The Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Cameroon1.
The economy has shown resilience in the face of the twin shocks of the oil price slump and heightened security threats, with the robust growth of 2014 continuing into 2015. Growth is broad-based and projected to reach 5.9 percent in 2015, buoyed by increased oil production and the performance of sectors benefiting from the ongoing public investment boom. Annual inflation is projected at 2.8 percent and has not been significantly affected by the 15 percent increase in administered fuel prices on July 1, 2014. Total revenue is projected to increase in 2015, owing to a strong performance in non-oil revenue. However, the fiscal deficit is expected to widen to 5.4 percent of GDP, as revenue mobilization efforts are hampered by the oil price decrease and capital expenditure increases further. The reliance on foreign financing for investment expenditure, including on non-concessional terms, has resulted in a sharp rise (from a low base) in external public debt, which represented 17.8 percent of GDP at end-2014. The current account deficit, meanwhile, is projected to increase to 5.1 percent of GDP, reflecting lower prices for exports and continued strong imports, driven by the growth in investment.
Growth is projected to moderate to 5.2 percent in 2016, as oil production stabilizes. Inflation is projected to remain low, at 2.2 percent, in line with moderate prices trends for key commodity imports and low euro area inflation. The fiscal deficit is projected to rise to 7.2 percent of GDP, reflecting continued strong public investment and increased expenditures to counter security threats. The external current account deficit is projected to rise to 5.3 percent of GDP, as continued strong imports and the terms-of-trade shock of 2015 continue to have an impact. The financial sector remains relatively sound and has excess liquidity, although this has declined since the onset of the oil price shock and the investment boom. At the same time, non-performing loans in the banking sector increased from 10.2 percent in June 2014 to 13.1 percent a year later, with micro-finance institutions showing similar trends. Bank supervision at national and regional levels has improved. The regional supervisor (COBAC) remains vigilant to potential stresses to the financial system arising from protracted low oil prices and possible regional spillovers.
The medium-term outlook has somewhat deteriorated since the last Article IV consultation, reflecting weaker prospects for oil and other exports, in addition to the security threats. Lower oil revenues and the costs of countering the security threats are expected to reduce fiscal space going forward. Against this background, the overall fiscal deficit is projected to remain above 5 percent of GDP until 2018, after which the public investment program returns to more normal levels and the fiscal balance is projected to improve. The external current account deficit is projected to rise to 5.3 percent of GDP, as continued strong imports and the terms-of-trade shock of 2015 continue to have an impact.
Downside risks to the outlook are primarily on the external side, including a deepening of the oil price slump and an extension of security threats. At the same time, domestic risks, such as contingent liabilities from state-owned enterprises, could have an adverse impact on public finances.
Executive Board Assessment2
Executive Directors agreed with the thrust of the staff appraisal. They welcomed the notable resilience and continued robust growth of Cameroon’s economy so far in the face of sharply falling international oil prices and heightened regional security threats. While acknowledging the need to bridge infrastructure gaps, Directors nevertheless noted that fiscal and external vulnerabilities are rising on the back of the decline in oil revenue and an ambitious public investment program. Directors stressed that sound fiscal and debt management policies and more ambitious structural reforms are critical to preserve macroeconomic stability, boost private sector investment, and promote stronger, sustainable, and inclusive growth.
Directors stressed the importance of improving fiscal discipline. They encouraged the authorities to adopt a prudent budget based on a realistic oil price assumption, and to develop a credible medium-term consolidation strategy going forward. They welcomed recent tax revenue mobilization efforts and recommended stronger efforts to enhance customs revenue collection. Directors underscored the need for similar efforts on the expenditure side by strengthening public financial management. They called for action to eliminate arrears and improve oversight of contingent liabilities from state-owned enterprises.
Directors emphasized the importance of rationalizing the parallel public investment programs and to bring them fully into the budget. They also encouraged the authorities to take advantage of the current low oil prices to eliminate fuel subsidies while developing a social safety net to protect the poor. Adopting a medium-term fiscal anchor would help mitigate the impact of oil-price volatility and exert better control over public spending.
Directors emphasized the importance of preserving debt sustainability. They encouraged the authorities to pursue a prudent debt management strategy giving more priority to concessional borrowing and financing through regional markets. They called for a careful assessment and prioritization of investment projects on the basis of their potential impact on growth and poverty reduction and taking into account administrative and implementation capacity.
Directors noted that the financial sector is relatively stable. They encouraged continued close collaboration with the regional oversight body to enhance financial sector surveillance, including of micro-financial institutions and the new bank for small and medium-size enterprises. Directors called for vigilance with regard to rising nonperforming loans.
Directors emphasized that ambitious structural reforms aimed at boosting private sector activity and economic diversification by creating a business-friendly environment, and easier access to credit, are needed to lift growth in a sustainable and inclusive manner. They encouraged the authorities to reinvigorate their efforts to promote regional integration. Directors also called for further progress in improving the quality and timeliness of data and statistics.
It is expected that the next Article IV consultation with Cameroon will be held on the standard 12-month cycle.