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Cameroon — Enhanced Structural Adjustment Facility
Medium-Term Economic and Financial Policy Framework Paper

I.  Introduction

1. Since July 1, 1997, Cameroon has implemented a comprehensive Enhanced Structural Adjustment Facility (ESAF)-supported program, with a view to bringing the economy onto a sustainable path of growth and development, gradually restoring macroeconomic and financial balance, and improving living conditions. The program is supported financially by the international community, and in particular by the International Monetary Fund, the World Bank, the African Development Bank, the European Union, and France. Paris Club creditors also agreed on a flow rescheduling under Naples terms.

2. Performance during the first year of the program was consistent with its objectives. Economic activity remained buoyant, and inflation fell sharply. Significant progress was made in 1997/98 (July-June) in strengthening the public finances and regularizing relations with external official creditors. Progress was also made in implementing structural reforms, particularly as regards divestiture of public enterprises, rehabilitation of the banking system, liberalization of the markets for refined petroleum products and maritime transport, and strengthening of transparency in the oil sector. However, poverty remains widespread, with about half the population living below the poverty line (defined by food consumption of 2,400 calories per day for an adult, which is valued at US$250 per year). Also, the Cameroonian economy continues to face a number of constraints that, without bold corrective measures, could hamper growth and social development.

3. This document updates and extends the policy framework paper (PFP) for 1997/98-1999/2000 (EBD/97/93), issued on July 28, 1997. It sets out the government of Cameroon's next phase of adjustment, which aims at consolidating and accelerating economic growth, and ensuring further job creation and poverty reduction. The revised PFP highlights the main achievements under the first year of the program and identifies a set of policy measures for 1998/99-2000/01 designed to maintain macroeconomic stability and to deepen structural reforms, so as to establish an environment enabling continued private sector development and to enhance productivity. These reforms are expected to continue to be supported by the international community, in particular the IMF and the World Bank.


II. Results Achieved Under the First Year of the Program

4. The major macroeconomic objectives for 1997/98 were achieved. Economic activity remained buoyant, with real GDP growth estimated to have stabilized at 5 percent, fueled mainly by the primary and secondary sectors. The average inflation rate was reduced from 5.2 percent in 1996/97 to 2.8 percent. Export performance was mixed, reflecting the impact of the Asian crisis. While total non-oil exports are estimated to have grown by 6½ percent in volume terms, led by logs, cocoa, coffee, cotton, bananas, processed wood, and aluminum, the value of oil exports fell by 17 percent, as the increase in oil production (estimated at 6½ percent in volume terms) did not compensate for the 21 percent drop in the international price. Import volumes increased by about 7 percent. The external current account deficit (including official transfers) is estimated to have widened by about 1 percentage point to 2.4 percent of GDP, mirroring an increase in total domestic investment by 2 percentage points to 18.4 percent of GDP and an improvement in national savings of only 1 percentage point to 16 percent of GDP.

5. On the fiscal front, the primary budgetary surplus was slightly above the program target, as oil revenue was higher than projected, owing to the payment of profit tax arrears by an oil company and the transfer of the windfall revenue from 1996/97. As programmed, the overall budget deficit widened by 1 percentage point to about 2 percent, reflecting an increase in foreign-financed investment. Non-oil revenue rose by 1.2 percentage points of GDP to 12.2 percent. On the policy front, progress was made in the issuance of tax identification numbers to enterprises subject to profit taxes (régime réel), a reform of forestry taxation was introduced, and a census of tax arrears, as of end-June 1997, was completed along with the elaboration of a collection strategy. In addition, exemptions contained in enterprise-specific agreements were reduced through renegotiation with some of the enterprises involved. Finally, to reinforce external competitiveness, nonforestry export taxes were reduced further in the context of the 1997/98 budget from 13.5 percent to 10 percent (from CFAF 6,000 to CFAF 4000 per ton for bananas). On the expenditure side, the share of outlays for priority expenditures increased: spending on education and health rose from 1.8 percent of GDP in 1996/97 to 2.2 percent on GDP in 1997/98. Finally, an inventory of domestic arrears accumulated from July 1, 1993 to June 30, 1997 has begun, and an audit of commercial claims is to be completed before end-July 1998.

6. Monetary developments in Cameroon were characterized by an increase in broad money, a pickup in private sector credit, and an improvement in Cameroon's contribution to the net foreign assets position of the regional central bank (BEAC). In the year ended May 1998, currency in circulation increased by 12.3 percent, and deposits were up by 4.5 percent. Private sector credit increased by 28 percent during the same period on account of robust economic activity. The increase in bank deposits was well below the expansion of credit, forcing commercial banks to draw on their reserves with the BEAC.

7. Competitive bids were launched for the privatization of (a) two agro-industrial enterprises (SOCAPALM and CAMSUCO); (b) two insurance companies (SOCAR and CNR); and (c) the public water company (SNEC). Progress was made in the privatization of the national railway system (REGIFERCAM) with the selection of a new concessionaire in May 1998. In the telecommunications sector, a new legislative framework was adopted, and competitive bids were launched to allow the private sector to establish a second cellular phone service. The government also completed the preparation of staffing plans for most ministries, and the civil service was reduced by about 1,200 people. In the oil sector, (a) an independent audit of the national oil company's (SNH) accounts for 1996/97 was completed, and an action plan to revamp the SNH's accounts was adopted; (b) an automatic mechanism for monthly revision of petroleum prices was introduced, reflecting developments in world market prices; and (c) the monopoly of the national refinery (SONARA) over the supply of refined petroleum products was eliminated through the opening up of the market to competing imports. Steps were taken to enhance efficiency in the transport sector: (a) all national preferences and cargo-sharing arrangements for maritime transportation were eliminated; and (b) a comprehensive restructuring plan for the port of Douala was adopted. These measures were complemented by the creation of the Competitiveness Committee in December 1997, a consultation framework between the authorities and the private sector responsible for identifying competitiveness-enhancing measures. In the financial sector, the legal requirement that at least one-third of bank capital must be held by Cameroonian interests was eliminated, and competition within the banking sector was improved following its successful restructuring in 1996/97 and the liberalization of banking commissions. In addition, the government established a trust fund to guarantee part of the repayments of securitized bank debt. Finally, on the social front, a law orienting education policy was adopted, a national health map was prepared, and the National Center for Procurement of Essential Medicines (CENAME) was made operational, with the aim of improving the availability of essential medicines and reducing their cost.

8. Notwithstanding the progress made during 1997/98, Cameroon's financial situation remains fragile, and a number of structural constraints and rigidities are to be alleviated with a view to unleashing the country's considerable growth potential and to improving the living standards of the population. The main challenges ahead include (a) strengthening the collection of non-oil revenue; (b) improving expenditure quality and management; (c) maintaining external competitiveness; (d) raising saving and investment; (e) developing human capital; (f) improving economic and social infrastructure; (g) providing efficient public services; and (h) reducing the domestic and external debt burden.


III. Main Objectives and Strategy for 1998/99-2000/01

A. Main Objectives

9. Building on the positive results achieved during the first year of the program, the government is determined to deepen its adjustment efforts during 1998/99-2000/01, with a view to providing a stable macroeconomic environment, bringing the economy onto a path of high and sustainable growth, reducing poverty, and improving the living conditions of the population. The main macroeconomic objectives set for 1998/99 2000/01 are to (a) limit inflation to approximately 2 percent per year; and (b) stabilize the external current account deficit at about 2½ percent of GDP. Real GDP growth is projected to reach at least 5 percent a year, the absolute minimum needed for significant poverty reduction.

B. Strategy

10. To achieve these objectives, the government's program hinges on the following strategy: (a) the implementation of appropriate macroeconomic policies; (b) the establishment of an enabling environment for the private sector, so as to raise private saving and investment; (c) the implementation of structural reforms geared at reinforcing external competitiveness; and (d) the definition of social policies to reduce poverty, with greater emphasis placed on the development of human resources. Macroeconomic policies will aim at maintaining a low inflation rate. Budgetary policies will focus on the collection of non-oil revenue, the improvement in the quality and control of expenditure, with priority given to education, health, justice, basic infrastructure, and rural sectors. By maintaining appropriately tight fiscal policies, the government will contribute to the increase in total savings. To improve infrastructure in support of private sector development, government investment (excluding restructuring outlays) is planned to increase from 2.7 percent of GDP in 1997/98 to about 5 percent by 2000/01. Monetary policy, which is conducted at the regional level by the BEAC, will be centered on implementing indirect instruments of monetary control and making greater use of market mechanisms to control liquidity.

11. The government recognizes that the private sector will be the main engine for growth. In this connection, measures to create an enabling environment for the private sector have been identified, including improved governance, the fight against corruption, reform of the judicial system, maintenance of a sound and competitive financial sector, and modernization of government financial agencies. International competitiveness will be maintained through prudent fiscal, monetary, and wage policies, as well as through further structural reforms. The latter include privatization, the restructuring of the port of Douala, the privatization of major public utilities, and the implementation of the action plan for the Competitiveness Committee. Finally, with regard to social policies, the government has prepared a framework paper for reducing poverty centered on growth and employment, investment in education, improvement in labor productivity, and the protection of vulnerable groups and the environment.


IV. Macroeconomic Policies

A. Fiscal Policy

12. The implementation of a rigorous fiscal policy is essential to ensure internal and external viability over the medium term. In view of the need to maintain a sustainable fiscal position and reduce the burden of government debt, the major policy challenges are to (a) raise total revenues in the face of declining revenues from the oil sector; (b) continue to improve the composition of expenditures by reorienting them toward priority sectors; and (c) improve expenditure management procedures so that outlays reach their intended destination and new expenditure arrears are avoided. To these ends, the government will aim at keeping the primary surplus at an average of 4¾ percent of GDP over the coming three years. With the planned expansion of government investment, the overall deficit will be contained at below 3 percent of GDP, whereas total government debt (both external and domestic) is expected to fall from 99 percent of GDP in mid-1998 to 62 percent by mid-2001.

13. Priority will continue to be attached to non-oil revenue collection. Since oil revenue is projected to decline as a percent of GDP during 1998/99-2000/01, the improvement in total revenue is predicated on an increase in non-oil revenue by some 2 percentage points of GDP, even though trade taxes will continue to be reduced to maintain external competitiveness and support trade liberalization. Despite some revenue losses from further reductions of trade taxes, the government intends to increase non-oil revenues by (a) reforming tax policies; (b) enlarging the tax base; and (c) improving tax administration. Envisaged tax policy changes include (a) the replacement of the sales tax by a value-added tax (VAT), as from January 1, 1999; (b) the introduction of a global income tax; and (c) a new land tax based on value rather than area. The VAT is expected to be revenue raising, particularly because certain services previously taxed at the reduced sales tax rate will be taxed at the new higher single rate. Also, the taxation of the forestry sector will continue to be reviewed, with the objectives of managing resources wisely, preserving ecosystems, increasing the contribution of the forestry sector to the budget, and encouraging processing industries with high value added. To these ends, export taxes on forestry products will continue to be reduced, in line with the progress made in collecting "upstream" forestry taxes (the stumpage fee and the area tax).

14. The government plans to enlarge the tax base, especially for the VAT, by reducing tax and customs exemptions. In this context, the government has decided to maintain the freeze on the creation of new enterprise-specific industrial free zones and to harmonize all investment incentives to make them consistent with the Economic and Monetary Community of Central Africa (CEMAC) tax and customs reform. The tax base will also be widened by locating taxpayers that are presently outside the tax net. Steps to improve tax and customs administration include (a) combating fraud and tax evasion; (b) implementing the strategy for collecting tax arrears identified in the survey conducted in 1997; (c) reissuing tax notices and pursuing tax delinquents; (d) strengthening the large taxpayers' units; (e) expanding the issuance and use of unique taxpayer identification numbers; and (f) expanding tax audits (both off- and on-site). The government envisages the rehabilitation and modernization of the tax, customs and treasury administrations with donor assistance, particularly in the area of computerization and data processing. These measures will contribute to a better identification of taxpayers and help to combat fraud and tax evasion.

15. Major aims of expenditure policy are to (a) consolidate the priority accorded to social sector outlays (especially in education and health), poverty reduction, rural sectors, and infrastructure (notably through the proper funding of the road fund); ( b) deepen civil service reform; (c) improve further the preparation and execution of the public investment program (PIP); and (d) strengthen public expenditure management and modernize the budgetary information system. Noninterest expenditure is to increase by 2 percentage points to 12½ percent of GDP in 2000/01, while the wage bill would be contained at about 5 percent of GDP. The government is determined to modernize the civil service. To this end, it will prepare a study on deepening the administrative reform implemented during previous years. This reform will in particular aim at (a) continuing the revision of the remuneration system to correct for the severe wage compression and provide increased incentives for civil servants; (b) instituting, after a study, a merit-based promotion system; (c) strengthening efforts to reduce the size of the civil service through departure programs and automatic retirement; (d) extending the integrated system for computerized personnel and payroll management (SIGIPES) to all ministries; and (e) modernizing the civil service through training programs, computerization, and installation of new equipment with a view to increasing productivity. Additionally, the government will provide adequate budgetary allocations for the social cost of restructuring public enterprises and paying departure packages to retrenched civil servants. As regards public investment, the system of rolling three-year PIPs will be maintained. Project portfolios will be appraised annually in collaboration with the World Bank and other donors to ensure adherence to priorities, and the comprehensiveness and efficient reprogramming of the PIP.

16. The government recognizes the need to improve transparency in the public expenditure management system so as to fight corruption and ensure that budgetary outlays reach their intended destination. With this in mind, the number of steps involved in budget execution will be reduced, the responsibility of financial comptrollers in spending ministries will be increased, the control functions of both the Ministry of Finance and the Audit Office (Contrôle Supérieur de l'Etat) will be enhanced, and strict sanctions will be applied to officials found guilty of corruption or misappropriating public funds. Additionally, a comprehensive reform of the budget accounting system is planned, and the computerization of budgetary and accounting data will be improved following an audit of the current system. The accumulation of payments arrears will be avoided by improving procedures at each stage of the spending process, by ensuring that adequate resources are budgeted for government consumption, and by regularly paying both domestic and external debt obligations.

17. Domestic debt is one of the most serious obstacles to the resumption of economic activity. The burden of its service, in view of competing priority expenditures and, directly and indirectly, its impact on poverty, is inescapable, and so is the pressure it exerts on the management of public finances. The stock of domestic debt is estimated (before audit) to amount to about CFAF 1,400 billion, equivalent to 26 percent of GDP. During the last two years, the government has settled its bank, insurance company, social security, and commercial debts as at June 30,1993, either by cash repayments or by securitization. The audit of debts as at June 30, 1997 will be completed by July 31, 1998 at the latest. The government plans to adopt a strategy for settling identified and verified arrears as at June 30, 1997, and to take specific actions under the plan by the end of 1998.

B. Monetary Policy and Financial Sector Reforms

18. A well-functioning and efficient financial system is essential to private sector development and sustained economic growth. In this regard, Cameroon will continue to assume a leading role in the definition and direction of the regional monetary policy conducted by the BEAC. In particular, it will support reforms aimed at promoting the effective use of indirect monetary policy instruments and liberalizing interest rates so that they can reflect market conditions. In addition, regional interest rate policy will continue to be based on maintaining an adequate positive differential with the French money market rate.

19. With a view to safeguarding the benefits of the recent successful restructuring of the domestic banking system, the government will support the regional banking commission's (COBAC) banking supervision activities and enforce its decisions and prudential regulations for all credit institutions, including the savings and loan cooperatives. The government intends to withdraw further from the ownership and management of banks, so that it will hold no more than 20 percent ownership. To this end, the remaining public bank (BICEC) will be offered for sale by end-December 1998. To improve the collection of commercial banks' nonperforming loans, the government will continue to apply sanctions to defaulters by making them ineligible for bank credit, to participate in the privatization program, and to bid on any government contract.

20. At present, most insurance companies in Cameroon do not meet the prudential ratios and actuarial reserve requirements established under the regional insurance code (CIMA). To remedy this situation, restore confidence in the insurance sector, and encourage insurance companies to play an increased role in the financial deepening process, the government intends in 1998/99 to continue to strictly apply rehabilitation measures prescribed by the regional commission of insurance control (CRCA), particularly the withdrawal of licenses in certain cases. The privatization of the two remaining public insurance companies (SOCAR and CNR) will be completed in 1998/99.

21. The government will continue to set annual quantitative collection targets in regard to loans transferred to the national loan collection agency (SRC) under the commercial bank restructuring program; the target for 1998/99 amounts to CFAF 11 billion. In addition, the government will strengthen the regulation and supervision of nonbank financial institutions, particularly to foster the development of (a) a financial market; (b) microfinancing institutions (providing credit to rural activities and to small and medium-size enterprises); and (c) specialized structures for the mobilization of long-term resources and investment financing. The government will also adopt an action plan for social security reform by December 1998.


V. Structural Policies

22. The government will intensify its efforts to establish an enabling environment for private sector development. Actions to reinforce external competitiveness will entail the realization of reforms initiated in 1997/98, including (a) the implementation of the Competitiveness Committee's work program; (b) the gradual elimination of export taxes; (c) the implementation of the action plan to restructure the port of Douala, so as to reduce costs and transit delays; (d) and the maintenance of a competitive and sound banking sector. The government will also remove distortions adversely affecting private sector activities, including by (a) eliminating the remaining import surcharges and nontariff barriers; (b) ratifying the CEMAC treaty and pushing for further reductions in the common external tariff (CET); (c) improving the functioning of the foreign exchange market through authorization of foreign exchange bureaus; (d) increasing competition through the effective liberalization of petroleum product imports, the elimination or reduction of tax exemptions, and the privatization of public enterprises; (e) examining ways to reduce domestic costs through the privatization of major utilities; (f) reforming the judiciary system; and (g) improving governance and reducing corruption.

A. Privatization of Public Enterprises

23. The government will accelerate the privatization of public enterprises and utilities, in conformity with a plan established with World Bank assistance. According to this plan, (a) in the agro-industry sector, the privatization of the palm oil company (SOCAPALM) and of the sugar company (CAMSUCO) is expected to be completed in 1998/99, and competitive bidding for the privatization of the cotton company (SODECOTON) and the Cameroon Development Corporation (CDC) is to be launched in 1998/99; (b) the new concessionaire of the railway system (REGIFERCAM) is expected to take over rail operations by end-March 1999; (c) calls for the privatization of the electricity company (SONEL) are to be issued by end-June 1999; (d) the privatization of SNEC is expected to be completed in 1998/99; (e) competitive bidding for the privatization of the telecommunications company (CAMTEL)1 will be launched before the end of February 1999; and (f) competitive bidding for the privatization of the national air company (CAMAIR) is to be launched in 1998/99. Privatization operations will be completely transparent, occurring within a regulatory framework that promotes competition and market-based price-setting mechanisms. Given the heavy privatization agenda (50 percent of the government portfolio and 35,000 employees), the administrative and technical capacity of the privatization commission will be strengthened.

B. Improvement in the Judiciary System

24. The government is aware that a well-functioning judicial system is essential to investment security. Institutional and administrative reforms of the legal system and of the judiciary are envisaged that will permit the proper and rapid execution of commercial and financial contracts. The challenge is to establish conditions allowing the judiciary to work in conditions that guarantee its independence and its dignity, in strict conformity with the law and with its professional code of ethics. To this end, the government is committed to (a) providing adequate working means to the judiciary; (b) improving salaries and career development; (c) strengthening the supervision of the judicial system; and (d) applying appropriate sanctions. Finally, the government will establish a program for human resource development, entailing selection and training policies for professionals of the judiciary and the dissemination of legal rulings (Journal Officiel, supreme court decisions, and documents of the Organization for the Harmonization of Business Law in Africa ).

C. Improvement in Governance and Fight Against Corruption

25. The authorities are determined to improve governance and to fight corruption, which constitutes a major impediment to increased private investment. The following actions are expected to deal with these issues: (a) the continuation of annual independent audits of SNH's accounts, so as to increase transparency in the oil sector; (b) the maintenance of transparency in the privatization operations; (c) an improvement in public expenditure management and in government procurement; (d) enhanced control by the Ministry of Finance over practices in the tax and customs departments, so as to reduce fraud and incentives for corruption; (e) the continuation of government withdrawal from productive activities, in order to eliminate rent-seeking opportunities and to set the stage for healthy competition; (f) the ongoing reform of the judiciary, so as to increase credibility and confidence in the profession; (g) the restructuring of the port of Douala, in order to increase the efficiency of private sector activities and improve competitiveness by reducing costs and transit delays; and (h) the strengthening of means and authority of the government audit body (Contrôle Supérieur de l'Etat) to allow it to inspect regularly ministerial and public enterprise management, and to apply strict sanctions to civil servants and managers convicted of misappropriation of public funds. Finally, the government plans to promote citizen and civil society participation in the formulation and implementation of action programs.

D. Expected Impact of the Envisaged Structural Reforms

26. The implementation of the identified structural reforms should contribute to placing the economy on a strong and sustainable growth path. Overall, the institutional reforms in the transport sector (namely, the restructuring of the port of Douala, the privatization of the railway system, and the establishment of an operational road fund), the improvement in governance (consistency and predictability), the enhancements in the functioning of the judiciary, the elimination of trade barriers, and the privatization of major utilities are expected to raise profit prospects and increase investment, production, and employment. The privatization of major agro-industries, coupled with increased competition and tax reforms, will raise production, employment, and farmers' prices in the agricultural sector (e.g., SODECOTON), thereby contributing to a reduction in poverty in rural areas. The privatization of major public utilities is expected to raise investment and improve the supply and quality of electrical power, water, and telecommunications while reducing production costs and increasing productivity. Also, by increasing the supply of clean drinking water, the privatization of SNEC should improve the well-being of the population. Finally, financial sector reforms are expected to deepen financial intermediation through increased savings mobilization and access to bank credit; in particular, the restructuring of savings and loan cooperatives should improve banking services for lower-income populations.


VI. Specific Sectoral Policies

A. Forestry and Environment Protection

27. The rational and sustainable utilization of the country's rich forestry resources requires increased competition and transparency in the awarding of concessions, the design and strict implementation of appropriate forestry management plans, a clear policy for the preservation of the environment, and the protection of the interests of the populations living near forests. The government expects this sector to contribute to growth and to macroeconomic balance. In this context, a study of the forestry sector will be launched to assess its activity and to lay the basis for additional reforms, which will aim at (a) preserving balance among ecosystems; (b) ensuring rational and sustainable management of forestry resources; (c) redefining policies concerning log exports; and (d) promoting a local processing industry with a high degree of value added.

B. Energy Production and Distribution

28. The energy sector is expected to contribute to economic growth, notwithstanding the projected decline in oil production. Considerable offshore natural gas reserves remain unexploited, and the country's hydroelectrical potential is undeveloped; meanwhile, the power supply is insufficient. The planned structural reforms, notably the privatization of public enterprises in the energy sector, are expected to attract new investments in the sector. With a view to slowing the decline in oil production, the government recently revised a law for the oil sector's fiscal regime to provide incentives for increased exploration and production. Also, the construction of an oil pipeline linking Chad to an offshore terminal at Kribi should have a positive impact on the economy. To face the impending electricity supply shortages, which could jeopardize the objective of sustained growth, the government intends to diversify energy sources. In this respect, it intends to adopt legislation to encourage the exploitation of the country's proven reserves of offshore natural gas. In addition, in the context of the general policy entrusting the private sector with the main responsibility for developing the output capacity of productive sectors, the government will adopt a comprehensive reform strategy for the petroleum sector (exploration and production), including a redefinition of the respective roles of the SNH and the private sector. Finally, the government will adopt new mining and petroleum codes.


VII. Social Policies and Poverty Reduction

A. Poverty Reduction

29. The share of the population living below the food poverty line was estimated in 1996 at 50 percent, with large variations between rural and urban areas (55 percent and 22 percent, respectively), and with a higher incidence for women. The government is determined to reduce the share of people living in poverty to 40 percent by 2000/01 and to reduce it further to about 15 percent by end-2010. In this context, it has prepared a policy framework paper for a poverty-reduction strategy containing measures to (a) promote high and sustainable economic growth that preserves ecosystems; (b) increase access to basic social services (education, health, and drinkable water); and (c) involve women in economic and social development. This paper will be the subject of a government declaration by end-December 1998, and, after discussion by interested parties (private sector, nongovernment organizations (NGOs), and donors), it will provide the basis for elaborating a comprehensive poverty-reduction strategy, to be adopted before end-April 1999, that will incorporate detailed action plans for both the rural and urban sectors. Meanwhile, specific actions are envisaged in collaboration with donors and/or NGOs, in the context of (a) the budget (allocating adequate and regionally targeted resources for education, health, roads, and retrenchment packages for public enterprise workers and civil servants); (b) the privatization of public enterprises; and (c) improved access by low-income populations to microcredit.

B. Human Resource Development

30. The development of human resources and poverty reduction are among the government's most important priorities. Improvements in education and health have a lasting, direct impact on the living standards and the quality of human capital. In its improved expenditure management policy, emphasis will be put on increased effectiveness of budget allocations to the education and health sectors. The government will encourage a greater contribution by the private sector in the development of these essential sectors.

31. The government is committed to increasing the primary school enrollment rate from 81 percent in 1997/98 to 85 percent in 2000/01, especially the less-privileged segments of the population; increasing community participation in school management; and enhancing the quality of education. To this end, a new education strategy policy was announced in the education orientation law adopted in March 1998. In implementing this strategy, the government will (a) ensure through training and upgrading that all primary schools have adequate numbers of qualified teachers; (b) revise the regulations relating to teacher assignments with a view to reducing regional imbalances in pupil-teacher ratios; and (c) prepare a national policy for schoolbooks aimed at increasing their availability at affordable prices.

32. The main objectives of the government's health sector policy will continue to be to increase access to primary health care for all segments of the population, especially in rural areas, and to expand the participation of local communities in the management and financing of health districts. To this end, the government will agree with donors on an action plan for developing and managing health districts and improving their services. As from July 1, 1998, the authorities suppressed the transfer to the budget of 35 percent of the revenue from health centers, allowing these centers to keep all such revenue for operating expenses. In addition, the government will implement an accelerated and enlarged vaccination plan (PEV) to raise the diphtheria, pertussis, tetanus (DPT) vaccination rate from 45 percent in 1997/98 to 70 percent in 2000/01. It will also launch a publicity campaign in support of the use of generic drugs and liberalize the distribution of good-quality pharmaceutical products.


VIII. Improvement of statistics

33. The government recognizes the importance of an adequate database for program monitoring. In this context, special efforts will be made to improve the quality, coverage and timely production of core economic and social data. Special attention will be given to the preparation of national accounts with better estimates of the contribution from the informal sector, the production of national producer and consumer price indices, the timely publication of monthly monetary data with a maximum delay not to exceed five weeks, the economic and functional classification of expenditure, the improved monitoring of domestic and external debt data, as well as of the financial performance of public enterprises (the SISEP system), and the establishment of regular household surveys to monitor poverty and social developments. Efforts will also be made to establish a mechanism for the automatic monitoring of external loan and grant disbursements.


IX. Technical Assistance

34. Where needs are clearly identified, the government will continue to draw on national and international technical expertise and advice for the design and implementation of reforms. In the area of domestic resource mobilization and expenditure management, Cameroon expects to continue receiving extensive technical assistance from the IMF, the World Bank, the European Union, and bilateral donors such as France. The government will receive further IMF assistance in introducing the VAT and other envisaged fiscal reforms, and in improving expenditure management. World Bank assistance is expected for capacity building at the Ministry of Economy and Finance, including the rehabilitation and the computerization of the tax and customs administration and the treasury. Moreover, to improve the investment climate, the government has requested financial and technical assistance from the World Bank in reforming the judiciary and establishing a harmonized investment code in the CEMAC context. The authorities expect to continue receiving additional multilateral and bilateral assistance in the area of civil service reform. In addition, the government expects to receive financial and technical assistance in clearing its domestic arrears and introducing a financial market. Lastly, the World Bank will continue to provide the government with technical support for its ongoing privatization program.


X. External Sector Outlook, Financing Requirements, and Debt Management

A. External Sector Outlook

35. The external program financing requirements for 1998/99-2000/01 are derived from projections based on the program's macroeconomic targets and on assumptions regarding developments in Cameroon's main export markets. It is assumed that the prices of Cameroon's main non-oil products will rise by some 2 percent annually over the next three years, and their volume by 8½ percent on average, while prices and volume of imports would grow by 1 percent and 9½ percent, respectively. Owing to the projected contraction of oil exports, the trade surplus would decline gradually from 5.8 percent of GDP in 1997/98 to 3.2 percent in 2000/01. On average, the services deficit is expected to amount to the equivalent of 7 percent of GDP over the next three years, while unrequited transfers would show an increasing surplus; the current account deficit should stabilize at about 2½ percent of GDP after 1997/98.

B. Financing Requirements

36. The cumulative current account deficit is projected to reach CFAF 464 billion over the three-year period. In light of the scheduled external debt amortization of CFAF 1,256 billion, a targeted increase in net foreign exchange reserves of CFAF 351 billion, and the elimination of CFAF 40 billion in arrears, Cameroon's external financing requirements are estimated at about CFAF 2,167 billion (equivalent to US$3.6 billion). In view of the envisaged reforms, the government expects private capital inflows, mainly from foreign direct investment and short-term trade credits, to total some CFAF 408 billion over the program period. An inflow of CFAF 470 billion is expected in concessional project assistance from bilateral and multilateral agencies in the context of the public investment program, and CFAF 382 billion in financing to support the program has been committed by bilateral and multilateral creditors, including disbursements under the third structural adjustment credit from the World Bank and the use of remaining Fund resources under the ESAF arrangement. In addition, reschedulings by Paris Club and non-Paris Club bilateral creditors are expected to provide CFAF 577 billion in exceptional financing. On this basis, the residual financing gap for the program period would amount to CFAF 330 billion. The gap for 1998/99, estimated at CFAF 40 billion, reflects the initial cost associated with the restructuring of commercial debts with the London Club, and it is expected to be fully covered by Cameroon's bilateral and multilateral partners. The financing gaps for the subsequent years are expected to be covered by additional financial support from bilateral and multilateral donors.2 These developments should allow Cameroon to reverse the trend of net transfers of external resources in its favor from 1998/99 onward.

C. Debt Management

37. The success of the government's medium-term economic and financial program also depends on external debt relief, as the debt burden continues to weigh heavily on external viability. The October 1997 Paris Club agreement was an important step in this direction; its entry into force permitted a 50 percent reduction in net present value (NPV) terms of reschedulable arrears and maturities falling due during the three-year, ESAF-supported program. The authorities will continue to abide by the commitments of the agreement, including the nonaccumulation of arrears and implementation of the ESAF-supported program; this should enable Cameroon to benefit in 2000/01 from a Paris Club exit rescheduling, with a stock-of-debt operation on Naples terms. The authorities will seek from non-Paris Club official creditors and commercial banks terms as favorable as those granted by the Paris Club. In this regard, the government will intensify discussions with the London Club, with a view to reaching a commercial debt restructuring agreement during the second annual ESAF arrangement. In conjunction with these discussions, the government will approach the Bretton Woods institutions and possible bilateral donors to seek substantial contributions to finance the up-front costs for Cameroon of such an agreement.

38. A stock-of-debt reduction at the end of the ESAF program on the best possible Naples terms would bring external debt back to a sustainable level in the medium and long term. In particular, on the basis of the above-mentioned assumptions, external debt service would quickly return to an acceptable level, falling to 26 percent of budget revenue and 16 percent of exports of goods and nonfactor services, respectively, in 2000/01, and to about 20 percent and 12 percent, respectively, in 2017/18. Similarly, the NPV of Cameroon's external debt is expected to be reduced to the equivalent of 168 percent of exports of goods and nonfactor services in 2000/01 before falling to 99 percent in 2017/18.

39. Even with flow and stock external debt relief from bilateral creditors, Cameroon's capacity to meet its external obligations will depend also on other factors, such as economic growth, the buoyancy of exports, and commodity prices, as well as on the amount and concessionality of new external financing. If the growth of exports is 2 percentage points below current projections, debt service (after rescheduling) would be brought down from 26 percent of exports of goods and nonfactor services in 1997/98 to 17 percent in 2000/01 before stabilizing at around 18 percent in the outer years. If annual GDP growth is 1 percent below that estimated, the debt-service ratio would fall from 26 percent of exports of goods and nonfactor services to about 16 percent in 2000/01 and then to 15 percent by 2017/18.

1Resulting from the merger of INTELCAM and the commercial activities of the Directorate of Telecommunications.
2Including the impact of an eventual stock-of-debt operation by the Paris Club.