Magazine article African Business

Government Faces Its Worst-Ever Economic Crisis

Magazine article African Business

Government Faces Its Worst-Ever Economic Crisis

Article excerpt

Worsening terms of trade and falling oil prices since the mid-1980s have taken their toll on the Cameroon economy. Although the government tried to stop the deterioration by tightening fiscal management, by 1993 it had become clear that a strategy based solely on internal measures had run its course and was unlikely to restore competitiveness in the foreseeable future. Therefore, Cameroon supported the decision to devalue the CFA franc in January.

The government's medium-term strategy aims at securing permanent gains in competitiveness and at bringing the economy back to a sustainable growth path, a rapid return to low inflation and a return eventually to balance-of-payments equilibrium.

Fiscal adjustment lies at the heart of the programme, which aims at reining in the primary budgetary deficit to 5.5% of GDP and at reducing the overall budgetary deficit, on a commitments basis, by more than three percentage points in relation to GDP over a two-year period.

Non-oil revenues

In addition to a major reduction in salaries in 1993, the adjustment effort centres on raising non-oil revenue through faster implementation of customs and indirect-tax reforms; through continuing wage restraint; and through an improvement in the non-wage expenditure allocated to infrastructural maintenance and to socioeconomic sectors, notably education and health. Public-sector investment can therefore gradually be resumed.

Fiscal adjustment will, however, be complicated by an expected drop in oil revenue resulting not only from the continued weakness of world oil prices but also from a fall in output.

Monetary policy, which is carried out at the regional level, is to aim at supporting fiscal policy, with a view to countering inflationary pressures and improving the net external position of the shared central bank, the Banque des Etats de l'Afrique Centrale (BEAC). …

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