Good morning. I would like to express my appreciation to Minister Alamine Mey for his kind words of welcome. And I would like to offer my gratitude for the hospitality with which I have been received in Cameroon.
This is my first visit to your country. It comes at a moment when Cameroon and the entire CEMAC region are facing great economic challenges. The steep fall of oil prices and the difficult security situation have had a severe impact on your country.
I know you are deeply aware of the seriousness of the problems. Cameroon’s response to the crisis has been impressive. The countries of this region came together at the Yaoundé Summit last December at the invitation of President Biya. That meeting set in motion a concerted effort to address the crisis. The CEMAC countries committed to put in place strong national and regional policies—with essential reforms.
These efforts culminated in approval of new Fund-supported programs in June for Cameroon, Gabon and Chad, and an increase in Fund resources under the existing program with the Central African Republic.
I congratulate your government for its role in leading CEMAC toward an orderly, coordinated solution to the crisis. And I congratulate the people of Cameroon for a commitment to needed reforms.
But this is not a time for complacency. Your work is just beginning. Cameroon and CEMAC face many continuing policy challenges. This calls for a sustained commitment to the policies that have stopped the decline of BEAC’s foreign exchange reserves. It means that Cameroon and its CEMAC peers must maintain the policies of fiscal adjustment and economic reform that can restore strong, sustained and inclusive growth.
I would like to explore these issues with you today. I will begin with an overview of the outlook for the world economy, and for Africa. Then I will review the events that led to the current situation. Finally, I will address the tasks that remain for Cameroon, including the reforms still needed to strengthen the recovery and fully unlock your country’s great growth potential.
Global and Regional Outlook
Let’s begin with the global outlook. The IMF released its latest forecast in July. This update to our World Economic Outlook forecasts growth of 3.5 percent this year, and 3.6 percent in 2018. This compares with 3.2 percent last year. The global recovery remains on track.
We see faster growth in the euro area, Japan, and several emerging market economies, led by China. But the projection for the U.S. is somewhat lower than our previous forecast. That is because it’s likely that U.S. fiscal policy will be less expansionary than anticipated earlier this year.
We also note that oil prices have receded this year. This reflects strong inventories in the U.S. and a pickup in global supply. These market conditions are not ideal for oil exporters like Cameroon.
The outlook for oil prices is one part of the challenging outlook for sub-Saharan Africa. Growth has rebounded from 1.3 percent in 2016. It is projected to rise to 2.7 percent this year and 3.5 percent in 2018. But the region is lagging behind the global recovery.
Moreover, the forecast masks the continued divide in Africa between the economies dependent on exports of natural resources, and other economies that are doing better.
In per capita terms, growth is only barely positive across sub-Saharan Africa. For one-third of countries in the region, per capita growth remains negative.
This is the challenge you face: how to ensure sustained growth—and improve the lives of all Cameroonians—after the severe economic downturn caused by plummeting oil prices.
That collapse has halved government revenues across the CEMAC region. The CEMAC countries’ current account deficit widened in 2016 to 9.3 percent of gross domestic product from 3.9 percent in 2014. Public debt rose to 47 percent of GDP from 29 percent.
Meanwhile, BEAC’s foreign exchange reserves fell by $10 billion. The central bank had the equivalent of only about two months of imports in its reserves at the end of 2016. That was much lower than the amount typically needed for a currency union with a fixed exchange-rate arrangement.
The attacks by Boko Haram in the Lake Chad basin and the flow of refugees from neighboring countries have made the economic situation even more difficult for Cameroon. These circumstances are increasing the pressure on public finances.
As the most diversified economy in the CEMAC region, Cameroon has shown greater resilience. But with large infrastructure projects and increased security spending, fiscal and external reserves are quickly eroding. By last year, your country faced falling growth, growing fiscal and external imbalances, and rapidly increasing public debt.
The Policy Response
Last December’s Yaoundé summit was a turning point. The CEMAC heads of state met here with our Managing Director, Christine Lagarde. They committed to strong national and regional policies and reforms.
At the national level, the leaders committed to policies aimed at ensuring each country’s fiscal sustainability in the face of low oil revenues. They also endorsed structural reforms that will strengthen public financial management and enhance the business environment.
At the regional level, they endorsed policies aimed at stopping the depletion of BEAC reserves and preserving the fixed exchange-rate arrangement. These included tighter monetary policy and liquidity management, and measures to preserve financial sector stability.
As you know, this arrangement has been the region’s policy anchor for decades. It has served its purpose well, notably by keeping inflation low. It is deeply engrained in the social and economic fabric. I know many of you still remember the 1994 devaluation, which resulted in the loss of purchasing power for all Cameroonians. The lack of economic diversification prevented gains from higher exports. This is also why preserving the exchange rate arrangement makes sense.
After the Yaoundé summit, governments responded by continuing the reduction of fiscal and current account deficits. BEAC reserves stabilized, and started to increase again in July.
The summit also produced a commitment of support from the IMF and other development partners. Along with the new Fund-supported programs for Cameroon, Gabon and Chad, and the additional support for Central African Republic, discussions with the Republic of Congo and Equatorial Guinea are ongoing.
This financing will allow for a more gradual adjustment process than would have been the case without the IMF. In addition, other development partners are stepping up with assistance.
A Strategy for Stability and Growth
This is important progress. But as I said earlier, there is no room for complacency.
Ladies and gentlemen, the road Cameroon and CEMAC countries chose to take at the Yaoundé summit is the best way to return to stability and economic growth. It is a strategy based on two core understandings: that your countries are interdependent, and that the crisis will not go away on its own.
Low oil prices are likely going to remain low for quite some time. Much more remains to be done.
BEAC’s reserves have stabilized, but they remain low. Delays in reaching agreement on Fund-supported programs with the Republic of Congo and Equatorial Guinea could result in further loss of reserves.
Cameroon is in relatively better economic health than its neighbors, but the imperative to forge ahead with reforms is no less essential. The country’s pre-crisis growth model is not sustainable. For example, it was based on rapid accumulation of debt to finance an ambitious public investment program. But implementation capacity has been limited. Too many projects were undertaken all at once. As a result, there is a substantial backlog of undisbursed borrowing commitments equal to 20 percent of GDP.
The IMF-supported program incorporates the government’s own reform objectives. The fiscal adjustment in 2017 is based on the finance law. Spending reductions focus on eliminating wasteful or redundant expenditures. There are no cuts envisaged in civil servant salaries, and there is increased spending on health, education and other social priorities.
The program also doesn’t require drastic cuts in investment spending. Rather, the goal is to prioritize transport and energy projects that can lift growth. These projects should be completed without further delays. However, less strategic projects should be delayed or reconsidered.
What other steps does Cameroon need to take now to remove the bottlenecks to growth? I propose to focus on three areas.
First, there is a need for fiscal reforms—a key area of the IMF-supported program.
Expanding the non-oil revenue base is a crucial goal because Cameroon’s oil reserves are being gradually depleted. This will require policies aimed at streamlining exemptions and focusing tax incentives on priority sectors. At the same time, it will be essential to continue improving tax and customs administration.
Better control and transparency in budget execution are crucial. These steps will lead to more effective spending practices. A key reform is better public procurement processes to reduce infrastructure project bottlenecks.
Another set of fiscal reforms needs to be applied to public enterprises. Many of these companies are struggling under heavy debt and falling into arrears. In addition, government subsidies for state-owned enterprises account for about one percent of GDP. Improvements in financial reporting and enhanced oversight of company management will help protect the government against contingent liabilities from these enterprises.
The IMF-supported program will help fiscal reforms. For example, on budget transparency, the program calls for the publication of quarterly budget execution reports. It also supports reforms to enhance project preparation. Only mature projects will be included in the budget to ensure effective implementation.
The IMF is also committed to providing comprehensive technical assistance and training in this area. In the coming weeks, Fund staff will assist in the areas of revenue administration, tax and customs modernization, budget management, and management of fiscal risks.
The second area of reforms essential to restoring growth involves the financial sector. There are measures your government can take to strengthen stability, broaden the reach of the financial system, and expand inclusion.
Your country’s banking sector so far has proven resilient in the face of the crisis. But there are signs of strain. Liquidity is declining, and non-performing loans are rising. Five small and non-systemic banks are insolvent; most have been for many years.
The government has started to work on plans to resolve the insolvent banks and reduce non-performing loans. The IMF is assisting in this area by working both with Cameroon, as well as the regional supervisor, the COBAC. Additional measures to give the private sector more access to financial services are being planned. This will help to encourage growth.
Improving the Business Environment
Finally, the third area of reforms that need to be addressed focuses on improvements to the business environment. Many surveys show that Cameroon still ranks low in terms of competitiveness, including the World Bank Doing Business indicators.
It has been shown that if the rules of the game are clear and simple, investors will come regardless of tax incentives. Therefore, rather than creating special regimes and incentives, it would be much more effective to reduce red tape, simplify the tax system, and create room for the private sector to participate in key sectors of the economy.
Nothing is more important for improving the business environment than combating corruption. A recent IMF policy paper pointed to a growing global recognition that systemic corruption can undermine the capacity of the state to deliver sustainable and inclusive growth. Corruption is a silent cancer that corrodes competitiveness and business confidence—in countries at all stages of development.
Cameroon and the CEMAC countries need to make a serious effort to address this problem if they are to emerge from this crisis and continue to grow. The IMF and World Bank are working closely with your government on practical ways to address this issue. This includes encouraging countries to join the Extractive Industries Transparency Initiative, as Cameroon did in 2007. This improves the disclosure of information related to revenue from oil and other commodities.
In conclusion, the IMF fully understands the depth of the problems facing Cameroon and the CEMAC region. The collapse of oil prices has presented you with a profound policy dilemma. It is highly unlikely that those prices will rebound to the levels seen before 2014.
The challenge you face is to implement reforms that will support the continued transformation of your economy in a way that benefits all Cameroonians.
The IMF is deeply committed to supporting Cameroon in this effort. This support is being provided through the financial support contained in the current Fund-supported program. We also will continue to offer policy advice and a comprehensive strategy aimed at building your government’s ability to address the current crisis and future challenges.
I can assure you that the IMF will remain a reliable partner in supporting your reform efforts, and I personally look forward to being part of that process. Thank you.