Unlocking Cameroon’s Growth Potential

IMF News, September 15, 2017

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First visit by IMF Deputy Managing Director Mitsuhiro Furusawa to Cameroon (Yaoundé, Cameroon, September 15, 2017).
Context: Cameroon and the CEMAC region face great economic challenges following the steep fall of oil prices and difficult security conditions.
Yaoundé Summit (December) mobilized national and regional policy responses and commitment to essential reforms.
New Fund-supported programs approved in June for Cameroon, Gabon, and Chad; increase in Fund resources under the existing program with the Central African Republic.

IMF World Economic Outlook (July update) forecasts:
- 3.5 percent growth this year.
- 3.6 percent growth in 2018.
- 3.2 percent growth last year.
Regional and commodity context:
- Sub-Saharan Africa growth rebound: 1.3 percent in 2016; projected 2.7 percent this year; 3.5 percent in 2018.
- One-third of countries in the region have negative per capita growth.
- Oil prices have receded in 2017 due to strong U.S. inventories and increased global supply—adverse for oil-exporting economies like Cameroon.
Key regional macroeconomic statistics:
- CEMAC current account deficit widened to 9.3 percent of gross domestic product in 2016 from 3.9 percent in 2014.
- Public debt rose to 47 percent of GDP from 29 percent.
- BEAC’s foreign exchange reserves fell by $10 billion; equivalent of only about two months of imports at end-2016.
Security shocks (Boko Haram attacks, refugee flows) increased pressure on public finances.
Cameroon’s vulnerabilities:
- As the most diversified economy in CEMAC, Cameroon showed relative resilience but faced falling growth, growing fiscal and external imbalances, and rapidly increasing public debt by last year.
- Large infrastructure projects and increased security spending have rapidly eroded fiscal and external reserves.

Yaoundé summit commitments:
- National policies to ensure fiscal sustainability under low oil revenues; structural reforms to strengthen public financial management and the business environment.
- Regional policies to stop depletion of BEAC reserves and preserve the fixed exchange-rate arrangement, including tighter monetary policy, liquidity management, and measures for financial sector stability.
Post-summit outcomes:
- Continued reduction of fiscal and current account deficits.
- BEAC reserves stabilized and started to increase again in July.
- IMF and development partner financing provides scope for a more gradual adjustment; ongoing discussions with the Republic of Congo and Equatorial Guinea.
Rationale for preserving the exchange-rate arrangement: historical role in keeping inflation low and social-economic stability; memory of the 1994 devaluation’s loss of purchasing power.

Core strategy: coordinated national and regional policies recognizing interdependence and persistence of the crisis, with an emphasis on fiscal adjustment and economic reform to restore inclusive growth.
Program design highlights:
- IMF-supported program incorporates government reform objectives.
- 2017 fiscal adjustment based on the finance law.
- Spending reductions target wasteful or redundant expenditures.
- No cuts envisaged in civil servant salaries; increased spending on health, education, and other social priorities.
- Investment spending not subject to drastic cuts; priority given to transport and energy projects that can lift growth.
- Backlog of undisbursed borrowing commitments equal to 20 percent of GDP; less strategic projects should be delayed or reconsidered.

Fiscal Reforms

Objectives:
Expand the non-oil revenue base as oil reserves are being gradually depleted.
Streamline exemptions and focus tax incentives on priority sectors.
Improve tax and customs administration.
Improve control and transparency in budget execution; improve public procurement to reduce infrastructure bottlenecks.
Public enterprise reforms:
Many state-owned enterprises are heavily indebted and falling into arrears.
Government subsidies for state-owned enterprises account for about one percent of GDP.
Need for improvements in financial reporting and enhanced oversight to limit contingent liabilities.
Program-supported measures:
Publication of quarterly budget execution reports.
Reforms to enhance project preparation—only mature projects included in the budget.
IMF to provide comprehensive technical assistance and training in revenue administration, tax and customs modernization, budget management, and management of fiscal risks.

Financial Sector Reforms

Objectives:
Strengthen financial stability, broaden financial system reach, and expand financial inclusion.
Current conditions:
Banking sector resilient but showing strain: declining liquidity and rising non-performing loans.
Five small and non-systemic banks are insolvent; most have been for many years.
Policy actions:
Government plans to resolve insolvent banks and reduce non-performing loans.
IMF assistance with Cameroon and the regional supervisor COBAC.
Additional measures planned to increase private sector access to financial services.

Improving the Business Environment

Objectives:
Improve competitiveness and attract investment by simplifying rules rather than relying on special tax regimes.
Reduce red tape, simplify the tax system, and create space for private sector participation in key sectors.
Anti-corruption focus:
Corruption described as a “silent cancer” undermining competitiveness and business confidence.
IMF and World Bank working with the government on practical anti-corruption measures.
Encouragement for transparency initiatives: Cameroon joined the Extractive Industries Transparency Initiative in 2007 to improve disclosure of commodity revenue information.

Outlook and policy challenge:
- Collapse of oil prices created a profound policy dilemma; unlikely to return to pre-2014 levels.
- Reinforced need for reforms to transform the economy in ways that benefit all Cameroonians.
IMF commitment:
- Financial support through the current Fund-supported program.
- Continued policy advice and a comprehensive strategy to build government capacity to address current and future challenges.
- IMF to remain a reliable partner in supporting Cameroon’s reform efforts.

IMF Deputy Managing Director Mitsuhiro Furusawa — Yaoundé, Cameroon — September 15, 2017