Bold Fiscal Reforms Can Unlock Cameroon’s Full Potential

The World Bank today launched today two flagship economic reports: the 2024 Cameroon Economic Update and the Cameroon Public Finance Review.

Entitled “Fiscal Instruments for Sustainable Forestry,” the economic update analyzes recent economic developments and presents the country’s medium-term outlook. Cameroon’s economic growth decelerated to 3.3% in 2023 from 3.6% in 2022, affecting all economic sectors due to lower-than-expected public investment, rising prices, and ongoing internal conflicts. Inflation rose to 7.4% in 2023 from 6.3% in 2022, driven by high food prices and transportation costs. Cameroon’s real GDP growth is estimated at 4.0% in 2024 and projected to reach on average 4.5% over 2025-2027, driven by improved energy supply and stronger public investment. Inflation is expected to slow down to 3.0% by 2027, and the fiscal deficit is anticipated to remain around 1.0% of GDP in the medium-term, with public debt declining to 36.3% of GDP by 2027.

The report discusses the importance of fiscal reforms to address forestry sector challenges as key to Cameroon’s sustainable growth path. Cameroon’s forestry sector, though significant, has not reached its full potential, currently contributing only 3.8% to GDP and 45,000 jobs. Despite the abundance of forest resources, Cameroon has struggled to maximize revenue from the sector. The report highlights the impact of fiscal reforms to enhance revenue from the forestry sector while promoting sustainable practices.

“Promoting better governance in the forestry sector by encouraging forest certification, climate-smart fiscal policies, increasing value addition in the wood industry, and engaging local communities will secure high public revenues, help preserve forests, and lay a foundation for attracting more climate finance,” said Cheick F. Kanté, Country Director for Cameroon.

The second report, the Cameroon Public Finance Review, provides recommendations to enhance tax collection while spending better and in a more effective and equitable way.

Cameroon’s tax revenue system is marked by narrow tax bases and inadequate enforcement leading to substantial tax evasion and avoidance. While there is a large budget allocation for “common expenses” managed with little transparency and accountability, budget execution is marked by frequent use of exceptional budgetary procedure, allowing for expenditures that frequently exceed approved allocations. Addressing these issues requires a multifaceted reform approach through a Medium-Term Revenue Strategy (MTRS) and a comprehensive reform of budget management practices.

The report further notes that Cameroon’s spending on education and health remains below 5% of GDP and social assistance spending remains inadequate, falling far below international benchmarks, making it a significant area for increased focus and resources. Despite legislative frameworks designed to facilitate the decentralization of power in Cameroon, the transfer of competencies and resources from central ministries to local communes and regions has been limited. The report argues that accelerating fiscal decentralization could improve public service delivery by subnational governments, but will require enhancing revenue, improving services, and streamlining fund flow to regions.

“Despite its potential, Cameroon’s economic performance has consistently fallen short, implying slow progress in income per capita and poverty reduction,” said Robert Utz, World Bank Lead Country Economist and one of the report’s authors. “Now, more than ever, a bold fiscal reform agenda is imperative to unlock its full potential and secure a prosperous future.”

Distributed by APO Group on behalf of The World Bank Group.