Cameroon Collect More, Spend Better to achieve Vision 2035 Goals March 2024 © 2024 The World Bank 1818 H Street NW, Washington DC 20433 Telephone: 202-473-1000; Internet: www.worldbank.org Some rights reserved. This work is a product of the staff of The World Bank. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. 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Cameroon Collect More, Spend Better to achieve Vision 2035 Goals March 2024 Acknowledgement The Cameroon Public Finance Review has been prepared by a broad multi-sectoral team of World Bank experts led by Amina Coulibaly (Senior Economist) and comprised of Ferdinand Owoundi Fouda (Economist), Francis Ghislain Ngomba Bodi (Economist), Chimene Diane Djapou Fouthe (Consultant), Vincent De Paul Mboutchouang (Senior Education Specialist), Aissatou Diack (Senior Health Economist), Mouhamadou Moustapha Lo (Senior Education Specialist), M’Bahly Maud-Andree Kouadio IV (Consultant), Hugo Brousset Chaman (Senior Social Protection Specialist), Paula Maria Cerutti (Senior Social Protection Specialist), Francisco Vazquez Ahued (Consultant), Erkin Mamadaliev (Senior Social Protection Specialist) and Ioana Alexandra Botea (Senior Social Protection Specialist), Marieta Fall (Senior Public Sector Specialist), Peter D. Bachrach (Consultant), Jade Mali Mizutani (Senior Public Sector Specialist) and Waewnet Sukkasem (Consultant). Colleagues in Yaounde and Washington, including Irene Sitienei (Program Assistant), Pinar Baydar (Operations Analyst), Ifeoma Clementina Ikenye (Team Assistant) and Hilary Fuh Cham (Team Assistant), facilitated the research process, coordinated mission travel, and supported the preparation and dissemination of the report at different stages. Vito Raimondi designed the report. The team thanks Chadi Bou Habib (Lead Economist), Fulbert Tchana Tchana (Program Leader), Assane Dieng (Senior Education Specialist), Rick Emery Tsouck Ibounde (Senior Economist), Massimo Mastruzzi (Senior Economist), Alonso Sanchez (Senior Economist), Samer Al-Samarrai (Senior Economist), Roland White (Lead Urban Specialist) and Silver Namunane (Economist) who acted as peer reviewers for this report. The report was prepared under the overall supervision and guidance of Cheick Fantamady Kante (Country Director for Cameroon), Abebe Adugna (EFI Regional Director for West and Central Africa), Sandeep Mahajan (Practice Manager). The team is grateful to, Guillemette Sidonie Jaffrin (Operations Manager), Keiko Kubota (Former Operations Manager in Yaounde), Robert Johann Utz (Lead Economist), Raju Singh (Lead Economist), Clelia Rontoyanni (Program Leader) and Nathalie Lahire (Program Leader) for their guidance and support throughout this task. The team thanks the government and technical teams of the various administrations of Cameroon for their cooperation and collaboration. In particular, the report benefited from exchanges with the authorities at different stage of its preparation. III Contents LIST OF FIGURES V LIST OF TABLES IX LIST OF BOXES X ABBREVIATIONS AND ACRONYMS XI 1 EXECUTIVE SUMMARY 1 POLICY OPTIONS TO STRENGTHEN CAMEROON’S PUBLIC FINANCES 9 2 INTRODUCTION TO CAMEROON’S PUBLIC FINANCES 12 3 SETTING THE STAGE: MACRO-FISCAL PERFORMANCE 19 3.1 MACROECONOMIC TRENDS 20 3.2 FISCAL PERFORMANCE 22 3.3 REVENUE 24 3.4 EXPENDITURES 26 3.5 CREATING FISCAL SPACE FOR MEDIUM-TERM INCLUSIVE GROWTH 29 3.5.1 Baseline Outlook 29 3.5.2 Fiscal Risks Assessment: Debt Sensitivity Scenarios 31 3.5.3 Managing Fiscal Consolidation 34 4 BOOSTING TAX REVENUE 35 4.1 TAX REVENUE PATTERNS 36 4.1.1 Tax revenue potential 41 4.2 TAX POLICY 44 4.2.1 Personal Income Tax 44 4.2.2 Corporate Income Tax 50 4.2.3 Value Added Tax 54 4.2.4 Excise taxes 58 4.2.5 International Trade Taxes 62 4.2.6 Other Taxes 63 4.2.7 Tax Expenditures 65 4.3 TAX ADMINISTRATION 70 4.3.1 Corruption 76 4.3.2 Informal economy 77 4.4 POLICY OPTIONS 79 4.4.1 Tax Policy Reform Considerations 79 4.4.2 Tax Administration Reform Considerations 86 5 IMPROVING PUBLIC EXPENDITURE ALLOCATION AND EXECUTION 93 5.1 BUDGET ALLOCATION 94 5.1.1 Public investment spending 101 5.2 BUDGET EXECUTION 105 5.2.1 Public procurement 109 5.2.2 Public investment management 110 5.3 BUDGET REFORMS 112 IV 5.4 POLICY OPTIONS 117 6 STRENGTHENING HUMAN CAPITAL DEVELOPMENT THROUGH BETTER SOCIAL SPENDING 120 6.1 HUMAN CAPITAL OUTCOMES AND EXPENDITURE 121 6.2 TOWARDS A BETTER MANAGED EDUCATION SYSTEM WITH IMPROVED OUTCOMES 123 6.2.1 Education sector performance and outcomes 123 6.2.2 Education sector spending 129 6.2.3 Regional equity of access to in the education 132 6.2.4 Policy options for the education sector 136 6.3 INVESTING IN AN EFFECTIVE, INCLUSIVE, AND RESILIENT HEALTH SECTOR 139 6.3.1 Health sector performance 140 6.3.2 Health sector outcomes 142 6.3.3 Health sector spending 146 6.3.4 Regional equity of access to health services 155 6.3.5 Equity and effectiveness 161 6.3.6 Efficiency 163 6.3.7 Policy options for the health sector 164 6.4 ENHANCING CAMEROON’S SOCIAL PROTECTION SYSTEM 166 6.4.1 Social protection performance and outcomes 166 6.4.2 Social protection spending 170 6.4.3 Distributional analysis of fossil fuel subsidies 176 6.4.4 Policy options for the social protection system 179 6.5 POLICY OPTIONS 179 7 PROMOTING EFFICIENT PUBLIC SERVICE DELIVERY THROUGH FISCAL DECENTRALIZATION 183 7.1 POLITICAL AND SOCIO-ECONOMIC CONTEXT OF DECENTRALIZATION IN CAMEROON 186 7.2 FISCAL DECENTRALIZATION TO IMPROVE SERVICE DELIVERY 189 7.3 FISCAL DECENTRALIZATION AND LOCAL EXPENDITURE FRAMEWORK 192 7.3.1 Local government own revenues 193 7.3.2 Central transfers and grants 197 7.4 POLICY OPTIONS 208 8 ANNEXES 213 V List of Figures FIGURE 2-1. POVERTY HEADCOUNT RATE IN CAMEROON USING THE INTERNATIONAL POVERTY LINE OF 13 $2.15 PPP PER DAY (% POPULATION), 2001-2014 FIGURE 2-2. POVERTY HEADCOUNT RATE IN CAMEROON AND COMPARATOR COUNTRIES USING THE 13 INTERNATIONAL POVERTY LINE OF $2.15 PPP PER DAY (% POPULATION), LATEST AVAILABLE ESTIMATES FIGURE 3-1. GDP PER CAPITA (IN US $), 1980-2022 21 FIGURE 3-2 INVESTMENT AND SAVINGS RATE (2010-2022 AVERAGE AS % OF GDP) 21 FIGURE 3-3. TOTAL PUBLIC EXPENDITURE AND REVENUE BY TYPE, 2010–2021 23 FIGURE 3-4. PUBLIC DEBT COMPOSITION: PUBLIC DEBT BY CREDITOR, 2021 24 FIGURE 3-5. CONTRIBUTION TO THE CHANGE IN THE PUBLIC DEBT TO GDP RATIO BY SOURCE, 2009–21 24 FIGURE 3-6. TOTAL REVENUE IN CEMAC COUNTRIES, 2022 25 FIGURE 3-7. TOTAL REVENUE IN CAMEROON AND COMPARATORS 2010-2021 25 FIGURE 3-8. PUBLIC EXPENDITURE BY CATEGORY, 2015–2021 26 FIGURE 3-9.PUBLIC EXPENDITURE, CAMEROON AND COUNTRY GROUPS, 2015–21 28 FIGURE 3-10. PUBLIC EXPENDITURE, CAMEROON AND COMPARATORS (% GDP), 2015–21 28 FIGURE 3-11. PUBLIC EXPENDITURE: ECONOMIC COMPOSITION, CAMEROON AND COUNTRY GROUPS 28 FIGURE 3-12. CAMEROON AND SELECTED PEERS: EFFICIENCY OF PUBLIC INVESTMENT 29 FIGURE 3-13. CAMEROON: FISCAL CONSOLIDATION PATH, 2019–2025 30 FIGURE 3-14. FISCAL RISK ASSESSMENT: ALTERNATIVE SCENARIOS 34 FIGURE 4-1: AVERAGE REVENUES BY TYPE, 2010–2021 (% OF TOTAL) 36 FIGURE 4-2: TAX REVENUE BY TYPE OF TAX, 2010–2021 (% GDP) 38 FIGURE 4-3: COMPOSITION OF TAX REVENUE, AVERAGE 2010–2021 (% OF TOTAL) 38 FIGURE 4-4: CONTRIBUTION TO TAX REVENUE BY SOURCE, AVERAGE 2010-2013, 2014-2017, 2018-2021 39 (% OF TOTAL) FIGURE 4-5: AVERAGE TAX REVENUE AND GDP PER CAPITA BY COUNTRY GROUP, 2016–20, (% GDP) 39 FIGURE 4-6: AVERAGE TAX REVENUE, CAMEROON AND COUNTRY GROUPS, 2016–2020, (% GDP) 39 FIGURE 4-7: TAX REVENUE, CAMEROON AND SSA COUNTRY GROUPS, 2010–2021, (% GDP) 40 FIGURE 4-8: TAX REVENUE, STRUCTURAL AND ASPIRATIONAL PEERS 2010–2021, (% GDP) 40 FIGURE 4-9: TAX CAPACITY, 2010-20, (% OF GDP) 42 FIGURE 4-10: TAX EFFORT, 2010-20 42 FIGURE 4-11: PIT REVENUE, CAMEROON AND COUNTRY GROUPS, 2010–2021, (% GDP) 44 FIGURE 4-12: PIT COLLECTION, CAMEROON AND PEERS, 2010–2021, (% GDP) 44 FIGURE 4-13: PIT REVENUE AND PRODUCTIVITY RATIO, 2010–2021 46 FIGURE 4-14: PIT REVENUE AND PIT PRODUCTIVITY RATIO FOR STRUCTURAL AND ASPIRATIONAL PEERS, 2020 47 FIGURE 4-15: CIT REVENUE BY SSA COUNTRY GROUPS, 2010–2021, (% GDP) 50 FIGURE 4-16: CIT COLLECTION, STRUCTURAL AND ASPIRATIONAL PEERS, 2010–2021, (% GDP) 50 VI FIGURE 4-17: CIT REVENUE AND PRODUCTIVITY RATIO, 2010–2021 53 FIGURE 4-18: CIT REVENUE AND CIT PRODUCTIVITY RATIO, FOR STRUCTURAL AND ASPIRATIONAL PEERS, 53 2020 FIGURE 4-19: VAT REVENUE BY SSA COUNTRY GROUP, 2010–21, (% OF GDP) 55 FIGURE 4-20: VAT COLLECTION, STRUCTURAL AND ASPIRATIONAL PEERS, 2010–21, (% OF GDP) 55 FIGURE 4-21: COMPOSITION OF VAT REVENUES, 2010–2021, (% OF VAT REVENUE) 56 FIGURE 4-22: VAT RATE AND COLLECTION, STRUCTURAL AND ASPIRATIONAL PEERS, 2020 56 FIGURE 4-23: VAT REVENUE, VAT PRODUCTIVITY, AND C-EFFICIENCY, 2010-2020 57 FIGURE 4-24: VAT PRODUCTIVITY AND C-EFFICIENCY, STRUCTURAL AND ASPIRATIONAL PEERS, 2020 57 FIGURE 4-25: EXCISE TAX REVENUE, SSA COUNTRY GROUPS, 2010–2021, (% GDP) 60 FIGURE 4-26: EXCISE TAX REVENUE, STRUCTURAL AND ASPIRATIONAL PEERS, 2010–2021, (% GDP) 60 FIGURE 4-27: TRADE TAX REVENUE, SSA COUNTRY GROUPS, 2010–2021, (% GDP) 62 FIGURE 4-28: TRADE TAX REVENUE IN SELECTED SSA AND ASPIRATIONAL PEER COUNTRIES, 2010–2021, 62 (% OF GDP) FIGURE 4-29: AVERAGE TAX EXPENDITURES BY TYPE OF TAX, 2017–2021 68 FIGURE 4-30: AVERAGE COST OF TAX EXPENDITURES BY TAX REGIME, 2016–2021 68 FIGURE 4-31: TAX EXPENDITURES BY RECIPIENT, 2016–2021 69 FIGURE 4-32: COST OF TAX COLLECTION IN SELECTED SSA COUNTRIES, 2020, (% OF REVENUE) 71 FIGURE 4-33: COST OF TAX COLLECTION BY REGIONAL ECONOMIC BLOC, 2020, (% OF REVENUE) 71 FIGURE 4-34: FIRMS IDENTIFYING TAX RATES AND ADMINISTRATION AS CONSTRAINT, CAMEROON AND 75 COMPARATOR COUNTRIES (%) FIGURE 4-35: FIRMS IDENTIFYING TAX PAYMENT AND TIME REQUIRED AS CONSTRAINT, CAMEROON AND 75 COMPARATOR COUNTRIES (NUMBER AND HOURS) FIGURE 4-36: FIRMS IDENTIFYING TAX BURDEN AND POST FILING COSTS, CAMEROON AND COMPARATOR 75 COUNTRIES (% OF PROFIT AND INDEX) FIGURE 4-37: CORRUPTION IN TAX COLLECTION: FIRM VISITS AND EXPECTATIONS OF GIFTS, CAMEROON 75 AND COMPARATOR COUNTRIES (%) FIGURE 4-38. TOP 10 OBSTACLES IN THE BUSINESS ENVIRONMENT BASED ON FIRM EXPERIENCES, (% OF 78 FIRMS) FIGURE 4-39: INFORMAL ECONOMY, CAMEROON AND COMPARATORS, 2019, (% GDP) 78 FIGURE 4-40. TAX OFFICE CORE FUNCTIONS 87 FIGURE 5-1. PUBLIC EXPENDITURE: ECONOMIC COMPOSITION, CAMEROON AND COUNTRY GROUPS (% 94 OF EXPENDITURES), AVERAGE 2015-2021 FIGURE 5-2. WAGE BILL, CAMEROON AND COMPARATORS (% GDP), AVERAGE 2015–21 95 FIGURE 5-3. INTEREST PAYMENTS, CAMEROON AND COMPARATORS (% GDP), AVERAGE 2015–21 95 FIGURE 5-4. PENSION PAYMENTS, CAMEROON AND COMPARATORS (% GDP), AVERAGE 2015–21 96 FIGURE 5-5.GOODS AND SERVICES, CAMEROON AND COMPARATORS (% GDP), AVERAGE 2015–21 96 FIGURE 5-6. PUBLIC EXPENDITURE BY ECONOMIC CLASSIFICATION (IN % OF GDP), 2016-2021 97 FIGURE 5-7. COMMON EXPENSES; INITIAL, REVISED, AND EXECUTED BUDGET AMOUNTS (AS % OF TOTAL 100 EXPENDITURES), 2015-20 FIGURE 5-8. PUBLIC CAPITAL EXPENDITURE (% OF GDP), 2016-21 102 FIGURE 5-9. SECTORAL DISTRIBUTION OF THE CAPITAL BUDGET (IN %), 2016-21 102 VII FIGURE 5-10. DISTANCE FROM THE EFFICIENCY FRONTIER AND SPENDING ON ROAD TRANSPORT 103 INFRASTRUCTURE, CAMEROON AND COMPARATORS FIGURE 5-11. PUBLIC INVESTMENT AND GDP GROWTH (% GDP, %), 2007-2021 104 FIGURE 5-12. ESTIMATED GDP RESPONSE TO PUBLIC INVESTMENT SHOCK (IN %) 104 FIGURE 5-13. BUDGET DEVIATION % OF APPROVED, CAMEROON AND COMPARATORS (IN %). 2010-21 105 FIGURE 5-14. BUDGET CATEGORIES OF DELAYED PAYMENTS (AS % OF TOTAL RAP, AVERAGE FOR 2015-20) 109 FIGURE 6-1. EDUCATION SPENDING AND TEST SCORES, CAMEROON AND COMPARATORS (% GDP AND 122 SCORE) FIGURE 6-2. HEALTH SPENDING AND INFANT MORTALITY, CAMEROON AND COMPARATORS (% GDP AND 122 RATE) FIGURE 6-3: ENROLLMENT BY EDUCATION LEVEL (IN ‘000S), 2000-21 126 FIGURE 6-4. GROSS ENROLLMENT RATES IN PRIMARY EDUCATION, CAMEROON AND COMPARATORS, 127 2012, 2019 (% OF AGE GROUP) FIGURE 6-5. PRIMARY EDUCATION COMPLETION RATE (%), 2019 128 FIGURE 6-6: PUBLIC SPENDING ON EDUCATION, CAMEROON AND COMPARATORS (% GDP), 2010-21 129 FIGURE 6-7: EDUCATION EXPENDITURES BY LEVEL (% SHARE), 2015-21 129 FIGURE 6-8. EDUCATION EXPENDITURES BY TYPE (% OF TOTAL), 2015-21 131 FIGURE 6-9. EXECUTION RATES OF EDUCATION EXPENDITURES BY TYPE (IN %), 2015-21 131 FIGURE 6-10 : PUPIL-QUALIFIED TEACHER RATIO IN PRIMARY EDUCATION, CAMEROON AND PEERS, 2019 131 FIGURE 6-11: PUPIL-TEACHER RATIOS IN PRIMARY EDUCATION, WITH AND WITHOUT TEACHERS PAID BY 133 PARENTS, BY REGION, 2016 AND 2021 FIGURE 6-12: PUPIL-TEXTBOOK RATIO BY REGION (AVERAGE NUMBER OF PUPILS PER MATHEMATICS AND 134 READING TEXTBOOK IN PRIMARY EDUCATION), 2020/2021 FIGURE 6-13: PERCENTAGE OF PUBLIC PRIMARY SCHOOLS WITH ACCESS TO ELECTRICITY AND DRINKING 134 WATER BY REGION, 2015 AND 2021 FIGURE 6-14. CHILDREN WITHOUT BIRTH CERTIFICATES IN PRIMARY SCHOOL BY REGION, ZEP REGIONS 135 HIGHLIGHTED, NUMBER AND % OF STUDENTS, 2022 FIGURE 6-15. DESPITE IMPROVEMENTS IN RECENT YEARS, MATERNAL MORTALITY IN CAMEROON REMAINS 144 VERY HIGH FIGURE 6-16. … AND INFANT MORTALITY IS HIGHER THAN IN MOST PEERS 144 FIGURE 6-17. ANTIRETROVIRAL THERAPY COVERAGE FOR PMTCT (% OF PREGNANT WOMEN LIVING WITH 144 HIV) FIGURE 6-18. IMMUNIZATION, DPT (% OF CHILDREN AGES 12-23 MONTHS) 144 FIGURE 6-19. POOR QUALITY OF HEALTH CARE 145 FIGURE 6-20. HEALTH EXPENDITURES DYNAMICS 148 FIGURE 6-21. GAP BETWEEN INITIAL BUDGET ALLOCATIONS AND COMMITMENTS IN THE HEALTH SECTOR 149 FIGURE 6-22. SHIFT OF GOVERNMENT HEALTH EXPENDITURE PRIORITIES 150 FIGURE 6-23. EXPENDITURE ALLOCATION BY FUNCTION AND DISEASE, 2019–2021 152 FIGURE 6-24 SUPPLY AND DISTRIBUTION OF HEALTH FACILITIES BY REGION 156 FIGURE 6-25. BUDGET ALLOCATION FOR THE ACQUISITION OF GOODS AND SERVICES, MEDICAL 162 EQUIPMENT, AND CONSTRUCTION FIGURE 6-26: SOCIAL PROTECTION SPENDING BY TYPE (% GDP), 2017-2021 171 FIGURE 6-27: SOCIAL ASSISTANCE SPENDING, CAMEROON AND PEERS (% GDP), 2016 OR LATEST 171 FIGURE 6-28: PUBLIC SECTOR PENSION SCHEME MEMBERSHIP 172 VIII FIGURE 6-29: FINANCIAL PERFORMANCE OF THE PUBLIC-SECTOR PENSION SCHEME 173 FIGURE 6-30. FISCAL COST OF FUELS SUBSIDIES, CAMEROON AND COMPARATORS (% GDP), 2019-22 174 FIGURE 6-31. BUDGET AND EXECUTED SPENDING BY SP MINISTRIES (PERCENT OF TOTAL GOVERNMENT 175 EXPENDITURE) FIGURE 6-32. DISTRIBUTION OF SOCIAL PROTECTION SPENDING WITHIN CAMEROON’S REGIONS 176 FIGURE 6-33. IMPACT OF DIFFERENT FUEL SUBSIDY REDUCTIONS (AVERAGE LOSS PER HOUSEHOLD IN 177 CFAF ‘000), BY URBAN OR RURAL AND BY QUINTILE FIGURE 6-34. POVERTY IMPACT OVER CONSUMPTION EXPENDITURE DISTRIBUTION 178 FIGURE 7-1. REGIONS, URBAN COMMUNITIES, AND COMMUNES 184 FIGURE 7-2. CAMEROON: SUBNATIONAL STATISTICS, CAMEROON AND PEER COUNTRY GROUP 191 FIGURE 7-3. CONCEPTUAL MAP OF CAMEROON’S LOCAL GOVERNMENT REVENUES 195 FIGURE 7-4. HOW THE LOCAL TAX SURCHARGE (CAC) IS DISTRIBUTED 195 FIGURE 7-5. REVENUE DYNAMICS FOR COMMUNES 196 FIGURE 7-6. GENERAL GRANT FOR DECENTRALIZATION ALLOCATIONS ( CFAF BILLIONS), 2010-2023 198 FIGURE 7-7. THERE IS A HIGH CONCENTRATION OF TRANSFERS TO CTDS 199 FIGURE 7-8. THERE IS A LOW LEVEL OF BUDGET ALLOCATIONS TO CTDS 200 FIGURE 7-9. SHARE OF SPENDING ASSIGNED TO CENTRAL ADMINISTRATION, 2016–2021 201 FIGURE 7-10. STAFF COSTS REPRESENT A LARGE SHARE OF CTDS’ OPERATING COSTS 202 FIGURE 7-11. SHARE OF INFRASTRUCTURE ALLOCATIONS BY REGION, 2016–2021 203 FIGURE 7-12. TRANSFERS TO CTDS AS SHARE OF EXPENDITURE, 2016–2021 204 FIGURE 7-13. ALLOCATION OF CENTRAL GOVERNMENT SPENDING PER CAPITA IN EDUCATION AND HEALTH 205 IX List of Tables TABLE 1-1: KEY POLICY ACTIONS ACHIEVABLE OVER THE SHORT TO MEDIUM TERM 9 TABLE 3-1. CHANGES TO REVENUE, EXPENDITURES, AND OVERALL FISCAL DEFICIT, 2010–16 AND 2017–22 22 TABLE 3-2. ALTERNATIVE SCENARIOS 32 TABLE 4-1: AVERAGE TAX BUOYANCY ESTIMATES FOR CAMEROON, 2010–2021 43 TABLE 4-2: TAX REGIMES, INCLUDING FOR SMALL BUSINESSES 49 TABLE 4-3: CIT RATE BY TYPE OF COMPANY 51 TABLE 4-4: MAJOR EXCISE TAX REFORMS, 2015–2019 61 TABLE 4-5: IDENTIFIED AND ASSESSED TAX EXPENDITURE MEASURES, 2015–2021 67 TABLE 4-6. COVID-19-RELATED TAX EXPENDITURES BY SECTOR, 2020-21 70 TABLE 4-7. FLAT RATE SYSTEM SUBCATEGORIES 82 TABLE 4-8. RECOMMENDED POLICY ACTIONS TO BOOST REVENUE 89 TABLE 5-1. EXPENDITURE ON GOODS AND SERVICES BY TYPE (SHARES IN %), 2015-21 98 TABLE 5-2. ADMINISTRATIVE COMPOSITION OF EXPENDITURE (% OF TOTAL), 2015-20 AND AVERAGE 99 TABLE 5-3. COMMON EXPENSES, TOTAL AND GOODS AND SERVICES (CFAF BILLIONS AND SHARE IN %), 101 2015-2020 TABLE 5-4. BUDGET REVISION AND EXECUTION (SHARES IN % AND CHANGES IN SHARES), AVERAGE 106 2015-2021 TABLE 5-5. DOMESTIC ARREARS AND BUDGET EXPENDITURES (CFAF BILLIONS AND % OF COMMITMENTS), 108 2015-20 TABLE 5-6. PERFORMANCE INDICATORS FOR THE EXECUTION OF CAMEROON’S PUBLIC PROCUREMENT 110 TABLE 5-7. SUMMARY OF IMPLEMENTATION OF CAMEROON’S 2018 PER RECOMMENDATIONS ON PUBLIC 116 EXPENDITURE COMPOSITION AND IMPLEMENTATION TABLE 5-8. RECOMMENDED POLICY ACTIONS TO IMPROVE PUBLIC EXPENDITURE ALLOCATION AND 118 IMPLEMENTATION TABLE 6-1. HEALTHCARE ACCESS AND QUALITY INDEX IN CAMEROON, 2010–19 146 TABLE 6-2: BOOST VS NHA DATA, 2015–2020 149 TABLE 6-3. FINANCING OF HEALTH EXPENDITURE 154 TABLE 6-4. PERSONNEL DEFICIT AND RECRUITMENT TARGETS 157 TABLE 6-5. SHARE OF HEALTH FACILITIES THAT EXPERIENCED ESSENTIAL DRUG STOCK-OUTS IN 2017 BY 158 REGION TABLE 6-6. SAMPLES CONSIDERED FOR PREVALENCE CALCULATIONS 160 TABLE 6-7. RECOMMENDED POLICY ACTIONS TO IMPROVE HUMAN CAPITAL EXPENDITURE 179 TABLE 7-1. SUMMARY OF IMPLEMENTATION OF CAMEROON'S 2018 PER RECOMMENDATIONS ON 185 DECENTRALIZATION TABLE 7-2. CAPITAL AND RECURRENT TRANSFERS BY REGION, 2019–2021 (IN CFAF MILLIONS) 204 TABLE 7-3. TRANSFERS FROM THE MINISTRY OF INVESTMENT TO CTDS, 2017–2021 206 TABLE 7-4. COMMUNES: SELECTED FINANCIAL METRICS, 2017–21 (AVERAGE) 207 TABLE 7-5. RECOMMENDED POLICY ACTIONS TO ADVANCE FISCAL DECENTRALIZATION 212 TABLE 8-1. EVALUATION OF THE CORE FUNCTIONS OF CAMEROON’S TAX ADMINISTRATION, 2017 231 X List of Boxes BOX 2-1: MAIN FINDINGS OF THE 2018 PUBLIC EXPENDITURE REVIEW 17 BOX 4-1: METHODS TO ESTIMATE TAX REVENUE POTENTIAL 42 BOX 4-2: KEY FEATURES OF CAMEROON’S PERSONAL INCOME TAX 45 BOX 4-3: KEY FEATURES OF CAMEROON’S CORPORATE INCOME TAX 51 BOX 4-4: KEY FEATURES OF CAMEROON’S VAT 55 BOX 4-5: KEY FEATURES OF CAMEROON’S EXCISE TAXES 59 BOX 4-6. PROPERTY TAXES IN CAMEROON 65 BOX 4-7: REPORTING ON THE COSTS OF TAX EXPENDITURES IN CAMEROON 66 BOX 4-8: SPECIAL ASSESSMENT OF TAX EXPENDITURES RELATED TO THE COVID-19 PANDEMIC 69 BOX 4-9: MAIN FINDING OF THE 2017 TADAT REPORT 72 BOX 4-10: RWANDA’S GOVERNANCE-RELATED REFORMS TO IMPROVE TAX COMPLIANCE 77 BOX 4-11: INTERNATIONAL EXPERIENCE OF USING MANDATORY E-INVOICING FOR THE VAT 88 BOX 5-1: HIGH SHARE OF COMMON EXPENSES AND OVER-EXECUTION 100 BOX 5-2. IS CAMEROON’S GOVERNMENT INVESTING TOO MUCH OR TOO LITTLE? AN ASSESSMENT OF 113 THE PUBLIC INVESTMENT MULTIPLIER BOX 5-3. CHALLENGES IN PUBLIC INVESTMENT MANAGEMENT IN CAMEROON 111 BOX 5-4. MAIN INNOVATIONS OF CAMEROON’S 2018 PUBLIC PROCUREMENT CODE 114 BOX 5-5. MAIN FINDINGS OF THE 2018 PUBLIC EXPENDITURE REVIEW ON BUDGET ALLOCATION AND 115 EXECUTION BOX 6-1: CONFLICT, REFUGEES AND INTERNAL DISPLACEMENT 123 BOX 6-2. EDUCATION SECTOR REFORMS IN CAMEROON SINCE 2018 PER 124 BOX 6-3. CAMEROON HEALTH STRATEGY (HSS), 2016–2027 139 BOX 6-4: MAIN FINDINGS OF THE AUDITS OF COVID-19 FUND 141 BOX 7-1. THE CTDS’ LEGAL ROLE AND POWERS 187 BOX 7-2. COST AND BENEFITS OF FISCAL DECENTRALIZATION: LITERATURE REVIEW 190 BOX 7-3. THE SPECIAL FUND FOR EQUIPMENT AND INTERMUNICIPAL COLLABORATION (FEICOM 193 XI Abbreviations and Acronyms BEAC Bank of Central African States (Banque des États de l’Afrique Centrale) BIP public investment budget (budget d'investissement public) BOOST CAC local tax surcharge (centimes additionnels communaux) CEMAC Central African Economic and Monetary Community (Communauté Économique et Monétaire de l’Afrique Centrale) CET CEMAC common external tariff CFAF African Financial Community Franc (Communauté Financière Africaine Franc)  CGCT General Code for the Decentralized Territorial Authorities (Code Général des Collectivités Territoriales) COVID-19 Coronavirus disease CTD Decentralized Territorial Authority (Collectivité territoriale décentralisée) DDI Droit de douane à l'importation (customs import duty) DGB General Directorate of the Budget (Direction Générale du Budget), Ministry of Finance DGD General Directorate of Customs (Direction Générale des Douanes), Ministry of Finance DGI General Directorate of Taxes (Direction Générale des Impôts), Ministry of Finance DSA Debt sustainability analysis ECAM Cameroon Household Survey (Enquête Camerounaise auprès des ménages) FEICOM Special Fund for Equipment and Intermunicipal Intervention (Fonds spécial d'équipement et d'intervention intercommunale) FERDI Foundation for Studies and Research on International Development GDP Gross domestic product HAQ Healthcare Access and Quality Index HCI Human Capital Index IFMIS Integrated Financial Management Information System IMF International Monetary Fund INS National Institute of Statistics (Institut National des Statistiques) LICs Low-income countries LMICs Lower-middle-income countries MINATD Ministry of Subnational Administration and Decentralization (Ministère de l'Administration Territoriale et de la Décentralisation) MINDEVEL Ministry of Decentralization and Local Development (Ministère de la Décentralisation et du Développement Local) MINEDUB Ministry of Basic Education (Ministère de l’Éducation de Base) MINEDUC Ministry of Education (Ministère de l’Éducation Nationale) MINEPAT Ministry of Economy, Planning and Regional Development (Ministre de l’Economie de la Planification et de l’Aménagement du Territoire) MINFI Ministry of Finance (Ministère des Finances) MINMAP Ministry of Public Procurement (Ministère des Marchés Publics) MTRS Medium-Term Revenue Strategy PBF Performance-based financing PFM Public financial management PER Public expenditure review XII PFR Public financial review POA Performance outcome area (as part of TADAT) PPP Purchasing power parity SEND Soldes engagés non décaissés (contracted but undisbursed debt) SMEs Small and medium enterprises SND30 National Development Strategy 2020-2030 (Stratégie Nationale de Développement) SOE State-owned enterprise SSA Sub-Saharan Africa TADAT Tax Administration Diagnostic Assessment Tool TVET Technical and vocational education and training UHC Universal health coverage UMICs Upper-middle-income countries US $ United States of America Dollar VAT Value-added tax WDI World Bank’s World Development Indicators database WHO World Health Organization ZEPs Education priority zones (Zones d’Education Prioritaire) 1 1 EXECUTIVE SUMMARY Developments over the past few years, which include the COVID-19 pandemic and subsequent polycrisis, conflict in several of Cameroon’s regions, and fiscal consolidation, have left Cameroon in an extremely tight fiscal situation. The COVID-19 pandemic and the subsequent polycrisis have had averse fiscal impacts by reducing domestic revenue and requiring additional public expenditure to mitigate crisis impacts. In parallel, conflict in six out of 10 of Cameroon’s regions has hampered economic activity, revenue generation, and public service delivery in the conflict affected regions, while requiring additional expenditure aimed at containing conflicts. Cameroon is also confronted with declining revenue from its natural resource sector, with oil production being on a secular downward trend. Economic growth at an annual average of less than three percent over the past three decades has provided limited momentum to domestic revenue mobilization, while a rapidly growing population is adding pressures to public service delivery. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 2 While contending with these severe fiscal pressures, Cameroon has successfully pursued fiscal consolidation which was launched in 2016 and has brought fiscal deficits (payment order basis, including grants) down from 6.2 percent of GDP in 2016 to 1.1 percent in 2022. Fiscal consolidation was entirely achieved through compression of public investment, while domestic revenue and recurrent expenditure experienced little change. While fiscal consolidation has been essential to maintaining macroeconomic and debt sustainability, it leaves Cameroon in a very vulnerable situation with little scope for fiscal policy responses in case of further economic shocks. The sharp reduction in public investment also carries the risk of a reduced potential for economic growth in the medium to long term, adding to the many factors that underly Cameroon’s already weak growth performance. Better fiscal policies are essential to help Cameroon turn around adverse developments in terms of low growth, inadequate public infrastructure and service delivery and widening inequalities and rising number of the poor which contribute to conflict, and limited resilience to external shocks. More pressing impacts of climate change and continuously dwindling revenue from oil production provide further urgent impetus for fiscal reform. Cameroon’s public expenditure now stand at 17 percent of GDP, which is low in regional comparison, and which makes it challenging to provide adequate public services and infrastructure. Reforms will thus need to aim at expanding fiscal space by enhancing domestic revenue mobilization and the quality of public spending. Cameroon faces a significant challenge with its tax revenue, which remains below the 15 percent benchmark required to support basic government functions. Despite an increase from 9.5 percent to 11.3 percent of GDP between 2011 and 2021, Cameroon’s tax revenue lags behind the averages of lower-middle- income countries, Sub-Saharan Africa, and peer countries in other regions. A substantial portion of non-oil sector tax revenue comes from a small group of large taxpayers, with the top 0.5 percent of businesses contributing 73 percent of this revenue. The country heavily relies on regressive indirect taxes, primarily a value- added tax, which accounts for over 41 percent of tax revenues. While there have been some improvements in value-added tax (VAT) collection due to policy measures, direct taxation, especially income tax, has remained stagnant and at a low level. Over the period from 2016 to 2021, direct tax revenue amounted to around 3 percent of GDP, which is significantly below the revenue collected on average by both low-income and lower-middle-income countries in Sub-Saharan Africa. International trade taxes, the second-largest source of revenue after VAT, also underperform when compared to peer countries. Additionally, taxes generated from sources such as forests and property have not been meeting their potential, contributing to the overall revenue challenges faced by the country. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 3 A persistent tax gap exists, driven by significant tax exemptions across various tax instruments. Cameroon could significantly increase its tax revenue by addressing compliance and policy gaps, particularly in VAT and trade taxes. Implementing measures to reduce exemptions, broaden the tax base, and improve compliance control and taxpayer facilitation could potentially boost tax revenue by up to 6 percent of GDP. Increasing revenue is crucial for the country to meet its fiscal needs and support essential government functions. To enhance domestic revenue mobilization, Cameroon should consider implementing a Medium-Term Revenue Strategy. Currently, tax policy in Cameroon lacks an overall direction in effectively utilizing key tax sources and adapting to changes in the economy. The existing tax system also lacks systematic efforts to optimize tax sources. By implementing a Medium-Term Revenue Strategy, Cameroon can establish clear guiding principles for taxation and improve the overall effectiveness of its tax system. This strategy should prioritize measures such as reducing tax expenditures, streamlining tax administration, enhancing taxpayer services, strengthening compliance risk management, and improving arrears management. Cameroon’s fiscal consolidation was expenditure driven, resulting in low levels of public expenditures that make it challenging to provide adequate public services and invest in public infrastructure. Overall public expenditure declined from its peak of 21 percent of GDP in 2016 to 17 percent of GDP in 2021. Most of the expenditure adjustment fell on capital expenditure which declined from 8.4 percent of GDP to 4.6 percent, while recurrent expenditure remained relatively stable at 12.5 percent of GDP. At 17 percent of GDP, Cameroon’s public expenditure is low in comparison to other Sub-Saharan African countries which on average dispose of 23 percent of GDP for public expenditure. In 2022, the wage bill claimed 4.3 percent of GDP, spending on goods and services 3.2 percent, and subsidies and transfers 4.2 percent, and interest payments 0.8 percent. The authorities have been successful in containing the wage bill at a level significantly below that of other African countries, although it is important to note that allowances, which often can be a significant part of staff remuneration, are classified as spending on goods and services to a tune of about 0.8 percent of GDP. Adequate and efficient spending on goods and services is essentially for the delivery of quality public services and the maintenance of infrastructure. However, Cameroon’s spending contains important inefficiencies in this spending category, including relatively high spending on representation and external services. A relatively large state-owned enterprise (SOE) sector, a deficit of the public sector pension scheme, and generous fuel subsidies contribute to relatively high spending on transfers and subsidies, while social assistance spending remains minimal. The gradual reduction of fuel subsidies, which started Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 4 with an average increase of 21 percent in retail fuel prices (except for kerosene) at end-January 2023 is an important step towards rationalizing expenditure and repurposing of expenditure that is better targeted on the poor and vulnerable as well as on unlocking growth opportunities. SOE and pension reforms are other areas that could yield significant savings in spending on subsidies. Investment spending suffers from significant inefficiencies. Not only has public investment spending been significantly cut since 2016, but inefficiencies persist. For example, more efficient spending in the road sector could yield a 40 percent in road quality per dollar spent. Low levels and poor quality of investment spending undermine Cameroon’s growth prospects. In addition, as the cuts in public investment are to some extent concentrated in reduced spending on social infrastructure, they also risk contributing to a further weakening on social indicators in the medium to long term. Enhancing the efficiency of public investment spending should thus be a key priority for fiscal reforms, together with prioritizing investment spending when more fiscal space opens up. The procurement reforms that the authorities have embarked on are an important step in enhancing public expenditure efficiency. The sectoral composition of public expenditure is biased towards general administration at the expense of spending on human capital and social protection. Almost a quarter of public spending goes to general administration, which is high compared to other countries in the region. Spending on general administration is important to meet the basic functions of government and ensure good governance. However, in the case of Cameroon relatively high sending on general administration does not translate in matching quality of public administration, as demonstrated by the low rating in the worldwide governance indicators, which include voice and accountability, political stability and absence of violence/terrorism, regulatory quality, rule of law, and control of corruption. This suggests that there may be opportunities for more efficient and effective spending on general administration. On the other hand, less than a quarter of spending is devoted to the social sectors – education, health, and social protection – with education spending having declined in recent years. The efficiency of spending is undermined by poor practices in budget preparation and execution. At the budgeting stage, a significant share of funding remains unallocated. While this practice provides some flexibility to respond to contingencies, it also provides scope for the expansion of spending envelopes during budget execution with adverse impacts on transparency, budget contestability, and allocative efficiency. Frequent modifications of the approved budget through Presidential ordinances exacerbate the problem. During budget implementation, the extensive use of exceptional budget procedures such as imprest accounts, provisional commitments, and cash advances further weaken Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 5 budget credibility and transparency, by permitting spending beyond approved allocations. They also undermine commitment and expenditure control, giving rise to accumulation of domestic arrears averaging 4 percent of GDP. Education sector performance is declining due to a combination of external pressures and internal inefficiencies, offsetting the positive impact of important recent reforms to increase teacher numbers and textbook access. Cameroon’s regional conflict has led to school closures, reduced enrollment, and learning losses in the affected regions, while the large number of displaced persons also puts severe pressures on school systems in other regions. Together with the adverse impacts of the COVID-19 pandemic, this situation has resulted in overall declines in enrollment ratios and completion rates at both the primary and secondary level. The sector also continues to suffer from high and rising internal inefficiency in the form of low levels of student achievement and low completion rates, severely aggravated by Cameroon’s policy of requiring a birth certificate for students to graduate from primary school. The recent recruitment of additional teachers has been hampered in its effectiveness by persistent problems in teacher deployment and retention and unequal distribution of teachers across schools. Recent reforms Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 6 that reduce the cost and enhance access to textbooks are an important positive development, which should pave the way for a policy of free textbooks for priority education zones. Inadequate and inefficient public health spending manifests itself in limited access to health facilities, low quality of services, high out of pocket spending and health indicators that are significantly below what would be expected based on Cameroon’s income level. While Cameroon’s number of health facilities corresponds to international norms, they remain unevenly distributed and poorly staffed and undersupplied with essential drugs. Per-capita out of pocket health expenditures amount to about US$ 40 per person and contribute 70 percent of Cameroon’s total health expenditure. The introduction of Performance Based Financing has brought also a more equitable distribution of budgetary resources within the healthcare sector, with a focus on district-level facilities that offer cost- effective forms of care, including primary care, preventive care, and community health services. However, public health spending priorities still do not sufficiently emphasize critical public health programs that are both highly effective and yield positive externalities. Reforms are needed to enhance the effectiveness and efficiency of public health spending and to provide a basis for increased public spending in the sector. First, it would be essential to enhance governance and resource allocation efficiency by promoting strategic resource allocation at all levels of the health system and enhancing coordination among stakeholders involved in health financing. Advancing decentralization of healthcare expenditure would be an important aspect of this. Second, reforms also seek to enhance transparency and accountability by establishing a standardized and codified system for managing health resources and by adopting mechanisms for transparency, accountability, and anti-corruption efforts within the health sector. Third, strengthening the performance-based financing framework and accelerating its nationwide implementation would be important. This will entail strengthening the financial information system, updating the legal framework governing resource allocation and utilization in public health structures, and engaging in regular control, audit, investigation, monitoring, and evaluation activities for financial resource management. Finally, sector performance and efficiency of spending requires collaboration with the central ministries to streamline budget preparation and execution processes, including implementing special accounts for performance and strategic purchasing to overcome challenges related to centralized and cumbersome budget execution, including resource allocation and post-justification. Cameroon’s social protection system remains regressive, providing only very limited support to a small share of the poor and vulnerable. The bulk of Cameroon’s social protection spending goes towards public sector pensions, Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 7 followed by spending on fuel and other subsidies, labor market initiatives, and social assistance programs. Only the latter are directly targeted at the poor, but their coverage remains limited. Integrated delivery systems for some of the pro-poor interventions, including a Social Registry, remain at early stages of development. Labor force participation of young people has declined with only 50 percent. Addressing the challenges facing the social protection sector requires comprehensive reforms, including reallocating resources, improving program targeting, and ensuring the sustainability of the pension systems. Fiscal decentralization is recognized by the authorities as an essential tool to reduce conflict, enhance resilience and foster stability. However, progress in rolling out government’s ambitious fiscal decentralization program, including a target of 15 percent of the government budget to be transferred to regional and local authorities, remains slow and piecemeal. Subnational authorities suffer from weak capacity and insufficient funding, both from their own revenue sources as well as from transfers from the central government. This not only makes it difficult for subnational governments to effectively deliver on decentralized functions, including in health and education, but it also contributes to central ministries’ reluctance to effectively hand over resources and responsibilities to subnational governments. Progress in this important area will require investments in strengthening the capacities of subnational authorities and a fiscal decentralization framework that effectively matches responsibilities with both financial and human resources. The PFR provides in-depth analysis of Cameroon’s revenue mobilization and public expenditures and then explores human capital spending issues and the potential of fiscal decentralization, generating reform options in each area. i. Putting Cameroon on a growth trajectory that is consistent with its ambition of reaching upper middle-income status requires a new development model, and supportive fiscal policies have an important role in stimulating growth. ii. Cameroon’s tax system currently lacks a clear direction for effectively utilizing key tax sources and adapting to economic changes. Implementing a Medium-Term Revenue Strategy is a way forward. In the short-term, reducing tax expenditures could bring in up to 3 percent of GDP in revenue gains. iii. Overall spending is not aligned with development needs: there is not only scope to spend better but also to spend more given Cameroon’s economic challenges: evolving health needs, a young population, and lagging human capital. Reallocation of expenditure including through reducing the size of common expenses will create room for productive spending. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 8 iv. With weak human capital foundations, moving to the next stage will require an approach to public expenditures and human capital that integrates social expenditures more systematically. v. In the education sector, reallocating public spending towards strategic priorities, improving spending efficiency, addressing disparities in access to education, and supporting key inputs like textbooks and teacher deployment can enhance the quality of education and promote human capital development. vi. In healthcare, increasing financial resources for the health sector and improving resource allocation and service delivery can lead to better healthcare access and outcomes, ultimately contributing to improved human capital. vii. Social protection can be strengthened by reallocating savings from subsidy adjustments, validating and publishing the National Social Protection Strategy, building strong delivery platforms and expanding the coverage of targeted safety nets and productive programs targeting the youth, while engaging local communities and civil society organizations to create a more robust and responsive social safety net. viii. Progress with fiscal decentralization will require enhancing revenue mobilization; introducing a surcharge system for regional assemblies; implementing fiscal equalization to mitigate regional disparities; improving the flow of funds to municipalities and regions; establishing conditional capital and performance- oriented grants; enhancing intergovernmental coordination; and strengthening accountability mechanisms. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 9 Policy Options to Strengthen Cameroon’s Public Finances The table below highlights the most important short and medium-term policy recommendations from this report across the four main areas of Cameroon’s public finances: tax revenue, public expenditure, human capital spending including education, health, and social protection; and fiscal decentralization. More detailed policy actions can be found listed at the end of each of the analytic chapters of this report. Table 1-1: Key policy actions achievable over the short to medium term Boosting tax revenue Tax policy Review and restructure the tax code within the framework of a Medium-Term Revenue Strategy that focuses on achieving inclusive, broad based, and sustainable taxation. Strengthen progressivity of the personal income tax, in particular by establishing an exempt threshold and by raising rates for the highest earners and reducing rates for the lowest. Discourage informality by simplifying the special tax regime and actual earnings taxation system for small and medium enterprises. Curb tax expenditures to limit revenue losses by restricting tax incentives for private investment to priority sectors and reducing the scope of exemptions in line with CEMAC 2022 directives. Tax administration Establish an up-to-date and comprehensive taxpayer registration database. Facilitate tax filing and payments, especially through digitization. Improve management of tax arrears, tax audit, and tax enforcement. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 10 Improving public expenditure allocation and execution Improve budget allocation by shifting away from centralized spending, setting an overall limit of 40 percent of total spending (excluding pensions and debt servicing) and reducing ‘common expenses’ (Chapter 65 of State budget). Enhance budget credibility by avoiding exceptional budget procedures and budget amendments by presidential decree and amending the budget only through Parliamentary action and setting rules to reduce arrears accumulation. Improving efficiency, transparency, and accountability of budget execution through better financial management, consistent and accurate budget data, and robust monitoring and evaluation of budget execution. Strengthening human capital development through better social spending Education Improve efficiency of spending by implementing 2022 school financing rules Support key inputs by enforcing equitable teacher deployment and funding textbooks in all regions Address disparities by removing administrative barriers that harm the poor (such as the requirement for birth certificates to graduate from primary school), reducing out-of-pocket spending for disadvantaged families, and providing free textbooks in education priority zones (Zones d’Education Prioritaire, ZEPs). Health Reallocate overall public spending towards strategic health priorities by consolidating existing schemes and adopting a sector financing strategy. Improve efficiency of health spending by increasing regional funding and devolving responsibilities and prioritizing critical public health programs and cost-effective healthcare services. Support key health sector inputs and address disparities through greater availability of medical equipment and better territorial distribution of public health facilities, adequate staffing and improved personnel policies for retention and geographic distribution, and better essential drug availability, especially for vulnerable populations. Social protection Focus public spending on social protection towards strategic priorities by using savings from fuel subsidy reform to expand targeted social assistance and finalizing a national strategy. Improve efficiency of social protection spending by reallocating budget from central administration to regions and engaging local communities and civil society organizations in the planning, implementation, and monitoring of social assistance programs to ensure their relevance and effectiveness. Support key social protection inputs and address disparities by implementing a Social Registry and adopting eligibility criteria for social protection programs and improving targeting of labor market programs to the most vulnerable. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 11 Promoting efficient public service delivery through fiscal decentralization Enhance local revenue mobilization by implementing the local taxation law and introducing a system of regional surcharges to provide flexibility in determining public service levels Increase budget transfers from the national budget to local governments in line with the Decentralization Code, improve the predictability of transfers by prompt disbursement from the Treasury Single Account directly to the CTDs (collectivités territoriales décentralisées, decentralized territorial authorities), and improve the equity of transfers by adopting the equalization formula for the regions and revising the equalization formula for the municipalities. Make local budget processes more participatory and more accountable by promoting public participation in decision-making processes through public consultations and participatory budgeting practices and by piloting a performance-based grants system for CTDs. 12 2 INTRODUCTION TO CAMEROON’S PUBLIC FINANCES Despite some overall growth over the last three decades, Cameroon’s growth trajectory over the past three decades has been disappointing, contributing to slow progress on poverty reduction. With 28 million inhabitants and a GDP of US$ 44 billion, Cameroon is the biggest economy in the Central African Economic and Monetary Community (Communauté Économique et Monétaire de l’Afrique Centrale, CEMAC),1 representing almost half of CEMAC’s combined GDP and population. Since 2010, Cameroon’s economy has achieved an average annual growth rate of approximately 4 percent, despite facing various economic challenges such as the 2014 oil price shock, the COVID-19 pandemic, and global economic uncertainties. However, economic expansion has not outpaced population growth, resulting in limited poverty reduction. 1 CEMAC members are Cameroon, Central African Republic, Chad, Equatorial Guinea, Gabon, and the Republic of the Congo. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 13 When the latest household survey data were collected in 2014, around one in four Cameroonians (25.7 percent of the population) lived below the international poverty line of $2.15 PPP a day – about the same level as in 2001 (Figure 2-1). Although Cameroon’s rate of extreme poverty (using the international US$ 2.15 a day poverty line) estimated at 24.2 percent of the population is well below the average for all of Sub-Saharan Africa (35.1), it stands at more than double the lower- middle-income average of 10.2 percent (Figure 2-2). Inequality is also remains high, with the consumption Gini index at 46.6 in 2014, reflecting the large differences in living standards between Cameroon’s different regions and between urban and rural areas.2 Figure 2-1. Poverty headcount rate in Cameroon using the Figure 2-2. Poverty headcount rate in Cameroon and international poverty line of $2.15 PPP per day comparator countries using the international poverty line of (% population), 2001-2014 $2.15 PPP per day (% population), latest available estimates 35 31.4 Nigeria 30 25.7 25.7 Kenya 25 20 Ghana 15 Cameroon 2023(*) 10 Cote d'Ivoire 5 0 Lower middle income 01 03 05 07 09 11 13 15 17 19 21 23 Low & middle income 20 20 20 20 20 20 20 20 20 20 20 20 Senegal Survey estimates Nowcasts 0 10 20 30 40 Sources: World Bank World Development Indicators (WDI) and Macro-Poverty World Bank World Development Indicators (WDI) and Macro-Poverty Outlook. Outlook. 2 The consumption Gini index measures the extent to which the distribution of consumption among households within an economy deviates from a perfectly equal distribution, with an index of 0 representing perfect equality and an index of 100 representing perfect inequality. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 14 Fragilities have emerged, and the macro-fiscal context has worsened: Cameroon has faced a series of overlapping crises in recent years, including regional conflicts, climate change, the COVID-19 pandemic, and spillovers from the Russian invasion of Ukraine, each imposing further damage on its limited fiscal space. Over three years of political crisis have resulted in significant socioeconomic disruption in Cameroon’s two Anglophone regions (Northwest and Southwest), while the Boko Haram insurgency has exacerbated the Far North and North regions’ extreme poverty and lagging human development. Moreover, insecurity on Cameroon’s eastern border with the Central African Republic has generated a flow of refugees (Box 6-1). Climate change poses an imminent threat to the country’s reliance on natural resources and its agricultural-based livelihoods, exacerbating issues related to poverty, fragility, conflict, gender disparities, and regional inequalities.3 Climate shocks that could undermine GDP growth and further reduce fiscal space in the absence of reforms. At the economic level, the rapid accumulation of debt and interests’ payments rapidly crowding out social and investment spending. The tightening financing conditions for developing and emerging economies add further constraints to Cameroon’s fiscal situation. The government’s ambition of Cameroon reaching emerging market status by 2035 calls for deeper structural reforms. The authorities launched the country’s National Development Strategy 2020–2030 (Stratégie Nationale de Développement, SND30) to have Cameroon become an upper-middle-income country by 2035. The strategy aims to foster economic structural transformation by expanding investment with greater private sector participation. Cameroon’s level of private and public investment remains below what is needed to achieve the ambitious objective of doubling per capita income by 2035. This goal requires sustained growth of more than 7 percent, on average, over the next decade, with a continuous increase in labor productivity and investment. Bolstering public investment to levels necessary to realize the vision laid out in SND30 while maintaining fiscal sustainability will require selective and efficient prioritization of expenditures, robust complementary efforts to mobilize revenues, and improved financial management. This policy focus mirrors the second generation of reforms endorsed by CEMAC ‘s Heads of State in August 2021. To address the challenges facing the country and improve its resilience to climate change, Cameroon must revamp its development model, particularly by enhancing fiscal management. Climate change poses a significant threat to poverty reduction and shared prosperity in Cameroon, exacerbating rainfall variability, floods, and droughts. Adopting a reform scenario that improves the 3 World Bank Group. 2022. Cameroon Country Climate and Development Report. CCDR Series; World Bank, Washington, DC. htpp://hdl.handle.net/10986/38242 License: CC BY-NC-ND. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 15 business environment and fiscal management would not only limit GDP losses but also slightly accelerate economic growth.4 Mobilizing fiscal revenues, prioritizing public spending, and enhancing spending efficiency would create more fiscal space and ensure a declining public debt trajectory. Cameroon needs to strengthen its revenue mobilization efforts to finance crucial public investments and support long-term growth. Despite efforts in recent years, tax revenue has continued to fall significantly below the desired benchmark of 15 percent, hindering essential state functions and lagging behind the average of lower-middle-income countries, Sub-Saharan Africa, and other comparable countries. Limited domestic resource mobilization constrains the ability to sustain multi-year public investment plans while adequately allocating resources to social and productive sectors. Cameroon’s current spending levels fall short of fulfilling the country’s growth objectives. High-growth economies typically allocate at least five to seven percent of GDP to infrastructure investment and an additional seven percent to education and health, according to the 2008 Growth Commission Report.5 However, Cameroon falls short of these recommendations, with public investment hovering around 5 percent and current public spending on health and education at 1 and 4 percent of GDP, respectively. Insufficient spending hinders the closing of infrastructure and human capital gaps necessary to achieve the country’s growth aspirations. Additionally, the low efficiency of public expenditure, particularly related to capital projects, exacerbates the country’s growth challenges. Public capital expenditure had a limited contribution to economic growth in recent years. Given Cameroon’s increased fiscal vulnerabilities and reduced fiscal space, enhancing the efficiency of public investment is imperative. Building sustainable and inclusive growth in Cameroon relies on improving human capital, yet the country’s Human Capital Index remains low. By influencing future productive potential, human capital has long-term, intergenerational implications for poverty reduction. Human capital has intergenerational consequences for poverty as well as good health and education are needed to break out of poverty traps. Health and education outcomes in Cameroon are comparable to those of low- income countries, with significant disparities between regions and rural-urban areas. Insufficient spending on social sectors has led to inadequate coverage and low service quality in health care, education, and social protection. To sustain high and inclusive growth, it is crucial to achieve efficiency gains in sectoral allocations through improved technical and allocative efficiency. 4 World Bank Group. 2022. Cameroon Country Climate and Development Report. CCDR Series; World Bank, Washington, DC. htpp://hdl.handle.net/10986/38242 License: CC BY-NC-ND. 5 Commission on Growth and Development. 2008. The Growth Report: Strategies for Sustained Growth and Inclusive Development. © Washington, DC: World Bank. http://hdl.handle.net/10986/6507. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 16 Decentralization in Cameroon presents an opportunity to improve the efficiency of public service delivery, address disparities, and tackle the sources of fragility. The current centralized political system, marked by clientelism and inequitable resource allocation, has resulted in poor service delivery and unequal outcomes. The lack of fiscal decentralization has limited the expenditure and service delivery capacity of local government authorities. Strengthening decentralization is crucial to improve Cameroon’s resilience. As the country’s fiscal system transitions, it is essential to clarify the distribution of public resources. Successfully implementing a decentralized political system will require the effective transfer of adequate financial and human resources as well as competencies to local government authorities in accordance with the provisions of the 2019 decentralization code. This Public Financial Review (PFR) is closely aligned with the recent Systematic Country Diagnostic Update that identifies human capital development through increased social spending as one of the main development pathways for Cameroon. The 2022 Update indicates that years of low public expenditure on basic social services, especially primary health care and basic education, have led to inadequate coverage and low service quality. It points to the need to increase overall spending on social sectors to improve people’s ability to be productive and reap the demographic dividend. The Update also shows that despite efforts to improve Cameroon’s public financial management (PFM) system, governance indicators have deteriorated in recent years, making it more difficult to improve revenue mobilization and public expenditure management to address the country’s growing debt burden. Lastly, the Update recommends creating frameworks for effective decentralization, starting with more equitable and transparent transfers to regions and decentralized territorial authorities (collectivités territoriales décentralisées, CTDs). The last Public Expenditure Review (PER) focused on public expenditure (not revenue) and was completed in 2018, highlighting the need to improve public spending efficiency. The 2018 PER revealed limited efficiency and effectiveness of public spending, particularly in the health sector and state-owned enterprises. The allocation of public expenditure is skewed toward overhead costs and debt servicing, leaving insufficient resources for priority sectors. Furthermore, a significant portion of spending on goods and services is disguised as non-wage benefits. The report highlights the negative impact of increased spending, especially capital investment, on budget imbalances, necessitating short-term fiscal consolidation. It recommended improving allocative efficiency by reducing administration and goods and services expenses. The review also emphasizes the complexity of the wage bill, with non-wage compensation lacking a connection to performance. Transfers to SOEs and autonomous public agencies are flagged as fiscal risks. While public Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 17 investment has helped narrow the infrastructure gap, policy reforms and proper maintenance are required to ensure infrastructure quality. The credibility of the public budget is undermined by implementation rates exceeding 100 percent, and the centralized management of the state budget incurs political and social costs (Box 2-1). Box 2-1: Main Findings of the 2018 Public Expenditure Review The 2018 PER concluded that limited efficiency, effectiveness, and equity of public spending presented serious obstacles to the achievement of the Government of Cameroon’s stated policy goals. Specifically, it asserted that: a. Allocative and technical inefficiency reduces value for money across the public sector. Allocative inefficiency is especially critical in the health sector, where an excessive focus on tertiary hospitals comes at the expense of more cost-effective primary care. b. The cost of the pension scheme for civil servants consumes a large share of the social protection budget, which limits the ability of the social protection system to serve poor and vulnerable households. c. The rapid expansion of the investment budget appears to have undermined the technical efficiency of capital spending. d. Technical inefficiency is also a major challenge for state-owned enterprises, where the accumulation of contingent liabilities intensifies overall fiscal risks. e. The effectiveness of public spending is a serious concern in the public administration, as weak expenditure controls are facilitating an increase in personnel costs and overhead without any commensurate increase in institutional capacity. f. The equity of public spending is compromised by a systematic bias toward urban centers and the country’s southern, central, and western regions. g. Addressing the challenges related to the efficiency, effectiveness, and equity of public spending will be vital to achieve the objectives of the SND30. Source: Cameroon Public Expenditure Review: Aligning Public Expenditures with the Goals of Vision 2035. Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/501141543353309471/Aligning-Public-Expenditures-with-the-Goals-of-Vision-2035. This PFR draws on data from the Government of Cameroon’s Integrated Financial Management Information System (IFMIS), which has been reorganized into the BOOST database. BOOST is a data tool that organizes detailed government expenditure data from a country’s Treasury system at the most disaggregated level available, with the aim to leverage of all the information in the country’s budget classification system, covering all sectors, all spending units, and all types of expenditures. For Cameroon, these data cover the time period 2019–2021 and Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 18 include budget execution data, audited settlement laws, public finance indicators, budget implementation reports, and statistics from the Directorate General of the Budget and the Treasury. The International Monetary Fund’s (IMF) less-detailed Government Finance Statistics database is used for longer time series. The PFR is divided into six chapters. Chapter 3 covers macroeconomic and fiscal developments, setting the stage for a more detailed analysis. Chapter 4 focuses on domestic tax revenue mobilization, assessing the composition and performance of tax revenues to identify opportunities in tax policy and tax administration for expanding tax collection. Chapter 5 conducts an expenditure analysis, examining the evolution of expenditures and assessing budget implementation and public investment management. Chapter 6 updates the analysis in the 2018 PER on human capital expenditure and assesses the efficiency of public expenditures in the education, health, and social protection sectors. Finally, Chapter 7 addresses fiscal decentralization, with a particular emphasis on the local expenditure framework. 19 3 SETTING THE STAGE: MACRO-FISCAL PERFORMANCE Cameroon, as the largest economy in CEMAC, has faced a challenging development path in recent years. With only modest growth of GDP over recent decades, the country has encountered obstacles in reducing poverty due to rapid population growth and persistent high levels of inequality. This situation has been exacerbated by a series of factors in recent years, including fiscal consolidation efforts, the impact of the COVID-19 pandemic, and global economic uncertainties. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 20 3.1 Macroeconomic Trends Cameroon has faced a disappointing growth trajectory in recent years, registering average GDP growth since 2017 of just 3 percent and negligible per capita income growth, further contributing to the country falling behind its peers. Fiscal tightening, the impact of the COVID-19 pandemic, and the ongoing decline in oil extraction have undermined growth since 2017, pushing it below the 4 percent average real growth of the preceding decade. Long-term trends have been negative, with Cameroon’s GDP expanding by just 2.8 percent on average during the last three decades while its income and regional peers grew at 4.4 percent and 3.4 percent respectively. The country’s per capita GDP barely exceeds its 1986 level and has fallen below the average income level of its peers, both the average for Sub-Saharan Africa and the average for lower-middle-income countries (Figure 3.1). The modest growth delivered by Cameroon’s economy has been underpinned by substantial infrastructure projects, a resilient private sector, and increased public consumption. Credits photo: Odilia Hebga / World Bank Group Increased government expenditurefrom 2012- 2016 helped stimulate domestic demand. By contrast, net exports contributed negatively to growth, partly owing to terms-of-trade and climatic shocks. The growth contribution of investment was supported by the increase of investment in recent years, reflected in a rebound in public investment, which helped reduce infrastructure gaps, including in the energy sector, and stimulate aggregate demand. Cameroon faces a rising challenge as its investment rate falls short of regional benchmarks. Cameroon’s investment rate, averaging 18.6 percent of GDP during 2010 to 2022, trails behind the Sub-Saharan African (SSA) average of 21.6 percent, the CEMAC average of 28.7 percent, and the lower-middle-Income countries’ (LMICs) average of 40.2 percent. Additionally, Cameroon’s gross national savings rate, standing at 15.3 percent of GDP, does not measure up to the CEMAC (25.5 percent) and SSA (19.3 percent) averages. Closing these investment and savings gaps could be crucial for unlocking Cameroon’s economic potential (Figure 3.2). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 21 Figure 3-2 Investment and savings rate Figure 3-1. GDP per capita (in US $), 1980-2022 (2010-2022 average as % of GDP) 30 10000 8000 25 6000 20 4000 15 2000 10 0 5 19 0 19 3 19 6 19 9 19 2 19 5 20 8 20 1 20 4 20 7 20 0 20 3 20 6 20 9 22 8 8 8 8 9 9 9 0 0 0 1 1 1 1 19 0 Cameroon Lower middle income Cameroon CEMAC except Sub-Saharan Low & middle income Upper middle income Cameroon Africa Sub-Saharan Africa Investment rate (%) Gross National Saving rate (%) Notes: Measured at constant 2015 US $. Source: WDI. Sources: WDI Fiscal tightening, the impact of the COVID-19 pandemic, and the ongoing decline in oil extraction have undermined growth since 2017. Government expenditure has moderated from its peak in 2016, strengthening the fiscal position but hampering economic activity, while oil production declined sharply in 2017-18. With growth already weakening, the impact of the COVID-19 pandemic and the ensuing global recession brought the economy to a halt by mid-2020. Lockdowns and mobility restrictions affected contact-intensive activities, although less severely than in other countries with older populations. Ongoing fiscal tightening further dampened GDP growth to just 0.5 percent in 2020. The economy proved to be resilient and rebounded in 2021 (with GDP growth of 3.6 percent), although the recovery was weaker than in other economies (world GDP growth of 6.3 percent). In 2022, the economy continued to grow, expanding by 3.8 percent despite global spillovers and rising inflationary pressures from Russia’s invasion of Ukraine, and accelerated further in 2023 to an estimated 4 percent. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 22 3.2 Fiscal Performance Fiscal consolidation in recent years, mostly cuts in public investment, has returned the deficit to manageable levels. The fiscal deficit has increased since 2010 and peaked in 2016, driven by rising capital outlays and declining oil revenues (Figure 3.3). The fiscal deficit reached 5.9 percent of GDP in 2016 driven by higher infrastructure spending, which stood at around 5 percent of GDP during the period 2010–16, compared to 2.5 percent during 2005-09. Over the same period, oil revenues fell sharply by 1.7 percent of GDP, reflecting lower prices and production, but these losses were balanced by improved tax revenue collection. Fiscal consolidation efforts in 2017–22 drove down the deficit, including during the COVID-19 crisis (with the fiscal deficit unchanged in 2020 thanks to expenditure control). As a result, the overall deficit narrowed from 5.9 percent of GDP in 2016 to 1.8 percent of GDP in 2022, mainly due to cutbacks in capital spending by 3 percentage points during 2017-2022, from 8.2 percent of GDP in 2016 to 5.2 percent of GDP in 2022 (Table 3-1). Table 3-1. Changes to Revenue, Expenditures, and Overall Fiscal Deficit, 2010–16 and 2017–22 (% of GDP, Accrual Basis) 2010-16 2017-22 Oil revenues + -1.7 +1.5 Tax revenue + +1.7 +0.1 Non-tax revenue and grants + -0.3 +0.3 Capital expenditure – +4.9 -3.0 Current primary expenditures – +0.1 +0.6 +net lending Primary expenditures – +5.0 -2.5 Change in primary balance = -5.4 +4.3 Interest payments – +0.5 +0.2 Change in overall balance = -5.8 +4.0 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 23 Figure 3-3. Total Public Expenditure and Revenue by Type, 2010–2021 (% of GDP) 20 15 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Oil sector revenue Grants Non-oil sector revenue Expenditures Note: Total revenue and grants are made up of oil sector revenue, non-oil sector revenue, and grants. Source: MINFI and World Bank staff calculations. Despite fiscal consolidation efforts, a persistent primary deficit contributed to rising public debt ratios. Public debt, which stood at 76 percent of GDP in 2000, fell to a mere 11 percent of GDP by 2008 thanks to the Heavily Indebted Poor Countries initiative. Since 2010, the increase in public debt has been driven up by persistent primary deficits, and public debt increased from 15 percent of GDP in 2010 to 46.1 percent in 2021. Fiscal deficits contributed 1.3 percent of GDP annually from 2009 to 2014, and then accelerated to 3.5 percent of GDP per year from 2015 to 2017 (Figure 3.5). However, the annual rate of debt increase slowed down after 2017 due to fiscal consolidation efforts, reducing the contribution of the primary deficit to the debt increase by 2.2 percentage points per year from 2017 to 2022. In 2021, approximately 30 percent of the public debt was domestic, and nearly 60 percent was owed to bilateral and multilateral sources (Figure 3.4). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 24 Figure 3-4. Public Debt Composition: Public Debt by Creditor, Figure 3-5. Contribution to the Change in the Public Debt to 2021 (US$, millions and % of total) GDP Ratio by Source, 2009–21 (% of GDP) 8% Eurobonds 6% 5% Other Total: 45.6% 4% commercial 4% SONARA 2% 3% Bilaterals 29% 0% -2% Other multilateral -4% 23% 4 7 9 1 20 21 -1 -1 -1 -2 20 20 09 15 18 20 20 20 20 20 Other factors (incl residual) IMF Real int. Rate + ER depreciation 6% Real GDP growth Domestic 30% Primary deficit Var Debt Source: World Bank staff calculations. 3.3 Revenue Despite declining oil revenue over time, government revenue in Cameroon has remained broadly steady, falling in 2016-17 as oil prices crashed and temporarily falling in 2020–22 due to tax cuts. Total government revenue remained near 16 percent of GDP in 2010–15, before falling to just over 14 percent of GDP in 2016 while expenditures jumped. The resulting fiscal deficit spurred the start of needed fiscal consolidation, including revenue mobilization. Over three-quarters of revenue for the entire period came from taxes as collection improved (Figure 3.3). The direct effects of COVID-19 and the policy response to the pandemic led to non-oil domestic revenue contracting by 0.9 percent of GDP in 2020, while oil revenues contracted by 0.7 percent of GDP in the same year. Fiscal relief measures included tax moratoria, deferred payments, temporary exemptions for restaurants and hotels, temporary exemptions for passenger transportation companies and micro retailers, and accelerated refunds of value-added tax (VAT) credits. Tax policy responses also followed the surge in food prices in 2022 caused by the war in Ukraine, including temporary tax relief on flour and sugar manufacturing as well as customs relief measures on freight, rice, and palm oil imports. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 25 The ongoing decline in oil revenues as Cameroon’s oil production wanes calls for a shift toward non-oil revenue. Although Cameroon is less dependent on oil than other oil-exporting African countries, a key portion of its public revenue has come from the oil sector, which contributed about one-quarter of government revenues in 2010–2016, before it fell to one-sixth in 2017–2021, driven by the slump in international oil prices after 2015 and declining production. While higher oil prices in 2022 increased oil revenue to near one-quarter of total revenue, the unpredictability of oil revenues, subject to the volatility of global oil prices, means that the government must continue the shift toward non-oil revenue. Total public revenue in Cameroon is below regional levels, indicating an opportunity to mobilize revenue. Non-oil receipts increased from less than 10 percent of GDP in 2010 to nearly 12 percent of GDP in recent years, mainly driven by tax revenue—especially from taxes on goods and services (+1.6 percentage points of GDP) and direct taxes (+0.6 percentage points). Despite this growth, total revenue is still below regional and global levels, suggesting that there is room for further revenue mobilization to underpin fiscal consolidation efforts. Cameroon’s 2022 revenue-to-GDP ratio of 15.6 percent is well below the CEMAC average of 18.2 percent (Figure 3.6, Figure 3.7). Figure 3-6. Total Revenue in CEMAC Countries, 2022 Figure 3-7. Tax revenue in Cameroon and Comparators (% of GDP) 2010-2021 (% of GDP) 35 30 25 25 20 20 15 15 10 5 10 0 5 o n lic ad ea on AC ng oo 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 b n Ch ab M Co pu ui er G CE lG m Re of Ca ria n ic ca to bl Cameroon Côte d'Ivoire fri ua pu lA Eq Re Ghana Senegal ra nt Kenya Morocco Ce Sri Lanka Vietnam Revenue excl grants Grants Source: Cameroonian authorities; IMF, World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 26 3.4 Expenditures Since 2016, fiscal consolidation efforts in Cameroon have focused on reducing expenditures, which has become more difficult by higher debt servicing. Total expenditure has trended upward since 2010, reaching a peak of over 20 percent of GDP in 2019 (Figure 3.8). The increase in expenditure by 5.5 percent of GDP during 2010-16 was driven by a considerable jump in capital expenditures, from 2.5 percent of GDP in 2009 to a peak of 7.5 percent of GDP in 2016. Since 2017, fiscal consolidation efforts have focused mainly on reducing expenditures, in particular the curtailment of public investment, which fell from 7.5 to 4.5 percent of GDP between 2016 and 2021. Meanwhile, the interest rate payments doubled from 0.5 percent in 2016 to 1 percent of GDP in 2021, represents a growing fiscal burden. Current expenditures were relatively steady in 2022, with capital spending expanding to over 5 percent of GDP while debt service fell slightly. Figure 3-8. Public Expenditure by Category, 2015–2021 (% of GDP) 20.0% 15.0% 10.0% 5.0% 0.0% 2015 2016 2017 2018 2019 2020 2021 Current expenditures Capital expenditures Interest payment Total Source: Cameroonian authorities; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 27 Capital expenditures have been the main driver of both Cameroon’s fiscal expansion and its fiscal consolidation. Public investment has shrunk by 3 percent of GDP since 2016. While it was the main driver of the country’s fiscal expansion in 2010–2016 when financing was plentiful, it was also the driver of fiscal consolidation in 2017–2022 when funding became scarce. Domestically funded investment has contracted most sharply. Between 2017 and 2022, public investment expenditure financed with domestic sources fell by about 3.5 percent of GDP, while capital investment funded with external resources rose by 0.4 percent of GDP. The share of domestic public investment in total investment fell from about two-thirds before 2017 to around half after 2017. Between 2015 and 2021, Cameroon’s public expenditure as a share of GDP was below that of peers, and it spent a larger share on investment and a lower share on social benefits than peer countries. Cameroon’s overall government expenditure averaged around 17 percent of GDP over the same period, lower than the SSA and aspirational peer average of 23 percent and 25 percent, respectively (Figure 3.9, Figure 3.10). The country’s lower level of expenditure compared to peer countries has been partly due to its need for fiscal consolidation to better match expenditure to revenue. Cameroon’s structure of spending also varies from country comparators, as it spends more on public investment than structural and aspirational peers, LMICs, and SSA countries and less on social benefits than all but structural peers (Figure 3.9). Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 28 Figure 3-9.Public Expenditure, Cameroon and Country Figure 3-10. Public Expenditure, Cameroon and Comparators Groups, 2015–21 (% GDP) (% GDP), 2015–21 (% GDP) 0.30 40.0 0.25 35.0 0.20 30.0 % GDP 25.0 0.15 % GDP 20.0 0.10 15.0 0.05 10.0 0 5.0 n e a rs rs 0.0 oo ric m ee ee co er Af lP lP m ZAF ETH KEN in SEN TZA CMR RWA MRT COD AGO UGA n ra na Ca ra e u dl tio ha ct id ru ra Sa m pi St b- er As Aspirational Structural Su w Lo Source: Cameroonian authorities, World Bank staff calculations. Figure 3-11. Public expenditure: economic composition, Cameroon and country groups (Share of Expenditures) 100% 80% 60% 40% 20% 0% Cameroon Aspirational Peers Structural Peers Lower middle income Sub-Saharan Africa Wage bill Goods and services Capex Interest Social Bene ts Subsidies Other Source: Cameroonian authorities; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 29 Cameroon’s public investment levels and efficiency are low. Despite the increase in the public capital stock prior to the COVID-19 pandemic, Cameroon’s infrastructure asset base remains modest and below the average of comparable countries. The relative efficiency gap of the country’s public investment with respect to the efficiency frontier (which is determined based on the best-performing countries) is over 60 percent, according to the latest Public Investment Management Assessment (PIMA) report (Figure 3.12). Primary expenditures in Cameroon remain lower than in peer countries, especially public investment, and were close to the CEMAC average in 2021, although they were slightly lower than the SSA average. Figure 3-12. Cameroon and Selected Peers: Efficiency of Public Investment 1.0 0.8 Ef ciency score 0.6 0.4 0.2 0.0 LIC SSA Source: IMF PIMA 2020. Note: Cameroon is the red triangle. 3.5 Creating Fiscal Space for Medium-Term Inclusive Growth 3.5.1 Baseline Outlook Economic growth is expected to improve slightly over the medium term, supported by sustained activity in the secondary and tertiary sectors. Real GDP growth is forecast to reach an average of 4.2 percent in 2023–2025. On the supply side, oil production is projected to continue to decline due to the depletion of oil fields, while gas production is expected to be sustained. In the non-oil sector, growth would be supported by higher agricultural production and sustained high Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 30 revenues from commodities such as cocoa, coffee, banana, cotton, and rubber. Agri-food industries, construction, and energy should support secondary sector activity, and telecommunications, financial services, hotels, and catering should sustain tertiary sector activity. On the demand side, stronger private consumption and investment are expected to be the main drivers of real GDP growth as the import of food items and construction equipment continues to increase. The fiscal deficit is projected to narrow in the medium term, supported by the government’s commitment to spending prioritization and improved non-oil revenue collection (Figure 3.13). The gradual reduction of fuel subsidies, which started with an average increase of 21 percent in retail fuel prices (except for kerosene) at end-January 2023, and other current spending cuts should contain public spending. On the revenue side, tax revenue mobilization is expected to be driven by measures aimed at: (i) broadening the tax base; (ii) rationalizing tax expenditures; (iii) improving personal income taxation and the taxation of the informal sector; (iv) generalizing electronic payments and electronic monitoring of economic transactions; and (v) combating tax fraud and evasion through the use of big data, automated risk analysis systems, and information sharing with jurisdictions from abroad. The tax administration intends to raise the tax-to-GDP ratio from 8.1 percent in 2022 to 9.6 percent in 2025. The fiscal deficit is projected to narrow to 0.4 percent of GDP by 2025. Figure 3-13. Cameroon: Fiscal Consolidation Path, 2019–2025 (Percent of GDP) 25.0 0.0 -0.5 20.0 -1.0 15.0 -1.5 10.0 -2.0 -2.5 5.0 -3.0 0.0 -3.5 2019 2020 2021 2022 2023 2024 2025 Total Revenues and Grants Expenditures Fiscal Balance (rhs) Sources: World Bank, IMF, and Cameroonian authorities March 2023. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 31 Cameroon’s economic outlook remains uncertain and subject to risks that could disrupt the macroeconomic framework. These risks include a potential further tightening of financial conditions, higher inflation resulting from a prolonged war in Ukraine, and the ongoing security crisis in the North-West, South-West, and Far North regions. The security situation in these regions continues to impact public spending, putting pressure on public finances. If these risks materialize, the country’s real GDP growth would be more modest than expected under the baseline scenario, which would have implications for the fiscal and external accounts. Additionally, higher international oil and food prices could contribute to inflationary pressures and budgetary challenges, even though oil revenues would be expected to increase. In such a scenario, the government would likely need to implement more significant expenditure cuts to narrow the fiscal deficit and manage the limited financing available from external and domestic sources. 3.5.2 Fiscal Risks Assessment: Debt Sensitivity Scenarios Alternative scenarios where the core assumptions in the baseline outlook are weakened would result in significant deviations from the projected downward debt trajectory.6 More sluggish economic growth, a pause in fiscal consolidation efforts, or convoluted financing conditions would result in a higher public debt stock by 2028. Frailer-than-expected economic growth would diminish the debt outlook. In an alternative scenario with slower GDP growth, fiscal consolidation becomes more arduous, as larger nominal reductions in expenditures are needed to reduce the debt-to-GDP ratio. Assuming no deviations in revenue-to-GDP ratios and stable nominal expenditures, a weaker-than-expected economic expansion scenario would result in a mounting debt trend by worsening the government’s fiscal stance and lowering the contribution of economic growth to public revenue. Halving the expected growth rate would increase public debt to 49 percent of GDP by 2028. Under this scenario, the primary balance averages a deficit of 0.9 percent of GDP, while gross financing needs would amount to 6.8 percent of GDP per year (compared to a primary surplus of 0.3 percent of GDP and gross financing needs of 5 percent of GDP under the baseline outlook). Also, the negative contribution of nominal GDP to growth accounts for a yearly reduction of 2.3 percent of GDP, 0.7 percentage points lower than in the baseline. As a result, the debt-to-GDP ratio would increase to 49 percent instead of declining to 37 percent as projected under the baseline scenario (Table 3-2). 6 Alternative scenarios were carried out using a Fiscal Sustainability Analysis (FSA) tool. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 32 Table 3-2. Alternative Scenarios 2022 2023-28 Baseline Lower No-fiscal Financial Combined outlook growth consolidation shock shock Macro-Fiscal assumptions GDP Growth 3.4 4.6 2.3 4.6 4.6 2.3 Revenues (% of GDP) 16.1 15.3 15.3 15.3 15.3 15.3 Primary expenditure (% of GDP) 17 15 16.2 17 15 17.7 Primary balance (% of GDP) -0.9 0.3 -0.9 -1.7 0.3 -2.3 Issuance of Domestic Debt (% share) … 35 35 35 75 75 Issuance of External Debt (% share) … 65 65 65 25 25 Financial conditions Financial Shock and Combined Baseline outlook Shocks Scenarios Grace Interest Interest Maturity Grace period Maturity period rate rate External commercial debt 3 13 3.6 1 13 7.6 Domestic T-Bills 0 1 3 0 1 7 Domestic T-Bonds 2 YR 1 2 4 1 2 8 Domestic T-Bonds 5 YR 4 5 6 3 5 10 Source: World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 33 If primary expenditures are not reduced, public debt could climb to 48 percent of GDP. Under the baseline outlook, primary spending is expected to decrease from 17.0 percent of GDP in 2022 to 15.4 percent of GDP in 2024. Without this reduction in spending, the primary deficit is projected to average 1.7 percent of GDP in 2023–28, and gross financing needs would reach 7.5 percent per year, driving up public debt. Although the negative contribution of nominal GDP to the accumulation of public debt would only be a mere 0.3 percentage points higher than in the baseline outlook (as the growth assumption is unaffected, but the debt stock is larger), the debt-to-GDP ratio would increase to 48 percent of GDP by 2028. Tighter borrowing conditions would increase Cameroon’s gross financing needs and public debt. The baseline outlook assumes a financial strategy that relies heavily on external financing, under broadly concessional terms, and favorable financial conditions for domestic debt instruments. Under a stressed scenario with lower availability of concessional external financing and higher domestic interest rates, gross financing needs would increase and accelerate public debt accumulation. Doubling interest rates and intensifying domestic financing would weaken the projected reduction in public debt. A financial strategy more focused on domestic financing (assuming only one-quarter of issuances are external, as opposed to three-quarters in the baseline outlook) and with augmented interest rates (doubling the baseline assumptions) would slow down, although not halt, the envisaged debt reduction. Under this scenario, the interest burden would average 1.4 percent of GDP in 2023–28 (as opposed to 1 percent of GDP in the baseline), and public debt would reach around 39 percent of the GDP by 2028, around 2 percentage points higher than in the baseline outlook. A simultaneous departure from the three Credits photo: Odilia Hebga / World Bank Group core assumptions of the baseline outlook would result in a significant increase in public debt. Assuming the weaker-than- expected growth path, with no reduction in primary expenditure and tighter financial conditions, public debt would increase by Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 34 2.5 percentage points of GDP per year in 2023–28, more than 1.6 percentage points of GDP under the baseline scenario. Moreover, the pace of debt accumulation would accelerate compared to recent years (it averaged 2.0 percentage points of GDP in 2019–22), and the debt-to-GDP ratio would soar to 61 percent of GDP by 2028. Figure 3-14. Fiscal Risk Assessment: Alternative Scenarios a. Cameroon: Public Debt (% of GDP) b. Cameroon: Gross Financing Needs (% of GDP) 65 18 61 16 16 60 14 55 12 50 49 10 48 8 45 8 8 7 6 40 39 4 4 37 35 2 30 0 2022 2023 2024 2025 2026 2027 2028 2022 2023 2024 2025 2026 2027 2028 Baseline Outlook Lower growth scenario No Fiscal consolidation Scenario Financial shock scenario Combined shock scenario Source: World Bank staff calculations. 3.5.3 Managing Fiscal Consolidation The necessary ongoing fiscal consolidation poses a serious challenge to the steady and robust growth Cameroon needs over the medium term to achieve its development goals. Maintaining fiscal sustainability in the medium term will require increasing revenues and controlling expenditures while ensuring that fiscal policy supports long-term growth objectives. Given that the slowdown in recent years was partially driven by cutbacks in public outlays, especially capital expenditures, one of the main challenges for Cameroon is the extent to which fiscal consolidation can be carried out while supporting necessary levels of public investment. 35 4 BOOSTING TAX REVENUE Stronger revenue mobilization is required to fund much-needed public investment aimed at supporting long-term growth and provide adequate public services while safeguarding fiscal and debt sustainability. Cameroon’s tax to GDP ratio remains significantly below the benchmark of 15 percent required to adequately fund public investment and lies below the average of LMIC, SSA, and other comparators. Low domestic resource mobilization impedes the ability to sustain multi-year public investment plans and essential social and productive spending, limits the country’s borrowing capacity, and hampers its resilience to shocks. Rationalizing tax expenditures, broadening the tax base, and strengthening the tax administration could make important contributions toward enhancing domestic revenue mobilization. This chapter presents an assessment of domestic tax revenue collection over the period 2010–2021, analyzing both Cameroon’s current tax policy and the main challenges faced by the tax administration in enhancing domestic revenue mobilization. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 36 4.1 Tax Revenue Patterns The authorities need to improve tax revenue mobilization to finance public investment needed to support Cameroon’s long-term growth. As the country continues to pursue fiscal consolidation, additional mobilization of revenue will be critical to limit the extent of cuts in public expenditure, in particular capital spending, necessary to bolster economic growth. Total public revenue, while variable, has remained at roughly 15-16 percent of GDP since 2010, of which about one-fifth has come from the oil sector, although oil revenues are on an inevitable downward path as petroleum reserves dwindle. Between 2010 and 2021, out of the rising share of non-oil revenues, nearly 90 percent come from taxes (70 percent of total revenue) (Figure 4.1). It is therefore essential for Cameroon to expand tax revenues to preserve and improve its fiscal position. Figure 4-1: Average Revenues by Type, 2010–2021 (% of Total) Grants 2.2% Tax revenue 69.3% Oil sector Non-oil sector revenue Privatization revenue receipts 19.9% 77.9% 2.9% Bills of payment 0.003% Receipts to be regularized 1.2% Non-tax revenue 4.5% Note: Oil sector revenue is the total transferable balance of the National Hydrocarbons Corporation (Société nationale des Hydrocarbures, SNH) and income tax on petroleum companies and gas operators (Impôt/Stés Pétrolières). Tax revenue excludes income tax from the oil sector. Non-tax revenue includes administrative fees, rents and real estate income, and pipeline fees paid by Cameroon Oil Transportation Company. Privatization receipts occurred only in 2013 and 2015. Receipts to be regularized (Recettes à régulariser) occurred only in 2014 and indicate a taxpayer paid tax directly to the Treasury as one-time payment without specifying the type of taxes. Bills of payment (Effets à l’encaissement) occurred only before 2015 when taxpayers made payments via bank checks rather than wire transfers. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 37 Tax revenue has been trending upward and averaged 11 percent of GDP during 2010–2021. Administrative and tax policy measures taken in 2011 and 2012, including ending temporary rate reductions, better enforcement and administration, and simplification and rationalization, contributed to raising tax revenues by 1 percent of GDP (Figure 4.2).7 Further improvements in tax collection occurred in 2014-15, with the creation of decentralized tax offices to facilitate tax payments, adjustment of selected tax rates, limiting of tax exemptions, and the investment incentives law.8 Government measures to improve the tax administration, including further joint tax and customs controls, cross-checking of customs and tax data, and the rationalization of VAT exemptions, largely compensated for the fall in revenue due to the civil war that started in September 2016 in the Anglophone regions (North West and South West). Tax revenues rebounded to 12 percent of GDP in 2017-18. However, non-oil revenue fell to 11.9 percent in 2019, owing to lower economic activity due to the security crisis in industries with high fiscal returns, notably brewing, chemical, metallurgical, and wood-processing; lower tax payments by the national refining company (Société Nationale de Raffinage, SONARA); and delays in imports following the implementation of new exchange regulation by the regional central bank (Banque des États de l’Afrique Centrale, BEAC).9 Overall, ongoing difficulties for government operations in the affected regions caused an estimated 5 percent decline in revenue in 2019. Cameroon’s tax system has relied heavily on indirect taxes, especially the VAT, which continues to grow, and taxes on large taxpayers. In 2010–2021, almost three-quarters of the country’s tax revenue came from indirect taxes, with VAT revenues increasing the most as a share of GDP (Figure 4.2, Figure 4.3). VAT was the most significant contributor in terms of total tax revenues, accounting for about 39 percent, followed by trade taxes at 16.8 percent (Figure 4.3, Figure 4 4). The share of VAT and excise in total tax revenues has increased overtime from 2010-13 to 2018-21, mainly due to the simplification of VAT exemptions and the introduction of new excise taxes. In contrast, the contribution of trade taxes has decreased as Cameroon integrated further into global value chains and adopted CEMAC-related tariff reforms. Furthermore, taxes on both corporate and personal income decreased during these two periods, from 15.5 to 13.9 percent and from 10.2 to 9.7 percent, respectively, owing to the introduction of new tax expenditures and incentives to attract foreign direct investment (Figure 4.3). Notably, large taxpayers play a pivotal role in Cameroon’s tax revenue. The General Directorate for Taxes (Direction Générale des Impôts, DGI) segments the taxpayer base for better compliance and customer service management. Large business taxpayers (the top half of 1 percent of businesses) accounted for 73 percent of total non-oil sector tax revenue in 2016–2021. 7 IMF. Cameroon: 2012 Article IV. Country Report No. 12/237. August 2012. 8 IMF. Cameroon: 2014 Article IV. Country Report No. 14/212. July 2014. IMF. Cameroon: 2015 Article IV. Country Report No. 15/331. December 2015. 9 IMF. Cameroon: Fifth Review Under the Extended Credit Facility Arrangement. Country Report No. 20/48. February 2020. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 38 Figure 4-2: Tax Revenue by Type of Tax, 2010–2021 (% GDP) 14 12 10 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 PIT CIT Capital gain tax (IRCM) Other direct taxes VAT incl. VAT refund Excises Special tax on petroleum products (STPP) Trade Forest tax Registration and Stamp Fees Note: Direct taxes are the personal income tax (PIT/IRPP), corporate income tax (CIT/IS), capital gains tax, and other direct taxes. Indirect taxes are the value added tax (VAT) excises, special tax on petroleum products (STPP), international trade tax, forest taxes, and registration and stamp fees. The CIT excludes revenue from petroleum companies and gas operators. Source: Cameroon Ministry of Finance; World Bank staff calculations. Figure 4-3: Composition of Tax Revenue, average 2010–2021 Figure 4-4: Contribution to tax revenue by source, average (% of Total) 2010-2013, 2014-2017, 2018-2021 (% of total) Forest tax & 100% 2.658457442 2.530181924 2.55684775 Registration and Stamp Fees IRCM & Other 90% 14.88436709 19.03490281 17.06341453 2.6% direct taxes 2.2% 80% 5.182814082 5.32372864 6.42444568 8.533949196 10.15961176 70% 6.675233569 PIT Trade 10.2% 60% 16.8% 50% 37.48389467 38.22156538 41.23069314 CIT STPP 5.6% 40% 15.1% 30% 1.978013623 1.965694432 2.355173194 20% 15.80611117 15.54388579 13.923197 10% Excises VAT incl. VAT refund 10.20116642 10.55535473 9.70729598 8.9% 0% 38.6% 2010-2013 2014-2017 2018-2021 Forest tax & Registration/Stamp Fees Trade STPP Excises VAT incl. VAT refund IRCM & Other direct taxes CIT PIT Note: STPP: special tax on petroleum products; IRCM: capital gains tax. Source: Cameroon Ministry of Finance; IMF; and World Bank staff calculations. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 39 Cameroon’s tax revenue collection has surpassed the CEMAC average but still falls short of both structural and aspirational peers as well as international benchmarks. During 2016-20, Cameroon’s tax revenue stood at 11.6 percent of GDP, exceeding the CEMAC average of 9.3 percent primarily due to its strong VAT collection. However, it remains below the CEMAC’s target of 17 percent of GDP and the SSA and LMICs averages of 15.9 percent and 15.7 percent, respectively (Figure 4-6).10 The main contributor to this revenue gap when compared to other countries in the region are taxes on corporate and individual income (Figure 4-6). In comparison to peers, Cameroon’s tax collection is only higher than Sri Lanka’s (10.6 percent of GDP) and on par with Ghana and Côte d’Ivoire (both at 12.1 percent of GDP). Other comparators such as Senegal, Morocco, Vietnam, and Kenya collect three times the direct taxes of Cameroon (both CIT and PIT) (Figure 4-6). PIT collection amounted to 1.1 percent of GDP during 2016-20, less than half of the average collected in CEMAC, SSA, and LMICs (Figure 4-6). Figure 4-5: Average Tax Revenue and GDP per Capita by Figure 4-6: Average Tax Revenue, Cameroon and Country Group, 2016–20, (% GDP) Country Groups, 2016–2020, (% GDP) 20 7 16 6 12 5 4 8 3 4 2 0 SSA LMICs CEMAC Cameroon Gabon Rep. of Congo Chad Cent. Af. Rep. Equat. Guinea Senegal Ghana Côte d'Ivoire Morocco Vietnam Kenya Lanka 1 - VAT CIT PIT Excise Trade Structural Region CEMAC Aspirational Peers Peers Cameroon CEMAC LMICs Others Trade Excise VAT SSA World PIT CIT Tax Note: For Cameroon, VAT data includes a refund of VAT credits. Source: Cameroon Ministry of Finance; IMF; and World Bank staff calculations. 10 World Bank. 2018. CEMAC: Deepening Regional Integration to Advance Growth and Prosperity. World Bank, Washington, DC. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 40 Compared to comparator groups of countries in SSA region,11 Cameroon’s tax revenue collection is considerably lower than regional and income averages. Between 2010 and 2021, Cameroon’s tax revenue consistently remains below the low-income countries (LICs) and LMICs averages in SSA but surpasses the CEMAC average (Figure 4.7). While its performance is similar to Ghana and Cote d’Ivoire, it falls short of Senegal, another structural peer (Figure 4.8). Among aspirational peers, only Sri Lanka underperforms Cameroon. Overall, Cameroon’s tax revenues, both in terms of their level and composition, fall below recommended benchmarks for basic service delivery and lag behind the Addis Ababa conference benchmark for tax-to-GDP in SSA and LMICs. Figure 4-7: Tax revenue, Cameroon and SSA Country Groups, Figure 4-8: Tax Revenue, structural and aspirational peers 2010–2021, (% GDP) 2010–2021, (% GDP) 25 25 20 20 15 15 10 10 5 5 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cameroon Côte d'Ivoire Interquartile range Cameroon Ghana Senegal LMICs & LICs in SSA UMICs + HICs in SSA CEMAC Kenya Morocco Sri Lanka Vietnam Note: Interquartile range covers the 75th to 25th percentiles of LMICs and LICs in SSA. 11 The sample of SSA groups by income is as follows. (1) The high-income group (HIC): Seychelles; (2) The upper-middle-income group (UMIC): Botswana, Gabon, Equatorial Guinea, Mauritius, Namibia and South Africa; (3) The lower-middle-income group (LMIC): Angola, Benin, Côte d’Ivoire, Cameroon Congo, Rep., Comoros, Cabo Verde, Ghana, Kenya, Lesotho, Mauritania, Nigeria, Senegal, São Tomé and Principe, Eswatini, Tanzania, Zambia, and Zimbabwe; (4) The low-income group (LIC): Burundi, Burkina Faso, Central African Republic, Congo, Dem. Rep., Eritrea, Ethiopia, Guinea, The Gambia, Guinea-Bissau, Liberia, Madagascar, Mali, Mozambique, Malawi, Niger, Rwanda, Sudan, Sierra Leone, Somalia, South Sudan, Chad, Togo, and Uganda. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 41 4.1.1 Tax revenue potential Cameroon’s tax collection is currently at only 58 percent of its full potential, indicating room for tax policy and administration reforms . Cameroon’s tax effort index of 0.58 during 2010-20 (Figure 4.10, a tax effort is considered low when the tax effort index falls below 1) indicating significant potential for Cameroon to increase tax revenues. Tax effort is affected by the tax structure (e.g., tax rates, tax base, etc.), as well as tax administration and compliance. Tax effort can be increased by raising tax rates, expanding the tax base, and improving Credits photo: Odilia Hebga / World Bank Group tax compliance and enforcement. When compared to its peer countries, taking into account levels of taxation and various structural and institutional factors, Cameroon exhibits an average tax potential estimated at 18.8 percent of GDP (Figure 4.9). This calculation results in a total tax gap of 7.8 percent of GDP, as the country’s tax revenue averaged just over 11 percent of GDP in 2010-20. For SSA, the total tax gap ranged from 3 to 9 percent of GDP, with the largest gaps estimated for natural resource-rich countries. These shortfalls of tax revenue compared to potential arise either from the policy gap or from the compliance gap (Box 4-1). This chapter, however, cannot specify the portion of the total tax gap attributable to policy gaps or compliance gaps, nor can it assess the tax gap on a sector-by- sector basis due to limitations in disaggregated taxpayer data. The detailed tax gap analysis is conducted under the ongoing revenue mobilization technical assistance program (P179082). Earmarking of ‘various revenues’ generates inefficiencies. These revenues, amounting to 1.4 percent of GDP between 2010 and 2021, stem from the special tax on petroleum products (STPP),12 forest tax, and other minor tax revenues. Unlike general taxation, which involves unrequited revenues collected for the common fiscal pool, special tax revenues are collected and redistributed in ring- fenced arrangements. These arrangements, along with efficiency losses, result in the revenue not being available to fund critical expenditure areas. 12 Revenues from the STPP are in part allocated to the Road Fund (Fonds Routier, CdI, art 234). The ring-fenced status of the STPP should be seen in the context of the overall taxation regime for natural resources in Cameroon, including allocation criteria. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 42 Figure 4-9: Tax capacity, 2010-20, (% of GDP) Figure 4-10: Tax effort, 2010-20 20 0.7 0.6 15 0.5 10 0.4 0.3 5 0.2 - 0.1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 VAT Tax revenues Tax revenues CIT CIT PIT PIT VAT Excise Trade Excise Trade Source: Cameroon Ministry of Finance, World Bank Tax Revenue Dashboard, and World Bank staff calculations Box 4-1: Methods to Estimate Tax Revenue Potential There are several methods to estimate a country’s revenue mobilization potential. There are various factors affecting revenue collection, pertaining to both tax policy and administration. Domestic revenue can be considerably below its potential due to sub-optimal tax rates and the proliferation of exemptions (which relate to tax policy), as well as low compliance and limited capacity to collect revenue (which relate to tax administration). It is therefore crucial to identify the most binding constraints to prioritize reforms. A simple method of estimating the amount of additional tax revenue that could be potentially collected is to compare a country’s tax-to-GDP ratio with that of other countries with similar characteristics – such as the level of economic and institutional development. This can be undertaken through a simple benchmarking exercise, including tax productivity, VAT c-efficiency, or through an empirical exercise. ‘Tax effort’ measures a country’s own effort to raise tax revenues, while the ‘tax gap’ is often driven by both policy and administration weaknesses. Tax potential (or taxable capacity), using an estimate of the country’s tax frontier,13 provides a reference point for the maximum amount of revenue that could be collected through tax policy changes or improvements in the efficiency of collection 13 The tax frontier is defined as the maximum theoretical level of tax revenues that a country can achieve given underlying conditions such as the level of development, trade openness, sectoral structure, income distribution, and governance. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 43 given a country’s socio-economic factors (e.g., a country’s specific macroeconomic, demographic, and institutional features). Tax effort is the ratio between actual tax collection and tax potential, which measures a country’s own effort to raise tax revenues. The tax gap is the difference between tax potential and actual tax collection, and it comprises the ‘policy gap’ and ‘compliance gap’. The policy gap quantifies the extent to which tax collection is affected by policies that reduce the tax base and/or tax rates. Examples include tax exemptions and reduced rates, which constitute a tax expenditure by reducing tax liabilities (thus a revenue loss) rather than direct spending. The compliance gap conveys the extent to which poor tax administrative capacity and/or active tax avoidance may explain the gap between potential revenues and actual collection. Cameroon’s tax system is buoyant, with revenues Table 4-1: Average Tax Buoyancy Estimates for growing faster than GDP. Tax buoyancy (or tax Cameroon, 2010–2021 elasticity) assesses whether growth in tax collection has been keeping pace with economic growth over Tax Type Buoyancy time. A buoyancy coefficient of 1 would suggest that a 1 percent increase in GDP leads to an average rise Tax Revenue 1.40 of 1 percent in revenue collection – implying that revenues grow at the same pace as economic activity. Personal income tax (PIT) 1.25 From 2010 to 2021, Cameroon’s overall tax buoyancy was 1.4, indicating that tax collection outpaced GDP Corporate profit tax (CIT) 1.15 growth, serving as an economic stabilizer (Table 4-1). Excise tax had the highest buoyancy at 2.7, possibly Capital gains tax (IRCM) 0.64 due to automatic inflation adjustments of ad-valorem tax rates. The tax buoyancy for the PIT (1.3), CIT (1.2), and VAT (1.7) also exceeds 1, while it remained Value added tax (VAT) 1.66 below 1 for the capital gains tax (IRCM) (0.6), (STPP) (0.8), and international trade taxes (0.6) due to tariff Excises 2.67 reductions in line with CEMAC regional directives. Special tax on petroleum Cameroon’s high tax buoyancy is in line with the 0.75 products (STPP) general pattern of buoyancies above one for LMICs and LICs.14 Trade tax 0.64 Forest tax 0.87 Note: VAT data include refund of VAT credits. Source: Cameroon Ministry of Finance; World Bank staff calculations. 14 Cornevin, Antoine, et al. “IMF Working Papers Volume 2023 Issue 071: A Deep Dive into Tax Buoyancy: Comparing Estimation Techniques in a Large Heterogeneous Panel (2023).” IMF, 17 Mar. 2023, doi.org/10.5089/9798400238376.001. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 44 4.2 Tax Policy 4.2.1 Personal Income Tax PIT collection in Cameroon has been relatively stable but lower than that of regional and global comparators. Cameroon collected PIT of about 1.1 percent of GDP in 2017–21, well below the average of 2.3 percent of GDP in LMICs and LICS in SSA. PIT revenues have changed little for more than a decade, increasing from an average of about 0.9 percent of GDP in 2010–12 to 1.2 percent of GDP in 2013–16, before falling slightly to 1.1 percent in 2017–21. Through 2014, PIT collection in Cameroon was in line with the CEMAC average but has since 2015 fallen below, and it even fell below the interquartile range in some years (Figure 4.11). Out of Cameroon’s structural and aspirational peers, all but Sri Lanka have outperformed Cameroon, and only Vietnam has managed a steady increase In PIT revenues since 2010 (Figure 4.12). Further evidence of the poor performance of Cameroon’s PIT is the country’s tax gap (the difference between PIT potential and actual tax revenues), which averaged about 1.1 percent of GDP in 2017–20. Figure 4-11: PIT Revenue, Cameroon and Country Groups, Figure 4-12: PIT Collection, Cameroon and Peers, 2010–2021, 2010–2021, (% GDP) (% GDP) 5 5 4 4 3 3 2 2 1 1 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cameroon Côte d'Ivoire Interquartile range Cameroon Ghana Senegal LMICs & LICs in SSA UMICs + HICs in SSA Kenya Morocco CEMAC Sri Lanka Vietnam Note: Interquartile range covers the 75th to 25th percentiles of LMICs and LICs in SSA. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 45 Cameroon’s PIT rates and bands balance simplicity, revenue optimization, and progressivity. The country has the same number of tax bands (four) as Chad and the Republic of Congo, while other CEMAC members have more, such as the Central African Republic (five), Equatorial Guinea (seven), and Gabon (eight) (Annex 8.4). While Equatorial Guinea and Gabon, both upper-middle-income countries (UMICs), have a higher number of rate bands to increase the progressivity of their PIT and support equity objectives, international experience suggests that a high number of bands adds complexity without contributing much to either revenue or progressivity. A simpler structure with a lower number of tax bands, like that of Cameroon, reduces compliance and administrative costs. A lower top marginal tax rate encourages compliance; however, raising top rates has been shown to be one of the few easily available policy levers for combating income inequality (Box 4-2). Box 4-2: Key Features of Cameroon’s Personal Income Tax Reform. The 2015 Finance Law reorganized the PIT system to simplify it and modernize its administration. Base. The PIT is paid by both residents and non-residents in Cameroon. Residents are taxed on their worldwide income, while non-residents are taxed only on Cameroon-sourced income. The tax applies to total income derived from various sources, including employment income, profits, and passive income from investments. Rate structure. There are four tax brackets in Cameroon, ranging from 10 to 35 percent. The PIT rate plus a local surcharge of 10 percent apply to employment income, while income from stocks and shares (including capital gains) is taxed at a rate of 16.5 percent. Special regime for very small businesses. Sole proprietorships are subject to a tax of 10 percent under a flat taxation system, or at a minimum rate of 2.2 percent or 5.5 percent of turnover for individual assessed, respectively, under the simplified system and the actuals earnings taxation system. Source: General Tax Code, edited on January 1, 2022. The tax wedge15 for low and middle-income earners in Cameroon is exceptionally high due to a lack of exemptions, which, in turn, promotes informality. Unlike most CEMAC countries, Cameroon and the Republic of Congo lack a zero-rate tax bracket for employees earning a salary or wage income, resulting in tax liabilities from the first CFAF earned after the standard deduction. Cameroon’s lowest tax rate is 10 percent for single individuals with incomes of CFAF 2 million or less, 15 The difference between the employer’s total labor costs and the employee’s net take-home pay. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 46 significantly higher than the 1 percent rate in the Republic of Congo for individuals with incomes of CFAF 464,000 or less. In other CEMAC countries, exemption thresholds vary, with the Central African Republic at CFAF 378,000, Chad at CFAF 800,000, Equatorial Guinea at CFAF 1.0 million, and Gabon at CFAF 1.5 million. Cameroon’s high PIT rate for low incomes creates a substantial tax wedge for low and middle-income earners, encouraging informality by keeping economic activities in the informal sector due to high entry costs or pushing formal sector businesses towards informality. Cameroon’s PIT productivity is below the regional average. PIT productivity is assessed by the ratio of the PIT’s share in GDP to its highest marginal statutory rate. Between 2010 and 2021, Cameroon’s PIT productivity averaged 0.031 (Figure 4.13). In 2020, the country’s PIT productivity ratio was 0.029, which was lower than the CEMAC average of 0.036 and the fourth lowest among the six CEMAC countries (Figure 4.14 and Annex 8.5 Figure 4.13). Cameroon’s PIT productivity lags behind most structural and aspirational peers, except for Sri Lanka (0.005). The authorities need to address the PIT’s relatively low revenue generation and progressivity. The PIT rate mix should be reviewed to enhance progressivity, which could be achieved through higher thresholds and/or additional tax brackets. Currently, the tax burden on the formal sector is high, partly due to social security contributions, and measures should be taken to ensure a fair and progressive distribution of the tax burden. Figure 4-13: PIT Revenue and Productivity Ratio, 2010–2021 1.4 1.33 0.04 1.20 1.16 1.2 1.10 1.10 0.04 1.06 1.06 1.02 1.02 0.94 0.93 0.03 PIT Revenue (% of GDP) 0.90 PIT Productivity Ratio 1.0 0.03 0.8 0.02 0.6 0.02 0.4 0.01 0.2 0.01 0.03 0.03 0.03 0.03 0.04 0.03 0.03 0.03 0.03 0.03 0.03 0.03 - 0.00 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 PIT Productivity Ratio - right axis PIT Revenue (% of GDP) - left axis Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 47 Figure 4-14: PIT revenue and PIT productivity ratio for structural and aspirational peers, 2020 Productivity ratio - left axis PIT Revenue (% of GDP) - right axis 0.14 4.0 0.12 3.5 3.0 0.10 PIT revenue (% of GDP) Productivity ratio 2.5 0.08 2.0 0.06 1.5 0.04 1.0 0.02 0.5 0.00 0.0 Chad Cent. Af. Rep. Rep. of Congo Cameroon Gabon Equat. Guinea Ghana Senegal Côte d'Ivoire Kenya Morocco Vietnam Sri Lanka LICs LMICs UMICs LMICs LMICs CEMAC Structural Peers Aspirational Peers Source: Cameroon Ministry of Finance; World Bank staff calculations. In Cameroon, tax legislation distinguishes between four tax regimes: (i) a flat tax regime, (ii) a simplified regime, (iii) an actual earnings taxation regime; and (iv) a non-profit organization system, which vary based on the company’s turnover, size, and legal form (Table 4-2). • The flat rate tax regime applies to sole proprietorships with an annual turnover of less than CFAF 10 million. Taxpayers under this regime pay ‘the discharge tax’. The payment of the discharge tax exempts from the obligation to pay the business license, PIT/IRPP, and VAT, except in the case of deduction at source. • The simplified regime is for businesses with a turnover ranging from CFAF 10 to 50 million. The main difference between the sole proprietor under the flat tax regime and the simplified tax system lies in the issuance of a business license for those under the simplified regime. Taxpayers in this regime are subject to a CIT of 25 percent plus a 10 percent surcharge. PIT/IRPP is payable by anyone with a tax domicile in Cameroon. Additionally, companies under this regime are required to pay the business license based on turnover. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 48 • The actual earning tax system applied to businesses with an annual turnover exceeding CFAF 50 million. A sole proprietor under this regime shares similarities with one in the simplified tax system, differing mainly in turnover amount. Additionally, businesses under the actual earning system are liable for VAT, besides PIT/IRPP and CIT. • The non-profit organization system is designed for public, private or confessional entities who are not profit-oriented. Entities under this system are exempt from the business license tax, CIT, and property tax. Special tax regimes, such as the flat tax regime and the simplified regime, are designed to address the challenge of taxing micro and small businesses. While these regimes enhance compliance, they yield moderate revenue. The dual purpose for setting special tax regimes is to simplify compliance, thereby lowering collection costs, and to progressively encourage entrepreneurs to enter the regular tax net. Small enterprises often operate in the service sector (e.g., retail and transportation) and lack adequate financial accounting capacity, making their taxation difficult and expensive for both businesses and revenue authorities. Revenue collected remains modest, contributing less than 2 percent of the total tax revenue — a pattern observed in other countries with similar arrangements, such as Tanzania. Unfortunately, there is no information available on the number of taxpayers under the special small enterprise regime. Efforts to enhance the efficiency of special tax regimes face a tradeoff between simplicity and fairness, especially when determining the tax base. Applying turnover as a simple proxy of taxable income will lead to the unfair treatment of some sectors where small businesses’ profit rates vary from the average, such as sectors where prices are regulated. To streamline compliance and reduce costs, many countries, including OECD members and LICs, utilize presumptive tax schemes based on turnover and tax liabilities. In these schemes, revenue authorities establish a ‘presumed’ turnover based on various criteria, such as daily sales, and businesses pay a fixed rate of tax on this presumed turnover without the need for extensive bookkeeping. Cameroon’s simplified tax regimes aim to encourage small businesses to transition into the standard tax system as their turnover grows. However, it’s essential to note that while a differentiated approach based on establishment size enhances fairness in taxing micro and small enterprises, it also adds complexity and administrative costs for tax authorities.16 16 For example, in Ethiopia, a complex matrix of tax payment amounts based on estimated profit margins has been developed for more than 90 specific types of micro business activities, such as tailoring services and the sale of fruits and vegetables. Assumed turnover is determined through periodic estimates of daily sales. There are several estimation committees in place to review and confirm the estimation results. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 49 Table 4-2: Tax regimes, including for small businesses Annual Regime Target group turnover Rate (CFAF) Flat rate system Sole proprietorships, Below 10 The discharge tax rate is determined except for logging million by the regional or local authorities who companies, professional benefit from the proceeds as well as by officers, and liberal the categories. professions • Category A: CFAF 0-20,000 • Category B: CFAF 20,001-40,000 • Category C: CFAF 40,001-50,000 • Category D: CFAF 50,001-100,000 Simplified tax Sole proprietorships and Between 10 25% (27.5% including surcharge), with system corporate bodies million and a minimum tax of 5% of turnover (5.5% 50 million including surcharge) Actual earnings Sole proprietorships and Above 50 25%/30% (27.5%/33% including taxation system corporate bodies million surcharge), with a minimum tax of 2% of turnover (2.2% including surcharge) Non-profit Public or private entities, n.a. Exempt from business license tax, CIT, and organizations not for profit property tax. system 15% (16.5% including surcharge for local government) Source: Cameroon Tax Code. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 50 4.2.2 Corporate Income Tax CIT collection rates in Cameroon are below regional and global averages. In 2017–21, CIT revenue averaged 1.5 percent of GDP, significantly lower than the 2.3 percent average for LMICs and LICS in SSA. Between 2010 and 2021, CIT contributed an average of 14.4 percent of tax revenue and represented 1.6 percent of GDP. CIT revenues reached a peak of 1.9 percent of GDP in 2015 from 1.3 percent of GDP in 2010 but dropped to 1.5 percent of GDP in 2017 (Figure 4.15). Cameroon’s CIT performance mostly remained at the bottom of the interquartile range and fell below the range in 2010, 2017, and 2019-20, performing below the average of LMICs, LICs, and CEMAC countries. In 2010, Cameroon’s CIT revenue (1.3 percent of GDP) was similar to Senegal (1.3 percent of GDP) and slightly lower than Ghana (1.7 percent of GDP). While CIT collection increased by 60-70 percent in Ghana and Senegal between 2010 and 2021, it grew by only 20 percent in Cameroon (Figure 4.16). Figure 4-15: CIT Revenue by SSA Country Groups, 2010–2021, Figure 4-16: CIT Collection, Structural and Aspirational Peers, (% GDP) 2010–2021, (% GDP) 6 8 7 5 6 4 5 3 4 3 2 2 1 1 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Interquartile range Cameroon Cameroon Côte d'Ivoire Ghana LMICs & LICs in SSA UMICs + HICs in SSA Senegal Kenya Morocco CEMAC Sri Lanka Vietnam Note: The interquartile range covers the 75th to 25th percentiles of LMICs and LICs in SSA. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 51 Cameroon’s top CIT rate is on par with the SSA average. CIT applies to taxable profits earned by both resident entities in Cameroon and abroad, as well as non- residents with a permanent establishment in the country (Box 4-3). Resident entities are taxed on their global income, while non-resident entities are taxed on their Cameroonian sourced income. Depending on their annual turnover, companies subject to CIT can be categorized under the simplified regime or the actual earnings tax regime. Box 4-3: Key Features of Cameroon’s Corporate Income Tax Reform. The 2015 Finance Law reduced the CIT rate from 35 to 30 percent. Concurrently, the monthly CIT advance payment went from 1 to 2 percent of the turnover. Starting 1 January 2023, the 2023 Finance Law reduced the CIT rate from 28 to 25 percent for companies with an annual turnover excluding tax equal to or less than 3 billion. The monthly advance payment is a method of settling the CIT and constitutes the minimum collection owed by a company when it posts a deficit that makes it unable to pay an amount of the CIT greater than the portion of the deposits due. Advance payments are considered as a prepaid expense and deducted from the taxable income generated from the beginning to the end of the tax period. Tax base. Taxable income is determined by the taxpayer’s aggregate annual income after deducting allowable expenses. Rate structure. The standard CIT rate is 25 percent for small and medium-sized companies (i.e., companies with a turnover under CFAF 3 billion) and 30 percent for large companies (i.e., companies with a turnover above CFAF 3 billion). A 10 percent local surcharge is applied to the CIT, bringing the effective tax rate at 27.5 percent for small and medium-sized companies and 33 percent for large companies. Table 4-3: CIT Rate by Type of Company Regime CIT Annual turnover eligibility No. of No. of Rates CFAF US$ a/ Employees Taxpayers (%) in 2021 Large 30% > 3 billion > 5.1 million 20 management 549 (0.4%) companies 50 mid-level 100 juniors Medium 25% 50 million – 3 billion 85,540 – 5.1 6 management 16,423 (11.8%) companies million 10 mid-level 20 juniors Small 25% < 50 million < 85,540 6 management 121,653 (87.8%) companies 10 mid-level 20 juniors Note: a/ average US$/CFAF rate as of July 18, 2023, is CFAF 584.5 = US$ 1.00 Source: Directorate General of Taxation: Annual Report 2021 and Cameroon Tax Code. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 52 Exempt income. The following income is exempt from the CIT: income generated by agricultural and pastoral unions; income derived by supply and purchase co-operatives operating pursuant to the provisions governing them; income derived by regional and local authorities and their public utility services, societies, or bodies responsible for rural development that are recognized as being public utility services; and gains from the disposal of securities, where the assessable gains do not exceed CFAF 500,000. Carryover of losses. Losses may be carried over for up to four years but may not be carried back. In accordance with the 2021 Financial law, credit institutions and state portfolio companies undergoing restructuring can carry over their losses for up to six years. Moreover, companies directly affected by the COVID-19 health crisis can carry forward losses for up to five years. Depreciation. Depreciation is generally computed on a straight-line basis over the useful life of assets according to the rates provided for by the General Tax Code, including those that may have already been deferred in times of deficit. The deduction of depreciation can be carried forward indefinitely, and the complexity of various rates on various assets is excessive (CDI, Section 7). International taxation. The General Tax Code includes major anti-avoidance provisions, including transfer pricing and thin capitalization. However, Cameroon does not currently have any special provision for controlled foreign corporations. Significant legislative changes have been made related to international taxation and the implementation of the base erosion and profit shifting agenda, a multilateral instrument that Cameroon has ratified.17 Source: General Tax Code. Edited on the 1st of January 2022, PwC Worldwide Tax Summaries, and OECD. CIT productivity in Cameroon, calculated as the ratio of CIT collection as a percentage of GDP to the standard CIT rate, is also low. From 2010 to 2014, when the highest CIT rate was 35 percent (i.e., CIT for large companies), CIT productivity averaged 0.04. It increased to 0.05 from 2015 to 2021 when the CIT rate dropped to 30 percent in 2015 (Figure 4.17). In 2020, Cameroon’s CIT revenue, at 1.6 percent of GDP, matched Côte d’Ivoire but lagged behind most aspirational peers, except for Sri Lanka (1.4 percent of GDP) (Figure 4.18 and Annex 8.6). CIT productivity ratio for Cameroon ranked fourth among CEMAC peers, with only Sri Lanka (0.048) having a lower ratio among aspirational peers. 17 OECD. Belize and Cameroon deposit instruments for the ratification and Japan extends the application of the Multilateral BEPS Convention. https://www. oecd.org/tax/beps/belize-and-cameroon-deposit-instruments-for-the-ratification-and-japan-extends-the-application-of-the-multilateral-beps-convention. htm#:~:text=21%2F04%2F2022%20%E2%80%93%20Belize,their%20strong%20commitment%20to%20prevent Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 53 Figure 4-17: CIT Revenue and Productivity Ratio, 2010–2021 1.93 2.0 0.07 1.75 1.70 1.66 1.60 1.57 1.55 1.52 1.50 0.06 1.49 1.49 1.5 1.27 0.05 PIT Revenue (% of GDP) CIT Productivity Ratio 0.04 1.0 0.03 0.02 0.5 0.01 0.04 0.04 0.05 0.04 0.05 0.06 0.06 0.05 0.05 0.05 0.05 0.05 - - 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 CIT Productivity Ratio - right axis CIT Revenue (% of GDP) - left axis Source: Cameroon Ministry of Finance; World Bank staff calculations. Figure 4-18: CIT Revenue and CIT Productivity Ratio, for structural and aspirational peers, 2020 Productivity Ratio - left axis CIT revenue (% of GDP) - right axis 0.18 6 0.16 5 CIT revenue (% of GDP) 0.14 Productivity ratio 0.12 4 0.10 3 0.08 0.06 2 0.04 1 0.02 0.00 - Chad Cent. Af. Rep. Rep. of Congo Cameroon Gabon Equat. Guinea Ghana Senegal Côte d'Ivoire Vietnam Morocco Kenya Sri Lanka LICs LMICs UMICs LMICs LMICs CEMAC Structural Peers Aspirational Peers Source: Cameroon Ministry of Finance; World Bank staff calculations, IMF - GFS. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 54 Credits photo: Odilia Hebga / World Bank Group 4.2.3 Value Added Tax VAT is the primary and largest revenue source for Cameroon, generating an average 4.4 percent of GDP or 39.7 percent of total tax revenues during 2010-21, and VAT collection matches or exceeds that of peers. VAT collection averaged 3.8 percent from 2010 to 2016, rose to 5.2 percent in 2018, and fell to 4.1 percent in 2020-21 due to the pandemic’s impact. Compared to other countries in SSA, Cameroon’s VAT performance has been favorable, outperforming the averages of LICS and LMICs in 2013-14 and 2016–19. In 2018, it nearly matched the performance of UMICs and HICs. Cameroon’s strong VAT revenue performance was the result of new tax policy measures introduced in the 2018 budget. These measures reduced the number of exemptions to improve VAT yield, which enhanced VAT administration by accelerating VAT refunds and eliminating automatic withholdings. The 2019 Budget Law implemented several additional measures to boost VAT revenue, including reducing exemptions for life and health insurance contracts and commissions, limiting exemptions on the social portion of water and electricity consumption exclusively to households with moderate consumption levels, and curbing exemptions for local timber processing.18,19 In 2010–16, Cameroon’s VAT intake remained similar to the average of structural and aspirational peers, with modest relative improvement (Figure 4.20). Between 2010 and 2021, the majority of Cameroon’s VAT revenues, about 60 percent of total VAT collection, came from domestic consumption and were collected by the DGI. The remaining portion was derived from VAT on imports, collected by the General Directorate of Customs (Direction Générale des Douanes, DGD) (Figure 4.21). 18 World Bank. Cameroon Second Fiscal Consolidation and Inclusive Growth DPF. Report No: PGD30. August 1, 2019. 19 IMF. Cameroon: Letter of Intent, Memorandum of Economic Financial Policies, and Technical Memorandum of Understanding. December 6, 2018. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 55 Figure 4-19: VAT Revenue by SSA Country Group, 2010–21, Figure 4-20: VAT Collection, Structural and Aspirational Peers, (% of GDP) 2010–21, (% of GDP) 6 9 8 5 7 6 4 5 4 3 3 2 2 1 1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cameroon Côte d'Ivoire Ghana Interquartile range Cameroon LMICs & LICs in SSA UMICs + HICs in SSA Senegal Kenya Morocco CEMAC Sri Lanka Vietnam Note: Interquartile range covers the 75th to 25th percentiles of LMICs and LICs in SSA. For Cameroon, VAT data include refunds of VAT credits. Source: Cameroon Ministry of Finance; World Bank staff calculations. Box 4-4: Key Features of Cameroon’s VAT Tax base. The VAT is based on consumption and follows the destination principle, which mandates that the tax be paid in the country where the consumption takes place. Exemption threshold. The VAT is invoiced by natural persons or corporate bodies that automatically, habitually, or occasionally carry out taxable transactions consisting of provisions of services or sales of goods whose turnover (excluding taxes) is equal to or above CFAF 50 million and who are under the tax regime of actual earnings. Rate structure. The standard rate is 17.5 percent, plus a 10 percent surcharge, resulting in an effective rate of 19.25 percent, which is exceptionally high. Exports are zero rated, and more than one hundred basic commodities are VAT exempt. VAT calculation. The VAT is calculated based on the credit invoice method. The Tax Code lacks provisions on reverse-charge VAT. Source: General Tax Code. Edited on the 1st of January 2022 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 56 In 2020, Cameroon collected the highest level of VAT revenue (4 percent of GDP) in CEMAC. The standard VAT rate in Cameroon is 19.520 percent, which is higher than all CEMAC countries except for Equatorial Guinea (15 percent) (Figure 4.22). The rate gap with CEMAC members reveals the potential to increase VAT revenue in Cameroon. For example, Vietnam has a much lower VAT rate of 10 percent. To boost VAT revenue, measures such as improving revenue administration, reducing VAT exemptions, or adjusting the VAT rate may be necessary. Figure 4-21: Composition of VAT Revenues, 2010–2021, (% of Figure 4-22: VAT Rate and Collection, Structural and VAT Revenue) Aspirational Peers, 2020 100% 8 25 7 20 30 6 33 34 35 36 38 38 38 80% 40 40 41 42 43 44 45 46 5 15 4 60% 3 10 2 40% 5 1 70 67 66 65 64 62 62 62 60 60 59 58 57 56 0 0 55 54 Cameroon Chad Equat. Guinea Gabon Kenya Ghana Côte d'Ivoire Sri Lanka Rep. of Congo Vietnam Senegal Cent. Af. Rep. Morocco 20% 0% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 VAT Revenue (% of GDP) - left axis DGI DGD Statutory VAT Rate - right axis Note: VAT data exclude refunds of VAT credits. DGI is the General Directorate for Taxes (Direction Générale des Impôts). DGD is the General Directorate of Note: For Cameroon, VAT data include refunds of VAT credits. Customs (Direction Générale des Douanes). Source: Cameroon Ministry of Finance; WDI; World Bank staff calculations Source: Cameroon Ministry of Finance; World Bank staff calculations. While Cameroon’s VAT revenue performance outpaces many peers, its VAT C-efficiency and productivity fluctuate and remain below the SSA average. From 2010 to 2020, VAT productivity and C-efficiency averaged 0.24 and 0.33, respectively, peaking in 2018 (Figure 4.23). In 2020, Cameroon’s VAT productivity (0.235) was the highest in CEMAC but fell short of Vietnam (0.54), Morocco (0.347), and Senegal (0.317) (Figure 4.24 and Annex 8.7). In terms of C-efficiency, Cameroon ranked second (0.321) in CEMAC, marginally behind the Republic of Congo (0.342), despite having almost double the household final consumption as a share of GDP. However, both VAT C-efficiency and productivity in Cameroon are slightly lower than the SSA average (0.263 and 0.401, respectively). 20 Standard rate is 19.25% (i.e. a 17.25% VAT and 10% council tax) Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 57 Figure 4-23: VAT Revenue, VAT Productivity, and C-Efficiency, 2010-2020 6.0 0.5 0.43 0.39 0.45 0.38 5.0 0.4 0.33 0.33 Productivity & C-efficiency Ratio 0.32 0.32 0.31 0.30 0.29 VAT Revenue (% of GDP) 0.35 0.27 4.0 0.3 3.0 0.25 0.2 2.0 0.15 0.1 1.0 0.05 3.4 3.6 3.6 3.9 4.0 3.9 4.0 4.6 5.2 4.9 4.0 - 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 VAT Revenue (% of GDP) - left axis VAT Productivity Ratio - right axis C-efficiency - right axis Note: VAT data includes refunds of VAT credits. Source: Cameroon Ministry of Finance; World Bank staff calculations Figure 4-24: VAT Productivity and C-Efficiency, Structural and Aspirational peers, 2020 VAT Productivity C-Efficiency 0.8 Productivity SSA average, 2020 C-effciency SSA average, 2020 0.7 0.6 0.5 0.4 0.3 0.2 0.1 Aspirational Peers 0.0 Cent. Af. Rep. Chad Cameroon Gabon Equat. Guinea Senegal Ghana Côte d'Ivoire Vietnam Morocco Kenya Sri Lanka Rep. of Congo LICs LMICs UMICs LMICs LMICs CEMAC Structural Peers Note: For Cameroon, VAT data include refunds of VAT credits. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 58 VAT is regressive in nature so choosing the right tax composition is important for growth and inclusion. While consumption taxes (i.e., sale taxes and VAT) are found to be less harmful for growth than corporate and personal income taxes, income taxes tend to reduce inequality more than consumption taxes. To effectively raise revenue from VAT while doing the least damage to inclusive growth, VAT systems can best be designed with a high threshold, a broad base, and a single rate. The VAT base in Cameroon has a relatively high threshold with no provision for voluntary registration. The mandatory VAT registration threshold is set at CFAF 50 million (approximately US$ 82,000), effectively excluding most small businesses from VAT obligations and allowing VAT administrations to focus on larger taxpayers. Thresholds across Africa vary widely, from less than US$ 20,000 in countries like Algeria, Ethiopia, Malawi, and Mauritania to over US$ 150,000 in Chad, Djibouti, Equatorial Guinea, Mauritius, and Niger. Furthermore, Cameroon does not permit voluntary registration for businesses with turnover below the threshold, preventing unregistered businesses from claiming input credits. The VAT regime also includes numerous exemptions, which pose several drawbacks. VAT exemptions in Cameroon extend beyond the exempt groups recommended for the more productive VAT (basic health, education, and selected financial services). VAT exemptions create economic distortions by benefitting some sectors more than others. Businesses that are unable to credit input VAT because they buy inputs from exempt businesses experience increased costs. On the other hand, if the exemption is applied at the end of the supply chain, it reduces VAT revenues. These negative effects of VAT exemptions make it important to examine the rationale for all exemptions. 4.2.4 Excise taxes Excise taxes in Cameroon are imposed on domestically produced or imported excisable goods, primarily to reduce negative externalities associated with certain products. Cameroon has six ad-valorem excise duty rates: super-high rate (50 percent); high rate (30 percent); general rate (25 percent); average rate (12.5 percent); reduced rate (5 percent); and extra-abated rate (2 percent). Taxes on tobacco and alcohol are two important excise taxes. Cameroon has implemented various tobacco control policies (e.g., health warnings on packaging, a cessation program, and moderate advertising bans). Notably, tobacco products in Cameroon remain relatively affordable despite an effective tax rate of 43.2 percent, higher than most peers, but still below the recommended rate of 75 percent of the retail price of the most sold brand of cigarettes by the World Health Organization (WHO).21 21 World Health Organization. (2019). WHO Global Tobacco Control Report, 2019: Offer to help quit tobacco. Geneva: World Health Organization. https://www. who.int/tobacco/global_report/en/. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 59 Similarly, Cameroon’s alcohol consumption is among the highest in Central Africa, with almost 12 percent of Cameroonian males having an alcohol use disorder, exceeding the regional average of 3.7 percent.22 Yet, Cameroon lacks a national alcohol policy to address alcohol-related issues, despite alcohol being subject to a VAT rate of 17 percent and a 25 percent excise rate, resulting in a lower effective tax rate compared to many other countries. Box 4-5: Key Features of Cameroon’s Excise Taxes Cameroon’s excise taxes include: • An excise duty between 25 and 50 percent applicable to cigarettes, drinks, cosmetics, luxury items (e.g., jewels and precious stones), slot machines, and other devices used for games of chance. • A super-high ad valorem excise duty of 50 percent added to hydroquinone and related cosmetic products that contain hydroquinone. • A high rate of 30 percent applied to cigarettes, cigars, and other tobacco products, pipes and their parts, and tobacco and pipe preparations. • A general rate of 25 percent applied to goods and service listed in Annex II of the General Tax Code, other than those subject to the extra-high, high, average, reduced, or extra-abated rate. • An average excise duty of 12.5 percent applied to private vehicles with cylinder capacity of less than or equal to 2,500 cm³ aged 10–15 years and with cylinder capacity of greater than 2,500 cm³ aged 0–15 years; utility vehicles, public transport vehicles, trailers, and tractors other than agricultural vehicles of any cylinder capacity, aged more than 15 years and less than 25 years; motorcycles with a cylinder capacity exceeding 250 cm³; hair, wigs; used clothing and used tires; and audiovisual services with digital content. • A reduced rate of 5 percent applicable to games of chance and entertainment not subject to the special tax on games of chance and entertainment; sugar confectionery; chocolates and related products with high cocoa content; motorcycles with a cylinder capacity of less than or equal to 250 cm³; preparations for consumption under the custom tariff headings 2103 to 2104; ice cream under the customs tariff heading 2105; imported maize groats; and imported mayonnaise. • An extra-abated excise duty of 2 percent applicable to mobile telephone communications and Internet services. Apart from the application of a 25 percent general rate, there are minimum excise duties applicable to alcoholic beverages and tobacco. For tobacco, the minimum tax is no less than CFAF 5,000 for 1,000 cigarette rods. For alcoholic beverages, the minimum specific excise tax depends on the nature of the alcohol and the alcohol level per liter (e.g., CFAF 2 and CFAF 25 per centiliter for locally produced wines and champagnes respectively, or CFAF 3 and CFAF 30 per centiliter for imported wines and champagnes, respectively). Source: General Tax Code. Edited on the 1st of January 2022. 22 Baudouin Fuh Suh. (2021). Alcohol Control Policy in Cameroon: A Scoping Review. University of Eastern Finland, Faculty of Health Sciences. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 60 Cameroon’s excise tax revenue accounted for 1 percent of GDP between 2016 and 2021, underperforming its peers. The revenue from excise taxes increased from 0.7 percent of GDP in 2010–14 to 1.1 percent of GDP in 2015–21 (Figure 4.25). While Cameroon’s excise tax collection remained within the interquartile range and performed moderately better than the CEMAC average between 2010 and 2021, it fell behind structural and aspirational peers in 2016–21 (Figure 4.26). Figure 4-25: Excise Tax Revenue, SSA Country Figure 4-26: Excise Tax Revenue, Structural and Aspirational Groups, 2010–2021, (% GDP) Peers, 2010–2021, (% GDP) 2.5 5 4 2.0 3 1.5 2 1.0 1 0.5 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Cameroon Côte d'Ivoire Ghana Senegal Kenya Morocco Interquartile range Cameroon Sri Lanka Vietnam LMICs & LICs in SSA UMICs + HICs in SSA CEMAC SSA CEMAC LMICs Note: Interquartile range covers the 75th to 25th percentiles of LMICs and LICs in SSA. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon has implemented various excise tax reforms that support higher tax collection. Before the 2015 reform of alcoholic beverage excise taxes, Cameroon applied an ad valorem tax system based on a proportional rate of 25 percent. The 2015 Finance Law and subsequent amendment moved Cameroon to a mixed taxation system that combined an ad valorem tax (25 percent) with a specific tax based on the type of product and volume (Table 4-4). The reform generated an estimated CFAF 70 billion, which was more than one-third of the excise revenue collected in 2016. Since 2016, mobile phone communications and internet services have been subject to excise duties at the extra-abated rate of 2 percent. In 2017, a specific excise duty on non-returnable packaging of drinks and other liquid products Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 61 (CFAF 5 or CFAF 15 per packaging) was introduced. Additionally, a specific excise duty levied on gambling and entertainment at the rate of CFAF 25 per game unit or bet was implemented in 2018 to comply with CEMAC legislation. However, since this tax method was complicated for gaming companies, the specific tax was replaced by an ad valorem tax at the reduced rate of 5 percent on total turnover. Lastly, the 2019 Finance Law established the recommended sales price as the tax base for ad valorem excise duty on local manufactured drinks. As a result, excise tax collection more than doubled in CFAF terms during the period 2014–2020 and rose sharply from 0.7 percent of GDP in 2014 to 1.2 percent in 2020. Table 4-4: Major Excise Tax Reforms, 2015–2019 Additional excise Year Tax policy reform Tax rate/base implemented revenue 2015–20 2015 Introduced a mixed taxation Ad-valorem tax (25 percent) and specific tax CFAF 70 billion system for alcoholic according to product and volume beverages 2016 Introduced excise duties in An extra-abated rate of 2 percent CFAF 8.8 billion the telecommunication sector 2017 Introduced a specific excise Tax of CFAF 15 per unit of non-returnable CFAF 5.2 billion duty on non-returnable packaging for soft drinks and alcoholic packaging of drinks and other beverages liquid products Tax of CFAF 5 per unit of non-returnable packaging, capped at 10 percent of the value of the product for all other liquid products 2018 Introduced a specific excise Tax of CFAF 25 per game unit or bet No data duty on gambling and (repealed) entertainment Ad-valorem rate of 5 percent on total turnover 2019 Established the Recommended sales price defined as CFAF 18.1 billion recommended sales price the cost of delivery to the final consumer as the tax base for ad appearing on price list filed by brewery valorem excise duty on local companies with the ministry in charge of manufactured drinks trade, less VAT and excise duties. Source: Directorate General of Taxation, Ten-year Report 2010-2020. Ministry of Finance. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 62 Cameroon should consider reviewing its range of excise taxes to enhance tax revenue collection. Despite a well-designed excise tax system, revenue generation remains low compared to the SSA average. To boost revenue, the authorities could redesign various excise taxes, including increasing particularly on alcohol, and reevaluating the low rate on telecommunications, which is due to significant reductions in base valuation. 4.2.5 International Trade Taxes Taxes on international trade are the second largest source of government revenue (behind VAT), but collection continues to lag Cameroon’s peers. They accounted for about 1.7 percent of GDP and 14.6 percent of total tax revenue between 2017 and 2021, with a downward trend. Over the same period, Cameroon collected less in trade taxes than the average of SSA (2.5 percent of GDP) and LMICs in SSA (2.9 percent of GDP) (Figure 4.27 and Figure 4.28). Throughout 2010–21, Cameroon’s performance was in line with the average of CEMAC countries and was close to the average of structural and aspirational peers. Figure 4-27: Trade Tax Revenue, SSA Country Groups, Figure 4-28: Trade Tax Revenue in Selected SSA and 2010–2021, (% GDP) Aspirational Peer Countries, 2010–2021, (% of GDP) 6 6 5 5 4 4 3 3 2 2 1 1 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Interquartile range Cameroon Cameroon Côte d'Ivoire LMICs & LICs in SSA UMICs + HICs in SSA Ghana Senegal CEMAC Kenya Morocco Sri Lanka Vietnam Note: Interquartile range covers the 75th to 25th percentiles of LMICs and LICs in SSA. Source: Cameroon Ministry of Finance; World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 63 While the CEMAC customs union sets common external tariffs, Cameroon diverges from CEMAC rates and imposes additional fees on imports. In Cameroon, the importation of goods is subject to customs import duties (droit de douane à l’importation, DDI), unless an exemption or suspensive customs regime applies. The country applies CEMAC’s common external tariff (CET), which is entirely ad valorem and has four tariff rates: 5 percent for essential goods; 10 percent for raw materials and capital goods; 20 percent for intermediate goods; and 30 percent for consumer goods.23 Custom duties are exempted on goods imported to support the agriculture, animal husbandry, and human and animal health sectors as well as local wood processing.24 However, Cameroon’s import duties differ from the CET on about 300 tariff headings, yielding an average import duty of 19.1 percent. Moreover, there are additional fees assessed on imports that vary according to the nature of the item, the size of the shipment, and the mode of transport, pushing average customs charges much higher than the official tariff rates would suggest. As part of its response to the COVID-19 pandemic, Cameroon reduced tariffs to 5 percent on imported equipment for the pharmaceutical industry and exempted from customs duty pharmaceutical drugs, raw materials for the pharmaceutical industry, and inputs for the agriculture, livestock, and fisheries sectors.25 VAT on imports is important for domestic revenue mobilization, especially as efforts to reduce tariffs continue. In addition to customs duties, Cameroon applies excise taxes to imports and a VAT of 17.5 percent. Between 2016 and 2021, the DGD reports that the customs import duty (DDI) and import VAT raised revenue equivalent to 36 and 48 percent, respectively, of the value of Cameroon’s imports, illustrating the importance of the VAT on imports to raise revenue.26 By comparison, typical customs collection for a LIC that has a VAT is even more dependent on VAT revenue, with VAT on imports, excises on imports, customs duties, and miscellaneous taxes representing 50, 25, 15, and 10 percent of import-related tax revenue, respectively.27 Note that DGD reports on combined revenue, including the VAT, excise taxes, and customs duties as customs revenue, leading to international trade tax revenue of about 50 percent higher than that reported by the DGI at the Ministry of Finance. 4.2.6 Other Taxes Just over 10 percent of tax revenue in 2010–2021 came from a variety of other taxes, with forest and property taxes being the most important for Cameroon’s tax policy. Other taxes include indirect taxes such as the STPP, forest taxes, registration and stamp fees, and direct taxes such as the capital gains tax (IRCM). Forest taxes are particularly important because of their role in climate policy, while property taxes are key for the country’s ongoing decentralization effort. 23 National Tariff Harmonized System 2022, Directorate General of Customs (DGD), Cameroon. 24 Finance Law for 2022 (Law No. 2021/026 of 16 December 2021). 25 Africa tax in brief. 16 Feb 2021 https://www.lexology.com/library/detail.aspx?g=6641bcd5-654f-48ad-8e8b-90212ea9db6e 26 SYDONIA/CAMCIS. Directorate General of Customs. 27 Tadatsugu Matsudaira and Michael Daly. Chapter 2: How Trade and Tax Policies Are Shaping Customs. “Customs Matters Strengthening Customs Administration in a Changing World”. IMF. June 15, 2022. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 64 Forest taxes are not important for public revenue, and the country’s Credits photo: Odilia Hebga / World Bank Group forest sector policy, including taxes, needs to balance economic opportunities with deforestation and climate concerns. Revenue from forest taxes has contributes minimally to public resources, averaging 0.5 percent of overall tax and grant revenues in 2010–21. Nevertheless, Cameroon’s forests are important for the economy, providing nearly 200,000 formal and informal jobs and representing about 16 percent of the country’s exports in 2020. Its forests, especially the Congo Basin rainforest, are also important to the global community, harboring rich biodiversity and storing an estimated 4,600 megatons of carbon dioxide equivalent while absorbing about 165 megatons of carbon dioxide annually.28 About 43 percent of Cameroon’s land area remains forested, but the country was 7th on the list of the world’s top deforesters in 2021, with deforestation and forest degradation driven primarily by the expansion of commercial agriculture. The clearing of forests for small-scale agriculture, extractive activities, and roads and other infrastructure as well as, increasingly, climate change has also contributed to deforestation.29 While they are the 5th lowest in CEMAC, forest rents (measuring forest depletion and a drain on national wealth) were an estimated 2.7 percent of GDP in 2020. Against the competing goals of economic development and conservation, forest taxation has consisted mainly of the Annual Forestry Royalty (Redevance Forestière Annuelle), levied per unit of forest area under concession, and a felling tax on the value of logs harvested, but revenue has been undermined by widespread illegal logging, estimated at half of Cameroon’s timber harvest.30 Additionally, Cameroon’s international commitments such as its 2018 National Strategy for the Reduction of Emissions due to Deforestation and Degradation of Forests support effective action to curb deforestation, although the country is lagging on accreditation that would increase access to resources.31 Recurrent property taxes contribute a mere 0.01 percent of GDP, significantly lower than 0.3-0.6 percent observed in LICs and LMICs. The annual property tax has tremendous potential for mobilizing own-source revenues for both local governments and the intergovernmental transfers system (Box 4-6).32 28 Sonwa, D.J., J.H. Nlom, and S.G. Neba (2016). Valuation of forest carbon stocks to estimate the potential for result-based payment under REDD+ in Cameroon. International Forestry Review. Vol. 18(S1). cifor.org/publications/pdf_files/articles/ASonwa1601.pdf 29 World Bank Group. 2022. Cameroon Country Climate and Development Report. CCDR Series; World Bank, Washington, DC. htpp://hdl.handle.net/10986/38242 License: CC BY-NC-ND. 30 Rapport Du Suivi De L’indicateur 3.4 A/S Amélioration Des Performance Des Recettes Forestières (Monitoring Report on Indicator 3.4 A/S Improved Forest Revenue Performance). DGI, Ministry of Finance, Cameroon. October 2020. 31 World Bank Group. 2022. Cameroon Country Climate and Development Report. CCDR Series; World Bank, Washington, DC. htpp://hdl.handle.net/10986/38242 License: CC BY-NC-ND. 32 Kelly, Roy; White, Roland; Anand, Aanchal. Property Tax Diagnostic Manual. Washington, D.C.: World Bank Group. 2020. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 65 Box 4-6. Property Taxes in Cameroon Compared with the World Bank’s Property Tax Diagnostic Manual, property taxation in Cameroon reveals weaknesses in various identified functions. The property tax is currently charged at a single rate of 0.1 percent of the market value of both land and buildings located in all urban centers that benefit from paved roads, water, electricity, and telephone services as well as sub-divisional (county) headquarters (Article 577 et seq and Article 581 of the Tax Code). Public and private schools and hospitals; churches; government and diplomatic property; land used exclusively for agriculture, fisheries, stock breeding, agro-industrial complexes (except offices), and land owned by clubs and sporting associations are all exempt (Article 578 et seq of the Tax Code). Coverage: The DGI and the Ministry of Land Tenure and Cadastral Services do not share data, and there is no Geographic Information System (GIS) to efficiently identify property. By law (Sections 145-146 of the Tax Code), properties should be identified, and cadastral surveys should be carried out every five years, although this does not happen in practice. The system to physically address property is unreliable, and most properties are occupied by informal settlements, even in bigger cities. Valuation of property: With the absence of a GIS system and a shortage of expert valuators from the DGI, taxpayers can file based on their own estimates of property values, creating potential equity concerns, as similar properties could be taxed differently. Article 456a of the Tax Code allows the administration to set reference values for the valuation of property, especially for “up-town” neighborhoods in cities. However, transparent valuation is almost impossible since references are set arbitrarily, paving the way for discretionary evaluation and further equity and governance concerns. Collection: Property tax policy and administration are centralized at the DGI, which collects taxes on behalf of subnational governments. As a result, the role of local councils is marginal. Since revenue targets at the DGI exclude property taxes and other local council taxes, there is little incentive for the tax administration to allocate its already scarce resources toward the collection of subnational taxes. Overall enforcement is also weak. Source: Kelly, Roy; White, Roland; Anand, Aanchal. Property Tax Diagnostic Manual. Washington, D.C.: World Bank Group. 2020. Teyim Pila, Khan, Strategies to Boost Domestic Revenue Mobilization in Cameroon (April 2021). Available at SSRN: https://ssrn.com/abstract=4400096 or http://dx.doi.org/10.2139/ssrn.4400096. 4.2.7 Tax Expenditures Cameroon has many tax expenditure measures across the country’s main tax instruments, undermining tax revenue. The country has made wide use of preferential tax treatments such as exemptions, deductions, credits, reduced tax rates, and other special tax treatment. These measures are intended to encourage investment, promote the development of priority sectors and areas, and further other public policy goals. However, tax incentives reduce government revenue, and that foregone revenue is a tax expenditure, equivalent in most ways to public Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 66 spending.33 Cameroon has set out tax expenditures under the tax law, and it has also granted incentives under various other codes (e.g., in the forestry sector, mining sector, investment promotion, and public-private partnerships) as well as in agreements between the government and specific investors. A regular assessment of tax expenditures by the government identified 227 measures related to the VAT, excise taxes, and customs duties for 2015 (). For 2021, the assessment identified 461 tax expenditure measures across all direct and indirect taxes. Although data are partial, it seems that Cameroon has among the highest number of tax expenditure measures in the world, with the global average at fewer than 100 measures and the LMIC average at roughly 70 to 80 measures.34 The estimated cost of Cameroon’s tax expenditures is foregone revenue, which is comparable in size to that of comparators. The cost of tax expenditures in Cameroon has declined as the authorities have continued their rationalization efforts, and the adoption of special measures to respond to the COVID-19 pandemic did not change this pattern. Annual budget laws since 2018 have continued to eliminate and restrict tax expenditures (e.g., broadening the property tax base and reducing the number of VAT exemptions), generating additional revenues. Between 2017 (when about 90 percent of identified tax expenditure measures were assessed) and 2021, forgone revenue from tax expenditures fell from 2.9 percent to 1.7 percent of GDP (Box 4-7 and Table 4-5). Cameroon’s revenue losses are comparable to the LMIC average of 2.6 percent of GDP and the global average of 3.7 percent of GDP. Special tax expenditure measures in response to the COVID-19 pandemic had a very modest fiscal impact in Cameroon, especially compared to the global average (Box 4-8). Box 4-7: Reporting on the Costs of Tax Expenditures in Cameroon The government has prepared annual tax expenditure reports since 2016 to improve fiscal transparency and guide policy. The DGI and DGD have led the production of these reports, in collaboration with the National Institute of Statistics (Institut National des Statistiques, INS) and the Ministry of Economy, Planning and Regional Development (Ministre de l’économie de la Planification et de l’Aménagement du Territoire, MINEPAT), and with the assistance of the Foundation for Studies and Research on International Development (FERDI) and the World Bank. Over time, the reports have begun to cover most tax expenditure measures. The number of measures identified have risen from 227 related to three indirect taxes (i.e., VAT, excise taxes, and customs duties) 33 Tax expenditures, according to the OECD, are “transfers of public revenues due to a reduction in fiscal obligations relative to a national standard.” Tax expenditures include rate relief (reduced rates applied to a class of taxpayers or activities); exemptions (income excluded from the tax base); allowances (amounts deducted from gross income, to arrive at taxable income); credits (amounts deducted from tax liability); and tax deferrals (delays in tax payment). OECD (2010). “Tax Expenditures in OECD Countries.” OECD. Paris. 34 Averages across available data for 1990–2021. Reporting varies by country and years. For 2021, 106 countries, of which 20 LMICs, reported. Redonda, A., von Halden Wang, C., & Aliu, F. (2023): Global Tax Expenditures Database [data set], Version 1.1.5, https://doi.org/10.5281/zenodo.7825791. 35 Averages across available data for 1990–2021. Reporting varies by country and years. For 2021, 106 countries, of which 20 LMICs, reported. Redonda, A., von Halden Wang, C., & Aliu, F. (2022): Global Tax Expenditures Database [GTED] Progress Report, German Development Institute (Deutsches Institut für Entwicklungspolitik) and Council on Economic Policies. https://doi.org/10.23661/r2.2022. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 67 for 2015 to 461 related to all direct and indirect taxes (i.e., VAT, customs duties, excise taxes, CIT, PIT, and registration fees) for 2021. The share of identified measures rose quickly from 60 percent in 2016 to 98 percent in 2019. Table 4-5: Identified and Assessed Tax Expenditure Measures, 2015–2021 Number of measures 2015 2016 2017 2018 2019 2020 2021 Total measures identified 227 279 405 405 380 381 461 Total measures assessed 137 230 363 358 371 295 382 Percent 60.4% 82.4% 89.6% 88.4% 97.6% 77.4% 82.9% Total expenditures in CFAF 155.8 451.6 605.6 545.1 584.7 452.3 439.6 billion In % of GDP 0.8% 2.2% 2.9% 2.5% 2.5% 1.9% 1.7% Source: Rapport sur les Dépenses Fiscales de exercise 2016-2021, Cameroon Ministry of Finance and World Bank staff calculations. Changes in 2020 and 2021 to the methodology for assessing tax expenditures make interpretation of assessments difficult. A change in methodology in 2020 excluded measures related to VAT on inputs and capital goods imported by companies subject to the VAT, contributing to the 23 percent fall in assessed costs of tax expenditures between 2019 and 2020. A subsequent methodological change in 2021, implementing FERDI’s recommendation to exclude companies registered for the VAT, further reduced the estimated cost of tax expenditures. The technical approach to estimating tax expenditures represents a compromise, and both data collection and dissemination need to be strengthened to ensure accurate estimates. First, the current methodology used to estimate tax expenditures may be overestimating their impact. The ‘loss of revenue’ method used by Cameroon is relatively easy to use and allows comparisons with other CEMAC and ECOWAS (Economic Community of West African States) countries. However, it ignores changes in taxpayer behavior (incentive effects) and the impact on other revenues or the level of activity. Second, the necessary data are incomplete, as companies often do not comply with reporting requirements. Finally, the tax expenditure reports have not been made available to the public in a timely fashion, weakening their role in increasing transparency in the use of public funds. Source: Tax expenditure reports 2019, 2020, 2021 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 68 Tax expenditures linked to the VAT have been the costliest for Cameroon, and the bulk of expenditures have been claimed by households, benefiting especially those in the upper income deciles. These tax expenditures accounted for the largest share of Cameroon’s total tax expenditures (CFAF 272.9 billion or 54 percent), followed by expenditures related to import duties (CFAF 141.8 billion or 28 percent) (Figure 4.29). The majority of these tax expenditures are related to the common tax law regime, as outlined in the General Tax Code and the CEMAC Customs Code, accounting for more than half of the total cost of tax incentives, followed by tax expenditures linked to investment incentives (17 percent) and the Petroleum Code (13 percent) (Figure 4.30). In terms of beneficiaries, the largest share of benefits (58.1 percent) goes to households, primarily in the form of exempted basic food and health-related goods. Despite the intent to benefit the poor, tax expenditures supporting household consumption tend to be regressive, disproportionately benefiting households in the higher income deciles. Companies receive most of the remaining benefits (39.5 percent), with large companies operating in the food industry and mining sector receiving the most generous corporate tax incentives, some of which may have indirectly benefited consumers in the form of lower prices (Figure 4.31). Details of tax expenditures from 2015 to 2021 are provided in Annex 8.8. Figure 4-29: Average Tax Expenditures by Type of Tax, Figure 4-30: Average Cost of Tax Expenditures by Tax 2017–2021 Regime, 2016–2021 Investment Personal income incentives tax (PIT/IRPP) 15.7% Agreements and 3.0% Registration fees specifications 4.3% 3.3% Non-oil corporate income tax (CIT/IS) 6.1% Excise duties Gas code 3.2% (DA) 4.0% Petroleum Free trade zone 1.0 % code 10.6% Special Economic VAT Zones (ZES) 0.0% Customs Common law 54.0% import duties 55.0% Approved Management (DDI) Centers (CGA) 0.6% 28.3% External or joint financing (FINEXT) 5.7% Promotion of local materials Others and raw materials 2.0% 2.7% Note: The government was unable to provide disaggregated Note: The government was unable to provide disaggregated data by type of tax for FY2015-16 data by tax regime for FY2015. Source : Rapport sur les Dépenses Fiscales de l’Exercice 2016- Source : Rapport Sur Les Dépenses Fiscales De L’exercice 2021. Ministry of Finance. 2016-2021. Ministry of Finance. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 69 Figure 4-31: Tax Expenditures by Recipient, 2016–2021 Humanitarian organizations 0.6% Diplomatic and similar missions Non-oil sector revenue 0.1% 0.4% Religious organizations 0.0% Public administrations Airlines companies 0.1% 0.4% Others 0.8% Large companies 31.1% Companies Households 39.5% Medium Enterprises 58.1% 4.6% Small enterprises 3.8% Note: The government was unable to provide disaggregated data by recipient for FY2015. Source : Rapport Sur Les dépenses Fiscales De L’exercice 2016-2021. Ministry of Finance. Box 4-8: Special Assessment of Tax Expenditures related to the COVID-19 Pandemic An exceptional tax expenditure report was produced by the DGI evaluating tax expenditures granted in response to the COVID-19 pandemic. The study identified 17 administrative and tax policy measures for all direct and indirect taxes that constituted COVID-19-related tax expenditures for all affected sectors, including the hotel and restaurant sector, the transport sector, forestry companies, and others. Tax policy measures included a reduction of the CIT from 30 percent to 28 percent for small and medium enterprises; a CIT exemption for the hotel industry; a reduction of the felling tax from 4 to 3 percent for forestry companies with sustainable forest management certification; and a full deduction from the CIT for donations and gifts from companies to address the impact of the pandemic. The report revealed that COVID-19-related tax expenditures had a modest fiscal cost. Tax expenditures related to the pandemic cost CFAF 14.2 billion in foregone revenue in 2020-21, or less than 2 percent of the total cost of tax expenditures. The transport sector received 28 percent of these tax expenditures, while the hotel and tourism sector received 26 percent (Table 4-6). By comparison, the expansion of tax expenditures worldwide during the COVID-19 pandemic resulted in almost 4.4 percent of GDP in foregone revenue, or 30 percent of actual tax revenue. Perhaps more importantly, the government took administrative measures to support business cash flow, including suspending tax audits for the second quarter of 2020, suspending enforced collection, and allocating a special allowance of CFAF 25 billion for VAT credits of companies awaiting reimbursement. These administrative measures did not create permanent revenue losses, instead they deferred revenues to subsequent years. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 70 Table 4-6. COVID-19-Related Tax Expenditures by Sector, 2020-21 Beneficiary sector Tax expenditures (CFAF billion) Share (%) Hotel and tourism sector 3.7 26 Transport sector 4.0 28 Forestry sector 2.5 18 Fresh food vendors Not evaluated - Other sectors 3.9 28 Grand total 14.2 100 Source: DGI, COVID-19 Tax Expenditure Report, May 2022. Global Tax Expenditures Database, https://gted.net/2023/04/new-data-and-updates-released-on-the-gted/. 4.3 Tax Administration Cameroon has two main revenue agencies, both part of the Ministry of Finance.36 The General Directorate of Taxes (Direction Générale des Impôts, DGI) is responsible for all taxes except international trade taxes, and the General Directorate of Customs (Direction Générale des Douanes, DGD) is responsible for customs duties. The organizational structure of Cameroon’s tax administration is discussed in detail in Annex 8.9. The Ministry of Decentralization and Local Development (Ministre de la Décentralisation et du Développement Local) coordinates the activities of subnational governments and is in charge of intergovernmental transfers and financing. It helps mobilize property taxes collected by the DGI. Under Article 25 (ii) of the Decentralization Code (Law N°2019/024 of December 24th, 2019), 15 percent of national budget resources should be transferred annually to local governments. Cameroon’s cost of revenue collection is strikingly low, and more spending on administration would likely increase collection. The cost of revenue collection is one of the indicators used to measure the efficiency of revenue administration agencies worldwide. It is calculated as the ratio of the total cost incurred in the collection of tax revenues to total revenue collected. The indicator reflects the efficiency of the tax administration due to a range of factors such as the use of technology, effective risk-based audit systems, and taxpayer compliance. The 36 The Ministry of Finance is comprised of four general directorates: the DGI, the DGD, Budget (Direction Générale du Budget, DGB), and Treasury, Financial and Monetary Cooperation (Direction Générale du Trésor, de la Coopération Financière et Monétaire, DGICFM). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 71 average cost of tax collection is considerably higher in Africa than in OECD countries. In 2020, revenue administrations in Africa spent an average of 2 percent of revenue collected on revenue administration. In Cameroon, the cost of revenue collection in 2020 was 0.3 percent of taxes collected, the third lowest among 19 SSA countries (Figure 4.32 and Figure 4.33). Cameroon’s outlier status on this indicator, with a value five times lower than that of Nigeria, indicates possible benefits in terms of higher tax collection from larger budget allocations for revenue administration. In 2014–19, the number of Cameroonian taxpayers increased from 80,797 to 121,566, while the number of tax officials at the DGI decreased from 3,893 to 3,317. The productivity gains, in terms of the use of technology and improved tax audits, would have to have been significant to ensure similar standards, much less improved standards, of tax audit over the period, especially since the complexity of the tax code increased.37 Figure 4-32: Cost of Tax Collection in Selected SSA Countries, Figure 4-33: Cost of Tax Collection by Regional Economic 2020, (% of Revenue) Bloc, 2020, (% of Revenue) 6 3.0 2.66 5 2.5 2.16 4.9 2.03 4.6 4 2.0 1.72 4.1 3.6 3.45 3.4 3 1.5 3.15 2.7 2 1.0 2.15 2.1 2.1 2 1.8 0.46 1 0.5 1.1 0.27 0.9 0.7 0.2 0.1 0 0.0 Ghana South Africa Botswana Zambia Zimbabwe Burundi DR Congo Tanzania Seychelles Nigeria Angola Cameroon Niger Chad Sierra Leone Namibia Eswatini Uganda Togo ECOWAS SADC ECCAS SSA EAC Note: ECOWAS is the Economic Community of West African States. SADC is the Southern African Development Community. SSA is Sub-Saharan Africa. EAC is the East African Community. ECCAS is the Economic Community of Central African States, which includes Cameroon. Source: African Tax Administration Forum, African Tax Outlook 2021. 37 DGI, Rapport Décennal, p 17. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 72 Despite a series of tax administration reforms, several core tax administration functions in Cameroon need further strengthening. The most recent Tax Administration Diagnostic Assessment Tool (TADAT) report (2017)38 and World Bank Enterprise Surveys identified deficiencies in core tax administration functions. The TADAT assessment is presented in Box 4-9 and Annex 8.11. The assessment also highlighted the need for improved coordination among different units within the tax administration. The lack of coordination and the associated corruption could have detrimental effects on arches , potentially leading some private sector enterprises to engage in noncompliance or informality. Box 4-9: Main Finding of the 2017 TADAT Report Taxpayer identification and registration: These functions are computerized and centralized for all taxpayer information at the national level through the active taxpayers’ database (FISCALIS), but they remain incomplete due to the lack of linkages to the tax management software (MESURE) that manages declarations and payments. Documented procedures exist to identify and remove inactive taxpayers, but they only apply on an ad hoc basis, and there is no platform for the exchange of information between the DGI and other public or private bodies. Filing: On-time filing rates are low across all core taxes, except for the VAT, with the PIT registering a low on- time rate of 5.0–7.4 percent. The CIT on-time filing rate is 55.3 percent, much lower than the corresponding VAT rate of 80 percent. Nevertheless, large enterprises meet more than 90 percent of their obligations to file returns on time (97.5 percent for the VAT and 97.7 percent for the CIT). The use of electronic filing remains low, as it is limited to large and medium-sized enterprises and is only used for withholding taxes withheld by employers. Payment processing: Electronic payment methods are used for the CIT, PIT, and VAT but not for withholding taxes due to unavailable data on taxes withheld from employees’ salaries and not automatically return to the DGI. While payment methods for withholding taxes on employment income, interest, and dividends and advance payment regimes are well established, payment processing is slow and lags behind the CEMAC average. Based on the 2017 TADAT report, the on-time payment rate for the VAT, especially in terms of the number of payments (57 percent), is low relative to international best practice. By contrast, the rate for on-time payments of the VAT, by value, is higher at 89 percent. The VAT represents the most significant source of public revenue, and its timely payment has an Impact on revenue performance. Arrears management and tax appeal: Arrears management could be improved in terms of VAT repayment and dispute resolution. Currently, the DGI fails to determine the level of tax arrears, including: (i) the value of total core tax arrears as a share of total core tax revenue collection at the end of the fiscal year; (ii) the value of collectible core tax arrears as a share of total core tax revenue collection; and (iii) the value of 38 TADAT Cameroun Rapport D’évaluation de la performance. July 2017. Not publicly released. An update of the 2017 report is underway and expected in late 2023. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 73 core tax arrears more than 12 months old as a share of the value of all core tax arrears. The Directorate of Collection, Fiscal Treasury and Curatorship (Direction du Recouvrement, des Valeurs fiscales et de la Curatelle) under the DGI is responsible for collection enforcement, but it has not managed to effectively reduce the amount of tax arrears older than 12 months. On average, the end-year stock of arrears was equivalent to 59 percent of annual total core tax collected between 2014 and 2016, and over 70 percent of arrears were more than 12 months old, indicating weak performance. Audit: While the tax audit program covers all core taxes and key taxpayer segments, it is neither systematic nor well structured. The DGI does not have large-scale automated crosschecking of data to verify information reported in tax declarations. Instead, this information is entered manually on different platforms and organized by taxpayer in the Tax Audit Group (Brigade des Enquêtes Fiscales) database. Cameroon has a well-structured system of public and private rulings for all core taxes, but the DGI has not adopted cooperative compliance agreements with qualifying taxpayers, and it does not monitor forgone tax revenue due to the extent of inaccurate reporting by taxpayers. Assurance provided by internal audits (by the National Tax Inspectorate) within the DGI is weak due to the lack of a systematic risk management approach, and there is no audit committee and no internal affairs department. Tax dispute: A tiered review mechanism for tax disputes is used in Cameroon, and a two-layered administrative review process is used at the DGI.39 Officers reviewing taxpayer objections in the Litigation Division are physically and organizationally separate from the auditor(s), who are part of the Audit Department. Information on the dispute resolution process is publicly available in the provisions of the General Tax Code, and taxpayers are explicitly made aware of their rights. However, only 52 percent administrative reviews that resolve disputes are completed within 30 days, compared to 90 percent of cases within 30 calendar days, which is recommended by international good practice. The legislative and litigation divisions analyze dispute outcomes and initiate administrative and legislative changes as necessary and not on a regular basis. Tax refund: The DGI lacks an accounting system interfaced with the Ministry of Finance’s revenue accounting system. While it has dedicated staff to help forecast and estimate tax revenue, the team does not undertake an analysis of tax expenditure, or the stock of tax losses carried forward by taxpayers that may be offset against future taxable income. The tax management software (MESURE) does not automatically link with the Treasury accounting system (Système comptable du Trésor, CADRE) to ensure accuracy and completeness of the tax revenue accounting system. Moreover, the VAT refund system is not processed using automated predetermined risk software, and interest is not paid on delayed refunds. The time taken to pay VAT refunds usually exceeds 30 days, with less than 18 percent of cases being processed (and 14 percent of value being refunded) within 30 days, far longer than the international norm of at least 90 percent of VAT refund claims processed within 30 calendar days. Accountability: There are no standard procedures to ensure the integrity of the tax administration, and there are neither an ethics policy nor codes of conduct. There is no ombudsman or equivalent body 39 The first step involves addressing the litigation division that is either attached to the Regional Tax Center (disputes of CFAF 50 million or less), the Large Business Office (up to CFAF 100 million), or the Director General (disputes over CFAF 100 million). The second stage involves the taxpayer that is dissatisfied with the decision of the first stage petitioning the Ministry of Finance. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 74 charged with receiving and investigating complaints from taxpayers about the treatment they receive from the tax administration. While the anti-corruption agencies (CONAC and ANIF) are responsible for investigating and prosecuting allegations of corruption by tax officials, they have no clear responsibility to oversee the development and implementation of the tax administration’s anti-corruption policies. The mechanism for monitoring public confidence in the DGI is also lacking, and there has been no independent survey monitoring public perceptions of integrity. While the annual report on the financial and operational performance of the tax administration is published within six months, the tax administration’s future directions and plans are for the internal use of the DGI only. Source : TADAT Cameroun Rapport D’évaluation de la performance. July 2017. Not publicly released Tax administration in Cameroon imposes a significant burden on businesses. Around 42 percent of firms consider high tax rates as a major constraint to their business, while 36 percent identify tax administration as a significant obstacle (Figure 4.34). This is not surprising, given the relatively high statutory VAT and CIT rates compared to most LMICs in SSA, along with the absence of PIT exemptions. Furthermore, businesses are required to make a substantial number of tax payments per year, demanding a significant amount of time and resources for preparation, filing, and payment (Figure 4.35). The total tax and contribution rate40 is relatively high as a share of profits, and the post-filing index 41 score is also elevated Credits photo: Odilia Hebga / World Bank Group due to increased access to VAT refunds and improved CIT audit process (Figure 4.36). 40 The Total Tax and Contribution Rate measures how much tax businesses pay. This is defined as the sum of all the taxes and mandatory social contributions paid, expressed as a percentage of the company’s commercial profit. 41 The post-filing index is a score from zero to 100, where zero represents the least efficient process and 100 the most efficient. The index made up of the following four equally weighted components; two relate to the process of obtaining a VAT refund and two to the correction of an inadvertent error in a corporate income tax return. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 75 Figure 4-35: Firms identifying tax payment and time required Figure 4-34: Firms identifying tax rates and administration as as constraint, Cameroon and comparator countries (number constraint, Cameroon and comparator countries (%) and hours) 80 1,600 70 1,400 Tax administration (%) 60 Cameroon 1,200 Time (hours per year) 50 1,000 40 800 Cameroon 30 600 20 400 10 200 0 0 0 20 40 60 80 0 10 20 30 40 50 60 Tax rate (%) Payments (number per year) CEMAC Structural Peers Aspirational Peers CEMAC Structural Peers Aspirational Peers Note: Each country presents the survey in different year, no survey is conducted for Equatorial Guinea. Source: PwC. 2020 Paying Taxes. Source: World Bank Enterprise Surveys, http://www.enterprisesurveys.org Figure 4-37: Corruption in tax collection: firm visits and Figure 4-36: Firms identifying tax burden and post filing costs, expectations of gifts, Cameroon and comparator countries Cameroon and comparator countries (% of profit and index) (%) 100 70 90 60 80 Firms expected to give gifts (%) Postfiling index (0-100) 70 50 Cameroon 60 40 50 Cameroon 30 40 30 20 20 10 10 0 0 0 10 20 30 40 50 60 0 20 40 60 80 100 Total tax and contribution rate (% of profit) Firms visited (%) CEMAC Structural Peers Aspirational Peers CEMAC Structural Peers Aspirational Peers Note: Each country was surveyed in a different year, no survey was conducted Source: PwC. 2020 Paying Taxes. for Equatorial Guinea. Source: World Bank Enterprise Surveys, http://www.enterprisesurveys.org Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 76 4.3.1 Corruption In addition to several challenges related to tax administration, corruption is a pressing issue. Corruption and low institutional quality can lead to both revenue leakages and low tax morale. Taxation essentially establishes a social contract, where citizens pay taxes with the expectation of receiving public services in return. Corruption ranks as the fourth most significant obstacle in Cameroon’s business environment (Figure 4.38). Around 82 percent of firms were visited or required to meet with tax officials, averaging four visits per year, which is significantly higher than the regional (two visits) and LMIC averages (one visit). Moreover, a significant proportion of firms (20 percent) were expected to provide gifts in such meetings, above the 15.5 percent of firms for SSA and 11.5 percent globally (Figure 4.37). Moreover, the recent study on Corruption Perception and Attitude Towards Taxation in Africa42 reveals that 93.4 percent of Cameroonian believe that the government officials are involved in corruption. Cameroon ranks as the third highest among 36 African countries, following Nigeria (96.9 percent) and Gabon (95.4 percent). Weak tax compliance in Cameroon can be attributed in part to the lack of trust among taxpayers in the government and perceptions of corruption. Poor governance in public institutions results in inefficiencies in public expenditure and subpar public service delivery, thereby encouraging resistance to paying taxes among both citizens and companies. According to recent surveys conducted by Afro Barometer, 77 percent of Cameroonians report that they have, at least once, withheld tax payments due to their dissatisfaction with their government’s performance. This has contributed to Cameroon’s ranking of 29th out of 36 African countries in terms of tax compliance.43 It is suggested that Cameroon might need to consider broad governance reforms across public expenditure and services, as well as tax administration to strengthen tax compliance. It could draw from valuable lessons learned from governance reforms in LMICs such as Rwanda, which has achieved great progress in implementing reforms aimed at improving revenue collection and service delivery (Box 4-10). 42 Amadou Boly, Maty Konte, and Abebe Shimeles. Journal of African Economies, Volume 30, Issue Supplement_1, November 2021, Pages i140–i157, https://doi. org/10.1093/jae/ejab024. 43 Isbell, Thomas. (2017). Tax compliance: Africans affirm civic duty but lack trust in tax department. Afrobarometer. Policy Paper. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 77 Box 4-10: Rwanda’s Governance-Related Reforms to Improve Tax Compliance To enhance efficiency and limit corruption, Rwanda adopted reforms aimed at improving the digitization and transparency of public services, along with the implementation of stricter conduct rules and capacity building exercises for government employees, especially tax officials. Full funding for the tax administration, better working conditions and remuneration, and continuous capacity building boosted the performance of tax personnel. The Revenue Authority was empowered to manage its mission and personnel independently without interference from the Ministry of Finance, leading to more creativity and an increase in output. Taxpayers were empowered to hold the administration accountable. For example, rewards were offered for whistle blowers on fraud and corruption, leading to dismissals. More importantly, greater transparency in public expenditures and execution of the budget built a new social contract with taxpayers. Citizens were given access to information on government revenues and budget execution and the ability to hold public servants accountable for undelivered services, generating a sense of ownership among citizens, which translated into better tax compliance. After less than 10 years, Rwanda’s tax-to-GDP ratio grew from 11 to 17 percent of GDP (above the average of regional peers), and about 97 percent of its large taxpayers were considered tax compliant, reflecting higher trust in government. Source: Teyim Pila, Khan, Strategies to Boost Domestic Revenue Mobilization in Cameroon (April 2021). Available at SSRN: https://ssrn.com/abstract=4400096 or http://dx.doi.org/10.2139/ssrn.4400096. 4.3.2 Informal economy Deficiencies in tax administration foster informality in the economy and undercut Cameroon’s tax collection, although to a lesser extent than is typical in Sub-Saharan Africa. Economic agents in Cameroon find it to be relatively easy to conceal their activities from authorities to avoid paying taxes (pushing economic activity into the informal sector). Sub-Saharan Africa exhibits the highest rate of informal economies, averaging around 36 percent of GDP in 2010–15, surpassing all other regions including LAC (33 percent), South Asia (28 percent), the Middle East and North Africa (23 percent), East Asia (21 percent), Europe, Euro zone (20 percent), and all of the OECD (15 percent).44 Cameroon’s informal sector accounted for approximately 30 percent of GDP in 2010–15, ranking it 8th smallest of 42 SSA countries (averaged for 2004-15) and the second smallest among CEMAC countries and the smallest among structural peers and aspirational peers, except for Vietnam, in 2019 (Figure 4.39). 44 Medina and Schneider (2018). Shadow Economies Around the World; IMF Working Papers; and World Bank staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 78 Competition from informal enterprises is the most significant constraint on the business environment in Cameroon, despite its informal sector being smaller in size than that of most peer countries. Roughly 23 percent of firms in Cameroon acknowledge that widespread informality disrupts their businesses through unfair competition whereas only 6.5 percent and 5 percent of firms identify tax administration and tax rates, respectively, as the primary constraint to business (Figure 4.38). The share of firms in Cameroon pointing to the informal sector as the main challenge in the business environment is twice the number of firms globally (12 percent) and across SSA (11 percent). Figure 4-38. Top 10 obstacles in the business environment Figure 4-39: Informal Economy, Cameroon and Comparators, based on firm experiences, (% of firms) 2019, (% GDP) 55 CEMAC Average SSA Average 25 Cameroon SSA World 50 20 45 40 15 35 % of firms 30 10 25 5 20 15 44.4 34.7 40.1 29.9 51.6 32.0 40.4 37.7 35.6 36.6 32.6 31.1 20.5 0 10 Practices of the informal sector Access to finance Electricity Tax administration Customs and trade regulations Tax rates Inadequately educated workforce Transportation Crime, theft and disorder Corruption Cent. Af. Rep. Chad Rep. of Congo Cameroon Gabon Guinea Côte d'Ivoire LMICs Senegal LMICs Ghana LMICs Morocco LMICs Kenya Sri Lanka Vietnam LICs LMICs UMICs LMICs LMICs Structural CEMAC Aspirational Peers Peers Note: Firms are asked to consider which element (out of a list of 15) is the biggest obstacle to their establishment (source: World Bank. Enterprise Surveys Source: Informal Economy Sizes, World Economics Database; Medina and Indicator Descriptions. Page 174. September 11, 2017). Schneider (2018). Shadow Economies Around the World, IMF Working Papers; Source: Camaroon (2016). and World Bank staff calculations. World Bank Enterprise Surveys, http://www.enterprisesurveys.org Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 79 4.4 Policy Options Cameroon has made efforts to simplify tax regimes and reform revenue administration, but tax revenues have not risen significantly. The decline in revenue collection and the COVID-19 downturn highlight the need for efficient and equitable revenue raising. Analysis from this chapter highlights weaknesses in tax policy design and tax compliance, emphasizing the need for an expanded reform plan that covers both major tax policies and administration. Tax policy elements must be aligned with international best practice and modified to achieve the multiple objectives of a robust tax system, including revenue efficiency, equity, neutrality, and responsiveness to environmental and climate change challenges. Tax administration, on the other hand, should support taxpayer compliance (e.g., creating a 24/7 tax administration, leveraging digital identity and verification, and decentralizing tax administration services) and reduce taxpayer burden (e.g., utilizing data science and analytical tools to minimize human intervention, and tailoring approaches for specific groups of taxpayers such as large business taxpayers, or High-net-wealth individuals).45 4.4.1 Tax Policy Reform Considerations Review and restructure overall tax policies Now, it is an opportune time for Cameroon to undertake a thorough review of its tax code. The current fragmentation of taxation in Cameroon hinders the development of a comprehensive tax policy, lacking a clear direction to effectively utilize key tax sources and adapt to economic changes. Many countries have successfully diversified their tax revenues by implementing strategies like base broadening and rate reduction, focusing on less volatile sources such as the PIT and VAT, leading to higher efficiency and improved revenue generation. However, Cameroon’s tax system lacks systematic efforts to optimize tax sources, relying on minor revenue sources, known as ‘auxiliary,’ revenues that constrained tax collection and revenue predictability. The absence of comprehensive tax policy principles may help explain the country’s relatively low tax-to-GDP ratio. Simplifying Cameroon’s tax code is also essential. Simplification of the tax code has the potential to simultaneously shrink the tax gap and lower compliance costs by improving taxpayer compliance through clear and standardized obligations. The current tax code, developed over several decades without comprehensive review, allows revenue authorities discretionary options, resulting in inconsistencies in 45 Tax Administration 2023: Comparative Information on OECD and other Advanced and Emerging Economies. OECD Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 80 exemptions and allowances. Standardizing these elements in the tax base would not only provide clarity but also reduce complexity for taxpayers.46 Authorities are urged to establish a Medium-Term Revenue Strategy emphasizing inclusive, sustainable taxation. Currently, Cameroon lacks a consolidated Medium- Term Revenue Strategy (MTRS) aligned with recent tax policies. The MTRS should offer a clear roadmap to narrow the tax gap, set realistic medium-term targets for diversifying tax sources, and actionable plans to reduce tax expenditures and improve tax administration. Utilizing existing annual reports on revenue losses can be a valuable starting point for operational reforms in tax expenditure management. In addition to reforms on major tax types, Cameroon should prioritize efficiency and effectiveness gains in areas covered by special taxes and related revenue generation. • Revenue sharing. The existence of various revenues in Cameroon contributes to inefficient taxation. These revenues, constituting 1.2 percent of GDP, come from the STPP, forest tax, and other minor tax revenues. Unlike general taxation, which involves unrequited revenues collected for the common fiscal pool, special tax revenues are collected and redistributed in ring-fenced arrangements. Ring- fencing arrangements on specific taxes shared with local authorities, including the STPP, reduce the efficiency of the tax system. Moreover, certain smaller taxes (e.g., the tourism tax or stamp duties), instituted for revenue-sharing arrangements with local authorities, may impose a compliance burden on enterprises that outweighs the benefits. • The Road Fund. The current allocation of revenues to specific expenditures (e.g., road maintenance) does not accurately reflect actual spending needs, leading to inefficiencies on both the revenue and spending sides. Introducing additional revenues, such as potential toll charges or fees, and aligning budget allocations with expenditure needs would help cover the persistent funding gap for the construction and maintenance of roads. The revenues assigned to the Road Fund, primarily from the STPP, are currently insufficient for this purpose. Reform personal income tax regimes Two crucial aspects need consideration in amending the PIT regime. First, establishing an exempt threshold in the PIT is essential. Choosing an appropriate PIT threshold, whether in the form of a zero-bracket, basic deduction, or general tax credit, supports tax progression by reducing or eliminating the tax burden on low-income individuals. Cameroon currently lacks a zero-tax bracket, creating a 46 This also includes a list of exemptions in various areas. For example, exemptions for the VAT of equipment and materials for the agriculture and fishery sectors include more than 190 clusters of items (Code D” Impôt, annexes au titre 1), and the list of items for depreciation as part of setting the taxable income under the CIT and PIT is very long and excessively detailed, leaving room for lengthy tax audit procedures reduces the visibility of tax payers’ specific obligations (Code D ‘Impôt, art 27) and on CIT, Code Impot, art 7.d). For the PIT, there are more than 100 main categories of amortization, with rates varying between 5 percent and 33 percent. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 81 substantial tax wedge for low and middle-income earners and encouraging formal sector businesses to move towards informality. Introducing an exempt threshold could not only relieve the poorest households from the obligation to pay tax but also ease administration. Second, the current PIT regime, featuring a fixed and high standard deduction of CFAF 500,000, tends to favor the rich. While several emerging and developing economies have no threshold at all, the threshold should not be excessively high either, as this can led to greatly reduced revenues. In the OECD, the median is approximately 25 percent of the average wage.47 The current annual deduction in Cameroon (CFAF 500,000, equivalent to about US$ 81548), constitutes 57 percent of the country’s GDP per capita of US$ 1,440. In addition, the annual fixed deduction might not align with income distribution objectives. Individuals with higher incomes receive a higher deduction compared to those with lower incomes. This discrepancy occurs because higher-income earners benefit from the standard deduction in a higher tax bracket, while lower-income earners receive the benefit in the lower tax bracket. Changes in tax liability due to deductions are determined by the highest marginal tax rate of the taxpayer. To address this undesirable result, many advanced economies subsidize the earnings of low-wage workers through tax credits. Simplify the special tax regime and actual earnings taxation system The current special tax regime makes the system overly complicated and creates loopholes for bunching and avoidance. A flat rate system and simplified tax system are considered as the true special tax regimes for small and medium enterprises (SMEs); however, the details of its structure could be adjusted to serve the dual purpose for setting special tax regimes – simplify compliance and encourage entrepreneurs to enter the tax net. • The flat rate system categorizes sole traders into four groups (Table 4-7). The discharge tax rate is determined by the regional or local authorities, introducing inconsistencies and corruption. Notably, there is no clear exemption from the discharge tax for a micro-sized, household businesses with an annual turnover of less than 2.5 million. A sole proprietor could pay from CFAF 0 to 20,000. On the other hand, an individual, earning below 2 million and benefiting the current PIT basic deduction of CFAF 500,000, incur a tax liability of 10 percent (possibly exceeding the CFAF 20,000 maximum in Category A). In some cases, individuals might opt for the flat rate system rather than paying the PIT. The disparity between the PIT and Corporate Income Tax (CIT) treatments creates an incentive for entrepreneurs to manipulate the distribution of labor and 47 Khaled Abdel-Kader and Ruud De Mooij. IMF Working Paper: Tax Policy and Inclusive Growth. WP/20/271. 48 At the exchange rate of CFAF 613.67/US$ 1 as of November 9, 2023. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 82 capital income to minimize their overall tax liability. Aligning the base, rate, and exemption thresholds for micro-sized household businesses with those of PIT would contribute to equitable tax treatment between salaried and non-salaried income earners. Proposing equivalent parameters for micro-sized household businesses and aligning them with the PIT base, rate, and personal allowance or basic deduction would promote fairness in the tax system. Table 4-7. Flat rate system subcategories Sole proprietorships Annual turnover (CFAF) Discharge tax rate (CFAF) Category A Below 2.5 million 0-20,000 Category B Between 1.5 million and 5 million 20,001-40,000 Category C Between 5 million and 7.5 million 40,001-50,000 Category D Between 7.5 million and 10 million 50,001-100,000 • For businesses (individual entrepreneurs or legal entities) with an annual turnover of between 10 million and 50 million, they fall under the simplified tax system (currently set at a CIT of 25 percent). It is noteworthy that this CIT rate mirrors that of an actual earning taxation system applicable to small companies (with an annual turnover below 50 million) and medium-sized companies (with an annual turnover between 50 million and 3 billion). To create a more equitable system and encourage voluntary migration into the standard regime, the rate of the simplified tax regime should be substantially lower than that applied to businesses under the actual earning taxation regime, thereby reducing informal sector activities. • Clarifying the special tax regime for SMEs, especially in relation to the use of ‘taxe liberatoire’ is essential. The current method of assessing profit rates based on turnover, whether presumed or actual, lacks precision. Cameroon could consider introducing indicator-based presumption taxation or differentiated estimation of turnover based on different business sectors. • Cameroon’s CIT structure should be reviewed. The differentiated CIT rates, with a standard rate of 30 percent and a lower rate of 25 percent (previously 28 percent) for small and medium-sized enterprises (SMEs), do not align with best practices. Cameroon should consider applying a single statutory rate, possibly reviewing the standard rate of 30 percent to prevent efficiency loss, especially for SMEs reporting lower profits. CIT tax incentives should also be rationalized. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 83 Enhance the quality of the excise tax policy Excise tax reform would require periodical review of both the tax base and rate structure. The tax base should be expanded to encompass a broader range of fuel and energy sources, along with new items like sugary drinks, tires, and plastic bags. Simultaneously, rates should be rationalized to address risks to public health, pollution, the environment, and climate, while also generating additional revenues. Unlike the international trend that uses specific excise or a combination of specific and ad valorem excise taxes on tobacco products, Cameroon relies solely on ad valorem taxes. Specific taxes are easy to administer, requiring only the determination of the quantity to be taxed. However, they come with limitations, such as revenue remaining unchanged with price increases (inflation), and a decrease in tax revenue in real terms unless tax rates are indexed. Ad valorem excise taxes, on the other hand, are levied based on the value of the product and do not require rate indexing but are more complex to administer. In practice, the choice between a specific or ad valorem rate structure often boils down to weighing the administrative advantages of specific taxes against the potential revenue loss in the face of inflation, unless nominal tax rates are indexed and regularly adjusted. Governments with limited revenue administration capacity, like Cameroon, typically grapple with the trade-off between simplification and predictability for taxpayers, represented by a switch to specific taxes, and the limitations of such a move in terms of impact on revenue performance due to failure to capture price changes. The much-preferred option in modern excise design is the combined use of both principles, applying periodic rate adjustments to account for price development. In addition, Cameroon should differentiate the excise rate between domestic and imported tobacco products. Cameroon is poised to take a proactive step by introducing a carbon tax. In 2024, Cameroon is set to introduce a carbon tax as part of its commitments outlined in the Intended Nationally Determined Contribution (INDC) to adhere to the Paris Agreements in mitigating the impact of climate change. The Word Bank Economic Outlook report for Africa, published in September 2022, forecasted that Cameroon would quadruple its carbon emissions to 15.1 million tons by 2043, due to cement and hydrocarbon companies. The introduction of the carbon tax aims to incentivize polluters to reduce carbon emissions to avoid increased taxation, aligning with the country’s commitment to reduce its carbon emissions by 32 percent by 2035, as declared at the UN Climate Change Conference (COP21) in Paris in 2015. Redesign forestry tax Cameroon can enhance its forest tax system by implementing differential taxation and carbon pricing. The primary goals of forest tax systems are revenue generation and sustainable forest management. To achieve this, Cameroon should develop a comprehensive system of differential taxation based on sustainable Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 84 forest practices, incorporating certification schemes that impose higher taxes on illegal logging and lower taxes on sustainable forestry operations. Additionally, the integration of carbon pricing into national forest taxation policies, along with consistent implementation, is crucial. Engaging the private sector is essential for improved forest tax outcomes, as it is a major contributor to deforestation. The formal sector, in particular, is a key source of forest tax revenues, a potential driver of local industrial development, and plays a central role in ensuring good governance in the forest sector. Limit tax expenditure The fiscal management of tax expenditures in Cameroon requires strengthening and consolidation. Currently, tax expenditures are authorized not only in the tax code but also in sector legislation and procedures, leading to a lack of coherence and central oversight. Best practices suggest consolidating tax expenditures within the tax code under the authority of the Ministry of Finance. Cameroon needs to establish a systematic mechanism to ensure the follow-up on recommendations provided in the Annual Reporting on Tax Expenditures. The current tax expenditures are overly broad and indiscriminate, benefiting numerous businesses and economic sectors and making tax compliance challenging and revenue administration burdensome and costly. To streamline and enhance efficiency, Cameroon should narrow the scope of exemptions strictly to those outlined in the CEMAC Directive 07/11-UEAC-028-CM-22, despite the successful performance of VAT revenues. In addition, there should be closer integration of access to tax expenditures in the medium-term budget framework (MTBF) and the implementation of sunset clauses for existing tax expenditure provisions. Cameroon could consider cost-based rather than profit-bases tax incentives. Tax incentives can be improved by focusing on reducing the cost of investment, rather than on providing tax relief on profits. Many advanced countries promote research and development (R&D) through special tax credits or super deductions, recognizing the positive long-term growth effects associated with R&D. Experience from other countries indicates a preference for cost-side support to avoid subsidizing already profitable enterprises and focus tax expenditures on specific sectors based on an assessment of marginal benefits. Simplifying tax exemptions on the cost side can also ease the burden on tax audits. Investment tax incentives that directly reduce the cost of investment, such as investment tax credits, accelerated depreciation or outright expensing of investment, yield more investment per dollar spent.49 To ensure the effectiveness of investment incentives and prevent them from becoming counterproductive, it is crucial to target them more effectively. The 49 IMF, OECD, World Bank and UN, 2015, Options for Low Income Countries’ Effective and Efficient Use of Tax Incentives for Investment. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 85 existing law, No. 2013/04 of April 18, 2013, which establishes private investment incentives, outlines three categories of investments with exceptional arrangements during setup and operational phases, including one for existing companies. However, this law, primarily outside the tax code, poses a threat to revenue mobilization due to tax planning risks. To address this, recommendations include limiting the scope of investment regimes to companies only; enforcing strict implementation of the law on investment incentives, excluding investments in existing activities to prevent unfair competition; and enhancing the fluidity and transparency of key administrative procedures for all economic activities. These improvements are essential to instill confidence in investors engaging in the market. Accelerate property tax reform Cameroon urgently needs to reform its property taxes through both policy and administration reforms. Reforms should target an expanded tax base, improved property valuations, and enhancements in billing, collection, enforcement, and taxpayer services. Tax policy changes should focus on defining the tax base, assessing property values, setting appropriate tax rates, and implementing policies related to abatement, tax relief, collection, and enforcement. Tax administration, on the other hand, should emphasize expanding the tax base, refining property valuations, assessing tax liabilities, and improving collection processes while offering better services to taxpayers. A successful property tax reform requires collaboration with local councils. Leveraging the MoF’s ICT reforms, an interface can be established with the Ministry of Land Tenure to facilitate property identification. Strategies to improve coverage and information gathering should align with the government’s ICT initiatives, including communication, secure remote payment options, and the receipt generation. Incentives should be introduced to encourage compliance and payment of arrears, such as flexible payment plans and partial penalty forgiveness for those who settle their principal debts in a single payment. To ensure fairness and effectiveness, the current voluntary property evaluation policy should be maintained, but pre-declaration valuations should be conducted for high-value properties in business districts and diplomatic quarters. Additionally, pre-filled tax returns with property values should be provided to taxpayers. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 86 4.4.2 Tax Administration Reform Considerations Modern tax administrations aim to collect revenues efficiently, minimize administrative and compliance costs, and treat taxpayers fairly. The most effective systems promote voluntary compliance from most taxpayers, allowing tax officials to focus on non-compliant individuals. Successful tax collection relies on the tax administration’s performance in various areas, including human resource management, internal controls to prevent corruption, treasury activities, and taxpayer education and outreach. Despite Cameroon’s efforts over the past decade to modernize its automated tax administration systems, the low cost-to-revenue ratio in tax collection remains a concern. To address this issue, authorities should conduct a comprehensive assessment of budget allocations for revenue generation and review key tax administrative measures. Such an assessment could be conducted separately or as part of upcoming reviews such as the TADAT or an MTRS. In recent years, Cameroon has initiated a series of tax administration reforms to improve taxpayer compliance and revenue collection. These reforms include publishing the national register of taxpayers online, implementing e-filing for tax returns, introducing pre-filled returns, putting in place several property tax reforms, redefining tax audit strategies, and digitizing tax litigation process. While these efforts target increased efficiency, good governance, and transparency in public administration, several challenges persist. Addressing these issues requires strengthening capacity and connectivity, promoting synergy among different digital platforms, and providing training to tax collection agents and taxpayers to effectively navigate digital reforms. • Re-engineer the business process . The DGI and DGD may consider enhancing key functions of tax administration, particularly taxpayer registration, taxpayer service, auditing, arrears management, and tax appeal (Figure 4.40). Voluntary compliance management involves striking a balance between robust enforcement measures (auditing, collection, and arrears management) and improved taxpayer service. Improving risk-based auditing and the application to the VAT refund audit would serve a dual purpose: (1) preventing fraudulent refund claims to safeguard revenue, and (2) mitigating the adverse effects on businesses’ cash flows and minimizing cascading. Similarly, the tax appeal function should be reviewed to ensure fairness. Fully and accurately detecting new taxpayers and effectively verifying the legitimacy of deregistration are the key foundations for building a reliable, consolidated taxpayer database. Reliability forms the foundation for improved tax accounting, auditing, collection, and arrears management. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 87 Figure 4-40. Tax Office Core Functions Taxpayer Filing and retun Arrears Tax audit Tax appeals registration processing management • Initial registration • Process and review • Initiate debt • Promote voluntary • Pre-court process of an individual tax declaration management compliance and settlements • Initial registration forms strategy • Detect non- • right to appeal in of a new business • Receives • Update taxpayers compliance at the an independent • Issuanace of ITIN electronically payment records individual taxpayer forum • An up-to-date filed declarations • Register and level • Track disputed record of taxpayers and generates an classify arrears • Conduct tax cases • Archiveing electronic receipt by age, size, and audit and fraud • Publish court taxpayers master for each e-filed taxpayer segment investigation decisions file declaration • Enforce arrears • Centralized audit • De-registration • Processes tax payments risk selection process declarations and write off criteria that target (including amended uncollectible debt highest risks declarations) for all of inaccurate core taxes reporting Source: World Bank staff design. • Enhance digitization and automation. Cameroon has made progress in developing and integrating IT systems as part of its tax administration modernization initiatives. However, it is crucial for authorities to ensure that these tools align with the standards established by the OECD. The government could partner with private sector entities to leverage technology tools such as data analytics using artificial intelligence (AI), big data, centralized data warehouse, and blockchain technology for digitized transactions. For example, mandatory VAT e-invoicing systems for large firms could be implemented, simplifying VAT administration and allowing much more efficient utilization of input credits (Box 4-11). • Improve collaboration to combat tax fraud. Cameroon should work towards integrating taxpayer information and fostering close collaboration between the customs and tax administrations. The implementation of efficient audit and exemption monitoring procedures within customs, supported by collaboration through the ‘FUSION’ platform between the DGI and DGD, is vital. This would involve migrating records, creating a unified taxpayer database, and merging tax and customs clearance systems. Strengthening controls and information exchange between these authorities would help detect discrepancies and prevent tax evasion. Additionally, implementing biometric Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 88 taxpayer identification, strengthen customs’ valuation processes, and optimizing audit procedures within custom would further enhance compliance. Regular reconciliation between these two administrations is essential to effectively consolidate these efforts effectively to combat fraud and smuggling. • Reduce and formalize informal sector. Improving the capture of informal sector activities requires a holistic approach, involving a review of the current taxation scope and ranging from simpler tax policy and stronger tax administration. Such a review should aim at: (1) ensuring fair and simple taxation for SMEs. The income tax code in Cameroon is highly complex, serving a barrier to entry for informal SMEs. (2) exploring the use of withholding tax schemes for informal sector agents. For instance, countries like Gabon and Malawi have implemented a five percent duty and three percent withholding tax, respectively, on goods and services imported by individuals or firms not registered as VAT payers. Several SSA countries have established withholding taxes on income related to various services, rental income, or contractor services. And (3) integrating business good governance, labor market integration, and tax measures. Box 4-11: International Experience of Using Mandatory e-Invoicing for the VAT Many countries worldwide have mandatory electronic invoicing (e-invoicing) for all transactions subjected to the VAT. Mexico and South Korea were among the first countries to introduce this requirement in 2011, and many other countries such as Indonesia (2016) and India (2020) have followed, while other countries such as the Philippines, Thailand, and Vietnam are working on such systems. South Korea: The use of VAT e-invoicing started as an option in 1997 before it became compulsory for all companies, except small firms, in 2011. This measure has reduced the administrative burden of filing VAT returns, resulting in cost savings for firms estimated at around US$ 0.8 billion/per year. The success factors were: (i) the public administration supported the standardization and certification of e-invoicing standardization before it was made compulsory; (ii) tax incentives for SMEs to create the necessary IT systems as well as penalties for failure to transmit e-invoices or delayed transmission of e-invoices to the tax authority; and (iii) gradual extension for smaller taxpayers. Mexico: The government mandated the use of e-invoices with online real-time reporting to the tax authorities in 2011 for large taxpayers. This requirement was later extended to all businesses with an annual income of more than US$ 325,000. Taxpayers that issue or use electronic invoices that do not comply with the regulations are subject to legal sanctions for tax fraud, which include fines, loss of business licenses, and/or prison sentences, depending on the scale of the violation. Indonesia: In 2014, Indonesia developed a legal basis for e-invoices, and electronic invoices became mandatory for all enterprises in 2016. The use of e-invoicing has helped to reduce the incidence of fake invoices and fraudulent VAT refund claims, thereby increasing VAT revenue. Enterprises have to use software provided by the General Department of Taxation and receive an ‘e-certificate.’ Source: KPMG and other resources 2021. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 89 Table 4-8.: Recommended Policy Actions to Boost Revenue Objective Recommended actions Responsible Timeline Tax policy Provide strategy Adopt and implement a Medium-Term Revenue The discharge and coordination Strategy (MTRS) that focuses on achieving DGI/DGD/ tax rate is of tax policy inclusive, broad based, and sustainable taxation MINFI determ reform Establish a tax (exempt) threshold below which Short to personal income is not taxed. medium term Strengthen Increase the progressivity of the tax on wages and DGI/DGD/ Short to progressivity of salaries, raising rates for the highest earners and MINFI medium term personal income reducing rates for the lowest. MINEPAT, API taxes Revisit special tax regimes for SMEs (small Short to business entities). medium term Harmonize excise rates between local production Short to and imported goods. medium term Reduce the list of goods subject to excise duty to Short to the list of excisable goods included in the 2011 medium term Rationalize excise CEMAC Directive. DGI/DGD/ taxes MINFI Automatically adjust specific tobacco excise with Short to inflation. medium term Initiate an in-depth analysis of the excise tax Medium to long regime. term Review property tax policy including defining the Short to tax base, assessing property values, and setting medium term Accelerate appropriate tax rates. property tax Limit in the short-term and abolish in the medium- Short to reform to finance to long-term the exemption from property DGI/MINFI medium term subnational tax granted to structures used as factories or government warehouses. Review the assessment appeals process. Medium to long term Revise rate structure and establish certification Short to schemes to impose higher taxes on illegal medium term Redesign forestry logging and lower taxes on sustainable forestry tax to support operations. DGI/MINFI environmental Integrate carbon pricing into national forest Short to goals taxation policies and ensure consistent medium term implementation Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 90 Objective Recommended actions Responsible Timeline Review the 2013 Investment Code (Law No. Short to 2013/004) to reduce and streamline tax incentives medium term for private investment to priority sectors and only those with positive economic returns. Reduce the scope of exemptions in line with Short to CEMAC 2022 directives and then in line with the medium term Curb tax Tax Code expenditures DGI/DGD/ to limit revenue Establish the Tax Code as the only legal MINFI Medium to long losses foundation for tax expenditures. term Integrate tax expenditure rationalization as part of Medium to long the MTRS broader tax reform packages. term Tax administration Build a complete PIT database with a breakdown Short to by each taxpayer separated by income bracket. medium term Provides an audit trail of user access and changes Short to made to taxpayer registration data. medium term Taxpayer Provides secure online access to businesses Short to registration: and individuals to register and, once registered, medium term Establish an to update details held in the database (e.g., a up-to-date and taxpayer’s postal or business address). comprehensive DGI/MINFI Mitigate the risk of duplicate or conflicting records Short to record of for companies and individuals. medium term taxpayers to enhance taxpayer registration. Provide special information for business start-ups Medium to long through the tax offices’ registration units, and also term in cooperation with other government agencies. Conduct pre-declaration valuations for high-value Medium to long properties in business districts and diplomatic term quarters and provide pre-filled tax returns with property values to taxpayers. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 91 Objective Recommended actions Responsible Timeline Streamline tax declaration filing and facilitate Short to efficient payment processing mechanisms for medium term taxpayers through simplified tax returns. Introduce measures to reduce compliance costs Short to for taxpayers (e.g., simplified record keeping medium term and reporting requirements for small businesses; pre-filling of tax declarations and/or systems that eliminate the need to file; automated telephone and online facilities, including through mobile platforms) Adopt the mandatory use of VAT e-invoicing Short to systems for large firms. medium term Expand digitization (including automatic Medium to long information exchanges, electronic billing, and pre- term filling of tax declarations) to reduce compliance costs. Strengthen the institutional framework allowing Medium to long Filing and return/ data exchange with companies gathering term payments. Set up taxpayers’ information such as pension fund, Tax Facilitation DGI/DGD/ electricity and water companies. Centers to MINFI Filing: facilitate tax filing and payments. Enrich and tailor the electronic filing system based Medium to long on the needs of taxpayers in each segment. term Establish a tax legislation portal, an effective call Short to center facility, and a guidance brochure. medium term Use risk-based control to quickly identify under- Short to reporting and under-declaration. medium term Strengthen the capacity of tax intermediaries Medium to long engaged in preparing and filing tax declarations. term Provide and promote use of electronic filing Medium to long facilities for all core taxes. term Enhance property tax collection processes by Medium to long improving coverage and information gathering via term alignment with the government’s ICT initiatives, including communication, secure remote payment options, and the generation of receipts. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 92 Objective Recommended actions Responsible Timeline Strengthen collaboration between customs and Short to Strengthen taxes to share all available information and control medium term collaboration evasion effectively. DGI/DGD/ between tax Enhance tax administration capacity (especially for Medium to long MINFI/ agencies and collection of excise taxes) at municipality level. term MINDEVEL with subnational Establish ICT interface with Ministry of Land Medium to long government Tenure to facilitate property identification for term property tax. Develop effective strategies for managing tax Short to arrears. medium term Improve risk-based approach to selection of cases Short to for tax audit, focusing on taxpayer segments with medium term high risks of non-compliance. Arrears Review tax appeals function to provide taxpayers Short to management + with an easily accessible and efficient dispute medium term Tax audit + Tax resolution mechanism. appeals. Establish Establish a dedicated unit with full-time specialist Medium to long a dedicated debt staff trained to apply tailored and debtor-oriented term DGI/DGD/ management strategies for enforcement and debt collection. MINFI unit and re- Support audit operations with consolidated IT Medium to long engineer the tax systems and automate audit case management term audit process to subsystem that allocates audit cases, monitors enhance debt progress, records decisions, stores working papers management. and data, and generates management reports. Introduce incentives for property tax compliance Medium to long and payment of arrears, such as flexible payment term plans and partial penalty forgiveness for those who settle debts in a single payment. 93 5 IMPROVING PUBLIC EXPENDITURE ALLOCATION AND EXECUTION Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 94 5.1 Budget Allocation Within Cameroon’s comparatively low levels of overall public spending due to fiscal consolidation efforts, the country spent a significantly larger share on investment and a somewhat lower share on social benefits than comparator countries. Cameroon’s structure of spending varies from country comparators, spending far more on public investment (31.6 percent of public expenditure) than structural or aspirational peers (19.4 and 12.9 percent, respectively), than all LMICs (17.7 percent), and then SSA overall (18.6 percent) during 2015 to 2021. At the same time, the country spent less on social benefits (6.2 percent of spending) than all but structural peers (5.4 percent), with all LMICs devoting 12.1 percent of spending to social benefits and aspirational peers spending 15.9 percent (Figure 5-1). Figure 5-1. Public expenditure: economic composition, Cameroon and country groups (% of expenditures), average 2015-2021 35% 30% 25% 20% 15% 10% 5% 0% Cameroon Aspirational Peers Structural Peers Lower middle Sub-Saharan Africa income Wage bill Goods and services Capex Interest Social Bene ts Subsidies Other Notes: Aspirational peers are Senegal, Kenya, South Africa, Rwanda, and Uganda. Structural peers are Mauritania, Angola, Ethiopia, Tanzania, and Democratic Republic of Congo. Source: Cameroonian authorities, World Bank staff calculations. Cameroon’s budget rigidity appears to be less of a problem than for comparator countries, using a simple definition. Expenditure rigidity refers to the government’s limited capacity to modify the level or structure of its budget within one to three years due to contractual obligations, legal or regulatory constraints, or institutional weaknesses. Budget rigidities constrain the ability of the government to change the size and structure of the public budget in the short term. A simple definition that allows cross-country comparison is based on budget components that are Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 95 generally inflexible: public wages, pensions, and debt service.50 By this definition, Cameroon’s budget appears to be relatively flexible. Cameroon spends less on wages and interest on debt compared to its peers and about the same on pensions. During 2015 to 2021, Cameroon spent an average 4.5 percent of GDP on public sector wages and compensation while lower-middle-income countries and Sub-Saharan Africa had higher averages of 6 percent and 7 percent, respectively, and Cameroon’s aspirational and structural peers averaged 6.4 and 6.1 percent of GDP, respectively (Figure 5.2). Similarly, expenditures on interest payments were notably lower in Cameroon on average, although recent increases in interest payments, as the country borrowed more to finance large infrastructure projects, highlight the growing burden of debt servicing due to higher commitments to bilateral and commercial creditors (Figure 5.3). The burden of Cameroon’s pension system falls about in the middle of those in similar countries, with high variability among both aspirational and structural peers (Figure 5.4). Within Cameroon’s pension system, military pension obligations are responsible for 70 percent of the pension deficit. Figure 5-2. Wage bill, Cameroon and comparators (% GDP), Figure 5-3. Interest payments, Cameroon and comparators (% average 2015–21 GDP), average 2015–21 8.00 7 7.00 6 6.00 5 5.00 % of GDP 4 % of GDP 4.00 3 3.00 2 2.00 1 1.00 0.00 0 AGO COD UGA AGO CMR COD RWA RWA TZA MRT ETH KEN SEN UGA CMR RWA RWA TZA MRT ETH KEN SEN Selected Aspirational Peers Structural Peers Selected A. Peers S. Peers Notes: Aspirational peers are Senegal, Kenya, South Africa, Rwanda, and Notes: Aspirational peers are Senegal, Kenya, South Africa, Rwanda, and Uganda. Structural peers are Mauritania, Angola, Ethiopia, Tanzania, and Uganda. Structural peers are Mauritania, Angola, Ethiopia, Tanzania, and Democratic Republic of Congo. Democratic Republic of Congo. Source: Cameroonian authorities, World Bank calculations. Source: Cameroonian authorities, World Bank calculations. 50 Munoz, Ercio and Olaberria, Eduardo, Are Budget Rigidities a Source of Fiscal Distress and a Constraint for Fiscal Consolidation? (August 6, 2019). World Bank Policy Research Working Paper No. 8957, Available at SSRN: https://ssrn.com/abstract=3433463 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 96 Figure 5-4. Pension payments, Cameroon and comparators (% Figure 5-5.Goods and services, Cameroon and comparators GDP), average 2015–21 (% GDP), average 2015–21 2.5 8 7 2 6 1.5 5 % of GDP % of GDP 4 1 3 2 0.5 1 0 0 CMRSEN KENRWAUGACODMRT AGOETH TZA RWA CMRSEN KENRWAUGACODMRT AGOETH TZA RWA Selected A. Peers S. Peers Selected A. Peers S. Peers Notes: Aspirational peers are Senegal, Kenya, South Africa, Rwanda, and Notes: Aspirational peers are Senegal, Kenya, South Africa, Rwanda, and Uganda. Structural peers are Mauritania, Angola, Ethiopia, Tanzania, and Uganda. Structural peers are Mauritania, Angola, Ethiopia, Tanzania, and Democratic Republic of Congo. Democratic Republic of Congo. Source: Cameroonian authorities, World Bank calculations. Source: Cameroonian authorities, World Bank calculations. Measures taken by the Ministry of Finance held wages and salaries expenditures steady during 2016 to 2021, but allowances are not included. The share of public expenditure going to wages and salaries has varied slightly during 2016 to 2021, averaging 4.5 percent of GDP (Figure 5.6.). The wage bill was contained as a result of measures including: (i) implementation of the Physical Counting of State Personnel (Comptage physique du personnel de l’État), completed in 2019, which generated approximately 0.15 percent of GDP in annual budget savings; (ii) provisions for over three percent of GDP in unjustified arrears; (iii) audit to identify deceased civil servants and pensioners, with one-time savings of 0.05 percent of GDP; (iv) review to reduce beneficiaries of disability pensions, with annual savings of 0.05 percent of GDP; (v) update of the list of civil servants in consulate and diplomatic posts, with one-time savings of 0.06 percent of GDP. However, wages and salaries expenditures do not include allowance and per diems distributed to civil servants. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 97 Figure 5-6. Public expenditure by economic classification (in % of GDP), 2016-2021 0.25 0.2 0.15 0.1 0.05 0 2016 2017 2018 2019 2020 2021 Wages and Salaries Goods and services Transfers and subsidies Investments Interest payments Notes: Debt service includes interest and amortization payments. Source: Cameroonian authorities, World Bank staff calculations. Although overall spending on goods and services remained stable during 2016-2021, too large a portion of this spending went to representation and external services. Spending on goods and services did not vary much as a share of GDP over the last seven years, averaging 3.9 percent (Figure 5.6.). However, among spending on goods and services, expenditure on representation and external services have remained high, together continuing to account for more than half of all goods and services (Table 5-1). The year 2021 saw a slight decrease to 43 percent, with representation expenses accounting for 16 percent while external services represented 27 percent. External services (budget line 618) primarily consist of expenses such as insurance, phone subscriptions and usage, website subscriptions and internet usage, postage, diplomatic pouch, fees and related costs, as well as training, internship, and seminar organization expenses. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 98 Table 5-1. Expenditure on goods and services by type (shares in %), 2015-21 2015 2016 2017 2018 2019 2020 2021 Goods and Services 100 100 100 100 100 100 100 Supplies and routine maintenance 23.6 21.4 24.4 21.9 20.5 20.3 26.1 Supplies and technical equipment 7.5 5.1 6.7 5.4 6.0 7.5 9.2 Fuels and lubricants 6.7 4.6 4.5 5.0 4.7 4.5 6.0 Transportation costs 3.1 3.1 2.3 3.0 2.1 1.4 2.0 Water, electricity, gas and other 2.8 10.2 10.0 3.3 3.2 3.1 4.6 energy costs Rent 1.8 1.7 2.1 2.1 2.0 2.4 4.1 Maintenance and security 4.2 3.6 3.2 3.8 3.2 3.1 5.2 Representation, mission, and 18.1 17.9 16.7 14.3 15.8 13.4 15.8 ceremony expenses External services 32.3 32.5 30.0 41.1 42.3 44.2 27.0 Maintenance of roads and 0.1 0.0 0.1 0.1 0.1 0.1 0.1 infrastructure Source: Rapport sur les Dépenses Fiscales de exercise 2016-2021, Cameroon Ministry of Finance and World Bank staff calculations. Across the other economic categories of spending, declines in investment spending since 2016 have been partly offset by sharply higher debt service and rising subsidies and transfers. Investment expenditure declined steadily from 7.5 percent of GDP in 2016 to 4.5 percent in 2021, partly due to completion of projects related to the 2021 Africa Cup of Nations (Coupe d’Afrique des Nations) international men’s association football competition and then pandemic-related delays in infrastructure projects (Figure 5.6.). Over the same period, debt service increased significantly from 2.3 percent of GDP in 2016 to 4.8 percent in 2021, when it was the largest of the five economic expenditure categories in the state budget. Between 2016 and 2021, Cameroon experienced a notable increase in subsidy and transfer spending, rising from 1.9 percent of GDP in 2017 to 3.0 percent in 2021, driven by changes in fuel subsidies, scholarships, and an increase in the number of pensioners covered. Cameroon continues to devote a large share of public spending to general public administration and relatively little to social sectors, especially health. Using the functional classification of the budget, in 2021, the allocation to general Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 99 and financial administration, which encompasses territorial administration, financial and budgetary affairs, planning and statistics, administrative staff, and general services, accounted for 24.7 percent of the State budget. This level of administration expenses is high compared to regional comparators but more typical of oil exporters, especially in Sub-Saharan Africa. By comparison, spending on education, health, and social protection rose slightly from 20.4 percent of public expenditures in 2019 to 23.4 percent in 2021. Education spending accounted for over 15 percent of the State budget, but health spending reached only 5.7 percent in 2021 (even after a 50 percent expansion over the 2019 share). Cameroon’s budget is heavily centralized, although much of these centralized expenditures are for pensions and debt service. The ministries of Finance (Ministère des Finances, MINFI) and Economy and Planning (Ministre de l’Economie de la Planification et de l’Aménagement du Territoire, MINEPAT) play a significant role in managing over 40 percent of Cameroon’s budget including some budget lines allocated for sector expenditures (by administrative classification) (). The portion of the budget which is not explicitly allocated to a specific ministry or public body has increased to an average of 40.7 percent of public expenditure during 2015 to 2020, compared to an average of 35.4 percent during 2006 to 2015. These centralized expenditures, managed by MINFI51 and MINEPAT, include pensions, external and domestic debt servicing, and transfers to regional and local governments (grants), which in 2020 constituted over 60 percent of the total. Table 5-2. Administrative composition of expenditure (% of total), 2015-20 and average 2015 2016 2017 2018 2019 2020 Average Ministries, institutions and public 62 .0 64 .0 62 .8 54 .6 55 .5 56 .7 59 .3 administration Centralized expenditures, of which: 38 .0 36 .0 37 .2 45 .4 44 .5 43 .3 40 .7 Pensions 5 .2 5 .2 5 .3 4 .4 4 .5 5 .6 5 .0 External public debt 3 .1 7 .0 6 .6 8 .0 10 .2 8 .5 7 .2 Domestic public debt 9 .4 5 .9 5 .4 12 .1 9 .6 7 .7 8 .3 Grants 8 .3 3 .5 3 .5 5 .1 7 .7 4 .7 5 .5 Common expenses 5.8 7.6 9.9 9.5 9.4 13.1 9.2 Source: Rapport sur les Dépenses Fiscales de exercise 2016-2021, Cameroon Ministry of Finance and World Bank staff calculations. 51 The Ministry of Finance (MINFI) is comprised of four General Directorates: the DGI, the DGD, Budget (Direction Générale du Budget, DGB), and Treasury, Financial and Monetary Cooperation (Direction Générale du Trésor, de la Coopération Financière et Monétaire, DGICFM). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 100 The high share of budget allocated to “common expenses” undermines the transparency and accountability of the budget. Common expenses, categorized under Chapter 65 of the State budget, are centrally managed by the Director-General of the Budget and cover various types of expenses across different administrative services. During the period 2015-2020, common expenses constituted an average of 9.2 percent of total expenditure (Table 5-2). In addition to their large share in total expenditure, they significantly contribute to the large deviation between initial budget allocations, revised budget allocations and actual spending (Box 5-1). Furthermore, common expenses include some spending such as per diems or travel costs that are classified under goods and services instead of under “operating expenditures.” Box 5-1: High share of common expenses and over-execution During the period from 2015 to 2020, common expenses, on average, made up 6.4 percent of the total budgeted expenses outlined in the initial financial laws. This percentage fluctuated, reaching a low of 5.7 percent in 2016 and a high of 7.7 percent in 2018. Conversely, common expenses accounted for an average of 9.3 percent in the amended financial laws and 9.0 percent of the total expenses allocated for each fiscal year during this same period. The proportion of common expenses consistently increases between the initial and amended financial laws. Consequently, the execution rates of common expenses, when compared to the initial financial laws, averaged 137 percent over the 2015-2020 period, with a peak of 200 percent in 2020. Figure 5-7. Common expenses; initial, revised, and executed budget amounts (as % of total expenditures), 2015-20 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0 2015 2016 2017 2018 2019 2020 Initial approved budget Revised budget Commitment Source: Cameroonian authorities, World Bank calculations Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 101 Goods and services expenses, on average, accounted for a significant 78.5 percent of the total common expenses during 2015 to 2020 (Table 5-3). While they initially represented a mere 11.6 percent of the total Goods & Services Expenses in the state budget from 2015 to 2020, this average surged to 44.4 percent in the amended financial laws, with 42.5 percent of ordered Goods & Services Expenses being included in Common Expenses. Notably, the execution rate of Goods & Services Expenses in Chapter 65 (Common Expenses), in comparison to the initial budgets, averaged a staggering 594 percent over the 2015-2020 period. Table 5-3. Common expenses, total and goods and services (CFAF billions and share in %), 2015-2020 Year Total Common Of which goods and Share of goods and Expenses services services 2015 203.6 146.8 72.1% 2016 282.1 214.3 76.0% 2017 375.0 274.4 73.2% 2018 434.2 332.3 76.5% 2019 464.5 399.0 85.9% 2020 545.2 442.5 81.1% Average 384.1 301.6 78.5% Source: Cameroonian authorities, World Bank calculations 5.1.1 Public investment spending The dominance of infrastructure investment has remained even as overall public investment has shrunk, with almost two-thirds of public capital spending going to transport, energy, and telecommunications investment. As discussed above (Section 5.1), public investment spending has steadily declined from its peak of 7.5 percent of GDP and 36.9 percent of public expenditure in 2016 to 4.5 percent of GDP and 21.8 percent of spending in 2021 (Figure 5.8). During that period, an average 62.3 percent of this public investment went to infrastructure, a share that remained steady (Figure 5.9). The infrastructure sector consists of transport infrastructure, including roads and ports, as well as energy and telecommunications. The main social sectors—health and education—received only 7.4 percent and 4.5 percent on average of public investment budget (budget d’investissement public, BIP) appropriations, and health sector investment has continuously decreased, from 8.7 percent of BIP in 2016 to 6.2 percent in 2021. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 102 Figure 5-8. Public capital expenditure (% of GDP), Figure 5-9. Sectoral distribution of the capital 2016-21 budget (in %), 2016-21 8.0 100.00% 7.0 6.0 50.00% 5.0 % of GDP 4.0 3.0 0.00% 2.0 2016 2017 2018 2019 2020 2021 2022 Common expenses Production and trade 1.0 Infrastructure Social affairs and employment Health Communication. culture. leisure and sport 0.0 Teaching. training and research General and nancial administration 2016 2017 2018 2019 2020 2021 Defense and security Sovereignty Source: Cameroonian authorities, World Bank calculations Unfortunately, Cameroon’s relatively high spending on capital investment does not deliver matching infrastructure assets, since public spending efficiency falls well short of potential and lags the performance of peer countries, according to an analysis of road transport. In theory, Cameroon could enhance its road infrastructure quality by as much as 40 percent while maintaining the same level of public spending as a share of GDP: its infrastructure quality stands at 2.78 while the efficiency frontier for Cameroon’s level of public spending delivers quality of 3.96 (Figure 5.10). While many comparators also face inefficiencies, all of Cameroon’s aspirational peers have achieved higher quality road transport infrastructure, and Rwanda, Senegal, and Uganda achieved Credits photo: Odilia Hebga / World Bank Group that higher quality with similar public spending as a percentage of GDP. Among structural peers, Ethiopia stands out for more efficient infrastructure investment with a similar level of spending. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 103 Figure 5-10. Distance from the efficiency frontier and spending on road transport infrastructure, Cameroon and comparators 6 Infrastructure: Quality of infrastructure (1-7=best) RWA, 1.00 5 SEN, 0.83 4 CMR, 0.70 KEN, 0.84 3 2 COD AGO, 042 1 0 0 1 2 3 4 5 6 7 8 Spending: Public, 2010-20 Notes: Aspirational peers are Senegal, Kenya, South Africa, Rwanda, and Uganda. Structural peers are Mauritania, Angola, Ethiopia, Tanzania, and Democratic Republic of Congo. Quality of Infrastructure: Source: Cameroonian authorities, World Bank staff calculations. Despite inefficiencies in public investment, Cameroon has reaped modest but lasting benefits to growth from its public capital spending, although weaker benefits than in global or regional comparators. In addition to comparing Cameroon’s spending on public investment to peer countries to assess if public investment levels have been appropriate, the impact of public investment on Cameroon’s growth is an important consideration. Cameroon’s public investment multiplier, based on regressions using data from 1999 to 2000, is estimated to be 1.1—one CFAF of public investment leads to 1.1 CFAF of economic activity. However, while greater than one, this multiplier effect of public investment is weaker than global or regional estimates, possibly due to leakages through imports and the country’s low productivity of public investment caused by weaknesses in project selection, execution transparency, and asset accounting (Box 5-2). Box 5-2. Is Cameroon’s government investing too much or too little? An assessment of the public investment multiplier Despite the pullback from capital spending in recent years, public investment in Cameroon has been on a general upward trend since 2000, reflecting the country’s efforts to fill its large infrastructure gap but with an uncertain impact on growth. The government’s previous development strategy aimed at achieving structural transformation through massive public investments. In response, public capital expenditure ramped up, from an average 2.4 percent of GDP during 2000-07 to 5.1 percent of GDP during 2008–15 and 6.8 percent during 2016–20. The impact on growth was unclear, as average non-oil GDP growth drifted downwards from an average 4.9 percent during 2000-07 to 4.3 percent during 2008-15 and 4.1 percent during 2016-20 (Figure 5.11). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 104 During 2000 to 2020, public investment in Cameroon provided a modest but lasting boost to real GDP growth, with an estimated multiplier of 1.1, meaning that one CFAF of public investment leads to 1.1 CFAF of economic activity. Using modeling techniques from academic literature, the impact of public investment on real GDP growth in Cameroon is estimated.52 Using annual data from 1999 to 2020 and taking into account Cameroon’s existing capital stock, the public investment multiplier in Cameroon is estimated to be 1.1, indicating a positive impact on economic growth, and the cumulative multiplier remains statistically different from zero for up to one year and a half following a shock, suggesting a lasting effect on GDP (Figure 5.12). Although empirical estimates vary widely, multipliers related to public investment are typically about 1.5 globally, and recent evidence suggests public investment in developing countries provides even higher returns since the initial stock of public capital is smaller and the quality, quantity, and accessibility of economic infrastructure is lower.53 Cameroon’s public investment returns may be undercut due to leakages through imports and the country’s low productivity of public investment caused by weaknesses in project selection, execution transparency, and asset accounting.54 Figure 5-11. Public investment and GDP growth (% GDP, Figure 5-12. Estimated GDP response to public %), 2007-2021 investment shock (in %) 8 7 1.5 6 1.0 5 4 0.5 3 0.0 2 1 -0.5 0 -1.0 99 01 03 05 07 09 11 13 15 17 19 21 0 1 2 3 4 5 6 7 19 20 20 20 20 20 20 20 20 20 20 20 Upper Bound Lower Bound GDP growth Non-oil GDP growth Estimated Effect Public investment (% GDP) Notes: Trend line of public investment shows a smoothed investment path. Notes: Shock is 1 percent of GDP change in public investment in year 0. Source: World Bank staff calculation using MFMOD and PIMA databases. Source: World Bank staff calculations. 52 A Local Linear Projection (LLP) model is used with real GDP growth as the dependent variable and incorporating public investment, average capital stock, and a quadratic trend as endogenous variables, following the approach by Izquierdo, et. al. (2019). The LLP model offers advantages over traditional structural vector autoregressive (SVAR) methodology, including easier estimation through single-regression techniques (using panel-corrected standard errors), robustness to potential misspecifications (such as serial autocorrelation, cross-sectional autocorrelation, and heteroskedasticity), and flexibility to accommodate non-linear specifications that are not allowed in standard multivariate SVAR models. See Izquierdo, et. al. (2019), Is the public investment multiplier higher in developing countries? An empirical investigation. National Bureau of Economic Research. http://www.nber.org/papers/w26478. 53 For example, Ilzetzki, et. al. (2013) reported a 1.6 investment multiplier for low-income countries over a three-year horizon. However, Arizala, et. al. (2017) estimated that for Sub-Saharan Africa, a one percent rise in public investment raised output by about 0.7 percent over the medium term. See Vagliasindi, Maria; Gorgulu, Nisan (2021). What Have We Learned about the Effectiveness of Infrastructure Investment as a Fiscal Stimulus A Literature Review. Policy Research Working Paper 9796. World Bank Group. https://doi.org/10.1596/1813-9450-9796. See Ilzetzki, Ethan, Enrique G. Mendoza & Carlos A. Végh. (2013). How Big (Small?) are Fiscal Multipliers? Journal of Monetary Economics, Volume 60, Issue 2, March 2013, Pages 239-254. See Arizala, Francisco, et. al. (2017). The Impact of Fiscal Consolidations on Growth in Sub-Saharan Africa. IMF Working Paper. WP/17/281. International Monetary Fund. 54 IMF (2016), Cameroon Public Investment Management Assessment (PIMA). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 105 5.2 Budget Execution Cameroon’s budget credibility suffers from significant reallocations during budget execution and expenditure outturns that are significantly below the initially approve budget. During 2010-21, Cameroon spent on average 5.6 percent less than budgeted. This divergence from plan compares favorably with the performance of all of CEMAC (-8.8 percent difference) and with Cameroon’s aspirational peers (-6.4 percent). Cameroon’s structural peers maintained stronger budget credibility, with just 3.3 percent average shortfall in spending as did the overall region (41 Sub-Saharan African countries with available data) with just -2.6 percent difference between actual spending and budget (Figure 5-13). Figure 5-13. Budget deviation % of approved, Cameroon and comparators (in %). 2010-21 CMR LIC LMIC SSA S.Peers A. Peers 0 -2 (2010-2021 average) -4 % Approved -6 -8 -10 -12 -14 -16 Notes: SDG indicator 16.6.1 which is primary government expenditures as a proportion of original approved budget. Sub-Saharan Africa is 41 countries. CEMAC is Cameroon, Chad, Republic of Congo, and Gabon. Structural peers are Angola, Democratic Republic of Congo, Ethiopia, Mauritania, and Tanzania. Aspirational peers are Kenya, Rwanda, Senegal, South Africa, and Uganda. Source: World Bank Databank. Moreover, significant annual modifications of the initial budget law have undermined the credibility of the country’s budget by shifting budget composition. From 2015 to 2021, there has been an average increase of 2.7 percent in total spending approved in the Revised Budget Law compared to the initial Budget Law (Table 5-4). More important than the revision of the overall spending envelope is the shift in composition of the budget imposed by the revised budgets each year. Between 2015 to 2021, the share of spending for capital expenditure has been cut an average of 1.7 percentage points (from an average 32.7 percent of total spending to 31.0 percent) while current expenditure’s share has been Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 106 increased by an average 1.2 percentage points. Importantly, these revisions have shifted the composition of the budget significantly within current expenditures: on average during 2015 to 2021, the revised budget increased the share spent on consumption of goods and services by 6.2 percentage points (from 10.1 percent of spending to 16.3 percent), as the resources assigned to ‘provisions’ in the initial budget were reallocated. The category within goods and services with the greatest expansion was external fees, whose share rose by 4.3 percentage points on average. As a result, remuneration for external services rose from an average 2.1 percent of total expenditure in the initial budgets to an average 6.3 percent in the revised budgets. Similarly, the allocation for representations, missions, receptions, and ceremonies, amounting to an average 1.5 percent of total expenditures in the initial budget, increased to 2.6 percent on average in the Revised Budget Laws. Thus, the imbalance already present in the initial budget, with disproportionate shares allocated to expenditures for representation and payments for external services, has been worsened by budget revisions.55 Table 5-4. Budget revision and execution (shares in % and changes in shares), average 2015-2021 Change in share Shares (%) (percentage points) Initial Revised Actual Initial to Revised budget budget spending revised to actual Total Expenditure 100.0% 100.0% 100.0% 2.7% -4.2% Debt 10.9% 11.4% 11.3% 0.5% 0.0% Capital expenditures 32.7% 31.0% 30.7% -1.7% -0.3% Current expenditure 56.4% 57.6% 58.0% 1.2% 0.3% 61 — Goods and services 10.1% 16.3% 16.6% 6.2% 0.3% 610 — Supplies and routine maintenance 2.1% 3.4% 3.6% 1.3% 0.2% 611 — Supplies and technical equipment 1.1% 1.0% 1.1% 0.0% 0.0% 612 — Fuels and lubricants 0.8% 0.8% 0.8% -0.1% 0.1% 613 — Transportation costs 0.4% 0.4% 0.4% 0.0% 0.0% 614 – Water, electricity, gas and other 0.6% 0.9% 0.9% 0.3% 0.0% energy costs 615 — Rent 0.3% 0.3% 0.3% 0.0% 0.0% 616 — Maintenance and security 0.5% 0.5% 0.6% 0.0% 0.0% 617 — Representation, mission, and 1.5% 2.6% 2.6% 1.0% 0.1% ceremony expenses 55 It should be noted that the IMF regards Cameroon’s use of revised budget laws in a more positive light, as a contingency measure that can help achieve IMF program objectives and mitigate fiscal risks. IMF (2023), “Third Review Under the Extended Credit Facility,” IMF Country Report No. 23/114, March. p 8. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 107 Change in share Shares (%) (percentage points) Initial Revised Actual Initial to Revised budget budget spending revised to actual 618 — External services 2.1% 6.3% 6.3% 4.3% -0.1% 619 — Maintenance of roads and 0.7% 0.0% 0.0% -0.7% 0.0% infrastructure 62 – Salaries 22.8% 22.2% 22.5% -0.6% 0.3% 63 — Taxes to be paid 0.1% 0.6% 0.6% 0.5% 0.0% 64 — Financial costs 3.3% 3.8% 3.6% 0.5% -0.1% 65 — Grants to be paid 3.1% 3.2% 3.2% 0.0% 0.0% 66 — Transfers to be paid 6.5% 7.2% 7.2% 0.7% 0.0% 67 — Other expenses 4.3% 3.8% 3.6% -0.5% -0.2% 69 — Provisions 6.3% 0.7% 0.7% -5.6% 0.0% Total Expenditure (CFAF billions; % change) 4357.6 4474.1 4286.0 2.7% -4.2% Source: General Directorate of the Budget (Direction Générale du Budget, DGB), MINFI. Cameroon’s budgetary system faces significant challenges stemming from annual spending overruns in specific budget categories and subsequent revisions to the initial budget law, a process typically confirmed ex post by Parliament through presidential decree. A number of budget practices in Cameroon undermine transparency and accuracy in the country’s budgetary processes. Initial budget allocations are often revised through a Presidential decree and only later ratified by Parliament, raising concerns about budget control and transparency and accountability in the budgetary process. Furthermore, substantial funding of ‘provisions’ in the initial budget (of approximately 6.3 percent of total initial budget expenditure), intended to be allocated later, contribute to this opacity. Overspending typically occurs through special procedures, including imprest (petty cash) accounts, provisional commitments, and cash advances, which are justified by the urgency of expenses but require post hoc regularization in the Revised Budget Law. Inconsistencies between budgetary and accounting data, such as recording expenditure as goods and services in budget data but as transfers in Treasury accounts, make analysis of spending and the budget more difficult; however, the findings in this report are generally the same regardless of the data source. Excessive reliance on exceptional budget procedures in Cameroon continues to undermine liquidity management as well as budget transparency. Spending using exceptional procedures peaked at over 11 percent of total primary spending Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 108 (excluding externally financed expenditures) in 2020 and averaged over nine percent during 2018-21. Since this spending, mostly on goods and services, is not included in cash flow plans, yet has priority for disbursement, it crowds out regular spending (for example, for grading of national school exams). This issue is not new, having been identified in the 2018 Public Expenditure Review, and the government committed to containing these exceptional procedures to below five percent of total primary spending.56 This ceiling is included as an indicative target in the IMF’s Extended Credit Facility and Extended Fund Facility three-year arrangement signed in July 2021, but the government has continuously failed to meet this target. Arrears accumulation serves as the main instrument for fiscal adjustment. Between 2015 and 2020, domestic arrears averaged about 40 percent of commitments. Notably, almost one-third of these arrears can be attributed to delayed payments, often referred to as “Reste À Payer” (“left to pay,” RAP), of which about half come from delayed capital expenditures and short-term domestic debt payments (Table 5-5). Additionally, spending funded from the contingency reserve represents approximately 18 percentage points of total arrears, while salary expenditures and social transfers represent 4 and 10.4 percentage points respectively during this period. The substantial arrears accumulation not only distorts accurate assessment of the fiscal balance but also severely impedes the effective execution of the budget. The presence of arrears leads to an underestimation of expenditure, ultimately obscuring the true impact of government operations. The magnitude of the fiscal challenges facing the country becomes harder to assess since the budget for the following year often bears the burden of clearing those arrears. Table 5-5. Domestic arrears and budget expenditures (CFAF billions and % of commitments), 2015-20 Budget Commitments Payments RAP Arrears RAP (% of Arrears (% of allocation commitments) commitments) (credit) 2015 3767.8 3870.0 2102.8 510.5 1767.2 13.2% 45.7% 2016 4469.1 4845.0 3494.8 494.5 1350.2 10.2% 27.9% 2017 2898.4 4688.1 2409.0 711.8 2279.1 15.2% 48.6% 2018 4809.8 3837.8 2755.5 521.1 1082.3 13.6% 28.2% 2019 3572.4 5947.6 3463.9 429.9 2483.8 7.2% 41.8% 2020 4641.6 4552.2 2342.1 331.0 2210.1 7.3% 48.6% Notes: RAP is delayed payments (Reste À Payer”). Source: Cameroon Authorities and World Bank staff calculations. 56 Circular No. 00008349/MINFI of 30 December 2019 aimed to limit the use of exceptional procedures and provided instructions for the execution of finance laws, budget monitoring, and control for the 2020 financial year. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 109 Figure 5-14. Budget categories of delayed payments (as % of total RAP, average for 2015-20) Medium long term debt capital repayment Investment Short-Term Debt Capital Repayment Goods and services Wages Taxes to pay Financial charges, interest and loan commissions Subsidies to be paid Transfers to be paid Other expenses Provisions Source: Cameroon Authorities and World Bank staff calculations. 5.2.1 Public procurement The 2018 PER highlighted several challenges in the public procurement system, in particular, excessively complex procedures, weak monitoring, and lack of skilled staff. The process was characterized by long and complex procedures that often-caused delays in implementing investment projects. On average, the procurement process in 2015 was found to take 167 days with 28 administrative steps for the interdepartmental procurement committee (Commission Spéciale de Passation des Marchés) and a longer duration of 366 days with 58 administrative steps for the Ministry of Public Procurement (Ministère des Marchés Publics, MINMAP). Cameroon lacked comprehensive procedures and tools to monitor the procurement process effectively, identify delays, and address bottlenecks, which hindered performance monitoring and adherence to accountability principles. Insufficiently skilled staff within line ministries further contributed to delays, and the lack of procurement plans and tender document preparation during the preparation phase exacerbated the problem. Additionally, government agencies involved in procurement management faced resource and expertise constraints, affecting the quality of programming, tender documents, bid evaluation reports, and contract monitoring. The adoption of the new Public Procurement Code in 2018 and implementation of related reforms have significantly improved public procurement performance in Cameroon, with improved efficiency at all stages of procurement. Reforms to public procurement are detailed in Section 5.3. As a result of procurement Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 110 reforms, in 2021, 97.0 percent of the planned calls for tenders (announcement of opportunity) were launched, a very high rate (Table 5-5). The contract award rate has also shown consistent improvement, reaching 94.8 percent in 2021. Additionally, the signing of awarded contracts has increased from 80.0 percent in 2018 to 92.4 percent in 2021. Although the rate of receipt57 of contracts remains low, it has also improved substantially from 50.7 percent in 2019 to 74.3 percent in 2021. This low rate is primarily due to delays in contract signing and the multi-year nature of certain contracts, particularly in infrastructure works. The payment capability of the State and the quality of human resources at the level of project owner continue to weaken the performance of public contracts. However, overall performance during 2018 to 2021 has been satisfactory. Table 5-6. Performance indicators for the execution of Cameroon’s public procurement 2018 2019 2020 2021 Solicitation: Announcement of opportunity launch 92.4 95.6 90.1 97.0 rate Evaluation and Award: Contract award rates 84.4 88.7 88.5 94.8 Contracting: Contract signing rate 80.0 84.8 85.9 92.4 Implementation and Monitoring: Rate of receipt of 59.9 50.7 62.7 74.3 benefits/contracts Notes: Announcement of opportunity launch rate is defined as percentage of planned calls for tenders out of total projects. Contract award rate is defined as percentage of project awarded through competitive tenders. Contract signing rate is defined as . . . Rate of receipt of benefits is defined as . . . Source: MINMAP 5.2.2 Public investment management According to government reporting which may not be altogether accurate, execution of investment spending has been strong, until a sharp drop in 2021, especially for domestically financed projects, while externally financed projects have lagged, partly due to delays in counterpart funding. During 2015 to 2020, the average execution rate of the BIP in Cameroon was 92.4 percent, slightly lower than the overall budget execution rate of 98.4 percent but improving over time, rising from 91.0 percent in 2015 to 97.9 percent in 2020. This trend was reversed in 2021, which saw a significant decline in the execution rate to just 80.5 57 Rate of receipt of contracts is part of the Solicitation stage (number of new contracts per month), indicating the level of competition among suppliers and the efficiency of the procurement process. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 111 percent of the allocated amount for actual/RBL. Notably, domestically financed investments in 2021 achieved an impressive implementation rate of 99.9 percent, according to government reporting, whereas the execution rate for externally financed projects was substantially lower at 66.9 percent. This underperformance of externally funded investments can be attributed to the limited progress in specific infrastructure projects, such as the “Second Phase of the Port of Kribi,” which had a disbursement rate of only 2.7 percent out of the allocated ceiling of CFAF 41 billion. A more general problem for externally financed projects has been delays in disbursing counterpart funds. However, more importantly, the accuracy and reliability of the government’s data and reporting on public investments have been put into question by studies conducted by technical and financial partners that indicate that the actual execution of public investment projects is much lower, estimated to be around 50 percent.58 Box 5-3. Challenges in Public Investment Management in Cameroon An assessment made by authorities in June 2021 has indicated that management of public investment projects in Cameroon faces several challenges that require attention and improvement. Key issues identified include: • Inefficient Project Prioritization: A significant concern is the initiation of many projects without consistent budget coverage, leading to inefficiencies. This approach results in multiple projects competing for limited resources, thereby undermining the effectiveness of public investment. • Quality Concerns and Recurrent costs: Many investments are of subpar quality, with inadequate consideration given to recurrent costs for maintaining and operating existing infrastructure. Some projects have notably lengthy implementation periods, ranging from 8 to 15 years. This leads to rapid deterioration of state assets and escalates rehabilitation expenses with no impact on growth. • Contractor Capacity and Payment Delays: The technical and financial capacities of contractors selected for public investment projects are often insufficient. This inadequacy is compounded by delayed payments, causing contractors to abandon projects, further disrupting project timelines and outcomes. • Budgetary and Programming Issues: Projects are frequently launched without ample consideration of available budget space, leading to unclear multi-annual programming and sustainability concerns. Issues like inconsistent budget appropriations, discontinuous project programming, and significant funding gaps exacerbate these challenges. • Extra-Budgetary Projects and Complex Monitoring: Numerous projects initiated outside the formal budget (extra-budgetary) in various administrations impose considerable budget demands. This practice complicates budget monitoring and strains financial management. 58 IMF (2016), Cameroon Public Investment Management Assessment (PIMA). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 112 These findings resonate with the 2020 Public Investment Management Assessment (PIMA), which highlighted that despite recent increases, public investment efficiency in Cameroon remains relatively low. • Cameroon’s efficiency gap compared to the most efficient countries is over 60%. • The management of the stock of committed undisbursed balances (soldes engagés non décaissés, SENDS) alongside maintaining sustainable external debt poses significant challenges. • Limited focus on recurrent expenses and maintenance costs during project planning. This oversight adversely impacts project operation, productivity, and the sustainability. • Lack of coordination and information sharing between the Ministry of Finance (MINFI) and the Ministry of Economy, Planning, and Regional Development (MINEPAT). Sources: PIMA 2020 and the report on Priority Investment Program (PIP) 2022-2024 5.3 Budget Reforms Since 2018, Cameroon has implemented a comprehensive legal and institutional framework to enhance the quality of spending and strengthen control over the management of public funds, aligning with CEMAC’s new harmonized public financial management framework. In July 2018, the parliament passed two important laws on public finance and the budget and a new public procurement code, supplemented by several decrees. Among other goals, these legal reforms helped transpose CEMAC’s new harmonized public financial management (PFM) framework. This new legal framework has facilitated the implementation of a budgetary consolidation policy aimed at optimizing internal revenues, controlling expenditure, and managing debt. The framework has resulted in numerous reforms across various areas of public finances, including revenue mobilization, public financial control, budget preparation, execution, monitoring and control, treasury and debt management, public accounting, and supervision of public entities. These reforms aim to improve efficiency, transparency, and accountability in the management of public funds in Cameroon. The main legal and regulatory changes were: a. Law No. 2018/011 of 11 July 2018 on the Code of Transparency and Good Governance in the Management of Public Finances: This law establishes a framework for promoting transparency, accountability, and good governance in the management of public finances. It sets out principles and guidelines to ensure proper financial management, budgeting, accounting, and reporting in the public sector. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 113 b. Law No. 2018/012 of 11 July 2018 on the Financial Regime of the State and Other Public Entities: This law governs the financial operations and management of the state and other public entities. It provides regulations on budget preparation, execution, and control, as well as rules for public accounting, debt management, and financial reporting. c. Decree No. 2018/366 of 20 June 2018 on the Public Procurement Code: This decree establishes a comprehensive framework for public procurement in Cameroon. It sets out rules and procedures to ensure transparency, competitiveness, and efficiency in the procurement process. The code aims to enhance the quality of public procurement, including the selection of contractors and the execution of procurement contracts. d. Decree No. 2018/4992/PM of 21 June 2018 laying down the rules governing the lifecycle of public investment projects: This decree provides requirements for project identification, feasibility studies, cost estimation, environmental impact assessment, and project approval. The aim is to ensure that investment projects are adequately prepared and evaluated before implementation, minimizing risks and enhancing project outcomes. e. Decrees on the State’s budgetary calendar, the presentation of the State Budgetary Nomenclature (Nomenclature budgétaire de l’État), the State Accounting Plan (Plan comptable de l’État), and the General Regulation of Public Accountancy (Règlement Général de la Comptabilité Publique).59 The governance of the public procurement system has been strengthened by the implementation of a new legal framework set out in the 2018 Public Procurement Code. Issued by decree in June 2018, the new Public Procurement Code established a comprehensive framework to ensure transparency, competitiveness, and efficiency in the procurement process. The new Code created full accountability of the contracting authority and the separation of procurement, control, and regulation functions. Several new types of contracts and tenders were introduced, the most important of which include two-stage tendering, framework agreements, design-build contracts, reserved contracts, negotiations prior to the award of contracts, and the abolition of the examination of draft contracts awarded by invitation to tender. Unlike the previous regulations, the new Code limits MINMAP to external control, receiving from the procurement commissions and contracting authorities copies of all the documentation generated from the award and execution of contracts. 59 Decree No. 2019/281 of 31 May 2019 set the State’s budgetary calendar. Decree No. 2019/3187/PM of 9 September 2019 set the general framework for the presentation of the State Budgetary Nomenclature. Decree No. 2019/3199/PM of 11 September 2019 set the general framework for the presentation of the State Accounting Plan. Decree No. 2020/375 of 7 July 2020 set out the General Regulation of Public Accountancy. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 114 Box 5-4. Main Innovations of Cameroon’s 2018 Public Procurement Code Full accountability of project owners and boards of directors (contracting authorities). The conduct of public procurement procedure is now the exclusive responsibility of ministries and public enterprises (contracting authorities and delegated contracting authorities). For public companies, the board of directors becomes the guarantor of the implementation of the new procurement procedures. New structures for the award and control of public procurement. Internal public procurement administrative management structures (structures internes de gestion administrative des arches publics, SIGAM) are set up to assist contracting authorities in their new functions. Procurement commissions are reorganized at the central, regional and departmental levels (delegated appropriations). The Ministry of Public Procurement (Ministère des Marchés Publics, MINMAP) becomes the external controller of public procurement, establishing central procurement control commissions, responsible in particular for the ex- ante visa before payment (obtaining approval before payment), the control of effectiveness and quality, and the fight against corruption. Reduction of time limits for certain procedures. Deadlines are shortened for submitting and evaluating tenders; for setting contracts by mutual agreement; and for the submission of prequalification of tenders. New types of contracts and tenders. Two-stage tendering was established in case the client wishes to base the choice on performance criteria, operating constraints, and economic cost. Framework agreements allow for orders based on needs. Design-build contracts for infrastructure and reserved contracts, particularly for craftsmen; are also now allowed. Other key changes were negotiations prior to the award of contracts; and the abolition of the examination of draft contracts awarded by invitation to tender. Establishment of an appeals committee. Placed with the Public Procurement Regulatory Agency (Agence de régulation des marchés publics), this committee is responsible for examining bidders’ appeals and formulating appropriate corrective measures to MINMAP. Source: World Bank staff. The new Public Procurement Code also introduced measures to strengthen decentralized services and enhance the role of subnational entities in the public procurement process. Regional governors and prefects of departments now have administrative management structures for public procurement, with regional and departmental procurement commissions established to oversee procurement activities. Furthermore, the possibility of creating a regional-level committee for appeals adds an additional layer of transparency and accountability. Within administrations, contracting owners have internal procurement commissions which include a Secretary appointed by the contracting authority. Lastly, under MINMAP, the Central Commission for Market Control ensures effective control and regulation of procurement activities at the central level, a mechanism for central oversight and control of procurement processes. In addition to the new Procurement Code, several reforms have been implemented to streamline the procurement process, reduce paperwork, and improve transparency and efficiency, of which the shift to e-procurement is the most important but Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 115 unfinished improvement. Most important has been the digitizing and automating of various stages of the procurement process since 2016 on the COLEPS (Cameroon Online E-Procurement System) platform. Cameroon’s e-procurement system supports online procurement plans, publishing and notification, and tendering but not online evaluation and awarding of contracts. Transparency has been strengthened through semi-annual and annual publication since 2020 of monitoring and evaluation reports and statistics on public contract procurement and execution. Efficiency has been fostered with the implementation of a performance-based remuneration and payment mechanism for key actors in the public procurement system. To reduce delays in procurement processes and improve compliance going forward, the focus should be on comprehensive training and capacity-building to relevant ministries and decentralized territorial communities as well completion of the shift to e-procurement, including evaluation and awarding of contracts. Despite these legal and institutional improvements, Cameroon has not followed through on the recommendations related to public expenditure composition and implementation set out in the 2018 PER. The analysis of the last PER found many of the same issues identified here (Box 5-5). Of the five recommendations on public expenditure composition and implementation in the 2018 PER, only one has seen partial progress: lowering procurement costs by using a reference price list for goods and services (Table 5-8). Box 5-5. Main findings of the 2018 Public Expenditure Review on budget allocation and execution The 2018 Cameroon Public Expenditures Review identified key challenges in the efficiency, equity, and effectiveness of public spending. It revealed limited efficiency and effectiveness, particularly in the health sector and state-owned enterprises. The allocation of public expenditure was skewed towards overhead costs and debt servicing, leaving insufficient resources for priority sectors. Furthermore, a significant portion of spending on goods and services are non-wage benefits. The report highlighted the negative impact of increased spending, especially in capital investment, on budget imbalances, necessitating short- term fiscal consolidation. It recommended improving allocative efficiency by reducing administration and goods and services expenses. The review also emphasized the complexity of the wage bill, with non-wage compensation lacking a connection to performance. Transfers to state-owned enterprises and autonomous public agencies were flagged as fiscal risks. While public investment helped narrow the infrastructure gap, infrastructure quality required policy reforms and proper maintenance. The budget’s credibility was undermined by deviations from the approved budget and poor commitment control, and the centralized management of the State budget incurred political and social costs. Source: Cameroon Public Expenditure Review: Aligning Public Expenditures with the Goals of Vision 2035. Washington, D.C.: World Bank Group. http://documents.worldbank.org/curated/en/501141543353309471/Aligning-Public-Expenditures-with-the-Goals-of-Vision-2035 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 116 Table 5-7. Summary of implementation of Cameroon’s 2018 PER recommendations on public expenditure composition and implementation Objectives Recommendations from 2018 PER Status 1 Reduce spending on Develop and implement an action No progress. general and financial plan to gradually reduce government administration (functional overhead costs, which will create fiscal budget classification) space to increase public spending on social (and other priority) sectors 2 Lower procurement costs Ensure that the reference price list Circular issued for standard goods and services December 2020 (mercuriale) is used as a reference and requiring use of price includes the lowest possible prices to list.60 Ensure the reduce variation in public procurement implementation of the costs across public entities and contain Circular and evaluate spending on goods and services the implementation of the measure. 3 Rebalance spending Reallocate a portion of external service No progress. on goods and services fees to infrastructure maintenance and (economic budget energy costs classification) 4 Review high spending on Conduct a thorough review of No information subsidies and transfers, autonomous public agencies to assess especially to autonomous their net fiscal impact on public finances public agencies and their relevance to service provision (établissements publics administratifs) and SOEs 5 Reduce share of Reduce significantly the use of non- No progress. budget that is centrally debt unallocated expenditures by managed (administrative allocating them to specific functions of classification) government Cameroon has undertaken important measures to improve its public investment management, aligning with recommendations from the 2018 Public Expenditure Review. These efforts include revising the Public Investment Program to cater to diverse project characteristics, adopting a multi-criteria framework for prioritizing and selecting projects, and establishing a project management system for budget allocation. Short and medium-term actions have also been implemented to enhance public investment effectiveness. To support these reforms, Cameroon has introduced Decree 2018/4992 to streamline project maturation processes and created a project bank for comprehensive project tracking, emphasizing transparency and efficiency in public investment management. 60 Circular No. 0000242/C/MINFI of 30 December 2020 on instructions relating to the Execution of Finance Laws, Monitoring and Control of the Execution of the Budget of the State and other Public Entities for the 2021 financial year prescribes that “The prices of the work carried out under direct management must be in accordance with those of the mercurial prices. When they do not appear in the mercurial, they are first approved by the Ministry in charge of trade.” Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 117 Nevertheless, significant challenges persist: to bolster public investment, prioritizing timely project execution, refining project selection procedures, and enhancing transparency and public engagement are paramount. The efficient implementation of ongoing projects necessitates addressing delays in counterpart fund disbursements (as noted in Section 5.2.2). Improving the quality of future projects mandates bolstering capacity in project selection, encompassing standardized criteria and reinforced ex ante and ex post evaluations. Enlisting civil society and local governments in the selection, evaluation, and monitoring processes can foster enhancements in public investment. 5.4 Policy Options Cameroon’s budget allocation continues to be heavily centralized, although much of these centralized expenditures are for pensions and debt service. The initial budget has regularly set aside significant resources within current expenditures as ‘provisions’ to be allocated later, undermining budget transparency and accountability. Budget execution continues to face challenges. The significant annual modifications of the initial budget law undermine the credibility of the country’s budget, especially because revision of the initial budget law is undertaken via presidential decree confirmed only ex post by Parliament, weakening the transparency and accuracy of the country’s budgetary system. Moreover, excessive reliance on exceptional budget procedures continues to undermine liquidity management as well as budget transparency. The adoption of the new Public Procurement Code in 2018 and implementation of related reforms have significantly improved public procurement performance in Cameroon, with improved efficiency at all stages of procurement. The ongoing shift to e-procurement promises to streamline the procurement process and improve transparency and efficiency. Policy options to address these challenges are summarized below (Table 5-6). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 118 Table 5-8. Recommended policy actions to improve public expenditure allocation and implementation Objective Recommended actions Responsible Timeline Shift away from Reduce common expenses (Chapter 65 of State DGB/MINFI Short to centralized spending budget) medium term and provisioning Reduce centralized spending to less than 40 DGB/MINFI Short to to improve budget percent of total spending excluding essential medium term allocation expenditures such as pensions and debt servicing. Regulate the budgeting of provisions to be DGB/ Short to allocated later prevent excessive deviations. DGTCFM/ medium term MINFI Enhance budget Adopt a roadmap to reduce the level of DGB/ Short to credibility by avoiding expenditure implemented through exceptional DGTCFM/ medium term exceptional budget procedures to below the agreed ceiling of MINFI procedures and five percent of total spending (under the IMF budget amendments program). by presidential decree Avoid amendments of the initial budget law DGB/MINFI/ Short to and amending the through presidential decrees and require all MINAP / medium term budget only through revisions to be through a revised budget law MINDEVEL Parliamentary action adopted by Parliament. Reduce the accumulation of new arrears, DGB/MINFI/ Short to starting with a study to identify the ministers MINAP/ medium term accumulating large stocks of arrears and issue MINDEVEL a regulation that sectoral budget allocation will serve to clear arrears, Enhance procurement Provide comprehensive training and capacity- DGB/MINFI/ Medium to long processes through building to relevant ministries and decentralized DGEPIP, term capacity building local authorities to improve compliance with the MINEPAP and e-procurement Public Procurement Code. to reduce average Initiate online evaluation and awarding of DGB/MINFI/ Medium to long duration and improve contracts as part of e-procurement reforms. DGEPIP, term compliance. MINEPAP Streamline Address delays in the disbursement of DGB/MINFI/ Short to disbursement counterpart funds for externally financed DGEPIP, medium term procedures of projects through appropriate prioritization. MINEPAP counterpart funds to facilitate the timely execution of investment projects. Strengthen public Enhance capacity development in project DGB/MINFI/ Medium to long investment processes selection processes, including standardization DGEPIP, term to improve allocation and transparent of selection criteria and MINEPAP of investment spending strengthening of ex ante and ex post evaluations of project implementation. Improve information Conduct surveys of all investment projects under DGB/ Short to and transparency implementation and centralize the information DGTCFM/ medium term to enhance public in a database to facilitate better monitoring and MINFI investment monitoring evaluation. and evaluation. Involve civil society and local governments in DGB/ Medium to long the selection, evaluation, and monitoring of DGTCFM/ term public investment projects. MINFI Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 119 Objective Recommended actions Responsible Timeline Improving efficiency, Accelerate the operationalization of the DGB/MINFI/ Short to transparency, and Treasury Single Account to improve financial DGEPIP, medium term accountability of management. MINEPAP budget execution Strengthen budget data by establishing a DGB/ Medium to long through better centralized platform or mechanism to ensure DGTCFM/ term financial management, consistent and accurate data collection and MINFI consistent and reporting among entities such as the Ministry accurate budget data, of Finance (Ministère des Finances) and the robust monitoring Ministry of Economy, Planning, and Regional and evaluation of Development (Ministre de l’Economie de la budget execution, Planification et de l’Aménagement du Territoire) and stakeholder Establish robust monitoring and evaluation DGB/MINFI/ Medium to long participation. mechanisms to track tracking actual spending DGEPIP, term against the budget plan, including regular MINEPAP review of budget implementation reports, audits, and use of independent oversight bodies. Encourage active participation and engagement DGB/ Medium to long of stakeholders in budget management and DGTCFM/ term execution processes. MINFI Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 120 6 STRENGTHENING HUMAN CAPITAL DEVELOPMENT THROUGH BETTER SOCIAL SPENDING Human capital is an important driver of inclusive and sustainable economic growth and social development. It is commonly accepted that a country’s standard of living is primarily a function of how well it succeeds in developing and utilizing the skills, knowledge, health, and habits of its population—the nation’s human capital. Education, health, and nutrition are the key sectors that contribute directly to the development of human capital, and education plays a particularly important role, since it provides individuals and society with the knowledge, skills, and values needed to improve their standard of living. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 121 6.1 Human Capital Outcomes and Expenditure Cameroon’s Human Capital Index remains below the average for lower middle-income countries, indicating shortfalls in education, health, and social protection that undermine future productivity and pose a challenge to the country’s goal of sustainable and inclusive growth. Although Cameroon is a lower middle-income country, its health and education outcomes as captured in the 2020 Human Capital Index (HCI)61 are closer to the average of low-income countries. A child born in Cameroon just before the pandemic will be 40 percent as productive when she grows up as she could be if she enjoyed complete education and full health. While Cameroon’s HCI increased slightly between 2017 and 2020 from 0.39 to 0.40, its level just matches the average for the Sub-Saharan Africa region (.40) but falls well below the average for all LMICs (.48). One of the main factors contributing to this ranking is poor education outcomes. Children in Cameroon can expect to complete 8.7 years of schooling by age 18 (fewer than the LMIC average of 10.4 years). However, when years of schooling are adjusted for quality of learning, their schooling is only equivalent to 5.3 years—a learning gap of 3.4 years. Moreover, only 92 out of 100 children born in Cameroon survive to age 5, fewer than the 96 out of 100 children in LMICs as a group. Finally, 29 out of 100 children are stunted and, thus, at risk of cognitive and physical limitations that can last a lifetime. Gender differences are small, but outcomes are marked by large income, regional, and rural-urban disparities. In particular, the HCI is likely to be lower in the Northwest and Southwest regions due to the socio-political crisis in the English speaking/anglophone regions. Cameroon has made accelerating the development of human capital a stand- alone pillar in its national development strategy—SND30—and committed to adequate financing as part of the 2021 CEMAC reform program. The strategic objectives include guaranteeing access to primary education for all children of school age; achieving a completion rate of 100 percent at the primary level; reducing regional disparities in school infrastructure and teaching staff; and increasing professional and technical training offered by 10 to 25 percent at the secondary level and by 18 to 35 percent in higher education. This goal of improving human capital is also aligned with the 2021 CEMAC Economic and Financial Reform Program (PREF-CEMAC), under which CEMAC countries committed to adequate financing of the education, vocational training, and health sectors while strengthening social protection mechanisms to cope with the effects of external shocks and to guard against possible future crises and vulnerabilities. 61 The HCI measures the amount of human capital that a child born today can expect to attain by age 18. It conveys the productivity of the next generation of workers compared to a benchmark of complete education and full health. See World Bank Human Capital Project at https://www.worldbank.org/en/publication/ human-capital. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 122 Public spending on education, health, and social protection in Cameroon falls short of international benchmarks, especially in education, while challenges such as the ongoing impact of conflict amplify the need for such spending. Public social expenditure in Cameroon remains low, with spending on health, education and social assistance constituting about 20 percent of total public spending Education receives the highest share of social spending, accounting for about 15 percent of the budget, well short of common international benchmarks of four to six percent of GDP. Health sector spending by the government of about five percent of total expenditure in 2021 or 0.7 percent of GDP also compares poorly with the WHO recommendation for LMICs to spend at least six percent of GDP and to the LMIC average public spending of 3.9 percent of GDP (in 2019). Moreover, Cameroon’s low education spending appears to deliver even lower test scores62 (Figure 6.1), and weak health spending appears to fail to reduce infant mortality as effectively as countries with similar health expenditure (Figure 6.2). Moreover, international benchmarks for social spending may be insufficient in Cameroon, given the needs of large numbers of refugees and internally displaced persons (IDPs) (Box 6-1). Figure 6-1. Education spending and test scores, Cameroon Figure 6-2. Health spending and infant mortality, Cameroon and comparators (% GDP and score) and comparators (% GDP and rate) Mortality rate, infant (per 1,000 live births) 600 90 80 550 Harmonized Test Scores 70 500 60 450 50 40 400 30 350 20 300 10 250 0 2 4 6 8 2 4 6 8 10 Public education expenditure (% of GDP) Public health expenditure (% of GDP) Cameroon CEMAC Cameroon CEMAC Structural Peers Aspirational Peers Structural Peers Aspirational Peers Emerging Markets Frontier Markets Emerging Markets Frontier Markets Note: Harmonized test scores are for 2018. See footnote 63. Source: WDI. Source: WDI and World Bank Human Capital Project. 62 Students in Cameroon score 379 on a scale where 625 represents advanced attainment and 300 represents minimum attainment. Harmonized text scores measure quality of education by harmonizing text scores from major international student achievement testing programs. See World Bank Human Capital Project. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 123 Box 6-1: Conflict, refugees and internal displacement For at least six years, there have been frequent outbreaks of violence in Cameroon’s North and Far North regions, where Boko Haram continues to wage a low-intensity war. The International Crisis Group reports that over 3,000 have been killed and 250,000 displaced. Separately, ongoing conflict in Central African Republic has created refugees fleeing to Cameroon across its eastern border. Last, since late 2016, Cameroon has faced an increasingly secessionist conflict in its two Anglophone regions (Southwest and Northwest regions), where about 17 percent of the population is concentrated. A recent count by the International Crisis Group concluded that at least 6,000 people have been killed and 765,000 displaced, of whom 70,000 are refugees in Nigeria. Altogether, as of February 2024, Cameroon is hosting more than 2 million IDPs, almost 500,000 refugees (of which more than half are from Central African Republic, about one-quarter from Nigeria, and others from countries including Chad and Democratic Republic of Congo), and about 600,000 returnees. This has resulted in migratory movements to Nigeria and internal displacements to the Littoral, West, Centre (Mfoundi department) and Adamawa (Mayo-Banyo division) regions, in particular. These humanitarian and security crises have aggravated poverty and placed extra burdens on Cameroon’s social services, especially the education system. Source: United Nations High Commission for Refugees; United Nations Office for the Coordination of Humanitarian Affairs; International Organization for Migration; International Crisis Group; and Government of Cameroon. 6.2 Towards a Better Managed Education System with Improved Outcomes 6.2.1 Education sector performance and outcomes Over the last decade, Cameroon’s education sector has been significantly affected by compounding crises, including political and security crises as well as the COVID-19 pandemic. The persistent sociopolitical crises in several regions pose significant humanitarian challenges including mass forced displacement, destruction of schools, and endangerment of students and teachers (Box 6-1). The closure of all schools and educational institutions during the peak of the COVID-19 pandemic exacerbated pre-existing education challenges. This section presents an update on Cameroon’s education sector since the last PER in 2018 and reforms implemented since that time (Box 6-2).63 63 The analysis in this section draws on various data sources, including: (i) administrative data: statistical yearbook of MINEDUB, MINESEC, and MINSEUP; (ii) budget data from the Ministry of Finance and the Education Ministries (BOOST data); and (iii) learning outcomes: PASEC 2019. The latest household survey (Enquête Camerounaise auprès des ménages, ECAM5) was not yet available. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 124 Box 6-2. Education Sector Reforms in Cameroon since 2018 PER • Efficiency in Education Budget Allocation: Reforms have improved transparency in school financing through Circular N° 014/1/426/MINEDUB/SG/DRFM issued in November 2022, outlining allocation criteria and responsibilities. Full implementation is pending. • Result-Based Financing: Under the PAREC project (Projet d’appui à la réforme de l’éducation), Cameroon has introduced an results-based financing approach to support schools and communities hosting IDPs and refugees, contributing to equity and efficiency. • Textbook Policy Reform: To address low textbook availability and high costs, Cameroon implemented various interventions, leading to improved textbook-to-pupil ratios, reduced textbook unit costs, and the adoption of a single title textbook policy for all subjects in the education system. • Teacher Policy Revision: Comprehensive teacher policies adopted in 2021 for primary education promote merit-based recruitment, local recruitment through job postings, better deployment coordination, and retention measures. A similar strategy for secondary education is under development. • Streamlining Payroll Registration: Initiatives like the one-stop-shop at the central level and empowered deconcentrated services expedite payroll registration and first payments for newly recruited teachers. Training programs were introduced to inform newly recruited primary education teachers about the administrative process for payroll registration and salary disbursement. Sources: MINEDU, MINESEC, World Bank Institutional fragmentation continues to pose serious administrative challenges to the Cameroonian education system. The education sector in Cameroon is complex and fragmented, operating in two languages and managed by six separate education ministries. The Government regulates the English and French school systems, including rules governing educational curricula, textbooks, examinations, academic calendars, and the opening of new private and public schools. Six government ministries are responsible for various levels of education, including the Ministry of Basic Education (Ministère de l ‘Education de Base, MINEDUB),64 and various other ministries also operate in the education sector.65 Private financing is significant in Cameroon, with private primary and secondary schools accounting 64 The six ministries include the Ministry of Basic Education (Ministère de l’Education de Base, MINEDUB), the Ministry of Secondary Education (Ministère des Enseignements Secondaires, MINESEC), the Ministry of Higher Education (Ministère de l’Enseignement Supérieur, MINSEU), the Ministry of Employment and Vocational Training (Ministère de l’Emploi et de la formation professionnelle), the Ministry of Youth and Civic Education (Ministère de la Jeunesse et de l’Education Civique), and the Ministry of Scientific Research and Innovation (Ministère de la Recherche Scientifique et de l’Innovation). 65 Such as the Ministry of Sports and Physical Education (Ministère des Sports et de l’Education Physique) and, for inclusive education, the Ministry of Social Affairs (Ministère des Affaires sociales). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 125 for about 30 percent of total enrollment, and with the share of private provision of educational services remaining stable at the pre-primary, primary, and secondary levels over the past decade. Private providers dominate technical and vocational education and training (TVET), where they account for almost 80 percent of total enrollment. The deployment and retention of teachers in the fragile Northwest and Southwest regions of Cameroon, particularly in primary and general secondary education, have been weak despite efforts made. Despite three rounds of teacher recruitment and deployment, pupil-teacher ratios remain highly variable across schools and regions. About 66 percent of public primary schools with 100 students or more now have at least three state-paid teachers. A 2026 target of at least 18,000 additional teachers is expected to raise that share to 95 percent. However, the distribution of teachers remains a significant problem. According to the latest school census statistics for the 2021-2022 academic year, 86 percent of primary teacher deployment is not explained by the number of pupils enrolled in the school; and similarly, in secondary education, a 2022 study on the need for general secondary education teaching staff revealed a mismatch in the distribution of secondary teachers which varied significantly across regions and departments. These misallocations of teaching staff are reinforced by problems with retention of teachers deployed in disadvantaged areas who often choose to transfer (or redeploy) to administrative posts or to other ministries.66 The government made progress on teaching staff policies, but more can be done to improve retention and focus deployment on disadvantaged areas. For primary education, the comprehensive teacher policy adopted in 2021 has translated into legislation that supports: (i) merit-based recruitment of teachers; (ii) local recruitment using a job posting approach; (iii) better coordination of deployment and redeployment linked to needs; and (iv) retention of new teachers based on a five-year commitment. For secondary education, a comprehensive teacher reform strategy is under development and will be delivered in late 2023, including better standards for initial training, assignment, and deployment of teachers as well as improvements in professional incentives, ongoing training, career management, and forward-looking workforce planning. In addition, a series of administrative steps have been taken to reduce delays in payroll registration for newly recruited teachers. Greater attention is needed going forward on improving the retention67 and deployment of teacher by: (i) establishing need to discourage teachers from transferring to administrative posts or into other ministries; (ii) deploying both primary and secondary teachers to schools with the highest number of pupils per state-funded teacher (which are most in need of more teachers) and (iii) tighten controls on the presence of teachers at their posts. 66 Statistics are from MINDEUB. 67 A press release, No. 70/23/MINESEC/SG/DRH/SDP/SFCP of 30 May 2023, from MINESEC revealed that 1573 teachers were absent at their duty post. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 126 Cameroon’s education sector has seen slowed growth in enrollment during 2015-2021 after substantial increases over the previous 15 years, but conflict-affected children have created new pressures. The combination of population growth and the transition to free primary education in 2001 resulted in a massive increase in enrollment in all sectors of education and particularly in primary education until about 2015. Then, between 2015 and 2020, while primary enrollment continued to expand, secondary enrollment dipped (Figure 6-3). At the regional level, enrollments at all levels of education declined sharply in the Northwest and Southwest regions as conflict intensified (Box 6-1) while primary enrollment elsewhere rose sharply. The forced displacement crisis has placed almost 1.9 million school-aged children in need of education assistance (out of a total of 7.6 million enrolled students), greatly intensifying pressures on the education system and exacerbating infrastructure needs at all levels. Figure 6-3: Enrollment by education level (in ‘000s), 2000-21 5,000 4,500 Total Rnrollement (in 000s) 4,000 3,500 3,000 2,500 2,000 1,500 1,000 0,500 0,000 2000 2005 2010 2015 2020 Pre-primary Primary Secondary Higher Source: ISU UNESCO (data.uis.unesco.org), MINEDUB, MINESEC, MINSEUP. Enrollment rates have been declining in the primary and secondary sectors in recent years, leaving Cameroon increasingly lagging peer countries. During 2001-15, gross enrollment rates rose steadily across all levels of Cameroon’s education sector. By 2015, primary net enrollment rates had risen so much that Cameroon was among the better performing countries in Sub-Saharan Africa and comparable to some East Asian countries. Then, during the 2015-2019 period, that progress began to slip as the gross enrollment rate in primary education fell from 116 percent in 2015 to 106 percent in 2019, and the net primary enrollment rate fell from nearly 97 percent in 2015 to just under 92 percent in 2019 (Figure 6.4). In secondary education, enrollment fell between 2015 and 2021, and gross Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 127 enrollment decreased from 59 percent in 2015 to 45 percent in 2021 while net enrollment dropped from 44 percent in 2015 to less than 37 percent in 2021. As enrollment rates rose, the number of out-of-school children steadily declined during 2001-15 but has been rising since. With declining enrollment rates, children of primary school age out of school increased from five percent in 2015 to nine in 2019. An important factor driving this increase is that more than 50 percent of the IDPs from the Northwest and Southwest in 2019 were primary school age children. Figure 6-4. Gross enrollment rates in primary education, Cameroon and comparators, 2012, 2019 (% of age group) 120.0 90.0 60.0 30.0 0.0 Cameroon Lower Upper Cote Senegal Ghana Vietnam Egypt, Guatemala middle middle d'Ivoire Arab Rep. income income Structural peers Aspirational peers 2012 2019 Source: WDI and World Bank staff calculations. Completion rates, which capture quality and efficiency of the education system, provide further evidence of erosion. The number of children graduating from primary school each year as a share of the population of graduating age has been falling in Cameroon, from 74 to 65 percent for primary and from 46 to 37 percent for secondary during 2015-19. The country has fallen farther behind the average for lower middle-income countries, which had completion rates of 89 percent in primary education in 2019 and 75 percent in secondary, as well as behind most structural and regional peers (which average 86 percent primary completion) (Figure 6.5). Moreover, the transition rate between primary and secondary education remains significantly below other lower-middle-income countries. In 2021, only 48 percent of students who completed fifth grade enrolled in secondary school, compared to 68 percent in 2014 and compared to an average 80 percent in LMICs. To achieve the strategic objectives set out in SND30, the government needs to remove all barriers that prevent children from completing the basic education cycle, especially for the most marginalized. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 128 Figure 6-5. Primary education completion rate (%), 2019 120 100 80 60 40 20 0 go a M ia Vi ia m m al n Ta on or nia er a t In nya as d ija n s s g na an ha o ne ai To a Co ne ba Ke er nz et al Ug G do Se y Ca Az Iv Notes: Peer average is 86%, marked by the dotted line. Primary education completion rate, or gross primary graduation rate, is number of children graduating from primary school, regardless of age, as share of population of graduation age. Source: World Bank EdStats database. Cameroonian primary students performed slightly better on standardized tests in 2019 than in 2014, but the rest of the region improved more. In 2019, around 40 percent of second-grade students in Cameroon scored above “sufficient” in reading on the PASEC68 standardized test assessment, up from 30 percent in 2014, and about 58 percent scored above “sufficient” in mathematics, compared to 55 percent in 2014. Nevertheless, Cameroon’s second grade reading, and mathematics scores were lower than the average scores of French-speaking countries in Sub- Saharan Africa. (See also Figure 6-1 for international comparison of test scores). Gender disparities in education have diminished but remain significant in the primary sector. Between 2015 and 2019, the gender parity index69 for gross primary school enrollment remained unchanged at about 0.90. However, these disparities have been considerably reduced or even eliminated in secondary education: in 1980, boys were almost twice as numerous as girls in secondary education, but by 2015, the gender parity index had improved to 0.86, and by 2021, it just exceeded 1.00. Gender parity remains a challenge in preschool (with an index of 0.37). Across educational levels, boys continue to have much higher enrollment and completion rates. 68 The PASEC is the Programme d’Analyse des Systèmes Educatifs de la Conférence des ministres de l’Éducation des États et gouvernements de la Francophonie, a standardized test administered to second- and sixth-grade students in French-speaking countries worldwide. 69 Gender parity index is the ratio of girls to boys enrolled at the relevant school level. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 129 6.2.2 Education sector spending Cameroon’s public expenditure on education remains well below regional and peer country averages and continues to fall short of targets in the government’s own education strategy. As of 2021, Cameroon’s public spending on education, at 3.2 percent of GDP, almost matched the declining SSA average but fell well below that for lower-middle income countries (4.1 percent) and the international target set in the Incheon Declaration of four to six percent of GDP (Figure 6.6). During 2015-21, education spending failed to meet the target of 20 percent of total expenditures set out in the government’s Education Sector Strategy for 2013- 20. The government is in the process of finalizing its new education and training sector strategy (2023-2030), in line with the SND30, which sets itself, among other strategic objectives, to: (i) guarantee access to primary education for all school- age children; (ii) achieve a 100 percent primary school completion rate; (iii) reduce regional disparities in school infrastructure and teaching staff. Figure 6-6: Public spending on education, Cameroon and Figure 6-7: Education expenditures by level (% share), comparators (% GDP), 2010-21 2015-21 4.5% 2021 4.0% 2020 3.5% 3.0% 2019 2.5% 2.0% 2018 1.5% 2017 1.0% 0.5% 2016 0.0% 2015 10 11 12 13 14 15 16 17 18 19 20 21 20 20 20 20 20 20 20 20 20 20 20 20 0% 20% 40% 60% 80% 100% Cameroon Sub-saharan africa Primary Education Secondary Education Low Middle Income Higher Education TVET Source: DGB MINFI, World Bank Development Indicators Source: DGB MINFI. Secondary education claims the largest share of expenditures even though the number of primary school students is larger and growing faster and vocational training has been identified as a top priority. More than half of education spending goes to secondary education, where only one-quarter of students are enrolled, while one-third goes to primary education, with two-thirds of enrollment. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 130 The most underfunded education sector is vocational training, at less than three percent of total education expenditures despite the emphasis in SND30 on the need to strengthen and expand support to the TVET sector to help the country develop high-quality skills and qualifications capable of structurally transforming the economy of Cameroon. If the budget were allocated according to the Global Partnership for Education recommendations—with a minimum of 45 percent in primary education—education outcomes would improve significantly (Figure 6.7). With the aim of strengthening the efficiency of education budget allocations, substantial progress has been made in the transparency of a school financing formula. Since Cameroon will continue to face tight budget constraints over the medium term, the government has been focusing on improved budget allocation within the education sector. A school financing formula, established in Credits photo: Odilia Hebga / World Bank Group November 2022 but not yet fully implemented, clarifies the criteria for allocation per school, the use of funds, and the responsibilities of different agents. In addition, the government has implemented a re s u l t s - b a s e d financing approach to support schools and communities to host IDPs and refugees, which will contribute to improved regional equity. Despite the high share of staff costs in education expenditure, the pupil- teacher ratio is deteriorating and remains high in Cameroon compared to international standards. During 2015 to 2021, spending on investment has drifted downwards from above 10 percent of total education spending to closer to five percent as spending shifted towards wages and salaries, which now represent 75 percent of education expenditures (Figure 6.8). This shifting allocation was amplified by low execution rates of capital spending, which fell to 50 percent in 2021 likely at least partly due to impact from the COVID-19 pandemic (Figure 6.9). Despite the high share of salary expenditure, and even including teachers paid by parents, the pupil-qualified teacher ratio in primary education deteriorated from 41.5 in 2015 to 45.6 in 2019, a higher ratio than observed in fifteen peer countries (Figure 6.10). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 131 Figure 6-8. Education expenditures by type (% of total), Figure 6-9. Execution rates of education expenditures by type 2015-21 (in %), 2015-21 100% 140% % of total education expenditure 80% 120% 60% 100% 40% 80% 20% 60% 0% 2015 2016 2017 2018 2019 2020 2021 40% 2015 2016 2017 2018 2019 2020 2021 Investment Goods and services Investment Wages and salaries Subsidies Consumption of goods and services Transfers Other expenditure Total Source: DGB MINFI. Figure 6-10 : Pupil-qualified teacher ratio in primary education, Cameroon and peers, 2019 50.0 45.6 45.0 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 ie sie sie n am na en ia a l re go da n ga ny ja ou ib ér oi ha m an To ai né ïd N né Ke am ig er Iv Yé al G ba ug do et Sé d' N m M N er Vi O Ca In te Az Cô Pupli-Teacher ratio Non-SSA peer average All peer average Notes: All peer average is 24. Non-SSA peer average is 19. Source: UNESCO Institute for Statistics. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 132 6.2.3 Regional equity of access to in the education The regions identified by the government as Education Priority Zones (Zones d’Education Prioritaire, ZEPs) continue to lag in most measures of education performance and in many measures of education inputs. The ZEPS include the North, Far North, East, and Adamawa regions. In 2021, the primary examination pass rate was 71 percent in ZEPs compared to 83 percent nationwide. Pupil-teacher ratios were worse; access to textbooks was more limited; and electricity in primary schools was less common. In 2021, nearly 63 percent of TVET establishments were in the Centre and Littoral regions, while less than 15 percent of TVET centers operated in ZEPs. Teacher recruiting efforts have led to improved pupil-teacher ratios in primary schools although some regions continue to struggle, as well as a dramatic shift in all regions away from teachers paid by parents. The number of teachers in the education system remains below the country’s needs, and the quality of teachers is low–on average, 33 percent of teachers do not meet the minimum level of qualifications. The lack of teachers has prompted many parents to recruit and pay additional teachers themselves, particularly in ZEPs. The share of primary teachers paid by parents had reached 38 percent by the 2015/16 school year. Then, between 2016 and 2021, the national pupil-teacher ratio (including state-paid and parent-financed teachers) improved Credits photo: Odilia Hebga / World Bank Group modestly. However, despite recruitment efforts targeting the ZEPs, those regions (Far North, North, Adamawa, and East) continued to have the worst overall pupil- teacher ratios and ratios slightly worse than in 2016. In the North-West and South-West regions, with high attrition of teachers due to the security crisis, student numbers also fell, softening the impact on teacher ratios. Despite this uneven regional progress in getting teachers into classrooms, a dramatic positive change between 2016 and 2021 was the shift away from parent funding of teachers across all regions, a key victory for improved equity in educational services (Figure 6.11). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 133 Figure 6-11: Pupil-teacher ratios in primary education, with and without teachers paid by parents, by region, 2016 and 2021 140.0 120.0 Pupils per teacher 100.0 80.0 60.0 40.0 20.0 0.0 t re th l h a N st t th t ra es es es aw ut O Ea nt or or tto W w hw So O am Ce N rN th Li ER ut or Ad Fa So M N CA 2016 All 2016 State 2021 All 2021 State Source: Ministry of Basic Education. The implementation of the 2017 decree on textbooks helped to improve availability and affordability, but access to textbooks remains unequal across regions. Cameroon suffered from an acutely inadequate supply of affordable textbooks for years, with one of the worst student-to-textbook ratios in the world and high costs and poor quality for the existing supply. As of 2018, a primary school textbook cost US$ 6.25 in Cameroon on average, compared to nearer to US$ 1 in comparable countries, partly because of a policy allowing each school to select titles. With additional funding and implementation of related policy reforms,70 Cameroon saw a dramatic improvement in the student-to-textbook ratio by 2021, to a national average of less than four from almost 15 in 2013; and textbook unit costs that had decreased by half. However, regional inequities remain: the Far North region still stands at over seven students per textbook (Figure 6.12). 70 World Bank PAREC project; World Bank Equity and Quality for Improved Learning Project (Programme d’Amelioration de l’Equite et de la Qualite de l’Education); and World Bank Fiscal Consolidation and Inclusive Growth Development Policy Operations (Opérations d’Appui aux Politiques de Développement pour la Consolidation Budgétaire et la Croissance Inclusive). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 134 Figure 6-12: Pupil-textbook ratio by region (average number of pupils per mathematics and reading textbook in primary education), 2020/2021 8.0 7.4 7.0 6.0 4.8 5.0 4.1 3.8 3.9 3.9 4.0 3.4 3.5 3.0 2.5 2.0 1.0 1.0 0.0 Nord South Centre Litoral Adamawa South East Nord West Far North West West Source: Ministry of Basic Education. School infrastructure and access to services in the primary sector have improved overall, but ongoing regional disparities reflect funding inequalities. About 98 percent of public primary schools have access to drinking water in 2021 compared to 30 percent in 2015. About 13 percent of these schools have electricity compared to seven percent in 2015. Primary schools in ZEPs are significantly less likely to have access to electricity than those in the coastal areas or the center of the country. Figure 6-13: Percentage of public primary schools with access to electricity and drinking water by region, 2015 and 2021 100.0% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Cameroon North South West East Centre Littoral Adamawa North Far North South West West Has potable water 2015 Has potable water 2021 Has electricity 2015 Has electricity 2021 Source: Ministry of Basic Education. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 135 An alarming proportion of children in school lack birth certificates, mostly in poorer regions, preventing them from completing primary education. The most recent statistics from the Ministry of Basic Education, published in February 2023, reveal that 1,486,689 students officially enrolled at present in the Cameroonian education system are without a birth certificate. They account for one third of the total cohort: 11 percent and 30.1 percent of children enrolled at the preprimary and primary levels, respectively. Without birth certificates, students cannot register for end-of-primary school examinations and cannot move on to secondary school. Those lacking birth certificates either drop out or repeat the year while working to obtain one. This issue is particularly significant in the ZEP regions (Figure 6.14). The situation in the North and Far North regions is of even greater concern. Indeed, these two regions alone account for more than half of all children in Cameroon without a birth certificate. Given the impact of this administrative obstacle, the government is moving to find out sustainable solution. In Cameroon, obtaining a birth certificate is a painstaking, multistep process, entailing not only financial costs71 but intangible costs as well. Between the loss of time and the necessary financial expenditure, meeting the requirement to obtain a birth certificate for their children is an uncertain journey for Cameroonians vulnerable families. Figure 6-14. Children without birth certificates in primary school by region, ZEP regions highlighted, number and % of students, 2022 Students without a birth certificate Region Students Number % ADAMAWA 328,629 135,598 41.3% CENTRE 826,604 108,567 13.1% EAST 346,351 176,612 51.0% FAR NORTH 1,046,333 436,112 41.7% LITTORAL 542,015 48,599 9.0% NORTH 692,586 331,585 47.9% NORTHWEST 167,344 45,245 27.0% WEST 613,035 70,344 11.5% SOUTH 186,382 62,210 33.4% SOUTHWEST 195,011 71,817 36.8% TOTAL 4,944,290 1,486,689 30.1% Source: 2022 Yearbook, MINEDUB 71 A World bank publication in 2023 showed that Cameroonians can spend on average CFAF 32,700 to obtain a birth certificate in Cameroon, a prohibitive sum in a country where 25.7 percent of the population lives below the international poverty line of $2.15 PPP a day. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 136 6.2.4 Policy options for the education sector 6.2.4.1 Education spending and efficiency Given the financial resource constraints under which the public sector is operating, there is a strong rationale to explore potential efficiency savings, that is, savings arising from more efficient use of resources. Efforts to improve education should not only focus on increasing funding, but also on improving resource allocation and efficiency. In Cameroon’s education system, especially at the primary and secondary levels, there are still opportunities for more efficiency in spending. This could involve strengthening budget monitoring to improve execution rates, ensure efficient resource utilization, performances and priority- based intra sectorial allocation, reduce corruption and waste. Shifting from the current budgetary transfer-dependent model to direct school financing mechanisms including through local expenditure framework could enhance transparency, accountability, and funding allocation to schools. Furthermore, recognizing that country’s 3.2 percent of GDP public spending on education continues to fall short of its funding goals for education, budget constraints may prevent an increasing of sector resources in the near term. This requires putting the focus on more efficient use of existing resources to achieve better education outcomes. The government should both lift resources on capital investment to enhance education quality and also support the effective execution of investment budget. Most of the education budget is devoted to recurrent expenditure and relatively little to investment which decreases. Insufficient capital investment contributes to poor-quality learning environments, which contribute to weak educational outcomes. Cameroonian primary school students on the PASEC 2019 are below the regional average. Similarly, the low rate of execution of the small investment budget would not allow for the achievement of the within-budget- constraints expected results. Reforming human resources management would require expenditure reallocations and increased efficiency. Various studies and strategic documents stress the importance of reforming teacher policies, especially in secondary education. The Government Human Resources Management reform strategy for secondary education aims to improve the standards for initial training, selection, assignment, and deployment of teachers, as well as for professional incentives, training, career management, and forward-looking workforce planning. The implementation of the strategy requires increased spending on teacher salaries. This must be underpinned, in large part, by greater efficiency in the management of human resources and the elimination of all ghost teachers from the system. Furthermore, there a strong need to prioritize teachers redeployment and retention Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 137 to bridge the gap in terms of state-paid teachers in schools with dire need72 instead of systematically recruiting teachers both at primary and secondary levels. Given the civil servant status of teachers, the transfer of teachers to other ministries or as administrative staff in their line ministries is a large cause of poor teacher-student ratio and retention. To address that issue and limit the flux on teachers transiting as administrative staff for education ministries or other ministries, it will be relevant to strengthen the conditions for teachers’ redeployment and/or assignment for administrative positions in line or other ministries. For the specific case on the MINEDUB, a minimum of 18,000 newly recruited teachers are targeted by 2026. This supposed to increase the share of public schools with at least three state-paid teachers each from 43 to 95 percent, but only if the teacher irregular attrition is controlled. 6.2.4.2 Expenditure equity and priorities To achieve its strategic objectives set out in the National Development Strategy 2020–30 (SND30), the government needs to remove all barriers that prevent children from completing the basic education cycle and to transition to secondary, especially for the most marginalized. The Government of Cameroon is in the process of finalizing its new education and training sector strategy (2023- 2030), in line with the SND30, which seeks, among other strategic objectives, to: (i) guarantee access to primary education for all school-age children; (ii) achieve a 100 percent primary school completion rate; (iii) reduce regional disparities in terms of school infrastructure and teaching staff. For this to happen, the issue of birth certificate needs to be urgently revolved with innovative and sustainable measures. Significant progress has been made in recent years to substantially reduce parents’ out-of-pocket contributions, helping to alleviate the education burden and risk of drop out, especially in the ZEPs. School is officially free, but until recently the expenses remained very high for households, especially at the primary level, to finance the missing teachers (through parents’ associations) and schoolbooks, which made school too expensive for the poorest. Significant progress has already been achieved (with World Bank support) and parent funding of teachers has been greatly reduced. Going forward, the government should track out-of-pocket expenses, using sources such as household surveys, to ensure that public primary education is effectively free, especially for the poorest and most disadvantaged. Textbook availability and affordability, another key input for education, has been addressed since 2017, but sustainability of the policy of free access to textbooks requires further action. The country has reduced the textbook-to-pupil 72 Some public primary schools have 100 students or more and less than three state-paid teachers. The bank ongoing support through PAREC project is trying to resorb the gap with an objective by 2026 of 90 percent of school meeting that target. The current situation is around 66 percent from a baseline of 43 percent. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 138 ratio to one package of three essential textbooks (French, English, and Math) per two pupils (as of 2022), cut the textbook unit cost by half as of 2021, and established a policy of single titles for textbooks for each subject across the entire educational system. Going forward, as the price of textbooks rises, the government should consider free textbook targeted to priority education zones (ZEPs), accompanied by a dedicated fund or budget line. Government funding, coordinated by the Prime Minister’s office across stakeholders, to support the editing, printing and distribution of textbooks would also help keep textbooks available and affordable. Directly addressing disparities across regions, locations, income, gender and other groups may be necessary to achieve national education goals and may be advanced through: (i) making progress on decentralization that may both defuse political and social tensions and deliver education sector results more efficiently; (ii) reforming administrative barriers that impose high costs on the poor; and (iii) reducing the need for poorer parents’ out-of-pocket spending on education. Fiscal decentralization in conflict-affected regions is a tool that may be able to improve the quality of education, shift resources towards lagging regions, and promote stability. The school financing formula, which passes funding and responsibility for delivering educational services down to the individual school, is a key element in decentralization of education. At the same time, if an administrative barrier to student achievement is identified, such as the requirement of a birth certificate to register for the primary completion exam and junior secondary school entry, the government should intervene to alleviate the impact on the poor by exempting certain groups or eliminating the requirement. Last, while parent funding of teachers has been greatly reduced, the government needs to track out-of-pocket expenses, using sources such as household surveys, to ensure that public primary education is effectively free, especially for the poorest and most disadvantaged. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 139 6.3 Investing in an Effective, Inclusive, and Resilient Health Sector The compounded impact of various challenges has hindered the achievement of several ambitious goals for Cameroon’s health sector set by the World Bank’s 2018 Public Expenditure Review and outlined in the country’s national policies and strategic plans. The underperformance of the healthcare system is primarily due to insufficient funding, limited availability and quality of health services, and ineffective management of the health system. This chapter delves into an analysis of the health sector, focusing on the current status of essential health indicators and evaluating the progress made in implementing the recommendations from the 2018 PER and the government’s strategy (Box 6-3). The findings and recommendations address critical areas such as healthcare financing, access to and quality of health services, and the management of healthcare resources. Box 6-3. Cameroon Health Strategy (HSS), 2016–2027 The Government of Cameroon has developed a comprehensive Health Sector Strategy (HSS) for the period 2016-2027, with the overarching goal of achieving equitable and universal access to quality health services. This strategy aligns with the objective of promoting healthy and productive human capital, which, in turn, can drive strong, inclusive, and sustainable economic growth. The HSS identifies specific goals and objectives across several key areas: • Health Promotion: This aspect of the strategy focuses on strengthening institutional and community capacity, improving living environments, promoting healthy behaviors, and encouraging essential family practices. • Disease Prevention: The objectives here are to reduce the impact and prevalence of communicable diseases, eliminate neglected tropical diseases, lower the risk of major public health events, increase the coverage of prevention interventions, and reduce the prevalence of major non-communicable diseases. • Management: This component aims to provide effective management for both communicable and non-communicable diseases, including their complications. It also targets the management of maternal, newborn, child, and adolescent health issues, medical emergencies, and public health events, while working to reduce disabilities that can be corrected. • Health System Strengthening: The focus here is on reducing direct healthcare payments made by households, ensuring the availability of necessary infrastructure, equipment, and healthcare packages, increasing access to quality pharmaceutical products, bolstering the availability of skilled healthcare professionals, and enhancing the availability of quality health information for evidence-based decision- making. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 140 • Governance and Strategic Steering: This part of the strategy seeks to standardize, regulate, and improve accountability within the healthcare system. It also emphasizes strengthening planning, supervision, coordination, and strategic health monitoring at all levels of the health system. Due to budget constraints, the government plans to prioritize high-impact interventions, with particular attention to the health of mothers and children. Additionally, it will focus on addressing communicable and non-communicable diseases that contribute significantly to the overall disease burden in the country. Source: Cameroon Health Sector Strategy (HSS) 2016–2027. 6.3.1 Health sector performance Cameroon’s health sector performance lags significantly compared to other lower-middle income countries in Sub-Saharan Africa. In key health indicators such as life expectancy, HIV prevalence, malaria and malnutrition incidence, under- five and maternal mortality, Cameroon ranks among the worst-performing LMICs in SSA (Figure 6.15 and Figure 6.16). Furthermore, health outcomes exhibit stark inequalities between regions and income levels within the country. Challenges in the health sector include limited access to essential medical equipment and drugs, a shortage of skilled and motivated healthcare professionals, inadequate physical access to healthcare facilities in many areas, low service quality, and overall underfunding (with health expenditure at just 3.9 percent of the public budget). Additionally, the absence of comprehensive health insurance coverage results in high out-of-pocket payments, accounting for over 65 percent of total health expenditure and leading to potentially catastrophic healthcare costs for households. The health sector’s challenges are compounded by weak epidemic preparedness and response and are further exacerbated by sociopolitical and security crises. Cameroon faces challenges in its efforts to provide reliable and affordable health services. These challenges include political, institutional, and socioeconomic crises, regional conflicts, and the added burden of the COVID-19 pandemic. The rise in the extreme poverty rate from 24.5 percent in 2019 to 25.3 percent in 2021 has made it increasingly difficult for many Cameroonians to access healthcare services. Furthermore, the COVID-19 pandemic strained primary healthcare services, resulting in reduced utilization of essential services. For instance, outpatient consultations dropped by 7 percent, ante-natal care by 8 percent, various immunization services saw a decline (Penta 3 by 5 percent, polio by 5 percent, and measles by 7 percent), and hospitalizations fell by 10 percent. The western region of Cameroon, in particular, has experienced significant disruptions in service delivery due to conflict (Box 6-1). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 141 Regional conflict and the resulting IDPs and refugees have escalated the demand and cost of providing health services to these affected populations. The government responded promptly and decisively to the COVID-19 pandemic. Cameroon was one of the most affected countries in SSA and the first in central Africa in terms of the number of confirmed COVID-19 cases.73 The government implemented 19 measures to mitigate the pandemic, including widespread testing, treatment, and the incorporation of mental health care into the national response. This decisive action enabled the reopening of schools in June 2021 and hosting of the African football championship in January 2021 and contributed to muted impacts of the pandemic’s second wave. However, the financial burden of these pandemic response efforts has been substantial. Box 6-4: Main findings of the audits of COVID-19 Fund The Cameroonian authorities responded to the COVID-19 pandemic with a comprehensive plan, the Global Response Plan, which allocated CFAF 479 billion over three years, with CFAF 296 billion designated for fiscal year 2020. To manage these funds, the Special National Solidarity Fund for COVID-19 (CAS-COVID) was established with a budget of CFAF 180 billion. The CAS-COVID covered 24 ministries and aimed to address the health and socioeconomic impacts of the pandemic. Two audits were conducted on the CAS-COVID, one for fiscal year 2020 and another for fiscal year 2021, to assess the use of public funds and policy performance. Main findings: Lack of centralized accounting: The transfer of non-health information from care centers to the Ministry of Public Health was disorganized, hindering strategic coordination and the pandemic response. Opaque awards of special contracts: The process of awarding special contracts lacked transparency, potentially leading to abuses. The audit suggested that some practices might qualify as criminal offenses. The use of derogatory procedures beyond July 2020 was deemed costly and less effective. Challenges in collecting reliable accounting information: Control teams faced significant challenges in collecting accurate accounting information. The audit highlighted the importance of maintaining financial controls and expediting accounting reforms, especially automation. 73 Linda Esso, et al., Cameroon’s bold response to the COVID-19 pandemic during the first and second waves, Lancet, 21 (August 2021), pp. 1064-1065. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 142 Key recommendations for the Ministry of Health include: • Establishing a standardized bonus system for healthcare personnel during emergencies. Developing performance indicators for administrative management. • Creating a centralized computer application for statistical data. • Implementing a data backup mechanism for pandemic-related statistics. Developing administrative, financial, and operational procedures for the Incident Management System. • Publishing a list of contracts awarded under Program 971 on the Ministry’s website with regular updates, including contract details and company information. Source: Chambre des Comptes (Chamber of Accounts), 2021, 2023. In tackling its healthcare challenges, Cameroon is actively pursuing several initiatives, including the implementation of universal health coverage (UHC) and the acceleration of national decentralization. Significant progress has been made in decentralization, marked by the adoption of key regulations and decrees. Notably, decrees in 2021 established the framework for decentralization, transferring key responsibilities, such as health, to local authorities. A critical decree in February 2023 further shifted competencies from the central government to regional authorities, demonstrating a commitment to more localized healthcare governance. Alongside these efforts, strides have been made in adopting UHC. Cameroon’s commitment to UHC dates back to 2012, with detailed analyses of UHC implications being conducted since 2015. Despite some initial delays, UHC was officially launched in the Eastern region in April 2023. The country also has a notable record of implementing various health care financing schemes, with over 30 currently active, 19 of which are supported by donor funding.74 However, significant challenges remain, particularly in controlling UHC costs and harmonizing different health care financing approaches, which are crucial for the effective and sustainable delivery of health services nationwide. 6.3.2 Health sector outcomes While there have been improvements in health indicators over the past six years, gains have not been significant. In comparison with other countries in the region and those with similar incomes, improvements in Cameroon’s health sector have been disappointing. Life expectancy increased slightly between 2017 and 2019, but the impact of COVID-19 has negatively affected these gains in recent years, and Cameroon is one of the countries that have made the least progress in 74 Strategic Health Purchasing in Cameroon (SPARC) May 2021. The policy brief usefully categorizes the various schemes and indicates their progress and challenges. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 143 reducing stunting. Despite a decline in the fertility rate, along with improvements in maternal mortality ratios, it remains at a high level. Although there have been some reductions in mortality rates among neonatal and infant children as well as children under the age of five, Cameroon’s performance has been mediocre at best when compared to the region and countries with comparable incomes. Similarly, periodic survey Credits photo: Odilia Hebga / World Bank Group results for key measures of reproductive health and family planning are middling. Key indicators of nutrition and child health also suggests problematic results. Undernourishment and food insecurity have increased, stunting has only slightly declined, and key child health interventions have been erratic. Immunization results are especially poor in Cameroon. Health outcomes vary substantially across regions and income quintiles, with the poorest results in the more remote areas and among the most vulnerable populations.75 People living in northern Cameroon are the worst off: Far North, North, Adamaoua, and East consistently experience the worst outcomes. For example, under-five mortality in North is more than four times higher than in Yaoundé. There are enormous disparities in childhood malnutrition, with the incidence of acute malnutrition of children under five being 11 times higher in Far North than in West. Also, the utilization of maternal health services such as child immunization, antenatal care, assisted deliveries, and modern family planning varies widely across regions. For example, coverage for assisted deliveries is approximately three times higher in West, North-West, Yaoundé, and Douala than in North and Far North. Rural and remote areas are at a disadvantage, as they not only have fewer health facilities than more connected, urban areas, but also face difficulties associated with the retention of health personnel. Across regions, the number of primary care facilities per capita is strongly correlated with infant mortality rates.76 75 PER 2018, p. 120–122. 76 World Bank, Cameroon Deepening Decentralization to improve Service Delivery, Concept Note, p. 6. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 144 Figure 6-15. Despite improvements in recent years, maternal Figure 6-16. … and infant mortality is higher than in most mortality in Cameroon remains very high… peers. 900 80 800 70 60 700 50 600 40 500 30 20 400 10 300 0 Cote d'Ivoire Cameroon Senegal Uzbekistan LIC Egypt Guatemala Bolivia SSA Kenya Ghana 200 100 0 2000 2005 2010 2015 Cameroon Sub-Saharan Africa Structural Aspirational Peers Peers Lower middle income Low income 2010 2020 Upper middle income High income Note: Maternal mortality (per 100,000 live births). Note: Infant mortality (per 1,000 live births). Source: WDI. Source: WDI. Figure 6-17. Antiretroviral therapy coverage for PMTCT (% of Figure 6-18. Immunization, DPT (% of children ages 12-23 pregnant women living with HIV) months) 100 100 90 90 80 80 70 70 60 60 50 50 40 40 30 30 20 20 10 10 0 0 10 11 12 13 14 15 16 17 18 19 20 21 10 11 12 13 14 15 16 17 18 19 20 21 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 Cameroon Lower middle income Cameroon Lower middle income Sub-Saharan Africa Sub-Saharan Africa Source; WDI Source; WDI According to the Healthcare Access and Quality (HAQ) Index, the quality of health services in Cameroon has declined significantly over the past decade. While there has been notable investment in secondary and tertiary referral healthcare levels, access to adequately equipped health facilities remains uneven. The shortage of human resources in the health sector is a critical issue, exacerbated by challenging Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 145 working conditions for healthcare providers. The country faces severe constraints in terms of administrative, technical, and financial resources to address immediate crises and meet the long-term requirements for achieving universal health coverage (UHC). The heavy reliance on importing around 98 percent of drugs and operating the supply chain has adversely affected the availability of essential medicines and medical supplies. The implementation of performance-based financing (PBF) has also shown limited impact. Figure 6-19. Poor quality of health care 187 175 171 153 150 123 111 Cote Senegal Cameroon Ghana Kenya Guatemala Egypt d'Ivoire Source: Lancet, June 2, 2018. Note: Healthcare Access and Quality Index. Inadequate clinical quality and comprehensiveness seriously undermine maternal and child health care. Direct observations of outpatient consultations for children under five with diarrhea revealed that only 20 percent of health care providers perform a comprehensive clinical assessment of the child. This estimate varied across regions and was lowest in North (13 percent). Moreover, direct observations found that most health care providers in the North-West, South- West, and East regions offered high-quality antenatal consultations, but the quality of consultations varied in Adamawa, Far North, and North, with quality scores averaging about 40 percent or below.77 77 World Bank (2018). Cameroon - Public Expenditure Review : Aligning Public Expenditures with the Goals of Vision 2035 (English). Washington, D.C. : World Bank Group. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 146 The HAQ Index provides evidence of the decline in Cameroon’s health service delivery system. Already among the lowest scores worldwide in 2015, Cameroon’s HAQ Index has remained essentially unchanged since 2018. Only 48 percent of hospitals fulfill the criteria for good hospital performance.78 Results from interviews assessing the perception of health personnel in 53 public hospitals are supported by data from other sources indicating the insufficient quality of health service delivery in Cameroon. Table 6-1. Healthcare Access and Quality Index in Cameroon, 2010–19 2010 2015 2016 2019 42.5 44.4 32.0 33.7 Young (0-14 years) 39.9 Working (15-64 years) 37.0 Post-working (65-74 years) 33.5 Source: 2010–15: HAQ Index, Lancet 2017: 251; 2016: Measuring Performance on the HAQ Index, Lancet 2018: 391: 2245; 2019: HAQ Index, Lancet 2022, 10: e1727. 6.3.3 Health sector spending Cameroon’s health expenditure has grown modestly by some metrics in recent years, but it remains low, both as a share of overall spending and in per capita terms, leaving few resources to address health sector challenges and leaving Cameroonians to shoulder one of the highest proportions of out-of- pocket health expenditure in the world. Despite the 2001 Abuja Declaration recommendation of allocating 15 percent of the government budget to the health sector, Cameroon has consistently fallen short of this target. Instead, the share of the overall budget allocated to health has averaged between 4 and 5 percent (Figure 6.20). Government health expenditure as a percentage of general government expenditure experienced a significant decline in the years leading up to the 2018 PER, then recovered somewhat, reaching 3.7 percent of GDP in 2021 and varying little since. In comparison to other African countries and income peers, Cameroon 78 Alain Gilles Foka Tagne, et al., Appréciation de la performance hospitalière des hôpitaux publics au Cameroun : une perception du personnel de santé, Journal of Academic Finance, Vol. 11, 2 (Fall 2020), 330-344. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 147 ranks lowest in terms of government public health expenditures as a share of total health expenditures, and the country has one of the highest proportions of out-of-pocket health expenditure globally. From another perspective, from 2015 to 2021, current health expenditure increased from US$ 1.16 billion to US$ 1.54 billion However, with population growth of approximately 15 percent from 2015 to 2021, health expenditure per capita ranged from US$ 50 to 58. Projections from the Institute for Health Metrics and Evaluation suggest that total health expenditures will decrease in 2023, recover in 2024, and reach US$ 1.91 billion by 2030, with per capita total health expenditure projected at just US$ 53 in the same year. Consequently, the fiscal envelope available for addressing healthcare sector challenges is likely to remain limited. Insufficient public financial resources allocated to the health sector have promoted a dependency on external and private financing. Over the past few years, out-of-pocket expenses and external aid related to health have significantly increased (from already high levels). External financing now pays for more than 10 percent of health expenditures while domestic private health spending accounts for about three-quarters of total health expenditures. Household out-of-pocket expenditures averaged US$ 40 in the years leading up to the COVID-19 pandemic. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 148 Figure 6-20. Health expenditures dynamics a. Limited resources are allocated to the health sector. b. The government covers only a small share of health spending. 5,000,000 6.0% In % of GDP 4,000,000 5.0% 4.0 4.0% 3.0 3,000,000 CFAF 3.0% 2.0 2,000,000 2.0% 1.0 1,000,000 1.0% 0.0 2015 2016 2017 2018 2019 2020 0.0% 2015 2016 2017 2018 2019 2020 National budget Current Health Expenditure (CHE) Budget allocated to heath sector Domestic General Government Health YOY percentage increase Expenditure (GGHE-D) d. Despite having increased, Cameroon’s level of health expenditure c. Domestic Government Health Expenditure, 2000–2019 remains below that of regional and income peers. 2.5 Trends in Government Health Expenditure (GHE) Per 40.0 Capita 2.0 1.5 30.0 1.0 20.0 0.5 10.0 0.0 00 02 04 06 08 10 12 14 16 18 0.0 20 20 20 20 20 20 20 20 20 20 00 02 04 06 08 10 12 14 16 18 20 20 20 20 20 20 20 20 20 20 20 20 Cameroon Lower middle income Sub-Saharan Africa LIC SSA CMR AFW e. Private expenditure represents the largest share of total health f. There is high out-of-pocket spending in Cameroon’s health system. expenditure. 100% 100% 80% 98% 60% 96% 40% 20% 94% 0% 92% 2015 2016 2017 2018 2019 2020 90% 88% Domestic Private Health Expenditure (PVT-D) 86% External Health Expenditure (EXT) 2015 2016 2017 2018 2019 2020 Domestic General Government Health Expenditure (GGHE-D) Out of pocket Voluntary pre-payments Source: WHO, https://apps.who.int/nha/database/Select/Indicators/fr Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 149 The available data on health expenditure allocation are limited. National Heath Accounts (NHA) data only provide information on actual expenditures between 2018 and 2019, while BOOST data only cover approved expenditures from 2015 to 2021 (Table 6-1). Although both sources are similar in terms of initial budget allocations, there are discrepancies in actual expenditures (commitments). Therefore, the analysis of BOOST data focuses solely on budget allocations by budget category, as BOOST data are highly concentrated at the central level and administrative function. Nevertheless, available data indicate large differences between initial budgets and commitments. Table 6-2: BOOST vs NHA Data, 2015–2020 2015 2016 2017 2018 2019 2020 2021 BOOST: Initial budget 213.6 236.0 208.1 178.2 206.7 188.8 188.2 NHA: Amount allocated 207.6 236.2 208.2 175.5 207.9 213.7 0.0 BOOST: commitment 213.6 205.2 164.6 130.8 145.2 139.3 95.0 NHA: Amount spent 191.3 233.6 185.0 172.5 190.4 212.5 0.0 BOOST: % actual expenditures 100% 87% 79% 73% 70% 74% 51% NHA: % actual expenditure 92% 99% 89% 98% 92% 99% Sources: Cameroon’s authorities, MINFI, MINSANTE, World Bank staff calculations. Figure 6-21. Gap between Initial Budget Allocations and Commitments in the Health Sector Percentage change between initial budget and 350 40% commitment 300 20% 250 0% 200 150 -20% 100 -40% 50 -60% 0 2018 2019 2020 2021 2015 2016 2017 2018 2019 2020 2021 Capital health spending Voted budget Executed budget Current health spending Source: BOOST. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 150 In recent years, there has been a shift in Cameroon’s healthcare expenditure priorities.79 Between 2015 and 2018, healthcare investment accounted for an average of 55.9 percent of total healthcare expenditures, but this percentage declined to an average of 45.7 percent in the years 2019 to 2021. In contrast, operational expenditures within the healthcare sector increased from 48.3 percent of total expenditures to 54.2 percent during the same period. Despite this shift in expenditure priorities, the allocation of healthcare expenditures by disease and function remained relatively unchanged from 2015 to 2021. The majority of healthcare spending was allocated to ‘other governance’ expenditures, and there were significant differences between the initial budget adopted, the revised budget, and the actual commitments made within the healthcare sector during this period. Figure 6-22. Shift of government health expenditure priorities. a. Operations expenditures have been increasing… b. …mainly salary expenditures. in % of total government health expenditure 100% 70 80% 60 60% 50 40% 40 30 20% 20 0% 10 2015 2016 2017 2018 2019 2020 2021 0 2015 2016 2017 2018 2019 2020 2021 Goods and services Subvention/transfers Investment Operations Salaries Source: BOOST, MINFI, and World Bank staff calculations. The centralization of budget execution in Cameroon hampers the efficient allocation of resources to high-impact healthcare interventions, including primary care, preventive measures, and community health services. Approximately 90 percent of public resources is allocated at the central administrative level. This centralized approach also results in a significant portion of government health expenditure being absorbed by administrative costs. To improve the healthcare system, there is a critical need for a more equitable distribution of budgetary 79 NHA data confirm BOOST data with respect to the relative stability of expenditures by function, type of service, and disease. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 151 resources within the health sector. This would entail directing funds to district facilities providing cost-effective care, such as primary care, preventive services, and community health programs, ensuring improved access and quality of healthcare services, especially in underserved regions. Systematic underfunding of primary care facilities shifts the cost of health care to households. A total of 99 percent of households’ health expenditure consists of direct payments made to health care providers at the time-of-service delivery, both for clinical care and for drugs. Funds generated by user fees and the sale of medicines represent between 50 and 100 percent of the operating budget of public and private health establishments in Cameroon, which is inefficient, inequitable, and a barrier to access for the poor. While user fees can be an important part of health financing, they should not become the main source of funds for health facilities. Insufficient public spending is allocated to programs addressing significant causes of morbidity and mortality in Cameroon. Between 2019-2021, government allocate about 64 percent of the heath budget to disease management. However, budget allocations for preventive and health promotion services and programs with high positive externalities consist mainly of administrative expenditures at the central government level. As a result, the provision of these services at the provider level is almost entirely funded by external partners and households, which is concerning. This allocation pattern reveals a disparity between stated health priorities and actual budgetary allocations. The emergence of several epidemics necessitating resource allocation for addressing existing cases can explain the focus towards disease management rather than preventive and health promotion initiatives. Consequently, the provision of these critical services heavily relies on external partners and individual households for funding. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 152 Figure 6-23. Expenditure Allocation by Function and Disease, 2019–2021 (% of Total Government Health Expenditure) Allocation by Type of Prevention Spending allocation by function (in % of total heatlh expenditure) (% of Total Expenditures for Disease Prevention) 100% 100% 90% 80% 80% 70% 60% 60% 50% 40% 40% 20% 30% 20% 0% 10% 2019 2020 2021 0% Neglected Tropical Diseases (NTDs) 2019 2020 2021 Chronic Non-Communicable Diseases (NCDs) Chronic Non-Communicable Diseases (Ncd) Diseases with Epidemic Potential (MAPE) Diseases with Epidemic Potential (MAPE) Curative care mother-to-child transmission of HIV Governance and institutional support HIV/AIDS, Tuberculosis, STIs and viral hepatitis Mother-to-child transmission of HIV Health promotion HIV/AIDS, Tuberculosis, STIs and viral hepatitis Preventive care Other Disease Malaria Composition of government health expenditure (in % of total health Geographical allocation of health expenditure expenditure) 100% 100 85% 80 70% 60 55% 40% 40 25% 20 10% 0 -5% 2019 2020 2021 2019 2020 2021 CENTRAL ADMINISTRATION ADAMAWA CENTER Urban development EAST FAR NORTH LITTORAL Control of disease and epidemics NORTH WEST NORTH WEST Primary care SOUTH WEST SOUTH Secondary care Tertiary health care Administration Other Source: NHA, BOOST. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 153 There has been some progress in developing a strategy for financing the health sector, but a comprehensive strategic plan has yet to be adopted. The Ministry of Health, with the assistance of the World Bank and other development partners, has formulated a health financing strategy, along with implementation modalities, that has been submitted to the government for formal approval. 80 However, progress toward implementing other related elements of a health sector financing strategy has been slow, particularly in terms of decentralizing the authority to budget, finance, and implement local health initiatives and adopting legislation, regulation, and tools for UHC. Since the 2018 PER, Cameroon has faced significant challenges in introducing community-based health insurance (mutuelles) and UHC. Despite an increase in the number of mutuelles between 1998 and 2010, they have only covered a small percentage of the population, never exceeding 3 percent.81 By 2014, only 43 mutuelles were still operational, providing coverage to 63 thousand people, which is a mere 0.2 percent of the population.82 Despite these challenges, the country has been laying the groundwork for implementing UHC83 since 2015. While the high estimated cost of approximately US$ 3 billion poses a significant hurdle, the East region began implementing UHC in April 2023. Insufficient public financial resources allocated to health have promoted a dependency on external financing and households. There has been little progress since the 2018 PER. Domestic private health expenditure, and particularly household out-of-pocket expenditures, constitute the vast majority of current health expenditures. As indicated above, Cameroon’s government health expenditure as a share of total government expenditures is one of the lowest in the world. This has resulted in households’ out-of-pocket expenses as a share of total health expenditures being among the highest globally. Out-of-pocket expenditures averaged some US$ 40 in the years leading up to the COVID-19 pandemic. 80 Ministère de la Santé, Stratégie de Financement de la Santé (Avril 2020). 81 DHS 2018. 82 See F. Fouakeng, et. al., Couverture Sante Universelle au Cameroun: Etat des lieux et défis à relever pour accélérer cette réforme. https://d2s5011zf9ka1j. cloudfront.net/sites/default/files/2020-07/Article-CSU-Cameroon.pdf; and Chenjoh Joseph Nde, et. al., Reaching Universal Health Coverage by 2035: Is Cameroon on Track? Universal Journal of Public Health 7(3) 2019 : 110-117. 83 Nde, et. al., present a comprehensive picture of the steps while Fouakeng, et. al., identify the principal challenges. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 154 Table 6-3. Financing of Health expenditure Current Health Expenditure (CHE) 2015 2016 2017 2018 2019 2020 % of CHE Domestic General Government Health 10.1% 10.2% 4.2% 9.7% 11.1% 16.3% Expenditure (GGHE-D) External Health Expenditure (EXT) 9.9% 9.8% 9.5% 14.3% 13.0% 11.9% Domestic Private Health Expenditure (PVT-D) 80.0% 80.0% 86.4% 76.0% 75.8% 71.8% Out of pocket 69.9% 70.0% 75.6% 72.3% 72.2% 68.3% Voluntary pre-payments 7.1% 7.1% 7.7% 3.4% 3.3% 3.2% Per capita US$ 50.3 51.2 50.2 57.7 56.1 58.0 Domestic General Government Health 5.0 5.2 2.0 5.6 6.2 9.4 Expenditure (GGHE-D) External Health Expenditure (EXT) 4.9 5.0 4.7 8.2 7.3 6.9 Domestic Private Health Expenditure (PVT-D) 40.2 40.9 43.4 43.8 42.6 41.6 Out of pocket 35.1 35.8 38.0 41.7 40.5 39.6 Source: https://apps.who.int/nha/database Private financing is the main source of health expenditures. Moreover, the health care system has suffered lasting damage from low investment as part of structural adjustment policies implemented in the past.84 These challenges are further compounded by the over-reliance on privately financed health services that charge user fees. Insufficient public financial resources allocated to health have promoted a dependency on external financing and households. As shown in the table, domestic private health expenditure, and particularly household out-of- pocket expenditures, constitute the vast majority of current health expenditures. Out-of-pocket expenditures averaged some US$ 40 in the years leading up to the COVID-19 pandemic. To address these challenges, Cameroon has put in place several initiatives, with the help of donors, aimed at increasing funding for the health sector. These include measures aimed at pooling resources, establishing risk-sharing mechanisms, and purchasing health services. While strategic purchasing has shown some progress, limited funds and high fragmentation have hindered the potential positive impact on the health system and the ability to increase fiscal space for health care. Nevertheless, these initiatives are a step in the right direction toward improving health care in Cameroon. 84 Hayriye Isik and Hubert Ndifusah, Health Care System and Health Financing Structure, The Case of Cameroon, IAAOJ, Health Science, 2013, 1(2), 24‐44. See Bernhard Liese, et. al., The Human Resource Crisis in Health Services In Sub-Saharan Africa, World Bank (September 15, 2003), Box 2, p. 9. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 155 6.3.4 Regional equity of access to health services The COVID-19 pandemic exacerbated the financial difficulties of accessing health care services. The COVID-19 pandemic contributed to an increase in the extreme poverty rate from 24.5 percent in 2019 to 25.3 percent in 2021 and has severely hampered the ability of many Cameroonians to secure access to health services out of pocket. Cameroon’s healthcare infrastructure displays disparities in geographic distribution,85 yet the supply of public primary care facilities (CSI or CMA) seems to meet national-level demands. The country has a total of 6,202 health facilities submitting data to DHIS2, comprising 46.4 percent public, 40.9 percent private, and 12.8 percent private/religious facilities (Figure 6.24). Notably, Yaoundé and Douala account for nearly one-third of the total number of health facilities nationwide. While there are disparities when public facilities are considered separately from other types, the supply of public primary care facilities appears satisfactory at the national level, with an average of 5,000 people served per facility. Similarly, the number of hospitals (0.8 hospitals per 100,000 population) is in line with the Sub-Saharan Africa (SSA) average of 0.8. However, these statistics mask regional variations, and population density per health facility, which strongly correlates with infant mortality rates, exhibits significant disparities across the country. Achieving equitable access to healthcare services remains a challenge, particularly in regions with limited healthcare infrastructure. Cameroon’s healthcare infrastructure exhibits significant disparities in distribution, with a notable concentration of facilities in the major cities of Yaoundé and Douala. Beyond these urban centers, public health facilities predominate, particularly in the three northern regions and the East. In contrast, urban areas in the Center and Littoral regions (Figure 6.24) have only 2 percent of their health facilities classified as public. However, when public facilities are analyzed separately from other types of facilities, disparities persist. Moreover, the population density per health facility, a metric closely associated with infant mortality rates, varies considerably across the country.86 While Cameroon’s number of hospitals per 100,000 population aligns with the Sub-Saharan Africa (SSA) average of 0.8, the distribution of health facilities across geographic regions remains unequal. The average ratio of 5,000 people per public primary care facility indicates a reasonably satisfactory supply of these facilities at the national level. However, the challenge lies in achieving a more equitable distribution of healthcare resources and facilities across the country, ensuring that all regions, particularly those with limited access to healthcare, receive adequate attention and infrastructure development. 85 Ministère de la Santé Publique, Profil de l’offre de soins et caractéristiques de la demande de quelques soins et services, Rapport thématique 2019 (Août 2020). 86 The effect of limited public facilities uniformly increases the population density but is especially significant in Yaoundé and Douala. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 156 Figure 6-24 Supply and Distribution of Health Facilities by Region a. There is an uneven distribution of public health facilities across b. … despite a reasonable supply of facilities. regions… Concentration of Health facilities in% of total 60,000 50,000 18% 16% 40,000 14% 30,000 12% 20,000 10% 8% 10,000 6% 4% West Dla SW East Ex Nor Ydé Adam NW South North Excluding Dla Excluding Yde 2% 0% NW South North West Dla SW hors Dla East Ex Nor Ydé hors Ydé Adam Adamaoua Center Littoral Other regions Adamaoua Center Littoral Other regions Other facilities Public facilities Source: DHIS2 2019. Availability of essential medical equipment and supplies remains inadequate. Over the past five years, Cameroon has placed a significant emphasis on expanding the equipment and specialized facilities within its healthcare system. But an assessment revealed significant inadequacies in the availability of medical equipment, essential medicines, and supplies. A study conducted in 2018 across 646 health facilities indicated substantial gaps in both the variety and quantity of medical equipment and medicines in the country. When examining Cameroon’s six regions, the availability index for basic medical equipment ranged from a low of 70 percent in the North to a high of 94 percent in the North-West. The availability index for essential medicines is consistently low across regions, with particularly low scores in Adamawa (54 percent) and the North (50 percent), while North-West and Far North regions have the highest scores (71 percent). This pattern extends to emergency obstetric supplies and medicines for treating malaria. Moreover, Cameroon faces a severe shortage of human resources in the health sector. According to data from the WHO, Cameroon falls far below the recommended density threshold of 10.9 health workers per 1,000 population needed to achieve at least 70 percent of the country’s Universal Health Coverage (UHC) targets. Currently, Cameroon’s density stands at less than 1.0 health worker Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 157 per 1,000 population. In terms of medical and nursing staff density, Cameroon ranks among the lowest countries globally and within the region. Two health personnel censuses conducted in 2011 and September 2021 revealed an inadequate pool of trained healthcare workers. In 2011, there were 25,183 public health personnel, while the 2021 online census recorded 39,720 personnel, comprising 11,346 civil servants, 4,846 contractual workers, 3,412 ‘décisionnaires,’ and 20,116 temporary workers. Despite the substantial increase in staff between 2011 and 2021, the current staff deficit surpasses the number of existing workers. To address this ongoing and significant shortfall, the authorization for the recruitment of 3,800 staff was granted for 2022, but only 100 were recruited, highlighting the urgent need to address this critical staffing gap. Table 6-4. Personnel Deficit and Recruitment Targets Existing Deficit(*) 2011 2021 2021 2023 Physicians/Generalists_Specialists 1,565 3,917 6,000 6,000 Nurses/Nurses aides 16,211 10,615 38,000 38,000 Midwives 2,158 2,158 Medical technicians 2,064 5,235 4,200 4,200 Other health personnel 5,343 11,117 Other 250 Total 25,183 31,134 50,358 50,358 Note. (*)the deficit is computed through the Utilization-based approach; the expected health service requirements based on present health service utilization and factoring in trends in demographic change Sources: World Bank staff calculations using data from MSP 2011, WHO. The uneven distribution of health care workers across the country exacerbates the availability of staff. The Center region, which is home to only 18 percent of the population, accounts for almost 40 percent of the country’s physicians. The number of health personnel per capita in South-West is four times that of Far North and almost five times that of Adamawa and North. A recent survey of health personnel found that in the Adamawa, Far North, North, and East regions, 20–30 percent of health staff were absent from their facilities for unknown reasons on the day of the survey. The four regions with the highest rates of absenteeism among health care workers also had the greatest workload per staff member). Working conditions for health care personnel are often demotivating, and retention is a serious problem in the health sector. Challenges related to Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 158 training, recruitment/hiring, location, physical conditions of facilities, and supervision and compensation have contributed to inadequate performance of health care personnel.87 Limited progress has been made in improving the access to essential drugs and medical supplies. The 2018 PER recommended improving the availability of essential drugs in Cameroon through better regulations and stronger supply chain management. Despite these recommendations, the country continues to face challenges in ensuring an adequate supply of essential medications and medical supplies. Data from the 2019 Public Expenditure Tracking Survey (PETS) reveal that drug stock-outs are widespread and frequent throughout Cameroon, highlighting persistent issues in access to necessary healthcare resources. Table 6-3 shows the share of health facilities in various regions of Cameroon that experienced essential drug stock-outs in 2017, illustrating the extent of the issue. Addressing these challenges is crucial for enhancing healthcare services and overall health outcomes in the country.88 Table 6-5. Share of Health Facilities that Experienced Essential Drug Stock-Outs in 2017 by Region DH SMC IHC Total Adamawa --- 100 44.4 50.0 Centre 100 71.4 40.00 50.0 East 66.7 33.3 52 50.0 Far North 50 40 37.5 38.8 Littoral 100 25 44.4 50.0 North 75 100 58.2 59.7 North-West 50 33.3 22.2 28.0 West 100 50 47.8 51.6 South 0 33.3 26.7 26.5 South-West 100 33.3 21.4 27.8 Total 73.1 47.5 42.7 45.5 Source: PETS3 Cameroon 2019. 87 Paul Jacob Roby, et. al., (2015). “Addressing health workforce distribution concerns: a discrete choice experiment to develop rural retention strategies in Cameroon, Int J Health Policy Manag 2015, 4(3), 169–180. 88 PETS, Appendix 2, Table 34. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 159 The introduction of performance-based financing in Cameroon has had a mixed impact on the availability of essential medicines and medical supplies. While PBF has expanded coverage substantially, from 78 districts in 2017 to 172 out of 189 districts in 2019, it has not consistently translated into improved actual availability of these items. Various challenges, including delays in PBF payments, limited autonomy of health facilities, ineffective leadership, and contextual factors such as remote or hard-to-reach areas, have impeded the successful implementation of PBF. These challenges have resulted in performance variations among different health facilities and have adversely affected service delivery due to payment delays. Concerns have also been raised about drug quality control, disparities between facilities, and the fragmented drug management system. To address these issues, the Global Financing Facility annual report recommends complementing specific aspects of PBF, such as granting pharmacy autonomy and liberalizing drug supply systems, with equity-focused interventions, strengthened regulation, and measures to ensure the quality of drugs.89 An assessment of drug supply within the PBF framework in Cameroon revealed mixed outcomes. The analysis indicated that the PBF intervention did not influence the occurrence of stock-outs for antenatal care drugs, vaccines, drugs for integrated management of childhood illnesses, or drugs related to labor and delivery. However, PBF did lead to a notable and statistically significant reduction of 34 percent in stock-outs of family planning medicines. It’s important to note that the effectiveness of PBF varied across regions and areas, with substantial decreases in stock-outs of family planning products observed in the North-West region and rural areas, highlighting regional and geographic disparities in the program’s outcomes.90 The quality of medicines in Cameroon remains poor, with a substantial prevalence of substandard and falsified medicines. An analysis assessing the prevalence of substandard and falsified medicines in the country reveals a concerning situation, with over one-quarter (26.9 percent) of sampled drugs found to be substandard.91 This prevalence falls within the range of 18 percent to 48 percent reported for low- and lower-middle-income countries.92 However, it exceeds the lower prevalence of 18.7 percent for the African region as a whole. When considering different therapeutic classes, the highest prevalence of substandard and falsified medicines is observed in the antiparasitic category, specifically at 34.4 percent. It is noteworthy that a significant portion of these antiparasitics, (79.5 percent) consists of antimalarial drugs, indicating a critical issue in the quality of medications used to combat malaria in Cameroon. 89 Isidore Sieleunou, et al., How does performance-based financing affect the availability of essential medicines in Cameroon? A qualitative study, Health Policy and Planning, 34, 2019, iii4–iii19. 90 Isidore Sieleunou, et al., Does performance-based financing curb stock-outs of essential medicines? Results from a randomized controlled trial in Cameroon, May 23, 2020. 91 Christelle Ange Waffo Tchounga, et al., Poor-Quality Medicines in Cameroon: A Critical Review, Am. J. Trop. Med. Hyg., 105(2), 2021, pp. 284–294. 92 Almuzaini T Choonara I Sammons H , 2013. Substandard and counterfeit medicines: a systematic review of the literature. BMJ Open 3: e002923 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 160 Table 6-6. Samples Considered for Prevalence Calculations Sample Acceptable Poor quality Total (n) Prevalence quality (n) (n) (%) Antiparasitics including antimalarials 384 201 585 34.4 Anti-inflammatories and analgesics 92 48 140 34.3 Antibiotics 351 90 441 20.4 Multiple categories 166 39 205 19.0 Antiretrovirals 60 9 69 13.0 Total 1,053 387 1,440 26.9 Source: Christelle Ange Waffo Tchounga, et al., 10.4269/ajtmh.20-1346 The government of Cameroon, Credits photo: Odilia Hebga / World Bank Group in collaboration with various development partners, has undertaken significant efforts to enhance the management of the pharmaceutical supply chain at multiple levels within the country. Several development partners, including the United States Agency for International Development (USAID), Expertise France, the Clinton Health Access Initiative, the German Corporation for International Cooperation (Deutsche Gesellschaft für Internationale Zusammenarbeit, GIZ), , the United Nations Population Fund (UNFPA), and the United Nations Children’s Fund (UNICEF), actively participate in strengthening the pharmaceutical supply chain in Cameroon. These collaborative initiatives focus on various key areas, including supporting policy reforms to optimize the domestic supply chain system, promoting the use of electronic tools to improve data availability and utilization, enhancing in-country logistics such as inventory management and timely delivery of health commodities, and building the capacity of personnel at the regional and health facility levels in supply chain management. These efforts are essential for improving the availability and quality of medicines and medical supplies in the country. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 161 6.3.5 Equity and effectiveness The introduction and expansion of PBF improved the equity and effectiveness of Cameroon’s healthcare system. Prior to the introduction of PBF, outdated budgeting practices favored more developed regions, leading to systematic underfunding of primary care facilities. This led to a significant financial burden on households for healthcare expenses. The previous budgeting system relied on fixed operational costs related to the number and category of health infrastructure in a region and the number of health districts, without considering factors like disease burden, population size, geography, or socioeconomic conditions. Consequently, per capita budget allocations were considerably higher in more developed regions such as South and Central, while poorer regions like North and Far North received less funding. This approach also resulted in higher healthcare costs for households, disproportionately affecting the poorest and most vulnerable populations,93 with inefficient and inequitable cost recovery at the health facility level. PBF has brought also a more equitable distribution of budgetary resources within the healthcare sector, with a focus on district-level facilities that offer cost-effective forms of care, including primary care, preventive care, and community health services. Under the PBF system, budgets are still allocated by region and type of health infrastructure but are now based on projected results rather than multiple fixed-cost line items. This has simplified the budget preparation process, reducing it to a single line item, and allocations are determined based on strategic considerations rather than strict equality. Actual payments to health facilities depend on verified results and are managed with the active participation of facility staff, following guidelines and without central government interference. These changes represent a more efficient and equitable approach to healthcare budgeting and resource allocation. Progress in the decentralization process in the healthcare sector since 2018 has improved equity. In 2018, over 90 percent of the public health budget was allocated to the central administrative level.94 However, starting in 2021, health services have been included in decentralized budgets. However, from 2021 onward, health services have been incorporated into decentralized budgets. While this increased responsibility and autonomy have brought about changes in governance and management structures, they have also presented growing challenges. It is important to note that the decentralization process has resulted in only a limited redistribution of resources across the healthcare system.95 93 Households spending more than 40 percent of their budget on health care spent an average of 42.94 percent, compared to 6.15 percent for households spending more than 5 percent of their budget on health care. Innocent Laisin, et al., The Implications of Healthcare Utilization for Catastrophic Health Expenditure in Cameroon, IOSR Journal of Economics and Finance, Vol. 11, Issue 3 Ser. IV (May-June 2020), 22-36. 94 PER (2018), p. 132. 95 These decrees do not transfer financial autonomy to local authorities. See Richard Alain Ndoumbé, Le Processus de Décentralisation au Cameroun: Avancées, Pesanteurs et Perspectives. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 162 Despite the expansion of PBF in the healthcare sector, the execution of ministry funds remains highly centralized in Cameroon. Approximately 35 percent of health expenditure is executed by the central administration, including in regions characterized by fragility and high poverty rates, such as the North West, South West, and Far North regions. This centralized approach hampers the capacity of primary care facilities to deliver effective services Furthermore, healthcare facilities often experience delays in receiving funding due to administrative complexities and cash flow issues. For instance, in 2017, only 54.9 percent of these facilities received their full subsidy as planned, highlighting the challenges in timely financial disbursements.96 Figure 6-25. Budget Allocation for the Acquisition of Goods and Services, Medical Equipment, and Construction (CFAF Billion) Regions Operating budget Investment appropriations Acquisition of goods Share (%) Acquisition Share (%) Construction of Share (%) and provision of of medical health centres services equipment Central administration 83.554 61.84 0 0.0 2.05 35.08 Adamawa 0.916 0.68 0.141 12.53 0.52 8.90 Centre 17.903 13.25 0.88 7.82 0.65 11.12 East 3.545 2.62 0.255 22.67 0.334 0.57 Far North 0.606 0.45 0.960 8.53 0.25 4.28 Littoral 7.966 5.90 0.770 6.84 0.5075 8.68 North 7.304 5.41 0.720 6.40 0.387 6.64 North-West 0.538 0.40 0.640 5.69 0.4 6.84 West 5.249 3.89 0.710 6.31 0.95 17.03 South 6.550 4.85 0.111 9.87 0 0.0 South-West 0.973 0.72 0.150 13.33 0.05 0.86 Total 135.109 100 1.125 100 5.843 100 Source: 2017 Project Journal Database. 96 Ministry of Economy, Planning and Regional Development, Public Expenditure Tracking Survey-Health (December 2019), pp. 31, 38. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 163 Centralized budget management causes delays in the withdrawal, commitment, validation, and scheduling of expenditure authorizations. Practical implications of centralized management of the budget at the facility level include: (i) insufficient information about transfers from the recurrent budget; (ii) dependence on goods and services funded by the central government; and (iii) incomplete record-keeping to track actual expenditures. The annual publication of the Citizen Budget since 2019 represents an important commitment to transparency. 6.3.6 Efficiency An analysis of primary health facilities (i.e., hospitals, CMA, and health centers) found that about one-third were technically efficient. Moreover, the analysis found that technical efficiency could be improved by more than one-third by increasing the basic components of care: the number of health workers, the number of beds, and the efficient management of patients. There are significant mismatches between available resources and the demand for healthcare services, leading to inefficiencies. One key issue is the inadequate alignment of public spending with the leading causes of morbidity and mortality. For instance, regions with the highest under-five mortality rates receive lower per capita budget allocations on average compared to regions with lower mortality rates. Similarly, regions with low coverage rates of assisted delivery receive less public funding on average than regions with higher coverage rates. Additionally, there is a notable concentration of health professionals in urban areas, further exacerbating disparities in access to healthcare services. Furthermore, public spending priorities do not sufficiently emphasize critical public health programs that are both highly effective and yield positive externalities. Instead, strategic purchasing is currently limited to a handful of free or subsidized programs, almost exclusively financed by external partners. The overreliance on external funding is a serious concern for the sustainability of these programs, especially given the volatility of aid in fragile contexts and the difficulties of harmonizing different approaches. While PBF aims to allocate funds according to specific activities, it has not yet contributed to increased allocative or technical efficiency in Cameroon. The bundling of program allocations to create budget lines containing details of inputs (i.e., ‘activities’) has resulted in several thousand budget lines for individual health facilities as well as for health districts, regional health delegations and agencies within the Minstry in charge of Public Health. These budget lines do not, however, adequately define specific expenses, they blur the relationship between resource Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 164 allocation and implementation of different health programs and activities, and they complicate efforts to isolate individual program costs and assess their contribution to the total budget. Since most of the budget is allocated to a moderate number of high-value activities, the adoption of global budgets with a single budget line for each institution could improve allocative efficiency. Coordinating service provision with other sectors (e.g., education, water and hygiene, and agriculture) could also improve health spending and enhance health care outcomes. The current spending priorities in Cameroon’s healthcare sector raise concerns. Public spending does not place sufficient emphasis on critical public health programs that are highly effective and have positive externalities. Currently, strategic purchasing is limited to a few free or subsidized programs, primarily funded by external partners. This heavy reliance on external funding raises sustainability concerns, especially considering the volatility of aid in fragile contexts and the difficulties in harmonizing different approaches. Moreover, while PBF is designed to allocate funds based on specific activities, it has not yet led to increased allocative or technical efficiency in Cameroon. The bundling of program allocations into numerous budget lines for individual health facilities, health districts, regional health delegations, and central-level agencies has created complexity and hindered efforts to isolate individual program costs and assess their impact on the total budget. Simplifying the budgeting process with global budgets and coordinating service provision with other sectors could enhance health spending and improve healthcare outcomes. 6.3.7 Policy options for the health sector Little progress has been made on the principal recommendations made in the 2018 PER. There have been efforts to strengthen the budgeting process, but there have been no significant geographical or programmatic changes in spending. While progress has been made on decentralizing budgetary management for certain sectors, the health sector has not yet been among the sectors prioritized by the government, and the authorities still need to fully implement measures to increase local spending. In sum, the efficiency of health expenditure in Cameroon has been hampered by insufficient, misaligned, and/or misspent financial resources. Building on the conclusions of recent studies and analyses of health sector expenditures, the PFR recommends that the authorities: • Enhance governance and resource allocation efficiency: Promote strategic resource allocation at all levels of the health system and enhance coordination among stakeholders involved in health financing to optimize spending efficiency. Foster decentralization of healthcare expenditure. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 165 • Foster transparency and accountability: Establish a standardized and codified system for managing health resources to ensure accountability throughout the health pyramid. Implement mechanisms for transparency, accountability, and anti-corruption efforts within the health sector. Addressing weaknesses in the Performance-Based Financing framework and accelerating its nationwide implementation. Strengthen the financial information system, update the legal framework governing resource allocation and utilization in public health structures, and engage in regular control, audit, investigation, monitoring, and evaluation activities for financial resource management. • Negotiate budgetary facilities for health programs: Collaborate with the government to streamline budgetary processes for the Ministry of Health programs. Consider implementing special accounts for performance and strategic purchasing to overcome challenges related to centralized and cumbersome budget execution, including resource allocation and post-justification. Streamline the budget execution process. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 166 6.4 Enhancing Cameroon’s Social Protection System 6.4.1 Social protection performance and outcomes The government of Cameroon has increasingly recognized the role of social protection in achieving its development objectives, placing it in a central role in government strategies; but poverty and vulnerability has been rising in recent years. Building on the 2017 National Social Protection Policy (Politique Nationale de Protection Sociale, PNPS), the SND30 highlights social protection as central (along with health and education) to the country’s human capital development. It identifies consolidation and expansion of social protection services, including establishing a national social safety nets program, as the main priorities for the sector. However, the COVID-19 pandemic and war in Ukraine have aggravated the social and economic conditions of Cameroonian households. Three years of economic disruption—global recession and supply disruptions followed by high inflation, with sharp swings in international oil and food prices--have swelled the ranks of the poor and vulnerable in Cameroon. Emergency social assistance such as cash transfers and health assistance have been put in place to address the situation, and the Government stabilized domestic fuel prices by continuing subsidies. Cameroon has numerous social protection programs, including social insurance, labor market programs, general subsidy programs, and social assistance. Cameroon has various social protection programs within the four categories set out in the World Bank’s Social Protection Atlas for Resilience and Equity (ASPIRE) database. The country has social insurance against old age, with both private and public contributory pension schemes. There are 26 active programs for labor markets, 16 programs providing general subsidies, and three social assistance programs (dominated by the Social Safety Nets program, Projet Filets Sociaux, PFS). Cameroon also has two additional areas of social protection programs: social care services with two active programs, and a single non-contributory health service program.97 No major social protection reforms have been implemented since the 2018 PER which found social protection spending to be regressive and recommended a shift in focus towards youth. Overall, Cameroon’s social protection system and its financing have changed only modestly since the assessment in the 2018 PER, although the components of spending have varied since 2018. That report found that social protection spending was regressive, with a heavy focus on pensions that benefit a small share of the population, mostly retired civil servants. The PER also found that: (a) universal subsidies significantly decreased between 2013 and 2016 (as 97 Data on social protection spending excludes pension spending and is 2016 or latest year, from ASPIRE database. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 167 international food and fuel prices fell); (b) social protection spending had somewhat better allocative efficiency; but (c) two-thirds of social protection spending covered the financing deficit of civil service pensions. The report recommended improving the efficiency and equity of spending by redirecting spending away from the elderly and towards youth, using poverty-targeted programs. In support of that overarching goal, the government was advised to improve the fiscal sustainability of public pensions, allow domestic fuel prices to fluctuate with international prices, and Identify risks not covered among the poor and design interventions to mitigate those risks. Cameroon provides social insurance protecting some workers against old age and disability through public and private schemes; but only one-third of formal sector workers are covered by social insurance, and less than one-fifth of the elderly receive a pension, falling well short of regional norms. Cameroon has social insurance for public and private sector employees, providing old age, disability, and survivor pensions to formal sector workers. Both are defined-benefit pension schemes on a pay-as-you-go basis The public-sector pension scheme, for civil service employees and the military, is managed by the State through the Ministry of Finance. Private sector workers are covered through the National Social Security Fund (Caisse Nationale de Prevoyance Sociale, CNPS). Both the private and public pension schemes have low coverage, with only about one-third of those employed in the formal sector contributing to pensions in 2021 (19 percent to the civil service pension scheme and 17 percent to CNPS). Across all workers, formal and informal, only 5.4 percent are insured. For those already over age 60, Cameroon’s 18.6 percent of persons above retirement age receiving a pension falls well below the SSA average of 27.1 percent and the LMIC average of 38.6 percent. Cameroon’s limited active labor market programs have been growing and focus on youth and rural areas. Government-sponsored active labor market programs (ALMPs) in Cameroon aim to improve employment opportunities and skills development, especially for youth. These programs provide vocational training centers and other training programs as well as financial support to job seekers and entrepreneurs to start or expand their businesses.98 As of 2016, most government funding for active labor market programs benefited youth and rural groups.99 Several new programs have been created since 2017, including for youth employment training, agriculture development support, informal sector support, and women’s inclusion. Going forward, it will be important to improve targeting of labor market programs and activities. 98 ALMPs fall mostly under the Ministry of Employment and Vocational Training (Ministère de l’Emploi et de la formation professionnelle) and the Ministry of Youth Affairs and Civic Education (Ministère de la Jeunesse et de l’Education Civique). 99 Sosale, Shobhana, and Kirsten Majgaard. 2016. Fostering Skills in Cameroon: Inclusive Workforce Development, Competitiveness, and Growth. Directions in Development. Washington, DC: World Bank. doi:10.1596/978-1-4648-0762-6. License: Creative Commons Attribution CC BY 3.0 IGO. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 168 Credits photo: Odilia Hebga / World Bank Group Cameroon’s general subsidies are dominated by universal fuel subsidies, including for kerosene which is used mostly by poor households, but with rising costs requiring price increases and reconsideration of the program. Cameroon revised its fuel subsidy system in 2010 following riots over increasing food and fuel prices, implementing a policy of price stabilization to cushion the economy from fluctuations in international fuel prices. A fuel price stabilization fund, the Fund for Hydrocarbon Price Stabilization (Caisse de Stabilisation des Prix des Hydrocarbures, CSPH) compensates the national oil company’s refinery for the difference between international prices and administratively fixed prices.100 As a result, the consumer price of kerosene (pétrole lampant), mainly used by vulnerable groups, has remained constant since 2010, but the costs of diesel fuel and gasoline have also been subsidized, causing the program overall to be highly regressive in its impact on household income. (See Section 6.4.3 for further analysis of distributional impacts.) Soaring international fuel prices significantly increased the fiscal cost of these subsidies in 2022, requiring government action as part of its IMF program, and fuel prices were increased in February 2023 (by 16 percent for gasoline, 25 percent for diesel, and 60 percent for kerosene used by industry). Moreover, under the IMF program,101 the government has committed to gradually reduce fuel subsidies and has been advised to consider automatic adjustments going forward, accompanied by measures such as strengthening the social safety net and improving access to health and education services.102 100 Kojima, Masami. 2013. Petroleum Product Pricing and Complementary Policies: Experience of 65 Developing Countries Since 2009. Policy Research Working Paper; No. 6396. © World Bank, Washington, DC. http://hdl.handle.net/10986/13201 License: CC BY 3.0 IGO. 101 Three-year Extended Credit Facility and Extended Fund Facility arrangements signed with the IMF in July 2021. 102 IMF. 2023. Fourth Review Under the Extended Credit Facility and the Extended Fund Facility Arrangements. IMF Country Report No. 23/251. July 2023. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 169 Expansion of targeted cash transfers requires a unified social registry to assess eligibility; Cameroon is moving from a pilot to a complete registry which can also assist with targeting of labor market programs and other benefits. An inclusive social registry would enable the government to quickly and effectively identify and channel support to households while also strengthening coordination across government agencies and development partners responsible for the provision of social protection. Cameroon’s existing social registries are limited in coverage and not harmonized. The Government, under the leadership of the Ministry of Social Affairs (Ministère des Affaires Sociales, MINAS), has recognized the need to establish a national database of vulnerable households eligible for social protection programs--a Unified Social Register (Registre Social Unifié, RSU), identified through a standard methodology. MINAS has been working on a pilot social registry, collecting data on vulnerable populations since 2015 with assistance from UNICEF and the ILO (International Labor Organization). The pilot social registry currently covers 15 communes and 64,424 individuals, with plans to cover 22 communes and up to 300,000 individuals by end of 2024. In addition, UNICEF is piloting the registration process at the municipality level to establish processes and referral mechanisms. A World Bank project effective in December 2022 is financing the expansion of the registry including supporting beneficiary identification and applying participatory processes at the community level to identify beneficiaries. The RSU is intended to be useful to respond to shocks; it will be available to municipalities to allow a decentralized response. The government should aim to finalize the creation and implementation of a Social Registry that can reliably assess households and individuals’ eligibility for social assistance as well as labor market programs, health insurance fee waivers, and other services. Social assistance in Cameroon has been limited to the donor-funded Social Safety Net program, with insufficient coverage of the poor despite expansion, highlighting the need for policy and regulatory reforms to create a permanent and stable government-funded safety net. The Social Safety Net Project (Projet Filets Sociaux, PFS) is the country’s main social assistance instrument, providing cash-for-work and unconditional cash transfers. PFS has been funded by the World Bank since 2015, and a new expanded version of the program started in January 2023.103 PFS has covered about 385,000 households since 2015, but despite its substantial recent expansion, Cameroon’s overall social assistance coverage remains limited, reaching only 25 percent of the poor. The PFS has set the building blocks for a robust safety net, but progress in improving institutional arrangements and securing reliable and predictable funding for a permanent safety-net program has been slow. Policy and regulatory reforms are necessary to capitalize on the investments made in the PFS and to develop a more effective and efficient safety- net system. More specifically, expansion of cash transfers requires a way to reliably assess households and individuals’ eligibility for social assistance. Over the medium 103 Adaptive Safety Nets and Economic Inclusion Project (P175363) Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 170 term, the authorities should consider: (i) transforming the PFS into a government program with its own appropriate legal and policy framework; (ii) having a long-term predictable budget for key safety net programs; (iii) mobilizing regular government financing to ensure predictable payments of cash transfers to beneficiaries; and (iv) establishing a permanent and stable government structure to host safety-net programs. For social protection as a whole, adequacy of benefits falls short because of poor coverage of the poor, not the level of benefits, highlighting the need for an overall strategy for social protection. In Cameroon, only 1.1 percent of the bottom quintile of the population receive benefits from social assistance, social insurance and labor market programs, compared with 27.6 percent across SSA. For those who do receive benefits, however, those benefits average 28 percent of income, comparable to regional levels. Since inclusive and responsive social protection systems are critical for mitigating shocks and protecting human capital, establishing a permanent safety-net program remains a key priority in Cameroon. To mover on this goal, the government might validate and publish the National Social Protection Strategy and engage local communities and civil society organizations in the planning, implementation, and monitoring of social assistance programs to ensure their relevance and effectiveness. 6.4.2 Social protection spending Social protection expenditures have fluctuated significantly during 2017 to 2021, peaking in 2019. Cameroon’s total spending on social protection averaged 2.5 percent of GDP during 2017 to 2021, but it more than doubled from 1.8 percent of GDP in 2017 to 3.9 percent in 2019, driven by a tripling of spending on labor market programs (as a percent of GDP) (Figure 6.26). That program spending almost disappeared in 2020 during the COVID-19 pandemic (and subsidy spending also shrank as international fuel prices fell), pushing overall social protection expenditures to 1.6 percent of GDP in 2020 before recovering to 2.3 percent of GDP in 2021, when fiscal consolidation pressures kept spending contained. Cameroon’s 2021 social protection spending excluding pensions of 1.4 percent of GDP surpassed that of its peers104 (average of 1.0 percent of GDP). Social assistance spending, by contrast, at just 0.2 percent of GDP in 2021, came in at less than half the average across peers (0.4 percent of GDP) (Figure 6.27). 104 Peers include Kenya, Côte d’Ivoire, Vietnam, Namibia, Nigeria, Azerbaijan, Sudan, Malaysia, Ghana, Togo, Indonesia, Senegal. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 171 Figure 6-26: Social protection spending by type (% GDP), Figure 6-27: Social assistance spending, Cameroon and peers 2017-2021 (% GDP), 2016 or latest 4.0 4.0 3.5 3.0 3.0 2.5 2.0 % GDP 2.0 1.5 1.0 1.0 0.16 0.5 0.0 0.0 2017 2018 2019 2020 2021 8 ib 020 7 Se sia, 6 1 In ysia 16 16 6 d' o, 1 Az nam 016 M na 16 N re, 6 N jan 6 01 oo 201 ne 201 er 02 da 01 te og 02 oi 01 1 0 ne 20 0 ba , 20 ,2 am ,2 2 ,2 Su al,2 T ,2 et , 2 G a, 2 2 Social Assistance ia a, do , n n g ny i i ha Labor market programs Ke a ig Iv er al er m Vi Non-contributory health service Ca Co Social care services General subsidies Public pensions Source: World Bank, ASPIRE database Most of Cameroon’s social protection spending goes to civil servants’ pensions and fuel subsidies, managed by MINFI, although labor market programs are expanding; nevertheless, social protection spending continues to flow mostly to the Centre Region, benefiting richer and urban households. Public pensions account for more than 40 percent of total social protection spending and almost one percent of GDP, remaining stable over the past decade. However, this situation marks a clear improvement over the two-thirds of social protection spending used to cover the financing deficit of civil service pensions as assessed in the 2018 PER. Next in size are labor market programs at about one-third of social protection spending and about 0.7 percent of GDP, bolstered by several new programs created since 2017 such as for youth employment training and for agriculture development support. Universal subsidies, which are directed mostly toward fuel, continue to represent about one-fifth of social spending in recent years, varying in line with fluctuations in international oil prices as Cameroon maintains stable prices at the pump. Given the focus of social protection spending, most budget allocations go to MINFI, which is responsible for public sector pensions and fuel subsidies, followed by MINAS for social assistance, social work, and family and child protection. Other programs are led by the Ministry of Labor and Social Security (Ministère du Travail et de la Sécurité Sociale) and the Ministry of Women’s Empowerment and the Family (Ministère de la Promotion de la Femme et de la Famille). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 172 Private contributions are insufficient, leading to lower pension payments, while public contributions heavily rely on government subsidies. The National Social Insurance Fund (CNPS) is funded through a combination of employee and employer contributions, each at 4.2 percent of wages, totaling 8.4 percent of wages since 2015. This rate falls significantly below the average observed among structural and aspirational peer countries, standing at of 15.9 percent).105 Additionally, it’s lower than the Sub-Saharan Africa (SSA) average for private sector pension schemes, which is 14.2 percent. The benefit formula and the ad hoc approach to pension payment deviate from international best practices. Both pension schemes maintain a dependency rate of approximately 0.37, meaning there are about 2.7 contributors for every pensioner. However, there has been a positive shift, with the dependency rate dropping from 53 percent in 2016 to 37 percent in 2021, translating to each pensioner being supported by approximately three contributors, compared to two in 2016 (Figure 6.28). While there have been some improvements, the public sector pension scheme in Cameroon continues to face a persistent fiscal deficit. Cameroon’s pension scheme revenue covers only about a third of its expenditures. The remaining two- thirds of these expenditures are financed by general revenues. Notably, within Cameroon’s pension system, military pension obligations account for a significant portion, constituting 70 percent of the pension deficit (see Chapter 4). Over the past decade, both military and civil servant pensions have disbursed benefits that significantly exceed the contributions made into the pension system. Figure 6-28: Public Sector Pension Scheme Membership 350,000 45% 300,000 43% 250,000 40% 200,000 38% 150,000 35% 100,000 50,000 33% 0 30% 2017 2018 2019 2020 2021 pensioners contibutors system dependency rate (right axis) Source: World Bank ASPIRE database 105 Average contribution rate to social security for Cameroon, Kenya, Togo, Cote d’Ivoire, Nigeria, Ghana, Malaysia, Indonesia, Senegal, Sudan, Vietnam, Azerbaijan, and Namibia in most recent year available. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 173 Public pension expenditures amounted to about one percent of GDP in 2021. The gap between revenue from contributions and the public sector scheme’s expenditures has been growing over time. Expenditures were about three times higher than revenue from contributions in 2021. It is difficult to accurately assess the adequacy and generosity of pension benefits without having access to the distribution of pension amounts. However, this rough measure raises important questions regarding the level of the benefits paid by the public-sector pension scheme as it signals a significant level of generosity and inequity between private and public-sector workers, as well as between public-sector workers and the overall population at large. Figure 6-29: Financial Performance of the Public-Sector Pension Scheme 250,000 1,04 1.0 1,02 200,000 1,00 CFAF, millions 1.0 % of GDP 150,000 0,98 100,000 1.0 0,96 0.9 0,94 50,000 0,92 0 0,90 2017 2018 2019 2020 contribution revenue Expenditures Expenditures ( right axis) Source: World Bank ASPIRE database ALMP is mainly financed through the National Employment Fund (NEF). The NEF is funded by the Cameroonian government and other development partners such as the World Bank and the African Development Bank. The NEF’s budget is used to provide financial support to job seekers and entrepreneurs, as well as to fund training programs and other initiatives aimed at reducing unemployment in the country. Similarly, the Cameroonian government and other development partners also fund the Youth Employment Support Program (PEJ). The program’s budget is used to provide financial support and training to young entrepreneurs to help them start or expand their businesses. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 174 With fiscal costs driven by volatile international energy prices, universal fuel subsidies have become unaffordable. As a result of the spike in fuel prices, the fiscal cost of fuel subsidies reached 3.4 percent of GDP in 2022 (from 0.8 percent of GDP in 2021).106 Most of this cost comes from the subsidization of diesel and gasoline, used primarily by richer households. Despite its regressive character, spending on fuel subsidies was more than 20 times greater than spending on targeted social assistance programs. Continued spending on regressive fuel subsidies far outweighs targeted and progressive social assistance expenditures. The February 2023 increase in fuel prices (by an average 21 percent) is estimated to reduce the fiscal cost of fuel subsides to 0.5 percent of GDP in 2023, and the government has committed under the IMF program to continue to reduce these subsidies. Figure 6-30. Fiscal cost of fuels subsidies, Cameroon and comparators (% GDP), 2019-22 4 3.5 3 Percent of GDP 2.5 2 1.5 1 0.5 0 Cameroon Burkina Faso Cabo Verde Gabon Congo Sénégal Nigeria Gambia Mauritania Central African Republic Equatorial Guinea 2019 2020 2021 2022 Source: National authorities and World Bank staff calculations, from World Bank. Cameroon Economic Update June 2023 - Reforming Fuel Subsidies (English). Washington, D.C: World Bank Group. Although spending on social assistance recorded an increase since 2017, it remains poorly funded by international and regional standards, especially given worsening poverty and ongoing conflict, and highly dependent on donor funding. Overall, spending on social assistance increased during 2017 to 2021 from 0.09 percent of GDP to 0.16 percent of GDP, but averaging 0.08 percent of GDP for the period. This spending is significantly lower than regional and structural 106 IMF. 2023. Fourth Review Under the Extended Credit Facility and the Extended Fund Facility Arrangements. IMF Country Report No. 23/251. July 2023. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 175 peers who spend an average 0.37 percent of GDP on social assistance, double the current spending of Cameroon, but it falls even farther short of the Sub-Saharan Africa average of 1.2 percent of GDP.107 Moreover, around three-quarters of all social assistance is financed by international donors, and the Social Safety Nets program (PFS) accounts for almost all social assistance spending. Despite worsening poverty and inequality resulting from conflict, climate change, and the COVID-19 pandemic, the country has not substantially increased spending on targeted social assistance programs. Overall, budget allocations to ministries involved in social protection are very low. The budget for social protection for all four ministries remains very low and relatively stable at 0. 17 percent of the total public budget in 2019 and 2021 (Figure 6.31). The Ministry of Finance executes most of the social protection budget, mostly in the form of universal subsidies, followed by the Ministry of Social Affairs (MINAS). The MINAS finances mainly the components of social assistance, social work, and family and child protection. Figure 6-31 Budget and executed spending by SP ministries (percent of total government expenditure) 0.25 0.2 0.15 0.1 0.05 0 Budget 2019 Executed Budget 2020 Executed Budget 2021 Executed 2019 2020 2021 Ministry of Finance (Subsidies to SP) Ministry of Social affairs Ministry of Work and social security Ministry of promotion of women and familly Source: Boost (MINFI) 107 Sub-Saharan Africa average for annual social assistance spending for 36 countries and varying years (generally 2015 to latest available) from World Bank ASPIRE database. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 176 Social protection spending is mainly allocated to the central administration and the Centre Region. The proportion of spending allocated to the central administration increased from 41.6 percent to 58.5 between 2019 and 2021. Over the same period, the average spending in the Centre Region was about 47 percent. On average, only .2 percent of spending has been allocated to the other nine regions where needs are higher. Figure 6-32: Distribution of Social protection spending within Cameroon’s regions. 100% 80% 60% 40% 20% 0% 2019 2020 2021 Central Administration Adamawa Centre East Far North Littoral North North West West Source: Boost (MINFI) 6.4.3 Distributional analysis of fossil fuel subsidies108 Fossil fuel subsidies in Cameroon have become a substantial fiscal burden as international energy prices have risen. As noted above, the use of public funds to freeze retail fuel prices prevents these same resources from being allocated to other, possibly more productive, public spending such as social and infrastructure investments. Fuel subsidies also introduce environmental and market distortions, encouraging higher use of fossil fuels. The intention of universal subsidies is to provide an administratively easy way to protect the poor from excessive price volatility. Understanding the distributional impact of the current fossil fuel subsidies is important as Cameroon considers approaches to reforming the program. Cameroon’s fuel subsidies are heavily regressive, with distributional analysis confirming that better-off households consume more fuel than poorer households. Richer households generally spend a larger fraction of their total budget 108 See World Bank.. Cameroon Economic Update June 2023 - Reforming Fuel Subsidies (English). Washington, D.C. : World Bank Group. http://documents. worldbank.org/curated/en/099063023163038119/P1779950d70c4f0700aa5b0cbed824dc4a5 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 177 on fuel, particularly gasoline and diesel, due to higher personal vehicle and diesel generator ownership.109 Because better-off households not only spend a higher share of their budgets on fuel but also have higher budgets, they disproportionately benefit from subsidies that reduce the price of fuel. Rural households allocate a higher share of their budgets to fuel than urban households but spend a lower absolute amount because they are poorer. Among the three fuels considered, subsidies to kerosene are not regressive because this fuel represents a higher share of total consumption for poor and rural households than for rich and urban households. Since the better-off use so much more fuel, they benefit the most from subsidies and would suffer the biggest direct losses (in CFAF) as a result of fuel subsidy reform. A clear pattern emerges from the three scenarios presented: (i) a 20 percent reduction in subsidies, which approximates the price increases in February 2023, (ii) a 40 percent reduction in subsidies, and (ii) removal of fuel subsidies (Figure 6.33).110 Better-off households incur substantially higher losses than poorer households. For instance, the highest income-quintile households in urban areas are estimated to lose 440,000 CFAF (US$ 770) per year if fuel subsidies are completely removed. Alternatively, this amount represents the benefit level they currently receive from the subsidies. Figure 6-33. Impact of different fuel subsidy reductions (average loss per household in CFAF ‘000), by urban or rural and by quintile 440 400 Average loss per household 296 300 (thousands CFA) 239 197 200 185 176 138 147 104 119 96 100 79 74 88 68 79 55 48 59 60 32 37 42 40 28 27 21 29 16 14 0 1 2 3 4 5 1 2 3 4 5 Urban Rural 20% subsidies reduction 40% subsidies reduction 100% subsidies reduction Source: Cameroonian authorities, World Bank staff calculations. 109 Estimate made using data from the 2014 Fourth Cameroon Household Survey (Quatrième Enquête Camerounaise Auprès des Ménages, ECAM4). The survey was nationally representative and was conducted on a sample of 12,897 households across 1,024 clusters nationwide. 110 Because the Cameroonian government has decided to continue stabilizing the price of kerosene, the estimates focus exclusively on gasoline and diesel. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 178 However, poor households are also affected by fuel subsidy reform indirectly which can increase poverty. While much smaller consumers of gasoline and diesel, poor households are affected by fuel subsidy reductions indirectly—through increases in the prices of other products for which fuel is a significant cost component. The distribution of consumption for the three subsidy reduction scenarios, with the vertical line indicating the national poverty line of CFAF 339,715 per household per year, show that all scenarios result in an overall decline in consumption (shift left) and, consequently, an increased number of individuals in poverty (Figure 6.34). Figure 6-34. Poverty impact over consumption expenditure distribution Red line is international poverty line 1.500e-0 Baseline 20% reduction 1.000e-06 40% reduction 100% reduction 5.000e-07 0 1,000,000 2,000,000 3,000,000 Per capita expenditure Source: Cameroonian authorities, World Bank staff calculations. Savings from fuel price increases can help finance expansion of targeted social assistance programs to mitigate the adverse effects of subsidy reform on the poor, but timeliness and careful design of the response will be critical. International experience shows that targeted safety nets can provide a cushion and protect poor households from the price increases associated with subsidy reform. What is key, however, is that the safety net response is put in place before the reduction in subsidies to prevent the adverse—and potentially irreversible— effects on the poor. This response needs to include robust delivery systems, such as a social registry and a digital payment system, that can be quickly deployed in conjunction with the subsidy reform. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 179 6.4.4 Policy options for the social protection system The conclusions of this analysis are broadly the same recommendations as those proposed in the 2018 PER, since as in other human capital areas, little progress has been made on the principal recommendations made in the 2018 PER related to social protection. The policy options aim at improving the efficiency and equity of spending, redirecting spending from a small share of the elderly population to the larger base of children, youth and working age populations, ensuring the fiscal sustainability of pensions, and directing spending towards governments’ own SND30 goals to support stronger development. 6.5 Policy Options With little progress made on implementing the reforms presented in the 2018 PER, Cameroon now faces challenging prospects to make the changes needed to strengthen its human capital development in support of sustainable growth. Drawing on the analysis of the preceding sections on the education sector, the health sector, and social protection, a set of recommended policy options across education, health, and social protection are presented below in Table 6-7. Table 6-7. Recommended policy actions to improve human capital expenditure Objective Recommended actions Responsible Timeline Education sector Reallocate overall public Spend more on education, especially MINFI, MINDUB Medium to long term spending towards strategic investment. MINEPAT, DGB priorities, spending more on education Improve efficiency of Full implementation of November MINFI, MINDUB Short to medium term spending by implementing 2022 regulations on transparency and MINEPAT, MINESEC school financing rules efficiency in school financing Support key inputs Enforce more equitable redeployment MINFI, MINDUB Short to medium term by enforcing teacher of teachers and reduce the number of MINESEC deployment and funding administrative staff. textbooks Create a National Textbook Fund MINFI, MINDUB Short to medium term to support the editing, printing and MINEPAT, Prime Minister distribution of textbooks to make Ofiice them available in all regions, especially education priority zones (Zones d’Education Prioritaire, ZEPs). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 180 Objective Recommended actions Responsible Timeline Address disparities by Reform administrative barriers that MINFI, MINDUB Short to medium term removing administrative, harm the poor, such as the requirement MINEPAT, MINESEC, reducing out-of-pocket for birth certificates to graduate from MINDEVEL, MINJUSTICE spending, providing free primary school BUNEC textbooks, and promoting fiscal decentralization. Track and address disadvantaged MINFI, MINDUB Short to medium term families’ out-of-pocket spending on MINEPAT, MINESEC education Support targeted free textbook in MINFI, MINDUB Short to medium term education priority zones (ZEPs). MINEPAT, Prime Minister Ofiice Promote fiscal decentralization to MINFI, MINDUB Medium to long term improve delivery of public services, MINESEC, MINDEVEL, including education Health sector Reallocate overall public Increase overall financial resources MINFI, MINEPAT, DGB, Short to medium term spending towards strategic available to the health sector by MINSANTE priorities, spending more harmonizing and consolidating existing on health by consolidating financing schemes existing schemes, developing a financing Develop a health sector financing MINFI, MINEPAT, DGB, Short to medium term strategy, and improving strategy and adopt/implement a MINSANTE resource management. financing strategy and all necessary accompanying regulatory texts Optimize mobilization of resources MINFI, MINEPAT, Medium to long term from donors through improved MINSANTE management of existing resources Improve efficiency of health Improve resource allocation by MINFI, MINEPAT, DGB, Short to medium term spending by increasing providing sufficient funding to regions MINSANTE, MINDEVEL regional funding, prioritizing to manage health facilities and effective services, reducing personnel necessary for their devolved household out-of-pocket responsibilities costs and promoting accountability via financial Strengthen the budget process to MINFI, MINEPAT, DGB, Short to medium term management and evaluation. improve geographical allocation and MINSANTE, MINDEVEL foster programmatic spending Foster efficiency of service delivery MINFI, MINEPAT, DGB, Short to medium term by prioritizing budgetary allocations MINSANTE, MINDEVEL for critical public health programs and cost-effective healthcare services Attain universal health coverage MINFI, MINEPAT, DGB, Medium to long term by reducing household out-of- MINSANTE, MINDEVEL pocket costs through innovative and sustainable financing for free or subsidized access to healthcare for certain populations Promote transparency and MINFI, MINEPAT, DGB, Medium to long term accountability in resource allocation MINSANTE, MINDEVEL, by: (i) improving financial information DGTCFM systems; (ii) updating the legal framework controlling financial authorizations and expenditures; and (iii) including systematic participation in the evaluation of results. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 181 Objective Recommended actions Responsible Timeline Support key health sector Increase the availability of necessary MINFI, DGB, MINSANTE Short to medium term inputs through greater medical equipment availability of equipment, adequate staffing, better essential drug availability, Optimize the allocation of existing staff MINFI, MINEPAT, DGB, Short to medium term and incentives for facility across regions and facilities to address MINSANTE, MINDEVEL, performance. disparities in healthcare access. MINFOPRA Aligning recruitment with specific healthcare needs through public sector and decentralized hiring, and enhancing retention by involving staff in management. Ensuring effective role utilization, and offering targeted benefits Improve the availability of essential MINFI, DGB, MINSANTE, Short to medium term drugs and medical supplies through MINDEVEL regulatory measures and supply chain management Provide incentives for hospital/ MINFI, MINEPAT, DGB, Medium to long term health center performance through MINSANTE, MINDEVEL contracts that promote quality care; a patient ‘rights and duties’ charter, and systematic statistics collection in public and private health facilities Address health sector Ensure a better territorial distribution MINEPAT, MINSANTE, Short to medium term disparities by equalizing of public health facilities based on an MINDEVEL health facilities across updated health map regions, targeting essential drugs to vulnerable Establish with local authorities a MINFI, MINEPAT, DGB, Short to medium term populations, and targeted system for distributing MINSANTE, MINDEVEL decentralizing budgetary essential drugs to the most vulnerable management. populations of underprivileged areas Decentralize budgetary management MINFI, MINEPAT, DGB, Medium to long term of financial resources MINSANTE, MINDEVEL Social protection sector Reallocate public spending Reallocate part of savings on subsidies MINFI, DGB, MINAS Short to medium term on social protection towards from recent fuel price increases to strategic priorities by using expand targeted social assistance savings from fuel subsidy programs. reform, finalizing a national strategy, committing to Adopt and publish the National Social MINAS, Prime Minister Short to medium term long-term budgeting, and Protection Strategy. Office expanding the Social Safety Nets Program (Projet Filets Sociaux) into a national program. Establish long-term predictable MINFI, DGB, MINAS, Medium to long term budget for key safety net programs MINEPAT and to ensure predictable and timely payments of cash transfers to beneficiaries. Transform the Social Safety Nets MINFI, DGB, MINAS, Medium to long term Program (Projet Filets Sociaux) into MINEPAT a national program with appropriate legal and policy framework. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 182 Objective Recommended actions Responsible Timeline Improve efficiency of social Reallocate social protection budget MINFI, DGB, MINAS, Short to medium term protection spending by from central administration to regions. MINEPAT, MINEDEVL reallocating budget to regions, engaging local Engage local communities and civil MINFI, DGB, MINAS, Short to medium term communities, and reforming society organizations in the planning, MINEPAT, MINEDEVEL public pensions. implementation, and monitoring of social assistance programs to ensure their relevance and effectiveness. Reform the public pension system to MINFI, MINFOPRA, DGB Medium to long term make it more sustainable. Support key social protection Accelerate the implementation of a MINAS, MINEPAT Short to medium term inputs by implementing Social Registry and adopt the criteria of a Social Registry and households and individuals’ eligibility establishing a permanent for social assistance, labor market government structure. programs, health insurance fee waivers and other services. Establish a permanent and stable Prime Minister Office, Medium to long term government structure to host social MINAS, MINEPAT assistance programs. Address social protection Improve targeting of labor market MINFOPRA, MINTSS, Short to medium term disparities by targeting programs and activities. MINAS spending to children and youth, the poor, and the Increase spending in social assistance MINFI, DGB, MINAS, Medium to long term vulnerable. programs aimed at improving the MINEPAT, MINEDEVEL living conditions of children, youth, the vulnerable, and the poor. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 183 7 PROMOTING EFFICIENT PUBLIC SERVICE DELIVERY THROUGH FISCAL DECENTRALIZATION Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 184 Strengthening decentralization has emerged as a crucial priority in Cameroon’s efforts to enhance resilience, reduce conflicts, and promote stability (Cameroon Risks and Resilience Assessment, 2020). In recent years, the country has witnessed a series of destabilizing events and sub-national crises, resulting in displacement, increased violence, social service breakdowns, and eroded trust in both central and local governance (Box 6-1). These conflicts, although unique in each region, share common underlying factors: a deteriorating social contract, lack of trust in state institutions, a centralized system characterized by clientelism and unequal resource distribution, marginalization of certain groups, and inadequate service delivery. Recognizing the need to address these issues, the Grand National Dialogue in 2019 called for an acceleration of decentralization to meet the aspirations of diverse populations. The National Development Strategy has identified governance, decentralization, and strategic state management as a key pillar to mitigate conflict risks, encompassing actions such as decentralization and local development, strengthening the rule of law and security, improving public services, and combating corruption. Today, Cameroon’s public administration and service delivery systems consist of a central core with parallel streams of deconcentrated and decentralized entities. Cameroon is composed of 10 regions headed by governors appointed by the President, which are further divided into 58 departments headed by prefects and 360 districts headed by subprefects. There are 360 communes and 14 urban communities. The deconcentrated entities represent the central government and its ministries at the regional, departmental, and district levels, while the decentralized entities are found at the municipality/commune level in the form of elected municipal councils headed by mayors; and at the regional level in the form of elected regional councils headed by presidents.111 Figure 7-1. Regions, Urban communities, and Communes Regions Urban communities Communes Adamaoua 01 33 Center 03 34 East 02 29 Far North 01 40 Littoral 01 70 North 01 21 North-West 01 47 West 01 21 South 01 34 South-West 02 31 Total 14 360 Source: Cameroon PEA (2022) 111 WB. 2022. Cameroon Political Economy Analysis. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 185 Despite the progress made in decentralization efforts in Cameroon, there are still significant challenges that need to be tackled. One key challenge is the transfer of competences and resources to local governments, as they often face limited capacity to generate their own revenue. While major taxes are collected by deconcentrated services of the Ministry of Finance, there are delays in transferring these funds to local governments. Additionally, central government transfers are not consistently remitted on time. The government acknowledges the need for further action to ensure the completion of the decentralization process and effective implementation of key provisions. This requires addressing issues such as the lack of human and financial resources, which hinders local investment capacities. By addressing these technical challenges, the reform agenda may be able to advance, promoting stability and empowering local communities. Fiscal decentralization plays a crucial role in the efficient delivery of public services and the effective utilization of public funds. In the context of Cameroon, fiscal decentralization becomes even more significant to address the causes of fragility. With a population of over 28 million people, the country faces the challenge of catering to the diverse needs and demands of its citizens across various regions. In such a scenario, fiscal decentralization serves as a powerful tool for empowering local governments and enabling them to address the specific needs of their communities. Moreover, as Cameroon strives to enhance public service delivery and optimize public spending, the decentralization of fiscal powers to local governments can provide a range of benefits, in the sense of bringing fiscal decision-making closer to the citizens in the regions. The 2018 PER recommended the transfer of central government functions to local governments. Table 7-1. Summary of implementation of Cameroon’s 2018 PER recommendations on decentralization Recommendation 2018 PER Status Key challenges Consider a gradual transfer of certain central The decentralization process is Continue the decentralization of government functions and/or sub-functions to underway. resources to align them with the lower levels of government transferred competencies This chapter will provide an analysis of the state of fiscal decentralization in Cameroon following the adoption of the decentralization code in 2019. The focus will be on understanding how institutional and political dynamics have shaped the historical trajectory of decentralization. This analysis will lay the foundation for assessing the fiscal sustainability of the current system and providing insights into the future of decentralization in Cameroon. The first section provides an overview of Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 186 the decentralization process in Cameroon, highlighting the benefits and drawbacks of expenditure decentralization in low-income countries, particularly in Africa. The next section summarizes the recent policy developments related to spending decentralization in Cameroon. The following section examines the revenue and expenditure aspects of fiscal decentralization in the country. Finally, the last section offers practical policy recommendations based on the findings. 7.1 Political and Socio-Economic Context of Decentralization in Cameroon Since 1996, Cameroon has embarked on a path of decentralization, recognizing the vital role of local governments in driving development and the necessity of transferring powers and resources to them. The main aim is to provide local governments with more authority over public resources and decision-making processes. This involves the allocation of financial resources, including tax revenue and grants, from the central government to local governments, enabling them to fund and oversee their own development initiatives and programs. A significant milestone was reached in 2004 when a new constitution was adopted, officially acknowledging the role of local governments in development, and formalizing the decentralization principle. In the same year, the government passed the Law on Decentralization and Local Governance, which established local councils and outlined their responsibilities and functions. However, the actual transfer of competencies and resources from ministries to communes only commenced in 2010 and has been uneven across different ministries, resulting in the competencies devolved to regions and communes remaining limited. Despite legislation outlining the extent of functions to be transferred to decentralized territorial authorities (collectivités territoriales décentralisées, CTDs), the central government still maintains primary responsibility for delivering almost all public services. Some ministries remain reluctant to share their powers and resources. Notably, the transfer of responsibilities related to civil protection and the management of teacher and health staff has not yet been fully realized. Besides, those competencies have not been further disaggregated into attributes or sub-functions. While progress has been made in transferring less costly competencies, the overall management of human resources in health and education that the legislation says should be transferred to the CTDs remains with the central government (Box 7-1). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 187 Box 7-1. The CTDs’ legal role and powers • In 2019, a new General Code for the CTDs (Code Général des Collectivités Territoriales, CGCT) was adopted, which among other things, extended competencies to the regions and communes and granted special status to the English-speaking regions of the Northwest and Southwest. The new Code is largely based on a review of the laws of 2004, their adaptation to the current context, and the recommendations developed during the General Meeting of the Communes. • The CTDs are defined as the regions and the communes (Article 2, CGCT): The commune is the CTD at the basic level. It has a general mission of local development and improvement of the living environment and conditions of its inhabitants. (Article 147, CGCT) and the region is a CTD composed of several departments. It covers the same territorial area as the region as an administrative district. The region has a general mission of economic and social progress. As such, it contributes to the harmonious, balanced, mutually supportive and sustainable development of the region (Article 259, CGCT). • Areas of competencies transferred to communes and regions by law include economic action, environment and management of natural resources, spatial planning, regional development, town planning, and housing, health and population, social welfare, education, literacy, and vocational training education, youth affairs, sports and leisure, culture, and promotion of national languages. A deadline was set up for the transfer of all legal responsibilities by 2015. Since 2010, 63 competencies have been devolved by 20 ministries through specific decrees. However, several functions have not been transferred. • Regions are a recent creation. On December 22, 2020, the first regional elections in Cameroon were organized. Today, the 10 regions of Cameroon are to be run by the 897 elected regional councilors, although the regions, as administrations, are not yet fully operational and lack human, financial, and material resources. Source: PEA, 2022 In recent years, Cameroon has renewed its commitment to decentralization, including fiscal decentralization, resulting in the passage of Law 2019/024 on December 24, 2019.112 This law defines the general framework of subnational governments and their financial system, as well as the specific regimes applicable to certain subnational governments. It also creates a special status and legal framework for the English-speaking regions of North-West and South-West. The Ministry of Territorial Administration and Decentralization (Ministère de l’Administration Territoriale et de la Décentralisation, MINATD) and the Ministry of Decentralization and Local Development (Ministère de la Décentralisation et du Développement, 112 Decentralization refers to the process of transferring power, authority, or decision-making from a central authority to lower levels of government, organizations, or individuals. Fiscal decentralization, on the other hand, specifically refers to the delegation of fiscal powers and responsibilities from a central government to lower levels of government, such as local or regional authorities. It involves granting the authority to raise revenue, make budgetary decisions, and manage public finances at the subnational level. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 188 MINDEVEL) are responsible for regulating and supervising the organization and operation of local and subnational governments while monitoring and evaluating the government’s decentralization policy. Law 2019/024 includes several important innovations for Cameroon. First, the law abolished the principle of complementarity and replaced it with the principle of subsidiarity, broadening the responsibilities transferred to subnational governments. It also established the election of city mayors, breaking with the previous practice of appointing delegates from the national level. Second, the law created a special status and legal framework for the English-speaking regions of North-West and South-West. The special status of these regions was part of the political agreements reached to assuage secessionist movements. Moreover, the law allows for the creation and management of regional development missions, the recognition of the status of traditional chieftaincy, and the institution of a “public independent conciliator” in these two regions. Still, significant gaps in implementation persist. Challenges such as working relations and coordination between officials at different levels, human resource provision and management, and the status of local elected authorities and staff remain areas of concern. Despite the existence of more than 150 related legal texts, many of them have not been fully implemented. Limited financial resources at the local level pose difficulties for local governments in planning and implementing development projects. Many local councils struggle to finance their programs, resulting in slow or incomplete implementation. Additionally, a lack of expertise and resources among local councils hinders effective financial management and can contribute to the mismanagement of funds and corruption. The size of CTDs in Cameroon is unknown. There is no regular calculation (and thus no estimate) of the size of CTDs. The Special Fund for Equipment and Intermunicipal Collaboration (Fonds spécial d’équipement et d’intervention intercommunale, FEICOM) has a compendium of statistics for 2012–16 and raw data gathered for 2017–21 to be used to update the compendium. Unfortunately, data for the 2021 public accounts were only collected for 170 municipal bodies, while data for the 2020 public accounts were available for 254 municipal bodies. Missing in both years are the accounts for the urban community of Yaoundé, the second largest municipal body in the country by population, as well as most of its constituent communes. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 189 7.2 Fiscal Decentralization to Improve Service Delivery Since the 1980s, many developing countries have pursued fiscal decentralization to improve public service delivery. For example, India has recognized the funding needs of “Panchayati Raj Institutions,” which are responsible for local governance and development. However, these institutions face challenges such as limited resources and capacity, political interference, limited autonomy, and lack of public awareness.113 Similarly, Indonesia has witnessed a positive impact on service delivery due to decentralization, but it faces challenges such as unequal distribution of resources and lack of coordination.114 Brazil’s fiscal decentralization program has allowed for greater local control over decision-making and resource allocation, but challenges include uneven revenue distribution, weak fiscal capacity in remote areas, and corruption.115 Finally, South Africa’s decentralization efforts have improved service delivery in health and education, but challenges remain, such as an imbalance in revenue-raising capabilities among municipalities. Several African countries have implemented fiscal decentralization to grant local governments greater autonomy. Fiscal decentralization reforms started gaining momentum in sub-Saharan Africa in the early 1990s. Fiscal decentralization is most advanced in Nigeria, and South Africa where spending at the subnational government level represents about half of total general government spending.116 In Ghana, decentralization has been implemented since the early 1990s and has resulted in improvements in service delivery and increased citizen participation. Local governments in Ghana have been given more control over decision-making and resource allocation, which is a welcome development. However, there are still some obstacles to overcome, such as the high dependency on central government grants, which can be unreliable and subject to delays, as well as weak financial management systems and political interference that has led to the appointment of unqualified staff in local government positions (Box 7 2). Similarly, Kenya’s fiscal decentralization program has resulted in improved access to health services, particularly in rural and remote areas, due to greater local control over resource allocation and decision-making. In Tanzania, the fiscal decentralization program aims to transfer responsibility for healthcare and education to local governments, which is a promising initiative. However, it faces some challenges, including an insufficient transfer of financial resources, a legal framework that results in overlapping responsibilities and lack of accountability, limited capacities in local government authorities, and weak intergovernmental coordination.117 113 Ministry of Panchayati Raj 2021; Reddy & Mohapatra 2017 114 (World Bank 2020) 115 Falleti 2012. 116 IMF (2018). Lessons for Effective Fiscal Decentralization in Sub-Saharan Africa 117 (UNICEF, 2018) Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 190 Box 7-2. Cost and Benefits of Fiscal Decentralization: Literature Review The literature on fiscal decentralization in LICs, LMICs, and SSA provides a mixed picture of its benefits and costs. Improved service delivery: Studies have found that decentralization can lead to greater efficiency and effectiveness in service provision, as local governments are usually better positioned to identify and respond to local needs and preferences (Bardhan and Mookherjee 2006; Faguet 2004). For instance, a study by Gershberg and colleagues (2016) found that decentralization in Tanzania led to improvements in primary health care provision and an increase in the utilization of maternal and child health services. Fiscal decentralization can also lead to improvements in the provision of health, education, and water supply services (Bird and Vaillancourt 1998; Chellaraj and Mattoo 2009). Increased accountability: Decentralization can increase government accountability and transparency by bringing decision-making closer to citizens. Specifically, studies have found that decentralization can lead to greater citizen participation in local governance and improved transparency and accountability in public resource management (Bardhan and Mookherjee 2006; Faguet 2004). Enhanced economic development: Studies have found that decentralization can lead to increased investment and job creation, as local governments are often better able to tailor policies to local conditions and attract private investment (Faguet 2004; Smoke 2005). For example, a study by Crook and Manor (1998) found that decentralization in Uganda led to increased investment in infrastructure and improved agricultural productivity. However, the literature also highlights several potential costs of fiscal decentralization. Inefficiencies and fragmentation: Decentralization can lead to inefficiencies and fragmentation in service delivery and resource management, particularly in contexts where local governments lack the capacity to manage resources effectively. Studies have also found that decentralization can lead to duplication of efforts and lack of coordination among local governments (Bardhan and Mookherjee 2006; Smoke 2005). Political interference: Decentralization can increase the risk of political interference in revenue allocation and expenditure management. For example, a study by Devas and colleagues (2004) found that decentralization in Indonesia led to an increase in corruption and rent-seeking behavior among local politicians. Overall, the literature suggests that the benefits and costs of fiscal decentralization in LICs, LMICs, and SSA depend on a range of factors, including the quality of governance, the capacity of local governments, and the level of intergovernmental coordination. Source: World Bank staff. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 191 Cameroon has made some progress in enhancing public service delivery and foster local ownership and accountability through fiscal decentralization, but challenges remain. Over the years, the country has gradually increased the autonomy of local governments, with the most recent push occurring in 2004. Local governments now have slightly more spending powers, which enables them to collect taxes and fees and invest in improving public service delivery within their respective communities. There have been some challenges in executing these initiatives, particularly in transferring spending powers from the central to local governments. The limited capacity and resources of local governments have also hindered their ability to provide crucial services. Nevertheless, the government has taken steps to assist local governments through training and technical support programs, and there is potential for further improvements. The distinctive features of Cameroon pose a challenge to its fiscal decentralization . With its disproportionately high urban population, the country’s low population density results in smaller administrative units that restrict municipalities’ capability to provide public services. This situation significantly affects revenue generation, especially outside of Douala and Yaoundé. Recognizing Cameroon’s unique situation within the context of Africa LICs and LMICs is essential for successful decentralization. Figure 7-2. Cameroon: Subnational Statistics, Cameroon and Peer Country Group Urban Density Population of Average number Number of Number of population (hab/km2) capital city of inhabitants subnational subnational (% of total per municipality governments governments population) at intermediary at regional or level state level Cameroon 57.6 55.8 11.9 73,738.5 14 10 Low income 30.9 126.4 8 186,671.8 33.1 9.2 Lower middle 48.9 174.4 10.6 93,810.6 320.6 26.3 income Sub-Saharan 40.3 106.1 9.9 183,602.8 35.4 16.3 Africa Source: Subnational Government (SNG)-WOFI OECD database 2022 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 192 7.3 Fiscal Decentralization and Local Expenditure Framework Fiscal decentralization in Cameroon relies on three primary funding sources including shared central taxes, budget transfers from line ministries, and the Common Decentralization Fund. CTDs are to benefit from shared central taxes and budget transfers. Budget transfers from the central government constitute a significant portion of the financial resources available to decentralized entities. These transfers, allocated by law, are managed by regional presidents or mayors to ensure they are used for local development initiatives. The Decentralization Fund refers to the resources allocated to the CTDs in the form of budgetary allocations for the partial financing of decentralization. The new decentralization Code (Code Général des Collectivités Territoriales, CGCT) has fixed the Fund at a minimum of 15 percent of state revenue for both regions and municipalities. The total amount of this transfer is defined annually in the Finance Law (budget) without a fixed formula. Municipalities in Cameroon primarily finance their operations through a 10 percent surcharge (centimes additionnels communaux, CAC) on major national taxes, including personal income tax, corporate income tax, and VAT. These national taxes are collected centrally by the central tax administration, the Direction Générale des Impôts (DGI), and municipalities receive 1/11th of the revenues from these taxes after deducting collection costs. The distribution of these funds to municipalities is done based on various criteria, often with assistance from FEICOM. Additionally, municipalities receive a portion of certain national taxes, grants from the central government, and income from local taxes. Local taxes comprise the business tax (patentes), licensing fees, taxes on games of chance and entertainment, property tax on real estate properties, transfer duties (for leases and sales) of buildings, car stamp duty, and local development tax. Some taxes are shared between the central government and subnational governments, including the forest royalty, stamp duty on advertising, mining tax, and tourist tax. The Department of Local Finance, a newly established entity, plays a critical role in supervising the financing aspects of decentralization in Cameroon, but faces challenges. Operating within the organizational structure of MINDEVEL, this department is responsible for overseeing the financing of decentralization efforts. Its functions include assessing the performance and trends in local finances, overseeing the execution of the state budget allocated to local entities, and managing the processes related to the collection and utilization of resources generated from municipal taxes. Additionally, budget financing for local entities is facilitated through FEICOM. Nevertheless, the lack of capacity and institutional gap limits its effectiveness. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 193 Box 7-3. The Special Fund for Equipment and Intermunicipal Collaboration (FEICOM) FEICOM, established by Law No. 74/23 in 1974, operates as a financially and legally autonomous public institution with technical oversight from the Ministry of Decentralization and Local Development (Ministère de la Décentralisation et du Développement, MINDEVEL) and financial supervision by the Finance Ministry. Its core objective is to promote the equitable development of all CTDs, fostering national solidarity and inter-regional and inter-municipal balance in coordination with relevant administrative bodies. FEICOM achieves this mission by consolidating and redistributing various taxes, duties, and municipal and regional levies subject to equalization. It also allocates portions of the General Decentralization Endowment to regions, municipalities, and beneficiary urban communities. Additionally, FEICOM plays a pivotal role in facilitating remuneration for regional council office members and municipal magistrates and actively participates in financial initiatives aimed at advancing local economic development, including resource mobilization at national and international levels and the management of decentralized cooperation funds for the benefit of CTDs. FEICOM’s successful implementation of numerous projects across sectors such as healthcare, education, infrastructure, and trade, primarily funded by Communal Taxes Subject to Equalization (Impôts communaux soumis à péréquation), has significantly bolstered the financial capacities of CTDs to address their developmental needs. However, FEICOM grapples with several challenges, particularly in terms of its integration into the national fiscal governance framework. Key issues include the lack of integration with the Ministry of Finance’s Treasury systems, which can result in delays in accessing financial resources from the Treasury’s Single Account. Additionally, potential conflicts of interest may arise between FEICOM’s financing role and its function in providing transfers. Another notable challenge is the limited online accessibility of FEICOM’s financial statements, hampering accurate assessments of local government financing. Source: Ministry of Decentralization and Local Development. 7.3.1 Local government own revenues Local tax revenues, known as own-source revenues, encompass various deductions collected by the tax department or the relevant services of CTDs. These include municipal taxes, municipal surcharges on state taxes and duties, regional taxes and duties, and other mandatory deductions specified by law. The general tax code addresses these compulsory levies in its third book, which focuses on financing CTDs. Local taxes can be collected either by the central government and redistributed based on predetermined distribution criteria, or by the CTDs’ Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 194 competent services directly. The taxes collected by the central government are allocated from the Treasury to FEICOM for distribution among CTDs (municipalities, since regions currently receive a negligible amount of resources). These transfers, in the form of tax-sharing arrangements, are categorized into two groups: i. Intermunicipal resources: Taxes used to provide financial support for local investment projects and the operation of FEICOM. ii. Equalization resources. The main tax subject to equalization in Cameroon is local tax surcharge (CAC), which is redistributed from central taxes through a complex mechanism. A portion of the distribution is based on demographic criteria, while 20 percent is allocated equally to each municipality. The objective of equalization is to promote solidarity among different territories by equalizing the fiscal capacity across municipalities. However, small rural municipalities have expressed concerns about the current redistribution process, which prioritizes population-based criteria and disadvantages smaller municipalities compared to their larger counterparts. They have instead proposed the inclusion of additional criteria in the formula to better reflect territorial specificities. International good practice often incorporates factors such as poverty and area-specific indicators alongside population (weighted at around 50 percent) in equalization formulas. iii. There are also taxes that each commune levies directly on its territory, and revenues collected from these taxes are not transferred to the central government. Non-tax revenue encompasses various sources, including the General Grant for Decentralization and the operation of regional and communal services. This type of revenue includes income: (i) generated from regional and communal public property; (ii) derived from private regional or municipal property; and (iii) generated from the provision of public or private services. These sources contribute to CTDs’ revenue streams and support their financial sustainability. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 195 Figure 7-3. Conceptual Map of Cameroon’s Local Government Revenues Subnational revenues Shared central taxes and other transferred Grants from the central government and Other revenues (14.7%) taxes (78.7%) Other revenues (6.6%) Eamarked taxes and local taxes Grants from the central government Transferred directly General Grant for Transfers carried out by the ministerial through treasury Decentralization (DGD) departments Transfered indirectly General Grant for Operations (DGF) through FEICOM General Grant for Investment (DGI) Source: Adapted from Public Expenditure and Financial Accountability (PEFA) (2017) and World Observatory on Subnational Government Finance and Investment (SNG-WOFI) (2022). The relative shares in the top three category are taken from PEFA. Figure 7-4. How the local tax surcharge (CAC) is Distributed 10% State for tax collection CAC 30% 70% 20% FEICOM for operations/investment 40% 60% CTD where taxpayer is Centralization at FEICOM 42% CAC located 28% CAC 73% 20% 4% 3% Border Communes = communes municipalities with activities % population /urban /affected by without a head communities disasters office Source: Regional decentralization in Cameroon: Progress, asymmetry, and financing (World Bank 2020). Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 196 Figure 7-5. Revenue Dynamics for Communes Revenue collected as percentage of GDP Revenues sources 1.00% 230 210 0.95% 190 0.90% 170 150 0.85% 130 0.80% 110 90 0.75% 70 0.70% 50 2015 2016 2017 2018 2019 2020 2021 0.65% Tax revenues Non Tax revenues 0.60% 2015 2016 2017 2018 2019 2020 2021 Total revenue Percent, 2021 Contribution to tax revenue per region 100% 80% 60% 40% 20% 0% 2017 2018 2019 2020 2021 CAC Own taxes ADAMAOUA CENTRE Business tax (patente) Automotive tax EST EXTRÊME-NORD Forestry royalties Development tax LITTORAL NORD Property tax Other revenues NORD-OUEST OUEST SUD SUD-OUEST Source: Cameroonian authorities; World Bank calculations. The consolidated administrative accounts of 75 percent of CTDs highlight their substantial dependence on central tax revenues and state subsidies. Over the years, there has been an improvement in the ratio of budget revenue collection compared to the projections from Revenue-Led Assessments (RLAs), rising from just over 56 percent in 2017 and 2018 to an average of 61 percent in the years from 2018 to 2021. During the same period (2017-2021), the average collection rate for operating revenues stood at 65.7 percent, while investment income had a Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 197 lower average rate of 54.6 percent, primarily due to reliance on state subsidies. It’s worth noting that the state operating subsidy has shown significant improvement, with an average completion rate of 44.6 percent during the same period. Local governments in Cameroon face significant challenges in generating their own revenue. These include a low level of territorial development, lack of resources, and weak collaboration between MINFI and municipalities. The lack of economic activities and the poverty of communities are major constraints for local taxation, resulting in municipalities not being able to rely on their own collected local taxes to finance their projects. Additionally, the collection of taxes by the state suffers from a lack of resources, coordination, and transparency, making it difficult to control and evaluate shared tax revenues. To address these issues, MINDDEVEL and MINFI are actively working on a reform of local and regional taxation, aiming to clarify collection responsibilities, improve distribution mechanisms, and enhance overall effectiveness. 7.3.2 Central transfers and grants Central government grants to CTDs include the General Grant for Decentralization (dotation générale pour la décentralisation)118 and transfers from ministerial departments. As stipulated by the CGCT/2019, the General Grant, which should constitute a minimum of 15 percent of the CTDs’ budget revenue, consists of grants for operations and for Investment. The specific allocation of the Grant to subnational governments is determined annually by the Prime Minister’s Office without following a fixed formula. Until 2020, the General Grant constituted an average of approximately 1 percent of the annual approved budget. Starting from 2021, the regions began receiving an equal budgetary allocation under the General Grant. The Grant saw an increase from a fixed amount of CFAF 10 billion in previous years, which was solely dedicated to communes, to CFAF 49.8 billion for the 2019 budget year. This increased amount included, for the first time, CFAF 7 billion to facilitate the functioning of the Regional Councils, even though they had not been established at that point. In 2021, with the establishment of the regional councils, the operational envelope included allocations for their operating costs, including setting up the regional councils and remunerating the councilors. In 2022 and 2023, each of the 10 regions in Cameroon received an equal amount of CFAF 3 billion through the annual budget. Additionally, FEICOM, the government agency responsible for distributing shared central taxes to the Communes and CTDs, extended a line 118 The General Grant has been subject to varied interpretation, and the pending local taxation legislation has proposed a definition for its numerator and denominator that will allow to calculate what it truly represents, notably with regard to the 15 percent objective. The proposed definition for the numerator excludes from the General Grant as is currently the case in practice the tax transfers to the CTDs, i.e., shared central taxes, in place for municipalities and forthcoming regional taxes. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 198 of credit of 1 billion CFAF to each region in 2022. Some regions have already utilized this credit to fund specific projects and priorities. FEICOM regards this total envelope of 10 billion CFAF as a loan that should be repaid when regional taxation becomes effective. Figure 7-6. General Grant for Decentralization allocations ( CFAF billions), 2010-2023 250 5 4.5 200 4 3.5 150 3 2.5 100 2 1.5 50 1 0.5 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Grants % Grants/State budget Source: World Bank staff calculation and Cameroon Authorities Budgetary transfers or credits from sectoral ministries to CTDs have witnessed recent increases but remain relatively low. These transfers, which constitute the second-largest revenue source for CTDs, are integrated into the budgets of sectoral ministries and are instrumental in enabling CTDs to fulfill their designated responsibilities. These allocations have grown from CFAF 44.7 billion in 2015 to CFAF 101.9 billion in 2021, representing 3.1 percent of the state budget in 2021. Nevertheless, there remains an ongoing need for concerted efforts to achieve the established targets and ensure that CTDs have access to sufficient financial resources. Additionally, it is important to note that this approach deviates from international best practices, as sector ministries can treat CTDs as deconcentrated units, emphasizing the necessity for further measures to meet the financial resource targets for CTDs. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 199 Figure 7-7. There is a high concentration of transfers to CTDs. Regional Distribution of Per-capita Transfers 100,0 110 3,5% 100 3,0% 80,0 90 2,5% Billions CFAF 80 60,0 70 2,0% 60 1,5% 40,0 50 1,0% 40 20,0 30 0,5% 20 0,0% 0,0 2015 2016 2017 2018 2019 2020 2021 2015 2016 2017 2018 2019 2021 Grants Transfers CTD ADAMAWA CENTER EAST FAR NORTH LITTORAL NORTH WEST NORTH WEST Transfers/Domestic revenue ratio SOUTH WEST SOUTH Source: Cameroon BOOST database; World Bank calculations. The absence of detailed expenditure data for all communes and regions in Cameroon hinders the accurate assessment of CTDs’ expenditures. While the BOOST database includes data from the regions, the available data primarily reflect deconcentrated spending, leading to a skewed allocation of resources. This lack of detailed information makes it challenging to assess and analyze expenditure patterns at the CTD level. Additionally, concerns have been raised about the accuracy of financial management systems in capturing geographic data. Without reliable geographic data, tracking and analyzing expenditures within specific regions or municipalities becomes difficult, impeding effective financial management and decision-making. The limited transfer of competencies and functions to CTDs in Cameroon has also resulted in a lack of information on their operations, creating challenges for expenditure analysis. To improve financial analysis and decision-making, it is crucial to enhance the transfer of competencies and functions to CTDs. This would enable a more comprehensive understanding of CTD-level expenditures and facilitate effective resource allocation and planning at the local level. Furthermore, integrating FEICOM into the government’s database and strengthening the accuracy and reliability of financial management systems in capturing geographic data are essential to address these issues. The relatively small share of public expenditures executed by CTDs in Cameroon is also a concern Figure 7-8. Currently, CTDs receive approximately 3.5 percent of total public revenues and expenditures, indicating that a significant portion of public spending is still managed and executed at the central government level. This limited allocation of public expenditures to CTDs can have implications for Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 200 local governance and service delivery. It restricts the autonomy and capacity of CTDs to address the specific needs and priorities of their communities effectively. Moreover, it hampers the potential impact of decentralization in promoting local development, participatory decision-making, and efficient public service provision. Figure 7-8. There is a low level of budget allocations to CTDs. As percentage of total government expenditures 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2017 2018 2019 2020 2021 Expenditure allocated to CTD Source: Cameroon BOOST database; World Bank calculations. A significant portion of public spending in Cameroon is designated for the central administration rather than being allocated to specific geographic locations. This trend is observed across various sectors, including health, education, and infrastructure. Approximately 80 to 85 percent of total spending is not assigned to any region or locality. While certain functions like general administration and sovereignty expenditure are expected to be centralized, sectors like health, education, and infrastructure should have a higher regional allocation to ensure balanced development and effective service delivery at the local level. The high percentage of spending assigned to the central administration in sectors like health and education, ranging from 78 to 92 percent,119 suggests a limited devolution of decision-making and resource allocation to regional and local authorities and reflects the fact that the costlier competencies such as the hiring management of 119 Spending allocated to central administration includes deconcentrated spending, which means that it is intended to be executed at the local level but still under the control of central authorities. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 201 health and education staff have not been devolved in practice. This imbalance undermines the autonomy and capacity of regional and local governments to address the specific needs and priorities of their communities effectively. In the case of infrastructure, while there is an allocation explicitly designated for regions, the share has decreased in recent years, from over 53 percent in 2016 to 36–38 percent in 2018-2021 and it is primarily focused on the purchase of goods and services rather than region-specific projects. While acknowledging legitimate concerns about the current capacity of decentralized entities to effectively manage human resources in critical sectors like health and education, a progressive approach can be adopted. For instance, certain functions such as hiring could be regionalized at the deconcentrated level, while efforts are made to enhance the capacity of Communes, Districts, and Territories (CTDs). This approach would facilitate the recruitment of personnel in underserved areas, particularly if accompanied by measures to incentivize such postings, such as the introduction of a hardship premium. In the medium to longer term, the adoption and establishment of the local public service with well-defined status and attractive career paths and prospects would be important. This would not only contribute to improving service delivery at the local level but also help to mitigate regional disparities and enhance overall governance effectiveness.120 Figure 7-9. Share of Spending Assigned to Central Administration, 2016–2021121 Total ECONOMIC AFFAIRS INFRASTRUCTURE SOCIAL AFFAIRS HEALTH COMMUNICATION, CULTURE, LEISURE AND SPORTS EDUCATION GENERAL AND FINANCIAL ADMINISTRATION DEFENSE AND SECURITY SOVEREIGNTY EXPENDITURE NOT ALLOCATED BY FUNCTIONS 0.0 20.0 40.0 60.0 80.0 100.0 Average 2016-2021 Source: Cameroon BOOST database; World Bank calculations. 120 Draft legislation for the establishment of a local public service has been pending for a few years. 121 Data in the tables in this section refer to commitment. The analysis for budget shows similar figures. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 202 Staff costs constitute an average of 32.7 percent of CTDs’ operating costs excluding salaries covered by the state budget (Figure 7-10). Staff costs do not, however, include salaries covered by the state budget, as they are not reflected in CTDs’ budgets. This exclusion could impact the overall proportion of staff costs. CTDs’ operating expenses, which account for less than half of their total expenses, declined from 49.6 percent in 2017 to 40.2 percent in 2019, before increasing slightly to 46.4 percent of total expenses in 2021. These findings highlight the challenges faced by CTDs in effectively managing their budgets, particularly in terms of timing revenue and aligning expenditure execution rates with revenue realization rates. Centre and South receive relatively more infrastructure allocations than the rest of the country (Figure 7-11). However, precise shares for individual communes like Douala and Yaoundé are difficult to determine due to limitations of the BOOST data for Cameroon, which provides information on expenditure patterns. By contrast, Adamawa, North-West, and South-West receive the lowest shares of infrastructure allocations. A more detailed analysis at the program level reveals that a significant portion of expenditure in these regions is directed toward improving roads, water, and sanitation facilities, which suggests a focus on enhancing essential infrastructure that contributes to improved transportation and basic service provision. Still, without specific data for individual communes, it is challenging to provide a precise breakdown of infrastructure spending within each region. Figure 7-10. Staff costs represent a large share of CTDs’ operating costs. 55% 50% 45% 40% 35% 30% 25% 2017 2018 2019 2020 2021 Share of actual operating expenditure in total actual expenditure Share of personnel expenses in actual operating expenses Source: FEICOM and World Bank Staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 203 Figure 7-11. Share of Infrastructure Allocations by Region, 2016–2021 100 as % of total allocation for infrastructure 80 60 40 20 0 2016 2017 2018 2019 2020 2021 CENTRAL ADMINISTRATION ADAMAWA CENTER EAST FAR NORTH LITTORAL NORTH WEST NORTH WEST SOUTH WEST SOUTH Source: Cameroon BOOST database; World Bank calculations. Best practices suggest that a vertical distribution of resources should close the gap between subnational expenditure needs and revenue potential. In practice, however, the vertical distribution of resources in Cameroon has not followed a consistent methodology, as service delivery standards have been disconnected from budget constraints and instead based on population. Service delivery standards are set by the local authorities, while resources to be transferred are mainly decided at the central level. Transfers to local governments, specifically capital and current transfers, constitute less than 1 percent of total spending. Less than 1 percent of recorded spending is allocated to capital and current transfers to local government, highlighting the limited financial support directed towards local development. Furthermore, a significant lack of information concerning transfers from FEICOM, the primary manager of such transfers, hampers transparency and data comprehensiveness in assessing resource allocation. Recorded allocations display a notable trend of high disbursements to central administration, while some regions receive no allocations at all. This lack of transparency raises concerns about resource distribution and equity among regions. For instance, in the case of 2021 capital transfers, they were predominantly allocated to central administration or ambiguously categorized as “Ensemble des regions,” making it challenging to discern specific allocations to individual regions. Moreover, the data indicates relatively low allocations to regions Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 204 like North-West, South-West, and Adamawa, which may require more support due to their economic and social challenges. Notably, the poorest regions such as North receive no capital or recurrent transfers, highlighting a significant resource distribution disparity. Figure 7-12. Transfers to CTDs as share of Expenditure, 2016–2021 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2016 2017 2018 2019 2020 2021 Capital Transfers Current Transfers Source: Cameroon BOOST database, World Bank calculations. Table 7-2. Capital and Recurrent Transfers by Region, 2019–2021 (in CFAF millions) 2019 2020 2021 TRANSFERS FOR CAPITAL EXPENDITURES TO CTDs 1,194.8 6,641.3 1,690.6 CENTRAL ADMINISTRATION 584.3 6,590.3 99.0 ADAMAWA - 20.0 36.0 CENTER 324.0 26.0 836.5 EAST 189.2 - - FAR NORTH 30.2 - - LITTORAL - - 12.5 NORTH WEST - 5.0 10.0 NORTH - - 98.5 WEST - - 9.2 SOUTH - - 533.0 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 205 2019 2020 2021 SOUTH WEST 67.0 - 56.0 TRANSFERS FOR CURRENT EXPENDITURE 20,698.2 16,559.4 42,155.7 CENTRAL ADMINISTRATION - - 27,596.3 CENTER 7,170.7 5,736.6 4,736.6 EAST 724.0 579.2 579.2 LITTORAL 6,974.1 5,579.3 4,579.3 NORTHWEST 1,043.8 835.0 835.0 SOUTH 370.54 297.2 297.2 REST OF REGIONS 4,415.0 3,532.0 3,532.0 TOTAL TRANSFERS 21,893.1 23,200.7 43,846.3 Source: Cameroon BOOST database. An examination of per capita allocation of funds for health and education across regions in Cameroon reveals details on regional disparities. Over the past three years, the Adamawa region had the highest per capita allocation for education, while North had the lowest. In terms of health, the South region had the highest per capita allocation. However, dispersion was high in both sectors, as there was a significant difference between the region with the highest allocation and the region with the lowest allocation. The ratio between the region with the highest and lowest allocation was approximately 3 to 5 times, emphasizing the disparities in resource allocation for health and education across regions. Figure 7-13. Allocation of Central Government Spending per Capita in Education and Health (CFAF) Education Health 7000 5000 6000 4500 4000 5000 3500 4000 3000 3000 2500 2000 2000 1500 1000 1000 500 0 0 CE A T H T R TT H L ST T H H L ST T H A T H T R RT RA UT ES ES ES TE AW UT RT RT RA ES ES ES TE RT AW RT FA EA UT EA W W W N O O O SO W W O W N O O AM SO N N AM H H TT CE N N H H R LI AD UT RT R LI AD FA O SO O SO N N 2019 2020 2021 2019 2020 2021 Sources: BOOST; statistics institute; own calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 206 Data from the Ministry of Investment support the observed trends in transfers to CTDs and demonstrate that Center receives the highest absolute level of transfers. When considering transfers on a per capita basis, the South region emerges as the highest receiver of transfers, which suggests that, in relation to population size, South receives a relatively larger share of transfers compared to other regions. The East and Adamaoua regions receive the second and third highest per-capita transfers. Conversely, the Far North region receives the lowest level of transfers on a per capita basis. However, there are data limitations, as data from the ministry combine transfers to both the Centre region and the city of Yaoundé, as well as transfers to the Littoral region and the city of Douala. Table 7-3. Transfers from the Ministry of Investment to CTDs, 2017–2021 Total amounts Per capita amounts, 2021 (in Billions FCFAF) (in CFAF) 2017 2018 2019 2020 2021 ADAMAWA 3.01 3.78 5.73 6.89 7.61 2,238.45 CENTER 8.52 9.21 16.11 16.26 16.58 1,759.02 EAST 3.19 2.68 7.29 7.92 8.28 2,778.26 FAR NORTH 4.18 5.32 10.46 12.61 13.71 883.45 LITTORAL 3.66 3.76 5.94 6.47 7.63 918.85 NORTH 3.08 3.57 6.11 7.30 7.46 1,037.62 NORTH WEST 4.88 2.58 3.94 6.68 7.80 2,143.32 SOUTH 6.83 3.36 7.58 6.30 10.20 3,231.49 SOUTH WEST 4.01 2.22 5.52 6.75 7.80 2,113.65 Red shaded cell represents the lowest. Source: Ministry of Local Development and World Bank Staff calculations. Data reveals a recurring issue of low execution rates on both the revenue and expenditure fronts, with a similar pattern observed across regions. Despite having relatively high levels of recurrent revenues and expenditures, municipalities consistently exhibit low execution rates, often falling below the 70 percent mark, while expenditure averages around 50-60 percent. This phenomenon is primarily attributed to the inflexibility of recurrent revenues and expenditures during economic downturns, highlighting the tendency to overestimate both revenue and expenditure budgets, ultimately leading to the underutilization of available funds. These recurring low execution rates, particularly in revenue collection and expenditure utilization within municipalities, highlight a budget overestimation. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 207 Furthermore, these persistent challenges impede the effective implementation of development projects and service delivery at the local level. Addressing the country’s low execution rates and high rigidity of spending requires enhancing budgetary planning and execution processes at the commune level. It is essential to improve the accuracy of revenue and expenditure projections, align budget estimates with actual implementation capacities, and enhance fiscal flexibility to adapt to changing circumstances. This would help to ensure optimal utilization of resources and promote efficient service delivery for the benefit of local communities. Table 7-4. Communes: Selected Financial Metrics, 2017–21 (Average) Execution rate of Row Labels Equilibrium Revenues (Estimate) Rigidity Expenditure ADAMAOUA 0.9 69.9 63.5 21.1 CENTER 1.0 67.3 55.7 26.2 EAST 1.0 65.2 54.3 18.2 FAR NORTH 1.0 61.4 51.9 18.8 LITTORAL 1.0 59.6 49.4 26.1 NORTH 0.9 70.8 58.1 19.1 NORTH-WEST 1.0 68.4 62.3 28.5 WEST 1.1 60.3 55.0 26.8 SOUTH 0.9 53.2 48.9 23.1 SOUTH WEST 0.8 73.8 58.7 36.7 Source: Ministry of Local Development and World Bank Staff calculations. CTDs’ expenditure execution rates have remained significantly lower than their revenue realization rates. Their expenditure execution rate averaged 48.3 percent in 2017–21, lower than their average revenue realization rate of 61 percent. This gap applies to both operational and investment expenses and is due to expenditures only being able to be committed when financial resources are available, which are often delayed due to the late provision of resources by the central authorities and FEICOM. Cameroon faces challenges in subnational fiscal transparency and reporting, despite the presence of strong legislation. There is a low level of financial Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 208 compliance, with only 41 percent of subnational governments submitting their accounts to the Court of Auditors in 2019. Additionally, less than one-third of communes comply with the balanced budget rule, and there is a lack of capacity to effectively produce medium-term budgetary frameworks and expenditure frameworks. The Ministry of Territorial Administration and Decentralization (MINTAD) and the MINFI also fail to provide timely information on transfers for the following year, creating difficulties in financial planning. The audits conducted by the Court of Auditors are not publicly available, further limiting transparency and accountability. To address these challenges, there is a need for improved transparency, capacity- building, and information sharing among government entities to enhance fiscal management and accountability at the subnational level. 7.4 Policy Options Fiscal decentralization in Cameroon faces significant challenges that impact its effectiveness and efficiency, including lack of transparency and accountability, uneven resource allocation, inadequate administrative capacity, and political interference. The 2019 law provides the legal architecture for the structure of subnational governments (e.g., using the asymmetric approach). To overcome challenges facing decentralization efforts, both central and local government authorities must learn from international best practices and take steps to enhance local revenue mobilization, increase financial transfers, implement fiscal equalization, improve intergovernmental coordination, strengthen accountability mechanisms, and promote public participation. Enhancing local revenue mobilization In Cameroon, the lack of local fiscal autonomy poses challenges for revenue collection, including regional and municipal taxes. Fiscal autonomy can involve providing complete autonomy to CTDs over revenue collection, granting them the authority to set and collect taxes, or limiting their authority to surcharges, where the rate is set by regional authorities, but the tax base remains with the central government. Fiscal autonomy is crucial for ensuring the accountability of regional or municipal elected officials to their constituents. Enhancing local revenue mobilization through the adoption and effective implementation of local taxation law is important to ensure the financial sustainability of local governments. This could be achieved by, for example, reviewing and updating revenue laws and regulations, creating a comprehensive revenue mobilization strategy, strengthening revenue administration capacity, ensuring active engagement of citizens and stakeholders, diversifying revenue sources, improving collection systems and technologies, and diligently monitoring Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 209 and evaluating revenue mobilization efforts. While the adoption of a local taxation law is a positive step, its effectiveness relies on the successful implementation of revenue mobilization reforms, such as improving tax administration practices and expanding the scope of revenue collection by local authorities. The authorities could adopt a surcharge approach to provide flexibility in determining public service levels. This could involve regional assemblies voting on surcharge rates within a limit of 10 percent of the national rate and/or making the local business tax (patente) regional.122 For example, if the national rate is 20 percent, regions can set surcharge rates ranging from 0 percent to 2 percent. The appropriate type of tax for a regional surcharge system depends on the national tax system. It is important to consider the mobility of the tax base between regions and choose a less-mobile tax base such as personal income rather than corporate profits. Additionally, it is essential to avoid introducing taxes that hinder intra-country and inter-regional mobility of goods and services, and responsibilities and own-source revenue should be linked as much as possible. There are three main possibilities for regional taxation in the medium term. The first involves introducing a surcharge on the PIT based on the amount payable at the national level. However, associating a taxpayer’s residence (region) with income tax liability may be challenging. The second possibility is implementing a tax on electricity consumption, either for households or all users. This tax could be a fixed amount per kilowatt-hour (kWh) or a surcharge on the VAT applied to electricity consumption. The regional location of electricity meters allows for accurate identification, and electricity consumption serves as a proxy for income. Finally, the third possibility is regionalizing the local business tax (patente) and allowing regions to set tax rates within a specified range. Since the tax base is per establishment, it can be effectively regionalized, and this approach functions as a turnover tax. Implementing regional taxes creates a link between regional voters and expenditures, enhancing accountability and decision-making at the regional level. It provides an avenue for regionally elected officials to align revenue generation with regional needs and priorities, leading to more effective governance and service delivery. Increasing budget transfers Increasing the transfer of financial resources to local governments is a key part of fiscal decentralization. This can be achieved by reviewing the fiscal decentralization framework, increasing the allocation of the national budget to local governments, improving revenue collection and management by local governments 122 2023 Technical Note on Financing the Regions of Cameroon. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 210 based on competencies transferred, and enhancing intergovernmental coordination and consultation. The central government should also allocate a sufficient and equitable share of financial resources to local governments, including an adequate and progressive allocation for the General Grant for Decentralization (dotation générale pour la decentralization). The budgeting process should depart from historical budget allocations and shift toward clear criteria and service delivery targets and outcomes (formula-based budgeting). This would enhance the financial capacity of local governments to deliver services and implement development projects. In parallel, the capacity of local governments to manage the resources they receive (budget planning, preparation, and execution) needs to be strengthened. Improving the existing fiscal decentralization framework is essential to ensure that underfunded local governments receive additional funding for essential services. This involves the adoption of an equalization formula for the regions and the review of the overall fiscal transfer design, including the existing equalization formula for the municipalities in relation to local tax surcharge (CAC) allocation. to ensure that fiscal resources are distributed more equitably among CTDs. This type of system would help mitigate disparities and promote balanced development. Timely transfers of funds are critical to improving service delivery at the local level. It is essential that the State adheres to deadlines for transferring taxes and other financial resources to regional and local authorities. This prompt disbursement of funds equips local authorities with the necessary financial resources to effectively plan and execute region-specific development programs, ultimately enhancing service delivery in their respective regions. Connecting the CTDs to the Treasury Single Account should enhance the financial autonomy of local governments while maintaining fiscal stability. Allocate performance based grants To improve the efficiency of transfers, performance-oriented unearmarked grants should be introduced. Conditional grants help build local institutional capacity. A pilot of a performance-based grants system through the operationalization of the Local Governance and Resilient Communities Project (P175846) will contribute to not only the increase in transfers to CTDs but also contribute to the increase the allocation of national budget resources to local governments in line with the Decentralization Code. To promote transparency and good governance, strengthening accountability mechanisms is needed. The creation of a robust accountability framework, encompassing financial reporting and auditing systems, is crucial for ensuring transparency and prudent management of public funds. Integration and reinforcement of the municipal budget preparation and execution system (System for Integrated Management, Budgeting, and Accounting, SIMBA) with central Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 211 systems should be pursued. Additionally, incentivizing local governments to submit their accounts to the Court of Auditors and promoting the publication of audit reports will contribute to strengthening accountability and transparency. Promote public participation: Encourage citizen engagement and participation in decision-making processes related to local fiscal matters. This can be achieved by conducting regular public consultations, participatory budgeting, and civic education initiatives (engaging citizens in discussions related to fiscal matters and local budget priorities, through the operationalization of the Local Governance and Resilient Communities Project. The government should scale up and institutionalize regular public consultations to involve citizens in the budgetary processes and decision- making related to fiscal matters, seek their inputs, feedback, and suggestions on budget priorities, revenue generation, and expenditure allocation. Finally, policymakers need to learn from international experiences. They need to study successful models of fiscal decentralization and learn from international best practices. This could involve exchanging knowledge, conducting peer reviews, and seeking technical assistance from international organizations and countries with similar experiences. Credits photo: Odilia Hebga / World Bank Group Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 212 Table 7-5. Recommended policy actions to advance fiscal decentralization. Objective Recommended actions Responsible Timeline Tax policy Adopt and effectively implement the local MINFI Short to taxation law MINDDEVEL medium term Enhance Introduce a regional surcharge approach to MINFI Short to local revenue provide flexibility in determining public service medium term levels MINDDEVEL mobilization Carry out a systematic diagnostic of the property Medium to tax system MINFI long term Increase the allocation of the national Short to budget to local governments in line with the MINFI medium term Decentralization Code Improve the predictability of transfers through the Short to Increase budget creation of sub-accounts linked to the Treasury MINDDEVEL medium term transfers from the Single Account to transfer funds directly to the MINFI national budget to CTDs. local governments Improve equity of intergovernmental transfers by Short to in line with the medium term adopting the equalization formula for the regions Parlement Decentralization and revising the equalization formula for the MINFI Code and improve municipalities. the predictability of transfers Review the fiscal transfer design of the Medium to decentralization framework to identify gaps and long term areas for improvement and propose necessary MINDDEVEL amendments. Promote public participation in decision- Short to making processes by conducting regular public medium term consultations, incorporating participatory MINFI budgeting practices, and engaging citizens in MINDDEVEL discussions related to fiscal matters and local budget priorities. Make local budget Pilot a performance-based grants system for Short to processes more medium term CTDs. participatory and more accountable Integrate and reinforce the municipal budget Medium to MINDDEVEL long term preparation and execution system (SIMBA) with MINFI central systems incentivize local governments to submit their Medium to accounts to the Court of Auditors and make the MINDDEVEL long term audit reports public. MINFI Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 213 8 ANNEXES Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 214 8.1.1.1 Revenue by Type (CFAF billions and shares in %), 2010-2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 13,610.6 14,434.8 15,395.9 16,658.6 17,966.1 19,043.1 20,038.6 20,960.9 22,203.3 23,243.7 23,486.5 25,141.5 Nominal GDP in LCU, based 2016 (CFAF billions) CFAF billions Total revenue and grants 1,938.9 2,249.1 2,423.5 2,622.0 2,901.7 3,013.2 2,838.5 3,039.9 3,522.6 3,650.5 3,219.2 3,554.3 Total revenue 1,867.6 2,188.9 2,368.6 2,575.7 2,858.5 3,002.2 2,784.4 2,975.1 3,435.9 3,517.2 3,177.5 3,489.3 1. Oil sector revenue 497.0 637.9 693.0 699.7 678.8 556.4 425.0 385.9 500.3 584.5 428.2 482.2 2. Non-oil sector revenue 1,370.6 1,551.0 1,675.6 1,876.0 2,179.7 2,445.8 2,359.4 2,589.2 2,935.6 2,932.7 2,749.2 3,007.1 2.1 Tax revenue 1,290.9 1,464.0 1,582.8 1,764.9 2,026.7 2,149.4 2,215.3 2,441.1 2,744.2 2,768.3 2,560.6 2,829.7 Taxes on income, profits, 342.9 405.3 471.0 513.1 613.4 683.9 635.7 627.5 718.2 729.4 731.8 765.9 and capital gains Personal income tax 123.2 136.4 142.5 192.9 238.8 229.1 211.4 212.9 245.3 256.3 249.8 257.4 Corporate income tax 172.4 214.4 261.3 258.4 298.0 367.0 351.5 319.5 354.9 345.5 352.3 394.2 Capital gain tax (IRCM) 27.7 32.5 38.3 39.0 44.5 48.8 39.4 42.2 42.7 47.6 54.2 45.5 Other direct taxes 19.6 22.0 28.9 22.7 32.2 39.0 33.3 52.9 75.2 80.0 75.4 68.8 Indirect taxes 948.0 1,058.8 1,111.8 1,251.8 1,413.3 1,465.5 1,579.7 1,813.6 2,026.0 2,038.9 1,828.8 2,063.8 VAT 456.4 526.6 550.0 653.1 726.1 734.6 804.4 965.6 1,161.0 1,133.7 936.3 1,053.8 Excises 81.4 97.5 100.0 110.4 121.2 184.7 211.0 204.4 202.2 241.1 283.9 328.5 Special tax on petroleum 83.0 84.6 97.4 109.6 118.5 103.8 105.6 122.1 127.5 128.7 135.7 146.8 products (STPP) Taxes on international 252.7 273.6 294.1 289.7 356.6 338.1 348.6 398.9 405.9 393.2 349.5 398.2 trade Forest tax 9.0 14.1 13.5 15.1 14.0 15.0 15.6 18.3 17.7 19.5 18.3 18.5 Registration and Stamp 65.4 62.4 56.7 73.8 76.9 89.2 94.4 104.4 111.6 122.6 105.3 118.0 Fees 2.2 Receipts to be - - - - 32.8 - - - - - - - regularized 2.3 Non-tax revenue 80.8 88.0 94.0 96.8 119.3 153.9 144.0 148.1 191.5 164.4 188.7 177.4 2.4 Bills of payment -1.1 -1.1 -1.2 -0.6 0.9 - 0.0 - - - - - 2.5 Privatization receipts - - - 15.0 - 142.5 - - - - - - 3. Grants 71.3 60.2 55.0 46.3 43.2 11.1 54.1 64.8 86.7 133.3 41.7 65.0 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 215 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 In percentage of GDP Total revenue and grants 14.2 15.6 15.7 15.7 16.2 15.8 14.2 14.5 15.9 15.7 13.7 14.1 Total revenue 13.7 15.2 15.4 15.5 15.9 15.8 13.9 14.2 15.5 15.1 13.5 13.9 1. Oil sector revenue 3.7 4.4 4.5 4.2 3.8 2.9 2.1 1.8 2.3 2.5 1.8 1.9 2. Non-oil sector revenue 10.1 10.7 10.9 11.3 12.1 12.8 11.8 12.4 13.2 12.6 11.7 12.0 2.1 Tax revenue 9.5 10.1 10.3 10.6 11.3 11.3 11.1 11.6 12.4 11.9 10.9 11.3 Taxes on income, profits, 2.5 2.8 3.1 3.1 3.4 3.6 3.2 3.0 3.2 3.1 3.1 3.0 and capital gains Personal income tax 0.9 0.9 0.9 1.2 1.3 1.2 1.1 1.0 1.1 1.1 1.1 1.0 Corporate income tax 1.3 1.5 1.7 1.6 1.7 1.9 1.8 1.5 1.6 1.5 1.5 1.6 Capital gain tax 0.2 0.2 0.2 0.2 0.2 0.3 0.2 0.2 0.2 0.2 0.2 0.2 Other direct taxes 0.1 0.2 0.2 0.1 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 Indirect taxes 7.0 7.3 7.2 7.5 7.9 7.7 7.9 8.7 9.1 8.8 7.8 8.2 VAT 3.4 3.6 3.6 3.9 4.0 3.9 4.0 4.6 5.2 4.9 4.0 4.2 Excises 0.6 0.7 0.6 0.7 0.7 1.0 1.1 1.0 0.9 1.0 1.2 1.3 Special tax on 0.6 0.6 0.6 0.7 0.7 0.5 0.5 0.6 0.6 0.6 0.6 0.6 petroleum products Taxes on international 1.9 1.9 1.9 1.7 2.0 1.8 1.7 1.9 1.8 1.7 1.5 1.6 trade Forest tax 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Registration and Stamp 0.5 0.4 0.4 0.4 0.4 0.5 0.5 0.5 0.5 0.5 0.4 0.5 Fees 2.2 Receipts to be - - - - 0.2 - - - - - - - regularized 2.3 Non-tax revenue 0.6 0.6 0.6 0.6 0.7 0.8 0.7 0.7 0.9 0.7 0.8 0.7 2.4 Bills of payment 0.0 0.0 0.0 0.0 0.0 - 0.0 - - - - - 2.5 Privatization receipts - - - 0.1 - 0.7 - - - - - - 3. Grants 0.5 0.4 0.4 0.3 0.2 0.1 0.3 0.3 0.4 0.6 0.2 0.3 Source: Cameroon MINFI and World Bank Staff calculation Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 216 8.1.1.2 Tax revenue by tax type (as % of tax revenue), 2010-2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 In percentage of Tax revenue Taxes on income, profits, and 26.6 27.7 29.8 29.1 30.3 31.8 28.7 25.7 26.2 26.3 28.6 27.1 capital gains Personal income tax (PIT) 9.5 9.3 9.0 10.9 11.8 10.7 9.5 8.7 8.9 9.3 9.8 9.1 Corporate income tax (CIT) 13.4 14.6 16.5 14.6 14.7 17.1 15.9 13.1 12.9 12.5 13.8 13.9 Capital gain tax (IRCM) 2.1 2.2 2.4 2.2 2.2 2.3 1.8 1.7 1.6 1.7 2.1 1.6 Other direct taxes 1.5 1.5 1.8 1.3 1.6 1.8 1.5 2.2 2.7 2.9 2.9 2.4 Indirect taxes 73.4 72.3 70.2 70.9 69.7 68.2 71.3 74.3 73.8 73.7 71.4 72.9 VAT 35.4 36.0 34.8 37.0 35.8 34.2 36.3 39.6 42.3 41.0 36.6 37.2 Excises 6.3 6.7 6.3 6.3 6.0 8.6 9.5 8.4 7.4 8.7 11.1 11.6 Special tax on petroleum 6.4 5.8 6.2 6.2 5.8 4.8 4.8 5.0 4.6 4.6 5.3 5.2 products (STPP) Taxes on international trade 19.6 18.7 18.6 16.4 17.6 15.7 15.7 16.3 14.8 14.2 13.6 14.1 Forest tax 0.7 1.0 0.9 0.9 0.7 0.7 0.7 0.7 0.6 0.7 0.7 0.7 Registration and Stamp Fees 5.1 4.3 3.6 4.2 3.8 4.2 4.3 4.3 4.1 4.4 4.1 4.2 Source: Cameroon MINFI and World Bank Staff calculation Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 217 8.1.1.3 Total Revenue and Tax Breakdown (% of GDP), Selected Countries and Country Groups, 2020 in Income group No. of countries Range in US$ 1/ Total Revenue Property Tax Tax Revenue Selected Excise Tax Countries *GNI pc Grant Trade VAT CIT PIT High Income 59 > 14,010 38.29 21.59 6.48 2.08 0.68 1.59 3.14 7.27 2.24 Upper middle income 59 3960 – 12,390 29.96 18.24 6.04 2.13 2.43 0.59 2.93 2.88 3.48 Lower middle income 46 840 – 3,930 17.40 16.10 4.53 1.78 2.04 0.32 2.77 2.30 1.88 Low income 30 < 1,200 17.65 10.87 3.74 1.28 1.96 0.14 2.05 2.17 4.51 CEMAC Upper middle Equatorial Guinea 5,800 14.10 7.58 0.85 0.33 0.21 0.01 5.08 0.92 0.03 income Gabon 7,030 17.61 12.46 1.52 0.80 3.51 0.07 4.47 1.52 0.04 Lower middle Cameroon 1,520 13.88 11.26 3.99 1.21 1.49 0.01 1.57 1.02 0.18 income Rep. of Congo 1,820 22.24 20.36 2.59 0.25 1.71 0.06 1.39 1.74 0.36 Cent. Af. Rep. 510 21.75 7.52 2.68 1.37 2.07 0.08 0.71 0.86 11.8 Low income Chad 630 21.15 13.58 1.53 0.55 1.36 0.37 2.19 1.64 4.24 Structural Peers Côte d'Ivoire 2,280 14.98 12.34 2.72 1.66 2.96 0.53 1.57 1.51 0.55 Lower middle Ghana 2,310 13.05 12.04 2.35 1.12 1.41 - 2.92 2.02 0.31 income Senegal 1,430 20.16 16.79 5.71 1.78 2.40 0.06 2.67 2.57 2.30 Aspirational Peers Kenya 1,840 16.67 13.13 3.58 1.85 1.41 0.01 2.87 3.73 0.18 Morocco 3,020 27.00 20.02 6.94 2.38 0.86 - 4.46 3.67 0.43 Lower middle income Sri Lanka 3,720 8.67 7.68 1.48 2.03 2.28 - 1.36 0.09 0.03 Vietnam 3,390 17.40 16.10 5.40 1.60 1.30 0.03 3.40 1.80 0.00 Note: PIT = personal income tax; CIT = corporate income tax; VAT= value-added tax; and Gabon – property tax in 2014 is used. For Cameroon, VAT data includes a refund of VAT credits. Source: WDI; IMF FAD database; Cameroon MINFI; Vietnam MINFI; and Gabon – World Bank 2019, PER Improving Spending Quality to Foster Inclusive Growth 2019 and excise tax derived from IMF Central African Economic and Monetary Community (CEMAC): Selected Issues. Country Report No. 19/2. January 2019. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 218 8.1.1.4 PIT Statutory Tax Brackets, CEMAC Countries Countries Income group Taxable income (CFAF) Rate ( percent) Cameroon Lower middle income 0-2 million 10 2,000,001 - 3 million 15 3,000,001 - 5 million 25 Over 5 million 35 Central African Republic Low income 0 - 378,000 0 378,001 - 1,680,000 8 1,680,001 - 3,360,000 15 3,360,001 - 5,040,000 28 Over 5,040,000 40 Chad Low income 0 - 800,000 0 800,001 - 2,500,000 10 2,500,001 - 7,500,000 20 Over 7,500,000 30 Equatorial Guinea Upper middle income 0-1 million 0 1,000,001 - 3 million 10 3,000,001 - 5 million 15 5,000,001 - 10 million 20 10,000,001 - 15 million 25 15,000,001 - 20 million 30 Over 20 million 35 Gabon Upper middle income 0 - 1,500,000 0 1,500,001 - 1,920,000 5 % x Q - 75,000 1,920,001 - 2,700,000 10 % x Q - 171,000 2,700,001 - 3,600,000 15 % x Q - 306,000 3,600,001 - 5,160,000 20 % x Q - 486,000 5,160,001 - 7,500,000 25 % x Q - 744,000 7,500,001 - 11,000,000 30 % x Q - 1,119,000 Over 11,000,001 35 % x Q - 1,669,000 Republic of Congo Lower middle income 0 - 464,000 1 464,001 - 1 million 10 1,000,001 - 3 million 25 Over 3 million 40 Note: In Gabon, the number of shares enables the determination of a ratio ‘Q’, which enables the determination of the income bracket of the employee. Progressive rate from 0 percent to 35 percent, multiplied by the taxpayer’s family charges (“shares” - up to a maximum of six dependent children). “Q”= ratio determined according to the “shares”. Source: Cameroon MINFI; Deloitte: Guide to fiscal information Key economies in Africa 2021; and PwC Worldwide Tax Summarie Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 219 8.1.1.5 PIT revenue (% of GDP), PIT top rate, and productivity ratio for selected SSA and comparator countries, 2020 Selected Countries (1) (2) (3) = (2)/(1) Efficiency Ratio PIT Top Rate PIT Revenue Productivity Ratio Ranking (% of GDP) CEMAC Upper middle income Equatorial Guinea 35 0.92 0.026 5 Gabon 35 1.52 0.043 3 Average 35 1.22 0.035 Lower middle income Cameroon 35 1.02 0.029 4 Republic of Congo 40 1.74 0.044 2 Average 38 1.38 0.036 Low income Central African Republic 40 0.86 0.022 6 Chad 30 1.64 0.055 1 Average 35 1.25 0.038 Structural Peers Lower middle income Côte d'Ivoire 36 1.51 0.042 Ghana 30 2.02 0.067 Senegal 43 2.57 0.060 Average 36 2.03 0.056 Aspirational Peers Lower middle income Kenya 30 3.73 0.124 Morocco 38 3.67 0.097 Sri Lanka 18 0.09 0.005 Vietnam 35 1.80 0.051 Average 30 2.32 0.069 Source: Cameroon MINFI, Cambodia MINFI, Vietnam MINFI, IMF GFS, and World Bank Staff calculations Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 220 8.1.1.6 CIT revenue (% of GDP), CIT top rate, and productivity ratio for selected SSA and comparator countries, 2020 Selected Countries (1) (2) (3) = (2)/(1) Efficiency Ratio PIT Top Rate PIT Revenue Productivity Ratio Ranking (% of GDP) CEMAC Upper middle income Equatorial Guinea 35 5.08 0.145 2 Gabon 30 4.47 0.149 1 Average 33 4.77 0.147 Lower middle income Cameroon 30 1.57 0.052 4 Republic of Congo 28 1.39 0.050 5 Average 29 1.48 0.051 Low income Central African Republic 30 0.71 0.024 6 Chad 35 2.19 0.063 3 Average 33 1.45 0.043 Structural Peers Lower middle income Côte d'Ivoire 25 1.57 0.063 Ghana 25 2.92 0.117 Senegal 30 2.67 0.089 Average 27 2.38 0.089 Aspirational Peers Lower middle income Kenya 30 2.87 0.096 Morocco 31 4.46 0.144 Sri Lanka 28 1.36 0.048 Vietnam 20 3.40 0.170 Average 27 3.02 0.114 Source: Cameroon MINFI, Cambodia MINFI, Vietnam MINFI, IMF GFS, and World Bank Staff calculations Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 221 8.1.1.7 VAT revenue (% of GDP), standard VAT rate, productivity and c-efficiency ratios in for selected SSA and comparator countries Selected (1) (2) (3) = (2)/(1) (4) (5) = (2)/((1)*(4)) C-efficiency Countries Standard VAT VAT Revenue VAT Productivity Household Final C-efficiency Ratio Rate ( percent of Consumption Ranking GDP) (% of GDP) CEMAC Upper middle income Equatorial Guinea 15 0.85 0.057 68.47 0.083 6 Gabon 18 1.52 0.085 41.95 0.202 3 Average 17 1.19 0.071 55.21 0.142 Lower middle income Cameroon 17 3.99 0.235 73.11 0.321 2 Republic of Congo 18 2.59 0.144 42.04 0.342 1 Average 19 3.29 0.189 57.57 0.331 Low income Central African 19 2.68 0.141 91.20 0.155 4 Republic Chad 18 1.53 0.085 90.01 0.094 5 Average 19 2.10 0.113 90.60 0.125 Structural Peers Lower middle income Côte d'Ivoire 18 2.72 0.151 66.13 0.228 Ghana 12.5 2.35 0.188 70.17 0.268 Senegal 18 5.71 0.317 68.82 0.461 Average 16 4.03 0.253 69.49 0.365 Aspirational Peers Lower middle income Kenya 16 3.58 0.224 75.63 0.296 Morocco 20 6.94 0.347 58.30 0.595 Sri Lanka 12 1.48 0.123 70.95 0.173 Vietnam 10 5.40 0.540 67.86 0.796 Average 15 3.50 0.226 74.47 0.323 Source: Cameroon MINFI, Cambodia MINFI, Vietnam MINFI, IMF GFS, and World Bank Staff calculation Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 222 8.1.1.8 Tax Expenditure Breakdown, Cameroon, 2015–2021 8.1.1.8.1 Number of measures by regimes Number of measures 2015 2016 2017 2018 2019 2020 2021 Common law regimes N/A 248 328 328 292 295 382 VAT N/A 226 300 300 269 271 349 Customs import duties (DDI) - 19 12 12 10 10 12 Excise duties (DA) - 3 3 3 4 5 3 Corporate income tax (CIT/IS) - - - - 1 1 1 Personal income tax (PIT/IRPP) - - 9 9 5 5 14 Registration fees (DF) - - 4 4 3 3 3 Derogatory regimes N/A 31 77 77 88 86 79 VAT N/A 17 7 7 11 5 11 Customs import duties (DDI) - 14 6 6 11 14 6 Excise duties (DA) - - 1 1 - - 1 Corporate income tax (CIT/IS) - - 32 32 28 29 34 Personal income tax (PIT/IRPP) - - 17 17 24 24 14 Registration fees (DF) - - 14 14 14 14 13 Total measures identified 227 279 405 405 380 381 461 Total measures assessed 137 230 363 358 371 295 382 Percentage 60.4% 82.4% 89.6% 88.4% 97.6% 77.4% 82.9% Note: The report on tax expenditure for the FY 2015 estimated only on VAT; and the disaggregated number of measures by regime of FY 2015 tax expenditures within the Common law and Derogatory regimes are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations 8.1.1.8.2 Tax expenditure by organization structure, Cameroon, 2015-21 CFAF billion 2015 2016 2017 2018 2019 2020 2021 Nominal GDP 19,043.1 20,038.6 20,960.9 22,203.3 23,243.7 23,486.5 25,141.5 Total tax revenues 2,149.4 2,215.3 2,441.1 2,744.2 2,768.3 2,560.6 2,829.7 DGD N/A N/A 288.3 341.4 351.3 252.9 229.0 % of GDP - - 1.4% 1.5% 1.5% 1.1% 0.9% % of total tax revenues - - 11.8% 12.4% 12.7% 9.9% 8.1% DGT N/A N/A 317.2 203.8 233.4 199.4 210.6 % of GDP - - 1.4% 1.5% 0.9% 1.0% 0.8% % of total tax revenues - - 13.0% 13.0% 7.4% 8.4% 7.8% Total 155.8 451.6 605.6 545.1 584.7 452.3 439.6 % of GDP 0.8% 2.2% 2.9% 2.5% 2.5% 1.9% 1.7% % of total tax revenues 7.2% 20.4% 24.8% 19.9% 21.1% 17.7% 15.5% Note: The disaggregated data by organization structure of FY2015 - FY2016 tax expenditures between the DGT and DGD are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 223 8.1.1.8.3 Tax expenditures by type of taxes CFAF billion 2015 2016 2017 2018 2019 2020 2021 VAT 155.8 335.1 277.6 316.8 399.6 260.1 165.2 Domestic N/A 120.2 113.8 139.5 198.4 158.2 141.3 VAT on import N/A 214.9 163.7 177.3 201.2 101.9 23.9 Customs import duties (DDI) - 107.4 107.2 150.3 147.2 143.8 194.8 Excise duties (DA) - 9.1 12.4 25.0 16.8 21.3 38.0 Domestic - 8.2 6.6 11.2 13.9 14.1 27.8 DA on import - 0.9 5.8 13.8 2.9 7.3 10.3 Corporate income tax (CIT/IS) - - 84.3 10.8 16.3 16.2 33.8 Personal income tax (PIT/IRPP) - - 53.6 13.0 2.1 6.1 2.8 Registration fees (DF) - - 70.6 29.3 2.6 4.8 5.0 Total tax expenditures 155.8 451.6 605.6 545.1 584.7 452.3 439.6 Note: The disaggregated data by organization structure of FY2015 - FY2016 tax expenditures between the DGT and DGD are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. 8.1.1.8.4 Tax expenditures by sector CFAF billion 2015 2016 2017 2018 2019 2020 2021 Real estate N/A 0.1 - - N/A N/A N/A Agriculture, livestock and fishing N/A 30.3 54.1 11.9 N/A N/A N/A Social housing N/A - 1.9 - N/A N/A N/A Bank and insurance N/A 13.5 24.1 16.3 N/A N/A N/A Food industry N/A 203.7 210.9 284.5 N/A N/A N/A Electricity sector, gas, oil and mining N/A - 211.4 59.0 N/A N/A N/A Water and energy N/A 75.0 - - N/A N/A N/A Health and social welfare N/A 43.9 5.0 5.0 N/A N/A N/A Metallurgy N/A 26.6 31.4 20.8 N/A N/A N/A Other sectors N/A 58.5 66.8 147.6 N/A N/A N/A Total tax expenditures 155.8 451.6 605.6 545.1 584.7 Note: The disaggregated data of FY 2015 and FY 2019 tax expenditures by sector are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. 8.1.1.8.5 Tax expenditures by beneficiary CFAF billion 2015 2016 2017 2018 2019 2020 2021 Companies N/A 139.0 381.3 294.6 168.6 134.6 172.1 Large companies N/A N/A N/A 239.2 138.9 92.0 N/A Medium Enterprises N/A N/A N/A 35.3 19.0 15.6 N/A Small enterprises N/A N/A N/A 20.1 10.7 27.0 N/A Households N/A 303.3 221.4 246.9 415.7 303.2 267.5 Public administrations N/A 1.1 0.7 3.6 - - - Diplomatic and similar missions N/A 2.3 1.5 - - - - Humanitarian organizations N/A 3.2 - - - - - International organizations N/A 0.7 - - - - - Religious organizations N/A 0.0 - - - - - Airlines companies N/A 0.4 - - - - - Others N/A 1.6 0.3 - 0.3 14.6 - Total tax expenditures 155.8 451.6 605.6 545.1 584.7 452.40 439.60 Note: The disaggregated data of FY 2015 tax expenditures by beneficiary are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 224 8.1.1.8.6 Tax expenditures by budget function CFAF billion 2015 2016 2017 2018 2019 2020 2021 Economic measures N/A 142.6 383.8 296.3 158.9 132.3 202.7 Social measures N/A 309.1 220.3 231.6 395.1 265.2 233.9 National defense N/A 0.0 - - - - - International conventions N/A - 1.5 - - - - Environmental measures N/A - - 17.1 14.4 3.4 2.9 Others N/A - - - 16.1 51.4 Total tax expenditures 155.8 451.6 605.6 545.1 584.7 452.3 439.5 Note: The disaggregated data of FY 2015 tax expenditures by budget function are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. 8.1.1.8.7 Tax expenditures by tax regimes CFAF billion 2015 2016 2017 2018 2019 2020 2021 Common law N/A 349.1 265.5 361.2 247.1 332.7 314.7 Investment incentives N/A 20.7 101.1 75.6 186.2 53.5 94.8 Agreements and specifications N/A 26.4 28.3 32.6 5.0 0.3 Petroleum code N/A 37.5 106.3 44.1 110.0 3.7 Gas code N/A 3.0 89.5 5.0 5.4 1.0 5.3 Mining code N/A 0.1 0.1 2.4 0.5 0.3 9.4 International convention N/A 6.7 Diplomatic missions related N/A 1.5 Free trade zone N/A 4.2 11.5 9.0 4.3 6.4 0.2 Special Economic Zones (ZES) N/A 0.1 Exceptional measures N/A 2.9 3.8 Stock market regime N/A 0.5 - 0.2 0.1 1.4 Approved Management Centers (CGA) N/A 0.3 11.7 0.3 3.5 2.1 External or joint financing (FINEXT) N/A 32.4 Promotion of local materials and raw materials N/A 11.6 Others N/A 2.4 25.6 18.3 Total tax expenditures 155.8 451.6 605.6 545.1 584.7 452.3 439.5 Note: The disaggregated data of FY 2015 and FY 2019 tax expenditures by sector are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. 8.1.1.8.8 Tax expenditures by objectives CFAF billion 2015 2016 2017 2018 2019 2020 2021 Develop the oil, gas and mining sector N/A 45.1 196.8 51.4 32.5 5.0 14.7 Encourage local wood processing N/A 1.9 1.9 3.1 6.5 2.4 3.9 Encourage savings N/A 2.5 9.7 12.7 Facilitate access to education N/A 2.1 0.6 1.7 0.1 0.6 0.7 Facilitate household access to basic necessities N/A 214.9 192.1 192.6 353.7 211.6 170.5 Facilitate access to health care N/A 54.0 20.7 20.9 13.1 22.8 18.8 Facilitate access to electricity N/A 11.6 7.9 Facilitate access to drinking water N/A 0.2 1.4 Facilitate access to credit N/A 0.1 Promote the development of the green economy N/A 1.8 0.1 14.4 3.4 1.1 Promote private investments N/A 60.9 152.4 89.8 84.9 60.3 113.8 Promote public investments N/A 2.5 0.4 Promote stock market N/A 0.5 1.0 0.1 0.1 1.4 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 225 CFAF billion 2015 2016 2017 2018 2019 2020 2021 Promote CGA N/A 1.6 3.5 2.1 Comply with community legislation N/A 0.0 Respect international agreements N/A 8.3 1.7 Support household consumption N/A 28.0 2.8 28.5 24.1 29.2 32.1 Support the agricultural sector N/A 19.4 10.7 Support the fishing sector N/A 0.6 Support the livestock sector N/A 7.4 Support the agro-pastoral sector N/A 5.6 7.9 13.0 17.1 0.1 27.6 Support for the social housing sector N/A 7.5 0.5 3.1 3.6 1.0 0.8 Support for vehicle acquisition N/A 0.1 6.9 17.0 1.8 Support book industry and publishing N/A 0.9 1.8 0.2 6.1 Support the development of SMEs N/A 0.4 12.9 Support the industrial sector N/A 39.7 Support the metallurgical sector N/A 31.0 Support disability N/A 11.1 Promote research and innovation N/A 2.0 7.7 Promote foreign funding N/A 32.0 Promote of local materials and raw materials N/A 11.6 Develop the postal service N/A 0.5 0.4 0.5 0.6 Other objectives N/A 1.3 7.8 27.6 25.8 51.4 Total tax expenditures 155.8 45.1 196.8 51.4 32.5 5.0 14.7 Note: The disaggregated data of FY 2015 tax expenditures by budget function are not available (N/A). Source: Rapport Sur Les Depenses Fiscales De L’exercice 2016-2021, Cameroon MINFI and World Bank Staff calculations. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 226 8.1.1.9 Organizational Structure of Cameroon’s Major Tax-Related Institutions The MINFI has two major revenue authorities. 1. The Directorate General of Taxation, DGT is responsible for designing a fiscal policy that is conducive to better mobilization of budgetary resources (e.g., the coordination and follow-up of services; the preparation, implementation, and monitoring of the application of tax legislation, tax assessment, tax collection, tax investigation and audit, tax fraud; and international cooperation). The DGT is organized into central services and devolved services. The DGT has improved on the organization of both its central services and its production units by improving on the segmentation of its taxpayers according to their size (turnover) and activity. 1.1 Central services. The central cervices include 10 Central Departments, a mails office and an Information and Communication Unit. The central services of the DGT are responsible for coordinating activities, designing steering tools and assessing tax performance. They have gone through several organizational changes. Between Decree No. 2008/365 of 8 November 2008 applicable in 2010 and Decree No. 2013/066 of 28 February 2013 on the organization of the Ministry of Finance (MINFI) in force, the central services of the DGT have undergone a major overhaul including: • The reconfiguration of old structures and the creation of new Divisions: Division of Research, Planning and Tax Reforms (DEPRF); Dispute Division (DC); and Information Technology Division (DI); • The creation of new departments: Department of General Affairs (DAG); Department of Collection, Tax Values and Trusteeship (DRVFC); Large Taxpayers Office (LTO); • The increase in the number of Sub-Directorates: Sub-direction of the Budget, Material and Equipment for Securing Revenue (SDBM/DAG); Sub-Directorate for Monitoring Allocated Revenues (SDSRA/DRVFC); • The creation of new Units: Operations Unit (CE/DI); Communication Networks Unit (CRC/DI); Tax Information Research and Analysis Unit (CRAIF/DEPSCF); Unit for the Monitoring of Derogatory and Special Tax Regimes (CSRFDS/ DLRFI); Unit for Monitoring, Analysis and Ex Gratia Appeals (CSARG/DC); Data Processing and Statistics Unit (CIS/DGE); Training unit (CPFC/DAG); Information and Communication Unit (CIC); Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 227 • The creation of the positions of Deputy Director: (Coordinator of Management Units, Coordinator of Large Business Audit Brigades, Tax Collector), at the LTO • The Large Taxpayers Office (LTO): Created in 2004 under the name of “Large taxpayers unit”, the LTO is part of the central services of the DGT. In 2014, it saw its competence refocused on genuine large companies with the raising of the threshold for membership from 1 to 3 billion CFA francs of annual turnover. This reform reduced the number of taxpayers managed by the LTO from 569 in 2013 to 408 in 2014, then 378 in 2015 to 505 in 2019. Thanks to this reform, the efficiency of LTO’s services has been enhanced and the complex operations of large companies have been better followed up. 1.2 Devolved Services. The devolved services consist of 14 Regional Taxation offices (RTO). • Regional Taxation Offices (RTO) In charge of the coordination of the devolved tax services, the Regional Taxation Offices are responsible for determining the tax base, managing compliance, tax audits, collection and handling of disputes for the various taxes, duties and levies within their jurisdiction. From twelve (12) Provincial Tax Offices as established by the aforementioned decree N°2008/365 of 08 November 2008, the number of Regional Taxation Offices (RTO), created by decree N°2013/066 of 28 February 2013, increased to fourteen (14) in 2019. • Medium size Taxpayers Offices (MTO): The first two (02) MTO’s were set up in 2006 in Douala and Yaoundé. They administered taxpayers whose turnover ranged from CFAF 100 million to CFAF 1 billion. Until 2013, the DGT had only 2 MTOs with a cumulative taxpayer index of 2,861 taxpayers. From 2014, the tax administration decided to lower the VAT threshold from CFAF 100 million to CFAF 50 million. Based on this, all taxpayers whose turnover is between 50 million and 3 billion CFAF are managed by MTOs. • Special Registration Units (SRU): Created in 2008 by a decision of the Minister of Finance in order to secure revenue from the registration of public contracts, the SRUs were enshrined in the aforementioned Decree No. 2013/066 of 18 February 2013, which also assigns them missions to follow-up and control estate and vacant property in connection with the competent unit of the Directorate in charge of debt collection. • Specialized Center for Public Establishments: It is in charge of monitoring compliance, audit and collection of taxes, duties and fees from public institutions, RLAs and other Public Bodies in the Centre Region. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 228 • Specialized Centers for Liberal Professionals and Real Estate (CSIPLI): Set up in 2006 in Douala and Yaounde, the CSIPLI administers taxpayers who are liberal professions and/or involved in the real estate sector. • Divisional Tax Offices (DTO) • Revenue enhancement programs: The Revenue enhancement Programmes have been set up with competences in the management and collection of taxes, duties and levies in their respective areas. Figure A8.1: Organization chart of the General Directorate of Taxes (DGT) General Directorate of Taxes (DGT) Information and Mail Service Communication Unit Division of Research, Planning and Tax Reforms (DEPRF) Division of Investigations, Central services Internal Audit Service (ISI) Programming and Monitoring of Tax Audits (DEPSPF) General Affairs Department Statistics, Simulations and (DAG) Registration Division (DSSI) Large Taxpayers Office (LTO) IT Division (DI) Department of Collection, Division of Legislation and Fiscal Values and Stamp International Fiscal Relations Trusteeship (DRVFC) (DLRFI) Litigation Division (DC) Regional Taxation Offices (RTO) Devolved services Regional Regional Regional Audit Programming Communication General Affairs Investigation Mail Office and Inspection Litigation unit and Monitoring Service Service and Research Brigade of Audits and Brigade Inspections Unit Statistics, Medium Size Special Regional Internal Registration, Regional Tax Taxpayers Office Divisional Tax Registration Unit Audit Office of Management Collection Unit (MTO)/ STCLPRE/ Offices (DTO) (SRU) Taxation Services Control and IT Unit STCPELAO Note: STCLPRE: Specialized Taxation Centre for Liberal Professions and Real Estate, and STCPELAO: Specialized Taxation Centre for Public Establishments, Local Authorities and other Organizations. Source: Directorate General of Taxation: Annual Report 2018 and Ten-year report 2010-2020. Cameroon MINFI and World Bank Staff designs. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 229 2. The Directorate General of Customs, DGD is responsible for the preparation and application of customs legislation and the collection of customs duties and taxes Figure A8.2: Organization chart of the General Directorate of Customs (DGD) General Directorate of Customs (DGD) Central services Devolved services 12 Customs Sectors Protocol Service External Trade Financial Operations and Foreign Exchange Control Division 79 Custom-houses Internal Audit Department Legislation and Litigation Regional IT Centers Division Customs Litigation Central Fund 12 Active Customs Group International Cooperation and Commands Tax Base Division Information and 38 Customs Subdivisions Communication Unit Investigations and Enforcement Division Special Customs 114 Customs Brigades Intervention Group Command Information Technology 34 Customs Posts Division Customs Training Centre Operational units of the Special Customs Revenue Collection and Intervention Group Statistics Division Command Studies, Trade Facilitation and Risk Analysis Division Resources and Logistics Department Note: STCLPRE: Specialized Taxation Centre for Liberal Professions and Real Estate, and STCPELAO: Specialized Taxation Centre for Public Establishments, Local Authorities and other Organizations. Source: Directorate General of Taxation: Annual Report 2018 and Ten-year report 2010-2020. Cameroon MINFI and World Bank Staff designs. Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 230 8.1.1.10 Cameroon’s Tax Administration Reforms Under the Tax Revenue Authority, 2014-21 1. Published for the first time the national index of taxpayers on the DGT website. 2. Implemented several electronic procedures to reduce the cost of accomplishing tax return and to improve tax compliance. The DGT implemented an e-filing of standard tax regimes for taxpayers of the Large Taxpayers Office (LTO) and introduced pre-filled return (PFR). 2014 3. Implemented organizational changes to reinforce the capacities in the management of property tax in tax centers in other to counterbalance the suppression of VAT and other taxes managed by divisional centers. 4. Implemented a property tax payment service using mobile phones (mobile tax). 1. Introduced a new method for the collection of airport stamp duty by giving airline companies the responsibility to collect the tax at the time of sales of the flight ticket. This mode of 2015 collection proved cumbersome and inconveniencing for the passengers and airline companies, as passengers are bound to queue up to pay the tax while the airline companies wasted useful time, waiting for the passengers to finish paying before boarding. 1. Implemented an e-filing of public procurement. 2. Implemented an e-filing of sale/transfers of immovable property including putting in place of administrative values in matters of immovable property and consecration of the payment of registration and stamp duties of sales/transfers of immovable exclusively by bank transfers. 2016 3. Enforced a mechanism meant to incite taxpayers to file returns through tax amnesty for previous years unpaid taxes. 4. Rationalized the modalities of intervention of tax services 5. Extended the dematerialization of fiscal stamps to the other eight regional headquarters after the 2011 launched in Yaoundé and Douala. 1. Simplified and modernized the calculation, filing and payment of the business license through launching scheme which enables automatic calculation of the amount online and thereby 2017 suppressing the hard copy. 2. Introduced a new mechanism for the collection of taxes and duties on the execution of the state budget. 1. Extended the dematerialization of fiscal stamps to all treasury stations abroad and all the sub divisions of the South West, West and Centre Regions after the 2016 expansion. 2018 2. Replaced the tax clearance with the Tax Clearance Certificate (TCC) which is issued online to taxpayers who are up-to-date with their tax obligations. 3. Extended the external writ to the Customs Revenue Collector. 1. Developed yearly meeting to ensure transfers of taxpayers from one center to another and ensure traceability of movements of taxpayers in the index. 2. Instituted e-filing of Statistical and Tax Return (STR) for companies which belong to specialized units. The Revenue Development Foundation (RDF) in association with the GIZ was retained to develop an e-filing application for STR. 3. Implemented electronic transmission/communication of certain procedural documents such as 2019 Tax Collection Deeds (AMR), audit notice, notice to file, etc. 4. Interfaced with the Douala port’s One Stop Shop’s (Guichet Unque) e-GUCE platform for e-payments of taxes on the importation of vehicles, online generation of payment slip for withholding taxes for public procurement. 5. Extended the dematerialization of fiscal stamps to the South, Littoral, East and Adamawa Regions after the 2018 expansion. 1. Completed the dematerialization of fiscal stamps in North, FAR NORTH and North West 2020 Regions. Source: Directorate General of Taxation: Ten-year report 2010-2020. Ministry of Finances, Cameroon Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 231 Table 8-1. Evaluation of the Core Functions of Cameroon’s Tax Administration, 2017 Row Labels Equilibrium Reven Accurate and reliable taxpayer information. D POA 1: Integrity of the registered taxpayer base Knowledge of the potential taxpayer base. C Identification, assessment, ranking, and quantification of compliance risks. D Mitigation of risks through a compliance improvement plan. D POA 2: Effective risk management Monitoring and evaluation of compliance risk mitigation activities. D Identification, assessment, and mitigation of institutional risks. D Scope, currency, and accessibility of information. D POA 3: Supporting voluntary Scope of initiatives to reduce taxpayer compliance costs. D compliance Obtaining taxpayer feedback on products and services. D On-time filing rate. C POA 4: Timely filing of tax declarations Use of electronic filing facilities. D Use of electronic payment methods. C Use of efficient collection systems. A POA 5: Timely payment of taxes Timeliness of payments. C Stock and flow of tax arrears. D+ Scope of verification actions taken to detect and deter inaccurate reporting. D+ POA 6: Accurate reporting in Extent of proactive initiatives to encourage accurate reporting. B declarations Monitoring the tax gap to assess inaccuracy of reporting levels. D Existence of an independent, workable and graduated dispute resolution A process. POA 7: Effective tax dispute resolution Time taken to resolve disputes. C Degree to which dispute outcomes are acted upon. B Contribution to government tax revenue forecasting process. B POA 8: Efficient revenue Adequacy of the tax revenue accounting system. D management Adequacy of tax refund processing. D Internal assurance mechanisms. D+ External oversight of the tax administration. D+ POA 9: Accountability and transparency Public perception of integrity. D Publication of activities, results and plans. C+ Note: The “A” rating (bold green) corresponds to a performance that meets or exceeds good practices international. “B” (light green corresponds to a solid performance (good level of performance but a step below international best practice). “C” (yellow) means poor performance compared to international best practices. “D” (red) indicates insufficient performance and is awarded when the minimum criteria corresponding to a “C” rating are not met. A “D” could also be assigned in case the information available is insufficient to determine and rate the level of performance. Source: TADAT Cameroon Rapport D’evaluantion de la performance. IMF. July 2017 Cameroon Public Finance – Collect more, Spend better to achieve Vision 2035 Goals 232 8.1.1.12 The informal Economy 2004-15 average as a Share of GDP in Sub-Saharan Africa Mauritius 20.73 South Africa 22.60 Namibia 24.54 Botswana 26.29 Lesotho 29.23 Equatorial Guinea 29.26 Ethiopia 30.24 Cameroon 30.62 Cabo Verde 30.87 Kenya 31.98 Rwanda 32.14 Mozambique 32.71 Burkina Faso 34.19 Chad 34.36 Mali 34.63 Uganda 35.20 Togo 36.15 Malawi 36.81 Sierra Leone 37.24 Burundi 37.61 Senegal 37.76 Angola 37.99 Swaziland 38.15 Niger 38.26 Guinea-Bissau 38.45 Comoros 38.48 Guinea 39.35 Zambia 39.59 Republic of Congo 39.72 Eritrea 40.60 Ghana 40.84 Liberia 42.23 Central African Republic 42.48 Côte d'Ivoire 43.07 Madagascar 43.13 The Gambia 43.38 Democratic Republic of Congo 45.32 Tanzania 46.89 Nigeria 53.10 Benin 53.26 Gabon 56.64 Zimbabwe 64.08 0 10 20 30 40 50 60 70 Source: Medina and Schneider (2018). Shadow Economies Around the World: IMF Working Papers; and World Bank staff calculations