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Yaounde, August 9, 1999

Dear Mr. Camdessus,

1.  In the context of its adjustment efforts to promote sustainable growth and reduce poverty, the government has adopted a medium-term economic and financial program. This program is supported under a three-year ESAF arrangement (EBS/97/138, sup. 1), approved by the IMF Executive Board on August 20, 1997, in an amount equivalent to SDR 162.12 million (120 percent of the old quota and 87 percent of the new quota).

2.  The reforms supported under the second annual arrangement (covering the period July 1, 1998-June 30, 1999) were successfully implemented. Building on this progress, the government of Cameroon has updated and reinforced its economic and financial program for 1999/2000 (July-June) with a view to addressing the remaining constraints to sustained economic growth in a more systematic and durable fashion.

3.  The medium-term economic and financial program for the period July 1, 1999–June 30, 2002 is presented in the policy framework paper prepared with the assistance of the staffs of the IMF and World Bank, which will be transmitted to you shortly, as well as to the President of the World Bank. The attached memorandum of economic and financial policies presents the objectives and policies for the period 1999/2000–2001/2002 and indicates the specific measures that the government intends to implement in 1999/2000.

4.  In support of these objectives and policies, the government of Cameroon requests the approval of the third annual ESAF arrangement from the Fund, in an amount equivalent to SDR 54.04 million (29 percent of the new quota).

5.  The government believes that the policies described in the attached memorandum on economic and financial policies will allow it to achieve the objectives if its economic program for 1999/2000–2001/2002, but it stands ready to take any additional measures that may be appropriate for this purpose, in consultation with the Fund. The government will provide the Fund with such information as the Fund requests in connection with the implementation of the program. Cameroon will conduct with the Fund a first review of the program under the third annual ESAF arrangement, which will be completed by end-March 2000, and a second review of the program at end-September 2000. In addition, after the period of the arrangement and while Cameroon has outstanding obligations to the Fund under the arrangement, the government of Cameroon will consult with the Fund, at the initiative of the government or at the request of the Managing Director of the Fund, on it economic and financial policies.

Attachment: Memorandum on Economic and Financial Policies

1.  In the context of its adjustment efforts to promote sustainable economic growth and fight poverty, the government of Cameroon has adopted a medium-term economic and financial program (July 1, 1997–June 30, 2000), supported under a three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF). This memorandum reviews performance under the program supported by the second annual arrangement, approved by the Board on September 18, 1998 (EBS/98/131, Sup. 1; 9/25/98). It outlines the government's objectives and policies for 1999-2000 (July-June). Cameroon's updated medium-term economic and financial program for the three-year period to June 30, 2002 is described in detail in the policy framework paper, prepared in collaboration with the staffs of the Fund and the World Bank.

Performance during the first two annual arrangements

2.  The strong performance under the first annual arrangement continued under the second annual arrangement, notwithstanding the effects of the international crisis, which resulted in a temporary sharp deterioration in the terms of trade during the first eight months of 1998/99. The budgetary outcome for 1998/99 was broadly consistent with the objectives of the program. Non-oil revenue collection continued to improve with the progressive strengthening of the administration of the tax department and the smooth implementation of the value-added tax (VAT), introduced in January 1999. Oil revenues also strengthened, benefiting from the improvement of international oil prices from March 1999, and were slightly higher than programmed for the year as a whole. The measures taken to improve expenditure management have helped to contain expenditures within the objectives of the program. The reforms in this area have concentrated on improving expenditure controls, and an action plan to enhance public expenditure management was approved in December 1998. As part of these efforts, an independent auditing firm has been selected to audit the procurement system and the ten largest public procurement contracts awarded during 1998/99.

3.  The worsening of the external environment during the first eight months of the program resulted in a sharp deterioration in the terms of trade and weaker growth performance than expected in 1998/99. Real GDP growth declined from 5 percent in 1997/98 to 4.4 percent in 1998/99, despite a recovery of oil and certain non-oil exports in the second half of the year. Consumer price inflation, as measured by the national index, was contained at 2.9 percent on average in 1998/99. The external current account deficit (including grants) is estimated to have deteriorated from 2¾ percent of GDP in 1997/98 to about 4½ percent in 1998/99 as a result of the collapse of the major export commodity markets. However, with the gradual recovery of oil and non-oil export prices in the second half of the year, the external current account position was slightly better than programmed. Monetary pressures, which were heavily influenced in the first half of the year by devaluation fears associated with the introduction of the euro, have now eased with a slowdown in the rapid expansion of credit to the private sector, an improvement of the net foreign asset position of the banking system, and an increase in deposits, confirming the increase in confidence in the banking system..

4.  Most of the quantitative and structural performance criteria and benchmarks for 1998/99 were respected. Progress in the agro-industrial sector has been encouraging, with the launching of prequalification bids for the Cameroon Development Corporation and the privatization of the sugar company (CAMSUCO) in December 1998, and the completion of the privatization of the palm oil company (SOCAPALM) in August 1999. The privatization program is now focusing on the public utilities sector and infrastructure improvement, with the aim of (a) raising the investment needed for their modernization, (b) reducing production costs, and (c) improving services delivery. In the telecommunications sector, a successful bidder was selected for the second mobile telephone network in May 1999. Following the adoption of a strategy for the privatization of the new telecommunications company, CAMTEL (which allowed at least 51 percent of the shares to be purchased by the strategic buyer), a prequalification tender for the privatization of CAMTEL was launched in June 1999, as well as the final tenders for CAMTEL-Mobile. In the electricity sector, a new legislative and regulatory framework has been established, and a privatization strategy for the electricity company, SONEL, was adopted in June 1999. An audit of the accounts of the water company (SNEC) for fiscal year 1996/97, completed in May 1999, will allow for an acceleration of the second round of bidding for the privatization of the company in September 1999.

5.  Considerable progress has been made in the petroleum sector, notably with the elimination in July 1998 of the monopoly of the national oil refinery (SONARA) over the supply of the domestic market and the liberalization of distribution margins for refined petroleum products on June 30, 1999. In the transport sector, the privatization of the national railway network has been completed with the liquidation of the national railway company (REGIFERCAM) and the granting of the concession to a new private sector company (CAMRAIL). Since the adoption of the new port law in December 1998, a far-reaching reform of the port sector has been initiated, with the aim of improving competitiveness through a reduction in costs and port delays, notably at the Port of Douala. At the institutional level, a number of new port entities have been created in June 1999, notably the national port authority (APN) and new independent port management companies, and a guichet unique for the processing of all port clearance operations is being established. Furthermore, the Road Fund, created in August 1998 for the maintenance of the road network, has started its operations.

6.  Building on the progress made under the second annual arrangement, the key elements of the government's medium-term strategy are to (a) strengthen macroeconomic stability and restore internal and external viability; (b) bring the economy onto a sustainable growth path; (c) consolidate and deepen the structural reforms to improve the competitiveness of the economy; (d) continue the reforms to strengthen expenditure management so that they begin to achieve tangible benefits for the population as a whole; and (e) modernize the public administration. Within this framework, the main macroeconomic objectives of the program for 1999/2000 are to (a) limit inflation to 2 percent; and (b) contain the current account deficit to 3½ percent of GDP. Real GDP growth is projected at 4.8 percent, which will hinge critically on success in raising investment in relation to GDP, especially through direct foreign investment, raising domestic budgetary revenue, strengthening expenditure management, rebuilding domestic infrastructure and reinforcing competitiveness.

7.  The fiscal program for 1999/2000 aims at achieving a primary surplus of 5.2 percent of GDP and reducing the overall fiscal deficit to 2.9 percent of GDP (excluding grants), compared with 4.6 percent and 3.4 percent, respectively, in 1998/99. The program continues to build on the progress made in strengthening tax collections, with non-oil revenues targeted to increase by a further ½ of 1 percent of GDP to 13½ percent of GDP in 1999/2000. Oil revenue would rise from an estimated 2.5 percent of GDP in 1998/99 to 3.2 percent of GDP in 1999/2000, as higher international oil prices (US$15.2 per barrel, compared with US$12.2 per barrel in 1998/99) would offset an expected decline of 9 percent in production. Thus, the increase in total receipts of 1.1 percent of GDP would raise total revenue to 16.6 percent of GDP.

8.  On the revenue side, the government intends to pursue its efforts to enhance non-oil receipts through the effective collection of forestry taxes, the consolidation and widening of the tax base, the strengthening of the VAT, other specific taxes (forestry and mining taxation), and measures to modernize the customs and tax departments and treasury. All export taxes were eliminated in the 1999/2000 budget law except for those on forestry products. The VAT exemptions for enterprises operating under the industrial free trade zones were also eliminated by the law. The government is to examine proposals for rationalizing forestry tax policy, preserving the environment, and encouraging processing activities with high economic value added on the basis of the recommendations of an economic and financial study being undertaken by an independent, qualified company. The study, which will include a financial and operational audit of a sample of the main forestry operators and is supported by the World Bank, is to be completed before end-January 2000. Since June 1999, the granting of forestry concessions is monitored by an independent expert, so as to increase transparency in this area from the next tender. The other measures being undertaken to strengthen fiscal performance are described in the annex, as well as the measures being taken to restructure and modernize the customs administration based on the recommendations of the technical assistance mission from the IMF. As part of the customs reforms, the government is to appoint the members of a high-level Customs Reform Committee by end-September 1999, which will submit to the Ministry of Economy and Finance by end-November 1999 (a) an overall reform strategy, and (b) a monitoring scheme defining objectives, timetables, and responsibilities.

9.  The major aims of expenditure policy are to (a) redirect the allocation of resources toward the social sectors and the rehabilitation of physical infrastructure, and (b) improve the quality, efficiency, and transparency of public expenditure, as well as the payroll system, and allow for some decompression of wages. The government has targeted the health and education ministries as priority areas, and their share of outlays is to be increased from 2½ percent of GDP in 1998/99 to 2.9 percent in 1999/2000. The government is to prepare, with World Bank assistance, detailed strategies for the health sectors by end-March 2000 and the education sector by end-June 2000 in the context of a three-year medium-term expenditure framework; the framework will include quantifiable targets to be reflected in the budget starting 2000/01. As a first step, the ministers of the pilot ministries will be required to produce quarterly expenditure reports starting from October 1999 for the preceding quarter, detailing expenditure objectives and budget execution.

10.  The government will continue to implement the measures covered by the action plan for improvement of public expenditure management, specifically (a) the improvement of budget transparency; (b) the strengthening of the budget preparation process and simplification of budget execution procedures; (c) the enhancement of the evaluation and monitoring of public investment; (d) the completion of an investment project execution evaluation report for the first six months of 1999/2000 by end-February 2000, with a view to improving the quality of investment expenditures and reducing costs; (e) the development and implementation of links between the financial and computer applications used in the various government administrations; (f) the intensification of public expenditure controls; (g) the preparation of comprehensive annual treasury balances, ensuring that treasury cash management is fully consistent with the budget; (h) the immediate establishment of cutoff dates for effecting expenditure commitments pertaining to the 1998/99 budget, consistent with existing budget regulations; (i) the continuation of the settlement of audited and verified domestic arrears, and audit of remaining arrears and the establishment of a timetable for repayment before end-March 1999; and (j) the adoption of new procedures for managing the delegated credits by end-November 1999, the publication of monthly allocations and actual transfers of such credits for the ministries of education, health, public works, and agriculture, and close monitoring of their final use, based on quarterly audit reports starting from January 2000. Other specific measures aimed at improving the management of public expenditures are indicated in the annex.

11.  In the monetary area, the government will aim at enabling Cameroon to contribute CFAF 45  billion to the increase in the net foreign assets position of the Bank of Central African States (BEAC) in 1999/2000, with no net increase in net bank lending to the government. The money supply is projected to increase by about 10 percent during the year, with velocity projected to decline from 7.2 in 1998/99 to 6.9 in 1999/2000.

12.  The government is determined to accelerate the pace of civil service reform, as part of a comprehensive reform strategy, to be developed with the assistance of the World Bank, to modernize the administration, streamline the civil service structure, fight corruption and raise productivity, notably through the decompression of the compensation system and improved incentives, better services delivery, and lower costs. The following initial steps are being taken: (a) the adoption of revised regulations for civil service personnel management; (b) the simplification and harmonization of administration procedures; (c) the audit of the organizational staffing plans (POEs) by end-March 2000 to evaluate their impact; (d) the identification of activities that could be outsourced to the private sector or commercialized; and (e) the preparation of sectoral strategies that allow for a clearer definition of the objectives and roles of key ministries. Other steps to rationalize the civil service and payroll management include (a) the completion of the physical inventory and census of legal status of all government employees by end-March 2000; (b) initial steps to decentralize the payroll; and (c) the harmonization of the payroll files by end-June 2000.

13.  The government will continue its reforms aimed at improving incentives and supporting private sector development by (a) implementing a large-scale public enterprise divestiture program, with special emphasis on lowering infrastructure costs and improving incentives in the agro-industrial sector; (b) modernizing the regulatory framework in various sectors; and (c) improving the overall business environment. In the incentives area, Cameroon is to (a) accelerate the implementation of the fiscal and trade reforms envisaged under the Central African Economic and Monetary Community (CEMAC), with the aim of promoting trade; (b) implement the CEMAC investment charter; and (c) work toward the gradual reduction of the common external tariff, based on appropriate technical studies, while safeguarding adequate budgetary revenue. In line with its program to improve the business environment, the government is to (a) streamline the procedures for the creation and operation of businesses; and (b) prepare an inventory of business laws and regulations and tax codes by end-April 2000 to ensure that they are consistent with the OHADA (Organization for the Harmonization of Business Legislation in Africa) treaty. At the same time, a plan of action to remove impediments to investment and business activities will be developed in cooperation with the private sector and implemented. In parallel with the privatization program, the sectoral regulatory frameworks will be modernized where needed in order to facilitate the entry of new operators and improve the availability and quality of services. In the electricity and telecommunications sectors, new laws and implementing decrees will be adopted that will ensure that the telecommunications agency (ART) and the electricity agency (ARE) are fully operational by end-December 1999.

14.  The government will also concentrate on consolidating and deepening the public enterprise divestiture program reforms in the agro-industry, public utility, transport, petroleum, and financial sectors, with a view to stimulating private investment, enhancing competition and efficiency, and lowering costs. In the agro-industrial sector, a call for competitive bids for the privatization of the Cameroon Development Corporation (CDC), is to be launched before end-December 1999. With the privatization of the CDC, most of the agricultural sector in Cameroon will have been transferred to the private sector, with the exception of the cotton sector, where privatization is pending the resolution of legal problems and the establishment of an appropriate competitive and legal framework.

15.  The focus of the government's privatization program has now shifted to the public utilities and infrastructure sectors, where privatization is expected to bring important benefits in the form of increased investment, transfer of technology, lower costs, and improved availability of services. In the telecommunications sector, the launching of competitive bidding for the privatization of the telecommunications company (CAMTEL) is to take place before end-December 1999 . With the selection of the successful bidder for the mobile telephone company, CAMTEL Mobile, to take place before end-January 2000, there will be two competing private cellular companies. In the electricity sector, in accordance with the adopted privatization strategy, invitations for prequalification bids for SONEL are to be launched before end-October 1999. In the water sector, the invitation to negotiate will be sent to the successful bidder for the national water company (SNEC) before end-February 2000.

16.  In the petroleum sector, a global strategy (exploration and production) defining the respective roles of the national oil company, SNH, and the private sector within the newly liberalized sector is to be elaborated, with the assistance of the World Bank, by end-December 1999. This is to be followed by (a) a financial audit of the SNH, to be completed by end-December 1999 by an independent and internationally recognized company, which will confirm that recommendations of the previous audits were implemented; and (b) a managerial and operational audit of SNH by end-June 2000. To deepen the liberalization of the refined petroleum market, the government is to (a) launch the invitation for bids for the privatization of the petroleum storage depot, SCDP, by end-December 1999; and (b) implement new regulations establishing nondiscriminatory access to the domestic market by end-December 1999.

17.  The government is currently engaged in a far-reaching reform of the transport sector. Reforms are being intensified in the port and road sectors with the implementation of the action plan for the restructuring of the Port of Douala, as well as the action plan to reduce transit time at the port to seven days for imports and two days for exports, in consultation with port users and development partners. As part of these measures, full management and financial autonomy of the ports is to be established by end-June 2000, and all industrial and commercial activities of the port will either be sold, concessioned, or contracted out before end-December 2000. At the same time, steps will be taken to ensure that the Road Fund brings about tangible improvements in road conditions. New management control procedures are to be adopted for the Road Fund, and details of its financial operations, including the execution of physical projects financed by the Road Fund, will be published in the local press on a quarterly basis. The technical evaluation of road works financed by the Road Fund will be undertaken by an independent monitoring unit. In addition to the required financial audit for fiscal year 1998/99, which is to be completed by October 1999, a technical audit of operations financed by the Road Fund will be carried out by an independent audit company by end-December 1999. The technical audit will cover not only the awarding of contracts but also their design and execution. The procurement procedures, as well as the financial and technical controls adopted for the Fund, are to be extended to other public sector road works. In addition to the maintenance work to be carried out by the Road Fund, the government is to initiate during the 1999/2000 budget year feasibility studies on the rehabilitation of the road infrastructure, including the Douala bridge.

18.  In the financial sector, the government will continue to support steps to strengthen the Central African Banking Commission (COBAC) and enhance its independence. Consistent with the government's policy of withdrawing from the banking system, following the selection of the successful bidder for the Banque Internationale pour le Crédit et l'Epargne du Cameroun (BICEC) in June 1999, the privatization of the government-owned bank is to be completed by end-November 1999. With the rehabilitation of the banking system virtually complete, the government is to focus its attention on deepening the reforms of the financial sector. The government is to introduce a comprehensive securities market law in parliament during the November 1999 session. In the insurance sector, the government intends to complete the privatization of SOCAR and the liquidation of CNR, the two remaining government insurance and reinsurance companies, in 1999/2000. Finally, the government is to adopt an action plan for social security reform, with World Bank assistance, before end-December 1999.

19.  Improving the performance of the judiciary is of critical importance to address governance issues and to create an environment conducive for business development. In this context, (a) the human and financial resources of the judiciary are to be strengthened; (b) the decisions of the judiciary are to be published regularly in the official journals and, where appropriate, in the press; (c) the training program for judges and other judiciary staff is to be intensified in the area of business law; and (d) the inspectorate-general of the Ministry of Justice will be reinforced to allow for a better supervision of the operations of the judiciary. To address business concerns, a study of ways to improve the arbitration mechanisms to address business litigation is to be completed, with the support of the World Bank, by end-April 2000.

20.  The government is determined that strengthened economic performance should translate into tangible and concrete effects on the ground in the fight against poverty, the creation of employment, and the establishment of real improvements in social conditions for the population as a whole. The strategies for the education and health sectors, rural road infrastructure, and drinking water will form a crucial element in the government's fight against poverty. Larger budgetary allocations for these sectors should begin to produce results on the ground. As part of this strategy, and to assure better monitoring and evaluation of the results of the government's actions in these key areas, a database of socioeconomic indicators, including the monitoring of actual spending on social sectors, is to be produced, with the first report to be published by end-December 1999. In the education sector, the activities of the education ministries will concentrate on establishing greater regional equality in the distribution and use of resources, focusing more clearly on primary education, and promoting greater parent participation in school management. As part of this strategy, and to make an early visible difference in the quality of education, a number of pilot projects in the "integrated rural education project" are to be completed, notably through the improvement of working conditions for teachers in rural areas through the implementation of innovative "modular" school projects by end-May 2000. The distribution of, and access to, school manuals is to be improved, based on the recommendations of a study under preparation. In the health sector, the principal objectives of the government are to improve the supply and quality of health services and increase access for all levels of the population, particularly in rural areas. In this context, the government is determined to increase the coverage of the vaccination program, widen access of the population to essential generic medicines, and intensify the fight against communicable diseases, notably malaria and AIDS. To this end, an action plan will be prepared before end-June 2000.

21.  The promotion of good governance is at the center of many of the reforms being undertaken by the government, particularly in the areas of public expenditure management, the privatization of public enterprises, the liberalization of markets, and the introduction of transparency and accountability into public sector activities. To strengthen its actions in this area, the government will publish periodic reports and carry out independent audits of financial and physical operations of public sector entities. In the area of public expenditure management, the program for 1999/2000 will include (a) completion of the audits of the procurement system and the ten largest procurement contracts awarded in 1998/99 by end-December 1999; (b) the implementation of the recommendations to improve the procurement process; (c) independent financial audits of all the major public enterprises remaining within the government portfolio (including SNH, CSPH, and CNPS); (d) quarterly publication of delegated current and investment credits to districts in the education and health sectors from October 1999 for the previous quarter; (e) full accountability for administrators of budget credits through periodic audits by the operations division and the application of administrative and legal sanctions against irregular practices; and (f) a strengthening of the resources and authority of the government audit agency (Contrôle Supérieur de l'Etat) and other inspection units to allow them to regularly evaluate ministerial, directorate and public enterprise financial activities and undertake prosecutions for poor management or misappropriation of public funds in line with current legislation. Finally, the government is participating as a pilot country in the IMF fiscal transparency project.

22.  The overall budget deficit on a commitment basis (excluding grants) is projected at CFAF 170 billion in 1999/2000. Taking into account the need to settle domestic and external arrears, as well as external and domestic debt amortization, the gross financing needs of the program amount to CFAF 1,170 billion. Over the same period, it is projected that the inflow of concessional assistance for the public investment program will be CFAF 165 billion, external financing identified from official creditors will amount to CFAF 111 billion, and debt relief from Paris Club creditors will reach CFAF 322 billion; domestic financing would amount to CFAF 49 billion, including CFAF 35 billion in privatization proceeds. This would leave a residual financing gap of CFAF 523 billion, which should be covered through the London Club restructuring operation and non-Paris Club rescheduling.

23.  Continuing its efforts to regularize relations with international creditors, Cameroon intends to reach a debt- and debt-service-reduction agreement with London Club and other nonbank creditors. To this effect, financial and legal advisors have been recruited, with the assistance of the World Bank, to assist in the efficient preparation of the operation. The reconciliation of outstanding bank loans has already been completed. The amount to be considered for the operation is estimated at about US$800 million, as of end-June 1999. The advisors will prepare a menu of options that will form the basis of negotiations with the creditors, tentatively scheduled for September 1999. It is expected that, following the negotiations, an agreement could be reached by end-December and the overall operation completed by the end of the third quarter of 1999/2000. In order to facilitate the mobilization of resources required for the up-front costs of the operation, the government, with the assistance of the World Bank, is contacting potential donors, and a roundtable is planned for September 1999. In the event that these resources, together with those of the IDA debt-reduction facility, were to prove inadequate, the government would request an augmentation of ESAF access to cover the shortfall.

Program monitoring and review

24.  To monitor policy implementation under the program, a number of quantitative performance criteria for end- December 1999 and quarterly quantitative benchmarks are proposed for the third annual ESAF arrangement. The proposed benchmarks will comprise the following (Table 1 and annex).¹: (a) a ceiling on the increase in the net claims of the banking system on the central government; (b) a floor on the primary balance; (c) a floor on the net reduction of the external payment arrears of the public sector; (d) ceilings on new medium- and long-term nonconcessional external loans contracted or guaranteed by the government; (e) a ceiling on the net disbursement of external loans with a maturity of less than one year; (f) a ceiling on the increase in the net claims of the banking system on the nonfinancial public sector; and (g) a floor on total budgetary revenue of the central government. Limits on items (a)-(e) for end-December 1999 will serve as performance criteria; the benchmarks for end-March and end-June 2000 are indicative, and definitive targets will be set at the time of the midterm review of the program. In addition, a number of reform measures have been identified to serve as structural performance criteria and benchmarks (Table 2).

25.  In view of the uncertainties about external debt relief , privatization proceeds, and oil prices, the program contains built-in contingency mechanisms for the adjustment of the quantitative criteria and benchmarks; the modalities of these mechanisms are outlined in the technical annex attached to this memorandum. The program for July 1, 1999–June 30, 2000 provides for a first program review on the basis of, among other things, performance with respect to the quantitative and structural performance criteria and benchmarks for end-December 1999, as well as a second review for end-June 2000. Disbursement of the second loan under the third annual ESAF arrangement will be conditional on the observance of the end-December 1999 performance criteria and the completion of the midterm review no later than end-March 2000. The disbursement of the third loan will be subject to the observance of the end-June performance criteria and completion of the final review no later than end-September 2000. The reviews will focus mainly on budgetary non-oil revenue performance, public expenditure management, progress in auditing the stock of remaining domestic arrears and a timetable for their settlement, progress with commercial debt rescheduling, and progress in the privatization program and liberalization of the petroleum and transport sectors, as well as on governance.

26.  Program implementation will continue to be placed regularly on the agenda of cabinet meetings chaired by the Prime Minister, Head of Government. An Interministerial Supervisory Committee, chaired by the Minister of Economy and Finance and comprising the key economic and social sector ministers, will continue to coordinate program implementation with the assistance of the monitoring committee. The committee will provide Fund staff on a timely basis with all data that are necessary to effectively monitor program implementation.

ANNEX

Budgetary Measures and Contingency Mechanism

I.   Revenue Enhancement Measures

1.  To enhance tax revenue performance and reform the customs administration, as referred to in paragraphs 8 and 16 of the memorandum, the government intends to take the following measures:

• Clean up and expand the taxpayer master file of the tax department, based on taxpayer identification numbers, through cross-checks with other related files, notably those of the customs (for importers and exporters), the budget and public works department (for public procurement), and the treasury. Establish units in each tax center to identify taxpayers by end-December 1999.

• Utilize the data of the master file to prepare tax audit programs beginning January 1, 2000.

• Assign a unique identification number to each taxpayer and ensure the use of this number by all the government financial agencies by end-December 1999.

• Assign the coordination of tax audits and intelligence to the division of investigations and control of the tax department, and clarify the division of tasks between the audit agencies by end-December 1999.

• Complement the present schemes for recovery of tax arrears by end-October 1999 through measures such as advice to third parties (banks, treasury cashiers, and enterprises), the exclusion (temporarily, then permanently, in case of repeated delinquency) from public tenders, the closure of business premises and the seizure of goods, and the publication of the identity of delinquent taxpayers in the press.

• To strengthen the recovery operations to the tax Department, establish a closer collaboration between tax and treasury departments by weekly coordination meetings at the level of directors and joint missions in the field. Training of tax collectors in accounting matters and follow-up courses will be strengthened. Half-yearly audits of tax collection offices will be conducted by the competent units of the treasury by end-December 1999.

• Strengthen the staffing levels and resources of the tax directorate, notably in tax collection, by end-December 1999.

• Reorganize the tax directorate and establish a unit in charge of centralizing the enforcement of all taxes on the 200 largest enterprises by end-June 2000.

• Establish procedures for cooperation with the SGS (preshipment inspection company) by end-November 1999.

• Implement the new legislation on customs value (in line with the GATT value codes) by end-September 1999.

• Establish a timetable for the migration from PAGODE (the customs software application) and for the adoption and implementation of a new customs information system by end-September 1999.

• Establish a rigorous monitoring scheme for exemptions, franchises, free trade zones, and regimes suspensifs (notably for bonded warehouses, temporary admission, and transit regimes) by end-September 1999.

• Improve by end-January 2000 operations for the control of merchandise, notably in strengthening surveillance of customs areas and controls on the clearing of manifests.

• Finalize, with the assistance of the SGS, the establishment of a database of values of imported products within the valuation division of customs, which will be solely responsible for all customs offices by end-December 1999.

• Based on clear criteria of selection of goods and operations/operators, apply a selective system of documentary controls and physical inspections before and after releasing goods, and reinforce ex post control structures and training activities with the support of the SGS by end-October 1999.

• Simplify customs-clearing procedures in liaison with the SGS and consequently put into place and disseminate the related regulations by end-March 2000.

• By end-March 2000, require submission of the bills of lading for goods (manifests) to a single reception unit (guichet unique) within 48 hours after the arrival of ships to shorten the periods of their stay at the port and accomplish their customs clearance rapidly, in order to finalize all import formalities within seven days.

• By end-March 2000, support export activities by limiting the number of units in charge of processing and reducing the visas, and organize a rapid and simple sealing of containers before the arrival of the ships in order to finalize all export formalities within two days.

• Develop and implement a plan for securitizing transit operations based on a study of the possibilities for certifying customs clearance of transit goods in countries of destination, in collaboration with the customs departments of Central African Republic and Chad, by end-September 1999.

• Furnish control services with the necessary information systems for the analysis of flows, the methods for selection, and tools for detection of trade anomalies based on external trade data by end-March 2000.

• Transform the joint unit of the customs and tax departments into a unit responsible for collection, analysis, and operational intelligence by end-February 2000.

• Finalize a plan for combating fraud and contraband, including the establishment of a financing program for human resources and equipment, by end-October 1999.

• Establish a program for the recruitment of new staff and for their initial and continuing training by end-December 1999.

• Establish a program for inspection missions of the internal audit division and increase the frequency of supervisory controls by end-September 1999.

• Finalize and adopt a special statute for customs agents, require their individual adherence to a code of conduct, and improve their working conditions through a system of incentives and bonuses by end-June 2000.

II.   Measures for Improvement of Public Expenditure Management

2.  The authorities are determined to pursue actions aimed at improving expenditure management through the following measures, as indicated in paragraphs 10 and 11 of the memorandum:

• Provide the priority ministries with institutional support and technical assistance to develop sectoral policies in the following areas: education, health, and adduction/distribution of safe drinking water by end-December 1999.

• Launch sectoral policies and strategies and prepare multiyear budgets for the above- mentioned sectoral ministries by end-June 2000.

• Make the Ministry of Planning more effective by adopting analytical tools for programming, monitoring, and evaluating investments, and by improving the relations of this ministry with sectoral departments by end-February 2000.

• Improve the monitoring and management of the budget by (a) presenting a unified budgetary classification, accompanied by functional and economic classifications, by end-June 2000; (b) reforming the budgetary framework law of 1962 (l'Ordonnance de 1962) and the subsequent texts by end-June 2000; (c) producing an improved budget execution law by end-June 2000; (d) preparing the tables required by the statutes in force by end-June 2000; and (e) preparing a detailed quarterly report on the budget execution, which should be distributed to the authorities beginning October 1999.

• Improve the allocation of resources and their correct estimation by (a) sensitizing budgetary credit managers during periodic seminars; (b) strengthening the budget preparation capacity within the sectoral ministries by end-January 2000; and(c) improving the coordination of actions with the donors by end-June 2000.

• Make the budget execution simpler and more efficient by (a) shortening immediately the completion deadlines for priority projects; (b) establishing a project list by end (September) 1999; (c) complying with the regulations applicable for tenders, execution, and monitoring of the purchase of goods and services in the budget; and (d) reducing the number of officials involved in the execution chain of expenditures and, with prudence, eliminating redundant steps in the preparation of the ex post audit reports by the budget auditors by end-December 1999.

• Contain the wage bill and adopt a management program for government employees by (a) updating the master file of the payroll department following the census by end-June 2000; (b) reactivating the SIGIPES (payroll software) system by end-June 2000; (c) auditing the computer system (ANTILOPE, civil service management software) of the organization and functions of the payroll department to reorganize its units and simplify and safeguard its administrative and financial procedures by end-June 2000.

• Strengthen the computer systems of the Ministry of Economy and Finance by (a) introducing interfaces between computer systems of the finance departments by end-June 2000; (b) redefining the mandate of CENADI ( government computer center) by end-December 1999; and (c) establishing a collaboration framework between finance departments by end-March 2000.

• Improve the expenditure audit scheme by (a) adopting an audit program by end-October 1999; and (b) making the collection of data reliable for the presentation of budget execution accounts at the treasury.

• Strengthen and ensure regular preparation of the treasury balance by (a) updating its accounts; (b) complying with regulations, methods, and deadlines, and following upon accounting audits; (c) make the accounting more comprehensive by incorporating operations of embassies (for which the accounting needs to be organized), by end-December 1999; (d) improving gradually the accounting of treasury operations to allow the distinction of the Government budget (revenues/expenditures) by budget year; (e) incorporating operations executed by the CAA (public debt management and payment department) into the government's financial operations; and (f) determining payments arrears based on treasury accounts beginning with the budget of 1999/2000 (July–June).

• Pursue improvements in the government's cash management by planning the quarterly cash requirements, based on possible revenue collection and priority expenditure payments, beginning in October 1999.

• Review the pending commitments and domestic payment arrears of the government by (a) a census of pending commitment documents in the offices of public cashiers (at the central and local levels) at the closure of the budget of 1998/99 by end-December 1999, so that the commitments can be taken into account in the cash plan; (b) taking a census of government payment arrears that were not reviewed during the previous censuses by end-March 2000; and (c) reviewing the files and census documents that have not yet been reviewed for the period 1993/94–1996/97, and a payment plan for government's payments arrears by end-March 2000.

• Establish the detailed table for government financial data monitoring (tableau de bord) and the government financial operations table (TOFE) on a payment order basis (ordonnances/mandates, or engagements liquides), beginning with the budget of 2000/01.

III.   Modalities of the Built-In Contingency Mechanism for the Adjustment of Quantitative Performance Criteria and Benchmarks Under the third Annual ESAF Arrangement

3.  In view of uncertainties about program financing, privatization proceeds, and oil prices, the program contains built-in contingency mechanisms for the adjustment of the quantitative criteria and benchmarks relating to the ceilings on the increase in the (a) net claims of the banking system on the central government (performance criterion), and (b) net claims of the banking system on the nonfinancial public sector (quantitative benchmark).

A.  Deviations from Programmed Oil Revenue

4.  The programmed oil revenue for 1999/2000 is based on an oil price assumption of US$15.20 per barrel (for Cameroon), a volume of 39.6 million barrels, and an exchange rate of CFAF  600 per US$1. The oil revenue contribution to the government's budget is estimated at CFAF 54 billion, CFAF 44 billion, CFAF 42 billion, and CFAF 42 billion in the four quarters of 1999/2000 (July–June), respectively.

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

6.  The entire amount of the oil revenues above those programmed will be placed in a treasury account at the Bank of Central African States (BEAC). A maximum of 50 percent of the windfall will be used to (a) increase high-priority infrastructure investment and social expenditures, and (b) reduce domestic arrears. The remainder of the windfall revenue will be sterilized by lowering the ceilings on the above-mentioned quantitative performance criteria and benchmarks.

B.  Deviations from Programmed External Assistance, Privatization, Proceeds, and Reductions in Domestic and External Arrears

7.  The above-mentioned quantitative performance criteria and benchmarks will be adjusted (a) upward for a shortfall in exceptional external financing (i.e., program financing and external debt relief) up to an amount equivalent to 50 percent of the shortfall (for a total cumulative shortfall of CFAF 35 billion); (b) downward for the full amount of any excess in external assistance (i.e., program financing and external debt relief) and privatization proceeds in excess of the amount programmed; and (c) downward by the full amount of any shortfall in the reductions of domestic and external payments arrears in comparison to the program.