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Press Release No. 05/236
October 24, 2005
International Monetary Fund
700 19th Street, NW
Washington, D.C. 20431 USA

IMF Executive Board Approves US$26.8 Million Three-Year Arrangement for Cameroon Under the Poverty Reduction and Growth Facility

The Executive Board of the International Monetary Fund (IMF) today approved a three-year arrangement for Cameroon under the Poverty Reduction and Growth Facility (PRGF) in an amount equivalent of SDR 18.57 million (about US$26.8 million) to support the government's program of economic reform and poverty reduction. The first disbursement under the arrangement will amount to SDR 2.65 million (about US$3.8 million).

The Executive Board also approved an additional amount equivalent to SDR 5.70 million (about US$8.2 million) in interim assistance from the IMF under the Heavily Indebted Poor Countries (HIPC) Initiative to be applied in the remainder of 2005 and through most of 2006.1

The last PRGF arrangement with Cameroon was approved in December 2000 (See Press Release No. 00/86) and expired in December 2004 after an extension of one year. The authorities subsequently requested a staff-monitored program (SMP) covering the first half of 2005 to build a performance track record. Performance under the SMP to date has been broadly satisfactory.

Following the Executive Board's discussion of the request by Cameroon, Ms. Anne O. Krueger, First Deputy Managing Director and Acting Chair, stated:

"The Cameroonian authorities made progress in improving economic policies in the first half of 2005 under their 2005 staff-monitored program (SMP). Implementation of the program resulted in a substantial fiscal adjustment, especially in non-oil revenue, and improved public financial management and reporting. Prudent policies have contributed to solid economic growth, low inflation, and a narrowing external current account deficit.

"At the same time, the reform agenda remains unfinished. Progress in structural reforms will need to be strengthened, particularly with respect to improving governance and the business climate, enterprise restructuring, privatization, and fuel price adjustments. There is also considerable room for further improvements in the structure of spending, transparency of government operations, budgeting, and budget execution procedures.

"The government's new medium-term program seeks to consolidate fiscal performance and invigorate structural reforms in order to build a sound basis for enhancing growth and reducing poverty. The reform priorities include strengthening non-oil revenue, increasing public investment in infrastructure, enhancing the transparency of financial management, restructuring public enterprises, and removing obstacles to private sector activity. Follow-up and monitoring of the quality of public spending—including spending of debt-relief resources—full implementation of the domestic debt repayment plan, and decisive improvements in governance will be important in rebuilding confidence and strengthening private investment. Also, the role of the Poverty Reduction Strategy Paper is to be enhanced through more explicit links in the budget and better coordination of priorities with donors.

"Successful implementation of the PRGF-supported program should enable Cameroon to meet the completion point trigger on the continued maintenance of macroeconomic stability. Cameroon has made progress toward implementing other completion point triggers. The government is committed to ensuring that the resources released by debt relief, both before and after the completion point, are used for poverty-reducing and growth-enhancing expenditure. The mechanisms for appropriation, use, and monitoring of debt relief would need to be improved in coordination with creditors and donors. The authorities will need to continue on a sustained reform path and follow prudent borrowing policies, including beyond the completion point," Ms. Krueger said.

Recent Economic Development

Cameroon's macroeconomic performance through 2004 was solid with real growth registering about 4 percent and inflation remaining low. However, public finances deteriorated, poverty remained widespread and sustained economic growth was hindered by, among other obstacles, inadequate infrastructure, poor governance, low investment, and limited financial intermediation. In recent years, the business climate has also been adversely affected by the Treasury's accumulation of domestic payment arrears and the slow progress in restructuring loss-making public enterprises.

The authorities adopted an ambitious economic program for 2005 to address the obstacles to growth and to improve fiscal management, in line with the main recommendations of the ex post assessment. They asked the staff to monitor the program. Building on the broadly satisfactory implementation of the staff monitored program during the first half of 2005, the authorities have adopted a medium-term economic program to be supported by an arrangement under the Poverty Reduction and Growth Facility, which is Cameroon's third successive PRGF arrangement.

Program Summary

The authorities medium-term program aims to enhance growth and reduce poverty consistent with Cameroon's Poverty Reduction Strategy Paper so as to make progress toward the Millennium Development Goals (MDGs). It seeks to (i) remove impediments to private sector activity, including by accelerating the restructuring and privatization of loss-making public enterprises; (ii) strengthen the fiscal position and increase investment in physical and human capital; and (iii) safeguard longer-term fiscal sustainability.

The program's key macroeconomic objectives are (i) real GDP growth in the non-oil economy averaging at least 4.4 percent a year during 2005-08; (ii) inflation below 3 percent; and (iii) an external current account deficit (excluding official transfers) below 5 percent of GDP by 2008. Although oil production is expected to decline over the medium term, the authorities expect growth in the non-oil economy to strengthen as the business climate improves.

The medium-term fiscal strategy seeks to ensure the availability of resources to cover core expenditure independent of the level of oil revenue (or debt relief). The fiscal strategy also aims to strengthen priority spending while ensuring long-term debt and fiscal sustainability.

The authorities will continue to improve public financial management and the effectiveness of spending. They will focus on improving expenditure quality, efficiency, and control, as well as absorptive capacity.

Through their program, the authorities are seeking to meet the conditions for the HIPC Completion Point so as to achieve debt sustainability through debt relief. Overall the net present value of public external debt is projected to decline to 153 percent of exports (before completion point relief) at end-2005, and further to 54 percent at end-2006 after Cameroon receives completion point relief. Cameroon would be eligible for debt relief under the multilateral debt cancellation initiative when it reaches its HIPC completion point.

The PRGF is the IMF's concessional facility for low-income countries. PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.

Table 1. Cameroon: Selected Economic and Financial Indicators, 2003-08


2003

2004

Projections

Est.

Est.

2005

2006

2007

2008


(Annual percentage changes; unless otherwise indicated)

National income and prices

GDP at constant prices

4.1

3.5

2.8

4.2

3.7

4.6

Of which: non-oil GDP

4.9

4.7

3.7

4.1

4.7

5.1

GDP deflator

0.3

2.2

1.7

2.9

0.9

1.6

Consumer prices

0.6

0.3

1.3

1.8

2.0

2.0

Nominal GDP (in billions of CFA francs)

7,917

8,377

8,757

9,395

9,826

10,447

Oil output (in thousands of barrels a day)

98

89

82

88

78

74

External trade

Export volume

6.9

1.5

-5.3

6.2

1.3

3.2

Of which: non-oil sector

12.3

5.9

-3.7

4.8

5.0

5.4

Import volume

-0.6

9.4

1.0

2.8

3.0

3.2

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

27.3

34.9

45.3

48.0

43.3

42.0

Real effective exchange rate

2.9

0.4

...

...

...

...

Terms of trade

-0.8

-1.3

9.0

4.9

-11.1

-7.2

Money and credit (end of period)

Broad money (M2)

-0.9

7.3

4.7

9.0

10.9

9.0

Velocity (GDP/average M2)

5.8

5.8

5.9

6.2

5.8

5.7

Discount rate (end of period; in percent)

6.0

6.0

...

...

...

...

(In percent of GDP, unless otherwise indicated)

Gross national savings

15.4

16.2

17.4

19.6

17.9

16.7

Gross domestic investment

17.5

19.2

19.8

20.7

21.2

21.6

Central government operations

Total revenue (excl. grants)

16.1

15.1

16.9

17.8

17.1

16.6

Oil revenue

4.1

3.9

4.5

5.5

4.4

3.7

Non-oil revenue

12.0

11.2

12.4

12.3

12.6

12.8

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

12.8

12.0

13.3

13.3

13.4

13.6

Total expenditure

15.4

15.9

15.3

17.0

16.8

17.1

Noninterest total expenditure 2

12.4

13.2

12.5

13.4

14.4

14.6

Capital expenditure 3

1.9

1.8

2.4

3.7

3.8

4.3

Overall fiscal balance (excl. net changes in arrears)

Excluding grants

0.7

-0.8

1.6

0.7

0.2

-0.6

Including grants

1.2

-0.7

2.0

1.2

0.3

-0.5

Primary balance 2 4

3.4

1.9

3.9

3.4

2.3

1.7

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

-0.3

-1.5

0.8

0.6

-0.1

-0.3

External sector

Current account balance (including grants)

-2.1

-3.0

-2.4

-1.2

-3.4

-4.8

NPV of external debt

39.0

35.8

31.1

27.5

24.6

22.1

(In percent of exports of goods and services)

External debt service (before debt relief)

26.0

23.0

20.2

17.1

15.2

13.6

External debt service (after debt relief)

8.7

7.0

6.7

3.6

4.0

4.2


Sources: Cameroonian authorities; and staff estimates and projections
1/ In percent of broad money at the beginning of the period.
2/ Excluding foreign-financed investment, restructuring expenditure and separation grants
3/ Excluding restructuring expenditure.
4/ Excluding external grants and privatization proceeds.


1 The staff report on Cameroon is expected to be made available.



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