Report No. 1798-CM united Republic of Cameroon e rnp,y Economic Memorandum rLL (In Two Volumes) Volume 1: Main Report March 22, 1978 - I CA /estern Africa Region Country Programs II rrn £rFEU Ix X stir rsL v r'ji Y.rrIwI/L Uac aJL X Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. CURRENCY EQUIVALENT 1. Currency unit: CFAF Franr (CFAR) 2 Fixed parity: 50 cGAF = 1 FF The rGFAF flnnts against other curren4ies The following rafes haeu been - in t 4r e-por r.a.--- Yar J. - VAJO.'lenAar vears FY CY 1977/U78 andlk .later 250 'I0 1970 ari later 1976/77 248 245 1977 1974/75 222 214 1975 1 ^7n 17 t nnn 4 Uqi. . o7, 'In7'1 -7 /- LOU z-1 {7/II F1 1972/73 241 223 1973 1971/72 265 252 1972 1970/71 278 277 1971 1969j70 274 278 1970 wEIGHTS AND -MEAS-UKES 1 meter (m) - 3.28 teet 1 kilometer (km) 0.62 miles 1 hectare (ha) 2.47 acres 1 square kilometer (km2) _ 0.386 square miles 1 kilogram (kg) 2.205 pounds 1 ton (t) 2,205 pounds 1 liter Cl) 0.26 gallons Fiscal year of the Government = July 1 - June 30 Crop year - October 1 to September 30 FO OFFIAL US ONLY TABLE OF CONTENTS -'age No. MAP S PREFACE *.**.. .*.*............................ .. . i - ii SUMMARY AND CONCLUSIONS .................................... iii - viii PART I - RECENT DEVELOPMENTS ......................1......... Population and Employment ............................. -1 Trends in Outnut and Resource Use. Third Plan Period (1970/71 - 1975/76) ................................. 2 Tnvestmpnt Struetuire and Trends ....................... 7 Structure of Public Capital Expenditure .... ........... 11 Investment AnA avlng- 11 Public Investment Finance and Financial Performance ... 13 Balance of Payments 20 Current Situation and Short Term Outlook (lO7f,/I77 - 107'7 7Sfl -- 22 1 (1 7 /7 97 / 8 ...... .............................................. 22 PADT II - ECONOnmC PROSPECTS AN FINTACIArT POLICIES ---- - 25 Growth in the Medium Term .............. ............... 25 Medium Term Constraints and Potential in Agriculture 28 rMeU.iULU eL rmLU0F=LL. LPr oLseUUtLLy. ..... . . . . . . . . 30. J Medium Term Prospects in Services ............ ......... 31 Iuvest-meunt and iLts Fiuance lr, the rMuedi.uu m £ITerm .......... 31 Long Term Development Prospects and Constraints ....... 37 Financial Management and investment Planning .... ...... 41 Foreign Debt and Debt Management ...... ................ 42 Longer Term Creditworthiness .......................... This document ha a restricted distribution and may be used by recipients only in the performance nf thair eelnkaI du!ti Its tjcanta mv nM Mharwi.a- ha d;w-kwmd withnut WnrMd anir outhhnr,iatn n LIST OF TEXT TABLES Page No. 1. GDP Growth by Major Sector 3 2. Indicators of Annual Growth Rates of Modern Industry 4 Output 3. Structure and Growth of Resources and Uses, Third Plan Period 5 4. Composition of Imports 5 5. Composition of Exports 6 6. Terms of Trade 6 7 - Gross Fixpd Canital Formation 7 8. Actual Cnmrnosition of Plihlir Tnnvetmpnt by Sector and Executing Agent, Third Plan, 1971/72-1975/76 10 9. Investment and Savings 12 10. Public Savings 14 11. Summary of Public Finance and Investment 16 12. Surpluses of Stabilization Funds 17 13. Public Medium and Long Term Loans, Interest and tULLortization Paymer.ts, 971/7II-9L7I57U LU 14. Indicators of Money ana CredtL l7 15. Summary Balance of Payments, i971/72-19175/72 i6. Current Economic Indicators, 1975/76-1977/78 24 17. Structure and Growth of Resources and Uses, Fourth Plan Period 27 18. Planned Gross Fixed Capital Formation 32 19. Medium-Term Alternatives for Investment, Savings, and Foreign Financing 34 20. Public Finance - Past and Projected Trends 38 21. Debt Profile M A L I / 12 X f4 N I G E R CHAD AKE CHA D { ='-J ' -12- ~~~N I G E R I <4t1TTiineG12 ~~~ NIGERIA N ~ ~ ~ ~ ~ ~ ~ ~ CH D ~UNITED IFPUBLIC OF CAMjEROON p I~)~I/ / ECOLOGICALAL ZSNE _ GRAVEL ROAOSRP _, ,ERAOLROAOS NIFi?. . R....... .. 1 ,¢ '.N.,.....°'. .. . .. . H'3F , N^TIONALAiRPORTS C . 5.!,., _ _, ....... ........ UNTE REPUBLI CE CAMEROON,'- ,,,°'..' |-ECOLOG TI ONAL -U.PT ES ........ .. s ........ /; L .' '- _ - J'} -. . . . . ., .*_ \ '-~~~~~~~~~~~. . . . . . . . 1 ,_ ".y -. . Z N R G E R I A ROAD. , - - - EART ROD * _ I . 1 ",:V.'11-1TRON -OI'O' - .IR A.OTS /) tz } ~~~~~~~~~~ I ~~- I.r ..I . _ 4'SOUA 0X0° ' | , . . - L , 1l 1 10 ^ _ ' jSOUDANIAN HtGHLANDS 9o J W E S r !. r¢rS j ' L 30 1_ ~~~~~~~~~~~~~~~~ I | r ,~~~SOUDANIAN;-GUINEAN . * N U's<> 7 u*,8rP1ng Rdngoigte 7 R ' i @ t tGUINEAN NIGE RMuncemba 2 AS A L FOREST _;)~~~~~i T, B-S Wno gbEs 0 ,,, D~~~~~~~~~~~~~~~ N,-~ ~~~I - ; $ '3E '"> > / -, . JGAJ Zi _ /A - I' S'DNA H IGHL-XAbnDS;g >\/ _t J * : | >s 0 1 ~~ '-' W <' s o U T H E RN _ Yorum' < WESA LODNA.SVA (_~~/F .,JIOilal \., ,'i ) \\\ {N F r P tJi lr 11F A e #RESTtLomi 1\ ~~~~~~~~L ,.-.,,U|iNEAJ S: ' ' i I R(SH S A PG 4E/ _M R A S1' iA So - - MASOSRIG jN .1 f - YAGUND k ARA!n| PREFACE This memorandum 1/ has two rather different overlapping objectives. The first obiective, presented in the statistical appendix, is to provide a more comprehens2.va macro-economic framework than heretofore for the Bank's economic work on the country. It is used to describe developments during 1970/71-1975/76 in Part I of the Report. The second objective, presented in the Summary of Conclusions and Part II, is to evaluate the medium term economic and financial outlook as it appears in 1977/78. Earlier Bank economic reports had nnt, fnr reasons indicated below, been able to develop macro-economic time series systematically; the estimates presented here must still be considered subject tn revisionn The application of this framewnrk to the revipw nf developments during 1970/71-1975/76 in Part I of the report does, however, reflect the main conclusions of the C--meroon authorities nt in discussQions with the Mission and in the 1977/78 Budget, and other official documents subCsequently maAe Evailable to the m4ss4on. T,rle main Ceatres of the macroe.onomilc framework are: (a) TLLULe dUeve'lopment oL aconstanit prjLce seriLes for LILLe national. accounts, without which it is difficult to derive a comprehensive picture of the rate and composition of real growth. Because the last full set of official accounts was prepared for the year 1971/72 and subsequent accounts (in current prices only) are based on partial data, these estimates must be considered provisional (see Appendix Tables 2.1-2.6 and Appendix Tables 3.1 and 3.2). (b) The revision of balance of payments data (official series for calendar years begin only in 1970) to a fiscal year basis, to make the balance of payments useful for policy analysis and coherent with the budget and national accounts (see Text Table 15). (c) The consolidation of foreign financial flows with domestic financial flows in the public sector (see Text Table 11). Information on the former was derived from balance of payments data provided by the Cameroon authorities and from debt data as reported by the authorities in the World Bank debt reporting system and converted to a fiscal year basis, but the reliability of the overall analysis of the public sector is clouded by lack of current information on some public enterprises, the need to convert stabilization fund operations from a crop to a fiscal year basis, and the fact that until mid-1972 the Federal and East and West Cameroon governments kept separate and unconsolidated accounts. 1/ Based on an economic mission in November 1976, comprising Michael Payson, Mission Chief and John Edelman, Kiem Huy Phan, and Pisei Phlong, economists; supplemented by desk studies and sector and project information gathered during the year by IBRD. Messrs. Payson and Phan returned to Cameroon to discuss the report with the authorities January 28 through February 4, 1978. - ii - (d) Use of the Ba-k's star.dard computer nroiprtinn program; which highlights the real effects of changes in the terms of trade and simulates long run Udebt service charges, based on the ex.istirn. level and composition of outstanding foreign public debt and a variety of scenarios with respect to Luture borro-wing. - iii - LITThILLAIDV AK~Tr% P MT TTOTAA7C Introduction 1. Cameroon experienced rather slow real output growth during the Third Plan period, 1971/72-1975/76, and a suDstantiai rise in gross fixed capital formation during the last two years of the period. Together with the deterioration in the terms of trade, these developments placed considerable pressure on available foreign exchange reserves and domestic financial re- sources. The Government initiated the Fourth Five Year Plan (1976/77-i980/81) which calls for a total investment program approximately 80 percent more in real terms than the amount estimated to have been realized during the preceding five year period. In the first two years of the Plan period, there was a surge in world market prices for Cameroon's exports, particularly cocoa and.coffee, which has led to a temporary easing of the financial situation. 2. Selected results of the first population census in Cameroon establish the total population in April 1976 at 7.7 million, which is from a half million to a million more than previous estimates based on extrapolated growth rates, sample surveys and other partial data. The census also established that in 1976 almost 30 percent of the population lived in urban areas, 10 percent in the two largest cities, that Cameroon has a youthful population with 43.4 percent of the total under the age of 15, that a high share of the active labor force (close to 80 percent) is engaged in agriculture, livestock, fishing and forestry, and that average population density is low nation-wide (16.5 per square kilometer) but with large variations among regions (from 74.5 per square kilometer in the Western Province to 3.4 per square kilometer in the Eastern Province). Population growth appears to have accelerated from a rate of about 2 percent per annum during 1960-1975 to an estimated rate of 2.3 percent in 1975-1980, mainly as a result of a large decrease in the death rate relative to a small decrease in the birth rate. Trends in OutDut and Income 3. In contrast to the high 7.6 Dercent annual Rrowth rate of GDP achieved during the Second Plan period, the growth rate during the Third Plan period was less than 3.0 nercent; while gross domestic income grew even slower as import prices rose somewhat faster than export prices. Agriculture, accounting for about one third of GDlP, grew at ahniot L-6 nprrpnt- a var romnared with 5.5 percent in the preceding five year period. Output of commercial crops rose by only 1.3 percent per annum, mainly owing to a fall in ouitnput of rnffee and cocoa, which account for about 55 percent of Cameroon's commercial crops. These were adverselu affected by unfavorable climatic con.ditions in some upnrs the lag in producer prices relative to those of competing cash food crops and of inputs (mainly fertilizers)-, the irncreasr4g of coo and cnffeo t-reae and difficulties in countering the black pod disease of the cocoa trees. How- ever, production o LLle main foodu crops expanueA a about 6 percent a year, 4 response to favorable prices and strong demand in urban areas and neighboring countries. TLivestock production -was depressedU by drought i. te North o- = iv = Cameroon in 1972 and 1973, and subsequent recovery has been slow. Growth in manuLacturing slowed as the first wave of import suDsitutitin came to an ena. With rising costs and higher claims on available public revenues, real growth in public administration was also reduced below the 1965/66-1970/71 rate. Construction actually declined during 1970/71-1975/76, and with a deceleration in exports, near stagnation in imports and the low growth in real income through- out the economy, other services (mainly trade and transport) rose only about one percent per annum. investment and Savings 4. During the Third Plan period, despite slow income growth, the investment rate including change in stocks increased from about 16 percent of GDP in the Second Plan period to slightly over 18 percent, and the share of public investment increased to almost 70 percent of total fixed investment. Gross domestic savings and gross national savings averaged 16 and 14 percent of GDP respectively, somewhat higher than in the past, but because debt service also rose, the gross inflow of external resources continued to finance about one-third of total investment, not a high ratio compared to other African countries at a comparable level of development. The substantial improvement in savings during 1970/71-1975/76 was due to a drastic reduction in the real growth of consumption, particularly private consumption, to less than 2 percent from 9 percent per annum during 1965/66-1970/71. The mainte- nance of a high investment rate during a period of low output growth results in a high incremental capital output ratio. Some of the apparent reduction in capital productivity was attributable to investments, such as oil exploration, which would lead to production only a number of years later, investment in transport infrastructure (about 20 percent of total investment) which would result in increased output through the years. and social infrastrnrture investments which would likely increase welfare more rapidly than output. Real private investment declined in the first two years of the Plan nprind but recovered moderately in the last three years. Public Finance and Balance of Payments 5 Public savings after debt service averaged about 36 percent of total niihlir inueut-ment eiiurino the Thirrd Plar.n nprin a sligrhly lnr share than in the preceding five years, but a substantial Government contribution in view of underlying economic trends. More than a third of publ4c savings was mobilized through the stabilization funds, which kept farmgate prices at level's significantly lower thar, export prices. Central Government currer.t and capital spending exceeded budget revenues by only 10 percent, on average, for L-Les five y-ears . The UeCLc± - was financed to arn L --crasing extL by foreign resources. 6. In 1974/75 and 1975/76, imports of goods and non factor services, especially of capital goods, increased as a result of worldwide inflation and the higher public development expenditure, while exports rose more slowly owing particularly to a aecline in volumes in 1974/75 ana a aecline in prices in 1975/76. As a result, sizeable external current account deficits occurred in the last two years of the Third Plan, following a small surplus -v - in 1973/74. The bulk of the current deficit was financed by net capital inflows, but a substantial drawdown of international reserves was also made in 1974/75. Net official international reserves were equivalent to about two weeks of imports of goods and non-factor services at the end of the Third Plan period. Fourth Five Year Development Plan (1976/77-1980/81) 7. Cameroon is now implementing its Fourth Economic and Social Develop- ment Plan. Allowance for private investment is specifically included, and guidelines have been established to help to expand production capacity in agriculture, forestry, mining and manufacturing. Publicly guaranteed borrow- ing is, however, expected to provide a substantial share of the financing of private or ioint' private-public investments in the productive sectors, parti- cularly for certain large projects in industry. The Plan investment program of some USS3.1 billion (in 1974/75 prices) is about 80 percent higher in real terms than the estimated level achieved in the last Plan period and almost trinlp nrPv-onuis npln pynpnditurp in nominal terms. The Plan gives greater emphasis to agricultural development (about 16 percent of total investment), npwor (11 percent, mainlv the on T.oiloii hydroenletrtir srhem), and manufacturing and mining (22 percent, with a substantial part in oil exploi4tation, refin-;nO and\ ctnvnaal Tr:nCncnrt infrn:Et:riirt-1rp i-R q1 1nrqt-Pd 26 percent, urban development and low-cost housing 7 percent and social infra- structure 7 percent. Mledium and TL 8. C~rameroon's main medium anA long t.tptnille ntedvlp VIEU.LUI ~LU ..~Li3~,.LU 1 LQ.F, ment through both industrial plantations and smallholders of a diversified agricultural sector, comprLiing export crops andu domestic LooU crops to fee the growing urban population and replace imports, particularly of grains (rice, wheat). Implementation of sucn a strategy depends on an appropriate mix of public intervention and support, and price and policy measures to stimulate private initiative; net financial returns to the public sector are more difficult to capture than in a less diversified foreign trade-oriented strategy. Factors -which complicate the agr'cultural development effort further in Cameroon are the extensive dispersion of its main economic and population centers separated by vast underpopulated areas, its regional and institutional diversity, the competition between export and cash food crops, shortages of agricultural labor in some parts of the country, tne dependence of a substantial part of public revenue and savings on cocoa and coffee, and the limited availability of skilled agricultural agents and administrators. Cameroon's effort to train manpower and develop public services in agricul- ture, as well as other sectors, is being supported by technical assistance and education projects through multilateral and bilateral aid sources. In industry the Government has moved to channel more financial resources for investment directly through the public sector, in addition to the incentives for private investment by tax and other measures, which have been in existence for many years. The Government is actively participating in a World Bank Group study of the manufacturing sector, whose results will help identify bottlenecks and opportunities to develop existing as well as new industrial activities. - vi - Current Situation and Medium-Term Prospects 9. The high export prices for Cameroon's principal export commo- dities in the first two years of the current Plan (1976/77 and 1977/78) helped to boost government budget revenues dramatically, while the proceeds of export sales have permitted the accumulation of record stabilization fund surpluses, as well as major price hikes for cocoa and coffee farmers in the current year. The volume of both cocoa and coffee exports declined in 1976/77 but is expected to recover in 1977/78, partly in response to the Government's price and production support policies. Notwithstanding the jump in export prices there was no increase in net official reserves in 1976/77, as an expansion in imports absorbed the additional resources from higher foreign exchange earnings and net capital inflows. Prospects are promising for a modest increase in foreign exchange reserves in the current fiscal year, owing to the expected recovery in agricultural exports, the initiation of crude oil exports, and a further expansion in net capital inflows. 10 For the Plan period as a whole GDP growth should accelerate sub- stantially to perhaps 6.0% annually. An expansion in agricultural growth during the period will however denend on the success of nrice and direct support measures in stimulating higher productivity in cocoa and coffee, the imnpementation of ongoing programs for the development of other tree crops, and maintenance of strong demand for annual commercial crops and livestock. Improved markets for wood and wood nroduirts nre Pnprtepd to stimTiiltp rerovery in this sector, with growth above previous peak levels facilitated by expanded transport capacity at the end of the period. Crude oil production started in 1978 and will exceed 1.0 million tons per year by 1980. Continuing growth of manufacturing production from existin n exanded facil4ties, parti- cularly in food, beverages and construction materials, and the initiation or output fErom some new undertkings are proJected to resultl in an, accelera- tion in the growth of manufacturing compared with the past five years. WitL Li8igh gro-wthL iLn productive and i.-.evestment activities, corstruction anAu services are also expected to increase at a higher rate. Outlook for Investment and Savings 11. These favorable medium terms prospects will help facilitate achieve- ment of a considerable increase of investment. Nevertheless, it does not seem likely that it will be possible to achieve in full the investment target of the Fourth Plan. Notwithstanding the growing capacity of public institutions to prepare and execute a diverse range of rural development projects and pro- grams, physical implementation of certain proposals in this high priority sector is likely to be delayed beyond the Plan period. Moreover higher costs, expanded public participation, and some new projects are likely to incresae the share of public outlays in industry, transport, and power, and indeed could push total investment above Plan proposals unless reductions were made in social and administrative investments. Moreover, both medium and longer term financial prospects suggest that Cameroon would be prudent to limit the increase in total investment to a level about two thirds over the - vii - Third Plan level in real terms rather than 80% as projected in the Fourth Plan. This implies a public investment level of only two thirds over the Third Plan (rather than the doubling projected in the Fourth Plan), since private investment of at least the Plan amount is needed to stimulate output and expand capacity in forestry, agriculture, livestock, fisheries cnd manufacturing. This conclusion is based on (a) the dependence of public revenue and savings on cocoa and coffee prices, which are projected to decline substantially from their record levels in the first two years of the Plan period, while import prices will continue to rise, (b) the need to maintain sufficient financial reserves to provide farmers adequate price and production support incentives for production and new plantings, and (c) the need to keep supplementary borrowing on commercial terms at prudent levels to preserve Cameroon's long term capacity to borrow. The investment rate during the Fourth Plan period would then be about 22 percent of GDP and total invesment in current prices would be about US$3.5 billion or about US$690 million per year. In making the necessary adjustments to keep the Fourth Plan within this framework, priority clearly needs to be given to projects with high economic and social returns. There are a number of pro- jects in the Plan whose returns presently appear to be rather low or uncertain. These could be postponed or reduced in scope. Longer-Term Outlook 12. The expected high public investment rate during 1975/76-1980/81 is not likely to be sustainable at least during the mid 1980s due to worsening terms of trade and to the necessity of prudent debt management to maintain the country's long-term capacity to borrow. However, there is a good resource potential which should help to maintain a healthy growth rate during the de- cade of the 1980s, if adequate private investment can be attracted to key sectors and if government nolnciep and their implementation are strengthened in support of developments in key areas. The main possibility for substantial private investment iq in forestr- w.hDere the potential for expanded outp- and exports is very large. There are also reportedly some good iron ore deposits. Land resources are very good for continued expansion of rubber and oil palm, and for more rapid development of food crops and livestock; moreover there are signifirant possibilities for expanded exports of a number of these products, both to neighboring African countries and to other continents. These should be able to more than compensate for relatively slow growth rates expected in coffee and cocoa. Continued development of manufacturing for the domestic market in line With income growth is certainly feasible, and there is no reason why a significant beginning should not be made in m.an ufactured exports before IC h. e end o L thle InaAs. The pace at whRich realiza- tion of these potentials can take place will of course depend in part on the gove.ment's success in stlmulallng private i'nvestment, in directing its own investment outlays to high priority sectors, and in developing the institutior.al Lase to ensure effect-ve impenentation of policies. - viii - Financial Prospects and Creditworthiness 13. During the Fourth Plan period, public savings after debt service would finance more than 40 percent of public investment, compared with the corresponding shares of 39 and 36 percent for the Second and Third Plan periods. However, this share would be nearly two thirds during the first two years of the Fourth Plan period due to very favorable terms of trade, on the average more than 20 percent higher than the base year of 1974/75. During the last three years of the Fourth Plan period and thereafter at least until the mid-1980's, the share of domestic public financing would be only about one third or less as the terms of trade are proiected to drop by about 17 percent between 1977/78 and 1978/79 and to decrease more gradually through the mid-1980's. Cameroon will also experience! during the period from the late 1970's on, a more normal and higher public debt service burden when amortization navments for the many concessionarv loans begin and when the service on public borrowing at commercial terms will increase rapidly. CThmnrnnn will have tn relv inreasinc'lv on fnreign finanrino fnr the bulk of its public investment, and foreign official lenders should continue to finance a high proportion of total pro4ect costs of externally financed projects, including local costs in appropriate cases. 14. An increasing reliance on foreign borrowing during a period of deteriorating terms of trade will require careful medium-ter- financial and external debt management. Thus the evaluation and summation of investment proposals in current prices is needed to deteine domestic and foreign capital requirements, while medium-term financial planning is needed to iLUWPL UV C U jJI I; UL .1.IV C L Ule DIIU ji 1U L CdU CLM UL LL L e J. U V r J ; UL c- sources to meet rising debt service obligations and sustain production incentives. OL particular i pUIeiCanCe is thLe monitUorig Uf public enter- prises, which play a significant role in both the mobilization and use of domestic and foreign funds in Cameroon. 1/ The recent establishment of an interministerial committee on current economic developments (Comite Inter- ministeriel de Conjoncture Economique) and the creation of an autonomous amortization fund (C.A.A.) should help to strengthen overall financial management in the face of economic fluctuations and rising international obligations. 15. Cameroon continues to be creditworthy for World Bank financing on the basis of its ability to maintain and improve productivity in the utiliza- tion of the country's resources in the medium-term and its potential in the long-term to further diversify the economy by developing still unexploited resources. On the reasonable assumption that at least 50 percent of foreign public capital will be on concessionary terms, the foreign debt service ratio, about 6 percet of export earnings in 1976, could be maintained below 13 per- cent by 1983. 1/ See paras. 65-77 PART I RECENT DEVELOPMENTS Population and Employment 1. The first population census 1/ in Cameroon established the total population of 7.7 million in April 1976, from about an one-half to more than one million higher than previous estimates based on extrapolated growth rates, sample surveys and other partial data. Population growth appears to have accelerated from a rate of about 2 percent per annum during 1960-1975 to an estimated rate of about 2.3 for 1975-1980. This resulted from a much greater decrease during the period 1960-1975 in the crude death rate to an estimated 20.5 per 1,000, compared with a small decrease in the estimated crude birth rate of 43.6 in 1975 2/. The urban population has grown rapidly since 1960, at estimated rates exceeding 6 percent per annum. In 1960, 28.5 percent of the population lived in urban areas. The nonplations of the largest city, the port of Douala - 458,476, and of the second largest city, the capital city of Yaounde - 317;706; accounted for respectively 6 and 4 percent of the total population. The average population density was 16.5 per square kilometer in 1976. However, po-ulation densit bxy provinc varied widely from 3.4 per square kilometer in the Eastern Province to 74.5 in the Western Province. The national average family size was 5.2 in 1976. The urban and rural averages were about the same, 5.1 and 5.2; but the average by nrovince varied considerably from 4.6 in the Littoral Province to 7.0 in the North-West Province. The Cameroonian population was quite young in !976, the result of continuous high frertility In17,$.Tpreto h ~ I.. .~A.AL5.LUUU IL J.1 L L L.L.L L)' * Ln J.:716, '4J. 44 pecLent of thie population was under the age of 15. The rapid and regular narrowing of the population pyramid with advancing age brackets, reflects still high mortality. As a result of the rural-urban migration, the rural population had an important defiJcit of males in the 15-554 age group While the urban population had a surplus in the same age group. 2. In 1976, 52.9 percent of the population was of working age, from 1'i4. TChe national average participation rate was 66.3 percent. The male and female participation rates were respectively 84.6 and 50.0 percent. The substantial difference between the participation rates of the rural (70.2 percent) and urban population (56.7 percent) was due essentially to the considerable agricultural activities by women in Cameroon. The female participation rate in urban areas was only 31.4 percent. In 1976, 79.4 percent of the active popuilation was in agriculture, livestock, fishing and forestry, 6.7 percent was in the secondary sector -- manufacturing and mining (4.9 percent of the total active population), and construction 1/ Selected results of the population census became available in early 1978. Current government plans project the publication of complete results in mid-1978. A fertility survey is being carried out to collect additional data for population projections. 2/ These are pre-census estimates. Cameroon itself has not proceeded beyond the tabulation stage and the data available so far do not permit the revision of these estimates. - 2 - (1.8 percent), and 13.9 in the tertiary sector -- services (8.0 of the total active population), trade (4.2 percent), transport and communications (1.4 percent) and banking and insurance (.3 percent). The self-employed represented the majority of employment, 64.2 percent, followed by unpaid family workers, 20.0 percent. There were substantial differences in these shares for the rural and urban areas, respectively, 69.6 and 44.6 percent, and 23.9 and 5.8 percent. Nationally, only 14.1 percent of employment were salaried employees. This share in urban areas was 44.7 percent compared with 7.7 percent in rural areas. In 1976, the unemployment rate was 6.1 percent. The urban unemployment rate was much higher, 12.2 percent, than the rural rate. 4.3 Dercent. The maiority of the unemployed, 72.6 percent, were those seeking work for the first time. The unemployed were also mostly young people. The unemployed of the aae group 15-24 were 55.5 percent of the total, 61.0 in urban areas and 50.0 in rural areas. Trends in Output and Resource Use, Third Plan Period (1970/71 - 1975/76) 3. The mission's evaluation of trends in agriculture, industry and services indic-ates that real growth of output during 1970/il - 1975/76 was probably higher than the 2.5 percent per annum growth in GDP derived tfrom the official ntional accounts !_ , The statistical basis for the estimates of GDP in 1974/75 prices, the base year for the Fourth Plan is given in Appendiv Tables 2=1 - 2e6. Tn summary. these tables show average annual economic growth in constant 1974/75 prices of 1.8 percent in the two years 1970/71 1 !972/73 and 2.8 percent during the following three years, with the highest annual growth of 6.6 percent in 1973/74 due to a considerable inLLe~e * -~- S14-1- I ~ Q7II75 and a rec'overv of 3A6 i.ncrease in exports, a sight- decline i-n !947 n ecvr f3 percent in 1975/76, when the rate of domestic inflation appears to have aDaLeu. The estimates of real growth do, of course, de-end critirnllv on the available indicators for rates of price increase, which were derived for each sector and each major category of expenditure. According to these indicators the overall price index for GDP rose by about 10 percent p.a. during the five year period, with price increases of about 8.0 percent p.a. during 1971/72-1973/74 accelerating to 16.6 percent in 1974/75, and moderating to 8.1 percent in ;975/76. For the period as a whole agriculture expanded in constant 1974/75 prices by an average annual rate of 3.6 percent, modern sector manufacturing by 5.9 percent, and public administration by 5.2 percent. The estimate of overall growth during the Third Plan was thus depressed primarily because of very low estimates of growth in current and constant prices in trade and other services (which account for more than 30 percent of GDP) and negative growth in construction and in "traditional" activities in the remaining sectors; growth of the modern economy alone was probably closer to 4.0 - 4.5 percent. Even if real growth was higher than indicated in official national accounts, the behavior of the economy can generally be characterized as sluggish during the Third Plan, which is substantiated generally by independent analysis of the balance of pay- ments, the public sector and money and credit. 1/ The Government does not make official estimates of growth at constant prices. The estimate of 2.5 percent growth is based on a deflation by the mission of official current price estimates for 1970/71 - 1975/76 using volume data or price indicators. Table 1: GDP GROWTH BY MAJOR SECTOR Billion CFAF at 1974/75 Prices Growth Rate 1965/66- 1970/71- 1965/66 1970/71 1975/76 1970/71 1975!'6 Agriculture 107.7 139.2 165.8 5.5 3.6 Manufacturing + Mining 32.3 49.5 68.0 10.1 5.9 Construction 20.1 24.8 20.9 4.5 -5.6 Public Administration 30.4 42.6 54.6 7.1 5.2 Subtotal 190.5 256.1 309.3 6.5 3.6 Other Services 120.1 188.8 191.6 9.1 1.0 GDP (Market Prices) 310.6 444.9 500.9 7.6 2.5 Note: Based on official current price estimates. 4. The 3.6 nercent growth rate of agriculture in the first half of the 1970's represents a decline from the growth rate of 5.5 percent achieved in the 12st half of the 1960'9. The main caiuse of the dron in the growth rate was a fall in output of cocoa and coffee, Cameroon's main export crops. These were adversely affected by poor weather in the past two uear, hbut even more by the failure of producer prices to keep up with price trends of ;inputs (m -ainy 4 1f 4 eizr) and of competing fopo ro-n.s Rroarnrdad arnwth in other cash crops also declined as a result of poor weather (cotton) and low producer prices- (gro.Aundnus). On -he ot-her hand output of food crops acce- lerated in this period in response to rapidly rising demand in urban areas andU LUor export to Gabon, NiIgerLa and othLler neighboring countries (these exports are however unrecorded). 5. For the period of the Third Plan the available sources 1/ indicate average annual growth of value added in modern manu'acturing ini current prices in a range of 17-20 percent and in constant prices in a range of 7-10 percent. Real growth was slower than in the 1960s, but still consider- able in view of the higher level of output in the base period and the need to adjust to changes in domestic anu internatior.al market conditions wLich emerged in the 1970's. 1/ The 1BRD industry sector mission examined in detail a sampie of 31 firms, which account for about 80 percent of manufacturing output, narrowly defined, excluding particularly saw mills and agro-industries such as vegetable oil and rubber. The sample itself is biased towards the largest and most evidently "modern" firms in the sector, which have probably experienced the fastest growth in recent years. Table 2: INDICATORS OF ANNUAL GROWTH RATES OF MODERN INDUSTRY OUTPUT 1970/71 - 1975/76 Current Prices SYNDUSTRICAM a/ 19.9 National Accounts 17.1 Sample of 31 16.6 Constant Prices National Accounts b/ 7.1 Sample 31 c/ 9.9 a/ Turnover (chiffre d'affaires) of members of the Syndicate des Industriels du Cameroon which includes most modern enterprises. b/ Deflated by Douala high income consumer price index. c! Deflated by industrial sector mission, based largely, on a physical output series. 6. Food and beverages, including breweries, account for about half the value added ir. the industry mission sample and grew at about 10 percent p.a. during 1970/71 - 1975/76. Textiles grew at a faster rate, but slowed down in 1975/76, while shoes and clothing stagnated or declined, in part because of imports from Nigeria at favorable exchange rates. Aluminium, which had been constrain.ed below installed capacity by limited su plips of electric nower throughout the period, increased in the last two years, accounting for a con- siderable part of the rise in output. Output of sawnwood, railroad ties and wood chips probably grew somewhat faster than log production, which was low '-or the period as a whole, sir.ce there was an expansion in processed wood sales both for the local market and exports. "Traditional" manufacturing is estLmated to have increased by only 2.0 percent p.a. while value added in mining dropped in the first year of the period and then rose slowly as research and development, particularly in crude oil, picked up. 7. Value added in construction in real terms according to the official national accounts 1/ decreased during the Third Plan period. The share of the traditional sector in total value added in construction (the value added of traditional housing construction and individual construction workers) decreased from about one-half in 1970/71 to less than one-fifth in 1974/75. Although there could have been some underestimation in traditional construc- tion, the trend in the construction industry was still that modern construc- tion increased, both in absolute real value and as a share of total value added while the reverse was true of traditional construction. The growth rate in public administration of 6 percent p.a. during the first three years of the Third Plan period was cut to 3.6 percent during the last two years. 1/ See footnote 1, p. 2 - 5 - Table 3: STRUOTURE AND GROWT'n OF RESOURCES AiID USES THIRD PLAN PERIOD Structure in Current Prices Growth Rate a/ (Percentage Shares) (Percent) 1970/71 1975/76 1970/71 - 1975/76 GDP 100.0 100.0 2.5 Imports of Goods and NFS 29.7 31.6 b/ 1.3 Exports of Goods and NFS 25.9 28.3 b/ 2.9 Domestically Available Resources 103.8 103.3 2.0 Consumption 87.6 86.6 1.7 (Private) (72.7) (71.4) (1.2) (Public) (15.0) (15.2) (4.1) Gross Fixed Capital Formation 14.1 17.1 3.4 Change in Stocks 2.0 -0.4 20.0 Source: Appendix Tables 2.4 and 2.5. a/ Expenditure on GDP at 1974/75 prices. b/ Both imports and exports are probably underestimated in recent years as a result of an increase in unreported trade. especially with Nigeria. 8= Tnhle 3 shows that imports remained roughly constant as a share of the resources available to Cameroon, valued in current prices, but in real tenrmc rornrd imnort-. rose more slowlv than either GDP or exDorts. Thus the increase in import prices beginning in 1972/73 clearly constituted a burden on the Cameroon economv In this nperiod of rising nrices, the replacement of imports by local manufactures, domestic food production and availablehydro tri facilities a1l h-1elped dampen imnort demand. Estimates of the volume of merchandise imports based on customs data do show very little increas- 4- -nrnt4rHPllu 11 rPt0aonrip nf merrhandise imoorts and a substantial decline through 1973/74. Table 4: COMPOSITION OF IMPORTS (in billions of CFAF at 1974/75 prices) 19Q7 1/72 19072 /73 19734/74 1974/75; 1Q75/76 intermediate goods and petroleum 58.8 55.7 57.6 69.0 60.2 Food and consumption goods 29.0 26.0 24.6 24.8 24.2 Capital goods 32.2 31.3 21.4 32.2 33.4 Total goods 119.9 113.1 103.6 126.0 117.8 Total Imports, inc. NFS 142.6 138.0 131.7 152.8 158.5 - 6 - The rise after 1973/74 was attributable entirely to capital goods, inter- mediate goods and non-factor services, which in the case of the latter may also cover some merchandise imports as well as contruction services. Ex- ports increased in relation to GDP both in current and constant prices. The relatively favorable five year trend in export volume was due mainly to agricultural products, which account for about 70 percent of total exports. Exports declined in 1974/75 and then recovered in the last year of the Third Plan but were still below the peak year 1973/74. Table 5: COMPOSITION OF EXPORTS (in billions of CFAF at 1974/75 prices) 1971/72 1972/73 1973/74 1974/75 1975/76 Agricultural Products 72.6 73.9 93.7 74.4 83.0 Semi-processed goods 16.9 17.3 17.4 18.6 18.9 Manufactures 5.8 6.4 7.0 5.0 7.6 Other 12.7 8.9 7.8 15.6 9.3 Total goods 100.0 102.5 125.3 106.9 116.4 Total Exports incl. NFS 126.0 129.8 153.9 132.1 153.3 Of tlhe maJor agricultural exports, do.wrd trends for cocoa (25 percent of total exports in constant prices) and natural rubber contrasted with clear upward trenus for roubusta coffee (reachirLg 17 percen of total exports in 1975/76 as a consequence of large exports from accumulated stocks), bananas and tobacco. Logs exports, which account for 8-10 percent of total exports, reached a peak in 1973/74 but in the following two years dropped below the first year of the Plan period. 9. Export and import prices both rose during 19712 - 1 except for a decline in export prices in the last year. But import prices rose more rapidly than export prices in i974'75, import prices increased in 1975/76 while export prices declined resulting in a deterioration in the terms of trade of 6.7 percent and 7.6 percent, respectively during these two years. Table 6: TERMS OF TRADE 1971/72 1972/73 1973/74 1974/75 1975/76 Export a/ price index 60.6 67.5 85.8 100.0 99.7 Import a/ price index 63.7 71.5 80.1 100.0 107.9 Terms of trade 95.2 94.4 107.2 100.0 92.4 a/ Including non-factor services, Bank staff estimates. - 7 = 10. The official estimates imply a real increse in total consumption at a rate of only 2 percent. Growth in public consumption or 4.1 percent p.a. was less than growth in output of the public administration, because real purchases of goods and services rose less rapidly than wage and salary payments. Private consumption does not keep pace with population growth. If, as we have suggested, real growth in production was underestimated, part of the upward adjustment should be allocated to private consumption. Still, private consumption was probably not very dynamic during this period, while there was a substantial increase in total savings, which is supported by evidence of a substantial rise in financial savings with the banking system. Investment Structure and Trends 11. During the course of the Third Plan total gross domestic fixed capital formation in 1974/75 prices is estimated to be at least CFAF390 billion. Of this, 70 percent was public in the sense that it was financed by or through the Government and other public entities, and 30 percent was private, a low ratio in comparison with other comparable countries. The estimates of fixed investment in the national accounts correspond rather well to those contained in Plan execution reports, which in turn are based on project implementation in the public and modern private sectors and should be quite reliable 1/. The trends in private investment of enterprises also seem plausible, but the level of private investment is probably underesti- mated in housing, agriculture and private transport 2/. The overall incre- mental gross capital to output ratio for the 1971/72-1975/76 period was about 6.0. Year to year changes and available data on the composition of investment do provide some insight into this relatively low productivity of investment, although allowance should be made for such factors as weather which cause output to behave independently of investment. Table 7: GROSS FIXED CAPITAL FORMATION (In billions of CFAF at 1974/75 prices) Cumulative Total Growth 71/72 72!73 73/74 74/75 75/76 5 years 4 years Public Tnvestment 49.1 92.6 45.3 46.2 62.0 2S991 6.0 Private Investment 23.9 14.6 20.8 35.2 25.9 120.9 2.0 Total GFCF 73.0 67.2 66.1 81.4 87.9 376.0 4.0 Sources: National Accounts for GFCF; Report on Plan Execution, adjusted bly the missior. for public in.vestment; private 4nvestment 4s residual. 1/ The mission has, however, adjusted these estimates slightly to reflect independent estimates of Usbuursements of foreign public loans. _/ A correction for this apparent unuerestimate suggests that totaL private investment may have been around 40 percent of total investment. - 8 - 12. The annual changes in public investment in real terms show a pattern which might be repeated in the present planning period, although the level will certainly be higher and the structure of financing different. In general it appears that when domestic resources were available to the Government, real -'Lvestment could be increased rather readily but when the Government had to rely more on public foreign resources, the rate of implementation depended on the prior negotiating of new commitments, which in turn depended on the speed of proiect preparation. Thus when the Third Plan got under way the Government was able to raise public investment sub- stantiallv in the first year by drawing on deposits which had been accumu- lated in earlier years with the Central Bank to finance economic and adminis- trative infrstrurctiire and in the second year because both the Government and foreign donors had already started to finance the Northern extension of the railroad, which entaileda large rise in diqhisrePmPnts of foreign loans and grants. In the next two years real public investment actually declined, because domestic resources were limited- while dishursempntq of nphlic foreign loans and grants on commitments made at the beginning of the plan period tap-ed off. lnal.y, -he lst y of the Trd Plan, public invetnt in real terms rose to a level 30 percent above the first year, with the Jinancing of theL.n Ci,.ree-asl e la rg e ly a tl trib utable to a A-i o.Uf disbursement on foreign loans which had been committed during the Third Plan. This re- flects some acceleration in project preparation, although substant4al m.nounts were also obtained from private lenders with less stringent commitment criterLa. 13. Private investment appears to have bUeen quite stabLe, with a significant increase in 1974/75. This is consistent with independent estimates made by the IBRD industry sector missiOn, -wh1ich show a fairly steady level of total investment expenditure by a sample of 31 medium and large scale private industrial firms wnich however indicates a decline in 1974/75. This period in fact was one of consolidation following the "first wave" of import substitution which took place in Cameroon as well as many other African countries in the 1960's. The most important modification to the investment situation in industry towards the end of the period was a rapid rise in Government participation, especially through Societe Nationale d'Investissement largely in the form of minority holdings with foreign part- ners. According to the Report on Plan Execution, during the Plan period about 37 percent of privately financed investment was for tourism, trade and transport services, mainly cars and trucks, 22 percent for industry, 24 percent for housing, 12 percent for energy and refining (of which a large part was oil exploration) and only 2 percent for agriculture. As noted earlier, private investment in housing and agriculture seem to be underestimated. When a rough adjustment is made for these, the upward trend in total private investment may have been more pronounced. 14. Investment expenditure of the Central Government is classified according to whether it is financed through budget or extra budgetary accounts, a distinction which deserves a brief explanation. The Cameroon budget contains separate authorizations for current expenditure and an - 9 - investment budget, with debt service (except in 1975/76) and financial participations also included in the latter. The investment budget is pre- pared, initially, by the Ministry of Economic Affairs and Planning and reflects plan priorities and the status of Plan implementation in the year for which the budget is prepared. In the last few years the amount of the investment budget was frequently reduced below initial proposals, while during the course of the year actual appropriations (credits de paiements) have been less than initial authorizations. On the other hand, extra budget accounts were opened to finance projects often not included in the Plan, funded by liquid resources available to the treasury, mainly in the form of credit facilities from the central bank, transfers from the stabilization funds 1/ and to a lesser extent foreign borrowing. During 1971/73-1974/75 financing through extra-budget accounts contributed about 30 percent of the financing of Central Government investment and 10 percent of the total investment of the public sector. Disbursements of foreign loans and grants, which accounted for 40 percent of the financing of public sector investment during 1971/72-1974/75 (48 percent for the whole five-year period) are also not included in the budget, but only the Government's domestic contribution associated with foreign-financed projects. 1/ Stabilization funds also made expenditure for investment on tneir own account. - 10 - Table 8: ACTUAL COMPOSITION OF PUBLIC INVESTMENT BY SECTOR AND EXECUTING AGENT THIRD PLAN [1971/72 - 1975/76] (In percent) Central Govern- voreign ment Public Stabili- Local Project Total Extra Enter- zation Govern- Loan and Public b/ Budget Budget prise Funds ment Grants Sector Directly Productive Sectors Rural 9.7 2.9 23.2 84.5 2.5 21.0 19.9 Energy and Refining 0.0 0.0 12.3 0.0 - 2.4 3.1 Industry and Services a/ 1.3 8.8 27.2 - 9.3 12.3 11.3 Subtotal 11.0 11.7 64.7 84.5 11.8 35.7 34.3 (Share of Agent in s,ihtot-n1) (7.2) (3.4) (31.6) (12.2) (1.0) (44.5) (100.0) Transport ar.d Communi- cations Infrastructure 25.5 35.6 23.1 11.1 51.1 51.3 37.2 (Sar of Agent in subtotal)(15.5) (9.7) (10.4) (1.5) (4.0) (58.9) (100.0) Soci;al Inflrastructure Education, health 18.1 9.4 - 0.0 6.7 6.9 8.4 Urban -water, Lh Vo us- ing 4.2 14.8 !1.6 0.9 10 8 5-7 6.7 Sports, admin. buildings 30.2 23.9 0.5 2.6 19.6 - 10.2 Subtotal 52.5 48.1 12.1 3.5 37.1 12.6 25.1 (Share of Agent in subtotal) (47.1) (19.4) (8.1) (0.7) (4.3) (20.5) (00.0) Studies 5.2 0.0 0.8 - 1.3 1.8 Financial Participations 5.0 4.7 0.0 - - - 1.6 Grand Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (Share of Agent in Grand Total) (22.6) (10.0) (16.7) (5.0) (2.9) (42.8) (100.0) a/ Includes trade b/ Includes only local government investment expenditure for the first four years of the Plan period. Source: Report on Plan Execution. - ;; - Structure of Public Capital Expenditure 15. During the Third Plan period capital expenditure of the Central Government accounted for about 32.7 percent of total public sector outlays, public enterprises 16.1 percent, stabilization funds 5.0 percent, local governments 2.0 percent and foreign sources 42.8 percent. As might be expected, the preponderance of Central Government resources was allocated to social and administrative infrastructure, while the largest part of funds invested by public enterprises and directly by stabilization funds went to production sectors, the latter almost entirely to agriculture. The transport sector received the highest amount of public capital expenditure, about 37 percent of the total. About half of the foreign financing went to this sector, mainly for rolling stock and extension of the Trans Cameroon Railroad line and construction of major roads (grands axes). The share of foreign finance which went to transport reflects the high foreign exchange cost and priority of investment in this sector in Cameroon. Even so, execution of some important transport investment projects was delayed until the Fourth Plan period in order to complete studies and secure financing. With respect to other sectors, the past priorities for foreign financing were agriculture (mainly in associa- tion with public enterprises), industry and productive services, and education and health, in descending order. Investment and Saving 16. During the last Five Year Plan gross domestic rnnital fnrmatinn including investment in stocks exceeded gross domestic saving, although in one vear, 1973/74. there waR a rpRonirrp Rirnlp II andl saqvina wac hi ohor than investment. On average during the period gross domestic savings renrprpntpd 16=4 nprront GDnP at- rcurrent marlrke- pricesa and Qf0 perc of total capital formation. However, net payments of wages and salaries for foreigner… resident in 4 Camr- n and- net interest anA A4v4AenAs on borrowing and capital absorbed about 3.2 percent of gross domestic income, so that national savings accounted for 13.2 percent of GDP at current market prices and 73 percent of capital formation. Finally, after provision for amortization of foreign medium anA long term 'Loans, net natidonLa'L iLnvestable resources represented about 12.0 percent of GDP and 66.5 percent of total investment ir fixed assets a stocks. ThLu aUbUL 3J Lt ofL%L UL LV investment was financed by foreign resources; approximately 30 percent came from Aisbursements of capital grant _1_,d -ulcmdima. long -er UJA. 6LCILLLO_ aLU jJUUJ..L_L UICU±ULUL CLIU A.LUIr,I- LLU loans and 5 percent through net operations on all other foreign accounts r.cLUdiL LLL ue of reserves. - 12 - Table 9: INVESTMENT AND SAVINGS (Billions of CFAF and Percent in Current Prices) Five Year Plan 1971/72-1975/76 1971/72 i972/73 1973/174' 1974/75 1975/76 _/ GDP .Investm_,ent Public T,Inectment- 2. n 4n.7 395 4.9 6.9 10.5 98.2 Private Investment 15.7 11.3 18.1 35.6 27.3 5.1 28.0 Gross Fixed Capital Formation 47.7 52.0 57.6 81.8 92.8 15.6 86.2 Change in Stocks 8.6 10.3 14.0 22.0 -2.0 2.5 13.8 Total Investment 56.3 62.3 71.6 103.8 90.8 18.1 100.0 Public Savings i0.0 18.2 34.1 40.9 36.5 6.6 36.4 Private Savings 32.4 33. * .1 36.3 ^,. Q A. 54 Grnos Dnompsti Savings 42.3 51.5 98.3 83.0 72.8 16.4 90.6 Less: Net Payments for foreign Factor services -8.7 -9.6 -15.4 -16.2 -17.4 -3.2 -17.5 Gross National Savings 33.6 41.9 82.9 66.8 55.4 13.2 73.1 Less: Amortization of Privute and Pihlic1 medium and long term debt -2.7 -3.5 -4.5 -7.0 -7.6 -1.2 -6.6 Available for Investment 30.9 38.4 78.4 59.8 44.8 12.0 66.5 Disbursements of Grants and public rediurn and long term loans 14.8 22.1 18.1 20.7 38.1 5.4. 29.7 Other long term canital. npt 6.9 6A6 5.6 10.2 14.6 2.1 11.4 Use of other re ources, net -9.4 -4.7 -23.4 a/ 13.1 a/ -7.8 Increase in reserves -13.1 -0.1 7.1 -11.7 1.1 a/ Comparison with the balance of payments suggests that total expenditure in the national accounts was underestimated in 1973/74 and overestimated in 1974/75 Source: Text Tables 10, 11, 15, Appendix Table 2.4 - 13 - 17. Throughout the period there was a surplus of private savings with respect to private fixed investment and stocks, while there was a deficit in public savings, which accounted for approximately half of public fixed investment. The magnitude of the private savings surplus is almost cer- tainly overstated, which again could be attributable to underestimates of private investment as well as to the possibility of some discrepancies in coverage 1/. Still, the margin of error is less for estimates of public sector revenue and expenditure, and money and credit data do imply some transfer of private savings through the banking system, as the liabilities of banks vis-a-vis the private sector rose, while there was an expansion in net claims of the banking system on the public sector. The extent to which this process can continue is limited by a statutory ceiling on borrowing of the Central Government, while public enternrise borrowing is constrained by overall monetary policy and rules for credit allocation. Balance of payments data support the hypothesis that fnreign capital ouitflows also provided an outlet for some of the savings of the private sector, parti- cularly in 1973/74 when the increase in foreign exchange reserves was much less than the overall resource surplus. Public Investment Finance and Financial Performance 18. Of cumulative public sector investment estimated at CFAF224 bil- ULon LrL current prices dUuring thle TLhirU PLan, CFL Ub.L.Li.on was financeA by gross disbursements of foreign grants and loans, CFAF 92 billion from the surpluses of central and local go-vernment, public enterprise and sta- bilization funds after debt service and CFAF 22 billion by use of treasury resources and net public sector borrowing from the banking system. 1/ Reclassification of some parapublic enterprises to the public sector could raise gross public savings and lower gross private savings. - 14 - Table 10: PUBLIC SAVINGS (Billions of CFAF in current Prices) 1971/71 1972/73 1973/74 1974/75 1975/76 Central Government 7.1 9.2 9.5 11.2 19.1 Stabilization Funds -2.2 1.2 17.1 21.5 7.6 Public Enterprises a! 4=o 6.1 5.9 6.2 7.6 Local Governments b/ 1.1 1.7 1.6 2.0 2.2 10.0 18.2 34.1 40.9 36.5 Tnterest on foreign debt 1.3 !.7 2.3 2.5 3.5 Total Savirngs 8.7 1.7 31.8 38.4 33.0 Amortization foreigr. debt I.7 I22 2.37 32 ' Total available resources 7.0 IL 29.1 315.2 280. a/ Detals oil rnanceal operatons o the eight maor public enterprises and of local governments were not evaluated during the mission. For the Port, Railroad, CDC and Socapaim IBRD project appraisal and audit reports were used. For the other enterprises, we have extrapolated data from the technical annex to IBRD report No. 1097a-CM, "Note Technique sur les Composantes de la Consolidation Financiere du Secteur Public", dated 18 September 1975. b/ For local governments we have used the Report on Plan Execution. 19. During this period total expenditure of the Central Government ex- ceeded revenues. The deficit on budget and extrabudget operations averaged 11 percent of budget revenues, financed by use of resources from the sta- bilization funds, which earned substantial savings in that period, borrowing from the Central Bank, and some foreign borrowing. The expansion in Central Government spending, while high, was not excessive for the five year period as a whole, particularly when allowance is made for the rise in costs and international prices which began in 1973/74. Current expenditure increased by 13.5 percent p.a. while tax revenue increased by 14.8 percent p.a. How- ever, total expenditure, including capital expenditure, rose faster than total budget revenue. The acceleration in current and capital spending towards the end of the period was rapid in relation to the growth of available resources, and revealed certain weaknesses in budget execution as well as the need to control underlying trends to avoid excessive deficits in the future. Thus there were wide year to year fluctuations in budgeted capital expenditure, and a fast rise in extrabudget expenditure, much of which was used to finance capital outlays not included in the Third Plan. During this period it appears not only that budgeted capital expenditure was squeezed, but that there were some delays in meeting outstanding commitments. In 1975/76 the Cameroon - 15 - budget made no provision for payment or foreign debt service, which was to L e transferred to an autonomous fund to be set up and financed from special resources. in fact, debt service was paid out of extra-budgetary accounts. Partly because of such problems, the Government consolidated certain extra- budgetary accounts in the 1976/77 budget and established an econom'c forecast- ing unit (Division des Etudes et de la Prevision) to monitor current develop- ments and provide information to strengthen overall financial management. For the first time, also, the budget provided for an overall deficit of CFAF 18 billion, to be financed from borrowing and special resources. This procedure was in fact a closer approximation of previous years' results and was not unrealistic provided additional extra-budgetary expenditure was not incurred. - 16 - Table 11: SUMMARY OF PUBLIC FINANCE AND INVESTMENT (CFAF Billions, rurrent Prices) Prov. Estimate 1971/72 1972/73 1973/74 1974/75 1975/76 1. CENTRAL GOVERNMENT 2. Budget Revenue 56.5 59.3 67.4 81.2 101.0 3. Current Expenditure, excl. interest on foreign debt a/ 48.9 50.1 57.9 70.1 81.9 4. Current Surplus, excl. interest on foreign debt a/ 7.1 9.2 9.5 11.2 19.1 5. Interest and Amortization, foreign debt a/ 1.3 1.3 1.8 2 4 3.9 6. Available for Investment (4-5) 5.8 7.9 7.7 8.8 15.2 7. Capital outlays 12.8 9.6 12.0 18.1 24.4 8. (Equipment Budget) e/ (8.6) (8.6) (7.8) (1l.1) (14.4) 9. (Extra-budget, excl. amortization, foreign debt) e/ (4.2) (1.0) (4.2) (7.4) (5.9) 10. Overall Treasury Deficit (6-7) 7.0 1.7 4.3 9.3 13.4 ii (Nat Rorrowine from Central Bank) b/ (10.3) (0.8) (-4.2) (5.6) h/ (12.8) h 12. (Transfers from Stabilization Fund ,sl (-3.3) (-0.2) (7.0) (7.2) -3.8 13. (Other Treasury Accounts, net) d/ (0.0) (O 2) (1.0) -4.4 -0.7 14. (Foreign Financing) a/ (00) (O.Q) (0-5) (0.9) 5.1 15. Foreign Capital Grants e/ 2.7 2.2 / 3.2 4.4 5.5 16. Foreign Loan Disbursements a/ 4.4 5.2 6.6 9.8 22.3 17.TOTAL CENTRAL GOVERNMENT INVESTMENT (7+15+16) 19.9 17.0 21.8 32.3 53.5 in. AU_I. ENTITIES !_AA..TMENT f/ 11.0 22.1 16 1o l.4 14.8 19. Domestic Financing e/ 5.0 10.0 13.4 9.3 10.0 20. (Borrowing) . (0.1) (1.7) (1.7) (1.5) (3.3) 21. (Self-financing) (4.9) (8.3) (11.7) (S.0) (7.0) 22. Foreign Financing, net a/ 6.0 12.1 3/ 2.7 5/ 2.1 4.8 23. (Debt Service) (1.7) (2.6) (3.2) (3.3) (4.2) 24LOCAL GOVERNMENT INVESTMENT e/ 1.1 1.7 1.6 2.0 2.2 i/ 25 Domestic Financing 1.1 1.7 1.6 2.0 2.2 26 Foreign Financing 0.0 0.0 0.0 0.u u.u 27 TOTAL DOMESTIC PUBLIC FINANCING (4+10-14+19+25) 20.2 22.6 26.4 30.7 40.5 28 (Less: Payments Foreign Interest and Amortization) -3.0 -4.0 -5.0 -5.7 -8.1 29 AVAILABLE FOR INVESTMENT 17.2 18.6 21.4 25.0 32.4 30 TOTAL FOREIGN FINANCING. GROSS 14.8 22.1 18.1 20.7 38.1 31 (Disbursements Grants) (2.7) (5-5) (6-6) (4.4) (6.8) 32 (Disbursements Loans) (12.1) (16.6) (11.5) (16.3) (31.3) 3q TOTAL PUBLIC INVESTMENT (29+30) . (17+18+24) 32.0 40.7 39.5 46.2 65.5 Memo Item: Technical Assistance Grants Not Included Above 2.9 3.5 3.2 4.0 5.1 a/ IBRD estimates of debt service and loan disbursement f/Includes investment expenditure of Stabilization Funds b/ Central Bank data , credits to government less deposits g/ CFAF 6.7 billion reallocated Gbvernment to Railroad in c/ Ministry of Finance, change in deposits net of transfers h/ Revised from IFS, june 1977 72/3-73/4 d/ Residual i/ Notional estimates e/ Report on Plan Execution - 17 - 20. The financial resources of the commodity stabilization funds and the Produce Marketing Organization are derived from levies (prele- vements) on exporters and special taxes of CFAF 1 per kg for cocoa and CFAF 3 per kg for both arabica and robusta coffee. These resources are used for price s-:;port payments, to finance expenditures to develop produc- tion and improve quality, and in recent years to finance a large part of the Government's extra-budgetary outlays. For financial planning purposes the management of the Caisses sets the levy or subsidy at the start of the trading period as the difference between a reference world market price and the producer price plus taxes, shipping costs, marketing charges, commissions, the cost of transporting the crop from local buying stations to the port of Douala, and the exporters' profit allowance. Because realized export prices usually differ from the posted reference prices, the actual levy or subsidy can only be determined when all accounts are settled after the trading season is ended. 21. Producer prices both for cocoa and coffee are usually announced before the beginning of each croD season, which runs from October to September. Producers of arabica coffee, who are organized in cooperatives, are paid in two advances. nlus a sunnlement at the end of the year: in the past surpluses have generally been passed on to the arabica farmer coopera- tives. Tahle 12: qTTRPT.TjqF OR STARTT.T7ATION FTTNDS (CFAF billions) F4scal Years ~ 1071/7') 1072I/73 1073I7/A 1974./75 1975/76 ..caA_ Fun .... .J A . A ... -7 I C ._ 1 . I C ] 7 . '5 t,tJ....sa .L I Ju - .5 vJ. - . X.. s.* A.,* . 8 J. 7/ Robusta Fund 0.1 0.5 3.2 0.5 3.2 Arabi.ca Fund - 0.1 00 0. _-0.2 Other a/ 0.4 - - -1.0 -0.5 All stabilization '- 0 l 11I. £ 10 A £ If. ru_ on's.. c 1 . L . O L, .L Ui; -J V -v J 14 v7U Add: Own Capital 1.... LI 0~~~~fN0 1 -7 1) £ I I outLays b/ 0.0 1., 2.5 2.6 Total gross savings -2.2 1.2 17.1 21.5 7.6 a/ Cotton, groundnuts, PMO. b/ 1971/72-74/75, Report on Plan Execution. Sources: 1971/72-1973/74, "Note sur les composantes etc.". 1974/75-1975/76 Mission Estimates. - 18 - 22. During the five year period of the Third Plan, gross savings from the combined operations of the stabilization funds totalled about CFAF 45 billion, but the amount transferred to the Central Government is estimated at CFAF 14 billion. Deficits or small surpluses were obtained in the first two and last years of the plan period but in 1973/74 and 1974/75 there were substantial surpluses. The principal reasons for the stabilization fund deficits in 1971/72 and 1972/73 were low cocoa prices in both years and a stagnation in the volume of cocoa sales. Small surpluses were obtained by the coffee and other funds, but after allowance is made for the funds' own capital expenditures, the overall cash flow was negative. In the next two years. the cocoa fund earned substantial surplus, as export prices rose much faster than prices paid to the producers. Gross savings of the combined funds was between CFAF 17-20 billion in both years, and the amount made available to the Central Government was on average CFAF 7 billion. In 1975/76, the last year of the Plan, the price paid to the cocoa producers was again increased, but sales prices and export volume both declined. Still, there was a surplus of CFAF 3.9 billion in the cocoa funds, and the gross surplus of the combined funds in 1975/76 is estimated to be CFAF 7.6 billion. In that year CFAF 7.0 billihon was transferred to the Central Government. while deposits of the Caisses with commercial and development banks rose by CFAF l 10.0 bi11 -;on. 23. As a share of government btidget revenue central government debt service rose from 2.1 percent in 1971/72 to 3.9 percent in 1975/76. Interest and amort4zation. payments on debts contrcrted diresctlv by the Central Govern- ment amounted to 41 percent of total debt service for the period as a whole, while dUebt serviLce payments of public er.terprises, mainly in transport and public utilities, came to 59 percent. Average annual growth in total public debt service between 1971/72 -1975/76 was 28 percent, but there was an acceleration after 1973/74, especially in the interest and amortization payments on loans contracted directly bDy tbe Central Government. Tabie 13: PUBLIC MEDIU`ANI' D1NAN LONG TERIM, L0AJ - INTERESCT AN AMORTIZATION PAYMENTS, 1971/72 - 1975/76 (Bi-l.lions of' CIFA Francs) Fnrov. 1971/72 1972/73 1973/74 1974/75 1975/76 Central Government 1.2 1.3 1.8 2.4 3.9 Interest 0.5 0.5 0.7 i.0 1.7 Amortization 0.7 0.8 1.1 1.4 2.2 Public Enterprise 1.7 2.6 3.2 3.3 4.2 Interest 0.8 1.2 1.6 1.5 1.8 Amortization 0.9 1.4 1.6 1.8 2.4 Total 3.0 3.9 5.0 5.7 8.1 Interest 1.3 1.7 2.3 2.5 3.5 Amortization 1.7 2.2 2.7 3.2 4.6 Source: IBRD Debt Reporting System. - i9 - 24. The existing level of interest and amortization payments due by the Central Government presents a manageable burden for the budget (about 4 percent of budget revenues) and appears to leave scope for some increase in these obligations relative to current receipts in the coming years. However, the estimates do not include repayments of short term loans, for example to the IMF, and moreover, to the extent that public enterprise debt service must be met from budget resources, the burden could become excessive. 25. During the Third Plan period, the trends in money and credit were plainly expansionary. Table 14: INDICATORS OF MONEY AND CREDIT (end of Fiscal Year) MONEY SUPPLY AS A PERCENT OF GDP 1971 1972 1973 1974 1975 1976 Money and Ouasi-monev 15.2 15.5 16.2 18.6 19.0 20.5 Billions of CFAF Central Bank Credit to Government 0.0 0.0 0.0 0.4 7.9 16.6 Other claims on Gover1ment, net -!5.3 -5. 6 I. =11 . A -10.0 _12. Credit to Private Sector 45.8 54.6 61.8 79.1 98.7 115.7 Net foreign assets 20.9 8.8 8.4 16.4 6.1 8.4 Source: Apenudix a T.le v.. 26. Total money supply increased from about 15 percent of GDP at current market prices at the beginning of the period to over 20 percent of GDP at the end of the period, but quasi-money grew much more rapidly than demand deposits and currency in circulation. The principal source of the expansion in money supply was domestic credit since net foreign assets declined during the five years as a whole. Total domestic credit grew at an annual average rate of 30 percent while credit to the private sector increased at only about 20 percent, although private borrowing did accelerate in the latter years of the Plan. This was to some extent a result of increased credit to finance Cameroon's main export crops. The expansion in credit to the Government is attributable mainly to a CFAF 10 billion draw down in deposits with the Central Bank in the first year of the Third Plan and recourse to the Central Bank in FY75 and 76, when for the first time borrowing approached the statutory limit. - 20 - Balance of Payments 27. During the five year period Cameroon's cumulative current account deficit of CFAF 1-15.5 billion was financed mainly by net disbursements of public medium ai.d long-term loans of CFAF 74.1 billion, capital grants of CFAF 19.8 billion and a 'raw'o- in foreign exchange reservens. Gross uublic loan disbursements jumped to an estimated CFAF 31.3 billion in the last year of the Third Plan, more than double the annual average of the preceding four years. In the final year, drawings began to be made on loans four times the rate of loan commitments in the first two years of the Plan. The cumulative overall balance of payments deficit of CFAF 16.7 billion during the Third Plan period was financed mainly by drawdowns of foreign exchange reserves of CFAF 15.0 billion and in the last two years of the Third Plan also by IMF credits of CFAF 4.6 billion. As a result net official international reserves decreased throughout the Third Plan period, except in 1973/74, from CFAF 12.5 billion or almost two months of imports at the end of the first year of the Plan to CFAF 7.2 billion or less than 3 weeks of imports at the end of the last year. 28. Current account deficits during the Third Plan period resulted mainly from deficits in merchandise trade. Trade deficits averaged about 18 percent of imports except for the surplus in 1973/74. Deficits in factor service income, which accounted for about 40 percent of current account deficits, were due mainly to expatriate remittances. Investment income payments, including interest on the public debt, increased as both direct foreign investment and public borrowing abroad expanded. Net current transfer receipts also increased during the period, but were not enough to offset the deficits in merchandise trade and in factor service income by more than a small amount. CAKOO01j Table 15: SU-MMARY BALANCE OF PAYMENTS, 1971/72-1975/76 Tableau 15: BALANCE DES PAIEMENTS, 1971/72-1975/76 (in millions of CFA francs) (millions de francs CFA) ------------------------- Actual --------------------------- Estimatedl' 1971/72 1972/73 1973/74 1974/75 1975/76 1976/77 Resource balance -17,549.7 -11,080.4 14,123.4 -17,436.8 -31,971.9 -31,377.0 Exports of goods & rFS (80,914.7) (90,606.4) (132,562.9) (138,946.3) (146,381.4) (197,962.4) Inoorts of goods & :TFs (-98.464.4)(-o1l,686.8) (-118,439.5) (-156,383.1) (-178,353.3 (-229,339.4) Net factor service income -8,701.5 -9,612.6 -15,349.2 -16,177.5 -16,915.4 -22,881.6 Tnterest on the nublic debt (-1-442.4) (-_i,04=8) (-A2 3 (-I1R7( ai !0) O"her investment income (?et) ( - 462.5) (- 774.6) (-3,568.0) (-6,053.0) (-6,785.5) (-8,964.4) Workers remittances (Net) (-6,796.6) (-7,332.2) (-9,514-3) (-7,605.8) (-6,841.1) (-7,726.2) let current transfers 2,219.4 2,856.6 1,502.6 2,848.1 5,685.1 5,099.2 Of which: official aid (2,855.9) (3,470.4) (3,154.0) (3,952.9) (5,633.2) (5,624.2) C'JRRENT ACCOUNT 9A.I.A11E -24,031.3 -17,836.4 276.8 -30,766.2 -43,202.2 492.9._ 4 Capital grants J 2,662.3 2,699.4 3,187.9 4,380.5 6,785.O .6,800.0 Public medium- and long-term loan (net) o 10,482.6 14,996.9 8,853.0 13,066.5 26,656.9 45,294.2 Disbursements (12;053.2) (16,698.7) (11,575.2) (16,243.5) (31,261.3) (52,306.4) Amortization (-1,570.6) (-1,701.8) (-2,722.2) (-3,177.0) (-4,604.8) (-7,012.2) Direct investment (Net) 2,603.8) -1,803.8 3,487.0 5,442.6 7,767.0 9,400.0 Other medium- & long-term loans (Net) 3,174.3 6,554.9 335.1 911.6 3.840.0 Disbursements (4,298.1) (8,371.8) (2,173.8) (4,744.3) (6,820.2) Amortization (-1,123.8) (-1,816.9) (-1,838.7) (-3,832.7) (-2,930.2) Short-term credit (Net) -374 4j0 -Ooi36 5,524.2 5,924.9 ) - OIi1. Capital transactions, n.i.e. -493.7 -1,175.5 2,771.5 -3,755.3 -5,320.9 ) Errors and omissions (Net) -4,880.9 -8,284.4 -1,943.6 -6,479.2 -1,581.2 ) AllocatA nion of SDs 1,03 n r BALAIiCE O0 PAYMfENTS SURPLUS S DEFICIT (-) -3,125. -4.7 7,054.- -11,6. 3 I,U!4.0 1.UA FINANCING: RESERVES AND RELATED ITEES Assets 13,125.8 47.9 -7,041.9 10,269.3 -1,935.0 4,809.6 Holding of SDRs (-1,030.0) ( .2) ( .3) ( -55.7) (267.0) (-398.2) Reserve position in the IMF.7 ( - ) ( - ) (1,877.7) (-) Foreign exchange & other claims (14,155.8) 47.7) (-7,042.2) 8.335.9) (-2.202.0) (5.207.8) Liabilities .8 -12.2 1,406.0 3,009.0 5,903.1 Use of IMF credit - ) ( - ) ( - ) (1,259.2) (3,076.0) (5,266.3) Other liabilities ( - ) ( .8) ( -12.2) (146.8) ( -67.0) (636.8) Gross official international reserves (end of period) 1nYl7745 ii i9644 2nAni j 11,11.1 ll7 nP.3 16,517.9 Net official international reserves (end of period) 12,522.5 11,147.1 20,464.0 9,789.0 7,250.1 6,156.6 Sojrce: :lorld Bank Economic Mission, see Statistical Appendix Tables 3.1 and 3.2 For 1971/72, 1973j/74 and 1974/75: estimates by Cameroon's Tnird Plan Implementation Reporr; for 1972/73 and 197c/'o: World Bank Economic Mission estimates using OECD data. 0/ From World Bank Debt Reporting System. W !orld Bank Economic Mission estimates. 9nllr': Estimations de la mission 6conomique de la Banque Mondiale, voir Tableaux 3.1 et 3.2 de l'Annexe Statistique. Pour les annees 1971/72, 1973/74 et 1974/75: estimations du Rapport d'Execution des Quatre Premibres Annees du troisieme Plan; pour les annees 1972/73 et 1975/76: estimations de la mission gconomique de la Banque Mondiale utilisant des donnees de.1lOCDE. / Provenant du Systbme des Donnee de la Dette Exterieure de la Banque Mondiale 2 Estimations de la mission economioue de la Banque Mondiale - 22 - 29. Official Capital mainly capital grants and net public loan disburse- ments, financed about 50 percent of the current account defirits of about CFAF 21 billion per year in the first two years of the Third Plan period, FY72 and 73. Aproximate'ly th smelee of 0offic4al capital inflows was mair.tained in FY74 when there was a current account surplus as well as in FY7z, when the current account deficit amounted to rA 31 bMon. It w only n FY76, when net public loan disbursements doubled, that official capital inflows, amounting to about CFAF 26.i7 billio, financed 6i pr of the current ac- count deficit. During the first four years of the Third Plan period, gross public loan disbursements were fairly stable while loan amortizations in- creased, giving rise to a declining trend in net disbursements. The latter trend was compensated by a rising trend in capital grants, resulting in an annual level of net official capital inflows of about CFAF 14 billion. How- ever, in real terms net official capital inflows were reduced by almost one- fourth from CFAF 21.2 billion (at 1974/75 prices) in the first year of the Plan period to CFAF 15.8 billion in the fourth. Moreover, while net official capital inflows doubled in FY76, compared with FY75, they were only about 33 percent higher than in the first years of the period, in real terms. 30. Net private non-bank capital financed respectively 25 and 18 percent of the current account deficits in FY72 and FY73. In FY75 when the current account deficit jumped, net private non-bank capital was at about the same level as in FY72, and financed only 13 percent of the current account deficit. Net inflows of private non-bank capital were accounted for mainly by disburse- ments on private medium-term loans during the first two years of the period and by net direct private foreign investment in the third and fourth years. In the latter two years (FY74 and 75), private medium-term loan disbursements were just slightly more than sufficient to meet amortization requirements. Net private medium-term loan disbursements improved to CFAF 3.8 billion in FY76. Outflows of private short-term capital were quite important in FY74 while inflows were largely offset by unidentified capital in FY76. Current Situation and Short Term Outlook (1976/77 - 1977/78) 31. For the first two years of the Fourth Plan period Cameroon will experience very favorable world market conditions for its principal export commodities, cocoa and coffee; and more moderate price increases for most other exports as well. During the course of 1976/77 world market prices for cocoa and coffee rose rapidly; Cameroon's average estimated realized export price for these products was about double the preceding fiscal year, and for cocoa is expected to be another 60 percent higher on average in 1977/78. Realized prices for cotton were up some 64 percent, and rubber and palm kerr.els also exnperipncpd increases. With international inflation, the import price index rose perhaps on the order of 14 percent for the year as a whole and will continue upwardsin 1977/78, but on balance the terms of trade improved markedly in 1976/77 and are expected to move favorably again in the current year. At least in the short run these nrice develonments have im- proved the major financial parameters of the economy, namely potential public sai AVng o_A nd. t'Ll h hA1 A nce o nf pa. ,men t S: n Rition= - 23 - 32. The improvement would be even greater if the export price increases were not highest for products whose volume growth declined in 1976/77, and if both the timing and quality of the products sold had been better. As it turned out not only was volume down in 1976/77 but Cameroon's unit revenues for both cocoa and coffee were substantially below world market prices. More- over, with respect to exports there is reason to believe that some smuggling of coffee took place via Nigeria. The problems facing these crops are in large part of a structural nature and should not be overlooked in the euphoria of favorable prices. However, even allowing for structural constraints the mission anticipates some recovery of cocoa and coffee production in 1977/78, and expects that the expansion in available resources and a rise in public and private demand for goods and services will help to stimulate real growth in other sectors of the economy especially in construction, manufacturing and services. 33. Public savings almost doubled in 1976/77, since there was a modest central government current surplus, and stabilization fund surpluses are estimated to be on the order of CFAF 28 billion. Total central government bud-et exendit-ure of CFAF 137 billion in 1977/78 is only 7 percent above the preceding budget, and even if revenue and expenditure are both higher than pro4ected, a substantial current surnius is a realistic oossibility in this fiscal year. Moreover, stabilization funds will again provide the major share of public sav1ngs, estimated to be about CFAF 35 bi 11lion for cocoa and CFAF 13 billion for robusta coffee. Nevertheless, the mission estimates that the overall growth in aggregate demand during these years will raise imports to record levels and that the trade deficit will remain at approximately the same level as in 1975/76. With Increased payments for debt service and other foreign factor service payments the current account deficit is likely to widen even more. Net capLtal imports, including new borrowing from private sources, will also rise but not enough to permit a sizeable expansion in reserves. - 24 - Table 16: CURRENT ECONOMIC INDICATORS 1975/76-1977/78 Provisional Estimate Projection REAL GROW4TH RATES (Constant 1974/5 Prices) 1975/76 1976/77 1977/78 Production Cocoa ia - 18 % - 12 % 14 % Arabica /b - 27 % - 16% 26 % Robusta - 27% 10 % -10% All other Commercial Crops 13% 9 % 7 % Food crops 3 % 4 % 4 % Modern manufacturing /c i0i% 10% 12 % Logs /d 14 % 11 % 12 % CDP 4 % 5- 6 % 6-7% Fixed Investment 8 % 19 % 30 % Exports of goods 9 % - 11 % 10 % Cocoa beans - 1 % - 32 % 30)% Coffee 46 % - 27 % a % Other Agriculture - 2 % 10 % 5 % Other Exports 3 % - 1 % 9 % Imports of goods - 6 % 22 % 20 % Capital Goods 4 % 27 % 33 % Other - 10 % 20 % 15 % PRICE INDICES Ci974/75 100) Import Price Index 107.9 122.6 134.1 Export Pr4-ce Tridex 99.7 137.1 198.0 Terms of Trade Index 92.4 111.8 147.6 BILLIONS OF CURRENT CFAF Budget Current Revenue 100.0 110.0 137.0 Current Expenditure 81.3 91.0 98.5 Other Expenditure 18.7 37.0 38.5 Total Savings of Public Sector 40.1 76.8 103.0 Stabilization Funds Surplus 7.6 27.7 50.3 Balance of payments Trade Balance 28.2 - 24.9 - 28.2 Current Account Balance - 43.2 - 49.3 - 54.9 Net Official Inflows 33.4 37.5 39.5 Other Capital Net 10.8 9.7 19.8 Change in Reserves 1.1 - 1.1 4.4 /a Revised on basis cocoa Project Supervision Mission, June'77 /b Revised on basis Western Highlands Appraisal Mission, June'77 /c Sample of 31 firms covered by Industry Sector Mission /d Draft Budget document, 1977/78, for logs production in 75/6, 76/7, Mission forecast 77/8 - 25 - PART II ECONOMIC PROSPECTS AND FINANCIAL POLICIES 34. Th'me foregoing review of the recene pasL strongLy suggests that the principal task which faces Government economic policy during the medium term is to consolidate the recovery made possible by the rise in export prices during 1976/77 and 1977/78 and restore the economy to a more satisfactory rate of real economic growth. Of course, because of regional, cultural and ethnic diversity national integration and regional balance remain major political objectives. However, in the longer term it will be the productivity with which Cameroon's resources are put to use that supports the country's capa- city to borrow, permits it to maintain investment and, ultimately, to improve the standard of living. In a memorandum such as this it would be unrealistic to suppose that one could present an inclusive analysis of the issues impinging on both welfare and growth in Cameroon, particularly since the diversity of interests and institutions make individual and institutional behavior quite complex. Moreover, to go beyond the description of rural/urban income distribution, migration and related matters contained in earlier Bank reports the administration needs to develop more comprehensive information on human resources, labor force and employment and individual and family incomes and consumption patterns. Furthermore, studies in other fields, some of which are being undertaken in association with World Bank projects (for example in transportation, maintenance, forestry) remain to be completed. The discussion will therefore focus rather narrowly on the outlook for national output, expenditure and financial prospects drawing conclusions from selective studies done by the mission, Bank project work, or from the analysis of specified alternatives. Growth in the Medium Term 35. In the medium term, i.e. through 1980/81. the end of the Fourth Plan period, achievement of higher real growth depends mainly (abstracting from the effects of weather) on expanding the output of annual fond and export crops, increasing the use of existing capacity in tree crops, industry, forestry and services, and expansion of capacity in some industries, such as food and beverages, which are operating at relatively high rates. Some new Droiects should come on stream in this period, particularly in aaricultural processing, forestry, pulp and to a limited extent, petroleum, but the main source of additional output lies in existing economic activities= Frnm the demand side conditions are expected to be generally favorable, as during the first t-hreo years of the 4th Plan period international prices for the most important export commodities will remain above the base period (though cocoa and onffee nrirpc will deoline rapnidly fter 1Q77/78)- 1om:nAr firnn (nhnn nnd Nigeria should continue strong in Cameroon border areas; and domestic demand could be supported by h4gh-r 4-n-oe in -exprt agricu-ltue an. d - rA 4- -eeA public investment and current expenditure. Thus in the medium term the principal questi40n. concerning real gro4w is-whthermarket mechanisms. adA public policy will operate effectively to reduce or eliminate institutional and physical bottlenecks and call forthI an expanso-- n in s upy. - 26 - 36. With respect to real national income, the economy has received a boost from the high terms of trade in 1976/77-1977/78, but in 1978/79 they will deteriorate substantially and in 1979/80-1980/81 they will drop below thP 1974/75 base year. However, relative to the last Plan period, the average increase in export prices compared to import prices will permit th. economy to ohtain 2 greater volume of imnorts for each unit of product exported. The absolute magnitude of this terms of trade effect on-Cameroon's capacity to import depends, of course, on the composition and volume of exports, i.e. the higher the volume of the higher priced exports the higher the terms of trade effect. According to mission estimates- the cumulative increase measured in 1974/75 CFAF in Cameroon s capacity to import during 1976/77-1980/81 will be on the order of CFAF 52 billion, equi.valent to about A nperrent- of cuimtilative estimated domestic gross fixed capital formation valued in 1974/75 prices. It Js estimated, to be CFAF 68 billio- d-ring 1Q7A/77-1Q7AI7Q_ Not nll of this gain in real income during 1976/77-1978/79 would or should, however, be allocated to ir.vesOtm-ent;, some twill need to be chan.eled into t,he reontiuto of reserves and some will permit a desirable expansion in both public and private conIsumptLion, in tLhe- fr---- ---- to raise -h -n-a p4-it-y of public services and in the latter to provide sufficient incentives to domestic producers to aiLse output and strengthen confidence with respect to future investment opportunities. - 27 - CAMEROON Table 17: STRUCTURE AND GROWTH OF RESOURCES AND USES FOURTH PLAN PERIOD 1/ Structure Stucur Growth Rate 4/ CThree-year Average) Growth CPercent share) 1974/75 1977/78 1980/81 1971/7S-1980/81 1975/76-1QAn!R1 Agriculture 33.2 32.4 31.6 4.9 Industry 2/ 18.8 20.5 22.2 9.1 9.6 -4 - - -A A. 47.1 46.2 5. 5 .JCL VXL.=O --1 '.J I¶ I . -.J S.. J '5 . GDP 100.0 100.0 100.0 6.1 6.4 Gains from terms of trade -.04 4.0 -1.2 n.a n.a ,, s ~~~non n in n an a n r a tiLtI ~~lUU.U i.U4.U 0O.0 J.:7J. Imports (incl. NFS) F) 30.0 35.6 32.6 6.7 6.0 Exports (incl. NFS) 29.8 27.6 29.5 7.0 7.0 Import capacity 3/ 29.7 31.6 28.4 6.4' 5.3 Resource gap .3 4.0 4.4 8.5 11.5 Domestically available resources 100.3 108.0 103.2 7.0 7.0 Consumption 81.8 85.1 80.8 5.4 5.2 (Private) (67.1) (69.9) (65.5) (5.2) (4.9) (General Government) (14.7) (15.2) (15.3) (6.5) (6.5) Investment 18.5 22.9 22.4 5/ 8.4 10.2 (GFCF) (16.0) (21.9) (21.4) (10.1) (9.1) (Change in stocks) (2.5) (1.0) (1.0) (n.a) (n.a) Memo item: Gross domestic savings 18.2 18.9 18.0 8.3 10.0 1/ National accounts data in 1974/75 prices 2/ Including manufacturing, mining, construction and public utilities 3/ Exports (incl. NFS) plus gains from terms of trade 4/ From regression growth equation: Inyt': lnyo+bt (growth rate equals (eb-l)) 5/ "Medium" investment alternative. - 28 - Medium Term Constraints and Potential in Agriculture 37. To illustrate the importance of domestic price policies and market machanisms in agriculture, the mission examined the case of cocoa, which despite the stagnation in recent years is still Cameroon's most important single export crop and which has been the subject of considerable debate within the country. The medium term capacity constraint is determined by the combined facts of aging trees, rather low rates of new planting during the last few years of the Third Plan (estimated to be less than half of the average rate during the 1950's and 1960's of about 12,000 ha. per year) and the five years lag between new plantings and initial production. Thus in the medium term the maximum output that could be achieved in any one year is estimated to be 120,000-140,000 tons. To evaluate how production might move within that maximum an econometric analysis was done which assumes "normal" weather and simulates the past pattern of relative prices between cocoa and food crops, which families in the main cocoa growing areas of the country grow for their own consumption and sale. The analysis shows a strong posi- tive relation between higher cocoa producer prices relative to food crop prices and cocoa output, and suggests that increased producer prices would also lead to new plantings. The analysis also suggests that higher relative cocoa producer prices are required for direct production support schemes (spraying, free distribution of fungicides, etc.) to be effective; with recent cocoa producer prices and cash food crop prices, farmers' return to labor has often been higher for food crops than for cocoa. To use the analysis for forecasting purposes, food crop prices are assumed to rise at alternative projected rates of increase in an index of selected farmgate food crop prices and various alternative levels were tested for producer prices. Recentlv the Government announced a 47 percent increase in the cocoa producer price to CFAF 220 per kilo, the effect of which will be a definite recovery in production above the 1976/77 level, a considerable increase in export earnings and government export revenues from cocoa in 1977/78 thanks to high export prices. While a fauorable cocoa/food crop price relation could be maintained in the next two years, food price-s are likely to rise relative to cocoa in !980/81, in which case cocoa production would not exceed 110;000 tons. However, the Government doubled the funds allocated in 1977/78 to nearly CrAr A billion, or more than 10 percent of the projected rocon exnort fll ~ I. -Cf - - receipts and about 17 percent of the cocoa stabilization fund's surplus, to an expanded effort in production support schemes (mainly capsid and blackpod control) and rural access roads. If these efforts, now supported by a higher producer price, are more effective than in the pasts the peak output during the Fourth Plan period as well as the lower output in 1980/81 (because of a possible less favorable producer price in relation to food crop prices in that year) can be higher than the levels mentioned above. 38. Cocoa represents more than 7 percent of the gross value of the agricultural production (including livestock and forestry) and about 26 percent of the gross value of commercial crops during 1971/72-1975/76, and comparable analyses have not, of course, been done fuor other crops in the sector. On the whole we assume overall growth in agriculture, including forestry and livestock, at 5.5 percent p.a. through 1980/81. The mission - 29 - has based its proJections on the medium term market out lok for CamerooTn's exports, historical trends in food crop production, projects which are under imuplementation, anA certain policy alternatives. With res-c crops, the same kind of capacity considerations apply as in cocoa, and produc- tiLon iLn the medium term is constrained b4)y ItLLhe area in plantLation, anA cannot in general expand very fast. Arabica may be an exception since there were substantiaL l plantiLLgs in thLe late 19's andU early 190s and iLt is assume that arabica farmers, who are organized in cooperatives which receive year end bonuses out of actual export revenues, willl go all out to maximize output. In robusta acreage trends are mildly up but the rate of expansion will again depend primarily on obtaining higher yields in response to increaseU prUUUceL prices, and even then is not projected to exceed by much the 78,000 ton peak achieved in 1974/75. The situation in palm oil and rubber, wnich are respectively partly and wholly grown in industrial plantations, is governed by development schemes which are known to the Bank through project work, and although substantial investments will take place before 1980/81 output growth will not be much above 4 percent p.a. The institutional framework for cotton is relatively strong and with projected expansions in acreage and good market prospects this crop should experience the fastest growth of all Cameroon's commercial crops. Sugar for the CAMSUCO project will also come into production during the Plan period, but at low world market prices the economic costs of undertaking this activity are likely to exceed the benefits. Rice, which is being developed in the North with World Bank assistance, will increase in the coming years, while large scale commercial corn production is expected to be delayed pending further studies. Economic conditions in Nigeria are likely to continue to create strong demand for groundnuts and rice grown in Northern Cameroon, which might, to some extent, divert land and labor from millet and sorghum production; although with normal weather these crops should at least keep pace with population growth. Finally, if as we recommend the Government gives emphasis to high valued cocoa and coffe during this period of favorable world market prices, production of food, which has grown on the order of 5.5 percent p.a. in the recent past, will be moderated somewhat. Livestock, of course, has good potential in Cameroon, and demand will continue strong on both domestic and neighboring foreign markets. However, administrative services need to be strengthened to improve cattle strains, feedstocks, etc., to contribute substantially to this growth of animal husbandry. 39 The medium term outlook in forestry which, for the most part, is exploited by domestic and foreign private firms is clouded by the lack of solid information on production, stocks, and domestic sales. While the severity of the transport constraint is uncertain, Government legislation is thought to be generallv adeauate. but taxation needs to be reviewed: administration is weak and the actual forestry potential, scope of enterprise nnerntinn, inv ltmant n1snR and transnort renuirements are the subiect of a consultant's study. Exports of logs and sawn wood in 1976/77 were still below tiaheir 1Q73/74 peak of 700,000 tons, and althnogh world market conditions are promising, we assume for purposes of this report that increased efficiency and some addition to transport capacity would Permit exports of probably nnt more than 800,000 - 1,000,000 tons by 1980/81. Assuming some increase in the hiLstLor4cal shlare of local --- -os4-i an-d -les, tfls 4mlies toal prodution of 1.5-1.7 million tons, or annual growth from 1974/75 of 7-9% p.a. - 30 - Medium Term Prospects in Industry 40. We assume real growth from 1975iTh-1QMO/RI in mining and manufactur- ing of 10 percent p.a. The assumption might be on the low side since about CFAF 20.0 billion in new value added in 1974/75 prices could come from the start up of crude oil production, Celucam, Camsuco and other projects. If all these projects do begin operations during the period, existing activities would need to expand at a rate of only 5-6 percent p.a. to achieve 10 percent growth for the sector as a whole. In fact, output from existing operations is likely to grow faster, particularly in food, beverages and construction materials, as a result of the demand outlook described above. 41. The preliminary results of the industrial sector mission do, how= ever, require us to introduce an important qualification: namely that the growth of output as defined in the national accounts does not necessarily reflect the net economic gains to the country from expanding particular activities in manufacturing. 1/ Thus in certain existing activities in which some enterprises appear to operate well below capacity, particularly but not exclusively those which depend heavily on imports and apply only one stage of processing, growth of production may actually result in net economic losses. Moreover, new investment in some activities which process domestic raw materials, either for export of the local market, can cause loss to the economy if they have heavy capital costs or low labor productivity and face stiff competition from efficient producers in countries which purchase Cameroon's exports or can potentially supply Cameroon's imports. If activities such as these are protected by tax exemptions, subsidies, and tariffs or quantitative restrictions, the economy loses resources which could otherwise be devoted to more productive investment and the Government, in particular, loses revenues. 42. With respect to the actual situation in Cameroon it appears that reinvestment and the expansion of output in half of the industrial activities for which detailed analysis was done would clearly result in net economic gains to the country, while maintaining or increasing the use of existing capacity (without new investment) would result in economic gains in another 20 nercent of the cases. The economic costs of current operations in the remaining 30 percent of the activities in the sample probably exceed the economic benefits; and nublic policy should certainly not encourage their expansion. Planned public investments in totally new activities such as Cellucam were not evaluated but should, evidently, be subjected to similar tests to establish overall economic viability. 1/ Or ary other sector, for that matter-- The difference arises from the fact that the costs of inputs and values of outputs are measured at current mark4 et priLces in A a-Lid need not reflect thei - tual economic values. For example, the accounts of an enterprise might understate costs to tLe extent tLatL because of subsidies r tax eXemp- tions the prices actually paid for imports of intermediate and capital goods are less than their economic values while they might overstate benefits to the extent that because of protection prices actually received for outputs are higher than their economic values. "Value added" and growth would then not reflect the true economic gains to the country. - 31 - Medum T erm- Pr os pe c ts iln SeV r v ifc e s 43. LProspectjJILve grow-Lh iLn thluLe ou t.puJtL I. OfLVics .0 C LULLLf.cUL Uo LLLo growth of agricultural and industrial production as well as a number of other factors. TILus the expansion Ln imports and exports foreseen during tnis period should add to the rate of growth of services provided in trade and transportation, -wnile a rise in investment in various sectors of the economy will accelerate activity in the construction sector. With respect to govern- ment services, the outlook is, of course, determined mainly by the availabi- lity of public revenues and their alloction between capital expenditure, wages and salaries, and purchases of materials and supplies. Government budget revenues are now expected to increase by at least 40 percent in the two years 1976/77-i977/78, and if they keep pace with nominal growth in GDP will be more than double the 1975/76 level in 1980/81. To reflect the often repeated view that the efficiency of Cameroon's administration could be improved by increasing the availability of materials and supplies, the mission assumes an acceleration in real growth in public consumption, which means that wages and salaries would have to rise at a lower pace. Taking the foregoing factors into consideration, growth in output of services as a whole would be about 5.6 percent p.a., i.e. somewhat less than the anticipated growth of GDP, which is consistent with the historical relation between them. Investment and its Finance in the Medium Term 44. Following an evaluation of sectoral investment opportunities and efficient resource allocation, the last comprehensive economic mission to Cameroon recommended a public investment program of CFAF 310 billion in 1974/75 prices. The main features of the program were a maximum effort (limited essentially by absorptive capacity) in the rural sector, higher absolute expenditure but somewhat lower priority than in the past for trans- port infrastructure (essentially because of the expected completion of major transport links) and continuation of about the same real level of investment outlays as was achieved in 1971/72-1975/76 in the social sectors. The economic justification underlying the priorities in this overall strategy remains valid, but decisions have since been taken which will almost certainlv lead to a higher level of public fixed investment, particularly as a result of increased government narticination in industrial proiprts (whirh were not included in "public" investment as defined by either the last mission or the 4th Plan) hiahpr real rngtR of thp Rnno T.nLto hydra-electric scheme 0,,A expanded purchases of transport equipment. Private investment will, under Gnvernment guidelines; also ha encouriaged to expand productio capacity in agriculture, forestry, mining and manufacturing. These developments raise the immedinte- isasue of how a higher anticipated level of total investment will affect the financial equilibrium of the economy. 45. To test the financial prospects in the medium term, the mission ir.itially a-dopted thne pster of If4xed capital i.-lvestment shlown .n U ternatjve ~ ~ ~ LI.~LII JL L.LALU %-LF.aj. LaJ -LV~LL1 LU 11 laLLILJV "A", Table 18, which is a high alternative based on the capital spending plans of private and public in-vestors, including the expected programs of foreign aid donors. Conceptually the total envelope excludes projects which are not sufficiently advanced to De achieved during the Fourth Plan period - 32 - and includes some projects not foreseen when the Plan was prepared. it includes projects considered of high economic priority as well as a number of undertakings which have not been evaluated in detail and some whose economic viability is doubtful. The program is believed to be physically achievable but is about 80 percent higher, in real terms, than what we estimate was achieved in the last plan period and almost triple previous Plan expenditure in nominal terms. Subsequent analysis of the medium term prospects and long term creditworthiness showed that the financial burden of this level of investment would be excessive, and alternatives "B" and "C", representing reductions in real terms of 10% and 20% in planned public investment were tested. Table 18: PLANNED GROSS FIXED CAPITAL FORA1ION (Billions of CFAF) 1971/72-1975/76 1976/77-1980/81 TOTAL GFCF A B C Constant 1974/75 prices 376 694 645 600 Current Prices 343 986 920 860 Alternative "A" 1976/77-1980/81 (1974/75 Prices) Public Private Total Percentage Investment Investment Investment Share Agriculture and forestry 66 25 91 13.1 Manufacturing and mining 68 a/ 111 b/ 179 25.8 Public power 61 - 61 8.8 Transportation 209 8 217 31.3 Other 86 60 146 21.0 490 204 694 100.0 a/ Includes government participation and guaranteed borrowing for industrial enterprises. b/ Includes private investment inpetroleum develonment, storage facilities, 46. The potential impact of the level of capital spending in Alter- native "All on the firancLaL equilib:ium of the economv is shown in Table 19. If this capital spending were realized (i.e. "ex ante") fixed capital investment would rise from 16% of rDF in current prices in 1974/75 to an average of 22.6% in the three years 1976/77-1978/79 mainly owing to an expansion in public investment. In1 th's period public savings will be at an exceptionally high level and the rise in import demand should be easily accommodated by the rise in export earnings resulting from the high cocoa and coffee export prices in 1976/77 and 1977/78 and public and private capital inflows. However, during 1978/79-1980/81 notwithstanding a probable decline - 33 - in4 t-rmsE of troade and pulcsavings, too tal* fixed investment would be pu.shed even higher as the Government would endeavor to maintain its level of capital outlaya, while there would be additional pr4vale capilal outlays 'or new projects mainly in the oil and mining sectors. Compared with the Third Plan periou (17/7I 2-1975/76) thLe total lnvestment rate, including changes in stocks, in the Fourth Plan period (1976/77-1980/81) would rise from 18.1 percent to 24.7 percent. I/ The main push at the beginning of the Fourth Plan period comes from public investment, but with the assumed rise in private investment after 1977/78, the average five year shares in total fixed investment would be 71 percent public and 29 percent private. 47. Analysis of the financial outlook in 1978/79-1980/81 shows the vulnerability of economies such as Cameroon, which depends on a limited number of primary' commodities, to changes in the terms of trade. Because of the projected tall in export prices relative to import prices, it appears that investment would be constrained both by stagnating or declining public savings and by the high level of capital inflow required to finance the current account deficit. The reasoning on which this conclusion rests is as follows: 1/ These rates are from current nrice finanring nf invuptment rlrii1naionnQ - 34 - CAMEROON TIable : MEDIUM-TERMt ALTERNATIVES FOR INVESTMENT, SAVINGS, AND FOREIGN FINANCING Tsbleau 19: IISETSSEDENTS, EPAhONtE ET FIA2tACENT ETRIEtrR: VA7ANTIS A MOYEN TER1E (Tn biilion of CFA francs of currant prices) (Perceot of Total Inv1-tt) (En r±illioards defrmnce CFA, prim courants) (Pour coot de I'tn,esatissnt totol) 1974 f75 1977A78 1980S'81 1974/75 1977/78 1980/81 A B C A B C Provisotnal Eotimate Projected Proviitonal Estimte Projected ree Ye ra :/ s fProvix*ir, Eotination Projection Provicoire Estiction Projection Public Invevscnt 50.8 120.3 167.2 128.0 99.2 57.2 68.7 63.2 56.7 50.4 Prtvaoe l-veot,ent 26.6 46.7 87.0 87.0 87.0 30.0 26.7 32.8 28.6 44.2 Fixed Inve-&tono Total 77.4 167.0 254.0 215.0 186.2 87.2 95.4 96.1 95.3 94.6 Change in etocks 11.3 9.2 10.6 10.6 10.6 12.8 4.6 3.9 4.7 5.4 Total inveestant 88.7 175.2 264.6 2S.6 126.8 100.0 100.0 100.0 100.0 100.0 Less: Deficit on g80ds end ..f.s. 11.7 42.8 63.6 54.3 40.3 13.2 24.4 24.0 24.1 20.4 Cros. Do.mtic Saving. 77.0 132.4 201.0 171.3 :56.5 86.8 75.6 76.0 75,9 75.9 Publit (39.1) (83.7) (70.0) (78.5) (78.5) (44.1) (47.8) (26.5) (34.8) (39.9) Rasidsl (Frtivate seain8g) - (37.9) (48.7) (131.0) (92.8) (78.0) (42.7) (27.8) (49.5) (41.1) (39.6) Leg: Net facto,.ervfr. monc. et 16.2 27.9 46.1 44.7 39.6 18.3 15.9 17.4 9. 8 2 0.1 (Of hich: Interest on public foreign debt) (2.7) (3.5) (18.6) (15.4) (15.4) (3.0) (4.9) (7.0) (6.5) Gross national eavinge 60.8 104.5 154.9 126.6 1.6.9 68.5 59.8 58.5 56.i 54.4 L.ss.. :Aorti.ation on KLT foreign debt 6.3 13.0 20.2 19.8 19.8 7.1 7.4 7.6 5.8 10.1 (Oi which: Publi.; (3.5) )11v7) i13617 (15.8) (15.8) (3.9) (6.1) (6.1) 7.0 (8.o) A-ailabl. for i-vestont 54.5 91. 134.7 io6.a 97.1 61.4 12.2 50.9 47.3 49. ?rojacted Current nd cpital trasferf. 8.l 14.0 16.0 16.0 16.0 9.1 8.0 6.0 7.1 8.1 Disb.r3.=.tns official M4LT loans w/- 7# 1. 2wv _v .. __ _ Dioburo.oaoto official ~~LT loon. i7.7 37.9 500 0.0 50.0 19.9 216 8.9 27.2 25.4 Dlsburanets. private MALT loan. 11.2 16.3 41.7 32.4 21.8 11.6 9.3 17.9 14.4 11.1 Net direct foreign investmeot 5.6 12.6 22.2 22.2 22.2 6.3 7.2 8.4 9.8 11.3 Net us. of ocher foreign resources -7.2 4.4 0.0 0.0 0.0 -8.1 2.5 0.0 0.0 0.0 Ch.nge in reserves 1.2 1.5 0.0 1.8 iO.3 1974/75 1977/78 :seo'eI A 8 C Fixed iov.etentc'GDP 16.1 22.6 24.5 20.6 17.9 Total inv.-tm.nt/GDP 18.4 23.6 25.5 21.7 18.9 GDS 'CDP 17 6 17.9 19.3 .16.5 i;.1 GNS/GDP 12.6 14.4 14.9 12.3 11.7 Source: Miseion estimte. and pro)ections Ettiatioo de 1. mssion et proection. 48. The medium term outlook for growth in the volume of exports is, on the whnol, quite favorable= Most of Gameroon's traditional exports are expected to experience a recovery at least to previous years' peak in response to higher farmate prices and knownm production possibilities, while exports of some annual crops will rise faster. In addition the outlook incliisa tho inititionn of cvieoi epr in 1978/79 and some other new exports by 1980/81. However, export prices for coffee have already started to decline, and cocoa is expected to fall to half its peak price by 1980/81. Moreover, as noted earlier, owing to a "quality discount" Cameroon's realized un4tI values have historically been lower than adJ.usted - -dr maorkt p4rics 1/ - ... . ~~~~~~ F' .& - _0~- lO ~ and this discount apparently widened when world market prices rose. Realized export prices for. cocoa rose from (FAr 285 per i,41 4i. 1975/76 to CtrAV 50A in 1976/77, while Arabica coffee jumped from CFAF 336 to CFAF 778 per kilo, 1,# adjusted wor @AA.s_1i A mre X _4 -- AI1/ co _-ll commo__ Jw fite wer a ..^out - uS - 0 W U J L^-L J FL.L. O _ L/I. U LLLL L U L L. and 40 percent higher respectively in 1975/76 and 1976/77. The discount assumeA in this -valualion of Ile medium term outlook- from 1 97 7 /78J is 20 ,I u0 in %.LI LIRLO ~Va.LUaL-..L LJ. L.LL U UUL %ALLU -LLJJ N L LUJI. L:I / / U .L L U_ percent, but because either export price projections could be too low or quallity andu mar'k.e tir.gL- -practice --- l posil -1 imroed an -Juln v 10 ~4u.L.Ly 111 u0Lr.~LLL1 jLaL.L.L...=O %_VU±U PVM..bLUAy UC .L111LUVt:U, ttll a-LU-rL1ative 10 percent higher price projection (assuming a quality discount of only 10 peArcet 'L mad lo the loge ter afte £=non /oi pCrcCL, L } L1D UUC LULJ. V ±UC 1LVI1.L L L dL LUL X WOV/0O * 4.ven with a reasonably favorable export outlook, the deficiLt on Cameroon's current account will widen substantially in 1978/79-1980/81 ow'ng to the combined effects of the higher ievei of reai demand, higher import prices and higher payments for interest and other factor services. If, as our estimates suggest, Cameroon has already expanded imports of investment goods in 1976/77 and 1977/78, total imports of goods and non- factor services would now run at an annual rate of some CFAF 290 billion, compared with exports of goods and non-factor services of about CFAF 260 billion. Assuming real growth in imports of consumer goods and intermediate goods can be kept somewhat below real growth in GDP, the effects of a further sustained expansion in real investment during i978/79-1980/81 would be to raise the deficit on goods and services to some CFAF 60 billion by 1980/81. 50. With total investment of CFAF 260 billion in 1980/81 and a deficit on goods and non-factor services ot CFAF 60 billion, gross domestic savings, expost, would have to achieve a level of 200 billion. However, if export prices decline relative to producer prices, i.e. if the Government keeps pro- ducer prices for cocoa at their 1977/78 level in real terms and for coffee at their 1977/78 level in nominal terms, gross public savings (including the net results of stabilization fund operations) would not increase at all above the 1977/78 level and the required increase in private savings would clearly be excessive. Moreover, in 1980/81 public savings after payment of public debt service would finance considerably less than 25 percent of public investment. The low share of government financing would not only be attributable to the high level of investment; public savings would also be reduced because of expanded recurrent cost requirements. 1/ Adjusted to FOB Cameroon basis. - 36 - 51. Finally. on the improbable assumption that with declining export prices domestic savings could be raised to the required level, the foreign borrowing requirements associated with the high investment alternative would still expose the Government to excessive risks. Prospective inflows of official capital erants and loans during 1978/79-1980/81 are unlikely to exceed an annual average of CFAF 53 billion, i.e. equivalent to $25 per capita in 1975/76 prices or more than twice the 1973/74-1975/76 level. However, foreign capital requirements 1/ excluding any provision to replenish foreign exchange reserves hut including provisions for debt service would average CFAF 94 billion. With Government borrowing on commercial terms of CFAF 40 billion per year, debt sprvire would apnrnach CFAF 100 billion or 20 nercent of the value of exports of goods and services as early as the mid 1980's, even on the most favorable exnort ass mntionn. 52= Rediucing niublir investment by 10% or CFAF 45 billion in 1974/75 prices (about CFAF 22 billion per year in current prices) during 1978/79-80/81 wniuld takte some of thep nrpesiirp off t-hp halanrp of nayvmnts_ reduice foreign borrowing requirements over and above official development aid by some CFAF 9.0 hillion per year and permit Romp exnansion in repsrves in 1980/81. The risks associated with excessive foreign borrowing would thus be lessened, but either the prices or uoluTme of Pynorts- would still havp to hbhave rathpr favorably to keep long run debt service within acceptable limits. 53. The public savings associated with this investment alternative are shown in Tahlo 20= Following the ranid pvnansion in all comnonpnts of nu,hlir revenues, most notably the surplus of stabilization funds, in the period 1 07r/77-1Q77/7q h,.AgOt- irDlr.,gDc nrD DYevnt-i- t-n ricQ It- m rn nnrmql rntfp in 1977/78-1980/81, while the stabilization funds are expected to go into deficit 4n order t- supp-rt farm-mate prices at adelqate ronl levels= 7/ Crowth in -1 ,_ 1_ _ k'-…__ --- current expenditure has historically been held somewhat below growth in tax revenues, but could hardly be lower in 1977/78-Rn/Ai in uiew of the acce'lera- tion of public investment in the preceding period. The Government should, h -owever, st11 be able to raise gross budgetary savings, but total public sector savings are more likely to stagnate or decline, marginally, as a resu'lt of the operations of the stabilization funds. With higher payments of interest and amortization, the decline in the resources available for investment will be even greater, but the Government should still be able to contribute about 40 percent to the financing of public investment. Official ueveLopment adLU would then represent about 44 percent of public investment, and additional public borrowing requirements 13 percent. 54. The medium public investment alternative appears just barely feasible with respect bULothLL to C'amleroLOn's capa-city LU VseLV.Lce LtLh LreqUiLre amoULnLt of new foreign borrowing from private sources and to contribute adequate amounts of public savings. On the abUV prLUJeCtions, the country cUuld also maintain a positive net international reserve position which would give the Government some room to maneuver in the event of adverse short run bua±Lance oU£ payments flucturation. However, even this level of investment involves substantial I_I After~ deduct4on of net dir. --- ig investment.4--- 9/ Reduct4on or eliminto of4_ the "qulit dicon" ou-inresbt stabilizatn - LA MUXLtLY UfLunUUL WUUru Increase DOaxn stabilization fund receipts and export tax revenues. - 37 - risks in the medium as well as long term, and for this reason a low alternative amounting to a further 10 percent reduction in public investment again spread over the three years 1978/79-1980/81, should be considered. 55. GoverIne-..t savings remain the principal medium term question. As noted earlier, our knowledge of public enterprise operations is still partial and much depends on their ability to operate efficiently and to follow pric- ing policies which will permit them to earn some surpluses and cover full costs, including provision for replacement investment. The public enterprise "sector", of course, includes some enterprises which will clearly incur deficits as well as some which are likely to be profitable, but the net results assumed above are substantially positive. Further, the rate of increase in current budget expenditure assumed in alternative "B", while higher than both long run historical trends and in relation to the growth of budgetary revenue, could still be underestimated. After all, the public investment program, even when reduced by 10-20 percent, is still expansionary and will require an increase in current public expenditure of goods and services even in the medium term. Admittedly, the Government could still command additional resources by lowering producer prices below those assumed here. This would, however, mean a reduction in nominal terms below the present (crop year 1976/77) projected producer prices for Robusta and Arabica coffee (CFAF 195 ner ke and CFAF 325 ner kg including the vear-end bonus) and a reduction in real terms in the cocoa price. We have argued above that at leatr for coroa such a reduction would lower nroduiction; foreign exchange earnings, and export tax receipts. Long Term Development Prospects and Constraints 56. The mission's conclusions concerning Cameroon's longer term develop- ment prospects and constraints do not differ significantly frnm those of earlier IBRD evaluations on which the Bank Group's development assistance strategy is based, although there are some differences of emphasis on sectoral1 prospects and in our overall evaluation of the longer term financial outlook. Thus while a sizeable expansion in public sector investment seems feasible in the present period of economic recovery and high export prices, the unluerlying .Insti-utional and structural featu--- of the eco-my do rnt indicate a return before the mid 1980s to the high real rates of growth experien,ced in the 1960s, and difficult choices will therefore naeed to be made. 57. Cameroon's main long term potential continues to lie in the development, through both industrial plantations anA small holders, ofa diversified agricultural sector comprising tropical export crops, and domestic food crops to eedu the growing urban population an replace imports, particularly of grains. Implementation of such a strategy, which is compli- cated in any country, depends on a Judicious blernd of public intervention and support combined with price and policy measures to stimulate private initiative. Pursuit of a diversified agricultural strategy does not have rapid financial returns, requires strong institutions and the careful definition and phasing of a wide range of measures. Factors which complicate the matter in Cameroon are the country's large area and relatively small - 38 - Table 20 PUBLIC FINANCE (Alternative "B") PAST AND PROJECTED TRENDS Three Year Average Average Annual CFAF billion Growth Estimate Projected Estimate Proinited 74/75 77/78 1974/75 1977/78 1980/81 77/78 80/81 Tax revenue 75.9 128.2 192.6 19.1 14.5 OtLIh er current revenue 7.5 12.8 18.7 19.5 13.5 Total current revenue 83.4 141.0 211.3 19.2 14.4 Current expenditure 69.5 105.5 157.9 14.9 14.4 Gross budgetary savings 13.9 35.5 53.4 36.5 14.6 Surplus of stabilization Funds 13.8 29.2 -3.8 Local Government savings 2.2 3.0 4.4 10.8 13.5 Other public savings a/ 9.1 16.0 24.5 20.0 15.2 Gross public savings 39.1 83.7 78.5 29. 0 neg. Less:-Interest on medium and long term public loans 2.7 8.5 15.4 36.0 14.5 - Amortization on public loans 3.5 10.7 15.8 34.2 23.2 Available for investment 32.9 64.5 47.3 27.0 neg. Public investment 50.8 120.3 128.0 33.2 2.0 Projected disbursements Capital grants 4.8 6.7 5.9 11.0 neg. Medium and long term official loans 17.7 39.2 51.0 38.2 16.0 Required net use, other resources -4.6 9.9 b_ 23.8 b/ Memo: Tax revenue/GDP 16.7 17.4 18.5 Debt service/budget revenue 7.4 13.6 14.8 a/ Known public enterprises and social security fund. b/ Disbursements on public loans from foreign private sources are now estimated at CFAF 19.4 and 28.3 billion, respectively. Source: Statistical Appendix 5.1 and mission estimates. -39 - population, its regional and institutional diversity, the competition for labor in some parts of the country between export and cash food crops, and the lim4te4A availahilitv of skilled agricultural agents and administrators. Further, while the recurrent and investment costs of agricultural development are a burAen on the Governmenrt it is difficult to derive n public revenues from an agricultural policy oriented towards self-sufficiency, since import and export duties, Including "prelevements", must be re-laced by domesticr taxes- Admittedly if output of such crops as groundnuts, palm oil, corn and staple oods can be expanded mmarkeets in neighboring counntries will probably absorb the exportable surplus, but this also would be difficult to tax. On the other hand, assuming reasorable efficier.cy, an increase in supply of food for domestic consumption would help to restrain both the cost of living and urban -wages and salaries, and in the long run contribute to a more competitive local industry. We conclude that development of exports of tropical tree crops along with production of foodcrops and grains both for export to neighboring countries and domestic consumption is a plausible and desirabie long run strategy, but will require substantial strengthening of institutions to obtain improved levels of farm productivity, particularly when, as estimated, the supply of youthful rural labor is dwindling. The agricultural projects being undertaken by the Government in cooperation with the World Bank seek to achieve these goals. 58. While the foregoing strategy is clearly appropriate to the Fourth Plan's agricultural objectives of (a) reducing regional disparities and raising farmers' incomes, (b) increasing exports and import replacements, and (c) alleviating domestic food shortages, it will not in and of itself support a sufficiently high rate of growth in GDP, savings or exports to provide the financial resources wanted by the Government to overcome physical bottlenecks in power, transportation and communications and expand the avail- ability of education, health and other public services. As long as cocoa and coffee account for more than half of Cameroon's exports the countryrs capacity to import and the Government's capacity to invest depend largely orn the prospective performance and projected international prices of these commodi- ties, supplemented to the extent possible by other commodity exports and net capital inflows. Yet, the slow rate of replacement of aging cocoa and robusta trees, which occurred in the 1970's, will dampen total exports of agricultural commodities in the 1980's, notwithstanding the considerable efforts now being made by the Government and foreign aid donors to rectify the situation, and even assuming quite rapid growth in exports of arabica coffee, cotton, groundnuts, palm oil and rubber. If moderate growth in the volume of exports is accompanied by a level of imports which regularly exceeds exports plus inflows of concessionary capital, debt service on the supplementary borrowing would soon rise too rapidly; additional gross foreign borrowing would have to be curtailed; and because of the increasing debt service net capital inflows would level off or decline. It is in this context that additional opportunities both to increase exports and relieve the Govern- ment of a rising burden of development expenditure must be found. 59. Fortunately, some additional opportunities to raise exports appear to exist and are given consideration in the Fourth Plan. The principal existing unexploited opportunity is more rapid development of the large but still indeterminate forestry reserves. Development of forest resources - 40 - has the advarntage that 4i prnciple i --is profitable enough to attract private capital, and public expenditure can be limited to the provision of economic and administrative services needed to support, controll, and Lax thLe actlivity. Direct public intervention is, of course, not excluded, and indeed Cameroon's participation in the pulp and paper complex andi SOFE L aresigifica examples. In evaluating medium term growth prospects (para. 37), we have discussed the uncertainties surrounding the forestry outlook and studies which are being undertaken to resolve them. To handle this uncertainty about Cameroon's long term export prospects, "low", "medium", and "nigh" alterna- tives are tested. The high alternative assumes annual growth in exports of timber and wood products consistent with total production of 2.4 million tons in 1985/86 and 5.0 million tons in 1990/91, and includes a rising share of processed wood in total wood exports. Except for the 1976/77-1980/81 period this is essentially consistent with illustrative projections contained in an FAO study, but means average annual growth from 1980/81-1990/91 of about 14 percent for timber exports and 23 percent for processed wood exports. A low projection assumes average annual growth in timber of 7.0 percent and in wood products of 10.0 percent, while the medium projection lies between them. 60. The other principal new export opportunity which now seems rea- sonably certain is crude oil, which is expected to begin production during calendar 1978 at an annual rate at least as high as domestic products consump- tion, rising to levels exceeding domestic consumption requirements in the early 1980's. While the Fourth Plan envisages construction ot an oil refinery, this project is not likely to begin operations until the end of this Plan period, so that all Cameroon's crude oil would be available for export until then. If the refinery is in fact implemented, part of Cameroon's crude would be diverted to it but imports of refined products would be replaced. However, experience with such refineries elsewhere in West Africa suggests that small scale and high unit capital costs make them uncompetitive with large refineries, and if commitments have not yet been undertaken, Cameroon might gain more by exporting all its crude and continuing to import products until the domestic market has grown enough to support a larger unit. 61. There is undoubtedly scope to expand exports of manufactured goods, particularly within UDEAC, provided Cameroon industries can remain competitive with imports from other countries. However, when one excludes processed timber, aluminum, and processed vegetable oils and cocoa, for which the outlook has been established separately, exports of other manufactures account for less than 5 nercent of total merchandise exports. Even assuming better performance than in the past five years, the potential of manufacturing enterprises to add substantially to export earnings is modest in the next 5-10 years, while the import requirements of industrial enterprises tend to be hi8h. 69 In addition to these new opnortunities there are promising hut- still uncertain indications for the exploitation of iron ore. To be com- mercially viable iron ore for export would need to be develoned on a fairlu - 41 - large scale: it would also require substantial private investment and a lead time of at least five-seven years even assuming no major investments were required in i-nfrastrucrture Given the uncrertainty of this development it has been included in one test projection. Financial Management and Investment Planning 63. The discussion of Cameroon's medium term prospects has already broug'1h-t out the need for the G-overnment to be prepaared to adjust tn the impact of deteriorating terms of trade during 1978/79-1980/81. This conclu- s'Lon 'Ls reLniforced y a prudent assessment ofl te lon.g term outlook for real growth and international prices, which suggests that even with the reductions iLn investment contemplated during 1987=908,thLe rate of public investment during the Fourth Plan period is not likely to be sustain- able in the long run. In so far as it is still possible, steps should be taken to maintain adequate international reserves (including access to IMF facilities) and treasury facilities to meet balance of payments shortfalls and stabilize producer prices. A reduction in the rate of increase in public capital expenditure should be contemplated, and investment during 1978/79- 1980/81 limited to those projects which are clearly demonstrated to facili- tate or expand long run production capacity at economic costs or to those having the Government's highest social priority. Of course, if the Govern- ment can shift more of the risk and the financing of the expansion of indus- trial, agricultural and commercial activities to private investors, the burden on its own budgetary expenditure will be lessened, while additional opportuni- ties to raise tax revenues might be identified. The industrial study now underway should help to identify such opportunities in the industrial sector. 64. If the authorities had evaluated the cost of Fourth Plan investment proposals in current prices, the financial constraint might have been brought out more clearly, and commitments to projects having lower than average economic and social returns might have been avoided. Medium term financial planning can still help to make adjustments to the extent that it reveals that certain projects in the Plan would have to be cut back or dropped so that projects not included in the Plan could be implemented. Medium term finan- cial planning would permit better annual phasing, i.e. the careful utilization of resources in years when, thanks to high international commodity prices, resources are plentiful enough to build up reserves which can be used to sustain development expenditure during periods, such as the last three years of the Plan period, when international commodity prices are expected to decline. 65. As part of an overall program to strengthen the financial planning of nublic investment expenditure there are three technical matters which suggest themselves for Government's consideration. First, because of the importance of foreign aid programs in the financing of public investment, investment planning and debt management would both be strengthened by integrating annual forecasts of disbursements and repayments of funds from foreign sources with the annual investment budget. Consolidated tables showing the anticipated financing of public investment could, in fact, be - 42 - presented as an unofficial annex to the Loi des Finances. This would help ensure coherence between budgeted capital expenditure and foreign aid programs, and provide the authorities with annual targets against which to measure realizations. Second, public enterprises have grown both in number and in scope, and are responsible for a large share of the savings and domestic and foreign borrowing of the public sector. To strengthen the monitoring and financial control of public sector investment up to date financial infor- mation on public enterprises is needed by both the Ministry of Finance and MINEP. Third, despite a number of studies in various sectors the impact of new public investment on current expenditure requirements is still imperfectly understood. Policies are still needed to define standards and provide for adenutate maintenance and other recurrent expenditure associated with all projects undertaken by the Government. The estimated impact of a government project on rcirrent budget expenditure and revenue should continue to be an important criterion in the decision to invest. Foreign Debt and Debt Management 66. At end December, 1976 disbursed public and publicly guaranteed medium and long term foreian dobt amnuinted to $529.3 million and committed but undisbursed debt was $368.6 million, for a total of $897.9 million. Five years earlier toa debt, including undisbursed; stood at $260.0 million: it is projected to be $1,202.4 million at end 1977 and $2,138.2 million at end 11 Th'i-s assumes total new commitments diuring thp Plan period of $1,534.4 million, or $307 million per year, of which an average of $85.0 million per year in new borrowing from private suppliers and banks, which is the amount of borrowing that would be required on our medium investment alternative. This amount would, however, be higher in the last three years, because of the expected deterioration in the financial situation described above. The amount required to ue luorroweU rom private sources on the high investment alternative would average $125.8 million per year, and on the low it would be $69.0 million. - 43 - Table 21 DEBT PROFILE .A. Co=4 t 4 tme.t of Yei- and Long Term Loans (Millions of US dollars) Calendar Years Total Public Total Private a/ Three Year Average Bilateral Multilateral Sources Sources Total Actual 1973 51.0 37.8 88.8 28.3 177.1 1975 58.0 47.6 105.6 76.5 182.1 Projected 1977 128.9 63.4 191.8 96.1 287.9 1979 144.3 84.0 228.3 62.1 290.4 1981 143.8 113.0 256.8 112.1 368.9 B. Disbursemenor. of Media-Ai and Long Term Loans Three Year Average Actual 1973 22.0 20.4 42.4 10.7 53.1 1975 34.4 29.6 64.0 57.4 121.4 Projected 1977 89.2 36.3 125.5 84.5 210.0 1979 120.3 50.8 171.1 83.6 254.7 1981 132.2 59.4 191.6 100.0 291.6 C. Debt Outstanding and Disbursed Total Year End Disbursed Incl. Undis- bursed Actual 1971 113.8 34.2 148.0 13.9 161.9 260.0 1973 124.8 85.1 209.9 28.5 238.4 A30.2 1975 159.5 138.4 297.9 76.8 374.7 705.1 1976 190.7 164.9 355.6 173.7 529.3 898.0 Projected 1977 279.6 194.0 473.6 249.8 723.4 1,195.4 1979 494.4 278.9 773.3 314.5 1.087.8 1,609.0 1981 721.6 392.2 1,113.8 387.6 1,501.4 2,138.2 a/ Projected amounts are for "medium" investment alternative. 67. Table 21 shows the main historical and projected trends and structure in Cameroon's external debt. At the end of calendar 1971, six months after the beginning of the Third Plan, debt due bilateral and mul- tilateral official lenders was $148.0 million and debt due to suppliers and banks was $13.9 million. By the end of 1976, six months after the end of the Third Plan, these amounts were $355.6 million and $173.7 million, respectively. Borrowing from private sources had thus grown from virtually negligible amounts to a very significant sum. The mission estimates that considerably more private borrowing took place in 1977. 68. The projections of new borrowing from public sources reflect the intentions of aid donors. While the expansion in aid from bilateral donors could conceivably be overestimated, the estimate of assistance from multilateral donors is perhaps conservative. Bilateral donors do, of course, include OPEC countries and there has already been a rise in assistance for certain projects from them. Still, the estimated total amount of official development aid is likely to be close to a maximum, taking into account comparative per capita indicators for less developed countries in Africa and elsewhere in the world. The growth of debt due to private borrowers on the medium alternative would still have to be substantial, i.e. from $173.7 milllorn at end 1976 tn S387-6 million at end 1981. The share of this debt in total public debt outstanding and disbursed would, however, decline from 33 percent at end 1976 to 25 nercent at end 1981. This phenomenon is in some degree attributable to the shorter grace periods and maturities of loans from private sources, which of course means higher debt service during the period for Cameroon. 69. The table also reveals an acceleration in the apparent rate of disbursements on bilateral loan.s (iin this case meanina disbuirsements in any one year in relation to commitments in that year not in relation to past comWiLtmeUiitsl. This is the result of the deceleration from the high (49 percent) rate of increase in commitments at the beginning of the Fourth Plan to the more nLormaL rate of about 6 percent during the Fourth Plan period. The historical record in Cameroon suggests that disbursements could be slower than those assumeu Ihere. If this is true, either investment would again need to be lower or commitments of new loans would have to be higher. Because commitments from public sources are unlikely to be raised, higher commitments could only come from private sources. However, as already in- dicated the projections provide for a substantial increase in official borrowing from private sources. 70. Given the mission's projections of new borrowing to finance the iimedium" investment alternative, and the projected volumes and prices of exports, the ratio to export earnings of payments of interest and amorti- zation on public and publicly guaranteed medium and long term fore'gn debt would rise from 8.1 percent in 1977/78 to almost 12 percent in 1980/81. The ratio of these debt service charges to current budget revenues woulU increase from 13.6 percent to about 15 percent. 1/ This is a considerable burden for 1/ The mission has not separated debt service on new centrai government borrowing from debt service on borrowing by public enterprises. - 45 - the Cameroon economy and requires stronger planning, monitoring and control to ensure that resources are properly planned and provided to cover debt service charges. Past irregularities in debt services payments have recently been straightened out, and apparently were attributable less to a lack of liquidity than to problems of management, particularly in 1975/76 when appropriations for debt service were omitted from the Loi des Finances, owing to the under- standing at the time the budget was prepared that an Autonomous Amortization Fund (Caisse Autonome d'Amortissement) would be established. Debt service in that year was met from treasury resources. Appropriations have since been included in the budgets for 1976/77 and 1977/78 and the monitoring and report- ing of new commitments and transactions has recently improved. 71. Nevertheless, problems of debt management and coordination remain including (a) omission from the financing estimates in the Fourth Plan docu- ment of explicit debt service forecasts; debt service charges were assumed to be covered by resources of the Commodity Price Stabilization Funds, (b) overlapping responsibility between the Ministry of Finance and MINEP for debt reporting and managRment. and (c) lack of systematic and current reporting by public enterprises of their transactions on foreign loan commitments (disburse- ments, payments of interest and amortization). The Cameroon authorities have, for a number of years, expected to centralize debt management through the establishment of an Autonomous Amortization Fund. The mission recognizes that the particular form of administrative and financial arrangement to manage publir foreign debt is an internal matter but suggests that annual financial charges ranging from some $80 million in 1977/78 to almost $150 million in 1980/8i rar of siich imortance that the Government needs to nroceed with measures to ensure (a) longer term planning and authorization of funds speci- fically designated to meet its financial charges, and (b) centralizp resnon- sibility and authority to monitor new borrowing by all public entities and to forecast and budget expenditure from the funds desiognatd to rovpr them. Longer Term Creditworthiness (Capacite d'Endettement) 2. TLhe miLssiLon's simulations of vari long term alternatives bring- out once again the vulnerability of a small agricultural economy like Cameroon, which is highly dependent on a few primary commodities for foreign exchange earnings and public revenue. Even though Cameroon is, compared with many other Africar. countr4es, quite -elf sufficient in food and certain nrocessed consumer goods, import requirements in the form of capital and intermediate goods ana services associated with development expenditure remain. hgh. It is this structural feature which, in combination with the inherent difficul- ties of acceLeratiLng reaL gro-wt n1 agr4cultre, mposes the real macro- economic constraint on high investment and growth. The real constraint will be even tighter to the extent that limited available resources are channeled into projects having low economic returns and/or the monetary costs of Cameroon's imports rise in relation to the monetary benefits from exports. As observed above, because export prices are now at exceptionally high levels this latter development is virtually certain in the medium term future, while longer term international projections continue to foresee an inexorable rise in import prices. - 46 - 73. Against this background the simulations tested the three medium term investment alternatives, three rates of growth in the volume of forestry exports, a ten percent increase after 1980/81 in Cameroon's f.o.b. receipts from cocoa and coffee resulting from the cutting into half - 10 percent - the discount in cocoa and coffee imnort nrices (from levels which Cameroon will obtain if it continues to be subject to the 20 percent discount in export nrirce nroi5cted du,rina 1977/78-1980/81); and the intrntdirtinn of Pxnnrts from one large scale mining project towards the end of the 1980's. As we have argued at length, the public investment pg w i con- strained by available financial resources in 1978/79-1980/81, so that only the lw and mnditim (20% and 10% reductions from estimated five year fixed public investment of CFAF 490 million in 1974/75 prices) were ultimately uAsed - as a-basis for the long term Simulations. The Simulation4s show that of the variables within the policy control of the Government authorities, the ava4labil-ity of adequate fi nancial resources to sustai .aL-L. an, iL*nvLLst LLe LCate an high as 20 percent of GDP is highly sensitive to projected growth in exports oil timber anlu forest products. The "llow" tUimber export proJLectLon wouLUd imply the need for very restrictive import and foreign borrowing policies, while the "medium" timbeL exprt projecti_on would b_e cons_istent wit_h_ a _lonLg term total investment rate on the order of 19 percent of GDP, provided either Cameroon could obtain 10 percent higher prices for its exports of cocoa and coffee or-substantial mineral exports were developed by. the end of the 1980's. "owever, even on either of the latter assumptions, owing largely to the rapid accumulation of supplementary debt from private foreign sources debt service on foreign borrowing would still rise to 20 percent of the exports of goods and services by 1989/90, which implies that financial constraints would impose heavy limitations on further economic expansion. We conclude that for the next Plan period the Cameroon authorities will need to consider a reduction in the investment rate from that of the present pian period; priorities will need to be carefully determined in relation to economic and social returns; and higher levels of foreign assistance will be needed on concessionary terms. 74. The country remains creditworthy for World Bank financing and in addition continues to have some scope to borrow on commercial terms. Ca- meroon's ability to maintain this capacity to carry debt depends ultimately on maintaining productivity in the utilization of the country's resources, but more specifically on reasonable prudence and sound practices in medium term financial and debt management, along the lines suggested earlier, and its success in achieving the kinds of long term trends simulated above. 75. Finally, from the simulations run by the mission, which bring out the vulnerable nature of Cameroon's small export-dependent agricultural economy and the consequent need for careful medium term resource allocations and financial management and for an appropriate development strategy to diversify the economy, a second perspective plan is strongly suggested for Cameroon. Cameroon did have a 20 year (1960-80) perspective plan , but apart from its obiective of doubling per capita income within the period, it apparently provided little guidance on alternatives, constraints, development strategies and opportunities at least for the Fourth Plan neriod. It is time again for another perspective plan (1981/82-2001/02) to provide a framework for the 5th-8th five year plans.