Public Information Notice: IMF Concludes Article IV Consultation with Cameroon

April 15, 1999

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On April 7, 1999, the Executive Board concluded the Article IV consultation with Cameroon1.


After an eight-year period of economic decline, real growth picked up following the January 1994 devaluation of the CFA franc, and the accompanying upturn in world economic activity. As the price effects of devaluation tapered off, inflationary pressures have eased, and economic activity has remained buoyant, with real GDP growth averaging 5 percent in the three years to 1997/98 (June/July). Cameroon’s terms of trade deteriorated by about 4 percent in 1997/98, reflecting the onset of the international crisis and lower oil and international commodity prices. The external current account deficit (including grants) is estimated to have widened to about 2 ½ percent of GDP in 1997/98, from 1½ percent in 1996/97, partly reflecting strong investment activity. The international crisis and the further weakening of Cameroon’s main export commodity prices, particularly oil and logs, is expected to have a stronger impact on the Cameroonian economy in 1998/99 resulting in a sharp deterioration in its terms of trade and a lower growth outlook.

Despite the adverse impact of the Asian crisis on exports and budgetary revenues, performance has continued to be good. Contrasting with the weak record in the implementation of programs under the previous four IMF-supported arrangements, performance in 1997/98 was on track, and all quantitative and structural performance criteria and benchmarks under the program were met. The results for the primary budget surplus (5.9 percent of GDP) and the overall budget deficit were slightly better than programmed in 1997/98. This outcome reflected higher than expected oil revenue, with non-oil revenues on track and primary expenditures in line with the budget targets. The encouraging performance continued in the first half of 1998/99 as strong revenue mobilization efforts, as well as buoyant corporate tax collection, largely compensated for the shortfall in oil and trade related revenues. The focus of fiscal policy has been to strengthen public finances and raise the low non-oil revenue to GDP ratio by widening the tax base and reducing exemptions through a comprehensive reform of the tax system, and further efforts are needed to lower the high dependency on oil receipts. An important aspect has been a reduction in anti-trade bias in the tax system through a lowering of nonforestry export taxes (to 5 percent on July 1, 1998) and an increase in the weight of domestic taxes. As part of this reform, the turnover tax was successfully replaced by a value-added tax (VAT) in January 1999, with the elimination of the differential tax rates under the old sales tax, the widening of the tax base and reduction of exemptions.

With revenue mobilization efforts beginning to show results, the government is now focusing on improving the efficiency and transparency of government expenditures as well as on strengthening the targeting of social spending. The recent adoption of an action plan to improve expenditure management is an important first step toward redressing the situation. Sectoral strategies are being prepared for the education and health sectors and, as part of the anti-poverty strategy declaration of December 1998, efforts are being made to improve the database of social indicators which will serve as an important tool in targeting poverty.

Monetary developments in 1997/98 and early 1998/99 have been dominated by a rapid recovery in private sector credit, reflecting buoyant economic growth, investment activity, and the privatization process. However, as deposit growth has been slower than the increase in credit, some banks had to finance expanded lending activity by drawing on the regional central bank (BEAC) and reducing their net foreign assets. The strong growth of credit may also reflect an improvement in credit conditions and a sharp reduction in interest rates following the recent rehabilitation of the banking sector. Greater attention is now focused on strengthening prudential requirements and banking supervision as well as reforms of the cooperatives, insurance, and social security sectors. With the launching of competitive bids for the privatization of the one remaining government-owned bank (BICEC), the government would have withdrawn completely from the ownership and management of the banking system.

Progress continues to be made in the implementation of structural reforms, particularly in the privatization area and the transport and petroleum sectors. Deregulation and infrastructure improvement have been a major focus of the policy reforms under the ESAF-supported program, with the aim of improving competitiveness, lowering costs, and increasing supply. Reforms are well advanced in the agro-industrial sector, with the privatization of the rubber company (HEVECAM) in late 1996, and more recently the sugar company, CAMSUCO. Theprivatization of the palm oil company (SOCAPALM) is also near completion. Structural reforms are now focusing on the public utilities sector and infrastructure improvement. Given the low efficiency of the public utilities, rehabilitation will require substantial investment which the government regards as being best met by the private sector. The privatization process is already under way for the main utilities (telecommunications, electricity, and water), and bids have already been launched for a private cellular telephone service. In the transport sector, the privatization of the national railway network is near completion and a number of actions are being taken to improve the management of the Port of Douala and the financing and management of the road network. This is also expected to have important social benefits by increasing access of farmers to local and regional markets. In the petroleum sector, particularly noteworthy has been the elimination of the national oil refinery’s (SONARA) monopoly over the supply of refined petroleum products through the liberalization of competing imports, which is to be followed by the liberalization of distributor pricing margins in 1998/99.

Following the October 1997 Paris Club rescheduling agreement, the authorities concluded bilateral agreements with most creditors, and the agreement entered into force at end-December 1998. Negotiations are now taking place with commercial creditors.

Executive Board Assessment

Executive Directors commended the authorities for Cameroon’s continued solid performance under the second annual ESAF arrangement despite a worsening international environment: virtually all program targets had been met. Directors noted that real GDP growth was still relatively high, inflation low, and the external current account situation remained manageable. They strongly welcomed the progress in structural reforms, especially with regard to privatization, and observed that successful Bank-Fund collaboration had facilitated this outcome. Directors cautioned, however, that major challenges remained. To ensure lasting growth, the authorities will need to reinforce their adjustment efforts, raise implementation capacity to carry out the privatization program, and enhance transparency and efficiency, including in the area of public finances.

On fiscal policy, Directors welcomed the strong performance of non-oil revenue— which had exceeded the program target, notwithstanding the fall in export duties—and had helped to offset the decline in oil revenues. Nevertheless, the terms of trade shock had necessitated a revision of budgetary targets. Directors considered that, while higher oil prices would ease the fiscal situation to some extent, this did not lessen the importance of raising the still low non-oil revenue-to-GDP ratio in order to achieve fiscal sustainability and generate resources for the social sectors. They welcomed the introduction of the value-added tax as an important step in strengthening revenue performance. Notwithstanding the positive results so far in restructuring the tax department, there was a need for further measures to ensure the efficient functioning of the new value-added tax, to broaden the tax base, and to combat tax evasion.

Directors noted that achievement of the revised budget target would require some cuts in non-priority government expenditures. They emphasized that greater attention should be paid to raising the efficiency of public expenditure. Directors welcomed the recent adoption of an action plan to improve expenditure management and control, including the strengthening of internal and external audits. The elaboration of strategies for the health and education sectors will also be critical in developing effective policies to improve Cameroon’s social indicators and to alleviate poverty.

Directors supported the authorities’ structural reform agenda. They noted the importance of prioritization in view of Cameroon’s limited implementation capacity. Directors were encouraged by progress in the privatization program, especially in the transportation and agro-industrial sectors. While regretting the delays in privatization of the telecommunications sector, they noted the authorities’ recent measures to address the problem, and encouraged their rigorous implementation. Directors also underscored the importance of proceeding in a transparent manner with privatization, and welcomed the steps the authorities had taken in this regard. Some Directors noted the economic potential of the forestry sector and the importance of its proper management.

Directors welcomed the measures being taken by the government to improve transparency and fight corruption, which they saw as indispensable for enhancing the efficiency of government operations and stimulating private investment. In the petroleum sector, the independent audits of the national oil company now needed to be followed up by a prompt implementation of all the key recommendations regarding computerization and the adoption of international standards of accounting. Directors stressed the importance of a strong judicial and regulatory framework, one of the benefits of which would be to improve the environment for foreign direct investment. In the budgetary area, Directors welcomed the planned independent audit of the procurement system and the envisaged reform of the civil service. Regarding the latter initiative, Directors considered that it was desirable to avoid any further compression of real wages and underscored that efforts should focus on enhancing incentives and on modernization. They looked forward to the assessment of Cameroon’s experience as a pilot country for the Fund’s study on fiscal transparency.

Directors were encouraged by the progress made in the normalization of relations with the international community, including the recent steps being taken to reach agreement with non-Paris Club and London Club creditors on terms at least comparable with those of the Paris Club. Pointing to the burden of external debt on both the balance of payments and the budget, several Directors thought that Cameroon should be considered for HIPC eligibility, but stressed the need for a strong and sustained track record of policy implementation in this connection.

Directors urged the authorities to continue to improve the macroeconomic database and disseminate statistics on a timely basis.

Cameroon: Selected Economic Indicators, 1994/95-1998/991

1994/95 1995/96 1996/97 1997/982 1998/99

In percent
Domestic economy
Change in real GDP 3.3 5.0 5.1 5.0 4.4
Change in consumer prices (end of period) 13.4 4.4 9.9 -1.6 2.0
In millions of U.S. dollars 4
External economy
Exports, f.o.b. 1,664 1,761 1,968 1,867 1,742
Imports, f.o.b. 1,074 1,201 1,347 1,374 1,490
Current account balance5 -62 -219 -120 -220 -426
Direct investment 101 120 126 140 130
Portfolio investment 125 146 148 113 74
Capital account balance -513 -433 -360 -117 -108
Current account balance (percent of GDP)5 -0.8 -2.4 -1.3 -2.4 -4.4
Change in real effective exchange rate (in percent)6 -11.9 6.4 -1.8 -7.7 ...
In percent of GDP4
Financial variables
Gross national savings 13.7 13.0 14.9 15.9 14.7
Gross domestic investments 14.5 15.4 16.2 18.4 19.1
Central government budget deficit -3.2 -1.8 -1.0 -1.7 -3.6
Primary budget balance 3.8 5.4 5.8 5.9 4.5
Change in broad money (in percent) 6.1 -5.1 13.8 7.8 11.6
Interest rate (in percent)7 8.8 8.0 7.5 7.5 7.0
Total External Public Debt 97.4 89.0 83.5 87.8 89.3
External Public Debt Service8 48.3 55.3 41.8 31.1 48.5

1Fiscal year begins in July.
2Data provided by the Cameroonian authorities and IMF staff estimates.
3Revised IMF staff projections for the ESAF-supported arrangement.
4Unless otherwise indicated.
5Including grants.
6(+) = appreciation
7Bank of Central African States (BEAC) discount rate (end of period).
8In percent of exports of goods and nonfactor services.

1Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of directors, and this summary is transmitted to the country's authorities. In this PIN, the main features of the Board's discussion are described.


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