Recent Developments and Outlook

The economy has shown resilience despite challenging socio-political situation in some areas of the country, the heavy fiscal burden of fighting terrorism and jihadism from neighboring countries, the impact of the Covid-19 pandemic, and more recently the spillover effects of the war in Ukraine. Real GDP growth reached 3.6 percent in 2021, driven by stronger domestic demand and favorable external environment. The fiscal deficit narrowed to 2.4 percent of GDP as a result of fiscal consolidation measures aimed at restraining expenditure and increasing non-oil revenue. Public debt has increased somewhat but remains under control and sustainable, albeit at high risk of debt distress.

The outlook for 2022 and the medium term remains broadly positive despite elevated uncertainty, notably on the duration of the conflict in Ukraine and the evolution of the pandemic. Real GDP growth is projected to reach 3.8 percent in 2022 and 4.6% in 2023, assuming that the pandemic will gradually wane. Inflation is projected at 4,7% in 2022 due to higher prices for foods staples but will remain below the CEMAC convergence criterion of 3% over the medium term.

Program Performance

The country’s macroeconomic performance under the ECF/EFF arrangements has been satisfactory, notwithstanding the challenging domestic and external environment. All periodic and continuous quantitative performance criteria (QPCs) and most indicative targets (ITs) under the second review have been met. The ceilings on Société Nationale des Hydrocarbures (SNH) direct intervention, the share of spending executed through exceptional procedure have been breached, mainly to meet the need for security-related spending, but the trend remains downward. The ceiling on the accumulation of domestic arrears following the increased fuel subsidies which should be prioritized for payment.

The implementation of structural measures under the program is also proceeding albeit with delay with four out of nine structural benchmarks met. The authorities have strengthened the format of consultations between the public and private sectors, in line with the recommendations of the Cameroon Business Forum. They have also finalized the diagnostic study of the pension system, published the execution report of expenses related to covid 19 and executed during 2021 fiscal year. The finalization and publication of the circular institutionalizing governance by program contract to improve the performance of public enterprises was met with some delay. The completion of the remaining structural benchmarks is in progress and the date for their completion has been rescheduled at the time of the first review.

Fiscal Policy and Reforms

The government remains firmly committed to pursuing growth-friendly fiscal consolidation with the view to preserving public finances sustainability while guaranteeing the sound implementation of SND 30 and the post-Covid-19 economic recovery plan. The fiscal authorities’ goal is to reduce the overall budget deficit from 2.4% of GDP in 2021 to 0.3% of GDP by 2024. To this end, a particular emphasis will be placed on mobilizing non-oil domestic revenue, as well as on controlling and improving public expenditure efficiency while protecting priority social spending. The authorities will also develop a medium-term revenue strategy supported by a Fund technical assistance, which will cover both tax administration and tax policy.

Cameroon is facing the difficult trade-offs between controlling public debt, preserving the recovery, investing in development infrastructures, and protecting the most vulnerable. While the rising oil prices has led additional oil revenue of 0.5 percent of GDP compared to the initial projection, the increase in revenue was not sufficient to offset the surge in the cost of fuel subsidies to contain the rise of fuel pump price and the inflationary spiral. As a result of this constraint, the authorities opted to reduce capital and other current expenditures. To ensure the food security of the most vulnerable groups, the government, with the support of the World Bank and the African Development Bank, also plans to provide a targeted subsidy for the acquisition of fertilizers to improve crop yields on alternative food crops, especially maize, rice, sorghum, and soybeans.

The authorities are fully aware of the significant risk to fiscal sustainability posed by higher international oil price. They concur with staff on the need to gradually reduce fuel subsidies while limiting the impact on the most vulnerable. However, given the fragile socio-political environment, alongside growing food price and rising risk of food insecurity, putting in place appropriate targeted measures to mitigate the impact on the poor remains their top priority before proceeding with any price adjustment. To this end, they requested technical support from the IMF and other partners, including the World Bank, to help them with the identification of vulnerable groups and the implementation of a well targeted subsidy program. They call for continued flexibility to avert social crises that could jeopardize the program objectives. Meanwhile, the government have authorized an additional allocation in the 2022 revised budget law, which will cover the fuel subsidy cost as well as additional social spending.

In line with Cameroon’s public finance reform program, the government is pursuing reforms aimed at improving the quality of public expenditure and cash flow management. The authorities will continue implementing reforms to improve project selection, planning, and execution to enhance the effectiveness and efficiency of public investment. To avoid the recurrence of arrears, they will strengthen cash flow management and continue to improve treasury operations, including the operationalization of the Treasury single account (TSA) in liaison with the regional central bank (BEAC). In addition, the authorities will adopt realistic expenditure commitment plans, which should be used to prepare credible monthly cash flow plans and redouble their efforts to curtail the use of exceptional procedures.

Debt policy and management of contingent liabilities

The authorities are determined to improve public debt sustainability. These include notably containing the pace of new non-concessional borrowing while prioritizing concessional loans. They will strictly limit the signing of non-concessional loans to priority projects for which concessional resources are unavailable while adhering to the program debt limits, also set in the 2022 revised budget law. To improve debt management, the government reaffirms the central role of the national public debt committee (CNDP), which approval is required for all borrowing proposals. Moreover, the medium-term debt strategy will remain focused on preparing coherent annual borrowing plans and strengthening the communication strategy.

The government will continue to strengthen the management and governance of SOEs to improve public service delivery and limit fiscal risks. In this regard, the authorities will pursue policy geared towards signing performance contracts specifying public service obligations, gradually reducing subsidies to non-performing SOEs, listing large enterprises in the industrial sectors on stock market, and clearly identifying the public service mission of the public enterprise. In addition, the government have adopted a circular institutionalizing governance by performance contracts to improve the performance of the public enterprises concerned. These performance contracts and their evaluation reports will be published regularly on the official website of the Ministry of Finances.

On SONARA, the authorities have made substantial efforts to advance its debt restructuring process. They have reached an agreement with banks and most of the traders. In addition, they are resolutely determined to tackle SONARA’s structural issue and put the company on a sound financial footing in accordance with the recommendations of the Inter-ministerial Committee approved by the President of the Republic. A timetable with a progress report and a business plan will be produced for this purpose (structural benchmark at the end of March 2023).

Financial Sector Policies

Cameroon remains committed to the stability of the monetary union and a viable financial sector. The country contributes significantly to the rebuilding of BEAC’s international reserves and is committed to ensuring that all aspects of the new foreign exchange regulations under its jurisdiction are enforced, including in the oil sector. In this regard, the Ministry of Finance will establish a data exchange platform for the BEAC, banks, the Treasury and Customs to facilitate the control and monitoring of the repatriation of export proceeds and financial transactions with the rest of the world.

Strengthening the stability of the banking sector and reducing nonperforming loans also rank high in the authorities’ agenda. Plans to restructure the two banks in difficulty by the end of December 2022, consistent with the deadlines set by COBAC, are advancing. Moreover, the government will also encourage banks and financial institutions to systematically submit data to the national personal property security directory (RNSM) and strengthen the operation of the State Asset Management Company (SRC).

Governance

The Cameroonian government is attentive to the importance of strengthening measures to promote good governance, enhance transparency, and address corruption. They have completed the transparency and accountability requirements regarding the management of Covid-related spending for FY 2020 and committed to fulfilling the requirements for FY 2021. With the Fund’s technical assistance, Cameroon will conduct a diagnostic of vulnerabilities in governance that would include state functions that are most relevant to economic activity. The government will also prepare an action plan to strengthen the Supreme court’s audit bench by the end of 2022.

Structural reforms

The authorities remain determined to advance reforms needed to improve productivity and promote economic diversification, reinforce good governance, strengthen transparency and anti-corruption efforts, as well as stepping up measures for climate change adaptation and mitigation. The authorities are resolved to tackle the structural obstacles that hamper further private sector development and economic diversification. Moreover, under SND30, Cameroon is committed to stepping up measures to adapt and mitigate climate change effects to ensure inclusive and durable growth. The country is among the ones that signed the Glasgow Declaration on forests and land use during CoP 26, aimed at stemming and reversing the loss of forests and land degradation by 2030. To this end, Cameroon has undertaken measures to restore approximately 12 million hectares of degraded land under the AFR 100 Initiative.

Conclusion

Our Cameroonian authorities have demonstrated strong resolve in implementing their policy and reform program in support of their development agenda and the regional strategy, amid challenging circumstances. Going forward, their remain fully committed to putting in place policies and reforms that are consistent with the program objectives. They would greatly appreciate Director’s support for the completion of the second review under the ECF/EFF-supported program. They also request waivers for performance criteria applicability as the data on the PC for end June 2022 will not be known before the Executive Board meeting and the modification of performance criterion.