What is Fiscal Policy? 

Fiscal policy is the way a government uses spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable economic growth. Fiscal policy is the use of government spending and taxation to influence the economy. Governments typically use fiscal policy to promote strong and sustainable

Fiscal and Monetary Policy

Cameroon’s fiscal policy aims to promote economic growth and development while ensuring fiscal sustainability. The government uses both fiscal and monetary policy tools to achieve these objectives.

Fiscal Policy

Cameroon’s fiscal policy is focused on:

• Increasing tax revenues to finance public investment and social spending.
• Improving public financial management and transparency.
• Reducing the fiscal deficit and public debt.
• The government has implemented measures to broaden the tax base, improve tax administration, and rationalize tax expenditures.

However, the fiscal policy has been constrained by the need to respond to the COVID-19 pandemic between 2020 – 2021, which led to a decline in revenues and an increase in spending.

What does the IMF think of Cameroon’s Fiscal Policy?

The IMF believes that Cameroon must continue to implement structural reforms to improve the effectiveness of fiscal policy. Cameroon must;

• Broaden its tax base to boost its revenues.
• Digitize public sector delivery and improve governance.
• Privatize state-owned enterprises.

Monetary Policy in Cameroon

• Monetary policy in Cameroon is conducted by the Bank of Central
• African States (BEAC) at the regional level.

The objective of BEAC’s Monetary Policy

The main objectives are to maintain price stability and the external value of the CFA franc.

1. The BEAC uses indirect monetary policy instruments, such as refinancing operations and interest rates, to achieve its objectives. It also monitors the evolution of monetary aggregates and the banking system.
2. Overall, Cameroon’s fiscal and monetary policies have been relatively transparent, with regular reporting and communication to the public and international institutions. However, there is room for improvement in areas such as budget classification, public investment management, and the monitoring of fiscal risks

Challenges in Cameron’s Fiscal Policy

The challenges facing Cameroon’s fiscal policy include the need to address the country’s increasing debt burden, enhance economic resilience to various shocks, and navigate through social and political tensions affecting different regions. Additionally, the impact of external factors like the COVID-19 pandemic has further strained the fiscal situation, leading to a decline in revenues and increased financial difficulties in meeting debt service and principal repayments.

The country’s fiscal policy must also grapple with the necessity to balance public expenditure, reduce the tax burden to stimulate growth, and implement strategies to manage debt sustainability effectively.

Moreover, the complexity of the fiscal management system, weak revenue management, insufficient information on domestic arrears, and the need for improved transparency and governance pose significant challenges to Cameroon’s fiscal policy. Addressing these challenges will be crucial for Cameroon to achieve its development objectives and ensure fiscal stability in the long term.

How Has Cameroon’s Fiscal Policy Changed Over the Years

Cameroon’s fiscal policy has changed over time, influenced by various economic, social, and political factors. Initially, Cameroon’s fiscal policy focused on public expenditures to boost economic growth, particularly through investments in infrastructure and public works. However, challenges such as the country’s increasing debt burden, social and political tensions, and the impact of external shocks like the COVID-19 pandemic have necessitated adjustments in fiscal strategies.

In recent years, there has been a shift towards rethinking fiscal policy to address the debt problem and enhance economic resilience. The government has increasingly resorted to debt to achieve development objectives and strengthen economic resilience amidst various shocks. This shift has raised questions about the effectiveness of Cameroon’s fiscal policy, prompting the analysis of the country’s budgetary situation and the role fiscal policy can play in reducing the debt burden on economic development.

Moreover, Cameroon has made gradual improvements to its fiscal policy, with a focus on fiscal stability and diversifying the economy. The International Monetary Fund (IMF) approved a three-year Extended Credit Facility for Cameroon, requiring reforms to enhance fiscal management and economic diversification. Despite progress in reducing the deficit and bolstering the fiscal position through higher oil revenues, concerns remain about the rapid accumulation of debt, lack of transparency in state-owned enterprises, and the heavy reliance on the oil sector for government revenue.

Overall, Cameroon’s fiscal policy has evolved to address emerging challenges and align with the country’s development goals. The government continues to navigate the complexities of fiscal management, debt sustainability, and economic diversification to ensure long-term fiscal stability and sustainable economic growth.

Cameroon’s fiscal policy has several key components:

1). Tax Policy

• The income tax system has two main components: personal income tax and corporate tax.
• The tax system is highly progressive, with indirect taxes like excises, VAT, and gasoline taxes being more efficient and equitable than import duties.
• Measures have been implemented to broaden the tax base, improve tax administration, and rationalize tax expenditures.

2). Public Spending

• Public spending focuses on financing public investment and social spending in areas like education and health.
• However, the benefits of public services, particularly in education, are poorly targeted, with primary education being progressive, secondary slightly progressive, and tertiary education regressive.
• Health expenditure on main and secondary hospitals benefits the rich more than the poor.

3). Fiscal Adjustments

• Fiscal policy has aimed to reduce the fiscal deficit and public debt
• However, the fiscal situation has been constrained by the need to respond to shocks like the COVID-19 pandemic, leading to a decline in revenues and increased spending.
• Improving public financial management and transparency is a key objective.
• Overall, Cameroon’s fiscal policy has evolved to address emerging challenges and align with the country’s development goals, while navigating complexities in areas like debt sustainability and economic diversification.

4). How does Cameroon Allocate Spending

Cameroon allocates its public spending across various sectors and economic classifications while focusing on financing public investment and social spending. However, the efficiency, effectiveness, and equity of this spending are limited, presenting obstacles to achieving the government’s stated policy goals.

Allocative Efficiency

• Allocative inefficiency reduces value for money across the public sector
• Spending is often not aligned with strategic priorities and is influenced by political factors
• The budget allocation methodology for health spending is based on the operational costs of existing facilities, rather than on population needs or health outcomes

Sectoral Spending

• Public spending focuses on financing public investment and social spending in areas like education and health
• However, the benefits of public services, particularly in education, are poorly targeted, with primary education being progressive, secondary slightly progressive, and tertiary education regressive.
• Health expenditure on main and secondary hospitals benefits the rich more than the poor.

How does Cameroon Classify its budget?

• Cameroon’s budget classification does not align with international practice, especially about capital expenditure.
• Capital expenditure is often equated with public investment by Cameroon’s authorities.

Transfers to state-owned enterprises and public institutions intensify the risk posed by contingent liabilities. Overall, while Cameroon has increased public spending in recent years, particularly on defense and security, the efficiency, effectiveness, and equity remain limited. Improving budget classification, aligning spending with strategic priorities, and targeting public services to benefit the poor require attention to ensure that public spending effectively supports the country’s development goals.

According to the data from the World Bank, Cameroon’s general government total expenditure was 4,157 billion LCU (local currency units) in 2021. The share of capital expenditures in Cameroon’s total public expenditure has risen in recent years, with Cameroon spending a relatively large share of total public spending on goods and services compared to its peers in the CEMAC sub-region.

In 2015, Cameroon spent 4.3% of GDP on goods and services, higher than countries like Malaysia, Azerbaijan, Uganda, and Cote d’Ivoire which spent about 3% of GDP on goods and services the same year. However, almost half of these goods and services expenditures are on representation, missions, ceremonies, and external services, highlighting a significant portion of spending in these administrative areas.

The breakdown of public expenditures by function shows that a large share (19%) goes to general administration, including spending on representation, missions, ceremonies, fuel, and travel. So in summary, Cameroon’s total public expenditure was around 4,157 billion FCFA in 2021, with a significant portion going towards capital investments, goods and services, and general administrative costs, rather than priority sectors like education and health.

Conclusion

This explainer provides an overview of Cameroon’s fiscal policy and illustrates important aspects of the design and implementation of fiscal policy.

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