## _cr14212

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---

### Robust growth but limited inclusiveness
- Real GDP growth accelerated to 5.5 percent in 2013, driven by strong services performance and a public investment program of more than 7 percent of GDP.
- Annual inflation in 2013 was 2.1 percent, below the CEMAC convergence criterion of 3 percent, but higher than the CEMAC weighted average of 1.7 percent (excluding Cameroon).
- Contributions to GDP growth, 2009–13 (percent): Primary sector 0.6, 1.3, 0.7, 0.6, 0.7; Secondary sector (excl. oil) 0.1, 0.7, 0.7, 1.0, 1.4; Oil -0.8, -0.6, -0.3, 0.1, 0.1; Tertiary sector 2.0, 1.8, 3.0, 2.9, 3.3; Of which: government 0.7, 0.4, 1.0, 0.8, 1.0; Real GDP growth 1.9, 3.3, 4.1, 4.6, 5.5.
- Nominal GDP by sector, 2013 (percent): Government 17.5%, Tertiary Sector (non-government) 37.5%, Primary Sector 21.4%, Secondary Sector (excl. oil) 20.2%, Oil 3.5%.
- Electricity production capacity additions (Megawatts): Dibamda +86; New Emergency Units +100; Kribi +216; End Emergency Units -60; Mekin +15; Lom Pangar +30; Memve'ele +211. Capacity trajectory projected into 2018 between 800 and 1,600 megawatts.

### Social outcomes and public spending composition
- Poverty: 39.9 in 2007 and 38.7 in 2011 (population growth annual percentage change 2.6 then 2.5).
  - Urban poverty 12.2 then 10.8; Rural poverty 55.0 then 59.2.
- Health and education spending: comparable countries (Ghana, Senegal, Tanzania) spend more than 5 percent of GDP on education and at least 2.8 percent of GDP on health—more than twice Cameroon’s allocations.
- Fuel subsidies: 2.8 percent of GDP in 2013, crowding out more effective expenditure.
- Social indicators (selected): life expectancy at birth 52 then 54; maternal mortality ratio 720 then 690 (per 100,000 live births); youth literacy rate 83 then 81.

### Fiscal outcomes and drivers of fragility
- Fiscal deficit (cash basis) exceeded 4 percent of GDP in 2013.
- Total revenue increased slightly to 17.8 percent of GDP in 2013; oil revenue fell due to higher production costs absorbing export proceeds.
- Tax deductions, special regimes, and tariff exemptions on basic foodstuffs cost more than 2.7 percent of GDP in foregone revenue.
- Stock of arrears and other payment obligations rose to 4.6 percent of GDP.
- Oil revenue and oil exports (CFAF billions) rose through 2013, but rising production costs were slated to offset higher export proceeds.

### Response to IMF advice (selected)
- Fiscal policy and PFM advice:
  - IMF recommended addressing 2013 budget risks through fuel subsidy reform and reduction in tax and customs exemptions.
  - Response: The fuel subsidy mechanism was not reformed; broad tax and customs exemptions were not tightened; expenditure and revenue offsets continued; treasury management became tenser.
- Private sector-led growth advice:
  - IMF recommended improving the business climate by limiting administrative hindrances identified in the Doing Business report.
  - Response: Measures such as the new investment incentives law add complexity rather than simplicity to the business environment, raising fiscal sustainability concerns.
- Financial sector advice:
  - IMF recommended improving frequency and quality of bank supervision by COBAC and strengthening monitoring of financial sector soundness.
  - Response: Significant improvements occurred: balance sheets of two banks were restructured and are now deemed sound; COBAC has been more active. Concerns remain about the systemic importance of the largest obligor.

### Outlook and key risks
- Growth projection for 2014: 5.5 percent (staff) versus authorities’ projection of 6 percent; medium-term staff projection about 5.5 percent.
- Drivers: growing oil production and public investment program expected to yield larger electricity and natural gas supplies.
- Inflation outlook: Barring fuel price adjustments, inflation slated to remain low; could exceed euro-area inflation, possibly inducing declining competitiveness.
- REER: estimated somewhat overvalued; model-based estimates consistent with prior finding of CEMAC overvaluation of 6 to 18 percent.
- Debt sustainability: external debt remains sustainable but risk of distress became “moderate” due to fast pace of nonconcessional debt accumulation.
- Key risks:
  - External: spillovers from civil strife in neighboring countries.
  - Domestic: banking sector crisis from default of a large single public borrower.
- Data provision: broadly adequate for surveillance; timeliness improved but qualitative gaps remain in fiscal, debt, and external sector information.

---

### Box 2 — Cameroon: Revenue Impact of the Economic Partnership Agreement (EPA)

- EPA timetable and design:
  - Interim EPA signed in 2009; expected ratification in October 2014.
  - Mutual trade liberalization: duty and quota-free EU access for all exports from Cameroon; gradual removal of duties and quotas over 15 years on up to 80 percent of EU exports to Cameroon.
  - Dismantling begins in 2017 at the earliest and phases in over 15 years. Excluded products: milk, meat, motor vehicles, textiles, and tobacco.
- Short- and medium-term fiscal impact:
  - Tax revenue impact until 2020 negligible (less than 0.1 percent of GDP) because dismantling starts in 2017 and affects imports already partly or totally exempted or moderately taxed.
- Long-term fiscal impact and channels:
  - 2012: 34 percent of Cameroon’s imports came from the EU.
  - Liberalization of 80 percent of EU imports over the long term implies loss of about one third of current tariff revenues, equivalent to 0.5–0.6 percent of GDP from the direct channel.
  - Revenue loss could be higher with trade diversion.
- Fiscal policy challenge:
  - Reorganize the tax base and develop alternative taxation to offset customs revenue losses; possible offsets: VAT, excises, reductions in tax exemptions.
- Staff recommendations related to fiscal management (selected):
  - Strengthen tax administration (finalize restructuring of small taxpayer offices; create additional medium taxpayer offices; allocate adequate resources).
  - Phase out fuel subsidies gradually and reprioritize expenditure toward social services; elaborate a communication strategy and targeted programs to limit impact on vulnerable groups; improve transparency (remove producer mark-up from fuel pricing formula).
  - Issue regional bonds consistent with market absorptive capacity.
  - Rethink public investment program to improve efficiency and complementarity of high-impact projects.
  - Lower debt vulnerabilities by renegotiating least concessional undisbursed loans; implement medium-term debt strategy and consolidate authority to contract external debt under the Minister of Finance.
  - Monitor contingent liabilities from public enterprises, PPPs, and the banking system; produce annual evaluation report on financial health of public enterprises, PPPs, and banks.
  - Persevere with public financial management reforms: improve reliability of budgetary and accounting data and fiscal transparency; limit exceptional procedures; reconcile data systems via IT; respect single treasury account rule; address domestic arrears via a multiyear plan.

- Reform scenario macro implications:
  - Main tenets: (i) reining in fiscal deficit and pace of debt accumulation helped by gradual retail fuel price adjustment; (ii) tax policy reforms to reduce exemptions and broaden bases; (iii) acceleration of private sector growth from business environment improvements and anti-corruption strengthening.
  - Reform scenario would increase growth by up to ½ percentage point of GDP by 2019.
- Selected comparative macro aggregates (Baseline vs Reform Scenario, 2014–19):
  - Real GDP (2014–19, Reform Scenario examples): 5.5, 5.5, 5.5, 5.5, 5.6, 5.8, 6.0.
  - Total revenue (incl. grants) Reform Scenario (selected years): 18.9, 18.9, 19.1.
  - Overall budget balance, cash basis (incl. grants) Reform Scenario (selected years): -3.2, -1.8, -1.2.
  - Non-oil primary balance Reform Scenario (selected years): -7.2, -5.3, -4.7.
  - Total public debt Reform Scenario (selected years): 25.5, 25.7, 24.8.
  - Current account (incl. grants) Reform Scenario (selected years): -4.2, -4.4, -4.5.

---

### Business environment and competitiveness
- Need for reforms:
  - Credibility of reforms "will take time to establish."
  - Private sector must "take over as the main engine of growth by the time the public investment program is scaled back."
  - Doing Business indicators link improvements in revenue policy, public financial management, and private sector activity.
  - Specific Doing Business areas highlighted: "trading across borders" and "paying taxes."
- Doing Business indicators (selected ranks, 2013–2014):
  - Ease of doing business: 2013 = 162, 2014 = 168.
  - Paying taxes: 2013 = 180, 2014 = 180.
  - Trading across borders: 2013 = 158, 2014 = 159.
  - Enforcing contracts: 2013 = 175, 2014 = 175 (800 days to resolve legal dispute versus 652 days average in SSA).
- Structural competitiveness (GCI and other indices):
  - GCI 2013–14: Rank 115 of 148, Score 3.7 out of 7.
  - Heritage Foundation Index of Economic Freedom 2013: score 52.6 out of 100 (slipped in ranking from 133 to 136); economy qualifies as “mostly unfree.”
  - Problematic factors: corruption; access to financing; inadequate infrastructure; inefficient government bureaucracy; tax regulations.

---

### Banking sector, microfinance, and SME finance
- Banking sector status:
  - "Risks to the banking system have receded."
  - Two troubled banks restructured; "only three small banks" remain in need of a resolution.
  - Financial intermediation remains low.
- Microfinance:
  - Microfinance sector "could expand faster and with less risk with the adoption of a regulatory framework and diligent joint supervision by COBAC and the Ministry of Finance."
- New bank for SMEs:
  - New bank for SMEs "is in need of regulatory vigilance, starting with its credit policy."
- Concentration risk:
  - Excessive concentration in bank credit toward the financially fragile national oil refinery (SONARA) is a major concern.

---

### Debt sustainability: DSA overview and policy implications
- Prepared jointly by the IMF and the World Bank; updates the 2013 DSA.
- Key DSA baseline assumptions (selected):
  - Discount rate: 5 percent (increased from 3 percent in 2013 DSA).
  - Medium-term (2015–19) real GDP growth: 5.5 percent.
  - Medium-term annual inflation: 2.2 percent.
  - Oil price (US$ per barrel) DSA 2014: 108.0 (2013-14), 93.3 (2015-19), 91.7 (2020-34).
- Public debt trends and composition:
  - Public debt-to-GDP fell to less than 10 percent in 2008 (post-HIPC/MDRI), then rose to 19.5 percent at end-2013.
  - External debt represented 63.4 percent of total public debt at end-2013.
  - Bilateral loans from non-Paris Club members represented 30.7 percent of total public debt at end-2013.
  - Undisbursed nonconcessional debt: over CFAF 2,700 billion at end-2013 versus about CFAF 2,100 billion at end-2012.
- External debt assessment:
  - Indicative external debt burden thresholds for CPIA category: PV of debt-to-exports 100 percent; PV of debt-to-revenue 200 percent; PV of debt-to-GDP 30 percent; debt service-to-exports 15 percent; debt service-to-revenue 18 percent.
  - Baseline medium term (2015–19): PV of debt-to-GDP = 12.9; PV of debt-to-exports = 37.7; PV of debt-to-revenue = 56.4; Debt service-to-exports = 2.7; Debt service-to-revenue = 4.0.
  - Assessment: external debt remains sustainable; risk of external debt distress increased from “low” to “moderate.”
  - Stress test: a shock to exports can push PV of external debt-to-exports above 100 percent by 2016; "most extreme" stress test uses negative growth of exports of 7.1 percent each year (2015 and 2016).
- Public sector debt including domestic debt:
  - PV of debt-to-GDP projected to rise from 19.5 percent of GDP in 2014 to 50.9 percent of GDP in 2034, breaching the indicative ceiling of 38 percent in 2021.
  - Projection highlights systemic risks from financing gaps financed mostly by domestic debt.
- Key numeric highlights (verbatim):
  - Public debt-to-GDP at end-2013: 19.5 percent.
  - External debt share of total public debt at end-2013: 63.4 percent.
  - Bilateral non-Paris Club share at end-2013: 30.7 percent.
  - Undisbursed nonconcessional debt: over CFAF 2,700 billion at end-2013 versus about CFAF 2,100 billion at end-2012.
  - Discount rate used in DSA: 5 percent.
  - CPIA score (2012): 3.23.
  - Projected PV of public debt-to-GDP in 2034: 50.9 percent.
  - Breach of public PV debt-to-GDP indicative ceiling (38 percent) projected in: 2021.

### DSA policy recommendations (selected)
- Adopt more conservative fiscal policy and prioritize more concessional debt terms.
- Nonconcessional loans should be considered only for well-assessed, high-yield commercial or infrastructure projects that will generate sufficient government revenue to cover related debt service.
- Strengthen data coverage and reporting of new debt, including direct payments between foreign contractors and external lenders; report without delay to the Government.
- Enhance the role of the National Public Debt Committee (NPDC) in evaluating and contracting new debt; subject new disbursements of external debt to prior NPDC approval.
- Promote economic growth and export diversification through a better business climate to support private-sector-led export growth.
- Fiscal adjustments and public investment prioritization:
  - New round of project selection to identify high-impact projects and roll back non-essential projects.
  - Strengthen PFM integrity including competitive procurement.
  - Raise pump fuel prices progressively to reduce retail fuel subsidy burden.
  - Broaden tax base, remove unwarranted exemptions, and make tax administration more effective.

---

### Annex I — External competitiveness (selected findings)
- Current account dynamics:
  - Since 2002, the current account deficit averaged about 2.3 percent of GDP.
  - Goods and services balance declined from a surplus of 1.6 percent of GDP in 2006 to a deficit of 3.3 percent of GDP in 2013.
- Savings and investment (2002–13 averages):
  - Investment averaged 18.6 percent of GDP; national savings averaged 16.3 percent of GDP.
  - Gross domestic investment: 20.2 percent of GDP in 2002; 14.3 percent in 2006; 21.3 percent in 2013.
- REER assessments (model-based):
  - MB approach: REER overvalued by 3 to 9 percent at end-2013; MB mean drifted down from 15.4 in 2010 to 5.5 percent in 2013.
  - ES approach: REER overvalued by 6 to 17 percent at end-2013; ES mean between 11 and 13 percent since 2010 (dip to 8.6 percent in 2012).
  - ERER approach: REER undervalued by 6 to 11 percent at end-2013.
  - Bems-Carvalho adjusted ES approach (for oil producers): suggests REER overvalued by 18 percent at end-2013; results fluctuated between 13 and 18 percent since 2011.
- Overall finding:
  - On balance, REER appears somewhat overvalued, confirming prior assessment; results sensitive to macro assumptions and elasticities.
- Structural competitiveness:
  - GCI 2013–14: Rank 115, Score 3.7.
  - Problematic factors (Doing Business survey): corruption; access to financing; inadequate infrastructure; inefficient government bureaucracy; tax regulations.
  - World Bank Doing Business 2014: rank 168 of 189 (lost six places); specific deteriorations in construction permits, starting a business, getting credit.

---

### Annex II — Risk Assessment Matrix (selected risks and staff recommended responses)
- Protracted slower growth in advanced economies:
  - Relative Likelihood: High; Impact if Realized: Low.
  - Recommended response: Diversify export markets toward emerging Asia; improve external competitiveness through faster structural reform.
- Financial stress in the euro area re-emerges:
  - Relative Likelihood: Medium; Impact if Realized: Low.
  - Recommended response: Ensure compliance with COBAC recommendations and CEMAC regulatory requirements.
- Sustained decline in world oil prices:
  - Relative Likelihood: Medium; Impact if Realized: Low.
  - Recommended response: Start fuel price reform; widen the non-oil tax base; increase efficiency of the oil refinery; spur competition in oil import sector.
- Spillovers of regional security situation:
  - Relative Likelihood: Medium; Impact if Realized: High.
  - Recommended response: Allow moderate relaxation of fiscal deficit; scale back unproductive public expenditure; prepare contingency plans for refugees with UNHCR.
- National oil refinery (SONARA) bankruptcy:
  - Relative Likelihood: Medium; Impact if Realized: High.
  - Recommended response: Make SONARA more efficient; increase retail fuel prices; clear arrears to SONARA; identify alternative suppliers.
- Collapse of one distressed bank:
  - Relative Likelihood: Low; Impact if Realized: Low.
  - Recommended response: Conduct comprehensive contingent liability assessment; recover bad bank assets.

---

### Key numeric takeaways (verbatim, selected)
- Growth and prices (2012–19 baseline): GDP at constant prices series includes 4.6, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5.
- Oil output (thousands of barrels per day, series): 61.3; 66.5; 72.5; 79.0; 86.1; 93.9; 102.3; 109.0.
- Consumer prices (average): 2.4, 2.1, 2.2, 2.2, 2.2, 2.2, 2.2, 2.2.
- Total revenue (excluding grants, percent of GDP): 17.5; 17.8; 18.0; 17.7; 17.5; 17.3; 17.2; 17.3.
  - Oil revenue (percent of GDP): 5.1; 4.8; 4.6; 4.3; 4.1; 4.0; 4.0; 4.1.
  - Non-oil revenue (percent of GDP): 12.4; 13.0; 13.4; 13.4; 13.3; 13.3; 13.3; 13.2.
- Total expenditure (percent of GDP): 19.5; 22.1; 24.0; 23.9; 22.7; 22.5; 22.3; 22.2.
- Overall fiscal balance (cash basis), including grants (percent of GDP): -2.5; -4.1; -5.6; -5.7; -5.0; -4.9; -4.8; -4.7.
- Non-oil primary balance (percent of non-oil GDP): -6.9; -9.1; -10.3; -9.9; -8.9; -8.6; -8.3; -8.2.
- Public investment (percent of GDP): 6.2; 7.4; 8.0; 7.9; 6.7; 6.5; 6.3; 6.2.
- Stock of public debt (percent of GDP): 15.6; 19.5; 24.0; 28.0; 31.1; 33.8; 36.3; 38.4.
- Present value of external debt (percent of GDP, 5 percent discount): 23.6; 28.2; 37.7; 44.4; 48.9; 51.8; 53.5; 54.3.
- External debt service (percent of GDP): 1.7; 1.9; 2.7; 3.1; 3.3; 3.6; 4.3; 4.5.
- Reserves imputed to Cameroon (US$ billions): 3.3; 3.4; 3.4; 3.4; 3.4; 3.4; 3.4; 3.4.
- Gross reserves (percent of broad money): 54.2; 47.6; 44.1; 40.6; 37.4; 34.4; 31.7; 29.2.

*Source: IMF Country Report excerpt, “Response to Past IMF Staff Advice” (IMF staff estimates and projections as presented in _cr14212).*

### 1. Response to Past IMF Staff Advice _____________________________________________________________ 9

### 1. Response to Past IMF Staff Advice

### Robust growth, but lacking inclusiveness
- Real GDP growth accelerated to 5.5 percent in 2013, driven by strong services performance and a public investment program of more than 7 percent of GDP.
- Annual inflation in 2013 was 2.1 percent, below the CEMAC convergence criterion of 3 percent, but higher than the CEMAC weighted average of 1.7 percent (excluding Cameroon).
- Contributions to GDP growth, 2009–13 (percent): Primary sector 0.6, 1.3, 0.7, 0.6, 0.7; Secondary sector (excl. oil) 0.1, 0.7, 0.7, 1.0, 1.4; Oil -0.8, -0.6, -0.3, 0.1, 0.1; Tertiary sector 2.0, 1.8, 3.0, 2.9, 3.3; Of which: government 0.7, 0.4, 1.0, 0.8, 1.0; Real GDP growth 1.9, 3.3, 4.1, 4.6, 5.5.
- Nominal GDP by sector, 2013 (percent): Government 17.5%, Tertiary Sector (non-government) 37.5%, Primary Sector 21.4%, Secondary Sector (excl. oil) 20.2%, Oil 3.5%.
- Electricity production capacity additions (Megawatts) included: Dibamda +86; New Emergency Units +100; Kribi +216; End Emergency Units -60; Mekin +15; Lom Pangar +30; Memve'ele +211. Capacity trajectory projected into 2018 with values between 800 and 1,600 megawatts (sources: Cameroonian authorities; IMF staff projections).

### Social outcomes and public spending composition
- Poverty remained broadly unchanged at close to 40 percent (poverty rate 39.9 in 2007 and 38.7 in 2011). Urban poverty 12.2 then 10.8; Rural poverty 55.0 then 59.2. Population growth (annual percentage change) 2.6 then 2.5. Life expectancy at birth (years) 52 then 54. Maternal mortality ratio (per 100,000 live births) 720 then 690. Youth literacy rate 83 then 81.
- Public spending on health and education was significantly lower than in comparable countries: comparable countries (Ghana, Senegal, Tanzania) spend more than 5 percent of GDP on education and at least 2.8 percent of GDP on health—more than twice Cameroon’s allocations.
- Fuel subsidies remained substantial at 2.8 percent of GDP in 2013 and crowded out more effective expenditure.

### Fiscal outcomes and drivers of fragility
- Fiscal deficit (cash basis) exceeded 4 percent of GDP in 2013.
- Total revenue increased slightly to 17.8 percent of GDP in 2013, but oil revenue fell due to higher production costs absorbing export proceeds.
- Tax deductions, special regimes, and tariff exemptions on basic foodstuffs cost more than 2.7 percent of GDP in foregone revenue.
- The stock of arrears and other payment obligations rose to 4.6 percent of GDP (Tables 6–7).
- Oil revenue and oil exports (CFAF billions) showed rising oil exports and oil revenue through 2013 with projections to 2019; however rising production costs are slated to offset higher export proceeds.

### Response to IMF advice (Box 1)
- Fiscal policy and PFM advice: IMF recommended addressing 2013 budget risks through fuel subsidy reform and reduction in tax and customs exemptions.
  - Response: The fuel subsidy mechanism was not reformed; broad tax and customs exemptions were not tightened; expenditure and revenue offsets continued; treasury management became tenser.
- Private sector-led growth advice: IMF recommended improving the business climate by limiting administrative hindrances identified in the Doing Business report.
  - Response: Measures such as the new investment incentives law add complexity rather than simplicity to the business environment, raising fiscal sustainability concerns.
- Financial sector advice: IMF recommended improving frequency and quality of bank supervision by the regional supervisor, COBAC, and strengthening monitoring of financial sector soundness.
  - Response: Significant improvements occurred: balance sheets of two banks were restructured and are now deemed sound; COBAC has been more active. Concerns remain about the systemic importance of the largest obligor.

### Outlook and risks
- Growth projection for 2014: 5.5 percent (staff), below authorities’ projection of 6 percent. Medium-term staff projection: about 5.5 percent.
- Growth drivers: growing oil production and public investment program expected to yield larger electricity and natural gas supplies.
- Inflation outlook: Barring fuel price adjustments, inflation slated to remain low because of stable food prices supported by growing supply; could exceed euro-area inflation, possibly inducing declining competitiveness.
- Fiscal trajectory projection, 2014–19:
  - Revenue projected to fall by up to 1 percentage point of GDP between 2014 and 2019 due to generous investment incentives, pervasive tariff exemptions, and weak VAT collection from ailing public enterprises.
  - Expenditure projected to drop by almost 2 percentage points of GDP by 2019 as externally financed investment program is scaled back.
  - Wage bill expected to track GDP growth on the back of hiring trends.
  - Non-oil primary deficit (NOPD) projected to remain at 8–9 percent of non-oil GDP, while financing gaps averaging 3 percent of GDP would persist.
- Real effective exchange rate (REER): estimated to be somewhat overvalued (Annex I). Model-based estimates consistent with prior finding of CEMAC overvaluation of 6 to 18 percent.
- Debt sustainability:
  - External debt remains sustainable but risk of distress has become “moderate” due to fast pace of nonconcessional debt accumulation.
  - Current debt burden is low compared to SSA peers but projected to accelerate. Figure 5 shows gross government debt for selected African countries (percent of GDP) in 2010, 2013, and 2019 with Cameroon rising relative to peers.
- Key risks (Annex II):
  - External: spillovers from civil strife in neighboring countries.
  - Domestic: banking sector crisis from default of a large single public borrower.
- Data provision: broadly adequate for surveillance; timeliness has improved but qualitative gaps remain in fiscal, debt, and external sector information. Financial operations on a commitment basis are not available; debt reporting on externally financed projects is neither regular nor timely.

### Policy recommendations to address fiscal sustainability (selected)
- Adopt the NOPD as a fiscal anchor and set a path that balances public investment needs and fiscal sustainability.
  - Staff analysis suggests gradual reduction of the NOPD from projected 10.3 percent of non-oil GDP in 2014 to about 4 percent by 2034 would help cap total public debt to less than 30 percent of GDP over the long term.
- Improve non-oil revenue by:
  - Broadening the tax base.
  - Adjusting selected tax rates.
  - Limiting tax exemptions.
  - Curtailing application of the investment incentives law.
- Specific tax policy suggestions tied to revenue mobilization (given anticipated EPA ratification and declining oil proceeds):
  - Lower the corporate income tax rate while increasing the minimum rate on the turnover tax to reduce incentives for evasion.
  - Switch to a dual income tax approach and improve progressivity of the personal income tax.
  - Lower the VAT rate while removing the exemptions granted in 2008 on basic foodstuffs, noting these exemptions have not achieved intended social impact.
- Strengthen Ministry of Finance tools and oversight:
  - Improve oversight of loans for projects and PPPs; financing terms should be framed within a comprehensive debt policy.
  - Set a clear fiscal anchor in the budget, e.g., a downward path for the NOPD.
- Address treasury management tensions and clear deferred payments, requiring significant revenue mobilization given shrinking government deposits.

*Source: IMF Country Report excerpt, “Response to Past IMF Staff Advice”.*

### Box 2. Cameroon: Revenue Impact of the Economic Partnership Agreement

### Box 2. Cameroon: Revenue Impact of the Economic Partnership Agreement

### EPA design and timetable
- Cameroon signed an interim EPA in 2009, which is expected to be ratified in October 2014.
- The agreement envisages mutual trade liberalization—duty and quota-free EU access for all exports from Cameroon and a gradual removal of duties and quotas over 15 years on up to 80 percent of EU exports to Cameroon.
- The dismantling will begin in 2017 at the earliest and will phase in over 15 years.
- Products which will not be liberalized include milk, meat, motor vehicles, textiles, and tobacco.
- Source: Article 21 of the Cameroon Interim EPA.

- Table: Calendar of tariff dismantlement (Percent) — as presented in source:
  - Category ICategory IICategory III
  - Year 1000
  - Year 2000
  - Year 32500
  - Year 450150
  - Year 575300
  - Year 6100450
  - Year 76010
  - Year 87520
  - Year 99030
  - Year 1010040
  - Year 1150
  - Year 1260
  - Year 1370
  - Year 1480
  - Year 1590
  - Year 16100

### Short- and medium-term fiscal impact
- Tax revenue impact until 2020 will be negligible (less than 0.1 percent of GDP) because:
  - the dismantling will begin in 2017 at the earliest and will affect imports that are already partly or totally exempted or moderately taxed (capital goods under Categories I and II); and
  - tariff losses could be dampened in the short-term if an increase in import volumes partially offsets reductions in tariff rates.

### Long-term fiscal impact and channels of revenue loss
- Revenue loss channels:
  - Direct channel: a zero tariff rate would apply to imports from the EU.
  - Indirect channel: trade diversion from taxed non-EU imports to non-taxed EU imports.
- In 2012, 34 percent of Cameroon’s imports came from the EU.
- Liberalization of 80 percent of EU imports over the long term would imply the loss of about one third of current tariff revenues, equivalent to 0.5–0.6 percent of GDP from the direct channel.
- The revenue loss could be higher if trade diversion from the rest of the world in favor of exempted EU imports happened.

### Fiscal policy challenge and offsetting measures
- The fiscal challenge: reorganize the tax base and develop alternative forms of taxation to offset customs revenue losses.
- Possible offsetting sources explicitly mentioned:
  - VAT
  - excises
  - reductions in tax exemptions
- Some positive effects may arise if incomes rise and the tax base widens; the long-term effect depends on the authorities’ capacity to offset customs revenue reductions.

### Staff policy recommendations and measures related to fiscal management
- Strengthen tax administration by:
  - finalizing the restructuring of the network of small taxpayer offices,
  - creating additional medium taxpayer offices,
  - allocating adequate resources to implement reforms.
- Phase out fuel subsidies gradually and reprioritize expenditure toward social services.
  - Elaborate a communication strategy and develop well-targeted programs to limit the impact of higher fuel prices on the most vulnerable groups.
  - Take preparatory steps to improve transparency, such as removing the producer mark-up from the fuel pricing formula.
- Issue regional bonds in amounts and at a pace consistent with market absorptive capacity and the expected growth impact of concerned projects.
- Rethink the public investment program to improve its efficiency and enhance the complementarity of a limited set of projects with a high impact on growth and poverty reduction.
- Lower debt vulnerabilities by renegotiating the least concessional undisbursed loans; implement a medium-term debt strategy, including the consolidation of the authority to contract external debt under the Minister of Finance.
- Monitor contingent liabilities from public enterprises, PPPs, and the banking system. Produce an annual evaluation report on the financial health of all public enterprises, PPPs, and banks, and adopt a payment plan to settle liabilities stemming from situations that have been conclusively addressed.
- Staff encouraged authorities to persevere in implementing public financial management reforms to improve the effectiveness of public spending, including:
  - improving reliability of budgetary and accounting data and fiscal transparency,
  - limiting reliance on exceptional procedures such as extension of the fiscal year,
  - reconciling information from different data systems via IT systems to track flow of funds,
  - respecting the single treasury account rule,
  - addressing domestic arrears via a multiyear plan to eliminate audited arrears and appropriating fuel subsidies and transfers to public enterprises fully.

### Reform scenario and macroeconomic implications
- Reform scenario main tenets:
  - (i) reining in the fiscal deficit and pace of debt accumulation helped by a gradual adjustment in retail fuel prices of gasoline and diesel that would not reach full cost-recovery levels over the medium term;
  - (ii) tax policy reforms to reduce exemptions, adjust selected tax rates, and broaden tax bases;
  - (iii) acceleration of private sector growth from improvements in the business environment and strengthening of the anti-corruption framework.
- The reform scenario would lead to an increase in growth by up to ½ percentage point of GDP by 2019.

- Text Table 3. Cameroon: Selected Macroeconomic Indicators, 2014–19 (as presented)
  - Baseline Scenario / Reform Scenario
  - Economic growth and prices
    - Real GDP 5.5 5.5 5.5 5.5 5.6 5.8 6.0
    - Non-oil real GDP 5.6 5.4 5.4 5.5 5.5 5.7 6.0
    - Consumer prices (period average) 2.2 2.2 2.2 2.2 2.6 2.6 2.2
  - Fiscal aggregates
    - Total revenue (incl. grants) 18.5 18.2 17.6 17.5 18.9 18.9 19.1
      - Of which: Oil 4.6 4.3 4.0 4.1 4.3 4.0 4.0
      - Non-oil 14.4 14.3 14.1 14.0 15.1 15.6 15.8
    - Total expenditure, cash basis 24.0 23.9 22.5 22.2 22.0 20.6 20.3
      - Of which: Non-interest current 15.5 15.3 15.1 15.0 13.5 13.1 12.8
      - Capital 8.0 7.9 6.5 6.2 7.8 6.8 6.7
    - Overall budget balance, cash basis (incl. grants) -5.6 -5.7 -4.9 -4.7 -3.2 -1.8 -1.2
    - Non-oil primary balance -10.3 -9.9 -8.6 -8.2 -7.2 -5.3 -4.7
    - Total public debt 24.0 28.0 33.8 38.4 25.5 25.7 24.8
  - External sector
    - Current account (incl. grants) -3.8 -4.2 -4.4 -4.4 -4.2 -4.4 -4.5

### Staff appraisal highlights relevant to the EPA impact
- The envisaged ratification of the EPA could further undermine revenue in the long term.
- An evaluation of its direct and indirect impacts on revenue is necessary and could inform new discussions on regional integration with CEMAC partner countries.
- The fiscal stance requires adjustment to avoid further accumulation of domestic arrears.
- Non-oil revenue performance will remain tepid unless unwarranted exemptions are removed, the tax base is broadened, and tax administration is made more effective.

*Source: Box 2. Cameroon: Revenue Impact of the Economic Partnership Agreement (IMF country report excerpt).*

### 38.      A broad array of reforms to the business environment needs to be initiated, because its

### 38.      A broad array of reforms to the business environment needs to be initiated, because its

### Need for business environment reforms
- The credibility of reforms "will take time to establish."
- The private sector must "take over as the main engine of growth by the time the public investment program is scaled back."
- Doing Business indicators link improvements in:
  - revenue policy,
  - public financial management,
  - private sector activity.
- Specific Doing Business areas highlighted: "trading across borders" and "paying taxes."

### Recommended focus areas (implied by analysis)
- Initiate a broad array of reforms to improve the business environment, with attention to:
  - revenue policy reforms,
  - public financial management strengthening,
  - measures that facilitate "trading across borders" and "paying taxes."
- Prioritize building credibility over time so private sector confidence and investment increase as public investment is reduced.

### 39.      Risks to the banking system have receded, but financial intermediation remains low

### Current banking system status
- "Risks to the banking system have receded."
- Restructuring of two troubled banks has reduced immediate resolution needs; "only three small banks" remain in need of a resolution.
- Financial intermediation is described as "low."

### Microfinance sector
- The microfinance sector "could expand faster and with less risk with the adoption of a regulatory framework and diligent joint supervision by COBAC and the Ministry of Finance."

### New bank for SMEs
- The new bank for SMEs "is in need of regulatory vigilance, starting with its credit policy."

*Source: IMF staff text (excerpt from _cr14212).*

### 40.      Staff recommends that the next Article IV consultation take place on the standard 12-month

### _cr14212 - 40. Staff recommends that the next Article IV consultation take place on the standard 12-month cycle

### Article IV consultation timing
- Staff recommends that the next Article IV consultation take place on the standard 12-month cycle, in accordance with the Decision on Article IV Consultation Cycles (Decision No. 14747–(10/96) (9/28/2010).

### Macroeconomic outlook and projections (2012–19)
- GDP at constant prices: 4.6, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5 (2012–19 series as presented).
- Oil GDP at constant prices: 3.5, 3.0, 4.5, 9.0, 9.0, 9.0, 9.0, 6.5.
- Non-oil GDP at constant prices: 4.6, 5.6, 5.6, 5.4, 5.4, 5.4, 5.4, 5.5.
- GDP deflator: 3.1, 1.5, 2.1, 1.9, 2.0, 1.9, 1.9, 1.9.
- Nominal GDP (at market prices, CFAF billions): 13,515; 14,463; 15,565; 16,732; 18,005; 19,359; 20,816; 22,390.
- Oil output (thousands of barrels per day): 61.3; 66.5; 72.5; 79.0; 86.1; 93.9; 102.3; 109.0.
- Consumer prices (average): 2.4, 2.1, 2.2, 2.2, 2.2, 2.2, 2.2, 2.2.

### External trade and terms of trade
- Export volume (annual % change): 8.3; 3.0; 7.6; 9.5; 9.5; 9.5; 9.5; 9.0.
  - Oil sector export volume: 7.9; 9.5; 9.5; 9.5; 9.4; 9.4; 9.4; 6.7.
  - Non-oil sector export volume: 8.4; 1.8; 7.2; 9.5; 9.5; 9.5; 9.5; 9.5.
- Import volume (annual % change): 2.2; 6.5; 8.2; 7.6; 7.5; 7.0; 6.8; 6.8.
- Average oil export price (US$ per barrel): 111.7; 108.9; 107.2; 100.4; 95.0; 91.5; 89.1; 90.4.
- Terms of trade (annual % change): 0.3; 0.9; 0.1; -3.3; -3.0; -2.9; -4.9; 0.3.

### External sector and reserves
- Current account balance (percent of GDP), including official grants: -3.6; -3.9; -3.8; -4.2; -4.4; -4.4; -4.5; -4.4.
- Current account balance (percent of GDP), excluding official grants: -4.1; -4.4; -4.3; -4.6; -4.8; -4.8; -4.9; -4.8.
- Gross reserves imputed to Cameroon (US$ billions): 3.3; 3.4; 3.4; 3.4; 3.4; 3.4; 3.4; 3.4.
- Gross reserves (percent of broad money): 54.2; 47.6; 44.1; 40.6; 37.4; 34.4; 31.7; 29.2.
- CEMAC gross reserves (US$ billions): 17.5; 18.5; 20.1; 20.8; 22.0; 23.1; 23.4; 24.4.
- CEMAC months of imports of GNFS: 5.7; 5.9; 6.3; 6.4; 6.6; 6.7; 6.7; 7.7.

### Monetary and financial conditions
- Broad money (M2) annual percentage change: 1.4; 10.8; 7.1; 7.5; 7.6; 7.5; 7.5; 7.6.
- Net foreign assets contribution to M2 growth (percentage points): -3.3; 0.8; -0.4; -0.4; -0.4; -0.4; -0.3; -0.3.
- Net domestic assets contribution to M2 growth (percentage points): 4.6; 10.1; 7.5; 7.9; 8.0; 7.9; 7.9; 7.9.
- Domestic credit to the private sector (annual % change): 2.6; 14.9; 11.1; 11.2; 11.0; 10.3; 9.9; 10.0.
- Money and quasi-money (CFAF billions): 3,074; 3,407; 3,649; 3,923; 4,221; 4,539; 4,880; 5,249.

### Fiscal position, central government operations, and public investment (2012–19)
- Total revenue (excluding grants, percent of GDP): 17.5; 17.8; 18.0; 17.7; 17.5; 17.3; 17.2; 17.3.
  - Oil revenue (percent of GDP): 5.1; 4.8; 4.6; 4.3; 4.1; 4.0; 4.0; 4.1.
  - Non-oil revenue (percent of GDP): 12.4; 13.0; 13.4; 13.4; 13.3; 13.3; 13.3; 13.2.
  - Non-oil revenue (percent of non-oil GDP): 13.5; 14.0; 14.4; 14.3; 14.2; 14.1; 14.1; 14.0.
- Total expenditure (percent of GDP): 19.5; 22.1; 24.0; 23.9; 22.7; 22.5; 22.3; 22.2.
- Overall fiscal balance (cash basis), excluding grants (percent of GDP): -2.9; -4.4; -6.1; -6.2; -5.3; -5.2; -5.1; -4.9.
- Overall fiscal balance (cash basis), including grants (percent of GDP): -2.5; -4.1; -5.6; -5.7; -5.0; -4.9; -4.8; -4.7.
- Non-oil primary balance (percent of non-oil GDP): -6.9; -9.1; -10.3; -9.9; -8.9; -8.6; -8.3; -8.2.
- Public investment (percent of GDP, central government projects/capital expenditure): 6.2; 7.4; 8.0; 7.9; 6.7; 6.5; 6.3; 6.2 (Table 3 / Table 9 memorandum).

### Central government fiscal tables—selected levels (CFAF billions)
- Total revenue and grants (2015 estimate onward example row): Total revenue and grants: 2,426; 2,623; 2,668; 674; 2,887; 2,697; 3,050; 3,195; 3,401; 3,633; 3,917 (Table 2).
- Total expenditure (2015 estimate onward example row): 2,641; 3,200; 3,048; 551; 3,732; 3,542; 3,991; 4,086; 4,347; 4,636; 4,963 (Table 2).
- Wages and salaries (CFAF billions): 706; 790; 835; 200; 859; 859; 922; 990; 1,062; 1,140; 1,223 (Table 2).
- Capital expenditure (CFAF billions): 834; 1,067; 1,000; 139; 1,253; 1,253; 1,314; 1,213; 1,254; 1,309; 1,384 (Table 2).

### Public debt and debt service
- Stock of public debt (percent of GDP): 15.6; 19.5; 24.0; 28.0; 31.1; 33.8; 36.3; 38.4.
- Of which external debt (percent of GDP): 9.0; 12.5; 14.7; 14.7; 16.4; 17.2; 17.7; 17.8.
- Present value of external debt (percent of GDP, computed with 5 percent discount): 23.6; 28.2; 37.7; 44.4; 48.9; 51.8; 53.5; 54.3.
- External debt service (percent of GDP): 1.7; 1.9; 2.7; 3.1; 3.3; 3.6; 4.3; 4.5.
- External debt service (percent of government revenue): 2.6; 2.8; 4.0; 4.6; 4.8; 5.3; 6.2; 6.5.

### Reform scenario highlights (2012–19) — projected impacts of reforms
- Under the Reform Scenario, GDP at constant prices shows slightly higher growth in outer years: 4.6; 5.5; 5.5; 6.5; 5.7; 5.8; 5.9; 6.0 (Table 10 series for non-oil and aggregate).
- Nominal GDP (CFAF billions) under Reform Scenario: 13,515; 14,464; 15,566; 16,800; 18,241; 19,737; 21,334; 23,044.
- Broad money (M2) annual percentage change under Reform Scenario: 1.4; 10.8; 7.1; 7.9; 8.6; 8.2; 8.1; 8.0.
- Gross national savings (percent of GDP) under Reform Scenario: 17.1; 17.2; 17.6; 17.7; 18.0; 18.4; 19.0; 19.6.
- Gross domestic investment (percent of GDP) under Reform Scenario: 20.7; 21.1; 21.4; 21.9; 22.4; 22.8; 23.5; 24.1.
- Overall fiscal balance (cash basis) under Reform Scenario, excluding grants (percent of GDP): -2.9; -4.4; -6.1; -3.7; -2.6; -2.0; -1.6; -1.4.
- Overall fiscal balance (cash basis) under Reform Scenario, including grants (percent of GDP): -2.4; -4.1; -5.6; -3.2; -2.3; -1.8; -1.4; -1.2.
- Public debt stock under Reform Scenario (percent of GDP): 15.6; 19.5; 24.0; 25.5; 25.8; 25.7; 25.3; 24.8.

### Balance of payments (selected levels, CFAF billions, 2012–19)
- Current account balance (CFAF billions): -488.3; -560.6; -589.9; -699.5; -784.9; -855.1; -945.8; -995.4.
- Trade balance (CFAF billions): -140.1; -185.6; -211.5; -278.9; -338.6; -383.6; -434.5; -447.3.
- Exports, goods (CFAF billions): 2,939.0; 2,980.2; 3,173.5; 3,332.5; 3,480.9; 3,685.1; 3,919.6; 4,208.9.
  - Oil and oil products exports (CFAF billions): 1,509.2; 1,549.2; 1,631.3; 1,670.0; 1,744.1; 1,843.0; 1,949.2; 2,082.6.
  - Non-oil sector exports (CFAF billions): 1,429.8; 1,431.0; 1,542.2; 1,662.4; 1,736.8; 1,842.1; 1,970.4; 2,126.3.
- Imports, goods (CFAF billions): -3,079.1; -3,165.8; -3,385.0; -3,611.4; -3,819.5; -4,068.7; -4,354.1; -4,656.3.
- Income (net) (CFAF billions): -227.2; -272.6; -283.1; -311.7; -338.6; -363.6; -390.8; -408.2.
  - Interest due on public debt (CFAF billions): -38.0; -47.4; -49.0; -69.0; -84.7; -97.1; -108.2; -118.6.
- Transfers (net) (CFAF billions): 134.5; 162.1; 165.9; 170.0; 174.8; 179.2; 183.7; 186.1.

### Government arrears, obligations to SONARA, and subsidies
- Obligations to SONARA (end-year stocks, CFAF billions): 94; 98; 136; 172; 209.5; -3.5; 206.0 (Table 7 flows/stocks; series include historical fluctuations).
- Fuel subsidies (accrual basis, CFAF billions): 137; 231; 453; 183; 222; 97 (2008–2013 annual series, Table 6).
  - Fuel subsidies (percent of GDP): 1.3; 0.2; 1.2; 2.5; 2.4; 2.1.
- Total arrears and other payment obligations (end-year stocks, CFAF billions): 13.7; 85.1; -120.5; 464.6; 126.6; 598.2; 70.6; 668.8 (Table 7 flows/stocks).
  - Total arrears and other payment obligations (percent of GDP): 5.0; 3.7; 4.4; 4.6 (selected years shown).

### Millennium Development Goals and social indicators (selected)
- Population, total (millions): 12.1; 13.9; 15.9; 18.1; 20.6; 21.2; 21.7 (1990–2012 series).
- GNI per capita, Atlas method (current US$): 910; 720; 630; 930; 1,130; 1,150; 1,170.
- Immunization, measles (% of children ages 12-23 months): 56; 46; 49; 68; 79; 76; 82.
- Mortality rate, infant (per 1,000 live births): 85; 91; 91; 88; 65; 63; 61.
- Mortality rate, under-5 (per 1,000): 137; 147; 148; 142; 103; 99; 95.
- Primary completion rate, total (% of relevant age group): 54; ...; 51; 53; 70; 69; 73.
- Internet users (per 100 people): 0.0; 0.0; 0.0; 0.3; 1.4; 4.3; 5.0; 5.7.
- Mobile cellular subscriptions (per 100 people): 0; 0; 1; 13; 34; 45; 64; (series shows rapid growth).

### Key policy-relevant numerical takeaways
- Cameroon faces persistent fiscal deficits: overall fiscal balance (including grants) remains negative in projections (e.g., -5.6 percent of GDP in 2014 budget scenario; improved under Reform Scenario to -3.2 percent in 2015 and to -1.2 percent by 2019).
- Non-oil primary balance is large and negative: e.g., -10.3 percent of non-oil GDP in 2014 (baseline) and improving under Reform Scenario to -7.2 percent in 2015 and -4.7 percent by 2019.
- Public debt rises in baseline projections to 38.4 percent of GDP by 2019; Reform Scenario stabilizes debt around mid-20s percent of GDP by 2019 (e.g., 24.8 percent).
- External vulnerabilities persist: current account deficits around -4.4 to -4.8 percent of GDP and external debt service rising to 4.5 percent of GDP by 2019 in baseline.
- Reserves (imputed) remain broadly unchanged at US$3.4 billion in IMF staff projections but decline as percent of broad money from 54.2 to 29.2 (2012–19 baseline).

*Sources: Cameroonian authorities; and IMF staff estimates and projections as presented in the provided IMF country documents.*

### Annex I. Cameroon: External Competitiveness

### Annex I. Cameroon: External Competitiveness

### A. Balance of Payments and Exchange Rate Developments
- Current account dynamics and composition:
  - Since 2002, the current account deficit has averaged about 2.3 percent of GDP.
  - Recent surpluses occurred in 2006 and 2007 because of high oil prices.
  - The goods and services balance declined from a surplus of 1.6 percent of GDP in 2006 to a deficit of 3.3 percent of GDP in 2013.
  - Net current transfers have been systematically positive, reflecting capital grants and aid inflows.
  - The net income account has been systematically negative, mostly owing to increased income from direct investment.
- Savings and investment:
  - In 2002–13, investment averaged 18.6 percent of GDP, while national savings averaged 16.3 percent of GDP.
  - Gross domestic investment: 20.2 percent of GDP in 2002; 14.3 percent in 2006; recovered to 21.3 percent in 2013.
  - National savings rate: 15.1 percent of GDP in 2002; increased to 17.6 percent in 2009; decreased to 17.2 percent in 2013.
  - Medium term outlook: private sector expected to pull investments, drawing on ongoing infrastructure development.
- Exports and external position:
  - In the 1990s Cameroon was the second largest exporter in CEMAC after Gabon; it has moved to fourth position.
  - Openness (exports + imports)/GDP increased despite relative decline in share of CEMAC exports.
- Current account projection and financing:
  - The current account deficit is expected to grow from 3.9 to 4.4 percent of GDP in 2013–19.
  - In 2013, approximately 52 percent of exports were oil and oil products.
  - Expected deterioration in goods and services balance driven by strong import growth for investment projects.
  - The current account deficit would primarily be financed by government borrowing.
- Exchange rate developments:
  - The REER has depreciated since 2010, partially reversing a prior long-run appreciation.
  - Since 2009, the REER has depreciated by 7.7 percent.
  - The 7.7 percent depreciation has not fully offset the 24 percent REER appreciation in 1994–2008.
- Preliminary valuation:
  - Using two LREER benchmarks: (i) mean of the two years following 1994 devaluation; (ii) sample mean over 1994–2013.
  - First approach suggests the REER was overvalued by 9.2 percent at end-2013.
  - Second approach indicates the REER is broadly in line with equilibrium.
  - Terms of trade up by nearly 27 percent since 2009, suggesting possible shift in LREER.
  - Non-oil current account deficit has been worsening, suggesting possible REER overvaluation.
- Overall finding for section A:
  - Cameroon’s real effective exchange rate, on balance, appears somewhat overvalued.
  - Structural competitiveness shows weaknesses; non-price indicators highlight the need to improve business climate, infrastructure, and access to financing.

### B. Model-Based Real Exchange Rate Assessments
- Methodology and data:
  - REER assessed using CGER three approaches: (i) macroeconomic balance (MB); (ii) external sustainability (ES); (iii) equilibrium real exchange rate (ERER).
  - Annual data for 184 countries for 1973–2013 and projections from 2014 Article IV macroeconomic framework used.
  - An adjusted ES approach considers Cameroon’s oil wealth and projected exhaustion of oil resources (Bems-Carvalho method).
- MB approach results:
  - MB approach suggests the REER was overvalued by 3 to 9 percent at end-2013.
  - Estimated current account norm: deficit of 3.3 percent of GDP.
  - Underlying current account deficit: about 4.5 percent of GDP.
  - Current account elasticity estimates from Tokarick (2010): CGER (-0.14); general (-0.31); small country (-0.38).
  - MB mean has drifted down from 15.4 in 2010 to 5.5 percent in 2013.
- ES approach results:
  - ES approach suggests the REER was overvalued by 6 to 17 percent at end-2013.
  - NFA-stabilizing current account: a deficit of 2.0 percent of GDP versus 4.5 percent underlying deficit.
  - ES mean has remained between 11 and 13 percent since the 2010 assessment, except for a dip to 8.6 percent in 2012.
  - Preliminary CEMAC external assessment for 2014 found REER overvalued by 10.9 percent using ES.
- ERER approach results:
  - ERER approach suggests the REER was undervalued by 6 to 11 percent at end-2013.
  - ERER mean has fluctuated between -3 and -13 percent since the 2010 assessment.
  - Note: panel regression model to estimate LREER for Cameroon was incomplete owing to data unavailability.
- Bems-Carvalho adjusted ES approach for oil producers:
  - Rationale: external sustainability important for exhaustible-resource producers; account for oil imports and net oil exports.
  - Oil projections: oil exports projected to represent close to 10 percent of GDP in 2019; net exports projected to represent about 5 percent of GDP in 2019.
  - Assumption: petroleum reserves exhausted in 20 years; current account norm assumes part of oil revenues saved to provide a constant real annuity.
  - Result: adjusted ES (Bems-Carvalho) suggests REER was overvalued by 18 percent at end-2013.
  - Results from this method fluctuated between 13 and 18 percent since 2011.
  - Corresponding current account norm under this scenario: a 4.1 percent current account surplus by 2019.
  - Preliminary CEMAC external assessment for 2014: REER overvalued 12.7 percent for this approach.
  - Caveats: international capital market imperfections and urgent development needs may justify investing domestically rather than saving abroad; investment inefficiencies and absorptive capacity constraints limit domestic investment as a savings mechanism.
  - Policy implication: transitory nature of oil revenues suggests investing a larger proportion of these revenues in safe assets with reasonable yield, abroad or domestically.
- Synthesis of model-based approaches:
  - On balance, the REER appears somewhat overvalued, confirming last year’s assessment.
  - Results sensitive to macroeconomic assumptions and elasticities of the current account to the REER.
  - Maintaining Cameroon’s NFA position would require reducing the current account deficit, implying an overvalued REER—strengthened if Cameroon saves windfall oil revenues.
  - Improving Cameroon’s competitiveness (beyond REER) could reduce the current account deficit and help save transitory petroleum revenues.

### C. Assessment of Structural Competitiveness
- Concept and data sources:
  - Competitiveness defined per World Economic Forum as institutions, policies, and factors determining productivity.
  - Non-price indicators used: World Economic Forum Global Competitiveness Index (GCI); Heritage Foundation indicators of economic freedom; World Bank Doing Business indicators; Country Policy and Institutional Assessment (CPIA).
- Global Competitiveness Index (GCI) 2013–14:
  - Cameroon ranks 115th of 148 countries; score 3.7 out of 7.
  - Lost three places since previous report but maintained score of 3.7.
  - Within sub-Saharan Africa (SSA), Cameroon ranks 12th out of 34 countries, above the region’s average and median.
  - Cameroon obtained higher scores than SSA average on three sub-indices: basic requirements; efficiency enhancers and factors of innovation; and sophistication.
  - Table I.1 (selected scores and ranks):
    - GCI 2013–14: Rank 115, Score 3.7.
    - GCI 2012–13: Rank 112, Score 3.7.
    - GCI 2011–12: Rank 116, Score 3.6.
    - Basic requirements (60%): Rank 117, Score 3.8.
    - Institutions: Rank 112, Score 3.4.
    - Infrastructure: Rank 128, Score 2.5.
    - Macroeconomic environment: Rank 60, Score 4.9.
    - Health and primary education: Rank 124, Score 4.4.
    - Efficiency enhancers (35%): Rank 113, Score 3.5.
    - Higher education and training: Rank 112, Score 3.3.
    - Goods market efficiency: Rank 100, Score 4.0.
    - Labor market efficiency: Rank 82, Score 4.2.
    - Financial sector development: Rank 107, Score 3.6.
    - Technology readiness: Rank 121, Score 2.8.
    - Market size: Rank 91, Score 3.1.
    - Innovation and sophistication factors (5%): Rank 95, Score 3.4.
    - Business sophistication: Rank 105, Score 3.6.
    - Innovation: Rank 80, Score 3.1.
- Problematic factors for Doing Business (2013–14, World Economic Forum survey):
  - Top constraints identified (same five major constraints as prior year): corruption; access to financing; inadequate infrastructure; inefficient government bureaucracy; tax regulations.
  - Corruption tops the list; poor access to financing is second.
- Heritage Foundation: Index of Economic Freedom (2013):
  - Cameroon scored 52.6 out of 100 in 2013, up from 52.3 in 2012.
  - Cameroon slipped in rankings from 133 to 136.
  - The economy qualifies as “mostly unfree.”
  - Half of ten indicators deteriorated during the year, including property rights, investment freedom, and monetary freedom.
  - Areas for improvement: freedom from corruption and protection of property rights.
- World Bank Doing Business indicators (2014):
  - Cameroon’s business climate deteriorated; rank worse than SSA average.
  - Cameroon lost six places in 2014, slipping to 168th out of 189.
  - Reforms: easier to obtain a building permit by decentralizing process and introducing time limits—but notification and inspection requirements offset improvements.
  - Specific deteriorations: construction permits, starting a business, getting credit.
  - Enforcing contracts: Cameroon ranked 175th; requires 800 days to resolve a legal dispute versus 652 days average in SSA; 42 procedures to enforce a contract versus 39 in SSA.
- Overall structural competitiveness finding:
  - Structural indicators and surveys point to weaknesses in business climate, governance, infrastructure, and access to finance that undermine competitiveness and contribute to external imbalances.

*Annex I. Cameroon: External Competitiveness — IMF staff.*

### 20.      Cameroon’s Country Policy and Institutional Assessment (CPIA) score of 3.2 was in line

### _cr14212 - 20.      Cameroon’s Country Policy and Institutional Assessment (CPIA) score of 3.2 was in line

### CPIA headline
- Cameroon’s Country Policy and Institutional Assessment (CPIA) score of 3.2 was in line with SSA average and above the average of the CEMAC (2.9) in 2012.
- Although Cameroon’s scores in major areas exceed the scores of the CEMAC and are strong in economic management compared with SSA, they lag SSA in policies for social inclusion.
- Areas for improvement are in property rights, rule-based governance, transparency, accountability, and corruption.

### Doing Business indicators (selected ranks, 2013–2014)
- Ease of doing business: 2013 = 162, 2014 = 168
- Starting a business: 2013 = 125, 2014 = 132
- Dealing with construction permits: 2013 = 95, 2014 = 127
- Getting electricity: 2013 = 62, 2014 = 62
- Registering property: 2013 = 160, 2014 = 159
- Getting credit: 2013 = 105, 2014 = 109
- Protecting investors: 2013 = 127, 2014 = 128
- Paying taxes: 2013 = 180, 2014 = 180
- Trading across borders: 2013 = 158, 2014 = 159
- Enforcing contracts: 2013 = 175, 2014 = 175
- Closing a business: 2013 = 151, 2014 = 151

Source: Doing Business Indicators, World Bank, 2014.

### CPIA component scores (2011–2012; scale 1-7)
- Overall CPIA Score: 2011 = 3.2, 2012 = 3.2
- Economic Management: 2011 = 3.7, 2012 = 3.8
- Monetary and Exchange Rate Policy: 2011 = 4.0, 2012 = 4.0
- Fiscal Policy: 2011 = 3.5, 2012 = 3.5
- Debt Policy: 2011 = 3.5, 2012 = 4.0
- Structural Policies: 2011 = 3.2, 2012 = 3.2
- Trade: 2011 = 3.5, 2012 = 3.5
- Financial Sector: 2011 = 3.0, 2012 = 3.0
- Business Regulatory Environment: 2011 = 3.0, 2012 = 3.0
- Policies for Social Inclusion and Equity: 2011 = 3.0, 2012 = 3.0
- Gender Equality: 2011 = 3.0, 2012 = 3.0
- Equity of Public Resource Use: 2011 = 3.0, 2012 = 3.0
- Building Human Resources: 2011 = 3.0, 2012 = 3.0
- Social Protection and Labor: 2011 = 3.0, 2012 = 3.0
- Policies and Institutions for Environment Sustainability: 2011 = 3.0, 2012 = 3.0
- Public Sector Management and Institutions: 2011 = 2.9, 2012 = 2.9
- Property Rights and Rule-Based Governance: 2011 = 2.5, 2012 = 2.5
- Quality of Budgetary and Financial Management: 2011 = 3.0, 2012 = 3.0
- Efficiency of Revenue Mobilization: 2011 = 3.5, 2012 = 3.5
- Quality of Public Administration: 2011 = 3.0, 2012 = 3.0
- Transparency, Accountability and Corruption in Public Sector: 2011 = 2.5, 2012 = 2.5

Notes:
- Scale (low-high): 1-7.
- CEMAC excludes Gabon and Equatorial Guinea because of data unavailabity.

*Source: World Bank, CPIA Africa Report, 2013; Doing Business Indicators, World Bank, 2014.*

### Annex II. Cameroon: Risk Assessment Matrix

### Annex II. Cameroon: Risk Assessment Matrix

### Risk Assessment Matrix — Risks, Relative Likelihood, Impact if Realized, and Recommended Policy Response
- Protracted period of slower growth in advanced economies.  
  - Relative Likelihood: High  
  - Impact if Realized: Low  
  - Description: A protracted euro area slump would have a negative effect on growth through the balance of payments.  
  - Recommended Policy Response: Diversify export markets, especially toward emerging Asia, and improve external competitiveness through faster structural reform.

- Financial stress in the euro area re-emerges.  
  - Relative Likelihood: Medium  
  - Impact if Realized: Low  
  - Description: The financial sector is little integrated into the European financial sector.  
  - Recommended Policy Response: Ensure compliance with COBAC recommendations and CEMAC regulatory requirements.

- Sustained decline in world oil prices.  
  - Relative Likelihood: Medium  
  - Impact if Realized: Low  
  - Description: A decrease in the international price of oil would cause a higher decline in oil revenue than in fuel subsidies and worsen the current account.  
  - Recommended Policy Response: Start fuel price reform; widen the non-oil tax base; increase efficiency of the oil refinery; and spur competition in the oil import sector.

- Spillovers of the regional security situation.  
  - Relative Likelihood: Medium  
  - Impact if Realized: High  
  - Description: A deteriorating security situation would cause an increase in refugee inflows; a costlier security personnel deployment; and delays in infrastructure investments in affected areas.  
  - Recommended Policy Response: Allow a moderate relaxation of the fiscal deficit; start scaling back unproductive public expenditure; and prepare contingency plans for refugees with the UNHCR.

- National oil refinery (SONARA) bankruptcy.  
  - Relative Likelihood: Medium  
  - Impact if Realized: High  
  - Description: A SONARA bankruptcy would adversely affect the budget, energy supply, and the banking sector.  
  - Recommended Policy Response: Make SONARA more efficient; increase retail fuel prices; clear stock of arrears to SONARA; and identify alternative suppliers to ensure energy security.

- Collapse of one distressed bank.  
  - Relative Likelihood: Low  
  - Impact if Realized: Low  
  - Description: Contingent liabilities would adversely affect the budget.  
  - Recommended Policy Response: Conduct a comprehensive contingent liability assessment; and recover bad bank assets to the extent possible.

### RAM methodology note
- "The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability of 30 percent of more). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly."

*Source: Annex II. Cameroon: Risk Assessment Matrix (IMF staff report).*

### 1.      This debt sustainability analysis (DSA) of Cameroon’s public debt was prepared jointly by

### This debt sustainability analysis (DSA) of Cameroon’s public debt

### Overview
- Prepared jointly by the International Monetary Fund (IMF) and the World Bank; updates the 2013 DSA (IMF Country Report No. 13/279).
- Uses the standard debt dynamic template for low-income countries and the macroeconomic framework from the 2014 IMF Article IV consultation.
- Data cover external and domestic debt of the central government, and debt and guaranteed debt of public enterprises.
- Noted data gaps: contingent liabilities on financial institutions and liabilities of public enterprises and municipalities remain incompletely covered.

### Debt trends and composition
- Public debt-to-GDP ratio evolution:
  - Declined from more than 50 percent of GDP in 2005 to less than 10 percent of GDP in 2008 (post-HIPC and MDRI).
  - Steadily increased thereafter, reaching 19.5 percent at end-2013.
- Composition (end-2013):
  - External debt represented 63.4 percent of total public debt at end-2013.
  - Bilateral loans from non-Paris Club members represented 30.7 percent of total public debt at end-2013 (versus 4.3 percent at end-2008).
- Domestic debt:
  - Overall stock of domestic debt remained on a rapid growth path since 2011 despite a fall in structured domestic debt in 2012.
- Undisbursed nonconcessional debt:
  - Large as-yet-undisbursed debt contracted at nonconcessional rates: over CFAF 2,700 billion at end-2013 versus about CFAF 2,100 billion at end-2012.

### Key macroeconomic assumptions (baseline)
- Discount rate: increased from 3 percent (2013 DSA) to 5 percent (approved October 2013).
- Growth and price assumptions (baseline per Text Table 3 and Box 1):
  - Real GDP growth: DSA 2014 — 5.5 (2013-14), 5.5 (2015-19), 5.5 (2020-34); DSA 2013 — 4.6 (2013-14), 5.1 (2015-19), 4.8 (2020-34).
  - Total revenue (percent of GDP): DSA 2014 — 18.3 (2013-14), 17.7 (2015-19), 16.4 (2020-34); DSA 2013 — 18.9 (2013-14), 19.3 (2015-19), 18.3 (2020-34).
  - Exports of goods and services (percent of GDP): DSA 2014 — 27.1 (2013-14), 25.5 (2015-19), 24.2 (2020-34); DSA 2013 — 28.7 (2013-14), 27.4 (2015-19), 22.9 (2020-34).
  - Oil price (US dollars per barrel): DSA 2014 — 108.0 (2013-14), 93.3 (2015-19), 91.7 (2020-34); DSA 2013 — 106.0 (2013-14), 88.5 (2015-19), 93.2 (2020-34).
- Baseline scenario medium term (2015–19) highlights:
  - Real GDP growth average: 5.5 percent.
  - Annual inflation projected: 2.2 percent.
  - Revenue-to-GDP projected to dip from 17.7 percent in 2015 to 17.3 percent in 2019.
  - External current account deficit projected to grow from 4.2 percent of GDP in 2015 to 4.4 percent in 2019.
- Long term (2020–34) highlights:
  - Real GDP growth average: 5.5 percent.
  - Revenue-to-GDP projected to decline from 17.3 percent in 2020 to 15.3 percent in 2034.
  - External current account deficit projected to decline to 3.5 percent of GDP in 2034.

### External debt sustainability assessment
- CPIA score: 3.23 for 2012 (scale 1 to 6), indicating weak institutional capacity.
- Indicative external debt burden thresholds for this CPIA category:
  - PV of debt-to-exports: 100 percent.
  - PV of debt-to-revenue: 200 percent.
  - PV of debt-to-GDP: 30 percent.
  - Debt service-to-exports: 15 percent.
  - Debt service-to-revenue: 18 percent.
- Baseline external debt ratios (selected values from Text Table 7):
  - Medium term (2015-19): PV of debt-to-GDP = 12.9; PV of debt-to-exports = 37.7; PV of debt-to-revenue = 56.4; Debt service-to-exports = 2.7; Debt service-to-revenue = 4.0.
  - Long term (2020-34): PV of debt-to-GDP = 13.5; PV of debt-to-exports = 50.6; PV of debt-to-revenue = 74.1; Debt service-to-exports = 6.2; Debt service-to-revenue = 9.2.
- Assessment:
  - External debt remains sustainable with all external debt ratios below thresholds.
  - However, risk of external debt distress increased from “low” to “moderate.”
  - A shock to exports causes the PV of external debt-to-exports ratio to exceed 100 percent by 2016.
  - Relevant “most extreme” stress test: growth rate of exports at its 10-year historical average minus one standard deviation applied over 2015 and 2016 results in negative growth of exports of 7.1 percent each year.

### Public sector debt sustainability assessment
- Inclusion of domestic debt significantly worsens public debt trajectories:
  - PV of debt-to-GDP projected to rise from 19.5 percent of GDP in 2014 to almost 50.9 percent of GDP in 2034, breaching the indicative ceiling of 38 percent of GDP in 2021.
  - PV of debt-to-revenue and PV of debt service-to-revenue show similar upward trajectories.
- Risks and vulnerabilities:
  - Fiscal financing gaps assumed to be financed mostly by domestic debt—raising roll-over and liquidity risks.
  - Uncertain amount and terms of financing gaps and contingent liabilities (including SOEs) increase overall risk.
  - Data coverage issues, lags in creditor communication, and weak upstream controls on new debt contracting amplify risks.

### Policy recommendations and management actions
- Adopt more conservative fiscal policy and prioritize more concessional debt terms.
- Nonconcessional loans should only be considered for well-assessed, high-yield commercial or infrastructure projects that will generate sufficient government revenue to cover related debt service.
- Strengthen data coverage and reporting of new debt, including direct payments between foreign contractors and external lenders, which need to be reported without delay to the Government.
- Enhance the effective role of the National Public Debt Committee (NPDC) in evaluating and contracting new debt.
- Recommendation: subject new disbursements of external debt to prior approval by the NPDC, given the rapid rise in external debt and large undisbursed debt overhang.
- Promote economic growth and export diversification, notably through a more favorable business climate to support private-sector-led export growth.

### Key statistics and numeric highlights (verbatim)
- Public debt-to-GDP at end-2013: 19.5 percent.
- External debt share of total public debt at end-2013: 63.4 percent.
- Bilateral non-Paris Club share of total public debt at end-2013: 30.7 percent.
- Undisbursed nonconcessional debt: over CFAF 2,700 billion at end-2013 versus about CFAF 2,100 billion at end-2012.
- Discount rate used in DSA: 5 percent (was 3 percent in 2013 DSA).
- CPIA score (2012): 3.23.
- Projected PV of public debt-to-GDP in 2034: 50.9 percent.
- Breach of public PV debt-to-GDP indicative ceiling (38 percent) projected in: 2021.
- Export shock used in “most extreme” stress test: negative growth of exports of 7.1 percent each year (2015 and 2016).
- Medium-term baseline real GDP growth (2015–19): 5.5 percent.
- Medium-term baseline annual inflation (2015–19): 2.2 percent.
- Medium-term revenue-to-GDP: from 17.7 percent in 2015 to 17.3 percent in 2019.
- External current account deficit: from 4.2 percent of GDP in 2015 to 4.4 percent in 2019.
- Long-term (2020–34) revenue-to-GDP: decreases from 17.3 percent in 2020 to 15.3 percent in 2034.
- Long-term external current account deficit: 3.5 percent of GDP in 2034.

*Prepared jointly by the International Monetary Fund and the World Bank; based on IMF and World Bank staff estimates and projections.*

### conclusions reached in this DSA. They agreed that it is essential to maintain debt sustainability, and share

### _cr14212 - conclusions reached in this DSA. They agreed that it is essential to maintain debt sustainability, and share

### Debt sustainability assessment: headline conclusions
- The debt sustainability analysis shows Cameroon’s risk of external debt distress has increased from “low” to “moderate.”
- Overall public debt is projected to double as a percentage of GDP between 2012 and 2019.
- Although debt remains sustainable under the baseline, continued nonconcessional external borrowing at 2013–2014 composition would raise the risk of external debt distress.
- The sensitivity of external debt sustainability to exports is highlighted; export diversification is recommended.

### Key indicators and projections (selected figures preserved exactly as in source)
- Public sector debt: 13.8, 16.1, 19.5, 24.0, 28.0, 31.1, 33.8, 36.3, 38.4, 48.6, 68.6, 68.3 (percent of GDP across periods shown in Table 1).
- Foreign-currency denominated public debt: 7.7, 9.3, 12.5, 14.7, 16.4, 17.2, 17.7, 17.8, 17.8, 15.8 (percent of GDP across periods shown in Table 1).
- PV of public sector debt (selected): 14.7, 19.5, 23.3, 26.4, 29.3, 31.9, 34.2, 44.7, 64.8, 50.9 (as reported).
- PV of public sector debt-to-revenue and grants ratio (in percent): 80.9, 105.1, 128.0, 148.8, 166.7, 182.8, 195.3, 262.3, 424.0, 313.6 (tabulated).
- Debt service-to-revenue and grants ratio (in percent): 7.0, 8.9, 8.4, 9.6, 11.7, 12.1, 14.3, 16.5, 17.6, 18.6, 26.1, 21.3 (table values).
- External debt (nominal) / PPG external debt (percent of GDP): 7.7, 9.3, 12.5, 14.7, 16.4, 17.2, 17.7, 17.8, 17.8, 15.8 (Table 3a).
- PV of external debt (in percent of exports): 28.2, 37.7, 44.4, 48.9, 51.8, 53.5, 54.3, 56.6, 53.1 (as shown).
- Debt service-to-exports ratio (in percent): 1.1, 1.7, 1.9, 2.7, 3.1, 3.3, 3.6, 4.3, 4.5, 5.9, 6.6 (Table 3a).
- Total gross financing need (Billions of U.S. dollars): 0.3, 0.6, 1.0, 1.3, 1.3, 1.0, 1.0, 1.0, 1.0, 1.0, 2.2, 1.3 (memorandum items).

### Stress tests and sensitivity analysis: scenarios and outcomes
- Most extreme stress tests (figures b, d and f): correspond to a non-debt flows shock; in figures c and e, to an exports shock.
- Table 2 and Table 3b present alternative scenarios and bound tests with outcomes on PV of debt-to-GDP, PV of debt-to-revenue, and debt service-to-revenue ratios under:
  - A1. Real GDP growth and primary balance at historical averages.
  - A2. Primary balance unchanged from 2014.
  - A3. Permanently lower GDP growth.
  - B1–B6. Bound tests including one-half and one-standard-deviation shocks, one-time 30 percent real depreciation in 2015, and a 10 percent of GDP increase in other debt-creating flows in 2015.
- Examples of projected outcomes under baseline and tests (selected entries preserved exactly):
  - PV of debt-to-GDP ratio (projections row, Table 2): Baseline 192326293234454765.
  - PV of debt-to-revenue ratio (projections row, Table 2): Baseline 105128149167183195262279424.
  - Debt service-to-revenue ratio (projections row, Table 2): Baseline 101212141618191926.

### Macroeconomic outlook and fiscal stance
- Growth and inflation:
  - Real GDP growth projected at about 5.5 percent annually over the medium term; historical and projected series include 4.1, 4.6, 5.2, 3.5, 1.0, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5, 5.5, 5.4, 5.5 (Table 1).
  - Average annual inflation subdued at 2.1 percent in 2013; consumer prices projected around 2.2 percent.
- Fiscal performance and risks:
  - Fiscal deterioration in 2013: retail fuel subsidies reached 2.8 percent of GDP; externally financed capital expenditure surged to 3.4 percent of GDP; budget deficit (cash basis) over 4 percent of GDP in 2013 versus 2 percent of GDP in 2012.
  - Total revenue (excluding grants) around 17.5–18.0 percent of GDP in 2012–2014; total expenditure rose to 22.1 and 24.0 percent of GDP.
  - Overall fiscal balance (cash basis) excluding grants: -2.9, -4.4, -6.1, -6.2 (percent of GDP for 2012–2015 series shown).
  - Non-oil primary balance (percent of non-oil GDP): -6.9, -9.1, -10.3, -9.9 (for 2012–2015 series).
- External sector:
  - Current account balance (including grants): -3.6, -3.9, -3.8, -4.2 (2012–2015 series).
  - Exports and imports volumes and terms of trade included; export volume growth examples: 8.3, 3.0, 7.6, 9.5 (2012–2015).
- Staff recommended subjecting new loans to review by the NPDC to ascertain consistency with debt sustainability.
- Authorities’ position: given large near-term financing needs, they may contract nonconcessional loans if alternative concessional financing is unavailable for high-return projects; authorities working with the World Bank regarding the ceiling of nonconcessional loans.

### Recommended policy actions (preserved phrasing and priorities)
- Generate more value from public investment through a three-pronged approach:
  - A new round of project selection to identify projects with a high impact on growth and poverty reduction, and rolling back of non-essential projects.
  - Strengthen integrity of public financial management, including competitive procurement to generate more cost-effective spending.
  - Ensure terms of new debt are more concessional.
- Adjust fiscal stance to address 2014 budget risks without delay to avoid further accumulation of domestic arrears.
- Raise pump fuel prices progressively to reduce retail fuel subsidy burden, acknowledging international oil prices and domestic demand conditions.
- Broaden tax base, remove unwarranted exemptions, and make tax administration more effective to improve non-oil revenue performance.
- Evaluate direct and indirect revenue impacts of the envisaged ratification of the Economic Partnership Agreement (EPA) to inform regional integration discussions with CEMAC partners.
- Accelerate reforms to the business environment (including “trading across borders” and “paying taxes”) to foster private-sector-led growth as public investment is scaled back.
- Strengthen banking sector supervision and regulatory frameworks:
  - Continue resolution of remaining troubled banks and apply regulatory vigilance to the new bank for Small and Medium Enterprises (SME).
  - Adopt a regulatory framework for microfinance and diligent joint supervision by COBAC and the Ministry of Finance.

### Banking sector and financial stability notes
- Two previously troubled banks restructured; only three small banks remain in need of resolution.
- Excessive concentration in bank credit toward the financially fragile national oil refinery is a major concern.
- Financial intermediation remains low despite reduced systemic risks; credit to the private sector growth examples: 2.6, 14.9, 11.1, 11.2 (percent series shown).
- Imputed reserves (percent of broad money): 54.2, 47.6, 44.1, 40.6 (for 2012–2015).

*Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14212.pdf*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2014/_cr14212.pdf_