Cameroon - Economic Recovery Credit Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15682 IMPLEMENTATION COMPLETION REPORT REPUBLIC OF CAMEROON ECONOMIC RECOVERY CREDIT (Credit 2627-CM) June 5, 1996 Country Operations I Central African and Indian Ocean Department Africa Region 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 EQUIVALENTS Currency Unit CFA franc (CFAF) The CFA franc is pegged to the French Franc at the rate of FFI=CFAF I00 Fiscal Year Average Exchange Rate US$1=CFAF 1994 435.0 1995 521.5 SYSTEM OF WEIGHTS AND MEASURE: METRIC Metric U.S. Equivalent I meter (m) = 3.2 feet (ft) I kilometer (km) = 0.62 miles (mi) I square kilometer (km2) = 0.39 square mile (sq mi) I hectare (ha) = 2.47 acres (a) I metric ton (t) = 2,205 pounds (lb) I kilogram (kg) = 2.2046 pounds (lb) FISCAL YEAR July I - June 30 ABBREVIATIONS AND ACRONYMS AfDB : African Development Bank BEAC : Bank of Central African States CIS : Interministerial Supervision Council CTS : Economic Program Technical Monitoring Committee DGTC : Central Procurement Agency ERC : Economic Recovery Credit IDA : International Development Association VIMF : International Monetary Fund MINASCOF : Ministry of Social Affairs and the Status of Women MINDIC : Ministry of Industrial and Commercial Development MINEDUC : Ministry of National Education MINEFI Ministry of Economy and Finance MINFOPRA : Ministry of Civil Service and Administrative Reform  FOR OFFICIAL USE ONLY MINSANTE Ministry of Health MTPS Ministry of Labor and Social Security PE Public Enterprise POE Organization and Staffing Plan PTT Post Office and Telecommunications SAC Structural Adjustment Credit SAL Structural Adjustment Loan SCDP Cameroonian Petroleum Distribution Company SIGIPES Integrated Computerized System for Civil Service and Payroll Management SNEC National Water Company SNH National Oil Company SNI National Investment Company SONARA National Petroleum Refinery SONEL National Electricity Company TCA Turnover tax TIP Domestic tax on output TU Single tax UDEAC Customns Unions of Central African States Ths documcnt has a restricted distribution and may be used by recipients only in the performance of their |oficial duties. Its contents may not otherwise be disclosed without World Bank authorization.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF CAMEROON ECONOMIC RECOVERY CREDIT Credit 2627-CM IMPLEMENTATION COMPLETION REPORT Table of Contents Pae Preface Evaluation Summary ....................i PART 1. PROGRAM IMPLEMENTATION ASSESSMENT INTRODUCTION ....................1 Country Background ...................1..............................I The Devaluation and the Economic Recovery Credit .2..............................2 I. STATEMENT AND EVALUATION OF OBJECTIVES ................................3 II. ACHIEVEMENT OF THE OBJECTIVES ............................................ 4 1. Re-dimensioning and Inproving the Efficiency of the Public Sector .........4 2. Strengthen Production Capacity ... ..............................5.......................S 3. Poverty Alleviation ...................................................6............ 6 III. MAJOR FACTORS AFFECTING THE PROJECT ....................................8 A. Factors under the Control of the Authorities ............................................8 B. Factors Beyond the Control of the Authorities ........................................8 IV. ASSESSMENT OF OUTCOME AND SUSTAINABILITY ........................9 V. PERFORMANCE OF THE BANK AND THE GOVERNMENT .................9 The Bank ...................9................ 9 The Borrower ...........................1................. ....... 10 VI. FUTURE OPERATIONS .11 VII. MAJOR LESSONS AND CONCLUSIONS .11  PART II. BORROWER CONTRIBUTION TO THE ICR ............. 13 PART IH. STATISTICAL INFORMATION ..................................... 22 Table 1: Summary of Assessments 22 Table 2: Related Bank Credits .23 Table 3: Project Timetable .24 Table 4: Credit Disbursements .25 Table 5: Key Indicators for Project Implementation .26 Table 6: Key Indicators for Project Operation .27 Table 7: Studies Included in Project .27 Table 8a: Project Costs .28 Table 8b: Project Financing 28 Table 9: Economic Costs and Benefits 29 Table 10: Status of Legal Covenants in Credit Agreement . 30 Table 11: Bank Resources - Staff Inputs .31 Table 12: Use of Bank Resources - Missions .32 APPENDIXES .............................................................. 33 A. Board Conditions and Conditions for Credit Effectiveness B. Map  IMPLEMENTATION COMPLETION REPORT REPUBLIC OF CAMEROON ECONOMIC RECOVERY CREDIT CREDIT 2627-CM PREFACE This is the Implementation Completion Report (ICR) for the Economic Recovery Credit (ERC) to the Republic of Cameroon, for which Credit 2627-CM in the amount of SDR 53.1 million was approved on June 16, 1994 and made effective on August 24, 1994. The credit was released in its entirety upon effectiveness. It was fully disbursed on May 12, 1995. The ICR was prepared by Mr. Lionel Laurant, Consultant (AF3CO) and reviewed by Mr. Jerome Chevallier, Country Operations Division Chief and Mr. Brendan Horton, Senior Economist. The Borrower provided its own assessment of the project which is included as part II of the ICR. The ICR is based on material in the project file. The Borrower contributed to the ICR by providing its own evaluation of the project's preparation and execution.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF CAMEROON ECONOMIC RECOVERY CREDIT CREDIT 2627-CM EVALUATION SUMMARY Introduction 1. With a population of 12.5 million and a GDP of about US$7.5 billion in 1994, Cameroon's economy is still, despite a steady decline since the mid-1980s, the largest economy in the CFA zone. The country is richly endowed with natural resources (including tropical forests, coastal fisheries, mineral resources, and a fertile agricultural land), and has a diversified production base and a well-developed, albeit poorly maintained, infrastructure. Combined with sound policies and a favorable external environment, these assets produced average real growth of 7 percent a year from independence in 1960 through 1985. 2. From the mid-1980s on, however, three major external shocks adversely impacted the Cameroonian economy. First, prices of the major export commodities dropped, leading to a 60 percent deterioration in the external terms of trade by end-1988. Second, the long-term slide in oil output left oil exports in 1994 at about a third of their 1985 level. Third, export competitiveness deteriorated as the real exchange rate appreciated by about 54 percent during 1986-88. These shocks, compounded by insufficient Government commitment to reform, led to mounting macroeconomic difficulties, which a reform program -- supported by a Structural Adjustment Loan (SAL) approved in 1989 -- failed to address. The regime proved unable to stop the economic decline. 3. A new macroeconomic program was adopted by the Government in the aftermath of the devaluation of the CFA Franc (effective January 12, 1994) to secure the country's international competitiveness and return the economy on to a sustainable growth path. As part of the emergency package of assistance to the CFA countries, an Economic Recovery Credit (ERC) and a Stand-by arrangement were approved by the Bank and by the IMF to support the reform program. The Economic Recovery Credit was identified, appraised, negotiated and brought to the Board in four months, following exceptional procedures. To consolidate the early gains from the devaluation, it was made available for disbursement in one tranche after effectiveness. Credit Objectives 4. The credit was designed to provide emergency support to the Government's program of economic recovery adopted in the aftermnath of the devaluation of the CFA Franc. The program aimed at redressing the financial imbalances and reversing the economic decline which set in during the mid-1980s. Within a macroeconomic framework  ii consistent with this objective, the structural components of the program included a major overhaul of the tax and tariff system, public enterprise sector and trade reforms, and a social action program. Reflecting these objectives, the main measures under the Economic Recovery Credit included: (i) re-dimensioning and strengthening the efficiency of the public and parapublic sectors; (ii) strengthening production capacity; and (iii) adopting poverty alleviating measures, including improvements in the delivery of social services to low-income groups. Prior to Board presentation, and in coordination with its partners in the regional economic and customs union (UDEAC), the authorities undertook a far- reaching tax and tariff reform aimed at simplifying the tax system and reducing import tariffs. Implementation Experience and Results 5. Despite substantial external assistance from bilateral and multilateral donors (France, European Union, IMF, World Bank and AfDB), as well as debt rescheduling and relief from the Paris Club, the post-devaluation period did not begin auspiciously. Growth in FY94 was negative and, as in most other UDEAC countries, budgetary performance was poor. Revenues declined to an exceptionally low 10.6 percent of GDP, owing partly to an abnormally low level of customs revenues (caused by outright fraud, unjustified tax and tariff exemptions, and disruptions linked to the UDEAC tariff reform). The primary deficit increased. As a result, the first review under the Stand-by could not be completed. Similarly, the terms of the Paris Club rescheduling could not be met. 6. This poor performance prompted the President of the Republic to strengthen his economic team in July 1994. The following month, the IMF program for 1994-95 was revised to address the major slippages that had occurred under the original program and provide a new impetus to the reform effort. Fiscal performance in FY95 strengthened considerably. The Government's overall fiscal deficit was more than halved, to 4.2 percent of GDP, while the primary fiscal balance moved to a surplus of almost 3 percent of GDP (from a deficit of more than 2 percent a year earlier). Production in the traded goods sector responded favorably to the change in relative prices. Overall, real GDP turned around from nearly a decade of decline to an estimated growth of 3.3 percent in FY95. 7. While the Government put considerable emphasis on revenue collection in FY95, it did not move forcefully with the agreed program of structural measures. Those reforms were eventually completed, but considerable resistance from vested interests had to be overcome. Sustainability of Results and Future Operations 8. Sustainability of results hinges on the pursuit of appropriate macroeconomic policies and the implementation of supportive reforms that will strengthen external competitiveness, restore critical public sector capacity, and stimulate private sector growth. Program sustainability is also dependent on the authorities' ability to overcome  the resistance of powerful interest groups. The ERC-supported program has re- established a real exchange rate consistent with economic competitiveness and laid the basis for the resumption of export-oriented growth of the economy by improving export incentives and the attractiveness of the economy for investment. The liberalization of most prices and the reduction of public involvement in the economy have enhanced producer incentives and created an environment propitious to private initiative. 9. Building upon these achievements, a Memorandum of Economic and Financial Policies issued in September 1995 outlines the Government's macroeconomic objectives for FY96. A Second Structural Adjustment Credit, along with a new Country Assistance Strategy, were presented to the Board in February 1996. Lessons and Conclusions 10. The Economic Recovery Credit aimed at redimensioning and improving the efficiency of the private sector; strengthening production capacity; and alleviating poverty. Program results were broadly satisfactory, although the authorities' initial lack of commitment resulted in weak budgetary performance in the first half of 1994 and in delayed implementation of the agreed program of structural reforms. 11. The scope of the ERC's objectives was commensurate with the extent of the economic and financial crisis confronting the country, and provided a consistent response to the parity change of the CFA Franc. However, the ERC lacked a clear strategic focus, mobilizing in a variety of fields the administration's limited implementation capacity. 12. The ERC implementation record suggests four observations: (i) the Borrower's initial perception that the Bank would do its utmost to help Cameroon remain current in its heavy debt service to the Bank should have been dispelled earlier; (ii) predictability of Bank support to the adjustment process is a key to restoring credibility; (iii) timely program implementation hinges closely on early investment in building strong commitment to reform, as well as availability of institutional capacity to follow through with measures; and (iv) involvement of civil society is crucial in building consensus on reform and mobilizing support from socio-economic groups critical to program implementation.   IMPLEMENTATION COMPLETION REPORT REPUBLIC OF CAMEROON ECONOMIC RECOVERY CREDIT CREDIT 2627-CM PART I: PROGRAM IMPLEMENTATION ASSESSMENT INTRODUCTION Country Background 1. With a population of 12.5 million and a GDP of about US$7.5 billion in 1994, Cameroon's economy is still, despite a steady decline since the mid-1980s, the largest economy in the CFA Franc (CFAF) zone. The country is richly endowed with natural resources (including tropical forests, coastal fisheries, mineral resources, and a fertile agricultural land), and has a diversified production base and a well-developed, albeit poorly maintained, infrastructure. Combined with sound policies and a favorable external environment, these assets produced average real growth of 7 percent a year from independence in 1960 through 1985. Until oil production took over in 1978, transforming the economic structure, agriculture provided most of the growth and foreign exchange earnings. It remained, however, a major sector of the Cameroonian economy, employing in 1984-85 close to two thirds of the labor force and generating about two fifths of exports. 2. From the mid-1980s on, however, three major shocks adversely impacted the Cameroonian economy, revealing the fragility of its economic structure and policies. First, prices of the major export commodities dropped, leading to a 60 percent deterioration in the external terms of trade by end-1988. Second, the long-term slide in oil output left oil exports in 1994 at about a third of their 1985 level. Third, export competitiveness deteriorated as the real exchange rate appreciated by about 54 percent during 1986-88. These shocks sent the economy into a deep and protracted economic crisis. Real GDP and per capita income dropped, and internal and external imbalances became severe. Budget deficits accentuated, the current account balance of payments deteriorated, and a large build-up of the public external debt took place, leading to service difficulties and payments arrears of US$1 billion by end-1992. 3. A Structural Adjustment Loan (SAL) was approved in 1989 to address the mounting difficulties confronting the Cameroonian economy. The program, however, failed to bring about the required adjustment as: (i) the SAL was founded on deflationary, internal policies alone which, in the absence of an exchange rate adjustment, could not possibly restore macroeconomic equilibria and competitiveness of the economy; (ii) the SAL's overly ambitious coverage was beyond the administrative capacity in a country subject to a protracted economic crisis and political unrest; and (iii) the Government's lack of commitment and uncertain leadership was exacerbated by weak public institutions, poor coordination and rivalries among ministries and agencies. By December 1993,  2 Cameroon's economy and its external accounts had deteriorated significantly as the fundamental structural problems remained unaddressed. Since the onset of the vicissitudes of the Cameroonian economy in 1986, real GDP had declined by about 30 percent, the real per capita income suffering a 50 percent drop. 4. Reflecting those conditions, the regime became increasingly isolated, internally and internationally, as it was unable to stop the economic decline and the rent-seeking activities of the political elite. Economic hardships exacerbated political tensions as the Government raised taxes in an effort to maintain its expenditures. The country experienced civil unrest in 1991-92. Parliamentary elections in 1992 were boycotted by the major opposition parties, and did not result in the forming of a broad-based government with a mandate to resolve the crisis. In a desperate and futile attempt to correct fiscal imbalances, the Government sharply reduced the civil service wage bill in 1993. While the wage cuts did not unleash a social upheaval, they did not halt the mounting financial imbalances and, indeed, accentuated corruption and further weakened public sector capacity The Devaluation and the Economic Recovery Credit 5. To bring about the required structural change, the Government of Cameroon, along with its partner countries in the CFA zone, decided on January 12, 1994, to realign the parity of the CFA Franc from 50 CFAF/FF to 100 CFAF/FF. A new macroeconomic program was adopted to secure the country's international competitiveness and return the economy on to a sustainable growth path. The reform program aimed to: (i) bring inflation to a level below 5 percent from 1995/96 onwards, following initial adjustments in relative prices; (ii) attain sustainable real GDP growth of about 5 percent per annum from 1995/96, primarily led by improved competitiveness and export performance; and (iii) quickly achieve primary and, eventually, overall budget surplus to enable increased domestic savings, reduce the current account balance deficit and finance an increasing share of domestic investments. As part of the emergency package of assistance to the CFA countries, an Economic Recovery Credit (ERC) and a Stand-by arrangement were approved to support the reform program. 6. Bank support to Cameroon following the devaluation also included supplemental credits under the Fifth dimension, as well as a US$50 million Structural Adjustment Credit (which replaced the third tranche of SAL I when Cameroon became eligible for IDA resources) aimed at supporting the new macroeconomic framework put in place after the devaluation. Conditions for SAC release were satisfactorily complied with -- with the exception of the condition pertaining to the Forestry Code, but adoption of implementation decrees for the Code was made a condition of effectiveness of the ERC. The Project Completion Report for the SAL/SAC was circulated in June 1995. 7. The justification of the Economic Recovery Credit, which aimed to complete the reform agenda initiated under the SAL, lay in: (i) the necessity to support the post- devaluation reform program as outlined in the Government's Memorandum on the  3 Economic Recovery; (ii) the need for a rapid intervention to ensure that the price and incentive effects of the exchange rate action would be accompanied by appropriate measures to achieve a lasting improvement in competitiveness and growth; and (iii) the opportunity to break with a period of several years of weak policy dialogue with the Bank. The Economic Recovery Credit was identified, appraised, negotiated and brought to the Board in four months, following exceptional procedures. To consolidate the early gains from the devaluation, it was made available for disbursement in one tranche after effectiveness. I. STATEMENT AND EVALUATION OF OBJECTIVES 8. The credit was designed to provide emergency support to the Government's program of economic recovery adopted in the aftermath of the devaluation of the CFA Franc. The program aimed at redressing the financial imbalances and reversing the economic decline which set in during the mid-1980s. Within a macroeconomic framework consistent with this objective, the structural components of the program included a major overhaul of the tax and tariff system, public enterprise sector and trade reforms, and a social action program. Reflecting these objectives, the main measures under the Economic Recovery Credit included: (i) re-dimensioning and strengthening the efficiency of the public and parapublic sectors; (ii) strengthening production capacity; and (iii) adopting poverty alleviating measures, including improvements in the delivery of social services to low-income groups. The government fulfilled a number of conditions for Board presentation and effectiveness (see Appendix A). Notably, in coordination with its partners in the regional economic and customs union (UDEAC), the authorities undertook a far-reaching tax and tariff reform aimed at simplifying the tax system and reducing import tariffs. 9. The scope of the ERC's objectives was commensurate with the extent of the economic and financial crisis confronting the country. The deflationary process in the recent years, triggered by adverse extemal shocks compounded by poor economic policy and management, had left Cameroon with legacies incompatible with sustainable development: an overextended, inefficient and deficit-ridden public sector; a deteriorating physical and human capital base and declining productivity; and deepening poverty. 10. Expedient availability of funds was justified by the need to capitalize on the momentum created by the devaluation. The risks of program failure, however, largely debated in the context of the Board discussions, were patent in view of Cameroon's poor track record as a reformer. Further, reflecting the Country Assistance Strategy's widespread coverage, the ERC lacked a clear strategic focus and definite course of action, mobilizing in a variety of fields Cameroon's weak implementation capacity. Disbursement in a single tranche was liable to reduce further the credit's policy leverage. Indeed, the Bank's decision to proceed with the ERC at a time when the IMF-supported program was veering off-track may have nourished the authorities' perception that the  4 devaluation alone justified assistance, weakening their resolve to implement the structural reforms agreed upon under the ERC. IL ACHIEVEMENTS OF THE OBJECTIVES 11. Structural reforms under the ERC were eventually completed, but considerable resistance from vested interests had to be overcome. In the first part of 1994, poor revenue mobilization quickly caused the IMF-supported stabilization program to veer off track. A new Minister of Finance, appointed in July 1994, succeeded in increasing Government revenue by 55 percent in FY95. While this effort was being made, however, structural reforms were postponed for lack of consensus among cabinet members. Eventually, the Government realized that further Bank support would not be forthcoming until all actions agreed under the ERC were completed. 1. Re-dimensioning and Improving the Efficiency of the Public Sector 12. The ERC intended to (i) improve public resource management, so as to attain a rapid turnaround in the primary fiscal balance; and (ii) carry out a public enterprise (PE) reform. Fiscal developments in the first half of 1994 were below expectations, affected by a significant fall in the volume of imports, continued shortcomings in tax administration (outright fraud, unjustified tariff and tax exemptions benefiting private enterprises) and the overhaul of the tax system early in the year (implementation of the UDEAC indirect tax and customs tariffs reform). Government revenue performance improved significantly in FY95, however, following the strengthening of the tax and customs administration (with the appointment of a new team at the Ministry of Finance) and the implementation of tax reforms contained in the budget law for the year. 13. In particular, the collection of direct taxes and domestic indirect taxes showed a major upward trend. Government non-oil revenue rose by 60 percent in FY95 compared with FY94, while oil revenue also recorded a substantial increase. In contrast, customs duty collection remained weak, reflecting the persistence of tax evasion and discretionary exemptions. The fiscal position nevertheless improved markedly, with the primary budgetary balance recording a surplus of 2.9 percent of GDP (coming from a 2.3 percent deficit in FY94) and the overall budget deficit declining by over 50 percent (to 4.2 percent of GDP). Owing partly to a sizable shortfall in extemal assistance (triggered by the sharp deviation from the original program), however, this surplus was unable to prevent the accumulation of new extemal payments arrears in an amount of US$400 million, bringing the stock of arrears to US$1.3 billion (16 percent of GDP) at end-June 1995. 14. Reflecting the authorities' misplaced perception that improved revenue collection alone would justify a favorable assessment of Cameroon's overall performance under the ERC, implementation of structural reforms lagged considerably behind schedule in the first three quarters of 1994.  5 15. Civil service reform: Implementation of organizational and staffing plans in a number of ministries (to evaluate the mandate of each administrative unit and determine which activities or staff positions should be maintained or discontinued) resulted in the departure of over 5300 civil servants by end-December 1995, close to 18 months behind the agreed schedule. Nevertheless, a new civil service statute was promulgated in September 1994 (with the introduction of provisions to terminate employment for economic motives), and the public wage bill was sharply reduced between FY93 and FY95, from 9.3 to 4.4 percent of GDP respectively (against the 5.5 percent initially planned). Implementation of organizational and staffing plans for the remaining ministries in 1996 will result in the elimination of additional staff. Eventually, the size of the civil service will be reduced to 152,000 from 181,000 at end-1993. 16. Public enterprise divestiture: in July 1994, 15 large enterprises in the transport and agricultural sectors were identified for privatization. Despite initial difficulties linked to the institutional and legal framework for privatization, five public enterprises were liquidated by early 1995, two were put under private management contract, and minority share positions were sold for three other, thus contributing to reduce the financial burden and low productivity of the public enterprise sector. Some progress was also made from the latter part of 1994 in selected areas. To improve transparency and accountability, the accounts of the 17 largest public enterprises have become available since October 1994, and SNH, the state oil company, has regularly provided data on the oil sector operations since early 1994. A new General Statute on Public Enterprises was enacted in August 1995, so as to expose public enterprises to market pressures and redefine the liquidation process. 2. Strengthening Production Capacity 17. The Economic Recovery Credit contributed to the strengthening of production capacity in two particular respects: (i) private initiative has been encouraged: aided by a sharp recovery of international commodity prices, the adjustment of parity restored incentives to most exports (including coffee, cocoa, cotton, timber, aluminum, bananas), leading to an 8 percent increase in Cameroon's non-oil export volume in FY95. Activity in domestically oriented industries, which contracted in early 1994 in the wake of the sharp drop in disposable income that followed the devaluation, also expanded in FY95, particularly for beverages and tobacco. Progress toward the liberalization of the economy, along with preliminary actions to divest public enterprises, stimulated private sector growth and generated a more propitious environment to investment (private investment reached 14.5 percent of GDP in 1995, up by close to 2 percent of GDP from 1993); (ii) operating difficulties have been reduced: the abolishment of price controls (with the exception of petroleum products, medicines, textbooks and public utilities) and the elimination of reference producer prices for coffee and cocoa have enhanced producer incentives, while more favorable credit conditions contributed to strengthen  6 economic activity. Similarly, owing partly to the stability of wages in the public and private sectors, the inflation rate (13 percent in FY95, compared with 34 percent in FY94) was brought down to a level more consistent with sustained competitiveness. 18. Partly reflecting these changes, the performance of domestic productions has been strengthened considerably and the devaluation has allowed for the resumption of positive real growth: overall, GDP turned around from nearly a decade of decline to a growth of more than 3 percent in FY95. 3. Poverty Alleviation 19. The measures envisaged under the Economic Recovery Credit included poverty alleviation and protection for the most vulnerable groups. The negative impact of the devaluation on the population was limited in three distinct respects: (i) income growth: aided by a sharp recovery of international commodity prices, the parity change contributed to the improvement of the welfare of the rural population; it provided a strong stimulus to economic activity in the tradable goods sector (with most exports recording strong gains, including coffee, cocoa, cotton, timber, aluminum and processed food) and improved the economy's attractiveness for investment, thus laying the groundwork for sustainable development; (ii) real income protection for the poor: to mitigate the impact of the corrective price adjustment on wage earners' purchasing power, trade liberalization measures (introduction of a simplified and less distorted tariff structure, elimination of quantitative restrictions on imports) were combined with the phasing out of stabilization tax mechanisms and the reduction of taxes and tariffs on key commodities (rice, wheat, flour, bread, sugar, vegetable oil) for a period of 6 months; (iii) shift of resources towards human resource development: to provide more adequate basic public services to the population, the level of non-wage current expenditures was raised for primary and secondary education, health, and agriculture and the maintenance of transport infrastructure (the increases recorded in FY95 over the previous fiscal year ranged between 36 and 58 percent); the share of those sectors in total investment was also raised by close to 45 percent during the period. A Social Action Program was designed in the context of the ERC to finance, as part of the authorities' Social Emergency Program adopted in the aftermath of the devaluation, certain unfunded components (including the National Employment Fund and an expanded education component) of Cameroon's Social Dimensions of Adjustment (SDA) program (approved in May 1990 and canceled in June 1994). This program was not implemented, however, for lack of adequate funding. 20. Despite their contribution to the improvement of the country's human resource base, the measures undertaken under the program could not possibly fully eliminate the  7 negative impact of the devaluation on the poorest segments of the population. Notwithstanding the emergence of new opportunities to all social groups as a result of revived growth and competitiveness, the devaluation and the ensuing adjustment process have affected the various social groups differently and unevenly. In particular, inflation has eroded real incomes in the nontradeable sectors, notably that part of the primarily urban population whose livelihood depends on spending by public sector employees, already affected by substantial wage cuts and staff reductions. On the other hand, the limited share of the budget devoted to education, health and social affairs remains equivalent that granted to defense and internal security (11.6 and 12 percent respectively). The box below summarizes Cameroon's recent achievements in its adjustment effort, as well as its unfinished agenda. Adiustment: Achievements and Unfinished Aeenda 1. Maior achievements Exchange rate: 50 percent devaluation of the CFA franc (1994). Trade reform elimination of quantitative restrictions, and adoption of four-tier tariff ranging from 5 to 30 percent in conjunction with other members of UDEAC (1994); full liberalization of coffee, cocoa trade (1990-94). Prices: elimination of price controls, except for petroleum products, medicines, textbooks, public utilities, maritime transport and port services; elimination of price stabilization mechanisms, with exception of petroleum products; elimination of coffee, cocoa reference prices; elimination of agriculture input subsidies (1989-94). Financial intermediation: liberalization of interest rates and establishment of regional money market (I 994). Investment: reform of investment, labor codes (1990, 1992). Public sector: reform of procurement code (1995); reform of legal framework for public enterprises (1995) and initiation of privatization program to include all enterprises, including utilities; simplification of indirect taxes (1994); 50 percent reduction of public sector wages in 1993. Petroleum sector: opening up of national petroleum company (SNH) books (1994); elimination of SNH monopoly for the supply of crude oil; elimination of subsidy to the state refinery, SONARA (1995). Forestry: enactment of new code including transparent concession allocation, and improved forest management mechanisms (1995). Other sector reforms. privatization of dredging Douala port (1995). 2. The unfinished aaenda Making the budget a development tool: increase revenues through eliminating unjustified exemptions, broaden tax base and strengthen customs and tax administration; increase reliance on expenditure-based taxes versus export taxation; increase budget allocations to education, health, infrastructure maintenance, agriculture services within severely constrained overall expenditure envelope. Civil service reform: rightsize and improve incentives for good performance, improve skills-match, and quality of public services Disengage the State from productive activities: accelerate privatization. Reform the financial sector: liquidate insolvent financial institutions; privatize state-run banks; strengthen banking supervision. Eliminate arrears and establish good payment track record: securitize internal debt and maintain good payment record Reinforce judiciary system: restore adequate compensation, eliminate political interference, strengthen supervision of judges. Improve business environment: harmonize business laws with CFA zone; streamline regulatory framework and reduce transport and transaction costs (especially inland, maritime and air transport).  8 [IL MAJOR FACTORS AFFECTING THE PROJECT A. Factors under the Control of the Authorities 21. Program implementation was seriously compromised by insufficient initial commitment to reform and weaknesses in administration, reflecting an initial failure to sufficiently intemalize the program and create an effective mechanism for forceful and timely government action. Program implementation was consequently affected in four different respects: (i) tax evasion and unjustified tariff and discretionary tax exemptions benefiting certain goods and companies contributed to the poor government revenue performance recorded in the first half of 1994. As a result, the first review under the parallel Stand-by could not be completed, and the terms of the Paris Club rescheduling could not be met; (ii) weak government credibility and economic hardship nourished civil disobedience (tax evasion, fraud, corruption in key civil service branches) and discouraged support from socio-economic groups essential for program implementation, thus challenging the implementation of the reform agenda and contributing to the poor fiscal performance recorded in the first half of 1994; (iii) weaknesses in administration and insufficient commitment to reform, nourished by opposition from vested interests and long-entrenched corruption in the public sector, caused disruptions that delayed implementation of structural reforms in the first three quarters of 1994; (iv) poor customs duty collection, compounded by a sizable shortfall in external assistance (triggered itself by the sharp deviation from the original program) jeopardized the effective stabilization of the macroeconomic framework and contributed to a net accumulation of external payments arrears (the stock of external payments arrears was brought up by US$400 million at end-June 1995, to some 16 percent of GDP). Government arrears to the nonfinancial private sector still amounted to some US$780 million (9 percent of GDP) by the end of FY95, thus hampering private sector growth. B. Factors beyond the Control of the Authorities 22. Program implementation was also affected by unfavorable overall economic developments. A reduction of the tax base following the initial slow down of economic activity during the first three quarters of 1994 (as domestic demand was adversely affected by inflation) hindered revenue collection, contributing to the poor fiscal performance mentioned earlier. Activity in the formal sector was also hampered by a lack of confidence motivated by uncertain economic perspectives.  9 IV. ASSESSMENT OF OUTCOME AND SUSTAINABILlTY 23. Program results were broadly satisfactory, providing a necessary base on which deeper reforms could be built. The ERC-supported program has re-established a real effective exchange rate consistent with economic competitiveness (with a lower rate of inflation) and laid the basis for the resumpfion of export-oriented growth of the economy by improving export incentives (notably to the key sectors of coffee, cocoa, and timber) and the attractiveness of the economy for investment. The liberalization of most prices and the reduction of public involvement in the economy have enhanced producer incentives and created an environment propitious to private initiative. 24. Sustainability of results remains heavily dependent on the pursuit of appropriate macroeconomic policies and the implementation of supportive reforms that will support external competitiveness, restore critical public sector capacity, and stimulate private sector growth. Program sustainability also hinges on: (i) a strong leadership committed to change and willing to overcome the resistance of powerful interest groups; and (ii) the evolution of the country's external environment (especially developments in Nigeria and changes in world prices of its main export commodities). Areas for further reform include: attaining macroeconomic stability and improving public resource management; promoting private sector development (especially exports); and raising living standards in an environmentally sustainable manner, through higher factor productivity. Continued donor support is required to assist Cameroon implement these reforms and reach over time a more viable fiscal situation. V. PERFORMANCE OF THE BANK AND THE GOVERNMENT The Bank 25. The Bank's performance in the design and monitoring of the Economic Recovery Credit was broadly satisfactory: (i) Design: the scope of the ERC's objectives was commensurate with the extent of the economic and financial crisis confronting the country. The ERC was also well in line with the Country Assistance Strategy, and provided a consistent response to the parity change of the CFA Franc. Bank performance in the design of the operation, however, may have failed to fully appreciate the administration's capacity limitations and insufficient commitment in the early stages of program implementation. Reflecting the Country Assistance Strategy's widespread coverage, the ERC lacked a clear strategic focus and definite course of action, mobilizing in a variety of fields Cameroon's weak implementation capacity. Compounded by the authorities' weak commitment, as well as repeated signals from the donor community that the devaluation would trigger massive assistance, this  10 element contributed to the poor budgetary performance recorded in the initial stages of the credit and in delayed implementation of the agreed structural reforms. (ii) Monitoring: close monitoring by the Bank and the Fund contributed to the turnaround in performance starting in the second half of 1994. In addition to two supervision missions, program implementation was monitored in the context of the preparation of follow-up operations and a new Country Assistance Strategy. These missions were instrumental in focusing assistance on key activities for the success of the program. The exceptional procedures under which the ERC was appraised, negotiated and brought to the Board left little room for consensus building and assistance toward program internalization. Reflecting these elements, the authorities' lack of commitment to reform resulted in poor fiscal performance in the early stages of program implementation. The Government 26. Government performance in implementing the reform program was mixed, as insufficient commitment on the part of the authorities to overcome conflicting political interests and forestall weaknesses in administration (tax evasion, corruption in key civil service branches) caused a weak budgetary performance in the initial stages of credit implementation. These elements, along with opposition from vested interests compounded by a legacy of heavy-handed public intervention in the economy, were reflected in the failure to create an effective mechanism for forceful and timely government action. As a result, reflecting the authorities' misplaced perception that the devaluation alone justified Bank assistance, considerable delays were incurred in the implementation of structural reforms. 27. In the second part of 1994, however, the authorities took remedial action to address the shortcomings observed earlier. First, to improve program ownership and remedy administrative weaknesses, the Government strengthened its economic team in July 1994 (with the appointment of a new Minister of Economy and Finance). The authorities also made a determined effort to improve revenue performance by tightening controls and re-establishing export duties on key exports, resulting in a 55 percent increase in total revenue from the previous year. Further, to signal their commitment to reform, and to establish a credible record of policy implementation, the authorities adopted a revised adjustment program for FY95 which aimed at addressing the major slippages that had occurred under the original program and at providing a new impetus to the reform effort. Finally, the stabilization of wages in the public and private sector mitigated inflationary pressures and allowed Cameroon to preserve substantial gains in competitiveness after the devaluation.  11 VI. FUTURE OPERATIONS 28. The authorities are now fully aware of the need to give unmistakable signals to economic agents and donors alike regarding their resolution to pursue economic reforms. The Government's vision is to implement policy reforms that would ensure macroeconomic stability and improved public resource management; promote private sector development, especially exports; and raise living standards in an environmentally sustainable fashion, through higher factor productivity. 29. Recognizing that the achievements brought about by the post-devaluation support operations provide a necessary base on which a deeper program could be built, a Memorandum of Economic and Financial Policies issued in September 1995 outlines the Government's objectives for FY96 and indicates a commitment to deeper reforms. It sets out the macroeconomic objectives for the period and describes the macroeconomic and structural policies to achieve these objectives. A Second Structural Adjustment Credit (SAC 2) was presented to the Board in February 1996 to support the implementation of the Government's adjustment program in the areas of public resource management and financial sector reform. It is embedded in a new Country Assistance Strategy aimed at: (i) consolidating the benefits of the devaluation, (ii) alleviating poverty, and (iii) creating a climate conducive to private sector development. VII. MAJOR LESSONS AND CONCLUSIONS 30. The Economic Recovery Credit aimed at redimensioning and improving the efficiency of the private sector, strengthening production capacity; and alleviating poverty. Program results were broadly satisfactory, although the authorities' initial lack of commitment, fueled in part by signals from the donor community that the devaluation would trigger massive assistance, resulted in weak budgetary performance in the initial stages of the credit and in delayed implementation of the agreed structural reforms. 31. The scope of the ERC's objectives was commensurate with the extent of the economic and financial crisis confronting the country, and provided a consistent response to the parity change of the CFA Franc. Bank performance in the design of the project, however, may have failed to fully appreciate the administration's capacity limitations and insufficient commitment in the early stages of program implementation. Reflecting the 1994 Country Assistance Strategy's widespread coverage, the ERC lacked a clear strategic focus and strong course of action, mobilizing in a variety of fields Cameroon's weak implementation capacity. 32. The slippages in performance were compounded by adverse external factors, namely an initial reduction of the tax base. On the other hand, economic performance was helped by favorable world market commodity prices, contributing to the strong upturn in the tradable goods sector that was recorded in FY95  12 33. The ERC's implementation record suggests the following observations: (i) proposal of a large program of Bank assistance at the time of ERC approval, despite faltering Government revenue performance, may have fostered the Borrower's perception that Bank assistance would be forthcoming, if only to assist the Government service a heavy debt burden. In turn, this may have weakened the Government's commitment to reform. In the course of 1995, however, it became clear to all parties concerned that a high level of adjustment lending would only be justified by strong performance in implementing the reform program, (ii) predictability of Bank support to the adjustment process is a key to restoring credibility. In this respect, in designing a one-tranche adjustment operation, it is important to reach agreement with the Borrower on key actions that would justify further Bank support; (iii) timely program implementation hinges closely on early investment in building strong commitment to reform, as well as availability of institutional capacity to follow through with measures. The encouraging performance recorded from the second part of 1994 was clearly linked to the strengthening of the Government's economic team, (iv) involvement of civil society is crucial in building consensus on reform and mobilizing support from socio-economic groups critical to program implementation (private sector, government officials and civil servants, trade unions). Little attempt was made to create the necessary understanding of the content of the program among those groups. Poor administrative coordination and civil disobedience, fueled by weak government credibility and insufficient awareness of the adjustment effort undertaken in Cameroon, clearly contributed to the poor revenue performance recorded in the first half of 1994 and the failure to provide for timely implementation of structural reforms.  13 PART II: BORROWER CONTRIBUTION TO THE ICR 1. Oversight for the Economic Recovery Credit Implementation of the Economic Recovery Credit was entrusted to the Interministerial Supervision Council (C.onseil Interminist&riel de Supervision -- CIS) headed by the Minister of the Economy and Finance and composed of senior government officials in the economic sectors, especially finance, industrial and commercial development and agriculture as well as the Director General of the National Investment Company (Societ Nationale de l 'Investissemetnt -- SNI) and the National Director of the Central Bank. The Interministerial Supervision Council was assisted by an Economic Program Technical Monitoring Committee (ComWe Technique de Suivi des Programmes Economiques -- CTS) in charge of preparing the working documents, laying the bases for decision-making by the Interministerial Supervision Council and ensuring technical liaison with donors and the periodic monitoring of the implementation of the Economic Recovery Credit (ERC). The members of the Economic Program Technical Monitoring Committee were senior officials of the Central Government and the Chairman of the Public Enterprise Rehabilitation Technical Commission and the Director General of the Caisse Autonome d'Amortissement. The CTS reported to a Permanent Secretariat and was coordinated by the Forecasting Director of MINEFI. Sectoral subcommittees were also set up, and crossed multiple disciplinary lines throughout the ministerial departments dealing with economic issues. One intended effect of ensuring linkages with multiple areas of expertise in the economic, finance and social ministries was to enhance access to useful information for the monitoring of the ERC. 2. Implementation of measures The matrix of the main structural measures related to the Economic Recovery Credit contained 49 measures in the following categories: - monetary situation - public finance - external debt - tax and tariff reform - civil service reform - budget policy - government procurement - trade and price reform - public enterprise sector the agriculture sector the petroleum sector.  14 Each measure in the matrix had an implementation timetable. Implementation performance is summarized below: Monetary situation The objectives of the initial program had been revised and the quantitative targets were to be tracked between July 1, 1994 and March 31, 1995. These measures sought to improve net domestic assets. Three measures were planned: (a) Ceiling on the increase in the net domestic assets of the banking system: Evaluated at CFAF 1091 billion in the initial program, the ceiling on the increase in net domestic assets was revised upwards to CFAF 120.3 billion. By March 31, 1995, the increase was CFAF 48.25 billion. (b) Ceiling on the increase in net claims of the banking system on the Central Government: The initial objective was to reach CFAF 13.5 billion; after revision, the quantitative target was CFAF 30 billion. By March 31, 1995, the increase was CFAF 9.96 billion. (c) Ceiling on the increase in net claims of the banking system on the non- financial public sector: By March 31, 1995, the increase was CFAF 28.12 billion, as compared with the revised objective of CFAF 39.4 billion (initial program: CFAF 13.5 billion). All of these measures were implemented, although the revised objectives were not achieved. Public finance Better mobilization and sounder management of public sector resources was the backbone of all efforts to reduce financial disequilibria in order to restart economic growth. A number of synchronized measures were consequently planned to appreciably improve the mobilization and management of public sector resources. The measures sought (i) a marked and rapid increase in domestic receipts; (ii) appropriate controls of the wage bill for the civil service along with sweeping civil service reforms; (iii) a significant increase in expenditures among the various sectors; (iv) a substantial improvement in the programming and implementation of public investments; and (v) overhaul of the public procurement system. Specifically, two key measures were included in the matrix of planned measures: (a) Floor on the primary budget balance, excluding foreign-financed investments on a commitment basis: This measure was implemented on schedule and the primary  15 budget balance was above the floor of CFAF 82.5 billion, reaching CFAF 114.52 billion. The objective has therefore been achieved. (b) Floor on non-petroleum revenue of the Central Government: Non-petroleum revenue also performed well, since the floor of CFAF 301 billion had been met. At March 31, 1995, non-petroleum revenue was CFAF 307.92 billion, reflecting the efforts made by the authorities to ensure collection. External debt Three measures were recommended: (a) Floor on the net reduction of the external payments arrears of the public sector (excluding external arrears due to foreign commercial banks); (b) Ceiling on new non-concessional external loans contracted or guaranteed by the Government with a maturity of 1 to 10 years or 1 to 15 years; (c) Ceilings on the net disbursement of external loans with a maturity of less than one year (excluding normal import financing). The initial timetable for the implementation of these measures could not be met. Tax and tariff reform The implementation of the tax and tariff reforms decided in January 1994 was a keystone of the efforts to increase revenue. In February 1994, the Cameroonian authorities adopted a new tariff schedule and abolished all quantitative restrictions. A turnover tax (TCA) was made effective as of February 1, 1994. Also in connection with these reforms, six other measures were to be implemented. All of these in fact became reality, namnely: (a) Transfer to the TCA regime of all enterprises previously subject to the TU and TIP regimes: This measure boosted receipts in 1994/95, when some CFAF 37 billion was collected. (b) Taxation on exports of logs FOB at the minimum rate of 20%: This measure became effective under the 1994/95 Finance Law, and was to generate CFAF 21 billion for the State budget from the forestry sector. (c) Simplification of the structure of the tax system and decrease in the number of rates as wel as expansion of the tax base: This measure was taken into account in the 1994/95 Finance Law. (d) Submission of all imports and exports of logs prior to loading to inspection  16 by a specialized company: Decree no. 94/505 of October 5, 1994 setting forth the means of application of Law no. 88/007 of July 15, 1988, which introduces the inspection and control tax, ensured the effectiveness of this measure. The other measures involved special tax and tariff benefits for private enterprises, a survey of exemptions and agreements as well as the launching of renegotiations, application of tax and tariffs ordinary law to all public enterprises, with the abolition of all charters granting preferential tax and tariff treatment. All these measures were taken by the Government under the 1994/95 Finance Law, reflecting the commitment of the Cameroonian authorities to implementing the tax and tariff reforms. Civil service reform 1. Reduction in the wage bill: In the wake of the courageous measures taken by the Government (including two salary cuts in January and November 1993), this measure was introduced on schedule. The annual salary bill in 1994/95 was CFAF 190 billion, as compared with CFAF 300 billion in 1990/91, i.e. a decrease in relative nominal terms of 37%. 2. Implementation of POEs: Civil Service Staffing Plans (Plans d'Organisation et d'Effectifs -- POEs) were to be completed by (a) December 31, 1994 for the Ministry of Civil Service and Administrative Reform (MINFOPRA), the Ministry of Industrial and Commercial Development (MINDIC) and (b) January 31, 1995 for the Ministry of the Economy and Finance (MINEFI). These deadlines could not be met. Owing to certain difficulties, there was a lag of almost one year. However, the measures are now in place today. As a result, 105 agents have been pared from the staff of MI4NFOPRA, 285 from MINDIC and 2,241 from MINEFI. POEs were also to be completed in a group of four social ministries, namely the Ministry of Labor and Social Security (MTPS), the Ministry of National Education (MfNEDUC), the Ministry of Health (MINSANTE) and the Ministry of Social Affairs and the Status of Women (MINASCOF). Signature of the decrees resulting from the studies had been significantly delayed, which led to changes in the original timetable. The deadline was moved forward to November 30, 1995. The list of those being separated from the various ministries was issued on that date, but owing to certain administrative problems with the donor (European Union), the checks for final separation payments for those terminated from the civil service were issued some two months late. All told, this measure is now operational. Significantly, the measures adopted by the Cameroonian authorities had made it possible to bring staffing levels (including personnel with tenure) down from 188,200 in December 1990 to 164,946, i.e. a decrease in absolute terms of 23,254 people and in relative terms of 12.3%. The other measures involved the adoption of a timetable for completion of the civil service reforms, formulation and implementation of the Integrated Computerized System for civil service and payroll management (SIGIPES) and, in particular, adoption of the  17 General Civil Service Statutes. These measures also met with some delay in implementation, but all have become reality. The POE timetable set December 31, 1996 as the deadline for completion of the civil service reforms, whereas the new civil service statutes were promulgated by Decree no. 94/199 of October 7, 1994. With regard to SIGIPES, the delay was due in particular to the ordering of equipment. Preliminary testing was only carried out in March 1996, although initially the consultant was to deliver the system by December 31, 1995. The completion date for that operation was moved forward to December 31, 1996. Budget policy The Government had decided to allocate a large share of its resources to non-wage current expenditures, particularly in sectors key to the long-term development of the country, such as primary and secondary education, health, agriculture and upkeep of transport infrastructure. Consequently, under the Finance Law for fiscal 1994/95, budget appropriations for non-wage current expenditures were increased. In addition, those expenditures had to be among the top-priority items in the Treasury Plan. To that end, six measures were to be taken into account in the Finance Law for fiscal 1994/95, all of which were put into practice and which consisted essentially of - increasing the non-wage current expenditures of the ministries involved in primary and secondary education, health, agriculture, transport and public works; - abrogating all provisions allowing the allocation of tax payments by public enterprises to extra-budgetnry expenditures outside Public Treasury channels; - avoiding the accumulation of new external payments arrears, with the exception of arrears vis-a-vis the commercial banks; securitizing domestic arrears owed to the financial and non-financial sector; - adopting appropriate legislation on the securitization of arrears (under the Finance Law) and concluding bilateral agreements for the consolidation of domestic arrears owed to public agencies; and lastly, adopting a Finance Law for 1994/95 consistent with program objectives. Nonetheless, there was some accumulation of arrears under the program, owing to the delayed availability of the financial support expected under bilateral agreements. Public procurement In order to avoid jurisdictional conflicts, the Government proposed to implement the following measures by December 31, 1994: (i) reform of the public procurement system, taking into account the recommendations of the November 1993 Kribi seminar on  18 public procurement; (ii) harmonization of public procurement regulations with the rules imposed by the donors, including the World Bank; (iii) strengthening of coordination and cooperation between customs offices and those in charge of the inspection and control of imports and exports; (iv) strengthening of the powers of the ministries involved in public procurement; and (v) redefinition of contracts awarded to DGTC, the technical ministries and the National Procurement Commission. Discussions with the donors were lengthy and the initial timetable could not be met. Nevertheless, all these measures were ultimately implemented and the Cameroonian authorities adopted a new procurement code. Price and trade reform In an effort to strengthen the effects of the devaluation of the CFAF on the economy, the Government undertook important reforms in the area of trade and tariffs. Consequently, a simplified tariff structure entailing less distortion (i.e. only 4 rates) was adopted in February 1994. Simultaneously, all quantitative restrictions applicable to imported goods were eliminated. In supporting the import liberalization policy, the Government eliminated all import licenses, in particular for tea, wheat, rice, vegetable oils, sugar and textiles. Major modifications were also made to the General Trade Program. Moreover, in addition to the liberalization of trade, the Cameroonian authorities continued their efforts that had begun in 1988/89 to deregulate domestic retail prices. Several other measures were also taken in order to ensure competitiveness of the economy (guaranteed minimum producer prices for cocoa and coffee were maintained and doubled for the rest of the season, the producer price for cotton doubled, and rates for public services -- water and electricity --, public transport and petroleum products were closely monitored to ensure that the gains in productivity and reduction in production costs did not lead to adjustments in producer prices). Price controls for goods and services across the board were partly eliminated in January 1994. In the area of trade and price reform, six important measures were targeted, namely: (a) elimination of the specific tax paid by importers of pharmaceutical products; (b) taxation based on the common external rate for imports of rice, wheat, flour, sugar and vegetable oils; (c) abolition of price controls on fish, rice, sugar, flour and oil; (d) abolition of reference producer prices for coffee and cocoa; (e) review of the structure of production and distribution costs (SNEC, SONEL, PTT); and, lastly, (f) adjustment of charges for public services (SNEC, SONEL, PTT). All these measures were implemented under the Finance Law for fiscal 1994/95. Public enterprise sector Given the untenable financial burden for the State and the low productivity of public enterprises on the one hand, and the fact that the reforms begun in that sector in 1989 -- focused essentially on enterprise rehabilitation -- did not achieve the expected objectives, a radical change in policy and strategy was vital. The new orientations of  19 public enterprise reform are contained in the general policy statement for the sector. Three measures had been decided for the public enterprise sector. The Cameroonian authorities were to establish a high-level entity to oversee public enterprise reforms. This measure was not implemented until March 29, 1995, seven months behind schedule (August 31, 1994), with the publication of Decree no. 95/056 of March 29, 1995, which reorganized the public and parapublic enterprise Rehabilitation Mission. In addition, the retrospective quarterly accounts were to be produced for the 17 largest public enterprises. This was done. Lastly, the General Statutes for public enterprises were to be promulgated. There was some delay in the implementation of this measure, as with all measures in the legislative ambit. Agricultural sector The overall strategy in the agricultural sector aimed at strengthening incentives for producers of basic commodities and manufactured products through complete liberalization of the sector. Efforts were also to be made to reduce the role of public and parapublic enterprises as much as possible, leave production activities to the private sector and improve the efficiency of State intervention in certain areas vital to an adequate production system. The last aspect of the strategy aimed at efficient and transparent management of natural resources, in particular forestry resources. The measures were consequently as follows: - elimination (before the start of the 1994/95 crop season) of the system of fixed costs ["sys&eme des couts incompressibles"] for cocoa and robusta coffee. This measure was put into place and, in accordance with the terms of Circular no. 0162/M1NDIC/CAB of December 23, 1994, annual price stabilization was eliminated; - publication of the implementing decree for the Forestry Law (Decree no. 94/436/PM of August 23, 1995); - adoption and promulgation of the law amending the new Forestry Code. This measure was more difficult to implement and the planned amendments were reflected in the implementing decree referred to above. Petroleum sector The Government was to complete the liberalization of the petroleum sector in the next two years. The monopoly of SNH on the supply of crude oil had been ended by the end of June 1995, which was to enable the refining company (SONARA) to import crude direct at world market prices. Subsequently, the monopolies of SONARA (on refined products) and SCEP (on transport) were to be eliminated by the end of June 1996.  20 In an effort to improve the efficiency and transparence of the petroleum sector, SNH, SONARA and SCDP were to submit certified accounts with the six months following the closing of their fiscal years; financial audits of those companies were also supposed to be made by qualified auditors. Lastly, an incentive framework was to be established to promote efforts in the areas of exploration and production. These measures were implemented, albeit behind schedule. Other measures Other measures were: - six-monthly production of the balance of payments. The Government was tardy in the production of this tool for economic analysis. The measure was implemented somewhat behind schedule. Planned for October 31, 1994, the balance of payments for the first half of 1994 was made available on August 28, 1995; - preparation and signature of the regulations for the Labor Code. This measure was implemented on schedule (June 30, 1994). Two important texts ensure the effectiveness of this measure, namely Arr&e no. 001/CAB/MTPS of February 14, 1995 regarding allowances for workers temporarily laid off, and Decree no. 95/099/PM of February 17, 1995, setting the guaranteed minimum interprofessional wage. LESSONS TO BE DRAWN (i) The circumstances surrounding the Economic Recovery Credit (ERC) were not the same as those facing the program it was to support. While the ERC aimed essentially at reducing the size of the public sector, strengthening its efficiency and production capacity, as well as the development of operations to support devaluation, the program had been designed in a context where devaluation was not planned. (ii) There were no strict guidelines or indications for use of the ERC, which gave it a certain amount of flexibility. It is therefore easy to understand why the ERC was used to pay external debt arrears. However, importantly, the Government continued to implement the measures of the IMF program. (iii) The ERC was thus perceived more as a form of budget support, a breath of oxygen that was to motivate the Government in its economic recovery efforts. Circumstances were such that the structural reforms were introduced slowly; this can be interpreted as a lack of enthusiasm on the part of the public, non-support for the proposed measures (given the fact of multipartyism) and much less as an insufficient commitment on the part of the Government to implement the reforms.  21 CONCLUSION The implementation of certain measures associated with the ERC admittedly ran into delays, but in general the objectives were achieved, which made it possible to lay the bases for a sounder program and to consider more indepth reforms. Despite disappointing tax revenue at the start of the ERC, exacerbated by certain contingencies (shrinkage in the taxable base), the economy performed well in 1995. Renewed competitiveness for Cameroon and sustainable and balanced economic growth are now feasible. The dialogue with donors is returning to normal and a reform program supported by the stand-by arrangement concluded with the IMF is operational.  HDHDES ]]di% D DDDDDDDCHDDDD'!- LJLJ n;nnnHn n R D --DDDHD-H--HH- -'I DCDDA DLD iDDDDDDD Hi. IIi ~ ~ ~ ~ ~ ~ ~ -- ---- IIIiI~~~~~~~~~~~~~~~~~~~~~~~~~~ [JW~~~~~~~~ -DDDDDDDRDDDDI -  23 Table 2 Related Bank Credits Credit Credit Purpose Year of Status Title Number Approval| Preceding operations 1. Economic Management project Ln. 31 10-CM Support the Governmenfs reform program 1989 Closed. PCR completed 2. Social Dimensions of Adjustment Ln. 3206-CM Provide assistance to Government in its attempts to 1990 After 4 years of unsatisfactory performance, reestablish growth with equity and to help alleviate the the Government requested the cancellation impact of the structural adjustment program of the balance by end -June 1994 3. Structural Adjustment Loan Ln. 3089-CM Redress the substantial decline in GDP and achieve real 1989 Closed. PCR completed. Following thc parity per capita income growth by 1995; enhance change, and in view of Cameroon's lack of competitiveness through intrenal adjustment measures; creditworthiness for IBRD lending, the reorient the role of the State away from direct market Government requested the cancellation of intervention and into a supporting role for private sector the third tranche and its replaccmcnt by an development; and reduce the scope of government equivalent one-tranche SAC credit economic activity and reorient public services 4. Structural Adjustment Credit Cr. 2576-CM Support the new macroeconomic framework put in place 1994 Closed. PCR completed. The SAC's conditions after the devaluation of the CFA franc in January 1994 were those established for the release of the canceled third tranche of the SAL 5. Structural Adjustmenl Credit Cr. 2813 -CM Improve public finance mobilization and management, 1996 The SAC's first tranche was disbursed in restructure the financial sector and create a favoarble February environment for private scetor development through state divestiture and regulatory reform  24 Table 3 Proiect Timetable Date Date actual/ Steps in Project Cycle Planned u2 latest estimate Identification (Initiating Memorandum) January 10-14, 1994 Preparation 4 months Appraisal March 28 - April 14, 1994 March 28 - April 14, 1994 Negotiations May 9-14, 1994 May 9-14, 1994 Letter of Development Policy April 11, 1994 Board June 16, 1994 June 16, 1994 Signing June 23, 1994 June 23, 1994 Effectiveness June 30, 1994 August 24, 1993 Project completion Credit closing June 30, 1995 May 12, 1995 \2 As provided in the Presidenfs Report.  25 Table 4 Credit Disbursements Estimated and Actual FY 1995 (USS millions, unless indicated otherwise) Appraisal estimate 75.0 Actual disbursement 75.0 Actual as % of estimate 100% Date of final disbursement May 12, 1994  Table 5 26 Key Economic Indicators 1990 1991 1992 1993 1994 1995 National Accounts (as %GDP at current market prices) Gross Domestic Product 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 24.2 25.0 26.2 31.8 31.8 32.2 Industry 29.4 27.5 25.9 27.6 27.6 27.4 Services 40.6 42.4 42.4 34.5 34.3 32.8 Total Consumption 85.3 81.7 85.1 85.1 80.5 78.0 Gross Domestic Fixed Investment 18.0 16.9 14.6 14.5 14.2 15.5 Govemment Investment 5.5 4.0 2.7 1.9 1.1 1.0 Private Investment 12.5 12.9 11.9 12.6 13.2 14.5 Exports 20.6 21.1 20.9 19.4 29.3 31.5 Imports 24.4 19.7 20.6 19.0 24.0 25.0 Gross Domestic Product (US$ million 11043.0 12239.0 11185.0 11086.0 7459.0 8510.0 at current prices) Gross National Product per capita 950.0 890.0 900.0 820.0 668.2 625.2 (US$, Atlas method) Gross Domestic Product at market -4.5 -6.7 -4.8 -2.2 -3.8 3.3 prices (%/o, calculated from 1980 prices) Balance of Payments (US$m) Exports 2274.6 2585.6 2341.7 2152.9 2185.7 2677.6 Imports 2690.4 2415.8 2306.8 2108.1 1792.2 2128.4 Net current transfers 340.9 729.3 679.1 378.9 79.6 -8.7 Current Account balance -690.0 10.1 -179.1 -426.8 -243.3 -262.6 Resource balance (% of GDP at current market prices) -3.8 1.4 0.3 0.4 5.3 6.5 Real Annual Growth rates (1980 prices) Merchandise exports 1.9 -9.5 2.6 -3.8 1.1 2.2 Merchandise imports 5.1 -3.6 -10.2 -1.9 4.6 12.1 Public Finance (as % of GDP at current market prices) Current revenues 14.4 15.4 16.0 14.6 10.6 12.0 Current expenditures 16.3 18.2 19.3 18.4 16.8 15.1 Current account surplus (+) or deficit (-) -1.9 -2.8 -3.3 -3.8 -6.2 -3.1 Capital expenditure 5.8 5.5 3.5 3.0 3.5 1.1 Foreign financing 5.4 1.9 8.6 0.1 -0.7 -1.6 Monetary indicators M2/GDP (at current market prices) 16.1 17.7 17.5 16.7 21.6 17.4 Growth of M2 (%) 1.0 9.3 -6.0 -10.5 42.8 10.2 Real Exchange rate (US$/LCU) 113.0 109.0 107.0 99.4 66.8 63.2 Consumer price index (% growth rate) 1.7 1.9 1.4 -2.4 12.7 27.7 GDP Deflator (% growth rate) 0.2 6.1 0.2 -4.0 14.7 32.4  27 Table 6 Key Indicators for Project Operation Not applicable Table 7 Proiect Studies Not applicable  28 Table 8a Proiect Costs Not applicable Table 8b Proiect Financins Appraisal estimate Actual/Latest estimate Item | (USS mil) (uss mni) tIDA 75.0 75.0 lOther 0.0 0.0 TOTAL 75.0 75.0  29 Table 9 Economic Costs and Benefits COSTS (S million) BENEFITS 75 Improvement in the economy's competitiveness and correction of macroeconomic imbalances. Implementation of organizational and. staffing plans in selected ministries. Initiation of a public enterprise reform. Progress toward the liberalization of the petroleum sector. Abolishment of price controls and reference producer prices. Negative impact of the devaluation on the population limited through nmeasures to protect real income and shift resources towards human development.  30 Table 10 Status of Leeal Covenants in Credit Agreement Section Covenant Present Fulfilment Date Description of Covenant Comments Type Status Original Actual 3.01 9 C continuous Borrower to submit project progress report periodically and exchange views with the Bank on the basis of this report 3.02 3 C continuous Procurement guidelines 3.03 (a) I C continuous Maintain records and proper accounts of expenditures under credit 3.03 (b,c) 1 C continuous Have records and accounts audited; furnish audit/other information to IDA 5.01 (a) 12 C Prior to Issue forestry regulations satisfactory to the Association effectiveness 5.01 (b) 12 C Prior to Issue a first list, satisfactory to the Association, of public effectiveness and parapublic sector enterprises to be liquidated or privatized Covenants tvpes: I= Accounts/audits 10= Project implementation not covered by categories 1-9 Present Status: 2= Financial perfonnance/revenue generation from beneficiaries 11 = Sector or cross-sector budgetary or other resource allocation C = Covenant complied with 3= Flow and utilization of project funds 12= Sector or cross-sector policy/regulatory/institutional action CD= Complied with after delay 4= Counterpart funding 13= Other CP= Complied with partially 5= Management aspects of the project or executing agency NC= Not complied with 6= Environmental covenants 7= Involuntary resettlement 8= Indigenous people 9= Monitoring, review and reporting  31 Table 11 Bank Resources - Staff InDuts Stage of Planned Actual Project Cycle Weeks USS (OOOS) Weeks USS (000.) Preparation to Appraisal 29.6 74.6 Appraisal 31.6 73.3 Negotiations through Board Approval 11.1 25.9 Supervision 19.5 53.8 22.5 60 Completion 13 30.4 2.6 2 Total 97.4 235.8  32 Table 12 Use of Bank Resources: Missions Stage of Month/ Number of Days in Specialized Performane Rating Types of Project Cycle Year Persons Field staff skills Implementation Development Problems represented status objectives Through Appraisal Jan/Feb-94 9 17 EC, LEG 2 2 Appraisal through Board Approval Apr-94 6 24 EC, FA - 2 2 Board Approval through Effectiveness Supervision Oct-94 1 26 EC 2 2 July/Aug-94 2 22 EC 2 2 Completion Key to specialized staff skills Key to Performance Ratin Key to Problems EC = Economist LEG = Legal I = Problem Free AF = Availability of funds IE = ifiastructure Engineer CONS = Consultant 2 = Moderate Problens CLC = Compliance with legal covenants FA = Financial Analyst STE = Senior Transport Engineer 3 = Major Problems FP = Financial Perfonnance CC = Computer Consultant MFA= Municipal Financial Analyst 4 = Major Problems - PMP = Project management performance UP = Urban Planner UFS = Urban Financial Specialist Corrective Action to be taken PP = Procurenent progress TRE = Traffic Engineer YP = Young Professional SP = Studies progress TEC = Transport Economist  33 APPENDIXES ACTIONS TAKEN BY THE GOVERNMENT AS BOARD CONDITIONS AND CONDITIONS OF EFFECTIVENESS BOARD CONDITIONS (a) In the (draft) Loi de Finances for 1994/95, submitted to the Parliament for approval, reflect the public investment program, levels of non-wage recurrent expenditures for the health, education and agriculture sectors and for road maintenance, and the levels of resources allocated to the Social Action Program, as determined in agreement with the Bank. (b) Effectively implement the UDEAC indirect tax and tariff reforms including: (i) effectively introduce a turnover tax (TCA) with two rates; and (ii) establish an inventory of beneficiaries of tax and tariff exemptions under "conventions d'etablissement". (c) Sign a new contract with a Pre-Shipment Inspection service, covering price, quality and quantity verification for all imports exceeding CFA 2 million and for all exports of timber. (d) Eliminate all remaining import license requirements and finalize a revised document describing Cameroon's trade regime. (e) Adopt regulatory texts for the implementation of the organizational and staffing plans for the Ministry of Finance, the Ministry of Plan, the Ministry of Commerce and Industry and the Ministry of Civil Service and Administrative Reform. (f) Define procedures and modalities for departure of surplus civil servants. (g) Adopt the Public Enterprise Sector Reform Policy Declaration, established in agreement with the Bank. CONDITIONS FOR CREDIT EFFECTIVENESS (a) Adopt implementation decrees satisfactory to IDA for the forestry law. (b) Adopt and publish a first list satisfactory to IDA of at least 10 public enterprises to privatize or liquidate.   IBRD 24867 MALI N - \ Lake Chad il > NIGER kr -SUDAN |I BURKINAb y ~~ CHAD The boundaries. colors, FASO 1,> 2 ! J \ denominotions ond ony - BENIN' other ,nfo-n,t,o show- -71 / NIGERIA o~~~~~~~~~~n this map do not BENIN) NIGERIA 9 / \ imply on the port of .J " j 4 / CENTRAL AFRICAN any judgment on the legal , 3HAN'M 5 +-- f ( REPUBLIC status of any territory, 0. REPUBLI ~ ~~ ~Orany endoreetO. GO {Df __ -MEROON - o_ acceptance of such CHAD DsIIat h~~~~~~~~~~~~~~~o.ndorres EQUATORIAL L / GLUINEA ) - N ZAIRE AtLSNT,caCyAN 4 GABON n LOMeTES o 20 0 uS s0 ISO 0 1'o 150 160 55 Rt __ _ ^LeS u ,2 50 50 80 Ioc r RE)RT11! CAMEROON jKG'der 3 o SELECTED TOWNS () PROVINCE CAPITALS ce' GAROUA i ' j0) NATIONAL CAPITAL ) PAVED ROADS UNPAVED ROADS Ju bjIbo _ RAILROADS 0 l Ito, T.1-I, Tcholl,r; RIVERS )F /, _ - PROVINCE BOUNDARIES ; | 1',OH ' INTERNATIONAL -. BOUNDARIES / ' 'outfM'el / fl gnrhe - ,\)_ . NGAOUNDERE i / _ DAWtD V,i . N /~! WESWE oNkombe Li Bonyo 'Morb eidougov / NIGEIGL