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Press Release No. 98/42
September 18, 1998
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Approves Second Annual ESAF Loan for Cameroon

The International Monetary Fund (IMF) has approved the second annual loan for Cameroon under the Enhanced Structural Adjustment Facility (ESAF),1 equivalent to SDR 54.04 million (about US$74 million) in support of the government’s program for 1998/99 (July/June). The loan is available in two equal semiannual installments, the first of which is available immediately.

Background

Cameroon successfully implemented the first year of its adjustment program supported by a three-year ESAF loan approved on August 20, 1997 (see Press Release No. 97/38). All quantitative and structural performance criteria and benchmarks for 1997/98 were observed. Economic activity remained buoyant during that period, with real GDP expanding by an estimated 5 percent. The annual rate of inflation fell to -1.6 percent in the 12-month period to June 1998 from 9.6 percent the previous year. The government exceeded its programmed total revenue target, owing to higher-than-expected oil receipts and steps it took to improve the collection of non-oil revenue. Given that government expenditure was broadly contained, Cameroon surpassed its target on the primary budget surplus, allowing the clearance of nonreschedulable arrears to Paris Club creditors ahead of the target date. A strong upouring in private sector credit dominated monetary developments, reflecting buoyant economic activity. External competitiveness strengthened in 1997/98 owing to the implementation of structural reforms, the depreciation of the CFA franc, and the sharp fall in inflation. Non-oil exports increased by 7 percent, led by exports of coffee, cotton, logs, and wood products. Currently, the external current account deficit is estimated at 2 percent of GDP. Progress in the structural area has included the completion of an independent audit of the national oil company, liberalization of the domestic market for refined petroleum products, adoption of a restructuring plan for the port of Douala, and the launching of competitive bids for the establishment of a second cellular telephone company.

Medium-Term Strategy and the Program for 1998/99-2000/01

The key objectives of Cameroon’s medium-term development strategy are to restore external and internal viability, steer the economy onto a path of sustainable growth, and substantially reduce poverty. The country’s growth prospects depend on its success in increasing the investment-GDP ratio (through domestic and foreign direct investment), raising the domestic tax revenue base, rebuilding infrastructure, and implementing deep structural reforms that will enhance its external competitiveness. The principal macroeconomic objectives for 1998/99-2000/01 are to achieve an average annual GDP growth of at least 5 percent, maintain inflation below 2 percent, and stabilize the external current account deficit to below 2 percent of GDP. To achieve these objectives, the government’s strategy will be to continue the implementation of appropriate macroeconomic policies, reinforce the implementation of structural reforms, and build up the country’s economic and social infrastructure.

Within this medium-term strategy, Cameroon’s program for 1998/99, which is supported by the second annual ESAF loan, seeks to achieve real GDP growth of 5.2 percent, limit inflation to 2 percent, and contain the external current account deficit at 2 percent of GDP. The achievement of real GDP growth depends crucially on increases in private and public investment. In this context, Cameroon’s total investment in 1998/99 is projected to increase by 1 percent of GDP to 19 percent. Key budgetary objectives for 1998/99 are to raise non-oil revenue to 13 percent of GDP (representing an increase of 0.8 of a percentage point over 1997/98) and to contain the overall budget deficit to 2.7 percent of GDP. During the year, the authorities hope to limit the increase in net bank credit to the government, thus allowing credit to the private sector to grow at a pace consistent with nominal GDP growth.

Structural Reforms

Cameroon’s structural reform program will focus mainly on the agroindustry, public utilities, petroleum, transport, and financial sectors. Over the next two years, the proposed reforms will concentrate on the privatization or placement under private management of more than half of the assets of the public enterprise sector. These reforms are essential to create a favorable environment for private sector activity and to safeguard the country’s external competitiveness. In the agricultural sector, the privatization of two agro-industries currently under way will be completed and two large state enterprises will be offered for sale in 1998/99. In the water, electricity, and telecommunications sectors, the privatization or restructuring program is aimed at substantially improving the availability and quality of service while increasing the efficiency of companies with poor financial performance and high costs.

Social Issues

Cameroon’s objective in the social arena is to achieve broad-based improvement in living standards through the implementation of well-targeted poverty reduction programs and sustained economic growth. The authorities are placing renewed emphasis on improvements in primary health care and education, and policies to ensure access to clean drinking water and generic drugs. Specifically, the country’s rural poor are likely to benefit from new investments in roads, a reduction in export duties on agricultural commodities, the liberalization of the cotton sector, and measures to reduce transport costs. In addition, the authorities intend to improve the management and transparency of the expenditure process with a view to ensuring that budgetary priorities in favor of social sectors and infrastructure are met.

The Challenge Ahead

Cameroon’s solid performance under the first annual ESAF loan bodes well for the future. Measures under way to liberalize the economy, as well as large-scale privatizations, are clear indicators of the government’s commitment to reform. Continued implementation of strong macroeconomic policies and critically needed reforms will help the authorities achieve their goals in the medium term. Nevertheless, recent adverse developments in international commodity prices have added a downside risk to the government’s targets for oil and non-oil revenues, as well as national growth prospects. The program contains a contingency mechanism to absorb part of the potential oil revenue shortfall, but stronger adjustment will be needed for the remainder of the impact.

Cameroon joined the IMF on July 10, 1963. Its quota2 is SDR 135.1 million (about US$185 million). At the end of June 1998, Cameroon’s outstanding use of IMF resources totaled SDR 88 million (about US$121 million).


Cameroon: Selected Economic and Financial Indicators, 1993/94-2000/01 1












1993/94

1994/95

1995/96

1996/97

1997/98

1998/99

1999/2000

2000/01





Est.

Revised

Est.

Prog.

Projections






program
















(Annual percentage changes, unless otherwise indicated)

National income and prices










GDP at constant prices

-2.5

3.3

5.0

5.1

5.0

5.0

5.2

5.3

5.3

Of which: non-oil GDP

-2.2

4.1

5.5

5.0

5.0

5.0

5.6

5.9

5.8

GDP deflator

11.0

17.0

5.4

2.7

1.3

1.1

2.4

2.1

2.0

Consumer prices (12-month average)2

12.7

25.8

6.6

5.2

2.1

2.8

2.0

2.0

2.0

Consumer prices (end of period)2

33.8

16.2

4.3

9.6

2

-1.6

2.0

2.0

2.0

Nominal GDP (in billions of CFA francs)

3,416

4,130

4,571

4,932

5,250

5,240

5,649

6,075

6,525

Oil output (in thousands of barrels a day)

122

106

101

108

115

115

113

103

94











External trade










Exports (in SDRs)

-12.5

8.6

7.1

16.5

2.1

-0.1

4.0

7.2

6.8

Of which: crude oil

-21.9

-9.9

-0.8

36

-13.5

-17

-5.6

-4.1

-8.1

Imports (in SDRs)

0.4

-1.2

13.1

16.5

10.4

7.3

10.5

12.1

10.8

Export volume

-11.0

2.0

5.9

11.5

5.1

4.7

6.0

2.9

3.8

Of which: non-oil sector

-16.6

15.9

16.1

11.9

5.8

6.7

8.0

8.9

9.3

Import volume

3.0

-5.7

13.2

19.5

9.6

7.3

9.3

10.8

8.7

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

14.2

15.6

16.7

19.7

15.7

15.5

14.3

15

15.2

Nominal effective exchange rate

-22.7

-26.5

6.5

-2.4

...

...

...

...

...

Real effective exchange rate

-24.7

-11.9

6.4

-1.8

...

...

...

...

...

Average exchange rate (CFA francs per SDR)

609.0

776.0

743.0

767

807.0

815

...

...

...

Terms of trade

0.9

1.7

-0.1

8.1

-3.3

-4.2

-2.9

3.1

0.9

Non-oil export price index (in CFA francs)

86.9

34.3

-10

1.1

10.8

9.5

-0.1

2.7

2.6











Money and credit (end of period)









Net domestic assets3 4

33.7

2.2

-3.4

-5.8

9.2

14.9

5.9

2.3

0.6

Net credit to the public sector3 4

2.6

2.5

-3

0.0

3.0

3.0

1.3

-2.3

-3.5

Credit to the private sector4

-9.7

3.4

5.0

3.3

10.3

22.4

9.3

9.8

9

Broad money (M2)4

17.7

6.1

-5.1

13.8

18.1

15.1

16.1

13.2

12.6

Velocity (GDP/average M2)4

5.5

5.6

6.4

8.1

7.3

7.4

6.9

6.5

6.2

Discount rate (end of period)4

12.5

8.8

8.0

7.5

...

...

...

...

...











Central government operations









Total revenue

-20.2

55.2

22.4

14.1

9.3

12.3

6.7

12.7

10.2

Of which: non-oil revenue

-15.5

58

19.8

6

18.5

18.6

14.7

13

12.3

Total expenditure

4.7

1.3

10.2

7.7

16.6

17.8

12.2

11.5

10.9

Current expenditure

0.4

13.9

10.6

2.7

8.9

10.3

6.3

5.7

8.5

Capital expenditure5

95.7

-72.7

38.1

51.1

47.8

47.1

47.4

30.0

26.6












(In percent of GDP)











Gross national savings

11.2

13.7

13.0

14.9

15.7

16.0

16.8

18.2

18.9

Gross domestic investment

15.3

14.5

15.4

16.2

18.0

18.4

19.3

20.5

21.2

Central government operations









Central government revenue

10.1

12.9

14.3

15.1

15.5

16.0

15.8

16.6

17.0

Of which: non-oil revenue

7.9

10.3

11.2

11.0

12.2

12.2

13.0

13.7

14.3

non-oil revenue6

8.7

11.3

12.1

12.2

13.3

13.3

14.0

14.6

15.1

Central government expenditure

19.3

16.2

16.1

16.1

17.6

17.8

18.6

19.2

19.9

Overall fiscal balance

-9.2

-3.3

-1.8

-1.0

-2.1

-1.9

-2.7

-2.7

-2.9

Primary balance5

0.8

3.8

5.4

5.8

5.6

5.8

5.0

4.8

4.7

Of which: non-oil sector

-1.4

1.2

2.3

1.7

2.3

2.1

2.2

2.0

2.0

Noninterest expenditure5

9.3

9.1

8.9

9.3

9.9

10.2

10.9

11.9

12.4

Domestic public debt (before audit)

51.6

38.1

32.6

28.5

25.5

25.6

22.3

19.2

16.8

External sector










Current account balance (including grants)

-4.2

-0.8

-2.4

-1.3

-2.4

-2.4

-2.5

-2.3

-2.3

External public debt

122.7

97.4

89.0

83.5

65.9

73.7

59.3

55.4

45.3












(In percent of exports of goods and services, unless otherwise indicated)











Net present value (NPV) of external public debt7

500.9

339.1

332.8

271.1

177.0

210.0

212.0

203.3

168.4

Scheduled external debt service

57.2

48.3

55.3

41.8

38.9

40.1

40.5

33.9

29.5

Scheduled external debt service8

125.4

96.4

93.4

74.1

67.4

67.0

66.9

53.7

46.1

Actual external debt service

43.7

15.0

23.1

18.5

...

16.0

...

...

...

Actual external debt service8

95.8

29.9

39.0

32.8

...

26.7

...

...

...












(In millions of SDRs)











Current account balance

-234

-41

-148

-78

-156

-152

-172

-173

-187

Overall balance of payments

-694

-640

-438

-336

-146

-190

-179

-196

-196

Net international reserves (end of period)

-445

-454

-409

-286

-217

-256

-161

-43

105

Sources: Cameroonian authorities; and IMF staff estimates and projections.
1Fiscal year begins in July.
2Starting in 1994/95, inflation reflects an updated basket of goods and services in the calculation of CPI; there is a break in the series with respect to the past.
3In percent of broad money at the beginning of the period.
4Starting in 1996/97, data is rebased to exclude information on two banks liquidated in 1996/1997; there is a break in the series with respect to the past.
5Excluding foreign-financed investment. In addition, the primary expenditure excludes restructuring expenditure.
6In percent of non-oil GDP.
7Based on the results of the baseline scenario of the debt sustainability analysis (Appendix V).
8In percent of government revenue.


1 The ESAF is a concessional IMF facility for assisting eligible members that are undertaking economic reform programs to strengthen their balance of payments and improve their growth prospects. ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5-year grace period.
2 A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.


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