidation recovered ground lost in 2004, especially in non-oil revenue; spending containment showed results though spending structure improvements are lacking. - Partial fuel price adjustments accommodated through a modest contained fuel subsidy while broadly safeguarding fiscal targets. - Endorsements and recommendations: - Staff welcomes improvements in public financial management and urges persistence; enhanced transparency should simplify budgeting and execution, strengthen treasury operations, and establish clearer linkages between the budget and the PRSP. - Follow-up and monitoring of public spending quality, full implementation of the domestic debt repayment plan, and adherence to EITI commitments (time-bound action plan, operational committee/secretariat) encouraged. - Concerns: - Mixed performance in structural reforms: little follow-up on PRSP, delays in enterprise reforms and fuel price increases, and limited progress in improving business climate. - Medium-term priorities supported by staff: - Raise non-oil revenue. - Improve quality and efficiency of public spending, focusing on high-quality investment in physical infrastructure and human capital. - Continue restructuring public enterprises and remove obstacles to private sector activity. - Address infrastructure bottlenecks (electricity, transport), shallow financial intermediation, and poor governance to enhance growth potential and private sector development. *Source: IMF staff report content unit _cr05413 - 25. The transparency of budgeting and budget implementation will be enhanced.* ### 45. Improvements in the macroframework and business climate are very important ### Improvements in the macroframework and business climate are very important ### Macroeconomic and competitiveness priorities - The regional currency union has helped maintain low inflation and macroeconomic stability. - High oil prices may adversely affect the real exchange rate and competitiveness of Cameroon’s other exports. - Policy priorities recommended: - Strengthen competitiveness and efficiency through better infrastructure and structural reforms. - Improve governance and reduce corruption to strengthen public and investor confidence. - Better focus the National Governance Program on areas crucial for facilitating business operations and building credibility. ### Debt relief, HIPC, and debt sustainability - The staff considers government policies should enable Cameroon to reach its HIPC completion point and reduce external debt. - DSA simulations indicate that HIPC and additional bilateral debt relief would reduce Cameroon’s debt to comfortable levels. - After reaching the completion point, authorities should: - Follow prudent borrowing policies that maintain debt sustainability. - Contain the cost of new borrowing. - Ensure efficient use of borrowed resources. - Footnote timing: completion point assumed to be reached in April 2006. ### IMF program recommendations and assistance - The staff recommends approval of the request for a new three-year arrangement under the PRGF. - Government needs to be aware of the risks to program implementation and strengthen determination to implement structural reforms. - Success in implementing the SMP during the first half of 2005 bodes well for program implementation. - The staff recommends approval of a disbursement of the fourth tranche of interim HIPC assistance in the amount of SDR 5.702 million. - This disbursement will be sufficient to cover 47.5 percent of principal repayment obligations to the Fund falling due between November 1 and December 31, 2005. - It will also cover 25.6 percent of obligations falling due through end-September 2006. ### Selected economic indicators (as presented) - GDP at constant prices: 4.0, 4.1, 3.5, 3.9, 3.9, 2.8, 4.2, 3.7, 4.6 - Of which: oil GDP: -4.4, -4.5, -9.4, ......, -9.0, 6.0, -10.1, -3.3 - Of which: non-oil GDP: 4.9, 4.9, 4.7, 4.3, 4.3, 3.7, 4.1, 4.7, 5.1 - GDP deflator: 3.2, 0.3, 2.2, -0.8, -0.8, 1.7, 2.9, 0.9, 1.6 - Consumer prices (12-month average): 2.8, 0.6, 0.3, 2.0, 2.0, 1.3, 1.8, 2.0, 2.0 - Consumer prices (end of period): 2.4, -0.1, 1.0, 2.0, 2.0, 1.0, 0.9, 3.5, 0.7 - Nominal GDP (in billions of CFA francs): 7,583 7,917 8,377 7,858 8,758 8,757 9,395 9,826 10,447 - Of which: oil GDP: 535 486 542 666 445 618 752 600 560 - Of which: non-oil GDP: 7,048 7,431 7,835 7,192 8,313 8,139 8,642 9,226 9,887 - Oil output (in thousands of barrels a day): 102 98 98 98 82 82 88 78 74 - Average oil export price (U.S. dollars per barrel): 23.6 27.3 34.9 35.5 35.5 45.3 48.0 43.3 42.0 - Current account balance (including grants): -6.1, -2.1, -3.0, -1.9, -1.7, -2.4, -1.2, -3.4, -4.8 - NPV of external debt after past debt relief: 49.6, 39.0, 35.8, 35.9, 32.2, 31.1, 27.5, 24.6, 22.1 - NPV of external debt after past and anticipated debt relief: ..................12.9 12.6 12.3 - NPV of external public debt after past debt relief: 170.5 166.5 153.3 146.8 ... 127.8 106.7 104.5 98.1 - External debt service (before anticipated debt relief) — Scheduled: 27.7, 26.0, 23.0, 22.0, ... 20.2, 17.1, 15.2, 13.6 - Scheduled (in percent of government revenue): 41.9, 38.2, 35.5, 32.2, ... 29.1, 24.7, 20.8, 18.0 ### Fiscal and oil sector highlights (selected figures shown) - Total revenue and grants (in billions of CFA francs): 1,277 1,312 1,279 1,348 1,511 1,706 1,689 1,739 - Total revenue (in billions of CFA francs): 1,253 1,273 1,267 1,333 1,478 1,668 1,676 1,729 - Oil sector revenue (in billions of CFA francs): 369 324 325 276 394 515 437 388 - Non-oil sector revenue (in billions of CFA francs): 884 948 942 1,057 1,084 1,153 1,239 1,340 - Total expenditure (in billions of CFA francs): 1,191 1,219 1,335 1,317 1,338 1,597 1,651 1,780 - Current expenditure (in billions of CFA francs): 1,028 1,049 1,169 1,032 1,068 1,159 1,246 1,315 - Capital expenditure (in billions of CFA francs): 178 166 160 285 260 438 404 465 - Overall balance, excl. net change in arrears (excluding grants): 62 53 -68 16 139 70 25 -51 - Net change in arrears: -337 -369 -17 -73 -100 -60 -35 ### Oil production and sector accounts (selected) - Production (millions of barrels): 37.4 35.6 32.7 30.1 32.0 28.6 27.2 - Percentage change: -5.0 -4.7 -8.3 -7.8 6.2 -10.5 -5.0 - Sales and exports (millions of barrels): Sales 36.8 34.8 33.1 28.8 32.0 28.6 27.2; Exports 36.8 34.8 31.1 27.9 31.1 27.7 26.3 - Value of sales: 607.0 551.1 609.7 686.2 828.9 668.2 614.4 - Exports: 607.0 551.1 574.5 665.2 805.6 647.2 594.0 - SNH revenue and disposable income (selected): Revenue 393.9 350.6 384.3 432.1 543.8 438.3 403.0; Disposable income 296.8 260.0 273.6 325.4 446.1 351.9 326.2 - Oil companies’ export receipts and disposable income (selected): Export receipts 213.0 200.5 225.4 254.1 285.1 229.9 211.3; Disposable income 89.1 87.8 96.7 120.3 128.7 104.1 96.7 *Source: IMF staff report excerpt; data and projections as presented in the source document.* ### 3. Contribution to government budget ### 3. Contribution to government budget ### Calculated contributions (based on sections 1 and 2; based on data provided by SNH) - Total (calculated on the basis of sections 1 and 2 above): 4/352.9322.5326.8391.1514.8436.9388.5 - SNH: 296.8260.0273.6325.4446.1351.9326.2 - Oil companies' profit tax: 56.062.553.265.768.885.162.3 Notes: - 4/ Based on data provided by SNH. - SNH: National oil company (Société Nationale des Hydrocarbures). ### Actual payments (cash basis; as reported in the government's fiscal reporting system) - Total actual payments (cash basis): 5/368.7324.2325.2............ - SNH's contribution (actual payments): 295.1272.0275.4............ - Oil companies' profit tax (actual payments): 73.652.249.8............ Note: - 5/ As reported in the government's fiscal reporting system. ### Memorandum items — Oil prices and exchange rate - International oil price 6/: 25.028.937.849.151.046.345.0 - Discount for lower quality of Cameroon's crude: 1.41.53.13.73.03.03.0 - Price for Cameroon's crude: 23.627.434.645.348.043.342.0 - Exchange rate (CFA francs per U.S. dollar, average): 696.7580.8528.0............ Notes: - 6/ Historical WEO prices through 2005, projected program prices thereafter. - Other costs in 2005 amount to CFAF 32 billion in paragraph 14 of the MEFP of March 30, 2005 (IMF Country Report No. 05/164) because a different exchange rate was used (SNH's budget is prepared in US$). ### Key interpretive points from the surrounding MEFP and program documents (policy orientation) - The Government is determined to consolidate macroeconomic gains and undertake decisive structural reforms to achieve sustained economic growth and reduce poverty. - Fiscal policy priorities: - Mobilize non-oil revenue to offset secular decline in oil output. - Strictly monitor budgetary expenditure while allowing for an acceleration of public investment and priority-area spending, in particular basic infrastructure. - Expedite further restructuring and privatization of public enterprises to reduce their burden on public finances and improve service delivery. - Foster budgetary and expenditure management, improving fiscal transparency and accountability. - Transparency and governance: - The government has set up a Committee to monitor the implementation of the Extractive Industries Transparency Initiative (EITI) principles in Cameroon and will enhance transparency in the oil sector. - The program includes measures to improve governance and fight corruption to enhance private sector activity and the business climate. - Social priorities: - Continue efforts to strengthen health conditions and access to education in line with the priorities of Cameroon’s Poverty Reduction Strategy Paper. - PRGF request and conditionality (from the government's cover letter): - Government requests a new three-year arrangement under the PRGF in a total amount equivalent to SDR 18.57 million (equivalent to 10 percent of Cameroon’s quota). - Requests first disbursement under the arrangement in an amount equivalent to SDR 2.65 million following Executive Board approval. - Requests additional interim assistance in an amount equivalent to SDR 5.70 million under the enhanced HIPC Initiative. - Government commits to reviews with the IMF; first review to cover first six months and discussions in late January/early February 2006. - Government authorizes IMF to make the letter and attached MEFP public. *Sources: Cameroonian authorities; and IMF staff estimates and projections.* ### 2. Cameroon’s economic growth is projected to slow from 3.5 percent in 2004 to ### _cr05413 - 2. Cameroon’s economic growth is projected to slow from 3.5 percent in 2004 to ### Economic outlook and inflation - Real GDP growth: - 2004: 3.5 percent. - 2005 projection: 2.8 percent, due to weaker non-oil activity. - Non-oil economy growth: - 2004: 4.7 percent. - 2005 projection: 3.7 percent, reflecting slower manufacturing, weaker consumption (in part due to fiscal consolidation), and continued low investment. - Inflation: - Annual average inflation projected at 1.3 percent, reflecting favorable climatic conditions on agricultural output and sluggish demand. - Credit to private sector: - Growth at 5.2 percent during July 2004-June 2005. ### External position and balance of payments - External current account deficit (after grants): - 2004: 3.0 percent of GDP. - 2005 projection: 2.4 percent of GDP (expected to strengthen somewhat). - Exports and imports: - Both oil and non-oil export volumes expected to decline; higher export prices should help maintain export value growth. - Increase in import volume projected to remain below real GDP growth. - Terms of trade: - Projected to improve by 9 percent in 2005 following two years of moderate declines. - Overall balance of payments deficit: - Projected at 2.1 percent of GDP in 2005; expected to be financed mainly with debt relief requested from Cameroon’s bilateral creditors. ### Fiscal performance and first-half 2005 developments - Non-oil primary balance: - 2004: deficit of 2.3 percent of non-oil GDP. - First half of 2005: surplus of 0.5 percent of annual non-oil GDP, in line with the SMP targets. - Non-oil revenue: - Performed better than expected by 0.5 percent of annual non-oil GDP in the first half of 2005 (higher corporate income tax collections and increased dividend payments). - Expenditure composition: - Total expenditure was as expected. - Capital outlays and HIPC-financed expenditure remained lower than planned. - Spending on goods and services was above-target. - Domestic debt and arrears: - Government used an oil windfall of 0.6 percent of annual GDP (compared to SMP oil revenue targets) in the first half of 2005 to reduce arrears to the HIPC account at the BEAC and to repay more domestic debt. - Preliminary results of the audit of domestic debt became available at end-June 2005. ### Structural reforms, public enterprises, and governance - Fiscal transparency and public financial management: - TABORD monthly budget execution information accelerated in 2005 and is now prepared within 3 weeks of the end of the reporting month; presented on a consistent cash and commitment basis and on a functional basis. - Majority of Government accounts in commercial banks closed and balances transferred to the Treasury account at the BEAC. - Government started publishing budget execution data in August for January-May 2005 and intends monthly publication, including in local print media. - Further discipline needed to limit dépenses non ordonnancées and to commit all spending before making cash payments as per SMP commitments. - Public enterprise actions and delays: - State airline (CAMAIR): preparation and adoption of a detailed time-bound privatization/liquidation action plan slipped to late 2005 due to delays in recruiting specialist consultants; implementation of a cost reduction plan including retrenchment of about one third of staff started. - Postal operator (CAMPOST): progress including audit of savings accounts, inventory of physical assets of SONAPOST and CEPC, draft opening balance sheet prepared in August 2005, dedicated account at BEAC, and a retrenchment plan implemented starting July 2005. - Refinery (SONARA): steps to limit losses, including fuel price increases of a cumulative 8-14 percent in the first 8 months of 2005 and cost-cutting measures. - Fixed-line telephone company (CAMTEL): privatization being worked on with World Bank assistance; delayed by some 6 months due to need to update telecom sector strategy; interim agreement with COTCO on use of fiber-optics cable being pursued. - Other public enterprises (SNEC, CDC, SODECOTON): actions delayed by three to six months, partly due to delays in hiring consultants. - Governance and anti-corruption measures: - Extractive Industries Transparency Initiative (EITI) context: publication of data on oil production and main elements of audits of SNH; Government sought agreement from private oil companies to publish main elements of production sharing agreements. - Licensing of microfinance institutions (COBAC and Ministry of Economy and Finance) progressing more slowly than planned; expected to be completed in October 2005. - Judicial reform: action plan being implemented; Parliament adopted a new penal procedure code harmonizing the legal system; code promulgated in July 2005; hiring and training of Chambre des Comptes staff under way. - Anti-money laundering: Prime Minister signed decree setting up ANIF in May; head nominated in August with a view to making agency operational by end-2005. - Update of national action plan to improve governance (PNG) delayed from June to October/November 2005; governance project agreement signed with the UNDP in June. ### Medium-term macroeconomic framework and objectives - Alignment with 2003 PRSP: Government aims to: - achieve longer-term debt sustainability and maintain macroeconomic stability with prudent fiscal policy; - improve allocation of Government resources and increase investment in physical and human capital; - reduce impediments to growth and poverty reduction by strengthening the business climate. - Medium-term growth projections (2005-08): - Non-oil activity projected to grow by an average of 4.4 percent per year during 2005-08 with higher public investment, social sector spending, stronger exports, productivity gains, and diversification. - Oil sector: projected cumulative decline in volume by 16 percent during 2005-08, but oil-generated resources remain important due to high projected world oil prices. - Inflation and external balance targets: - Prudent policies will aim to contain inflation to 2 percent. - External current account deficit projected to widen to about 5 percent of GDP in the medium term, reflecting higher import needs and declining oil exports. - Debt and spending projections: - Debt indicators projected to fall to sustainable levels in 2005-06 and strengthen further through debt forgiveness at the HIPC completion point. - Non-interest expenditure projected to increase by about 2 percentage points of GDP during 2006-08 relative to 2005, two thirds allocated to public investment. - Non-oil primary deficit (overall balance, excluding grants, interest and foreign-financed capital expenditure) projected to widen from 0.7 percent of non-oil GDP in 2005 to 2.1 percent in 2008. - Overall balance (excluding grants) projected to shift from a surplus of 1.6 percent of GDP to a deficit of 0.6 percent. ### Fiscal strategy and risks - Fiscal strategy aims: - Expand poverty-reducing and growth-enhancing expenditure toward MDGs while maintaining debt sustainability safeguards. - Base fiscal policy on conservative oil price assumptions; use any oil revenue windfall for pre-determined program purposes (domestic debt repayment priority noted elsewhere). - Increase non-oil revenue gradually to cover recurrent expenditure and offset projected declines in oil revenue and potential losses in trade taxes from liberalization. - Main fiscal policy challenges: - Improve public financial management and public expenditure management, particularly for investment spending. - Accelerate enterprise restructuring and privatization to reduce fiscal burden and improve services. - Improve quality and efficiency of spending and strengthen links between PRSP, MTEF, and the budget. - Repay domestic debt timely to rebuild business confidence. ### Macroeconomic framework for the first year of the program (July 2005–June 2006) - SMP revisions and targets: - Non-oil primary deficit (before grants) projected at 0.7 percent of non-oil GDP in 2005, implying an improvement of 1.5 percentage points of non-oil GDP since 2004. - 2006 budget aims to increase non-oil revenue, improve tax structure, quality of spending, and continue paying domestic debt. - Non-oil revenue targets: - 2005 target: non-oil revenue to reach 13.3 percent of non-oil GDP, including 0.3 percent in one-time factors (e.g., dividend payments by public enterprises and retention by central Government of about half a VAT surcharge dedicated to local governments). - 2006 budget aims to raise non-oil revenue by 0.3 percentage points of non-oil GDP (excluding one-time factors). - Oil revenue projection: - 2006 oil revenue projected to increase to 5.5 percent of GDP. - Assumptions: production volume increase by 6.2 percent and oil price rise from US$45.3 per barrel in 2005 to US$48.0 in 2006. - Any oil revenue windfall above projection to be used for domestic debt repayments. ### Revenue measures proposed in the 2006 budget - Excise tax changes: - Extend excise tax at a rate of 12.5 percent to passenger vehicles with engine capacity of 2000 cm3 or more. - Apply excise tax at a rate of 25 percent (top rate under the CEMAC directive) to mineral waters, non-alcoholic carbonated beverages, and fruit juices (yield of 0.1 percent of non-oil GDP). - Minimum tax: - Increase minimum tax from 1 to 1.5 percent on turnover of enterprises outside the régime du réel (yield of 0.02 percent of non-oil GDP). - Tariff changes: - Eliminate the zero-rate tariff category to conform to CEMAC (0.01 percent of non-oil GDP). - Property tax: - Introduce a new property tax based on value rather than surface area (yield of 0.03 percent of non-oil GDP). - Timber tax: - Introduce a tax on timber of 2.5 percent calculated on the fob value of sawn timber for cases where tax “entrée usine” has not been collected (yield of 0.05 percent of non-oil GPD). - Transfers to local governments: - Transfer back to local governments one half of the centimes additionnels temporarily retained at the central Government in 2005 (cost of 0.1 percent of non-oil GDP). ### Tax administration and customs reforms - Tax administration measures: - Build a representative sample of individual taxpayers in the private sector by end-2005 (to study revenue and distributional effects of IRPP policy changes and 2004 IRPP reform impact). - Work with regional IMF tax administration advisor (stationed in Yaoundé since September 2005) to strengthen compliance and enforcement in the informal sector. - Customs reforms: - Implement ASYCUDA nationwide by end-2006 to speed up shipment delivery and enhance operational efficiency. - Set up a joint tax-customs administration unit by October 2005 to facilitate information exchange and undertake joint audits. ### Budget transparency, 2006 budget law, and expenditure priorities - Budget transparency steps: - On September 13, 2005 the Prime Minister signed a decree regarding transfer of credits to reflect interventions directes by SNH and anticipated additional sovereign spending. - 2006 budget law to be submitted to Parliament by end-October 2005 with adequate appropriations for each ministry to increase transparency and facilitate execution. - Use of the budgetary reserve to be strictly limited to unforeseen spending. - 2006 expenditure focus: - Prioritize PRSP areas and speed up public investment. - Non-interest expenditure to increase by 1.8 percent of GDP, of which 1.7 percent directed toward capital expenditures. - Contain goods and services and subsidies. - Measures to improve public investment quality and absorption: - Improve investment project planning drawing on existing MTEFs. - Apply criteria focusing on investment project selection. - Start budget commitments from the beginning of the fiscal year (January). - Strengthen public finances management (reporting, cash management) and seek to pay bills within 60 days to avoid accumulation of new payment arrears. *Source: IMF staff report excerpt contained in the provided document.* ### 19. The Government will enhance the implementation of the procurement reform in ### _cr05413 - 19. The Government will enhance the implementation of the procurement reform in ### Procurement reform and capacity building - Develop a national procurement capacity building strategy; an action plan for establishing this strategy will be available before end-December 2005. - Systematically publish anti-corruption actions such as legal proceedings and sanctions against offenders and improve the internal processing and management of complaints within the Public Regulatory Agency (ARMP). - Design and install by end-December 2006 a computerized system for the planning, the procurement and the management of public contracts with access via the ARMP website. - Submit to the World Bank by October/November 2005 a list of performance indicators to be periodically used to assess and monitor the reliability and the performance of the national procurement system. ### Multi-year budget framework and MTEFs - Implement a multi-year budget framework consistent with medium-term growth projections, the strategic objectives of the PRSP and sector priorities. - Elaborate sector strategies and make operational comprehensive MTEFs covering PRSP priority sectors: Ministries of Education, Health, Rural Development, and Public Works. - Work supported by the World Bank PRSP Trust Fund. - Sectoral MTEFs, in particular those for the Ministries of Health and Public Works, will be linked to the global MTEF of the Ministry of Finance by end-2005. ### Civil service reform and payroll systems - Launched census of civil servants. - Implementing a computerized payroll monitoring system and human resource management tools (SIGIPES) in four pilot ministries that account for about half of Government employment. - Plan to extend SIGIPES to 11 other line ministries by end-December 2006. - Based on the outcome of this extension, expand the system to the remaining ministries from 2007 on. ### Domestic debt regularization and coordination - Determined to regularize its debt and implement the new domestic debt service schedule in full to enhance investor confidence. - October work to refine assessment of cross-debts between the Government and public enterprises. - Drew up in September a new debt service schedule for 2006 and beyond; intends to strictly implement this schedule. - Entrust the CAA with coordination of payments of all debt obligations included in the audit, as well as the monitoring and consolidation of the related information. ### HIPC Initiative, PRSP process, harmonization and donor alignment - Accelerate progress toward meeting remaining HIPC completion point triggers. - Substantial progress achieved on triggers pertaining to social sectors (education and healthcare), combating HIV/AIDS, satisfactory conclusion of the third Structural Adjustment Credit (SAC III), establishment of autonomous regulatory agencies, and judiciary reform. - Accelerate progress in governance areas: make the Audit Chamber operational by end-2005; pursue implementation of action plan to establish the Constitutional Council; continue implementation of public procurement reform. - Cooperate with the World Bank to address forestry sector reform shortcomings. - Prepare a least-cost investment plan consistent with international standards for the energy sector by March 2006. - Prepared an update of the PRSP’s macroeconomic framework and a second annual progress report covering January 2004–March 2005. - Agree with donors on an action plan before end-2005 in line with the 2005 Paris declaration on aid effectiveness; action plan to focus on a limited number of pilot areas to enhance donor alignment with PRSP priorities, harmonization of operational policies and procedures, and managing for results. - Develop a partnership agreement between the Government and donors spelling out mutual responsibilities and indicators to track progress on aid effectiveness. ### HIPC resource appropriation and project implementation - Preserve existing mechanism whereby budgetary savings from debt relief are deposited in a dedicated HIPC account at the BEAC and used in accordance with procedures set at the decision point after the completion point. - Replenish arrears to the HIPC account in full by end-March 2006. - Strengthen financial and physical monitoring of HIPC projects by establishing by end-2005 a special control unit under the HIPC Consultative Committee to monitor project implementation. - 2004 HIPC audit completed in September 2005 and will be made available to the general public; Government intends to implement quickly the recommendations of the 2004 HIPC audit after approval by the HIPC Consultative Committee. ### Education sector priorities - Continue focus on removing remaining obstacles to meeting the MDGs. - Hire and manage temporary teachers (instituteurs vacataires), and gradually include them in the civil service in a way that assures the long-term financial sustainability of the sector. - Pursue PRSP objective to improve overall efficiency of the education system by taking administrative and pedagogical steps necessary to reduce high repetition rates. - Prepare an education strategy and action plan to be submitted to donors in the first quarter of 2006 to raise funds through the donor-supported Fast Track Initiative for education. ### Health sector priorities - Improve efficiency of spending to get better results and ultimately increase level of public spending and progress towards attainment of the MDGs. - Plans include: - Target priority investments towards poorer, less served areas to improve quality of care and expand access to child, maternal and nutritional services. - Expand use of contractual staff for disadvantaged areas and develop clear policies for management of contractual staff. - Increase contracting with NGOs to provide services to vulnerable groups and/or remote areas. - Reduce the financial burden on poor households by introducing risk sharing mechanisms. ### Structural reforms: objectives and focus areas - Further structural reforms to facilitate private sector activity, investment and growth. - Strengthen transparency in Government finances, limit losses of public enterprises, and improve services they provide. - Aim to deepen financial intermediation, promote good governance, upgrade infrastructure, improve regulatory framework in key sectors (energy, transport, and forestry), and encourage regional integration and international trade. ### Government finances: transparency and fiscal governance - Discontinue from January 2006 all cash advances (interventions directes) by the oil company (SNH) as they are made outside the treasury and do not follow normal budgetary spending procedures. - Contain SNH’s indirect cost (autres charges) of a quasi-fiscal nature at CFAF 25 billion during July 2005-June 2006. - Payments to be made only after expenditures have been committed and within available budget allocations for the relevant ministry and reflecting the nature of the expenditure. - Strengthen monthly fiscal reporting, including preparation of consistent budget execution tables on a cash and commitment basis and a comprehensive breakdown of spending by economic function and executing ministry. - Complete implementation of the single Treasury account at the BEAC by end-2005. - Prepare comprehensive annual budget implementation reports supporting presentation of the Loi de règlement, starting with budget execution for 2004. - Chambre des Comptes to become operational at end-2005 and examine budget execution from 2004 on; audit chamber to start assessing management accounts of public accountants beginning in 2006. ### EITI implementation and oil sector transparency - Implement EITI principles in Cameroon. - Technical Secretariat of the EITI Committee established in September 2005. - Prepare, with consultant assistance, an action plan to be submitted to the Committee in October 2005; draft action plan to be made public by end-November 2005 for feedback. - Implement consensual action plan from January 1, 2006. - Improve timeliness of SNH audits: publish results of the 2004 audit by end-2005 and those of the 2005 audit by end-September 2006. - Publish on a quarterly basis information on total oil production, selling prices obtained, and revenue from oil received by the Treasury, building on information for the second quarter of 2005 that was published in the third quarter of 2005. ### Fiscal decentralization: cautious approach and studies - Completed an audit of FEICOM in May 2005; begin to implement recommendations before end-2005, including strengthening management and transparency of operations. - Complete a study assessing the financial impact of alternative decentralization schemes within the framework of the 2004 legislation in 2006. - Complete a study of the revenue potential of local governments in the first quarter of 2006. - Consult with the IMF before making any major change in the current fiscal framework. ### Public enterprises: strategy, resources, and specific plans - Strategy aims at reducing operating losses, adapting companies to a competitive environment, improving services, and adhering to the privatization timetable. - Allocate CFAF 40 billion in 2005 and CFAF 82 billion in 2006 for restructuring of public enterprises; resources used only to implement privatization strategy (CAMAIR, CAMTEL, CDC), a public-private partnership (SNEC), or a restructuring plan (CAMPOST, SONARA), after consultation with IMF and World Bank staffs. - CAMAIR: - Strategic options report by November; adopt a specific action plan before year-end. - Invitation for bid launched before end-January 2006; sale expected to be completed by end-May 2006. - Terms of reference of the liquidator prepared by end-December 2005 to appoint a liquidator by end-March 2006. - CAMTEL: - Update sectoral strategy on telecommunications by end-October 2005. - Privatization strategy prepared and finalized by consultant by end-November 2005 and adopted by Government by end-December 2005. - Company to be offered for sale by end-June 2006. - SNEC: - Proceed with a lease management contract as a public-private partnership. - Modalities finalized by end-December 2005; invitation for bids launched by end-July 2006. - Financial model completed by end-November 2005 to raise water tariffs beginning in 2005 to gradually reach cost-recovery levels. - Budgetary allocation for restructuring expenditures to liquidate SNEC’s non-recoverable assets. - SONARA (refinery): - Raise fuel prices and make budgetary transfers to eliminate financial losses on domestic operations. - Increase fuel prices by CFAF 5/liter each month in the last quarter of 2005. - Projected subsidies to the consumer currently projected at CFAF 16.6 billion for 2005; Government will provide a budgetary transfer to cover the shortfall. - Include Government debt to SONARA at end-2004 in the domestic debt repayment plan. - In 2006, meet full cost of fuel consumption by further fuel price increases and possibly further budgetary subsidies. - Based on projection of international oil prices in 2006 at their level of early September 2005 (about US$60 per barrel) and at US$/euro exchange rate of CFAF 520/US$, Government intends to provide a subsidy of CFAF 20 billion, and raise a similar amount from a rise in fuel prices by CFAF 20 per liter in February 2006. - Ascertain actual cost of oil inputs to SONARA and transfer subsidy payments on a monthly basis. - If oil prices rise above US$60/barrel, fuel prices will be increased further; if oil prices fall below this level, Government will reduce the budgetary subsidy first and eliminate it fully before reducing fuel prices. - Audit of SONARA’s operations to be completed by end-April 2006 to assess overall economic costs and seek ways to ensure medium-term viability; audit will review option of associating private investors to the restructuring envisaged in 2006. - Increase domestic gas consumer prices on a quarterly basis according to evolution of international prices to avoid cross subsidies between fuels and domestic gas. - CDC and SODECOTON privatizations: - Privatization of CDC to proceed with World Bank assistance, proceeding by sectors with focus on completing privatization of rubber and palm tree plantations in 2007. - Interministerial committee to adopt before end-October an operational strategy for rubber and palm tree plantations. - Consultants for complementary studies to be hired by end-March 2006. - Merchant bank to advise Government to be hired by end-March 2006. - SODECOTON: consultant to be hired by mid-2006 to review cotton sector and determine prerequisites for privatization. - Other public enterprises: - Set up a mechanism for more effective monitoring: closer surveillance by the Ministry of Finance and Economy, reporting of semi-annual income statements, updating performance indicators, and strengthening statistical monitoring. - Commit to continue timely payments for services received from public enterprises and utilities; make appropriate allocations in the 2006 budget. - Will not accumulate new arrears to SONARA, including on account of the consumption of the Ministry of Defense. - Will not resort to offsetting agreements with public enterprises other than in exceptional circumstances and after consultation with the IMF and the World Bank. *Source: _cr05413 - 19. The Government will enhance the implementation of the procurement reform in* ### 42. The restructuring of CAMPOST will be pursued with a view to insuring its long ### _cr05413 - 42. The restructuring of CAMPOST will be pursued with a view to insuring its long term sustainability and establishing a viable subsidiary for its financial activities. ### Restructuring of CAMPOST - Objectives: - Ensure long term sustainability of CAMPOST and establish a viable subsidiary for its financial activities. - Steps and deadlines: - Implement retrenchment plan adopted in September 2005 to complete staff reduction initiated in July 2005. - Hire a consultant to assist CAMPOST in producing by end-December 2005: - (i) the 2004 financial accounts; - (ii) financial accounts and balance sheets for 2004 separating postal and financial activities; - (iii) the audit of the special account opened at the BEAC in January 2005. - Government to adopt a postal sector strategy by end-2005, describing postal universal service obligations and financing. - Select the management contract team (MCT) by end-February 2006 to assist temporary administration under a 3-year management contract; Government will consult with IMF and World Bank staff before adopting terms of reference. - Establish a subsidiary of CAMPOST for postal financial services, under COBAC’s supervision, with preparatory work completed by end-June 2006 and aim to receive licensing by COBAC by end-2006. - Recapitalization of CAMPOST to be undertaken only after the financial subsidiary has received sufficient assurances from COBAC. - In the interim, the Government will provide CAMPOST with a subsidy to ensure universal postal service. - Government will avoid market distortions between the CAMPOST financial subsidiary and microfinance institutions. ### Financial sector deepening and supervision - Goals: - Deepen financial intermediation and address low intermediation levels. - Key reform actions: - Address weaknesses in the “financial infrastructure”: improve bookkeeping by enterprises, provide collateral via real estate titles, and enhance enforcement of property rights through judiciary reform; implement action plan prepared with the BEAC. - Complete microfinance licensing by end-October 2005 and ensure ongoing supervision of microfinance institutions in cooperation with COBAC; unlicensed institutions to be effectively closed by end-2005. - Ministry of Economy and Finance and COBAC to put in place an appropriate accounting framework for microfinance monitoring in consultation with institutions; cooperation with ANEMCAM to be strengthened. - Restructure government-owned housing credit organization (Credit Foncier) under plan agreed with COBAC, including renewed efforts to recover nonperforming loans; launch in 2005 a study on (i) financing of housing and (ii) how the subsidy to Credit Foncier could prioritize financing of social housing. - Request an FSAP update and build on its recommendations. - Invigorate stock exchange activity: Government to sell some of its holdings of shares of profitable companies beginning in the last quarter of 2005. ### Other structural reforms: governance, forestry, energy, ports, roads - Governance: - Press ahead with implementation of priority action plan for judicial reform; commission independent annual audits of progress. - Publish updated National Governance Program (PNG; Phase II) before end-November 2005, focused on targeted short-term actions and performance indicators, with donor and non-state actor support. - Forestry sector: - Enhance and maintain coherent data on forestry exploration and fiscal receipts. - Consult with the World Bank on measures to improve granting of forestry operating licenses; adapt fiscal regime and data management. - Instruct public prosecutors to request severe sanctions for forestry law violators. - Government signed on September 7, 2005 formal notices for operators who did not submit a bank guarantee; guarantees should cover all outstanding taxes (arrears) and taxes payable up to end-2005; pledged to withdraw by end-September 2005 licenses for which no bank guarantee had been submitted; no moratorium intended for tax payments to operators without guarantees. - Energy sector: - Elaborate comprehensive medium- and long-term energy sector strategy by end-June 2006 (based on Power Sector Long-Term Development Plan and Energy Access Action Plan), in cooperation with development partners and users; strategy aims to: - (i) increase number of electricity users; - (ii) associate local and international private sector to energy production and delivery and develop competitive market for power generation; - (iii) integrate development strategy of the aluminum sector and related industrial activities and their electricity demand based on alternative scenarios for production and pricing of electricity; - (iv) integrate Cameroon’s electricity system within a regional framework; - (v) reinforce energy sector regulatory and water basin management capability. - Port sector (next 3 years): - Complete reform started in 1998: strengthen concession management, ensure dredging of access channels in line with prospective traffic, comply with safety and security requirements, reduce dwell time, and continue clearing Government arrears vis-à-vis PAD on past dredging contracts. - Road sector: - Main objectives: (i) secure appropriate maintenance of current priority network; (ii) mobilize financing to rehabilitate core paved network; (iii) ensure appropriate use of resources to increase access to poorest rural areas. - Progress on revised Memorandum of Understanding with the European Union, including road charge revenue collection and Road Fund management. ### Regional integration and trade policy - CEMAC cooperation: - Further trade liberalization consistent with multilateral principles; work toward full implementation of transportation facilitation and trade liberalization commitments. - Adhere strictly to the Common External Tariff and not introduce additional import taxes and levies; apply common rules of origin; improve labor market integration; promote mutual investment and trade in services; take steps to harmonize internal taxation to avoid distortions. - EU negotiations: - Continue negotiations with the European Union on an Enhanced Partnership Agreement (EPA) to ensure longer-term duty-free access to the EU market. - Finalize by end-2005 studies of economic impact of trade liberalization specifying measures to improve international competitiveness. - Net expected revenue loss from reciprocal trade liberalization as a result of the EPA (expected to enter into force in 2008) will be offset by a gradual increase in domestic tax revenue. ### Statistical data and technical assistance - Strengthen national statistics system to monitor PRSP and MDGs: - Implement priority action plan adopted by the National Statistics Council. - (i) Set up institutional framework of the National Statistics Institute; - (ii) Enhance data collection in key sectors and re-launch agropastoral surveys; - (iii) Publish new series of national accounts developed according to the SCN93; - (iv) Carry out first national survey on employment and the informal sector; - (v) Publish preliminary results of the third general census of population and housing (3rd RGPH) by June 2006; - (vi) Ensure data dissemination on Government Web site according to SGDD standards. - Request technical assistance to compile balance of payments for early 2006. ### Program monitoring: targets, benchmarks, and governance of implementation - Oversight and review: - Government established financial targets and reform measures as quantitative performance criteria and benchmarks (Table 3) and structural performance criteria and benchmarks (Table 4). - Review implementation with IMF staff on a quarterly basis; program includes contingency mechanisms as defined in the Technical Memorandum of Understanding (TMU). - Program implementation reviewed regularly in interministerial cabinet meetings (Conseils de Cabinet) chaired by the Prime Minister; Minister of Economy and Finance supervises implementation with assistance of the Technical Committee for the Monitoring of Economic Programs (CTS). - CTS to provide IMF staff, within TMU time limits, all necessary data for monitoring the PRGF-supported program. - Selected quantitative targets and indicative figures (as presented): - Floor on non-oil revenue of the central government: 531 531 570 38 (table excerpt context). - Floor on the replenishment of the HIPC account: 9 19 28 324 O (table excerpt context). - Indicative and performance targets (end-Sep.05 / End-Dec.05 / End-Mar.06 / End-Jun.06) (selected rows): - Ceiling on the increase in net claims of the banking system on the central government: 449 756 80 - Floor on the non-oil primary budget balance: 0 -144 138 - Floor on non-oil revenue of the central government: 252 513 829 1110 - Ceiling on spending on goods and service (excl. HIPC and C2D): 761 552 373 36 - Ceiling on cash spending by SNH — Payments on account of the government (interventions directes): 20 30 30 30 - Floor on reduction of domestic debts — Structured debt: 466 510 413 3; Non-structured debt: 304 782 113 - Floor on the replenishment of the HIPC account: 23 47 67 82 - Floor on payments to utility companies (SNEC / AES SONEL / CAMTEL / CAMRAIL / SONARA) with quarterly values such as SNEC: 1.8 3.5 5.5 7.5; AES SONEL: 1.5 3.0 4.8 6.5; CAMRAIL: 1.0 2.0 3.0 4.0; SONARA: 1.5 3.0 4.5 6.0; CAMTEL: 3.0 6.0 9.3 12.5. - Memorandum items (non-cumulative) examples: - Oil revenue: 102 113 112 134 - Assumed external debt relief: 35 70 33 114 - External program financing: 0 24 0 11 (of which IMF (disbursement): 0 2 0 2) - Stock of net bank credit to the central government (excluding HIPC account and C2D account): 392 445 405 428 - Structural performance criteria and benchmarks (selected): - Submission to Parliament of the 2006 budget law consistent with the program and adoption by end-December 2005. - Adoption of privatization strategy of CAMAIR by end-December 2005 and launching of invitations for bids by end-January 2006. - Monthly fiscal operations table fully consistent on cash and commitment basis; single treasury account completion by end-December 2005 (limit sovereign accounts to one per entity, with specified exceptions). - Launch invitation for bids for management contract of public-private partnership for SNEC by end-July 2006. - Recruit management contract team for CAMPOST by end-February 2006 and complete preparatory work to establish a financial subsidiary by end-June 2006. - Finalize and adopt privatization strategy of CAMTEL by end-December 2005 (based on sectoral strategy finalized by end-October 2005) and offer company for sale by end-June 2006. - Completion of licensing process for microfinance institutions by end-October 2005 and closure of all institutions without license by end-2005. - Finalization of the update of the National Governance Program by end-November 2005. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05413.pdf* ### ANNEX I ### ANNEX I ### Overview - Interim note taking stock of developments through end-August 2005 towards the HIPC completion point triggers. - Factual update only; does not pass judgment on attainment of specific triggers. - Good progress: social sectors and combating HIV/AIDS. - Less satisfactory progress: governance. - Public expenditure management: establishment of an integrated financial management system achieved; needs integration into normal government operations and fiscal reporting to improve fiscal transparency. - PRSP implementation since completion in April 2003 described as less than comprehensive. - Government established committees to oversee PRSP implementation, HIPC completion point triggers, and use of HIPC relief, but committee operations suffered from inadequate coordination with normal government operations. ### Progress on HIPC completion point triggers (as of end-August 2005) - 1. Full PRSP prepared and satisfactorily implemented for at least one year - Full PRSP completed in April 2003. - IMF and World Bank Executive Boards concluded in July 2003 it provided a satisfactory framework. - First Annual Progress Report covered April 2003 to March 2004 and was submitted in July 2004. - Progress report: relatively non-critical; progress good in some areas, modest elsewhere. - Concern: capital expenditure falling consistently short of needs, undermining medium-term growth prospects—particularly energy, water provision, and roads. - 2. Continued maintenance of a stable macroeconomic environment and satisfactory implementation of a new three-year PRGF arrangement - Recent years: growth and inflation performance solid; fiscal performance weakened considerably in 2004. - Non-oil revenue: fell from 12.8 percent of non-oil GDP in 2003 to 12 percent in 2004. - Non-oil primary deficit deteriorated by 1.7 percentage points to 2.3 percent of non-oil GDP in 2004. - Payments on domestic public debt and utility bills fell behind; financial situation of some large public enterprises deteriorated. - PRGF arrangement went off-track. - Fiscal situation improved markedly in 2005 under the staff-monitored program (SMP). - Based on available data up to end-July, non-oil primary deficit stood at 0.1 percent of non-oil GDP and is expected to reach 0.6 percent at year’s end. - Non-oil revenue performed well and is projected to reach 13.3 percent of non-oil GDP at year-end. - Level of expenditure kept under control but composition remains weak. - Payments of domestic debt stood at 0.4 percent of GDP at end-July and are projected to reach 0.7 percent by year-end. - Plans to restructure public companies under way; delays noticeable in some areas partly due to technical factors. - 3. Budgetary savings from debt relief used according to decision point criteria - Decision point required identification of programs/projects specifically related to poverty-reduction; this was done but overall poverty-related expenditure cannot be easily extracted due to incomplete functional expenditure breakdown, making additionality determination difficult. - Special Treasury account established for budgetary savings from HIPC relief; mechanisms operating, but government fell behind in transferring realized HIPC relief to it. - Audit on use of HIPC resources from July 2001–December 2003 conducted and presented in September 2004. - Audit of use of HIPC resources in 2004 to be finalized by end-September 2005. - Monitoring committee with donor community and civil society established in October 2002; focused on selection of projects eligible for HIPC resources, but implementation hampered by inadequate integration of HIPC spending in budget execution cycle, causing slow disbursement of project funds; process improved in 2004-05. - Inter-ministerial committee required to coordinate quarterly financial and technical reports on use of HIPC relief; reports published and discussed but remain largely descriptive and do not offer much analysis of progress toward poverty reduction goals. - 4. SAC III concluded and reforms implemented satisfactorily - SAC III concluded in March 2004; supported reforms in transport, financial and forestry sectors and privatization. - Time to implement since 1998 led to stronger ownership of reforms. - 4.1 Financial Sector - All financial sector conditions linked to SAC III satisfactorily implemented. - Banking and insurance systems successfully restructured; improvement in quality and availability of financial services. - 4.2 Privatization - Tangible progress under World Bank’s SAC II and SAC III; mixed progress since decision point. - Telecommunications: two cellular licenses issued; improved service and lower costs. - Agroindustrial units privatized: SOCAPALM, CAMSUCO and tea component of CDC; led to increase in planted surface and production. - SONEL privatized but encountered severe difficulties due to lack of managerial competence and financial resources. - No bids received for sale of three remaining crops of CDC; negotiations for CAMTEL and SNEC fell through. - Government remains committed to privatization of telecoms, water and agroindustrial complex; with IDA assistance reviewed approach and relaunched process. - 4.3 Transport Sector - Road sector: autonomous Road Fund established in 1998 to secure funding and timely disbursement for road maintenance by private sector. - Amount and quality of road maintenance financed by Road Fund steadily increased over last three years of its operations, though services still lag far behind needs. - Port reform: institutional reforms completed, resulting in reduced costs, reduced clearance times, and streamlined operations. - 4.4 Forestry Sector - Cameroon implemented complex and ambitious forestry reforms to improve governance. - SAC III-supported reforms created policy, regulatory environment, and incentive framework conducive to environmentally sustainable development. - Recent problems in implementation of agreed reforms; government taking remedial actions. - 5. Priority strategy and action plan for improving governance and combating corruption (attached to the I-PRSP) satisfactorily implemented in particular areas - Judicial reform: (i) Chambre des Comptes (audit office) and (ii) Conseil Constitutionnel created. - Public procurement: system reformed; audits for preceding fiscal year completed and appropriate follow-up actions implemented, in accordance with the law. - Budgetary execution and service delivery: results of budget tracking exercises and beneficiary assessments for education and health published and relevant recommendations implemented. - Government approved the National Governance Program (PNG) in June 2000; Priority Action Plan adopted in August 2000; government preparing an update of the PNG by end-October 2005. - Judicial sector: technical diagnostic study conducted; operational action plan developed and adopted in December 2003. - Problem of abusive attachment of bank accounts (saisie attribution) tackled. - New penal code approved in June 2005 and promulgated in July 2005. - Law specifying responsibilities, organization, and functioning of Chambre des Comptes adopted in 2003; president and 22 members nominated. - Laws specifying responsibilities, organization, and functioning of Constitutional Council adopted by National Assembly in March 2004; revised action plan to make council operational to be prepared. - Public procurement code enacted with fully operational oversight agency, special oversight committees, and regular ex-post audits; focus should now be on taking sanctions against identified misconduct. - 6. Regulatory agencies for key sectors autonomous and operating efficiently and professionally - Regulatory agencies established in telecoms and electricity sectors. - Telecoms: independent regulatory authority established, separate legally and functionally from the postal ministry, with own sources of finance; regulator functioning effectively. - 7. Education sector strategy implemented satisfactorily and timely - Sector strategy of 2,000 continued to be implemented. - 2,500 new classrooms have been built. - Teacher management effectively decentralized; new teacher statutes adopted and implemented. - School enrollment rates increased significantly as school fees in public primary schools were abolished and instructional materials allocated to schools. - Repetition and dropout rates remain very high; only 60 percent of children complete primary education. - Government prepared regulation on reorganization of primary cycle to reduce repetition rates. - Law promoting private education institutions approved by Parliament. - As of August 2005, over 3,500 classrooms had been built and resources for further construction budgeted. - Decentralization of resource management measures underway per timetable agreed with IDA. - School councils established with responsibility for budget supervision and general control and evaluation of school operations. - Education sector governance watchdog (Observatoire de la Gouvernance) created and has reported cases involving corruption leading to sanctions. - 8. Health sector strategy implemented satisfactorily and timely - Health Sector Strategy since October 2001 yielded results. - All health district teams put in place and provided with operating budgets; decentralization to provincial and peripheral levels very advanced. - Government started sub-contracting NGOs for service delivery in remote areas. - Major public health programs (immunization, malaria, HIV/AIDS) revamped with good initial results. - DPCT3 immunization increased from 43 percent in 2001 to slightly over 70 percent in 2004. - Malaria program restructured and reinforced. - HIPC resources instrumental in distribution of free impregnated bed nets to pregnant women; government took measures to improve availability and use. - 9. Progress on HIV/AIDS prioritization and infection-curbing measures - Strategic plan for 2000-05 adopted; mobilized and funded 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 campaigns targeted truck drivers, port workers, soldiers, and commercial sex workers. - HIV/AIDS infection rate estimate revised downward to 5.5 percent of the adult population in 2004. - Prevention targets noted: promote condom use by truck drivers, port workers, and soldiers to 50 percent, and by commercial sex workers to 70 percent. ### Technical Memorandum of Understanding (beginning) - A. Introduction - Memorandum sets out understandings between Cameroonian authorities and the IMF regarding definitions of performance criteria and benchmarks of the program and contingency mechanisms; specifies program’s exchange rates and data-reporting requirements. - B. Definitions (selected) - Government: defined as central Government unless otherwise noted. - External debt: meaning set out in point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements (IMF Executive Board Decision No. 12274–00/85, dated August 24, 2000). - Concessionality of external debt: considered 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 on “Limits on External Debt or Borrowing in Fund Arrangements – Proposed Change in Implementation of the Revised Guidelines” approved by the IMF Executive Board on April 15, 1996. - Debt relief for program purposes: only 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/restructuring negotiations with non-Paris Club creditors for which no debt service has been paid in the past year. - Structured domestic debt: defined as debt subject to a formal agreement (convention) or securitization (titrisation); for the PRGF program, limited to stock of structured debt at end-December 2004 included in the audit completed in October 2005 and specified in the multiyear settlement plan for public domestic debt as recorded by the Caisse Autonome d’Amortissement (CAA). - Stock of this debt (excluding BEAC’s advances) at end-December 2004 amounted to CFAF 956billion. *Source: _cr05413 - ANNEX I (interim note through end-August 2005).* ### 7. Nonstructured debt is defined as debt not yet subject to a formal agreement ### 7. Nonstructured debt is defined as debt not yet subject to a formal agreement (convention) or securitization (titrisation) ### Definition of non-structured debt and stock - Nonstructured debt: debt not yet subject to a formal agreement (convention) or securitization (titrisation). - For the PRGF program, non-structured debt is limited to the stock at end-December 2004 that was included in the audit completed in October 2005 and specified in the multiyear settlement plan for public domestic debt as recorded by the Caisse Autonome d’Amortissement (CAA). - Stock of this debt at end-December 2004 (not including credit from the BEAC): CFAF 496 billion. ### Domestic debt repayments — measurement and recording - Only repayments made to repay the structured and non-structured domestic debt defined in the document are counted for assessing observance of quantitative performance criteria on reduction of domestic debt. - These repayments are recorded “below the line” in the Fund’s “Central Government Operations” table. - For structured debt: - Payments on account of the securitized debt to the BEAC and commercial banks are entered in “Domestic financing, net – Banking System - Banking system excl. HIPC and C2D”. - Other repayments of principal are recorded in “Domestic financing, net – Amortization”. - For non-structured debt: - Repayments of principal are recorded in “Net change in arrears – Domestic”. ### Government financial operations table (TOFE) — accounting treatment - Treasury balance (Balance des comptes du Trésor) 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 (debt operations) and partly in Class 5 (financial operations). - Financial operations data must be consistent with data in the treasury account at the BEAC. - Provisional revenue/expenditure operations and deposits of treasury correspondents are recorded in Class 4 accounts. - Government operations not carried out through the treasury must be added to treasury-carried operations. - Revenue and expenditure operations are recorded on a cash basis. ### Non-oil revenue - Non-oil revenue comprises all government (tax and non-tax) revenue, excluding: - revenue from oil companies (i.e., companies engaged in crude oil extraction in Cameroon), - the redevance pétrolière. - VAT is recorded net of VAT refunds. - Pipeline fee paid by the Cameroon Oil Transportation Company (CTOCO) is recorded as part of non-tax revenue. ### Privatization proceeds — definition and accounting - Privatization proceeds: all funds received by the Government from sale or concessioning of operation of a public company/organization or publicly owned facility to private company(ies), including companies fully controlled by foreign government(s), private organization(s), or individual(s). - Also include funds from sale of shares owned by the government in private companies or public enterprises. - All privatization proceeds should be recorded on a gross basis. - Costs incurred in connection with the sale or concessioning must be recorded separately as expenditure. ### Goods and services spending - Budgetary expenditures on purchase of goods and services are recorded in accounts: 4000060, 4000090, 4011, 4010060, 48131, 4810 and 40001205 of the Treasury balance account and shown in the TABORD. - HIPC spending is excluded. ### Non-oil primary budget balance (cash basis) - Calculated as Government non-oil revenue, excluding external grants, less all expenditure other than: - interest payments, - foreign-financed investment expenditure, - HIPC-financed expenditure, - expenditure financed by the Contrat Developpement Desendettement (C2D), - restructuring expenditure. ### Net bank credit to the Government — definition - Net claims on the Government by the banking system: stock of all outstanding claims on the Government by the banking system (loans, advances, government debt instruments) less all deposits held by the Treasury with the banking system, excluding: - the HIPC account, - the account for the C2D, - the two accounts held by the CAA in a commercial bank to pay the Government’s domestic and external debt obligations. ### Replenishment of the HIPC account — observance criterion - The floor on “replenishment of the HIPC account” is considered observed if the HIPC account at the BEAC receives the quarterly transfers indicated in Table 3 of the MEFP, and transfers from this account are made solely for paying for HIPC projects. ### Payments to utility companies — observance criterion - The floor on “payment to utility companies” is considered observed if payments to utility companies (water, electricity, fixed-line telephones, railway and refinery companies) are made in quarterly amounts as indicated in Table 3 of the MEFP. - These payments exclude fiscal compensation, are assessed on cash disbursements, and are to be registered as current expenditures in the TOFE. ### SNH spending: spending advances (interventions directes) and quasi-fiscal spending (autres charges) - Spending advances (interventions directes) by SNH: advance payments by SNH on behalf of the Government; deducted from monthly cash revenue transferred by SNH to the Government. - Interventions directes limited to sovereign expenditure during July-December 2005; imputed in the TOFE monthly on both revenue and expenditure sides. - No interventions directes in 2006 or later. - SNH “autres charges”: spending to cover costs not shared with other oil companies under production-sharing agreements; includes: - costs related to SNH’s Government mandate in oil operations (mandat), e.g., decommissioning costs; - quasi-fiscal elements not related to oil sector activities (e.g., cost of operating the Chad-Cameroon oil pipeline). ### Subsidy to fuel consumers — mechanism and limits - Budgetary transfer to SONARA to cover fuel subsidy equals the difference between retail price applied and the price needed to keep SONARA’s net result on domestic operations at zero for the previous month, times volumes sold domestically. - Calculated jointly by SONARA and CSPH and paid during month (t+1) following the reference month (t). - Transfer caps: - Will not exceed CFAF 16.6 billion in the fourth quarter of 2005, - CFAF 7.5 billion in the first quarter of 2006, - CFAF 4.3 in the second quarter of 2006. - Transfer to be made in October 2005: CFAF 8.2 billion (includes amount covering January-August losses and a preliminary estimate for September 2005). - If quarterly budget transfer does not suffice, Government will revise upward monthly retail prices to prevent losses on domestic operations at SONARA. ### Contingency mechanism for adjustment of targets — non-oil primary balance - The floor on the non-oil primary balance will be adjusted: - upward by the amount of lower-than-programmed receipt of budget support grants (excluding in the fourth quarter of 2005 the EU-funded grants earmarked to domestic debt payments for an amount of CFAF 12.9 billion); - upward by the amount of lower-than-programmed transfers made to SONARA; - downward by the amount of restructuring expenditure effectively spent up to limits of: - CFAF 50 billion during July-December 2005, - CFAF 10 billion during January-March 2006, - CFAF 40 billion during April-June 2006, - with the exception of funds saved in a specific BEAC account on account of restructuring expenditures not spent within the 2005 budgetary allocation (modalities arranged in consultation with the Fund). ### Contingency mechanism for adjustment of targets — net bank credit ceiling - The ceiling on net bank credit to the Government will be adjusted: - downward up to the amount of higher-than-programmed oil revenue and privatization proceeds that are not used to reduce domestic debt; - upward/downward by the amount of lower/higher-than-programmed external budget support (grants and loans) and by half of the amount of lower/higher debt-than-programmed relief; the revision upward will be capped to a cumulative amount of CFAF 15 billion; - downward by the amount of lower-than-programmed restructuring expenditure; - downward by the amount of lower-than-programmed payments of domestic debt (as defined above). ### Allocation of higher-than-programmed oil revenue and privatization proceeds - Higher-than-programmed oil revenue and all privatization proceeds will be allocated to repayments of domestic debt (as defined above). - Repayments to be made within one month following the end of the respective quarter. ### 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 2005 GDP, the Government will consult with IMF staff to formulate corrective policies. ### Program exchange rates (conversion rates by quarter) - Third quarter of 2005: US$1.4525 per SDR and CFAF 542.79 per U.S. dollar. - Fourth quarter of 2005: US$1.4540 per SDR and CFAF 541.55 per U.S. dollar. - First quarter of 2006: US$1.4544 per SDR and CFAF 541.44 per U.S. dollar. - Second quarter of 2006: US$1.4554 per SDR and CFAF 541.13 per U.S. dollar. - Liabilities to the IMF included in net claims on the government by the banking system will be valued at these exchange rates. - Any deviation from these exchange rates will lead to a full upward or downward adjustment, as appropriate, of the value of the stock of IMF liabilities at the BEAC and to a similar adjustment of the ceiling on net bank claims on the Government by the banking system. ### Structural performance criteria - 2006 budget law performance criterion observed if: - budget law is adopted by end-December 2005; - consistent with the fiscal program for 2006; - reflects priorities defined in the PRSP. - CAMAIR performance criterion observed if by end-January 2006 the tender is issued inviting companies to bid for a new privately-owned airline company equipped with all the landing rights currently held by CAMAIR; tender formulated after consulting with the IFC. ### Structural benchmarks (selected) - Closure of Government accounts benchmark: observed if by end-December 2005 all Government accounts in commercial banks are closed and balances transferred to the Treasury, with specified exceptions for sovereign entities, CAA accounts, project-related accounts, and court clerks (comptes de greffe). - TABORD benchmark: observed if by the 25th of the month following reporting month a TABORD is sent to the IMF that exhibits consistency between: - the treasury balance and the TABORD on a cash basis; - the TABORD on a cash basis and on a commitment basis (presented by nature of spending and excluding budget offices outside headquarters); - the TABORD on a commitment basis and on a functional basis (including presentation both with and without the wage bill). - SNEC public-private partnership benchmark: observed if by end-July 2006 the tender is launched, consistent with international standards, inviting companies to bid for management of SNEC; tender formulated after consulting privatization advisor and World Bank consulted prior to publication. - CAMPOST restructuring benchmark: observed if by end-February 2006 the management team is recruited based on TORs agreed with the World Bank and the Fund, and by end-June 2006 preparatory work to establish a financial services subsidiary is completed (including submission to COBAC of full documentation and statutes). - CAMTEL privatization benchmark: observed if: - telecommunication sector strategy adopted by relevant interministerial committee by end-October 2005; - privatization strategy adopted by relevant interministerial committee by end-December 2005; - tender published by end-June 2006 inviting bids for sale of at least 51 percent to a majority private investor; strategies and tender formulated in consultation with privatization advisor and World Bank. - Fuel price adjustment and SONARA transfers benchmark: observed if Government raises retail fuel prices for each of the three fuel products super, petrole, gasoil and makes transfer payments to SONARA as described in MEFP paragraph 38 and paragraph 18 above; fuel price increases implemented on the first day of the month. - Microfinance licensing benchmark: observed if: - decisions on granting of a license transmitted to all microfinance institutions by end-October 2005; - all institutions refused a license closed by end-December 2005; - list of all existing microfinance institutions and licensing status at end-October 2005 and list of all institutions closed by end-December received by the IMF. - National Governance Plan (NPG) benchmark: observed if by end-November 2005 an updated NPG, including a priority action plan, has been officially adopted by the authorities and transmitted to the IMF. *Source: IMF staff report (appendix I, sections on definitions, fiscal modalities, contingency mechanism, exchange rates, and performance criteria).* ### 35. The Cameroonian authorities will send data, as per the attached Table 1, to the IMF ### _cr05413 - 35. The Cameroonian authorities will send data, as per the attached Table 1, to the IMF ### Data-reporting commitments and procedures - The Cameroonian authorities will send data, as per the attached Table 1, to the IMF within the time limits set out in that table. - The authorities will supply the IMF, on a timely basis, with any additional information that the IMF requests for the purpose of monitoring the implementation of the program. ### Table 1 — Key data-reporting categories, frequencies, and target dates - Financial and monetary data - Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey: Monthly — 10th of the month for the previous month’s data for the preliminary series; 25th of the month for the previous month’s data for the final series. - Net credit by the banking system to the central Government: Monthly — 10th of the month for the 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 and C2D accounts opened at the BEAC, including credit and debit: Monthly — 10th of the month for the previous month’s data. - Status report on all Government deposits at the BEAC: Monthly — 10th of the month for the previous month’s data. - Changes to domestic and custom taxes (loi de finance and others): Irregular — Two weeks after the change has been made. - Government financial operations table (TOFE) on a cash basis, including revenue, expenditure, financing, and domestic debt payments (including settlement of domestic arrears): Monthly — Three weeks after the end of the month concerned for the preliminary series; Eight weeks after the end of the month for the final series. - Government financial operations table on a commitment basis (services centraux) consistent with the TOFE on a cash basis: Monthly — Three weeks after the end of the month concerned for the preliminary series; Eight weeks after the end of the month. - Treasury balances of a given month, including table on expenditure paid but not yet committed (dépenses payées mais non ordonnancées) and the table reconciling the Treasury account at the BEAC and the Treasury balance: Monthly — Three weeks after the end of the month; Eight weeks after the end of the month. - Report on the implementation of the domestic debt settlement plan: Monthly — 25th of the month for the previous month’s data. - Table on budgetary execution on a functional basis consistent with the table on Government financial operations on a commitment basis: Monthly — Eight weeks after the end of the month for the final series. - VAT refunds’ balances (both refunds requested and refunds paid): Monthly — 25th of the month for the previous month’s data. - Investment budget execution report: Quarterly — Two months after the end of month concerned. - HIPC and C2D spending (engagements, ordonnancements, paiements): Monthly — 25th of the month for the previous month’s data. - Public companies and fuel/fuel-pricing data - SNH operations (monthly): Monthly — 25th of the month for the previous month’s data. Required details include export volumes, exchange rates, prices, values, operating costs (including a detailed list of autres charges), autres engagements, transferable balance, interventions directes, and balance transferred (cash basis), dividends received, and dividends transferred. - Payments of bills to public enterprises (SNEC, CAMTEL, AES SONEL, CAMRAIL, and SONARA): Monthly — 20th of the month for the previous month’s data. - Payments made to or on account of CAMAIR (for bills, subsidies, loans, arrears ...): Monthly — 20th of the month for the previous month’s data. - International oil prices, domestic fuel prices and their components, budgetary transfers to SONARA, and SONARA net financial result (Table 2 format): Monthly — 20th of the month for the previous month’s data. - Table 2 (Petroleum Products Pricing) — detailed pricing structure and volumes, with fields such as parite import/prix de produit (in USD per liter), Taux de change (CFAF/USD), prix sortie SONARA, prix de detail, volume sold (in million liters), SONARA net result before/after budgetary transfer (in CFAF billion). - Real sector data - Consumer price index, Yaoundé and Douala: Monthly — 20th of the month for previous month’s data. - National consumer price index: Quarterly — Six weeks after the end of the quarter concerned. - Index of industrial production: Quarterly — Two months after the end of the preceding quarter. - National accounts: - Flash series: Annual — Twelve months after the end of the year. - Provisional series: Annual — Eighteen months after the end of the year. - Final series: Annual — Twenty four months after the end of the year. - Balance of payments data - Imports by use and major export products, trade balance: Monthly — 25th of the month for the previous month. - Preliminary price and volume indices of imports and of exports: Quarterly — One month after the end of the quarter concerned. - Final price and volume indices of imports and exports: Quarterly — Three months after the end of the quarter concerned. - Balance of payments: Annual — Six months after the end of the year for the preliminary series; Twelve months after the end of the year for the final series. - External debt data - Stock of outstanding debt and arrears: At least annual — At the beginning of the year; updates as needed. - Debt service due before debt relief: Monthly — 25th of the month for the previous month’s data. - Debt service due after debt relief: Monthly — 25th of the month for the previous quarter’s data. - Debt service paid: Monthly — 25th of the month for the previous quarter’s data. - New grants and loans received, specified by creditor including their terms and conditions and project: Monthly — 25th of the month for the previous quarter’s data. - Grants and loans projected for the next eight quarters: Quarterly — 25th of the month for the previous quarter’s data. - Regular and additional bilateral HIPC assistance received and projected for the next eight quarters: Quarterly — 25th of the month for the previous quarter’s data. ### Debt Sustainability Analysis (DSA) — Methodology and assumptions - Methodology - DSA prepared jointly by Fund and Bank staff in accordance with the standardized methodology for low-income countries; based on the framework approved by the Executive Boards of the Fund and the World Bank in April 2005. - Uses non-reconciled debt data, a single discount rate, WEO exchange rate projections, current values for denominators in all debt ratios, and policy-dependent indicative thresholds. - Baseline uses scenario of debt relief associated with the HIPC completion point. - Cameroon classified as a medium performer in terms of policies and institutions per the World Bank’s CPIA index. - DSA consists of two parts—external and fiscal. External DSA limited to external debt of the central government. Fiscal DSA assesses sustainability of total debt—external and domestic—incurred by the public sector, including state enterprise debt. - Key macroeconomic and policy assumptions - Real GDP growth of 2.8 percent in 2005, gradually accelerating to 4-5 percent in the medium term. - GDP deflator (inflation) of below 2 percent. - Average export growth rate of 5 percent in 2005-10. - Primary fiscal surplus of 3 percent of GDP in 2005, gradually declining to a deficit of 1 percent by 2010. - External current account deficit of 3 percent of GDP, on average, in the medium term. - New borrowing on the order of 2 percent of GDP during the forecast period. - NPV of domestic debt equal to its face value. - Continued restraint on non-concessional external borrowing (grant element below 35 percent) in 2005-2010; thereafter a shift away from concessional new borrowing consistent with Cameroon’s graduation from financing on highly concessional IDA terms. - Assumptions on HIPC debt relief delivery - Before the completion point: After approval of a new PRGF arrangement, Cameroon would request the Paris Club to extend interim relief; in 2005:Q4 Cameroon would be granted a Paris Club flow rescheduling on Cologne terms. - At the completion point: Completion point assumed in the second quarter of 2006; Paris Club creditors would provide full share of HIPC assistance in the form of a stock operation on Cologne terms; non-Paris Club and commercial creditors would provide comparable treatment. - Paris Club creditors assumed to deliver additional bilateral debt relief according to standard practices. - Assumptions related to IDA graduation - Under the baseline, Cameroon is projected to graduate from IDA in 2010; starting from that year new lending on concessional IDA terms will be gradually phased out, and similar action assumed by other providers of concessional financing. ### Recent developments in debt data and exposures - External debt stock and composition (end-2004) - Face value of external debt estimated at US$7 billion (44 percent of GDP). - Composition: Over 29 percent multilateral (including 27 percent owed to the World Bank, IMF, and AfDB), 67 percent bilateral (mainly to Paris Club creditors), and the rest commercial (London Club). - Multilateral and bilateral relief and interim assistance - Most multilateral creditors provided HIPC interim assistance (World Bank, IMF, AfDB, OPEC Fund). IDA and AfDB interim relief ended in March 2003 and October 2003, respectively. IMF provided interim assistance through 2004; no interim assistance in 2005 in the absence of a PRGF arrangement. - After the decision point (October 2000), financing assurances of HIPC debt relief received from official creditors holding more than 98 percent of bilateral debt. - In 2005, Germany, Italy, and the United Kingdom provided debt relief beyond the HIPC Initiative, canceling a total of US$15.8 million. - Outside the Paris Club, Cameroon signed a partial debt cancellation agreement with China and a stock of debt rescheduling agreement on ODA terms with Kuwait. - Commercial creditor issues and litigation - Some commercial creditor claims remained in arrears and subject to litigation. - August 2003 IDA-supported buy-back operation at 14.5 percent of face value resulted in debt cancellation of US$870 million; however, 22 commercial creditors (about 20 percent, US$240 million in claims, including US$78 million principal) did not accept the buy-back deal. - Litigation events: Winslow recovered US$50 million from SNH deposits in France; Del Favero froze the Cameroonian embassy account in London; other creditors pursued legal recourse and five others formally requested repayment. - Domestic debt audit and implications - Preliminary domestic debt audit results as of end-2004 increased recognized domestic debt to CFAF 1.4 billion (17 percent of GDP), i.e. by 5 percent of GDP compared with the earlier estimate. - The audit covered only suppliers’ bills already validated by the Treasury; other government liabilities to suppliers recorded only by line ministries were not covered. - Authorities prepared a medium-term repayment plan prioritizing payments that reduce poverty (arrears on salaries and pensions) and improve business confidence (arrears to suppliers). ### External debt sustainability findings (baseline with full delivery of HIPC assistance by estimated completion point in 2006:Q2) - Overall conclusion - Under the baseline scenario that assumes full delivery of HIPC assistance after an estimated completion point in the second quarter of 2006, Cameroon’s external debt burden indicators do not signal a significant risk of debt distress. After HIPC assistance and additional bilateral debt relief from Paris Club creditors, all debt burden indicators are substantially below the relevant policy-dependent thresholds. - Selected indicators and trajectories (percent and year-specific values preserved) - NPV of PPG external debt (In percent of GDP; threshold=40) - After past debt relief: 2004: 35.8; 2005: 31.1; 2006: 27.5; 2007: 24.6; 2008: 22.1; 2009: 19.7; 2010: 18.0 - With new anticipated debt relief: 2004: 14.6; 2005: 13.0; 2006: 12.9; 2007: 12.6; 2008: 12.3; 2009: 12.0; 2010: 11.8 - NPV of PPG external debt (In percent of exports; threshold=150) - After past debt relief: 2004: 153.3; 2005: 127.8; 2006: 106.7; 2007: 104.5; 2008: 98.1; 2009: 87.9; 2010: 80.0 - With new anticipated debt relief: 2004: 62.3; 2005: 53.5; 2006: 49.8; 2007: 53.5; 2008: 54.6; 2009: 53.8; 2010: 52.9 - Debt service (In percent of exports; threshold=20) - After past debt relief: 2004: 23.0; 2005: 20.2; 2006: 17.1; 2007: 15.2; 2008: 13.6; 2009: 12.3; 2010: 9.5 - With new anticipated debt relief: 2004: 8.6; 2005: 7.1; 2006: 3.6; 2007: 4.0; 2008: 4.2; 2009: 4.0; 2010: 3.6 - Projected cash payments for 2005 (effectively paid) noted as: 1/ 7.0; 6.7 (table note: 1/ Projected cash payments for 2005). - Interpretation - With anticipated debt relief, the NPV debt-to-GDP and NPV debt-to-exports ratios decline sharply relative to the “after past debt relief” scenario, and cash debt service to exports falls well below policy-dependent thresholds. *Source: Cameroonian authorities and IMF/World Bank staff analysis as presented in the attached Table 1 and Appendix II of the document.* ### 14. The sensitivity scenarios reveal that Cameroon’s debt situation of fairly resilient ### _cr05413 - 14. The sensitivity scenarios reveal that Cameroon’s debt situation of fairly resilient ### Sensitivity scenarios and shocks - New borrowing in 2007-20 assumed to be contracted in less concessional terms than under the baseline leads to rapid deterioration of all debt ratios, although they remain below the indicative thresholds. - A hypothetical one time 30 percent nominal depreciation relative to the baseline in 2006 of the CFAF vis-à-vis the US dollar leads to a deterioration of debt burden indicators. - A shock on exports also leads to a deterioration of debt burden indicators. - Stress testing reveals an upward trend for debt indicators under adverse scenarios but does not result in a breach of the thresholds during the projection period. ### Fiscal debt sustainability - External public debt indicators indicate a low risk of debt distress for the time after the Completion Point. - Inclusion of domestic debt doubles the NPV of debt-to-GDP ratio, but projected repayments reduce this over time. - Projected medium-term path of key NPV and service indicators: - NPV of debt-to-GDP ratio: declines from 32 to 18 percent from 2004 to 2010. - NPV of debt-to-revenue ratio: decreases from 207 to 110 percent from 2004 to 2010. - Debt service-to-revenue ratio: declines from 15 to 6 percent from 2004 to 2010. - Alternative scenarios and stress tests: - Increase of borrowing to 10 percent of GDP after the completion point in 2007-08 leads to significant deterioration: debt-to-GDP ratio rises to over 35 percent and only slowly comes down by 2020. - Under that borrowing scenario, the NPV of debt-to-revenue ratio remains above 190 percent for the rest of the projection period. - Permanently lower GDP growth assumed at one standard deviation below the baseline is an adverse scenario. - A 30 percent real depreciation is an important short-term negative shock; however, its impact does not appear protracted and no exploding debt path is expected under any scenario. ### Conclusions and policy implications - After full delivery of HIPC debt relief and bilateral debt relief beyond HIPC at the completion point, Cameroon faces a low risk of debt distress, despite an upward trend of debt dynamics under less favorable scenarios. - All external debt indicators remain below the relevant country-specific debt burden thresholds. - The sustainability of Cameroon’s long-term debt hinges on continued strong macroeconomic policies, including: - An average real GDP growth of at least 4-5 percent annually. - Low inflation. - Strong tax efforts. - Primary fiscal surpluses. - Further advancement on governance, a strong commitment to reforms, and prudent policies are key for Cameroon to maintain its debt burden within reasonable bounds. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05413.pdf* ### 19. The stress tests indicate that a prudent borrowing strategy will be essential for ### 19. The stress tests indicate that a prudent borrowing strategy will be essential for maintaining both external and fiscal debt sustainability ### Summary of policy recommendations and principles - New borrowing should not exceed the average nominal GDP growth rate in dollar terms to help maintain the debt-to-GDP ratios at sustainable levels. - Continued restraint on nonconcessional borrowing after the completion point until Cameroon graduates from concessional windows of financing; continued concessional borrowing will help secure the needed time for intensive domestic investment in priority areas using the resources released by reduced debt service payments. - Gradual repayment of domestic debt while securitizing and regularly servicing the remaining part. - Ensure the effective use of borrowed resources on commercially viable projects and on poverty-reducing expenditure. - Periodic updates as part of the budgetary cycle of the forward-looking DSA to inform decisions on new loans and their implications for debt sustainability. ### Key stress-test scenarios and messages - Baseline scenario: includes debt relief associated with the completion point. - Alternative scenario: no debt relief associated with the completion point. - Scenario of nonconcessional new borrowing (illustrated in figures). - A scenario assuming a 10 percent of GDP increase in debt-creating flows in 2006-07 is presented. - Bound tests include shocks such as: - Real GDP growth at historical average minus one standard deviation in 2006-07. - Export value growth at historical average minus one standard deviation in 2006-07. - U.S. dollar GDP deflator at historical average minus one standard deviation in 2006-07. - Net non-debt creating flows at historical average minus one standard deviation in 2006-07. - Combination of B1-B4 using one-half standard deviation shocks. - One time 30 percent nominal depreciation relative to the baseline in 2006. ### Selected quantitative indicators from DSA (preserve source values) - NPV of PPG external debt (percent of GDP): - 2004: 14.6 - 2005: 13.0 - 2006: 12.9 - 2007: 12.6 - 2008: 12.3 - 2009: 12.0 - 2010: 11.8 - 2015: 14.3 - 2020: 17.0 - NPV of external public debt-to-exports ratio (percent): - 2004: 62.3 - 2005: 53.5 - 2006: 49.8 - 2007: 53.5 - 2008: 54.6 - 2009: 53.8 - 2010: 52.9 - 2015: 66.9 - 2020: 79.5 - PPG debt service-to-exports ratio (in percent): - 2004: 8.6 - 2005: 7.1 - 2006: 3.6 - 2007: 4.0 - 2008: 4.2 - 2009: 4.0 - 2010: 3.6 - 2015: 3.3 - 2020: 4.0 - Public sector debt (percent of GDP, selected years): - 2004: 61.0 - 2005: 55.3 - 2006: 51.0 - 2007: 48.0 - 2008: 45.3 - 2009: 43.3 - 2010: 41.6 - 2015: 35.6 - 2020: 32.3 - Change in public sector debt (percent of GDP): - 2005: -5.7 - 2006: -4.2 - 2007: -3.0 - 2008: -2.7 - 2009: -2.0 - 2010: -1.8 - 2015: -0.7 - 2020: -0.8 - Identified debt-creating flows (percent of GDP): -10.4 (2004), -7.2 (2005), -7.1 (2006), -5.1 (2007), -4.5 (2008), -3.7 (2009), -2.8 (2010), -0.2 (2015), 0.6 (2020). - Primary deficit (percent of GDP, selected): -0.2 (2004), -3.1 (2005), 1.9 (2006), -2.7 (2007), -1.9 (2008), -1.3 (2009), -0.5 (2010), 0.3 (2015), 0.8 (2020). - Revenue and grants (percent of GDP): - 2004: 15.3 - 2005: 17.3 - 2006: 18.2 - 2007: 17.2 - 2008: 16.6 - 2009: 16.3 - 2010: 16.1 - 2015: 15.2 - 2020: 14.6 - NPV of public sector debt-to-revenue ratio (in percent): - 2004: 206.7 - 2005: 156.9 - 2006: 129.3 - 2007: 122.9 - 2008: 116.4 - 2009: 113.0 - 2010: 110.3 - 2015: 118.9 - 2020: 133.1 - Debt service-to-revenue ratio (in percent): - 2004: 15.2 - 2005: 11.4 - 2006: 6.6 - 2007: 7.1 - 2008: 7.4 - 2009: 6.9 - 2010: 6.3 - 2015: 5.7 - 2020: 6.9 - Gross financing need (percent of GDP): - 2004: 2.3 - 2005: -0.3 - 2006: -0.3 - 2007: 0.0 - 2008: 0.9 - 2009: 1.5 - 2010: 1.9 - 2015: 2.8 - 2020: 3.5 - Nominal GDP (billions of U.S. dollars) — memorandum item: - 2004: 15.9 - 2005: 16.6 - 2006: 17.4 - 2007: 18.2 - 2008: 19.5 - 2009: 20.8 - 2010: 22.4 - 2015: 32.0 - 2020: 43.8 ### Macroeconomic assumptions used in projections (selected) - Real GDP growth in U.S. dollar terms (in percent): - Historical/sample: 3.5 (2004), 4.2 (2005) - Projections: 2.8 (2006), 4.2 (2007), 3.7 (2008), 4.9 (2009), 5.2 (2010), 5.6 (2015), 4.4 (2020) - GDP deflator in U.S. dollar terms (change in percent): 12.4 (2004), 3.2 (2005), 2.1 (2006), 0.1 (2007), 1.1 (2008), 2.2 (2009), 1.5 (2010), 1.9 (2015), 1.5 (2020). - Effective interest rate (percent): 1.4 (2004), 5.4 (2005), 1.1 (2006), 1.3 (2007), 1.8 (2008), 1.8 (2009), 1.7 (2010), 1.7 (2015), 1.6 (2020). - Growth of exports of G&S (U.S. dollar terms, in percent): 13.6 (2004), 6.4 (2005), 9.2 (2006), 10.8 (2007), -4.3 (2008), 1.7 (2009), 6.1 (2010), 8.0 (2015), 5.3 (2020). - Growth of imports of G&S (U.S. dollar terms, in percent): 15.4 (2004), 7.1 (2005), 7.1 (2006), 5.3 (2007), 4.1 (2008), 8.3 (2009), 6.4 (2010), 7.0 (2015), 6.4 (2020). - Grant element of new public sector borrowing (in percent): 40.8, 40.9, 40.9, 41.0, 41.4, 41.4, 41.1, 34.7, 34.7, 34.7 (presented across projection years). ### Sensitivity analysis highlights (selected thresholds and outcomes) - Indicative sustainability thresholds shown in figures: - NPV of debt-to-GDP ratio threshold = 40. - NPV of debt-to-exports ratio threshold = 150. - Debt service ratio threshold = 20. - For the debt-to-exports ratio (threshold=150), baseline projections show values such as 53, 50, 53, 55, 54, 53, 52, 66, 80 (selected sequence across years as presented in table). - Debt-service ratio (threshold=20) baseline shows values such as 7, 4, 4, 4, 4, 4, 3, 4 (selected sequence as presented in table). ### Country program and institutional context (selected factual items) - HIPC Initiative: - 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. - Exchange arrangements: - CFA franc pegged to the euro at CFAF 655.957 per euro. - Local currency equivalent: CFAF 789.56 = SDR 1, as of September 30, 2005. - Fund relations and programs (as of dates cited in document): - PRGF arrangements outstanding: 199.38 (SDR million) = 107.37 percent of quota. - Quota: 185.70 (SDR million) = 100.00 percent of quota. - Fund holdings of currency: 185.01 (SDR million) = 99.63 percent of quota. - Reserve position in Fund: 0.69 (SDR million) = 0.37 percent of quota. - Safeguards assessment (BEAC): - Assessment completed on August 30, 2004; main recommendations include: prepare financial statements in full accordance with an internationally recognized accounting framework (initially the ECB guidelines); publication of full financial statements together with auditor’s report starting with the 2003 financial statements; formulation of Board-approved formal guidelines for exceptional advances; annual review by BEAC internal audit of program data reporting of member countries to the IMF; implement risk-based audit approach and finalize internal audit charter; systematic follow-up of recommendations with reporting to Audit Committee and BEAC Governor. - Authorities agreed in September 2005 to fully implement the Cameroon-specific recommendations of the 2004 Safeguards Assessments. - Article IV consultation: - Last Article IV consultation concluded by the Executive Board on April 22, 2005. - FSAP/ROSC: - FSSA report dated May 24, 2000 (mission February 29–March 14, 2000). - ROSC on fiscal transparency and transparency of monetary and financial policies issued June 16, 2000. - Data module of the ROSC issued August 24, 2001 (CR/01/150). - Technical assistance (selected recent entries): - September 2005: Placement of an FAD regional tax advisor. - July 2005: FAD mission on tax policy. - May 2005: FAD mission on tax and customs administration. - December 2004: STA mission on the compilation of national accounts and follow-up by FAD expert on public expenditure management. - Resident Representative: - Post maintained in Yaoundé continuously since 1989. - Mr. Keller’s assignment ended on October 1, 2004. - New Resident Representative, Ms. Kabedi-Mbuyi, took up her post in July 2005. *Source: IMF staff projections, simulations, and appended country-specific material in the provided document.* ### 1. The government’s strategy for economic growth and poverty reduction, as described ### _cr05413 - 1. The government’s strategy for economic growth and poverty reduction, as described ### Government strategy and PRSP implementation - PRSP communicated to the World Bank and the IMF in April 2003 is articulated along seven pillars (see IDA/SecM2003–0434). - A PRSP progress report completed in 2004 showed mixed progress toward development outcomes. - Key shortcoming highlighted: budget allocation and execution needs to be better aligned with PRSP priorities. ### World Bank lending and strategy (CAS FY04–06) - CAS presented to the Board on September 11, 2003; two main axes: - (i) strengthen the institutional framework for improved pro-poor economic management and service delivery; - (ii) support private sector development, leading to diversification of the economy and growth. - Strategy to follow a “results-based” framework with expected outcomes during the next CAS period: - 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 through preventative, curative, or mitigating measures, while the national capacity to respond to the epidemic is strengthened; - reduced burden (cost, time, etc.) on private sector companies arising from regulatory, administrative, and infrastructure constraints. - Specific indicators being identified to measure progress (examples given in CAS): increase in the percentage of rural communities in targeted provinces with access to basic socioeconomic services; decrease in the percentage of private firms rating the specific constraints as major or severe. ### SACIII and recent Bank support - SACIII supported politically complex reforms in transport, financial and forestry reforms and privatization; closed by end-March 2004. - Following Board approval on a no objection basis on March 16, 2004, the two remaining privatization and transport tranches were released. - Outcome of SACIII was rated satisfactory as part of an ex-post assessment; confirmed by an independent evaluation of the Operations Evaluation Department (OED). - Planned Bank analytical work and policy dialogue to focus on: - monitoring socioeconomic developments, including through the HIPC Initiative process and PRSP implementation, reviews of trade prospects (especially with CEMAC countries and Nigeria), and action plans for the MDGs in health and education; - conducting an investment climate assessment to support PRSP pillar on diversifying the economy; - strengthening dialogue and action on governance via a multidonor platform on public finance management, undertaking a Public Expenditure Management and Financial Accountability Review (PEMFAR), and supporting key reforms in public procurement through a Country Procurement Assessment Review; - a Poverty Assessment to measure progress. ### Bank Group portfolio (As of September 13, 2005) - IDA Total (US$ m): 192.6 - Sectoral Composition (%) listed: - Transport: 40 - Community Dev: 11 - Public Private Partnership: 12 - Environment Capacity Building: 2 - HIV/AIDS Multi-Sector: 26 - Education: 9 - Undisbursed IDA amount (US$ mil): 110.3 - IFC Total (US$ mil): 150.9 - IFC sector commitments listed (US$ mil): - Energy: 86.8 - Information: 6.4 - Textiles: 2.7 - Wholesale & Retail: 2.4 - Other: 1.7 - MIGA: No investment guarantees issued. - As of September 2005, World Bank portfolio comprises seven active projects for a total commitment of US$192.6 million of which US$110.3 million are undisbursed. - Project areas include education, transport, environment, HIV/AIDS, local development, and public-private partnerships. - Implementation of all projects but one was rated satisfactory. - World Bank Country Office organizes regular meetings with authorities to review progress on portfolio implementation to improve execution rate. ### IMF–World Bank collaboration and division of responsibilities - Joint collaboration areas: - monitoring of HIPC Initiative completion point triggers and the PRSP process; - analyses and reforms in public financial management; - other governance reforms, including customs, legal, and judicial systems. - Table 2 (Bank/Fund Collaboration) describes areas and specific support; areas highlighted include: - HIPC completion point reforms: Regular Bank and Fund 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. ### Areas where the Fund takes the lead - (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; - (v) treasury procedures. - Bank staff participate in some meetings of Fund missions with the authorities in these areas. ### Areas where the World Bank takes the lead - (i) institutional and human capacity building for economic management, including formulation of sectoral strategies and medium-term expenditure frameworks, analysis of poverty and sources of growth to support PRSP, and development of a macroeconomic model for the short- and medium-term macroeconomic framework; - (ii) specific sector advice in areas with active lending operations (especially social sectors, infrastructure, agriculture, and forestry); - (iii) support and monitoring of implementation of the privatization program. - Recent Bank products and activities cited: - jointly produced with the GOC and the AFD an Education Status Report; - Urban Sector Review and a Development Policy Review in June 2004; - in FY05, a Poverty Assessment and a Country Procurement Assessment Report; - initiated, in the context of the multi-donor platform on Public Finance Management, preparation of a Public Expenditure Management and Financial Accountability Review (PEMFAR); - an investment climate assessment, combined with a ROSC on Auditing and Accounting, expected to be conducted in FY06. *Source: _cr05413 - 1. The government’s strategy for economic growth and poverty reduction, as described* ### 9. Both Bank and Fund have responsibility for policy advice on (i) budgetary ### _cr05413 - 9. Both Bank and Fund have responsibility for policy advice on (i) budgetary ### Institutional responsibilities and joint activities - Both Bank and Fund share responsibility for policy advice on: - budgetary procedures, government expenditure management systems, and expenditure execution, including tracking of poverty-reducing expenditures; - the functioning of internal and external budget control institutions; - reform of the customs; - trade policy; - financial system reform; - governance issues. - The two institutions jointly support and monitor the HIPC Initiative and PRSP process. - A regional FSAP for the CEMAC region (to which Cameroon belongs) is planned to be conducted jointly in the course of FY05. - Questions may be addressed to Florence Charlier (458-8437) or Luc Lecuit (473-4409). ### Statistical issues — overview and data quality - Recent initiatives have targeted improvement of economic and financial data, particularly the national accounts. - Data provision to the Fund remains adequate for surveillance purposes but significant scope for improvement exists in coverage and timeliness. - Cameroon participates in the General Data Dissemination System (GDDS); metadata on the DSBB have not been updated since November 2001. - The National Institute of Statistics (INS) is the principal data provider; unclear INS coordinating role has hampered implementation of statistical standards and classifications across government. - Recent INS focus on social statistics may have weakened production of standard economic statistics. ### National accounts - INS compiled national accounts using 1968 SNA concepts and compiled a revised set based on the 1993 SNA. - STA missions (October 2003 and December 2004) found methodology and analytical tools generally appropriate. - After resolving shortcomings concerning oil GDP, authorities adopted the 1993 SNA accounts and started publishing them in July 2005. - Remaining weaknesses: coverage and timeliness; enterprise data collection framework limits assessment of industrial structure; production index requires overhaul, update, and integration with annual national accounts components. - Absence of labor market indicators and deflators implies likely need for technical assistance. ### Consumer prices - Authorities plan to revise the monthly CPI by extending the underlying survey to rural areas. - Current CPI compiled from surveys in Yaoundé, Douala, Bafoussam, Bamenda and Garoua. - Authorities intend to contribute to a regional CPI in the CEMAC area with a larger basket geographically limited to Yaoundé and Douala. ### Sociodemographic indicators - 2001 household survey (ECAM II) used to update Cameroon’s poverty profile. - Education map (carte scolaire) and healthcare map (carte sanitaire) updates begun (previously 2000 and 2001). - A 2004 update of the Health and Demographic Survey published. - Preparatory work for a new household survey initiated; survey to be administered 2005. ### Government finance statistics — improvements and remaining deficiencies - Recent substantial improvements: - Budget execution data on a cash basis consistent with Treasury data now available monthly within three weeks. - Avoidance of accumulation of new domestic payment arrears and strengthened debt management. - Expenditure data on a commitment basis consistent with cash spending prepared; progress on functional classification of spending. - Better utilization of SIGEFI (integrated financial management system) key to improvements. - National oil company published audited financial statements for the first time. - Persisting deficiencies: - (i) insufficient information on local governments’ budgets; - (ii) lack of comprehensive data on cross-liabilities in the public sector and debts of state-owned enterprises (monitoring on a continuous basis still weak); - (iii) lack of financial data on most state-owned enterprises. - Planned actions: - Strengthen functional presentation of expenditure data on a commitment basis; - Implement the EITI initiative to enhance oil revenue transparency; - Use recent audit of government domestic debt to strengthen debt data; - Collect data on the financial situation of the largest 20 public enterprises. ### Monetary and financial statistics - Monetary statistics are reported to the Fund by BEAC monthly, with delays up to two months. - Coverage is comprehensive but quality may be affected by large cross-border currency movements among CEMAC member countries: - About three quarters of currency circulating in Cameroon is issued nationally; - Remaining currency mainly from Chad (8 percent) and Gabon (5 percent); - Almost 90 percent of the currency issued in Cameroon remains within the national territory; - Most of the remaining currency issued circulates in Chad (6 percent). ### External sector statistics - Balance of payments statistics have been traditionally weak and of limited use. - The ministry unit responsible has recently started improving output. - An STA technical assistance mission on balance of payments statistics is planned for early 2006. ### Table of surveillance indicators (as of September 30, 2005) — key dated series - Exchange Rates: latest observation Aug 31, 2005; date received Sep 2, 2005; Frequency: M - International Reserve Assets and Reserve Liabilities of the Monetary Authorities: latest observation Jun 30, 2005; date received July 31, 2005; Frequency: M - Reserve/Base Money: Jun 30, 2005; July 31, 2005; Frequency: M (reported), M (reporting), M (publication) - Broad Money: Jun 30, 2005; July 31, 2005; Frequency: M - Central Bank Balance Sheet: Jun 30, 2005; July 31, 2005; Frequency: M - Consolidated Balance Sheet of the Banking System: Jun 30, 2005; July 31, 2005; Frequency: M - Interest Rates: Jun 30, 2005; July 31, 2005; Frequency: M - Consumer Price Index: Jun 30, 2005; July 31, 2005; Frequency: Q - Revenue, Expenditure, Balance and Composition of Financing – Central Government: Jul 31, 2005; Aug 30, 2005; Frequency: M; Partial data published monthly - Stocks of Central Government and Central Government-Guaranteed Debt: Jun 30, 2005; Aug 30, 2005; Frequency: M - External Current Account Balance: Dec 31, 2003; Aug 30, 2005; Frequency: A - Exports and Imports of Goods and Services: Jun 30, 2005; July 31, 2005; Frequency: M - GDP/GNP: Dec 31, 2003; Jul 31, 2005; Frequency: A ### IMF Board action — PRGF arrangement and financing (Press Release No. 05/236, October 24, 2005) - Executive Board approved a three-year arrangement for Cameroon under the PRGF in an amount equivalent of SDR 18.57 million (about US$26.8 million). - The first disbursement under the arrangement will amount to SDR 2.65 million (about US$3.8 million). - An additional amount equivalent to SDR 5.70 million (about US$8.2 million) in interim assistance under the HIPC Initiative approved to be applied in the remainder of 2005 and through most of 2006. - The last PRGF arrangement with Cameroon was approved in December 2000 and expired in December 2004 after an extension of one year. - A staff-monitored program (SMP) covered the first half of 2005; performance under the SMP to date has been broadly satisfactory. ### Program objectives, performance, and priorities - Recent macro performance through 2004: real growth about 4 percent and low inflation; public finances deteriorated; poverty remained widespread. - Authorities’ medium-term program objectives: - remove impediments to private sector activity, including accelerating restructuring and privatization of loss-making public enterprises; - strengthen fiscal position and increase investment in physical and human capital; - safeguard longer-term fiscal sustainability. - Key macroeconomic objectives for 2005-08: - real GDP growth in the non-oil economy averaging at least 4.4 percent a year during 2005-08; - inflation below 3 percent; - external current account deficit (excluding official transfers) below 5 percent of GDP by 2008. - Fiscal strategy: - ensure availability of resources to cover core expenditure independent of oil revenue or debt relief; - strengthen priority spending while ensuring long-term debt and fiscal sustainability; - improve public financial management, expenditure quality, efficiency, control, and absorptive capacity; - seek to meet HIPC Completion Point conditions to achieve debt sustainability. ### Projections and selected indicators (Table 1: Selected Economic and Financial Indicators, 2003-08) - National income and prices (annual percentage changes unless otherwise indicated) - GDP at constant prices: 2003 Est. 4.1; 2004 Est. 3.5; 2005 2.8; 2006 4.2; 2007 3.7; 2008 4.6 - non-oil GDP: 2003 4.9; 2004 4.7; 2005 3.7; 2006 4.1; 2007 4.7; 2008 5.1 - GDP deflator: 2003 0.3; 2004 2.2; 2005 1.7; 2006 2.9; 2007 0.9; 2008 1.6 - Consumer prices: 2003 0.6; 2004 0.3; 2005 1.3; 2006 1.8; 2007 2.0; 2008 2.0 - Nominal GDP (in billions of CFA francs): 2003 7,917; 2004 8,377; 2005 8,757; 2006 9,395; 2007 9,826; 2008 10,447 - Oil output (in thousands of barrels a day): 2003 98; 2004 89; 2005 82; 2006 88; 2007 78; 2008 74 - External trade - Export volume: 2003 6.9; 2004 1.5; 2005 -5.3; 2006 6.2; 2007 1.3; 2008 3.2 - non-oil sector export volume: 2003 12.3; 2004 5.9; 2005 -3.7; 2006 4.8; 2007 5.0; 2008 5.4 - Import volume: 2003 -0.6; 2004 9.4; 2005 1.0; 2006 2.8; 2007 3.0; 2008 3.2 - Average oil export price (U.S. dollars per barrel): 2003 27.3; 2004 34.9; 2005 45.3; 2006 48.0; 2007 43.3; 2008 42.0 - Terms of trade: 2003 -0.8; 2004 -1.3; 2005 9.0; 2006 4.9; 2007 -11.1; 2008 -7.2 - Money and credit (end of period) - Broad money (M2): 2003 -0.9; 2004 7.3; 2005 4.7; 2006 9.0; 2007 10.9; 2008 9.0 - Velocity (GDP/average M2): 2003 5.8; 2004 5.8; 2005 5.9; 2006 6.2; 2007 5.8; 2008 5.7 - Discount rate (end of period; in percent): 2003 6.0; 2004 6.0 - In percent of GDP - Gross national savings: 2003 15.4; 2004 16.2; 2005 17.4; 2006 19.6; 2007 17.9; 2008 16.7 - Gross domestic investment: 2003 17.5; 2004 19.2; 2005 19.8; 2006 20.7; 2007 21.2; 2008 21.6 - Central government operations (in percent of GDP) - Total revenue (excl. grants): 2003 16.1; 2004 15.1; 2005 16.9; 2006 17.8; 2007 17.1; 2008 16.6 - Oil revenue: 2003 4.1; 2004 3.9; 2005 4.5; 2006 5.5; 2007 4.4; 2008 3.7 - Non-oil revenue: 2003 12.0; 2004 11.2; 2005 12.4; 2006 12.3; 2007 12.6; 2008 12.8 - Non-oil revenue (in percent of non-oil GDP): 2003 12.8; 2004 12.0; 2005 13.3; 2006 13.3; 2007 13.4; 2008 13.6 - Total expenditure: 2003 15.4; 2004 15.9; 2005 15.3; 2006 17.0; 2007 16.8; 2008 17.1 - Noninterest total expenditure: 2003 12.4; 2004 13.2; 2005 12.5; 2006 13.4; 2007 14.4; 2008 14.6 - Capital expenditure: 2003 1.9; 2004 1.8; 2005 2.4; 2006 3.7; 2007 3.8; 2008 4.3 - Overall fiscal balance (excl. net changes in arrears), excluding grants: 2003 0.7; 2004 -0.8; 2005 1.6; 2006 0.7; 2007 0.2; 2008 -0.6 - Including grants: 2003 1.2; 2004 -0.7; 2005 2.0; 2006 1.2; 2007 0.3; 2008 -0.5 - Primary balance: 2003 3.4; 2004 1.9; 2005 3.9; 2006 3.4; 2007 2.3; 2008 1.7 - Non-oil primary balance (in percent of non-oil GDP): 2003 -0.3; 2004 -1.5; 2005 0.8; 2006 0.6; 2007 -0.1; 2008 -0.3 - External sector - Current account balance (including grants): 2003 -2.1; 2004 -3.0; 2005 -2.4; 2006 -1.2; 2007 -3.4; 2008 -4.8 - NPV of external debt: 2003 39.0; 2004 35.8; 2005 31.1; 2006 27.5; 2007 24.6; 2008 22.1 - External debt service (in percent of exports of goods and services) - Before debt relief: 2003 26.0; 2004 23.0; 2005 20.2; 2006 17.1; 2007 15.2; 2008 13.6 - After debt relief: 2003 8.7; 2004 7.0; 2005 6.7; 2006 3.6; 2007 4.0; 2008 4.2 ### Executive Director’s statement and authorities’ policy commitments (Statement by Damian Ondo Mañe, October 24, 2005) - Recent performance and SMP: - Real GDP growth projected at 3 percent at end-2005 (from 3.5 percent in 2004) due to poor hydroelectric supply, reduced manufacturing, and weak domestic demand. - Inflation projected at about 1 percent in 2005. - Strong fiscal performance in first half of 2005: revenue collection above program targets; non-oil primary balance improved from a deficit of 2.3 percent of non-oil GDP in 2004 to a surplus of 0.5 percent of annual non-oil GDP in the first half of 2005. - Broad money grew by about 1½ percent in the 12 months to June 2005. - Governance and transparency measures undertaken: - Cameroon active participant in EITI since March 2005. - SNH started publishing quarterly information on oil sector operations. - Anti-money laundering agency (ANIF) created; new public procurement code enacted; Chambre des Comptes established; new penal procedure code promulgated. - Civil servants involved in unauthorized salary transfers suspended and prosecuted. - Budget execution report published monthly starting August 2005. - Fiscal policy and medium-term priorities: - 2006 budget to be tabled by end-October 2005 in line with program; non-oil revenue projected to reach 13 percent of annual non-oil GDP. - Measures: strengthen tax and customs administration; broaden tax base; contain exemptions; align tariffs with CEMAC external tariff; increase taxation of informal sector. - Expenditure focus: increase public investment, control goods and services outlays including wage bill and subsidies; improve efficiency and absorptive capacity; maintain momentum in HIPC spending. - Implement repayment plan of domestic debt established early October 2005. - Structural and sectoral reforms: - Discontinue cash advances by SNH from January 2006; strengthen monthly fiscal reporting. - Extend SIGEFI and SIGIPES (integrated payroll and HR system) to additional ministries by end-2006. - Strengthen the national governance program (PNG); multi-stakeholder EITI committee established and action plan adopted. - Energy sector: least-cost investment plan to be developed by March 2006 to address generation capacity needs by 2008. - Restructuring and privatization timetable highlights: - CAMAIR: invitation for bid by end-January 2006; sale expected by end-May 2006. - CAMTEL: sectoral strategy completed by end-October 2005; offer for sale by end-June 2006. - SNEC (water): gradual tariff increases by end-January 2006 aiming for cost-recovery; invitation for bids by end-July 2006. - Petroleum product price adjustment mechanism to be implemented monthly. - Financial sector measures: - Complete microfinance licensing by end-October 2005 and ensure supervision in cooperation with COBAC. - Improve accounting practices and enforcement of property rights with BEAC. - Pursue restructuring of CAMPOST and Credit Foncier under agreed plans; recover non-performing loans. - Request an update of the FSAP in the regional context while building on 2000 FSAP recommendations. - External debt and HIPC: - Authorities acknowledge program financing depends on debt relief and will work with Paris Club and non-Paris Club creditors to obtain substantial reduction of debt servicing. - Authorities intend to strengthen financial and physical monitoring of HIPC projects and implement recommendations of the 2004 audit. - PRSP process, donor harmonization: - Accelerate PRSP implementation and strengthen transparency in HIPC resource management, including establishing a special control unit under the Consultative Committee. - Accelerate preparation and adoption of sectoral strategies and associated MTEFs in all priority sectors. - Enhance donor harmonization and alignment in line with the 2005 Paris Declaration on aid effectiveness. *International Monetary Fund — Press Release No. 05/236 and associated staff report excerpts (October 24, 2005).* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05413.pdf_