Cameroon—Letter of Intent, Memorandum of Economic and Financial Policies, and Technical Memorandum of Understanding

Yaoundé, December 2, 2003

The following item is a Letter of Intent of the government of Cameroon, which describes the policies that Cameroon intends to implement in the context of its request for financial support from the IMF. The document, which is the property of Cameroon, is being made available on the IMF website by agreement with the member as a service to users of the IMF website.

Mr. Horst Köhler
Managing Director
International Monetary Fund
Washington, D.C. 20431


Dear Mr. Köhler:

1. The government of Cameroon has continued to implement its medium-term economic and financial program, which is supported by a three-year arrangement under the Poverty Reduction and Growth Facility (PRGF) approved by the Executive Board of the IMF on December 21, 2000. This letter of intent, together with the attached memorandum of economic and financial policies (MEFP), supplements the letter of December 6, 2000 and the three supplementary letters of June 28 and December 28, 2001 and of August 28, 2002. The MEFP reviews performance in program implementation since 2002 and presents the government's objectives and policies for the third annual program (July 1, 2003-June 30, 2004). The latter period broadly corresponds to that of the first year of the poverty reduction strategy paper (PRSP). To this end, the government requests that the current period of the PRGF arrangement be extended through December 20, 2004. This letter also reviews progress made in implementing the enhanced Heavily Indebted Poor Countries (HIPC) Initiative completion point triggers.

2. The government reiterates its resolve to achieve the objectives of the PRGF-supported program, as well as those of the PRSP. It would like to express in this regard its appreciation for the conclusion reached by the Executive Boards of the IMF and of the World Bank last July, that the PRSP provide a sound basis for IMF and World Bank concessional financing.

3. Consistent with the PRSP, the objectives of the PRGF- supported program are to further strengthen fiscal management and to expand the non-oil revenue tax base, as well as to accelerate the implementation of structural policies that are needed to establish an environment conducive to private investment and poverty reduction. The envisaged actions aim at (i) improving governance and promoting private investment, with a view to diversifying non-oil activities and to increasing their productivity and, thus, partially offsetting the negative impact of the projected decline in oil output over the medium to long term; and (ii) meeting the enhanced HIPC Initiative completion point triggers in 2004.

4. The government requests a waiver for the nonobservance of the end-September 2002 quantitative performance criterion concerning the ceiling on net bank claims on the central government.

5. Consistent with its request for the extension of the PRGF-supported arrangement, the government requests that the schedule of remaining disbursements be revised following the completion of the fourth review and the associated fifth loan (SDR 15.91 million) under the current arrangement. The remaining disbursement of SDR 31.8 million will be made as follows: (i) the disbursement of the sixth loan (SDR 15.91 million) under the three-year arrangement will be subject to the observance of the performance criteria for end-December 2003, the observance of the February 29 and April 1, 2004 structural performance criteria, and the completion of the fifth review under the extended three-year arrangement, on or after April 30, 2004; and (ii) the disbursement of the seventh and final loan (SDR 15.92 million) will be subject to the observance of the performance criteria for end-June 2004 and the completion of the sixth and final review under the extended three-year arrangement, on or after October 31, 2004. The discussions with Fund staff will take place in late February-early March 2004 for the fifth review and those for the sixth and final review will take place in late August-early September 2004.

6. The government also requests additional HIPC Initiative interim assistance for an amount of SDR 3.019 million to cover 18,1 percent of each principal repayment obligation falling due from December 21, 2003 to December 20, 2004.

7. The government believes that the policies set forth in the attached MEFP are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Cameroon will consult with the Fund on the adoption of these measures and in advance of revisions to the policies contained in the MEFP, in accordance with the Fund's policies on such consultation.

Program implementation

1. Overall, the gains in macroeconomic performance and in the implementation of structural reforms achieved in recent years were maintained during the second annual program (October 2001–September 2002) and the first half of 2003. However, since November 2002, the implementation of the program has incurred delays relative to its original timetable, due to several factors. As part of the government's efforts to promote greater fiscal transparency and discipline, there was a need to reconcile the balance in the government's accounts at the treasury with the balance of the treasury's current account at the regional central bank, the Bank of Central African States (BEAC). This data reconciliation problem delayed the timely completion of the determination of the government's fiscal positions at end-September 2002 and at end-December 2002, and subsequently at end-March 2003.

2. Moreover, the implementation pace of the 2003 budget during the first half of 2003 was adversely affected by the switch to a new fiscal year beginning January 1, 2003.¹ Also, the introduction of a new budget classification in the context of the implementation of the integrated information and financial management system (IFMS) of government revenue and expenditure gave rise to additional training needs for the staff in all the administration units concerned with helping them cope with the resulting new public accounting procedures and practices. Steps were taken to address the technical and other practical problems that emerged as a result of these changes and of the training requirements. Following a rigorous monitoring of the implementation of these steps, the government managed to gain full control of its financial operations in July-August 2003, including the production of a comprehensive fiscal analysis for end-June 2003.

3. All the quantitative performance criteria for the second annual program were met, except for the end-September 2002 criterion concerning the ceiling on net bank claims on the central government, which was exceeded by 0.7 percent of GDP (see para. 9 below).² The end-September 2002 quantitative benchmarks on the floor on total fiscal revenue and on the reduction of domestic arrears were not observed; these two benchmarks were missed by 0.5 percent of GDP and 0.1 percent of GDP, respectively.

4. The structural performance criterion (operationalization of the new government expenditure management system) for end-September 2002 was observed. The system became fully operational at end-September 2002, and was implemented as envisaged in the context of the latest available expenditure management software to track spending on goods and services, including the integration of a new budget classification. Only one of the five structural benchmarks for end-September 2002 (implementation of the action plan for value-added tax (VAT) credit reimbursement) was observed as planned. However, the other four structural benchmarks, which had not been observed at the end of the second annual program, were in place by November 2002. These are as follows: (i) the issuance of a circular with respect to the procedure of saisie-attribution, specifying the nature of the executory titles (titres exécutoires) and clarifying the computation methodology for calculating penalties (astreintes); (ii) the launching of the audit of the operations of the debt agency (Caisse Autonome d'Amortissement (CAA)) during the fiscal-years 2000/01 and 2001/02, including transactions on account of domestic public debt other than domestic and external debt service; (iii) the evaluation of the stocks of commitments that had been executed without the issuance of payments order (bons non mandatés) and of the domestic public debt, both as of end-June 2002; and (iv) the adoption of an action plan for the establishment of a Constitutional Council (Conseil Constitutionnel).

5. Economic activity remained sustained during the second annual program and the final quarter of 2002. It was driven, in particular, by strong domestic demand and the spillover effects of the construction of the Chad-Cameroon oil pipeline. However, the rate of real GDP growth in 2002 was somewhat lower than projected, owing to insufficient power supply and the related adverse impact on industrial output, as well as to a decline in the production of agricultural exports. As a result, the real GDP growth rate reached 4.2 percent (4.6 percent, excluding the oil sector) in 2002. During the first half of 2003, economic activity turned out to be weaker than anticipated at the time the macroeconomic projections of the PRSP were prepared, owing, in particular, to delays in implementing the public investment program for 2003.

6. The 12-month annual inflation rate (according to the national consumer price index) reached 3.6 percent at end-September 2002 (1.6 percent higher than expected for the end of the second annual program), due mainly to unexpectedly large increases in food prices. However, the inflation rate decelerated during the final quarter of 2002 to 2.8 percent as favorable weather boosted food supply. This trend continued during the first half of 2003, with the 12-month inflation rate decreasing further to 1.4 percent by end-June 2003.

7. Progress was achieved during the first quarter of 2003 in reconciling the balance of the government's accounts at the treasury with that of the treasury's current account at the BEAC, which had made it possible in March 2003 to establish the outcome of government financial operations (TOFE) at end-September 2002 (end of the second annual program) and at end-December 2002. The primary fiscal surplus (excluding HIPC Initiative-financed expenditure) during the second annual program was slightly larger than targeted. The overall fiscal surplus (excluding HIPC Initiative-financed expenditure and grants) reached 1.3 percent of GDP, exceeding the program target. However, while the implementation of HIPC Initiative-financed programs and projects was under way, the disbursement pace had remained very slow.

8. Total revenue in the second annual program was nearly on target, with a shortfall in non-oil revenue not entirely offset by larger-than-projected oil revenue. Total expenditure, excluding interest payments and HIPC Initiative-financed expenditures, was well below the budgeted amount, owing to a very low execution rate for public investment. As noted in paragraph 3 above, net bank claims on the central government at end-September 2002 exceeded the program target, mainly due to a larger-than-programmed reimbursement of domestic public debt outside the reduction programmed under the 2000 multiyear settlement plan. At the same time, the pace of credit expansion to the private sector was a little slower than expected. Cameroon's contribution to the improvement in the external position of the regional central bank, the BEAC, strengthened considerably, with net foreign assets increasing by CFAF 76 billion between September 2001 and September 2002.

9. The fiscal and monetary trends observed as of end-September 2002 continued during the final quarter of the year. As a result, for 2002 as a whole, the primary fiscal surplus reached 5.0 percent of GDP, 1.1 percent higher than the program target. Total revenue (grants excluded) reached 19.2 percent of GDP, compared with a target of 18.9 percent of GDP, with continuing higher oil revenue more than offsetting the shortfall in non-oil revenue. Total expenditures, excluding interest payments, amounted to 14.2 percent of GDP, reflecting continued low execution rates of public investment expenditures, particularly during July-December 2002 (under the interim six-month budget). In addition, actual disbursements related to HIPC Initiative-financed expenditures amounted to only 0.03 percent of GDP in 2002, compared with the program target of 0.87 percent of GDP. Current expenditure, excluding interest payments and HIPC Initiative-financed expenditures, also remained below the program projections, while the execution of non-HIPC Initiative public investment fell far short of the target. Reflecting these developments, net bank claims on the central government increased by 2.9 percent. Credit to the private sector expanded by 11.6 percent, owing in large part to a strong expansion of credit to finance investment by mobile phone companies. Cameroon's contribution to the improvement of the BEAC's net external assets position continued to rise in the final quarter of 2002, reaching CFAF 136 billion by year's end. Money supply increased by 18.3 percent at end-December 2002.

10. Fiscal revenue during the first half of 2003 was lower than targeted. Excluding the onetime cash receipt on account of the uncashed checks recorded at end-December 2002 (0.4 percent of GDP, or CFAF 25 billion), non-oil revenue performance, particularly on account of VAT receipts, was weaker than expected. Oil revenue was also below the projection, owing to smaller-than-anticipated export volumes. Noninterest current expenditure³ reached a level equivalent to 6.6 percent of GDP, during the first semester of 2003 compared with a ceiling of 7.4 percent of GDP, due to the delayed implementation of the public investment program, including HIPC Initiative-financed programs and projects, in early 2003. As a result, both the primary and the overall fiscal surpluses were about on target. Reflecting these developments, net bank claims on the government were reduced from CFAF 380.6 billion at end-December 2002 to CFAF 307.2 billion at end-June 2003. Cameroon's share in the net foreign assets of the BEAC remained virtually unchanged during the first half of 2003. Thus, and with little expansion of credit to the private sector, money supply had declined by 6.7 percent by end-June 2003.

11. The structural reform process in public expenditure management resumed during the second half of the second annual program (April-September 2002). The delays incurred in implementing the second phase of the action plan for the establishment of the integrated information and financial management system (IFMS) for government revenue and expenditure had been made up by end-September 2002 (see para. 5 above). The first stage of the third and final phase of the action plan had been implemented by end-June 2003. The implemented measures included (i) the establishment of interfaces between the systems used by the different departments of the Ministry of Finance and Budget, to ensure proper exchange and consolidation of the data needed to monitor government financial operations in accordance with the various budget chapters,⁴ and the charter for treasury accounts (plan comptable du Trésor); (ii) the effective use of the new budget classification system, including for the management of the payroll; (iii) the computerized processing of all government expenditures and revenues, both at the central and at the local government levels; and (iv) the integration of the IFMS, in order to produce, automatically and on a timely basis, tables on the financial operations of the central government.

12. Moreover, significant progress was achieved in improving the fiscal system, with, in particular, the adoption of a general tax code (code général des impôts) in April 2002, and the creation of a large taxpayers' unit (Division des grandes enterprises (DGE)) within the Tax Department of the Ministry of Finance and Budget by decree on June 30, 2003. A steering committee for the effective establishment of this unit has been set up. Furthermore, to improve the yield of the special tax on petroleum products (TSPP), the general tax code eliminated the exemptions for the refueling of fishing vessels and modified the tax base of the TSPP. As regards the latter, the special tax is now levied on the amount of imports and actual deliveries by the national petroleum refining company (SONARA) and no longer on the amount of goods supplied by the national storage company (SCDP). To ensure transparency of these operations, receipts from the VAT, customs duties, and TSPP on petroleum products, as well as the subsidy resulting from the partial application of the TSPP on kerosene, are now properly recorded in government financial operations.

13. In the area of governance, a number of measures were adopted to improve the internal control system and the transparency of public expenditures. These include, notably, (i) the adoption by the government of an action plan to establish a Constitutional Council, which is now being implemented; and (ii) the adoption by the National Assembly of a law that specifies the responsibilities, organization, and the functioning of the external control audit body for state finances (Chambre des Comptes) of Cameroon's Supreme Court, which is being implemented. Moreover, the government has continued to implement the necessary steps to end the abusive recourse to the saisie-attribution procedure and, thereby, to prevent the emergence of any related adverse effects on macroeconomic and financial stability and the investment climate more generally.

14. Progress has also been made in other key areas of governance improvements, including those that are HIPC Initiative completion point triggers (Table 4). The new public procurement system has now become operational through functioning public procurement and specialized control committees, and the recruitment of independent observers. An independent auditor of international standing was recruited in May 2003 to assess the transitional phase of the reform. This work is to be carried out on the basis of the reports concluded by the observers and auditor and the audit reports for publicly procured contracts made during the transitional phase. A preliminary draft of the new public procurement code has been prepared with the assistance of the staffs of the World Bank and of the European Union and the French development agencies. It will be finalized in the context of an interministerial meeting to be convened under the authority of the Prime Minister, and its adoption is expected by end-December 2003.

15. In the real sector, further progress has been made in implementing the reforms that are supported by the World Bank's third structural adjustment credit (SAC III), but the pace has remained slower than expected. Concerning the public enterprises slated for privatization, the sale of the tea sector of the Cameroon Development Corporation (CDC) was completed in October 2002. The biddings for the privatization of the other three sectors of the CDC were inconclusive as there were no candidates. As regards the fixed telecommunications company (CAMTEL) and the national water company (SNEC), the bids were declared to be inconclusive following the breakdown of negotiations with the selected bidders, whose final proposals were no longer consistent with the documentation for the biddings. Outside the SAC III-supported reforms, a new gas code was adopted by the National Assembly and was promulgated on December 30, 2002, and a strategy and an action plan are being implemented to promote private investment in the hydrocarbons sector.

Medium-term macroeconomic framework

16. The government's PRGF-supported three-year program has been updated, consistent with the key objectives of the medium-term macroeconomic framework presented in the PRSP. The main policy goal pursued by the government remains the promotion of conditions conductive to sound and sustained economic growth, which is to be primarily driven by the private sector. To this end, the government's policy stance will be centered on the following five key priority objectives: (i) consolidation of the major macroeconomic balances, including, in particular, further consolidation of public finances; (ii) improvements in governance; (iii) creation of conditions conducive to the rapid development of private sector activities; (iv) diversification of the production base in the non-oil sector and stimulation of non-oil exports to make up for the steady decline in oil output; and (v) reduction of poverty through a broader-based distribution of incomes and by maximizing people's access to essential social services, including, notably, health and education.

17. The baseline macroeconomic scenario for 2003-06 of the PRGF-supported program takes into account the latest economic trends and foreign trade developments. It also takes into account the positive factors that are expected to drive growth, particularly the gradual increase in HIPC Initiative-financed expenditure. Reaching the HIPC Initiative completion point should pave the way for additional financing under the first agreement with France under its debt reduction and development initiative (C2D) and, thereby, support public investment and budgetary expenditure in the priority sectors specified in the PRSP. The gradual rise in spending in priority social sectors, including HIPC Initiative-financed programs, is expected to sustain domestic demand and, thus, help maintain the growth dynamics. The execution rate of the public investment program (including the HIPC Initiative-financed component) would improve along the lines of the sectoral priorities of the country and the related financing within the overall government expenditure framework specified in the PRSP. The implementation of the envisaged structural reforms in the real sector and in governance will be improved, thereby making it possible to achieve the targeted objectives at a faster pace than in the past.

18. The gains expected from accelerated public investment and structural reforms should help enhance the prospects for achieving the targeted increase in private sector investment to a level that will make it the prime engine of growth by 2006. However, the pace of economic growth will also depend on the pace of the expected decline in oil output and the supply of electrical power.

19. On this basis, the objectives of the macroeconomic framework for 2003-06 are to (i) achieve an average annual real total GDP growth rate of 4.9 percent and an average annual real non-oil GDP growth rate of 5.3 percent during the period; (ii) maintain the average annual rate of inflation (as measured by the consumer price index) at 1.8 percent during the period; and (iii) maintain the external current account deficit at 3.2 percent of GDP on an average annual basis during the period. Consistent with these medium-term objectives, (i) total real GDP growth and real non-oil GDP growth rates are estimated at 4.2 percent and 4.7 percent, respectively, in 2003, and projected at 4.5 percent and 5.1 percent, respectively, for 2004; (ii) the inflation rate is estimated at 1.2 percent in 2003 and is to be contained at 2.0 percent in 2004; and (iii) the external current account deficit is to be reduced to 3.1 percent of GDP in 2003 and further to 2.7 percent in 2004.

Fiscal objectives and policies for the third annual program (July 1, 2003-June 30, 2004)

20. The fiscal program takes into account the fiscal performance through end-June 2003, the economic prospects for the remainder of 2003 and for 2004, as well as the key objectives and underpinning policy stance of the draft Budget Appropriations Act for 2004, which the government intends to submit to the National Assembly in November 2003. Moreover, in order to attain the program's objective of consolidating the fiscal and economic gains achieved so far under the PRGF-supported program, the government reaffirms its resolve to pursue its non-oil revenue mobilization efforts and has taken steps to ensure that the fiscal expenditure policy stance is consistent with the fiscal, social, and poverty reduction priorities of the first year of the PRSP.

21. On this basis and with oil revenue projected at 3.8 percent of GDP, the fiscal program for July 1, 2003-June 30, 2004 aims at achieving (i) a primary fiscal surplus of 5.7 percent of GDP in 2003 and of 5.9 percent of GDP in 2004, excluding HIPC Initiative-financed expenditures;⁵ and (ii) an overall fiscal surplus (on a commitment basis and excluding grants) of 1.7 percent in 2003 and of 1.5 percent of GDP in 2004, consistent with the objectives of the 2004 Budget Appropriation Act. These objectives are 5.8 percent of GDP and 1.2 percent of GDP, respectively, for the third annual program.

22. As regards oil revenue mobilization, the government will continue to ensure that oil revenue, including in particular the net balance of the oil operations of the national oil company (SNH), is credited to the treasury on a timely basis. It will also ensure that the required provisions on account of the depleted oil wells are set aside on a regular basis, in accordance with the legal provisions in place.

23. Based on the real non-oil GDP growth rates of 4.5 percent estimated for 2003 and of 5.1 percent projected for 2004, non-oil revenue should reach 16.2 percent of non-oil GDP in 2003 and 16.6 percent of non-oil GDP in 2004, up from the 15.6 percent of non-oil GDP estimated for 2002. On this basis, non-oil fiscal revenue should reach CFAF 1,628 billion (16.2 percent of non-oil GDP) during the third annual program. To achieve these targets, the government reaffirms its commitment to pursue its efforts to strengthen the mobilization of non-oil tax revenue through the continued implementation of steps, notably, during the first half of 2004, that the government has already taken or intends to take to improve the fiscal system and strengthen tax and customs administration.

24. Thus, as far as the efforts to improve the fiscal system are concerned, the government will pursue its policy of eliminating fiscal exemptions. In particular, the Ministry of Finance and Budget will take the necessary steps to eliminate, as of January 1, 2004, the ad hoc exemptions that have not been provided under the tax and customs legal provisions but that have been granted to certain companies; this measure is expected to yield CFAF 8 billion (0.11 percent of non-oil GDP) of additional revenue. No new ad hoc exemption will be granted. Moreover, the government will pursue the implementation of its program to eliminate the VAT tax exemptions, in accordance with its commitment in its supplementary letter of intent dated June 28, 2001 for the first review under the PRGF arrangement; this measure is expected to yield CFAF 2 billion (0.03 percent of non-oil GDP) of additional revenue. The tax exemption on reinvested profits will also be eliminated in the context of the Budget Appropriations Act of 2004, effective January 1, 2005. These measures will supplement those introduced in 2003, which eliminated the exceptional VAT exemptions on publicly procured contracts and reduced the tax benefits, other than those foreseen in international conventions, that had been granted to diplomatic missions and nonprofit organizations. These measures will be fully in force in 2004 and should help yield CFAF 10 billion (0.14 percent of non-oil GDP) in additional revenue.

25. The government will also begin to implement the reform of the income tax for individual taxpayers on January 1, 2004, as scheduled. This reform will result, notably, in a tax relief for low-income individual taxpayers. In order to offset the expected revenue loss, which is estimated at some CFAF 3.5 billion (0.05 percent of non-oil GDP) based on available data, the government will take the following additional measures: (i) harmonization of the taxation rules and practices for pensions and other retirement benefits; (ii) reinforced control of the incomes declared by taxpayers eligible for the income tax regimes applying to handicraft, commercial, and industrial profits; and (iii) creation of specialized tax centers, with a view to improving the monitoring of tax declarations by professionals (professions libérales). Moreover, the government intends to reinforce forestry taxation and securization, notably, by extending the application of common forestry taxation to communal forestry activities and by implementing a computerized information management system for the forestry sector. Finally, the government will take steps to ensure that proper taxes and fees are effectively applied to real estate transactions by establishing minimum valuation standards for assessing such estate transactions.

26. As regards tax and customs administration, the government, with the assistance of the IMF's Fiscal Affairs Department, will finalize an action plan to ensure the effective operationalization of the large taxpayers' unit created on June 30, 2003 (prior action) (Table 2). The implementation of this action plan will pave the way for the unit's effective start of operations as of April 1, 2004 (structural performance criterion) (Table 3). Once fully operational, the large taxpayers' unit is expected to result in a much-improved tax revenue mobilization effort, notably thanks to the enhanced control and collection of fiscal liabilities (including arrears) owed by the companies concerned. To accelerate the collection of taxes and other dues owed by the companies monitored by the large taxpayers' unit, tax and other liabilities owed to the government will be paid solely through bank transfers to be credited to the treasury's current account at the BEAC. These measures are expected to yield, as of 2004, some CFAF 10 billion (0.15 percent of non-oil GDP) of additional revenue. As regards customs administration, the measures include (i) strengthening the single processing window for external trade formalities (GUCE), notably through the acceleration of its computerization; (ii) strengthening the joint tax-customs unit computer links to facilitate data exchanges between the information systems of the tax and customs departments; (iii) improving physical and documentary inspections for the release of goods; and (iv) strengthening the control system for special status exemptions (bonded warehouses and temporary admissions) and transit traffic. Finally, the government also intends to complete the preparatory work on a law for a new property tax system in Yaoundé and Douala, based on the land surveys that are now under way in these two cities, with a view to presenting it to the National Assembly for discussion during its November 2004 session. Prior to introducing this reform, the government will implement its plan to secure the collection of real estate tax and of fees and other dues resulting from productive activities on state-owned properties.

27. In order to optimize its treasury cash position, the government will endeavor to prevent the recurrence of lengthy delays in the encashment of checks issued by taxpayers at the treasury' current account at the BEAC. To this end, it will produce, on a monthly basis, the list of uncashed checks from taxpayers, the date of receipt of which is exceeding two months or more. The production of the first list will be a prior action (Table 1). That of each subsequent monthly list will be a continuous structural benchmark throughout the period of the PRGF arrangement (Table 3). Moreover, to ensure that both tax and nontax revenues are correctly recorded and enhance transparency in fiscal transactions, the government will transform into regular treasury accounts (i.e., accounts held solely by the treasury on behalf of government entitites—comptes du Trésor) all government accounts that have been opened at commercial banks outside the regular treasury accounts, with the exception of the following: accounts monitored by a public accountant of the treasury, those managed by a public legal management committee (e.g., management committees of schools), and those required to manage externally funded projects (structural performance criterion) (Table 3).

28. On the expenditure side, the government has taken measures to improve the overall quality of its expenditure program by containing nonessential spending, increasing the financing of high-priority programs and projects through available HIPC Initiative resources, and increasing outlays in the priority social sectors, consistent with the objectives of the PRSP. Thus, total noninterest expenditure should not exceed CFAF 999 billion (13.8 percent of GDP) in 2003 and should be contained within CFAF 1,180 billion (13.9 percent GDP) in 2004. On this basis, the corresponding ceiling for the third annual program is CFAF 1,044 billion (13.9 percent of GDP). The expenditure program for 2003 includes public investments (excluding restructuring expenditures) 2.5 percent GDP and noninterest current expenditures totaling 12 percent of GDP. These expenditures are budgeted at 3.2 percent of GDP and 11.6 percent of GDP, respectively, in the Budget Appropriations Act for 2004. On this basis, the corresponding ceiling and target have been set at CFAF 220 billion (2.9 percent of GDP) and CFAF 892 billion (11.9 percent of GDP), respectively, for the third annual program.

29. Taking into account the fiscal objectives for 2004, the government wage bill will not exceed 5.9 percent of GDP, and the amount of transfers and subsidies will be limited to 1.7 percent of GDP; the latter amount incorporates, notably, the positive impact expected from the reduction in subsidies on kerosene consumption following the reactivation of the automatic adjustment mechanism for the prices of petroleum products since January 1, 2003. The government is committed to paying off its bills for water (SNEC), electricity
(AES SONEL), telecommunications (CAMTEL), and air and railways transport (CAMAIR and CAMRAIL). In particular, the budgetary allocations for water, electricity, telecommunications and transport will be effectively used and monitored under the PRGF-supported program (quantitative benchmark) (Table 1). Moreover, to enhance further the transparency of budgetary operations and induce the government to pay off its utility and transport bills, on the one hand, and the companies to pay their tax liabilities, on the other hand, the government will promote vigorously direct payments and deductions at source as the main settlement methods for settling cross debts between the government and public enterprises. It will not have recourse to ad hoc fiscal offsetting and will intensify its efforts to clear the outstanding fiscal arrears of liable enterprises. To this end, it will prepare, following proper auditing, a comprehensive list of cross debts between the government and all the liable public enterprises and, on this basis, formulate a strategy and a settlement plan to clear up these claims.

30. Restructuring outlays for public enterprises of CFAF 24 billion (0.4 percent of GDP) have been included in the third annual program (July 1, 2003-June 30, 2004), including CFAF 16 billion for the period January 1-June 30, 2004. This latter amount includes a special provision of CFAF 10 billion for the implementation of the action plans that are expected to be put in place for some of the public enterprises that have been slated for privatization. The government will consult with the IMF staff prior to the use of this special provision or if any possible increase in this amount were to be considered. Moreover, as the decision to purchase a presidential aircraft has been taken by the authorities, the government will ensure that the acquisition of the aircraft does not jeopardize the implementation of the PRGF-supported program or fiscal sustainability. To this end, the government will keep the IMF staff informed of each successive step taken in carrying out this operation.

31. Improved public expenditure management remains the focus of the government's fiscal policy stance under the third annual program. This is crucial for achieving the fiscal objectives, further strengthening macroeconomic stability, improving governance and transparency, and enhancing the credibility and sustainability of Cameroon's overall macroeconomic policy stance. Consistent with this approach and objectives, and the recommendations of the IMF's Fiscal Affairs Department, the government will concentrate its efforts, under the third annual program, on establishing (i) a solid line item budget; (ii) a comprehensive and transparent system for recording all the financial operations of the government; and (iii) a reliable reporting and accounting system, which would allow for the timely preparation of the monthly table on central government financial operations (TOFE) no later than one month following the preceding month.

32. To this end, the government reiterates its determination to complete (i) the full implementation of the integrated information and financial management system (IFMS) for government revenue and expenditure (prior action) (Table 2); and (ii) the procedural and organizational audit of the treasury department of the Ministry of Finance and Budget by end-March 2004 (structural benchmark) (Table 3). It also remains committed to implementing, on a timely basis, the steps needed to ensure proper tracking of poverty-reducing expenditures. To this end, it will specify the poverty reduction expenditure-related lines and sublines, based on the new functional budget classification, prior to the submission to the National Assembly of the Draft Budget Appropriations Act for 2004 (structural benchmark) (Table 3).

33. The government will also pursue its efforts to implement the other control measures for monitoring its financial operations that have already been foreseen under the PRGF-supported program. These measures include, notably, (i) the completion of a study aimed at improving the internal control system, to be completed by end-December 2003; and (ii) the effective implementation of the law specifying the responsibilities, the organization, and the functioning of the external control audit body for state finances (Chambre des Comptes) of Cameroon' Supreme Court, in order to ensure that the external control audit body is fully in place by 2004.

34. As regards the execution of the multiyear settlement plan for reducing domestic public arrears, the government has revised its initial plan, based on a preliminary reevaluation of the stock of unauthorized expenditures and of domestic public debt as of end-December 2002. On this basis, the government has prepared an interim settlement plan that is consistent with the fiscal program for the third annual program. The government is also committed to (i) updating the stock of domestic public debt as of end-June 2003 by no later than January 31, 2004 (structural benchmark) (Table 3); and (ii) auditing the operations of the debt agency (Caisse Autonome d'Amortissement (CAA)) for the fiscal-years 2000/01 and 2001/02, including the audit of domestic public debt transactions unrelated to the servicing of domestic and external public debt, and the adoption of an action plan for the implementation of the recommendations by end-December 2003 (structural benchmark) (Table 3).

35. The government acknowledges that the implementation of the first series of programs and projects that had received a favorable opinion from by the HIPC Initiative consultative committee for the follow-up of the management of HIPC Initiative resources has incurred delays. To solve this problem, administrative and organizational measures are being implemented, with a view to improving the functioning of the consultative committee,⁶ as well as the disbursements of HIPC Initiative resources and the payment of the supplied services.⁷ The government will continue to make deposits in the special account opened at the BEAC, including resources on account of HIPC Initiative debt service relief from official bilateral creditors. It is fully aware that the use of these resources must (i) be consistent with the efforts aimed at improving public expenditure management and the quality of the government's overall expenditure program; and (ii) conform to the specific objectives and priorities for economic, social, and poverty reduction policies specified in the PRSP.

36. The monetary program for July 1, 2003-June 2004 foresees (i) a contribution by Cameroon of CFAF 25 billion to the net foreign assets of the BEAC by end-December 2003, and of CFAF 10 billion by end-June 2004; (ii) an increase in net bank claims on the central government of CFAF 24 billion between end-June 2003 and end-December 2003, and a reduction of CFAF 27 billion between end-December 2003 and end-June 2004, including the programmed disbursements on account of the HIPC Initiative-financed expenditure; and (iii) an expansion of credit to the private sector of 13.2 percent to CFAF 770 billion by end-December 2003 and a reduction of 4 percent during the first half of 2004 to CFAF 740 billion by end-June 2004. Net bank claims on the central government are estimated at CFAF 295 billion at end-September 2003; they are projected at CFAF 331 billion at end-December 2003 (performance criterion), at CFAF 330 billion at end-March 2004 (benchmark), and at CFAF 304 billion at end-June 2004 (performance criterion) (Table 1). Money supply is expected to increase by 11.9 percent in 2003 and to decline by 2.6 percent during the first half of 2004.

Structural reforms

37. The government renews its firm commitment to effectively implement a number of actions aimed at creating an environment truly conducive to private investment. To this end, it reaffirms its determination to (i) accelerate the implementation of measures aimed at improving governance and of the reforms envisaged in various non-oil real sectors of the economy; (ii) pursue the ongoing reforms in the financial sectors; and (iii) give a new impulse to the reform process in the petroleum sector. Various measures and actions in the area of governance and in the real sectors are also HIPC Initiative completion point triggers. The government has established an interministerial committee under the direct authority of the Prime Minister's Office to coordinate and supervise progress in implementing the actions necessary to reach the HIPC completion point and in monitoring PRSP implementation. Progress made in implementing the HIPC Initiative completion point triggers by mid-October 2003 is described in the attached Table 4.

Governance and real sector reforms

38. The government remains resolved to implement all the measures needed to improve governance and transparency, including those that are HIPC Initiative completion point triggers. The final report on the technical audit of the judicial system was submitted to the government in early October 2003. Based on the recommendations of this audit, the government will formulate and adopt, before end-December 2003, an action plan for the reform of the judicial system (structural benchmark), the implementation of which will begin in January 2004. As regards the problems of the saisie-attribution procedure, the government will continue to exercise its close oversight over the rigorous implementation of this procedure in a manner that is fully consistent with the corrective measures that have been adopted so far under the program and that are specified in the supplementary letters of intent of December 28, 2001 and August 28, 2002. In this context, it will, in particular, sign the Accords de siège of the BEAC (structural benchmark) (Table 3). It will also pursue the implementation of the actions committed in its supplementary letters of intent of December 28, 2001 and August 28, 2002, which specify the correct interpretation of the legal provisions of the Treaty on the Harmonization of Business Law in Africa (OHADA Treaty). As regards the reform of the public procurement system, the new public procurement code will be adopted by end-December 2003 at the latest. The government will pursue the implementation of the action plan for the establishment of the Constitutional Council, with a view to completing it by end-June 2004.

39. The government reaffirms its determination to ensure the satisfactory implementation of the reforms supported by the third structural adjustment credit (SAC III) of the World Bank, which was extended through end-December 2003. As regards the privatization program, it will proceed with the implementation of the action plan that has been prepared in cooperation with the World Bank for the privatization of the three remaining sectors (bananas, palm oil, and hévéa) of the Cameroon Development Corporation (CDC). It will recruit internationally renowned experts before end-November 2003 to (i) analyze the agreements signed by the CDC concerning the banana sector; (ii) assess the banana sector; and (iii) conduct a diagnostic analysis of the CDC and formulate a privatization strategy. As regards the cotton production development company (SODECOTON), the government intends to recruit before end-January 2004 an independent consultant to review the organization of the cotton sector and conduct a diagnostic study of SODECOTON, with a view to identifying possible privatization options.

40. Concerning the telecommunications sector, the government will implement the action plan that it has formulated, with World Bank assistance, for the privatization of the fixed telecommunications company (CAMTEL). In this context, the concession agreement for the exploitation of the fixed telecommunication services and the interim terms of reference (cahiers des charges) of CAMTEL have been signed in November 2003; the work on a business plan for CAMTEL by an independent consultant is expected to start by end-October 2003. The new privatization strategy for CAMTEL should be adopted before end-March 2004. Moreover, the government is examining several possible options to relaunch the privatization process for the water company (SNEC), in cooperation with the World Bank.

41. In the port sector, the main short-term goal of the government is to complete the institutional and financial reforms for the transfer of the industrial and commercial activities to the private sector, with a view to facilitating the smooth and steady development of activities by the various operators involved. In this regard, the government expects to promote a major improvement in the competitiveness of the port of Douala, and, as a result, of Cameroon's economy, through (i) the accelerated implementation of the port infrastructure rehabilitation and modernization program, with financial assistance from the French, German, and Japanese development agencies; and (ii) the reduction in the clearance time required for unloading goods and to dispatch them in containers at the port of Douala. Regarding the transfer of the container terminal and the towing and anchorage activities to the private sector, the selection of the provisional bidders is expected to be made by end-November 2003. As regards the shortening of the clearance process for containerized goods, new measures have been identified, following the completion of an in-depth study of the various stages involved in the clearance process that was conducted under the coordination of the single processing window for the clearance of external trade formalities (GUCE). The main measures being launched are as follows: (i) automatic targeting (ciblage automatique); (ii) the installation of meters at each stage of the clearance process; (iii) the establishment of a computerized link between the customs administration (PAGODE) and GUCE; and (iv) a switch to a fully computerized single window for the clearance of foreign trade formalities, for which the bidding process for the purchase of the needed equipment has already been launched.

42. Regarding air transportation, the financial situation of the national airline (CAMAIR), which has been deteriorating rapidly since late 2002, calls for quick and determined action on the part of shareholders to prevent an acceleration of the financial crisis, which could have a heavy negative impact on the budget. The government is committed to formulating an action plan for addressing the financial situation of CAMAIR, no later than end-December 2003 (structural benchmark) (Table 3). Moreover, the government will ensure that the payment of the bills sent by CAMAIR on account of the services provided to the government is made effectively and on a timely basis.

43. The government remains committed to pursuing its comprehensive reforms in the forestry sector and to protecting the environment, with the assistance of the World Bank, the European Union, and the U.K., German, and Canadian development agencies. In the short term, the government will accelerate the taking of the following measures, which will also contribute to the achievement of the HIPC Initiative completion point triggers: (i) satisfactory and steady implementation of the contract of the independent observer selected through a bidding process; (ii) launching of the studies on the restructuring of the former National Office of Forestry Development (formerly ONADEF) and the establishment of the social structures of the National Agency for Forestry Development (ANAFOR) (Board of Directors and General Management); (iii) study and approval of forestry development plans, in consultation with the operators involved; and (iv) implementation of a transparent procedure to grant new business licenses for forestry activities based on a competitive bidding process. A special emphasis will be put on the strengthening of the computerized information management system for the forestry sector (SIGIF), particularly with a view to improving data collection and processing through the Securitization Program for Fiscal Revenue from the Forestry Sector. In addition, the government will continue to maintain a close oversight over the execution of sanctions taken against forestry operators who have not complied with the forestry law and applicable regulations and other administrative decisions. It will strive to ensure a better coordination between the Ministry of Environment and Forestry, the Ministry of Justice and the Ministry of Finance and Budget. Finally, it has established and forwarded to the private partners concerned, for their review and comments, a draft document on the organization and sequencing of the control process while a circular that clarifies the key elements of the penal procedure is under preparation. Once the document has been by all the partners involved, it will be distributed, in particular, to all the inspectors concerned.

Financial sector

44. The government will continue to monitor closely progress in implementing the payments system reform undertaken with World Bank and IMF assistance and supported by a World Bank loan. The government is also firmly committed to accelerating the implementation of the restructuring plan for the financially troubled Postal Savings Bank, notably through the validation of the opening balance statement. This validation would incorporate the results of the ongoing reconstruction of deposits, the reorganization of the operations, the completion of the ongoing program aimed at collecting new deposits, and initial actions to implement the rebuilding of the liquidity position of the Postal Savings Bank. The goal is to complete its restructuring by end-December 2004. As regards the housing bank (Crédit Foncier du Cameroun), the government submitted a restructuring plan to the regional bank supervision agency, the COBAC, in mid-November 2003 at the latest. The primary purpose of this plan is to refocus the activities of this institution around its initial mandate, namely, the financing of social housing.

45. In the context of implementing the regional legislation on microfinance, the government will (i) provide its support for the mobilization of a World Bank loan to the COBAC, in order to secure the resources required by that agency to conduct effective supervision over the microfinance institutions; (ii) publish the list of microfinance establishments that have already been denied a license to operate and ensure that such establishments are effectively taken off the list; and (iii) support the COBAC in ensuring the actual implementation of the specialized chart of accounts (plan comptable spécialisé), particularly by providing the needed information. The government will also lend its support to the BEAC's efforts to develop indirect monetary policy instruments, with a view to replacing the statutory advances of the BEAC for financing budget deficits by the treasury bill issues. A regional anti-money-laundering regulatory framework prepared under the auspices of the Central African Economic and Monetary Community (CEMAC)/BEAC was adopted by the Central African Monetary Union (UMAC) Ministerial Committee in July 2003. The government will establish a national investigation agency (ANIF), consistent with the CEMAC anti-money-laundering framework adopted in March 2003, relating to the prevention and sanction of money laundering and to the fight against terrorism.

46. Regarding the reform of the social security system approved by the Interministerial Committee in November 1999, the findings of the various preparatory studies that were commissioned at that time will be submitted to the government during the first quarter of 2004. Based on these findings, the government will adopt an action plan during the second quarter of 2004 and will then start to implement the agreed reforms.

Reform of the petroleum sector

47. Taking into account the prospective medium- and long-term decline in oil output, the government intends to give a renewed, strong impetus to the implementation of the reform plan of the petroleum sector which was adopted in March 2001. The plan includes, in particular, the formulation and execution of an action plan to specify the roles of the various operators involved in the petroleum sector. To this end, the government commits itself to redefining the respective roles and responsibilities of private operators, the national petroleum company (SNH), the ministry responsible for hydrocarbons, and other entities involved in the hydrocarbons sector, so that a timetable for the implementation of the needed reforms can be finalized no later than end-June 2004. The government will also adopt, by end-December 2003 at the latest, a strategy and an action plan for the sale of its shares in the petroleum storage company (SCDP) to the private sector, which will then take over the management of the SCDP.

External sector, new CEMAC foreign exchange regulations, and debt policy and external debt management

48. As in the past, a key objective of Cameroon's external policy is to improve external competitiveness, in order to achieve external viability and strengthen growth prospects. To this end, the government will continue to implement, vigorously, the efficiency-enhancing measures of the program. It also remains committed to play a leading role in (i) promoting and reinforcing regional integration within the CEMAC; and (ii) deepening the regional fiscal and customs systems, notably through a substantial reduction in the common external tariff (to a maximum rate of 20 percent), as well as in the number of bands (from five to four). The government will review nontariff barriers by end-March 2004. Cameroon has already adopted a national investment charter that is consistent with the common charter of the CEMAC. It commits itself to specify the practical and operational details of the charter shortly. Finally, the government reaffirms its resolve to implement the new CEMAC foreign exchange regulations, particularly by transferring the related tasks and prerogatives from the administration to the commercial banks in managing foreign exchange transactions no later than end-December 2003 (structural performance criterion) (Table 3).

49. Following the Paris Club agreement of January 20, 2001, which aimed at supporting the implementation of Cameroon's program with overall debt relief and concessional treatment of its external debt under the enhanced HIPC Initiative, the government has signed bilateral agreements with all official creditors, except Saudi Arabia (negotiations with this country are still under way). It confirms its intention to grant debt relief to Chad in the context of the enhanced HIPC Initiative. As regards commercial debt, the negotiations with the commercial banks led, on May 24, 2002, to an agreement on a buyback operation for both bank and nonbank commercial debt that represented a discount of 85.5 percent of nominal principal and the forgiveness of all arrears payments. This operation was completed in August 2003 with the financial assistance of France, Norway, and the International Development Agency (IDA) (under the enhanced HIPC Initiative), as well as through Cameroon's own budget resources.

Prior actions and monitoring and review of the program

50. A number of prior actions (Table 2), that are critical to ensure the timely implementation of the July 1, 2003-June 30, 2004 third annual program, as well as its credibility, will need to be fully in place prior to the meeting of the IMF's Executive Board to consider the documentation for the fourth review under the PRGF arrangement.

51. In order to monitor program implementation, the government has established quantitative performance criteria for end-December 2003, quantitative benchmarks for end-March 2004, and quantitative performance criteria and benchmarks for end-June 2004 (Table 1). The government has also established a number of reform measures either as structural performance criteria or structural benchmarks for the period July 1, 2003 - June 30, 2004 (Table 3). The government believes that these measures are essential for achieving the macroeconomic objectives of the program and reaching the HIPC Initiative completion point in 2004.

52. In view of the uncertainties surrounding external debt relief and oil prices, the program will continue to include a built-in contingency mechanism for the adjustment of quantitative benchmarks and performance criteria, as mentioned in the attached technical memorandum of understanding. Likewise, considering the uncertainties about the implementation of the privatization program, privatization receipts will continue to be excluded from the definition of the ceiling on net bank claims on the central government. If privatization receipts were to materialize, the government will reach prior understandings with the staff on the uses of these resources.

53. Program implementation will be regularly reviewed in the context of interministerial cabinet meetings (Conseil de Cabinets), chaired by the Prime Minister, Head of Government. The Minister of Finance and Budget and the Minister of Economic Affairs, Programming, and Regional Development will supervise, in their respective areas of responsibility, the implementation of the PRGF-supported program, with the assistance of the Technical Committee for the Monitoring of Economic Programs (CTS). The CTS will provide Fund staff, within the time limits indicated in the technical memorandum of understanding, with all the data necessary to monitor the PRGF-supported program effectively and on a timely basis, after their validation by the ministerial authorities concerned.

54. To this end, the authorities will continue their efforts to expand the coverage of data and improve data quality and timeliness, particularly in the context of the General Data Dissemination System (GDDS), with the primary objective being the official publication of the new official data series on national accounts that will be compiled in accordance with the new National Accounts System adopted by the United Nations in 1993 (SCN93). In this context, the government has requested technical assistance from the IMF's Statistics Department, which visited Yaoundé from September 27–October 9, 2003 to examine the methodology used for the compilation of the new national accounts data series by the National Institute of Statistics. The mission's recommendations will be reviewed by the authorities and implemented in the context of the monitoring mechanism that is being put in place to monitor and assess progress in the implementation of the PRSP. Soon after this new national account series is adopted, it will be formally submitted by the government to the IMF and will replace the data officially provided in the context of previous Article IV consultations. This new official series will, by that time, be used in the formulation and implementation of Cameroon's economic programs and of the medium- and long-term macroeconomic framework of the PRSP, whenever the latter is updated and/or revised or PRSP implementation status reports prepared.

Cameroon

Technical Memorandum of Understanding on the Definitions, IncludingStructural Performance Criteria and Benchmarks, and Modalities of the Built-in Contingency Mechanism for the Adjustment of Quantitative Performance Criteria and Benchmarks Under the Third Annual Program Under the PRGF Arrangement

A. Introduction

1. This memorandum supplements the memorandum of understanding annexed to the memorandum on economic and financial policies (MEFP) of December 6, 2000, as well as the memoranda of understanding annexed to the supplementary letters of intent of June 28 and December 28, 2001, and of August 28, 2002. It sets out the understandings between the Cameroonian authorities and the staff of the International Monetary Fund regarding the definitions of the performance criteria and quantitative and structural benchmarks of the PRGF-supported program, the built-in contingency mechanism related thereto, and the data-reporting requirements.

B. Definitions

Prior actions

2. The prior action relating to the "preparation of the first list of uncashed checks from taxpayers, the date of receipt of which is exceeding two months' old or more" will be considered as being in place following the communication to the staff of the International Monetary Fund of this list, with the details on the receipt date by the public treasury and the amount of every check.

3. The prior action relating to the "adoption of an action plan for the effective operationalization of the large taxpayers' unit within the tax department created on June 30, 2003" will be considered to be in place following the adoption by the Minister of Finance and Budget of the following: (i) a ministerial decision (instruction ministérielle) for the large taxpayers' unit (LTU), prepared with technical assistance from the IMF's FAD, specifying that the management responsibilities and the collection and fiscal control of large enterprises are the exclusive responsibility of this unit, and that the number of staff assigned to the LTU is increased by up to 80 to 90 agents (the draft ministerial decision will be submitted to Fund staff for its consideration before its signature); and (ii) the decree of the Minister of Finance and Budget that requires mandatory payment through bank wiring, as of April 1, 2004, to the current account of the treasury at the Bank of Central African States (BEAC) for all taxes and other obligations due to the state by all the enterprises under the responsibility of the LTU (i.e., direct taxes, I.S.P.P., value-added tax, specific mining, forestry, and agricultural taxes, fees and dues on account of productive activities carried out on state-owned property), and for the other taxes and obligations to the specified bank accounts of the C.R.T.V., C.N.P.S., Crédit Foncier, Fonds National de l'Emploi, FEICOM, municipalities, and urban communities (i.e., dues, fees and taxes that have been introduced for the direct benefit of each of these entities).

4. The prior action relating to the "completion of the final phase of the information and financial management system (IFMS) for all central government revenue and expenditure (including at the local branches of the central government), based on the new budget classification system" will be considered to be in place following an on-site inspection by the Office of the IMF Resident Representative and the submission to the staff of the International Monetary Fund of a report to be prepared by the Ministry of Finance and Budget that states that all necessary computer applications have effectively been put in place.

Structural performance criteria

5. The structural performance criterion for December 31, 2003 relating to the "transformation into regular treasury accounts (i.e., accounts held solely by the Treasury on behalf of government entities—comptes du Trésor) of all government accounts that have been opened at commercial banks outside the regular treasury accounts, with the exception of the following: accounts monitored by a public accountant of the treasury, those managed by a public legal management committee (e.g., management committees of schools), and those required to manage externally funded project," will be considered to be in place upon receipt by the Fund of a document prepared by the treasury department that lists the commercial bank accounts transformed into regular treasury accounts and indicates their corresponding balances.

6. The structural performance criterion relating to the "implementation of the new CEMAC foreign exchange regulations" will be considered to be in place following the submission by the Ministry of Finance and Budget to the staff of the International Monetary Fund of the following documents: (i) Réglement 02/00/CEMAC/UMAC/CM as published in the Official Gazette of the Republic of Cameroon; and (ii) a legal opinion from the Minister of Justice to the effect that there is no longer any outstanding legislative provision, or government instruction, or guideline, which is inconsistent with the above-mentioned Réglement.

7. The structural performance criterion for February 29, 2004 relating to the "preparation of the central government financial operations table for end-December 2003 on the basis of the treasury accounts and the IFMS" will be considered observed following the receipt by the staff of the International Monetary Fund of the table that will track the consistency between (i) the data of the accounts balance (balance des comptes) using the new accounting chart (starting January 1, 2003), which is the core of data for the government financial operations table (TOFE); (ii) the data on the mandating (ordonnancement) of revenues and expenditures of the directorate of budget; and (iii) the data from the debt agency (Caisse Autonome d'Amortissement-CAA).

8. The structural performance criterion for April 1, 2004 relating to the "full implementation of the action plan for the operationalization of the large taxpayers' unit" will be considered observed when the following measures listed in the action plan (prior action) are implemented: (i) adoption of the legislative and regulatory changes as indicated in the fourth point of the implementation plan of the large taxpayers' unit (LTU) (documents to be transmitted to the staff of the IMF); (ii) selection and appointment of the LTU staff (agents) as indicated in the fifth bullet point of the implementation plan of the LTU (documents on appointments to be transmitted to the staff of the IMF); (iii) physical transfer to the (LTU of the fiscal documentation of the enterprises that have an annual turnover of more than CFAF 1 billion and of those that are 50 percent owned by them directly or indirectly; and (iv) the adoption by the Minister of Finance and Budget of a program of external fiscal controls (including, in particular, general accounting audits) planned by the LTU for 2004, as of April 1, 2004 (the program will be submitted for consideration to the staff of the International Monetary Fund before its adoption).

Structural benchmarks

9. The structural benchmark applicable throughout the period of the extended arrangement on the "preparation of monthly lists of uncashed checks issued by taxpayers, with indication of the receipt date for each check that is two months' or more old" will be considered observed upon receipt by the staff of the International Monetary Fund of the situation established by the treasury department, indicating the list of checks issued that remained uncashed for two months or more from the date of receipt by the relevant public accountant.

10. The structural benchmark for November 30, 2003 relating to the "specification of the poverty reduction-related expenditure budget items based on the new functional budget classification system, prior to the submission to the National Assembly of the draft Budget Appropriations Act for 2004" will be considered observed upon receipt by the staff of the International Monetary Fund of the document prepared by the budget directorate that will exhaustively detail budgetary items, indicating their codes and the amounts of those budget credits that are considered to provide a description of poverty reduction-related expenditure. This document is to be joined, as an annex, to the draft budget for 2004 that will be submitted to the National Assembly.

11. The structural benchmark for end-December 2003 relating to the "completion of the audit of the debt agency's operations in fiscal-years 2000/01 and 2001/02, including the audit of domestic public debt transactions unrelated to domestic and external debt service and the adoption of an action plan for implementing the recommendations" will be considered as observed upon receipt by the staff of the International Monetary Fund of the relevant audit and evaluation reports, the terms of reference of which were adopted by mutual agreement in November 2002.

12. The structural benchmark for December 31, 2003 relating to the "adoption of measures to address the deteriorating financial crisis of CAMAIR" will be considered to be in place following the adoption of the measures that would be taken after consultation with Fund staff as regards the measures that could affect the budget, and their submission to the staff of the International Monetary Fund.

13. The structural benchmark for December 31, 2003 relating to "the adoption of an action plan for the reform of the judicial system" will be considered to be observed upon receipt by the staff of the International Monetary Fund of the relevant action plan, which will be based on the recommendations of the audit of the judicial system as described in paragraph 39 of the MEFP.

14. The structural benchmark for January 31, 2004 relating to the "update of the stock of domestic public debt as of end-June 2003 in the context of the ongoing evaluation by an independent auditor of the stock of domestic public debt" will be considered observed upon receipt by the staff of the International Monetary Fund of the relevant audit and evaluation reports, the terms of reference of which were adopted by mutual agreement in November 2002.

15. The structural benchmark for March 31, 2004 relating to the "completion of the procedural and organizational audit of the treasury department of the Ministry of Finance" will be considered observed upon receipt and approval by the staff of the International Monetary Fund of the relevant audit reports, the contents of which will conform to the terms of reference that were adopted by mutual agreement in March 2003.

16. The structural benchmark for end-March 2004 relating to the "signature of the Accords de siège of the BEAC" will be considered to be in place following the submission by the Ministry of Finance and Budget to the staff of the International Monetary Fund of the document duly signed.

External debt

17. "Debt" shall have the meaning set out in point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements (Decision No. 12274-00/85, dated August 24, 2000).

Concessionality of external debt

18. Debt is considered to be concessional if it includes a grant element equivalent to 35 percent or more, calculated on the basis of the commercial interest reference rate (CIRR) and following the methodology set out in staff paper SM/96/86 (4/8/96), approved by the IMF Executive Board on April 15, 1996.

Cash relief from external debt rescheduling

19. For the purpose of the program, the only form of debt relief that will be subject to the contingency mechanism described below is the one that leads to an effective reduction in programmed debt service. This excludes any relief given on debt that has been in drawn-out rescheduling/restructuring negotiations with non-Paris club creditors and for which no debt service has been paid in the past year—for example, debts to be considered under the debt- and debt-service reduction operations with commercial creditors, and for which no provision for debt service has been made in the fiscal program (except for up-front costs).

Structured debt

20. Structured debt is defined as the stock of debt as of end-December 2002 resulting from the recorded cash payments, or which has been securitized, after the auditing of formally concluded agreements (conventions). Such debt comprises two categories: securitized debt and nonsecuritized debt. Securitized debt comprises bank debt, cross debt that is supported by a formal agreement, insurance company debt, and securitized wage arrears. Nonsecuritized debt includes consolidated BEAC debt, nonsecuritized public works (BTP) debt, debt to the public, semipublic and private enterprises specified in the multiyear settlement plan for public domestic arrears reduction wage arrears (Rompus), and government/SONARA/SNH cross debt. Nonsecuritized debt also includes debt related to advances from the BEAC. Structured debt service in 2003 consists of both principal and interest.

Domestic arrears (nonstructured debt)

21. Domestic arrears are understood as nonstructured domestic debt contracted by the state of Cameroon. Nonstructured debt is defined as debt not yet subject to a formal agreement (convention), cash payment, or securitization. Specifically, this debt comprises wage debt (cumulative memorandum entry following the 1998 audit); commercial debt; rental/lease debt; debt related to indemnities and compensations due by the state and expropriations, wage payments, fees, and tax credits or refunds; and debt related to social programs associated with public enterprise restructuring. The government intends to settle these debts through cash payments by end-December 2005, as specified in the revised interim settlement plan drawn up by the authorities in March 2003, based on the provisionally estimated stock as of end-December 2002.

Government financial operations table (TOFE)

22. The treasury balance (balance des comptes) shows government revenue and expenditure posted in Class 6 accounts (current expenditure), Class 7 accounts (current revenue), and Class 2 accounts (investment operations). Debt-related operations are recorded in Class 1 accounts (debt operations) and partly in Class 5 (financial operations). The financial operations data must be consistent with the data in the treasury account at the BEAC. Data on provisional revenue and expenditure operations and deposits of the correspondents of the treasury are recorded in Class 4 accounts of the government's chart of accounts (plan comptable). These data should be compared with the data provided by departments in charge of collecting fiscal revenues, the customs department, the tax department, and ministries that rely on their own resources, in order to monitor the consistency and reliability of fiscal revenue data. Government operations that are not carried out through the treasury, such as those involving earmarked revenue, direct interventions, and road fund operations, need to be added to the data on operations that are directly carried out through the treasury. Revenue operations are recorded on the basis of actual receipts and expenditure operations on a commitment basis. Carryover operations (operations de journée complémentaire), if any, are recorded in the final month of the fiscal year.

Net bank credit to the government

23. Net claims on the central government by the banking system comprise the stock of all outstanding claims on the central government (loans, advances, and any government debt instruments, such as long-term government securities) by the banking system, less all deposits held by the central government with the banking system. Privatization proceeds are excluded from the definition of the ceiling on net claims on the central government by the banking system.

Primary budget balance

24. The primary budget balance (on a commitment basis) is calculated as total central government revenue (oil and non-oil), excluding external grants and privatization proceeds, less all expenditure other than interest payments, foreign-financed investment expenditure, restructuring expenses, and separation grants.

Quantitative benchmark on payments to utility companies

25. The quantitative benchmark relating to "payment of debt to utility companies" will be considered observed if payments to the three public utility companies (water, electricity, and fixed-line telephones) are made in quarterly amounts, as indicated in the table below. These payments are understood to exclude fiscal compensation, and they are assessed on the basis of disbursements, i.e., as listed by the treasury. They are to be registered as current expenditures in the TOFE.

Privatization proceeds

26. For the purpose of this memorandum, privatization proceeds will be understood to mean all funds received by the central government from the sale or concessioning of the operation of a public company or organization or publicly owned facilities to one or more private company(ies) (including companies that are fully controlled by foreign government(s), private organization(s), or individual(s)). All privatization proceeds should be recorded on a gross basis; if costs are incurred in connection with the sale or concessioning, if any, these must be recorded separately as expenditure.

C. Modalities of the Built-in Contingency Mechanism for the Adjustment of Quantitative Performance Criteria and Benchmarks

27. In view of the uncertainties about program financing and oil prices, the program contains a built-in contingency mechanism for the adjustment of quantitative performance criteria and benchmarks relating to the ceilings on the increase in the net claims on the central government by the banking system.

Deviations from programmed oil revenue

28. Oil revenues are based on the assumption of a price per barrel of Cameroonian crude of US$25.70 and an export volume of 18 million barrels for the second half of 2003, and on respective projections of US$23.8 and 16.4 million barrels for the first half of 2004. Based on these assumptions, the contribution of oil revenue to the government budget is estimated at CFAF 149 billion in July-December 2003 and projected at CFAF 134 billion for January-June 2004.

29. In the case of lower-than-programmed oil revenue (owing to events beyond the government's control), the government will compensate for 50 percent of the shortfall by expenditure savings and cuts and/or additional revenue from other sources. For the remaining shortfall, the above-mentioned quantitative performance criteria and benchmarks will be adjusted upward. For a shortfall beyond the threshold of CFAF 35 billion per quarter, the authorities will consult with the staff of the International Monetary Fund to formulate corrective policies to adjust the quantitative performance criteria and benchmarks.

30. The entire amount of the oil revenue in excess of the programmed amount will be placed in a treasury account opened at the BEAC. Up to 50 percent of the windfall can be used to (i) increase high-priority infrastructure investment and social expenditure; and (ii) reduce domestic arrears. The remainder of the windfall will be sterilized by lowering the relevant ceilings relating to the above-mentioned performance criteria and benchmarks.

Deviations from programmed external financial assistance and reductions in domestic and external arrears

31. The above-mentioned quantitative performance criteria and benchmarks will be adjusted (i) upward for any shortfall in exceptional external financial assistance (program financing and external debt relief, for example) up to an amount equivalent to 50 percent of the shortfall (for a total cumulative shortfall of CFAF 35 billion or less); (ii) downward for the full amount of any excess in externally financed assistance (program financing and external debt relief); and (iii) downward by the full amount of any shortfall in the programmed reductions of domestic and external payments arrears.

Program exchange rates

32. Amounts denominated in SDRs will be converted into U.S. dollars at the fixed exchange rate of US$1.3929 per SDR, and then into CFA francs at a fixed exchange rate of 579.2 CFAF per U.S. dollar for July-December 2003 and of 585.3 CFAF per U.S. dollar for January-June 2004. IMF liabilities, which are included in the definition of net claims on the central government by the banking system, will be valued at the same exchange rates. Any deviation from the exchange rate will lead to a full upward or downward adjustment, as appropriate, of the value of the stock of IMF liabilities at the central bank, and to a similar adjustment of the ceiling on net bank claims on the government by the banking system.

D. Reporting Requirements

33. The Cameroonian authorities will send data, as per the attached Table 1, to the Fund within the time limits set out in that table. Unless otherwise specified, the data are to be provided in the form mutually agreed by the authorities and the Fund. The authorities will promptly supply the Fund with any additional information that the Fund requests for the purpose of monitoring performance under the program, on a timely basis.

Table 1. Cameroon: Data-Reporting Requirements
Category of Data	Table/Report	Frequency	Target Date
Financial and monetary data	Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey	Monthly	25th of the month for the previous month's data
	Interest rates	Irregular	One week after new rates announced
	Transactions through the HIPC Initiative account opened at the BEAC	Monthly	25th of the month for the previous month's data
	Status report on all government deposits at the BEAC	Monthly	10th of the month for the previous month's data
Fiscal data	Government financial operations table (TOFE), including revenues, expenditure, financing, and domestic debt payments (including settlement of domestic arrears)	Monthly	Four weeks after the end of the month concerned
	Treasury balances of a given month	Monthly	Eight weeks after the end of the month concerned
	Treasury "flash" reports	Monthly	10th of the month for the previous month's data
	Report on the implementation of the domestic debt settlement plan	Monthly	30th of the month for the previous month's data
	VAT refunds' balances	Monthly	25th of the month for the previous month's data
	Investment budget execution report	Quarterly	Two months after the end of quarter concerned
	Expenditure reports by selected ministries	Quarterly	Two months after the end of quarter concerned
	National oil company (SNH) operations, including export volumes, exchange rates, prices and values, transferable balance, and summary accounts	Monthly	25th of the month for the previous month's data
	HIPC Initiative spending plans and budget execution plans	Quarterly	One month after the end of quarter concerned
Real sector data	Consumer price index, Yaoundé and Douala (DSTAT)	Monthly	20th of the month for previous month's data
	National consumer price index (DSTAT)	Quarterly	Forty-five days after the end of the quarter concerned
	Index of industrial production (DSTAT)	Quarterly	Six months after the end of the preceding quarter
	National accounts (DSTAT)
	Flash series	Semi-annual	Twelve months after the end of the preceding fiscal year
	Provisional series	Annual	Twenty four months after the end of the fiscal year concerned
	Final series	Every two years	Twenty four months after the end of the fiscal year
Balance of payments data	Imports by use and major export products, trade balance (DSTAT)	Monthly	25th of the month for the previous month
	Price and volume indices of imports and of exports (DSTAT)	Quarterly	One month after the end of the quarter concerned
	Consolidated balance of payments estimates	Annual	Summary estimates; six months after the end of fiscal year
External debt	Debt-service due before and after debt relief	Quarterly	At the beginning of fiscal year; updates as needed
	Cash debt service paid	Monthly	25th of the month for the previous month's data
	Debt service reconciliation table ("access table")	Quarterly	25th of the month for the previous quarter's data
	Stock of outstanding debt and arrears	Quarterly	25th of the month for the previous quarter's data
	Drawings on new loans	Quarterly	25th of the month for the previous quarter's data
External grants	Disbursements	Monthly	25th of the month for the previous month's data