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Public Information Notice (PIN) No. 05/57
April 29, 2005
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

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IMF Executive Board Concludes 2005 Article IV Consultation with Cameroon

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 22, 2005, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Cameroon.1 The Executive Board also approved the monitoring by Fund staff of Cameroon's economic program for 2005.

Background

In recent years, Cameroon has continued to enjoy political stability and solid economic growth, resulting in gradual per capita income gains. However, income levels remain far below those enjoyed prior to the economic crisis that led to the devaluation of 1994, and Cameroon continues to rank just above the first quintile (place 141 out of 177 countries) of the U.N.'s Human Development Index, an assessment combining life expectancy, adult literacy, primary school enrollment, and per capita income.

Despite its solid GDP growth performance, Cameroon has seen a deterioration of its fiscal position in 2003-04 that, if continued, could undermine prospects for macroeconomic stability, growth and poverty reduction. Also, the authorities have made only limited progress in recent years in removing long-standing impediments to private sector growth, such as inadequate investment into infrastructure and human capital, poor service delivery from troubled state enterprises, and an investment climate overshadowed by weak governance. As a result of these developments, the PRGF-arrangement with Cameroon of 2000 went off-track in early 2004 and lapsed later that year.

The authorities intend to build a track record of policy implementation through a staff-monitored program (SMP) for 2005. Initial steps by the government formed in December 2004 have been encouraging. Successful implementation of the SMP and a successor PRGF arrangement would strengthen prospects for growth and poverty reduction, and allow for the possibility of reaching the Heavily Indebted Poor Countries (HIPC) Initiative completion point in 2006. A track-record SMP is an informal monitoring arrangement that does not entail Executive Board endorsement of Cameroon's policy program.

Executive Board Assessment

Directors welcomed Cameroon's good economic performance, with solid growth, low inflation, and a narrowing external current account deficit, as well as the progress achieved on structural reforms. Tangible progress has been made in health and education sector reforms, which—along with increased per capita income—helped improve social indicators. At the same time, Directors observed that serious challenges remain, in particular in strengthening fiscal performance to ensure debt sustainability, and removing impediments to private sector growth, which will be key to strong growth and poverty reduction over the medium term.

Directors welcomed the authorities' decision to embark on an ambitious reform program that would be monitored by Fund staff. A track record of convincing performance under the program would help maintain a stable macroeconomic environment and pave the way for a medium-term reform program that could be supported by the Fund's Poverty Reduction and Growth Facility. Directors strongly supported the authorities' intention to redouble their reform efforts to allow them to reach the completion point under the HIPC Initiative.

Directors noted that fiscal performance had weakened considerably in 2003-04, particularly with respect to non-oil revenue, and that only limited progress had been made in strengthening financial management. They also expressed concern that the financial situation of large public enterprises had worsened considerably, adding to actual and contingent fiscal liabilities of the central government. Given these developments, Directors were encouraged by the authorities' commitment to improve fiscal performance and financial management, in particular through the ambitious fiscal program for 2005 that seeks to mobilize non-oil revenue and contain non-priority expenditure while increasing investment spending.

Directors emphasized that increased revenue mobilization will require continued tax reforms aimed at broadening the tax base by reducing exemptions and enhancing tax collection in the informal sector. Technical assistance, if effectively used, will provide useful support to these efforts. In addition, Directors urged the establishment of a transparent fiscal rule for the use of windfall oil revenue.

On the expenditure side, Directors noted that restraining non-interest expenditures and improving their composition, by focusing on infrastructure and social sectors, will be critical for improving the business climate and poverty reduction. They called for prompt actions on restructuring and privatization of state-owned enterprises, which would help limit the quasi-fiscal losses and improve service delivery. In this regard, Directors expressed concern about the suspension of the adjustment of fuel prices in line with world market prices. They also highlighted the importance of continued progress on the streamlining of payrolls and improving personnel management.

Directors encouraged the authorities to build on the progress achieved in operationalizing the financial management system. They stressed the need to improve further the timeliness, comprehensiveness and accuracy of fiscal reporting, including in the receipt and use of the HIPC relief. Directors also stressed the importance of strengthening debt management, avoiding domestic arrears and external arrears on non-reschedulable debt, settling arrears to the HIPC-account, and developing and fully implementing a realistic debt-servicing plan. They urged the authorities to clarify the external debt position of public enterprises to allow for a comprehensive debt sustainability assessment.

Directors observed that reaching most of the Millennium Development Goals (MDGs) will be a challenge for the authorities. They emphasized the importance of strictly prioritizing expenditures, enhancing their efficiency, and implementing the medium-term sectoral strategies developed in cooperation with the World Bank. Directors welcomed the authorities' intention to review key elements of the Poverty Reduction Strategy Paper (PRSP), to start working on a comprehensive medium-term framework, and to strengthen the implementation and monitoring of poverty reducing projects, including those funded from HIPC-debt relief.

Directors underscored the high priority that the authorities should accord to removing impediments to private sector growth. In particular, infrastructure investments and a strengthening of the legal system, and governance more generally, will be key to enhancing the business climate and investor confidence. Directors urged the authorities to redouble their efforts to improve governance and fight corruption. They underscored the need to pursue decisively the implementation of the National Governance Program, by focusing on results rather than broad policy intentions. Welcoming the adoption of laws for the Audit Office and Constitutional Council, they stressed the importance of making these institutions operational and intensifying efforts to achieve tangible results. Directors welcomed the authorities' plans to strengthen financial management and enhance transparency, particularly in the oil sector by phasing out extra-budgetary spending and adhering to the Extractive Industries Transparency Initiative. While welcoming the assessment that the commercial banking sector is sound, they urged the authorities to address weaknesses in state-owned financial institutions.

Directors considered that the regional currency union has served Cameroon well in helping maintain low inflation and macroeconomic stability. They called on the authorities to monitor competitiveness closely and accelerate structural reforms to improve overall economic efficiency.

Directors welcomed the progress made in enhancing national accounts and fiscal data, and the plans for improving data on poverty and social indicators. They underscored the importance of strengthening other real sector data and, in particular, the production of balance of payments data.

Directors welcomed the ex-post assessment (EPA) report and generally agreed with its main findings. Among lessons to be learned for future program design, they highlighted the importance of structuring conditionality so as to reinforce ownership, of focusing—where possible—on outcomes rather than process, and of effective Fund-Bank coordination and collaboration. Several Directors supported the view that, beyond the near term, a close non-financial engagement would be the most effective way for the Fund to continue to assist Cameroon in meeting its economic challenges.

Cameroon: Selected Economic and Financial Indicators, 2002-04


2002

2003

2004

Est.

Est.


(Annual percentage changes; unless otherwise indicated)

National income and prices

GDP at constant prices

4.2

4.5

4.3

Of which: non- oil GDP

4.6

4.8

4.7

GDP deflator

1.9

1.1

0.7

Consumer prices

2.8

0.6

0.3

Nominal GDP (in billions of CFA francs)

6,869

7,260

7,620

Oil output (in thousands of barrels a day)

102

98

89

External trade

Export volume

-7.0

6.9

6.1

Of which: non-oil sector

-6.6

12.3

12.2

Import volume

1.9

-0.6

7.4

Average oil export price (U.S. dollars per barrel)

23.6

27.3

35.0

Real effective exchange rate

5.9

2.9

0.4

Terms of trade

0.0

-0.8

0.2

Money and credit (end of period)

Broad money (M2)

18.3

-0.9

7.3

Velocity (GDP/average M2)

5.4

5.3

5.3

Discount rate (end of period; in percent)

6.5

6.0

6.0

(In percent of GDP; unless otherwise indicated)

Gross national savings

11.3

14.5

14.9

Gross domestic investment

18.3

16.9

16.6

Central government operations

Total revenue (excl. grants)

17.9

17.5

16.3

Oil revenue

5.4

4.5

4.3

Non-oil revenue

12.5

13.1

12.0

Non-oil revenue (in percent of non-oil GDP)

14.2

14.5

13.5

Total expenditure

17.3

16.8

17.1

Noninterest total expenditure1

13.7

13.6

14.1

Capital expenditure2

2.2

2.1

1.8

Overall fiscal balance (excl. net changes in arrears)

Excluding grants

0.5

0.7

-0.9

Including grants

0.8

1.3

-0.7

Primary balance1, 3

4.2

4.0

2.1

Non-oil primary balance (in percent of non-oil GDP)

-1.3

-0.6

-2.4

External sector

Current account balance (including grants)

-7.0

-2.4

-1.6

NPV of external debt

54.8

42.5

43.4

(In percent of exports of goods and services)

External debt service (before debt relief)

27.9

26.1

22.5

External debt service (after debt relief)

10.0

8.8

6.9


Sources: Cameroonian authorities; and IMF staff estimates and projections
1/ Excluding foreign-financed investment, restructuring expenditure and separation grants.
2/ Excluding restructuring expenditure.
3/ Excluding external grants and privatization proceeds.

1 Under 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 Executive Directors, and this summary is transmitted to the country's authorities.



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