## _cr09318

## Source details

**Canonical URL:** [_cr09318](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09318.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09318.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09318.pdf.json)

---

### Response to Previous Fund Advice — Context and Key Achievements
- PRGF arrangement completed in January 2009 strengthened Cameroon’s macroeconomic performance and debt sustainability.
- HIPC Initiative debt relief in April 2006 and MDRI reduced external public debt to sustainable levels.
- Public expenditure management improved and the financial sector became stronger.
- Vulnerabilities and social outcomes:
  - Population below poverty threshold remained virtually unchanged at 40 percent since 2001.
  - On its current trajectory, Cameroon is unlikely to meet the MDGs.
- Fiscal and debt outcomes:
  - Public debt fell to sustainable levels; government deposits (minus BEAC statutory advances) showed significant net buildup.
  - Cameroon contributed to regional international reserves at the BEAC.
- Implementation of prior Fund recommendations:
  - Tax and customs reforms implemented, but nonoil revenues stagnated as a share of nonoil GDP (once adjusted for transparency effects).
  - New public finance system law adopted in 2007 and phased in over five years.
  - Only concessional debt was contracted; budgetary surpluses used to reduce domestic debt.
  - Partial public enterprise reform: water company under management contract; airline and telephone company restructurings not completed.

### Recent Economic Developments and Outlook (selected findings)
- Growth and external sector:
  - Real GDP grew by about 3½ percent in 2008 despite contraction in oil output; nonoil activity including agriculture drove growth.
  - Slower external demand lowered timber and cotton exports; increased imports (high food prices) kept current account in deficit though overall external position remained in surplus.
- Prices and exchange rate:
  - Headline inflation: 5.3 percent (year-on-year) in December 2008 (compared to 3.4 percent a year earlier).
  - Core inflation: about 4½ percent.
  - REER appreciated due to inflation and euro strength; judged broadly in line with fundamentals.
- Fiscal performance:
  - Overall fiscal balance (including grants) remained in surplus, about 2 percent of GDP in 2008.
  - Capital spending rose substantially relative to 2007.
  - Current spending expanded; oil revenues remained strong for most of 2008; nonoil revenues broadly unchanged.
  - Weaknesses: overspending on goods and services reflecting large settlements of unpaid bills and re-emergence of domestic arrears, including subsidies to SONARA.

### External Competitiveness and REER Assessment (summary)
- Methodologies used: three CGER approaches, a Cameroon-specific multivariate reduced-form model, and survey data.
- Macroeconomic balance approach: suggests a 4 percent (backward) to 3 percent (forward) real depreciation required.
- External sustainability approach: suggests REER depreciation of 6 percent (backward) to 8 percent (forward) to stabilize NFA.
- Reduced-form FEER assessments:
  - CGER panel-based: 0.2 percent undervaluation.
  - Country-specific multivariate VECM: 7 percent overvaluation.
- Survey data: competitiveness hampered mainly by nonprice factors related to poor business environment.

### Survey Data and Business Climate
- Global Competitiveness Index (GCI) and Doing Business reports ranked Cameroon in the bottom quartile for the last two years.
- Doing Business ranking: bottom quartile (181 countries).
- Key business climate weaknesses: high tax compliance costs, poor contract enforcement.
- Country’s share in world nonoil products markets has been declining for the past decade.

### Banking Sector and Monetary Trends
- Arrears towards the fuel company from fuel price freeze: about 1 percent of GDP.
- Money growth slowed in 2008 due to accumulation of government deposits and slower net foreign asset expansion.
- Credit to the private sector expanded by about 20 percent (year-on-year) as several investment projects were initiated.
- COBAC: no widespread distress but pockets of vulnerability; some weak compliance with capital requirements and credit exposure limits.
- Selected banking indicators (sample series shown in source):
  - Nonperforming loans (percent of gross loans): 12.4, 13.6, 13.3, 13.2, 11.8, 12.1.
  - Provisioning (percent of nonperforming loans): 89.5, 83.7, 89.8, 86.2, 89.1, 91.1.

### Impact of the Global Crisis (channels and magnitudes)
- Transmission channels:
  - World prices for main export commodities (e.g., oil) declined, terms of trade deterioration about 20 percent.
  - Slower demand affected timber, rubber, cotton, aluminum; tight international liquidity delayed financing for major investment projects.
  - Remittances expected to decline (about 0.8 percent of GDP).
- Growth and balance-of-payments impacts:
  - Economic growth projected to slow by 1 percentage point, to 2.4 percent in 2009.
  - Estimated net impact of shocks on balance of payments flows: about 7.6 percent of GDP.
  - Offsetting developments reduce deterioration in balance of payments to about 6 percentage points of GDP in 2008–09.
  - Notional foreign exchange reserves at BEAC would decline from 6.2 months of imports in 2008 to about 4.5 months by end-2009 absent additional financing.
  - Overall fiscal surplus of 2 percent of GDP in 2008 expected to turn into a deficit in 2009 close to 1 percent of GDP.
- Estimated net impact on balance of payments, 2008–09 (CFAF; Percent of GDP):
  - Exports: -1,016.6  -9.9
  - Oil: -405.6  -3.9
  - Non-oil: -611.0  -5.9
  - Imports: 165.1  1.6
  - Income: 155.0  1.5
  - Remittances: -5.3  -0.1
  - Capital flows: -86.3  -0.8
  - Total: -788.2  -7.6

### Medium-Term Outlook and Key Projections (selected)
- Terms of trade deterioration expected to be partially reversed in 2010; exports to improve gradually as global economy recovers.
- Constraints: delays in implementing infrastructure projects will weigh on medium-term prospects.
- Selected projections/series as shown in source (series values preserved exactly):
  - Nonoil real GDP growth (series): 4.1 4.6 4.9 3.1 3.3 3.6 3.9 4.9 5.6.
  - Consumer prices (period average) (series): 5.3 2.6 2.0 2.7 2.0 2.0 2.0 2.0 2.0.
  - Oil export price (US$ per barrel) (series): 94.3 58.0 65.0 57.5 71.5 75.0 77.0 78.3 79.5.
  - Oil output (thousands of barrels a day) (series): 86 85 84 78 70 79 87 85 83.
  - Total revenue (percent of GDP) (series): 21.3 19.0 18.3 19.2 18.1 19.1 19.4 19.1 18.9.
  - Overall budget balance (incl. grants) (percent of GDP) (series): 2.0 0.0 -0.4 -0.8 -0.7 0.2 0.4 0.0 -0.2.
  - Nonoil primary fiscal balance (percent of nonoil GDP) (series): -6.8 -3.8 -3.4 -4.3 -4.5 -4.6 -4.8 -4.9 -4.8.
  - Current account (incl. grants) (percent of GDP) (series): -1.0 -4.0 -4.0 -5.9 -4.2 -3.6 -3.3 -3.2 -3.1.
  - Terms of trade (percent change) (series): 8.7 -30.7 -2.4 -20.9 12.5 4.4 2.3 -4.1 -3.9.

### Policy Discussions and Recommended Responses
- Short-run fiscal stance and measures:
  - Authorities to avoid, to the extent possible, a fiscal contraction in 2009 and prepare a supplementary budget for targeted support, minor increase in domestic investment, and larger allocation for clearance of arrears.
  - Maintain 2009 budgeted spending level (except fuel subsidies); implied fiscal stance broadly unchanged in 2009 vs. 2008.
  - Targeted measures (in absence of social safety nets) include:
    - Forestry: reduce cascading taxes and consider reducing annual timber royalty.
    - Agriculture: targeted subsidies for seeds and fertilizers for next harvest.
  - Opportunity to eliminate fuel subsidies in 2009 and resume timely retail price adjustments; options for targeted protection of the poor under consideration.
  - Anticipated financing of 2009 deficit likely to draw on government deposits at the BEAC given limited concessional financing access and a nonoperational domestic debt market.
  - Contingent rapid measures agreed in principle to cut nonpriority spending if revenues fall much below expectations.
- Medium-term fiscal strategy principles:
  - Limit fiscal deficits while oil revenues significant to avoid future debt burden.
  - Use oil revenues and prudent borrowing to finance growth-enhancing investments.
  - Maintain a moderately positive nonoil current balance and avoid sizable overall deficits while oil revenues remain substantial.
  - Contain fluctuations in the nonoil primary balance.
- Three-pronged medium-term strategy:
  1. Increase nonoil revenues.
  2. Rationalize public spending to protect priority programs.
  3. Develop alternative sources of domestic financing.

### Mobilizing Nonoil Revenues — Authorities’ Measures (timing and actions)
- 2009 internal revenue measures:
  - Cut number of tax forms to be filed by half.
  - Bring back into general tax regime 19 enterprises identified as unduly benefiting from exemptions.
  - Establish management centers offering tax and accounting services to SMEs.
  - Finalize computer connection between Ministry of Finance and Ministry of Forestry and Wildlife.
- 2010 internal revenue measures:
  - Complete updating of fiscal cadastre to expand property tax base.
  - Implement electronic filing.
- 2009 customs measures:
  - Improve ASYCUDA use and tracking of risk indicators.
  - Introduce GPS-based tracking for transit merchandise.
  - Accelerate import duty sticker for tobacco and alcohol.
- 2010 customs measures:
  - Install ASYCUDA at other major posts (Maroua and Garoua-Boulai) and improve electronic one-stop shop and data sharing.
  - Introduce a value registry for better valuation of declared goods.

### Improving Quality and Efficiency of Public Spending
- Priorities:
  - Step up capital expenditure and maintenance to reduce infrastructure bottlenecks.
  - Carefully select new capital projects and integrate into medium-term strategy.
  - Reinforce public expenditure tracking and personnel training.
  - Build capacity to prepare, evaluate, and execute projects.
- Treasury and public finance management:
  - Authorities committed to settle arrears to SONARA in 2009 and produce comprehensive budgetary execution data on a payment orders basis by end-2009.
  - Gradual implementation of the new public finance system law to introduce program budgeting, stronger execution, more stringent accounting/control rules, and improved transparency.

### Alternative Financing and Debt Management
- Staff view: Cameroon’s low debt level allows prudent borrowing without jeopardizing fiscal sustainability.
- DSA findings:
  - Risk of debt distress remains low.
  - After HIPC and MDRI, stock of public debt fell to about 10 percent of GDP and external debt to about 6 percent of GDP at end-2008; NPV of external debt stood at 10.2 percent of exports.
- Debt management actions:
  - Implement new debt management strategy aligned with CEMAC guidelines.
  - Required elements: institutional framework, coordination of Budget/Treasury/CAA/BEAC, annual borrowing plan and bond issuance calendar.
- Footnote: outstanding external arrears of about US$1.4 million.

### Raising Growth: Addressing Bottlenecks and Structural Reforms
- Investment climate constraints: inadequate infrastructure and unfavorable business environment.
- Actions and priorities:
  - Dialogue with private sector and donors to identify concrete measures.
  - Improve governance to reduce regulatory uncertainty.
  - Clarify and accelerate public enterprise restructuring (air transport, telecommunications) when international financial conditions improve.
  - Urge CEMAC partners to liberalize trade: reduce maximum CET from 30 to 20 percent; harmonize rules of origin; streamline CET exemptions; pursue regional trade agreement with EU.
- Infrastructure indicators (selected, 2008 or noted periods):
  - Paved roads (percent of road network): 8.4 (Cameroon) versus 23.1 (Other CEMAC).
  - Electric power (consumption per capita kWh): 186.0 (Cameroon) versus 1,380.0 (Other CEMAC).
  - Telephone subscribers (mobile cellular and fixed-line subscribers per employee, 2008): 1,050.0 (Cameroon) versus 566.0 (Other CEMAC).
  - Households with television (percent): 25.0 (Cameroon) versus 63.0 (Other CEMAC).

### Financial System Stability and Deepening Intermediation
- Banking sector broadly sound but with pockets of vulnerability; work with regional agencies to monitor and enforce corrective actions as needed.
- Action plan (based on 2007 FSAP recommendations):
  - Improve credit information via BEAC central credit registry.
  - Introduce SME-appropriate instruments: factoring, leasing, venture capital.
  - Improve contract enforcement by establishing a commercial court and facilitating out-of-court settlements.
- Constraints: poorly functional judicial system, inadequate collateral, limited credit information.

### Public Enterprise Reform (highlights)
- Slow progress contributes to infrastructure bottlenecks.
- Specific cases:
  - CAMAIR ceased operations in May 2008 and is being liquidated; preparatory work to launch CAMAIRCo and select a strategic partner ongoing.
  - CAMTEL privatization bids judged unsatisfactory; government considering a management contract.
  - SONARA: financing package for expansion being finalized to process heavier Cameroonian crudes.
  - CAMPOST: 2008 financial accounts produced; business plan prepared to provide rural financial services and proceed with restructuring.

### ESF Request, Fiscal Outlook, and Financing Needs
- Financing requirement:
  - CFAF 111 billion (1.1 percent of GDP) would emerge if deterioration in notional foreign exchange reserves limited to about 5 months of imports.
- Authorities’ precautionary posture:
  - Maintain government deposits at about current level (about 2.6 percent of GDP or 1¾ months of public spending).
  - Without additional financing, usable government deposits would decline from 2.6 percent of GDP at end-2008 to about 1½ percent of GDP at end-2009 (about a month of spending).
  - Usable government deposits exclude C2D funds earmarked for specific projects.
- Request: Fund financing under ESF rapid-access component in amount of SDR 92.85 million (50 percent of quota).
- Assessment: Access of 50 percent of quota (about 0.6 percent of GDP) assessed as not jeopardizing debt sustainability.

### Risks (selected)
- Main downside risks:
  - Sharper or more protracted global growth decline lowering commodity demand/prices and remittances.
  - Tighter financial conditions drying up net private capital inflows and delaying projects.
  - Failure to mobilize nonoil revenue and reduce nonpriority spending could deplete government deposits at BEAC.
  - Delays in improving investment climate hampering nonoil export pickup and net capital inflows.
- Illustrative sensitivity: If international oil prices were US$10/barrel lower than currently projected, fiscal revenues would be lower by 0.9 percentage point of GDP.

### Staff Appraisal (summary)
- Global crisis affecting Cameroon: lower oil prices reduce exports and fiscal revenues; weaker external demand and tighter financing delay investments; growth and fiscal/external balances projected to turn into deficits.
- Buffers exist due to prudent management of oil windfalls under PRGF, allowing accumulation of government deposits and contribution to regional reserves.
- Concern: growth too slow to reduce poverty; Cameroon highly unlikely to meet MDGs on current path.
- Staff welcomes authorities’ commitments to:
  - Maintain 2009 budgetary priority spending to avoid public sector contraction.
  - Protect priority outlays (investment, health, education) in 2009.
  - Accelerate structural measures to enhance nonoil revenue mobilization, strengthen public expenditure management and transparency, and develop alternative financing sources.
  - Improve governance, business environment, and financial sector role.
- Staff supports authorities’ request for rapid-access ESF assistance: access of 50 percent of quota would help contain declines in notional foreign exchange reserves and usable government deposits; Cameroon has adequate capacity to repay the Fund and low risk of debt distress.

### ESF Approval and Disbursement
- Approval for SDR 92.85 million (about US$144.1 million) under the Rapid-Access Component of the ESF to be disbursed immediately.
- Purpose: help Cameroon weather global shocks, contain decline in foreign reserves, and protect priority outlays.
- ESF terms: equivalent to PRGF arrangement and more concessional than other IMF emergency facilities.
- Executive Board observations highlighted buffers from prior PRGF, need for social safety nets, and continued vigilance on financial sector risks.

*Source: IMF staff report excerpts and accompanying authorities’ Letter of Intent contained in the provided IMF document.*

### 1. Response to Previous Fund Advice ....................................................................................

### 1. Response to Previous Fund Advice

### Context and overall assessment
- The PRGF arrangement completed in January 2009 strengthened Cameroon’s macroeconomic performance and debt sustainability.
- Debt relief under the HIPC Initiative in April 2006 helped firm up debt sustainability and created fiscal space for poverty-reducing spending.
- Public expenditure management improved and the financial sector became stronger.
- Despite these improvements, Cameroon remains vulnerable to commodity shocks (especially oil) and faces a persistent poverty challenge: the population living below the poverty threshold has remained virtually unchanged at 40 percent since 2001.
- On its current trajectory, Cameroon is unlikely to meet the MDGs.

### Key achievements under the PRGF (2004–08)
- HIPC/MDRI reduced external public debt to sustainable levels.
- Public debt fell to sustainable levels.
- Government deposits (minus BEAC statutory advances) showed significant net buildup.
- Cameroon contributed to regional international reserves at the BEAC.

### Implementation of prior Fund recommendations (Box 1)
- Fiscal policy and management
  - Staff recommendation: Raise nonoil revenues; contain expenditures while promoting priority outlays; improve public finance management; and ensure prudent debt management.
  - Outcome: Reforms in tax and customs administrations were implemented, but nonoil revenues stagnated as a share of nonoil GDP (once adjusted for transparency effects). Priority spending, including investment, increased. A new public finance system law was adopted in 2007 and is being phased in over five years. Only concessional debt was contracted and budgetary surpluses were used to reduce domestic debt.
- Public enterprise reform
  - Staff recommendation: Take actions to reduce government participation in public enterprises and improve services.
  - Outcome: The water company is now under a management contract, but restructuring of the airline and telephone companies has not been completed.
- Private sector development
  - Staff recommendation: Improve the business environment to boost growth.
  - Outcome: Spending on infrastructure increased. Limited progress toward removal of impediments to trade within CEMAC. An action plan was prepared to deepen financial intermediation based on 2007 FSAP recommendations. The government is taking steps to strengthen the judiciary and fight corruption.

### Recent economic developments and outlook (selected findings)
- Growth and external sector
  - Real GDP grew by about 3½ percent in 2008 despite a contraction in oil output, driven by continued pickup in nonoil activity including agriculture.
  - Slower external demand lowered timber and cotton exports; increased imports (driven by high food prices) kept the current account in deficit, though the overall external position remained in surplus, allowing further contribution to regional foreign exchange reserves.
- Prices and exchange rate
  - Headline inflation reached 5.3 percent (year-on-year) in December 2008 (compared to 3.4 percent a year earlier).
  - Core inflation remained stable at about 4½ percent.
  - The real effective exchange rate (REER) appreciated due to inflation and euro strength, but is judged broadly in line with fundamentals; nonprice factors continue to hamper competitiveness.
- Fiscal performance
  - Overall fiscal balance (including grants) remained in surplus, about 2 percent of GDP, allowing further buildup of government deposits at the BEAC.
  - Capital spending increased substantially relative to 2007 to tackle investment bottlenecks and coordinate with donors.
  - Current spending expanded with higher explicit subsidies replacing lower taxes granted to SONARA.
  - Oil revenues remained strong due to high oil prices for most of 2008; nonoil revenues were broadly unchanged despite revenue administration efforts.
  - Weaknesses in public expenditure management resurfaced: overspending on goods and services partly reflected large settlements of unpaid bills (treasury float) and a re-emergence of domestic arrears, including subsidies to SONARA.
- Structural constraints and poverty
  - Reform of public enterprises was slower than expected.
  - Limited infrastructure and an unfavorable business environment continue to hamper growth and private investment.
  - Per capita real GDP has trailed comparator countries.

### External competitiveness and REER assessment (Box 2 — summary of methodologies and findings)
- Staff used five approaches: three CGER methodologies, a Cameroon-specific multivariate reduced-form model, and survey data analysis.
- Macroeconomic balance approach: suggests a 4 percent (backward) to 3 percent (forward) real depreciation would be required to close the gap between the underlying current account and the current account norm.
- External sustainability approach: suggests the REER would need to depreciate by 6 percent (backward) to 8 percent (forward) to stabilize NFA.
- Reduced-form FEER assessments:
  - CGER panel-based: 0.2 percent undervaluation.
  - Country-specific multivariate VECM: 7 percent overvaluation.
- Survey data indicate that competitiveness suffers from several nonprice factors, principally related to a poor business environment.

### Authorities’ objectives and risks
- Authorities aim to set the economy on a higher-growth path to lower poverty while preserving macroeconomic stability and debt sustainability.
- They accelerated priority expenditure, refocused capital spending on infrastructure and agriculture, and stepped up efforts to mobilize nonoil revenue; they are preparing an economic program in the context of a new poverty reduction strategy (PRS).
- The global slowdown increases urgency and poses risks to growth and social conditions.
- Social/political context: social tensions arising in early 2008 have abated, and the political situation is stable; in April 2008 Parliament amended the constitution to eliminate the two-term limit for presidents.

*Source: IMF staff report content (1. Response to Previous Fund Advice).*

### 4. Survey data analysis, which is a complement to the above quantitative assessments, provides

### _cr09318 - 4. Survey data analysis, which is a complement to the above quantitative assessments, provides

### Competitiveness and business climate (survey data)
- For the last two years the Global Competitiveness Index (GCI) and the World Bank Doing Business reports have ranked Cameroon in the bottom quartile.
- The country’s share in world nonoil products markets has been declining for the past decade.
- The business climate in Cameroon has lost ground mainly because of high tax compliance costs and poor contract enforcement; as a result, the country remains in the bottom quartile ranking in the Doing Business Survey (181 countries).
- Selected Doing Business indicators cited (2009 relative to 2008): deteriorating ranking in Enforcing Contracts, Closing a Business, Paying Taxes, Dealing with Construction Permits, Trading Across Borders, Registering Property, Protecting Investors, Getting Credit, Ease of Doing Business, Starting a Business, Paying Taxes, Enforcing Contracts (chart labels shown in source).

### Banking sector and monetary trends
- Of the freeze in fuel prices, arrears towards the fuel company amounted to about 1 percent of GDP.
- Money growth slowed in 2008 due to continued accumulation of government deposits and slower expansion in net foreign assets.
- Credit to the private sector expanded by about 20 percent (year-on-year) as a number of investment projects were initiated, reducing excess liquidity in the banking system.
- COBAC sees no widespread evidence of distress in the banking sector, though pockets of vulnerability exist, with weak compliance in some instances with capital requirements and credit exposure limits.
- Selected banking system indicators (number of banks = 11–12 over sample periods):
  - Nonperforming loans (percent of gross loans): 12.4, 13.6, 13.3, 13.2, 11.8, 12.1 (sample series shown in source).
  - Provisioning (percent of nonperforming loans): 89.5, 83.7, 89.8, 86.2, 89.1, 91.1 (sample series shown in source).
- Recent monetary trends charts show contributions to growth of broad money, private sector credit (year-on-year percent change), net domestic assets, and net foreign assets for Q1 2005–Q1 2009 (series depicted in source).

### Impact of the global crisis in 2009 (channels and magnitudes)
- Transmission channels to Cameroon:
  - World prices for Cameroon’s main export commodities (e.g., oil) have declined, leading to a sharp deterioration in the terms of trade (about 20 percent).
  - Slower world demand adversely affected timber, rubber, cotton, and, to a lesser extent, aluminum (also affected by input constraints).
  - Tight international liquidity delayed financing for some large investment projects (energy, aluminum, mining), reducing foreign capital inflows.
  - Remittances (about 0.8 percent of GDP) are expected to decline.
- Growth and external/fiscal impact projections and estimates:
  - Economic growth is projected to slow by 1 percentage point, to 2.4 percent in 2009, with downside risks.
  - The estimated net impact of the shocks on balance of payments flows is about 7.6 percent of GDP.
  - Offsetting developments bring the deterioration in the balance of payments to about 6 percentage points of GDP in 2008–09.
  - Notional foreign exchange reserves at the BEAC would decline from 6.2 months of imports in 2008 to about 4.5 months of imports by end-2009 in the absence of additional financing.
  - The overall fiscal surplus of 2 percent of GDP (including grants) in 2008 is expected to turn into a deficit in 2009 of close to 1 percent of GDP.
- Estimated net impact of exogenous shocks on Cameroon’s balance of payments, 2008–09 (CFAF; Percent of GDP):
  - Exports: -1,016.6  -9.9
  - Oil: -405.6  -3.9
  - Non-oil: -611.0  -5.9
  - Imports: 165.1  1.6
  - Income: 155.0  1.5
  - Remittances: -5.3  -0.1
  - Capital flows: -86.3  -0.8
  - Total: -788.2  -7.6

### Medium-term outlook
- The deterioration in terms of trade is expected to be partially reversed in 2010 and exports should gradually improve as the global economy recovers; however, delays in implementing important infrastructure projects will weigh on medium-term prospects.
- Key medium-term adjustments and projections (selected points):
  - Nonoil real GDP growth is expected to be lower than previously projected by about 1½ percentage points per year.
  - Fiscal oil revenues have been revised slightly upwards with recent investment temporarily raising oil production in 2011 and 2012.
  - Nonoil revenues have been revised downward because of weaker growth projections.
  - The overall fiscal balance will turn into a modest deficit of less than one percent of GDP and the nonoil primary deficit will widen broadly by the same magnitude.
  - The current account deficit, widening by about 2 percentage points of GDP because of the global crisis, will persist over the medium term.
  - Price pressures on food and fuel seen last year have subsided.
- Selected macro table highlights (units as in source):
  - Nonoil real GDP growth (series shown in source): 4.1 4.6 4.9 3.1 3.3 3.6 3.9 4.9 5.6 (table row in source).
  - Consumer prices (period average) (series shown in source): 5.3 2.6 2.0 2.7 2.0 2.0 2.0 2.0 2.0.
  - Oil export price (US$ per barrel) (series shown in source): 94.3 58.0 65.0 57.5 71.5 75.0 77.0 78.3 79.5.
  - Oil output (thousands of barrels a day) (series shown in source): 86 85 84 78 70 79 87 85 83.
  - Total revenue (percent of GDP) (series shown in source): 21.3 19.0 18.3 19.2 18.1 19.1 19.4 19.1 18.9.
  - Overall budget balance (incl. grants) (percent of GDP) (series shown in source): 2.0 0.0 -0.4 -0.8 -0.7 0.2 0.4 0.0 -0.2.
  - Nonoil primary fiscal balance (percent of nonoil GDP) (series shown in source): -6.8 -3.8 -3.4 -4.3 -4.5 -4.6 -4.8 -4.9 -4.8.
  - Current account (incl. grants) (percent of GDP) (series shown in source): -1.0 -4.0 -4.0 -5.9 -4.2 -3.6 -3.3 -3.2 -3.1.
  - Terms of trade (percent change) (series shown in source): 8.7 -30.7 -2.4 -20.9 12.5 4.4 2.3 -4.1 -3.9.
  - Memorandum item: Oil revenue (alternative scenario) (series shown in source): .........4.0 3.0 4.0 4.3 4.0 3.7.

### Policy discussions and recommended responses
- Policy discussion focused on three key areas:
  - Using the available fiscal space.
  - Reducing the obstacles to growth.
  - Ensuring the stability of the financial sector.
- Short-run fiscal stance and measures:
  - Authorities agreed to avoid, to the extent possible, a fiscal contraction in a year of significant decline in growth and are preparing a supplementary budget to allow targeted support, a minor increase in domestic investment, and a larger allocation for the clearance of arrears.
  - The level of the 2009 budgeted spending would be maintained (with the exception of fuel subsidies). The implied fiscal stance would remain broadly unchanged in 2009 compared to 2008.
  - In the absence of social safety nets, targeted measures will protect sectors facing particular difficulties:
    - Forestry: cascading reduced by eliminating some taxes; the annual timber royalty could be reduced to reflect lower timber prices.
    - Agriculture: targeted subsidies to purchase seeds and fertilizers for the next harvest.
  - Lower international oil prices offer an opportunity to eliminate fuel subsidies in 2009 and resume timely retail fuel price adjustments; options for targeted mechanisms to protect the poor are under consideration.
  - The decline in oil revenue is expected to turn the overall fiscal balance in 2009 into a deficit; financing would likely draw on government deposits at the BEAC given limited access to concessional financing and a nonoperational domestic debt market.
  - Authorities agreed in principle on contingent measures should revenues be much lower than expected; such measures should be rapid to implement, yield quick results, imply limited economic distortions, and minimize adverse effects on the poor, probably implying cuts in nonpriority spending.
- Medium-term fiscal strategy principles:
  - Limit fiscal deficits while oil revenues are significant so future generations are not faced with a renewed debt burden.
  - Use oil revenues and prudent borrowing to finance growth-enhancing investments.
  - Maintain a moderately positive nonoil current balance and avoid sizable overall deficits while oil revenues remain substantial.
  - Contain fluctuations in the nonoil primary balance to avoid destabilizing effects on the economy.
- Three-pronged medium-term policy strategy discussed:
  - (i) increase nonoil revenues;
  - (ii) rationalize public spending to protect priority programs; and
  - (iii) develop alternative sources of domestic financing.
- Private sector views (Box 3 highlights):
  - Private sector representatives reported severe impacts from the global crisis on key sectors (aluminum, cement, cotton, electricity, forestry, oil, banking).
  - Social costs noted: forestry sector (10,000 jobs) laid off about 20 percent of employees and put another 15 percent on forced leave; cotton sector (370,000 jobs) under threat.
  - Calls for immediate measures included subsidies or tax deferrals for affected sectors, assistance to laid-off workers to find other jobs, and structural reforms to improve competitiveness, transparency, governance, access to financing, and public infrastructure (roads, ports, energy).

*Source: IMF country report content provided in the supplied PDF excerpt.*

### 17.      The recent significant decline in oil revenues makes it more urgent to continue

### 17.      The recent significant decline in oil revenues makes it more urgent to continue

### Mobilizing nonoil revenues
- Recent significant decline in oil revenues increases urgency to mobilize additional nonoil revenues to protect priority spending.
- Given expected decline in oil production beyond 2012 and further envisaged import tariff reductions—and high tax rates on capital income, labor, and consumption—the priority is broadening the tax base through administrative measures.
- Authorities' agreed measures:
  - Reduce the cost of compliance by simplifying tax procedures, including reducing the number of tax forms.
  - Open tax centers offering accounting and tax advice to small- and medium-sized enterprises to facilitate compliance.
  - Tighten implementation of exemptions.
  - Put in place a more effective tracking system to monitor transit trade and further develop trading risk-profiles to improve customs administration.

### Improving quality and efficiency of public spending
- With tighter budgetary constraints, efforts to achieve greater efficiency in public spending should continue.
- Capital expenditure and maintenance of existing infrastructure need to be stepped up to reduce severe infrastructural bottlenecks and provide stronger impetus to growth.
- Authorities’ actions to improve effectiveness of public investment:
  - Carefully select new capital projects to maximize their impact on growth and integrate them into a medium-term strategy.
  - Continue reinforcing public expenditure tracking and training of personnel.
  - Build capacity to prepare, evaluate, and execute projects.
- Treasury and public finance management:
  - Large fluctuations in the treasury float complicate assessment of fiscal stance.
  - Authorities committed to settle the arrears to SONARA in 2009 and produce comprehensive budgetary execution data on a payment orders basis by the end of the year.
  - Gradual implementation of the new public finance system law introduces: a budget structured by program, stronger budget execution, more stringent accounting and control rules, and improved transparency; requires careful monitoring.

### Alternative financing and debt management
- Broader financing base recommended to protect priority spending while preserving fiscal sustainability and containing pressures on the region’s pool of foreign exchange reserves.
- Staff view: Cameroon’s low debt level allows prudent borrowing without jeopardizing fiscal sustainability; encouraged engagement with regional agencies and actions to speed development of the domestic bond market.
- DSA findings and debt management actions:
  - DSA analysis indicates risk of debt distress remains low.
  - Cameroon’s debt management was assessed by the World Bank as among the weakest in post-completion point HIPC countries; improving debt management is a stated priority.
  - Following joint Bank-Fund technical assistance, authorities are implementing a new debt management strategy in line with CEMAC regional guidelines.
  - Required elements include definition of an institutional framework with clear responsibilities, effective coordination of Budget, Treasury, CAA, and BEAC, and elaboration of an annual borrowing plan and calendar for issuance of bonds suited to the country’s financial situation.
- Footnote: Cameroon still has outstanding external arrears of about US$1.4 million.

### Raising growth: addressing bottlenecks
- Authorities recognize an unfavorable investment climate—due to inadequate infrastructure and an unfavorable business environment—is holding back economic expansion, hampering output and export diversification.
- Actions and priorities:
  - Initiate dialogue with the private sector and donors to identify concrete measures.
  - Continue efforts to improve governance to reduce regulatory uncertainty.
  - Clarify reform strategies and accelerate public enterprise restructuring, particularly for air transport and telecommunications, to finalize restructuring when international financial conditions improve.
  - Continue urging CEMAC partners to further liberalize trade by:
    - Reducing the maximum common external tariff (CET) from 30 to 20 percent.
    - Harmonizing rules of origin and streamlining CET exemptions.
    - Working toward a regional trade agreement with the EU.
- Infrastructure bottlenecks (summary of assessment):
  - Only about 8 percent of Cameroon’s road network is paved.
  - Electricity consumption and supply are far lower/insufficient compared with lower-middle-income-country averages; frequent blackouts.
  - Physical infrastructure comparative indicators (selected, 2008 or noted periods):
    - Paved roads (percent of road network): 8.4 (Cameroon) versus 23.1 (Other CEMAC).
    - Electric power (consumption per capita kWh): 186.0 (Cameroon) versus 1,380.0 (Other CEMAC).
    - Telephone subscribers (mobile cellular and fixed-line subscribers per employee, 2008): 1,050.0 (Cameroon) versus 566.0 (Other CEMAC).
    - Households with television (percent): 25.0 (Cameroon) versus 63.0 (Other CEMAC).
  - Main constraints on greater intraregional trade: weak regional infrastructure and lack of production diversification.

### Financial system stability and deepening intermediation
- Banking sector generally sound but with pockets of vulnerability: some banks weakly compliant with capital requirements and credit exposure limits.
- Authorities agreed to work with regional agencies to monitor banking-sector developments, assess asset quality, ensure adequate provisioning for nonperforming loans, and enforce corrective action where needed.
- Measures to deepen financial intermediation (action plan based on 2007 FSAP recommendations):
  - Improve credit information by supporting BEAC in finalizing implementation of the central credit registry.
  - Introduce financial instruments appropriate to small and medium enterprises such as factoring, leasing, and venture capital.
  - Improve contract enforcement by setting up a court dedicated to commercial matters and facilitating out-of-court settlements.
- Bank credit is hampered by a poorly functional judicial system, absence of adequate collateral, and limited credit information.

### Public enterprise reform (highlights)
- Progress in restructuring public enterprises and service delivery has been slow, contributing to infrastructure bottlenecks.
- Specific cases:
  - CAMAIR ceased operations in May 2008 and is being liquidated; authorities working to launch a successor, CAMAIRCo; preparatory work for selecting a strategic partner is ongoing.
  - CAMTEL privatization bids (issued March 2007) judged unsatisfactory; government considering a management contract given investments in a fiber optic backbone and potential market power.
  - SONARA: financing package for expansion being finalized to allow greater economies of scale; next step to improve efficiency to process heavier Cameroonian crudes.
  - CAMPOST: 2008 financial accounts produced; business plan prepared to provide financial services to rural areas and move ahead with restructuring.

### ESF request, fiscal outlook, and financing needs
- External shocks: declining commodity prices, lower external demand, and tighter external financing are affecting key economic activities; growth projections revised down; overall external balance expected to turn into a deficit.
- Financing requirement: CFAF 111 billion (1.1 percent of GDP) would emerge if deterioration in notional foreign exchange reserves limited to a level corresponding to about 5 months of imports.
- Authorities' precautionary posture:
  - Considered prudent to maintain government deposits at about their current level (equivalent to about 2.6 percent of GDP or 1¾ months of public spending) because of uncertainties.
  - Without additional financing, proposed fiscal strategy would imply a decline in usable government deposits from 2.6 percent of GDP at end-2008 to about 1½ percent of GDP at end-2009 (equivalent to about a month of spending).
  - Note: Usable government deposits exclude C2D funds, earmarked for specific projects financed by France.
- Request: Authorities requested Fund financing under the rapid-access component of the ESF in the amount of SDR 92.85 million (50 percent of quota).
- Intentions: Move rapidly to a new PRGF arrangement and approach other multilateral development partners for additional financing.
- Debt sustainability and repayment capacity:
  - Access of 50 percent of quota (about 0.6 percent of GDP) assessed as not jeopardizing debt sustainability.
  - After HIPC Initiative assistance and MDRI debt relief, stock of public debt fell to about 10 percent of GDP and external debt to about 6 percent of GDP at end-2008; NPV of external debt stood at 10.2 percent of exports.

### Risks
- Main downside risks:
  - A sharper or more protracted global growth decline could lower demand and prices for commodities, including oil, and remittances.
  - Tighter financial conditions could dry up net private capital inflows and postpone large infrastructure projects.
  - Failure to mobilize nonoil revenue and reduce nonpriority spending could put greater pressure on government deposits at the regional central bank.
  - Delays in improving the investment climate could hamper pickup in nonoil exports and net capital inflows, putting pressure on regional pool of foreign exchange reserves.
- Illustrative sensitivity: If international oil prices were US$10/barrel lower than currently projected, fiscal revenues would be lower by 0.9 percentage point of GDP.

### Staff appraisal (summary)
- The global economic crisis is affecting Cameroon severely: lower oil prices reduce exports and fiscal revenues; weaker external demand and tighter external financing delay investment projects; growth projections revised down; fiscal and external balances projected to turn into deficit.
- Recent achievements provide buffers: prudent management of oil windfalls under the PRGF-supported program allowed accumulation of government deposits at the BEAC and contribution to the regional pool of foreign exchange reserves.
- Concern that growth has been too slow to reduce poverty; on current trajectory, Cameroon is highly unlikely to meet the MDGs.
- Staff welcomes authorities’ commitments to:
  - Maintain implementation of the 2009 budgetary priority spending plans to avoid public sector contraction.
  - Protect priority outlays (investment, health, education) in 2009.
  - Accelerate structural measures to enhance nonoil revenue mobilization, strengthen public expenditure management and transparency, and develop alternative sources of financing.
  - Improve governance, the business environment, and the role of the financial sector.
- Staff supports the authorities’ request for rapid-access ESF assistance: access of 50 percent of quota would help contain declines in notional foreign exchange reserves and usable government deposits; Cameroon has adequate capacity to repay the Fund and low risk of debt distress.

*Source: IMF staff report (selected excerpts).*

### 37.      Nonetheless, the authorities should continue to remain vigilant against the

### _cr09318 - 37.      Nonetheless, the authorities should continue to remain vigilant against the

### Downside risks and financial sector
- Authorities should continue to remain vigilant against the possibility of downside risks.
- The financial sector, while not directly affected, could be negatively affected by a protracted economic slowdown and act as a further drag on growth if credit conditions become tighter.
- Developments in this sector should be closely monitored in cooperation with regional supervisors and corrective actions taken if needed.

### Consultation timing
- It is proposed that the next Article IV consultation with Cameroon take place on the standard 12-month cycle.

### Key macroeconomic projections and indicators (selected)
- GDP at constant prices (annual percent changes): 3.5, 3.4, 2.4, 2.6, 4.0, 4.2 (2007–2012 Est./Proj.)
- Oil: -5.2, -6.4, -9.4, -10.0, 13.1, 9.7
- Nonoil: 4.1, 4.1, 3.1, 3.3, 3.6, 3.9
- GDP deflator: 2.1, 1.5, -3.3, 2.4, 2.0, 2.0
- Consumer prices (12-month average): 1.1, 5.3, 2.7, 2.0, 2.0, 2.0
- Nominal GDP (CFA F billions): 9,916; 10,410; 10,311; 10,838; 11,493; 12,217
  - Oil: 948; 1,161; 718; 754; 896; 1,009
  - Nonoil: 8,968; 9,249; 9,593; 10,084; 10,597; 11,207
- Oil output (thousands of barrels a day): 86; 84; 78; 70; 79; 87 (2007–2012)
- Export volume (annual percent change): 2.3, 0.7, -4.6, 0.8, 7.7, 5.7
  - Nonoil sector export volume: 4.1, 1.7, -4.1, 4.0, 6.2, 4.5
- Import volume (annual percent change): 23.1, 8.7, -8.1, 4.1, 5.3, 6.0
- Average oil export price (US$ per barrel): 69.6, 94.3, 57.5, 71.5, 75.0, 77.0
- Terms of trade: -1.6, 8.7, -20.9, 12.5, 4.4, 2.3
- Broad money (M2) (annual percent change): 18.6, 13.4, 0.4, 5.1, 6.0, 5.2
- Credit to the private sector (end-period annual percent change): 5.9, 19.6, 13.0, 12.5, 12.0, 11.8

### Fiscal and public debt indicators (selected)
- Total revenue (percent of GDP): 3.3, 18.5, -12.8, 0.2, 12.6, 9.5
- Total expenditure (percent of GDP): 12.9, 22.1, -2.9, 5.1, 6.1, 7.2
- Total revenue (excluding grants) (percent of GDP): 18.8, 20.4, 18.1, 17.3, 18.4, 18.9
  - Oil revenue (percent of GDP): 6.4, 7.8, 4.9, 4.0, 4.9, 5.3
  - Nonoil revenue (percent of nonoil GDP): 13.8, 14.2, 14.2, 14.3, 14.6, 14.8
- Total expenditure (percent of GDP): 15.5, 19.9, 18.7, 18.7, 18.7, 18.8
- Fiscal balance (including net changes in arrears)
  - Excluding grants (percent of GDP): 2.5, 1.1, -1.8, -1.6, -0.5, -0.1
  - Including grants (percent of GDP): 3.7, 2.0, -0.8, -0.7, 0.2, 0.4
- Nonoil primary balance (percent of nonoil GDP): -1.5, -6.8, -4.3, -4.5, -4.6, -4.8
- Stock of external public debt (percent of GDP): 5.5, 5.5, 7.5, 8.0, 8.3, 8.6
- Stock of public debt (percent of GDP): 11.8, 9.8, 12.4, 13.1, 13.2, 13.3
- NPV of external debt: ...10.2, 21.3, 22.7, 21.9, 22.2
- External debt service (percent of government revenue): 1.4, 1.2, 1.8, 1.5, 1.8, 1.7

### External sector (selected)
- Current account balance (including grants) (percent of GDP): -0.8, -1.0, -5.9, -4.2, -3.6, -3.3 (2007–2012)
- Gross official reserves (months of next year's imports): 4.8, 6.2, 4.9, 4.2, 3.5, 3.0 (2007–2012)
- Trade balance (CFA F billions, 2010–2014 projections shown): 352, 411, -441, -281, -174, -143, -170, -190 (2009–2016 series in table)
- Exports, f.o.b. (CFA F billions, selected): 2,375; 2,703; 1,687; 1,768; 2,018; 2,224; 2,377; 2,526
  - Oil and oil products (CFA F billions): 984; 1,214; 808; 822; 980; 1,108; 1,103; 1,097
  - Nonoil sector (CFA F billions): 1,392; 1,489; 878; 946; 1,038; 1,116; 1,275; 1,429
- Current account balance (CFA F billions, 2010–2014 series): -77; -107; -6; -10; -45; -84; -41; -40

### Monetary and banking (selected, December series)
- Net foreign assets (CFA F billions, Dec. 2007–Dec. 2012): 500; 1,034; 1,510; 1,745; 1,417; 1,343; 1,240; 1,168
  - BEAC: 382; 856; 1,296; 1,445; 1,112; 1,038; 936; 864
  - Commercial banks: 118; 178; 220; 304; 304; 304; 304; 304
- Net domestic assets (CFA F billions, Dec. 2007–Dec. 2012): 1,069; 679; 522; 558; 896; 1,088; 1,338; 1,545
- Money and quasi-money (CFA F billions, Dec. 2007–Dec. 2012): 1,568; 1,713; 2,032; 2,303; 2,312; 2,431; 2,578; 2,713
- Private sector credit (annual percent change, Dec. series): 10.9; 3.2; 5.9; 19.6; 13.0; 12.5; 12.0; 11.8
- Broad money (annual percent change, Dec. series): 4.2; 9.3; 18.6; 13.4; 0.4; 5.1; 6.0; 5.2

### Fiscal operations (selected levels, CFA F billions)
- Total revenue and grants: 1,985; 2,215; 1,978; 1,965; 2,190; 2,372 (2007–2012)
- Total expenditure: 1,542; 2,068; 1,925; 2,023; 2,146; 2,301
- Current expenditure: 1,151; 1,497; 1,338; 1,376; 1,423; 1,490
- Capital expenditure: 389; 589; 587; 647; 724; 810

### Country statement on economic outlook and shocks (Letter of Intent, June 18, 2009)
- The authorities state that the economic situation improved significantly under the PRGF arrangement (October 2005–January 2009), but will deteriorate owing to the international economic crisis.
- Stated vulnerabilities and channels of impact include:
  - Lower international oil prices leading to a deterioration in the terms of trade and a substantial drop in fiscal oil revenues;
  - Weaker external demand for main export products, particularly timber, cotton, rubber, and aluminum;
  - Tighter international financial conditions that could delay large mining and infrastructure projects;
  - Reduced transfers from Cameroonians working abroad.

*Sources: Cameroonian authorities; and IMF staff estimates and projections.*

### 4.      This situation will negatively affect our net external balance and our economic

### _cr09318 - 4.      This situation will negatively affect our net external balance and our economic

### Economic impact and short-term projections
- Growth could decline from 3½ percent in 2008 to 2½ percent in 2009.
- The overall fiscal balance could turn into a deficit of about 1 percent of GDP in 2009.
- The balance of payments deficit could stand at around 4½ percent of GDP.
- The government is concerned by the magnitude of this deterioration (several percentage points of GDP).

### Policies to address the shocks (overview)
- Maintain priority expenditures included in the 2009 budget and use available fiscal space to protect the economy and continue lifting infrastructure bottlenecks.
- Reaffirm commitment to eliminating subsidies on fuel prices and resuming the mechanism for adjusting retail prices of petroleum products.
- Strengthen the social safety net and examine modalities for introducing a more targeted system.
- Provide assistance to sectors in distress, with special attention to small producers.
- Contain the overall fiscal deficit in 2009 to about 1 percent of GDP and the nonoil primary deficit to about 4 percent of GDP.
- Adopt a supplementary budget in 2009 to reflect the decline in oil and nonoil revenues.
- Avoid introducing or intensifying trade restrictions.

### Sectoral and targeted measures
- Timber sector:
  - Eliminated the bank guarantee required from taxpayers at the beginning of each fiscal year.
  - Eliminated the factory admission tax for products entering second and third processing to reduce cascading tax distortions.
  - Plan to reduce the annual timber royalty by half this year to take into account the decline in demand and lower prices for forestry products.
- Cotton sector:
  - Outstanding VAT credits have been cleared.
  - Discussions ongoing with operators on the possibility of subsidizing inputs, given the risk that many small producers may lose their source of revenue.

### Increasing nonoil revenues (measures and timing)
- Objective: expand the tax base and step up mobilization of nonoil revenues.

- In regard to internal revenue — In 2009:
  - Simplify tax payment and filing procedures by cutting the number of forms to be filed by half.
  - Bring back into the general tax regime 19 enterprises identified as still benefiting unduly from exemptions.
  - Establish management centers (offering tax and accounting services to small and medium-sized enterprises) to encourage informal operators to register and to improve and simplify tax returns for those already registered.
  - Finalize the computer connection between the Ministry of Finance and the Ministry of Forestry and Wildlife to improve the exchange of information on taxpayers.

- In regard to internal revenue — In 2010:
  - Complete the work to update the fiscal cadastre to expand the property tax base.
  - Implement electronic filing to continue to reduce the cost of tax compliance.

- In regard to customs revenue — In 2009:
  - Improve the use of ASYCUDA through better tracking of its risk indicators to combat customs fraud.
  - Introduce and use a GPS–based tracking mechanism to improve monitoring of merchandise in transit and combat fraud affecting customs revenues.
  - Accelerate implementation of the import duty sticker for tobacco and alcohol to combat smuggling and increase customs revenues.

- In regard to customs revenue — In 2010:
  - Install ASYCUDA at other major revenue-collection posts, in particular Maroua and Garoua-Boulai, and establish computer connections between existing posts where ASYCUDA is installed.
  - Computerize procedures and enhance data sharing by improving the electronic one-stop shop.
  - Introduce a value registry to ensure proper application of the transaction value and achieve a better assessment of declared values.

### Diversification of sources of public financing
- Plan to issue bonds in the coming year, as soon as the subregional mechanism is operational.

### Improvement of public expenditure management
- Undertake a quarterly revision of the reference prices for government orders starting in 2009 to limit overcharging and ensure effectiveness of public spending.
- Increase public investment to foster economic recovery, with commitments to:
  - Improve tracking of government spending.
  - Strengthen capacity to prepare, evaluate, and implement projects.
  - Create a consulting unit with government participation in 2010 to build capacities for evaluating projects and ensuring budgeted projects are completed.
- Improve fiscal transparency:
  - Continue to publish quarterly reports on budget execution.
  - Finalize presentation of government financial operations (TOFE) on a payment order basis in 2009 and produce it regularly thereafter.
  - Settle amounts remaining due to SONARA in 2009 and continue efforts to strengthen expenditure management.
- Complete steps for gradual implementation of the new public finance system law in 2009, in particular:
  - Draft the decree regulating government accounting.
  - Draft the methodological guide on the preparation of program budgets.

### Improvement of the business environment
- Prioritize private sector development to expand and diversify the production base and reduce vulnerability to exogenous shocks.
- Emphasis on improving the business environment and combating corruption.
- With help of the IFC, create a more favorable environment for foreign investment.
- Planned 2009 priority actions: simplification of procedures for establishing companies and improvement of cross-border trade.

### Protection of financial sector stability
- Contagion from the international financial crisis via financial channels seems very unlikely in Cameroon, but a lasting slowdown could increase bank vulnerability.
- Government will work with relevant regional authorities to strengthen surveillance of the banking system, ensure banks provision appropriately against nonperforming loans, and take needed corrective measures to limit potential budget costs.

### Request for IMF assistance under the Rapid-Access Component of the ESF
- Increased need for budget financing due to the international crisis.
- In the absence of an operational government bond market, the overall fiscal deficit expected in 2009 could be financed by drawing on government deposits at the BEAC.
- Current level of these deposits is needed to provide some guarantee in the face of: (i) uncertainties regarding the length of the international crisis; (ii) oil price volatility; (iii) the vulnerabilities of the banking sector; and (iv) the lack of a government bond market.
- Government initiated discussions with development partners and expects the new Poverty Reduction Strategy Paper (PRSP) to be completed in August 2009 at the latest, laying the foundation for discussions with the IMF on a new program supported by the PRGF by end-2009.
- Request to the IMF: allow the government of Cameroon the maximum access of 50 percent of quota (SDR 92.85 million) through the rapid-access component of the Exogenous Shocks Facility (ESF).

### Joint IMF-World Bank Debt Sustainability Analysis (LIC DSA) — key points
- The joint Fund-Bank LIC DSA indicates Cameroon’s risk of debt distress remains classified as low.
- All external debt ratios remain well below the policy-dependent thresholds under the baseline scenario and the stress tests; public debt indicators also remain at comfortable levels.
- Strengthening debt management practices, enhancing nonoil revenue mobilization, and widening the export base are advisable given the anticipated long-run decline of oil revenues.
- Background and data notes:
  - The DSA updates the 2008 DSA and reflects developments through the latest Article IV discussions (March-April 2009).
  - Cameroon requested Fund assistance under the ESF-RAC equivalent to 50 percent of quota (0.6 percent of GDP).
  - Debt data coverage includes central government external debt, public-guaranteed debt, and an annual estimate of domestic debt; coverage of public enterprises’ liabilities and contingent liabilities remains uneven.
  - Agreements reduced London Club commercial creditors’ stock of debt to US$1.4 million in 2008 compared to US$91.2 million in 2007; outstanding with one bank (US$0.5 million) and three nonbank corporations (US$0.9 million) remain.
- Recent debt developments:
  - Public debt-to-GDP ratio declined from 51.8 percent in 2005 to 9.8 percent in 2008 (US$2.28 billion) following HIPC and MDRI relief in 2006 and prudent borrowing policies.
  - External debt composition skewed toward bilateral debt; share of bilateral debt increased to 52 percent in 2008 from 47 percent in 2005.
  - Concessionality slightly lowered from 41 percent to 39 percent; average interest rate increased from 1.1 percent to 1.4 percent.

### Baseline macroeconomic assumptions (selected projections and figures)
- Baseline annual growth revised downward in 2009–10 to about 2½ percent (3.2 percent for the nonoil sector growth).
- Growth expected to increase gradually to 4.2 percent by 2012.
- Longer-term growth expected to average 5.2 percent for 2015-29.
- After initial low growth in 2009-10, growth expected to pick up to about 4 percent in 2011-12, accelerate to 5½ to 6 percent in 2013-16, then decline gradually to 4 to 4½ percent after 2016.
- Consumer price-based inflation expected to ease in 2009 and hold steady at around 2 percent.
- Government revenues projected to decline over time due to reduced oil proceeds; non-oil revenues expected to rise from about 12½ percent of GDP in 2008 to about 16 percent at the end of the projection period.
- Government expenditures expected to rise to about 19 percent of GDP over the medium term.
- Text Table 2 (key macroeconomic assumptions, updated vs. previous DSA) highlights (2009–29):
  - Real GDP growth: Updated 2.5; Previous 4.7 (note: table lists additional figures in text context).
  - Fiscal revenue (percent of GDP): Updated 18.7; Previous 22.0.
  - Exports (percent of GDP): Updated 22.7; Previous 26.2.
  - Oil price (U.S. dollars per barrel): Updated 64.5; Previous 105.1.

*Source: Letter and accompanying IMF-World Bank analysis contained in the provided IMF document.*

### Box 1. (Concluded) Macroeconomic Assumptions for the Baseline Scenario

### Box 1. (Concluded) Macroeconomic Assumptions for the Baseline Scenario

### External accounts and macroeconomic assumptions
- Current account deficit, including grants, is expected to rise in 2009-16 and narrow down gradually afterwards by 2019.
- Overall exports are expected to decline in 2009-10, reflecting lower external demand.
- The rate of growth of the nonoil export volume (rubber, cotton, cocoa, coffee, and timber) is projected to remain high (7.7 percent in 2011–29), offsetting petroleum exports gradual decline.
- Import volumes are projected to increase (by 5.4 percent overall and 5.1 percent for nonoil), as the acceleration of growth in 2011-16 would be associated with imports of equipment and intermediate goods.

### External borrowing and financing assumptions
- The current account deficit is expected to be financed through foreign direct investment and loans, a mixture of which will be from IDA and the rest from other creditors on less concessional terms.
- External borrowing is expected to rise gradually to about 1.1 percent of GDP in 2009-11 (compared to an average of 0.8 percent of GDP during 2001-08).
- IDA borrowing is assumed to constitute 17 percent of new borrowing per year, with the remainder originating from other multilateral and bilateral creditors on less concessional terms.
- Assuming that Cameroon will cross the IDA-only threshold in 2015, disbursements from the Bank will also be on less concessional terms.

### External debt sustainability — Baseline Scenario (findings)
- The LIC debt sustainability framework uses country-specific debt burden thresholds based on the Country Policy and Institutional Assessment (CPIA) index; Cameroon now ranks as a ‘weak performer’.
- The indicative external debt burden thresholds for countries in this category are:
  - PV of debt-to-exports ratio of 100 percent
  - PV of debt-to-revenue ratio of 200 percent
  - PV of debt-to-GDP ratio of 30 percent
  - Debt-service-to-exports ratio of 15 percent
  - Debt-service-to-revenue ratio of 25 percent
- Cameroon’s external debt appears sustainable. Under the baseline scenario, all debt indicators remain below their thresholds through 2029.
- The pace of increase of the PV of debt-to-exports ratio is projected to be steeper because oil exports, an important component of Cameroon’s total export, are declining. The gradual and moderate rise in the PV of debt-to-exports ratio reflects the assumption that Cameroon’s borrowing policy will continue to be prudent.
- The baseline scenario assumes concessional external borrowing (including the ESF-RAC) to help fill the financing gaps associated with the global slowdown. Repayment could cluster in 2014 as debt contracted in 2009 and 2010 matures. Debt service ratios would peak in 2014–15 but the debt situation would still be manageable.

### Text Table 3 (Cameroon: Baseline Debt Ratios, 2009–29) — as presented in source
- Thres-MediumLong
- holdtermrun
- 2009   2009–14   2015–29
- External
- PV of debt-to GDP30.04.85.47.0
- PV of debt-to-exports100.021.322.430.4
- PV of debt-to-revenue200.026.629.541.2
- Debt service-to-exports15.01.51.31.7
- Debt service-to-revenue25.01.81.72.2
- Fiscal
- PV of debt-to-GDP 9.710.111.1
- PV of debt-to-revenue 50.853.164.3
- Debt service-to-revenue 6.69.410.6

### Alternative scenarios and stress tests (findings)
- Alternative scenarios and bound tests show that debt indicators remain below their thresholds through 2029.
- Scenario with new borrowing on less concessional terms (interest rate on new borrowing through 2029 is 2 percentage points higher than in the baseline): all debt ratios deteriorate but stay below the thresholds. Deviations from the baseline occur as repayments cluster.
- The historical average scenario (associated with past current account surpluses) is unlikely to occur, as oil production is expected to taper off in the next 20 years; it shows a more optimistic debt ratio trajectory relative to the baseline and is omitted from Figure 3.
- Bound tests, including a one-time 30 percent depreciation, lead to similar conclusions.
- The scenario of real GDP at the historical average minus one standard deviation in 2010-11, which implies 0.7 percentage point above the baseline projection, suggests the government would close the implied financing need by borrowing at similar conditions as in the baseline; the PV of debt-to-GDP ratio starts rising moderately and eventually levels off.
- The scenario where exports grow at the historical average minus one standard deviation in 2010-11 suggests a more pronounced shift in debt burden, and the PV of external debt reaches 94 percent of GDP in 2029 (below its threshold of 100 percent).

### Public sector debt sustainability (findings)
- The DSA shows that public debt sustainability will be preserved.
- The nonoil primary deficit is expected to deteriorate over the medium term in support of the country’s development needs.
- New borrowing will amount to about 1 percent of GDP annually during 2009-16, consistent with the country’s absorption capacity and will then gradually decline over the long term.
- In the baseline scenario, the debt ratio will rise gradually over the long-term. The PV of debt-to-GDP and debt-to-revenue ratios is expected to rise over time, with some reduction in outer years. Debt service will follow a similar pattern and stay at a comfortable level through 2029.
- Stress tests indicate that all debt indicators (PV of debt-to-revenue ratio, PV of debt-to-revenue ratio, and debt service-to-revenue ratio) remain on stable paths and do not reveal particular vulnerabilities. However, the scenario of a contingent liability shock amounting to 10 percent of GDP shows some more sensitive debt dynamic relative to the baseline.

### Policy actions and institutional developments
- Despite its low risk of debt distress, Cameroon has stepped up efforts to strengthen its debt management framework.
- Following joint Bank-Fund technical assistance, the authorities are working to implement a new debt management strategy aligned with CEMAC guidelines.
- The authorities have started producing a DSA and are formulating a medium-term debt management strategy (MTDS) for central government debt, using the Bank-Fund toolkit.

### Conclusion (summary finding)
- Cameroon’s risk of debt distress remains low. All external debt ratios remain well below the policy-dependent thresholds. However, because of the global financial crisis and economic slowdown, debt indicators are somewhat higher than in the 2008 DSA. Debt indicators rise under alternative scenario and bound tests, but not beyond country-specific debt burden thresholds when assessing external sustainability, and remain at a comfortable level in regards to public debt sustainability.

*Source: Box 1. (Concluded) Macroeconomic Assumptions for the Baseline Scenario, _cr09318.*

### 14.      However, persistent weakness in public finance management and insufficient

### _cr09318 - 14.      However, persistent weakness in public finance management and insufficient

### Assessment findings: vulnerabilities in public finances
- Persistent weakness in public finance management and insufficient data coverage are identified as areas of vulnerability in Cameroon’s assessment.
- Specific vulnerabilities cited:
  - Quasi-fiscal liabilities of state-owned enterprises.
  - A possible build up of new arrears since the 2005 audit, for which available information is limited.
- Figures and stress-test notes:
  - “The most extreme stress test is the test that yields the highest ratio in 2019. In Figure (b) it corresponds to a One-time depreciation shock; in (c) to a Exports shock; in (d) to a One-time depreciation shock; in (e) to an Exports shock and in Figure (f) to a One-time depreciation shock.”

### Staff projections and quantitative indicators (selected)
- Public sector debt (selected years and averages):
  - Public sector debt: 15.7; 11.8; 9.8; 12.4; 13.1; 13.2; 13.3; 13.0; 13.2; 13.8; 14.9
  - o/w foreign-currency denominated: 6.3; 5.6; 5.5; 7.5; 8.0; 8.3; 8.6; 8.8; 9.1; 9.7; 10.8
- Change in public sector debt (selected): -36.1; -3.9; -2.0; 2.6; 0.7; 0.1; 0.0; -0.3; 0.2; 0.2; 0.0
- Identified debt-creating flows (selected): -39.2; -8.8; -5.0; -2.4; -2.1; -2.7; -2.6; -2.1; -1.8; 0.4; 0.7
- Primary deficit (selected): -33.6; -4.7; -1.5; -6.6; 9.6; -0.7; 0.3; -0.7; -0.9; -0.5; -0.2
- Revenue and grants (selected): 47.6; 20.0; 21.3; 19.2; 18.1; 19.1; 19.4; 19.1; 18.9; 17.3; 16.6
  - of which: grants: 28.4; 1.2; 0.9; 1.0; 0.8; 0.7; 0.5; 0.5; 0.4; 0.2; 0.1
- Automatic debt dynamics (selected): -3.8; -1.1; -0.8; 0.7; -0.4; -0.5; -0.5; -0.5; -0.6; -0.5; -0.6
  - Contribution from interest rate/growth differential (selected): -2.7; -0.6; -0.5; 0.0; -0.2; -0.4; -0.4; -0.5; -0.5; -0.5; 0.1
  - Contribution from average real interest rate (selected): -1.1; -0.1; -0.1; 0.3; 0.1; 0.1; 0.1; 0.1; 0.1; 0.1; 0.7
  - Contribution from real GDP growth (selected): -1.6; -0.5; -0.4; -0.2; -0.3; -0.5; -0.5; -0.6; -0.6; -0.6; -0.6
  - Contribution from real exchange rate depreciation (selected): -1.1; -0.5; -0.3; 0.7; -0.2; -0.1; 0.0; 0.0; 0.0
- Other identified debt-creating flows (selected): -1.8; -3.0; -2.7; -2.4; -2.0; -1.6; -1.2; -1.1; -1.0; -0.7; -0.1
  - Debt relief (HIPC and other) (selected): -1.8; -3.0; -2.7; -2.4; -2.0; -1.6; -1.2; -1.1; -1.0; -0.7; -0.1
- Residual, including asset changes (selected): 3.1; 4.8; 3.0; 5.1; 2.8; 2.9; 2.6; 1.8; 2.0; -0.1; -0.7
- Other sustainability indicators (selected):
  - PV of public sector debt: 9.4; 6.1; 7.8; 9.7; 10.2; 10.3; 10.2; 9.9; 10.0; 10.6; 12.0
  - o/w foreign-currency denominated (PV): 0.0; 0.0; 3.6; 4.8; 5.1; 5.3; 5.5; 5.7; 5.9; 6.6; 7.8
  - Gross financing need 2/: -28.3; -2.2; 0.4; 0.6; 1.8; 1.2; 1.1; 1.8; 1.5; 3.3; 3.4
  - PV of public sector debt-to-revenue and grants ratio (in percent): 19.8; 30.6; 36.7; 50.8; 56.5; 54.0; 52.5; 51.6; 53.0; 61.5; 72.2
  - PV of public sector debt-to-revenue ratio (in percent): 49.0; 32.6; 38.3; 53.7; 59.2; 56.1; 54.0; 52.9; 54.3; 62.1; 72.4
  - Debt service-to-revenue and grants ratio (in percent): 11.1; 12.5; 8.9; 6.6; 8.3; 9.6; 10.6; 11.9; 9.4; 10.2; 11.9
  - Debt service-to-revenue ratio (in percent): 27.5; 13.3; 9.2; 7.0; 8.7; 10.0; 10.9; 12.2; 9.6; 10.3; 11.9

### Key macroeconomic and fiscal assumptions (selected)
- Real GDP growth (in percent) (selected sequence): 3.2; 3.5; 3.4; 3.6; 1.0; 2.4; 2.6; 4.0; 4.2; 4.5; 5.2; 3.8; 5.0; 4.5; 5.2
- Average nominal interest rate on forex debt (in percent) (selected): 1.1; 1.4; 1.4; 3.1; 2.0; 1.7; 1.2; 1.5; 1.5; 1.5; 1.5; 1.5; 1.4; 1.4; 1.4
- Average real interest rate on domestic debt (in percent) (selected): -2.7; -0.5; -0.7; -0.6; 1.8; 5.4; 0.7; 1.9; 2.5; 3.1; 3.7; 2.9; 3.9; 3.5; 3.8
- Real exchange rate depreciation (in percent, + indicates depreciation) (selected): -3.0; -7.6; -5.6; -6.0; 3.9; 12.6
- Inflation rate (GDP deflator, in percent) (selected): 3.9; 2.1; 1.5; 2.4; 1.7; -3.3; 2.4; 2.0; 2.0; 2.0; 2.1; 1.2; 2.0; 2.3; 2.0
- Grant element of new external borrowing (in percent) (selected later years): 38.0; 42.0; 41.4; 41.0; 40.6; 40.3; 40.5; 37.0; 36.1

### Policy recommendations and staff advice
- Strengthen debt management and public finance coverage:
  - Reinforce authorities’ efforts to improve debt management by ensuring better coverage of public sector liabilities.
  - Conduct a new audit to clarify whether new domestic arrears have emerged since 2005.
- Fiscal and structural policy priorities:
  - Continue efforts to achieve greater nonoil revenue mobilization.
  - Widen the export base, given the expected long-run decline in oil revenue.

*Source: Staff projections, simulations, and report text.*

### 92.85 million (about US$144.1 million) disbursement under the rapid access component of

### _cr09318 - 92.85 million (about US$144.1 million) disbursement under the rapid access component of

### Approval and purpose
- Approval for a 92.85 million (about US$144.1 million) disbursement under the rapid access component of the Exogenous Shocks Facility (ESF).
- The approval enables the disbursement of the full amount immediately.
- Purpose: help Cameroon weather the effects of the global shocks on its balance of payments, contain the decline in Cameroon’s foreign reserves, and ensure that priority outlays (investment, health, and education) are protected.
- ESF design and terms:
  - Designed to provide policy support and financial assistance to low-income countries facing exogenous but temporary shocks.
  - Available to countries eligible for the Poverty Reduction and Growth Facility (PRGF) that do not have a PRGF-supported program in place.
  - Financing terms are equivalent to a PRGF arrangement and are more concessional than under other IMF emergency lending facilities.

### Assessment of the shock and macroeconomic outlook
- Executive Board observation (Mr. John Lipsky):
  - Prudent management of oil windfalls under the recently completed PRGF-supported program allowed accumulation of government deposits at the BEAC and contributions to the regional pool of foreign exchange reserves.
  - These savings provide buffers to alleviate the impact of the global crisis.
  - The global crisis is reducing oil prices, exports, and fiscal revenues; weaker external demand is adversely affecting key exports; tighter external financing conditions have delayed important investment projects.
  - As a result of these shocks, growth is expected to be slower, and the overall fiscal and external balances are projected to turn into a deficit.
  - Social costs of the downturn could be severe in the absence of appropriate social safety nets.
  - Continued vigilance required against downside risks to the financial sector; close monitoring with regional supervisors recommended.
- Impact described by Cameroonian authorities:
  - The global financial crisis is expected to affect the Cameroonian economy further into 2009 through declining commodity prices, slower external demand for cotton, aluminum, timber, rubber, tight financing conditions, and lower remittances.
  - Economic activity is projected to slow by 1 percentage point to 2.4 percent in 2009.
  - Absent additional financing, foreign exchange reserves as coverage for imports would decline sharply.
  - Medium-term outlook revised downward due to delays in important infrastructure projects.
  - The overall fiscal balance is projected to turn into deficit; the current account deficit will widen and remain large over the medium-term.

### Policy response (authorities’ measures and priorities)
- Immediate fiscal stance and budgetary actions:
  - Authorities will use fiscal space to boost the economy while containing the overall fiscal deficit.
  - Preparing a supplementary budget to allow for targeted support, a minor increase in domestic investment, and a larger allocation for the clearance of arrears, while maintaining initially planned priority outlays.
  - Intend to eliminate subsidies on fuel prices and resume implementation of the mechanism for adjusting petroleum prices.
  - Strengthen social safety nets and provide assistance to sectors in distress (notably small producers in timber and cotton sectors) and provide input subsidies to the agriculture sector.
  - Prepared to consider contingent measures to ensure fiscal consolidation should downside risks materialize.
  - Requesting a disbursement of 50 percent of quota under the Rapid Access Component (RAC) of the ESF given balance of payments financing needs in 2009.
- Three-pronged medium-term strategy to reduce vulnerability while maintaining macroeconomic stability:
  1. Increase nonoil revenue:
     - Expand tax revenues to offset declining oil receipts and upcoming reduction of external tariffs.
     - Simplify tax procedures to improve compliance, tighten tax exemptions, finalize computer connection between the ministry of Finance and the ministry of Forestry, and update the fiscal cadastre to expand the property tax base.
     - Enhance data sharing in the electronic one-stop shop and improve computerized customs systems to combat fraud.
     - Strengthen the tracking system for merchandise, in particular for imported tobacco and alcohol.
  2. Improve public expenditure management:
     - Undertake quarterly revision of the reference prices for government orders to strengthen the effectiveness of public spending.
     - Step up capital spending to reduce infrastructure bottlenecks and provide renewed impetus for growth.
     - Improve fiscal transparency by publishing quarterly reports on budget execution and implement the new public finance system law introducing more stringent accounting and control rules.
  3. Develop alternative domestic financing sources:
     - Work with relevant regional agencies and speed up development of the domestic bond market.
     - Strengthen debt management capacity to preserve Cameroon’s sustainable debt profile.

### Other medium-term reforms (financial sector and structural)
- Financial sector measures:
  - Continue cooperation with regional authorities to strengthen surveillance of the banking system.
  - Ensure adequate provisions against nonperforming loans and enforce corrective actions in bank regulatory compliance where needed, limiting potential cost to the budget.
  - Accelerate measures to deepen financial intermediation: improve credit information, set up a court dedicated to commercial matters and settlements, and introduce financial instruments for SMEs.
- Growth-oriented structural reforms:
  - Priority to private sector development to expand and diversify the production base and reduce vulnerability to exogenous shocks.
  - Dialogue with private sector and development partners to identify measures to improve the business environment and streamline procedures for establishing companies.
  - Emphasis on improving governance and combating corruption.
  - Steps to clarify reform strategies in telecommunications and air transport sectors and prepare for a renewed privatization program once international financial conditions improve.
  - Further trade liberalization efforts planned in cooperation with regional partners to liberalize intra-CEMAC trade and finalize the regional economic partnership with the EU.

### Context, recent history, and financing strategy
- Recent program history and fiscal space:
  - Last PRGF arrangement was completed in January 2009.
  - Debt relief in 2006 under the HIPC Initiative and the MDRI, coupled with prudent borrowing policies since that year, helped bring and maintain the country’s debt to a sustainable level and create fiscal space for poverty-reducing spending.
  - Prudent fiscal policy allowed significant building up of government deposits and an increase in Cameroon’s international reserves at the regional central bank (BEAC), while enabling increased investment and normalization of relations with creditors.
  - Authorities maintained measures that contained social tensions arising from prior food and fuel price shocks.
- Financing strategy:
  - Authorities intend to move rapidly to a new PRGF arrangement articulated around the new PRSP under finalization and have initiated discussions with other multilateral partners for additional financing.
  - In the meantime, immediate financing needs due to the global economic crisis motivated the request for disbursement under the Rapid Access Component of the ESF.

*Source: IMF staff and statements on Cameroon’s request and Executive Board discussion, including Statement by Laurean W. Rutayisire, Executive Director for Cameroon (July 2, 2009).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr09318.pdf_