June 28, 2001

Mr. Horst Köhler
Managing Director
International Monetary Fund
700 19th Street, N.W.
Washington, D.C. 20431
U.S.A.

Dear Mr. Köhler:

1.  To consolidate the progress made since 1997, the government of Cameroon has decided to accelerate and broaden its reform efforts, and has therefore embarked on a new medium-term economic and financial program (October 1, 2000-September 30, 2003). The program is supported under a new three-year arrangement under the Poverty Reduction and Growth Facility (PRGF), approved by the IMF Executive Board on December 21, 2000. The main goal of the policies and reforms is to achieve a sustainable reduction in poverty through high economic growth, increased private investment, improved efficiency of public expenditure, well-targeted poverty reduction measures, and strengthened governance. This letter, which supplements the one dated December 6, 2000, reviews Cameroon's performance during the first half of the first annual program under the three-year PRGF arrangement. It also outlines the government's objectives and policies for the second half (April-September 2001) of the first annual program. In addition, Cameroon requests from the IMF's Executive Board a waiver for the nonobservance of the end-March 2001 performance criterion on net bank credit to the government, as well as a modification of this performance criterion to exclude privatization receipts from its definition for the remainder of the first year of the arrangement.

Performance during the first half (October 2000-March 2001) of the first annual program

2.  The good record of performance established under the previous arrangement in both the macroeconomic and the structural areas continued during the first six months (October 2000-March 2001) of the first annual program. Program implementation was satisfactory and broadly consistent with its objectives. All quantitative benchmarks for end-December 2000 were met, except for the cash settlement of domestic arrears, which was missed by a small margin. In the same vein, all quantitative performance criteria for end-March 2001 were met, with the exception of the ceiling on net bank credit to the central government. The quantitative benchmarks were also observed, except for the floor on the reduction of domestic arrears, owing to a slower-than-envisaged pace of the securitization of domestic arrears. Net bank credit to the central government was missed by 0.8 percent of GDP because of unexpected delays in the completion of the privatization of the telecommunications company, CAMTEL, and of a shortfall in oil revenue reflecting lower-than-programmed world oil prices. In view of the magnitude of the combined shortfalls in privatization receipts and oil revenue, it was difficult to fully offset their impact, even after taking into account the program's built-in contingency mechanism.

3.  With regard to structural reforms, all the end-December 2000 structural benchmarks and other governance-related measures were observed, except for the development of a computer interface that would keep the government payroll file updated in the future. The nonobservance of the latter was due to unexpected technical difficulties encountered in making the recently computerized updated payroll file compatible with the various systems used within the Ministry of Economy and Finance and the personnel administration files used in the Ministry of Civil Service. The two structural performance criteria for end-March 2001 were met, namely, the recruitment of independent observers for the interim public procurement system and the introduction of a security system for the computer network at customs. The six structural benchmarks for the period from end-December 2000 to end-March 2001 were also respected. These include, in particular, the adoption of (a) a reform strategy for the oil sector and of a rehabilitation plan for the state-owned Postal Savings Bank; and (b) the completion of the physical and legal census of public servants. As regards governance, both the financial audit for fiscal-year 1999/2000 (July–June) and the second phase of the organizational and operational audit of the oil company (SNH) have been completed. However, there have been delays in the privatization of the three public utilities (the national water company (SNEC), the fixed telecommunications company (CAMTEL), and the electricity company (SONEL)), as well as of the Cameroon Development Cooperation (CDC). Although the successful bidders for the three utility companies had been selected by end-2000–early 2001, the privatization process could not be completed because of difficult negotiations on remaining issues that are related, inter alia, to financial disclosure, tariffication, tax arrears, and cross debts between the government and the companies.

4.  The pace of economic activity has been fairly steady during the first six months of the program. The work on the Chad-Cameroon pipeline is proceeding; other private residential and business construction has gained momentum; and investment in the wood processing sector is expanding. The 12-month national consumer price inflation accelerated to 2.2 percent in March 2001 (versus a programmed annual rate of 2 percent), driven by higher foodstuff prices following a drought in the northern provinces and increased demand from neighboring countries. Budgetary performance was weaker than projected. In particular, total expenditure was CFAF 23 billion (0.4 percent of GDP) higher than envisaged. Domestically financed spending was in line with the target, with lower-than-programmed domestically financed public investment offsetting slippages in current expenditure, notably the wage bill and other goods and services. Total government revenue was lower than expected (by 0.1 percent of GDP), owing to the decline in oil prices. Non-oil revenue was consistent with the program target. Monetary developments during the first nine months of the fiscal year 2000/01 (first half of the program year) showed a moderate expansion of credit to the private sector and a net repayment to the banking system by the central government of CFAF 20 billion (compared with an adjusted target of CFAF 72 billion). Cameroon's contribution to the improvement of the net foreign assets position of the regional central bank (BEAC) further strengthened, and broad money increased by 13 percent, reflecting mainly a recovery in deposits.

Macroeconomic and budgetary prospects for the second half (April-September 2001) of the first annual program

5.  Based on recent data on economic activity and international trade, real GDP growth in fiscal-year 2000/01 is estimated to remain close to the initial projection of 5.4 percent; it is projected at 5.5 percent for fiscal-year 2001/02. The 12-month national consumer price inflation is expected to ease to less than 2 percent in the second half of the program year, benefiting from an expected improvement in the supply of foodstuff. However, the decline in oil prices¹ would result in a deterioration of Cameroon's terms of trade, with a potential negative impact on government oil revenue and national income.

6.  The outcome for fiscal-year 2000/01 is expected to be weaker than initially programmed. While non-oil revenue is estimated to be on target, a shortfall in oil revenue equivalent to 0.4 percent of GDP is likely to materialize. Also, as a result of delays in setting up the required institutional framework, the government decided to start implementing the expenditures initially budgeted for fiscal-year 2000/01 related to the Initiative for Heavily Indebted Poor Countries (HIPC Initiative) (CFAF 37 billion) in 2001/02. As regards non HIPC Initiative-related expenditure, the government intends to keep it at about the initially programmed level. To this end, measures have been taken to correct the slippages that had occurred by end-March 2001. These include, notably, the discontinuation of new commitments on discretionary expenditures on goods and services by end-May 2001. On this basis, total expenditure, excluding HIPC Initiative-related spending, is now estimated at 18.3 percent of GDP for 2000/01, exceeding the corresponding budget ceiling by 0.2 percentage point of GDP. As a result, the primary surplus (excluding HIPC Initiative-related spending) for 2000/01 would reach 7.4 percent of GDP only, compared with the corresponding program target of 8.1 percent of GDP; and the overall surplus (excluding HIPC Initiative-related spending and grants) would decline by 0.6 percentage point of GDP to 2.1 percent of GDP.

Elements of the 2001/02 budget

7. The government will continue to adhere to a cautious fiscal stance in fiscal-year 2001/02. With the average oil price for Cameroon for 2001/02 projected at US$21.5 per barrel, oil revenue would amount to 4.7 percent of GDP. Non-oil revenue is projected to stay around 15.8 percent of non-oil GDP, reflecting the anticipated negative impact of the new fiscal measures (i.e. , forestry taxation, value-added tax (VAT) exemptions, and introduction of the World Trade Organization (WTO) valuation system), which the government intends to introduce with the next Budget Appropriations Act. Their negative budgetary effects may not be fully offset by the gains anticipated from further improvement in the tax and customs administrations. The government is committed not to introduce any new tax and customs exemptions, except for computers and supplies related to the HIV/AIDS program. In order to limit the magnitude of the negative budgetary effects of the new exemptions, the government has decided to restrict their scope. Moreover, the exemption for the computers will be granted only for the duration of the remainder of the current three-year program. With respect to the exemption for equipments imported by the media and the editing sector (which have been introduced with the 2000/01 Budgetary Appropriations Act), the list of exempted items will be limited to those items only that are foreseen in the 2994 and 2894 Central African Customs Economic Union (UDEAC) Acts under the Florence Convention. A special unit, comprising representatives from the Ministry of Communications and the customs and tax administrations, will be established for the issuance of exemption certificates to eligible companies, as specified in the 2000/01 Budget Appropriations Act, on a case-by- case basis.

8. Total expenditure is projected to increase to 19.5 percent of GDP in fiscal-year 2001/02, being mainly driven by HIPC Initiative spending (CFAF 95 billion or 1.4 percent of GDP), and by a higher wage bill to allow for selective new recruitments in the context of the medium-term sectoral strategies in education and health and by the implementation of new statutes for the various professions within the civil service. On this basis, the primary surplus is targeted at 4.2 percent of projected GDP, and the overall fiscal deficit, on a commitment basis and excluding grants, is to be limited to 0.7 percent of GDP. The 2001/02 budget, based on the new functional classification developed with the assistance of the European Union, will be attached to the 2001/02 Budget Appropriations Act.

9. Fiscal revenue is projected to amount to CFAF 285 billion during the first quarter of fiscal-year 2001/02, as lower oil revenue and the effect of the VAT exemption for computers will more than offset the positive effect of continued improvement in the tax and customs administrations. Total expenditure is projected to reach CFAF 296 billion, driven mainly by the implementation of HIPC Initiative-related spending (CFAF 29 billion). As a result, an overall fiscal deficit, on a commitment basis but excluding grants, of CFAF 11 billion is targeted for the final quarter (July-September 2001) of the first annual program (October 2000-September 2001).

10. To achieve the revised fiscal objectives for the first annual program, the government will continue to strengthen its capacity to mobilize non-oil revenue through measures to enhance the customs and tax administrations and combat fraud. The latter include, notably, (a) broadening the tax base; and (b) strengthening the VAT and forestry tax collection. To this end, the government will further strengthen the taxation directorate through a reorganization and improved tax and customs computerized interfaces. It will also speed up the implementation of the recommendations of the World Bank-sponsored study of the forestry sector, as specified in paragraph 16 of the Memorandum of Economic and Financial Policy (MEFP) of December 6, 2000, with a view to enhancing the securitization of forestry receipts while preserving the environment. Particular emphasis will be placed on (a) the effective application of the (17.5 percent) exit tax on timber at the points francs entrance (entrée points francs); and (b) the implementation of a system of adjudication for export quotas of unprocessed logs.

11. In the customs area, the government has been engaged in an ambitious reform program, including the implementation of a single processing window ("guichet unique") for processing the external trade formalities; the window has been operational since August 2000 and has already registered satisfactory results. Additionally, the government will carry out other priority measures to improve the administration of customs, increase revenue, and simplify international trade procedures, in line with recommendations of the IMF, the World Bank, and the European Union. In particular, it will ensure that physical and documentary controls for the release of goods are completed within 24 hours for imports and 6 hours for exports, and adopt measures to facilitate progress toward the objective of reducing the time required for the processing of containerized merchandise at the Port of Douala (see para. 23  below). Furthermore, the control and monitoring of special-status traffic (transit, bonded warehouses (entrepôts), and temporary admissions) will be reinforced, and a special unit established at the customs headquarters to monitor and control exemptions.

12. At the same time, a number of other steps will be taken to further strengthen the customs administration. These include, in particular, (a) the generalization of the use of the unique taxpayer identification number (TIN), following the completion of the securitization of the computer network at customs; (b) an increase in budgetary allocation for the customs department to acquire the equipment needed to sustain the securitized computer system; (c) the implementation of rigorous internal audit and inspection schemes, and the adoption and effective implementation of a code of conduct at customs; and (d) the reinforcement of the control mechanism for both processed and unprocessed logs at Cameroon's border with the Republic of Congo and with the Central African Republic (with the assistance of the national authorities of these two border countries). Other measures to ensure the restructuring and modernization of the customs administration, which are indicated in Annex I of the MEFP of December 6, 2000, will continue to be implemented.

13. The government is committed to intensifying its efforts to improve public expenditure management in the context of the action plan adopted in December 1998, following the recommendations of the IMF, World Bank, European Union, and other development partners. Specifically, the government has already taken steps to (a) improve the monitoring of delegated credits; (b) produce monthly treasury balances and budget execution tables; and (c) strengthen the operational capacities of spending departments with respect to the programming, monitoring, and execution of operations, as well as the quality of their expenditures. The government is also aware that the implementation of these steps needs to be strengthened to, in particular, ensure consistency between the treasury balances and the table on central government financial operations (Tableau de bord), as well as to further enhance budgetary procedures and the quality of public expenditure.

14. The government is aware that a swift improvement in public expenditure management is critical to achieve its budgetary targets, further consolidate macroeconomic stability, and enhance Cameroon's fiscal policy credibility. Thus, it is determined to introduce a fully integrated computerized fiscal and accounting information system by the end of the current three-year PRGF arrangement to manage central government revenue and expenditure from commitment to payment (chaîne des dépenses). To this end, it will prepare an action plan for the implementation of the integrated information system by end-September 2001, with technical assistance from the IMF, the World Bank, and other partners. As a first step, it will complete the implementation of the interface for the government payroll file by end-September 2001 to keep the file updated in accordance with the action plan that has been worked out. To ensure timely completion, the ad hoc government committee set up by the Prime Minister, Head of the Government, will monitor closely the work of the consulting firm that has been asked to implement the interface system.

15. The government will also pursue the implementation of the other key measures that are contemplated under the program, including notably the multiyear settlement plan to clear domestic debt and arrears and the review of the internal and external audit procedures in the existing expenditure control system. Finally, the government will speed up the implementation of the measures for improving the public procurement system that are spelled out in paragraph 21 and Section 3 of Annex I of the MEFP of December 6, 2000. In particular, it will render operational the regulatory agency for the modified procurement system established in February 2001.

16. The financial program has been revised to reflect monetary developments in the first half of the first annual program and the impact of the deterioration in the terms of trade on the balance of payments. The program for the second half aims at enabling Cameroon to contain the reduction of its contribution to the strengthening of the net foreign assets position of the regional central bank (BEAC). Net bank credit to the central government will increase by CFAF 14 billion during the second half of the first program year. Money growth, which was faster than expected in the first half of the first program year, should progressively slow.

Governance

17. The government is determined to speed up the implementation of the programmed measures included in the MEFP of December 6, 2000. As a first step, it will finalize the terms of reference for the technical audit of the judiciary system, in agreement with the World Bank and IMF staffs, and launch the scheduled technical audit of the justice system by end-September 2001. In the meantime, the government will make sure that steps are taken very quickly to address the growing judicial deficiencies that have an adverse impact on private sector investment. These steps include (a) holding a meeting with the Heads of Court to bring to their attention the concerns of the private sector, particularly those related to the actions taken by judges, notably the "juges des requêtes," the juges en référé," their judicial court decisions (including the "saisie-attributions"), and the imposition and implementation of penalties ("abstreintes"); (b) conducting seminars at the provincial level to inform and train magistrates about the legal provisions of the Organization for the Harmonization of Business Law in Africa (OHADA) Treaty and their interpretation and implementation; (c) rendering the General Inspection Office of the judicial system operational, and effectively implementing controls by the Heads of Court in their respective jurisdictions; (d) codifying the OHADA's legal provisions and communicating them to all magistrates; and (e) promulgating the Cameroonian laws as foreseen under the OHADA Uniform Acts.

18. Among the other measures included in the priority strategy and action plan for improving governance and combating corruption (as spelled out in paras. 32 and 33 of the MEPF of December 6, 2000), a particular emphasis will be placed on (a) establishing institutional arrangements for comanagement in the education and health sectors; (b) improving access by citizens to information on the management of public affairs; (c) implementing, before end-September 2001, the regulations relating to Decree 2000/287 (dated October 2, 2000) governing private sector activities and situations of potential conflict of interest for civil servants; and (d) adopting an action plan, before end-December 2001, for the implementation of the jurisdictional bodies called for in the Constitution (including the Chambre des Comptes and the Conseil Constitutionnel). Finally, the government will continue to further enhance the quality and timeliness of the quarterly budget execution reports of key ministries (including education, health, and public works).

Structural and sectoral policies

19. The government is determined to consolidate the ongoing reforms in the financial, public utilities, petroleum, transport, and agro-industry sectors, with a view to stimulating private sector investment, enhancing the competitiveness and efficiency of the economy, and boosting production.

20. In the financial sector, the government will start implementing, by August 2001, the recently adopted rehabilitation plan for the financially troubled state-owned Postal Savings Bank, which had been prepared with World Bank assistance, with a view to completing the rehabilitation by March 2002. The financial cost of this rehabilitation, which is estimated at CFAF 3-5 billion (about 0.1 percent of GDP), is incorporated in the budget for fiscal-year 2001/02. The registration requests ("dossiers d'agrément") of the saving and loan cooperatives (COOPECs) that had been surveyed at end-March 2001 will be submitted to the Central African Banking Commission (COBAC) by end-June 2001. Their registration is expected to be completed by end-December 2001. The liquidations monitored by the Société de Recouvrement des Créances (SRC) should also be completed at the latest by end-June 2001. As indicated in paragraph 17 above, measures will be taken, with a view to resolving quickly the difficulties facing the commercial banks as a result of certain judicial court decisions taken against them. Finally, with the assistance of the World Bank and the IMF, the authorities will implement the corrective measures that have been recommended by the Financial Sector Assessment Program (FSAP) of May 2000, in order to strengthen the financial system and ensure its viability and resilience.

21. The government considers that the privatization of the three main public utility companies (CAMTEL, SNEC, and SONEL) is critical to the provision of better services, increased investment and growth, and poverty reduction. To this end, it will quickly address the remaining issues in order to complete the privatization process within a reasonable time frame (see para. 28).

22. In the petroleum sector, the authorities have reviewed the automatic petroleum retail price mechanism that was capped at the equivalent to a crude oil price of US$25 a barrel, with a view to gradually phasing it out. Thus, the government has decided to cut by half the related subsidy during fiscal-year 2001/02 through two upward price adjustments, of CFAF 10 per liter for the price of gasoline (super) and of CFAF 10 per liter for the price of gas oil, in July 2001 and again in January 2002. The subsidy will be completely eliminated in fiscal- year 2002/03. Moreover, the shares held by the SCDP (the petroleum storage facility) on behalf of the government will be sold to the private sector by end-December 2001, which will thereafter manage the SCDP. Finally, the government intends to start implementing the recommendations of the action plan to reform the petroleum sector.

23. In the transport and the agro-industrial sectors, which are two critical areas for improving competitiveness and enhancing job creation opportunities, the government will give priority to (a) implementing the action plan for restructuring the Port of Douala, including actions consistent with the reform of the customs, to reduce the time for processing containerized merchandise at the Port of Douala to seven days for imports and to two days for exports; (b) continuing the implementation of the rehabilitation project for the newly created railroad company (CAMRAIL), which is financed in part by the World Bank Group; and (c) privatizing the financially troubled airline (CAMAIR). In the agro-industrial sector, the government is determined to move forward the privatization of the remaining agro-industrial enterprises, including the cotton development company (SODECOTON).

Social and poverty reduction policies, PRSP preparation, and use of HIPC Initiative- resources

24. The main focus of the government's social policies is to ensure that strengthened economic performance translates into tangible results in terms of poverty reduction, job creation, and a genuine improvement in the economic welfare of the population as a whole. To this end, the authorities will strengthen the technical and administrative capacities of sectoral ministries in order to timely finalize the sectoral strategies in the priority sectors, including health, education, and urban and rural development. The government has already elaborated an action plan for the preparation of a full poverty reduction strategy paper (PRSP). It is aware that timely completion of the ongoing household consumption survey is critical for adherence to the envisaged timetable for the production of the PRSP, which the government intends to complete by January–February 2002. The government recognizes the need to speed up the process. Accordingly, it will take the necessary actions to produce a quality PRSP by enhancing the participatory approach and improving the formulation of the sectoral strategies and projects to be financed through HIPC Initiative resources.

25. A ring-fencing mechanism has been worked out for the use of resources freed by the enhanced HIPC Initiative, with the opening of a special account at the central bank (which has a current balance of CFAF 12.4 billion). The consultative committee for the follow-up on the implementation of the HIPC Initiative has been put in place, with all the members designated, including representatives from the nongovernmental organizations (NGOs); and the recruitment of technical staff is about to be completed. The first full meeting of the committee took place on June 21, 2001 and reached agreement on the first batch of expenditure projects to be financed through available HIPC Initiative resources. The government is fully aware of the importance of starting the implementation of HIPC Initiative-financed projects as quickly as feasible, and is determined to effectively launch the first batch of selected projects by July 2001 in the education and health sectors (including specific HIV/AIDS projects). The preparation and costing of the strategy in the education sector are nearly completed, while efforts have been intensified with a view to finalizing the strategy in the health sector by August 2001. The initially projected HIPC Initiative-financed expenditures, for a total amount of CFAF 37 billion for fiscal-year 2000/01, have been integrated in the Budgetary Appropriations Act for 2001/02.

External sector policies and debt management

26. A key objective of Cameroon's external policy remains to enhance external competitiveness, in order to achieve external viability and strengthen growth prospects. To this end, the government will continue to implement and even further strengthen the efficiency-enhancing measures of the program. It intends to take the lead in promoting enhanced regional integration in the Central African Economic and Monetary Community (CEMAC) zone through further reductions in the common external tariff (to a maximum of 20 percent rate) and in the number of bands (from five to four), as well as through the enactment of a common investment charter.

27. Following the Paris Club agreement of January 24, 2001 to support Cameroon's program with a comprehensive and concessional treatment under the enhanced HIPC Initiative, the government will accelerate the conclusion of bilateral agreements. Preparations for a London Club debt-relief operation are proceeding: the official launching of the operation took place in Paris on May 23, 2001, and its completion is targeted for March 2002. With the assistance of its partners, the government will endeavor to ensure that the terms under all the agreements with non-Paris Club creditors are at least as favorable as those obtained recently from the Paris Club under the enhanced HIPC Initiative.

Prior actions, requests for waiver and modification of a performance criterion, and program monitoring and review

28. The government understands that the following measures constitute prior actions for the IMF staff support for completion of the first review:

1. forwarding, by June 21, 2001, to the IMF and the World Bank, the Head of State's notification letter validating the recommendations on privatization of the Interministerial Committee (CIM) with respect to the final offers of the provisional adjudicators for the privatization of CAMTEL and SONEL; and

2. holding the first meeting of the national consultative committee for the follow-up on the implementation of the HIPC Initiative.

29. The government requests a waiver for the nonobservance of the end-March 2001 performance criterion on net bank credit to the central government. As explained in paragraph 2 above, this performance criterion was missed because of delays in the completion of the privatization of the telecommunications company (CAMTEL) and a shortfall in oil revenue. As regards CAMTEL, the government has taken steps to intensify negotiations with the selected bidder to resolve the pending issues. The agreement on the sale of the company is expected to be signed in the near future.

30. To protect the PRGF arrangement from uncertainties related to the implementation of the privatization program, the government also requests that all privatization receipts be excluded from the definition of the ceiling on net bank credit to the central government, as indicated in the attached updated technical memorandum of understanding (TMU). In the event privatization receipts materialize, they would be fully deposited in the treasury's account opened at the BEAC; the government will reach understandings with the staff on the specific uses of these resources.

31. To monitor program implementation, a number of quantitative benchmarks are proposed for end-June 2001 and quantitative performance criteria and benchmarks for end-September 2001, as specified in the attached Table 1. In addition, the reform measures indicated in Table 2 have been adopted as structural performance criteria and benchmarks for the second half of the first annual program (October 2000-September 2001).

32. In view of the uncertainties about external debt relief and oil prices, the program will continue to contain a built-in contingency mechanism for the adjustment of the quantitative benchmarks and performance criteria, as spelled out in the TMU. Disbursement of the third tranche under the new PRGF arrangement will be subject to (a) the observance of the end-September 2001 performance criteria; and (b) the completion of the second review no later than end-December 2001. The review will focus mainly on the budgetary non-oil revenue performance, customs reform, public expenditure management, detailed strategies in the education and health sectors, advancement in the preparation of the full PRSP, and progress in governance, privatization, and the liberalization of the petroleum and transport sectors.

33. As in the past, program implementation will be regularly examined in cabinet meetings chaired by the Prime Minister, Head of the 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 a technical monitoring committee. The committee will provide Fund staff with all the data necessary on a timely basis to effectively monitor the program. To this end, the government will continue to improve data quality, coverage, and timeliness, in the context of the General Data Dissemination System (GDDS).

Sincerely yours,

Peter Mafany Musonge
Prime Minister
Head of Government
 

Table 1. Cameroon: Quantitative Performance Criteria and Benchmarks During the Second Half of the First Annual Program Under the Poverty Reduction and Growth Facility, October 1, 2000-September 30, 2001 (In billions of CFA francs; cumulative from July 1, 2000, unless otherwise indicated)
	March 31, 2001 1				June 30, 2001	September 30, 2001
	Prog.	Adj.	Est.
Ceiling on the increase in net claims of the banking system on the central government excluding privatization receipts2,3,4,5,6	-147	-72	-20		20	46
Floor on the primary budget balance2,5,7	338	333	338		469	529
Floor on the nonaccumulation of external payments arrears of the central government2,8	-50	-50	-50		0	0
Ceiling on new medium- and long-term nonconcessional external debt contracted or guaranteed by the central government of one year or more2,9	0	0	0		0	0
Ceiling on the net disbursement of external debt contracted or guaranteed by the central government with a maturity of less than one year2,9,10	0	0	0		0	0
Floor on total revenue of the central government4,12,13	967	956	960		1287	1572
Of which: non-oil revenue12,13	622	622	628		859	1075
Floor on reduction of domestic arrears	-172	-172	-154		-213	-213
Of which: cash payments	-64	-64	-64		-78	-78
Memorandum items:
Assumed external debt relief 14	243	243	233		233	305
External program financing15	79	79	52		81	81
Of which: IMF disbursments	32	32	32		47	47
Privatization proceeds	102	102	0		0	50
Stock of net credit to the central government	224	224	352		468	441
Sources: Cameroonian authorities; Bank of Central African States (BEAC); and staff estimates and projections. 1Cumulative since end-June 2000. 2These targets will constitute performance criteria for end-March 2001 and end-September 2001. 3This target will be adjusted (a) upward for a shortfall in program financing, privatization proceeds, 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 by the full amount of any excess of the programmed levels in program financing and external debt relief; and (c) downward by the full amount of any shortfall in the reduction of domestic arrears, on a net basis, in comparison with the program. See technical memorandum of understanding (TMU). 4The flows have been constructed on the basis of end-June 2000 data; they will be adjusted on the basis of the actual outturn. 5The targets will be adjusted upward/downward for 50 percent of the windfall/shortfall in oil revenue. For a windfall/shortfall beyond a threshold of 6This ceiling excludes privatization receipts except for end-March 2001. 7Defined as government revenue (excluding privatization proceeds) minus noninterest expenditure (excluding foreign-financed investment and restructuring expenditure). 8Excluding reschedulable external arrears. The targets will be adjusted for deviations from projected program financing. To be monitored on a continuous basis. 9In millions of U.S. dollars. Nonconcessional debt (including leases) is defined as debt with a grant element of less than 35 percent, using discount rates based on the commercial interest reference rates (CIRRs). Exception will be made during 2000/01 for the contracting of a nonconcessional IBRD loan CFAF 35 billion, the authorities will consult with Fund staff to formulate policies to adjust performance criteria. See TMU. forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85), adopted on August 24, 2000. in an amount of US$65 million contracted by the government of Cameroon in the context of the Chad-Cameroon pipeline construction. Debt is defined as set 10Excluding normal, import-related credit. To be monitored on a continuous basis. 11This target will be adjusted for the full amount of higher/lower-than-programmed oil revenue. See TMU. 12These benchmarks do not constitute performance criteria. 13Excluding privatization proceeeds. 14Including the financing gap. 15Including IMF disbursements.

 

Table 2. Cameroon: Structural Performance Criteria and Benchmarks for the Second Half of the First Annual Program, October 1, 2000-September 30, 2001
Criteria and Benchmarks	Target Dates
Performance criteria
Complete the development of the computer interface (Antilope- SIGIPES) for the government payroll system, to ensure that the salary file remains current.	End-September 2001
Render operational the regulatory agency for the modified procurement system (put in place the Executive Board and organizational structure, and recruit staff).	End-September 2001
Benchmarks
Resume discussions with the successful bidder for the water company (SNEC), based on the evaluation of the offer of the successful bidder conducted with World Bank assistance.	End-June 2001
Formulate an action plan for the introduction of a fully integrated computerized fiscal and accounting information system to manage central government revenue and expenditure from commitment to payment (chaîne de la dépense).	End-September 2001
Close effectively the budgetary operations and finalize the treasury balances (after reconciliation and taking into account budgetary and accounting charges) for all operations relating to the 1999/2000 fiscal year.	End-September 2001
Launch the technical audit of the judiciary system on the basis of the defined terms of reference, as agreed with Bank and Fund staffs.	End-September 2001
Start the implementation of the rehabilitation plan for the Postal Savings Bank, which has been prepared with World Bank assistance.	August 2001

 

Cameroon: Technical Memorandum of Understanding on the Definitions and Modalities of the Built-In Contingency Mechanism for the Adjustment of Quantitative Performance Criteria and Benchmarks Under the First Annual PRGF Arrangement

A. Introduction

1.  This memorandum sets out the understandings between the Cameroonian authorities and the staff of the International Monetary Fund regarding the definitions of the quantitative performance criteria and benchmarks for the program supported by the PRGF arrangement, and the built-in contingency mechanism, as well as the related reporting requirements.

B. Definitions

External debt

2.  The size and rate of growth of external indebtedness are an important factors in the design of a program for a country, especially one benefiting from the Initiative for Heavily Indebted Countries (HIPC) assistance like Cameroon. Consistent with the Guidelines on Performance Criteria with respect to Foreign Debt (Decision Nº 12274-(00/85), August 24, 2000), external debt will be understood to mean a current, that is, not a contingent, liability created under a contractual arrangement by the government of Cameroon, or guaranteed by the government of Cameroon, with a nonresident party through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debt can take a number of forms, the primary ones being the following:

• Loans. These are advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers' credits) and temporary exchanges of assets that are equivalent to fully collaterized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements).

• Suppliers' credits. These are contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided.

• Leases. These are arrangements under which property is provided that the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the lessor retains the title to the property. For the purpose of this memorandum, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.

3.  Under this definition of debt, arrears, penalties, and judicially awarded damages arising from failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g. , payment on delivery) will not give rise to debt.

Concessionality of external debt

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

Cash relief from external debt rescheduling

5.  For the purpose of the program, the only debt relief that will be subject to the contingency mechanism described below is one that leads to an effective reduction in programmed debt service. This excludes debt 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 operation with commercial creditors, and for which no provision in debt service has been explicitly made in the fiscal program (except for up-front costs).

Domestic arrears

6.  Domestic arrears include nonstructured domestic debt contracted by the government. Nonstructured debt is defined to be a liability for which there has been neither a formal agreement, nor a cash payment, nor securitization. Specifically, this debt includes salary arrears; commercial debt; rental/lease arrears; debt on account of indemnities and expropriations; fees and tax refunds or reimbursements; and debt on account of social adjustment programs arising from the restructuring of public enterprises. The government intends to settle 37 percent of these liabilities in the form of cash payments and to securitize the remainder.

Net claims of the banking system on the central government

7.  Net claims of the banking system on the central government comprise the stock of all outstanding claims on the central government (loans, advances, and all other 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 receipts are excluded from the definition of the ceiling on net claims of the banking system on the central government.

Primary balance of the budget

8.  The primary budget balance is calculated as total central government revenue (oil and non-oil), excluding foreign grants and privatization proceeds (counted as financing), less noninterest expenditure, excluding foreign-financed investment and restructuring expenditure.

Privatization receipts

9.  For the purpose of this memorandum, privatization receipts will be understood to mean all monies received by the central government through the sale or concessioning of a public company, organization, or facility to a private company(ies) (including ones fully owned by foreign governments), organization(s), or individual(s). To the extent possible, receipts should be presented on a gross basis; if costs are incurred in the sale or concessioning, they should be recorded separately as expenditure.

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

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

Deviations from programmed oil revenue

11.  The programmed oil revenue for the period April 2001 to September 2001 is based on oil prices assumptions of US$21.4 and US$22.0 per barrel (for Cameroon) for the third and fourth quarters of the first annual program, and on volume estimates of 10.2 and 9.5 million barrels, respectively. Based on these assumptions, the oil revenue contribution to the central government's budget is estimated at CFAF 95 billion and CFAF 69 billion in the third and fourth quarters.

12.  In case of 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.

13.  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.

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

14.  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 (c) downward by the full amount of any shortfall in the reductions of domestic and external payments arrears in comparison to the program.

Program exchange rate

15.  Amounts denominated in SDRs will be converted to U.S. dollars at the fixed exchange rate of US$1.324 per SDR, and converted into CFA francs in accordance with the exchange rates agreed with the authorities. IMF liabilities, which are included in the definition of net claims on the central government by the banking system, will be valued at this exchange rate. Any deviations in the exchange rate will lead to a full adjustment in the valuation of the stock of IMF liabilities at the central bank, and a similar adjustment in the ceiling on the net claims of the banking system on the central government.

D. Reporting Requirements

16.  The Cameroonian authorities will send to the Fund the following data within the time limits set out in the attached Table 1. Except as otherwise indicated, data transmission will take the form previously agreed between the authorities and the Fund. The authorities will supply the Fund with any additional information that the Fund requests in connection with monitoring performance under the program on a timely basis.

Table 1. Cameroon: Data Reporting Requirements
Category of Data	Table/Report	Frequency	Deadline
Financial and monetary data	Central bank balance sheet, consolidated commercial bank balance sheet, monetary survey	Monthly	25th of the month for the previous month
	Interest rates	Irregular	One week after new changes announced
	HIPC Initiative BEAC account transactions	Monthly	25th of the month for the previous month
Fiscal data	Tableau de bord, including details on revenues, expenditures, financing and domestic debt payments (including settlement of arrears)	Monthly	25th of the month for the previous month
	Treasury balances	Monthly	25th of the month for the previous month
	Treasury "flash" reports	Monthly	10th of the month for the previous month
	Domestic debt settlement plan execution report	Monthly	25th of the month for the previous month
	Investment budget execution report	Quarterly	One month after end of quarter
	Expenditure reports by selected ministries	Quarterly	One month after end of quarter
	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
	HIPC Initiative spending plans and budget execution	Quarterly	One month after end of quarter
Real sector data	Consumer price index, Yaoundé	Monthly	10th of month for previous month's data
	National consumer price index	Quarterly	10th of month for previous quarter's data
	Index of industrial production	Quarterly	One month after end of quarter
	National accounts	Annual	Summary estimates: six months after the end of year
Balance of payments data	Imports by use and exports by major product, trade balance	Monthly	25th of the month for the previous month's data
	Price and volume indices of imports and of exports	Quarterly	One month after end of quarter
	Consolidated estimates of the balance of payments	Annual	Summary estimates: six months after the end of year
External debt	Debt service due before and after debt relief	Quarterly	At 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