## _cr11266

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---

### Background: weak growth and poverty
- No growth in per capita terms over the last five years.
- Poverty: stagnated at close to 40 percent; 87 percent of the poor living in rural areas.
- Binding constraints: underinvestment in critical infrastructure; unfavorable business climate; poor public financial management; shallow financial sector; weak regional trade integration.
- Dependence on commodities for export earnings and fiscal revenues increases vulnerability to external shocks.
- Selected comparative indicators (average 2006–10, Cameroon vs SSA):
  - Real per capita GDP (U.S. dollars, at 2000 prices): 678.9 (Cameroon) vs 671.3 (SSA)
  - Real GDP growth (percent): 2.8 (Cameroon) vs 5.3 (SSA)
  - Real nonoil GDP growth (percent): 3.3 (Cameroon) vs 6.3 (SSA)
  - Real per capita GDP growth: 0.0 (Cameroon) vs 3.1 (SSA)
  - Total investment (percent of GDP): 16.2 (Cameroon) vs 22.4 (SSA)

### Recent economic developments (2010) — growth, inflation, external, fiscal
- Growth and inflation:
  - Real GDP growth in 2010: 3.2 percent (2010 est.), up from 2 percent in 2009.
  - Average annual inflation: 1.3 percent in 2010, compared with 3 percent in 2009.
  - Food price inflation: 2.3 percent in 2010, down from 5.9 percent in 2009.
- External accounts:
  - Nonoil export volume increased by 3.5 percent in 2010.
  - Import volume growth estimated at 8.2 percent in 2010.
  - External current account deficit (including grants) estimated at 2.8 percent of GDP in 2010.
- Fiscal accounts (cash basis, 2010):
  - Domestic revenue: 16.8 percent of GDP (close to supplementary budget target).
  - Current expenditure: 14.5 percent of GDP (budgeted 13.9); capital expenditure execution low (75 percent execution on capital in 2010).
  - Deficit on a cash basis after clearing outstanding obligations: 2.3 percent of GDP, below the 3.5 percent of GDP target in the supplementary budget.
- Arrears and PFM efforts:
  - Out of total stock of UPOs CFAF 260 billion (2.5 percent of GDP) at end-2009, CFAF 240 billion were cleared in 2010.
  - End-2010 stock of UPOs: CFAF 271 billion (2.4 percent of GDP).
  - Arrears to SONARA at end-2010: CFAF 136 billion (1.2 percent of GDP).
  - Government usable deposits at the BEAC declined to the equivalent of 0.2 months of public spending at end-2010 (from 1 month at end-2009).

### Fiscal policy and public financial management — Fund advice and outcomes
- Fund advice highlights:
  - (i) Protect priority capital spending; mobilize revenues; gradually phase out fuel subsidies; avoid depleting fiscal buffer.
  - (ii) Strengthen expenditure and cash management.
  - (iii) Establish mechanism to track expenditure flows through budget execution.
  - (iv) Recognize constraint from accumulated unsettled payment obligations (UPOs) and adopt budgetary treatment for DENOs.
- Outcomes in 2010:
  - (i) Capital execution rate 75 percent; nonoil revenues lower than programmed; fuel subsidies not phased out; usable deposits almost depleted.
  - (ii) A Treasury Management Committee became operational, but domestic arrears problems continued.
  - (iii) An effective mechanism to track expenditure flows is not yet in place.
  - (iv) 2011 budget includes an allocation for clearance of UPOs and foresees a mechanism to control DENOs.
- Persistent PFM problems and fiscal risks (end-2010):
  - Flow of UPOs on 2010 operations reached CFAF 250.6 billion (2.3 percent of GDP) by end-year.
  - End-2010 stock of UPOs: CFAF 270.6 billion (2.4 percent of GDP).
  - Out of CFAF 120 billion allocation for fuel subsidies in 2010 supplementary budget, only CFAF 17 billion was paid to SONARA.
  - Government deposits were boosted by bond proceeds CFAF 197.5 billion (about 1.8 percent of GDP) but proceeds were earmarked and not included as usable deposits.

### Appendix I — Fuel subsidies: issues, mechanics, fiscal burden, and reform options
- Current issues and mechanics:
  - Pump prices frozen since February 2008; government compensates SONARA for shortfall between notional retail price and fixed pump price.
  - SONARA processing capacity ~2.1 million tons; produced ~1.8 million tons in 2009; about 63 percent sold domestically.
  - Government arrears on compensating SONARA: CFAF 98 billion at end-2009; cumulative obligations to SONARA reached CFAF 136 billion at end-2010 (1.2 percent of GDP).
- Fiscal burden (assumptions at March 2011 world prices):
  - If international fuel prices remain at March 2011 levels (US$100 a barrel) and pricing mechanism not revisited, subsidy would amount to CFAF 240 billion (2 percent of GDP) in 2011 versus a CFAF 132 billion provision in the 2011 budget.
  - Shortfall for 2011 equivalent to 10 percent of total government expenditure, more than one third of the public sector wage bill, or half of domestically-financed government capital expenditure.
- Pricing formula (Table 1, March 2011, CFAF per liter):
  - Notional retail price (j): Gasoline 753.86; Kerosene 660.98; Diesel 737.62
  - Fixed pump price (k): Gasoline 569.00; Kerosene 350.00; Diesel 520.00
  - Shortfall (l = j-k): Gasoline 184.86; Kerosene 310.98; Diesel 217.62
  - Pump Price as percentage of notional retail price (k/j): Gasoline 75.48; Kerosene 52.95; Diesel 70.50
- Distribution and targeting:
  - 2007 IMF assessment: more than 70 percent of fuel price subsidies accrue to the richest 40 percent of households.
  - Poorest 20 percent receive less than 1 percent of gasoline subsidy; for kerosene poorest 20 percent receive 13 percent of the subsidy.
  - Eliminating subsidies on gasoline and diesel only at US$100 per barrel baseline would free resources equivalent to 1.8 percent of GDP; remaining kerosene subsidy would cost about 0.2 percent of GDP.
- Short-run and comprehensive reform recommendations:
  - Short-run: reduce supplementary margin for SONARA and/or revise/eliminate other cost factors in import parity calculation.
    - Staff estimate: reducing SONARA margin from 15 percent to 10 percent at end-2010 would lower estimated 2011 shortfall from CFAF 240 billion to CFAF 218 billion (a reduction of 9 percent).
  - Comprehensive: delink SONARA margin from world prices by setting a specific nominal transfer per liter; liberalize imports of refined products with direct budget transfers where justified; gradually phase out fuel subsidy by reintroducing automatic price adjustment and establishing targeted social protection, adopting a gradual approach given capacity constraints.

### Banking system vulnerabilities and financial sector soundness
- Key weaknesses and 2010 indicators:
  - Difficult financial position of 3 out of 12 commercial banks.
  - Excessive credit concentration and insufficient loan provisioning.
  - Impact of government domestic arrears on bank borrowers.
  - System-wide regulatory capital to risk-weighted assets: dropped from about 10 percent in 2009 to 7 percent in 2010 (Table 6: 2008: 10.9; 2009: 9.6; 2010: 7.4).
  - NPL ratio (gross NPLs/gross loans): 11.5 (2008), 12.9 (2009), 14.8 (2010).
  - Provisioning rate: 91.1 (2008), 79.1 (2009), 75.2 (2010).
- Staff advice and agreed actions:
  - Closely monitor liquidity conditions to avoid suspension of payments by weak banks.
  - Require full loss absorption by previous shareholders and pursue maximum recovery of related-party loans to minimize government costs.
  - Review regulatory framework, strengthen supervision, define clear rules/triggers for intervention, and improve loan provisioning rules.
  - Engage CEMAC members to strengthen regional supervisor’s capacity and gradually reduce prudential ratios for credit risk concentration.

### Access to credit, specialized institutions, and reforms
- Recent reforms and gaps:
  - Central credit registry for banks now operational.
  - Law on leasing enacted in December 2010.
  - Obligation to publish list of licensed microfinance institutions established.
  - Remaining gaps: need central credit registry for microfinance; improve contract enforcement via a commercial court and out-of-court settlements.
- Risks of state-sponsored specialized financial institutions:
  - Staff highlighted inherent risks: undiversified sectoral loan portfolios and undue interference.
  - Authorities recognized risks but consider state-sponsored institutions may be justified with safeguards to address access-to-credit problems.

### Growth outlook and macro projections (baseline)
- Real GDP growth:
  - 2011 projected at 3.8 percent.
  - Expected to increase to 5 percent in 2014.
  - Longer series (selected): Real GDP (percent change): 2009 2.0; 2010 3.2; 2011 3.8; 2012 4.5; 2013 4.8; 2014 5.0; 2015 4.0; 2016 4.5.
- Nonoil real GDP growth (percent): 2009 2.9; 2010 4.0; 2011 4.4; 2012 4.0; 2013 4.2; 2014 4.4; 2015 4.5; 2016 4.6.
- Inflation:
  - Consumer prices (period average): 2009 3.0; 2010 1.3; 2011 2.6; 2012 2.5; 2013 2.5; 2014 2.5.
  - Expected to remain below the regional convergence criterion of 3 percent.
- Oil production and prices:
  - Cameroon oil export price (US$ per barrel): 2009 58; 2010 80; 2011 99; 2012 96; 2013 89; 2014 87.
  - Oil output (thousands of barrels a day): 2009 73; 2010 64; 2011 56; 2012 67; 2013 84; 2014 105.
  - SNH projects about 23 percent average increase in production during 2012–14, reflecting new investments.
- External current account deficit:
  - Projected to remain within the range of 3 to 4 percent of GDP.
  - Financing expected mainly by private flows and new public foreign borrowing.
- Medium-term fiscal projections and assumptions:
  - Gradual strengthening in revenue mobilization expected to improve nonoil revenue to nonoil GDP ratio by about 1 percentage point from 2011 to 2016.
  - Maintain nonoil primary deficit within range of 5 percent to 6 percent of nonoil GDP during 2011–16 to anchor fiscal stance.
  - Overall budget deficit expected to turn into a surplus after 2013 under steady oil revenue and high oil prices.
  - Total public debt projected to increase from about 12 percent of GDP in 2010 to 15.5 percent in 2016 under projected new borrowing.

### Debt sustainability, borrowing assumptions, and DSA findings
- Recent borrowing and commitments:
  - Authorities contracted 30 borrowing agreements during January 2010–April 2011, equivalent to almost 6 percent of 2010 GDP.
  - At least 15 of these new loans were nonconcessional; average grant element 21.3 percent.
- Projections for new external commitments (selected):
  - Outstanding commitments at end-2010: 757.6 (CFAF billions).
  - New external commitments (2011 Jan-Apr): 339; 2011 Jan-Dec (proj.): 334; 2012: 855; 2013: 994; 2014: 623; 2015: 595; 2016: 552.
  - New external commitments as percent of GDP: 2010: 3.0%; 2011 Jan-Apr: 2.8%; 2011 Jan-Dec (proj.): 7.1%; 2012: 7.7%; 2013: 4.5%; 2014: 4.0%; 2015: 3.5%; 2016: 3.0%.
- Composition: projected shift toward nonconcessional financing (e.g., nonconcessional share 2011 Jan-Apr: 86%; projected 2016: 70% of commitments).
- Disbursement assumptions:
  - Disbursement rates assumed: 2011: 15 percent; 2012–16: 10 percent.
  - Projected new external disbursements (2011 DSA, CFAF billions): 2011: 143; 2012: 172; 2013: 245; 2014: 282; 2015: 319; 2016: 232.
- DSA baseline conclusions:
  - Cameroon’s risk of debt distress remains low under the baseline; public debt indicators below indicative thresholds in most stress tests.
  - End-2010 total public debt-to-GDP: 12 percent (lower than 2010 DSA projection of 13.4 percent).
  - If unsettled payment obligations were recognized, domestic debt would increase by 3.6 percent of GDP.
  - PV of public external debt-to-GDP and other indicators remain below weak-performer thresholds under baseline; breach occurs only under an extreme export shock.
- Risks and recommendations:
  - Rapid accumulation of nonconcessional borrowing commitments and large stock of UPOs are sources of concern.
  - Recommend cautious use of nonconcessional borrowing, strengthened debt management, periodic audits of domestic arrears, and prioritizing concessional financing where possible.
  - Strengthen capacity of CNDP and continue working with regional institutions to develop the regional government securities market.

### Exchange rate assessment and competitiveness
- Exchange rate assessment using four methodologies produces mixed signals:
  - Macroeconomic balance approach: implies REER depreciation of around 15 percent (90 percent confidence interval wide and includes zero).
  - External sustainability approach: implies REER depreciation of around 13 percent.
  - Equilibrium REER approach: suggests REER undervalued by almost 13 percent (90 percent confidence interval wide and includes zero).
  - Balassa-Samuelson approach: suggests REER undervalued by 12 percent (90 percent confidence interval very wide and includes zero).
  - Overall: two approaches point to overvaluation and two to undervaluation; results mixed.
- Competitiveness constraints:
  - Nonprice constraints (weak business environment, infrastructure deficits) are identified as primary impediments to competitiveness.
  - Global Competitiveness Index rank: 110 out of 139.
  - Doing Business 2011: Cameroon rank 168 out of 183; sub-indicators include Getting Credit 138; Enforcing Contracts 173; Paying Taxes 169.
  - Infrastructure cost indicators: Power tariff (US cents per Kwh) 10.9; Container cargo handling charge (US$ per TEU) 220.0; Road freight tariff (US$ per tonne-Km) 0.10; Monthly internet basket (US$) 48.0.

### Policy discussions and staff recommendations (2011 priorities)
- Controlling risks for the 2011 budget:
  - Key fiscal risks: fuel subsidy shortfall (estimated CFAF 240 billion at US$100/barrel), clearing remaining UPOs could require up to CFAF 225 billion, potential election-related expenditure overruns, contingent claims from bank restructuring (recapitalization needs estimated CFAF 60 billion for one distressed bank; tentative government contribution 0.2 percent of GDP).
  - Staff recommended measures to reduce financing needs: clarify regulatory treatment of sovereign bonds for banks; implement strict treasury plan and identify nonpriority spending; step up nonoil revenue collection; prepare contingency plan if bond issuance underperforms; reassess fuel price formula and gradually restore automatic retail price adjustment to international prices when feasible; redeploy savings to targeted social protection; avoid new refinery arrears.
  - BEAC statutory advances remain last-resort; Cameroon could access up to CFAF 335 billion (2.8 percent of GDP).
- Improving PFM conditions:
  - Priorities: exhaustive arrears audit and gradual settlement schedule; prevent further UPOs via commitment controls and 90-day rule; prepare monthly fiscal reporting (TOFE) on payment order basis; revise cash-flow plans to account for pipeline commitments and UPOs; abide by single treasury account rule; accelerate medium-term public expenditure modernization and operationalize MTEF.
- Safeguarding financial system stability:
  - Restructure weak banks by recovering related-party loans, removing NPLs, and recapitalizing via reputable investors; require full loss-absorption by previous shareholders; strengthen regional/national supervisory coordination; improve loan provisioning and resolution legal framework.
- Infrastructure and business climate:
  - Actions needed to raise execution rate for public investment, implement Cameroon Business Forum action matrix, improve governance, and tackle corruption.
- Revenue mobilization:
  - Scope to broaden tax base, streamline tax exemptions, and increase tax and customs administration efficiency.
- Borrowing policy:
  - Maintain prudent borrowing policy to preserve debt sustainability; rely on grants and highly concessional loans where possible; manage nonconcessional borrowing carefully.

### Key selected macroeconomic and fiscal indicators (selected series)
- Real GDP (percent change): 2009 2.0; 2010 3.2; 2011 3.8; 2012 4.5; 2013 4.8; 2014 5.0; 2015 4.0; 2016 4.5
- Consumer prices (period average): 2009 3.0; 2010 1.3; 2011 2.6; 2012 2.5; 2013 2.5; 2014 2.5
- Total revenue (incl. grants, percent of GDP): 2009 18.4; 2010 17.4; 2011 18.2; 2012 18.8; 2013 19.1; 2014 19.8
  - Oil (percent of GDP): 2009 4.8; 2010 4.5; 2011 4.7; 2012 5.2; 2013 5.4; 2014 6.0
- Total expenditure (percent of GDP): 2009 18.4; 2010 18.6; 2011 19.6; 2012 19.1; 2013 19.0; 2014 18.8
  - Capital (percent of GDP): 2009 4.2; 2010 4.1; 2011 5.3; 2012 5.5; 2013 5.8; 2014 5.8
- Overall budget balance (incl. grants, percent of GDP): 2009 -0.2; 2010 -2.3; 2011 -4.8; 2012 -0.5; 2013 0.0; 2014 0.9
- Current account (incl. grants, percent of GDP): 2009 -3.8; 2010 -2.8; 2011 -4.0; 2012 -3.3; 2013 -3.4; 2014 -3.0
- Total public debt (percent of GDP): 2009 10.6; 2010 12.1; 2011 14.4; 2012 14.6; 2013 15.0; 2014 15.0; 2016 15.5
- Banking soundness (selected): regulatory capital to risk-weighted assets 2008 10.9; 2009 9.6; 2010 7.4. NPL ratio 2008 11.5; 2009 12.9; 2010 14.8.

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

*Source: _cr11266 - IMF staff report content provided.*

### 1. Response to Recent Fund Advice ......................................................................................

### 1. Response to Recent Fund Advice

### Background: weak growth and stagnant poverty
- Recent years: growth performance remained weak; economy vulnerable to exogenous shocks.
- No growth in per capita terms over the last five years despite a relatively diversified productive base.
- Poverty rates: stagnated at close to 40 percent; 87 percent of the poor living in rural areas.
- Binding constraints cited: underinvestment in critical infrastructure; unfavorable business climate; poor public financial management; shallow financial sector; weak regional trade integration.
- Dependence on commodities for export earnings and fiscal revenues increases vulnerability to external shocks.
- Comparative indicators (average over 2006-10, Cameroon vs SSA):
  - Real per capita GDP (U.S. dollars, at 2000 prices): 678.9 (Cameroon) vs 671.3 (SSA)
  - Real GDP growth (percent): 2.8 (Cameroon) vs 5.3 (SSA)
  - Real nonoil GDP growth (percent): 3.3 (Cameroon) vs 6.3 (SSA)
  - Real per capita GDP growth: 0.0 (Cameroon) vs 3.1 (SSA)
  - Total investment (percent of GDP): 16.2 (Cameroon) vs 22.4 (SSA)
- Social indicators, 2009 (Cameroon vs SSA):
  - Employment to population ratio, 15+, total (%): 59.0 vs 64.0
  - Primary completion rate, total (% of relevant age group): 73.0 vs 64.0
  - Ratio of female to male primary enrollment: 86.0 vs 91.0
  - Ratio of female to male secondary enrollment: 80.0 vs 79.0
  - Immunization, measles (% of children ages 12-23 months): 74.0 vs 68.0
  - Mortality rate, under–5 (per 1,000): 154.0 vs 130.0
  - Prevalence of HIV, total (% of population ages 15-49): 5.1 vs 5.0
  - Improved water source (% of population with access): 74.0 vs 60.0

### Political and data environment
- Political situation: currently stable; risk of social unrest ahead of presidential (October 2011) and legislative (mid-2012) elections given widespread poverty, youth unemployment, and increasing income and wealth inequalities.
- Data provision to the IMF: broadly adequate for surveillance but important gaps in fiscal, external, and financial sector information.
  - Government financial operations on a commitment basis and financial sector soundness indicators are not regularly available.
  - Balance of payments statistics need improvement.
  - Monetary data availability subject to unusually long delays.
  - Authorities adopted and started implementing a strategy for improving national statistics with donors’ technical assistance.

### Box 1 — Response to recent Fund advice: summary of Fund advice and outcomes
- Fiscal policy and public financial management: Fund advice
  - (i) Protect priority capital spending; make efforts to mobilize revenues; gradually phase out fuel subsidies; and avoid depleting the fiscal buffer of usable government deposits.
  - (ii) Strengthen expenditure and cash management.
  - (iii) Establish an effective mechanism to track expenditure flows through the budget execution process.
  - (iv) Recognize constraint imposed by accumulated unsettled payment obligations (UPOs) on resources for the following year budget, and adopt a budgetary treatment for committed spending for which no payment order has been issued (DENOs).
- Fiscal policy and PFM: outcomes
  - (i) In 2010, execution rate on capital expenditure remained low (75 percent); nonoil revenues were lower than programmed; fuel subsidies were not phased out; usable deposits were almost depleted.
  - (ii) A Treasury Management Committee became operational, but domestic arrears problems continued.
  - (iii) An effective mechanism to track expenditure flows is not yet in place.
  - (iv) The 2011 budget program includes an allocation for the clearance of UPOs and foresees a mechanism to control DENOs.
- Financial sector stability: Fund advice
  - In collaboration with the regional bank supervisor, monitor closely bank vulnerabilities and promote a gradual adoption of best practices to mitigate concentration risks.
- Financial sector stability: outcomes
  - Little progress has been made in dealing with local banks in weak financial condition.
- Other structural reforms: Fund advice
  - Make the business environment more attractive; strengthen governance; and accelerate regional integration.
- Other structural reforms: outcomes
  - Efforts to improve the business climate were pursued by intensifying the dialogue with the private sector and implementing an agreed action plan. No concrete progress on regional integration.

### Recent economic developments (2010)
- Growth and inflation
  - Real GDP growth in 2010 is estimated at 3.2 percent, up from 2 percent in 2009, despite a sizeable drop in oil output.
  - Recovery driven by nonoil, export-oriented sectors; tax incentives to boost agriculture and forestry production contributed.
  - Average annual inflation: 1.3 percent in 2010, compared with 3 percent in 2009.
  - Food price inflation: 2.3 percent in 2010, down from 5.9 percent in 2009.
- External accounts
  - Nonoil export volume increased by 3.5 percent in 2010.
  - Import volume growth estimated at 8.2 percent in 2010.
  - External current account deficit (including grants) estimated at 2.8 percent of GDP, declined by about one percentage point of GDP.
- Fiscal accounts (cash basis, 2010)
  - Domestic revenue close to supplementary budget target: 16.8 percent of GDP (oil revenue windfall compensated for a shortfall in nonoil revenue of 0.6 percent of GDP).
  - Composition of spending: current expenditure 14.5 percent of GDP (budgeted 13.9); capital expenditure suffered delays.
  - Deficit on a cash basis after clearing outstanding obligations: 2.3 percent of GDP, below the 3.5 percent of GDP targeted in the supplementary budget.
- Efforts on arrears and PFM
  - Out of a total stock of CFAF 260 billion (2.5 percent of GDP) of UPOs at end-2009, CFAF 240 billion were cleared in 2010 through cash payment or accounts reconciliation.
  - Most end-2009 arrears to the oil refinery were settled through borrowing from the BEAC against the proceeds from the general SDR allocation.
  - A supplementary budget was adopted by presidential decree in September 2010 to account for revenue shortfalls and to reduce/reallocate expenditure.

### Persistent PFM problems and fiscal risks (end-2010)
- Key developments and figures:
  - Arrears to SONARA at end-2010: CFAF 136 billion (1.2 percent of GDP).
  - SONARA accumulated tax arrears to the government: close to CFAF 45 billion.
  - Flow of UPOs on 2010 operations reached CFAF 250.6 billion (2.3 percent of GDP) by end-year.
  - End-2010 stock of UPOs: CFAF 271 billion (2.4 percent of GDP).
  - Government usable deposits at the BEAC declined to the equivalent of 0.2 months of public spending at end-2010, from 1 month at end-2009.
  - Out of an allocation of CFAF 120 billion for fuel subsidies in the 2010 supplementary budget, only CFAF 17 billion was paid to SONARA.
  - Government deposits were boosted in December by proceeds of the bond issuance (CFAF 197.5 billion, about 1.8 percent of GDP) but these proceeds were earmarked to specific infrastructure spending and thus not included as usable deposits.
- Text Table 2 (selected fiscal indicators, on a cash basis, 2008–10) — selected entries (In percent of GDP):
  - Total revenue, incl. grants: 2008: 20.8; 2009: 18.4; Suppl. Est. budget 2009: 17.4; 2010: 17.4
  - Oil revenue: 2008: 7.6; 2009: 4.8; Suppl. Est. budget 2009: 3.7; 2010: 4.5
  - Nonoil revenue: 2008: 12.3; 2009: 12.7; Suppl. Est. budget 2009: 12.9; 2010: 12.3
  - Total expenditure: 2008: 18.5; 2009: 18.4; Suppl. Est. budget 2009: 19.3; 2010: 18.6
  - Current: 2008: 13.1; 2009: 14.2; Suppl. Est. budget 2009: 13.9; 2010: 14.5
  - Capital: 2008: 5.5; 2009: 4.2; Suppl. Est. budget 2009: 5.4; 2010: 4.1
  - Overall balance, incl. grants: 2008: 2.0; 2009: -0.2; Suppl. Est. budget 2009: -3.5; 2010: -2.3
  - Memorandum: Nonoil revenue, incl. grants (percent of nonoil GDP): 2008: 13.7; 2009: 13.5; Suppl. Est. budget 2009: 13.9; 2010: 13.3
  - Nonoil primary balance: 2008: -3.4; 2009: -4.9; Suppl. Est. budget 2009: -5.7; 2010: -5.7
- Text Table 3 (Government arrears and other payment obligations, 2008–10) — selected entries (CFAF billions and percent of GDP):
  - Audited arrears from 2005-10: annual flows/stocks 2008: -37.3 / 122.0; 2009: -17.0 / 195.0; 2010: -34.7 / 178.3 (In percent of GDP: -0.4 / 1.1; -0.2 / 1.9; -0.3 / 1.6)
  - Obligations to SONARA (annual flows / stocks): 2008: 79.5 / 93.8; 2009: 4.5 / 98.3; 2010: 37.9 / 136.2 (In percent of GDP: 0.7 / 0.9; 0.0 / 0.9; 0.3 / 1.2)
  - UPOs (Unsettled payment orders): end-2009 stock: 260.0 (1.7 percent of GDP); 2010 flow: 250.6 and end-2010 stock: 270.6 (2.3 / 2.4 percent of GDP)
  - Validated DENOS: stock 69.0 (0.7 percent of GDP)
  - Total (B) other obligations: 2008: 151.7; end-2009: 246.9 / 427.3; end-2010: 288.5 / 414.8 (In percent of GDP: 1.4 --- 2.4 --- 4.1 2.6 3.7)
  - Payment of previous years' UPOs: 204.9 / 198.1 / 240.0 (In percent of GDP: 1.9 / 1.9 / 2.2)
  - Government usable deposits (CFAF billions and months of total expenditure): 2008: 43.6 / 1.4 months; 2009: 224.9 / 1.0 months; Suppl. Est. budget 2009: -71.2 / 0.2 months; 2010: 153.7 / -120.4 / 33.3 months (note: end-2010 figure does not include earmarked proceeds from 2010 bond issuance CFAF 197.5 billion)
  - “---” denotes not available.

### Box 2 — Cameroon’s experience with a first-time issuance of government bonds (2010)
- 2010 budget financing relied on issuance of government bonds: CFAF 200 billion (about 1.8 percent of GDP) on the regional market; issuance ultimately on domestic market through Douala Stock Exchange.
- Key timings and terms:
  - Decree authorizing negotiation signed in September; proceeds earmarked to specific infrastructure projects.
  - Issuance launched on November 18; subscriptions to take place in December.
  - Terms: maturity of five years; interest rate of 5.6 percent; one-year grace period for repayment.
  - Subscription outcome validated December 29 by the Financial Market Commission.
- Results:
  - Total subscriptions: CFAF 203.2 billion; CFAF 200 billion authorized were accepted.
  - Intermediaries’ fees and commissions: CFAF 2.5 billion (1.25 percent), leaving net proceeds of CFAF 197.5 billion deposited in a special treasury account at the BEAC.
  - Subscriber breakdown (Number):
    - By category: Individuals 649; Institutions, excl. banks 164; Banks 28; Total 841.
    - By nationality: Cameroon 817; CEMAC 16; Non-CEMAC 8; Total 841.
  - Amount subscribed (CFA billions): Individuals 11.2; Institutions 36.1; Banks 152.7; Total subscribed 200.0; Amount accepted 200.0; Net proceeds 197.5.
- Assessment:
  - Issuance was a success and paved the way for mobilization of local savings.
  - Operation was relatively expensive given the interest rate.

### Banking system vulnerabilities and financial sector soundness (2010)
- Conditions troubled due to:
  - Difficult financial position of 3 out of the 12 commercial banks.
  - Excessive credit concentration and insufficient loan provisioning.
  - Impact of government domestic arrears on bank borrowers.
- Financial soundness indicators deteriorated in 2010:
  - System-wide average capital to risk-weighted assets ratio: dropped from about 10 percent in 2009 to 7 percent in 2010.
  - Ratio of nonperforming loans (NPLs) to total loans: increased from about 13 percent to 15 percent.
  - Ratio of provisions to NPLs: declined from 79 percent to 75 percent.

*Source: _cr11266 - 1. Response to Recent Fund Advice (IMF staff report content provided).*

### 10.      Economic growth is expected to pick up gradually under current policies. Real

### 10.      Economic growth is expected to pick up gradually under current policies. Real

### Growth outlook
- Real GDP growth:
  - 2011 projected at 3.8 percent.
  - Expected to increase to 5 percent in 2014.
- Drivers of the positive outlook:
  - Ongoing recovery of the global economy.
  - Execution of infrastructure programs.
  - Initiatives to improve the business climate.
- Oil production:
  - Expected to contribute to real GDP growth in 2012–14.
  - National Oil Company (SNH) projections point to a sizeable increase in production (about 23 percent on average during that period), followed by a resumption of the declining trend.
  - The projected increase reflects the coming on-stream of ongoing investments after successful exploration efforts during the last three years.
- Nonoil growth support:
  - Ongoing major projects to boost agricultural productivity and competitiveness.
  - Construction related to the public investment program.
  - Implementation of planned measures to improve the business environment.

### Inflation
- Inflation is expected to remain below the regional convergence criterion of 3 percent.
- Ongoing initiatives to boost agricultural production and subsidize imports of food are likely to moderate the impact of world food prices.
- Inflation could temporarily overstep the convergence target if the current policy of freezing retail fuel prices were to be revisited.

### External sector
- External current account deficit:
  - Projected to remain manageable, within the range of 3 to 4 percent.
- Drivers:
  - Gradual improvement in nonoil exports.
  - A jump in oil production starting in 2012.
  - Persistent high oil prices expected to offset the increase in import volumes.
- Financing:
  - A broadly stable current account deficit is expected to be financed mainly by private flows and new public foreign borrowing.

### Medium-term fiscal projections
- Assumptions and goals:
  - Continued efforts to strengthen revenue mobilization, contain nonpriority spending, and address infrastructure gaps.
  - Gradual strengthening in revenue mobilization expected to improve the ratio of nonoil revenue to nonoil GDP by about 1 percentage point from 2011 to 2016.
  - Efforts to tackle infrastructure bottlenecks should result in a sustained increase in capital spending while maintaining the nonoil primary deficit within the range of 5 percent to 6 percent of nonoil GDP to anchor the fiscal stance.
- Oil revenue and public debt:
  - A steady flow of oil revenue, from projected oil production increases and high international oil prices, would gradually lower the overall budget deficit, turning it into a surplus after 2013.
  - Projected new borrowing would increase total public debt from about 12 percent of GDP in 2010 to 15.5 percent in 2016 without jeopardizing debt sustainability.

### Risks to the medium-term outlook
- Broadly balanced; key risks include:
  - (i) The uncertain pace and strength of the global recovery.
  - (ii) A vulnerable banking sector that may generate fiscal liabilities and affect the real sector.
  - (iii) Potential delays in the implementation of reforms in a protracted election environment.
- Upside:
  - Faster and more effective implementation of new large public infrastructure projects could generate nonoil sector growth higher than projected under the baseline.

### Key macroeconomic and fiscal indicators (selected, as reported)
- Real GDP (percentage change): 2009 2.0; 2010 3.2; 2011 3.8; 2012 4.5; 2013 4.8; 2014 5.0; 2015 4.0; 2016 4.5
- Nonoil real GDP (percentage change): 2009 2.9; 2010 4.0; 2011 4.4; 2012 4.0; 2013 4.2; 2014 4.4; 2015 4.5; 2016 4.6
- Consumer prices (period average): 2009 3.0; 2010 1.3; 2011 2.6; 2012 2.5; 2013 2.5; 2014 2.5; 2015 2.5; 2016 2.5
- Cameroon oil export price (US$ per barrel): 2009 58; 2010 80; 2011 99; 2012 96; 2013 89; 2014 87; 2015 86; 2016 86
- Oil output (thousands of barrels a day): 2009 73; 2010 64; 2011 56; 2012 67; 2013 84; 2014 105; 2015 101; 2016 104
- Private investment (percent of GDP): 2009 12.4; 2010 12.6; 2011 13.0; 2012 13.2; 2013 13.4; 2014 13.6; 2015 13.7; 2016 13.8
- Total revenue (incl. grants, percent of GDP): 2009 18.4; 2010 17.4; 2011 18.2; 2012 18.8; 2013 19.1; 2014 19.8; 2015 19.2; 2016 19.0
  - Of which: oil (percent of GDP): 2009 4.8; 2010 4.5; 2011 4.7; 2012 5.2; 2013 5.4; 2014 6.0; 2015 5.2; 2016 5.0
  - Nonoil (percent of nonoil GDP): 2009 13.5; 2010 13.3; 2011 13.7; 2012 14.0; 2013 14.2; 2014 14.4; 2015 14.5; 2016 14.5
- Total expenditure (percent of GDP): 2009 18.4; 2010 18.6; 2011 19.6; 2012 19.1; 2013 19.0; 2014 18.8; 2015 18.8; 2016 18.8
  - Noninterest current (percent of GDP): 2009 13.9; 2010 14.2; 2011 13.9; 2012 13.3; 2013 12.9; 2014 12.6; 2015 12.6; 2016 12.6
  - Capital (percent of GDP): 2009 4.2; 2010 4.1; 2011 5.3; 2012 5.5; 2013 5.8; 2014 5.8; 2015 6.0; 2016 6.0
- Overall budget balance (incl. grants, percent of GDP): 2009 -0.2; 2010 -2.3; 2011 -4.8; 2012 -0.5; 2013 0.0; 2014 0.9; 2015 0.3; 2016 0.1
- Nonoil primary fiscal balance (percent of nonoil GDP): 2009 -4.9; 2010 -5.7; 2011 -6.1; 2012 -5.5; 2013 -5.3; 2014 -5.1; 2015 -4.9; 2016 -5.0
- Nonoil current balance (percent of nonoil GDP): 2009 -0.7; 2010 -1.6; 2011 -0.8; 2012 0.0; 2013 0.6; 2014 0.9; 2015 1.2; 2016 1.2
- Current account (incl. grants, percent of GDP): 2009 -3.8; 2010 -2.8; 2011 -4.0; 2012 -3.3; 2013 -3.4; 2014 -3.0; 2015 -3.3; 2016 -3.0
- Terms of trade (percentage change): 2009 -15.0; 2010 18.5; 2011 3.3; 2012 -1.4; 2013 -0.5; 2014 0.7; 2015 -5.4; 2016 -3.8
- Total public debt (percent of GDP): 2009 10.6; 2010 12.1; 2011 14.4; 2012 14.6; 2013 15.0; 2014 15.0; 2015 15.0; 2016 15.5
- External public debt (percent of GDP): 2009 5.5; 2010 6.5; 2011 6.5; 2012 7.3; 2013 8.5; 2014 9.7; 2015 11.0; 2016 12.2

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

### IV. POLICY DISCUSSIONS: MAINTAINING MACROECONOMIC AND FINANCIAL STABILITY AND FOSTERING GROWTH

#### A. Controlling risks for the 2011 budget
- 2011 budget overview:
  - Adopted in November 2010; broadly as discussed with staff in September 2010.
  - Projects nonoil revenue to reach 14.1 percent of nonoil GDP (up from 13.3 percent in 2010), supported by new administrative and tax policy measures.
  - Expenditure remains at 2010 levels (18.7 percent of GDP) with a constant level of overall subsidies (3.1 percent of GDP).
  - Overall budget deficit of 2.6 percent of GDP; amortization of external and domestic debt of 0.8 percent of GDP.
  - Financing assumed from (i) external project financing (1.3 percent); (ii) drawings from government deposits (0.4 percent); (iii) issuance of government bonds (1.3 percent) and treasury bills (0.4 percent).
- Budgetary pressures and risks:
  - Arrears to the domestic oil refinery and increasing fuel subsidies:
    - Stock of past obligations to the oil refinery: CFAF 136 billion at end-2010.
    - Maintaining present retail fuel price policy requires a subsidy of about CFAF 240 billion in 2011, CFAF 108 billion more than foreseen in the budget.
  - Resources needed to clear remaining UPOs could be as high as CFAF 225 billion (out of a stock of about CFAF 271 billion at end-2010); the budget provision is less than half of this amount.
  - Costs linked to the “Mission for the Regulation of the Supply of Staple Goods” (MIRAP) are not incorporated into the budget; fiscal cost uncertain.
  - Potential expenditure overruns on goods and services to cover election costs and national events (overruns reached 1.2 percent of GDP in 2010).
  - Contingent claims from restructuring distressed banks; recapitalization needs estimated at CFAF 60 billion (0.5 percent of GDP) for one distressed bank; tentative government contribution estimated at 0.2 percent of GDP in staff projections for 2011.
  - Uncertainty regarding regional market absorption of the second bond issuance; staff assume one third (CFAF 50 billion) may be placed on the regional market.
- Fiscal gap and staff advice:
  - Incorporating these risks could produce a residual financing gap of up to 2.7 percent of GDP.
  - Staff recommendations to reduce financing needs:
    - Clarify with the regional bank supervisor the regulatory treatment of sovereign bonds in bank portfolios and prepare the 2011 issuance promptly.
    - Implement a strict treasury plan and identify nonpriority spending to contain.
    - Step up administrative efforts to improve nonoil revenue collection.
    - If bond issuance is unlikely, prepare a contingency plan involving postponement of new public projects and addressing risk of accumulating new arrears.
    - Reassess the fuel price formula and, when politically feasible, gradually restore automatic adjustment of retail fuel prices to international prices to reduce subsidies; redeploy resources to targeted social protection mechanisms; avoid new arrears to the refinery.
- Authorities’ stance:
  - Determined to implement a tight treasury management plan but reluctant to adopt further corrective measures ahead of elections.
  - Risk of large domestic arrears accumulation and/or postponing public infrastructure projects if treasury pressures materialize.
  - BEAC statutory advances remain a last-resort source of financing; Cameroon could still access up to CFAF 335 billion (2.8 percent of GDP).

#### B. Improving PFM conditions
- Priorities to strengthen public expenditure management and efficiency:
  - Tackle existing stock of arrears and other payment obligations.
  - Prevent further accumulation of government payment obligations.
  - Strengthen cash management.
  - Enhance quality of public spending.
- Arrears audit:
  - Exhaustive audit of arrears and other central government payment obligations has started.
  - Previous partial audits (2005–10) left a stock of about CFAF 178 billion (1.6 percent of GDP) outstanding.
  - Importance of defining and implementing a clear schedule for gradual settlement of audited arrears.
- Recommended measures to prevent further arrears:
  - Establish a mechanism to monitor commitments by reducing authorizing officers, recentralizing budget commitment management, and mandating budget execution reporting throughout the expenditure chain.
  - Implement the 90-day rule for definition of government arrears per the CEMAC directive.
  - Maintain the 2011 budget mechanism to control DENOs by requiring payment the following year through the entity’s budget allocation.
  - Prepare the monthly fiscal reporting table (TOFE) on a payment order basis to improve monitoring.
- Cash management improvements:
  - Revise methodology for cash-flow plans to systematically account for pipeline of outstanding spending commitments and UPOs, in addition to budgeted expenditures.
  - Abide by the single treasury account rule; limit use of SNH as a payment window for government operations.
  - Mission estimated, in absence of official data, that payments made by SNH on behalf of government totaled almost 1 percent of GDP in 2010.
- Public expenditure modernization:
  - Accelerate implementation of the medium-term plan for modernization of public expenditure (adopted in 2009).
  - Actions urged:
    - Implement a strategy to improve absorptive capacity for public investment and build continuity through multiyear commitment appropriations.
    - Establish a central unit for project feasibility studies and evaluation (SEDEF); use incoming civil servants’ recruitment to strengthen execution capacities.
    - Ensure public procurement is competitive and minimize single-source contracts.
    - Make the medium-term expenditure framework (MTEF) operational to translate PRSP priorities into annual budgets.

#### C. Safeguarding financial system stability
- Banking sector vulnerabilities pose risks to public finances and the economy.
- Authorities’ intended actions for restructuring weak banks:
  - Recovery of loans to borrowers related to main shareholders.
  - Removal of nonperforming loans.
  - Recapitalization through reputable investors taking a majority share; authorities noted potential social and political costs.
- Staff advice:
  - Closely monitor liquidity conditions to avoid suspension of payments by weak banks.
  - Require full loss absorption by previous shareholders.
  - Pursue maximum recovery of loans owed by related parties to minimize government financial costs.
- Regulatory and supervisory improvements:
  - Need to review the regulatory framework and strengthen supervision.
  - Identified weaknesses: delays in coordination between regional and national authorities; lack of clear rules and triggers for intervention; long legal procedure delays; significant opportunity for shareholder interference in insolvent banks.
  - Agreed actions with authorities:
    - Engage CEMAC members in strengthening regional supervisor’s capacity.
    - Gradually reduce prudential ratios for credit risk concentration.
    - Improve regulations on loan provisioning to allow earlier recognition of expected losses.
    - Define clear rules and decision mechanisms for treatment of banks in difficulty.

*IMF staff and Cameroonian authorities as reported in the source.*

### 28.      There has been some progress in removing obstacles to access to bank credit.

### _cr11266 - 28.      There has been some progress in removing obstacles to access to bank credit.

### Access to credit: recent reforms and remaining gaps
- A central credit registry for banks is now in operation.
- A law on leasing, which would help improve access of SMEs to credit, was enacted in December 2010.
- The Ministry of Finance has established the obligation of publishing the list of licensed microfinance institutions.
- Remaining gaps:
  - Need to establish a central credit registry for microfinance institutions.
  - Need to improve contract enforcement by setting up a court for commercial matters and facilitating out-of-court settlements.

### Risks and debates on state-sponsored specialized financial institutions
- Staff and the authorities discussed risks of creating state-sponsored specialized financial institutions for agriculture and SME financing:
  - Such institutions inherently involve undiversified sectoral loan portfolios and risks of undue interference in their management.
- Authorities’ view:
  - Recognized these risks but noted current problems of access to credit could justify creating such institutions, with appropriate safeguards to address weaknesses and avoid past failures.

### Addressing infrastructure gaps while preserving debt sustainability
- Ongoing efforts:
  - Alleviate infrastructure bottlenecks in energy, roads, ports, water supply, and telecommunications.
  - Projects expected to be financed by a mix of external loans, domestic borrowing, and public–private partnership (PPP).17
- Fiscal anchor and staff analysis:
  - Keeping the nonoil primary deficit (in percent of nonoil GDP) in the range of 5 to 6 percent as an anchor for fiscal policy during 2011-16 would be consistent with maintaining a sustainable public debt profile and preserving a low risk of debt distress.
- Debt sustainability analysis (DSA) findings:
  - DSA suggests Cameroon’s risk of debt distress remains low, with public debt indicators at comfortable levels and external debt ratios below policy-dependent thresholds under the baseline scenario and most stress tests.
  - In the case of a large export shock, the present value of external debt to exports ratio would result in small and temporary breach of the threshold.18
  - The DSA projects new external borrowing taking into account sizeable new commitments signed by the authorities in 2010 and in 2011, for which disbursements are assumed to be spread out over several years.19
- Authorities concurred that avoiding renewed debt vulnerabilities requires:
  - Keeping nonconcessional borrowing in check.
  - Strengthening debt management practices.
  - Widening the export base.

### Public debt management: specific recommendations
- Strengthen monitoring by:
  - Setting up a database on public enterprise debt (with and without government guarantee).
  - Conducting periodic audits of domestic arrears.
- Enhance capacity of the National Public Debt Committee (CNDP) to coordinate and monitor the implementation of the national public debt strategy.
- Continue to work with regional institutions to make the regional market for government securities fully operational.

### Competitiveness and business environment
- REER and external competitiveness:
  - Staff’s estimates based on four methodologies in line with the CGER approaches do not provide compelling evidence of real effective exchange rate (REER) misalignment (Appendix III).
  - The REER depreciated by about 6 percent in 2010 (annual average) following a depreciation of the nominal effective exchange rate by 4.5 percent (owing to the depreciation of the euro against other major currencies during most of the year) and a negative inflation differential (about 2 percent) between Cameroon and its trading partners.
- Nonprice constraints:
  - External competitiveness is clearly hampered by nonprice factors, especially a weak business environment.

### Initiatives to improve the business climate (Box 3 summary)
- Focus areas:
  - Intensifying dialogue with the private sector and implementing an agreed action plan.
  - Fighting corruption.
  - Pursuing public enterprise reforms.
- Implementing the action plan to improve business climate:
  - Cameroon Business Forum (CBF), with IFC assistance, adopted a matrix of measures to be implemented in 2010–11; a recent assessment concluded that half of the envisaged actions have been completed.
  - Examples of completed actions: reduced number of steps to start a business; simplified procedures for paying taxes; improved one-stop window services for external trade; shortened time for construction permits; laws on e-commerce enacted; regional one-stop windows for delivery of property titles introduced.
- Fighting corruption:
  - Efforts intensified since 2009, leading to prosecution of high-level officials charged with misappropriation of public funds and a stepped up anticorruption campaign.1
  - These efforts have still to generate tangible results in international rankings.2
- Public enterprise reforms:
  - Mixed progress: sale of 51 percent of CAMTEL inconclusive; new divestiture strategy being prepared. Restructuring of CAMPOST ongoing; liquidation of old CAMAIR being completed; new national airline (CAMAIR CO) launched operations in March 2011 under new management.
- International rankings:
  - Cameroon’s rank on the Corruption Perceptions Index of Transparency International was 146th out of 178 countries in 2010.
  - The World Bank Governance Indicators continue to rank Cameroon in the bottom 25th quartile.

### Trade liberalization and export diversification
- Progress on trade liberalization could help diversify the nonoil export base.
- Constraints:
  - Private investment and productivity growth remain constrained by high customs duties and nonuniform implementation of regional trade regulations.20
  - CEMAC CET rates include tariff rates of up to 30 percent and an unweighted average of about 19 percent.
- Needed actions:
  - Reduce level and range of the common external tariff (CET).
  - Harmonize rules of products’ country of origin.
  - Limit CET exemptions.
- Authorities’ position:
  - Broad agreement with need for progress but noted slow progress in regional negotiations and concerns over potential reduction in customs revenues.

### Staff appraisal: macro outlook, risks, and policy priorities
- Macroeconomic outlook:
  - The economy is gradually recovering from the global crisis, and inflation remains contained.
- Main risks identified:
  - Uncertainty on the strength and duration of the global recovery.
  - Persistent weaknesses in the public finances.
  - Increasing vulnerabilities in the banking sector.
  - Failure to reach the projected increase in oil production.
  - Possible delays in implementation of needed reforms, given electoral concerns.
- Risks to the 2011 budget:
  - Under pressure from unsettled payment obligations and arrears to the oil refinery accumulated in 2010, rising subsidies to support the freeze in retail fuel prices, and uncertainty in mobilizing budgeted domestic financing through a second bond issuance.
  - A sizable financing gap could materialize.
  - Recommendation: guide fiscal policy in 2011 by reprioritization of current and capital spending and strict treasury management to close any residual financing gap while avoiding further accumulation of domestic arrears or undue compression of public investment.
- Public financial management (PFM) and revenue mobilization:
  - Encourage completion of a comprehensive audit of outstanding arrears, strengthen treasury management, rebuild fiscal buffers gradually, and establish mechanisms to monitor commitments and improve tracking of spending flows through budget execution.
  - Scope exists for pursuing higher nonoil revenue by broadening the tax base, streamlining tax exemptions, and further increasing efficiency of tax and customs administration.
- Banking sector vigilance:
  - Financially-weak condition of some domestic banks and accumulation of unsettled government payment obligations continue to pose a risk to financial stability.
  - Advice: in collaboration with the regional supervisory institution, take resolute steps to (i) monitor vulnerabilities through regular analysis of banking sector soundness indicators; (ii) promote a sound and rapid restructuring plan for banks in difficulty, while minimizing costs for the public finances; and (iii) champion a reform of the legal framework for bank resolution.
- Regional financial institutions:
  - Strengthening BEAC governance remains a priority; staff encourages continued pressure for BEAC governance reforms and support for BEAC’s program to strengthen risk mitigating safeguards.
- Infrastructure and business climate:
  - Address severe infrastructure gaps and improve business climate to achieve higher and sustained growth over the medium term.
  - Required actions: define and implement a concrete strategy to raise the execution rate for public investment, deepen dialogue with the private sector and implement Cameroon Business Forum actions, improve governance, and tackle corruption.
  - Staff estimates do not provide evidence of exchange rate misalignment for Cameroon, but competitiveness is hampered by a weak business environment and insufficient provision of public services.
- Borrowing policy and debt sustainability:
  - Maintain a prudent borrowing policy to preserve debt sustainability.
  - Updated LIC-DSA shows Cameroon’s risk of debt distress remains low.
  - Concern: recent surge in nonconcessional borrowing to finance major infrastructure projects, if not used wisely, could jeopardize public debt sustainability in the medium to longer term.
  - Recommendations: rely, to the extent possible, on grants and highly concessional loans for financing the investment program; work closely with regional institutions in developing a regional market for government securities to reduce vulnerability to external financing shocks.

*Source: _cr11266 - 28.      There has been some progress in removing obstacles to access to bank credit.*

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

### _cr11266 - 43.      Staff recommends that the next Article IV consultation take place within 12 months.

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

### Comparative indicators and economic structure (1980–2010)
- 2009 GDP breakdown, percent of total:
  - Agriculture, 18.9 %
  - Oil & mining, 7.3%
  - Services, 44 %
  - Forestry & livestock, 5.9 %
  - Manufacturing, 19.2 %
  - Construction & utilities, 4.7 %
- Cameroon and comparator groups: Per Capita GDP, 1980-2009 (2000 US dollars) — graphical comparisons with Lower-middle-income countries, Cameroon, Sub-Saharan (1990–2009 shown).
- Observations from figures and captions:
  - "... however, growth has lagged increasing ly behind comparator countries ..."
  - Debt to GDP (Percent): comparative series for Total public debt and Total external debt.
  - Comparative Fiscal Revenue (Percent of GDP): Cameroon compared with SSA, Oil exporters; Middle-income SSA countries; Low-income SSA countries.
  - Note: "The Cameroon economy is relatively diversif ied."

### Poverty evolution (1996–2007)
- Source: Cameroon, National Institute of Statistics, National Poverty Survey, December 2008.
- Figure 2: Evolution of Poverty, 1996-2007 — series for Cameroon, Urban, Rural, and regions (West, Yaounde, Center, South-West, Douala, Littoral, South, North-West, Adamawa, East, Extreme-north, North).
- Percentage change in poverty by region, from 2001 to 2007 — regional percent changes shown on figure.

### Revenue, inflation, and government payments
- Nonoil Government Revenue (percent of nonoil GDP) — series for Cameroon and Other SSA oil exporting countries (2005–2010 indicated in chart).
- CPI Inflation, 2006–10:
  - Food inflation and CPI inflation shown as percent series.
- Accumulation and Payment of UPOs and Government Usable Deposits, 2008-10 (CFAF billion):
  - Series include: Unsettled payment orders (UPOs) accumulated within the fiscal year; Payment of previous years' UPOs; Government usable deposits; Government usable deposits, without earmarked proceeds from bond issuance.

### Selected economic and financial indicators (Table 1: 2009–16)
- National income and prices (annual percentage changes, unless otherwise indicated):
  - GDP at constant prices: 2.0 2.6 3.2 3.8 4.5 4.8 5.0 4.0 4.5
  - Oil: -13.9 -12.2 -12.3 -11.0 17.6 21.0 18.6 -5.4 2.9
  - Nonoil: 2.9 3.3 4.0 4.4 4.0 4.2 4.4 4.5 4.6
  - GDP deflator: -3.3 3.2 3.0 4.0 2.2 2.1 2.1 2.0 1.9
  - Consumer prices (12-month average): 3.0 3.0 1.3 2.6 2.5 2.5 2.5 2.5 2.5
  - Nominal GDP (CFAF billions): 10,474 11,091 11,134 12,016 12,839 13,738 14,728 15,615 16,636
  - Oil output (thousands of barrels a day): 73 64 64 56 67 84 105 101 104
- External trade:
  - Export volume: -4.8 -0.3 -0.1 1.6 7.6 9.0 12.2 6.5 8.9
  - Of which: nonoil sector: -2.4 2.0 3.5 4.6 5.0 5.5 8.5 9.5 10.4
  - Import volume: -5.2 4.6 8.2 8.6 5.8 9.8 9.1 6.2 5.6
  - Average oil export price (US$ per barrel): 58.1 69.3 79.6 99.3 96.3 88.8 86.5 85.8 85.5
- Money and credit (end of period, percent changes or levels):
  - Net domestic assets: 5.2 6.2 8.9 9.3 4.0 2.8 -0.5 4.4 3.6
  - Net credit to the public sector: 3.5 6.3 -1.6 5.0 -0.6 -2.3 -5.6 -0.7 -2.2
  - Credit to the private sector: 9.1 7.1 8.2 7.6 9.6 10.5 9.7 9.6 10.8
  - Broad money (M2): 6.9 7.0 11.3 7.9 6.3 5.7 6.8 6.1 6.5
- Central government operations (percent of GDP):
  - Total revenue: -13.3 -0.7 1.6 12.4 10.8 9.0 11.4 2.9 5.5
  - Total expenditure: -1.8 12.2 7.1 13.7 4.3 6.4 6.2 6.1 6.6
- Gross national savings: 12.9 13.2 13.9 14.4 15.4 15.7 16.3 16.4 16.8
- Public investment: 4.2 4.9 4.1 5.3 5.5 5.8 5.8 6.0 6.0
- Central government operations (excluding grants, percent of GDP):
  - Total revenue (excluding grants): 17.6 16.5 16.8 17.5 18.1 18.5 19.2 18.6 18.4
  - Oil revenue: 4.8 3.6 4.5 4.7 5.2 5.4 6.0 5.2 5.0
  - Nonoil revenue (percent of nonoil GDP): 13.5 13.7 13.3 13.7 14.0 14.2 14.4 14.5 14.5
  - Total expenditure: 18.4 19.5 18.6 19.6 19.6 19.0 18.8 18.8 18.8
  - Overall fiscal balance, on a cash basis:
    - Excluding grants: -1.0 -6.0 -2.9 -5.6 -1.2 -0.7 0.3 -0.3 -0.4
    - Including grants: -0.2 -5.2 -2.3 -4.8 -0.5 0.0 0.9 0.3 0.1
  - Nonoil primary balance (percent of nonoil GDP): -4.9 -5.9 -5.7 -6.1 -5.5 -5.3 -5.1 -4.9 -5.0
- External sector:
  - Current account balance (including grants): -3.8 -4.2 -2.8 -4.0 -3.3 -3.4 -3.0 -3.3 -3.0
- Gross official reserves (imputed reserves, bn of US$):
  - Imputed reserves (billion of US$): 3.6 3.3 3.6 4.0 4.0 4.1 4.2 4.3 4.3
  - Imputed reserves (percent of broad money): 68.0 64.2 65.6 61.1 58.7 57.0 55.7 53.5 51.5
- Public debt:
  - Total: 10.6 13.4 12.1 14.4 14.6 15.0 15.0 15.0 15.5
  - External: 5.5 6.6 6.5 6.5 7.3 8.5 9.7 11.0 12.2
  - PV of external debt: 20.2 21.1 20.0 19.8 22.1 24.4 25.6 28.8 30.3
  - External debt service: 1.3 0.9 0.9 1.0 1.0 1.1 1.1 1.4 1.2
  - External debt service (as a percent of government revenue): 1.8 1.4 1.4 1.5 1.4 1.6 1.7 2.3 2.2

### Central government operations on a cash basis (Table 2: 2009–16, CFAF billion)
- Select fiscal aggregates (2009 actual; 2010 Suppl.; 2011 Actual; 2012 Budget; 2013 Staff budget; 2014 Proj.; 2015 Proj.; 2016 Proj.):
  - Total revenue and grants: 1,925 1,932 1,940 2,095 2,192 2,416 2,626 2,915 2,998 3,155
  - Total revenue: 1,839 1,842 1,869 1,991 2,101 2,328 2,537 2,828 2,908 3,067
  - Oil sector revenue: 507 407 497 415 569 663 736 882 809 830
  - Nonoil sector revenue: 1,331 1,435 1,372 1,576 1,532 1,665 1,802 1,946 2,099 2,238
  - Total expenditure: 1,931 2,151 2,067 2,245 2,351 2,452 2,609 2,770 2,939 3,132
  - Current expenditure: 1,490 1,552 1,611 1,565 1,710 1,750 1,818 1,911 2,009 2,135
  - Capital expenditure: 441 599 456 680 641 702 791 859 929 997
  - Overall balance, excluding grants (including selected payment of government obligations and cash-basis balances): multiple yearly figures, including Excluding grants: -92 -309 -198 -254 -250 -125 -7258 -30 -65; Including grants: -5 -219 -127 -150 -159 -371 714 559 23
- Memorandum items:
  - Primary budget balance: 27 -181 -94 -105 -116 116 719 510 562
  - Nonoil revenue: 1,331 1,435 1,372 1,576 1,532 1,665 1,802 1,946 2,099 2,238
  - Nonoil primary balance: -480 -588 -591 -520 -684 -652 -668 -687 -705 -768
  - Nonoil primary balance excl. investment: -195 -331 -347 -176 -320 -237 -237 -230 -214 -231
  - Oil price assumption, US$ per barrel: 58.1 ... 79.6 77.5 99.3 96.3 88.8 86.5 85.8 85.5

### Selected fiscal indicators on a cash basis (Table 3: percent of GDP)
- Total revenue and grants: 18.4 17.4 17.4 17.4 17.4 18.2 18.8 19.1 19.8 19.0
- Total revenue: 17.6 16.5 16.8 16.6 17.5 18.1 18.5 19.2 18.6 18.4
- Nonoil sector revenue (percent of GDP): 12.7 12.9 12.3 13.1 12.8 13.0 13.1 13.2 13.4 13.4
- Total expenditure: 18.4 19.3 18.6 18.7 19.6 19.1 19.1 18.8 18.8 18.8
- Current expenditure: 14.2 13.9 14.5 13.0 14.2 13.6 13.2 13.0 12.9 12.8
- Capital expenditure: 4.2 5.4 4.1 5.7 5.3 5.5 5.8 5.8 6.0 6.0
- Overall balance, on a cash basis (including grants): -0.2 -3.5 -2.3 -2.6 -4.8 -0.5 0.0 0.9 0.3 0.1
- Nonoil primary balance (percent of nonoil GDP): -4.9 -5.7 -5.7 -4.6 -6.1 -5.5 -5.3 -5.1 -4.9 -5.0
- Stock of total public debt (percent of GDP): 10.6 ... 12.1 ... 14.4 14.6 15.0 15.0 15.0 15.5
- Stock of external public debt (percent of GDP): 5.5 ... 6.5 ... 6.5 7.3 8.5 9.7 11.0 12.2
- Nominal GDP (CFA billion): 10,474 11,134 11,134 12,016 12,016 12,839 13,738 14,728 15,615 16,636
- Nonoil GDP (CFA billion): 9,869 10,349 10,349 11,193 11,193 11,903 12,693 13,506 14,465 15,454

### Balance of Payments (Table 4: 2009–16)
- Current account balance (CFAF billions):
  - Current account balance: -393 -309 -476 -417 -473 -449 -510 -499
  - Trade balance: -154 29 -53 -48 -87 15 -168 -222
  - Exports, goods: 1,926 2,309 2,460 2,657 2,894 3,294 3,360 3,558
    - Oil and oil products: 794 952 962 1,094 1,286 1,591 1,540 1,603
    - Nonoil sector: 1,131 1,357 1,497 1,563 1,608 1,703 1,820 1,955
  - Imports, goods: -2,080 -2,280 -2,513 -2,705 -2,982 -3,279 -3,528 -3,780
  - Services (net): -352 -375 -398 -375 -404 -469 -365 -308
  - Income (net): -62 -114 -142 -123 -107 -111 -94 -93
  - Transfers (net): 175 151 117 129 126 115 117 125
    - Inflows: 234 224 193 198 205 207 214 226
    - Outflows: -59 -74 -77 -69 -79 -93 -97 -101
- Capital and financial account balance (CFAF billions):
  - Capital and financial account balance: 462 423 483 457 523 529 550 549
  - Capital account: 28 10 40 44 47 48 52 53
  - Financial account: 434 413 443 414 476 481 498 496
  - Official capital: 146 59 84 120 190 220 245 279
  - Long-term borrowing: 213 119 143 172 245 282 319 344
  - Amortization: -68 -60 -59 -52 -55 -57 -71 -65
- Current account balance (percent of GDP):
  - Excluding grants: -4.4 -3.3 -4.4 -3.6 -3.7 -3.3 -3.5 -3.2
  - Including grants: -3.8 -2.8 -4.0 -3.3 -3.4 -3.0 -3.3 -3.0
- Export and import volumes (percentage change):
  - Export volume: -4.8 -0.1 1.6 7.6 9.0 12.2 6.5 8.9
    - Crude oil: -13.2 -14.6 -12.9 22.7 26.4 27.1 -4.1 3.1
    - Nonoil sector: -2.4 3.5 4.6 5.0 5.5 8.5 9.5 10.4
  - Import volume: -5.2 8.2 8.6 5.8 9.8 9.1 6.2 5.6
- Terms of trade: -15.0 18.5 3.3 -1.4 -0.5 0.7 -5.4 -3.8
- Gross official reserves (imputed reserves, bn of US$): 3.6 3.6 4.0 4.0 4.1 4.2 4.3 4.3
  - In percent of broad money: 68.0 65.6 61.1 58.7 57.0 55.7 53.5 51.5
- Exchange rate (CFA F per US$; period average): 472.1 494.4 ... (additional entries not available)

### Monetary survey and government deposits (Table 5: 2009–16; Billions of CFA francs)
- Net foreign assets (billions CFAF): 1,772 1,742 1,830 1,792 1,862 1,952 2,192 2,252 2,362
  - BEAC: 1,464 1,424 1,578 1,584 1,624 1,674 1,754 1,794 1,844
  - Commercial banks: 308 318 253 208 238 278 438 458 518
- Net domestic assets and components:
  - Net domestic assets: 691 759 911 1,166 1,283 1,373 1,358 1,514 1,650
  - Domestic credit: 1,029 842 913 1,333 1,450 1,540 1,525 1,681 1,817
  - Net claims on the public sector: -170 -396 -391 -70 -88 -159 -344 -369 -453
  - Credit to the private sector: 1,188 1,219 1,285 1,383 1,516 1,675 1,838 2,015 2,232
- Money and quasi-money (M2): 2,462 2,501 2,741 2,958 3,145 3,325 3,550 3,766 4,012
  - Currency outside banks: 447 380 501 545 582 618 663 706 755
  - Deposits: 2,015 2,121 2,240 2,414 2,563 2,707 2,887 3,060 3,257
- Contributions to growth of broad money (percentage points):
  - Net foreign assets: 1.7 2.3 2.4 -1.4 2.4 2.9 7.2 1.7 2.9
  - Net domestic assets: 5.2 12.2 8.9 9.3 4.0 2.8 -0.5 4.4 3.6
- Private sector credit:
  - Annual percentage change: 9.1 6.4 8.2 7.6 9.6 10.5 9.7 9.6 10.8
  - In percent of GDP: 11.3 11.0 11.5 11.5 11.8 12.2 12.5 12.9 13.4
- Broad money (annual percentage change): 6.9 14.5 11.3 7.9 6.3 5.7 6.8 6.1 6.5
- Government usable deposits (nominal, CFAF billion): 151.3 210.3 230.8 94.7 141.1 282.6 519.7 653.9 848.1
  - In months of total expenditure: 1.0 1.3 1.4 0.5 0.8 1.5 2.5 3.0 3.7
  - Nominal, excluding earmarked proceeds from bond issuance in 2010: 33.3

### Banking system soundness (Table 6: 2008–10, percent)
- Cameroon indicators (2008, 2009, 2010):
  - Regulatory capital to risk-weighted assets: 10.9, 9.6, 7.4
  - Regulatory Tier I capital to risk-weighted assets: 10.4, 10.3, 16.6
  - Capital (net worth) to assets: 5.3, 4.9, 4.3
  - Gross loans/total assets: 54.4, 54.2, 54.9
  - NPL ratio (gross NPLs/gross loans): 11.5, 12.9, 14.8
  - NPL ratio net (NPLs net of provision/outstanding loans): (reported in table with figures and notes)
  - Provisioning rate: 91.1, 79.1, 75.2
  - Personnel expenses/gross income: 46.8, 39.8, 23.3
  - ROA (return on assets): 2.1 --- (aggregate note indicates negative in some cases)
  - ROE (return on equity): 20.6 --- (aggregate note indicates negative in some cases)
  - Liquid assets to total assets: 38.5, 34.9, 29.8
  - Liquid assets to short-term liabilities: 224.9, 203.3, 177.8
  - Total (non-interbank) loans to customer deposits: 66.9, 66.0, 66.5
  - Liquid assets to customer deposits: 47.4, 42.5, 47.0
- CEMAC regional indicators are presented alongside Cameroon.

### Social and development indicators; Millennium Development Goals (selected, 1990–2009)
- Employment to population ratio, 15+, total (%): 59.0 59.0 60.0 60.0 59.0
- Employment to population ratio, ages 15-24, total (%): 37.0 37.0 37.0 35.0 33.0
- GDP per person employed (constant 1990 PPP $): 3124.0 2407.0 2687.0 2901.0 2991.0
- Malnutrition prevalence, weight for age (% of children under 5): 18.0 .. 18.0 17.0 ..
- Primary completion rate, total (% of relevant age group): 54.0 .. 50.0 52.0 73.0
- Total enrollment, primary (% net): 71.0 ...... 88.0
- Proportion of seats held by women in national parliaments (%): 14.0 12.0 6.0 9.0 14.0
- Immunization, measles (% of children ages 12-23 months): 56.0 46.0 49.0 68.0 74.0
- Mortality rate, infant (per 1,000 live births): 91.0 94.0 96.0 95.0 95.0
- Mortality rate, under-5 (per 1,000): 148.0 153.0 156.0 156.0 154.0
- Maternal mortality ratio (modeled estimate, per 100,000 live births): 680.0 680.0 660.0 640.0 600.0
- Prevalence of HIV, total (% of population ages 15-49): 0.8 4.7 6.2 5.4 5.1
- Forest area (% of land area): 51.9 49.6 47.3 44.9 44
- Improved sanitation facilities (% of population with access): 47 48 47 47
- Improved water source (% of population with access): 50 57 64 71 74
- Net ODA received per capita (current US$): 36.0 32.0 24.0 24.0 23.0 27.0
- Debt service (PPG and IMF only, % of exports, excluding workers' remittances): 13.0 17.0 12.0 10.0 1.0
- Internet users (per 100 people): 0.0 0.0 0.0 3.0 1.4 3.8
- Mobile cellular subscriptions (per 100 people): 0.0 0.0 0.0 1.0 13.0 32.0
- Fertility rate, total (births per woman): 6.0 5.0 5.0 5.0 5.0
- GNI per capita, Atlas method (current US$): 860.0 710.0 620.0 910.0 1,190.0
- Life expectancy at birth, total (years): 55.0 54.0 51.0 51.0 51.0
- Literacy rate, adult total (% of people ages 15 and above): .... 68.0 .. 76.0

*Sources: World Bank (WDI); Cameroonian authorities; BEAC; COBAC; IMF staff estimates and projections.*

### APPENDIX I—Fuel Subsidies: Current Issues and the Way Forward

### APPENDIX I—Fuel Subsidies: Current Issues and the Way Forward

### A. Current Issues Regarding Fuel Subsidies
- Since the February 2008 social unrest, fuel prices at the pump have not been adjusted to reflect developments in international market conditions; the price freeze was accompanied by a decision to compensate the domestic oil refinery (SONARA) for the shortfall between the notional retail price derived from the existing oil pricing formula and the administratively fixed price at the pump.
- SONARA’s current processing capacity is approximately 2.1 million tons of light crude. Because its current technology is unsuitable for using Cameroon’s crude oil, about 90 percent of processed crude oil is imported from Nigeria and Equatorial Guinea.
- The refinery produced about 1.8 million tons of refined products in 2009, of which 63 percent was sold domestically; the remainder was sold mostly to other CEMAC countries.
- Government arrears on compensating SONARA:
  - Arrears amounted to CFAF 98 billion (about 0.9 percent of GDP) at end-2009.
  - In 2010, the government paid the refinery CFAF 107 billion, but cumulative payment obligations to SONARA reached about CFAF 136 billion at year-end (1.2 per cent of GDP).
- Fiscal burden of the fuel subsidy:
  - If international fuel prices remain at March 2011 levels (US$100 a barrel) and the regulated pricing mechanism is not revisited, the subsidy would amount to CFAF 240 billion (2 percent of GDP) in 2011, markedly exceeding the CFAF 132 billion provision made in the 2011 budget.
  - The estimated shortfall for 2011 is equivalent to 10 percent of total government expenditure, more than one third of the public sector wage bill, or half of domestically-financed government capital expenditure.
- Calculation assumptions and mechanics:
  - The calculation assumes a monthly consumption of 39, 7, and 49 million liters for gasoline, kerosene, and diesel, respectively.
  - The fuel subsidy is calculated through a pricing formula (in place since 2007) that starts from a world reference price and adds: international transport and insurance costs (b); an adjustment coefficient (e) of 15 percent of the import parity price to provide compensation to SONARA; taxes (d) including a 10 per cent customs duty and 19.25 percent VAT; and coastal navigation costs (f). The notional retail price adds distribution costs and margins (h) and a specific tax (i) for gasoline and diesel. The shortfall (subsidy) per liter (l) is the difference between the notional retail price (j) and the fixed pump price (k).
- Table 1 (March 2011) selected entries (In CFAF per liter):
  - j) Notional retail price (g+h+i): 753.86 (Gasoline), 660.98 (Kerosene), 737.62 (Diesel)
  - k) Fixed pump price: 569.00 (Gasoline), 350.00 (Kerosene), 520.00 (Diesel)
  - l) Shortfall (required subsidy) (j-k): 184.86 (Gasoline), 310.98 (Kerosene), 217.62 (Diesel)
  - Memorandum: Pump Price as a percentage of notional retail price (k/j): 75.48 (Gasoline), 52.95 (Kerosene), 70.50 (Diesel)
- Distributional incidence and targeting:
  - A 2007 IMF assessment showed that more than 70 percent of fuel price subsidies accrue to the richest 40 percent of households.
  - The poorest 20 percent of households receive less than 1 percent of the subsidy for gasoline.
  - For kerosene, the poorest 20 percent of households receive only 13 percent of the subsidy.
  - Eliminating subsidies on gasoline and diesel only—at the baseline price of US$100 a barrel—would free resources equivalent to 1.8 percent of GDP for alternative use; the remaining subsidy on kerosene would cost about 0.2 percent of GDP to the budget.
- Oil sector net contribution and trends (Table 2, In billions of CFAF; percent of GDP where indicated):
  - Revenue from crude oil: 2008: 810.0; 2009: 507.0; 2010: 497.0; 2011: 572.7 (Percent of GDP) 2008: 7.6; 2009: 4.8; 2010: 4.5; 2011: 4.7
  - Revenue from refined oil: 2008: 189.0; 2009: 167.0; 2010: 199.0; 2011: 209.0
    - Of which special tax on petroleum products: 71.0; 78.0; 83.0; 90.0
    - customs tax and VAT: 118.0; 89.0; 116.0; 119.0
  - Subsidies: 137.0; 23.0; 145.0; 240.0
  - Net impact: 862.0; 651.0; 551.0; 541.7 (Percent of GDP) 8.1; 6.2; 4.9; 4.5
- Sensitivity to world prices:
  - If the international fuel price were to rise by 30 percent, compared to the baseline price, the cost of the subsidy could amount to CFAF 408 billion (3.4 percent of GDP).
  - Staff estimates indicate that international fuel prices would have to fall by about 50 percent on average, compared to the March 2011 level, to eliminate the subsidy.
- Issues raised by the pricing formula:
  - The margin for SONARA increases with climbing world market prices because the margin is set on an ad valorem basis, causing increasing government transfers to SONARA as international fuel prices increase, even at constant domestic consumption volumes.
  - The impact of price fluctuations in world markets on the shortfall is magnified by the link between the world market price, the tax structure, and the margin for SONARA: an increase of 10 percent in the import parity price leads to an increase of at least 23 percent in the shortfall (taking account of customs, VAT, and the adjustment coefficient).

### B. The Way Forward
- Short-run adjustments under consideration:
  - Options include (i) reducing the supplementary margin for SONARA and/or (ii) revising or eliminating other cost factors in the calculation of import parity (for example the cost of using SONARA’s port facilities or the dead freight).
  - Staff estimates: if the margin for SONARA had been reduced from 15 percent to 10 percent at end-2010, the estimated shortfall for 2011 would be reduced from CFAF 240 billion to CFAF 218 billion (a reduction of 9 percent).
- Comprehensive reform measures recommended to significantly reduce the budget burden and improve efficiency:
  - Modify the margin for SONARA and effectively liberalize imports of refined oil products:
    - Delink the supplementary margin from international fuel price levels by setting (based on the SONARA cost structure) a specific nominal transfer per liter of final product.
    - In a second step, allow SONARA to compete with international providers and sell its products domestically at international prices; any consequent losses should be financed through direct budgetary transfers, preferably within a clear medium-term strategy for reforming the structure of the petroleum product sector.
    - Reform should take into account SONARA’s efforts to reduce its costs by upgrading equipment.
  - Gradually phase out the fuel subsidy by moving to automatic price adjustment and establishing an effective social protection mechanism:
    - Reintroduce the automatic pricing mechanism for consumer prices, removing the subsidies according to a clear timeline.
    - Put in place targeted transfer programs at the same time as fuel prices are increased in line with international price levels to protect the poor.
    - Given capacity constraints in ministries to design and implement targeted programs, adopt a gradual approach to fuel subsidy reform.

*Source: APPENDIX I—Fuel Subsidies: Current Issues and the Way Forward, _cr11266 — PDF chapter content provided.*

### 2.      The exchange rate assessment, using four different methodologies, shows mixed results.

### _cr11266 - 2.      The exchange rate assessment, using four different methodologies, shows mixed results.

### Exchange rate assessment: four methodologies — mixed results
- Macroeconomic balance approach:
  - Estimates a current account norm equivalent to a current account deficit of 1 percent of GDP.
  - Closing the gap between the norm and staff’s projected CAB at the end of the WEO projection period (2016) implies a REER depreciation of around 15 percent.
  - The 90 percent confidence interval is wide and includes zero.
- Oil-specific considerations:
  - Oil accounted for close to 55 percent of total exports during 2000–09.
  - Oil represented around 7.4 percent of GDP in 2000–09.
  - Projected gradual decline in oil production makes exchange rate misalignment conclusions relatively insensitive to inclusion of the return on oil wealth in the current account norm estimation.
- External sustainability approach:
  - Estimates the CAB/GDP ratio needed to stabilize the net foreign asset (NFA) position at Cameroon’s NFA position in 2009.
  - Finds that the REER would need to depreciate by around 13 percent.
- Equilibrium REER approach:
  - Based on estimation of the medium-term relationship between the REER and fundamentals.
  - Suggests Cameroon’s REER is undervalued by almost 13 percent.
  - The 90 percent confidence interval is wide and includes zero.
- Balassa-Samuelson approach:
  - Suggests the REER in Cameroon is undervalued by 12 percent.
  - The 90 percent confidence interval is very wide and includes zero.
- Overall:
  - The four methods produce mixed signals: two approaches point to an overvalued REER (macroeconomic balance and external sustainability) while two point to an undervalued REER (equilibrium REER and Balassa-Samuelson).
  - Figure 2 presents point estimates and 90 percent confidence interval bounds for each method.

### Survey data analysis — competitiveness, infrastructure, and business environment
- Global Competitiveness Index (GCI):
  - Cameroon ranks 110 out of 139 surveyed countries.
  - Cameroon ranks lower than the sub-Saharan African (SSA) average across all index dimensions, especially for quality of institutions, degree of local market competition, and financial market development.
- World Bank Doing Business Indicators 2011:
  - Cameroon improved to rank 168 (from 171 in 2010) but remains below the SSA average.
  - Selected Doing Business rankings (out of 183):
    - Ease of Doing Business: 168
    - Starting a Business: 131
    - Registering Property: 149
    - Getting Credit: 138
    - Protecting Investors: 120
    - Paying Taxes: 169
    - Trading Across Borders: 155
    - Enforcing Contracts: 173
    - Closing a Business: 141
- World Bank Enterprise Survey (2009) — Top constraints (% of firms identifying problem as their greatest obstacle):
  - Practices informal sector, Tax administration, Access to finance, Electricity, Corruption, Crime and disorder, Tax rates, Customs and trade reg., Political instability, Access to land (Figure 4 displays % shares).
- Enabling Trade Index (ETI) 2010:
  - Cameroon ranks below the SSA average; transport and communications infrastructure are major constraints.
- Infrastructure and costs:
  - Internet subscribers 2008 (per 100 people), Mobile subscribers 2008 (per 100 people), Main telephone lines 2008 (per 100 people) reported in Table 2 and compared to CEMAC and SSA.
  - Cameroon’s road density (2004): shown in Figure 6 (km of road per 100 sq. km of land area); Cameroon’s road density substantially lower than SSA average.
  - Cost indicators (Table 3) include:
    - Power tariff rates (US cents per Kwh): Cameroon 10.9
    - Container cargo handling charge (US$ per TEU): Cameroon 220.0
    - Road freight tariff rates (US$ per tonne-Km): Cameroon 0.10
    - Monthly mobile basket (US$): Cameroon 14.4
    - Monthly internet basket (US$): Cameroon 48.0
- Corruption and informal payments (World Bank Enterprise Survey, 2009; Table 4):
  - ... identifying corruption as a major constraint: Cameroon 61.3; CEMAC 58.7; SSA 34.7
  - ... expected to pay informal payment to public officials: Cameroon 50.8; CEMAC 42.0; SSA 35.2
  - ... expected to give gifts to get an operating license: Cameroon 39.6; CEMAC 33.8; SSA 19.5
  - ... expected to give gifts in meetings with tax officials: Cameroon 30.8; CEMAC 28.0; SSA 18.3
  - ... expected to give gifts to secure a government contract: Cameroon 62.9; CEMAC 53.0; SSA 38.3
- Summary finding:
  - Most survey data indicate Cameroon’s overall business environment is holding back competitiveness.

### Debt sustainability overview and baseline projections
- Context and recent developments:
  - Public debt-to-GDP ratio declined from about 52 percent in 2005 to 10 percent in 2008, reflecting HIPC and MDRI relief in 2006 and prudent borrowing policies.
  - Cameroon slowly recovered from the global crisis; real GDP growth increased to 3.2 percent in 2010 (from 2 percent in 2009).
- Public debt stocks (Text Table 1, in billions of CFAF and percent of GDP):
  - Total public debt: 2005: 4,534.4; 2008: 1,014.6; 2009: 1,115.2; 2010: 1,346.4 (In percent of total and in percent of GDP columns shown in table).
  - External debt: 2005: 3,293.5; 2008: 577.8; 2009: 575.1; 2010: 723.0
  - Domestic debt: 2005: 1,240.9; 2008: 436.9; 2009: 540.1; 2010: 623.4
- End-2010 assessment:
  - Total public debt-to-GDP at end-2010: 12 percent (text notes ratio of total public debt to GDP at end-2010 (12 percent)).
  - This was lower than in the 2010 DSA projection of 13.4 percent.
  - Lower ratio explained by higher-than-projected nominal GDP and lower-than-anticipated new domestic and external borrowing.
  - Unsettled payment obligations (notably to the oil refinery) are not included in domestic debt and would increase domestic debt by 3.6 percent of GDP if recognized.
- Composition of external public debt:
  - External debt share: External debt 53.7 percent of total public debt in 2010 (Figure 1).
  - Share of bilateral debt dropped from 53 percent in 2006 to 32.4 percent in 2010.
  - Multilateral lenders’ share increased recently (IMF 12.3%; The World Bank group 27.2%; African Development Bank group 14.4%; Other multilateral 13.4%; Paris Club 13.2%; Other official bilateral 19.2%; Commercial 0.1%; Domestic debt 46.3% — as shown in Figure 1 composition).
- Debt dynamics and risks:
  - Total public debt indicators remain at comfortable levels under the baseline and under three of four stress tests.
  - A breach in the threshold occurs under an extreme export shock.
  - Since early 2010 there has been a fast pace of accumulation of nonconcessional borrowing commitments.
  - Policy implication: a cautious approach to nonconcessional borrowing is warranted; strengthen debt management; enhance nonoil revenue mobilization; widen the export base given anticipated long-run decline of oil revenues.
- Baseline scenario assumptions:
  - Incorporates gradual recovery from the crisis, more optimistic assumptions on the oil price, and higher external nonconcessional borrowing.
  - Medium-term projections of real GDP growth, fiscal revenue, and exports revised upward due to expected pick up in oil production; long-term projections broadly unchanged.

*Source: Staff estimates and IMF-World Bank staffs’ analysis as presented in the provided content.*

### 9.      Overall outstanding debt is projected to be lower than in the previous DSA for

### _cr11266 - 9.      Overall outstanding debt is projected to be lower than in the previous DSA for

### Medium-term vs. long-term debt projections
- Overall outstanding debt is projected to be lower than in the previous DSA for the medium term, while higher in the long term.
- Medium-term lower debt reflects that, unlike the 2010 DSA, no financing gap is assumed for 2012–16.
- Longer-term higher debt is associated with a gradual increase of new external borrowing (including on nonconcessional terms) to help finance infrastructure investments, in line with the authorities’ stated intentions.
- Growth-enhancing investment projects are expected to be partly financed through foreign direct investment and other private capital flows financing public-private partnerships (PPPs).

### Assumptions and projections for new external borrowing and disbursements
- Projections take into account outstanding commitments at end-2010 and new external commitments already signed and expected to be signed during 2011–12.
- Authorities contracted 30 borrowing agreements during January 2010–April 2011, equivalent to almost 6 percent of 2010 GDP.
- At least 15 of these new loans were nonconcessional, with an average grant element of 21.3 percent.
- Future nonconcessional borrowings are assumed to have an average grant element of 20 percent.
- Projected new external commitments (Text Table 4, in billions of CFAF):
  - Outstanding commitments at end 2010: 757.6
  - New external commitments: 2011 Jan-Apr: 339; 2011 Jan-Dec (proj.): 334; 2012: 855; 2013: 994; 2014: 623; 2015: 595; 2016: 552; 2017–? (proj.): 505
- New external commitments as percent of GDP:
  - 2010: 3.0%
  - 2011 Jan-Apr: 2.8%
  - 2011 Jan-Dec (proj.): 7.1%
  - 2012: 7.7%
  - 2013: 4.5%
  - 2014: 4.0%
  - 2015: 3.5%
  - 2016: 3.0%
- Composition of new commitments (concessional vs nonconcessional):
  - Concessional (as % of total): 2010: 61%; 2011 Jan-Apr: 15%; 2011 Jan-Dec: 22%; 2012: 25%; 2013: 30%; 2014: 30%; 2015: 30%; 2016: 30%
  - Non-concessional (as % of total): 2010: 39%; 2011 Jan-Apr: 86%; 2011 Jan-Dec: 78%; 2012: 75%; 2013: 70%; 2014: 70%; 2015: 70%; 2016: 70%
- Projected new external disbursements (Text Table 5, in billions of CFAF, 2011 DSA):
  - New external disbursements, 2011 DSA: 2011: 143; 2012: 172; 2013: 245; 2014: 282; 2015: 319; 2016: 232; 2017–? (proj.): 401
  - In percent of GDP (2011 DSA): 2011: 1.2%; 2012: 1.3%; 2013: 1.8%; 2014: 1.9%; 2015: 2.0%; 2011-15 average: 1.7%; 2016-31 average: 1.6%
  - Concessional disbursements (2011 DSA, in billions): 115, 103, 122, 113, 96, 101, 100
  - Concessional (in percent of total, 2011 DSA): 80%, 60%, 50%, 40%, 30%, 52%, 25%
  - Nonconcessional disbursements (2011 DSA, in billions): 29, 69, 122, 169, 223, 132, 302
  - Nonconcessional (in percent of total, 2011 DSA): 20%, 40%, 50%, 60%, 70%, 48%, 75%
- Staffs assume new borrowing commitments after 2012 will decline gradually to 3 percent of GDP by 2016.
- Disbursement rates assumed:
  - 2011: 15 percent (based on averages)
  - 2012–16: 10 percent (reflecting absorption capacity and long-term realization horizons)
- Share of nonconcessional disbursements projected to increase:
  - 2011: 20%
  - 2014: 60%
  - 2031: 80%
- Total nonconcessional new borrowing commitments in 2011-12 are projected at CFAF 1,406 billion.

### Key macroeconomic assumptions (Text Table 3 and Box 1)
- Real GDP growth (percent):
  - DSA 2011: 2010-11: 3.5; 2012-16: 4.6; 2017–31: 4.6
  - DSA 2010: 2010-11: 2.7; 2012-16: 4.4; 2017–31: 4.6
- Total revenue (percent of GDP, including grants):
  - DSA 2011: 2010-11: 17.1; 2012-16: 18.6; 2017–31: 16.2
  - DSA 2010: 2010-11: 16.8; 2012-16: 18.5; 2017–31: 16.4
- Exports of goods and services (percent of GDP):
  - DSA 2011: 2010-11: 26.5; 2012-16: 29.1; 2017–31: 24.0
  - DSA 2010: 2010-11: 25.6; 2012-16: 28.3; 2017–31: 24.0
- Oil price (U.S. dollars per barrel):
  - DSA 2011: 2010-11: 89.5; 2012-16: 88.6; 2017–31: 78.9
  - DSA 2010: 2010-11: 68.9; 2012-16: 74.2; 2017–31: 75.3
- Box 1 baseline narrative highlights:
  - Real GDP growth revised upward for 2011 to 3.8 percent; expected to increase gradually to 5 percent by 2014; longer-term average 4.6 percent for 2016–31.
  - Average consumer price-based inflation expected to stabilize at about 2.5 percent over the medium-term.
  - Oil revenues projected to pick up from 4.5 percent of GDP in 2010 to 6 percent of GDP in 2014 and to steadily decline to about 0.4 percent of GDP by the end of the projection period.
  - Nonoil revenues projected to rise from about 12.3 percent of nonoil GDP in 2010 to almost 16 percent by 2031.
  - Nonoil primary deficit projected to stay in the range of 5 percent to 6 percent of nonoil GDP in 2011–16 and to gradually decline, reaching almost zero towards the end of the projected period.
  - Net of public investment spending, nonoil primary balance improves from a deficit of 3.4 percent of nonoil GDP in 2010, turning into a surplus in 2021 and reaching 3 percent in 2031.
  - External current account deficit, including grants, projected to remain in the range of 2-4 percent of GDP.
  - Volume growth of nonoil exports projected to increase from 4.6 percent in 2011 to an average of more than 9 percent thereafter.

### Baseline external debt sustainability findings (Text Table 7)
- Under the LIC debt sustainability framework, Cameroon is categorized as a ‘weak performer’ based on a three-year moving average CPIA score (Cameroon’s CPIA remained at 3.2 for the last three years).
- Country-specific indicative thresholds for a weak performer:
  - PV of debt-to-exports ratio: 100 percent
  - PV of debt-to-revenue ratio: 200 percent
  - PV of debt-to-GDP ratio: 30 percent
  - Debt service-to-exports ratio: 15 percent
  - Debt service-to-revenue ratio: 25 percent
- Baseline debt ratio projections (Text Table 7, External):
  - PV of debt-to-GDP: 2011: 3.0; 2012–15: 5.2; 2016–31: 12.4
  - PV of debt-to-exports: 2011: 19.8; 2012–15: 25.2; 2016–31: 51.6
  - PV of debt-to-revenue: 2011: 29.9; 2012–15: 38.6; 2016–31: 76.0
  - Debt service-to-exports: 2011: 1.0; 2012–15: 1.1; 2016–31: 3.0
  - Debt service-to-revenue: 2011: 1.5; 2012–15: 1.7; 2016–31: 4.3
- Public indicators (Text Table 7, Public):
  - PV of debt-to-GDP: 13.1 (short term); 13.0 (medium term); 13.9 (long run)
  - PV of debt-to-revenue: 72.1 (short); 68.4 (medium); 98.0 (long)
  - Debt service-to-revenue: 6.4 (short); 8.7 (medium); 9.7 (long)
- Conclusion: DSA calculations indicate Cameroon’s external debt is sustainable under the baseline; all debt indicators remain below their thresholds over the projection horizon. The PV of debt-to-exports ratio rises gradually due to continued borrowing for infrastructure and reduced concessional access; debt-service ratios increase after 2020 but remain manageable.

### Alternative scenarios and stress tests
- Historical scenario: associated with past current account surpluses; unlikely due to expected tapering of oil production; more optimistic than baseline and not considered relevant.
- Low-growth scenario:
  - Assumes growth rate of 2 percentage points below baseline for entire projection period (A3).
  - Results in PV of debt-to-GDP ratio of 17 percent by 2031, higher than baseline.
  - Highlights sensitivity to growth assumptions and need for strong returns on infrastructure investment.
- Export shock scenario:
  - Stress test assumes exports growth in US$ terms in 2012–13 at 1 standard deviation below the 10-year historical average, operationalized as a drop of 6.7 percent in the value of exports in both 2012 and 2013, then return to baseline growth.
  - Leads to a small and temporary breach of the debt threshold (breach of less than 5 percent over 2020–25).
  - The drop is less than in the previous DSA, but the magnitude of the shock is larger because of stronger baseline export projections for 2012–13; required new borrowing to compensate is higher than in 2010 DSA.

### Public sector debt sustainability
- Assumptions on domestic debt:
  - New domestic debt generated only by issuance of government securities and bank financing of half of the projected financing gap in 2011.
  - New government securities issuance in 2010 amounted to CFAF 200 billion (1.7 percent of GDP), of which CFAF 158 billion were subscribed by non-residents.
  - New bond issuances projected up to CFAF 100 billion each year during 2012–14.
  - Note: A planned issuance for 2011 included bonds CFAF 150 billion and Treasury bills CFAF 50 billion; macro framework retained one-third of the amount for bond issuance due to uncertainty.
- Public debt trajectory:
  - Public debt ratio rises gradually in the medium term to 17.8 percent of GDP by 2021, driven by new domestic and external borrowings.
  - Public debt level then gradually declines to near 14 percent in 2031.
  - PV of debt-to-GDP and PV of debt-to-revenue ratios expected to rise until 2023 then start declining.
- Alternative scenarios and bound tests for public debt:
  - Indicators remain broadly on stable paths; most sensitive test is growth at one standard deviation below historical average.
  - Scenario of an unchanged primary balance from 2011 shows substantial deviations, supporting envisaged fiscal adjustment.

### Debt management, risks, and policy recommendations
- Rapid accumulation of nonconcessional borrowing commitments in 2010–11 and a large stock of unsettled payment obligations are sources of concern and need careful management.
- Authorities’ actions and plans:
  - Strengthening debt management framework with technical assistance; developing a debt management strategy aligned with CEMAC guidelines.
  - Since 2009, publishing a quarterly report on the country’s debt situation.
  - Producing a DSA and formulating a medium-term debt management strategy for central government debt, annexed to the 2011 budget law.
  - National Debt Committee instituted in 2008 is now in place, although not yet operational.
  - Last partial audit of domestic arrears conducted in 2010.
  - Working on a reform plan to improve information systems, cash management, and human resources.
- Recommended next steps:
  - Ensure effective implementation of the mandate given to the National Debt Committee and the reform plan.
  - Manage the associated risk of nonconcessional borrowing carefully, including through an annual DSA exercise.
  - Prioritize concessional financing for infrastructure projects to the extent possible; use nonconcessional borrowing moderately where concessional financing is not available.
- Authorities’ stance:
  - Acknowledge scarcity of concessional financing and see current vulnerability level as providing some space for reasonable increase in debt-financed investment.
  - Cognizant of need to finance infrastructure projects with concessional financing where possible and envisage moderate use of nonconcessional borrowing for projects lacking concessional options.

*Source: IMF staff staff report excerpt in _cr11266 - 9.      Overall outstanding debt is projected to be lower than in the previous DSA for*

### 21.      However, persistent weakness in public financial management and insufficient

### _cr11266 - 21.      However, persistent weakness in public financial management and insufficient

### Summary of debt vulnerabilities and fiscal risks
- Persistent weakness in public financial management and insufficient data coverage warrant caution in assessing Cameroon’s debt vulnerabilities.
- Vulnerabilities explicitly noted:
  - Quasi-fiscal liabilities of state-owned enterprises.
  - Recurrent build-up of domestic arrears.
- Staff view: continued efforts to improve nonoil revenue mobilization and to widen the export base would be advisable, given the expected long-run decline in oil revenues.

### Debt management and data coverage recommendations
- Authorities’ debt management efforts could be reinforced by:
  - Steps to ensure better coverage of public sector liabilities.
  - A new and more comprehensive audit of domestic unsettled payment obligations.
- Technical assistance and capacity-building activities referenced across the document include FAD, AFRITAC, STA, and MCM missions on PFM, debt management, tax administration, and national accounts (missions listed in 2009–2011).

### Key macroeconomic indicators cited
- Real GDP growth (2010): 3.2 percent.
- Real GDP growth (historical/projections series cited in tables): examples include 2.6, 2.0, 3.2, 3.3, 0.8, 3.8, 4.5, 4.8, 5.0, 4.0, 4.5, 4.4, 4.6, 4.7, 4.6 (series entries preserved as in tables).
- Inflation rate (GDP deflator, in percent) series includes: 5.8, -3.3, 3.0, 1.7, 2.5, 4.0, 2.2, 2.1, 2.1, 2.0, 2.0, 2.4, 2.0, 2.0, 2.0.
- Exchange rate peg: CFA franc pegged to the euro at the fixed rate of CFAF 655.957 per euro.
- Local currency equivalent: CFAF 735.39 = SDR 1, as of May 26, 2011.

### Selected public debt and external metrics (as presented)
- Public sector debt (selected years, in percent of GDP): 2008: 9.5; 2009: 10.6; 2010: 12.1; projection entries include 14.4, 14.6, 15.0, 15.0, 15.0, 15.5, 17.8; longer-run averages presented (2011-16 Average 13.9).
- Share foreign-currency denominated (selected entries): 5.4, 5.5, 6.5, 6.5, 7.3, 8.5, 9.7, 11.0, 12.2, 16.1, 13.1.
- PV of public sector debt-to-revenue and grants ratio (examples in table): 62.7, 72.1, 69.6, 68.8, 65.2, 66.0, 68.2, 90.2, 74.7.
- PV of public sector debt-to-revenue ratio (examples): 65.1, 75.2, 72.2, 71.2, 67.2, 68.0, 70.2, 92.2, 75.3.
- Debt service-to-revenue ratio (in percent, examples): 8.9, 4.3, 29.0, 6.4, 7.1, 8.0, 8.0, 7.8, 5.1, 3.3, 6.1.
- Gross financing need (Billions of U.S. dollars, selected years): 0.2, 0.9, 0.7, 1.1, 1.0, 1.1, 1.0, 1.2, 1.1, 1.5, 2.9.

### Stress tests and sensitivity analyses (high-level)
- The DSA includes multiple alternative scenarios and bound tests (real GDP growth shocks, primary balance shocks, exchange rate depreciation, increases in other debt-creating flows).
- Tables present scenario outcomes for PV of debt-to-GDP, PV of debt-to-exports, and PV of debt-to-revenue ratios across 2011–2031 under Baseline, Alternative scenarios (A1–A3) and Bound tests (B1–B6). The most extreme stress test is defined as the test that yields the highest ratio in 2021 (noted to coincide with the export shock for all figures).

### Fund relations, assistance, and HIPC/MDRI entries (selected facts)
- Membership status: Joined July 10, 1963; Article VIII.
- Quota: 185.70 SDR Million (100.00 percent).
- HIPC decision point date: Oct 2000.
- HIPC completion point date: April 2006.
- Assistance committed by all creditors (US$ million): 1,267.00.
- Of which IMF assistance (US$ million): 37.04.
- Disbursement of IMF assistance (SDR million) to the member: 28.62.
- MDRI-eligible debt (SDR million): 173.26; financed by MDRI Trust: 149.17; remaining HIPC resources: 24.09.

### Institutional and statistical notes
- BEAC safeguards assessment: most recent completed on July 6, 2009; implementation of an action plan for 2010 is ongoing.
- Classification change: Exchange arrangement of the CEMAC countries reclassified effective January 1, 2007 to conventional pegged arrangement.
- Recent technical assistance missions (selected): July 2009 MCM mission on public debt management; multiple FAD, AFRITAC, and STA missions on PFM, tax administration, national accounts during 2009–2011.
- Article IV consultation mission visited Cameroon during March 16–31, 2011; Executive Board concluded the consultation on June 24, 2011.

*Prepared by the African Department; Approved by Seán Nolan and Dhaneshwar Ghura; June 10, 2011.*

### 1.2 percent in 2010, and the recent sharp increase in international commodity prices has

### _cr11266 - 1.2 percent in 2010, and the recent sharp increase in international commodity prices has

### Recent economic developments
- Real GDP growth rose to 3.2 percent in 2010 from 2.0 percent in 2009, driven mainly by non-oil sectors (agriculture and forestry).
- Average annual inflation was 1.3 percent in 2010, down from 3 percent in 2009, aided by a substantial decrease in food prices.
- Oil production fell, but the recent sharp increase in international commodity prices has so far had a limited impact.
- The current account deficit (including grants) declined to 2.8 percent of GDP in 2010 from 3.8 percent in 2009.

### Fiscal accounts and public finance management
- Total revenue in 2010 was close to the supplementary budget target; oil revenue windfall from higher oil prices compensated for a shortfall in non-oil revenue.
- Nonoil government revenue, as a ratio to non-oil GDP, remains among the lowest of sub-Saharan African oil exporters.
- Current expenditure was higher than budgeted in 2010; delays in issuing government bonds and mobilizing external financing negatively affected capital expenditure.
- The deficit on a cash basis in 2010, after clearing outstanding government obligations accumulated in previous years, was 2.3 percent of GDP.
- Authorities undertook an exhaustive audit of arrears and other government payment obligations and made substantial efforts in 2010 to clear outstanding government obligations.
- The 2011 budget projects non-oil revenue to reach 14.1 percent of non-oil GDP and an overall budget deficit of 2.6 percent of GDP to be financed through drawings from government deposits and issuance of government bonds.
- Policy measures planned or underway:
  - Reassessment of the fuel price formula and gradual restoration of automatic adjustment of retail fuel prices to world prices over the medium-term to reduce fuel subsidies.
  - Tight treasury management plan to avoid new domestic arrears.
  - Modernization of public expenditure management with donor support.
  - Tax administration reform to simplify tax and customs procedures and rationalize tax incentives to widen the tax base.

### External sector
- External accounts benefited from the global economic recovery.
- Export volume: -0.1 percent in 2010 (table); projected 1.6 percent in 2011 and 7.6 percent in 2012.
- Import volume: 8.2 percent in 2010; projected 8.6 percent in 2011 and 5.8 percent in 2012.
- Terms of trade: 18.3 in 2010; projected 3.3 in 2011 and -1.4 in 2012.
- Imputed reserves (percent of broad money): 65.6 in 2010; projected 61.1 in 2011 and 58.7 in 2012.
- Directors encouraged reliance, to the extent possible, on grants and concessional loans to finance the investment program and working with regional institutions to develop a government securities market.

### Banking sector and financial stability
- The banking sector continues to have pockets of vulnerability exacerbated by inadequate supervisory standards and protracted delays in settling government payment obligations.
- Directors urged resolute steps, in collaboration with the regional bank supervisor, to:
  - Monitor vulnerabilities through regular analysis of banking sector soundness.
  - Press ahead with bank restructuring plans while containing budgetary liabilities.
  - Promote reform of the bank resolution framework.
- Authorities’ measures and commitments:
  - Review the regulatory framework and strengthen supervision of financial institutions in close collaboration with regional institutions.
  - Finalize restructuring of financially weak banks through recovery of related-party loans and recapitalization by reputable investors.
  - Establish specialized financial institutions to finance agricultural and SME activities; management to be market-based with appropriate safeguards.
  - Operational central credit registry established; a law on leasing enacted in December 2010.

### Competitiveness, structural reforms, and infrastructure
- Authorities prioritize improving competitiveness, removing non-price barriers to business, fighting corruption, and reforming public enterprises.
- Cameroon Business Forum established in 2009 with IFC support to foster public-private dialogue; implemented measures to simplify regulations and procedures for starting a business, enhance cross-border trading, and promote access to and protection of property.
- Authorities intensifying efforts under the CEMAC framework to liberalize customs duties and accelerate regional trade liberalization.
- Need to raise execution rate of public investment projects and deepen dialogue with the private sector.

### Outlook and projections
- Real GDP growth projected:
  - 2011: 3.8 percent
  - 2012: 4.5 percent
  - 2014: 5 percent (text)
- Inflation projected to remain below the regional convergence criterion of 3 percent.
- IMF staff projections (selected):
  - GDP at constant prices: 2010 Est. 3.2; 2011 Proj. 3.8; 2012 Proj. 4.5.
  - Oil growth: 2010 Est. -12.3; 2011 Proj. -11.0; 2012 Proj. 17.6.
  - Non-oil growth: 2010 Est. 4.0; 2011 Proj. 4.4; 2012 Proj. 4.0.
  - Consumer prices (12-month average): 2010 Est. 1.3; 2011 Proj. 2.6; 2012 Proj. 2.5.
  - Broad money (M2): 2010 Act. 11.3; 2011 Est. 7.9; 2012 Proj. 6.3.
  - Total public debt (percent of GDP): 2010 Est. 12.1; 2011 Proj. 14.4; 2012 Proj. 14.6.
  - Current account balance (including grants): 2009 Act. -3.8; 2010 Est. -2.8; 2011 Proj. -4.0; 2012 Proj. -3.3.

### Executive Board Assessment and Directors’ recommendations
- Directors welcomed Cameroon’s economic recovery, low inflation, and positive prospects but noted risks from a slower global recovery, lower-than-projected oil production, and budgetary pressures.
- Key recommendations:
  - Address risks to the 2011 budget through tight treasury management, reduction of fuel subsidies, and spending reprioritization.
  - Improve non-oil revenue by broadening the tax base, streamlining exemptions, and increasing efficiency of tax and customs administration.
  - Prevent recurrence of public financial management problems: implement arrears audit results, rebuild fiscal buffers, strengthen budget execution, and operationalize the medium-term expenditure framework.
  - Rely on grants and concessional loans where possible; develop a government securities market with regional institutions.
  - Strengthen banking supervision, monitor sector soundness, proceed with bank restructuring while containing fiscal liabilities, and reform the bank resolution framework.
  - Redouble efforts to close the infrastructure gap, improve the business climate, raise execution rate of public investment projects, and improve economic and financial data quality and timeliness.

### Authorities’ strategy and commitments (Statement by Kossi Assimaidou)
- Authorities committed to:
  - Pursuing prudent macroeconomic policies to increase per capita growth, reduce vulnerability to shocks, and deepen regional integration.
  - Strengthening public finance management, safeguarding financial stability, preserving public debt sustainability, and boosting competitiveness.
  - Accelerating fiscal reforms to widen the tax base and simplify tax and customs procedures.
  - Relying on grants and highly concessional loans for public investment financing where possible and developing a regional government securities market.
  - Finalizing bank restructuring, recapitalization, regulatory review, and regional supervisory capacity strengthening.
  - Implementing measures to improve access to finance for SMEs and agriculture, with specialized financial institutions managed on market rules.
  - Seeking continued support from the Fund and international community for policy formulation and implementation.

*Sources: Cameroonian authorities; IMF staff estimates and projections; Statement by Kossi Assimaidou, Executive Director for Cameroon (June 24, 2011).*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2011/_cr11266.pdf_