DOMESTIC RESOURCE MOBILISATION IN CAMEROON

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					  DOMESTIC RESOURCE
MOBILISATION IN CAMEROON
  Background to the Cameroonian
            Economy



       Sunday A. Khan
    University of Yaounde II
      Presentation Outline
Introduction
Economic Background
  Economic History
  Structure of Economy
  Fiscal Rev/Exp &Government Rev Structure
  Structure of the Financial System
  Poverty Status and MDGs
Issues/Questions
              Introduction
Concern of Cameroon & Devt partners-IMF
  Letters of intent & MEFP
  PRGF Reviews & DRM Targets
Savings and Inv rates
Not mobilising enough or below its potentials
  Low incomes and weak instl capacity to mobilise
  savings
Csq: Resource gap filled by foreign Savings
  Should continue if DRM efforts not strengthened
Oil – important source of revenue (36% in
2006) but declining output
  186000 (1985) Vs 82337 (2005) barrels/day
  Oil prices have kept share high
increasing non-oil revenue and mobilising more
resources domestically in general, is a crucial
issue for Cameroon

Objective
  Provide background info which should enable
  discussion with country representatives and
  resources and help identity key research
  issues/questions for DRM in Cameroon
Economic Background of Cameroon
Economic History since Independence
  Immediately after Independence - 60s & 70s
   • Agriculture base of economy: GDP, foreign exchange, empt
   • Almost 6% average GDP growth

  Oil production – 1978
   • Major source of revenue (1/2), foreign exchange (2/3)
   • More than 10% average growth

  Deep Economic Crisis
   •   ToT deteriorated by 40% & CFAF highly overvalued
   •   Huge external debt to fund large BoP deficit
   •   - 4% average growth
   •   Reluctant signing of SAP in 1988, when reserves were exhausted
   •   Reluctant reformer - 4 Standby Agreements & SAL failed
   •   Many donors abandoned Cameroon, but France
Devaluation – 1994
 • Internal adjustment insufficient to correct macro imbalance
 • Growth averaged 4%, debt rescheduled by Paris Club but remained
   unsustainable
 • Successful implementation of 1st PRGF(1977-00) led to HIPC
   decision point in October 2000

HIPC and PRSP
 • Growth has been fluctuating between 2 & 4.5% between 2000 &
   2006
 • Fiscal deficit, ToT & Inflation (except 2006) have improved
 • HIPC completion Point in 2006 & Substantial debt relief
       MDRI, C2D (France)
       Adoption of MTEF to improve quality of capital spending
       New PRGF with IMF – 2006-08
       Population anxiously waiting fallouts
       Structure of the Economy

           Figure 1: GDP by Sector of Origin: 1997 and 2006

            60.0

            40.0

            20.0

             0.0
                                                      Indirect
                   Primary   Secondary   Tertiary
                                                    taxes/subsi
           1997     24.5       28.9       38.5          8.2
           2006     18.5       30.7       42.1          8.7



Agriculture 40% after independence but less than 20% in
2006
Secondary and especially tertiary sector are the main
beneficiaries
1997 vs 2006
    Structure of Govt Revenue and Fiscal Rev/Exp

Table 2: Central Government Revenue (% of total Revenue)
                                         2002    2003    2004    2005    2006
Total revenue                            100.0   100.0   100.0   100.0   100.0
    Oil revenue (28%)                    26.4    23.2    25.7    28.5    35.5
    Non-oil revenue(72%)                 73.6    79.8    74.3    71.5    64.5


Tax revenue                              94.6    94.8    92.4    91.9    94.5
    Taxes on income and profits (18%)    19.6    19.6    18.0    17.0    14.6
    Taxes on goods and services (30%)    28.8    30.9    33.3    29.9    28.9
    Taxes on International trade (13%)   12.4    12.5    14.1    12.3    11.4
Non-tax revenue                           5.4     5.2      7.6    8.1     5.5
Table 1: Selected Fiscal Indicators (% of GDP)
                                          2004   2005    2006
Total revenue and grants                  15.4   18.2   47.6
   Total revenue (95%)                    15.2   17.6   19.3
   Total grants (not aid dependent–5%)     0.2   0.5    28.4
Total expenditure                         16.0   14.6   14.5
   Current expenditure                    14.0   12.1   11.7
   Capital expenditure (<20%)              2.0    2.4    2.9
       Domestic investment                 1.1    1.8    1.9
         Own-resource financed             1.0    1.2    1.5
          Debt-relief financed             0.1    0.6    0.4
       Foreign-financed investment         0.8    0.5    0.7

Positive fiscal balance of late
Current exp >80% of total , Domestic Inv >50 local finance
Table 3: Structure of the Financial System, 2005
                                             Number of            Share of Fin
                                      Institutions     Branches      Assets
Commercial banks                           10             104         84.4
    Local                                   4             37          27.4
    Foreign (67%)                           6             67          56.9
Non-bank financial institutions            12             27           6.3
Microfinance institutions                  714            714          4.6
Insurance companies                        24              0           4.7
Total financial sector (23% GDP)           760            845         100.0

 A) Banking Sector
      •4 major banks account for 71% of credits & 68% of deposits
      •Limited rate of bank penetration
      •Excess Liquidity
      •Interest brackets: cap of 15% and floor 4.25%
B) Microfinance Institutions
  Recent surge - 714 in 2005
  Less than 5% of assets of fin sector
  However, credits and deposits x2 between 2001 & 2005
  Incapacity to finance long-term investment
  Budding source of domestic resource in private sector
C) Other Institutions in Financial system
  Insurance Companies
   • 24 insts and almost 5% of financial system assets

  The Douala Stock Exchange (DSX)
   • Created in 2002 but unable to enlist companies,
   • Largely below expectations

  Postal Savings Bank (CAMPOST)
  Housing Bank (Credit Foncier)
  Public Pension Fund (CNPS)
   Financial Intermediation
                 Figure 2: Selected Financial Intermediation Indicators, 2005 (% of GDP)


           45
           40
           35
           30
           25
           20
           15
           10
             5
             0
                       Broad Money (M2)          Private sector credit           Deposits
   Cameroon                   17                         9.4                       13.9
   Benin                     27.4                        16.2                      17.7
   Ghana                     28.8                        15.4                      20.4
   Kenya                     38.7                        24.8                      33.5
   Senegal                   34.2                        22.8                      25.6
   CEMAC                     14.2                        6.2                        10



The level of fin intermediation compares favourably within CEMAC,
but very poorly with other SSA countries
   Fin depth (M2), private sector credit & Deposits
   Credit structure: <1%, 34%, 65% respectively for LT, MT and ST

Existence of a Large Informal Financial sector
   Varied saving and lending arrangements
Table 4: Savings and Investment in Cameroon (% GDP)
                                   2002      2003    2004   2005   2006
Gross national savings             15.1      15.5    16.9   14.7   17.3
Gross domestic investment          19.8      17.5    18.9   18.1   18.0
Private sector
    Gross national savings         12.4      12.7    15.7   9.2    9.8
    Gross domestic investment      17.5      15.2    16.3   15.0   15.1
Central government
    Gross national savings         2.6       2.8     1.2    5.5    7.4
    Gross domestic investment      2.3       2.3     2.6    3.1    2.9

 •Savings consistently lower than investment, nationally
 •Mimicked in the private sector
 •Contrary with the central government
Poverty and MDGs Status
  Pop under poverty line reduced by 13% between 1996 and
  2001
    • Implying this MDGs target will be met
    • But huge disparities between regions & Social categories

  Number of people suffering from hunger increased within
  same period by 9%
  Possible if trend maintained
    • HIVAIDS, girl/boy parity in primary school

  Some possible if significant improvement in policy
  Others, prospects very bleak: off-track

Latest Household survey expected to provide critical
info on the state of advancement towards 2015
             Issues/Questions
The puzzling situation of excess liquidity in banking
sector while some potential investors cannot access
credits – 30% in MFIs
  Apparently restrictive interest rate brackets: cap on the
  lending rate (15%) and the floor on deposit rate (4.25%)
  Assessing the credit worthiness of bank clients – lack of
  credit history
Very low level of financial intermediation, compared
with other SSA countries
Difficulties of the Douala Stock Exchange to enlist
firms so as to mobilise long term deposits to finance
long term investment - despite huge incentives
To what extent do MFIs and non-bank fin Institutions
mobilise resources – how can this be improved?
What can be done to increase non-oil revenue (<13%
of GDP) as oil production declines
Tax revenue policy focuses disproportionately on
modifying tax rates (already very high -VAT is 19.25%)
ignoring other avenues like broadening the tax base
  Property tax or
  exploring the large informal sector (46.7% of GDP in 2000)

Eventual signing of the EPA and consequences on
tariff revenue - making about 13% government revenue
(excluding grants)
Peculiarities of Cameroon:
  Franc Zone member – deprived of monetary policy
  Membership of CEMAC and fiscal policy
  convergence objective – limiting fiscal policy space
  Conforming to CEMAC’s tariff structure
  Conditionalities from Donors, especially IMF with
  its PRGF
An already very narrow policy space
  Any positive change from enhanced DRM
  will be salutary
Thank You Very
 Much for your
   Attention