Cameroon and the IMF
The IMF's Poverty Reduction and Growth Facility (PRGF) -- A Factsheet
Free Email Notification
The International Monetary Fund's (IMF) Executive Board approved today a three-year SDR 111.4 million (about US$144 million) arrangement under the Poverty Reduction and Growth Facility (PRGF)1 to support Cameroon's efforts to improve social services, reduce poverty, and more generally, to build on the progress made under its earlier IMF-supported adjustment program. Of the total credit approved, SDR 15.9 million (about US$21 million) is available immediately, and the balance will be available in installments on the basis of semi-annual reviews.
Following the Executive Board's discussion of Cameroon's economic and structural adjustment program, Stanley Fischer, First Deputy Managing Director and Acting Chairman, made the following statement:
"Under its three-year PRGF-supported program completed in October, Cameroon made substantial progress. Public finances were strengthened, the banking system was rehabilitated, relations with external official creditors were normalized, an ambitious privatization program was launched, and progress was made in improving governance. Economic activity strengthened, and inflation has fallen to the low single digits.
"Looking forward, and building on the gains of the past three years, the challenge now is to move ahead with the next phase of reforms, so as to create the conditions for sustainable and equitable growth, and durable poverty reduction. The new PRGF-supported program emphasizes the need to maintain a stable macroeconomic environment, enhance the role of the private sector, make the delivery of social services more efficient (especially in rural areas), develop basic infrastructure, and, as a high priority, continue to improve governance.
"Public finances will benefit from the sharply higher oil revenue of the last year, privatization receipts, and interim HIPC assistance. As a result, it should be possible to clear domestic arrears and reduce indebtedness to the domestic banking system, while increasing spending on priority sectors. However, other steps to consolidate the fiscal position are also urgently needed, including, the long-delayed reform of the customs administration and overhaul of the procurement and public expenditure management system. It is particularly important that the authorities ensure that resources freed up by the HIPC Initiative are used efficiently and that the "ring-fencing" mechanism and monitoring committee, established for this purpose, are fully effective.
"In finalizing the Poverty Reduction Strategy Paper, the authorities are encouraged to broaden the participatory process, to help ensure that the document is discussed and agreed with civil society and development partners. Better social and demographic data will be key to monitoring progress in reducing poverty." Mr. Fischer said.
Recent Economic Developments
Between July-1997 and June-2000, Cameroon established a good record of performance under a PRGF arrangement (see News Brief No. 00/92) designed to support the nation's economic and structural reforms. During this period, real GDP growth averaged 4.5 percent per year; inflation was tamed at less than 1 percent; and Cameroon's external position strengthened considerably. In the budget area, progress was made toward achieving fiscal sustainability through the strengthening of the collection of both oil and non-oil revenues; inroads were made to address a weak expenditure management system; and domestic arrears were audited and a plan for their clearance was adopted. In the financial sector, Cameroon's contribution to the foreign reserves of the regional central bank BEAC increased considerably, and the domestic banking system was largely rehabilitated and privatized.
In the structural area, important reforms were launched, including a large-scale privatization program, and significant actions were taken to liberalize Cameroon's energy and transport sectors. In terms of social policies and poverty alleviation, sectoral strategies for health and education were drawn up with World Bank assistance, and an HIV/AIDS campaign was started. The authorities also adopted a governance and anticorruption strategy, and progress was made in improving the level of transparency, particularly in the oil sector.
To help Cameroon establish a sustainable debt-service profile, the IMF and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative (see Press Release No. 00/56). Total debt relief, from all of Cameroon's creditors, amounts to around US$2 billion in nominal terms, or the equivalent of about US$1.26 billion in net present value terms.2
Cameroon's new PRGF-supported program continues the adjustment effort, and is designed to: consolidate the gains obtained previously and maintain a stable macroeconomic environment while enhancing private sector development; and implement the second generation of reforms, focusing on areas that have yet to be adequately addressed, including poverty reduction, efficient delivery of social services, development of basic infrastructure, and importantly, further improvements in governance. Building on the progress made under the first three-year program, the key macroeconomic objectives of Cameroon's adjustment program for 2000-01 and 2001-02 are to limit inflation to 2 percent; and contain the external current account deficit under 3 percent. Real GDP growth is projected at 5.4 percent and 5.7 percent, respectively.
The program's main elements are to strengthen non-oil revenue by reforming the customs administration and continuing the rationalization of forestry taxation; improve public expenditure management, reform the procurement system, increase spending on social services and the rehabilitation of infrastructure, and provide for some decompression of public sector wages; conclude the privatization process in the agro-industry, public utilities, and telecommunications sectors, and consolidate and deepen the structural reforms in the transport, petroleum, and financial sectors; and strengthen governance through the introduction of transparency and accountability into public sector activities, and enhance the environment for private investment and financial system development by launching a reform of the judicial system.
Cameroon became a member of the IMF on July 10, 1963; its quota3 is SDR 185.7 million (about US$240 million), and its outstanding use of IMF credit currently totals SDR 164.6 million (about US$213 million).
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility (ESAF), was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It was intend that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. In the case of Cameroon, an interim PRSP-which is a guideline for the preparation of a full PRSP-was prepared and presented to the World Bank and IMF Executive Boards on October 10 and October 11, 2000, respectively. PRGF loans carry an annual interest rate of 0.5% and are repayable over 10 years with a 5 1/2 year grace period on principal payments.
2 Net present value (NPV) of debt is the discounted sum of all future debt-service obligations (interest and principal) on existing debt. The NPV of debt is a measure that takes into account the degree of concessionality. It is defined as the sum of all future debt-service obligations on existing debt, discounted under the HIPC Initiative at the market interest rate. Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.
3 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 allocation of SDRs.
IMF EXTERNAL RELATIONS DEPARTMENT