## The Expenditure Chain and Arrears Issues

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---

### Key findings on public finances and fiscal management
- Revenue including grants in 2009 amounted to 18.4 percent of GDP, compared with 19.2 percent projected at the time of the RAC-ESF and 20.8 percent of GDP in 2008.
- Oil Revenue: 4.8 percent of GDP in 2009 (Text Table 2).
- Nonoil Revenue: 12.7 percent of GDP in 2009 (Text Table 2).
- Total Expenditure in 2009 was 18.4 percent of GDP; Current 14.2 percent of GDP; Capital 4.2 percent of GDP.
- The overall cash-basis balance in 2009 was a deficit of 0.2 percent of GDP after accounting for the clearing of outstanding audited arrears.
- Usable government deposits at the BEAC dropped to the equivalent of one month’s expenditure at end-2009 (1.0 months), compared with 1.6 months targeted under the RAC-ESF.

### Composition and scale of arrears and other payment obligations
- Three types of unsettled government obligations in 2009:
  - Delayed payments to SONARA (national oil refinery) reached CFAF 98.3 billion at end-2009 (1 percent of GDP) and were estimated at about CFAF 106 billion in March 2010.
  - Unsettled Payment Orders (UPOs) in 2009 increased sharply, reaching CFAF 173 billion (1.7 percent of GDP). The stock of UPOs accumulated since 2006 reached CFAF 223.4 billion (2.1 percent of GDP) at end-2009.
  - Validated DENOs incurred in 2009 are estimated at CFAF 110 billion, or 1 percent of GDP, to be settled through a 2010 budget appropriation.
- Text Table 3 summary (CFAF billions, unless otherwise indicated):
  - Arrears audited in 2005 and 2007: end-year stock 122.0 (2008), 105.0 (2009), 96.0 (end-March 2010).
  - Obligations to SONARA: 2008 flows 79.5, end-2008 stock 93.8, 2009 flows 4.5, end-2009 stock 98.3, 1st quarter flows 7.5, end-March stock 105.8.
  - UPOs: 2008 flows 72.2, end-2009 stock 223.4, 1st quarter end-March stock 165.1.
  - Validated DENOs: end-March stock 110.0.
  - Total other payment obligations: flows 151.7 (2008) and end-2009 stock 177.9; end-March 2010 total 115.0.
  - Payment of previous years' UPOs (memorandum): 2008 flows 204.9, end-2009 stock 198.1, end-March 2010 stock 165.8.
  - Government usable deposits (CFAF billions): 43.6 (2008), 224.9, -71.2, 153.7, 21.3, 175.0 (as presented across flows and stocks in Text Table 3). Usable deposits in months of total expenditure: 1.4, 1.0, 1.0.

### Expenditure chain, definitions, and timing rules
- Four stages of the expenditure chain: 1.engagement (commitment); 2. liquidation (validation phase); 3. ordonnancement (payment order); 4. Paiement (payment).
- UPOs (Treasury float or “restes à payer”) typically arise between stages 3 and 4 when payment orders remain unsettled.
- CEMAC directive (June 2008): unsettled payment orders should be considered as arrears after 90 days.
- IMF-favored definition: an arrear arises if no settlement is made 90 days after the delivery of the goods or services (validation phase).
- DENOs: payment obligations between stages 1 and 3; validated DENOs (between stage 2 and 3) but unpaid can be a source of arrears and are difficult to trace.

### Drivers and implications for public financial management (PFM)
- PFM worsened significantly in 2009: cash-basis accounts understate fiscal obligations because they exclude a surge in payment obligations that did not reach cash settlement.
- Causes cited for arrears and UPOs:
  - Poor or fragmented cash flow planning and management;
  - Over-optimistic revenue forecasts;
  - Deficiencies in the treasury information system for tracking revenue and expenditure flows;
  - Impact of extraordinary or unbudgeted expenditures;
  - Nonbudgeted clearance of UPOs from previous years.
- Concentration of commitments late in the fiscal year is a major source of DENOs; the Fiscal Regime Law requires commitments be stopped at end-November each year.
- Authorities planned to clear the stock of audited arrears (about CFAF 120 billion outstanding at end-2008) by end-2014, with scheduled annual clearance flows of about CFAF 20 billion included in fiscal accounts tables.

### Banking sector vulnerabilities linked to arrears
- The banking system became heavily exposed to a common borrower, SONARA, which resorted to bank financing due to long delays in government settlements; by end-2009 SONARA was the largest borrower for nine out of twelve banks.
- For several banks, exposure to SONARA reached more than 90 percent of regulatory capital (Box 3).
- Non-performing loans (NPLs) ratio increased from 11.5 percent to 12.9 percent in 2009 (Table 6).
- Cameroon experienced a significant retrenchment in foreign bank loans during the first half of 2009, part of a longer-term trend of declining international bank exposure relative to GDP.

### Evidence, recent actions, and financing implications (2010 budget context)
- Reconciliation of fiscal data led to a downward revision of the initial estimate of UPOs to CFAF 223.4 billion (2 percent of GDP).
- About 70 percent of this stock was settled in the first quarter of 2010.
- Authorities contacted the BEAC to use the SDR allocation to settle the end-2009 stock of payment obligations to SONARA.
- 2010 budget and financing-related figures and projections:
  - Projected real GDP growth assumption in the 2010 budget: 3.9 percent.
  - Budgeted expenditures: 19.2 percent of GDP, compared with 18.4 percent of GDP in 2009.
  - Projected overall budget deficit: about 3 percent of GDP.
  - Planned domestic financing sources:
    - Drawings of CFA 205 billion (1.8 percent of GDP) from government deposits at the BEAC;
    - Issuance of government bonds for CFAF 200 billion (about 2 percent of GDP) on a not-yet-operational regional market.
  - Large increase in infrastructure-related spending: to about 6 percent of GDP, from 4 percent of GDP in 2009.
  - Based on current WEO projections for world oil prices, budgeted fuel subsidies could fall short by about CFAF 60-70 billion (0.5-0.6 percent of GDP).
  - A discussed provision for recapitalization of a distressed bank: CFAF 20 billion (0.2 percent of GDP).
  - After revisions, a financing gap close to 2 percent of GDP still remains for 2010.

### IMF/Staff policy recommendations to address arrears and PFM weaknesses
- Immediate and near-term actions:
  - Clear all arrears to SONARA to avoid serious implications for the banking system, and undertake a comprehensive audit of all outstanding UPOs.
  - Implement the 2008 CEMAC Directive on the definition of government arrears (90-day rule); avoid accumulating new arrears and limit the level of UPOs by strengthening cash management and stopping budget commitments within the prescribed time limit.
  - Prepare monthly fiscal data on a commitment basis and provide regular information for the four stages of the expenditure chain to allow tracking of DENOs and UPOs.
  - Improve the cash management system by: (i) preparing a periodic treasury plan; (ii) enforcing the rule requiring the use of a Treasury single account for all government operations; and (iii) avoiding expenditure outside normal budgetary procedures, including operations by SNH on behalf of the government.
- Medium-term and structural PFM reforms:
  - Establish effective mechanisms to track expenditure flows through the budget execution process and control levels of UPOs, DENOs, and other payment obligations.
  - Enforce the Public Procurement Code to ensure competitive procurement and avoid single-source contracts.
  - Improve public investment budgeting by enhancing programming in line ministries, coordinating central and line ministries, and building continuity for investment financing through multi-year commitment appropriations.
  - Strengthen the medium-term expenditure framework (MTEF) to translate PRSP priorities into annual budget preparation.
- Budget-specific advice and caveats:
  - Revise the 2010 budget preferably through a supplementary budget, taking into account realistic revenue assumptions and execution rates.
  - Reassess fuel price policy to prevent accumulation of arrears: restore mechanism for automatic adjustment of retail fuel prices; streamline taxes on petroleum products; consider replacing fuel subsidies with a more targeted social safety net.
  - Consider realistic execution rates for public investment given historical execution (~50 percent average over the last three years).
  - Carefully consider recourse to accumulated deposits to preserve a fiscal buffer; view BEAC statutory advances as high cost and potentially inconsistent with development of a regional securities market (but usable as last-resort financing).
  - Pre-announce bond issuance schedule and test market reaction with a limited initial tranche given limited absorption capacity of the domestic financial market.
- Governance and monitoring:
  - Conduct a comprehensive audit of outstanding UPOs and improve treasury information systems and tracking.
  - Sustain donor technical assistance in the PFM area.

### Crisis response, reform performance, and actions taken by authorities
- Authorities protected priority spending and supported distressed sectors during the global crisis: investment, health, and education allocations were broadly maintained; taxes and royalties on timber were reduced; outstanding VAT credits to the cotton sector were settled; and inputs and fertilizers for agriculture were subsidized.
- RAC-ESF reform outcomes included:
  - Removal of tax exemptions for 19 large enterprises.
  - Improved computerized customs system and GPS-based tracking for merchandise in transit.
  - Reduction in the number of tax forms and stepped up prosecutions for misappropriation of public funds.
  - Establishment of a government–private sector dialogue forum.
- Committed measures not implemented included settlement of arrears to SONARA and elimination of fuel subsidies; presentation of fiscal data on a commitment basis continued to lag; little progress on public enterprise reform.
- Actions already taken:
  - Reconciliation of fiscal data across government departments.
  - Downward revision of UPO estimate to CFAF 223.4 billion (2 percent of GDP).
  - Settlement of about 70 percent of this stock in Q1 2010.
  - Contact with BEAC to use SDR allocation to settle payment obligations to SONARA.
  - Adoption in 2009 of a medium-term plan for modernization of PFM, with institutional arrangements for implementation.

### Policy priorities and recommendations highlighted by Directors and authorities
- Achieve greater nonoil revenue mobilization.
- Strengthen public expenditure management and fiscal transparency, including better reporting of government operations on a commitment basis and regular disclosure of financial sector soundness indicators.
- Improve governance and transparency, and make the business environment more attractive.
- Enhance the role and stability of the financial sector, including close monitoring of bank exposures and timely assessment of asset quality.
- Expedite reform strategies for public enterprises and pursue further trade liberalization within CEMAC.

*Source: IMF staff report — “The Expenditure Chain and Arrears Issues” (section text extracted from the cited chapter).*

### 2. The Expenditure Chain and Arrears Issues ..........................................................................11

### 2. The Expenditure Chain and Arrears Issues

### Key findings on public finances and fiscal management
- Revenue including grants in 2009 amounted to 18.4 percent of GDP, compared with 19.2 percent projected at the time of the RAC-ESF and 20.8 percent of GDP in 2008.
- Oil Revenue: 4.8 percent of GDP in 2009 (Text Table 2).
- Nonoil Revenue: 12.7 percent of GDP in 2009 (Text Table 2).
- Total Expenditure in 2009 was 18.4 percent of GDP; Current 14.2 percent of GDP; Capital 4.2 percent of GDP.
- The overall cash-basis balance in 2009 was a deficit of 0.2 percent of GDP after accounting for the clearing of outstanding audited arrears.
- Usable government deposits at the BEAC dropped to the equivalent of one month’s expenditure at end-2009 (1.0 months), compared with 1.6 months targeted under the RAC-ESF.

### Composition and scale of arrears and other payment obligations
- Three types of unsettled government obligations in 2009:
  - Delayed payments to SONARA (national oil refinery) reached CFAF 98.3 billion at end-2009 (1 percent of GDP) and were estimated at about CFAF 106 billion in March 2010.
  - Unsettled Payment Orders (UPOs) in 2009 increased sharply, reaching CFAF 173 billion (1.7 percent of GDP). The stock of UPOs accumulated since 2006 reached CFAF 223.4 billion (2.1 percent of GDP) at end-2009.
  - Validated DENOs (expenditure committed and for which services have been provided, but no payment orders issued) incurred in 2009 are estimated at CFAF 110 billion, or 1 percent of GDP, to be settled through a 2010 budget appropriation.
- Text Table 3 summary (CFAF billions, unless otherwise indicated):
  - Arrears audited in 2005 and 2007: end-year stock 122.0 (2008), 105.0 (2009), 96.0 (end-March 2010).
  - Obligations to SONARA: 2008 flows 79.5, end-2008 stock 93.8, 2009 flows 4.5, end-2009 stock 98.3, 1st quarter flows 7.5, end-March stock 105.8.
  - UPOs: 2008 flows 72.2, end-2009 stock 223.4, 1st quarter end-March stock 165.1.
  - Validated DENOs: end-March stock 110.0.
  - Total other payment obligations: flows 151.7 (2008) and end-2009 stock 177.9; end-March 2010 total 115.0.
  - Payment of previous years' UPOs (memorandum): 2008 flows 204.9, end-2009 stock 198.1, end-March 2010 stock 165.8.
  - Government usable deposits (CFAF billions): 43.6 (2008), 224.9 (CR/09/318 Est. Jan-Mar flows?), -71.2 (2009 flows?), 153.7 (2009 stocks?), 21.3 (1st quarter flows), 175.0 (end-March stock). (Text Table 3 reports these series and also notes usable deposits in months of total expenditure: 1.4, 1.0, 1.0.)
- Note: UPOs are not recognized as arrears in Cameroon regardless of the date of issue; they are recorded in central government operations only at the time of payment.

### Drivers and implications for public financial management (PFM)
- PFM worsened significantly in 2009: cash-basis accounts understate fiscal obligations because they exclude a surge in payment obligations that did not reach cash settlement.
- Weakening budget transparency: the National Hydrocarbon Company (SNH), which collects most oil revenue, was used to fund some government spending outside the normal treasury process.
- The government planned to clear the stock of audited arrears (about CFAF 120 billion outstanding at end-2008) by end-2014, with scheduled annual clearance flows of about CFAF 20 billion included in fiscal accounts tables.

### Banking sector vulnerabilities linked to arrears
- The banking system became heavily exposed to a common borrower, SONARA, which resorted to bank financing due to long delays in government settlements; by end-2009 SONARA was the largest borrower for nine out of twelve banks.
- For several banks, exposure to SONARA reached more than 90 percent of regulatory capital (Box 3).
- Non-performing loans (NPLs) ratio increased from 11.5 percent to 12.9 percent in 2009 (Table 6).
- Cameroon experienced a significant retrenchment in foreign bank loans during the first half of 2009, part of a longer-term trend of declining international bank exposure relative to GDP.

### Crisis response and reform performance
- Authorities protected priority spending and supported distressed sectors in response to the global crisis: investment, health, and education allocations were broadly maintained; taxes and royalties on timber were reduced; outstanding VAT credits to the cotton sector were settled; and inputs and fertilizers for agriculture were subsidized.
- RAC-ESF reform outcomes included:
  - Removal of tax exemptions for 19 large enterprises.
  - Improved computerized customs system and GPS-based tracking for merchandise in transit.
  - Reduction in the number of tax forms and stepped up prosecutions for misappropriation of public funds.
  - Establishment of a government–private sector dialogue forum.
- Committed measures not implemented included settlement of arrears to SONARA and elimination of fuel subsidies; presentation of fiscal data on a commitment basis continued to lag; little progress was made on public enterprise reform.

### Policy priorities and recommendations highlighted by Directors and authorities
- Achieve greater nonoil revenue mobilization.
- Strengthen public expenditure management and fiscal transparency, including better reporting of government operations on a commitment basis and regular disclosure of financial sector soundness indicators.
- Improve governance and transparency, and make the business environment more attractive.
- Enhance the role and stability of the financial sector, including close monitoring of bank exposures and timely assessment of asset quality.
- Expedite reform strategies for public enterprises and pursue further trade liberalization within CEMAC (as advocated in prior Fund advice).

*Source: IMF staff report — “The Expenditure Chain and Arrears Issues” (section text extracted from the cited chapter).*

### Box 2. The Public Expenditure Chain and Arrears Issue

### Box 2. The Public Expenditure Chain and Arrears Issue

### Expenditure chain and definitions
- The normal procedure for expenditure on goods and services in Cameroon has four stages: 1.engagement (commitment) 2. liquidation (validation phase) 3.ordonnancement (payment order), and 4. Paiement (payment).
- Unsettled payment orders (UPOs), known as Treasury float or “restes à payer” in Cameroon, typically arise between stages 3 and 4 when payment orders remain unsettled beyond a certain time frame.
- A CEMAC directive adopted in June 2008: unsettled payment orders should be considered as arrears after 90 days.
- IMF-favored definition: an arrear arises if no settlement is made 90 days after the delivery of the goods or services (validation phase).
- DENOs: government payment obligations that may occur between stages 1 and 3; DENOs validated (between stage 2 and 3) but unpaid can be a source of arrears and are difficult to trace, especially for expenditures by decentralized services.

### Causes and dynamics of arrears and UPOs
- UPOs increased in 2009, in parallel with the clearance of a high level of previous years’ UPOs.
- Potential causes cited:
  - Poor or fragmented cash flow planning and management;
  - Over-optimistic revenue forecasts;
  - Deficiencies in the treasury information system for tracking revenue and expenditure flows;
  - Impact of extraordinary or unbudgeted expenditures;
  - Nonbudgeted clearance of UPOs from previous years.
- Concentration of expenditure commitments by line ministries towards the end of the fiscal year is a major source of DENOs.
- DENOs may also result from exceptional procedures for expenditure or payment.
- The Fiscal Regime Law requires that commitments be stopped at end-November in each fiscal year.

### Evidence, recent actions, and key figures
- Reconciliation of fiscal data led to a downward revision of the initial estimate of UPOs to CFAF 223.4 billion (2 percent of GDP).
- About 70 percent of this stock was settled in the first quarter of 2010.
- Authorities contacted the BEAC to use the SDR allocation to settle the end-2009 stock of payment obligations to SONARA.
- 2010 budget and financing-related figures and projections:
  - Projected real GDP growth assumption in the 2010 budget: 3.9 percent.
  - Budgeted expenditures: 19.2 percent of GDP, compared with 18.4 percent of GDP in 2009.
  - Projected overall budget deficit: about 3 percent of GDP.
  - Planned domestic financing sources:
    - Drawings of CFA 205 billion (1.8 percent of GDP) from government deposits at the BEAC;
    - Issuance of government bonds for CFAF 200 billion (about 2 percent of GDP) on a not-yet-operational regional market.
  - Large increase in infrastructure-related spending: to about 6 percent of GDP, from 4 percent of GDP in 2009.
  - Based on current WEO projections for world oil prices, budgeted fuel subsidies could fall short by about CFAF 60-70 billion (0.5-0.6 percent of GDP).
  - A discussed provision for recapitalization of a distressed bank: CFAF 20 billion (0.2 percent of GDP).
- After revisions, a financing gap close to 2 percent of GDP still remains for 2010.

### IMF/Staff policy recommendations to address arrears and PFM weaknesses
- Immediate and near-term actions:
  - Clear all arrears to SONARA to avoid serious implications for the banking system, and undertake a comprehensive audit of all outstanding UPOs.
  - Implement the 2008 CEMAC Directive on the definition of government arrears (90-day rule); avoid accumulating new arrears and limit the level of UPOs by strengthening cash management and stopping budget commitments within the prescribed time limit to prevent spillovers on the following year’s budget.
  - Prepare monthly fiscal data on a commitment basis and provide regular information for the four stages of the expenditure chain to allow for tracking the level of DENOs and UPOs.
  - Improve the cash management system by: (i) preparing a periodic treasury plan; (ii) enforcing the rule requiring the use of a Treasury single account for all government operations; and (iii) avoiding expenditure outside the normal budgetary procedures, including operations by SNH on behalf of the government.
- Medium-term and structural PFM reforms:
  - Establish effective mechanisms to track expenditure flows through the budget execution process and control the level of UPOs, DENOs, and other payment obligations.
  - Enforce the Public Procurement Code to ensure competitive procurement and avoid single-source contracts.
  - Improve the public investment budget by enhancing programming in line ministries, coordinating central and line ministries, and building continuity for investment financing through multi-year commitment appropriations.
  - Strengthen the medium-term expenditure framework (MTEF) to translate PRSP priorities into annual budget preparation.
- Budget-specific advice and caveats:
  - Revise the 2010 budget preferably through a supplementary budget, taking into account realistic revenue assumptions and execution rates.
  - Reassess fuel price policy to prevent accumulation of arrears: restore mechanism for automatic adjustment of retail fuel prices; streamline taxes on petroleum products; consider replacing fuel subsidies with a more targeted social safety net.
  - Consider realistic execution rates for public investment given historical execution (~50 percent average over the last three years).
  - Carefully consider recourse to accumulated deposits to preserve a fiscal buffer; view BEAC statutory advances as high cost and potentially inconsistent with development of a regional securities market (but usable as last-resort financing).
  - Pre-announce bond issuance schedule and test market reaction with a limited initial tranche given limited absorption capacity of the domestic financial market.
- Governance and monitoring:
  - Conduct a comprehensive audit of outstanding UPOs and improve treasury information systems and tracking.
  - Sustain donor technical assistance in the PFM area.

### Actions already taken by authorities (as reported)
- Reconciliation of fiscal data across government departments.
- Downward revision of UPO estimate to CFAF 223.4 billion (2 percent of GDP).
- Settlement of about 70 percent of this stock in Q1 2010.
- Contact with BEAC to use SDR allocation to settle payment obligations to SONARA.
- Adoption in 2009 of a medium-term plan for modernization of PFM, with institutional arrangements for implementation.

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

### 27.      The joint Bank-Fund debt sustainability analysis (DSA) suggests that

### The joint Bank-Fund debt sustainability analysis (DSA) suggests that

### Debt sustainability assessment
- The joint Bank-Fund debt sustainability analysis (DSA) suggests that Cameroon’s risk of debt distress remains low.
- Assessment broadly unchanged from the 2009 DSA, though the baseline debt trajectory is less favorable because of recent borrowing developments and the revised fiscal outlook.
- All external debt ratios are projected to stay below the relevant thresholds under the baseline and the stress tests.
- Public debt burden indicators do not suggest increased concerns for debt sustainability.
- Authorities view the low risk assessment as providing some space for a reasonable increase in debt-financed public investment to address infrastructure deficiencies.

### External borrowing and financing guidance
- Staff reiterated the need for continued prudent external borrowing.
- Recommended financing priorities:
  - Rely on grants and highly concessional resources (where available) to finance government operations.
  - Improve PFM conditions to avoid domestic arrears.
  - Develop alternative sources of financing to reduce vulnerability.
- Staff encouraged the authorities to continue to work with BEAC and take action to develop a regional market for government securities.

### Boosting competitiveness and economic growth
- Growth is the key pillar of the new PRSP; priorities include underinvestment in critical infrastructure, unfavorable business climate, poor public financial management, and weak regional trade integration.
- New PRSP envisages significant investment in energy, roads, port infrastructure, water supply, and information technology.
- Exchange rate and competitiveness:
  - The real effective exchange rate (REER) appreciated by 1.3 percent in 2009 (annual average).
  - Based on the CGER approach, the REER appears broadly in line with fundamentals, but external sustainability estimates indicate a moderate overvaluation.
  - Survey indicators show Cameroon ranks in the bottom quartile for most business environment indicators; 2009 Enterprise Survey highlights multiple constraints to investors.
- Staff welcomed efforts to strengthen dialogue with the private sector (e.g., Cameroon Business Forum) but emphasized the need to support these with PFM reforms to reduce and eventually eliminate government arrears and to sustain public enterprise reforms.
- Trade liberalization recommendations:
  - (i) Pursue negotiations with other CEMAC member states to reduce the level and range of the common external tariff (CET), in particular regarding imported machinery and equipment.
  - (ii) Accelerate efforts supporting regional integration by harmonizing rules of origin and streamlining CET exemptions.
  - (iii) Conclude a regional economic partnership agreement with the European Union.

### External competitiveness — quantitative findings (Box 4)
- Macroeconomic balance approach:
  - Underlying current account (A): -1.6 (backward), -1.8 (forward)
  - Trade elasticity to REER (D): -0.19 (backward), -0.19 (forward)
  - Current account norm (B): -0.9 (backward), -1.0 (forward)
  - Current account gap (C=A-B): 0.7 (backward), 0.8 (forward)
  - Misalignment (C/D): 3.6 (backward), 4.1 (forward)
- External sustainability approach:
  - Current account norm (E): -0.2 (backward), -0.2 (forward)
  - Current account gap (F=A-E): -1.4 (backward), -1.6 (forward)
  - Misalignment (F/E): 7.6 (backward), 8.4 (forward)
- Equilibrium Real Exchange Rate approach:
  - Misalignment: 2.5 (backward), 1.1 (forward)
- Qualitative indicators:
  - Global Competitiveness Index rank: 111 out of 133 (2009–10)
  - Doing Business rank: 171 out of 183 (2010)
  - Doing Business subrankings: Starting a Business 174th; Enforcing Contracts 174th; Paying Taxes 170th.

### Medium-term outlook and projections (Text Table 4)
- Growth and prices:
  - Real GDP: 2.0 (2009 est.), 2.6 (2010 est.), 2.9 (2011 proj.), 4.5 (2012 proj.), 4.6 (2013 proj.), 4.7 (2014 proj.), 3.5 (2015 proj.)
  - Nonoil real GDP: 3.0; 3.3; 3.4; 3.6; 3.9; 4.2; 4.4 (2009–2015 sequence)
  - Consumer prices (period average): 3.0; 3.0; 2.7; 2.7; 2.7; 2.7; 2.7 (2009–2015 sequence)
  - Oil export price (US$ per barrel): 58.8; 69.3; 68.5; 71.3; 73.0; 74.5; 76.5 (2009–2015 sequence)
  - Oil output (thousands of barrels a day): 736; 458; 749; 010; 391 (table appears to show series but formatting in source is compact)
- Fiscal aggregates (percent of GDP):
  - Total revenue (incl. grants): 18.4; 17.3; 17.1; 17.8; 18.5; 19.1; 18.5 (2009–2015 sequence)
  - Of which: oil: 4.8; 3.6; 3.2; 4.2; 5.0; 5.5; 4.6
  - Nonoil (percent of nonoil GDP): 13.5; 13.7; 13.9; 14.1; 14.3; 14.5; 14.6
  - Total expenditure: 18.4; 19.5; 19.0; 18.8; 18.6; 18.5; 18.7
  - Of which: noninterest current: 13.9; 14.0; 13.5; 13.1; 12.6; 12.4; 12.3
  - Capital: 4.2; 4.9; 5.1; 5.3; 5.6; 5.8; 6.0
  - Overall budget balance (incl. grants): -0.2; -5.2; -2.1; -1.2; -0.2; 0.5; -0.2
  - Nonoil primary fiscal balance (percent of nonoil GDP): -4.9; -5.9; -5.0; -5.1; -5.0; -4.9; -4.8
  - Nonoil current balance (percent of nonoil GDP): -0.8; -1.0; 0.0; 0.1; 0.6; 0.9; 1.3
- External sector:
  - Current account (incl. grants): -2.7; -4.2; -4.3; -3.0; -1.6; -0.7; -1.5 (2009–2015 sequence)
  - Terms of trade: -15.0; 9.2; -4.3; 2.3; 2.6; 1.4; -5.9
  - Total public debt: 9.6; 13.4; 14.4; 14.5; 14.8; 14.7; 15.1
  - External public debt: 4.9; 6.6; 8.6; 10.2; 11.3; 12.3; 13.4
- Baseline growth projection summary:
  - Overall growth rising from 2.6 percent in 2010 to close to 5 percent in 2014, followed by a decline in 2015 due to projected lower oil production.
  - Oil production expected to contribute to real growth during 2012-14, with SNH projections pointing to an average annual increase in oil production of about 20 percent during that period, followed by a resumption of the declining trend.
  - The baseline assumes a gradual moderate increase in private investment from 12.4 percent of GDP in 2009 to 13.5 percent in 2015.
  - The external current account deficit would widen in 2011, then narrow to close to 1 percent of GDP in 2014.
  - Nonoil primary deficit expected around 5 percent of GDP; steady oil revenue will gradually lower the overall budget deficit and eliminate the financing gap by 2013.
  - Inflation expected to remain below the regional convergence criteria of 3 percent, barring new exogenous shocks.

### Risks and vulnerabilities
- Medium-term macroeconomic framework subject to significant downside risks:
  - (i) uncertain pace and strength of global recovery;
  - (ii) fiscal framework hinges on coverage of financing gaps that may not materialize;
  - (iii) a vulnerable banking sector that may generate contingent fiscal liabilities;
  - (iv) delays in implementation of reforms in a pre-election environment.
- Banking sector concerns:
  - Excessive concentration of bank exposure to a few large enterprises (notably the national oil refinery) poses systemic risks.
  - Risks exacerbated by protracted delays in settling government obligations and by inadequate supervisory standards.

### Staff appraisal and policy recommendations
- Short-term fiscal actions:
  - The 2010 budget needs to be revised; prepare and present a supplementary budget to the National Assembly to realign non-priority spending, adopt corrective measures, and avoid compression of priority public investment and new domestic arrears.
  - Strengthen expenditure and treasury management; audit outstanding arrears comprehensively; set processes to limit accumulation of unsettled payment obligations.
- Financial sector actions:
  - Closely monitor banking sector vulnerabilities through regular analysis of banking sector soundness indicators.
  - Promote a sound and rapid restructuring plan for a sizeable bank in difficulty.
  - Foster adoption of best practices on prudential ratios on risk concentration, eliminate existing exceptions in favor of some enterprises, and implement these changes gradually but consistently.
- Growth and competitiveness:
  - Raise execution rate for public investment, improve absorption capacity, and reduce regulatory uncertainty.
  - Implement concrete actions to improve the business climate and continue initiatives to strengthen government–private sector dialogue.
- Debt and financing strategy:
  - Continue prudent borrowing policy relying on grants and highly concessional loans for the development program.
  - Work with regional institutions to rapidly develop a regional market for government securities to reduce vulnerability to external financing shocks.
- Monitoring:
  - Close monitoring of financial sector developments is warranted to detect changes in risk factors at an early stage.

*Source: IMF staff report extract provided in the content unit.*

### 42.       Staff recommends that the next Article IV consultation take place within 12 months.

### _cr10259 - 42.       Staff recommends that the next Article IV consultation take place within 12 months.

### Staff recommendation
- Staff recommends that the next Article IV consultation take place within 12 months.

### Macroeconomic performance and projections (selected indicators)
- GDP at constant prices (annual percent change): 2.9; 2.4; 2.0; 2.6; 2.9; 4.5; 4.6; 4.7; 3.5 (years span 2008–2015 as presented).
- Oil sector GDP growth (annual percent change): -1.8; -9.4; -15.3; -12.2; -10.2; 28.6; 20.3; 14.6; -11.7.
- Nonoil sector GDP growth (annual percent change): 3.2; 3.1; 3.0; 3.3; 3.4; 3.6; 3.9; 4.2; 4.4.
- GDP deflator (annual percent change): 5.5; -3.3; -3.3; 3.2; 3.1; 3.0; 2.8; 2.6; 2.4.
- Consumer prices (12-month average): 5.3; 2.7; 3.0; 3.0; 2.7; 2.7; 2.7; 2.7; 2.7.
- Nominal GDP (CFA F billions): 10,629; 10,311; 10,474; 11,091; 11,767; 12,662; 13,617; 14,631; 15,509.
  - Oil: 1,070; 718; 594; 682; 620; 836; 1,037; 1,219; 1,112.
  - Nonoil: 9,558; 9,593; 9,881; 10,409; 11,147; 11,825; 12,580; 13,412; 14,397.
- Oil output (thousands of barrels a day): 847; 873; 645; 874; 901; 1,039; 1 (value as presented).

### External trade and prices
- Export volume (annual percent change): 0.7; -4.6; -4.8; -0.3; 3.4; 10.6; 10.4; 9.8; 4.5.
  - Nonoil export volume: 1.7; -4.1; -2.4; 2.0; 6.5; 7.0; 8.0; 8.5; 9.0.
- Import volume (annual percent change): 5.8; -8.1; -5.2; 4.6; 4.6; 4.7; 4.9; 5.2; 5.3.
- Average oil export price (US$ per barrel): 94.3; 57.5; 58.8; 69.3; 68.5; 71.3; 73.0; 74.5; 76.5.
- Terms of trade ("-" = deterioration): -2.1; -20.9; -15.0; 9.2; ...; -4.3; 2.3; 2.6; 1.4; -5.9 (as presented).

### Monetary and credit (end of period)
- Net domestic assets (percent of broad money at beginning of period): 1.6; 14.6; 4.2; 6.2; 4.9; 4.3; 2.1; 0.0; 3.2.
- Net credit to the public sector: -6.5; 1.7; 3.5; 6.3; 1.0; 0.4; -2.0; -4.2; -1.0.
- Credit to the private sector (annual percent changes shown): 19.6; 13.0; 7.1; 7.1; 8.1; 8.2; 8.4; 8.5; 8.8.
- Broad money (M2) (annual percent change): 13.4; 0.4; 6.9; 7.0; 7.5; 8.0; 8.1; 8.2; 8.2.

### Fiscal accounts (central government, cash basis)
- Total revenue (percent of GDP or CFAF billion depending on table): 13.6; -12.8; -13.3; -0.7; 5.6; 13.7; 12.5; 11.0; 2.8 (as presented in Table 1 for annual changes and levels).
- Total expenditure (annual percent change): 27.5; -2.9; -1.7; 12.2; 3.2; 6.7; 6.0; 7.2; 6.8.
- Total revenue and grants (CFAF billions): 2,214; 1,978; 1,926; 1,986; 1,916; 2,011; 2,254; 2,524; 2,792; 2,868.
- Total revenue (CFAF billions): 2,122; 1,870; 1,839; 1,875; 1,826; 1,929; 2,194; 2,469; 2,740; 2,818.
  - Oil sector revenue (CFAF billions): 810; 504; 507; 407; 396; 376; 527; 675; 799; 718.
  - Nonoil sector revenue (CFAF billions): 1,312; 1,366; 1,331; 1,468; 1,431; 1,554; 1,667; 1,794; 1,940; 2,100.
- Total expenditure (CFAF billions): 1,966; 1,925; 1,932; 2,240; 2,168; 2,238; 2,387; 2,530; 2,712; 2,896.
  - Current expenditure (CFAF billions): 1,395; 1,338; 1,491; 1,563; 1,600; 1,632; 1,713; 1,772; 1,871; 1,967.
  - Capital expenditure (CFAF billions): 589; 587; 441; 677; 548; 606; 674; 757; 842; 929.
- Overall balance, excluding net change in arrears (including grants, CFAF billions): 248; 54; -6; -254; -251; -227; -132; -680; -29.
- Overall balance, including net change in arrears (including grants, CFAF billions): 211; -78; -23; -386; -576; -250; -155; -296; 6; -29.
- Remaining financing gap (US$ million): 0; 229; 004; 143; 94; 267; 000 (as presented; note formatting in source).

### Fiscal ratios and memorandum items (percent of GDP)
- Total revenue (excluding grants): 20.0; 18.1; 17.6; 16.5; 16.4; 17.3; 18.1; 18.7; 18.2.
  - Oil revenue (percent of GDP): 7.6; 4.9; 4.8; 3.5; 3.6; 3.2; 4.2; 5.0; 5.5; 4.6.
  - Nonoil revenue (percent of nonoil GDP): 13.7; 14.2; 13.5; 13.7; 13.7; 13.9; 14.1; 14.3; 14.5; 14.6.
- Total expenditure (percent of GDP): 18.5; 18.7; 18.4; 19.5; 19.5; 19.0; 18.8; 18.6; 18.5; 18.7.
- Fiscal balance excluding grants (percent of GDP): 1.1; -1.8; -1.1; -6.0; -2.8; -1.7; -0.6; 0.1; -0.5.
- Fiscal balance including grants (percent of GDP): 2.0; -0.8; -0.2; -5.2; -2.1; -1.2; -0.2; 0.5; -0.2.
- Nonoil primary balance (percent of nonoil GDP): -5.5; -4.3; -4.9; -5.9; -5.0; -5.1; -5.0; -4.9; -4.8.

### External sector and balance of payments (selected)
- Current account balance (including grants, percent of GDP): -1.8; -5.9; -2.7; -4.2; -4.3; -3.0; -1.6; -0.7; -1.5.
- Gross official reserves (imputed, bn of US$): 3.0; 2.3; 3.6; 3.3; 3.4; 3.6; 3.9; 4.4; 4.7.
  - Imputed reserves (percent of broad money): 63.2; 48.6; 68.0; 64.2; 62.2; 61.0; 62.0; 64.9; 64.6.
- Trade balance (CFA F billions): 206; -441; -154; -83; -222; -381; 833; 831; 65 (annual values as presented).
- Exports, goods (CFA F billions): 2,638; 1,687; 1,926; 2,227; 2,288; 2,625; 3,023; 3,421; 3,426.
  - Oil and oil products exports: 1,411; 808; 767; 888; 818; 1,109; 1,381; 1,628; 1,478.
  - Nonoil sector exports: 1,227; 878; 1,159; 1,339; 1,470; 1,516; 1,642; 1,793; 1,947.
- Imports, goods (CFA F billions): -2,432; -2,128; -2,080; -2,310; -2,510; -2,663; -2,840; -3,038; -3,261.

### Monetary survey highlights (December 2008–December 2015, selected)
- Net foreign assets (billions CFAF): 1,732; 1,691; 1,416; 1,794; 1,813; 1,882; 1,987; 2,171; 2,443; 2,621.
  - BEAC net foreign assets: 1,428; 1,552; 1,112; 1,464; 1,483; 1,552; 1,657; 1,841; 2,112; 2,291.
  - Commercial banks net foreign assets: 304; 140; 304; 330; 330; 330; 330; 330; 330; 330.
- Money and quasi-money (billions CFAF): 2,303; 2,184; 2,312; 2,462; 2,635; 2,832; 3,059; 3,307; 3,578; 3,871.
  - Currency outside banks: 431; 358; 431; 447; 458; 470; 483; 498; 514; 532.
  - Deposits: 1,873; 1,826; 1,881; 2,015; 2,177; 2,363; 2,576; 2,809; 3,063; 3,339.
- Contribution to growth of broad money (percentage points): Net foreign assets 11.5; -1.8; -14.2; 2.7; 0.8; 2.6; 3.7; 6.0; 8.2; 5.0. Net domestic assets 1.6; -3.4; 14.6; 4.2; 6.2; 4.9; 4.3; 2.1; 0.0; 3.2.

### Banking soundness indicators (selected)
- Regulatory capital to risk-weighted assets: 10.4; 10.9; 9.6 (Cameroun 2007–2009 series).
- Regulatory Tier I capital to risk-weighted assets: 9.8; 10.4; 10.3; 13.7 (presentation mixed).
- Capital (net worth) to assets: 5.6; 5.3; 4.9.
- Gross loans / total assets: 48.8; 54.4; 54.2.
- NPL ratio (gross NPLs/gross loans): 12.5; 11.5; 12.9.
- Provisioning rate: 92.2; 91.1; 79.1.

### Debt sustainability assessment (summary conclusions)
- The joint IMF-World Bank low-income country debt sustainability analysis (LIC DSA) indicates that Cameroon’s risk of debt distress continues to be 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.
- The low risk rating opens the possibility for some limited non-concessional borrowing.
- The lower capacity assessment implies that concessionality of any new borrowing should continue to be assessed loan by loan.
- Recommended focus areas: strengthening debt management practices, enhancing nonoil revenue mobilization, and widening the export base in light of the anticipated long-run decline of oil revenues.

*Source: IMF staff estimates and projections and Cameroonian authorities, as presented in the provided document.*

### 1.      This report updates the debt sustainability analysis (DSA) prepared in 2009

### This report updates the debt sustainability analysis (DSA) prepared in 2009

### Background and data coverage
- Update based on end-2009 data provided by Cameroon’s authorities and reflects IMF Article IV discussions (March-April 2010).
- DSA covers central government external debt, public-guaranteed debt, and an estimate of domestic debt.
- Coverage gaps remain for public enterprises’ liabilities, contingent liabilities of financial institutions, and overdue claims of public enterprise and parastatal entities.
- Fund assistance under the Rapid Access Component of the Exogenous Shocks Facility (RAC-ESF) helped moderate the crisis impact.

### Recent debt relief and stock changes
- All bilateral agreements with Paris Club and non-Paris Club creditors have been signed.
- Agreements finalized with most London Club commercial creditors; stock of debt reduced to US$1.24 million in 2009.
- Outstanding debt corresponding to 0.06 percent of GDP remains difficult to settle due to nonresponsive or nonexisting creditors.
- Public debt-to-GDP ratio declined from 51.8 percent in 2005 to 9.6 percent in 2009 (US$2.16 billion), largely due to HIPC and MDRI relief in 2006 and prudent borrowing policies.
- External debt and domestic debt components: External 50.7 percent of public debt; Domestic 49.3 percent of public debt (end-2009 composition in Figure 1).

### Key macroeconomic assumptions (baseline, updated vs. previous DSA)
- Real GDP growth:
  - Updated: 2.7 (2010) and 4.6 (2011–12?) — source table shows "Updated 2.7 4.6" versus "Previous 3.3 5.1".
- Fiscal revenue (percent of GDP):
  - Updated 17.2; Previous 18.6.
- Exports (percent of GDP):
  - Updated 25.6; Previous 23.5.
- Oil price (U.S. dollars per barrel):
  - Updated 68.9; Previous 73.3.
- Baseline growth path (Box 1):
  - 2010-11 baseline annual growth around "2 ¾ percent" (3.4 percent for nonoil sector).
  - Growth to 4¾ percent by 2014.
  - Longer-term growth average 4½ percent for 2016-30.
  - Inflation expected at or slightly below 3 percent over the medium-term.
  - Non-oil revenues rise from about 13½ percent of non-oil GDP in 2009 to about 16 percent at end of projection period.
  - Government expenditures stabilize around 18 percent of GDP in the longer-term.
  - Nonoil exports volume growth projected close to 9 percent in 2011–30.
  - New external borrowing peaks around 2½ percent of GDP in 2010-12, then slows to around 1½ percent of GDP longer-term.
  - Initial IDA borrowing assumed to constitute ¼ of new borrowing per year; Cameroon expected to cross IDA-only threshold by 2012.
  - Recent 2009 SDR allocations expected to be used to settle domestic arrears.

### Baseline debt ratio projections (selected)
- External (Text Table 3, baseline, 2010–30):
  - PV of debt-to-GDP: 30.0 (threshold) — baseline values: 5.5 (2010–15), 8.1 (2016–30), 12.3 (long-run)? (Text Table 3 layout: Thres-MediumLong holdtermrun 2010 2010–15 2016–30 shows numbers; preserved as presented)
  - PV of debt-to-exports: 100.0 (threshold) — baseline values: 21.1, 29.5, 50.9.
  - PV of debt-to-revenue: 200.0 (threshold) — baseline values: 33.2, 46.0, 74.7.
  - Debt service-to-exports threshold 15.0; baseline debt service-to-exports: 0.9, 1.0, 2.5.
  - Debt service-to-revenue threshold 25.0; baseline debt service-to-revenue: 1.4, 1.6, 3.7.
- Fiscal (public) ratios (Text Table 3):
  - PV of debt-to-GDP: 12.4 (2010), 12.2 (2010–15), 14.7 (2016–30).
  - PV of debt-to-revenue: 73.1, 68.2, 89.2.
  - Debt service-to-revenue: 7.1, 8.3, 8.2.

### External debt sustainability (baseline and stress)
- Cameroon classified as a "weak performer" under the joint IMF/World Bank DSA framework (three-year moving average CPIA = 3.2).
- Country-specific external debt burden thresholds for weak performers:
  - PV of debt-to-exports: 100 percent.
  - PV of debt-to-revenue: 200 percent.
  - PV of debt-to-GDP: 30 percent.
  - Debt-service-to-exports: 15 percent.
  - Debt-service-to-revenue: 25 percent.
- Baseline finding:
  - All external debt indicators remain below thresholds through 2030.
  - PV of debt-to-exports rises over time but remains below 100 percent.
  - Debt service ratios increase after 2020 but remain manageable.
- Stress tests:
  - Historical average scenario omitted as not relevant (oil production expected to taper off).
  - Export shock scenario: exports growth in US$ terms in 2011-12 at 1 standard deviation below 10-year historical average; in this stress, exports decline by more than 8% in US$ terms in both 2011 and 2012 before returning to baseline.
  - Under export shock, PV of external debt-to-export ratio rises dramatically but does not breach the 100 percent threshold.

### Public sector debt sustainability
- Baseline assumptions for domestic financing:
  - New domestic debt generated by government securities issuance and BEAC financing.
  - Government securities issuance projected: about 1.8 percent of GDP in 2010, 0.9 percent in 2011, and at most ½ percent of GDP annually during 2012-18, before increasing in outer years.
- Public debt trajectory:
  - PV of debt-to-GDP and PV of debt-to-revenue expected to rise over time, but debt service stays at comfortable level through 2030.
- Alternative scenarios and bound tests:
  - All public debt sustainability indicators remain on stable paths and do not reveal particular vulnerabilities.
  - Most sensitive scenarios: permanently lower GDP growth and bound test stressing growth at one standard deviation below historical average.
- Institutional improvements:
  - Authorities working to implement a new debt management strategy aligned with CEMAC guidelines.
  - A medium-term debt management strategy for central government debt annexed to the budget law.
  - A National Debt Committee instituted but not yet installed.
  - Partial audit of domestic arrears conducted in 2009; another audit planned in 2010.

### Scope for non-concessional borrowing
- Baseline includes small amounts of non-concessional borrowing reflecting commitments signed in 2009 and early 2010.
- Alternative scenario for accelerated infrastructure financing:
  - Additional non-concessional borrowing assumed at FCFA 70 billion in 2010 (about 0.65 percent of GDP) and maintained until 2015.
  - Terms assumed similar to recent major bilateral lender offers, with a grant element less than 35 percent.
  - New borrowing assumed not to affect growth path in the scenario (prudent assumption).
- Findings:
  - In this alternative, all debt indicators remain below thresholds through 2030.
  - Bound test for PV of debt-to-exports reaches the threshold but does not breach it in export shock stress test.
  - Conclusion: limited non-concessional borrowing feasible, but should be linked to adequate evaluation of investment projects and kept prudent.

### Key policy messages and recommendations
- Debt risk assessment: Cameroon’s risk of debt distress remains low; external debt ratios are well below policy-dependent thresholds.
- Policy implications:
  - There is some fiscal space for debt-financed investment to remove infrastructure deficiencies, subject to prudent project evaluation.
  - Moderate use of non-concessional borrowing may be considered for projects lacking concessional financing, within the parameters analyzed.
  - Strengthen debt management framework, complete domestic arrears audits, and install the National Debt Committee.
  - Maintain prudent borrowing policies and manage absorption capacity constraints to avoid rapid debt accumulation.

*Source: IMF staff report updating the Cameroon DSA using end-2009 data and reflecting IMF Article IV discussions (March-April 2010).*

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

### _cr10259 - 16.      However, persistent weakness in public finance management and insufficient

### Debt vulnerabilities and data limitations
- Persistent weakness in public finance management and insufficient data coverage suggest caution in assessing Cameroon’s debt vulnerabilities.
- Vulnerabilities include quasi-fiscal liabilities of state-owned enterprises and the build-up of new arrears since the 2005 audit, only partly quantified in a 2009 audit follow-up.
- Authorities’ efforts to improve debt management could be reinforced by steps to ensure better coverage of public sector liabilities and by a new and more comprehensive audit of domestic unsettled payment obligations.
- Continued efforts to achieve greater nonoil revenue mobilization and to widen the export base would be advisable, given the expected long-run decline in oil revenue.

### Stress tests, scenarios, and simulation notes
- Figures and simulations: "Staff projections and simulations."
- The most extreme stress test is defined as the test that yields the highest ratio in 2020.
- In Figure 3 notes: the most extreme stress test corresponds to an Exports shock, except in (b) and (d) where it is a One-time depreciation shock.
- Figure 5 notes: the most extreme stress test is the test that yields the highest ratio in 2020. 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 a Exports shock and in picture f. to a One-time depreciation shock.
- Table and figure sources: "Country authorities; and Fund staff estimates and projections." and "Staff projections and simulations."

### Key projected indicators and exact reported values (selected from the Public Sector Debt Sustainability Framework, Baseline Scenario, 2007–30)
- Public sector debt 1/: 11.9, 9.5, 9.6, 13.4, 14.4, 14.5, 14.8, 14.7, 15.1, 17.5, 18.7
- o/w foreign-currency denominated: 5.7, 5.4, 4.9, 6.6, 8.6, 10.2, 11.3, 12.3, 13.4, 15.6, 14.8
- Change in public sector debt: -3.8, -2.4, 0.1, 3.8, 1.0, 0.1, 0.2, -0.1, 0.3, 0.4, 0.0
- Identified debt-creating flows: -5.7, -3.2, 0.0, 4.0, 2.0, 0.6, -0.9, -1.5, -0.6, -0.3, 0.1
- Primary deficit: -4.8, -2.4, -0.1, -6.2, 9.8, 2.1, 1.6, 0.7, -0.3, -0.9, -0.1
- Revenue and grants: 20.3, 20.8, 18.4, 17.3, 17.1, 17.8, 18.5, 19.1, 18.5, 17.0, 15.7
  - of which: grants: 1.2, 0.9, 0.8, 0.8, 0.7, 0.5, 0.4, 0.4, 0.3, 0.1, 0.0
- Primary (noninterest) expenditure: 15.5, 18.4, 18.3, 19.4, 18.7, 18.5, 18.2, 18.2, 18.4, 17.4, 16.6
- Automatic debt dynamics: -0.9, -0.8, 0.1, 0.1, -0.5, -0.6, -0.6, -0.6, -0.5, -0.8, -0.8
  - Contribution from interest rate/growth differential: -0.5, -0.6, 0.0, -0.3, -0.4, -0.6, -0.6, -0.6, -0.5, -0.8, -0.8
  - of which: contribution from average real interest rate: 0.0, -0.3, 0.2, 0.0, 0.0, 0.0, 0.1, 0.1, 0.0, 0.0, 0.0
  - of which: contribution from real GDP growth: -0.5, -0.3, -0.2, -0.2, -0.4, -0.6, -0.6, -0.7, -0.5, -0.7, -0.9
- Contribution from real exchange rate depreciation: -0.4, -0.1, 0.1, 0.4, -0.1, -0.1, 0.0, 0.0, 0.0, ...
- Residual, including asset changes: 1.9, 0.8, 0.1, -0.2, -1.1, -0.4, 1.1, 1.5, 0.9, 0.7, -0.1
- Other Sustainability Indicators — PV of public sector debt: 9.4, 6.2, 4.1, 12.4, 12.7, 12.3, 12.2, 11.9, 12.0, 14.3, 15.9
  - o/w foreign-currency denominated: 0.0, 0.0, 0.0, 5.6, 6.9, 8.0, 8.8, 9.5, 10.3, 12.3, 12.0
- Gross financing need 2/: -28.3, -2.2, -0.6, 3.3, 3.5, 2.7, 1.2, 0.4, 1.0, 1.3, 3.0
- PV of public sector debt-to-revenue and grants ratio (in percent): 46.6, 29.8, 22.4, 72.0, 74.2, 68.9, 65.7, 62.3, 64.8, 84.1, 101.0
- PV of public sector debt-to-revenue ratio (in percent): 49.5, 31.1, 23.4, 75.6, 77.3, 70.8, 67.2, 63.5, 66.0, 84.7, 101.2
  - o/w external 3/: ..., ..., ..., 34.1, 41.9, 46.0, 48.3, 50.7, 56.7, 73.2, 76.6
- Debt service-to-revenue and grants ratio (in percent) 4/: 11.1, 12.5, 8.9, 7.1, 10.9, 11.2, 8.4, 6.5, 5.9, 5.4, 13.6
- Debt service-to-revenue ratio (in percent) 4/: 27.5, 13.3, 9.2, 7.4, 11.3, 11.5, 8.6, 6.6, 6.0, 5.4, 13.6
- Primary deficit that stabilizes the debt-to-GDP ratio: -1.0, -0.1, -0.2, -1.7, 0.7, 0.6, -0.5, -0.8, -0.5, 0.0, 0.9

### External debt and external-sector projections (selected from External Debt Sustainability Framework, Baseline Scenario, 2007–30)
- External debt (nominal) 1/: 5.7, 5.4, 4.9, 6.6, 8.6, 10.2, 11.3, 12.3, 13.4, 15.6, 14.8
  - o/w public and publicly guaranteed (PPG): 5.7, 5.4, 4.9, 6.6, 8.6, 10.2, 11.3, 12.3, 13.4, 15.6, 14.8
- Change in external debt: -0.6, -0.3, -0.6, 1.7, 2.0, 1.6, 1.1, 1.0, 1.1, 0.4, -0.3
- Identified net debt-creating flows: -3.0, 0.6, 1.4, 3.1, 3.1, 1.6, 0.2, -0.7, 0.1, 1.8, 2.3
- Non-interest current account deficit: -1.5, 1.7, 2.6, 1.4, 2.0, 4.2, 4.2, 2.9, 1.4, 0.6, 1.3
- Exports: 31.0, 31.1, 24.0, 25.9, 25.3, 26.7, 28.4, 29.7, 28.4, 25.7, 21.9
- Imports: 32.3, 35.8, 29.2, 32.5, 32.1, 32.0, 32.1, 32.4, 31.8, 30.4, 26.8
- Net current transfers (negative = inflow): -2.3, -2.6, -2.2, -1.7, 0.6, -2.0, -2.2, -2.0, -1.8, -1.7, -1.7
  - o/w official: 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0, 0.0
- Net FDI (negative = inflow): -0.9, -0.4, -1.6, -0.4, 0.5, -1.0, -1.0, -1.0, -1.0, -0.9, -0.9

### Key macroeconomic and fiscal assumptions (selected)
- Real GDP growth (in percent): 3.2, 3.3, 2.9, 3.5, 1.0, 2.6, 2.9, 4.5, 4.6, 4.7, 3.5, 3.8, 4.6, 4.9, 4.6
- Average nominal interest rate on forex debt (in percent): 1.1, 1.4, 1.4, 3.1, 2.0, 1.6, 1.5, 1.5, 1.4, 1.4, 1.3, 1.5, 1.3, 1.2, 1.2
- Average real interest rate on domestic debt (in percent): -2.7, 0.5, -4.5, -0.9, 2.3, -1.7, -0.1, 1.2, 2.5, 3.4, 4.4, 1.6, 5.5, 4.2, 4.9
- Real exchange rate depreciation (in percent, + indicates depreciation): -2.9, -6.5, -2.2, -2.5, 7.5, 4.2, ...
- Inflation rate (GDP deflator, in percent): 3.9, 1.0, 5.5, 2.7, 2.0, 3.2, 3.1, 3.0, 2.8, 2.6, 2.4, 2.9, 2.0, 2.0, 2.0
- Grant element of new external borrowing (in percent): ..., ..., ..., ..., ..., 36.9, 36.9, 35.0, 32.7, 32.0, 31.5, 34.1, 31.1, 30.2, ...

### Policy recommendations and implied priorities
- Reinforce debt management improvements with steps to ensure better coverage of public sector liabilities.
- Conduct a new and more comprehensive audit of domestic unsettled payment obligations.
- Continue efforts to mobilize greater nonoil revenue.
- Widen the export base in light of the expected long-run decline in oil revenue.

*Prepared by the African Department; Approved by Seán Nolan and Jan Kees Martijn; July 12, 2010.*

### 1. Significant policy developments have occurred since the Staff Report was issued.

### 1. Significant policy developments have occurred since the Staff Report was issued

### Overview
- The authorities are taking measures to address a number of problem areas highlighted in the staff appraisal.
- Staff welcomes these measures, while noting that several important issues remain to be addressed.

### Use of 2009 general SDR allocation and SONARA liabilities
- On June 15, the government signed with the regional central bank a convention for the use of the 2009 general SDR allocation.
- The government used the proceeds to clear CFAF 90 billion of its CFAF 98.3 billion payment obligations to the oil refinery, SONARA.
- To ensure a reduction of SONARA’s exposure to banks, the Treasury in early July made direct transfers to the commercial banks involved, in amounts proportionate to each bank’s exposure to SONARA.
- The remaining government overdue obligations to SONARA are to be cleared in the coming days.
- With this operation, a source of systemic risk to the banking system has been mitigated.

*Source: _cr10259 - 1. Significant policy developments have occurred since the Staff Report was issued.*

### 3. The authorities are developing a revised 2010 budget that incorporates several

### 3. The authorities are developing a revised 2010 budget that incorporates several

### Planned budget revisions and fiscal position
- Authorities have revised down current spending on goods and services; made a realistic budgetary provision for subsidies to the oil refinery; postponed the start of some non-priority capital projects; and included a provision for government participation in the recapitalization of a distressed bank.
- Projected financing gap of 1.6 percent of GDP, down from 1.9 percent in the staff report.
- When finalized, the revised budget will be adopted by Presidential Decree and presented later to the National Assembly for ratification.
- Authorities intend to use the SDR allocation to settle other payment obligations, notably those due to the national oil refinery, SONARA.
- For 2010, a supplementary budget is being prepared; following government approval it will be submitted to Parliament in September for adoption.

### Public financial management (PFM) findings and actions
- Public financial management worsened in 2009 with a surge in unsettled government payment obligations, including delayed payment for losses incurred by the national oil refinery, unsettled payment orders, and expenditure for which services have been provided but no payment orders issued.
- Authorities have reconciled fiscal data between government departments and settled a large part (70%) of outstanding payment orders.
- Authorities adopted a medium-term plan for modernization of PFM in 2009 and will implement it to enhance transparency, accountability, and efficiency.
- Staff continues to encourage: further reprioritization of spending programs; tight control over budget execution; and a comprehensive audit of all outstanding government obligations.

### Macroeconomic performance and outlook
- Real GDP growth: 2 percent in 2009, down from 2.9 percent in 2008.
- Overall budget deficit (cash basis): limited to 0.2 percent of GDP in 2009 despite a shortfall in total revenue.
- External current account deficit widened by about 1 percentage point of GDP in 2009; overall external balance remained positive.
- Growth outlook: real GDP growth projected to increase from 2.6 percent in 2010 to above 4.5 percent in 2014, reflecting expected global recovery, projected increase in public capital spending, and oil-sector investments.
- Inflation expected to remain below 3 percent, in line with the regional convergence criterion.
- Downside risks include a weaker or slower global recovery and the projected fiscal financing gap.

### Executive Board and staff recommendations
- Strengthen expenditure and cash management to maintain fiscal and financial stability, ensure effectiveness of public spending, and enhance budget transparency.
- Continue progress toward mechanisms to track expenditure flows through budget execution and prevent new accumulation of domestic arrears.
- Adopt resolute measures to close the remaining financing gap while:
  - Protecting priority capital spending.
  - Making vigorous efforts to mobilize revenues.
  - Gradually phasing out fuel subsidies.
  - Avoiding depletion of the fiscal buffer of usable government deposits at the regional central bank.
- Exercise prudence when scaling up public investment; rely, to the extent possible, on concessional resources to meet investment financing needs.
- Work with the central bank to establish a regional security market.

### Financial sector stability and reforms
- Banking system soundness deteriorated due to PFM issues, regulatory problems, excessive credit concentration, and global crisis effects.
- Directors welcomed corrective steps to reduce bank exposure to the oil refinery and called for further determined actions to ensure financial stability.
- Recommendations include closely monitoring bank vulnerabilities; promoting gradual adoption of best practices to mitigate concentration risks; strengthening prudential ratios on risk concentration in collaboration with the regional supervisor (COBAC); and seeking an investor with banking track record for the distressed bank.
- Authorities plan to accelerate implementation of actions from the 2007 FSAP update to deepen financial intermediation and to develop a local bond market.

### Structural reforms, infrastructure, and growth strategy
- Key impediments to growth: poor infrastructure, unfavorable business environment, limited absorption capacity, shallow financial sector, and obstacles to trade.
- Authorities emphasize scaling up investment in roads, electricity, telecommunications, training and skills development (notably in agriculture and engineering).
- Policy measures supported by staff: broaden tax base; tax large enterprises and SMEs; streamline tax and customs procedures; eliminate tax exemptions and special tax regimes; address customs fraud and VAT compliance/refunds; reduce the level and range of the common external tariff (CET); harmonize rules of origin; streamline CET exemptions; and pursue a regional economic partnership agreement with the EU.
- Authorities will pursue a medium-term Fund-supported program aligned with the new PRSP and seek enhanced technical assistance.

*Public Information Notice (PIN) No. 10/94, July 22, 2010 — IMF Executive Board conclusion of 2010 Article IV Consultation with Cameroon.*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2010/_cr10259.pdf_