Cameroon Public Expenditure Management and Financial Accountability Review (PEMFAR)

Report No. 38179-CM Public Disclosure Authorized Cameroon Public Expenditure Management and Financial Accountability Review (PEMFAR) December 30, 2006 PREM3 (AFTP3), AFTFM, AFTPC Poverty Reduction and Economic Management (PREM)/ Operational Quality and Knowledge Services (AFTQK) Africa Region Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of the World Bank

Abbreviations ACCT AfDB ANTILOPE ARMP BEAC CAA CAMAIR CAMTEL CAS CDBF CEMAC CF CFAA CPAR CSE DEN0 DEPMI DGB DGB DGI DGT DPI DRMS DSA EITI EU FCFA GDP GoC HIPC IBIS IGAFB IGF IGSEA ENGLISH Central Accounting Agency of the Treasury African Development Bank System for the Management of the Payroll Public Procurement Regulation Agency Central Bank of Central African States Caisse Autonome d Amortissement Cameroon Airlines Cameroon Telecommunications Country Assistance Strategy Council for Budget and Financial Discipline Central African Economic and Monetary Community Financial Controller Country Financial Accountability Assessment Country Procurement Analysis and Review Supreme State Control Expenditure committed but not authorized Information system for the management of the expenditures of the ministries Director General of the Budget Director General of Customs Director General of Taxation Director General of the Treasury Director of Investment Programming Debt Reporting and Management System Debt Sustainability Analysis Extractive Industries Transparency Initiative European Union Franc of the African Financial Community Gross Domestic Product Government of Cameroon Heavily Indebted Poor Countries Information system for the budget and the services of the state Inspectorate General of Financial and Budget Affairs Inspectorate General of Finance Inspectorate General of Economic and Administrative Services FRENCH Agence comptable centrale du TrCsor Banque africaine de dkveloppement (BAD) Application de gestion de la solde des fonctionnaires Agence de regulation des march& publics Banque des Etats de 1 Afrique centrale Caisse autonome d amortissement StratCgie d aide au pays (SAP) Conseil de discipline budgctaire et financibre Communautk Cconomique et monktaire de 1 Afrique centrale ContrBleur financier Evaluation de la gestion des finances publiques Revue analytique du systbme de passation des marchks publics ContrBle supcrieur de 1 Etat DCpenses engagces et non ordonnanckes Dkpenses publiques sur mercuriale informatiske (gestion des dcpenses des ministkres) Direction gcncrale du Budget Direction gcncrale des Douanes Direction gcncrale des ImpBts Direction gcncrale du TrCsor Direction de la programmation des Investissements Logiciels spkcialisks dans le suivi de la dette Analyse de viabilitc de la dette Initiative de transparence relative aux industries extractives Union europcenne Franc de la communautk financikre d Afrique Produit intcrieur brut Gouvernement du Cameroun Pays pauvres trbs endettcs (PPTE) Informatisation du budget de l intendance des services de 1 Etat Inspection gcncrale des affaires financibres et budgktaires Inspection gcncrale des Finances Inspection gcncrale des services Cconomiques et administratifs page iii

IMF INTOSAI LDR LFR MDGs MINEFI MINPLADAT MTEF NPV PAGODE PATRIOT PEMFAR PER PFM PGI PNG PIP PREBIC PRS PRSC PRSP RAPT SAC SDCF SEBIC SIGEFI SIGEPAT SIGIPES SMP SNH SYDONIA TCC TOFE TRINITE VAT ENGLISH International Monetary Fund International Organization for Supreme Audit Institutions Budget Settlement Law Revised/Supplementary Budget Millennium Development Goals Ministry of Economy and Finance Ministry of Planning, Development and Regional Administration Medium Term Expenditure Framework Net Present Value Information system for Customs Operations Information system for the accounting operations of the treasury Public Expenditure Management and Financial Accountability Review Public Expenditure Review Public Financial Management Paymaster General of the Treasury National Governance Program Public Investment Program Information system for budget preparation Poverty Reduction Strategy Poverty Reduction Support Credit Poverty Reduction Strategy Paper Overdue Payments of the Treasury Structural Adjustment Credit Deputy Director of Financial Control Information system for monitoring the execution of the budget Integrated Financial Information System Information system for monitoring the expenditures on the investment budget Integrated System for the Management of the Personnel and Payroll of the state Staff Monitored Program National Oil Company Information System for the operations of Customs (ASYCUDA) Certificate of Confirmation of Credit Table of the financial operations of the state Information system for the operations of the Department of Taxation. Value Added Tax FRENCH Fonds monctaire international (FMI) Organisation internationale des institutions supkrieures de contrde Loi de rbglement Loi de finances rectificative Objectifs dc developpement pour le Millhaire Ministirre de I Economie et des Finances Ministbre du plan, du dcveloppement et de 1 amcnagement du territoire Cadre de dcpenses h moyen terme (CDMT) Valeur actualiske nette (VAN) Application informatique des opcrations douanibres Application informatique des opcrations comptables du TrCsor Examen de la gestion des dcpenses publiques et de la responsabilitk financibre Revue des dcpenses publiques (RDP) Gestion des finances publiques Paierie g6ncrale du TrCsor Programme national de gouvernance Programme d investissements publics Application informatique de prkparation du budget StratCgie de rcduction de la pauvret6 CrCdit d appui de la rcduction de la pauvretc Document de stratcgie de rcduction de la pauvretc (DSRP) Reste h payer du TrCsor Credit d ajustement structure1 (CAS) Sous-direction du contrble financier Application informatique pour le suivi et 1 exccution du budget Systirme intcgrc de gestion des finances Application informatique des dcpenses du budget d investissement Systirme de gestion intcgrce des personnels de l Etat et de la Solde Programme de rcfcrence SociCtC Nationale des Hydrocarbures Application informatique des opcrations douanibres Titre de confirmation et de crcance Tableau des opcrations financibres de 1 Etat Application informatique des opcrations de la DGI Taxe sur la valeur ajoutce (TVA) page iv

CAMEROON Public Expenditure Management and Financial Accountability Review (PE M FAR) Acknowledgements Improvements in public financial management (PFM) are critical for Cameroon to deliver on the growth and poverty reduction objectives of its PRSP. Better PFM will help to change the perception of poor governance and create a better climate for domestic and foreign private investment flows and official development assistance. Improvements in public service delivery will enhance social welfare and productivity growth. The improvement of PFM remains a key objective of the World Bank s assistance to Cameroon and the Bank has joined other donors in the Donor Platform to support the Government in this area. The PEMFAR will contribute to the ongoing Government/Donor dialogue on a medium-term PFM plan of action to be supported by the donors. The objective of the PEMFAR was to undertake a broad review of public financial management policies, institutions and performance and provide guidance for strengthening them to foster the development of Cameroon. The PEMFAR encompasses the public expenditure review (PER), the Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Report (CPAR) --three components of public sector analytical work previously carried out separately. The analytical work of the PEMFAR was carried out through a number of missions in 2005 and 2006. During these missions, the teams met and discussed the PFM challenges with a broad range of officials in the Government, the donor community and the NGO sector. The team would like to thank all the officials who shared their thoughts and knowledge with the missions. The Bank team for the PEMFAR consisted of Chukwuma Obidegwu, Emile Finateu, Ali Zafar (consultant), Armand Atomate, David Tchinou, Faustin Koyasse, Bernadette Djapa Nyanjo, and Josiane Luchmun. The PEMFAR benefited from a recent CPAR completed by a team from the Bank and the Government led by Pierre Morin (World Bank). Karen Helveg Petersen (Consultant) and Henriette Bonnevie (Consultant), both funded by the Danish Trust Fund, participated in a PEMFAR mission in May-June 2005 and reviewed the institutions and performance in the preparation and execution of the recurrent and investment budgets. Jean- Yves Raude, Alain Lebaron and Jean-Noel Gout from the French Cooperation, Jean-Paul Barrier, a consultant funded by the EU and Fily Sissoko from the African Development Bank (AfDB) participated in the mission in October 2006 and provided support in various areas including the institutional arrangements, budget preparation and execution, internal and external controls, the accounting system and treasury management. The principal authors of the report are Chukwuma Obidegwu, Emile Finateu and, Ali Zafar. The team would like to thank the peer reviewers Brendan Horton (Lead Economist, AFTP3), David Shand, Robert Cauneau (Consultants) for their contributions. We also like to thank Michel Buea of the French Cooperation in Yaounde for all the insights he shared with the team. This task has been carried out under the general direction of Ali Khadr (country director) and the sector managers Cadman Atta Mills, Hinh Dinh (acting) and Yvonne Tsikata. The team thanks them for their support.

CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) Table of Contents EXECUTIVE SUMMARY and RECOMMENDATIONS / RESUME ANALYTIQUE ET RECOMMANDATIONS Introduction... xi Public Financial Management, Governance and Poverty Reduction... Findings and Recommendations... Managing the Budget Process... Budget Planning and Programming... Budget Prioritization......... XXlll The Management of Investment Spending... The Execution and Control of the Budget... Reinforcing the Transparency and Effectiveness of the Budget....xii xv xxxii Transparency... of the Budget Process... xxxiii Public Accounting and Financial Rep ng...... xxxv Budget Monitoring and Evaluation...... xxxvi Managing Human Resources...... xxxix Pub 1 i c Enterprises......... xli Partnership with External Development Partners... xlii MAIN REPORT CHAPTER 1... 1 THE CONTEXT FOR THE PEMFAR... 1 1.1 1.2 1.3 Objectives and Rationale... 1 Introduction...... Previous Reviews of Public Financial M gement... I Rationale for the PEMFAR..... 2 The Approach... Structure of the Report... 3 Poverty and Social Indicators... 4 The Poverty Reduction Strategy Paper (PRSP)... 5 Political Economy and Governance... 6 page vi

1.4 1.5 1.6 Political Developments... 6 Governance and Corruption... 8 Macroeconomic Trends and Targets... 11 Recent Macroeconomic Developments... 11 Revenue Mobilization... 13 Public Internal and External Debt... 15 Public Debt Management Structures... 15 Internal Debt and Arrears... 16 External debt... 17 Long Term Economic Performance Targets... 20 CHAPTER 2... 22 THE EVOLUTION OF PUBLIC FINANCE/EXPENDITURE MANAGEMENT... 22 2.2 2.3 Introduction... 22 The Legal and Institutional Framework for the Management of Public Finances... 22 Recent Reforms of Public Financial Management... 23 Medium-Term Expenditure Framework (MTEF)... 24 Budget nomenclature... 24 Procurement... 25 Budget Information Systems... 25 Expenditures and Budget Allocations... 26 Trends in Public Expenditures... 26 Composition of Recurrent and Investment budgets... 27 2.4 Budget Execution... 27 Performance in Budget Execution... 27 Main Factors Underlying Poor Budget Execution... 29 CHAPTER 3... 30 THE INSTITUTIONAL FRAMEWORK FOR BUDGET PREPARATION... 30 3.2 3.3 Introduction... 30 Key Budget Planning and Programming Processes... 30 The Budget Calendar... 30 Guidance from the Council of Ministers (the Cabinet)... 32 Consultations with the Donors and the Civil Society... 34 Budget Planning and Coordination... 34 Budget Prioritization... 36 Framework for Strengthening Budget Planning and Programming. 38 The Medium- Term Expenditure Framework (MTEF)... 38 Implementing the MTEF... 41 Summary of the Issues on Budget Preparation... 44 CHAPTER 4... 46 PUBLIC INVESTMENT SPENDING... 46 4.2 Trends and Key Issues... 46 Planning and Budgeting for Public Investments... 48 The Preparation ofthe PIP... 49 page vii

4.3 4.4 4.5 The Preparation of the Public Investment Budget... 50 Execution of Public Investments... 52 Execution of Internally Funded Projects... 52 Execution and Monitoring of Externally Financed Projects... 52 HIPC-funded investments: Possible lessons for the overall investment budget... 53 Improving the Management of Public Investments... 55 Effectiveness of Public Capital Expenditures:... 55 Institutional Arrangements for Managing Public Investments... 56 Capacity and systems development... 57 Increasing expenditures on public investments... 58 Enhanced revenues and expenditure restructuring... 58 Enhanced HIPC debt relief... 58 Donor Support... 59 CHAPTER 5... 60 BUDGET EXECUTION AND CONTROL... 60 5.1 5.2 5.3 5.4 5.5 Budget Execution and Regulation... 60 Framework for Budget Execution... 60 The Expenditure Chain... 61 Efficiency and Fiduciary Risk Issues in Budget Execution... 62 The Use of Special Procedures... 63 Cash Budgeting... 64 Extra - Budgetary Expenditures... 64 Budget Revisions... 65 Delays in the Start of Budget Execution... 65 Inadequate budget preparation... 66 Challenges to Treasury Operations... 66 Management of the Treasury... 67 Meeting Financing Requirements... 67 Risks in Treasury Operations... 68 The Control of Public Expenditures... 68 Administrative Controls... 68 Judicial Controls... 71 Controls by the Legislature... 72 Public Procurement... 73 Public Procurement Assessment... 73 Recent Key Actions Taken by the Government... 74 Main Challenges and the Plan of Action... 75 CHAPTER 6... 77 IMPROVING BUDGE TRANSPARENCY AND EFFECTIVENESS... 77 Introduction... 77 Financial Management Information Systems... 77 6.2 Transparency Issues... 78 Participation... 78 Transparency of the Budget Process... 78 The Role of the Legislature... 79 page viii

6.3 Public Accounting and Financial Reporting... 81 The Institutional and Organizing Framework... 81 The System of Accounting and Reporting... 82 6.4 Budget Monitoring and Evaluation... 83 6.5 Budget Monitoring and Review Process... 83 Beneficiary Assessments... 85 PRSP Monitoring Process... 86 Development of Systematic Monitoring and Evaluation Capacity... 87 Managing Human Resources... 89 Institutional obstacles... 89 Need for Reforms... 91 Managing the Payroll... 91 6.6 Spending and Performance of Parastatal Agencies... 93 6.7 The Burden of Poor Performing Public Enterprises... 94 Reform of Public Enterprises... 95 Assessment of the Fiduciary Risks in Key Areas... 96 TABLES Table 1: Cameroon: Selected Social Indicators... 4 Table 2: Governance Indicators for Cameroon... 8 Table 3: Cameroon: Selected Indicators of Economic Performance... 11 Table 4: Change in external debt including arrears 2000-03 (FCFA million). 18 Table 5: Cameroon: Key External Debt Sustainability Indicators... 19 Table 6: Long-Term Economic Performance Targets... 21 Table 8: Cameroon: Public Investment and External Assistance... 46 Table 9: Public Investment Expenditure. 2000-2004... 47 Table 10: Fiduciary Risks in Key Areas... 97 BOXES Box 1: Pillars of the PRS (2003)... 5 Box 2: Cameroon: Medium-Term Fiscal Strategy... 12 Box 3: Calendar for the Preparation of the 2006 Budget... 31 Box 4: Budget Preparation in Chile... 33 Box 5: The Budget Planning Process... 35 Box 6: Key Characteristics of the MTEF... 39 Box 7: The Expenditure Chain... 61 Box 8: Budget Tracking Survey in the Health Sector... 87 Box 9 :Lessons from Building M&E Systems... 88 CHARTS page ix

Chart 1: Revenues and Expenditures. 1980-2003 (% of GDP... 13 Chart 2: Composition of Government Revenues. 1999-2005... 14 Chart 3: International Revenue Comparisons... 15 Revenue (excluding grants)/gdp (%): 2003... 15 Chart 4: Current and Capital Expenditures. 1980-2003... 26 (% of GDP)... 26 Chart 5: Economic Classification of the Recurrent Budget... 27 2000-2004 (% of Total Expenditure)... 27 Chart 6: Recurrent and Investment Expenditure. planned vs actuals... 28 2000-2004 (CFA Billions)... 28 Chart 7: Budget Execution Rates by Sector 2003-2004 (%)... 28 Table 7: Government Expenditures (% of total spending)... 36 Chart 8: Public Investments: 2000-2004 (Billions FCFA)... 48 Chart 9: Status of Implementation and Execution of HIPC Projects... 54 Chart 10: Execution Rates for the first Trimester 2005... 64 (% of annual allocations per category)... 64 Chart 11: Fiscal Debts of Key Public Enterprises... 94 (CFA billions)... 94 ANNEXES Annex 1: Cameroon: Public Expenditure by Sector 2004... 99 Annex 2: Calendar of Execution of the State Budget... 100 Annex 3: The 2 Phases. 18 Stages and 21 Actions of the Circuit of Expenditures on Goods and Investment Operations Financed by Internal Resources... 101 Annex 4: The Procurement Action Plan... 103

CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) (Examen de la gestion des depenses publiques et de la responsabilite financiere) (P E M FAR) EXECUTIVE SUMMARY and RECOMMENDATIONS &SUME ANALYTIQUE ET RECOMMANDATIONS Introduction 1. This public expenditure management and financial accountability review (PEMFAR), which covered the period up to the end of 2005, aimed for a broad review of public finance management institutions, policy and performance, to provide guidance for strengthening them. The Report reflects the reviews of missions from the World Bank and other development partners that visited Cameroon in 2005 and 2006. The specific objective of the PEMFAR was to provide an assessment of public financial management (PFM) and recommendations for action to (i) promote dialogue among stakeholders in Cameroon on the importance of effective public financial management systems and good governance; (ii) contribute to the formulation of an action plan for improving PFM in Cameroon; (iii) contribute to the dialogue between the Government and the external partners (Donor Platform) on the reforms of the public financial management system in Cameroon and to the design of the World BanWother external partners' interventions towards lasting improvements in PFM. The Report notes that since the end of 2005, the Government has continued on its path of accelerated reforms and initiated several reform actions in the area of PFM. We hope that the analyses and recommendation of this Report will help to strengthen the implementation of these actions. Introduction 1. Le present examen de la gestion des depenses et de la responsabilite financiere (Public expenditure management and jhancial accountability review- PEMFAR), qui s'est termine a la fin de 2005, visait a examiner de maniere generale les institutions, les politiques et la performance en matiere de gestion des finances publiques, et a formuler des recommandations pour les renforcer. Le rapport rend compte des missions de la Banque mondiale et des autres partenaires au developpement qui ont sejourne au Cameroun en 2005 et 2006. L'objectif specifique de l'examen etait de proceder a une evaluation de la gestion des finances publiques et de formuler des recommandations axees sur les actions suivantes: (i) promouvoir le dialogue parmi les parties prenantes au Cameroun sur l'importance de systemes efficaces de gestion des finances publiques et de bonne gouvernance ; (ii) contribuer a la formulation d'un plan d'action pour amdliorer la gestion des finances publiques au Cameroun ; et (iii) contribuer au debat en cours entre le gouvernement et ses partenaires exterieurs (plate-forme des donateurs) sur les reformes du systeme de gestion des finances publiques au Cameroun et contribuer a formuler l'intervention de la Banque mondiale et des autres partenaires exterieurs en vue d'apporter des ameliorations durables a la gestion des finances publiques. Le rapport constate que depuis fin 2005, le Gouvernement a accelere la mise en Oeuvre des reformes et initie plusieurs actions de reforme dans le domaine de la gestion des finances publiques. Nous esperons que les analyses et les recommandations de ce rapport aideront a renforcer la mise en Oeuvre de ces actions. Executive Summary page xi

Public Financial Management, Governance and Poverty Reduction 2. In spite of many reforms, Cameroon's public financial management (PFM) system is still characterized by an overly centralized and fragmented budget preparation process, weak execution and substantial fiduciary risks. The reforms undertaken have not been wholly successful in strengthening budget institutions and delivering public services to the population. While a number of innovations have been introduced (medium term expenditure framework, a revised procurement code, integrated management information systems), implementation has been weak and the impact of these actions institutional capacity and budget outcomes have not been significant. Budget planning and programming remains a weak link in the budget process despite the substantial investment in reforms and capacity building. The expenditure chain is complex and regulations on budget execution have not always been respected and enforced. The resort to exceptional procedures can lead to accumulation of various arrears, spending at variance with budget appropriations, and delays in the execution of the budget. The roles of the different agencies in the areas of budget execution and control are not clear, and some existing budget control agencies do not appear to be functioning. Fiduciary risks are high in several areas of the PFM system. The level of advance of PFM in Cameroon, in terms of institution building and performance, is below what one would expect for its income level, endowments in human capacity and the investments made in reforming the PFM system. 3. Strengthening public financial management is crucial for improving governance and meeting the growth and poverty reduction targets of the PRSP. The growth prospects of the Cameroonian economy and its ability to deliver on the poverty reduction objectives of the PRSP will improve if Cameroon makes progress on the PRS priorities of improving governance, strengthening human capital, rebuilding infrastructure, improving the climate for Executive Summary Gestion des finances publiques, gouvernance et reduction de la pauvretc 2. MalgrC de nombreuses reformes, le systkme de gestion des finances publiques (PFM) au Cameroun est encore caractcrisc par un processus de preparation du budget excessivement centralis6 et fragmenti, une execution dkficiente et des risques fiduciaires substantiels. Les reformes entreprises n'ont pas reussi entierement a renforcer les institutions budgetaires, ni a assurer la prestation de services publics a la population. Diverses innovations ont ete introduites a travers les reformes (cadre de depenses a moyen terme, revision du code de passation des marches, systemes integres d'informatique de gestion) ; mais, la mise en axvre laissant a desirer, ces mesures n'ont pas eu d'effet notable sur la performance. La planification du budget est un aspect encore tres deficient du processus budgetaire en depit des reformes et des investissements substantiels dans les reformes et le renforcement des capacites. La chaine de depenses est complexe, les regles concernant l'execution du budget ne sont pas toujours respectees et appliquees. Le recours aux procedures exceptionnelles peut entrainer l'accumulation de divers arrieres, des depenses non conformes aux affectations budgetaires et des retards dans l'execution du budget. Les r6les des differents organismes charges de l'execution et du contr6le budgetaires ne sont pas clairs ; de plus, certains organismes de contr6le budgetaire existants ne semblent pas fonctionnels. Les risques fiduciaires sont eleves dans plusieurs domaines du systeme de gestion des finances publiques. Le niveau d'avancement de la gestion des finances publiques au Cameroun, en termes de performance et de consolidation institutionnelles, est inferieur a ce que l'on pourrait esperer compte tenu de son niveau de revenu, des capacites humaines disponibles et des efforts qui ont ete consacres aux reformes. 3. Le renforcement de la gestion des finances publiques est crucial pour atteindre les objectifs de croissance et de reduction de la pauvrete CnoncCs dans le DSRP. Les perspectives de croissance de l'economie camerounaise et sa capacitd de realiser les objectifs de reduction de la pauvretd du CSRF' seront nettement ameliorees si le Cameroun page xii

private sector investment, and promoting regional integration. The public sector has major roles to play in these areas and the budget is a key instrument for public actions in fostering progress. Budget alignment to priorities for growth and poverty reduction enunciated in the PRSP, and progressive improvements in public service delivery will improve private sector productivity growth, increase incomes, enhance social welfare and reduce poverty. Furthermore, the integration of the PRSP objective of poverty reduction and the principles of transparency, accountability and results orientation into public financial management will foster improvements in governance in Cameroon and encourage global private investment flows and official development assistance. 4. The implementation of the reforms should be expedited and sustained to align the PFM system to the PRSP process and to improve the efficiency and effectiveness of the budget. The poverty reduction strategy (PRS), produced in 2003 through a wide consultative process, identified a number of development priorities including good governance and diversification and growth of the economy. The PRS set ambitious targets of real growth of GDP of 5.2 percent in 2003-2006, increasing to 6.8 percent from 2007-2015, with these growth targets and related social policies deemed necessary for Cameroon to achieve the Millennium Development Goals (MDGs). The PRS was a bellwether document, as the first broad policy document in Cameroon that could credibly claim to be founded on the aspirations of people. It therefore provided a credible policy framework and anchor for the national budget and put the national budget and at the center of the country's development. The PRS proposed the use of the medium-term expenditure framework (MTEF) approach to ensure that the budget reflected the PRS policies and priorities. While there have been increases in the budget allocations to some of the PRS priorities (education, health and infrastructure), progress in the adoption of the MTEF has been limited and budget allocations to the core public investment budget has continued to stagnate, hindering the realization of the growth targets of the Executive Summary progresse dans les domaines prioritaires de la SRP que sont l'amelioration de la gouvernance, la mise en valeur du capital humain, la reconstruction des infrastructures, la creation d'un climat plus propice aux investissements prives et la promotion de l'integration regionale. Le secteur public doit jouer un r61e majeur dans ce domaine, et le budget constitue un instrument essentiel permettant aux pouvoirs publics de promouvoir le progres. L'alignement du budget sur les priorites du DSRP en matiere de croissance et de reduction de la pauvrete et l'amelioration progressive de la prestation des services publics rehausseront la productivite du secteur prive, les revenus, le bien-ctre social et feront reculer la pauvrete. Qui plus est, l'integration des principes du DSRP axes sur la reduction de la pauvrete, la transparence, la responsabilisation et l'obligation de rdsultats dans la gestion des finances publiques contribuera a ameliorer la gouvernance au Cameroun et a accroitre les flux d'investissements prives et d'aide publique au developpement. 4. La mise en oeuvre des rcformes devrait &re accclcrce pour aligner le systeme de gestion des finances publiques sur le processus de DSRP et pour amkliorer progressivement l'efficacite du budget. La strategic de reduction de la pauvrete (SRP), elabore en 2003 dans le cadre d'un vaste processus de consultations, a identifie un certain nombre de priorites de developpement, y compris la bonne gouvernance ainsi que la diversification et la croissance de l'economie. La SRP a fixe des objectifs ambitieux de croissance reelle du PIB de 5,2%% en 2003-2006, puis de 6,8% sur la periode 2007-2015, ces taux de croissance et les politiques sociales connexes etant juges ndcessaires pour permettre au Cameroun d'atteindre les Objectifs du Millenaire pour le developpement (OMD). La SRP a ete un document innovateur, le premier enonce de politique generale que le Cameroun pouvait considerer de maniere credible comme etant fonde sur les aspirations de la population. Ce document constituait donc un cadre credible de politique economique et un ancrage du budget national qu'il situait ainsi au centre du developpement du pays. L'intention de la SRP etait de s'appuyer sur l'approche budgetaire du cadre de depenses a moyen terme (CDMT) pour s'assurer que le budget refletait les mesures et les page xiii

PRS. 5. Cameroon has to work very hard to change for the better its reputation for poor governance and high corruption. Good governance is an over-arching requirement for sustained economic growth and poverty reduction. Sound public financial management is an important, perhaps central element of good governance and sound practices in the areas of procurement, budget monitoring, accounting and reporting, are basic building blocks for combating corruption. Strong public sector administrative and democratic governance institutions help to promote and reinforce sound public financial management practices. 6. In 2005, the Government accelerated the pace of governance and anti-corruption reforms, with a substantial number of governance related initiatives, including: (i) the adoption of an updated new national governance program (PNG 11) covering the period 2005-2010; (ii) the adherence to the principles of the Extractive Industries Transparency Initiative (EITI) and the adoption of a related action plan to improve transparency in the operations of the petroleum sector in line with EITI; (iii) adoption of measures to improve budget transparency; and (iv) intensified sensitization of the population on the problem of corruption. These actions have pointed to a stronger commitment by the government to implementing PNG I1 more expeditiously than the previous PNG I. Sustained improvements in governance and fighting corruption involves vigorous actions and perceptible results on a number of fronts including: The expeditious implementation of the PNG, with emphasis on obtaining concrete results on the ground, will be needed to demonstrate to the skeptics of recent actions that the Government means business about tackling corruption and improving governance; Strengthening law enforcement and the judicial process; Executive Summary priorites enoncdes dans la SRP. MalgrC la hausse des credits budgetaires alloues a certaines prioritds de la SRP (education, sante et infrastructure), la procedure d'adoption du CDMT n'a pas beaucoup avance et les enveloppes budgetaires consacrees aux principaux investissements publics continuent a stagner, empechant la realisation des objectifs de croissance prevus dans la SRP. 5. Le Cameroun doit faire des efforts considkrables pour amkliorer sa reputation de mauvaise gouvernance et de corruption gcneralisce. La bonne gouvernance est un imperatif categorique pour assurer une croissance economique soutenue et faire reculer la pauvrete. Une gestion rationnelle des finances publiques est un element important et sans doute crucial de la bonne gouvernance, et de bonnes pratiques dans la passation des marches ainsi que dans le suivi, la comptabilite et l'information budgetaires, constituent des fondements essentiels de la lutte contre la corruption. Des institutions solides de gouvernance democratique et administrative dans le secteur public contribuent a promouvoir et renforcer les pratiques de gestion des finances publiques. 6. En 2005, le Gouvernement a accelerc le rythme des rcformes visant a promouvoir la gouvernance et la lutte contre la corruption, avec un nombre substantiel d'initiatives axees sur la gouvernance, y compris (i) l'adoption d'une mise a jour du programme national de gouvernance (PNG 11) pour la periode 2005-2010 ; (ii)l'adhesion aux principes de l'initiative pour la transparence des industries extractives (EITI) et l'adoption d'un plan d'action a cet effet, avec des actions concretes dans le secteur petrolier conformement a 1'EITI ;(iii) des efforts visant a ameliorer la transparence du budget ; et (iv) la sensibilisation intense de la population sur le probleme de la corruption. Ces actions temoignent d'un engagement a appliquer plus rapidement le PNG I1 que sa version anterieure (PNG I). L'amelioration de la gouvernance et la lutte contre la corruption necessitent des efforts soutenus, coordonnes et vigoureux sur plusieurs fronts; il s'agit notamment de : 0 mettre en oeuvre rapidement le PNG, en veillant particulierement a obtenir des resultats concrets sur le terrain ; cela permettra page xiv

Reforming and strengthening the machinery of public sector management; Progressive improvements in public financial management, emphasizing transparency, accountability, decentralization and results/impact on the population; and The acceleration of structural reforms to promote economic efficiency, while dismantling - the structures that breed corruption, in particular, the restructuring/privatization of public enterprises. de demontrer a ceux qui doutent des actions recentes que le gouvernement a veritablement I'intention de combattre la corruption et d'ameliorer la gouvernance ; 0 renforcer l'application des lois et le processus judiciaire ; 0 reformer et renforcer les mecanismes de gestion du secteur public ; 0 ameliorer progressivement la gestion des finances publiques, en privilegiant la transparence, la responsabilisation, la decentralisation et les resultats/l'impact sur la population ; 0 accelerer les reformes structurelles pour promouvoir I'efficacite economique tout en demantelant les structures qui engendrent la corruption, en particulier, la restructuration/privatisation des entreprises publiques. Findings and Recommendations 7. The findings and recommendations of the exercise are summarized below. These cover three related issues: (i) the management of the budget process including the preparation and execution of the budget and the management of the public investments; (ii) improving the effectiveness of the budget through emphasis on transparency, accountability and results; and (iii) partnership with external development agencies. Conclusions et Recommandations 7. Les conclusions et recommandations de l'exercice sont rcsumces ci-dessous. Elles portent sur trois questions connexes : (i) la gestion du processus budgetaire, y compris la preparation et l'execution du budget ainsi que la gestion des investissements publics ; (ii) l'amelioration de l'efficacite du budget, en mettant l'accent sur la transparence, la responsabilisation et les resultats; et (iii) le partenariat avec les organismes exterieurs de developpement. Managing the Budget Process 8. The budget process still faces many challenges although there have been related reforms and improvements over the years, albeit at a slow pace. Successive assessments in recent years in the context of the Enhanced HIPC Debt Relief have indicated some advances in a number of areas of budget Gestion du processus budgktaire 8. Le processus budgetaire est encore confront6 a de nombreux dcfis, mcme s'il a fait I'objet de rkformes et d'am6liorations au fil des ans, Mt-ce a un rythme lent. Des evaluations successives realisees ces dernieres annees dans le cadre de l'allegement de la dette au titre de 1'Initiative PPTE renforcee ont fait etat Executive Summary page xv

preparation and execution'. Reforms have resulted in several institutional improvements, notably in procurement, the development of sector strategies and medium-term expenditure plans, the introduction of an improved budget nomenclature, the extensive computerization of the budget process with an integrated budget information system (SIGEFI) that enhanced the prospects for budget monitoring and reporting, and improvements in treasury management and public accounting capacity. In addition, there has been a strong effort to audit the stock of internal debt and arrears and to prepare and implement plans for the reduction f the stock of debt, particularly through the use of oil windfalls. These institutional changes provide a foundation for accelerating improvements in public financial management and the effectiveness of service delivery. 9. The Government should focus attention on shoring up the major weaknesses of the public financial management system to derive significant benefits from the past investments in institutional reforms. It is said that the budget process is like a chain and thus it is as its weakest link. In Cameroon, many aspects of the budget are weak, from budget preparation and execution to reporting and legislative oversight. This weakness is rooted in inadequate budget preparation, encompassing poor analysis and planning, weak interagency coordination, and the centralization of decision and management of the budget process. As a result of weak budget planning and programming, many budget programs are often not fully designed, with no credible implementation plan, for instance, procurement and staffing plans and are therefore not ready for implementation. These factors hinder the efficient execution of the budget and leads to poor budget outcomes. A short budget calendar, weak interagency de progres dans divers domaines de la preparation et de l'execution du budget. ' Les reformes ont egalement entraine plusieurs ameliorations institutionnelles, notamment dans la passation des marches, l'elaboration de strategies sectorielles et de programmes de depenses a moyen terme, l'adoption d'une nomenclature budgetaire amelioree, l'informatisation generalisee du processus budgetaire, y compris la mise en place d'un systeme integre de gestion des finances (SIGEFI), qui a ameliore les perspectives de suivi et d'information budgetaires, ainsi que le renforcement des capacites de gestion du Tresor et de la comptabilite publique. En outre, de vigoureux efforts ont Cte faits pour verifier le stock de la dette et des arridres interieurs ainsi que pour preparer et mettre en oeuvre des plans de reduction du stock de la dette, en recourant principalement aux recettes petrolikres exceptionnelles. Ces changements institutionnels constituent un fondement solide pour accelerer l'amelioration de la gestion des finances publiques afin de maximiser l'efficacite des depenses publiques et d'ameliorer progressivement la prestation des services 9. Le Gouvernement devrait concentrer son attention sur I'klimination des principales lacunes du systeme de gestion des finances publiques pour benkficier largement des rkformes institutionnelles antkrieures. On compare souvent le budget a une chaine, qui est aussi solide que son maillon le plus faible. Au Cameroun, plusieurs aspects du budget sont deficients, qu'il s'agisse de la preparation, de l'execution, de l'information ou du contr6le legislatif. Cette deficiente est attribuable a la mauvaise preparation du budget : mauvaise analyse et planification, manque de coordination entre les organismes, centralisation de la prise de decision et de la gestion du processus budgdtaire. A cause des carences de la planification et de la programmation du budget, la conception de nombreux programmes budgetaires reste 1 2 The Enhanced HIPC Debt Relief process that Cameroon entered into in 2000, with the attainment of the HIPC Decision Point required World Bank and IMF staffs to monitor regularly the developments in PFM. L'initiative PPTE renforcee, a laquelle le Cameroun a accede en 2000, requiert que tout pays atteignant le point de decision fasse l'objet d'un suivi replier de sa gestion des finances publiques par les services de la Banque mondiale et du FMI. Executive Summary page xvi

coordination and poor central oversight by the Council of ministers, impair the consistency of budgets with the Government's development objectives and policies. inachevee et leur realisation ne fait l'objet d'aucun plan credible, par exemple en ce qui concerne les projets de passation des marches et de dotation en personnel, de sorte qu'ils ne sont pas prcts pour la mise en oeuvre. Ces facteurs entravent l'execution efficace du budget et entrainent des resultats budgetaires mediocres. En raison d'un calendrier budgetaire court, d'une mauvaise coordination interinstitutionnelle et d'un contrale insuffisant de la part du Conseil des ministres, le budget n'est pas bien align6 sur les objectifs et les politiques du gouvernement en matiere de developpement. Budget Planning and Programming 10. A crucial aspect of preparing a national budget is activity planning but in Cameroon, this element is missing. Budget preparation is a process of planning and programming, involving the selection, costing and of activities in line with political/policy agenda and matching these activities with the available resources. The selection process, involves work on sector strategies, activity evaluation, stakeholder consultations, and coordination with other parts of the government. The planning process provides the analytical underpinnings for the strategic decisions about the allocation and use of public resources and the ultimate orientation of the budget. It facilitates budget programming, -- the prioritization and selection of activities for the budget in line with the budget ceiling of the sectodline ministry. 11. A rigorous approach to budget planning and programming would require a much longer budget calendar, the decentralization of the budget process, improvements in coordination between the line ministries and the ministries of finance and plan. Furthermore, line ministries should have the responsibility for the preparation o f their own budgets. Consequently, these ministries would need to be organized to do this effectively, with emphasis on strengthening their technical and institutional capacities for budget planning and programming. The principal roles of MINEFI and MINPLADAT should be to coordinate the Executive Summary Planification et prkparation du budget 10. La planification des activitks est un aspect crucial de la prkparation d'un budget national, un aspect qui fait dkfaut au Cameroun. La preparation du budget est un processus de planification et de programmation impliquant non seulement la selection et le calcul du coiit des activites correspondant aux objectifs politiques et economiques du gouvernement, mais aussi l'adequation entre ces activites et les ressources disponibles. Le processus de selection, qui est a la base de la programmation, requiert des travaux sur les strategies sectorielles, des etudes techniques, des consultations avec les parties prenantes et la coordination avec les autres institutions de 1'Etat. Le processus de planification assure les fondements analytiques des decisions importantes concernant l'affectation et l'utilisation des ressources publiques et l'orientation ultime du budget. I1 facilite la programmat ion budgetaire, c'est-a-dire l'dtablissement d'un ordre de priorite et la selection des activites budgetaires conformement aux plafonds fixes pour chaque secteurlministere depensier. 11. Une approche rigoureuse de la planification et de la programmation du budget nkcessiterait un calendrier budgktaire beaucoup plus long, la dkcentralisation du processus budgktaire, le renforcement de la coordination entre les ministkres dkpensiers et les ministkres des finances et du plan. En outre, les ministkres depensiers devraient Ctre investis de la responsabilite de preparer leurs propres budgets. En consequence, ils devraient &re organises pour le faire efficacement, en accordant page xvii

budget planning and programming activities, provide oversight on these activities to ensure that the parameters and approach underlying the budget proposals of the line ministries are consistent with government policies, and provide technical support and capacity development assistance to line ministries. 12. The Council of Ministers should define the major parameters of the budget and its overall orientation, providing operational guidance at key stages of the budget process. In this regard, a discussion and the endorsement by the Council of Ministers of a budget framework paper (BFP) at the beginning of the process of budget preparation would be useful to put the process in the right direction. The BFP would lay out the background issues and discuss the challenges to the budget in the short and medium-term and the options for addressing them. The BFP, endorsed by the Cabinet, would spell out the overall spending ceilings and the policies and priorities that would guide the program level allocations and the preparation of the budget circular. The BFP could also be the major instrument for consultations on the budget with principal stakeholders. la priorite au renforcement des capacites en matiere de planification et de programmation budgetaires. Le MINEFI et le MINPLADAT doivent principalement coordonner la planification et la programmation, assurer le contr6le de ces activites pour veiller a ce que le travail des ministeres depensiers soit conforme aux politiques et reglements de l'etat, et fournir aux ministeres depensiers une assistance technique et un renforcement des capacites. 12. Le Conseil des ministres doit definir I'orientation generale et les principaux paramktres du budget, en donnant des conseils opirationnels pendant les phases essentielles du processus budgetaire. A cet egard, l'examen et l'approbation d'un document cadre de politique budgetaire en debut de processus par le Conseil des ministres seraient utiles pour placer le processus sur la bonne voie. Le document cadre de politique budgetaire presenterait les questions de fond, les enjeux budgetaires a court et a moyen terme et les solutions envisagees. Approuve par le Cabinet, ce document indiquerait l'enveloppe globale de ressources et enoncerait les politiques et les priorites devant determiner le niveau des allocations aux programmes ainsi que la preparation de la circulaire budgetaire. En outre, il pourrait Ctre l'instrument primordial pour les consultations budgetaires avec les principaux intervenants. Adoption of the Medium-Term Expenditure Frame work (MTEF) 13. The Government should fully adopt the MTEF as the systematic approach to making the needed improvements in planning and budgeting. The MTEF approach is anchored on strategic planning and decentralized budget preparation in a medium-term (3-5 years time-frame). It is a bottom-up approach, with line ministries responsible for the preparation of their ministerial budgets, in collaboration with the ministries of finance and plan. It is a resultsoriented approach, thus requires systematic efforts on monitoring and evaluation of budget inputs, outputs and outcomes, as well as transparency and accountability. The MTEF approach facilitates the alignment of the national policy agenda, such as articulated Executive Summary Adoption Ze cadre de ddpenses a moyen terme (CDMT) 13. Le Gouvernement devrait adopter intkgralement le cadre de depenses a moyen terme (CDMT) en tant que methode systkmatique permettant d'apporter les ameliorations necessaires a la planification et a la budgetisation. La methode CDMT est fondee sur la planification strategique et la decentralisation du processus de preparation du budget dans une perspective a moyen terme (3-5 ans). I1 s'agit d'une demarche ascendante dans laquelle les ministeres depensiers sont responsables de la preparation de leurs propres budgets, en collaboration avec les ministeres des finances et du plan. C'est une demarche axee sur les resultats et caracterisee par des efforts systematiques de suivi et d'evaluation des intrants, des produits et des resultats budgetaires, page xviii

in the PRS, with the budget inputs and outcomes. Since the adoption of the PRS, some ministries in Cameroon, for instance education and health have prepared mediumterm sector expenditure programs (MTEF) in line with agreed sector strategies. Recently, sector strategies have recently been prepared in other sectors, paving way for the elaboration of credible sector expenditure programs. However, there has not been a formal process for linking these MTEF type expenditure programs and the annual budget, particularly since a global MTEF did not exist. The implementation of the MTEF requires: Strong political commitment to an agreed national policy framework is critical for an effective MTEF approach to budgeting. The poverty reduction strategy (PRS) is an existing instrument that fits this role. Political commitment to the PRS as well as regular updates of the strategy are essential for its use as the bases for the MTEF; The establishment of decentralized planning and programming processes and capacity that would (i) identify and validate activities consistent with the priorities of the PRS and in line with sector strategies; and (ii) the costing of viable activities and the elaboration of sector medium term expenditure programs that include the recurrent and public investment spending. The overall program should respect the resource constraints. Realistic estimates public resources in the medium-term budget framework and the respect of the budget allocations and the medium-term MTEF allocations to programs. Furthermore, realistic forecasts of external assistance will be essential, with efforts to ensure that committed and budgeted donor funds are available when needed. The integration of the recurrent and investment budgets with the planning of recurrent and public investment expenditures considered together, and the uses of donor resources be planned dans la transparence et la responsabilite. La methode CDMT facilite l'adequation entre le programme economique national enonce dans la SRP d'une part et les intrants et resultats budgetaires d'autre part. Depuis l'adoption de la SRP au Cameroun, certains ministbres (education et sante notamment) preparent des CDMT a partir des strategies sectorielles convenues. Ces strategies ont permis recemment de realiser des programmes credibles de depenses sectorielles. Toutefois, il n'existe pas encore de processus forme1 permettant de concilier ce type de programme de depenses a moyen terme avec le budget annuel. La mise en aeuvre du CDMT requiert : 0 Un engagement politique fort envers un cadre national de politique economique est crucial pour assurer l'efficacite du CDMT en matiere de budgetisation. La SRP est un instrument existant qui correspond a ce r61e. L'engagement politique en faveur de la SRP ainsi que des mises a jour regulieres de la strategie sont ' essentiels pour que celle-ci serve de fondement au CDMT. 0 L'etablissement de processus et capacites de planification et de programmation decentralises, qui permettraient (i) l'identification et la validation des activites suivant les priorites de la SRP et les strategies sectorielles ; et (ii) la determination du coat des activites viables, et l'elaboration de programmes de dkpenses a moyen terme integrant les depenses courantes et d'investissement public. Le programme global devrait respecter les contraintes de ressources. 0 Une estimation realiste des ressources publiques dans le cadre budgetaire a moyen terme, ainsi que le respect des credits budgetaires et des allocations du CDMT aux programmes. En outre, des previsions realistes de l'aide exterieure seront essentielles, assorties d'efforts visant a garantir que les fonds promis par les donateurs et budgetises seront disponibles au moment voulu ; 0 L'integration du budget courant et du budget d'investissement dans la planification des depenses courantes et d'investissement public envisagees ensemble, ainsi que les utilisations Executive Summary page xix

together with the government's own funds. The elaboration of sector strategies, the use of functional budget classification, and the harmonization of donor assistance procedures facilitate budget integration. The adoption of a functional classification of the budget that facilitates the alignment of the budget and key policy objectives, the classification of activities into programs and subprograms and the integration of recurrent and investment activities. The new budget nomenclature based on a functional classification recently introduced in Cameroon is complex and would need to revised to facilitate the linkages between PRS objectives and budget programs and subprograms and the integration of recurrent and investment expenditures. Harmonizing donor and government procedures and including realistic estimates of external assistance in the medium term budget framework (MTBF) and the budget will enhance the integration of the budget and the implementation of the MTEF; Monitoring and evaluation is an important aspect of the PRSP process and is essential to make operational the results and strategic planning orientation of the MTEF. Thus, the capacity and process for monitoring budget inputs and performance (output and outcomes) would need to be in place. Sensitization and training on the MTEF are critical for the successful introduction and adoption of the MTEF. The sensitization would target a large audience, including ministers, high and middle managers and technical staff in public administration, members of the legislature, local government officials and members of local councils, the civil society and the donor community. Training will target high and middle level managers in government and budget related units in the central and line ministries as well as local authorities. The training will have to involve specific des ressources d'assistance doivent faire l'objet d'une planification conjointe avec les ressources propres de l'etat. L'integration budgetaire est facilitee par l'elaboration de strategies sectorielles, le recours a la classification fonctionnelle du budget, et l'harmonisation des procedures d'assistance des donateurs L'adoption d'une classification fonctionnelle du budget, qui facilite l'alignement du budget avec les principaux objectifs economiques, la classification des activites en programmes et sous-programmes, et l'integration des activites courantes et d'investissement. Recemment introduite au Cameroun, la nouvelle nomenclature budgetaire basee sur une classification fonctionnelle est complexe et devrait Ctre revisee pour faciliter les liens entre les objectifs de la SRP et les programmes et sous-programmes du budget, ainsi que l'integration des depenses courantes et d'investissement. L'harmonisation des procedures de donateurs et du gouvernement et l'inclusion d'estimations realistes des concours exterieurs dans le cadre budgetaire a moyen terme et dans le budget faciliteront l'integration du budget et la mise en Oeuvre du CDMT ; Le suivi et l'evaluation sont des aspects importants du processus du DSRP et sont essentiels pour concretiser les resultats et l'orientation strategique du CDMT. Par consequent, il faudrait mettre en place les capacites et les mecanismes de suivi de l'execution et des resultats budgetaires (produits et resultats) ; La sensibilisation et la formation relatives au CDMT sont cruciales pour l'introduction et l'adoption effectives du CDMT. La sensibilisation doit viser un vaste auditoire comprenant les ministres, les cadres superieurs et moyens et le personnel technique des administrations publiques, les deputes, les responsables des administrations locales et les membres des collectivites locales, la societe civile et la communaute des bailleurs de fonds. La formation doit Ctre axee sur les cadres superieurs et moyens des services Executive Summary page xx

programs for specific audiences. For budget staff, a there should be a plan for a sequence of training activities, with the subjects of the training determined by the MTEF implementation plan and the progress made in implementing this plan. 0 The alignment of the organizational structure within ministries to the principles of the MTEF and program structure of the budget will be needed to facilitate planning and programming as well as program management and ultimately, the linkage of budgetslrewards and program performance. An MTEF planning system would require the rationalization of the units involved in the planning and programming process within line ministries. 14. The adoption of the MTEF requires, at the early stages, major efforts to sensitize stakeholders and build capacity, an agreed implementation plan, and an assurance of strong political commitment to significant institutional change. The Government should build on the already substantial efforts in the development sector strategies and expenditure programs to introduce the MTEF as the core approach to budget management. However, the implementation of an MTEF approach is a long-term process; it should be planned and phased, and requires sustained political commitment for effective implementation over time. For instance, a political commitment to follow a defined expenditure strategy over the medium term is crucial; otherwise, the efforts on multi-year expenditure plans would largely be wasted. For this reason, the sensitization of all the stakeholders, especially at the early stages and at key steps as the implementation proceeds over the years, is essential to build and sustain commitment to the process. Furthermore, the MTEF will require continuous and coordinated efforts on capacity development, particularly for staff directly involved in managing the budget in the line and core ministries. 15. The MTEF will change how budgets are prepared, executed and monitored. This would involve changes of the roles of the line and core ministries (finance and plan), in the Executive Summary centraux et des ministeres depensiers ainsi que sur les administrations locales. La formation devra comporter des programmes specifiques pour des auditoires specifiques. Pour le personnel responsable du budget, il faudrait prevoir une suite d'activites de formation, les domaines de formation etant determines par le plan de mise en euvre du CDMT et par les progres realises dans l'execution de ce plan. 0 I1 importera d'aligner l'organigramme des ministeres sur les principes du CDMT et sur la structure des programmes budgetaires pour faciliter la planification et la programmation ainsi que la gestion des programmes et, en fin de compte, le lien entre les budgetslrecompenses et les resultats des programmes. Un systeme de planification du CDMT necessitera la rationalisation des unites participant au processus de planification et de programmation au sein des ministeres depensiers. 14. L'adoption du CDMT requiert d'importants changements institutionnels, un solide engagement politique, de vastes efforts de sensibilisation des parties prenantes et de renforcement des capacites, un plan de mise en oeuvre adopt6 d'un commun accord, et un ferme engagement politique a effectuer d'importants changements institutionnels. Le gouvernement devrait consolider les efforts substantiels deja deployes dans l'elaboration des strategies sectorielles et les programmes de depenses pour introduire le CDMT comme outil principal de gestion du budget. Toutefois, la mise en oeuvre d'une demarche CDMT est un processus de longue haleine. Elle doit Ctre planifiee et echelonnee, et elle necessite un engagement politique soutenable pour mener a bien la mise en euvre. Par exemple, une ferme determination politique a appliquer une strategie de depenses precise a moyen terme est cruciale ; sinon, les efforts consacres aux plans de depenses pluriannuelles seront largement vains. Par consequent, la sensibilisation de toutes les parties prenantes, surtout au stade initial et durant les phases cles du processus au fil des ans, sera essentielle pour etablir et soutenir l'engagement en faveur du processus. Qui plus est, le CDMT necessitera des efforts continus et coordonnes de renforcement des capacites, surtout pour le personnel participant directement a la gestion du page xxi

. organization of public administration particularly as it relates to the implementation of the budget, and the relationship with the donors. Ultimately, the public finance regulations will need adjusted to reflect emerging MTEF practices. In the meantime, efforts should be made to include the funding of donors in the annual budget and to harmonize donor procedures with those of the government. 16. To move forward, a medium-term plan of action for the full introduction of the MTEF should be elaborated, in consultation with the line ministries and other stakeholders. This plan would guide the implementation of a global MTEF approach over the medium-term. As is the practice in other countries, a technical task force, with representatives drawn from the core and line ministries, should be tasked with elaborating this plan and to guide and monitor implementation in the first two to three years. Once this plan has been drafted, it should be discussed and approved by the Council of Ministers, to signal the commitment of the Government to the plan. This plan would then be an important instrument in the sensitization and training processes. Recommendations Increase the time-frame for budget preparation (budget calendar), with budget preparation starting not later than April of the year; Decentralize budget preparation, with a stronger role for the line ministries; Introduce a pre-budget policy paper (budget framework paper in many countries) that lays out the orientation and priorities of the budget. This should be prepared at a very early stage of the budget preparation process. The endorsement of this paper by the Council of Ministers would mark the formal start of the budget process; Formally adopt the MTEF as the approach to budget preparation. The Government budget dans les ministeres depensiers et primordiaux. 15. Le CDMT changera la maniere de preparer, d'executer et de suivre le budget. I 1 modifiera les r6les des ministeres depensiers et primordiaux (Finances et Plan), l'organisation des administrations publiques, surtout en ce qui concerne l'execution du budget, ainsi que les relations avec les bailleurs de fonds. En definitive, il faudra reviser la reglementation des finances publiques pour la mettre en conformite avec les pratiques emergentes du CDMT. En mcme temps, des efforts doivent Ctre consentis pour intdgrer les financements des bailleurs au budget annuel et pour harmoniser les procedures des donateurs avec celles du gouvernement. 16. Afin de progresser, un plan d'action a moyen terme pour l'application intkgrale du CDMT Ctre elabort5 en consultation avec les ministkres depensiers et les autres parties prenantes. Ce plan guidera la mise en euvre d'une approche globale du CDMT sur le moyen terme. Conformement a la pratique en vigueur dans d'autres pays, un groupe de travail technique compose de representants des ministeres primordiaux et depensiers devrait preparer le plan et assurer le pilotage et le suivi de la mise en oeuvre pendant les deux ou trois premieres annees. Une fois elabore, ce plan devrait Ctre examine et approuve par le Conseil des Ministres afin de signaler l'engagement du gouvernement a l'appliquer. Ce plan serait un important instrument dans la sensibilisation et les processus de formation. Recommandations 0 Accroitre le delai de preparation du budget (calendrier budgetaire), afin que le processus demarre au plus tard en avril. 0 Decentraliser la preparation du budget en renforgant le r61e des ministeres depensiers. Introduire un document de politique prebudgetaire (document cadre du budget dans bien des pays) qui presente l'orientation et les priorites du budget. Ce document doit Ctre elabore au stade preliminaire du processus de preparation du budget. L'adoption de ce Executive Summary page xxii

should appoint and inter-ministerial technical team to prepare a multi-year plan for the introduction of the global MTEF, coordinate the related sensitization and capacity development, and guide the initial implementation efforts; Build capacity of core and line ministries for strategic planning and programming. This is necessary for linking policies, budgets and outcomes, and the elaboration and implementation of MTEF based budgets; Revise the budget nomenclature to simplify it to make the budget more comprehensible and transparent, reduce demands for information and to incorporate program and output/results codes. document par le Conseil des Ministres marquerait le demarrage officiel du processus budgetaire. Adopter officiellement le CDMT comme methode de preparation du budget. Le gouvernement devrait nommer une equipe technique interministerielle pour preparer un plan pluriannuel d introduction du CDMT global, coordonner les activites connexes de sensibilisation et de renforcement des capacites, et guider les premiers efforts de mise en aeuvre. Renforcer les capacites des ministeres principaux et depensiers en matiere de planification strategique et de programmation. Cette demarche est necessaire pour etablir des liens entre les politiques, les budgets et les resultats, ainsi que pour l elaboration et l execution des budgets bases sur le CDMT. Reviser et simplifier la nomenclature budgetaire pour rendre le budget plus comprehensible et transparent, rdduire le besoin d informations, et incorporer les codes de programmeslresultats. Budget Prioritization 17. Since 2000, the Government has been giving priority to education, health and infrastructure, with significant increases in budget allocations. One of the main operational thrusts of the PRS has been the alignment of PRS priorities with the national budget. Consequently, in recent years, there have been significant increases in the budgetary allocations to education and health and productive infrastructure; the priority sectors identified in the PRS. However, it does not appear that priority treatment has been extended to the other priority areas from the seven pillars of the PRS such as improvement of governance, the growth and diversification of the economy, the development of the private sector including small and medium-scale enterprises, and youth unemployment. This may reflect the lack of formal processes for the Dkfinition des prioritks du budget 17. Depuis 2000, le Gouvernement accorde la prioritk a I kducation, a la santk et aux infrastructures, en augmentant sensiblement les crkdits budgktaires dans ces domaines. L un des fondements operationnels de la SRP est l alignement des priorites sur le budget national. Ainsi, ces dernihres annees, il y a eu une forte hausse des credits budgetaires a l education, a la sante et aux infrastructures de production, priorites sectorielles definies dans la SRP. Toutefois, ce traitement ne semble pas s appliquer aux autres secteurs prioritaires faisant partie des sept piliers de la SRP tels que l amdlioration de la gouvernance, la croissance et la diversification de l economie, le developpement du secteur prive et notamment des PME, et au chamage des jeunes. Cela tient sans doute a l absence de processus formels de definition des priorites budgetaires et d execution du DSRP. Les taux d execution dans les secteurs Executive Summary page xxiii

prioritization of the budget and the implementation of the PRSP. The execution rates for priority sectors have been generally lower than some other sectors, for instance, sovereignty, defense and general administration. Thus, high budget allocations do not necessarily translate to high spending. The budget allocations to the priorities are not protected from budget cuts such as those that occurred in 2005. Recommendations 18. To strengthen the prioritization of the budget the Government should consider incorporating the flowing into its budget process: The Government should formalize the process of prioritization and establish a process for selecting budget priorities This would create opportunities for consultations and discussions on priorities and ensure that they are in line with the broad vision of the PRSP. It would also specify the budget preparation, execution and monitoring/reporting modalities for priority activities. The Budget Framework Paper suggested above could be the instrument to fine-tune the priorities for the medium-term as well as in each budget cycle; Budget priorities chosen by programs and sub-programs not by ministries/sectors: This is possible in cases where specific programs can be identified by the budget nomenclature, and facilitates the finetuning of priorities. With this approach the Government could designate as priorities programs from several ministries that are targeted for diversification of the economy, youth employment, and capacity building, without having to treat the entire responsible ministries as priorities; Priority programs are protected from budget cuts or given priority in the disbursement of funds: This is a key characteristic that would separate priority programs form others. When budget cuts are undertaken, such as those in Cameroon prioritaires ont ete gkneralement plus faibles que dans les autres secteurs tels que la souverainete, la defense et l'administration generale. Par consequent, les affectations budgetaires elevees ne se traduisent pas necessairement par des depenses elevees. Les ressources allouees aux secteurs prioritaires ne sont pas protegees des compressions budgetaires comme celles qui ont eu lieu en 2005. Recomman da tions 18. Afin de renforcer la definition des priorites du budget, le Gouvernement doit envisager les dispositions suivantes dans son processus budgetaire : Etablir un processus forme1 de selection des priorites budgetaires. Cela creerait des possibilites de consultations et de discussions sur les priorites et permettrait de garantir que celles-ci correspondent a la vision globale du DSRP. Ce processus preciserait les modalites de preparation, d'execution et de suivi/d'information budgetaire pour les activites prioritaires. Le document cadre de politique budgetaire susmentionne pourrait Ctre l'instrument necessaire pour preciser les priorites a moyen terme et pour chaque cycle budgetaire. Les priorites budgetaires sont choisies au niveau des programmes et sous-programmes et non des ministeres/secteurs. Cela est possible dans les cas ou des programmes specifiques peuvent Ctre identifies par la nomenclature budgetaire, et cela facilite l'affinage des priorites. Avec cette methode, le Gouvernement pourrait designer comme priorites certains programmes issus de plusieurs ministeres cibles pour la diversification de l'economie, l'emploi des jeunes et le renforcement des capacites, sans qu'il soit necessaire de considerer l'ensemble des ministeres responsables comme etant prioritaires. Les programmes prioritaires sont proteges des compressions budgetaires ou privilegies dans le decaissement des fonds. C'est une caracteristique cle qui distinguerait les programmes prioritaires des autres. En cas de Executive Summary page xxiv

in 2005, these cuts would be borne by the other sectors/programs while the priority sectors would continue to draw on their full budget allocations; Protecting operations and maintenance spending: In this approach, only the operations and maintenance component of a program's budget allocation is protected. Most often, this is the part of the budget that is at risk from cuts and therefore the only part that needs protection; Enhanced implementation and monitoring: In addition to providing enhanced budget allocations, the government should aim to provide the implementation units of the priority programs with the capacity to effectively implement and monitor the results of the priority programs. compressions budgetaires, comme celles survenues au Cameroun en 2005, seuls les autres secteurs/programmes seront affectes, les secteurs prioritaires continuant a beneficier integralement de leurs credits budgetaires. Protection des depenses de fonctionnement et d'entretien. Dans cette approche, seul le volet fonctionnement et entretien de l'affectation budgetaire d'un programme est protege. Le plus souvent, c'est la partie du budget qui risque d'etre coupee et, par consequent, la seule partie qui a besoin d'etre protegee. Renforcement de la mise en oeuvre et du suivi. En plus d'ameliorer les affectations budgetaires, le gouvernement doit s'efforcer de doter les unites d'execution des programmes prioritaires des capacites necessaires pour realiser et suivre effectivement les resultats de ces programmes. The Management of Investment Spending 19. Public investments have declined in Cameroon to about 2 percent of GDP in recent years, one of the lowest rates of public investments among comparable countries. The financing by internal and external assistance have both been declining. The minimal resources available for public investments are inefficiently, for instance public investment execution rates are very low. There is a large body of evidence in the economics literature linking economic growth to public capital formation, and specifically to investments in infrastructure. There is thus a major risk of underperformance in the growth of the economy from inadequate public infrastructure and related services. 20. Cameroon faces two related challenges on public capital investments: (i) to increase the effectiveness of the implementation of public capital expenditures; and (ii) to raise the level of public capital expenditures. The first challenge involves institutional reform and capacity development to strengthen project evaluation, selection and implementation, and to improve related Gestion des dkpenses d'investissement 19. Au Cameroun, les investissements publics ont chute a 2 'A environ du PIB ces dernieres annees, I'un des plus faibles taux d'investissement public parmi les pays comparables. Le financement par l'assistance interieure et exterieure est en baisse. Le peu de ressources disponibles pour l'investissement public est utilise de maniere inefficace dans la prestation des services, comme en temoignent par exemple les tres faibles taux d'execution des investissements publics. Les etudes economiques regorgent de donnees confirmant le lien entre la croissance economique et la formation du capital public, et plus particulierement les investissements axes sur l'infrastructure. I1 existe donc un risque majeur de contre-performances en matiere de croissance Cconomique attribuable a l'insuffisance des infrastructures publiques et des services connexes. 20. Le Cameroun est confront6 a deux dcfis connexes en matiere d'investissement public : (i) accroitre l'efficacite de l'execution des depenses publiques en capital, et (ii) relever le niveau des depenses publiques en capital. Le premier defi requiert des reformes Executive Summary page xxv

budget execution procedures. Currently, investment project preparation is very weak resulting in poor choices of projects, poor value for money, difficult execution, inefficient implementation and low quality services. The line ministries do not have the capacity and incentives to carry out rigorous planning and the core ministries lack the capacity to monitor, coordinate and assist them. The short budget calendar essentially rules out rigorous analytical work and planning in the preparation, selection and monitoring of investment projects even if the capacity were there. It also limits coordination activities. The budget should provide multiyear capital appropriations for investment projects. The current system has a gap between annual budgetary allocations for multi-year capital investment projects, leading to a "stop and go" rhythm of public investment projects. 21. The second challenge requires resource reallocations and mobilization of additional resources. The Government's recent medium-term fiscal strategy envisages a boost to investment spending. The possible sources of resources for increases in investment spending include the restructuring of expenditures, for instance, lowering recurrent expenditures in favor of public investments; the HIPC debt relief; increased donor assistance; and increases in revenue. With the exception of the HIPC debt relief, which has now materialized, the Government would need to seek additional assistance from the donor community and undertake significant institutional reform actions to restructure expenditures. The privatization/liquidation of public enterprises underway, albeit at a slow pace, would ultimately release some resources but meanwhile, the privatization process itself requires substantial public resources; this is crowding out expenditures on public investments. 22. Donors would be more inclined to increase and sustain financial assistance if they have the confidence that the PFM system functions effectively, with concrete results for the population. The current efforts of the Government to strengthen Executive Summary institutionnelles et le renforcement des capacites pour consolider l'evaluation, la selection et la mise en Oeuvre et pour ameliorer les procedures connexes d'execution du budget. Actuellement, la preparation des projets d'investissement est tres deficiente, ce qui entraine une mauvaise selection des projets, une faible rentabilite, une execution difficile, et des services inefficaces et de qualite mediocre. Les ministeres depensiers ne disposent ni des capacites, ni des incitations necessaires pour une planification rigoureuse, et les ministeres de base n'ont pas la capacite de suivre, de coordonner et d'appuyer le travail des ministeres depensiers. En raison de la brievete du calendrier budgetaire, il est impossible d'effectuer une planification et un travail d'analyse rigoureux pour la preparation, la selection et le suivi des projets d'investissement, mcme si les capacites existent. Cette situation limite aussi les activites de coordination. Le budget devrait prevoir des credits pluriannuels pour les projets d' investissement. Le systeme actuel presente un decalage entre les allocations annuelles aux projets d'investissement pluriannuels, entrainant des interruptions frequentes des projets d'investissement public. 21. Le deuxihme defi requiert la reaffectation des ressources et la mobilisation de ressources additionnelles. La recente strategie budgetaire a moyen terne du Gouvernement prevoit d'accroitre sensiblement les depenses d'investissement. Les sources possibles de ressources pour cet accroissement sont notamment la restructuration des depenses, par exemple la reduction des depenses courantes relatives aux investissements publics ; l'allegement de la dette au titre de l'initiative PPTE ; I'augmentation de I'assistance des donateurs ; et la hausse des recettes. A l'exception de I'allCgement de la dette PPTE, qui est desormais une realite, le Gouvernement devrait solliciter une assistance supplementaire des donateurs et entreprendre d'importantes reformes institutionnelles pour restructurer les depenses. La privatisation/liquidation en cours des entreprises publiques, mcme si elle avance lentement, permettra en definitive de degager des recettes, mais dans le mbme temps, le processus lui-mbme requiert des ressources publiques substantielles, qui evincent les depenses d'investissement public. page xxvi

partnership with the donors will help to generate interest for donor assistance. However, resource mobilization from the donor community will be facilitated by credible efforts to strengthen the management and impact of the investment budget and the budget as a whole. In addition, the Government needs to replace the current adhoc approach to seeking and using donor resources with a more systematic and coordinated approach and to integrate donor assistance fully into the budget. 23. The process for the technical and strategic evaluation and the selection of projects for the invest budget needs to be revamped. This should be a key element of the effort to strengthen the process of budget planning and programming. Line ministries need the technical and institutional capacity for the evaluation of investment projects while the core ministries need to be equipped to support and coordinate the work of line ministries. The process of project selection would ensure the alignment of projects/programs with national objectives and priorities; permit comparisons and choices of projects across sectors; ensure consistent quality of projects selected from different sectors/ministries; and respect resource constraints over the medium-term. In the MTEF approach, the aim would be for an integrated program-based budget, with each program comprising of the operational and investment activities needed to realize program objectives. There will thus be one budget, integrated at program level, and consequently putting an end the separation of the recurrent and investment budgets and the public investment program (PIP). However, the need for strategic evaluation and selection of investment projects for programs in the budget will remain. Recommendations Put in place a rigorous process and strengthen the capacity in the line and core ministries for the evaluation, selection and execution of capital projects, in a manner consistent with the MTEF approach. This should be part of the effort to develop capacity for budget planning and Executive Summary 22. Les donateurs seraient plus enclins a accroitre et maintenir leur assistance financikre s ils etaient convaincus du fonctionnement efficace du systkme de gestion des finances publiques et des resultats concrets pour la population. Les efforts consentis par le gouvernement pour renforcer le partenariat avec les donateurs permettront de susciter 1 interct de ces derniers en matiere d assistance. Cependant, la mobilisation des ressources aupres des donateurs sera facilitee par des efforts credibles visant a ameliorer la gestion et l impact du budget d investissement et de l ensemble du budget. En outre, le gouvernement devrait remplacer la methode ponctuelle en vigueur, qui consiste a solliciter et utiliser les ressources d aide, par une methode plus systematique et coordonnee, et il doit integrer l assistance des bailleurs au budget. 23. Le processus d evaluation technique et strategique et de selection des projets pour le budget d investissement doit &re ameliork. Cela devrait constituer un element des efforts de renforcement du processus de planification et de programmation du budget. Les ministeres depensiers ont besoin des capacites institutionnelles et techniques pour l evaluation des projets d investissement, tandis que les ministeres de base ont besoin d Ctre equipes pour appuyer et coordonner le travail des ministeres depensiers. Le processus de selection des projets assurera 1 alignement des proj ets/programmes avec les objectifs et les prioritds nationaux; permettra des comparaison et des choix de projets dans divers secteurs; assurera la qualite de tous les projets choisis dans divers secteurs/ministeres; et tiendra compte des contraintes de ressources a moyen terme. Dans la demarche CDMT, il s agit d adopter un budget intdgrd axe sur des programmes, chaque programme comprenant les activites operationnelles et d investissement necessaires pour atteindre les objectifs vises. I1 y aura donc un seul budget, qui sera integre au niveau des programmes et, par consequent, qui mettra fin a la separation entre les budgets courant et d investissement et le programme d investissements publics (PIP). Toutefois, la necessite d une evaluation strategique et d une selection des projets d investissement pour les programmes budgetaires demeurera. page xxvii

programming. Establish clear strategic, economic and financial criteria for capital projects to be included in the budget/mtef and a rigorous project selection process to enforce the criteria. Progressively increase budget allocations for public investments by applying the bulk of incremental resources (for instance, HIPC debt relief) to capital expenditures, intensifying resource mobilization efforts with the donor community, and rapidly privatize/liquidate troubled public enterprises to release the resources now spent on restructuring/maintaining these enterprises for public investments. Put in place a system for monitoring the progress in the implementation of ongoing investment projects, using the results to make mid-course adjustments in designs and implementation plans, including cancellations of projects. Recommandations Etablir un processus rigoureux et renforcer les capacites des ministeres depensiers et de base pour l'evaluation, la selection et I'execution des projets d'investissement, conformement a demarche du CDMT. Cela devrait faire partie des efforts de renforcement des capacites de planification et de programmation budgetaires. Etablir des criteres strategiques, economiques et financiers clairs pour les projets d'investissement qui seront integres au budget/cdmt ainsi qu'un processus de selection rigoureux pour appliquer ces criteres. Accroitre progressivement les affectations budgetaires destinees aux investissements publics en appliquant l'essentiel des ressources additionnelles (par exemple, l'allegement de la dette PPTE) aux depenses en capital, en intensifiant les efforts de mobilisation des ressources aupres des bailleurs de fonds, et en PrivatisantAiquidant rapidement les entreprises publiques en difficulte afin de degager les ressources actuellement consacrees a la restructuration et au maintien de ces entreprises pour les consacrer aux investissements publics. Mettre en place un systeme de suivi des progres realises dans l'execution des projets d'investissement en cours, en s'appuyant sur les resultats pour faire des ajustements a miparcours dans les plans conception et de mise en aeuvre, y compris I'annulation de projets. The Execution and Control of the Budget 24. Budget execution in Cameroon is cumbersome, characterized by multiple controls that slow down budget execution. The number of approvals from commitment to payment for an expenditure item estimated to be close to 22. While the multiplicity of controls impedes the execution of the budget, there is no evidence that the system prevents corruption and other resource leakages. The Execution et contrdle du budget 24. Au Cameroun, I'exCcution du budget est lourde et caractcrisce par de multiples contr8les qui retardent le processus. Le nombre d'approbations, de l'engagement au paiement d'une depense, est estime a 22 environ. Tandis que la multiplicite des contr8les empeche l'execution du budget, rien ne prouve que le systeme empeche la corruption et les deperditions de ressources. Executive Summary page xxviii

computerization of budget control activities should improve the functioning of the system but as the paper work has remained the legal basis, manually-based paper work has to be completed to trigger the next stage in the process. The length and the complexity of the expenditure chain increase the transactions costs. Moreover, the multiplicity of operations increases the risks of corruption. 25. The complex budget execution process weakens the implementation of budget programs and reduces the effectiveness of the budget. The execution rate for the recurrent budget is close to 100 percent, due to its high wage and administrative cost content but the execution rate for the investment budget is significantly lower. While the spending on wages and transfers are relatively stable per quarter, there are considerable fluctuations in the release of funds for operations and maintenance, hampering the efficiency and pace of service delivery. Several other factors slow down budget execution including the delays in the initial launch of budget execution to the 3'd or later month of the fiscal year; the intervention of the comptables matieres to certify the delivery of the service and the absence of linked information system for the ministries to closely monitor budget execution in their ministries. The preparation of procurement plans is often cited as a source of delay in the implementation of investment projects but this reflects in part the poor preparation of the projects. 26. The multiplicity of agencies involved in the administrative controls of the budget, with poor systems, capacity, and unclear and overlapping mandates, results in systemic inefficiencies. The apriori financial controls, carried out by the Sous- Direction du ContrGle Financier (SDCF), appear weak due to poor retention of staff, lack of a manual of procedures and inadequate integration to existing information systems. The organization of aposteriori financial controls is complex, with agencies with overlapping mandates, the lack of coordination among the various control agencies, and inadequate capacity. The expected and actual outputs from these Executive Summary L'informatisation des activites de contr8le budgetaire devrait ameliorer le fonctionnement du systeme, mais &ant donne que la paperasserie demeure le fondement legal, les dossiers traites manuellement doivent aboutir pour declencher l'etape suivante du processus. La longueur et la complexite de la chaine de depenses accroissent les coclts de transaction. De plus, la multiplicite des operations accroit les risques de corruption. 25. La lenteur dans I'exkcution du budget entrave la mise en oeuvre effective des programmes budgktaires et rkduit l'efficacitk du budget. Le taux d'execution du budget courant avoisine 100% en raison de son contenu salarial et administratif eleve, mais le taux d'execution du budget d'investissement est nettement plus faible. Alors que les depenses de salaires et de transferts sont relativement stables par trimestre, le decaissement des ressources allouees aux operations et a la maintenance fluctuent considerablement, compromettant l'efficacite et la rapiditd de la prestation des services. Plusieurs autres facteurs ralentissent l'execution du budget, notamment les retards dans le lancement initial de l'execution du budget, qui ddmarre a partir du troisieme mois de l'exercice si ce n'est plus tard ; l'intervention des comptables matieres pour certifier les services rendus ; et l'absence d'un systeme d'information integre permettant aux ministeres de suivre Ctroitement l'execution du budget dans leurs structures. La preparation des plans de passation des marches est souvent citee comme une source de retards dans la mise en euvre des projets d'investissement, mais elle reflete en partie la mauvaise preparation des projets. 26. En raison de la multiplicitk des organismes participant au contr6le administratif du budget et ayant des systkmes et des capacitks insuffisants, et des mandats flous qui se chevauchent, l'inefficacite est systkmique. Les contrales financiers a priori, effectues par la Sousdirection du contr6le financier (SDCF), semblent deficients en raison du faible taux de retention des effectifs, du manque d'un manuel de procedures et d'une integration insuffisante aux systemes d'informations existant. page xxix

agencies and the useshalues of these outputs are often not clear. The Budget Discipline Council is one example o f this lack of a welldefined and useful mandate. 27. The Government should give high priority to strengthening judicial and legislative controls. The Chambres des Comptes, the main institution for judicial control, became operational in late 2005 and faces start-up challenges including in building up its capacity. Moreover, the mandate of the Chambres is limited to the domain of judicial controls of accounts, excluding the broader review of the management of public funds. The constitution confers the National Assembly the mission of the control and oversight of government expenditures. However, Parliament has neither the capacity and other resources, nor the full and timely information to fulfill these mandates. The very limited time provided to the Parliament to discuss and adopt the budget bill (Zoi de finance), the enormous volume of budget documents, and the absence of a complete settlement law (Zoi de reglement) and reports on budget execution from MINEFI and the organs of control, limit the contributions of the legislators to the control and oversight of public finances. 28. The legal and regulatory framework of the new procurement code adopted in 2004 conforms to international standards and the systems in place in Cameroon for managing procurement are adequate. This was confirmed by the Country Procurement Assessment Report (CPAR) undertaken by the Government and the World Bank in 2005. Implementation however faces some critical challenges including: (i) the capacity and professionalism for procurement in both the public and private sectors; (ii) the political commitment to enforcing the rules and regulations including the use of sanctions and the elimination of political interference in the process. (iii) inadequate funding by the budget for managing the procurement processes; and (iv) the integration of procurement processes in the systems for public financial management. Executive Summary L'organisation des contrdles financiers a posteriori est complexe, avec des organismes dont les mandats se chevauchent, une absence de coordination entre les divers organismes de contrdle, et des capacites insuffisantes. Les resultats escomptes et effectifs de ces organismes et l'utilite ou la valeur de ces resultats ne sont pas souvent evidentes. Le Conseil de discipline budgetaire est un exemple de cette absence de mandat utile et bien defini. 27. Le Gouvernement devrait accorder une grande priorite au renforcement des contr6les judiciaires et Egislatifs. La Chambre des comptes, principale instance de contrdle judiciaire, est devenue operationnelle a la fin de 2005, et elle connait des problemes de demarrage, notamment en matiere de renforcement des capacites. Qui plus est, le mandat de la Chambre se limite a la verification judiciaire des comptes, excluant l'examen plus global de la gestion des fonds publics. La constitution investit 1'Assemblee nationale du pouvoir de contrdle et de supervision des depenses publiques. Mais le Parlement ne dispose ni de la capacite, ni des autres ressources, ni des informations necessaires pour accomplir cette mission. Le peu de temps donne au parlement pour examiner et adopter la loi de finances, le volume enorme des documents du budget, et l'absence d'une loi de reglement complete et de rapports sur l'execution du budget produits par le MINEFI et les organismes de contrdle, empechent les legislateurs d'apporter une contribution significative au contrdle et a la supervision des finances publiques. 28. Le cadre juridique et rkglementaire du nouveau code de passation des marches adopt6 en 2004 est conforme aux normes internationales, et les systhmes mis en place au Cameroun pour gkrer la passation des marches sont adequats. Cela a ete confirm6 par le rapport national d'evaluation de la passation des marches - Country Procurement Assessment Report (CPAR) - prepare par le Gouvernement et la Banque mondiale en 2005. Cependant, la mise en ceuvre fait face a des ddfis critiques, y compris (i) la capacite et le professionnalisme en matiere de passation des marches dans les secteurs public et prive ; (ii) l'engagement politique a appliquer les regles et page xxx

Recommendations Commence budget execution in early January; this would require that all the elements necessary to make the budget operational are implemented in December. Simplify le expenditure chain (circuit de la depense) including by eliminating redundant steps such as (i) the certification of the service provided by the comptable matikre; and (ii) the multiple reviews and signatures of the certificate of confirmation of credits (TCC) by the chief of financial controls, the director-general of the budget and the administrators of the credit. Rather than these multiple controls, a secure process for the transmission of approvals and the extension of the IBIS computer information system should be put in place; Put in place a mechanism for the verification of the time it takes the various actors in the expenditure chain to act on a file: Prepare a manual of procedures, strengthen systems and capacity with training on the use of the manuals for the staff in the expenditure chain, provide an information system to the administrators and authorizers of to allow them to monitor the execution of their budgets, and strengthen the information systems of the financial controllers and the training of the staff; Apply the regulations limiting cash advances (rkgies d'avances) to only small expenditures. Eliminate all the exceptional procedures (prockdures exceptionnelles) that have become unnecessary with information systems that allow accelerated payments of urgent expenditures. Reorganize, after a diagnostic review, the distribution of the responsibilities of the different organs of administrative control, and subsequently staff them appropriately and progressively strengthen their capacities. Put in place under the authority of the MINEFI, an inspection service specialized in finances, with national or les reglements, y compris le recours aux sanctions et l'elimination de l'ingerence politique dans le processus; (iii) l'insuffisance du financement budgetaire consacre a la gestion de la passation de marches ; et (iv) l'integration des processus de passation des marches dans les systemes de gestion des finances publiques. Recommandations Commencer l'execution du budget au debut janvier. Cela necessiterait que tous les elements necessaires pour rendre le budget operationnel soient mis en place en decembre. Simplifier le circuit de la depense, notamment par l'elimination de mesures redondantes telles que (i) la certification du service assure par le comptable-matibres, et (ii) les multiples examens et signatures du certificat de confirmation de credit (TCC) par le contr6leur financier en chef, le directeur general du budget et les gestionnaires de credit. Au lieu de ces contr6les multiples, il faudrait mettre en place un processus securise de transmission des approbations et etendre l'utilisation du systeme informatique IBIS. Mettre en place un mecanisme pour la verification du temps necessaire aux divers acteurs de circuit de la depense pour traiter un dossier. Prdparer un manuel de procedures, renforcer les systbmes et les capacitds par la formation du personnel du circuit de la depense a l'utilisation du manuel; fournir aux administrateurs et aux autorites chargees d'approuver les credits un systemes d'information qui leur permet de suivre l'execution de leur budget, et renforcer les systemes d'information des contr6leurs financiers ainsi que la formation du personnel. Appliquer les reglements limitant les regies d'avances aux petites depenses. Eliminer toutes les procedures exceptionnelles, devenues inutiles avec les systemes d'information qui permettent d'accelerer le paiement des depenses urgentes. Executive Summary page xxxi

interministerial jurisdiction; Expand the role of the Chambres des Comptes to include a broader review of the management of public funds and direct reporting of their findings to the National Assembly. Strengthen the capacity of the Economic and Finance Committee of the National Assembly and provide them with access to information on budget estimates, execution and management to enable them to informed judgments of the budget and effectively carry out their constitutionally mandated role of expenditure control. Provide the legislature with a complete budget settlement law (Loi de Reglement) and the financial accounts from the Chambres des Comptes, in a timely fashion. Build capacity and adequately fund procurement operations, eliminate the delays in processing procurement operations, often cited as cause of delays in budget execution. Continue to implement the procurement action plan, including of the actions to improve the transparency of procurement operations and the application of sanctions for non-compliance to the laws and regulations. Reorganiser, apres un examen diagnostique, la distribution des responsabilites des differents organes de contr8le administratif ; ensuite, y affecter un personnel suffisant et renforcer progressivement leurs capacites. Mettre en place, sous 1'autoritC du MINEFI, un service d'inspection specialisee dans les finances, avec competences nationales ou interministerielles. Accroitre les pouvoirs de la chambre des comptes pour lui confier un examen plus elargi de la gestion des fonds publics et la communication directe des resultats de cet examen a 1'Assemblee nationale. Renforcer les capacites de la Commission de l'economie et des finances de 1'Assemblee nationale et lui donner acces aux informations sur les estimations, l'execution et la gestion budgetaires, pour lui permettre d'avoir un avis eclaire sur le budget et de jouer effectivement son r81e constitutionnel en matiere de contr6le des depenses. Fournir en temps utile a 1'Assemblee nationale une Loi de reglement complete ainsi que les rapports financiers de la Chambre des comptes. Renforcer les capacites et financer adequatement les Operations de passation des marches; eliminer les retards dans le traitement des operations de passation de marches, souvent cites comme cause de retards dans l'execution du budget. Poursuivre la mise en ceuvre du plan d'action sur la passation des marches, y compris les mesures visant a ameliorer la transparence des operations de passation des marches, ainsi que l'application de sanctions pour non respect des lois et reglements. Reinforcing the Transparency and Effectiveness of the Budget 29. Transparency in the management of public finances is recognized as a key element in improving the effectiveness of the budget. Budget monitoring and Renforcer la transparence et l'efficacite du budget 29. La transparence dans la gestion des finances publiques est reconnue comme un Clement clc pour ameliorer l'efficacite du budget. Le suivi et l'evaluation du budget Executive Summary page xxxii

evaluation contribute to the transparency of the budget process and are important elements of budget planning, results orientation and accountability and therefore the improvement of budget outcomes. The regular preparation, auditing and reporting of public financial accounts and the wide dissemination of these accounts enhances transparency and promotes broader understanding and constructive discussions of the public financial issues among interested stakeholders. This will strengthen accountability and progressively enhance budget effectiveness. A major factor for producing results from the budget is the human resources input that influences budget preparation and implementation of budget activities. Broad and progressively improving public sector capacity and competence is essential for improving budget effectiveness. Poor performing public enterprises in particular pose a burden on public human and financial resources and, as in Cameroon, drains budget resources in an unpredictable manner, thus constituting a substantial risk to budget effectiveness. contribuent a la transparence du processus budgetaire et constituent des aspects importants de la planification budgetaire, de l orientation sur les resultats, de l obligation de rendre compte, et, partant, de l amelioration des resultats budgetaires. La preparation, la verification et la communication regulieres des comptes financiers de l Etat, ainsi que la large diffusion de ces comptes, augmentent la transparence et la comprehension et favorisent une discussion constructive des questions relatives aux finances publiques chez les parties prenantes interessees. Ceci renforce la l obligation de rendre compte et rehausse progressivement l efficacite du budget. Les ressources humaines, qui influent sur la preparation et l execution des activites budgetaires, contribuent largement a produire de bons resultats budgetaires. Le renforcement et l amelioration graduelle des capacites et des competences du secteur public sont essentiels pour accroitre l efficacite du budget. En particulier, des entreprises publiques deficientes constituent un fardeau pour les ressources humaines et financieres et, comme en temoigne le cas du Cameroun, ponctionnent les ressources budgetaires de fagon imprevisible, constituant ainsi un risque substantiel a l efficacite du budget. Transparency of the Budget Process 30. Budget Transparency - openness about policy intentions, formulation and implementation - is a key element of good governance and better social and economic outcomes from the budget. The Government has made a commitment to the transparency of the budget process and started to act on it in 2005. The institutional arrangements for PFM influence its potential for transparency. In particular, budget transparency requires a strong role for the legislature in the budget process. Other elements include an open policy-making process, the decentralization of the budget preparation and execution process, a policy of open access to the public to information on the budget, regular assessments of financial management by supreme audit institutions that permits the legislature to carry out its oversight functions. Executive Summary Transparence du processus budgktaire 30. La transparence du budget - clartc des intentions, de la formulation et de l execution de la politique Cconomique - est un aspect crucial de la bonne gouvernance et de I amclioration des rcsultats sociaux et Cconomiques du budget. Le gouvernement s est engage a promouvoir la transparence du processus budgetaire, et il a commence a concretiser cet engagement en 2005. Les dispositions institutionnelles pour la gestion des finances publiques influent sur son potentiel de transparence. En particulier, la transparence budgdtaire requiert que le parlement joue un r81e important dans le processus budgetaire. I1 s agit en outre d assurer la transparence du processus decisionnel, la decentralisation du processus de preparation et d execution du budget, une politique garantissant l acces du public a l information sur le budget, l evaluation reguliere de la gestion financiere par des instances page xxxiii

31. A strong role for the legislature in the PFM process is critical for enhancing the transparency of the budget process, strengthening accountability and improving budget effectiveness. In Cameroon, this would be a good place to start in making the budget more transparent. The role of the legislature is weak because it neither has easy access to the information nor the capacity to carry out its responsibilities on the management of public finances. Besides, the legislative calendar and the delivery of the budget documents do not allow sufficient time for the extensive discussions of the annual finance law. The National Assembly needs to be kept informed of key developments in the budget during the course of the year, not only on the presentation of the finance law. In Cameroon, the only financial reports produced for Parliament and made available on the presentation of the new finance law are: (i) an economic and financial report that often does not provide much background information on the budget; and (ii) an incomplete LDR presented without a background analysis and explanatory notes. Recommendations The MINEFI should simplify the budget documents and give the National Assembly more time to examine them. Explanatory background papers that highlight the budget strategies, policies and performance expectations should accompany the detailed budget documents. The Finance and Budget Committee should be regularly briefed on budget execution during the course of the year and on the preparation of the budget for the following year. It is crucial to enhance the capacity of the members of the legislature in general and the Finance and Budget Committee in particular, to deal with budget issues. There is currently a plan to provide the Budget Committee with a tax expert and an economist. This is a good beginning for sensitizing members of the Committee as well as other members of the Assembly on fiscal and budget management but budget resources should be made available each Executive Summary suprcmes d audit, ce qui permet au parlement de jouer son r61e de supervision. 31. Le renforcement du r61e du Parlement dans la gestion des finances publiques est crucial pour accroitre la transparence du processus budgktaire, renforcer l obligation de rendre des comptes et amkliorer l efficacite du budget. Au Cameroun, ce serait un bon point de depart pour rendre le budget plus transparent. Le r6le du Parlement est mineur, celui-ci ne disposant ni d un acces facile a l information, ni des capacites necessaires pour exercer ses responsabilites en matiere de gestion des finances publiques. De plus, le calendrier legislatif et les delais de communication des documents budgetaires ne laissent pas suffisamment de temps pour l examen approfondi de la loi de finances annuelle. L Assemblee nationale doit Ctre informe des principales evolutions budgetaires durant l annee et pas seulement lors de la presentation de la loi de finances. Au Cameroun, les seuls rapports financiers produits pour le Parlement et mis a sa disposition pendant la presentation de la nouvelle loi de finances sont : (1) un rapport economique et financier qui ne fournit guere d informations de base sur le budget ; et (ii) une Loi de reglement incomplete presentee sans analyse de base ni notes explicatives. La preparation d informations appropriees sur les politiques et les resultats budgetaires a l intention de 1 Assemblee nationale est importante pour assurer la transparence, car ces informations sont destinees en definitive au grand public. Au cours de l exercice budgetaire, il faudrait egalement fournir a la Commission du budget et des finances des rapports sur l execution du budget et debattre de ces rapports avec les instances gouvernementales competentes. Recommandations Le MINEFI doit simplifier les documents budgetaires et donner a 1 AssemblCe nationale plus de temps pour les examiner. Les documents budgetaires detailles doivent Ctre accompagnes par des documents explicatifs mettant en evidence des strategies, les politiques et resultats escomptes. En outre, la Commission des finances et du budget doit &re regulierement informee de l execution du page xxxiv

~ year for a program of capacity development of the legislators in the area of budget management. In the course of the fiscal year, the Budget and Finance Committee should be provided with reports on budget execution and afforded the opportunities to discuss these reports with the relevant authorities in Government. budget tout au long de l annee et sur la preparation du budget pour 1 annce suivante. I1 est crucial de renforcer les capacites des parlementaires en general et de la Commission des finances et du budget en particulier sur les questions budgetaires. I1 existe actuellement un projet visant a mettre a la disposition de la Commission un fiscaliste et un economiste. C est un bon point de depart pour sensibiliser les membres de la Commission et les autres parlementaires sur la gestion des finances publiques et du budget, mais des ressources budgetaires doivent &re consacrees chaque annee a un programme de renforcement des capacites des parlementaires en matiere de gestion du budget. En cours d exercice, il faudrait fournir a la Commission du budget et des finances des rapports sur I execution du budget et leur donner l occasion de discuter de ces rapports avec les autorites publiques competentes. Public Accounting and Financial Reporting 32. The system of public accounting in Cameroon provides for monthly, quarterly and yearly production of status reports on budget execution. The integrated information system, SIGEFI facilitates the production of these balances and since 1999, the installation of the software PATRIOT for general accounting has enabled the Treasury to produce and publish accounting reports. The production of the balances of the treasury accounts as well as the one on the status of expenditures does not pose a major problem. On the other hand, the synthesis of the status of customs, taxes and other revenues remain very problematic. The time-table for the production of annual treasury balances has never been respected in the past. The adoption of the instructions setting out the modalities of production of management accounts, the accountants of the state now have a legal framework for the production of the management accounts for 2004. 33. The framework for reporting on ComDtabilite publique et communication de l information financikre 32. Le systeme de comptabilitk publique au Cameroun prkvoit la production mensuelle, trimestrielle et annuelle de rapports d avancement de I execution du budget. Le SIGEFI facilite la production de ces soldes et, depuis 1999, l installation du logiciel de comptabilite generale PATRIOT a permis au Tresor de produire et de publier des rapports comptables. La production des balances des comptes du Tresor et de l etat des depenses ne pose pas de probleme majeur. Par ailleurs, la synthese des comptes de la douane, de l imp8t et des autres recettes reste tres problematique. Le calendrier de production des soldes annuels du Tresor n a jamais ete respecte par le passe. Avec l adoption des instructions Cnonqant les modalites de production des comptes de gestion, les comptables de 1 Etat disposent desormais d un cadre juridique pour la production des comptes de gestion de 2004. 33. Le cadre de diffusion de l information sur I exccution du budget semble deficient. Aucune evaluation externe de Executive Summary page xxxv

the budget execution appears weak. No external assessment of budget management is done outside of MINEFI and no certification of the accounts of the state by an independent authority is provided for, neither by the law creating the Chambre des Comptes nor by the Controller General of the State (Control Superior de I etat). Besides, the draft law on public finances does not provide for the certification of the public accounts by the new Chambre des Comptes. Detailed annual laws of settlement (Loi de Reglement (LDR)) distinct from the Finance Law have not been prepared. Recommendations The Government should produce management accounts by public accountants for the 2004 budget and following years and begin to require the certification of the accounts of the state by an authority independent of the Ministry of Finance. Elaborate and submit to the National Assembly a complete budget settlement law (LDR) of the budget of 2006. The LDR should be made available to the Assembly within six months of the closure of the budget (by June 2007) rather than with the 2008 budget (NovembedDecember 2007). la gestion budgetaire n est effectuee en dehors du MINEFI, et aucune certification des comptes de 1 Etat par une instance independante n est prevue, ni par la loi portant creation de la Chambre des comptes, ni par le Contrdle superieur de 1 Etat. De plus, le projet de loi sur les finances publiques ne prevoit pas la certification des comptes publics par la nouvelle Chambre des comptes. Des lois de reglement annuelles detaillees distinctes de la Loi de finances n ont pas ete prepardes. Recommandations Le Gouvernement devrait produire des comptes de gestion etablis par les comptables publics pour les exercices 2004 et suivants, et il doit commencer a exiger la certification des comptes de 1 Etat par une instance independante du ministere des finances. Le Gouvernement devrait elaborer et soumettre a 1 Assemblee nationale une Loi de reglement complete pour le budget 2006. Cette loi devrait &re mise a la disposition du parlement dans les six mois qui suivent la fin de l exercice (avant la fin juin 2007) et non pas avec le budget 2008 (novembre/decembre 2007). Budget Monitoring and Evaluation 34. Budget monitoring is a process of comparing actual inputs, outputs and outcomes against corresponding plans. The evaluation of the results of this process yields insights that can be used to enhance budget planning, programming and execution. Regular monitoring and evaluation of budget performance facilitates timely actions to keep the budget execution on track to achieve the planned results. Timely dissemination of monitoring results to government agencies as well as to the public enhances budget transparency and accountability. The process of budget monitoring and evaluation has various levels that differ in objectives and Suivi et evaluation du budget 34. Le suivi du budget est un processus qui consiste a comparer les entrkes, les sorties et les resultats effectifs aux projets correspondants. L evaluation des resultats de ce processus produit des connaissances qui peuvent servir a ameliorer la planification, la programmation et l execution du budget. L evaluation et le suivi reguliers des resultats budgetaires facilitent la prise de mesures judicieuses pour maintenir le cap sur l execution du budget et atteindre les resultats envisages. La diffusion en temps utile des resultats du suivi a l intention des organismes publics et de la population accroit la transparence et la responsabilisation en matiere budgetaire. Le Executive Summary page xxxvi

detail. 35. Monthly budget reviews can help to ensure that budget execution is in line with the available resources and the macroeconomic framework. Quarterly reviews should include (i) a quarterly review of actual expenditures against planned expenditure by major categories of expenditures (ministries, sectors, programs and sub-programs) that could be summarized in a report and given wide distribution; and (ii) a review focusing on performance and results from selected budget operations, particularly useful for multi-year investment budget operations, and would serve to assess results, identify implementation problems and bottlenecks and finds ways to address them. 36. Annual budget reviews are essential for policy, budget planning and programming process and improving budget transparency by informing the public of the concrete results of the budget of the past year. The annual settlement law (Loi de Reglement (LDR)) is one required annual report as noted earlier and, soon the new Charnbres des Comptes will produce timely consolidated annual financial reports. These reports however would be largely financial reports that provide indications of resource inputs various agenciedactivities, often at high levels of aggregation. An important monitoring instrument that could focus on outputs and outcomes (concrete results) is an annual report of each line ministry. This would discuss the activities of the ministry for the year, with emphasis on how the budget resources were used and the results pr~duced.~ Other monitoring and evaluation instruments include ad-hoc reviews of problem projects, scheduled reviews of project performance, and project completion reports. Furthermore, public expenditure tracking surveys (PETS) and processus de suivi et d evaluation du budget comporte plusieurs niveaux dont les objectifs et les modalites sont differents. 35. Les revues budgktaires mensuelles peuvent contribuer a s assurer de l execution du budget conformement aux ressources disponibles et au cadre macroeconomique. Les revues trimestrielles devraient comprendre (i) un examen trimestriel des depenses effectives par rapport aux depenses envisagees par grandes categories de dkpenses (ministeres, secteurs, programmes et sous-programmes) qui pourraient &re resumees dans un rapport et diffusees largement ; et (ii) un examen axe sur la performance et les resultats de certaines operations budgetaires, particulierement utile pour les operations du budget pluriannuel d investissement, et qui servirait a evaluer les resultats, a cerner les problemes d execution et les goulots d etranglement et a trouver les moyens d y remedier. 36. Les revues budgktaires annuelles sont essentielles pour l elaboration des politiques, la planification et la programmation budgetaires, et pour ameliorer la transparence du budget en informant le public des resultats concrets de l exercice Ccoule. La Loi de reglement annuelle repond a l exigence susmentionnee de produire un rapport chaque annee ; bientet, la nouvelle Chambre des comptes produira en temps voulu des rapports financiers consolides. Mais ces rapports donneront essentiellement des indications sur les ressources allouees a divers organismes/activitcs, souvent a des niveaux d agregation eleves. Un important outil de suivi axe sur les resultats et les realisations sera un rapport annuel pour chaque ministere depensier, qui examinera les activites annuelles du ministere en mettant l accent sur l utilisation des ressources budgktaires et les resultats produit~.~ Les autres activites de suivi et d evaluation seront notamment les revues ponctuelles des projets a 4 Currently line ministries are required to produce quarterly report of the execution of their budget, with MINEFI doing a synthesis of these reports but these have not been produced. Besides these would be largely accounting, not performance reports. Actuellement, les ministeres depensiers sont tenus de produire des rapports trimestriels d execution de leur budget, le MINEFI devant faire une synthese de ces rapports ; mais ces rapports n ont pas ete produits. En outre, il s agirait essentiellement de rapports comptables et non de rapports de performance. Executive Summary page xxxvii

beneficiary assessments are monitoring instruments that can provide important policy insights for improvements in budget effectiveness. Recommendations Introduce a systematic approach to budget monitoring and evaluation, with schedules for monthly, quarterly and annual reviews of budget operations, and provisions for ad-hoc reviews. Make specific budget allocations for monitoring and evaluation and for related capacity building; Specifically introduce a system of annual reports by line ministries, starting the process with selected ministries, with a plan for full coverage of all ministries; Adopt a strategy for the dissemination of monitoring and evaluation reports that emphasizes openness, transparency and timeliness of dissemination of information; The monitoring and evaluation process should not be used as an instrument for the exercise of controls but more an information gathering and problem solving exercise. Monitoring should be for operational and policy purposes, and carried out collaboratively by the implementing ministry, MINEFI and MINPLADAT, with the primary objective of identifying implementation constraints to obtaining desired results from public expenditures. Control issues should be handled by the agencies responsible for budget controls. The maintenance and development of SIGEFI, the integrated financial management information system, is essential for budget monitoring and accounting. SIGEFI serves many users linked through different software systems but the system is incomplete, only partially integrated and not fully operational because of the incomplete links. It is essential to organize the network of users, beneficiaries and administrations of services to agree on the respective roles in problemes, les revues programmees des resultats de projets, et les rapports d achevement des projets. Par ailleurs, les enquctes de suivi des depenses publiques et les evaluations des beneficiaires sont des instruments de suivi qui peuvent fournir des informations importantes pour la politique economique en vue d ameliorer l efficacite du budget. Recommandations Etablir une demarche systematique de suivi et d evaluation du budget, assortie d un calendrier d examen mensuel, trimestriel et annuel des operations budgetaires, ainsi que des dispositions pour des examens ponctuels. Prevoir des affectations budgetaires pour le suivi et l evaluation et pour le renforcement des capacites connexes. Etablir specifiquement un systeme de production de rapport annuel par les ministeres depensiers, en commengant par certains ministeres, et avec l intention de couvrir tous les ministeres. Adopter une strategie de diffusion des rapports de suivi et d evaluation qui met en evidence l ouverture, la transparence et le respect des delais de diffusion de 1 information. Le suivi et l evaluation ne doivent pas &re utilises a des fins de contrdle, mais pour la collecte d informations et la resolution des problemes. Le suivi, axe sur des objectifs operationnels et strategiques, doit s inscrire dans le cadre d une collaboration entre le ministhre executant, le MINEFI et le MINPLADAT, dans le but premier d identifier les contraintes d execution qui empcchent l atteinte des resultats escomptes en matiere de depenses publiques. Les questions de contrdle doivent Ctre gerees par les organismes publics responsables du contr6le budgetaire. Le maintien et le developpement du SIGEFI (systeme integrc de gestion de l information financiere) sont essentiels pour le suivi et la comptabilite budgetaires. Le SIGEFI est au service de nombreux usagers relies par divers Executive Summary page xxxviii

its maintenance and further applications development and to provide continued funding for these activities. programmes informatiques, mais le systeme est incomplet, peu intdgre, et partiellement operationnel a cause des liens incomplets. I1 est essentiel d organiser le reseau des utilisateurs, des beneficiaires et des administrateurs des services pour qu ils s entendent sur leurs r6les respectifs dans le maintien du systeme et le developpement d autres applications et pour assurer le financement continu de ses activites. Managing Human Resources 37. Sustained progress in public financial management will require progressive improvements in building human and institutional capacities. Public financial management is a labor and knowledge intensive undertaking requiring strong institutions. Budget management in particular is a significantly bureaucratic and detail-intensive exercise that requires a process of team building, learning on the job over time, coordination within and across agency boundaries, and staffing and leadership stability to facilitate the development, conservation and effective use of institutional memory. However, sustained development of human and institutional capacity for PFM cannot take place in isolation from rest of the public services and the overarching economic and political institutions in the country. In Cameroon, the machinery of government is fragmented, with the bureaucracy characterized by a large number of line ministries competing with a larger number of cross-sectoral committees and parastatals agencies. This institutional fragmentation can engender difficulties in establishing accountability, and puts a heavy burden on already weak coordination capacities. It is not a stable institutional environment that would facilitate and sustain capacity development for PFM or any other public sector activity. 38. Public sector governance reforms to develop efficient and transparent public institutions will be essential for progressive improvements in human resource capacity in Cameroon. Strengthening administrative is among the pillars of the PRS and one of the Executive Summary Gestion des ressources humaines 37. Pour rkaliser des progr&s soutenus dans la gestion des finances publiques, il faudra ameliorer progressivement le renforcement des capacites humaines et institutionnelles. La gestion des finances publiques est une t5che a forte intensite de maind axvre et de connaissances ndcessitant des institutions fortes. La gestion budgetaire en particulier est un exercice eminemment bureaucratique et minutieuse, qui requiert du travail en equipe, un apprentissage sur le tas au fil du temps, la coordination de divers organismes, et une stabilite des effectifs et des dirigeants facilitant le developpement, la conservation et l utilisation efficace de la memoire institutionnelle. Toutefois, le developpement soutenu des capacites humaines et institutionnelles en matiere de gestion des finances publiques ne saurait intervenir isolement par rapport aux autres services publics et aux principales institutions economiques et politiques du pays. Au Cameroun, la machine gouvernementale est fragmentee, la fonction publique etant caracterisee par un nombre eleve de ministeres ddpensiers evoluant en concurrence avec un nombre encore plus eleve de comites intersectoriels et d organismes parapublics. Cette fragmentation institutionnelle peut engendrer des difficultes sur le plan de la responsabilisation, et elle met a rude epreuve des capacites de coordination deja deficientes. Ce n est pas un environnement institutionnel stable pouvant faciliter et soutenir le renforcement des capacites de gestion des finances publiques ni de toute autre activite du secteur public. 38. Les reformes axees sur la bonne gouvernance du secteur public et visant a developper des institutions efficientes et page xxxix

three main components of the national governance program (PNG). Public sector governance reforms is usually a long-term process, underscored by a shared vision of the role of the public sector and a series of medium-term action plans. The initiation of such reforms would require a diagnostic study of the public sector to identify the main public sector issues and entry points for reforms. This study might include surveys of the population to assess their views on the role of the state and their perceptions of the performance of the public sector, as well as surveys of the main stakeholders to determine the level of commitment for public sector institutional reforms. Wide consultations would be essential to get a proper fix on the long-term vision of the public sector, sensitize the population on the reforms and establish the scope of the plans for reforms. These plans should be synchronized with the plans to reform public financial management including the adoption of the MTEF, and the national program of governance. 39. The Government needs to take urgent action to strengthen the management of the payroll and align it more closely to the budget. While the Government considers and plans for broader institutional reform, it needs to ensure that the human resource management system functions well, tackles problems and seeks efficiency improvements. One problematic area in Cameroon is the management of the payroll. The lack of systematic controls in this area leads to uncertainty about how much government spends on the wage bill and the size of the personnel establishment, and to the accumulation of arrears on salaries, often of unknown amounts. The management of the payroll thus poses substantial risks to the effectiveness of the budget. Recommendations Strengthen the management of personnel and the payroll by (i) for the 2007 budget, make the allocations to wage bill according to the budget nomenclature and based on the results of the census of civil servants; (ii) pursue actively the decentralization of the management of the personnel while Executive Summary transparentes seront essentielles pour ameliorer progressivement les capacites des ressources humaines au Cameroun. Le renforcement des capacites administratives est l un des piliers de la strategie de reduction de la pauvrete et I une des trois composantes principales du programme national de gouvernance (PNG). La reforme de la gouvernance dans le secteur public est souvent un processus a long terme sous-tendu par une vision partagee du r61e du secteur public et une serie de plans d action a moyen terme. Le lancement de cette reforme necessite une etude diagnostic du secteur public permettant d identifier les principaux problemes de ce secteur les points de depart de la reforme. Cette etude pourrait comprendre des sondages visant a evaluer l opinion de la population sur la performance et le r6le du secteur public et celle des principales parties prenantes pour determiner le niveau d engagement en faveur des reformes institutionnelles du secteur public. De vastes consultations seraient essentielles pour bien definir la vision a long terme du secteur public, sensibiliser la population sur les reformes et etablir la portee des projets de reforme. Ces projets seraient synchronises avec les projets de reforme de la gestion des finances publiques, y compris l adoption du CDMT et du PNG. 39. Le Gouvernement doit prendre de toute urgence des mesures pour renforcer la gestion de la solde et l aligner plus etroitement avec le budget. Bien que le Gouvernement envisage et prevoit de vastes reformes institutionnelles, il doit veiller au bon fonctionnement du systeme de gestion des ressources humaines, resoudre les problemes et apporter des ameliorations visant l efficacite. Au Cameroun, la gestion de la solde est l un des domaines problematiques. L absence de contr6le systematique Cree des incertitudes en ce qui concerne les ressources consacrees a la masse salariale, les effectifs, et le montant des arrieres accumules sur les salaires est souvent inconnu. La gestion de la solde pose donc des risques substantiels pour l efficacite du budget. Recommandations Renforcer la gestion du personnel et de la solde par les mesures suivantes : (i) pour le budget 2007, affecter des ressources a la page XI

deploying the application of SIGIPES after its assessment in the pilot ministries; (iii) progressively introduce the system of the "jobs by budgetary positions" and establish a direct link between the personnel of every ministry and the corresponding budget allocations for wages and salaries for the ministry; (iv) reinforce the capacity of the payroll department, the Ministry of Public Service and related units in the other ministries for managing the payroll and strengthen efforts for the development and management related information systems,; (v) reinforce and to secure the circuit of the information on payroll data between the payroll department and the employing ministries; and (vi) put in place an instrument of permanent monitoring and control of the use contract staff; and Initiate a diagnostic study and a process of consultations and dialogue with the civil society and other stakeholders (the donors) on broad public sector governance/public administration to identify strengths and weaknesses in governance, assess the scope for reforms and raise awareness for change. masse salariale selon la nomenclature budgetaire et les resultats du recensement des fonctionnaires ; (ii) poursuivre activement la decentralisation de la gestion du personnel tout en deployant l'application du SIGIPES apres son evaluation dans les ministeres pilotes ; (iii) introduire progressivement le systeme d'emplois par poste budgetaire )) et etablir un lien direct entre le personnel de chaque ministere et les credits budgetaires correspondant aux traitements et salaires du ministere ; (iv) renforcer les capacites de gestion de la solde de la Direction de la solde, du ministere de la fonction publique et des unites concernees des autres ministeres et intensifier les efforts de developpement et de gestion des systemes d'information connexes; (v) renforcer et securiser le circuit d'informations sur les donnees de la solde entre la Direction de la solde et les ministeres employeurs ; et (vi) mettre en place un instrument de suivi et de contr6le permanent de l'utilisation des employes contractuels. Lancer une Ctude diagnostique et un processus de consultation et de dialogue avec la societe civile et les autres parties prenantes (bailleurs de fonds) sur la gouvernance/l'administration generale du secteur public en vue de cerner les forces et les faiblesses de la gouvernance, d'evaluer l'ampleur des reformes et de sensibiliser le public au changement. Public Enterprises 40. Despite efforts at restructuring and privatization, these enterprises, pose a serious drain on the budget as well as being regarded as channels for abuse of public funds. For Cameroon, public enterprises, established as instruments for development, have now become a drain on budgetary and human resources and a drag on development. The financial problems of CAMPOST, the postal bank, and Cameroon Airlines (CAMAIR) were at the roots of recent fiscal management difficulties in 2004. A substantial portion of the capital budget has been dedicated to the restructuring of public enterprises eroding further the already limited public capital investments. The slow pace of Executive Summary Entreprises publiques 40. Malgrc! les efforts de restructuration et de privatisation, les entreprises publiques pesent lourdement sur le budget et sont consid6rces comme des vecteurs de corruption et d'abus de fonds publics. Au Cameroun, ces entreprises qui ont ete creees comme des outils de developpement sont devenues une source de deperdition des ressources budgetaires et humaines et des entraves au developpement. Les problemes financiers de la CAMPOST, de la Caisse d'epargne postale et de Cameroon Airlines (CAMAIR) ont ete a I'origine des recentes difficultes de gestion financiere en 2004. Une forte proportion du budget d' investissement est consacree a la restructuration des entreprises publiques, erodant davantage les investissements page xli

restructuring/privatization implies that this exercise will take years but in the meantime, the financial conditions of failing enterprise would only deteriorate further, reducing their market values and raising the ultimate restructuring costs. Finally the indefinite and unpredictable payment of subsidies to public enterprises is clearly not a good use of the resources of the national budget and poses a substantial risk to the management and effectiveness of the PFM system. Recommendations 0 Accelerate the pace of restructuring/privatization of public enterprises. Partnership with External Development Partners 41. Cameroon s historical relationship with external development agencies has not been particularly strong. The number of donors and their activities in Cameroon has been quite limited compared to other countries in SSA. The widespread perception of Cameroon s poor performance on governance, particularly the high incidence of corruption, has not helped, particularly in a context where many donors factor in performance on governance and development effectiveness in determining the allocation of assistance to countries. The limited donor funding for Cameroon has been principally for investment projects. However, donor funding for projects declined from FCFAF184 billion in 2001 to FCFAF70 billion in 2004, with the execution rate of ongoing donor projects varying considerably from 12 percent in 2000 to 78 percent in 2003. The selection of donor projects has not followed the procedures of the public investment budget (PIB), although public investments are not selected through transparent and systematic procedures. Externally funded projects are not routinely included in the PIB. 42. A strong revival of external assistance will enable Cameroon tackle the needs in several key areas, particularly to Executive Summary publics en capital deja limit&. Eu egard a la lenteur des restructurations/privatisations, l exercice durera de nombreuses annees, tandis que la situation financiere des entreprises defaillantes continuera a se deteriorer, reduisant leur valeur marchande et, en definitive, augmentant les coqts de restructuration. Enfin, l octroi indefini et imprevisible de subventions aux entreprises publiques ne constitue assurement pas une utilisation rationnelle des resources budgetaires nationales et presente un risque considerable pour la gestion et l efficacite des finances publiques. Recomman dations Accelerer le rythme de la restructuration/privatisation des entreprises publiques. Cooperation avec les partenaires extkrieurs pour le developpement 41. Les relations historiques du Cameroun avec les organismes extcrieurs de dcveloppement n ont pas CW particuliltrement fortes. Le nombre de donateurs et leurs activites au Cameroun ont ete assez limites par rapport a d autres pays d Afrique subsaharienne. La perception generalisee de la mauvaise performance du Cameroun en matiere de gouvernance, et surtout la forte incidence de la corruption, n ont pas aide, surtout dans un contexte ou de nombreux donateurs tiennent compte des resultats en matiere de bonne gouvernance et d efficacite du developpement pour determiner le niveau des resources accordees aux pays. L assistance limitee des donateurs au Cameroun a ete consacree principalement a des projets d investissement. Mais, le financement des investissements publics a chute, de 184 milliards de francs CFA en 2001 a 70 milliards de francs CFA en 2004, le taux d execution des projets d assistance en cours variant considerablement, de 12% en 2000 a 78% en 2003. Le choix des projets des donateurs n a pas ete conforme aux procedures du budget d investissement public (BIP), bien que les investissements publics ne soient pas choisis dans le cadre de procedures transparentes et systematiques. Les projets finances de l extkrieur ne sont pas systematiquement comptabilises dans page xlii 8

improve economic and social infrastructure. While Cameroon's need for external assistance is less compelling than in some other poor countries, external assistance can still help to fill current gaps in the financing of public services urgently needed to revive economic growth and accelerate poverty reduction. Additional resources are needed to scale up public investments, particularly in social and productive infrastructure, accelerate the restructuring/privatization of public enterprises and the repay domestic debt and arrears. 43. Cameroon needs to build trust with the donor community and work towards a strong partnership for effective external assistance. To build trust and partnership in the post-hipc completion point period, Cameroon needs: (i) demonstrate its strong commitment to poverty reduction, good governance and results-orientation; (ii) seriously engage the donor community in ongoing dialogue for developing a framework for cooperation; and (iii) and when the framework is in place, the Government should take the leadership for making it function effectively. Some countries (Tanzania, Burkina Faso and Rwanda) have used the PRSP process to rally the donors around their development priorities and to strengthen development partnership. This has facilitated the alignment of donor funding to the government's development priorities and the process of harmonization of government and donor procedures. With the support from the donors, these countries have made significant strides in improving public financial management, which has spurred harmonization of procedures, alignment of priorities and funding, and enhanced donor assistance. In the context of the new approach of performance-based external assistance by donors, Cameroon needs to act urgently to benefit from the ongoing scaling up of assistance to SSA, particularly from the renewed interest by the donor community for funding infrastructure. Recommendations Government should demonstrate Executive Summary strong le PIB. 42. Un vif redressement de l'aide extkrieure permettra au Cameroun de rcpondre aux besoins dans plusieurs domaines clcs, et surtout d'amiliorer les infrastructures Cconomiques et sociales. S'il est vrai que les besoins d'assistance exterieure du Cameroun sont moins pressants que ceux de certains autres pays pauvres, il n'en demeure pas moins que les concours exterieurs peuvent contribuer a combler les lacunes actuelles dans le financement des services publics dont le pays a urgemment besoin pour relancer la croissance economique et accelerer la reduction de la pauvrete. Des ressources additionnelles sont necessaires pour accroitre les investissements publics, surtout en ce qui concerne les infrastructures sociales et productives, accelerer la restructuration/privatisation des entreprises publiques, et rembourser la dette et les arrieres interieurs. 43. Le Cameroun doit renforcer la confiance avec les bailleurs de fonds et ceuvrer pour un partenariat solide en vue d'une aide extirieure efficace. Pour renforcer la confiance, le partenariat dans la periode consecutive au point d'achevement de l'initiative PPTE, le Cameroun doit : (i) demontrer son engagement solide en faveur de la lutte contre la pauvrete, de la bonne gouvernance et de la recherche de resultats tangibles ;(ii) engager serieusement les bailleurs de fonds dans un dialogue permanent visant a elaborer un cadre de cooperation ;(iii) une fois ce cadre etabli, le Gouvernement doit prendre les devants pour en assurer le fonctionnement effectif. Certains pays (Tanzanie, Burkina Faso et Rwanda) ont profit6 du processus du DSRP pour rallier les donateurs autour de leurs priorites de developpement et renforcer le partenariat pour le developpement. Cela a facilite l'alignement de l'assistance financiere sur les priorites nationales et l'harmonisation des procedures du gouvernement et des bailleurs de fonds. Avec l'appui des donateurs, ces pays ont realis6 des progres considerables dans l'amelioration de la gestion des finances publiques, ce qui a facilite l'harmonisation des procedures, l'alignement des priorites et du financement et l'augmentation de l'assistance des bailleurs de fonds. Dans le contexte d'une nouvelle demarche d'assistance page xliii

commitment to the PRSP, reforms to strengthen public financial management, accelerated and sustained implementation of the governance agenda, and vigorous actions to combat corruption. 0 Establish a formal process of leadership of donor coordination and partnership within the government, with a political leader and a supporting technical staff. 0 Establish a framework within the government for coordination the use of external funding to support public actions and ensure that the activities funded are consistent with government development objectives and strategies and are reflected in the budget. This framework should be reflected in the ultimate government/donor partnership framework. exterieure axee sur les resultats, le Cameroun a besoin d agir de toute urgence pour tirer parti de l initiative en cours d accroissement des flux d aide a 1 Afrique subsaharienne, surtout en raison du regain d intcri2t des bailleurs de fonds pour le financement des infrastructures. Recommandations Le gouvernement devrait faire preuve d un solide engagement en faveur du DSRP, des reformes visant a renforcer la gestion des finances publiques, de l execution rapide et soutenue du programme de gouvernance et des actions vigoureuses pour combattre la corruption. Etablir un processus officiel de pilotage de la coordination des donateurs et de partenariat au sein des administrations publiques, avec un chef de file politique et un personnel technique de soutien. 0 Etablir au sein de l administration un mecanisme de coordination de l utilisation des concours exterieurs pour appuyer des actions publiques, et veiller a ce que les activites financees correspondent aux objectifs et strategies de developpement du Gouvernement et figurent dans le budget. Ce mecanisme doit se refleter dans le cadre de partenariat eventuel entre le Gouvernement et les donateurs. Executive Summary page xliv

CAMEROON Public Expenditure Management and Financial Accountability Review (PEMFAR) Chapter 1 The Context for the PEMFAR Introduction 1.1 Objectives and Rationale 1.1 Since the devaluation of the CFA franc in 1994 and in the aftermath of several adjustment operations, most notably SAC I1 and SAC 111, Cameroon has undertaken significant efforts to improve its overall economic performance. Until recently, its macroeconomic performance has been relatively strong, with real GDP growth of more than 4.5 percent over the last five years, inflation well under 3 percent, and increasing international reserves. Diversification away from oil has continued, and the Cameroonian economy has shown itself more resilience to Dutch disease effects than those of its Central African neighbors. The Government succeeded in restoring fiscal discipline and took measures to improve resource allocation and begin to and streamline financial management. Nevertheless, despite the efforts at reforms, Cameroon s public financial management system is still characterized by an overly centralized and fragmented budget preparation process, weak execution and substantial fiduciary risks. 1.2 Reforms have been undertaken in recent years toward improved expenditure management and fiscal sustainability. The mobilization of both oil and non-oil revenue has been considerably strengthened. Some progress has also been made on clearing of domestic and external debt arrears, and normalizing relations with the external official creditors. The HIPC debt relief, starting with interim relief in 2000, has contributed resources for strengthening public investment in key priority areas to improve public services and stimulate the economy. The Poverty Reduction Strategy (PRS), adopted in 2003, identified strategic priorities, in line with the broad objective of poverty reduction, to guide public resource allocation in the medium-term. 1.3 The achievement of the Millennium Development Goals embodied in the PRS requires considerable efforts to strengthen the institutional and human capacity for the management of public finances and accelerate the improvements in public service delivery and the development of the private sector. The objective of the PEMFAR is to provide analytical support for the formulation of a plan of action strengthening public financial management, and the design of programs to support the implementation of the plan. Previous Reviews of Public Financial Management 1.4 In recent years, a number of reviews and other studies on the public financial management system in Cameroon, undertaken with the support of the development partners, have been completed. These studies were undertaken to promote the reform of the system to 1. The Context for the PEMFAR Page 1

make it responsive to the challenges faced by Cameroon. This PEMFAR has built on those studies. 1.5 World Bank: In response to the economic crisis in Cameroon in 1987, the World Bank undertook a comprehensive Public Expenditure Review in 1988 and a Public Investment Review in 1990. The main purpose of these two exercises was to provide a broad overview of the mechanics of Cameroon s public finance system as a basis for a reform program. In subsequent years, a series of sectoral mini-per S were undertaken. In February 1996, the Bank initiated a comprehensive PER covering institutional and sectoral issues, with a detailed assessment of the state of the government s investment budget. PER missions in 1996-1997 carried out analytical work on the investment budget to help to improve the elaboration and execution of the budget and the efficiency of public investment. Detailed work on education and health expenditures provided a systematic way to gauge the details of the expenditure system. These analyses provided the framework for SAC I1 and SAC I11 to link adjustment lending with public finance reform. 1.6 In 2000, the World Bank carried out a review of procurement in Cameroon (Country Procurement Analysis and Review (CPAR)), and in 2002, a Country Financial Accountability Assessment (Etude Sectorielle sur la Gestion des Finances Publiques), prepared by a team of World Bank experts and outside consultants, analyzed the institutional framework for the management of public finances and the associated fiduciary risks. An update of the 2000 CPAR has recently been undertaken (2005) in the context of the PEMFAR exercise and the principal findings and recommendations of this review is integrated into the PEMFAR report. 1.7 Other Development Partners: The intervention of the Bank in the reviews of public expenditure has been in parallel with the activity of other donors, especially the IMF, the French Government and the European Union (EU). The IMF Fiscal Affairs Department has worked on budgetary accounting in Cameroon, provided technical assistance on expenditure controls, and undertaken a technical assistance mission focussed on improving the control over public expenditure. In 1998, the IMF undertook a study of the expenditure chain. Technical assistance provided by the French government, in particular the Treasury, helped the design and implementation of a new payment and accounting system (PATRIOT). During 1996-1998, the European Union supported a review of the budgetary system, as well as of detailed sector issues. This reviewed the juridical framework governing public finances, the various controls in place, and the execution of the investment budget, and examined the sector strategies, the evolution of the budget structure, and the basic problems of budget implementation of the health, education, and rural development sectors. Rationale for the PEMFAR 1.8 Cameroon has embarked on public financial management reform over a number of years. However, there is limited evidence of the outcomes of the reforms on improving institutional capacity and performance, the quality of public services, and the performance of the economy. The institutional weaknesses in PFM identified by several earlier analytical works remain. Cameroon completed a poverty reduction strategy (PRS) in 2003. The PRS envisaged ambitious goals for growth in the range of 6-7 percent over the next ten years, rapid poverty reduction and the achievement of the Millennium Development Goals (MDGs). The PRS noted that improvements in governance, strengthening public sector management institutions, increased public investments, particularly in infrastructure, and better public Republic of Cameroon: Poverty Reduction Strategy Paper, April 2003 www.worldbank.org 1. The Context for the PEMFAR page 2

service delivery would be essential elements to meet the growth targets and the reduction objectives. poverty 1.9 Consequently, support to the Government of Cameroon to improve public sector management was one of the main objectives of the World Bank s Country Assistance Strategy for Cameroon, endorsed by the Executive Board in September 2003. The PEMFAR and other recent economic and sector work undertaken by the Bank, specifically the Development Policy Review (2004) and the Cameroon Poverty Assessment (2005) have been designed to provide the analytical underpinnings for policy advice by the Bank. Further, they support the design of the programs of assistance for public sector management reform, and the Poverty Reduction Support Credit (PRSC), proposed in the CAS. The Bank is working closely with other development partners including the African Development Bank, the European Union and the French Cooperation that also have plans to support Cameroon in improving public financial management. 1.10 In the context of shared concern about the urgent need to strengthen PFM in Cameroon to solidify the poverty reduction efforts, the development partners have formed a specific public finance donors committee (the Donor Platform), to coordinate dialogue with and support to the Government on public financial management actions, in line with the Paris Declaration (March 2005). The PEMFAR, as well as other analytical works supported by the IMF and other development partners will provide the analytical foundation for the dialogue between the Government and the Donor Platform on the formulation and implementation of a medium-term PFM action plan. The Approach 1.1 1 The PEMFAR integrates the elements of the erstwhile traditional public expenditure review (PER), the Country Financial Accountability Assessment (CFAA) and the Country Procurement Assessment Report (CPAR) --three aspects of public financial management analyses previously carried out separately - into a single and comprehensive analytical product. This approach recognizes intrinsic interrelationships between the various aspects to facilitate more comprehensive dialogue and action on public finance issues. For instance, there is a clear relationship between the quality of budget preparation and the ease of its execution and monitoring. The PEMFAR has built on the analytical work already undertaken by other partners, particularly by the IMF, the European Union, African Development Bank, and France and the Bank team has collaborated actively with the these partners undertaking PEMFAR. Structure of the Report 1.12 The report is in six chapters. The rest of this first chapter discusses the country s sociopolitical and economic developments that impinge on the evolution of the public financial management process - including the status of poverty and social indicators, the political economy context, the macroeconomic and fiscal policies and performance, and the public internal and external debt and payment arrears. Chapter 2 discusses the evolution of public financial management including the allocation and use of resources and the reforms and other actions undertaken or ongoing to strengthen the process. 1.13 Chapter 3 discusses the institutional framework for budget preparation including issues related to participation and transparency of the budget process and planning and coordination in budget preparation, Chapter 4 focuses specifically the challenges in managing public investment spending. Chapter 5 reviews budget execution and financial controls, looking in greater detail the related institutional issues and performance as the well as the challenges, I. The Context for the PEMFAR Page 3

including treasury management, various levels of budget controls, and procurement. Chapter 6 assesses some of the critical aspects of managing the budget for effectiveness and results (value for money), including transparency and accountability of the public financial management process, budget monitoring and evaluation, the challenge of developing human resources for PFM, and the risks to viability and effectiveness of public finance by poorly performing public enterprises. Chapter 6 closes with a summary of the main fiduciary risks. 1.2 Poverty and Social Indicators 1.14 Poverty Profile: The poverty profile indicated that in 2001, 40 percent of the population lived below the poverty line, roughly equivalent to the international core poverty benchmark of one dollar per person per day. The PRS also indicated that income poverty had declined in Cameroon by as much as 13 percentage points over 1996-2001, with much of the decline attributed to income growth. The decline in income growth rate after 2001 would imply a slow down in the decline of poverty incidence. However, although overall GDP growth slowed in this period, the non-oil GDP growth remained robust, thus it is fair to assume continued decline in the poverty incidence since 200 1. 1.15 Social Indicators: Despite some impressive economic performance since 1994 and the decline in the poverty headcount index, social indicators have remained stagnant and in some significant cases, such as life expectancy, have worsened. In general, this would indicate that the quality of life has not improved despite the good economic performance. The Indicator Table 1: Cameroon: Sele GDP per capita (US$) Poverty headcount index (percent) Infant mortality (per 1,000 live births) Maternal mortality (per 100,000) Life expectancy (years) Access to safe water (percent) Total fertility rate HIV Prevalence (ages 15-49) HIV prevalence (female, ages 15-49) Literacy rate (percent of pop 15+) Female Net Primary Enrolment Male Female Gross primary enrollment (YO) Male Female Ratio of girls in primary (percent) Gross Secondary Enrollment Ratio of girls in secondary (percent) :ed Social Indicators Cameroon SSA 1980 1990 2000-2000 MR -MR 700 920 -- 55 102 85 -_ -- 49 52 -- -- 6.5 6 0 1.o -- -- 48 58 35 48 -- -- -- -- -- -- 98 101 107 109 89 93 83 90 18 28 75 81 800 40 87 73 0 46 58 5 5.5 -- 73 65 62 -- -- 107 115 99 90 33 86 Development Indicators: Cameroun, EnquCte Dkmographique et de Santk 2004. survival rates (life expectancy, infant and maternal mortality remain around the average for SSA despite relatively better economic performance by Cameroon since the mid- 1990s. On the other hand, there have been some improvements in literacy and education generally. Literacy for both male and female has moved up substantially, and primary school enrollments are up and the female/male gap in primary school and secondary enrollments has narrowed although there are significant regional and urbanhural variations. For instance, the literacy rates are 81 percent and 47 percent respectively for women living in urban and rural areas. 600 -- 100 92 1 46 58 5 7.2 63 55 -- -- -- 87 94 80 I. The Context for the PEMFAR Page 4

Similarly, the female literacy rates in the South and Extreme-North provinces are 92 percent and 19 percent respectively6. 1.16 The Government has made the commitment to focus its socio-economic policies on meeting the Millennium Development Goals (MDGs) which requires the reduction of poverty and associated social indicators by half by 201 5. Accordingly, the Government has put priority on the spending on the social sectors and from 1995-1996 to 2001, education expenditures more than doubled from 2.1 percent of GDP to 4.9 percent, while health expenditures increased from 0.5 percent of GDP to 1.1 percent. Education spending and reforms appear to be having positive impact on enrolment and equity, but the quality of education and the efficiency of the system remain problems. There has been progress in the health sector on the provision of health services (immunizations, maternal health care, and provision of potable water) but this has yet to be reflected in the related social indicators. It appears that an increasing incidence of malnutrition has offset the progress made on the immunization of children, thus the limited impact on infant mortality. 1.1 7 Cameroon has made significant strides in fighting the HIV/AIDS epidemic, with an infection rate estimated at to have risen from 1 percent in 1990 to 11.8 percent in 2002. Recent data from the 2004 Demographic and Health Survey indicate that the HIV infection rate is lower, estimated at 5.5 percent with higher rates for females (6.8 percent) than males (4.1 percent). However, the estimated infection rates for 2002 and 2004 are not comparable as the methodologies for estimation are different. Nevertheless, with roughly 0.8 million people infected, HIV/AIDS still presents an enormous public health challenge. The indications are that the Government's commitment to combating HIV/AIDS is strong, and has been collaborating closely with the civil society and international health and development agencies and this partnership has resulted in significant progress in fighting the epidemic. The Poverty Reduction Strategy Paper (PRSP) Box 1 : Pillars of the PRS (2003) Promoting a stable and growth enhancing macroeconomic environment; Strengthening growth through economic diversification; Empowering the private sector as the major engine of growth and a partner in social services delivery; Developing infrastructure and natural resources in an environmentally sustainable manner; Accelerating regional integration within the CEMAC framework; Strengthening human resources development; and Improving governance, including in public administration and the legal and judicial system. 1.18 The Poverty Reduction Strategy Paper (PRSP) process, launched in 1999 to elaborate a reduction strategy (PRS), was designed to put poverty reduction at the center of the development agenda of the Government and its development partners. Cameroon produced an interim PRS in 2000 that enabled it to attain the Enhanced Heavily Indebted Poor Countries decision point, and a full definitive PRS in 2003. The elaboration of the full PRSP was carried out with extensive consultations with the civil society, backed by substantial background analytical work and benefited from a relatively large body of national survey data, giving the Cameroon PRS much more solid foundation than those of countries with much less endowment in data and technical capacity. The PRS identified key priority actions, clustered around seven pillars (see Box 1) that would promote rapid economic 6 From Cameroun: Enqugte De'mographique et de Sante', 2004 1. The Context for the PEMFAR Page 5

diversification and growth and sustain the momentum of poverty reduction. The PRS set ambitious targets of real growth of GDP of 5.2 percent in 2003-2006, increasing to 6.8 percent from 2007-2015. These growth economic targets and related social policies outlined in the PRSP were deemed necessary for Cameroon to achieve the MDG targets. Specifically, the implementation of the PRS required changes in the orientation of the budget and the process of public financial management. 1.19 In the over three years since its adoption, the PRS has not played the expected central role in shaping the policies, public financial management and implementation of the good governance reform agenda adopted in 2000. The PRS was expected to be the key policy framework for the budget of the state, using sector strategies and medium-term expenditure frameworks (MTEF) to link the budget to the PRS priorities and other public actions in a transparent manner. However, progress in moving to an MTEF approach to the budget has been slow and the alignment of the budget and the PRS remains work in progress. While the education, health and infrastructure sectors have received increases in budget allocations and have prepared sector strategies and MTEFs, until the end of 2005, there was no global MTEF that would help to bring these sectoral MTEFs into the budget framework. Furthermore, increases in the allocations to and improvements in execution of the public investment budget, key requirements for meeting the medium-term growth targets of the PRS, have not materialized. Overall, the impact of the PRS on the state budget has been limited, although the technical work that would facilitate this direct linkage is underway. Political Developments 1.3 Political Economy and Governance 1.20 Cameroon has enjoyed a measure of political stability, with elected governments for several years. The current President has been re-elected three times and has been in office for over 20 years. The constitution empowers the president to name and dismiss cabinet members, judges, generals, provincial governors, prefects and heads of Cameroon's public enterprises, approve or veto regulations, declare states of emergency, and appropriate and spend profits of public enterprises, without consulting the National Assembly. The 1 80-member National Assembly meets in ordinary sessions three times a year in March/April, June/July and Nov/Dec. and has seldom made major changes in legislation proposed by the administration. A revision in 1996 of the strongly centralized 1972 constitution provided a measure of decentralization of power. The revision of the constitution also provided for a 1 00-member Senate as part of a bicameral legislature, the establishment of regional councils, and the fixing of the presidential term to 7 years, renewable once. As of November 2005, the neither the Senate nor the regional councils had been established as per the constitution. 1.2 1 Legislation adopted in 1990 authorized the formation of multiple political parties and eased restrictions on forming civil associations and private newspapers. Subsequently, the first multiparty legislative and the presidential elections were held in 1992. The last presidential and legislative elections held in October 2004 reelected the incumbent president with 70 percent of the vote. In November 2004, the President appointed a new Prime Minister and cabinet, and in the process instituted some reforms of the portfolios of the ministries of finance and plan, with additional responsibilities for the Ministry of Economy and Finance while refocusing the Ministry of Plan on long-term strategic planning. 1.22 The political decision making process is characterized by a powerful presidency, the centralization of power, and a weak cabinet process. Cameroon's governance is marked by considerable institutional fragmentation, characterized by a large number of ministries and I. The Context for the PEMFAR Page 6

growing number of cross-sectoral committees (commissions), with responsibilities that overlap those of ministries and other committees, and often with no sunset provisions. When a problem arises, the typical response is to appoint a committee to deal with it, rather than assign the task to a ministry or an existing committee. Ministers are accountable only to the president, and by extension, very powerful within their ministries. The ministers largely control the execution of budget within the ministry, within the confines of the authority granted to them by the Minister of Finance, and with limited accountability. In the past, ministers have been able to change the composition of the approved ministerial budget, inserting new activities, reallocating the budget towards favored activities while denting other activities funding. Due in part to the lack of a strong cabinet process, there appears to be a marked lack of coordination between ministries. 1.23 Structural reforms and institutions: Cameroon has carried out significant economic and institutional reforms in the last ten years with varying degrees of success. The reform process, which has been led by a special committee appointed for that purpose, has not appeared to be broadly owned and strong vested interests have been successful in delaying or even derailing reforms. As a result, the implementation of reforms has been slow and tedious, compromising their impact. Cameroon has not succeeded in building strong public sector management institutions. The development of strong budget institutions and capacity has been undermined by an uneven and slow public sector reform effort, the centralization of authority, the dispersal of responsibility; a certain volatility in the appointments of ministers and top civil servants, and poor coordination in government and limited mechanisms to enforce accountability. 1.24 Decentralization: As noted above, the 1996 revision of the 1972 constitution provided for the decentralization of government. Implementation has been delayed but with the support of donors, a decentralization strategy has been elaborated which has resulted in the creation of elected local governments with limited mandate and financial resources. In order to finance local governments, a 10 percent surcharge on central taxes has been earmarked for local communes, and a municipal funding agency FEICOM, was created to channel capital grants and loans to communes. However, the lack of human and financial resources has hindered the development of effective local development structures. Moreover, the central Government appoints the regional officers and through these traditionally powerful officers continues to maintain a measure of control over local decisions, activities and resource management. However, the process towards decentralization has continued to move forward, albeit at a slow pace. A law enacted in July 2004 set the guidelines on decentralisation, laying down the rules applicable to regions and to local councils. An implementation action plan (2005-2009) has been drawn up and capacity building measures for mayors and council members have been introduced. 7 Abuelafia, eta1 (2005) pointed out that the volatility of appointments of ministers and top civil service positions may have the effect of hindering the sustainability of the reform efforts, noting that the commitment to reforms of a minister/top civil servant tend to grow stronger over time, thus longevity in the job strengthens the sustainability of reforms. They further specifically noted that the budget, is significant bureaucratic exercise and bureaucratic work involves a process of team building and learning on the job which takes time and needs staffing and leadership stability for teams to work together and gain experience over time to be effective. [Emmanuel Abuelafia, Sergio Berensztein, Miguel Braun, Lucian0 Di Gresia (2005): Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina; Inter-American Development Bank]]. ~ ~ I. The Context for the PEMFAR Page 7

Governance and Corruption 2003, one of the highest figures worldwide. Customs, procurement, and hospitals are considered among the top areas where corruption is substantial. In the public financial management area, the long and complex public expenditure chain, with its Table 2: Governance Indicators for Cameroon Governance Indicator Percentile Rank 1998 2000 2002 2004 Voice and Accountability 26.2 21.5 16.2 14.6 Political Stability 21.8 28.5 30.8 21.4 ~ov~r~ment Effectheness 24.6 37.6 29.9 29.3 Quality 39.7 48.7 22.4 22.7 Rule of Law 16.8 9.1 10.7 16.4 Control of Corru tion 4.4 7.5 11.2 25.1 Governance and Anti-Corruption Reforms 1.26 These reforms have been primarily undertaken in the context of the policy and institutional reform program supported by the World Bank and the IMF. The governance reforms initially focused on improvements in public sector management but have been extended to cover other aspects of governance including the participation of the population in the affairs of the state, the reinforcement of the rule of law, and fighting corruption. In June 2000, the government adopted the 5-year (2000-2005) National Governance Program (PNG), a comprehensive package of measures aimed at improving governance including fighting corruption, strengthening public financial management, transparency, accountability and participation in public affairs, and improving justice and human rights. In addition, a subset of priority actions from the PNG was attached to the I-PRSP as a priority action plan (PAP) for improving governance.8. Implementation of the PNG started in 2001 and the plan of action of the PNG became the instrument to pursue one of the seven pillars of the poverty reduction strategy (1 amelioration du cadre institutional, de la gestion administrative et de la gouvernance) adopted in 2003. 1.27 Under the PNG, Cameroon created a number of units/committees to fight corruption. Anticorruption units, created in all ministries and some public agencies, included civil * The Priority Strategy and Action Plan for Improving Governance and Combating Corruption consist of a subset of priority actions from the PNG. 1. The Context for the PEMFAR Page 8

servants and representatives of the civil society persons; the work of these units was to be coordinated by a National Anti-Corruption Observatory under the authority of the Prime Minister (PRSP (2003)). page 93). In addition, an inspector general of services in each ministry was put in place to implement the strategy against corruption in liaison with the anticorruption units. Other units created to combat corruption included an Ad-hoc Committee against Corruption, under the Prime Minister; the National Agency for Financial Investigations to combat money laundering and fraudulent financial transactions; and an Adhoc Committee to coordinate the operations against commercial crime. These units were generally not effective. 1.28 Some progress has been made on some other areas, particularly in putting in place the legal and institutional framework for addressing problems of governance. These include the adoption of new civil service statute, a new penal code and the establishment of the Chambres des Comptes and the Constitutional Council. A procurement code, with its legal and regulatory framework that conforms to international standards, was adopted in 2004. Furthermore, efforts have been made to promote and consolidate partnerships between the government, the private sector and the civil society, particularly through the PRSP process. Overall, the progress in the implementation of the PNG has been mixed as the results and outcomes on the ground have been limited. The reforms suffered from both management and program design problems and slow pace of implementation. The centralization of the management of the program in the office of the Prime Minister undermined the commitment to and support of the program by other ministers. Furthermore, the efforts to sensitize the populations on their stakes and roles in the new governance paradigm were not adequate. 1.29 Although the pace of the implementation of these reforms was slow, Cameroon s rankings on corruption, from the Transparency International s Corruption Perception Index improved from 2.0 in 2000 to 2.2 in 2005 and index on control of corruption on the GRICS ranking improved from the 7th percentile in 2000 to the 25th in 2004 (see Table 2). However, for the other GRICS indicators, only the ranking on the rule of law showed marked improvement; the others remained stagnant or declined. Thus, the challenge to improving governance and fighting corruption remains substantial. With the essential elements of the legal and institutional framework for improving governance and combating corruption in place, the challenge going forward is to expedite and sustain the implementation of reform actions, for instance to urgently ensure that public procurement is carried out in accordance with the Procurement Code. 1.30 The year 2005 appeared to be a break-out year for government action on governance in Cameroon, with indications of greater willingness on the part of the Government to forcefully address governance challenges. Concrete actions were taken or initiated, including the action taken to improve budget reporting and transparency, efforts to apply sanctions for violations of procurement rules, the establishment of the Chambre des Comptes, and the adherence to EITI principles and the adoption of an action plan for its implementation. Some concrete actions were taken in the petroleum sector in line with EITI. Past audits of the national oil company, Socie te Nationale des Hydrocarbures (SNH) were made public and subsequently SNH published production, sales and revenue data for the first half of 2005 and pledged to update this information quarterly. 9 The Republic of Cameroon: The Poverty Reduction Strategy Paper, page 93, op.cit. I. The Context for the PEMFAR Page 9

1.3 1 The Government launched efforts to sensitize the population on the need to eradicate corruption." It published the names of more than 70 top civil servants accused of embezzling public funds in local newspapers. A number of top government officials were arrested on corruption charges in 2005-2006, unusual occurrences in Cameroon. In December 2005, the Public Contracts Regulatory Agency (Agence de rkgulation des marches publics (ARMP)) adopted the recommendations and a plan of action of study on the application of sanctions on violations of the procurement code. This plan will pave the way for the strict enforcement of existing procurement regulations. A new national governance program (PNG 11) covering the period 2005-2010 was adopted by the Government in November 2005 and provides the central platform for actions to improve governance and combat corruption." 1.32 PNGII consists of three main components: democratic governance, administrative governance and economic governance. A fourth and cross-cutting component focused on the improvement in the enabling environment for private sector business development to provide the environment for rapid private sector-led economic growth. Among other interventions, the PNGII includes a subcomponent on the fight against corruption, envisaging the establishment of an independent agency to spearhead the anti-corruption drive. The Government discussed PNGII with the donor community in Cameroon and sought their support for implementation. A rigorous implementation of the PNG, with concrete results on the ground, will be needed to demonstrate to the skeptics of recent actions that the Government is strongly committed to tackling corruption and improving governance. 1.33 While actions aimed directly at strengthening governance institutions are absolutely necessary, a number of structural reforms launched in the last decade in the forestry, ports, public procurement and the privatization of public enterprises such as CAMAIR and CAMTEL, will, if fully implemented and sustained, contribute significantly to the breakingup/weakening of the infrastructures that sustain corruption. Thus, a strong demonstration by the Government of the commitment to these reforms and the acceleration of the implementation will be an additional strong signal of the determination of the authorities to combat corruption. Budget Discipline 1.34 An important element for the efficiency and effectiveness of the budget is the respect for the budget process and its resource allocations. The budget process is based on laws and regulations, and the budget is a law, a legal contract between the people and the executive, and has to be respected. Budget indiscipline is fomented by the lack of transparency and accountability in budget preparation and execution processes and by political interference in the budget process, and inadequate institutional arrangements for dealing with unexpected developments that involve the expenditure of public funds. 1.35 Budget discipline has not been strong in Cameroon. It has been common practice that ministers can change the composition of the budget of their ministries without formal internal consultations within their ministries or with the Ministry of Finance. Thus, ministers can shift resources between activities and even into activities that may not be in the budget approved by the legislature. Budget indiscipline flourishes in Cameroon for a number of reasons. There is a strong lack of ownership of the budget in the line ministries and among the staff. The poor lo The anti-corruption unit in MINEFI is undertaking intensive sensitization campaign for staffs of the ministry on the dangers of corruption. Posters with anti-corruption messages are all over the ministry buildings. " See Republic du Cameroon, Programme National de Gouvernance 2005-2010, November 2005 1. The Context for the PEMFAR page 10

planning and preparation of the budget may necessitate mid-course corrections during execution. The initial finance law may not be consistent with the emerging policy/political agenda., In addition, Cameroon lacks a formal mechanism to change the initial budget during the fiscal year in a transparent and participatory manner, such as a supplementary budget. Furthermore, the weakness of budget controls and the absence of formal reviews of the management of the budget and the lack of enforcement of budget rules and regulations facilitate budget indiscipline. Cameroon has multiple controls in budget execution but the controllers are neither empowered to do their job effectively nor held accountable for it. A Council for Budget and Financial Discipline (Conseil de Discipline Budge'taire et FinanciBre (CDBT)) is responsible for sanctioning budget authorizing officers and administrators in the Government and public enterprises for irregularities and mismanagement of the budget but it is not functional. Recent Macroeconomic Developments 1.4 Macroeconomic Trends and Targets 1.36 Cameroon's rich oil and forestry resources and favorable agricultural conditions, have made it the most diversified economy in Central Africa and the locomotive for economic growth in the sub-region It has moved from being dependent on oil to having a relatively varied light manufacturing sector, specializing in sectors including aluminum, agro-industry and refined wood and chemical products. Adverse global economic conditions in the mid- 198Os, particular the collapse of the world oil, coffee, and cocoa prices, in the context of a fixed exchange rate, resulted in a severe economic crisis from 1986 to 1994. This crisis, which affected the franc-zone countries in West and Central Africa, culminated with the devaluation of the FCFA franc in 1994. Table 3: Cameroon: Selected Indicators of Economic Performance - - 2000 2001 2002 2004 2005 Real GDP Growth Rate (YO) 5.3 Inflation (CPI, period average) 4.8 4.5 3.7 4.0 2.8 4.0 0.6 3.7 0.2 2.6 2.0 Gross Domestic Investment Public Finance Revenues Oil Non-oil Grants ai Recurrent Expenditures Capital Expenditures Fiscal Deficit (excl. grants) Current Account balance (incl grants) External Debt (YO of GDP) a/ 17.7 20.6 6.9 13.6 0.4 13.0 2.8 2.0-1.7 77.3 20.3 18.2 5.9 12.33 0.4 13.6 2.9 1.2-4.1 58.5-19.8 16.2 4.9 11.3 0.3 13.64 2.4 0.5-6.4 52.3 18.3 16.0 4.1 11.9 0.5 13.2 2.1 0.7-2.0 48.2 Bank staff estimates includes current and capital budgetary grants 18.9 15.2 3.9 11.3 0.1 14.0 2.0-0.8-2.4 40.7 19.6 17.2 4.9 12.3 0.2 11.8 2.3 3.O -1.5 36.5 ---- 1.37 Following the devaluation, Cameroon, with the support of the World Bank and the IMF, implemented a series of economic and structural reforms aimed at stabilizing the economy, restoring internal and external balances, and fostering economic growth. The reforms also sought to improve the overall business climate and public sector management, 1. The Context for the PEMFAR page 11

and recapitalizing the weak commercial banks to strengthen the financial sector generally. Other reforms aimed at liberalizing the trade regime to bring Cameroon s tariffs in line with the Central African Economic and Monetary Community (CEMAC) regional tariff levels, to improve the governance of the forestry sector and its contribution to fiscal revenues and benefits to local populations, and to restructure and privatize government-owned enterprises. Furthermore, reforms in the transport sector - roads, the ports and railways - improved performance in those sectors. 1.38 While the pace of reforms was slower than expected, it enabled the economy to adjust and overcome the exchange rate devaluation shock. This was reflected in the sustained macroeconomic growth and macroeconomic stability over a period of ten years. Cameroon has consistently complied with the multilateral surveillance criteria for macroeconomic performance set by the regional central bank (BEAC) for the six CEMAC countries. Real GDP growth averaged more than 4.5 percent in 1997-2003 and average consumer price inflation has been consistently about 3 percent per annum (see Table 3). On the fiscal front, Cameroon s overall and primary fiscal surplus (including grants) remained positive except for 2004, while the stock of foreign debt has been declining due mostly to debt relief as well as the government efforts to be current on the servicing of external debts. The rise in the world price of oil to over $60 per barrel in 2004 and 2005 has given a significant boost to the country s current fiscal and external account positions. The good record of macroeconomic performance permitted Cameroon to benefit from the Enhanced HIPC debt relief initiative, with the attainment of Decision Point in 2000 and the Completion Point in 2006. Box 2: Cameroon: Medium-Term Fiscal Strategy The strategy envisions the following: Ensuring fiscal and external sustainability; Basing fiscal planning on conservative oil revenue assumptions so as to protect core government operations from the fluctuations in oil revenue; Gradually increasing non-oil revenue to compensate for the expected decline in oil production and the loss of tariff revenue from a potential Regional Economic Partnership Agreement) with the European Union; Expanding capital expenditure to boost growth while keeping a lid on current spending and improving public services; Restructuring public enterprises to limit the burden they impose on the budget; Regularizing domestic arrears to enhance confidence in the government. 1.39 However, since 2004, contrary to the plans in the PRS for accelerating economic growth GDP growth slowed to 3.5 percent in 2004 and an estimated 2.8 percent in 200, due in part to the large decline in oil production. However, non-oil GDP growth remained robust during 2000-2005, although it weakened in 2005 due to supply shocks including electricity shortages and lower than programmed public investments. Fiscal performance worsened in 2004, with the deterioration of revenues and the financial conditions of key public enterprises. Non- oil revenue was 13.7 percent of GDP in 2003, lower than the program target of 15 percent. Fiscal performance remained weak in 2004, with revenues amounting to only 13.8 percent of GDP against the program target of 15.4 percent. 1.40 These fiscal slippages and slow pace of structural reforms derailed the program supported by the Poverty Reduction and Growth Facility (PRGF) arrangement with the International Monetary Fund (IMF) and delayed the attainment of the HIPC Completion Point. Following these difficulties in 2004, the Government took action in early 2005 to strengthen fiscal performance. This resulted in a new three-year PRGF arrangement with the IMF in October 2005. In the context of this new program, Cameroon adopted a medium-term fiscal strategy aimed at fiscal and macroeconomic stability, rapid and sustained economic growth I. The Context for the PEMFAR page I2

and poverty reduction (the key elements of the strategy are in Box 2). The adoption of the new PRGF supported program also paved the way for the attainment of the Enhanced HIPC Completion Point in April 2006 and the permanent relief on the multilateral and bilateral debt. Revenue Mobilization 1.41 Trends: Revenue outcomes have been volatile over the last two decades due to both internal and external factors including exchange rate appreciation, volatile economic performance and the fluctuations in oil and other primary commodities prices. However, between 1994 and 2000, there was a steady upward trend in revenue performance. The revenue/gdp ratio decreased from 2 1 percent of GDP before the crisis of 1986-1993 to about 12 percent at the height of the crisis, and rebounded to 21 percent by 2000 (see Chart 1). Revenues contracted in the late 1980 s and early 1990 s due to a significant contraction of the economy, the fiscal effects of trade liberalization including tariff reductions in the CEMAC customs union, the shrinkage of the oil-sector, and the secular decline of international commodity prices. The downward trend in revenue from 1984 to 1994 was especially difficult for Cameroonian policymakers because it came at a time of uncertain international donor assistance. Indeed, the combination of chronic budget deficits and liquidity problems during this period gave the initial impetus to the adoption of a stabilization plan for public finances and the negotiations with the World Bank and the IMF on the first Structural Adjustment Program (SAP) in 1988. Chart 1: Revenues and Expenditures, 1980-2003 (% of GDP) 30 25 20 15 10 5 I I 0 808 1 8283 848586 8788 8990 91 92 9394 9596 979899 000 1 0203 +Total Expenditure + Total Revenu 1.42 Composition of Revenues: Taxes on exports and imports, non-tax revenue from parastal marketing boards, together with the oil revenue, had been the mainstay of the Cameroonian economy in the 1970 s and 1980 s. With the liberalization of the trade regime and the structural changes in the economy, international trade taxes that had accounted for more than 30 percent o f revenue in 1985, now represent only 10 percent. The reduction in 1. The Context for the PEMFAR page 13

trade taxes has made Cameroon s revenue less vulnerable to declines in the terms of trade and the nominal exchange rates than in the past. 1.43 The sustained revenue increases in the wake of the 1994 devaluation, particularly the period 1998-2000, were the result of the widening of the tax base and reductions of tax exemptions. The introduction of the global income tax and a strong corporate tax collection effort contributed to widening the tax base. In January 1999, a value-added tax (VAT) was introduced to replace the turnover tax. This tax, while complex to administer, nevertheless helped to widen the tax base. Furthermore, measures to enforce payments of special taxes in the forestry and mining sectors have paid dividends. With regard to forestry, Cameroon introduced an innovative system of decentralized forestry taxation in the mid-1 9903, with an Annual Forestry Royalty (AFR), an area tax granting access to the timber resource, and an export duty based on the volume of timber exported. These measures have been quite successful, resulting in a quintupling of forestry tax revenue from 1995 to 2003. Moreover, the revenues are shared with local governments and communities; with 40 percent of the tax proceeds going to local councils, 10 percent to local communities and the rest to the central government. Chart 2: Composition of Government Revenues, 1999-2005 19991 2000 2000/ 2001 20011 2002 2003 2004 2005 SMP U Total Revenue (Including grants) 8 Total Revenue (excluding grants) 0 Non-oil revenue 0 Indirect Taxes Direct Taxes Oil Revenue.Grants 1.44 While Cameroon has successfully widened the non-oil tax base and revenue now has reached pre-devaluation levels, it has not yet attained the peak of 25 percent of GDP in 1984. The composition of Cameroon s revenues has changed over time. Currently, oil revenue accounts for one-third of total revenue, taxes on goods and services constitute another third, and trade taxes and income taxes make up the remaing share. Chart 2 shows the changing composition of government revenue over the last five years with a parallel gain in both indirect and direct taxes contrasted with a decrease in the share of oil revenues. However, over I. The Context for the PEMFAR page 14

the last two years, non-oil revenue mobilization was weaker than envisaged due to lower than programmed revenues from consumption and corporate taxes. 1.45 International Comparisons: Cameroon made a strong effort at domestic resource mobilization following the devaluation of the CFAF in 1994, with the revenue/gdp ratio reaching a high of 19.3 percent in 2001. Cameroon's revenue/gdp ratio (excluding grants) has been on the high end in sub-saharan Africa, and compares favorably with Senegal, Mali and Cote D'Ivoire but below countries such as Kenya and Ghana as well as oil exporting countries such as Malaysia and Ecuador (see Chart 3). Cameroon's relative success in revenue mobilization can be attributed in part to favorable natural resource endowments, particularly the large reserves of oil. Secondly, its coastal location and the established port of Douala allow Cameroon to reap the benefits of being a transit corridor for many landlocked economies. The policy regime in the post-devaluation period has been conducive to revenue mobilization and the success in widening the tax base, with revenues from goods and services, corporate and personal taxation, can be attributed to improved tax administration and related policies. However, as noted above, Cameroon's performance somewhat stagnated since 200 1 in contrast to some of the comparators in Chart 3 due in part to declining oil production as well as the weaknesses in tax administration, particularly with the implementation of new tax measures. Chart 3: International Revenue Comparisons Revenue (excluding grants)/gdp (YO): 2003 30 -- I U e Q, Q, n 15 10 5 0 Public Debt Management Structures 1.5 Public Internal and External Debt 1.46 The Caisse Autonome d 'Amortissement (CAA), a semi-autonomous debt agency, manages the internal and external debts of Cameroon. CAA participates in the negotiations of I. The Context for the PEMFAR page I5

external loans and debt rescheduling, and keeps track of disbursements from external debt, debt service obligations and payments, and the total stock of debt. * It also manages disbursements of foreign grant. However, lack of timely information from donors makes it difficult for CAA to keep track of grant financing. Disbursements are treated as financial operations and are not explicitly included in the budget of the state. The CAA keeps the Treasury informed of disbursements and it registers them in the appropriate accounts. Internal Debt and Arrears 1.47 Classification of internal debt: The recorded internal debt is classified into two categories: structured debt (dette structure) and unstructured debt (dette non-structuree). The structured debt consists of (i) formal consolidated BEAC and commercial bank debt; (ii) nonbanking sector debt that has been securitized ( titrise e ); and (iii) non-banking debt under a formal loan agreement (dette conventionnelle). Structured debt includes debt incurred on public works, owed to public enterprises, related to privatization (where the government has assumed liabilities) as well as securitized wage arrears, consisting of debt of less than FCFA 100,000 per piece. In addition, there are cross-debts (dette croisee) such as those between the state, SONARA (the refinery) and the state oil company, SNH. Non-structured debt consists of debt that is not subject to a formal agreement (convention), consisting of debt to private suppliers, rents payable by the government for housing or administrative functions, salary arrears, compensation payable for expropriations, and treasury advances. According to the 2004 audit, the structured debt amounted to FCFA 763 billion, or about 80% of the internal debt at the end of 2004, while the non-structured debt accounted for close to FCFAl80 billion. 1.48 Uncertainties in internal debt stock and flows: Since 1997, it has been difficult to establish accurate data on the outstanding stock of internal debt despite multiple audits to establish it. An audit of the records of the CAA indicated that the stock of internal debt, consisting of claims by both the banks and private suppliers, amounted to FCFA 944 billion at the end of 2004, equivalent to about 11.3 percent of GDP. The most recent audit, completed in the first semester of 2005 put the stock at FCFA1.575 billion, but excluded the existing stock of committed and liquidated but not authorized expenditures (DENOs) from the large spending ministries (Public Works, National Defense, Ministry of Finance); the liabilities of the postal bank (CAMPOST); and new debts resulting from the privatization process, especially for CAMAIR. Besides, the debts of the economic agents to the state, notably debts from unpaid taxes, are not systematically registered in the debt accounting system and consequently, the system does not facilitate the recovery of those debts or the regularization of the cross-debts. The figures on internal debt are not comprehensive and a reliable indicator of the domestic liabilities of the state. 1.49 Management and Payments: The principal mandate of the CAA on internal date mandate is to monitor of the stock of the debt and make timely service payments. In practice, the CAA intervenes only after the Treasury has provided the necessary funds. These payments are regularized a posteriori by a budgetary commitment (engagement). Regarding debt payments, the CAA monitors and pays the structured and non-structured debt, the Director General of the Budget monitors and budgets for other types of debt such as rents, commercial debt and compensations, while the Treasury accounts and makes the authorized debt payments, and reimburses the securitized salary arrears. The management of internal debt has proved difficult because legal claims against the state can be created in multiple ways and each claim needs to be authenticated before inclusion as internal debt. While changes in l2 The Ministry of Planning also has traditionally had a role in the negotiation and management of loan agreements. 1. The Context for the PEMFAR page I6

management practices can improve the functioning of the system for the control of internal debt, budget discipline and respect for the budget execution processes are crucial for getting the internal debt under control. 1.50 Stock reduction plan: A comprehensive multiyear repayment plan prepared for the period 2004-06 to reduce the stock of internal debt from the estimated FCFA 944 billion at the end of 2004 to FCFA 868 billion by end of 2005, with the main priorities being salary arrears and commercial debt. However, the target at end 2005 has not been attained, with payments of about FCFA 85 billion against a payment plan of nearly FCFA 193 billioni3. This was due to (i) fiscal difficulties in 2005; and (ii) the emergence of new debts after some audits related to CAMTEL, the telecommunications company. Arrears 1.51 In Cameroon, the arrears are mainly the stock of expenditures that have been committed and authorized but not paid (Teste-a-payer). An analysis of the Treasury s consolidated balance as of May 2005 indicated that the Account 40 Creditors current exercise had a balance of FCFA 276 billion. However, the amounts included in the treasury balances as arrears are not exhaustive, since they do not include the DENOs or the expenditures that have been authorized but not yet been processed by the treasury. There have been many audits of the arrears but there are still gaps in the knowledge of the stock of arrears. There is currently an ongoing audit, and general estimates suggest that the stock of arrears could amount to close to FCFA 1,000 billion. With this estimate, the sum of the internal debt plus arrears would be in the range FCFA 1,500-2,000 billion. Improving the Management of InternaZ Debt 1.52 To exercise better control of internal debt accumulation and improve the transparency and accountability of internal debt repayments, the Government should: Carry out an exhaustive audit of the internal debt every year, putting particular emphasis on the DENOs in all ministries, to help to establish a reliable estimate of the internal debt, thus permitting the proper accounting of the stocks and flows of the domestic debt; To adopt a strategy for the management of the internal debt, including a strategy for a credible reduction of the internal debt in view of the opportunity to do this provided the achievement of the completion point and high oil prices. This strategy would need to provide for the control and timely accounting of DENOs and RAPTs, to bring the accumulation of domestic debt under control; = Make the CAA responsible for the management of the internal debt, while giving the Treasury, the responsibility for the payment and accounting of debt service. External debt 1.53 Management of External Debt: The external debt in Cameroon is managed by the CAA, based on the loan conventions signed by the Ministry of Finance and Economy, which 13 Payments on internal debt were FCFA 1 15 billion in 200 1, about FCFA 1 10 billion in each of 2002 and 2003and FCFA 79 billion in 2004. According to the payment plan, a total of FCFA 188 billion should have been paid in 2004. I. The Context for the PEMFAR page I7

negotiates and finalizes these conventions. On debt servicing, CAA uses specialized software that provides detailed real-time information on creditors, loans, and rates to make projections of the funds required for debt service payments each month. The Treasury then transfers the money to CAA, which makes the payments through the banking system,i4 and sends in reports on what it has effectively paid to justify this advance. Both Treasury and CAA keep accounts of these operations. The Budget Directorate is then entrusted with committing these debt service payments onto budget lines. The external debt is well-managed, particularly in terms of monitoring the signing of the loan conventions. However, there is no systematic recording of information on donor disbursements by the various agencies responsible for the monitoring of external assistance. The result is a fragmentation of debt data. Delays in debt payments as well as payments into the HIPC account at the Central Bank (BEAC) sometimes occur due poor coordination between the Treasury and the CAA. The debt management process could be more transparent and coordination between the agencies involved in debt issues needs to be strengthened. 1.54 Changes in the Stock of Debt: Cameroon s external debt amounted to FCFA 3,577 billion including 192 billion in arrears on principal and interest payments in end 2004. This represented a decline from a stock of nearly FCFA 5,000 billion in 2000, including FCFA 666 billion in arrears. Of the total debt stock, 26 percent was owed to multilateral creditors, 69% to bilateral creditors, 4 percent to the London Club, and 1 percent to other external lenders. The movements in the dollar-cfaf exchange rate has not been a major factor in this reduction of 27% in the debt stock since up to about 70% of the debt has been held in eurodenominated assets or currencies. Table 4: Change - in external debt including - arrears 2000-03 (FCFA million) Change in stock 2000-2003 Service on principal 200 1-2003 HIPC relief London Club buyback in 2003 Paris & London Club reduction in 2000 (net) Total reliefhescheduling Difference Buyback cost -1,080,072 662,363 207,000 151,488 82,645 1,103,496 23,424 2 1,966 Table 4 shows the distribution of the changes in Cameroon s external debt stock in 2000-03. During this period, the HIPC debt reduction was USD 345 million or FCFA 207 billion at the exchange rate of FCFA 600 to the dollar. Cameroon paid some FCFAF 100-140 billion a year in principal in the period 2000-2004 plus some FCFA 37-100 billion in interest. Other reductions of the debt stock include debt relief from the London and Paris Clubs. 5 1.55 The external arrears were mostly to private commercial lenders. In 2000 the arrears amounted to a total of FCFA 666.8 billion, falling to FCFA 584 billion (of which 192 billion were principal, the rest interest past due), all to London Club members. In a buyback operation, Cameroon bought 79 percent of the London Club principal arrears (FCFA 192 billion) at 14.5 percent of the nominal value, with the interest arrears erased. After this operation, the remaining arrears amounted to FCFA 123 billion consisting of the 21 percent in principal (FCFA 41.5 billion), plus the interest due on this part of the principal. Arrears increased by FCFA 12 billion in 2004 but this was paid in 2005. 1.56 At the Enhanced HIPC decision point in October 2000, the debt reduction following the completion point was estimated at around USD 1,260 million in NPV terms, equivalent to USD 2 billion or FCFA 1,270 billion in nominal value at the exchange rate of FCFA 635 to l4 l5 Previously CAA paid through the BEAC, but the latter s charges were too high. The external debt of Cameroon was significantly further reduced with the attainment of the Enhanced HIPC completion point in late April 2006. (see below) I. The Context for the PEMFAR page 18

the USD prevailing at that time. The CDD (Contrat de De'sendettement - De'veloppernent) relief from France would yield another FCFA 650 billion over 25 years (USD 1.2 billion in nominal terms). This was on top of the fact that one third of the debt relief under HIPC would be from France. Debt relief amounting to USD 200 million would come from other sources than HIPC and CDD. However, by end-2004, some of the calculated CDD debt relief - USD 193 million - was already lost due to the delay in reaching the completion point in 2003 as planned at decision point. When the completion point was not reached in 2005, a further USD 119 million was lost. With the attainment of the completion point in April 2006, Cameroon avoided further losses from the CDD debt relief. External Debt Sustainability 1.57 One of the key indicators of good economic management is the sustainability of the public debt, defined as the sustained capacity to service the debt without resort to exceptional financing or a major correction in the balance of income and expenditure. As the Government is one of the few domestic institutions with access to external finance, continued access by the public sector is important to the diversification of the financing of the economy as a whole and would also limit the effects of crowding out the private sector by the government from the limited domestic financing. However, this access is useful as long as the proceeds finance domestic investments and not solely used to service past debt obligations. Due to debt servicing difficulties, Cameroon's access to external finance has been limited to mainly official creditors. As noted above, a number of debt reduction actions, including the recently completed Enhanced HIPC process has been undertaken to bring Cameroon back to debt sustainability. 1.58 The results of a debt-sustainability analysis (DSA) for Cameroon at completion point indicate that the country's external public debt is expected to remain sustainable. After HIPC - Table 5: Cameroon: Key External Debt Sustainability Indicators -- - 2005 2006 2008 2010 2015 After traditional NPV of Debt/GDP NPV of Debt/Exports 28.2 129.9 27.7 115.7 24.2 105.7 21.4 106.2 20.2 118.4 debt relief mechanisms After Enhanced NPV of Debt/GDP NPV of Debt/Exports 33.3 153.4 12.7 53.2 11.5 49.9 10.7 53.1 13.3 78.2 HIPC assistance After NPV of Debt/GDP 33.3 3.O 4.1 5.2 additional NPV of Debt/Exports 153.4 12.8 17.8 25.9 bilateral assistance and MDRI ---- Source: The Jorld Bank and IMF sts F estimates for le HIP Corn] The World Bank: Report No. 35801-CM 2020 2025 19.2 16.1 131.8 120.9 15.0 13.8 102.9 103.3 10.3 13.2 12.8 60.6 190.8 196.2 I:tion Point Report: relief, the NPV of debt-to-export ratio for Cameroon was projected to remain well below the average of the 18 post-completion Point HIPCs at end- 2004 (NPV of debt-to-exports of 140 percent), even when assuming less concessional borrowing by Cameroon starting from 201 1. Following the Completion Point, with the assistance from the Enhanced HIPC Initiative, as well as additional relief from bilateral creditors and the Multilateral Debt Relief Initiative (MDRI), the NPV of debt-to-exports ratio would drop from 153 percent at end-2005 to 13 percent at end-2006. It would subsequently rise to 96 percent by the end of 2025 (see Table I. The Context for the PEMFAR page 19

5). The NPV of debt-to-gdp ratio, which would decrease from 33 percent at end-2005 to 3 percent at end-2006, was expected to rise modestly over the medium-term while staying at about 13 percent in the long-run. Finally, the NPV of debt-to-revenue ratioi6 would decline from 194 percent at end-2005 to 17 percent in 2006 and would average 83 percent in 2016-25. The increase in the NPV of debt assumes that Cameroon would borrow on IDA hardened terms after 2010 when its per capita income exceeds the IDA-only threshold. The grant element of new borrowing is assumed to decline from 41 percent on average during the period 2006-10 to 35 percent thereafter. 1.59 Stress tests evaluating the debt sustainability indicators to differing circumstances, conducted by the staff of the World Bank and the IMF as part of the standard HIPC diagnostics, found that Cameroon will be able to maintain long-term debt and fiscal sustainability provided it maintains a prudent borrowing strategy, ensuring that the domestic debt stock is gradually repaid, exercising restraint on non-concessional borrowing, and using the borrowed resources effectively. However, Cameroon would still remain significantly vulnerable to terms of trade shocks. Zmpro ving the management of external debt 1.60 The origination of external debt is under control at the level of the signature of the agreements but there is no systematic approach for the mobilization of funding. While successive adjustment programs have restricted borrowing to concessional credits, which have in general been respected, the recent law on decentralization has opened the door to uncontrolled indebtedness by the local authorities. The transparency of operation of the system of external debt management system and its conformity with good budget practices needs to be improved. The opening of accounts by the CAA and the projects is contrary to the principle of unity of accounts and treasury. Cameroon has had to bear some penalties for late payments of some debt that could have been avoided by better management of the treasury and coordination between the Treasury and the CAA. To improve the management of external debt, the Government should: Confer the CAA the responsibility of administrator (delegated authorizer) for external debt and external assistance, with the responsibility for holding the administrative accounts and the preparation of the administrative accounts; Confer on the Treasury the responsibility of the holding of the accounts of the debt and external assistance (disbursement, repayment) ; To follow and to record in accounting the mobilization of external loans and grants To formalize the procedure of budgeting and accounting for the service of the bilateral and multilateral debts following the PPTE initiative. l6 The country-specific sustainability threshold for the NPV of debt to revenue is 250 percent under the Low Income Country DSA framework. 17 IDA credits at hardened terms have 20 years of maturity and 10 years of grace, compared to the normal IDA lending terms of 40 years of maturity period, 10 years of grace. Charge fee remains at 0.75 percent. I. The Context for the PEMFAR page 20

1.6 Long Term Economic Performance Targets 1.61 The challenge to economic management continues to be to accelerate and sustain growth and maintain macroeconomic stability while keeping expenditures in line with revenues. The PRS set ambitious targets for economic growth, with targets of 5.2 percent per annum real growth of GDP in 2003-2006, increasing to 6.8 percent from 2007-2015, while keeping inflation rates at 2 percent per annum (see Table 6). This was the growth trajectory was deemed necessary for Cameroon to achieve the MDGs including a reduction of the percentage of households living below the poverty line to less than 20 percent compared to the 40 percent in 2001. * The growth targets would require accelerated and deepening of structural and institutional reforms and substantial increases in gross capital formation, including increases in the rate of public investments. The Joint Staff Assessment (JSA) of the PRSP noted that to achieve the medium-term (2003-2006) growth rates, the Government would need to complete its agenda of ongoing institutional and structural reforms, intensify efforts to strengthen administrative capacity, increase the public investment program and accelerate its implementation, and enhance the overall efficiency of public spending and public services delivery. Real GDP Growth (YO) End of period Poverty Rate (YO) As YO of GDP (end of period) Gross Capital Formation Public ExpenditureIGDP Recurrent Expenditure Capital Expenditure Revenue (excl grants) Public External Debt External Debt Service Table 6: Long-Term Economic Performance Targets PRS Projections 1990-94 -1.8 1995-2000 4.7 2001-03 4.0 2004-07 5.5 2008-11 6.7 2012-15 7.0 53.3 (1996) 40.2 (2001) 35.3 28.1 21.9 15.0 20.5 17.3 3.2 13.5 104.9 16.6 16.8 17.3 15.5 2.3 15.5 104.6 12.5 18.3 15.3 13.2 2.1 18.2 75.3 8.8 S 19.7 17.3 13.5 3.8 18.8 35.5 3.O 21.7 17.6 12.7 4.9 18.4 24.5 1.4 1.62 Sustained human development, infrastructure investments and private sector-led economic diversification in the non-oil sector within the larger and open sub-regional context, were to be the main motors of the longer term growth rates. It is already clear that neither the medium-term reform objectives nor the GDP growth targets will be achieved, making the achievement of the longer term growth objectives even more challenging. Cameroon therefore significant has catching up to do and needs to urgently accelerate institutional and structural reforms, including strengthening public financial management, investing in infrastructure and promoting private sector investments, in order to meet the MDG targets. I 23.4 17.2 11.9 5.3 18.4 15.8 0.8 I I I l8 See the World Bank: Cameroon, Joint IDA-IMF Stag Assessment of Strategy Paper, June 8, 2003. the Poverty Reduction 1. The Context for the PEMFAR page 21

Chapter 2 The Evolution of Public Finance/Expenditure Management Introduction 2.1 Since independence in 1960, expenditure trends expanded in parallel with economic growth until the 1986-1993 depression, when sharp expenditure cuts were needed to adjust to the sudden collapse of commodity prices in the mid-1 980s. Total expenditure sharply declined from 23.2 percent of GDP in 1987 to 13.9 percent by 1994, and subsequently rose to 17 percent by 2000 following the path of revenue changes (see Chart 1). As with revenue, government expenditure has not returned to the pre-devaluation levels. Public expenditure and other policy reforms, such as in forestry, trade, financial sector and ongoing public privatizations have influenced both revenues and budget allocations. The PRSP and HIPC debt relief processes have also had a significant impact on the budget process reforms and the composition of the budget. The Legal and Institutional Framework for the Management of Public Finances 2.2 The legal framework for managing public finances is governed by the Ordinance of February 7 1962 and rooted in the revised Constitution of 1996. The financial regulations of 1962, modified several times, including by a 1967 decree, and by a law of April 19, 2002, have constituted the fundamental legal basis for the management of public finances, grounded on the principles of unified budget, the annual finance law; with the Minister of Finance as the principal accounting officer. The framework for public accounting, prescribed by the decree No" 97.226 of June 25 1997 on the general regulation of accounting for the state, and its decree of application of June 30, 1997,is characterized by a strict separation between the administrative and accounting phases of expenditure with a distinction between the budget administrator who initiatedauthorizes the commitment to spend (ordonnateur) and person who handles the payments (comptable), and establishes the principles of the personal and financial responsibilities and their security. However, these laws and regulations have not been updated regularly, contain some inconsistencies and have not been applied consistently. An extensive revision of the legal and regulatory framework for public finances is underway. This will update the laws and regulations but will ensure the alignment with current practices. 2.3 The drafting of a new organic budget law (projet de loiportant re'gimefinancier de Z'Etat (LRFE)) to replace the Ordinance of 1962, has been underway since 2001. Several versions of the LRFE have been prepared and examined but debate on the revisions has remained centered in the Ministry of Finance (MINEFI). The president of the Commission of Finance and Budget of the National Assembly was not consulted at the early stages of the preparation of the new lawlg.one issue in contention has been the proposal to abandon the principle of the Minister of Finance as the sole administrator/authorizer of the budget and confer such authority to all the ministers. This principle that has already been breached in practice but the Ministry of Finance has not been ready to give up this responsibility. The regulatory framework for public accounting has also been prepared but will be finalized once the LRFE is finalized so that it can be fully in line with the LFRE. 19 In mid 2006, a joint World Bank-IMF mission discussed the draft law extensively with the authorities. This mission also provided the opportunity for the donor community to give its input to the finalization of the new law. 2. The Evolution of Public Expenditure/Finance Management page 22

2.4 The institutional environment for public financial management in Cameroon is characterized by a centralized and strong executive power. For the management of public finances, the MINEFI occupies an eminent place in the decision making, while the ministers play powerful roles in the management of the budgets of their ministries. The organization of MINEFI was revised by a decree of December 8, 2004 that regrouped the budgetary functions within a same department of MINEFI, including for the public investment budget previously managed by the ministry for planning. Furthermore, for the management of treasury and accounting functions, a new Directorate General of the Treasury was created, consisting of directorates of treasury and public accounting, and central accounting agency of the Treasury. These recent changes have tended to strengthen the role of the Ministry of Finance. 2.5 Cameroon has some decentralized administrations with 10 provinces, 58 districts (departments) and 339 towns (communes). The decentralization was inscribed in the Constitution since 1996, but the law to implement it was promulgated only in 2004. In the small townships, there are now elected mayors who have some powers of decision but in the big townships and the two urban communities of Douala and Yaounde, power remains with appointees of the central government. The objective is to transfer the executive power progressively to the mayors by the end of 2007. However, the Government s representatives would continue to exercise executive power in the regions and Yaounde, and Douala. 2.6 The decentralized institutions do not play an important role on financial management. Local finances are estimated to be about 5 percent of the budget of the state. These are derived from own resources (about 30 percent) and transfers. The FEICOM (Fonds Spe cial d Equipement et d Intervention Intercommunale), a public agency established in 1974 to finance the investments of the communes collects and centralizes local revenues and redistributes them on the principle of equalizationzo. But FEICOM plays a large role in the design, financing and implementation of local projects. Its operations however are not transparent; they are not included in the budget and not subject to parliamentary control. To move forward on decentralization, a coherent fiscal decentralization framework is essential. This will need to involve the reform of FEICOM. 2.2 Recent Reforms of Public Financial Management 2.7 Over the last five years, Cameroon has undertaken reforms to improve public financial management. These reforms were given greater focus and urgency with the adoption of poverty reduction as the primary goal of development policy and subsequently the articulation of the Poverty Reduction Strategy (PRS) the eventual adoption in April 2003 as the policy framework for public actions. The main thrust of the reforms has been to improve the institutional and human capacity for budget preparation and execution to make the budget an effective instrument for poverty alleviation. Some of the key reforms include the introduction of the medium-term expenditure framework (MTEF) in some sectors to enhance the alignment of the budget with policy priorities, the adoption of new budget nomenclature and procurement code, the introduction of integrated management information systems to facilitate fiscal reporting and improve transparency of the PFM, and the reforms of the budget-treasury linkages to facilitate budget execution and accounting. 2.8 A number of the existing laws, decrees and regulations on public finance are under review and revision. A draft organic law on the public finance management (public finance act) that will replace the 1962 law is near approval by the legislature. It will, inter alia, 2o The distribution and equalization is based on the population, but the last census of population was held more than 15 years ago. 2. The Evolution of Public Expenditure/Finance Management page 23

introduce multiple budget authorizing officers (principal, secondary and delegated) and goaloriented budget programs and recognize the judgment of the management accounts by the new Chambre des Comptes. A new decree on the public accounting is also close to approval. Medium-Term Expenditure Framework (MTEF) 2.9 The MTEF has now been widely adopted in many developing countries as an approach to budget preparation, particularly in the wake of the PRSP process. Conceptually, the MTEF facilitates the alignment of the government's policies and priorities with the budget and consequently makes the budget an effective instrument for implementing development policies. Cameroon began to introduce concepts of the MTEF in selected sectors in 2000. By 2005, the ministries of education and health were ready to prepare program budgets based on MTEF concepts, and other ministries were expected to follow suit. These ministries received assistance from donors to prepare sectoral MTEFs, based on a well-articulated sector strategy and characterized by, a multi-year planning period, a costing of various programs, and covering all the activities of the ministry including those financed by donors and HIPC resources. However, the progress in expanding the scope of this exercise and introducing MTEF concepts to the broader budget preparation process was slow. The program budgets could not be based on an agreed and overall medium-term budget framework since global MTEFs were not available. Thus these sectoral MTEFs were not integrated in the budget cycle and played limited roles in informing the annual finance law. In contrast, Burkina Faso introduced MTEF type program budgets in six pilot ministries in 1999, instituted a global medium-term budget framework in 2000, the MTEF for 2003-2005 in 2000 was fully integrated into the budget cycle, and by 2004, all ministries prepared program budgets2' 2.10 The selective and partial introduction of the MTEF, that is, where some ministries prepare medium-term expenditure plans and other ministries do something else, has some drawbacks. Most often, these initial MTEF are elaborated under donor pressure and financial support, thus there is limited domestic ownership of the process. In Cameroon, the initial sectoral medium-term strategies and expenditure plans were produced with the help of donorfunded external consultants, before the commitment of the Government to the adoption of the MTEF approach. Consequently ownership of this process and its role in the formulation of the annual budget was limited. The partial approach raises the costs of the investments in analytical work, training and sensitization, institutional reform and systems development required for the introduction of the MTEF. The economies of scale and the benefits of shared training activities are lost. Finally, a partial approach to the MTEF increases the risks that the MTEF reforms would not be sustained since ownership is not widespread. Given the significant investment already made on the MTEF, a rapid move to a global MTEF is encouraged. In chapter 3, the prospects and requirements for the adoption of a global MTEF are discussed. Budget nomenclature 2.1 1 A new budget nomenclature, finalized in 2003, provides a detailed and disaggregated administrative, economic, and functional classification of government expenditures. The revised classification has been adopted for the 2004 and 2005 budgets. Although there is some criticism regarding the proliferation of detail, the general consensus is that the new system represents a major advance from the previous one. The new nomenclature ensures consistency between the recurrent and investment budgets as well as Treasury operations. 2' The World Bank (2005): Burkina Faso, The Budget as Centerpiece of Public Expenditure Review PRSP Implementation: A 2. The Evolution of Public Expenditure/Finance Management page 24

2.12 The change in nomenclature was necessary because the previous system, based on administrative and economic classifications of expenditures, did permit an understanding of the objectives of the operations of the state from the examination of budget allocations. There was no consistency between the economic classifications of recurrent expenditures (wages, operations and maintenance, etc) and the investment expenditures (equipment, construction, etc). Furthermore, the system did not conform to international classification standards (Government Financial Statistics of the IMF) and to the UEMOA budget conventions. The new nomenclature or budget classification of 2003 has 17 digits on the expenditure side, covering administrative, functional, and economic classifications. It also has a provision for specifying the location of the expenditures. The investment budget can be accommodated within the new nomenclature and the new system is generally in line with the Classification of Functions of Government (COFOG), developed by the Organization of Economic Cooperation and Development (OECD) and published by the United Nations Statistical Division. 2.13 The new nomenclature is comprehensive but lacks a program and output/results codes. It is very detailed, in contrast to the trend toward less detailed classification. For instance, in the functional classification, it has 69 sectors, in contrast to say Rwanda, whose functional classification starts with 14 sectors. With such high level of detail, the budget is likely to be difficult to understand, and besides will require significant efforts and demands for information to support detailed planning, budget preparation and data reconciliation at the end of the year. Finally, there would be the tendency to allocate resources to every code in the budget, and to spend money on activities that may be of very low priority. If program and outputs/results are to be coded into the new nomenclature, it would be a complex exercise. Procurement 2.14 Government has adopted a number of reforms during the last five years that has put the procurement process on solid grounds. The legal and regulatory framework of the new procurement code, adopted in 2004, conforms to international standards, characterized by respect for competition, transparency, efficiency and economy. Procurement Committees have been set up at national and local levels and are operational. Independent observers have been appointed to these committees, audits of some procurement exercises have been undertaken and the results of procurement processes are now published. Nevertheless the implementation of procurement processes including the observance of the legal and regulatory framework of the code has been mixed. The Country Procurement Analysis and Review (CPAR) of 2005 noted a number of challenges to effective procurement process in Cameroon: the capacity and professionalism for procurement in both the public and private sectors; the need to integrate the procurement processes into the systems for public financial management; the budget funding for managing the procurement processes; the political commitment to enforcing the rules and regulations including the use of sanctions; and the potential for political interference in the process. The challenge of procurement and the summary of the findings of the CPAR are reviewed in Chapter 5 of this report. Budget Information Systems 2.15 SIGEFI, an integrated information system (SIGEFI) linking the main centers of financial and budget information production and use - Budget department, Treasury, tax and customs operations, all in MINEFI, and related departments in MINPLADAT, became operational in 2003. However, not all the key centers have been directly linked and 22 See World Bank (2003), Rwanda: Public Expenditure Reform for Sustaining Poverty Reduction: A Public Expenditure Management Review (WB website) 2. The Evolution of Public Expenditure/Finance Management page 25

development work is continuing. SIGEFI will integrate several computerized information systems for PFM in use in different departments/ ministries including: IBIS (Budget), CADRE and PATRIOT (Treasury/ Accounting), TRINITE (Taxes), PAGODE and soon SYDONIA (Customs), ANTILOPE and SEGIPES (Payroll), with new applications (DEPMI, Expenditures/ministries), PREBIC, (budget preparation) SEBIC, (budget execution) SETTING (Auxiliary Accounting of Revenues and Expenses), CAA, (Debt) and SIGEPAT (investment budget), BEAC (operations and links with BEAC). SIGEFI aims to integrate all these systems through a common database ECOFI. The compatibility, mutual functionality, the integrated development and management of all these systems are challenges for the further development of SIGEFI. Trends in Public Expenditures 2.3 Expenditures and Budget Allocations 2.16 Since independence in 1960, public expenditures have expanded in parallel with economic growth to meet the demands of the Cameroonian economy, as was the trend in most of the developing world. However, during 1986-1993, the collapse of international commodity prices forced the government to substantial cut both capital and recurrent expenditures. As a consequence, total expenditure as a percentage of GDP fell from 23.2 percent in 1987 to 13.9 percent by 1994. After the 1994 devaluation of the CFA franc, and the economic recovery of many of the FCFA zone countries, including Cameroon, expenditure rebounded to 17 percent of GDP by 2000 and reached 17.5 percent by 2004. However, as with revenue, expenditure has not returned to pre-devaluation levels. Chart 4: Current and Capital Expenditures, 1980-2003 (Yo of GDP) 2.17 The capital budget as a percentage of GDP has declined significantly over time, falling from about 10 percent in the mid-1980 s to less than 2 percent by the mid-1990 s (see Chart 4). The capital budget was the victim of the economic crisis of 1986-1993 and subsequent reforms to stabilize the economy following the devaluation of the FCFA in 1994. The Government faced with the challenge of reducing the budget deficit, cut non-wage expenditures (operations and maintenance) and capital investments rather than to reduce the 2. The Evolution of Public ExpenditureIFinance Management page 26

~ Transfers size of the civil service. However, reflecting increasing donor funding as well as domestic resource mobilization, capital expenditure increased from one percent of GDP in 1996 to more than 3 percent in 2002. In the last few years, to balance expenditure, the Government has continued to squeeze capital expenditures, to 1.8 percent of GDP in 2004. Composition of Recurrent and Investment budgets 2.18 Wages and salaries is the major component of recurrent expenditure. Its share of the recurrent budget increased from 30 percent in 2000 to.over 40 percent of total expenditure in 2003 and 2004 (see Chart 5). On the other hand, there was a marked decline in interest payments on domestic and external debt, which fell from 15 percent of total recurrent expenditure to slightly over 5 percent. The share of expenditure on goods and services and on transfers remained roughly the same relative to GDP over the four year period. The share of the investment budget in total spending has been almost flat, at around 10 percent. In contrast most other Sub-Saharan African countries the bulk of investment expenditure in Cameroon is financed by internal resources, with the share of external resources averaging below 25 Chart 5: Economic Classification of the Recurrent Budget 2000-2004 (% of Total Expenditure) 50.00-40.00-30.00-20.00-10.00-0.003 h - A X 2000 2001 2002 2003 2004 Wages -m- ++ interest oavments t Goods and servic s percent from 2000 to 2004. Meanwhile, there has been a significant fluctuation in the inflow of foreign capital for the investment budget, as externally financed assistance increased from more than 4 percent of total expenditures in 2000, peaked at close to 8 percent in 2002 and fell to 6 percent in 2004. 2.19 This volatility of external funding has been due to changing donor priorities, especially the European Union and the Government of France, as well as competing claims for scarce aid resources from other countries, especially in light of concerns about governance and the pace of reforms in Cameroon. Declines in external resources were partially compensated by the arrival of funds from HIP debt relief, thus, the HIPC assistance, which was supposed to supplement foreign assistance, has in effect been complementary. On the other hand, there has been a significant decline in project assistance. Performance in Budget Execution 2.4 Budget Execution 2.20 Execution Rates of Recurrent and Investment Budgets: There is a significant difference in execution rates between the recurrent and investment budgets. While the recurrent budget has aggregate execution rates frequently close to 100 percent, the gap between planned and actual expenditure for the investment budget has been significant (see Chart 6). It is not surprising that the execution rates of the recurrent budget (budget de fonctionnement) tend to be high relative to the overall budget since about 50 percent of recurrent expenditures is for salaries and much of the rest is for recurring expenditures such as utility bills. For the development budget, not only has its overall envelope stagnated over the four-year period, the 2. The Evolution of Public ExpenditureIFinance Management page 27

execution rate has remained low, fluctuating over the last few years from 57.2 percent in 2000/2001 to 75.3 percent in 2003 and to 70.4 percent in 2004. It appears that the investment budget has borne the brunt of budget shortfalls, the complexity of budget execution procedures and the inadequacies of the procurement process. Chart 6: Recurrent and Investment Expenditure, planned vs actuals 2000-2004 (CFA Billions) 1,ooo,oo+--------- -_ -7 200,oo x 2000/012001/02 2003 2004 2005 +Recurrent Plan -m- Recurrent Actual --c Investment Plan +Investment Actual 2.2 1 Budget Execution by Sector: Budget execution rates vary between ministries/sectors. Table 11 in Annex 1 shows the composition of the budget allocations and expenditure outcomes and the execution rates by sector. Education and sovereignty (public order, defense, and justice) have had execution rates, frequently above SO%, while health, equipment, and rural development have seen marked gaps between appropriations and actual allocations (see Chart 7). The education sector recorded an overall execution rate of more than 90% during the three-year period 2000-2002, while the health sector average was slightly over 70 percent. 2.22 Budget execution by economic categories: While the wages and transfers components of the budget are relatively stable per quarter, there is considerable fluctuation in the budget for operations and maintenance and in the investment budget. Across ministries, the bias towards financing wages and civil service expansion has a negative effect on core operations and maintenance. From January to June, 2005, cash releases for educational expenditures was blocked by budgetary regulation, with the education ministries receiving cash releases amounting to only 10 percent of its total voted budget for 2005. In practical terms, the budgetary squeezes on the educational sector has translated into disruptions in supply of essential materials for schools and the provision of school supplies, textbooks, and funds for maintenance of school buildings and vehicles. The cash releases have been used mostly to pay salaries, leaving little for other recurrent items. The delays in releasing funds for operations and maintenance delay payments to suppliers of goods and services to the government. These belated payments may result in (i) prices raised unduly, (ii) suppliers work to circumvent the system in collusion with public servants, and (iii) some suppliers not interested in bidding for government contracts. 2. The Evolution of Public Expenditure/Finance Management page 28

Chart 7: Budget Execution Rates by Sector 2003-2004 (YO) Sovereignty Defense Education Health Infrastructure Main Factors Underlying Poor Budget Execution 2.23 A number of institutional and technical factors have hampered budget execution and outcomes, including the complexities of the expenditure chain, the use of ad-hoc regulations and exceptional procedures that tend to distort the process of funding activities- such as cash budgeting and advance payments (caisse d 'avance), and the inadequacy of budget preparation. The complexity and redundancies in the expenditure chain slows down budget execution and distorts incentives in the execution process. These have adverse effects on operational efficiency in budget implementation and the quality of results. The transition from a manual budget processing to a computerized one has also been a factor in the delays of the start-up of budget execution, including the additional burden of working with both the manual procedures and computerized systems. Poor budget preparation has engendered delays in the start-up of budget execution and the slow pace of execution. In particular, technical factors, related to design and costing of operations and delays in the procurement process have posed problems for the expeditious implementation of the investment budget. These technical problems arise because of inadequate attention to these details during the planning and programming stage of the investment projects. A more detailed discussion of the challenges to budget execution and control, including treasury operations, is contained in Chapter 5 of this report. 2. The Evolution of Public Expenditure/Finance Management page 29

Chapter 3 The Institutional Framework for Budget Preparation Introduction 3.1 Budget preparation (planning and programming) in Cameroon follows a similar path as in other countries, starting with the estimation of the macroeconomic framework and the resource envelope by the Ministry of Finance, the determination of sectoral/ministerial spending ceilings, followed by the issuance of budget circular to communicate the ceilings and other budget policies to the line ministries, the budget conferences between the line ministries and the ministries of finance and plan. Following this, a budget is finalized, approved by the Cabinet and submitted to the legislature for discussion. In general, this process is fine. However, in Cameroon, there are serious issues on the rigor with which the various steps in the process are implemented. For instance, most of the steps have been highly abbreviated as the budget calendar is very short. In the years up to 2005, the Budget Circular has been issued in September/October, which gives only two months for preparing the details of the budget. The result is limited analysis, planning and consultations. 3.2 The preparation and overall management of the budget is centralized at the Ministry of the Economy and Finance (MINEFI). The line ministries play limited role in the budget, except the preparation of the budget of the ministry based on budget ceilings solely determined by MINEFI. The lack of participation by the line ministries in the establishment of the ceilings is a disincentive for strategic planning by line ministries. Even the MTEF prepared by some sector ministries have not been systematically integrated into the annual budgeting process. Without the serious participation of the line ministries, the budget would not necessarily reflect sector priorities. The Budget Calendar 3.2 Key Budget Planning and Programming Processes 3.3 There has been no fixed calendar on budget preparation, only a logical sequence of elements (presidential circular, orientation by Minister of Finance, pre-conferences, budget envelope notification and conferences, concluding with the Prime Minister s budget proposal to Parliament). A budget calendar starting in September/August until early November is very compressed compared to best practices elsewhere. The result of the short budget calendar is the inadequacy of the time for broad consultations, coordinated planning of budget activities, and for line ministries to prepare their budget estimates in compliance with the budget ceilings. It would not allow for the extensive consultations within ministries, between the line ministries and the core ministries (finance and planning), and with the Council of Ministers in the budget preparation process. Furthermore, consultations with the donors and civil society have been limited by the compressed budget calendar. In short, the short calendar has undermined participation, planning and transparency. 3.4 In end 2004, following a cabinet reshuffle, MINEFI was given more responsibility for the formulation of the budget. This consolidation of responsibility has considerable merit in terms of supporting the move towards budget integration and unification. However, unless the budget calendar is significantly decompressed, to allow the time for substantive and wider consultations and coordination, the effect of the change will be a greater centralization of the 3. The Institutional Framework for Budget Preparation page 30

budget formulation process, which would further undermine ownership and implementation of the budget. Box 3: Calendar for the Preparation of the 2006 Budget Mid-July: meeting of the DGB with secretaries-general of the different ministries for a first sensitization on the challenges of the new budget; Beginning August: a launch seminar of the budget exercise with the main actors in the budget from the line ministries - an innovation that should be maintained because of the opportunity to discuss the methodology for the budgetary conferences with the principal budget staff in the line ministries; First fortnight of August: budgetary conferences for the review of the state o f advancement of the investments projects, to discuss the main objectives, to exploit the existing MTEFs, to estimate HIPC spending, and to inform line ministries of global budget ceilings. The PRSP monitoring committee participated at this stage o f the process. End August - beginning September: finalization of the project files and the assessment o f the needs for counterpart funding; First fortnight of September: harmonization of the subsidies to public enterprises (PE) in presence o f their representatives and in the context of the preliminary budget framework to consolidate and evaluate the needs expressed by the PE managers; Third week of September: consolidation of the budget framework, consultations with the development partners on the possible level of their financing; End September - October: budgetary conferences; at this stage of the procedure, the ministries have presented their project information files (FIP) to support of their demands of investment credits, with presentations from the main ministries - Health, Public Works, Agriculture and Higher Education. October: After the budgetary conferences, the Prime minister provides to all ministries their definitive envelope of credits with the allocations for recurrent and investment expenditures. Mid - November: finalization of the budget estimates (Loi de Finance Initial (LFI)); transmittal of all the budget documents to the deputies for the parliamentary session of November. December 13, 2005: vote of the financial laws of 2006. 3.5 In 2004, the budget process started somewhat earlier in August, with ministerial preconferences following the first instructions from MINEFI. The budget framework came out subsequent to this, giving the envelopes of the ministries. The ministries would then produce the first drafts of their budget proposals to be discussed in conference MINEFI. The FY2005 budget (finance bill/zoi definance) was adopted by December 15. In a welcome development, the budget process for 2006 started earlier than for 2005, with pre-conferences held in June and the conferences in July (see Box 3). This is in the right direction in terms of the earlier start of budget preparation and the participation of line ministry staff and the PRSP committee in the early discussions. However, a budget process that starts in mid-july is still relatively compressed. Besides, there a number of budget steps that are not included in this calendar, for instance, the preparation of the macroeconomic framework including the revenue estimates, and the consultations involved; the review of budget performance of the previous year as well as the current year to date; the elaboration of sector strategies and MTEFs, and the discussions/consultations with the Council of Ministers. The budget calendar remains concentrated on the second semester of the year while the tasks of budget preparation for the sector ministries should start in the first semester of each year. Besides the communication of ~ ~ 3. The Institutional Framework for Budget Preparation page 31

the spending envelopes of the line ministries after the budget conferences, comes very late in the year. Guidance from the Council of Ministers (the Cabinet) 3.6 The lack of guidance from the Cabinet on the orientation of the budget before and during the preparation of the budget hinders the inter-ministerial coordination in process and undermines the alignment of the budget to policies. Under existing regulations and practices, the budget preparation process is overly centralized and the line ministries have limited leverage in the process and a strong cabinet role in the process would serve to counteract the dominant role of the core ministries (ministries of finance and plan). However, the intervention of the Cabinet in the budget process is largely limited to the approval of the budget before it is submitted to the legislature. Since this is often close to the end of the year, there is time-pressure on the ministers to approve the budget and send it to the next level, even if there are issues that would warrant further discussion and revisions. This limited role of the Cabinet in the budget process prevents it from playing the role of assuring a well-coordinated and broadly-owned budget that is aligned to government policies. 3.7 Budget Framework Paper: Good budget practice requires the Cabinet to play a strong coordinating role in budget preparation and warrants its intervention at various stages of the process. In many countries, the budget cycle is initiated by the preparation of a budget framework paper (BFP) that lays out the background issues, policies, priorities and challenges for the country and government, and discusses the options for addressing these challenges in the budget. The BFP would include preliminary estimates of the macroeconomic framework and the resource envelope, and in an MTEF context, provide an update of the medium term budget framework. The BFP would be prepared and discussed by the cabinet before the end of June, would give the time to explore the ways to fully meet identified priorities, for instance by seeking additional financing. The BFP, endorsed by the Cabinet, would be the basis for the preparation of the budget circular that provides the overall resource envelope and the ministerial/sector/program ceilings, in line with the priorities agreed in the BFP. 3.8 The BFP would be the equivalent of the pre-budget report suggested by the OECD Best Practice Note.23 Its adoption by Cameroon will enhance would enhance discussion of budget issues and strengthen the ownership of the budget. It would also enhance the credibility of the budget circular that hitherto has been perceived as an internal exercise in the Ministry of Finance, with the ceilings established without consultations with the line ministries, a veritable, top-bottom approach. The budget circular should also be endorsed by the Cabinet before it is circulated to the various ministries. Finally, the Cabinet would discuss and endorse the draft budget before it is submitted to the legislature. Essentially, the cabinet would meet a minimum of three times to discuss the budget. The strong role of the Cabinet will ensure the alignment of the budget with government policies and facilitate the coordination of the preparation and execution of the budget. It would also improve the transparency of the budget process, especially if Ministers consult their staff ahead of the Cabinet meetings, and brief and guide them in the preparation of the budget based on the outcomes of the discussions in cabinet. Furthermore, these participatory discussions at high level will facilitate the difficult arbitrage decisions that often have to be made in the budget process and its acceptance by all the parties concerned. 23 Organization for Economic Cooperation and Development (OECD) (2002): OECD Best Practices for Budget Transparency, OECD Journal on Budgeting, Volume 1, Number 3, OECD Paris. (Available thru the OECD website) 3. The Institutional Framework for Budget Preparation page 32

3.9 Cabinet discussions of the budget do not rule out bilateral discussions between the line ministries and the core ministries on the budget. In Chile for instance (see Box 4), the Minister of Finance and the staffs of the budget department meet with each of the line ministers and Box 4: Budget Preparation in ChileL4 Chile is a middle income country with a tumultuous past but has been noted in recent decades for the sound handling of its economy and sound management of public finances. Since the return of democracy in 1990, successive governments have demonstrated strong commitment to sound economic management and fiscal responsibility. Chile thus has put in place a somewhat unorthodox but simple, participatory and results-oriented system for preparing its budget. Some elements of this process may be of interest to Cameroon. Fiscal Rule: Starting in 2001, Chile adopted a fiscal rule that requires a one percent of GDP structural budget surplus for the central government. In parallel to these two phases, independent experts are appointed to provide inputs [output gap (difference between actual and potential), long-run price of copper] for estimating the revenue side of the budget and the structural deficit. These experts provide their input two months before the budget presentation to the legislature. Budget Calendar and Annual Budget Cycle: The budget cycle is divided into two distinct phases. The first phase focuses on a critical examination of ongoing programs and updating expenditure baselines. It starts in April with an internal review and a systematic assessment of performance and results of the execution of the previous year s budget and an evaluation of the implementation of the current year s budget. This is carried out by a unit in the Budget Office in consultation with the line ministries and provides the basis o f the establishment of expenditure ceilings for all ongoing programs. These ceilings are communicated to the line ministries in early June and provide the basis for preparation of the budget for ongoing programs The second phase focuses on selecting new budget programs for funding by the Bidding Fund. The size o f this fund varies every year and depends on the overall resource envelope and the funding requirements for ongoing programs. The fund was launched in order to improve submissions from line ministries, to counter the incremental nature of traditional budgeting, and improve the technical quality of funding requests. The Ministry of Planning assists line ministries in completing their bids in accordance with agreed standards. These bids are discussed in detail between the Budget Office (BO) and the relevant line ministry. Following this, the BO evaluates the bids on two criteria: the technical quality and the consistency with the political priorities of the President, which had been discussed between the President and each minister and announced in the annual state o f the nation address to the legislature. The BO then proposes a list of initiatives to be funded. The Minister of Finance and the Budget Director then holds bilateral meetings with the line ministries to discuss these proposals. Finally, the Minister of Finance and the Budget Director meets with the President to go over the proposals. Budget Finalization and Presentation: The elaboration of the budget starts in May and ends with the presentation of the budget to the legislature in the last week of September. Based on all the reviews and discussions, the Budget Office finalizes the budget and supporting documentation including information on performance and results from each of the ministries ( sectors ). The budget is presented to the legislature on the last day of September and approved in mid-november. 24 This box draws from Organization for Economic Co-operation and Development (2004): Budgeting in Chile: a paper prepared by Public Governance and Territorial Development Directorate of OECD for 25 h Annual meeting of Senior Budget Officials, Madrid, Spain, June 2004 3. The InstitutionaI Framework for Budget Preparation page 33

their staff to discus and finalize the ministerial budget. In addition, the Minister of Finance consults the Presidency on the budget proposals to ensure the alignment of the budget and the political program of the President. This kind of consultations would tend to reduce the incidence of extra-budgetary expenditures during the fiscal year. However, extensive consultations processes require an extended budget calendar. In the case of Chile, budget reviews and consultations for the preparation of the budget of the following year starts in April. There are examples in SSA, for instance, Uganda, Burkina Faso, and Tanzania where the Cabinets are very much involved at various stages of budget preparation, with a budget cycle that starts early in the year (March/April) and thus permits such interventions. Consultations with the Donors and the Civil Society 3.10 Consultations on the budget with other stakeholders - donors, civil society and the private sector - improve the transparency of the budget process and ultimately lead to better socio-economic outcomes. Many countries that receive significant external assistance also routinely formally consult with the donors in the preparation of the budget. Usually the partnership framework provides the modalities for these consultations. Although the donor contribution to Cameroon s budget is not large in comparison to some other low income countries, it still needs to develop and maintain a relationship with donors that helps to (i) enhance the effectiveness of their assistance; and (ii) sensitize the donors on the financing needs of the increasingly resource-constrained budget to make them more responsive to these needs. The experience in other countries is that regular consultations with the donors on the budget and related policy issues help to build this responsive relationship. 3.1 1 In some countries, the government systematically consults the civil societyhnterest groups on the budget through discussions with different groups - trade unions, private sector, NGOs. In Chile, as outlined in Box 4, independent experts are identified and asked to provide inputs to the estimation of revenues from copper, an important but volatile source of revenues. In Romania, there is an elaborate system for consultations with the Economic and Social Council, a tripartite board representing the Government, the employers association and the trade unions on the budget as well as other economic policy matter^.^' The Council, a useful sounding board for the government priori to action, makes written recommendations to the government. In Rwanda, the government holds separate discussions on the budget with the main private sector apex organizations (Rwanda Private Sector Federation), the civil society organizations, and the faculty and students at the University of Rwanda. Budget Planning and Coordination 3.12 There appears to be limited, coordinated and systematic planning of the activities of the budget that links proposed budget allocations to policies and outcomes. Part of this has to be the result of the rushed budget process, the lack of a coordinated and systematic multi-year budget programming approaches, even for the investment budget, and the poor coordination among the principal actors in the budget process. A multi - annual public investment program machinery exists, but implementation is weak. The investment budget lacks coordinated project preparation, appraisal and selection processes. Thus, projects included in the budget may not be consistent with government development objectives, are often not fully prepared and ready for implementation, and do not have assurance of adequate funding for implementation. New budgets are not guided by the lessons of experience with previous and 25 Ruffner, Michael, Wehner Joachim, and Witt Matthias: Budgeting in Romania; OECD Journal of Budgeting, Volume 4, Number 4; Organization for Economic Cooperation and Development (OECD), Paris 2005. 3. The Institutional Framework for Budget Preparation page 34

similar activities in the absence of rigorous monitoring and evaluation of the budget.26 In the absence of planning, performance review and consultations, the budget formulation would largely be of an incremental nature. 3.13 Advance planning, grounded on related sector knowledge and experience, further analytical work and consultations with stakeholders, is essential so that the socio-political and Box 5: The Budget Planning Process Kev Stem in the Process Settingheviewing objectives, strategies and priorities, with consultation of stakeholders; Monitoring and reviewing past performance including budget/activity outputs and outcomes, organization of activities and costs o f operations Reviewing activities and plans in the light o f the strategies and priorities and the reviews of performance Reorientation of existing activities, including cancellation of strategically inappropriate and poorly performing activities, identification, appraisal and selection of new activities in accordance with the strategies, identification of performance indicators for selected activities, costing of all activities and aligning them to the expenditure program and system nomenclature; Reviewing the expenditure programs in the light o f global expenditure constraints. Orpanization of the Planning Process A bottom-up planning approach is clearly superior to a top-down approach, thus the process should be rooted in the line ministries and local authorities. The bottom-up approach does not imply minor roles for the core ministries of planning and finance. Their roles become more strategic and less operational, with responsibilities for providing the broad macroeconomic, policy and strategic guidance, coordinating and monitoring the planning and programming process, ensuring that strategies and plans are consistent with national objectives and resource constraints, providing technical and analytical guidance to the planning process, and integrating the ministerial expenditure programs into a viable national budget. Coordination of the Planning Process A bottom-up planning process requires substantial coordination, within and between the line ministries, and between the core and line ministries. In the line ministries, the Secretary-General and the planning directoratehnit coordinate the planning process in the ministry. Where there is more than one ministry in a sector, for instance, education, an integrated sector planning process may be desirable, with staff from the various ministries working together to produce a sector plan. As noted above, the core ministries have a key role for operational coordination. The Cabinet, the Prime Minister, and the President also have decision-making roles for coordination by setting and clarifying policies and strategies and arbitrating in a timely manner between competing priorities and interests. 26 Monitoring and Evaluation is discussed in Chapter 6 of this Report 3. The Institutional Framework for Budget Preparation page 35

economic choices in the budget are not only responsive, but are broadly perceived to be responsive to the needs of the society. This requires: (i) the capacity for planning and budgeting in line ministries, where the sector knowledge should exist; (ii) clear government policies to guide the planning process; (iii) capable focal points that coordinate the process to ensure that it functions effectively and produces plans are consistent with Government policies; and (iv) a year round approach to planning with a budget calendar that ensures that the plans feed into the budget. Box 5 shows the key aspects of a budget planning process. Budget Prioritization 3.14 One of the central pillars of Cameroon poverty reduction strategy, as articulated in the PRS has been the prioritization of public expenditure in line with the priorities identified in the PRS. As a result of the new strategy, in recent years, there has been significant increases in the budgetary allocations to education and health and production infrastructure, the sector priorities identified in the PRS (see Box 1). The share of education as a percentage of total expenditure increased from 18.0 percent in 2000 to 26.6 percent in 2005, while that of health increased from 5.3 percent in 2000 to 7.1 percent by 2005 (see Table 7). Moreover, production infrastructure almost doubled from 9.9 percent to 18.1 percent over the same five year time frame. To accommodate these increasing budgetary allocations, there have been some interministerial reallocations and decreases in the share of transfers and other budgetary subventions. Table 7: Government Expenditures (YO of total spending) 2000 2001 2002 2003 2004 2005 Education 18.0 21.3 23.9 24.0 25.9 26.6 Health 5.3 6.1 7.3 7.6 6.5 7.1 Production Infrastructure 9.9 10.2 11.8 15.1 17.6 18.1 Other Min and Institutions 34.4 34.8 38.5 43.1 39.5 37.8 Total Ministerial Budget 66.8 71.4 81.5 89.7 89.5 89.6 Transfers and Others 33.2 28.6 18.5 10.3 10.5 10.4 Total Spending 100 100 100 100 100 100 Source: Government of Cameroon (Direction ofthe Budget) 3.15 While the general trend in allocations to these priority sectors has been favorable, the recurrent and capital expenditures have fallen short of PRS projections. Besides, there does not appear to be clear and unequivocal statements by the Government on its budget priorities for each fiscal year. Furthermore, given the way the priorities are treated in the budget, it not clear that the budget also reflects all the priorities of the PRS and the importance the Government attaches to the improvement of governance, the growth and diversification of the economy, the development of the private sector including small and medium-scale enterprises, and the unemployment of the youths. Execution rates of priority programs 3.16 It is noteworthy that the Government has progressively been increasing the shares of the budget allocations to the three main PRS priority sectors since 200 1. However, the release of budget credits to implementing ministries has differed from budget allocations, and the 3. The Institutional Framework for Budget Preparation page 36

consistency of timing of releases and the requirements for efficient implementation is not assured. Thus, the priorities programs face the same uncertainty in the availability of funds as every other program. While the execution rate for the budget of education is relatively high (83 percent in 2004), the execution rates for the health and infrastructure sectors were 62 percent and 60 percent respectively in 2004 (see Annex 1). By contrast, sovereignty, defense and general administration all have execution rates above 85 percent. There are some compositional (wagehon-wage, capitalh-ecurrent) and technical reasons for these differences in execution rates between priority and other sectors but the fact remains that, in this context, high budget allocations do not necessarily translate to high spending and effective delivery of services. Good Practices in Budget Prioritization 3.17 Budget prioritization has become widespread among governments in low income countries (LICs), particularly with the advent o f the PRSP. It is a mechanism for attempting to meet the aspirations of the population that contributed to the identification of priorities for public action through the PRSP process. In recent years a number of good practices have emerged in the domain of budget prioritization: Budget priorities chosen by programs and sub-programs not by ministries/sectors: This is possible in cases where specific programs can be identified by the budget nomenclature, for instance in the MTEF/program budget approach. This program approach facilitates the fine-tuning of priorities. Whilst the education, health and infrastructure sectors, the usual priorities, would receive the predominant share of priority spending, not all programs in these sectors would be priorities. On the other hand, priority programs could include, for instance, export and investment promotion, development of small and medium-scale enterprises, public works programs for youth, water and sanitation services in the rural areas, and community development, without having to treat the responsible ministries as priorities. Priority programs are protected from budget cuts: Thus, while priority programs progressively receive proportionately higher budget allocations, these allocations are also protected from budget cuts during the course of the fiscal year. Thus, if budget cuts are undertaken, such as those in Cameroon in 2005, these cuts would be borne by the other sectors/programs while the priority sectors would continue to draw on their full budget allocations. Protecting operations and maintenance spending: While it is useful and sometimes more convenient to protect all the allocations for a priority program, since the wages and salaries as well as the administrative components of the program are invariably protected, it is O&M component that is at risk and needs protection. This component is often small but critical for service delivery and the quality of service^.^' Thus, where possible it is possible to identify it, only the O&M component should be accorded protection. * In Cameroon education sector budget, administrative costs run to close to 15 percent of the sector budget while less than 10 percent of the educational sector budget is used for pedagogic material (school supplies and textbooks). In the education as well as the health sector, only a small portion of the amount allocated for operations and maintenance was released in the first six months of 2003. 3. The Institutional Framework for Budget Preparation page 37

Enhanced implementation and monitoring: In addition to providing enhanced budget allocations, the government would aim to provide the implementation units of the priority programs with the capacity to effectively implement their programs, put in place the mechanism for the monitoring of the implementation and results of the programs, and sensitize the civil society and the beneficiaries of the programs and involve them in the monitoring. 3.3 Framework for Strengthening Budget Planning and Programming 3.18 Despite years of efforts to reform public financial management, budget preparation in Cameroon is weak. Some of the more glaring weaknesses have been discussed above. These weaknesses remain due in part to fact that the reforms have not been planned and implemented in a comprehensive fashion, and perhaps without sustained strong commitment and ownership in implementation. Cameroon already has some instruments to underpin a reform of budget preparation: the PRSP, which provides the policy framework and identifies development priorities; and the sectoral MTEFs that attempt to align the budget to the sectoral objectives and strategies, consistent with the priorities of the PRSP. The key attraction of the MTEF approach is that provides a conceptual framework that integrates the principles of good budget practices in a mutually reinforcing manner. These principles - strategic planning, prioritization, result-orientation, decentralization of budget decision-making, participation, transparency and accountability -- are also the underlying principles of the PRSP. 3.19 Cameroon should fully adopt the MTEF as the organizing framework for its budget preparation, recognizing at the outset that the implementation of the MTEF approach is a longterm process and sustained success in improving budget outcomes would require substantial institutional reform not only of the budget processes but of the public sector management as a whole. A planned and phased process of implementation and strong and sustained commitment of the Government and the development partners to the MTEF are essential for sustained improvements in the effectiveness of the budget. 3.20 Chile s budget process, cited above as good practice, is technically not an MTEF system since the budget is essentially based on single year planning. However, all the essential pieces of the MTEF are in place - existence of a defined policy framework, a transparent process of consultations, a relatively decentralized process for budget preparation, the prebudget strategic planning, and the results-based review of the performance of the past and ongoing budget, with feedback into the preparation of the following year s budget. The Medium-Term Expenditure Framework (MTEF) 3.21 The World Bank Public Expenditure Handbook characterizes the MTEF as a process for linking policy, planning and budgeting that provides line ministries with greater responsibility for resource allocation decisions and resource use, consisting of a top-down resource envelope, a bottom-up estimation of the current and medium-term costs of existing policy and, ultimately, the matching of these costs with available resources. 28 The key operational characteristics could be summarized as follows: (i) the medium-term perspective requiring a budget based on spending estimates for a 3-5 year period (MTBF)) underpinned by a consistent medium-term fiscal framework (MTFF); (ii) a process of aligning budget allocations and spending to government policy objectives through prior elaboration of clear ** See World Bank (1998), Public Expenditure Management Handbook, The World Bank, Washington DC; page 46. 3. The Institutional Framework for Budget Preparation page 38

and transparent national policies, sector strategies and programs, and the costing of program activities as a basis for the medium-term spending estimates; and (iii) a focus on results and accountability and transparency, with emphasis on monitoring of inputs outputs and outcomes as well as financial reporting and oversight. 3.22 Box 6 shows some of the key characteristics of the MTEF. The medium-term perspective facilitates the alignment of the budget to policy objectives and related development priorities, provides assurance of resources needed to achieve the desired results and gives the appropriate time to make adjustments in budget allocations with minimal Motivation for an MTEF: Box 6: Key Characteristics of the MTEF A working MTEF system is one which can consistently generate favorable outcomes from the three main goals of public expenditure management Maintenance of a sustainable aggregate fiscal position Allocation of resources in accordance with strategic priorities Economy, efficiency and effectiveness (i.e., value for money) in the use o f public resources. Essential characteristics/reauirements of the MTEF: In addition to the traditional requirement of budget discipline, the following technical and institutional factors are essential for a successful MTEF: A decentralized process of budgeting, with line ministries with the responsibility to prepare their expenditures programs (sector MTEFs) under the guidance of the core ministries. A clear framework of national objectives and policies, and sector objectives and strategies, with sector expenditure plans and budgets based on well-articulated sector policies; Realistic medium-term resource projections that ensures predictable flows of programmed resources to implementing agencies and sector policies and related budget allocation plans consistent with resource constraints A comprehensive budget that captures all the expenditures by the government as well as on behalf of the government, for instance by donors and NGOs. An integrated budget that enables the budget system to relate results and accountabilities to resource inputs; A budget and program classification that can be linked to the national and sector objectives, that is a functional classification and facilitates the integration of the budget; Monitorable indicators of inputs, final and intermediate outputs and outcomes, quantitative and qualitative targets of these indicators and a system for regular monitoring of the progress toward meeting the targets. Budgets that are regularly reviewed and monitored by reference to outputs and outcomes. The monitoring provides the basis to assess results and accountabilities and make adjustments in objectives, targets and budget allocations; Budget execution consistent with budget appropriations approved by the National Assembly and Financial management institutions to ensure transparency and accountability in the use o f budget resources. Sources: The World Bank (2003): Rwanda Public Expenditure Reform for Sustaining Poverty Reduction: A Public Expenditure Management Review; and Obidegwu, Chukwuma (2005): The Medium-Term Expenditure Framework: The Challenges of Budget Integration in SSA Countries; Africa Region Working Paper Series No 82. The World Bank 3. The Institutional Framework for Budget Preparation page 39

operational disruptions. The results orientation, outcomes monitoring and feedback process put emphasis on planning, implementation, efficiency, effectiveness and accountability, with results driving resource mobilization and allocations. The bottom-up planning approach provides for greater participation and transparency in the budget process and the possibility for competition in the process. The result orientation provides the framework to put emphasis on accountability and its enforcement. 3.23 The medium-term term financing scenario is derived from the costing of a strategic plan of activities needed to achieve specified objectives. The logic of planning is that there has to be clear expected results consistent with the objectives, realistic estimates of the resources needed to achieve the results, the optimal combination of the different resources subject to constraints, and mechanisms for monitoring inputs, outputs and outcomes. The results of the monitoring are essential to the feedback mechanisms for improving the models in the planning process. Monitoring would also support accountabilities and performance management at micro levels. 3.24 The replacement of the single year, line item budget, such as in practice in Cameroon, with an MTEF approach is a far-reaching institutional change that requires sustained political commitment for reforms in the budget process and related areas in public administration, and support from the donor community, particularly a willingness to change their assistance procedures, and align their assistance to the MTEF. The introduction of the MTEF requires strong analytical underpinnings related to: (i) diagnostic work on existing budget practices, policies and strategies, and budget cost structures; (ii) rational budget and program classification; (iii) budget monitoring and financial accountability systems; and (iv) the sensitization of stakeholders and related capacity development in the civil service. Budget and fiscal discipline, including an adherence to the medium-term budget priorities and projections, and a respect for the budget process, are critical for the MTEF. The linking of budget allocations to performance/results will enhance the credibility of the MTEF. 3.25 The adoption of the MTEF in the context of weak institutional capacity has to be approached as long-term effort but the choice of the entry point and the phasing of implementation actions could be important for the results and the sustainability of the reforms. Jones and Lawson (2000) noted that the MTEF needs to evolve through three development stages: a medium-term fiscal framework (MTFF) that provides medium-term macroeconomic and fiscal targets and projections,. a medium-term budget framework (MTBF), with projections of spending by agencies consistent with the MTFF, and activity-output-outcome based budgeting (strategic planning) leading to the production of MTEFs that are consistent with the MTBF and the MTFF. 3.26 The first two stages in this paradigm are essential for any credible MTEF or for that matter any budget system with some planning behind it. These are activities that the core ministries - finance and planning, have to play a core and leading role. The Cameroonian budget system already has elements of the MTFF but the process of producing the MTFF has lacked participation and transparency. Neither the MBTF nor the strategic planning approach is yet a feature of the Cameroonian budget system. The institutional set-up for budgeting does not support these approaches. The strategic planning activities would be anchored in line ministries using the MTBF as the guide for the planning of activities and the preparation of 3. The Institutional Framework for Budget Preparation page 40

program budgets in line with the plans. It is at this stage that a lot of thinking needs to go into the fundamental institutional changes are required for the MTEF approach and on the phasing of its introduction. Phasing the introduction of the MTEF 3.27 Nevertheless, the introduction of a full-fledged MTEF may not be practical given institutional weaknesses and poor capacity and a phased approach may be the only option. One approach is to introduce the MTEF system-wide but to phase the adoption of the different aspects of the strategic planning model. The second approach is to introduce the MTEF in selected ministries, and phase in the remaining ministries over time. The initial batch of ministries need not be priority ministries as is currently generally advocated. Rather ministries should be selected on the basis of their readiness to adopt the MTEF, including commitment of the minister and hidher high officials and the capacity of the staff. A positive demonstration effect will bode well for rapid adoption in other ministries and the sustainability of the MTEF. 3.28 Another approach to phasing is to introduce MTEF concepts to the preparation of the recurrent or investment budget and progressively integrate the other part of the budget over time. The common practice has been to begin with the recurrent budget but in one case, Nepal started its application of the MTEF with the capital spending, building on the capacity and medium-term approach and systems already in place for the PIP to improve budget process and outcomes through greater clarity of objectives, predictability in medium-term budget allocations, comprehensive coverage and transparency in the use of funds.29 Ultimately, a phased approach will be effective only if it is in the context of a well articulated and time bound plan for the adoption of a full-fledged MTEF. A planned MTEF introduction helps to highlight all the institutional changes required to make the MTEF approach effective. Superimposing MTEF concepts on an institutional process dominated by line item budget thinking is not likely to be effective and sustainable. This has been at the root of the failure of the MTEF approach to take root in a number of countries where it had been introduced. Implementing the MTEF 3.29 The first step would be the preparation of a position paper that would aim to define a vision of budget management in Cameroon and adapt the MTEF to enable the realization of this vision. This paper would be the instrument for consultations with and sensitization of policy makers and high level budget staff to concretize the proposals in the paper and build the commitment of the policy makers. A Task Force, drawn from the ministries of finance and plan as well as the line ministries would then be put together to draw up an operational plan for implementation and also to lead the process of implementation. It would be useful for the task force to visit a number of countries in the region that have implemented various variations of the MTEF to get a better appreciation of the challenges and potential rewards of the process. From the experience of many countries that have embarked on the implementation of the MTEF, the key challenges of the MTEF would include the following: MTBF/Budget Realism 3.30 One of the advantages of the MTEF is that it provides a resource envelope over a medium-term which facilitates rational planning at sector implementing agencies. However, if these resources consistently do not materialize, the incentive to plan would be greatly 29 The World Bank: Nepal, Joint IDA-IMF StaffAdvisory Note on the Poverty Reduction Strategy Paper Annual Progress Report, November 29, 2005. www.worldbank.org 3. The Institutional Framework for Budget Preparation page 41

impaired and the focus of the budget process will revert to fighting for resources. The MTEF would require realistic estimates of public resources in the medium-term fiscal (MTFF) and budget framework (MTBF). Furthermore, realistic forecasts of external assistance will essential, with efforts to ensure that committed and budgeted donor funds are available when needed. Budget Discipline and Respect for Budget Allocations 3.31 A successful MTEF budget would require budget discipline and the respect of the budget allocations as well as the allocations to programs/sectors in the MTBF. This would provide assurance that the planned resources will be available through the medium-term. A comprehensive budget that covers all items of expenditure will minimize the raiding of budget allocations to meet for expenditure on unbudgeted items. A national policy framework 3.32 The PRS provides a national policy framework for MTEF budgets but needs to be fully embraced by the authorities and regularly updated to reflect changes in the socio-economic environment. Planning and programming 3.33 This planning and programming process would be centered on the national policies of the PRS, sector strategies and macroeconomic and resource con~traints.~ The process would involve the elaboration of sector strategies and the identification of sector activities consistent with the strategy and principles of economy; the costing of these activities; the alignment of these activities with sy stem-wide standard program/sub-program definitions; and the establishment of a sector medium term expenditure program integrating related recurrent and public investment activities. An MTEF planning system would require the rationalization of institutions involved in the planning and programming process and the reinforcement of the capacity and coordination mechanisms. This may involve the rationalization of functions and realignment of tasks between the ministries responsible for planning and finance, and in particular, the unification of the units for planning and budgeting/programming in the line ministries. Budget Integration 3.34 The integration of budgets is the most challenging aspect of the MTEF approach, however it is essential for an effective MTEF budget. Integration enhances the value-added of strategic planning to the budget process and outcomes. The strategic planning would encompass, in a coherent manner, all the elements needed to produce the desired outcomes. Thus, all public expenditures, would be covered by an integrated planning and budgeting process as the planning of recurrent and public investment expenditures, and the uses of resources, irrespective of their sources, are considered together in the planning process. The 30 A sector here refers to related areas of public action thus includes traditional sectors such as education and health as well as cross-cutting sectors such as gender, capacity development, and environment. For the latter, the planning and programming would require substantial coordination across ministries. The technical work of planning and programming, including the elaboration of the sector strategy, would be led by a related specialized unit/ministry but budgeting and execution would reside different line ministries. Thus the specialized unit needs to work closely with the line ministries at all phases of the budget process. 3. The Institutional Framework for Budget Preparation page 42

elaboration of sector strategies, the development and use of functional budget classification are essential for integrating budgets. Furthermore the rationalization of planning institutions, the harmonization of donor assistance procedures and flexibility of donor assistance would facilitate budget integrati~n.~~ Budget Classification 3.35 The adoption of a functional classification of the budget that facilitates the alignment of policy objectives with the budget. Furthermore it facilitates the classification of like activities into programs and subprograms and thus the integration of the budget and the adoption of the MTEF. Cameroon has a budget nomenclature based on a functional as well as economic classification. However, the complexity of this nomenclature has delayed its full adoption by all ministries. This complexity might be a problem for its use for program budgeting and the MTEF. Some revisions of the new nomenclature on the functional budget classification (would be needed to facilitate the classification of spending items into programs and sub-programs and the integration of recurrent and investment expenditures. Working with the donors 3.36 Although the contribution of the donors to public spending in Cameroon is relatively modest compared to some other LICs, the current practices with donor assistance fragments the budget and undermines the potential catalytic impact of external assistance on budget effectiveness. As noted above, flexibility of donor assistance, the alignment of external assistance to the budget process, harmonization of donor and government procedures, and the inclusion of donor assistance to the budget and the MTBF will enhance the integration o f the budget and the implementation of the MTEF. These require a reorientation of the partnership between the government and the donors including keeping the donors appropriately informed on the government s budget policies and strategies. Monitoring and Evaluation 3.37 This is an important aspect for the strategic planning aspect and the results orientation of the MTEF. Thus the capacity for monitoring budget performance (output and outcomes) would need to be strengthened (see chapter 6). Sensitization and Training 3.38 Sensitization and training on the MTEF are critical for the successful adoption of the MTEF. The sensitization should focus on a large audience, including ministers and other high government officials, members of the legislature, local government officials and members of local councils, the donor community as well as budget staff in central and line ministries. Training would be focused on budget-related units in the central and line ministries as well as local authorities. The training would have to involve a sequence of programs that are aligned with the plan of implementation of the MTEF32. The training should also be aligned with the budget preparation calendar, thus the staff can begin to apply the techniques from the training to the elaboration of their MTEFdbudget. 31 32 See Obidegwu, Chukwuma (2005): The Medium-Term Expenditure Framework: The Challenges of Budget Integration in SSA Countries; Africa Region Working Paper Series No 82, The World Bank A good example of MTEF related training is Rwanda. The approach is described in World Bank: Rwanda, Public Expenditure Management Reform for Sustaining Poverty Reduction, A Public Expenditure Management Review, November 15, 2003, www.wor1dbank.org. 3. The Institutional Framework for Budget Preparation page 43

Alignment of budget programs and the organization of public administration 3.39 As the MTEF and the budget programming approach develops, it would be essential to align the organizational structure within ministries and the program structure of the budget. This would facilitate program management and ultimately the linkage of budgetshewards and program performance. Summary of the Issues on Budget Preparation 3.40 Budget preparation is a process of matching the resources available with the political/policy agenda that is consistent with these aspirations while respecting the resource constraints. Budget preparation is thus the stage of the budget process where the important decisions about the allocation and use of public resources are made and the attitudes of stakeholders toward the budget are formed. Perhaps, the weakness of the overall budget process is rooted in the inadequate budget preparation. The short budget calendar, the poor coordination of budget preparation, the centralization of the activity in MINEFI, and the lack of a strong analytical and planning underpinning result in poorly prepared budget activities and weak ownership of the budget by the line ministries and other stakeholders. These factors hinder the efficient execution of the budget and leads to poor budget outcomes. 3.41 Budgets that are not aligned to the aspirations of the people also have limited development impact even if they are effectively executed. The MTEF approach can be applied to link the national policy agenda, rooted in the PRS, to the annual budget process. Some ministries in Cameroon have since embarked on the MTEF, with preparations of sector expenditure programs based on sector strategies, while there is also an ongoing effort to extend this effort to other ministries. However, these MTEF type expenditure programs have not been directly linked to the annual budget process. Thus the MTEF has yet to make a substantial impact on budget preparation. 3.42 Cameroon should build on the already substantial efforts to develop sector strategies and expenditure programs to institutionalize the MTEF as the core approach to budget management. The MTEF should be seen as a conceptual framework for building the capacity for budget management. Successful implementation will require a strong commitment to make institutional changes and particularly to develop the planning systems and capacity needed to for the MTEF. The MTEF is a bottom-up approach to budgeting, thus line ministries would have to be empowered to elaborate expenditure programs and annual budgets while the ministries of finance and plan undertake advisory, coordination, and monitoring responsibilities, and ensure that the budgets prepared by line ministries are consistent with government fiscal and development policies. 3.43 To move forward, an MTEF plan of action should be elaborated, to guide the adoption of a full fledged MTEF over the medium-term. This plan should be prepared in consultation of the line ministries and other stakeholders. As is the practice in other countries, a task force, with representative drawn from the core and line ministries, should prepare the plan and guide and monitor implementation. Before implementation, the plan should be discussed and approved by a high level government body, such as the cabinet, to signal the commitment of the Government to the plan. Finally, it must be stressed that the usefulness of the MTEF in Cameroon will depend crucially on: the extent to which future expenditure scenarios can be generated for the sector ministries which are sufficiently detailed and realistic to represent a plausible basis for policy and strategy decisions; and 3. The Institutional Framework for Budget Preparation page 44

the extent to which a firm political commitment can be made to follow a defined expenditure strategy over the medium term. 3. The Institutional Framework for Budget Preparation page 45

Chapter 4 Public Investment Spending Trends and Key Issues 4.1 Public investments are largely in social and economic infrastructure. There is a broad body of evidence in the economics literature linking economic performance to gross capital formation and specifically to investments in infrastructure. A recent World Bank study found that for Latin American countries lackluster performance in infrastructure development is having severe consequences on the region s ability to grow, create jobs, and alleviate poverty. It also noted that these countries have fallen behind East Asian countries in several areas in infrastructure and thus losing competiti~eness~~. Bogetic and Sanogo (2005) suggest that the decline capital formation, including infrastructure, was a factor in the rapid decline of the economy of the Cote d i voire in 1979-200234 Table 8: Cameroon: Public Investment and External Assistance Public Investment/GDP (YO) 1975-84 1985-94 1995-MR Cameroon 4.7 6.0 1.5 Cote D ivoire 10.5 4.4 5.3 Ghana 2.6 8.5 11.4 Kenya 8.9 8.1 6.0 Madagascar 6.4 7.0 6.6 Nigeria n/a 10.0 8.9 Senegal 4.1 4.1 6.6 Tanzania n/a 7.0 4.4 Uganda n/a 5.1 5.1 Zambia n/a 5.8 9.0 Zimbabwe 2.9 3.0 2.1 SSA n/a 4.4 4.6 Source: African Development Indicators 2005 Net ODA/GDP (YO) 1975-84 1985-94 1995-MR 3.6 4.0 5.3 1.9 5.9 6.0 3.6 9.7 9.8 5.5 7.0 4.7 4.6 11.8 11.2 0.1 0.8 0.6 10.5 13.2 10.8 11.4 21.6 12.9 4.3 13.1 12.2 6.3 20.4 21.9 1.6 5.5 3.7 4.3 8.3 4.7 4.2 The public investment budget (PIB) in Cameroon remains the primary tool for the administrative management of Cameroon s capital expenditure. The PIB has declined from 10 percent of GDP in the mid-1980s to less than 2 percent since the mid-1990s. This is a combination of the lower levels of revenues relative to GDP from the mid-l980s, the crowding out of the capital expenditures by the recurrent budget, including the service of external debt, the low levels of external financing that traditionally support public 33 34 Marianne Fay and Mary Morrison (2005): Infrastructure in Latin America and the Caribbean: Recent Developments and Key Challenges; Finance, Private sector and Infrastructure Unit, Latin America & the Caribbean Region, the World Bank. Zeljko Bogetic and Issa Sanogo (2005). Infrastructure, Productivity and Urban Dynamics in Cote d lvoire: An Empirical analysis and policy implications; The World Bank, Africa Region Working Paper Series, Number 86 4. Public Investment Spending page 46

investments, particularly since 2000, and the low execution rates even for the small amounts budgeted. Public investment as a proportion of GDP has been low in Cameroon (see Table 8) in comparison with other countries in Sub-Saharan Africa, and with at 1-2 percent of GDP in recent years, has been way below the average of 4.6 percent for SSA countries. Table 9 shows the evolution of the public investment spending in 2000 to 2004. Between 2001 and 2003, external financing of the investment budget declined rapidly; this was somewhat compensated for by the availability of the HIPC resources in 2002. Consequently, it appears that the HIPC resources substituted for declining external financing as well as for domestic financing, thus the expected additionality of the HIPC resources has yet to materialize. Table 9: Public Investmet (Milliarc Expenditure, 2000-2004 FCFA) 2000 2001 2002 I2003 1 Total Investment Expenditure 295 339 264 Capital Spending 260 304 277 302 247 Restructuring Operations 35 35 2004 27 1 250 21 Financing of Investment Expenditure Internal Resources o/w HIPC Grants External Resources Loans Grants 130 0 165 70 95 155 0 184 89 95 201 70 70 38 32 4.3 At current levels of public investment, Cameroon is not likely to achieve the ambitious growth targets of the PRSP or even sustain the 4-5 percent growth of GDP of recent years. Thus, the poverty reduction goals of the PRSP would not be achieved. During the consultations for the PRSP, the population identified infrastructure - transport and communications, electricity, water supply etc, as a major priority.35 The modest targets set by the PRSP for public investments were not met in 2003-2005 and are unlikely to be met in the coming years unless bold actions are taken to create fiscal space by freeing resources from the recurrent budget for public investments. The challenge is where those resources will come from in a budget that is already extremely tight. The difficulties that Cameroon has encountered in the privatization of public utilities indicate that attracting private financing of infrastructural projects will remain a challenge for some time. While efforts should continue to promote private participation in infrastructure projects, in the short-to medium-term, public financing will be essential for needed investments in productive infrastructure as well as for upgrading and maintaining social infrastructure. 4.4 The efficiency of the implementation of public investment projects in Cameroon needs to be considerably improved. The rate of execution of the public investment budget is low. For projects financed by internal resources (excluding HIPC), it has been about 63 percent, except in 200 1 when it reached 73 percent. For externally financed investment projects, the execution rate has varied from 12 percent in 2000 to 78 percent in 2003. Thus even the low amounts budgeted are not fully implemented. There are other factors in the investment budgeting and implementation system that detracts from its efficiency. The weak procedural and analytical underpinnings of planning and budgeting of public investments would inevitably result in 35 Republic of Cameroon: Poverty Reduction Strategy Paper, April 2003 4. Public Investment Spending page 47

suboptimal choices of investments and technologies. The lack of capacity of the line ministries for investment projects management including the evaluation, selection and programming of projects retards the pace of implementation of public investments. The weak and possibly corrupt process of procurement of goods and services, and slow and unpredictable fund disbursement reduces the efficiency and effectiveness of project implementation. The accumulation of arrears to private suppliers raises the costs of supplies to investment projects. Finally, the poor maintenance of capital projects, due mostly to inadequate funding of operational and maintenance by the budget detracts from the value of money from public investments. 4.5 Consequently, while Cameroon has to strive to increase the level of public investments an equally important challenge is to improve the efficiency and effectiveness of public investment management, from the identification, selection, and budgeting of public investments to the execution and implementation of investment projects and the maintenance of public infrastructure. As noted earlier, the management of public investments is weak, thus any effort to increase capital expenditures must be accompanied by changes in the budget planning and preparation, the strengthening budget execution and implementation capacity and rationalizing procedures including for procurement, and strengthening monitoring and evaluation. Chart 8: Public Investments: 2000-2004 (Billions FCFA) 40 0 35 0 30 0 25 0 20 0 15 0 10 0 5 0 2000 2001 2002 2003 2004 Fiscal Year T -TOTAL Internal Resources +Total Int Res minus HIP IC TOTAL External Resources +t Total Resources -c Capital Investment Spending 4.2 Planning and Budgeting for Public Investments 4.6 The public investment budget process follows the traditional development budgeting approach that has been commonly used in Sub-Saharan Africa. The heart of this process is supposed to be the public investment program, commonly known by its acronym, the PIP. In theory, the PIP is a rolling multi-year funding program of largely public investment activities, with good prospects for financing. The first year of the PIP would be the investment budget (BIP) for that year. The projects included in the PIP would have been carefully selected based on criteria that ensure economic and financially viability and consistency with government development objectives and policies. In many of the poor countries, externally financed projects dominate the PIP, which often would include both capital and recurrent spending financed by the donors. The result of significant involvement of donors in the PIP/development budget process, particularly in project evaluation has been the fragmentation of the overall budget process. It has also put the consistency of the PIP with government s policies in doubt. The PIP based development budget approach has been blamed, though perhaps unfairly, for the ineffectiveness of the budget systems in the countries in SSA and some countries are gradually moving away from the PIP to a broader Medium-Term Expenditure Framework. 4. Public Investment Spending ~~ page 48

4.7 The financing for the investment budget of Cameroon comes from a combination of government resources, donor grants and loandgrants from International Financial Institutions (IFIs). However, the contribution of external assistance to the budget is not significant enough for a donor driven budget/pip process. Until recently Direction des Projets et Programmes (DPP) in the planning ministry prepared a multi-annual investment program (the public investment program (PIP)) that should form the basis for the annual public investment budget. However, this activity requires the coordination with all the various stakeholders including the line ministries and the donors. In practice, this coordination is weak and the PIP is not respected. Cameroon operates a dual budgeting system with a recurrent budget, managed principally by the Ministry of Economy and Finance (MINEFI), and a specific public investment budget, formerly prepared by a planning ministry/agency. Under this system, the preparation, analysis and monitoring of the investment budget has been was also done at the DPP, which was in the ministry of plan but was transferred to MINEFI in a reorganization of government in December 2004. 4.8 The existence of separate ministries of finance and planning in countries in sub- Saharan Africa has tended to exacerbate the coordination problems in public economic management. For this reason, a merger of the two ministries is seen as a way to mitigate these problems and some countries have done so. However, the important factor is the clarity of roles, responsibilities and authority and the existence of functioning mechanisms to coordinate the work of the ministries. As noted above, in Cameroon, in December 2004, the budget programming function of the planning ministry- formerly the Ministry of Planning and Territorial Administration (MINEPAT), was transferred to MINEFI. The new and restructured successor to MINEPAT -- the Ministry of Planning, Development Programming and Regional Administration (MINIPLAPDAT) -- retained the planning functions of MINEPAT. In the new framework, MINEFI now has the responsibility for the preparation of the PIB while MINIPLAPDAT retains the responsibility for the preparation of the PIP. While the transfer of the programming function to MINEPAT can facilitate the integration of the budget, there did not appear to be further institutional clarity to support this move and facilitate coordination between the two core ministries. The Preparation of the PIP 4.9 The PIP is supposed to be a medium-term program of public investments, with the objective to ensure the allocation of public investment spending, including resources provided by the development partners, is in line with the country s development objectives. The development of the PIP facilitates the preparation of the annual public investment budget as each expenditure item in this budget is drawn from a coherent medium-term PIP. A project would not be considered for the PIB unless it has been included in the PIP and has undergone a rigorous process of evaluation and selection. With the PIP being more or less a round the year activity, there is enough time to evaluate a project and decide whether it meets the criteria for inclusion in the PIP before it is considered for the annual budget. The PIP process is thus one that prepares projects for the annual budget and its actual role depends on the government s commitment to use it as such. 4.10 In Cameroon, the PIP has not had a very clear mandate and has played a limited role in the preparation of the investment budget. Rather, the preparation of PIP has drawn from the process of preparing the annual BIP. The information requested by the budget circular from line ministries formed the basis on which the ministry of plan prepared the three-year PIP. There has been no indication that this PIP is discussed by the Council of Ministers or with the development partners, or used in any form for raising external assistance for development projects as has been the case in other countries. 4. Public Investment Spending page 49

4.1 1 However, while the PIP can be an important instrument for improving resource allocation and the results from public investments, Cameroon should not revive it in the current conceptual framework. The focus needs to shift to a framework would support a transition to a comprehensive, medium-term budget that integrates the recurrent and investment budget in a program-based MTEF approach.. If Cameroon were to fully adopt the MTEF, the PIP could be discontinued while institutional arrangements are made and capacity developed to ensure the rigorous identification, evaluation and selection of projects for the budget as well as the monitoring of projects under implementation. Cameroon has indeed taken the first step in integrating the PIP functions unto the mainstream budget activity, with the transfer of the Department of Projects and Programs from the Ministry of Plan to the Ministry of Economy and Finance. The Preparation of the Public Investment Budget 4.12 The preparation of the PIB suffer from the same impediments faced by the overall budget preparation process as discussed in Chapter 3. These include the short budget calendar, the poor coordination among the involved agencies, lack of oversight by the council f ministers, lack of analytical and planning underpinnings, and poor capacity at the line ministries. The negative impact of these factors for the large and complex investment projects would be greater than for more routine recurrent activities. It would be useful for this discussion to make a distinction between investment expenditures funded by external resources from bilateral donors and.multilateral agencies, and internal resources and HIPC Each of these follows different procedures in budget preparation and execution. External Resources 4.13 External assistance, in the form of grants and concessional loans, comes to Cameroon as project and direct budget support, with the bulk of it in the form of project support. However, there have been no functioning formal procedures in the government for negotiating donor support and there are no guidelines on what agenciedgovernment officials should engage a donor on discussions on external assistance. Systematic consultations on external assistance needs are not held between the sector ministries and the ministry of plan. Rather discussiondnegotiations are held in an add-hoc manner between donors and line ministries and MINEFI does not always certify any agreements. The donors worked directly with the line ministries, without consulting the ministries for finance and planning, to discuss and prepare projects for financing. These projects were not discussed in the budget process since the financing was already established, and the preparation of the projects was essentially done by the donors. Thus, there was limited ownership of the project by the Government and the consistency of these donor-dominated projects with government objectives and strategies was doubtful. 4.14 External assistance, either as loans and grants, are not budgeted in an exhaustive manner, nor even fully known, although a data base of all projects financed by external agencies exists, but has not been kept up to date. In 2004, for global forecasts of external aide was 203.7 billions of FCFAF, but only 144.7 billions (71% of the global forecasts) was budgeted, 70 billions (34 percent) realized and 3 1.4 billions (1 5 percent) was included in the TOFE. 36 The use of the HIPC grants will be fully integrated into the national budget process after Cameroon attains the completion point of the HIPC process. 4. Public Investment Spending page 50

Internal Resources 4.15 The preparation of the PIB follows the same calendar as the recurrent budget, with the process staring in August/September and ending with the approval of the budget by the National Assembly in December. The line ministries prepare their investment budgets, with assistance from the Ministry of Plan. The budget circular of October 2004 (for the preparation of the BIP for 2005 and the PIP for 2005-2007) illustrates how the system operated. The circular required each ministry to present its sector strategy along with the proposals for the PIP and BIP, to specify for each project proposal the objective and results expected, to indicate how the proposed projects would contribute to meeting the broader sectoral objectives and to provide the indicators for monitoring progress. Furthermore, the line ministries were required to specify for each project proposal the sector and zone, the nature of the investments and the details of the operations, the degree of urgency, the main activities and time table of implementation, the financial and administrative details, the conditionalities attached to the project if financed by external resources, and the financing plan, including the requirements for counterpart funds and the disbursement plan. There were no specific requirements for the underlying project evaluation, economic rates of return/cost-benefit analysis, the environmental impacts, and recurrent costs of capital budgets. Furthermore, there were no specific requests for information on the performance of on-going activities, indicating that this was not a factor in the budget conference and the decisions on the projects for the investment budget. 37 4.16 The submissions from the line ministries are discussed at budget conferences between the line ministries and the DPP, previously in the Ministry of Plan but transferred to MINEFI in late 2004. Historically, these budget conferences have been held in October/November, towards the end of the budget cycle. As noted above, the conceptual framework for the preparation of the BIP and the PIP is in line with that in many other countries. However, in Cameroon, the framework has been inadequately put into practice and not rigorously followed. The planning of public investments has not followed an analytically sound approach and the programming has lacked the coherence that would ensure value for money choices and consistency with national development objectives. Projects do not pass through a rigorous project cycle process of identification and evaluation, including economic and financial analysis, with the possible exception of a few large infrastructure and public works projects where external funding is involved3'. Until 2005, only the ministries of health and education formally prepared sector strategies, even here it is not clear how much the investment proposals were linked to the sector strategies3' The investment budget process has also lacked a rigorous project selection process that would ensure that the best mix of economically and strategically sound projects is funded with the limited resources available for the investment budget. Project selection should not be an affair between the ministry of finance/plan and the linelsector ministry. Each project selected from one ministry has direct implications for the projects in other ministries. In some countries an inter-ministerial committee is given the task of selecting projects for the PIP/budget. 37 38 39 In Chile (see Box 4), the first phase of the budget process is a thorough review of ongoing activities and, based on the review and discussions, determine and make resource allocations to them. In the second phase, the proposed new activities are reviewed and the remaining resources, if any, are allocated to the best activities submitted for consideration. Nepal also introduced a similar procedure for the investment budget. In these cases, the work is done by consultants In 2005, in a welcome development, a number of other ministries including public works started the process of preparing sector strategies. 4. Public Investment Spending page 51

4.17 There are a number of underlying factors for the lack of analytical rigor and procedural coherence in the preparation of the investment budget. The incentive system for the preparation of the budget and the compressed budget calendar do not encourage rigorous analysis and planning. With the budget ceilings exogenously determined in advance, there is not much scope for rewarding a ministry for well prepared and designed projects. Within the ministry, there is no incentive for staff for rigorous approach to project preparation as the minister could shelve a project that has been approved in the budget if it is not in line with hidher political agenda. The timing and the short calendar for budget preparation severely limits the space for planning, analysis and participatory decision making. Both the staffs of the Ministry of Plan and the line ministries do not have the capacity for project evaluation, a factor that is related to the lack of incentives for rigorous planning. In this context of a compressed budget calendar and the poor planning and weak capacity, the budget conference becomes rather a formality than a process for informed discussion and decision-making. Execution of Internally Funded Projects 4.3 Execution of Public Investments 4.18 The execution rate for the investment budget in Cameroon has been low, much lower than the execution rate for the recurrent spending activities. It has also been volatile; for instance, it was 56 percent in 2000 and 75 percent in 2003. Public investment projects are by nature technically complex, often involving large and complex procurement processes, the importation of goods and services from distant markets, and the coordination and cooperation of several government agencies. Thus, the execution of investment budget operations is more challenging than the execution of recurrent operations. It therefore the persistent differences in execution rates should not be surprising. 4.19 The execution of the investment budget in Cameroon suffers from lack of congruence between the multi-year investment program and the annual release of budgetary tranches. While most investment projects are multi-year operations, the budgeting and disbursements are on an annual basis. This tends to create a stop-and-go pattern of the execution of investment expenditure that leads to inefficiencies in implementation. The poor execution rate reflects the weak technical and managerial capacity of the public administration in comparison with the technical complexity of investment operations. Since it is known that investment projects are complex, attention should have been given to developing capacity, systems and procedures that would engender efficient execution and implementation of these projects. 4.20 The weaknesses of the overall budget system - the poor analysis and planning at budget preparation, the weak interagency coordination, the centralization of budget preparation all contribute more to the poor execution of the investment budget than the recurrent budget. Due to the weak project planning and preparation process, many projects in the budget are often not ready for implementation. Projects enter the budget often not fully designed, and with no credible implementation plan, for instance, procurement and staffing plans. Poor interagency coordination renders procurement and disbursement processes complex and time consuming. The general lack of accountability and incentives to take risks makes it difficult to cut through bureaucratic bottlenecks. Slow and complex budget execution processes, including until 2006, a more than 2-3 month delay in issuing credits from a new budget, delay the execution of investment projects. The budget approved and promulgated in late December became operational in March or later, and effectively, the budget is operational for 8 months of the year. 4. Public Investment Spending page 52

Execution and Monitoring of Externally Financed Projects 4.2 1 In practice, the implementation modalities for externally financed projects vary, depending on the donor and the type of assistance. Some donors (France, Japan) implement directly, while others (the EU), implements in collaboration with the government according to agreed modalities and procedures in the financing agreement. For other development partners, notably the multilateral development banks, the Government implements, with agreed modalities for a priori and posteriori control (no-objections on important actions, audit of financial transactions). Typically, the project is managed by a chief of the project appointed by the Government with the concurrence of the donor; and the internal debt agency, the CAA, acts as the banker to the project and makes financial advances to the project as necessary. The projects provide reports to the CAA and to the donor to enable them determine and ensure that the use of the advances is in conformity with the loadgrant agreement, which would unlock further advances. The monitoring of the use of external assistance should be carried out by the Directorate of External Financing in MINPLADAT and the Director-General of the Treasury. The framework for monitoring was proposed by the donors in May 2002 but it is still not operational. 4.22 As noted above, the execution rated for externally financed investment projects has varied from 12 percent in 2000 to 78 percent in 2003. This low and volatile reflects a number of deficiencies in the process. This includes a number of donor-coordination problems: (i) the lack of harmonization between the procedures used in donor projects and the government s own procedures; (ii) the lack of a harmonized procedures and reporting requirements amongst the donors; (iii) the poor information to the government s budget authorities on the amounts of expenditures on those projects directly executed by the donors; and (iv) the lack of comprehensive information in the reporting to the Treasury on investments financed by external resources. These reflect the inadequacies of the framework and capacity for coordinating donor assistance and implementing donor-funded projects in Cameroon. In addition, the poor utilization of external assistance is due to: (i) failures of the Government projects to move decisively to fulfill the conditions attached to the external assistance; (ii) the complexity and sometimes lack of familiarity with the donor procedures; (iii) the inadequate counterpart funds included in the national budget; (iv) the frequent failure to justify expenditures on government implemented but donor financed projects; and (v) lack of pressure from the government for the donors to performing. 4.23 Counterpart Funds: For externally funded projects, there is been a persistent problem of the lack of required counterpart funds from the Government. This has been a source of delays in project execution. Part of the counterpart funding problems is linked to the treatment of externally funded projects in the budget preparation process. Many of the projects that are not included in the budget and therefore get no allocations of counterpart budgets. Even for those projects included in the budget counterpart funds allocations would often be inadequate. The tendency of donors to operate their projects in an enclave results in the exclusion of a number of projects from the budget. Finally, the lack of agreement between the Treasury and the planning ministry regarding the disbursement of the counterpart funding further delays project execution. 4.24 The Government should put a permanent framework for dialogue with the donors on external assistance that would involve MINEFI, MINPLADAT and the relevant sector ministries. The sector ministries should participate actively in the negotiations for externally funded projects relevant to their ministry and ensure that the project is included in the budget, receives adequate counterpart funds consistent with the project agreement, and that the Government fulfills, in a timely fashion, the projects covenants to ensure the implementation continues to move forward. The Government should put in place a system for the Treasury and 4. Public Investment Spending page 53

CAA to receive and manage information on donor funded projects. As noted above, the Government should intensify efforts to build capacity for project evaluation and management, including for implementing procurement operations, project monitoring and reporting. In that context, the Government should intensify its negotiations with the donors for the harmonization of procedures. HIPC-funded investments: Possible lessons for the overall investment budget. 4.25 Cameroon was one of the earlier beneficiaries of the interim relief of the Enhanced HIPC initiative, having reached the HIPC Decision Point in late-2000. To end 2004, Cameroon obtained a cumulative interim debt relief of FCFA 239 billion, or slightly more than 3.1 percent of 2004 GDP. 4.26 With the weak record of public financial management and the perception of high levels of corruption in Cameroon on one hand, and the high level of international scrutiny of the HIPC process on the other, an elaborate institutional arrangement was set-up to safeguard the HIPC funds against mismanagement and ensure their effective use for poverty reduction. A special account for HIPC funds was established at the Central Bank, BEAC, with the funds dedicated to finance poverty reduction programs. A special HIPC Consultative Committee was set up. Comprising of representatives from the Government, the civil society and the donor community to oversee the use of the HIPC resources. The HIPC Committee was set up by decree on December 1, 2000, with the Minister of Finance and Economy as chairperson. These HIPC resources financed programs proposed by government ministries and civil society groups and formally approved by the HIPC e Committee. Sectors eligible for HIPC funding were social development, education, infrastructure, health, rural development, and governance. The funds could finance recurrent and capital expenditures. Chart 9: Status of Implementation and Execution of HIPC Projects Until end-2004 I HIPC Approval I 1 HIPC Executions 4.27 In operational terms, part of the HIPC resources were deposited directly by the creditors in the HIPC account, and part was deposited on behalf of the creditors by the Treasury. As of end-december, 2004, 174 billion FCFA was deposited by bilateral donors in the Treasury for onward transfer to the HIPC account in the BEAC, and 65 billion FCFA was deposited directly by the multilaterals in the HIPC account. Execution of HPIC-financed projects was low in 2003 and 2004 (see Chart 9). There were several reasons for this. Just as for the public investment program, the lack of capacity at the sector ministries constrained the formulation and implementation of the projects. Many of the program proposals were not adequately prepared, without the benefit of technical feasibility studies and implementation planning. In addition, the time frame for preparing the programs, obtaining approvals from the HIPC committee and launching implementation was very compressed. In addition, the pace of the operations of HIPC Consultative Committee was slow, its meetings were not as regular as necessary, and the secretariat lacked the resources to monitor and follow up on the projects funded by HIPC. Besides, the lack of alignment between the approval of HIPC programs and the timing of the Finance Law hampered the timely transfer the funding to the appropriate line I 4. Public Investment Spending page 54

ministries. Some ministries had to wait until May 2005 to get access to funds, not because their programs were not approved, but because the related budget lines were not yet opened. In this state of affairs, HIPC funds were in some cases used to finance projects that had not been approved by the HIPC Committee and included in the budget. 4.28 The delays in preparing and approving programs and the low execution of HIPC funds/programs clearly illustrate the complex weaknesses in project/program management in Cameroon. This HIPC experiment, in which the availability of funding was not a constraint, highlighted the weakness of the capacity of line ministries, the poor coordination, and the adverse impact of the lengthy procedures for budget execution. Some changes were introduced for 2005 to improve the alignment/coordination of HIPC funded programs and the national budget and to ensure that HIPC funds were used to finance only eligible projects approved by the Consultative Committee. These included actions to streamline disbursement procedures, strengthen the capacity of the national consultative committee, and put in place an information system for monitoring project implementation. In particular, the procedures for preparing project proposals were improved, a control unit was set up within the HIPC Consultative Committee to strengthen the monitoring of implementation of projects and curtail past irregularities. These measures have started to pay off and the execution rate for HIPC projects, including capital projects, was gradually picking up in 2005. 4.4 Improving the Management of Public Investments 4.29 Public investments drive the evolution of government activity and expenditures over the long term and consequently influence the government s ability to deliver services, stimulate economic growth and promote the reduction of poverty. One example of particular relevance to Cameroon was the massive investment in state-owned enterprises by governments in developing countries in the 1960-80. This was consistent with the development paradigm of that era, however, the process of choosing investments was not transparent and the rationale for the choices was often not clear. In many cases, political considerations, to the exclusion of socio-economic justifications, dominated the selection of projects. Today, many countries are continuing to pay a high price for those poor decisions, in the form of poor services from these enterprises, massive subsidies from the state to keep the enterprises operational, and substantial known and contingent liabilities for the state. In Cameroon, despite some progress in privatization, public enterprises continue to be a drain on public resources, that crowd out spending to support the new poverty reduction strategy. 4.30 The Government of Cameroon faces two related challenges on public capital investments: (i) to increase the efficiency and effectiveness of public capital as well as recurrent expenditures; and (ii) to raise the level of public capital expenditures. The first challenge involves institutional and policy reform, while the second largely calls for changes in resource reallocations and mobilization of additional resources. Improving the performance of investment expenditures and its positive impact on public service provision can facilitate resource mobilization from the donor community and even the private sector in the context of private-public partnerships. There appears to be a growing commitment by rich countries to increase external aid to Africa, at the same time, the competition for these resources remain stiff and country performance is an important factor in attracting these resources. 4. Public Investment Spending page 55

Effectiveness of Public Capital Expenditures: 4.3 1 The fundamentals underpinnings of effective public investment expenditures are: well-articulated national and policies (national policy framework) and sector strategies, to guide the preparation of investment projects,. identification, evaluation and selection of projects to determine which interventions, consistent with sector strategies, meet the national development objectives; the selection of mix o f projects from all the eligible sector projects to meet the national development agenda (which should be consistent with the national policy framework); monitoring and evaluation of ongoing and completed projects;. a decentralized planning framework to ensure that the above analytical functions are effectively performed and the results are integrated into the budget process. 4.32 Broadly, there are two possible approaches to programming public investments, with the distinction being the elaboration of the medium-term expenditure programs as per concepts of the PIP-BIP or the MTEF. The underpinning elements of public investment planning enumerated above would be important irrespective of whether the budget process follows the traditional PIP-BIP, line item budget process or the MTEF/program budget approach. The difference would be largely institutional - the organization and coordination of functions and the ultimate structure of the national budget. However, the differences are not trivial as these organizational differences determine the synergies between the investment projects and operational activities in the budget. Institutional Arrangements for Managing Public Investments 4.33 National policies and sector strategies: The PRS is designed to provide the national policy framework for development. It should be progressively tailored to provide strategic guidance to budgeting, with increasing specificity on national objectives, sector strategies, quantifiable targets that can be costed, and monitorable indicators of performance. Sector strategies have a symbiotic relationship with the PRS, with the sector strategies informing the PRS and the PRS guiding the sector strategies. A sector strategy helps to narrow the choices of planners and policy makers to a set of feasible actions needed to achieve policy objectives, thus a sector strategy process facilitates the formulation of action plans and sector expenditure programs. 4.34 Project Evaluation in the PIP/PIB approach: As discussed above, the framework for managing public investments in Cameroon has been based on the traditional PIP - public investment budget approach, with budget preparation largely centralized in the Department of Planning and Programs, previously in the Ministry of Planning and recently transferred to the Ministry of Economy and Finance. This approach has not been effectively implemented; in part due to lack of capacity and incentives in DPP and line ministries, and in part due to the rushed budget process. With budget preparation starting in late third quarter of the year, there is limited time for planning, including project evaluation and consultations of stakeholders. 4.35 One option for moving forward is to rehabilitate this system, with capacity building in line ministries for project preparation, and in the DPP or a similar agency in MINIPLADAT for coordination of the process, providing guidance and analytical support to line ministries 4. Public Investment Spending page 56

and ultimately integrating the projects from the line ministries into a revolving public investment program. The preparation of the PIP should then be a year round activity, so that preparation of the public investment program would essentially consist of selecting projects from a pool of fully prepared and eligible projects in the PIP, in a way that satisfies the sectoral/ministerial ceilings and the overall financial and other resource constraints. 4.36 Project Evaluation in the MTEF Approach: The recommended option is for the Government to systematically adopt and implement MTEF/program budget approach, as recommended in Chapter 3. This approach would involve the preparation of a multi-year medium-term integrated expenditure plan covering both the recurrent and investment expenditures. In this context, the projects that normally would be in the PIP will be integrated with related recurrent expenditure items into programs and sub-programs in the MTEF. Nevertheless, as these investment projects are lumpy and require substantial funding over a number of years, it would be imperative that these projects be thoroughly evaluated for strategic relevance and socio-economic and financial viability before the government embarks on them. Thus, even in the context of an MTEF, a coordinated process and capacity for ensuring that multi-year investment projects meet the strategic and value for money criteria would remain essential. The key aspects of this process would be: The development of a pipeline of feasible public investments for consideration in the budget process, based on established procedures and guidelines for the evaluation and selection of investment projects. Project proposals that do not meet the guidelines will not be eligible for consideration for the budget; Decentralization of the planning and budget preparation, evaluations to line ministries; including the project A central coordination unit, such as the DPP, that will provide technical and operational guidance to line ministry planning units, to ensure technical quality and strategic relevance of the results from project evaluation. It will take a lead responsibility for building capacity for project evaluation and management; Project identification and evaluation treated as a year round activity to avoid bunching of activities in the few months before the delivery of the budget. A systematic monitoring and evaluation of the performance of ongoing and completed projects is important in the result-oriented MTEF framework. Sector strategies and investment projects proposals should aim to identify monitorable indicators of outputs and outcomes. Both the central and ministerial planning units as well as project management units should have the capacity for monitoring and evaluation. Monitoring of inputs and outcomes from investment projects should be linked to the broader process of monitoring overall budget inputs and outcomes. Capacity and systems development 4.37 To underpin the analytical, programmatic, transparent and coordinated approach to budgeting of capital investment, a planning process and capacity for the evaluation and selection of investment projects would need to be established. This should focus on: the planning process should be underpinned by the development of specific procedures and guidelines to govern project identification, evaluation and selection, monitoring and evaluation of ongoing projects as well as ex-post evaluations, the establishment of 4. Public Investment Spending page 57

~ clear criteria for projects to be eligible for inclusion in the budget, including minimum analysis and documentation for eligibility for selection in the budget process, and the specification of the roles of the line and core ministries in carrying out the various activities as well as the coordination responsibilities; the development of capacity in the DPP and line ministries for project evaluation, planning of project implementation, and the monitoring and evaluation of ongoing and completed projects, in the context of the planning process above. 4.38 In Cameroon, some ministries, for instance the ministry of public works, have well developed systems of project evaluation and management and could serve as a model for other ministries. Secondly, donors have in the past supported project planning activities, with the establishment of study funds Vonds d 'etudes). These funds supported training of ministry staff but were primarily spent on funding external consultants who carried out studies and project evaluations. This time round, such a fund could be a useful instrument for staff training and systems development, with outside experts to facilitate the training and the introduction and implementation of new systems and procedures. This training would be carried out in Cameroon, with all the related staff in the line and core ministries training together. This should also include training of trainers, to ensure the continuity of the training program. In the spirit of the results-orientation approach, a regular evaluation of the program by outside experts would be needed to ensure that it is meeting its objectives. 4.5 Increasing expenditures on public investments 4.39 Public investment in recent years have been around 2 percent of GDP, The PRSP, in response to the needs expressed by the population for improvements in infrastructure, proposed sharp increases in investment spending to about 4.6 percent of GDP4'. Consequently, the Government's recent medium-term fiscal strategy envisages a boost to investment spending (Box 2). However, there is a risk that, given the lack of flexibility in wages and salaries, the projected increase in the investment budget could come at the expense of core operations and maintenance expenditures. This has to be avoided. Some fiscal space needs to be created to meet this objective of increasing public investment spending. The possibilities include increased mobilization of revenue, restructuring of expenditures, the HIPC debt relief and mobilization of external donor support. Enhanced revenues and expenditure restructuring 4.40 The medium-term fiscal strategy does not envisage a major push to increase revenues, with the revenues projected to remain at 16-1 7 percent of GDP. This is an appropriate strategy in a context where the private sector has become increasingly weary of tax increasedchanges and in an economy whose performance has become relatively sluggish compared to the 1998-2003 period, increases in taxes could negatively impact private sector investment and economic activity. 40 This proposal by the PRSP is still modest for an economy that needs to grow rapidly to create jobs, increase incomes and reduce poverty. It has been suggested that a low income country needs public investments of 8 percent or more of GDP to continue to grow its economy. This should not be taken as a golden standard or a target but it indicates how much Cameroon's public investment needs to rise to be considered adequate for sustained long-term growth. 4. Public Investment Spending page 58

4.41 The share of capital expenditures in total expenditures 2003 was 13.6 percent. This is comparatively low and indicates a serious imbalance between investment and operational expenditures that may have a negative impact on the quality, quantity and efficiency of delivery of public services. Expenditure restructuring to increase the share of capital expenditures in total spending is necessary but scope for this in the short-to-medium-term is limited. The wage bill is an large part of public expenditures (up to 40 percent). A reduction in the burden of the wage bill requires a systematic reform of public administration, including a scaling back of the scope of state funded activities. In that context, an acceleration of the current efforts on public enterprise reforms, will free some fiscal space for raising public capital expenditures. Enhanced HIPC debt relief 4.42 One source is the resources from the HIPC debt relief that has become permanent with the attainment of the HIPC completion point in April 2006. This could contribute as much as 1.3 percent of GDP to public investments, assuming that the Government allocates about two thirds of the additional resources from the HIPC relief to public investments. The additional spending would raise the level of public investments to about 3.8 percent of GDP by 2007, in line with the estimates in the PRS, but would still keep Cameroon s investment GDP ratio still in the low-end among countries in SSA. Donor Support 4.43 Cameroon s historical relationship with external development agencies has not been particularly strong and the numbers of donors and their activities in Cameroon has been quite limited. Donor financial assistance to Cameroon has stagnated at a low level in recent years due to a number of factors including (i) the apparent lack of strong interest by bilateral donors in the countries in the central Africa sub-region; (ii) Cameroon s history as a major oil exporter; and (iii) Cameroon s reputation for poor governance, particularly the high incidence of corruption and mismanagement of the state budget. This is in context where donors have put emphasis on good governance and performance in determining the assistance to countries. 4.44 Donor assistance for public investments declined from FCFAF184 billion in 2001 to FCFAF70 billion in 2004 (see Table 8). In 2004, the share of donor funding of public investment expenditure (excluding the restructuring of public enterprises) was 28 percent. The execution rate for externally funded investment project has varied considerably from 12 percent in 2000 to 78 percent in 2003. In the new context of proposals for enhanced assistance to SSA, Cameroon needs to put itself in a position to benefit from this assistance. Besides, with renewed interests by the donor community to support projects on infrastructure, an area where the needs of Cameroon are substantial, the Government needs to rebuild the trust with the donor community, with a demonstrated commitment to poverty reduction, a budget process increasingly characterized by improving transparency, accountability and resultsorientation, and strong government leadership in donor coordination. Some countries (Tanzania, Burkina Faso, Rwanda) have used the PRSP process to build strong development partnerships with the the donors around the countries development priorities. This has enabled increases in the level of assistance, with progress in harmonizing government and donor procedures and the alignment of donor funding to the government s development priorities and its budget cycle. These countries, with the strong support from the donors, have made significant strides in improving public financial management. 4.45 The donors have recognized that the donor community needs to build a strong partnership with the Government around the whole budget, through the newly formed Donor Platform for Public Financial Management. It is commendable that the Government has 4. Public Investment Spending page 59

signaled its interest to work with this Donor Platform. This opportunity needs to be utilized to rebuild trust and confidence, to engage the donors in support of a government s program for improving public financial management and governance in general, and to facilitate discussions with the donors on harmonization of procedures. The current practice of donor assistance through enclave projects will give way to coordinated budget support and coordinated assistance with harmonized procedures. At this juncture, a coordinated donor support for sustained reform of the public financial management and public sector capacity development is urgent; enhanced PFM would pave the way for more and flexible donor budget support and the harmonized procedures. 4. Public Investment Spending page 60

Chapter 5 Budget Execution and Control Framework for Budget Execution 5.1 Budget Execution and Regulation 5.1 The general framework for budget execution in Cameroon is governed by the Ordinance n 62/0F/4 dated February 7, 1962, completed by a 1967 decree, and modified by a 2002 law. Accordingly, the Finance Minister is the de jure administrator of funds (ordonnateur principal), but the 1967 decree has been interpreted in such a manner that other ministers can be de facto fund administrators (ord~nnateur).~~ The fundamental institutional feature of the budget execution system is a strict distinction between the person who initiatedauthorizes the request to spend (ordonnateur) and the person who handles the payment itself (comptable) and thus the strict separation between the administrative and accounting phase of e~penditure.~~. 5.2 The Ministry of Finance and the Economy (MINEFI) is responsible for issuing the main budgetary envelopes and authorizing the release of credits to the line ministries, the main agencies in the execution of the budget. On the other end of the expenditure chain, the Treasurer (comptable principal) handles the accounting phase of public expenditure and is responsible for the payment of outstanding claims on the government and for ensuring the financial viability of the state. Following the adoption of the annual budget bill (Zoi definance) by the legislature, the MINEFI issues a bulletin (circulaire) to all the line ministers and provincial governors detailing the legal and administrative features of the budget execution process. MINEFI has representatives within the line ministries to ensure that the commitments of expenditures follow the appropriate practices and are in line with budget appropriations. This first step in budget execution takes place around the middle of January and paves the way for other budget execution processes to start. 5.3 Budget execution in Cameroon is characterized by multiple controls in the expenditure chain as well as special procedures that can be used to circumvent the controls. The actual start-up of budget execution at the beginning of each fiscal year, that is when budget implementers can draw on funds for budget activities, has in the past experienced delays of up to 3 months This period has been required to set-up the system of controls (see Annex 3) and to initiate the procurement process, step needed to allow budget administrators to initiate the commitment process. Beyond this point, the expenditure chain still involves a large number of approvals for an expenditure item to pass from commitment (engagement) to payment (paiement). This slows the execution process and imposes significant transactions costs. In addition to the complex expenditure chain itself, the use of special procedures, the practice of 41 42 There is a conflict between the Ordinance of 1962 and the Decree of 1967 on the assignment of authorizing officers (ordonnateurs) that has not been resolved. The Ordinance of 1962 designates the Minister of Finance as the sole ordonnateur principal, but in practice, the spending ministers are, by the interpretation of the Decree of 1967, are de facto ordonnateurs. Bouley D, Fournel J., and Leruth L, (2002), How Do Treasury Systems Operate in Sub-Saharan Francophone Africa? International Monetary Fund, IMF Working Papers. 5. Budget Execution and Control page 61

cash budgeting, and arbitrary blockages of the release of funds from some budget lines disrupt/slow the passage of an expenditure request from commitment to payment. 5.4 Special procedures are used to circumvent the budget execution procedures and pave the way for the payments for favored items without passing through the expenditure chain. This fast-track approach for some items, when used regularly and routinely undermines the credibility of the expenditure chain and often disrupts the payment of the credits for nonexceptional expenditures. Cash budgeting and blockages of releases are often employed to deal with cash-flow problems rather undertake a formal and transparent revision of the budget. These practices weaken budget execution and undermine the integrity, transparency and operational efficiency of the budget process and increase fiduciary risks. Sector ministries faced with irregular and delayed releases of funds have only partial control of their own budgets, cannot properly plan their activities for the fiscal year and are often forced to make difficult choices on the activities to finance (arbitrages se'v8res). The Expenditure Chain 5.5 The expenditure chain is complex. The number of approvals for an expenditure item to pass from commitment to payment is said to be up to 39 for some categories of expenditure but on average is close to 22 (See Annex 3). While the system with many controls hinders the efficient execution of the budget, it does not prevent the leakages and misuse of public funds. The CFAA conducted in 2002 reviewed the system of budget controls and made several recommendations for institutional reform. However, it appears that limited progress has been made in improving the efficiency of the process. While the tools to make the system work better, for instance management information systems, have improved, the system of budget control in the expenditure chain remains cumbersome. I Box 7: The Expenditure Chain The Administrative Phase Stape 1: COMMITMENT (Enpapement) This is the stage where the person initiating the spending decision (ordonnateur) commits the state to a future financial obligation. The government enters into an agreement with a private supplier or buyer to purchase a particular good or service. A basic accounting commitment is created to initiate the process. The Minister of Finance, the principal ordonnateur of the general budget of Cameroon, delegates the decisions to initiate spending further down the chain but oversees the entire process. Stape 2: VERIFICATION (Lisuidationl This is the stage where the government verifies the validity of the debt contracted and determines the amount actually due. The process ensures the accuracy of the various purchase orders. Stape 3:AUTHORIZATION (Ordonnancement) This is the stage where the ordonnateur gives the order to pay the amount due which has been determined by the engagement and confirmed by the liquidation. The Accounting Phase Stage 4: PAYMENT (Paiement) This is the stage where the Treasury effectively issues the actual payment order after agents verify that the items meet the necessary requirements. After the payment order is sent, the government is freed from any debt obligations vis a vis the creditors and private suppliers. 5. Budget Execution and Control page 62

5.6 The four stages of the expenditure chain are as follows: (i) the government enters into an agreement with a private supplier for the purchase a particular good or service, Le, commitment (engagement) stage; (ii) certification/verification that the goods/services have been delivered (liquidation), (iii) payment request is authorized and sent to the treasury (ordonnancement); and (iv) the treasury issues payment order (paiement). Each of these four stages (summarized in Box 7) can involve several departments and transactions (see Annex 3). The confirmation that a service has been rendered or a purchase made involves verification agents (comptables-matidre) from the Direction de la Comptabilitk-MatiBres in MINEFI. These agents are present in the line ministries and are involved in the liquidation of expenditures, a process that can take a long time, even for small purchases of just more than FCFA 200,000. Although the control activities are computerized, the paper work is the legal basis and this manually-based paper work has to be completed to trigger the next stage in the process. 5.7 Specifically, a number of factors in the expenditure chain have contributed to the slow pace of budget execution: (i) the absence of a manual of procedures that would ensure a uniform application of budget execution procedures; (ii) the intervention of the comptables matieres to certify a priori the service delivered; (iii) the intervention of the Director of the Budget in the commitment phase to issue the certificate of confirmation of credit (cartons), and thus undermining the delegated authority of the ministers and contradicting to the legal texts and principles of decentralized budget execution; (iv) the length of the scrutiny of the texts by the Financial Controller, which in theory should be 48 hours but in practice, is much longer; (v) the absence of linked information system for the ministries to closely follow the status of their files as it goes through the expenditure chain; and (vi) finally, the introduction of the new budgetary nomenclature, which caused the rejection by financial controllers of some items due to uncertain interpretation. With a concentration on complex rules and regulations, budget managers, mired in daily management problems, are unlikely to bring innovation and results orientation in the implementation of the budget. Their work would thus not be oriented towards service delivery but rather to overcoming bureaucratic obstacles in the disbursements of funds. 5.8 While the multiple controls considerably slow the pace and impairs the efficiency of budget implementation, it does not prevent the leakages and misuse of public funds. The multiplicity of operations increases the risks of corruption. The CFAA conducted in 2002 reviewed the system of budget controls and made several recommendations for institutional reform. However, progress in improving the efficiency of the process has been limited and has been mainly in the payment (treasury) stage. While the tools to make the system work better, for instance management information systems, have improved, the system of budget execution controls remains cumbersome. The length and the complexity of the expenditure chain create a high fiduciary risk on the budget execution. 5.2 Efficiency and Fiduciary Risk Issues in Budget Execution 5.9 There have been a number of practices in the budget process that cause delays and other inefficiencies in budget execution,, lead to low budget execution and heighten fiduciary risks43. These practices include the use of special procedures that bypass the expenditure chain and related procedures; the use of cash budgeting; the lack of use of a transparent process of revisions to the budget; the delays in staring budget execution at the beginning of the fiscal year, and the poor planning and programming of the budget. 43 The mains sources of fiduciary risks are: resources are not used for intended purposes; resources are not properly accounted for; and resources are not used in ways that achieve full value for money. 5. Budget Execution and Control page 63

The Use of Special Procedures 5.10 The special procedures (procedure derogatoire) permit the funds release process to bypass the expenditure chain, essentially merging the commitment (engagement) and authorization (ordonnancernent) phases. They are intended to be used to execute expenditures deemed priorities and urgent such as travel on missions, payments to casual workers and for utility bills (water, electricity, telephone, etc). The regies d avance is such a procedure that operates on the basis of payments preceding the delivery of services, with ex-post justification of payments. For instance, advances provided for travel and urgent missions can be justified after the mission is completed. Special procedures also permit direct payments by the Treasury for certain expenditures not included in the budget, without prior commitment and authorization. These payments are supposed to be regularized ex-poste but this often was not done, resulting in accounting complications. While special procedures are useful instruments for exceptionalhnforeseen conditions, they can easily be misused and have been misused in Cameroon, with use in situations not warranted and ex-poste justification not provided as required by the regulations. The following are the most common transactions carried out under special procedures: Cash advances (regies d avances ), exceptions to the principle of separation of functions between the spending authority (ordonnateur) and the accountant (comptable), allow the former to delegate one of his agents to make payments for a set of narrowly defined expenditures, for instance out-of pocket expenditures. These advances are directly added to the budget as executed expenditures. There are strict rules for the operation and control of the regies d avances. A decree form the Minister. of Finance sets out the nature and volume of eligible operations. Direct payments for public expenditures by the state oil company (SNH) from the earnings from oil revenues and petroleum taxes. These transactions, which are mostly for activities that are not included in the budget, bypass the expenditure chain completely, are not transparent and furthermore, the accounting for the expenditures, has posed some difficulties for expenditure and income accounting and budget reporting. These expenditures were substantially reduced in 2005. The use o f special Treasury checks, not programmed in the public expenditure system, to make urgent payments, based on the commitment forms (bons d engagement). These expenditures cannot be fully integrated and regularized in the budget by the end of the fiscal year often due to insufficient funds. Other payments from the treasury of the state for urgent expenditures (Ordonnancement Hors Procedure, OHP) are not cleared immediately.. Internal debt is budgeted for lump sum amount but is paid on a case by case basis. The Treasury makes a monthly lump sum advance to the CAA, which pays the debt and sends reports to the Treasury to justify the advance. 5.1 1 The use of these procedures to bypass the complex expenditure chain in a manner that goes beyond truly exceptional situations has tended to undermine the quality of budget execution and the accounting of expenditures, and engendered serious fiduciary risks. The use of special procedures is being discouraged in Cameroon. The budget execution circular for 2005 stated that caisses d avance, would be allowed within very strict limits. 5. Budget Execution and Control page 64

Cash Budgeting 5.12 Cash budgeting (regulation budgetaire) was formally adopted in Cameroon in 2004 to exercise tight control over spending and improve the government's fiscal position eroded by the accumulation of large arrears in 2003 and 2004* The cash budget was Chart 10: Execution Rates for the first Trimester 2005 deemed necessary to bring the arrears (Oh of annual allocations per category) and the deficit under control in 2005. Cash budgeting, while effective for stringent controls on expenditure, distorts the budget execution process, creates uncertainty for the implementation of the budget and induces behavior and efforts focused on getting access to funding rather than producing results. The cash budgeting system adopted in Cameroon was not a de jure cash budgeting, but it was a de facto cash budgeting system whereby the MINEFI rationed the available cash to the spending agencies on the basis of its periodic assessments of cash availability. In a formal cash budget system, the proportion and the Education Education Heath Health Wages Goods and Wages Goods and Services Services amounts of the credits that are frozen are determined by a coefficient of regulation that is itself a function of the gap in revenue receipts. In Cameroon, the system has operated in a more informal fashion. 5.13 Cash rationing by the MINEFI has had both a macroeconomic and microeconomic impacts. While on the macro level, the system can help to achieve desired fiscal deficit targets and prevent the accumulation of domestic arrears, on the microeconomic level, it leads to uncertainties and delays in fund releases to line ministries, to the detriment of the implementation of the budget.. The lack of transparency and predictability in cash allocations hinder the line ministries' ability to plan and execute their budget programs, with a negative impact on service delivery. In early 2005, it had an especially depressing effect on expenditure for goods and services in the priority sectors. The execution rates for goods and services were less than 5 percent for education and less than 10 percent for the health sector in the first trimester of 2005 (see Chart 10 showing cash allocations for primary education and health for the first trimester of 2005). Extra - Budgetary Expenditures 5.14 These are expenditures that are not in the budget and therefore have no corresponding appropriations in the Budget and Treasury accounts, for example, the payments made directly by SNH (Socie'te' Nationale des Hydrocarbures) from its own revenues for sovereign and nonsovereign activities not included in the budget. Over the years, the Treasury has made cash advances ((interventions directes) to the oil company and other parastatals that were not provided for in the budget. As the financial position of many public enterprises has been weak, the Government often has had to make unanticipated direct cash transfers to public enterprises to, for instance, meet their payrolls. Cameroon does not use a supplementary budget process which is provided by the law (see below) to deal with expenditures on unanticipated events or shortfalls in revenues. This increases fiduciary risks as it opens the door to off-budget 5. Budget Execution and Control page 65

expenditures that create accounting problems and undermine the transparency and e execution of the budget. Quite often, an extra-budgetary expenditure is at the expense of some other approved spending in the budget. Budget Revisions 5.15 The 1962 Ordinance details the procedures that can be used to modify the budget allocations in the initial Finance Law. The legal procedure is the Revised Budget Law (Loi de Finance Rectzjkatif (LFR)) that would authorize adjustments in revenue and expenditure estimates, as well as the final fiscal balance. In fact, Cameroon has never used the LFR but rather relies on more flexible administrative procedures to change the pattern of spending. This can involve actions by MINEFI to change budget allocations, cause the transfers of credits between budgetary chapters without the creation of new ones and to cancel credits. MINEFI has a number of instruments to effectively change budget allocations and the rhythm of spending. For instance, in January 2005, MINEFI issued Circulaire No. 3 on Execution and Control of the Budget that required a precautionary blockage (blocage de precaution) of 10 percent for all recurrent expenditure for goods and services, with a few exception^.^^ In addition, a series of trimestrial quotas (quotas d engagement de dkpenses) have been used by MINEFI to control the rhythm of budget execution and avoid undue pressures on the Treasury. These approaches to budget revisions erode the credibility of the initial budget estimates. As a document that records the changes in allocations of different credits is produced, these procedures are obviously not transparent and consistent with best budget practice. The practice that the Minister of Finance could, without consultations with line ministries change budget allocations, introduces uncertainty in the budget execution process. Delays in the Start of Budget Execution 5.16 Budget implementation that should be carried out over twelve months is compressed into perhaps less than nine months due to the late start-up of the process o f budget execution (see Annex 3). Until 2005, delays o f three months from the beginning of the fiscal year were common. The causes o f these delays included: The approved budget needed to be adjusted to take account of the comments made by members of the legislature during the budget discussions. 9 The budget lines have to be fed, with the budget appropriations, a process that involved two information systems, IBIS in the Ministry of Finance, and DEPMI in the different ministries. DEPMI is managed by the financial controllers from MINEFI that are attached to the line ministries. Although DEPMI was essentially a copy of IBIS, there was no automatic and IT-based link. Therefore the setting-up of DEPMI would commence only after IBIS has been fed with the numbers from the new budget. The financial controllers in the line ministries have to obtain from MINEFI the titres de confirmation de creances (TCC), known as cartons, for each commitment. Without the cartons, a commitment of expenditure would not be completed. In addition, line ministries have to obtain and duly register new books of bons de 44 Republique du Cameroun, Le Ministere de L Economic et des Finances (Ordonnateur Principal du Budget de l Etat, CIRCULAIRE No 3/MINEFI DU 03 Jan 2005, Portant Instructions relative a 1 Execution et au Contrdle de 1 Execution du Budget de 1 Etat et des Organismes Subventionnks por I Exercice 2005. 5. Budget Execution and Control page 66

commande or bons d engagernent every year. For the Ministry of Basic Education, this took some time in 2005, perhaps because the ministry was a new one. Budget credits are often not opened for large amounts (only a fourth or even less o f the appropriation for the first quarter), in some cases what was available for spending on an item was so small that the suppliers would not be interested in the supply contract. The preparation of procurement plans where relevant, has also delayed the start-up o f the execution of the budget, particularly the investment projects. The poor planning and preparation of these projects contribute to these delays. 5.17 With the delays in starting budget execution, the process of using the funds is likely to be rushed once the resources become available, particularly at the beginning and the end of the budget year. Inadequate budget preparation 5.18 As was discussed in detail in Chapter 3 of this report, budget preparation in Cameroon has been a rushed, highly centralized and poorly coordinated process lacking in analytical and planning underpinnings. The result is that budget projects are often poorly prepared, with inadequate implementation plans that create difficulties in budget execution. These problems are more acute for investment projects that are multi-year and technically complex where detailed plans facilitate efficient implementation. Technical complexity of budget operations would result in low budget execution in a context of weak technical capacity, poor incentives for innovation and inadequate planning in the preparation of the budget. It most likely explains most of the differences in execution rates between recurrent and investment budgets that are technically more complex and involve more stringent regulations such as those related to procurement and financial reporting and monitoring. An obvious answer to technical complexity is capacity development and, in the context of Cameroon, a functioning institutional framework and incentives for rigorous budget planning, programming and execution are critical for dealing with the technical complexities of budget execution and implementation. 5.3 Challenges to Treasury Operations 5.19 The problem of the regulation of budget flows does not arise from the inconsistency of the rhythm of the commitments or authorizations of payments (payments orders) with the resources of the treasury. On the contrary, a slow rhythm of the budget underscores the general problem of compressed budget execution period resulting from accumulated delays in the preparation of projects, in making the budget operational, in the procurement process, and at the various stages of the expenditure prior to payment. The problem of the rhythm of the authorizations arises only toward the end of the fiscal year for the expenditures on investment whose execution remains very weak in relation to the allocations (of the order of 30% before transfers) but marked by an acceleration of the liquidations during the last quarter leading to pressure for payments on the treasury of the first quarter of the following fiscal year. However, the impact of this pressure on the treasury is somewhat attenuated by the usual slow start of the new budget. 5.20 Budgetary regulation is also difficult due to the significant level of the expenditures without previous authorization or outside the procedures of the budget. The payments of the office of the treasury of expenditures without prior commitment and authorization, and without sufficient budget allocations, create risks of accumulation of reste-h-payer (RAPT) at 5. Budget Execution and Control page 67

the level of treasury and significant risks of budgetary slippages, as those experienced in 2004. The slowness in the execution of the budget also puts a significant burden on the operations of the treasury of the following fiscal year and results in the accumulation of RAPTs at the level of the accounts of the Treasury and arrears in the form of expenditures committed but not yet authorized (DENOs) at the level of the authorizing officers that leads to a passive and poorly accounted for accumulation of internal debt. 5.2 1 Furthermore, the certificate of commitment (bons d engagement) for the recurrent expenditures for those commitments for services are not rendered before the end of the fiscal year, are not cancelled. The legal procedures for carrying forward credits for the investment budget are not applied, although specific lines of credit are opened in the budget of the following fiscal year. This results in the accumulation of arrears in form of DENOs. In spite of some rigor at enforcement at the end of the 2004 fiscal year, the closing dates of the commitments and payment orders proved to be difficult to respect, as well as the regularization of the claims on time. The follow-up on the claims in expenditures and the reste-a-payer (RAPT) does not appear to be treated as a priority by the Treasury given its rather cursory review of the status of the RAPTs. The Direction of the Budget often ignores it and the TOFE, produced on a cash basis case, does not highlight the variation of such arrears valued by the Treasury to an amount of 276 billions of FCFA- at the end of 2004. Management of the Treasury 5.22 The bank account of the state is held at the Central Bank (BEAC) by the Central Accounting Agency of the Treasury. The level of the cash balances is consistently monitored against set ceilings and statements of the cash position are prepared daily, every ten days or monthly depending on the importance of the account. A new system is being put in place for the management of the bank accounts in real time, due to the installation of a computer network linking the BEAC, the primary banks and the main public accountants. Some difficulties are still encountered in the daily operations of the financial accounts, the transfer of funds, the presentation and the cashing of checks, as well as for the operations of compensation due to weak capacity. 5.23 The principle of unity of accounts and treasury has experienced some notable exceptions. Some local councils deposit their funds in commercial banks and, especially in spite of the recent efforts undertaken since 2003, some administrative services have opened accounts in commercial banks in the absence of a framework for operations and without the authorization of the Minister of Finance. No action has yet been taken to close these accounts. The modalities for opening and holding public accounts, including the projects accounts held by the CAA, need to be reviewed and clarified. The transfers of payment functions from the Treasury to the CAA for the payment of the debt need to clarified, the process need to be made more transparent, and the accounting of transfers and use of the resources improved. Meeting Financing Requirements 5.24 An estimate of the financing needs of the treasury is produced each year on the basis of the approved budget, and based on this annual estimate, quarterly and monthly estimates are prepared. These permit comparisons between actual and forecasts during the course of the fiscal year. In periods of tension in the treasury, a weekly treasury plan is prepared. Finally, a daily situation of availabilities that determines payments priorities (wage, service of the debt, etc.) is prepared for the Minister of Finance. 5.25 The Government does not use loans for financing the budget deficit that is, in general, covered by external assistance. It does not program to finance itself through financial market 5. Budget Execution and Control page 68

in spite of the abundant liquidities of the banks, or through the issue of treasury bonds to the public. The statutory account of advance of the BEAC to the Treasury, with a ceiling of 20% of the revenues of the government in the previous fiscal year, is practically at the ceiling. The Board of Directors of the BEAC has decided to freeze this advance region-wide but this freeze has not been applied and when it becomes effective, the Cameroonian Treasury will be forced to search for other means of financing. Finally, it is important to note that the external financing expected on programs, but not released due to unsatisfied conditions or other reasons, often provoked serious difficulties of treasury. Risks in Treasury Operations 5.26 The public financial system in Cameroon faces substantial fiduciary risks (see Section 6.6 for an overall fiduciary risk assessment).the main source of risk to the treasury is a financing crisis due to unanticipated events that may erode its ability to meet the payments on non-discretionary expenditures (wage, service of the debt, etc.). These events would include a large drop in oil prices or other primary commodities, and the uncertain operational and restructuring financing needs of public enterprises, many of which face significant financial The poor management of the risks to the treasury would provoke the waste of the financial resources of the state, supplementary costs to the Government, the delays in the payments to the private sector, a bad public credit and the increase in the prices of goods and services that are delivered to the government. 5.4 The Control of Public Expenditures 5.27 Budget execution is subject to three sets of controls - administrative, judicial, and legislative - that constitute the main framework for internal and external controls of public expenditure. Administrative controls are exercised internally within the executive either before the expenditure payment (a priori) or after the expenditure payment (a posteriori). External controls, which are independent of executive power, are exercised by the Supreme Court s Auditing Authority (judicial controls) and by the Parliament (legislative controls). Administrative Controls 5.28 Of: Administrative controls, which constitute the internal controls by the executive, consist A priori controls by the financial controller, A posteriori controls by the Control Division of the budget, The control of the Controller - General of the State (ContrGle Supkrior del Etat (CSE)), The internal inspections of ministries, Agencies that exercise internal controls of public expenditures, for instance the directorate of investment programming and the procurement agency (I Agence de Rkgulation des March& Publics (ARMP)). 5. Budget Execution and Control page 69

Financial controls 5.29 A priori administrative control of the budget is undertaken by the sub-directorate of Financial Controls (Sous - Direction du Contr6Ze Financier (SDCF)), that is under the broader Directorate General of the Budget. Financial controllers are organized hierarchically in SCDF and are governed by the decree no 2003/165 of 30 June 2003 on the organization of the Ministry of Economy and Finance. In parallel to the financial controllers in the center, there are decentralized financial controllers in the provinces and districts. All the significant expenditures are required to obtain the necessary visa a priori from the financial controller. Under this framework, the SDCF, consisting of four sub-units dealing with administrative services, accounting, commitment controls, and advances and delegated credits, is directly responsible for the financial controls in the finance ministry and other administrations as well as the management of the advances (re gies d avances) and delegated credits (dklkgations de credits). Control of budgetary operations 5.30 This control is exercised by the Division of Control of Budgetary Operations that also reports to the Directorate of the Budget. In charge of a posteriori budget control, it is also responsible for investigations, research and advisory services. Within this framework, it handles control of the government budget execution of both national and decentralized agencies, and public enterprises and agencies that receive government subventions. It is also responsible for the harmonization of the procedures for internal controls. This control of budgetary operations is evolving in light of the reforms underway in MINEFI. The Division of Control will be transformed into the Directorate of Budget Controls and Audit, with its mission expanded to include training and the audit of the systems and procedures for managing public finances, the evaluation of the public investment operations, and a physicalfinancial control of investment, budget execution, the control of the structures for salaries and the payroll, the coordination and supervision of financial controllers in the central government and decentralized structures, and the preparation of the administrative accounts of the state Inspector- General of Services 5.3 1 These technical inspection services within each government department, including the inspector of the services of the treasury, taxation, and customs as well as the inspectors of the sector ministries, also provide the functions of internal controls within the respective ministries. The Ministry of Finance and Economy has two units of recent creation for general inspection (decree no 2005/119 of April 15, 2005): the Inspectorate-General of Financial and Budgetary Affairs (IGAFB) and the Inspectorate-General of Economic and Administrative Services (IGSEA), under the authority of an Inspector-General, with their field of intervention limited to the MINEFI. 5.32 The IGAFB is charged with the performance evaluation of financial control services relative to the stated objectives; the internal audit and the evaluation of the functioning of central and decentralized financial control services, the establishments under their supervision, and the projects attached to them; provide information to the Minister on the quality of the operations and results from the services of the financial control establishment; the evaluation of the application of the techniques of organization and methods and the simplification of the administrative work of the financial controls establishment; and the implementation of the anti-corruption strategy in fiscal and customs matters in coordination with the anti-corruption unit of the ministry. 5. Budget Execution and Control page 70

5.33 The IGSEA intervenes in the same domains as the IGAFB, with the exception that its competence is focused on the economic and administrative services (central and deconcentrated) of the other ministries. From a regulatory perspective, each inspection results in the preparation of a report, addressed to the Minister of Finance, and copied to the Secretary General and the ministers responsible for administrative reforms and the Control Supe'rieur de l 'Etat. A trimesterial report and an annual report of the activities of the two services (IGAFB and IGSEA) are also addressed to the Prime Minister. Although recently structured, these two bodies are characterized by a mandate broader than the manpower and competence needed to effectively perform their functions. In fact, besides the Inspector Generals, the IGAFB consist of two inspectors of the budget, two inspectors of tax services, and two inspectors of customs while the IGSEA is limited to two inspectors of administrative services and two inspectors of economic services. Tbe Inspector of tbe Services of MZNEFI (Treasury, Internal Revenue, Customs) 5.34 These inspection services, internal to MINEFI, were initially attached to the respective directorate (treasury, internal revenues, and customs) but have been placed under the authority of the Secretary General of MINEFI in the organigram of the decree of June 2003, then were put back under the directors by the decree of 15 April. These internal inspections teams of the MINEFI are currently ineffective due to the lack the human resources. The Controller-General of tbe State 5.35 Recently reorganized by the decree no 2005/374 dated 11 October, 2005, the Controller-General of the State (ContrGle Supe'rieur de 1 'Etat (CSE)) constitutes the supreme institution for the control of public finance in Cameroon. The CSE, headed by a deputy minister (ministre de'le'gue'), derives its authority directly from the President of the Republic and reports directly to him. Its main mission covers: the monitoring and verification of the services of the state, the decentralized local collectives and public enterprises and other parastatals; the control of budget execution and of the projects and programs financed externally; the provision of opinion and advice on legal and regulatory texts relating to public finance; technical assistance to the agencies for administrative controls and for internal audits within ministries, public agencies and parastatals on control and verification. In October 2005, the 49 persons were listed as comprising the technical staff of the CSE. 5.36 The CSE is the secretariat of the Council for Budget and Financial Discipline (Conseil de Discipline Budge'taire et FinanciBre (CDBF)) established by the decree No 97/049 of March 5, 1997. The CDBT, composed of five members and headed by the Deputy Minister in charge of CSE, is responsible for sanctioning the irregularities and mismanagement committed by the authorizing officers and budget administrators in the government and public enterprises. Controls of Public Investments 5.37 Physical and financial control of public investments within the Ministry of Finance and Economy is handed by the Directorate of Programming of Investments, which has administrative controls of public investments financed by internal and external resources. These controls are formal and are related to the physical developments of the projects, requiring a trimestrial report to be presented to the office of the Prime Minister as well as to the external assistance agencies. 5. Budget Execution and Control page 71

Procurement Regulation and Control 5.38 This is the responsibility of the procurement agency, (L 'Agence de Re'gulation des Marche's Publics), created on February 23, 2001 by the decree n 2001/048, is a public establishment with a strong legal personality and financial autonomy and is attached to the Presidency. An assessment of the procurement process was recently undertaken by the Government and the World Bank which revealed continuing weaknesses in the implementation of the procurement code adopted in 2004 (see chapter 5, section 5.5 below) Assessment of the Administrative Controls 5.39 In general, the current system of controls is characterized by a lack of effectiveness. Due to its preventive character, financial control is particularly important since it seeks to prevent the withdrawal of public funds in violation of the law and regulations. However, the a priori financial controls appear weak. This is due in part to the lack of retention of institutional memory at the SDCF as a result of the staff turnover affecting also the heads of service. In addition to this staffing instability, there is also a lack of a manual of procedures for financial control that formalizes the procedures and would mitigate to some extent the impact of the inadequate training of the staff. The inadequacy of information systems, including the lack of integration of existing systems (IBIS, DEPMI) into the main budget management information system (SIGEFI) constrains the activities of the financial controllers. 5.40 However, it is the a posteriori controls that are very problematic. In fact, with the somewhat complex organization and overlapping mandates, the lack of coordination among the various general inspections of the ministries does not permit a global view of how the system works and its risks. While the legal decrees confer the Controller General the role of quality control, training of staff and the coordination of the financial control activities, it does not have the capacity to do so. The superimposition of controls and the absence of a crosscutting perspective and the confidentiality of the reports of the control operations, leads to a real absence of transparency in the process of control. Furthermore, there are no indications of follow-up actions to the recommendations emanating from the activities of financial control. The lack of real actions by the budget discipline council (CDBF) is further indication of the lack of effectiveness of financial controls. Moreover, the role of the Directorate-General of the Budget in financial control functions creates a systemic risk since of its involvement in both a priori and posteriori controls violates international norms, that require a strict separation between a priori controls (including budget preparation and budget execution), from the posteriori controls Judicial Controls 5.41 Judicial controls are exercised by the external control audit body for state finances (Chambre des Comptes) of the Supreme Court, which according to article 38 of decree no 96-06 dated January 18, 1996 is the highest authority in judicial, administrative and legal matters in the domain of auditing. The organization and operations of the Chambres des Comptes have been set by the decree no 2003-005 of April 2 1, 2003. Its main mandate is to review and pass judgment on the controls and financial accounts of public establishments, decentralized collectivities, and public enterprises. It is required to prepare an annual report detailing its observations and making recommendations for improvements in the accounts and in public accounting. 5.42 As of the end of 2005, the Chambre de Comptes was significantly understaffed, although 22 magistrates and judges have been selected. The chief clerk of the chamber, as well as the clerks of the various sections, has also been appointed. The various legal texts and ~~ ~ ~~ 5. Budget Execution and Control page 72

operating manuals, including the general instructions for the elaboration and production and presentation management accounts by the public accountants, and the manual of procedures of the chamber, are being finalized. 5.43 The establishment of the Chambres des Comptes holds considerable promise and represents an important advance in public financial management in Cameroon. There are however, some problems. In first place, the chamber s mandate is limited to the domain of judicial control of accounts, and thus has no role in a broader audit of the management of public funds. This strict limitation rules out its involvement in the necessary task of probing and revealing the dysfunctions of public financial management in Cameroon. The judges of the chamber will have neither the mandate nor the authority to sanction the spending authorities for violations of regulations and procedures, which govern budget execution. Similarly, the chamber will not have the means to detect and transmit to the judges the material evidence for a penal conviction in case of corruption, except those committed by the public accountants. 5.44 In sum, the texts that created the Chambre des Comptes have not put in place an institution with the appropriate mission of control of public finances. Without a strong auditing body independent from the executive branch of government, with a mandate in line with the norms of the International Organization of Supreme Audit Institutions (INTOSAI), the control of public finances and budgetary oversight in Cameroon will not be rigorous and fully effective for. The Government, recognizing the shortcomings of the newly established Chamber, intends to expand the mandate of the Chamber to harmonize it with the norms INTOSAI after two years of operations within its current mandate. Controls by the Legislature 5.45 The mission of the control of the government and its finances is conferred by the Constitution on the National Assembly. The Finance and the Budget Committee, consisting of 20 members, with representatives of all the parliamentary groups, including the opposition, plays an important role on the economic and financial The internal regulations within the National Assembly clearly define the role and scope of the interventions of the Committee, with the key focus on budget, taxation, and borrowings. However, in actual practice, the short time granted to the National Assembly (with parliamentary session fixed at 30 days) to discuss and adopt the finance law leads them to exert only a formal control on the management of public finances. 5.46 This situation is exacerbated by the lack of clarity of the budget documents. Moreover, the lack of consistency between the settlement law (loi de reglement) that reconciles the spending of a previous budget, and the proposed finance law before the legislature, does not allow legislators to develop a real understanding and appreciation for the content and historical perspective of the budget. The Committee is not involved upstream in the elaboration of the budget, and does not receive periodic reports of budget execution, nor does it have access to the reports of the various groups of controllers of finance. Without a full understanding of the budget strategies, structures and estimates, it is difficult to comprehend well and put in a proper context all other budget reports, when they are available. Furthermore, the Committee s ability to carry out its control mandate is further weakened by its lack of logistical and technical capacity. In a context where the presence of a dominant majority party tends to limit the debates of on the budgetary documents, the lack of resources 45 The position of vice-president of the Committee is held by a member of the opposition. 5. Budget Execution and Control page 73

for this Committee to undertake an intensive review of the budget documents limits the scope and effectiveness of parliamentary financial controls. 5.5 Public Procurement 5.47 The process of public procurement is a key element of budget execution and control. The implementation of the procurement process is often cited as one of sources of delays budget execution. A sound procurement process and a mastery of it by the relevant public officials and interested private sector agents is essential for an effective budget execution process, for ensuring value for money and the efficient delivery of public services. As a critical part of the public finance management the process of procurement needs to be governed by the same principles of transparency, accountability, decentralization and results orientation and be well coordinated with the other processes of the PFM system. Quite often though, procurement has been treated as a separate exercise from the management of the budget, with different rules and regulations that respond largely to political and regulatory imperatives, managed outside the budget process, with its operations moving at a rhythm that is unrelated to the exigencies of producing timely results from budget operation^.^^ Procurement agencies have been seen more as regulators and enforcers of strict and complex rules rather than as partners in the execution of the budget. Procurement is prone to corruption and abuse of public funds, thus a sound procurement process is an important element in the fight against corruption. Public Procurement Assessment 5.48 The Country Procurement Assessment Report (CPAR) undertaken by the Government and the World Bank in 2000 found that the institutional framework in Cameroon for managing procurement conformed to the classic model that ought to function satisfactorily, but are impeded by the inefficiency in the use of public resources, and a non-transparent management style on the part of institutions responsible for procurement. The report noted the emerging commitment to the reform of the system and proposed an action plan to improve transparency and accountability in the process, improve the use of resources, build capacity and create partnerships to strengthen private sector and enhance competition. 5.49 Weaknesses and delays in the public procurement system have continued to hamper budget execution, particularly the investment budget, thus improvements in public procurement are necessary for enhancing effectiveness of public investments and public service delivery. To this end, it was essential to regularly monitor progress in procurement management and make appropriate changes to strengthen it. In that context, the detailed analytical review of Cameroon s procurement system (CPAR 2005) initiated in 2004 by the Government of Cameroon in partnership with the World Bank was timely and necessary. The main purpose of the review was to update the action plan to improve a country s system for procuring goods, works, and consulting services in a manner that enhances public financial management and improves governance and service delivery. 46 In the new procurement code of Cameroon that is excellent in many respects, the management of the procurement process is placed under the Prime Minister, not under the Ministry of Finance as other parts of the PFM system. 5. Budget Execution and Control page 74

5.50 The CPAR 2005 confirmed that the Government has taken a number of actions during the previous five years that put the procurement process on solid grounds4. The legal and regulatory framework of the new procurement code, adopted in 2004, conforms to international standards. Procurement Committees have been set up at national and local levels and are operational. Independent observers have been appointed to these committees, audits of some procurement exercises have been undertaken and the results of procurement processes are now published. Nevertheless problems remained with implementation of procurement processes including the observance of the legal and regulatory framework of the code. As noted above, the slow pace of procurement continued to be cited frequently as a major contributor to delays in budget implementation. There have also been reports of efforts to bypass the system by exploiting the loopholes. Recent Key Actions Taken by the Government 5.51 In terms of more specific diagnostics, over the last few years, several important measures have been undertaken: (i) the publication of Decree No. 2000/155 of June 30, 2000 regulating procurement, and Decree No. 2000/156 of June 30, 2000 on the mandate, organization, and operation of procurement commissions; (ii) the creation of a new Procurement Regulatory Agency (ARMP) in February 200148; (iii) the legal obligation for maitre d ouvrages to prepare and update a procurement plan for the investment program and (iv) the institutionalized presence of independent observers in procurement commissions and recruitment of independent auditors to audit procurement contracts upon their completion and (iv) a new procurement code, characterized by respect for competition, transparency, efficiency and economy in conformity to international standards, was adopted in 2004 and the enabling decree published in the Official Journal of the G~vernment~~. 5.52 The ARMP, the tender commissions, and the specialized control commissions are fully operational, with independent observers working on a regular basis since April 2001. The creation of the ARMP enhanced public private consultations and partnership on procurement matters. In the spirit of decentralization, committees have been set up at both the national and local levels. These decentralized procurement entities have partial authority in conducting actual buying operations. Moreover, annual audits of public procurement contracts have been conducted by an independent consulting firm for the periods July 2000-June 2001, July 200 1 - December 2002, January 2003-December 2003, and January to December 2004. In 2004, the Government organized a round table conference with private partners, donors and government officials to discuss, on the basis of the conclusions of the audit, the progress and obstacles in the implementation of the procurement reforms. 5.53 In line with the recommendations of the roundtable for systematic sanctions on violations of the procurement rules, the ARMP has conducted a study to develop a framework for the application of sanctions for contraventions of procurement rules and prepared a manual of procedures. With regard to the dissemination of information on non-compliance, the 47 48 49 World Bank (2005), Rapport Analytique du System de Passation des Marches Publics (CPAR) au Cameroun (processed); Banque Mondiale : Operational Quality and Knowledge Services, Region Afrique,!2 AoQt 2005. By Decree No 2001/048 of February 23, 2001 on the creation, organization, and operations of the agency for the regulation of public procurement (I agence de regulation des marches publics (ARMP)) Decree No 2004/275 of September 24, 2004 on the Procurement Code published in the Official Journal of October 1, 2004, 5. Budget Execution and Control page 75

Government has published all sanctions taken since 2004. The Government has also began to enforce the statute barring any enterprise that has violated the procurement rules from bidding for contracts and all enterprises are now required to obtain a certificate of non exclusion from the ARMP in order to compete. Regulations to discourage practices that tend to exploit loopholes in the laws and regulations, for instance the slicing of contracts to fall below thresholds requiring public tenders, and the treatment of addenda (additional work on existing contracts), are being enforced. To facilitate the implementation of the procurement, the ARMP has prepared and published several operational manuals, including a user s guide, a draft manual of procedures for executing agencies, and a draft General Conditions of Contracts, as well as draft models of tender documents. Main Challenges and the Plan of Action 5.54 In spite of the advances in the legal and regulatory framework, there are many implementation challenges. The CPAR 2005 noted a number of challenges to effective procurement process in Cameroon: (i) the development of the capacity and professionalism for procurement in both the public and private sectors; (ii) the integration of procurement processes in the systems for public financial management; (iii) the inadequacy of budget funding for managing the procurement processes; (iv) the political commitment to enforcing the rules and regulations including the use of sanctions, and fighting the general malaise of corruption to enhance and sustain the integrity of the procurement process; and (v) the potential for political interference in the process. The report noted that the attachment of the procurement process and its management - essentially a technical function to the Prime Minister, a political authority, rather than the Ministry of Finance, was not helpful in mitigating political interference in the process. The report suggested the irrespective of whether the procurement process is under the Prime Minister or moved to the Ministry of Finance, a strong technical team should be put in place in the supervising ministry to support the process. 5.55 The CPAR identified two main axes of development: the importance of reinforcing the capacities which will allow the agents of the public sector and those of the private sector to develop their competence and professional skills, and the careful application and enforcement of existing rules to support the emergence of the desired behaviors and the cultural changes. The mandate of the ARMP gives it key roles in addressing these challenges. While the ARMP is operational and its management has shown strong signs of commitment to professionalize the sector, it has been weakened by the financial difficulties due to the late payments of its annual financial support from the budget of the state. The CPAR recommends a national strategy for the development of capacity for procurement in the public and private sectors. It notes that the ARMP has the mandate for capacity development and a national strategy for the task, and proposes that, in place of delivering training programs itself, the ARMP should concentrate on conception and supervision of a global program of training and certification of trainers and training institutions that would deliver the training. The program of capacity development could eventually consist of: (a) a formal program of training leading to a diploma; and (ii) the creation of professional associations that provide accreditation in the area of procurement. The CPAR further recommends that procurement should be included as a discipline in the programs of high institutes of training of public administration personnel. 5.56 The integrity and effectiveness of the new procurement process will depend on the progress made in combating corruption nationally, as well as in the procurement process. The 50 ARMP is a public administrative establishment, to be supported by subventions for the state budget until it attains financial autonomy through fees from its regulatory activities and other services. 5. Budget Execution and Control page 76

Government s national program for governance, with component for combating corruption, is under implementation. A vigorous implementation of the PNG and its corruption component will send a strong message on non-tolerance for corruption in procurement and other areas. A s in other parts of sub-saharan Africa as well as in most of the world, there has been a strong perception that procurement-related corruption in Cameroon remains the most lucrative and endemic form of corruption. Overbidding, and consequently inflated contracts, has been regarded as a common practice. The Government needs to work vigorously and transparently to endow the procurement process with a measure of credibility in the minds of the public and the private sector in line with the recommendations of the CPAR 2005. This requires a very transparent and accountable bidding system, with the rules and regulations enforced in a fair and open manner. Follow-up actions on the audits of procurement operations have been slow. These audits should be published and identified follow-up actions taken promptly. Ultimately, the key signals that will change perceptions of corruption in procurement would be timely delivery of government services, particularly from large infrastructure projects but this would also require actions on other aspects of budget management. 5.57 The slow pace of procurement remains a problem for budget execution. The procurement code and the circular 001CABR of October 29, 2004 require that a procurement process for a spending activity cannot be concluded unless there is an approved commitment of funds for the activity. As the approval of commitments is itself a slow process, this slows down the initiation of the procurement process, implying further delay to the budget execution process. The Government needs, as matter of urgency, to develop the capacity of line ministry staff and the central procurement agencies to prepare and process procurement operations in a timely fashion and in accordance with the code. Furthermore, the Government should ensure adequate resources for procurement operations and for the capacity development efforts to be coordinated by ARMP. Moreover, cumbersome requirements discourage small firms from bidding for contracts and government payments arrears to private erodes the ability of these firms to raise funds to participate in the procurement process. These factors reduce competition. 5.58 In the context of the CPAR 2005, the Government, with the assistance of the World Bank team, developed an action plan to address these challenges (Annex 6). The Government is seeking assistance for the implementation of this plan from the development partners. This assistance for is likely to be provided by the development partners, including the World Bank, in the context of a coordinated program of support for public financial management. 5. Budget Execution and Control page 77

Chapter 6 Improving Budget Transparency and Effectiveness Introduction 6.1 This chapter covers a number of cross-cutting elements that are essential for an effective financial management process, the enhancement of the value-for-money in public spending, and improvements in governance. Transparency in the management of public finances is recognized as a key element in improving the effectiveness of the budget. Budget monitoring and evaluation contribute to the transparency of the budget process and are important elements of budget planning, results orientation and accountability and therefore contribute to the improvement of budget outcomes. The regular preparation, auditing and reporting of public financial accounts and the wide dissemination of these accounts enhances transparency and promotes broader understanding and constructive discussions of the public financial issues among interested stakeholders. This will strengthen accountability and progressively enhance budget effectiveness. A major factor for producing results from the budget is the human resources input that influences the quality of budget preparation and implementation of budget activities. Broad and progressively improving public sector capacity and competence is essential for improving budget effectiveness. Poor performing public enterprises in particular pose a burden on public human and financial resources and, as in Cameroon, drains budget resources in an unpredictable manner, thus constituting a substantial risk to budget effectiveness. Financial Management Information Systems 6.2 Increasingly, integrated financial management information systems are playing a central role in improving the transparency of public financial management as, once it is in place, it enhances the access to and speed of information flows, and facilitates budget reporting, monitoring and evaluation. Cameroon has been developing an integrated information system (SIGEFI) that links the main centers of information production and use, for instance in the budget department, treasury, tax and customs operations, all in MINEFI. The system became operational in 2003 but not all the key centers have been directly linked and development work is continuing. There are also a number of other MIS applications in use for public financial management and related activities already operational or are in various stages of development and linkage to SIGEFI. 51 The compatibility, mutual functionality, the integrated development and management of all these systems in a somewhat poorly coordinated public sector management system have to be challenging. While the MIS provides rapid information on financial flows, information on actual budget performance, outcomes and impact has to be sought by more labor-intensive monitoring and evaluation techniques. 6.3 The system SIGEFI has already made significant contributions to budget execution, monitoring and reporting at the central and provincial levels, with improvements in the follow up on budget execution, auxiliary accounting of the expenditures, general accounting, and collection of customs duties and taxes. Furthermore, it has made possible the automatic 5' The main applications of SIGEFI are IBIS (Budget), PATRIOT (Treasury / general Accounting), TRINITY (Taxes), PAGODE and soon SYDONIA (Customs), ANTILOPE (Payroll), with new applications (DEPMI, Expenditures/ministries), PREBIC, (budget preparation) SEBIC, (followed budgetary execution) SETTING (Auxiliary Accounting of Revenues and Expenses), CAA, (Debt) and SIGEPAT (investment Budget), BEAC (operations and links with BEAC). 6. Improving Budget Transparency and Effectiveness page 78

development of the TOFE from the balance of Treasury accounts and the TABORD from the ECOFI data base. However, at this time, the SIGEFI is not fully operational; it is only partially integrated and some key linkages have not been completed. At the present time, the maintenance of SIGEFI is weak and it is essential to organize the network of users, beneficiaries and administrations of services to agree on the respective roles in its maintenance and applications development. In that context, continued funding for the maintenance and development of SIGEFI is essential. Participation 6.2 Transparency Issues 6.4 Wide participation in shaping the budget is an important element of transparency as participatory consultations provide the medium for dissemination and sharing information and knowledge of the budget and strengthens the base for constructive dialogue. Participation in the Cameroon budget process is weak. The management of the budget is highly centralized, reflecting a centralized structure of government and the existing legal and regulatory frameworks for the budget. Participation in the budget process is limited by (i) the centralized nature of budget preparation and control, reinforced by the short budget calendar which results in a rushed budget preparation and related consultations; and (ii) lack of timely information on the budget process and budget execution; (iii) limited policy input and guidance by the Council of Ministers on the planning and programming phase of the budget; (iv) lack of formal consultations with civil non-government organizations on the budget; and (v) a limited role of the legislature in the budget process. The National Assembly rarely amends the draft budget presented to it by the Executive and routinely adopts the bill. Subsequently, the Ministry of Finance makes some changes in the budget to reflect the discussion of the budget in the legislature. A substantive role of the Assembly is limited by poor information and knowledge of the budget process, in particular on budget execution, outputs and outcomes and the short time the Assembly has to for consultations and discussions of the budget. Transparency of the Budget Process 6.5 Transparency of the budget process in Cameroon has been weak, hampered by a centralized budget preparation process without the underpinnings of planning, participation and coordination, weak budget monitoring and limited efforts to disseminate budget information to the wider public. Carlier and Jennes (2003) noted that the quality of financial information was one of the weakest aspects of the Cameroon budget system. It further characterized the draft budget as unreadable, resulting from a very complicated budget nomenclature, and noted the absence of timely budget execution reporting. As noted earlier, the budget settlement law (Loi de Reglement (LDR)) has not consistently been prepared. 6.6 Since the budget document is voluminous and very detailed, it is unlikely that many people will wade through it. A simple and brief version could be prepared for public consumption. In Uganda, there has been the practice to provide a short and concise document that provides the highlights of the budget. This is made available to the general public. Regular reports of budget outputs and outcomes are not prepared and made available to interested parties within and outside the government, the investment in budget information systems (SIGEFI and others) notwithstanding. With the information system that is already in place, it should be possible to prepare regular management reports of budget performance, 52 Carlier Krit, and Jennes Geert (2003) Country Case Study 3: An Assessment of the Cameroon MTEF, Center for Aid & Public Expenditure, Overseas Development Institute, London. 6. Improving Budget Transparency and Effectiveness page 79

which could be made available for public dissemination, perhaps through the government or MINEFI website as it has started to do. However, since access to the internet is limited, the distribution of printed materials remains an important avenue for dissemination. 6.7 The OECD Note on Best Practices for Budget Transparency defines budget transparency as the full disclosure of all relevant fiscal information in a timely and systematic manner.53 It notes that transparency - openness about policy intentions, formulation and implementation - is a key element of good governance, and furthermore, that there is a strong relationship between good governance and better social and economic outcomes. The Note on Best Practices provides a reference tool for countries to use in designing measures for improving budget transparency. It stresses the importance of a comprehensive budget that encompasses all government revenues and expenditures, a budget document with detailed review of major revenue and expenditure programs, a full discussion of the objectives, policies, and economic performance factors underlying the budget, and a review of the performance of the past and ongoing budgets and the targets of performance in the new budget under discussion. 6.8 The Note recommends a number of budget reports including a pre-budget report that would encourage debate on the budget aggregates, monthly, mid-year and year-end reports of performance, as well as an occasional long-term report that assesses the budgetary implications of changes in the society and economy and the long-term sustainability of current government policies. Furthermore, it recommends the full disclosure of economic assumptions underlying the budget, tax expenditures, the government s financial liabilities and assets, contingent liabilities, non-financial assets, and employee pension obligations. 6.9 For Cameroon, the attainment of best practice in budget transparency is a long-term proposition. However, it is essential to have a commitment and a plan to progressively improve budget transparency. In 2005, the Government appears to have taken the first steps to a more open and transparent management of public affairs including the budget. It is important to identify priority actions to promote budget transparency and begin to implement these actions in a manner that is consistent with best practice. There are three fundamental foundations for the transparency of public financial management which should receive high priority in the medium term: (i) the active role of the legislature in the public financial management process; (ii) the framework for public accounting and financial reporting to enable the publication of audited reports of government financial operations; and (ii) the reinforcement of the human and institutional capacities of the organs of financial control and the supreme audit institutions, discussed in Chapter 5. The Role of the Legislature 6.10 The process of budget approval and public information: The articles 16 and 34 of the Constitution refer, in a very general way, to the role of the Parliament the approval of the budget. The Ordinance of 1962 requires that the legislature should have 20 days to debate the Finance Laws and adopt the budget. The National Assembly must receive, in principle, the budget documents 15 days before the date of the debate of the Finance Law project, some days before the beginning of the budgetary session. At the same time as they are submitted to the National Assembly, the budgetary documents are communicated to the newspapers, radio and television. They are the subject of special communication efforts in all national media by 53 Organization for Economic Cooperation and Development (OECD (2002)): OECD Best Practices for Budget Transparency, OECD Journal on Budgeting, Volume 1, Number 3, OECD Paris. (Available thru the OECD website) 6. Improving Budget Transparency and Effectiveness page 80

MINEFI. On the opening of the proceedings of budget debate, the Prime Minister has to deliver an economic and financial report as a general background to the proposed Finance Law (budget bill). 6.1 1 The proposed Finance Law, when submitted to the National Assembly, is initially examined by the Finance and Budget Committee of the Assembly, which, like the eight other committees, has limited resources in terms of dedicated offices and staff, to carry out a proper review of the proposed budget. In any case, the Parliamentarians cannot propose any additional article or amendments to the proposed budget, except to suppress or to reduce a proposed expenditure, to create or to increase a revenue receipts, thus ensuring that the overall budget balances in the proposed law do not worsen. 6.12 Parliament has limited role in the process of elaboration of the budget. The Budget and Finance Committee does not participate, upstream, in the elaboration of the budget and MINEFI does not provide periodic assessments of the execution of the budget to the Committee. The belated arrival of the budgetary documents is an obstacle to any rigorous analysis of their contents, even if some deputies, who belong to the Finance and Budget Committee, have the technical qualification to do so. The volume of these documents, the abundance of data in them and the lack of synthesis reduces the clarity and value of information communicated to the legislators, but also discourages any efforts to undertake meaningful analyses. 6.13 Furthermore, the Budget and Finance Committee does not have access to the reports of the different administrative bodies that intervene in the control of the management of the public finances or of the assessment on the different structures of the public sector. The absence of a detailed settlement law (Loi de Reglement (LDR)) has been an obstacle to even a simple comparative analysis between the expenditures presented in the proposed budget and actual spending in past years. In sum, the Budget and Finance Committee does not have the capability to play an effective role in the elaboration of the budget. The presence of a dominant party in the Parliament also tends to reduce the incentives for extensive discussions of the management of the state financial operations. 6.14 The National Assembly needs more time to examine the budget documents, and perhaps these documents should be simplified, with some brief synthesis of the budget strategy and major issues. In the course of the fiscal year, the Budget and Finance Committee should have access to reports on budget execution and control, and should be able to discuss these reports with the relevant authorities in Government. Furthermore, the Committee needs material resources and the capacity to carry out its responsibilities. As a start, MINEFI has undertaken to deliver the budget documents to National Assembly as early as October 20 of every year, which should allow the legislators more time to review them. Furthermore, it is planned to provide the Committee with a tax expert and an economist, a good beginning for sensitizing the members of the Committee as well as other members of the National Assembly. This might help to initiate a process of capacity enhancement on budgetary matters for all the legislators, to enable them to carry out their mandates of participating constructively on the management of the finances of the country. The work of the Budget and Financial Committee would benefit from the recent establishment of the Chambre des Comptes, which should be providing its annual report on public financial accounting to the Committee. 6. Improving Budget Transparency and Effectiveness page 81

6.3 Public Accounting and Financial Reporting The Institutional and Organizing Framework 6.15 The system of public accounting in Cameroon is inspired on the French system with a centralized public Treasury supported by a network of public accountants. The financial regulations of 1962, modified several times, have constituted the fundamental legal basis for the management of public finances, with the Minister of Finance as the principal accounting officer. The framework for public accounting is prescribed by the decree No" 97.226 of June 25 1997 on the general regulation of accounting for the state, and its decree of application of June 30, 1997. The accounting nomenclature was adapted and harmonized with the budgetary nomenclature by the decree of February 09, 2003. This nomenclature is has been set-up and henceforth applied for the execution of the budget in all accounting posts of the Treasury. The treasury/accounting system is based on the principles of the unity of payments and treasury with some exceptions: accounts of the local collectives and public establishments (CAA, FEICOM, and the Road Fund) that have accounts in the commercial banks. The public accountants have a particular status which establishes the principle of their personal and financial responsibility, and of their security. 6.16 In accordance with the decree No 2003.165 of June 30, 2003 on the organization of the Ministry of Finance still in force, the administration of public accounting included, a Directorate of the Treasury at the central level responsible for the management and coordination of the network of the public accountants composed o f a Central Agency of Treasury Accounting (ACCT), a Paymaster General of the Treasury (Pairie General du Tresor (PGT)), accountant of the wages and all ministerial expenditures executed at the central level, 1 1 General Treasury Paymasters/Provincial, senior and principal accountants, all centralized, 53 central revenue collectors, 264 local collection agents, and 34 accountants stationed at embassies and diplomatic posts. 6.17 ACCT was created in 2004 and is only partially in place although its role is crucial in the centralization of the data on the execution of the budget. In December 31, 2004, the personnel of the public accounting included 2.269 staff, of which 170 were posted in central services and 1.986 in the network of public accountants. The information system for public accounting in Cameroon is managed through SIGEFI, the integrated financial information system of the Ministry of Finance that is linked to through a data base ECOFI, to the independent applications in customs, taxes, payroll, budget, and accounting, as well as the new financial applications under development. 6.18 A number of the existing laws, decrees and regulations on public finance, including the regulations for public, administrative and management accounting, are under review and revision. A draft organic budget law (Zoi portant rkgime Jinancier de Z 'Etat (LRFE)) is under preparation and discussion. It will, inter alia, introduce multiple budget authorizing officers (principal, secondary and delegated) and goal-oriented budget programs and indicators, and 6. Improving Budget Transparency and Effectiveness page 82

recognize the judgments of the management accounts by the new Charnbre des Cornptes. The Government has also worked on a new decree on the public accounting; the basic instructions on the production of the management account, and the instructions on public accounting and the administrative accounts. A draft decree on the organization of the new Directorate General of the Treasury and the Financial and Monetary Cooperation (GDT) has proposed a large number of directorates, divisions, services and offices in GDT. The proposed structure would make GDT a very large department, entailing high costs in office space and furniture, human resources and operational and maintenance costs. 6.19 The organizational structure of the ACCT was not yet formally in place but the urgent task has been to put staff in place to support the accounting. The ACCT s role of centralizing and integrating the network for accounting, currently highly dispersed, is essential. This network includes more than 400 accountants stations of the Treasury and its agencies in the embassies. Some of these stations operate in parts of the territory with a limited number of operations; this raises the question of their utility. It is essential to rationalize the network of accounting stations of the Treasury. Regarding staffing, a five year recruitment plan should be prepared, based on an assessment of the needs in the new structure of ACCT and taking into account impending departures due to retirement as well as the need to progressively improve the overall competencies of the staff. The System of Accounting and Reporting 6.20 Balances of the Treasury: The system of public accounting in Cameroon provides for monthly, quarterly and yearly production of status reports on budget execution. It is required that the monthly accounting balances be produced on the last day of the following month, at the latest. The integrated information system, SIGEFI has facilitated the production of these balances and the presentation of the status of budget execution in a consolidated form. Since 1999, the installation of the public accounting software PATRIOT has enabled the Treasury to produce and publish accounting reports. The reconciliation of the budget execution and book entries is undertaken monthly by the Directorate of the Treasury for the preparation of the TABORD and the TOFE. 6.21 The production of the balances of the treasury accounts and the status of expenditures does not pose a major problem. On the other hand, the production of the synthesis of the status of customs, taxes and other revenues remain very problematic. The definitive annual balance of the Treasury would in principle be available in March 31 of every year, three months after the closing of the accounts of the previous exercise. This time-table has never been respected in the past. However, the balance of accounts for fiscal 2004 budget was available in April 2005 although with some irregularities. Some delays were in part attributable to the difficulties in the setting up of the new budgetary and accounting nomenclature. With the adoption of the ministerial instruction setting out the modalities of production of management accounts, the accountants of the state will have a legal framework for the production of the management accounts for 2004. 6.22 The reporting on the budget execution appears weak, whereas effective reporting would permit the identification of problems linked to budget execution. However, no assessment of the management of budget is done outside MINEFI. Further, the certification of the accounts of the state by an authority independent of MINEFI is neither provided by the Controller General of the State (Control Superior de Z etat) nor by the law creating the Chambre des Cornptes. Besides, the latest version of the draft law on public finances (LRFE) does not provide for the auditing and certification of the public accounts by the new Chambre des Comptes. While ministerial departments should produce quarterly reports of execution of their budget; with MINEFI producing a synthesis of these reports, these reports are not 6. Improving Budget Transparency and Effectiveness page 83

produced. Some ministries produce reports on the engagements of expenditures, but these reports are, in general, not available. As noted earlier, the National Assembly has not been provided with a detailed settlement law (LDR) during the annual budget sessions as required by the law. 6.23 To strengthen accounting and reporting, the Government should (i) to produce management accounts by public accountants starting with the 2004 budget; (ii) to begin to require the certification of the accounts of the state by an authority independent of the Ministry of Finance; and (iii) elaborate and submit a complete Loi de RBgIement of the 2006 budget to the National Assembly as required. 6.4 Budget Monitoring and Evaluation 6.24 There is a growing appreciation in the development community of the importance of results or performance orientation in the public sector. Both the PRSP process and the MTEF, the recent popular instruments for effective public sector actions stress results and performance orientation as well as the related process of monitoring and evaluation (M&E). As noted by Mackay (2006), this evaluation culture is considered to be one avenue for improving performance of a government in terms of the quality, quantity and targeting of the goods and services which the state Budget monitoring and evaluation of results is a logical place to start to incorporate systematic monitoring and evaluation in public sector management. 6.25 Budget monitoring may be designed as a process of comparing actual inputs, outputs and outcomes against corresponding plans. The impact of budget monitoring depends on the extent to which the information generated is used to improve budget planning, programming, execution and implementation, and to enhance transparency and accountability. Consequently, monitoring needs to be accompanied by various levels of review/evaluation of performance, using the results from monitoring. It is good budget practice to institute regular monitoring and evaluation of budget performance and based on the evaluations, to take actions to keep the budget on track and focused on the expected results. Thus, budget monitoring and evaluation is an important element in improving budget planning and programming and the effectiveness of the overall budget process in delivering results. Timely dissemination of budget monitoring results, to government agencies involved in budget preparation and execution as well as to the public, is essential for the integrity and transparency of the budget process. Budget Monitoring and Review Process 6.26 Cameroon does not have a functioning and systematic budget review process. The OECD Best Practice Note suggests a number of regular budget monitoring reports to enhance accountability. However, each country would need to decide on a reporting, monitoring and evaluation schedule that meets its needs and consistent with its resources and capacity. The key point is that some regular schedule of monitoring, evaluation and reporting needs to be in place, with provision for some ad-hoc reviews as necessary. In practice, different levels and instruments for budget monitoring and evaluation are needed to serve different purposes and audiences. Specific circumstances may require a review of budget outturns and performance, such as before a revision of the budget during the fiscal year or to feed into the formulation of the budget for the coming year. 54 Mackay, Keith: Institutionalization of Monitoring and Evaluation Systems to Improve Public Sector Management; Evaluation Capacity Development (ECD), ECD Working Paper Series No 5: January 2006; Independent Evaluation Group (IEG), The World Bank; www.worldbank.org/ieg/ecd. 6. Improving Budget Transparency and Effectiveness page 84

6.27 A practice of regular reviews of the budget needs to be institutionalized. With computerized management information systems, it would be possible for the budget department to routinely monitor the daily outturns from the budget. However, the monitoring for reporting with a wider distribution outside the MINEFI and the Government should be done at specified intervals - monthly, quarterly, and annual, with each exercise designed to meet the different operational and reporting needs. It would be useful to have a planned process of reviews, with the identification of areas, activities and projects to be reviewed during the fiscal year as part of the budget planning and programming process. Guidelines should be developed for the reviews. Monthly and Quarterly Reviews 6.28 Monthly budget reviews can be useful in ensuring that budget execution is in line with the budget, the resources available and the macroeconomic framework. This should be limited to quantitative comparisons between revenues and spending from the beginning of the fiscal year up to the end of the last month, against what was planned as reflected in the approved budget. Such regular reviews of revenue and spending help to improve cash planning and the realism of budget estimates and plans. The monthly review should be followed by a revision of the spending plans for the rest of the year if necessary. 6.29 Quarterly reviews should include: (i) a quarterly review of actual expenditures against planned expenditure by major categories of expenditures (ministries, sectors, programs and sub-programs) that could be summarized in a report and given wide distribution; and (ii) a review focusing on performance and results of budget operations by budget program administrators, with MINEFI and MINIPLADAT using the information to put together a global picture of progress and problems. This second set could include selective and more intensive reviews carried out jointly by line ministries and MINEFI and MINIPLADAT. This would be particularly useful for multi-year investment budget operations, and would serve to assess results, identify implementation bottlenecks and ways to address them, and to adjust implementation plans and budgets and refocus the project for the achievement of concrete results. These reviews could include targeted client satisfaction surveys - focused for example on the users of agricultural extension advice, the parents of schoolchildren or the users of health services -and periodic measurements of output delivery. For example, it is relatively easy and inexpensive to organize random counting exercises to assess the availability of drugs in rural health centers or text books in schools: such exercises then set a simple benchmark against which future performance may be assessed. Annual reviews 6.30 Annual reviews are essential for supporting the budget planning and programming process and improving budget transparency by informing the public of the results of the budget of the past year. One required annual review process is the settlement law (Loi de Reglement (LDR)) that, by law, should be presented to the legislature along with the new finance law (budget). As noted earlier in this report, the LDR is required to reconcile budget estimates with actual spending but complete LDRs have not been prepared in recent years. The latest attempts at LDRs provide only aggregate data by ministry of amounts approved for payment (ordinancement), not actual payments. 6.31 Reinforcing the LDR: Preparing a detailed LDR that meets the legal requirement is important. However, the current practice is that at year T, the LDR of year T-1 is presented to the legislature with budget (finance law) for year T+1. Thus, the impact of the LDR on the discussion/evaluation of the budget presented for approval is likely to be limited. Furthermore, the LDR does not include an analysis of performance and outcomes and thus will not provoke 6. Improving Budget Transparency and Effectiveness page 85

a constructive discussion of these important aspects of budgeting by the legislature. It is essential to (i) reinforce the LDR with an assessment of performance and outcomes from the budget; and (ii) advance the discussion of the LDR in the legislature by about six months, to coincide with the period of the preparation of the budget for the next fiscal year so that the discussion can inform the budget under preparation. 6.32 Ministerial Reports: Line ministries in Cameroon are required to prepare reports of budget execution but this has not been done with any regularity. It is good practice for line ministries to closely monitor developments in their sectors, for instance the ministry of education would regularly track enrollments and the performance of students in examinations; the ministry of health would track some health conditions and performance and the use of health facilities; while the ministry of agriculture would monitor the production of commodities in the sector, especially in areas where the budget has provided support. These monitoring activities are very useful for assessing budget effectiveness as well as social and economic developments and ministries should receive adequate budgetary allocations to undertake them and make the results available to the public. To support planning and programming, permit stakeholders to follow and assess ministerial activities and enhance accountability, annual ministerial reports should focus on the use of budget resources and the results produced, with efforts to link policies and expenditures to results. These ministerial reports could take the form of annual sector expenditure reviews, undertaken by the ministry staff, which would not only look backwards in terms of performance and outcomes but also look forward in terms of future policies and the medium-term expenditure implications. Other scheduled and Ad-hoc reviews 6.33 Some necessary monitoring and evaluation activities may not fit into a regular schedule but are needed to review results and distil lessons for future actions. Most of these relate to the activities in the investment budget such as ad-hoc reviews of problem projects, scheduled reviews of project performance (for instance a mid-term review) and project completion reports. These evaluations would often require the use of experts from outside the government to assess the performance and results and make recommendations for the way forward. In the case of project completion reviews, the objectives would include an assessment of the project design, implementation performance, results, sustainability of interventions, and the lessons for future activities. This review would also review the disposal of the assets and liabilities of the project consistent with the enabling laws and conventions. Beneficiary Assessments 6.34 Beneficiary assessments are essential elements for assessing the outcomes of budget interventions. In the context of Cameroon, there are two groups of beneficiaries for budget monitoring purposes - the intermediate beneficiaries consisting of the facilities that provide the services, and the final beneficiaries consisting of the people that use and benefit from the services. The first group includes such facilities as schools, hospital and health centers, and agricultural extension services. The public expenditure tracking survey (PETS) was developed as an instrument to assess whether and how and how much of the budgeted resources actually reach the beneficiary facilities. PETS carried out in many countries including Cameroon, has revealed lags and potential leakages in the flow of resources from central budgets to operating facilities around the country. These findings not only reveal serious shortcomings of the public financial management at critical stages as these weaknesses hamper the effectiveness of the delivery of public services. 6.35 For the assessment of the impact on the final beneficiaries, a number of statistical approaches are available such as the household surveys and an abbreviated version of it-the 6. Improving Budget Transparency and Effectiveness page 86

Core Welfare Indicators Questionnaire (CWIQ) survey. In contrast to the household expenditure surveys, the CWIQ is light, and can be carried out and the results analyzed quickly. The questionnaire can be tailored to include questions of specific interest, for instance about the incidence and effects of HIV/AIDS that is not part of the core questionnaire. CWIQ is useful for a rapid statistical assessment of the views of beneficiaries on the services provided by the Government. Other tools for beneficiary assessments include the participatory poverty assessment (PPAs) which has been in use in Cameroon in the context of the PRSP. Finally, the use of statistical approaches for monitoring results and beneficiary assessments would require that the ministries work closely with the statistical agency, and that the latter have to capacity to respond to requests of assistance in carrying out surveys by ministries. Public Expenditure Tracking Surveys 6.36 A public expenditure tracking survey (PETS) is an instrument for tracing the path of budget funds from the treasury to the facilities that use these resources to provide services to the population, assessing the flow and use of these resources and possibly their use by the facilities. PETS was born out of a common phenomenon in many developing countries that budgeted resources were not getting to intended facilitiedbeneficiaries. Thus, the central issues to be resolved by a PETS exercise include how much, when, and in what form did the resources get to the facility, the possible causes of delays and leakages if any, and the systems for accounting for the resources and their uses. PETS could also assess beneficiary satisfaction and benefit incidence. 6.37 Two PETS have been conducted in Cameroon with the assistance of the World Bank. These focused on service delivery in the education and health sectors. A summary of the results from the health survey (see Box 8) provided powerful guidance for policy poor information sharing, the absence of a systematic approach to notifying beneficiary facilities of expenditure authorization, and poor governance and accounting practices at facility. These were powerful findings and provided the basis for specific actions to deal with very specific issues of budget execution as well as governance. Civil society organizations, for example the local chapter of Transparency International, have also started to undertake budget tracking and disseminate the results widely, which would help the population to understand and have information on the budget and perhaps participate in monitoring the budget. This effort requires the full cooperation of the government to be done effectively, particularly in making budget information widely available. Fortunately, the indications are that the government is cooperating with the civil society organizations. It is also important for the Government to adopt the use of PETS as a regular monitoring tool for budget operations. PRSP Monitoring Process 6.38 The PRSP has set ambitious targets for economic growth and social indicators and designed program for monitoring these developments. These monitoring activities includes a number of large statistical surveys (HHES, MICS, DHS) as well as improving aggregate national accounting. The results from these surveys will be useful for reformulating budget policies and support medium-term budget planning and programming, including the preparation of sectoral MTEFs. Similarly, the reports from budget monitoring and evaluation will be critical for assessing progress in meeting the targets set by the PRSP. It is important that monitoring of the budget and that of the PRSP is well coordinated. 6. Improving Budget Transparency and Effectiveness page 87

Box 8: Budget Tracking Survey in the Health Sector The survey, carried out in 2004, reveals that accessibility. transparency, and the timely availability of budgetary resources for the smooth implementation of critical programs are central to improved delivery in health services in Cameroon. In particular, long delays between the promulgation of the State Finances Law and the availability of the resources to the frontline service providers have adversely affected the absorption capacity of service providers, hindered the smooth execution of investment programs, and reduced the quality of the public expenditure. Pervasive information problems reduce the efficiency of the budget allocation and execution process. First, some health centers receive no resources from the Ministry o f Health (MOH) to cover recurrent non wage expenditure. The survey results show that as much as 25% of health facilities surveyed had not been identified in the State Finances Law. Therefore, they did not receive any funds from the central government. Second, facilities that are listed in the government budget often receive no clear information from the MINEFI with regards to their authorized expenditure envelope. Abnormally long delays in the notification of expenditure authorizations hampers activities of health service providers and the efficiency of public expenditure. With no formal notification from the MINEFI to the budget holders, including the head of province or district administrative agency, health care facility managers learn about fund authorization often through word of mouth. This usually happens -- the earliest in February, but often as late as May, of the fiscal year, with regional disparities in the date for the availability of fund. These delays not only translate into difficulties for the absorption of available resources by health facilities, but also adversely affect activities and health outcomes. Surprisingly, this is not reflected in the execution rates o f the recurrent expenditure budgets which varied between 90% and 100% in 2002 and has reached 96% for the first three trimesters of 2003. These high execution rates, however, hide underlying problems in the quality of the expenditure. Because they receive their resources after long delays, budget holders are inclined to precipitate spending before the end of the fiscal year -- thus adversely affecting the quality of spending. As a result, they often find themselves hostages the local suppliers who have mastered the budget game and are apt in the perverse art of overpricing materials and side-contracting. Poor governance entails a high cost to the government. This invariably translates into large losses estimated at one fourth of the budget. The tracking exercise did not uncover serious leakage problems in the sense of intended beneficiaries receiving less than stated in the Finance Law. Effective leakage was estimated at 2%. Overpricing arises as local suppliers (i) anticipate delays and uncertainties into converting their bills in cash at the regional treasury, (ii) price the eventuality of side payments at the treasury level to receive their payment, and (iii) know the budget holder has limited, ifany, room to maneuver. Side contracts between the head of the facility and the supplier also emerge quite often. Indeed, to circumvent the rigidity of the budget which is organized into specific credit lines, a budget holder is tempted to reallocate among the credit lines by asking the supplier to deliver cash for instance on the fuel and gas line. This obviously comes at a cost. As a result, although, the execution rates are close to 1 OO%, the budget holders evaluate the worth of their budget between 67 and 75% of its face value. Poor record keeping at the peripheral level leads to a complete lack of accountability. Facilities do not keep track of their expenses and are not sanctioned to do so in the absence of ex-post controls. As a result, the MoH may know the theoretical execution level of its budget, but cannot gauge whether the budget has been executed as planned. This becomes a major difficulty during the PETS since the lack of information make it difficult to assess the extent to which facilities, in executing their budget, diverged from the MoH plans. For example, such situation may arise if the head o f facility spends the maintenance credit line on furniture or medical consumables, or just cashes the money by signing a side contract with a local supplier. Source: The World Bank, Cameroon, Development Policy Review: A new resolve to sustain reforms for inclusive growth, June 2004 (in process) Development of Systematic Monitoring and Evaluation Capacity 6.39 The section has discussed a number of examples of monitoring and evaluation (M&E) activities and their potential roles in improving governance and the effectiveness of the budget. Some of these activities are carried out in an ad-hoc manner in Cameroon (for instance, the PETS, which were carried out primarily to fulfill the Enhanced HIPC Completion point triggers). As part of its institution building for budget management, Cameroon needs to start to institutionalize M&E. This would involve the creation of the capacity and systems that, 6. Improving Budget Transparency and Effectiveness page 88

on a regular basis, produces monitoring information and evaluation findings that are used in the pursuit o f good governance, judged valuable to stakeholders, and with sufficient demand for the M&E function to ensure its funding and sustainability (Mackey (2006)).55 6.40 Box 9 drawn from Mackey (2006) shows a number of key lessons for building country M&Es. Four points need emphasizing: The process should be demand- Box 9 :Lessons from Building M&E Systems driven rather than supply driven: In. Substantive government demand is a Cameroon the limited efforts on prerequisite for successful institutionalization M&E have been largely supply driven. Demand by the government and domestic stakeholders may be limited because of lack of experience and use of M&E. Thus, it is necessary to build awareness of the potential uses and benefits of systematic M&E as well as changing processes (budget preparation procedures and calendar) to permit the integration of results from M&E Role of Incentives Key role of a powerful champion. Start with a diagnosis of existing M&E Centrally driven, by capable ministry Build reliable ministry data systems. Danger of over-engineering the system. Utilization is the measure of success Limitations on relying on government laws, decrees and regulations Role of Structural arrangements to ensure M&E objectivity and quality. A long-haul effort, requiring patience Incentives: This is an important I aspect for creating demand for M&E. There has to be some incentives for people to use the results of M&E. For instance, where the quality of the preparation of a project/program, including the integration of the lessons from past similar programs, is a key factor in deciding whether a project/program should be included in the budget, or given priority status, M&E is likely to be taken more seriously and results used. Limits of relying on laws, decrees and regulations: Adopting laws and decrees mandating M&E may be useful in legitimizing the process but do not ensure that the considerable capacity building, incentives, coordination, and systems development efforts required for a successful M&E system will be undertaken. Building a sustainable M&E is a long term process: Experience shows that even in developed countries, building sustainable M&E process is a slow incremental process. In a developing country like Cameroon, this can be a challenge because of the difficulties in establishing the appropriate sequence and sustainable pace of activities. Some difficulties also arise from pressures, sometimes from the development partners, 55 Mackey, Keith (2006), ibid. This paper summarizes the experience in setting up country M&E systems and contains a number of very useful references on the subject. The paper is part of the outcome of the extensive work on M&E by the World Bank Group s International Evaluation Group (IEG), formerly the Operations Evaluation Dept (OED). The IEG reports on evaluation (the ECD Working paper series) are available from the World Bank Group website: www.worldbank.ora/iea/ecd. Another paper from the series that is most relevant to Cameroon is on the experience of Uganda on setting up M&E and using it to promote development ( Hauge, Arild, The Development of Monitoring and Evaluation Capacities to Improve Government Performance in Uganda, ECD Working Paper Series, No 10, The World Bank; October 2003.) 6. Improving Budget Transparency and Effectiveness page 89

to quickly establish monitoring and evaluation systems in forms that may not be consistent with long-term needs, does not build on existing systems, and not sustainable. The appropriate approach is to have a realistic and funded medium-term plan for M&E and stick to it. 6.5 Managing Human Resources 6.4 1 Public financial management is a labor and knowledge intensive undertaking requiring strong institutions. In the context of a developing country such as Cameroon, a discussion of PFM reforms would be incomplete without a reference to capacity and institutional development. Relative to other countries in SSA, Cameroon has well trained and qualified people but the operations and performance of the public services do not reflect this accumulation of human capital. Cameroon has carried out a number of reforms in the area PFM over the years but the concrete results from these efforts have been limited. Perhaps, the poor results could be partly due to the lack of a corresponding effort to strengthen the institutional framework and human capacities. Thus, there is a risk that future reforms in PFM and governance reforms will not yield concrete results unless there are sustained efforts for progressive improvements in human and institutional capacity. 6.42 This review of the human resources aspect is not intended to comprehensive but to highlight the importance of institutional and human capacity development for sustained progress in PFM and related areas in the public sector. In this rapidly changing and knowledge based world, it is imperative for government to have continuous programs for knowledge building and institutional adaptation. This is not the case in Cameroon, the result is that ideas for are raised and discussed but never really fully adopted and institutionalized because the required capacity, including through learning by doing, is not developed. For budget management, capacity development comes through formal training as well as on the job training. As it is a largely complex bureaucratic exercise, it requires processes of team building, learning on the job and the maintenance of institutional memory. These processes take time and require staffing and leadership stability to allow teams to work and learn the craft together, share experience and improve team -work skills. This further requires a stable path for career growth for staff, and incentives for them to stay within the system.56 These will be possible in a stable institutional environment with incentives for work and learning. Institutional obstacles 6.43 Sustained development of human and institutional capacity for PFM is unlikely to take place in isolation from rest of the public services and the overarching economic and political institutions in the country. The machinery of government in Cameroon is highly fragmented, with the bureaucracy characterized by a large number of line ministries competing with a growing number of cross-sectoral committees. The result is the lack of rational empowerment of the ministries and even the committees, a confusion of roles, goals and responsibilities, distortion of incentives and poor interagency collaboration. Energy is expended on turf battles rather than on long-term development and delivering services to the population. The excessive institutional fragmentation and overlapping responsibilities can lead to conflicting decisions and difficulties in establishing accountability, and puts a heavy burden on already weak coordination functions. In addition, there are a large number of public enterprises, whose roles 56. [Emmanuel Abuelafia, Sergio Berensztein, Miguel Braun, Luciano Di Gresia (2005): Who Decides on Public Expenditures? A Political Economy Analysis of the Budget Process: The Case of Argentina; Inter-American Development Bank]]. 6. Improving Budget Transparency and Effectiveness page 90

may intersect with those of the government and the private sector. Control of these enterprises by the government is largely circumstantial. This fragmented institutional environment is not conducive to sustained capacity enhancement. Performance related incentives 6.44 The civil service in Cameroon has an establishment roughly estimated at about 165,000 agents, a relatively large number for a population of 16.4 million. However, the exact number of civil servants, consisting of regulars and contracted workers, is not known with precision due to the weaknesses in the systems for keeping track of employees. A consequence of the fragmented institutional set-up is the distortion of incentives for civil servants that undermines the effectiveness of the public service. The lack of transparency and accountability in personnel matters promote staffing decisions more likely to be based on patron-client relationships not on merit. 6.45 As noted earlier in this report, budget processes are poorly implemented due in part to the lack of incentives for good performance. It was noted that the lack of analytical rigor and planning in the budget preparation process is due in part to the lack of demand, recognition and reward for analysis and planning. Some ministries in Cameroon prepare sector strategies and MTEFs, a clear advance for the elaboration of the budget. Until recently these efforts were not even recognized in the budget planning and programming process and not discussed in budget conferences. This lack of recognition does not give the staff in those ministries the incentive to develop the work further, thus, without donor pressure and support, these efforts would have collapsed. The alignment of incentives, monetary and non-monetary, with performance is essential for sustainable capacity development. Low wage levels 6.46 The institutional fragmentation and the distortion of incentives are compounded by the low wage levels within Cameroon s civil service relative to the country s per capita income and to comparable countries in Africa. In the early 199Os, as part of an overall fiscal retrenchment effort, the Government of Cameroon addressed the challenge of reducing the wage bill by cuts in civil service salaries. Real wages experienced further reductions by the currency devaluation and the ensuing high inflation in the second half of the 1990s. The low morale and the widespread corruption in the civil service have been attributed to this low wage policy. Many government employees use the low wage rates to justify some of their shady practices such as influence peddling and profiteering from public work contracts. The widespread acquiescence to these practices has compounded the task of combating corruption. 6.47 However, the wage bill has remained large, officially 5.4 percent of GDP and 33 percent of total expenditures in 2004, excluding the payments for the contract staff and the accumulation of the salary arrears. The Government has over time attempted to respond to the challenges of a large wage bill and a poorly functioning civil service. On the payroll, the strategy was a freeze of regular employment and nominal wages. On the functioning of the civil service, the Government has resorted to the creation of special assignment committees and the use of contract workers. But these have led to unintended consequences including (i) difficulties in managing the payroll and providing financial incentives to civil servants; (ii) the proliferation of these special assignment committees, often intended to be temporary, but usually end up as permanent structures; (iii) the overlap of mandates of committees and line ministries; and (iv) high costs of central administration due to the costs of these committees and the contract workers. Furthermore, these have expanded opportunities for patronage and corruption. 6. Improving Budget Transparency and Effectiveness page 91

Need for Reforms 6.48 Cameroon needs broad public sector governance reforms to develop efficient and transparent public institutions essential for progressive improvements in human resource utilization and capacity development. Traditional civil service reforms that emphasize and ministerial structures and functions, changes in the establishment, and compensation and benefit systems and related performance based incentives, will not be enough for improvements in capacity. Reforms to reduce the institutional distortions and streamline incentives, promote interagency collaboration and combat fraud and corruption will be essential. Reforms would also include changes in the overarching institutional framework, for instance the role of the Council of Ministers, the empowerment of ministries and their staffs in carrying out their responsibilities through an effective decentralization of decision-making, and the integration of technical considerations into national decision making. Strong political commitment to reforms for good governance, the support of the civil society and development partners will be essential to implement and sustain reforms. 6.49 The development of efficient and transparent public institutions would require (i) developing capacity to effectively perform functions such as public administration, policy making and implementation, regulation of economic and social activity, and public service delivery; and (ii) enhancing the state s accountability-both internally among the executive, legislative, and judicial branches, and externally, to citizens, users of public services and other stakeholders5. The reform agenda would be a long-term one, and would be underscored by a shared vision of the public sector and be implemented through a series of medium-term action plans. A diagnostic study of the public sector would be needed to identify the main public sector issues, including surveys of the population to identify their views on the performance of the public sector and its appropriate role, and of the main stakeholders to determine the level of commitment for public sector institutional reforms. 6.50 Wide consultations, including with the existing civil service, would be needed to discuss and understand the problems with the existing system as a background for articulating a long-term vision of the public sector, sensitize the population on the proposed changes and establish the scope of the plans for reforms. These plans should be synchronized with the plans to reform public financial management including the adoption of the MTEF, and the national program of governance. The approach should avoid any semblance of a major institutional surgery, staff retrenchment or comprehensive civil service reforms, where a large number of reform actions are attempted simultaneously. Rather, it should emphasize the establishment of a vision, the sequencing of actions over the medium-term; and the framework for implementation, monitoring of progress and consultations with stakeholders.. This is consistent with the PRSP approach to institution building and reform.58 Managing the Payroll 6.51 The challenges of human resource management in the public sector Cameroon are illustrated by the difficulties in managing the staffing and payroll. The development of an effective civil service requires sustained actions over the long-term, the sustaining the improvements would depend on the systems and capacity in place to control its staffing and See World Bank, The Public Sector Governance Reform Cycle: available diagnostic tools; PREM Notes Number 88, July 2004 www 1.worldbank.orglpremlotesps.cfm 58 The PRSP process could be used to establish the vision and reform framework. The next revision of the PRSP could make governance and public administration reform as a major focus of the PRSP, and given emphasis in the consultations of the population. 6. Improving Budget Transparency and Effectiveness page 92

manage associated costs (payroll): How many of them? Where does each staff work? What does each do? What qualifications does the staff have and how is it related to hidher position and tasks? What is the appropriate pay for each position and the incumbent? These questions also have significant implications for any efforts to effectively manage and reform the civil service and for the formulation and execution of the annual budget. Indeed, a good budget process covers, not only the allocation of financial resources, but allocation of human resources as well, to ensure coherence in the use of all resources. Cameroon has attempted reforms in personnel management but does not yet have a proper handle on the control of the establishment and the management of the payroll. This is a source of fiduciary risk. The management of the payroll is largely a technical function, requiring the implementation of tasks in accordance with established laws, regulations and policies. However, where the policies are not clear and the controls on staffing are inadequate as in Cameroon, management of the payroll can be difficult, provide opportunities for fraud and corruption, and create uncertainty about how much government spends on the wage bill, and the accumulation of contingent liabilities in the form of arrears on salary payments. Budgeting for the payroll 6.52 The best practice in managing the payroll is that the staffing needs by positions of the agencies and units within them are determined during the budget preparation. Agreement on the disaggregated numbers of staff by ministry/programs provides the basis for disaggregated budget allocations for wages. This process provides for consistency between the aggregate wage bill and the overall desired staff establishment, facilitates hiring and deployment decisions and the control of the overall establishment and in particular, the control of the use of contract employees. In Cameroon however, there is no direct link between the actual staffing and the budget for the wage bill. The estimates of the wage bill are made rather mechanically, based on the actual expenditures on wages and salaries in the previous year, neither on the basis o f the establishment needed to execute the planned program, nor the wage bill due (actual plus arrears) for the previous year. This reflects the lack of rigorous planning in the budget process. A s long as the budget estimate for wages and salaries is not determined by the numbers and types of positions and corresponding pay scales, the estimates of the actual wage bill, the salary arrears and the size of the personnel establishment are not likely to be accurate and credible. Part of the payments for contract staffs is paid from the budget allocations for goods and services, although how much is not known. Thus, the recorded payments from the budget allocation for the wage bill are unlikely to reflect the actual staffing costs. Execution of the Payroll 6.53 The payroll is managed by the Directorate of Payroll (DP) under the Director-General of the Budget (DGB) in the Ministry of Economy and Finance. The DP liaises with the Ministry of Public Service (Fonction Publique) for the verification of the legal and administrative positions of the civil servants. The personnel files of staff in the ministries are held centrally and monitored empirically by the DP. A pilot decentralization of the personnel management function was introduced about 3 years ago, with an integrated management system (SIGIPES software) linking the pilot ministries and the DP. It was envisaged that this decentralized system would permit a vigorous monitoring and timely updating of personnel files thus ensuring the accuracy of the information for the determination of payments of salaries and benefits. Since the pilots have not been fully implemented, there are yet no lessons from the experiment. 6.54 A census of civil servants is underway; this will help to update o f the personnel files. However, it is essential to establish a management information system for the payroll that 6. Improving Budget Transparency and Effectiveness page 93

ensures that the information on every staff member is secure, with accurate and up to date information. The MIS currently in use for the payroll (ANTILOPE) has had operational interruptions and security problems. With a secure system, targeted censuses can be held from time to time for selected staff/agencies to ensure the validity of information on the files and assess the overall rate of errors in the system. Decentralization can help in maintenance of accurate personnel records but only in the context where the annual budget process provides allocations to a payroll budget of each ministry based on agreed staffing plan for the ministry. There would also be a need for rigorous monitoring and oversight by the Ministry of Public Service to ensure that these staffing plans and payroll are respected and decentralization does not present opportunities for corruption and fraud and contingent liabilities for the Government. Control over the Payroll 6.55 To progressively enhance the control over the civil service establishment and payroll, the following measures are recommended: = To introduce progressively the management system of the "obs by budgetary positions" and establish a direct link between the personnel of every ministry and the corresponding budget allocations for wages and salaries; To pursue actively the decentralization of the management of the personnel while deploying the application of SIGIPES after its assessment in the pilot ministries; To reinforce the capacity for managing the payroll and related information systems of the DP, the Ministry o f Public Service and related units in the other ministries; = To reinforce and to secure the circuit of the information on payroll data between the DP and the employing ministries; To put in place on a permanent basis, an instrument in the Ministry o f Public Service, for monitoring and control of the use o f contract staff. 6.6 Spending and Performance of Parastatal Agencies 6.56 A notable feature of the Cameroonian economy is the major role of public enterprises in the economy, dominating a broad range of economic activity, particularly in manufacturing and agro-business. Cameroon has about 300 public enterprises in petroleum, other energy, airlines, water, aluminum, palm oil, rubber, cotton, and other influential sectors of the economy. However, many of these have lost their original vision, are poorly managed, run large losses, accumulate liabilities of the Cameroonian state. These constitute a budgetary drain and pose considerable risks to public financial management. Furthermore, these enterprises comprise the major part of the infrastructure that promotes patronage and corruption. Dismantling this extensive infrastructure will be an important element for improving governance in Cameroon. 6. Improving Budget Transparency and Effectiveness page 94

The Burden of Poor Performing Public Enterprises 6.57 Many of the public enterprises have accumulated debts and need state subsidies to meet operational expenses including staff salaries, a financial burden on the national budget and the accumulation by the government of real and contingent fiscal liabilities. The Government subsidies to these enterprises are often unanticipated and therefore not budgeted, thus these subsidies are often at the expense of legitimately budgeted activities, eroding the credibility of the budget process and contributing to the low and inefficient budget execution. The large losses in the airline (CAMAIR), electricity (SONEL), and telecommunications (CAMTEL) sectors in 2003, which together amounted to close to FCFA 100 billion led to unanticipated and unbudgeted expenditures by the Government. The weak financial position of public enterprises in 2003 and 2004 contributed to a massive accumulation of arrears, rendering the PRGF arrangement with the IMF off track and delaying the attainment of the HIPC completion point. The accumulation Chart 11: Fiscal Debts of Key Public Enterprises (CFA billions) SONEL CAMAIR CAMTEL of cross-debts between the public enterprises and the Government also creates difficulties for commercial banks that sometimes passively and indirectly finance these debts. Thus the poor performance of public enterprises and the efforts by the Government to keep them afloat erodes effectiveness of the state budget and imposes substantial costs to the economy. 6.58 The most prominent among the financially distressed public enterprises has been the national airlines company, CAMAIR. The company, which has 96 percent of capital held by the Cameroonian state and 4 percent held by Air France, has been in considerable financial distress for many years. Government financial support has kept the company afloat, and repeated attempts to revive the bankrupt enterprise since 1995, the year CAMAIR was put in a list of companies to be restructured, have not been successful. The estimates of its debt range from FCFA 50 billion (76 million euros) to FCFA 70 billion (close to 100 million euros). Efforts have been underway since 2005 to privatize CAMAIR. 6.59 In the telecommunications sector, Cameroon's fixed-line telephone company (CAMTEL) has struggled under the combined weight of accumulated debts as well as government arrears to the company. While private operators have entered the mobile telecommunications sub-sector, the plans to privatize the state phone company launched in 1997, was declared inconclusive in 2002 after negotiations with the first and second bidders failed. The GOC has pledged to end the state monopoly and sell the company by the end of June, 2006. Debt problems plague other important public enterprises, particularly in the energy, oil, and postal system. The local refinery (SONARA) incurred large losses in 2004 due to a suspension in the mechanism for adjusting national prices to international oil prices. The GOC has pledged to raise fuel prices and make budgetary transfers to SONARA to compensate for consumer subsidies. The water utility (SNEC) accumulated large debts to private suppliers and the initial the attempt at restructuring/privatization was not successful. 6. Improving Budget Transparency and Effectiveness page 95

Finally, CAMPOST, the postal savings bank, is bankrupt and requires government cash injections to pay depositors. 6.60 Contingent Liabilities: Public enterprises have been a major source of contingent liabilities for the Government. It is hard to get a precise handle on the magnitude of the government s contingent liabilities, but the government s guarantees for Cameroon s banks and enterprises, especially the parastatals described above, are significant. While the government sold its last bank in 2000, it is still legally responsible for assisting troubled banks in case of default. Furthermore, the country s state insurance schemes and pension funds are also guaranteed by the Government of Cameroon. The costs of public enterprise restructuring that will be borne by the budget can change substantially as further losses accumulate as liabilities that are not currently known are discovered. These contingent liabilities put at risk the sustainability of the government s fiscal program. The absence of a proper regulatory framework or supervisory institution also adds uncertainty to the government s fiscal bill. A detailed study of the contingent liabilities is needed for the government to prepare to confront this risk. Reform of Public Enterprises 6.61 With the enactment of the General Statute of Public Enterprises in 1999, Cameroon launched its public sector reform process of public enterprise restructuring and privatization. There has been some progress on the restructuring and privatization of activities in the ports, agro-industry and utilities, as well as liquidation of some nonperforming companies, but the complex political economy in the country has rendered public sector reform process a difficult and slow one. Progress has been very slow and in the meantime, there has been a continued financial and operational deterioration of public enterprises. The shadow of privatization has heightened uncertainty about the future and resulted in a management culture that is not forward looking and does not encourage risk taking and innovation. 6.62 The case for privatization/liquidation of these troubled enterprises is stronger than ever. With further delays, the costs of eventual privatization/liquidation would continue to rise and crowd out the funding of budget priorities, particularly the investment budget, and undermine the growth and poverty reduction efforts. The Government appears to be responding to pressures and has made commitments to reform and to privatize public enterprises as part of its medium-term fiscal and structural reform programs (see Box 2). It is engaged in a systematic study of the viability of these enterprises and a systematic revision of collective agreements regarding salaries and workers rights, and has reinvigorated efforts to restructure/privatize/liquidate a number of troubled public enterprises (CAMAIR, CAMTEL, CAMPOST, SNEC, etc). 6.63 To this end, the Government has been allocating resources in the investment budget for public enterprise restructuring. In 2004, this allocation amounted to 7.7 percent of the investment budget, but it was not sufficient to meet the needs of the restructuring process. The provisions made in the budget for these allocations amounted to FCFA 40 billion and FCFA 82 billion in 2005 and 2006, respectively. The resources have been dedicated to the privatization of CAMTEL, CAMAIR, and CDC, to establish a public-private partnership (SNEC) for water, and implement a restructuring plan for CAMPOST and SONARA. The Government has also committed to pay on a timely basis, for all the services it receives from public enterprises and utilities. 6.64 In 2004, the Government launched another major effort to deal with CAMAIR. It announced a plan for a scission-liquidation of the company and the termination of the government s policy of payments of salary arrears and enterprise debts. Scission-liquidation 6. Improving Budget Transparency and Effectiveness page 96

involves the identification and liquidation of the bad assets of the company and the privatization of the good assets. This process was expected to be completed in mid-2006 and lead to a new private airline replacing CAMAIR59. The estimate of the costs of restructuring was close to 1 percent of GDP against budget provisions in the investment budget of 0.2 percent of GDP for all enterprise restructurings. 6.7 Assessment of the Fiduciary Risks in Key Areas 6.65 There are three main sources of fiduciary risk in public financial management: (i) resources are not used for intended purposes (diversion or crowding out risks); resources are not properly accounted for (accountability); and (iii) resources are not used in ways that achieve full value for money (effectiveness/efficiency). This report s review of the operations and performance in several areas indicate that, in general fiduciary risks in the PFM system are high, more so in some areas than others. Table 10 summarizes the elements of fiduciary risk associated with the key areas of the Cameroon public financial management process, with rankings of low/moderate/high/very high. This overall high level of fiduciary risks in several areas reinforces the conclusions that the PFM system does not function effectively in delivering public services. It also reinforces the need for urgent and sustained action in reforming the PFM and related public sector institutions, developing capacities, holding regular consultations and dialogue with principal stakeholders, systematic monitoring of performance including outcomes, and undertaking regular analytical work to assess progress and pave the way for further actions. Therefore the Government should give priority to the preparation of a coherent action plan for improving public financial management that has been under discussion with the Donor PFM Platform since 2005. The preparation of this plan would help to unlock donor financial assistance to the Government for implementation of programs based on the action plan. 59 The privatization process was brought to the point of sale but it ran into last minute problems and was not successfully concluded. 6. Improving Budget Transparency and Effectiveness page 97

Table 10: Fiduciary Risks in Key Areas Area Estimates and allocation of budgetary expenditures Collection and estimating of budgetary revenues Engagement, liquidation and payment order of budgetary expenses (administrative phase of the expenditure circuit) Use of exceptional procedures in budget expenditures Observations Estimates of budgetary expenditures do not cover the entirety of government's activities. Budget planning and programming is weak, the process is often rushed (compressed budget calendar), budget objectives and policies are not clearly articulated, and the PFM process lacks systematic input, output and outcomes monitoring and analysis. The PRSP and the MTEF, recognized instruments for aligning budget choices and allocation to government policies, has not been used rigorously in formulating the ministerial/sectoral budgets. These engender risks of misalignment of budget allocations and development objectives, with expenditure choices and allocations are likely to be sub-optimal in the sense of not being aligned to stated government development objectives and policies such those in the PRSP and increase risks of diversion of resources and accountability. While there are problems and high risks of accountability in the collection of revenues, the estimation of revenues has been fairly close to the realization. The execution of the budget involves a large number of intervening parties and transactions, including comprehensive procedures for apriori controls. The multiplicity of procedures, with some redundant, steps, prolong the expenditure circuit but do not necessarily mitigate the fiduciary risks. Rather, they slow down budget implementation, diverting the energies of the staff to dealing with the transactions costs of the system rather than focusing on the outcomes of the spending. The also provide opportunities for corruption. Overall, the system of budget execution impairs the achievement of value for money, hampers accountability and provides the scope for diversion of resources. Although the legislative and regulatory instruments for special procedures are appropriate, their excessive use (management of advances notably) creates very high risk of diversion of resources and accountability. Overall level of risk high moderate very high very high 6. Improving Budget Transparency and Effectiveness page 98

Area Procurement Payment phase of the execution of the budget (Accounting phase) Public debt Management Execution of the payroll Treasury management Public Enterprise Management Public Accounting Reporting and Oversight Observations The main risks here relate to value for money. While foundations of a sound procurement systems are in place, delays in procurement, due in part to lack of capacity, continues to hamper budget implementation. The uneven enforcement of the procurement regulations also presents some risks of diversion of resources. The controls necessary to reduce risks in the payments phase are not effective or do not function. The modalities for monitoring and making payments on the known public debt appear to function relatively well. However, there are some significant risks of accountability in debt accumulation that stems from the problems of the payments phase of budget execution, the use of special procedures and off budget expenditures. The system for the management of payroll does not function adequately despite the significant investment made in the reforms and the establishment of a management information system for the payroll. There remain significant risks of accountability and diversion/crowding out of resources that stem from lack of proper controls of the staffing establishment and the poor maintenance of the payroll management systems. The risk is systemic; it is founded on the absence o f independent internal controls within the services responsible for the state treasury. Public enterprises face financial and operational difficulties, make unanticipated demands on public finances and are sources of contingent liabilities for the government. The reduction of the period for the production of the accounting balance makes the risk on the management of available funds moderate. The combination of weak internal control and absence of production of management and administrative accounts leads to a high risk that mistakes and difficulties in identifying fraud and illegal diversion of funds. The legislature is not provided with adequate and timely information and accounts on the management of public accounts for it to exercise its oversight functions. Overall I level of risk I high I I I high moderate very high. high very high moderate high 6. Improving Budget Transparency and Effectiveness page 99

Annex 1: Cameroon: Public Expenditure by Sector 2004 Table 11: CAMEROON PUBLIC EXPENDITURE 2004 BY SECTOR (CFA BILLIONS) Dotation Sovereignty 87.2 Wages and salaries 22.9 Goods and services 33 Own resources 29.7 Transfers 1.6 Engagement Disponible OrdonnancementExecution (% of Tota1F;xecution Rates(% Ord/Dot 76.9 22.4 26.5 26.4 1.6 10.3 0.6 6.5 3.2 0.0 75.1 22.4 25.4 25.9 1.4 5.84 1.74 1.98 2.01 0.11 86.12 97.82 76.97 87.21 87.50 Defense 158.9 Wages and salaries 129.7 Goods and services 17.9 Own resources 10.9 Transfers 0.4 150 126.7 14.0 9.0 0.3 8.8 3.0 3.8 1.5 0.5 148.8 126.7 13.2 8.6 0.3 11.58 9.86 1.03 0.67 0.02 93.64 97.69 73.74 78.90 75.00 General Administration 96.7 Wages and salaries 41.8 Goods and services 22.1 Own resources 29.7 Transfers 3.1 83.7 40.6 16.0 24.1 3.0 13.1 1.2 6.2 5.6 0.100 81.9 40.6 15.3 23.0 3.0 6.37 3.16 1.19 1.79 0.23 84.69 97.13 69.23 77.44 96.77 Education 259.1 Wages and salaries 185.8 Goods and services 31.8 Own resources 40.0 Transfers 1.5 222.7 175.1 17.5 28.7 1.4 36.4 10.7 14.3 11.31 0.09 214.9 174.5 14.5 24.5 1.4 16.72 13.58 1.13 1.91 0.11 82.94 93.92 45.60 61.25 93.33 Culture and Sports 20.3 Wages and salaries 10.4 Goods and services 7.2 Own resources 2.4 Transfers 0.3 16.7 9.9 4.8 1.8 0.2 3.6 0.4 2.4 0.75 0.05 16.1 9.9 4.4 1.6 0.2 1.25 0.77 0.34 0.12 0.02 79.31 95.19 61.11 66.67 66.67 Health and Social Services 88.7 Wages and salaries 34.7 Goods and services 27.5 Own resources 26.1 Transfers 0.4 62.8 32.1 13.3 17.1 0.3 25.9 2.6 14.2 9.01 0.09 54.6 32.1 11.3 10.9 0.3 4.25 2.50 0.88 0.85 0.02 61.56 92.51 41.09 41.76 75.00 nfrastructure 137.3 Wages and salaries 18.6 Goods and services 25.6 Own resources 66.2 Transfers 26.9 91.7 18 14.5 46.9 12.3 45.6 0.6 11.1 19.3 14.6 82.6 18 13.6 39.3 11.7 6.43 1.40 1.06 3.06 0.91 60.16 96.77 53.13 59.37 43.49 'roduction 58.1 Wages and salaries 25.4 Goods and services 19.1 Own resources 9.9 Transfers 3.7 46.6 24.4 12.6 6.6 3.0 11.4 1.o 6.4 3.3 0.7 44.2 24.4 10.9 6.0 2.9 3.44 1.90 0.85 0.47 0.23 76.08 96.06 57.07 60.61 78.38 Ithers 640.6 External debt payments 129.5 Internal debt payments 240.5 Wages and salaries 1.5 Goods and services 33.1 Own resources 135.2 Transfers 100.8 570.6 129.5 240.1 0.9 29.7 124.6 45.8 69.7 0 0.4 0.6 3.4 10.4 54.9 567.1 129.5 238.9 0.9 28.0 124.1 45.7 44.12 10.07 18.59 0.07 2.18 9.65 3.56 88.53 100.00 99.33 60.00 84.59 91.79 45.34 ;RAND TOTAL 1,547.0 1321.7 225.3 1285.4 100 83.09 ource: Government of Cameroon (Direction of the Budget) Annex page 100

Annex 2: Calendar of Execution of the State Budget Beginning of the fiscal year operations of year N mstructions on the execution and control of (December 3Is' year N) End of thcommitments of new spending 1 9 Decem& 30th year N) 1 / i ovember 1st April 1st * Nomination ofcredit administrators Distribution ofthe Bons de Engagemenr ei Eons de Commande * Beginnmg of the use of credits UI the ministries / beptember 1st / /\ - Budgetary Execution (Year N) 1 st / May lsj \ Budgetary Execution I wearv ~ management accounts of publlc fmances of Year N (May31"YearN-1) Annex page IOI

Annex 3: The 2 Phases, 18 Stages and 21 Actions of the Circuit of Expenditures on Goods and Investment Operations Financed by Internal Resources A. THE COMMITMENT I. Administrative Phase ADMINISTRATOR OF CREDITS FINANCIAL CONTROL (FC) ADMINISTRATIVE SERVICE CHIEF OF THE FC FC: Service of the Commitments Accounting (Office of Accreditations) FC: Legal Service for Commitments CHIEF OF THE FC DIRECTION OF THE BUDGET FC: Service of Commitment Accounting (Bureau du pool de saisie) 1. Establishes and transmits to the Financial Controller (FC), a certificate of commitment (bon d engagement (BDE)) in favor of the supplier, accompanied by supporting documents justifying the commitment of the expenditure* Verifies the conformity of the file - Registers the file of commitment. 2. Assigns the file to the Service of Commitments Accounting (Service des engagement comptables) 3. Verifies the accreditation of the administrator of credit and certifies the BDE (gives a visa). 4. Verifies the regularity and the legality of the expenditure as well as the market price and transmits the file to the Chief of the FC. 5. Cerifies the BDE and transmits the file to the Direction of the Budget for issuing the certificate of confirmation of credits (Titres de Confirmation des Creances (TTC or cartons)). 6. Receives the file, issues the TTC and sends the file back to the FC. 7. Enters the credits in the computer system 8. Sends back the BDE and its documentary evidence as well as the TCC to the Financial Controller for distribution to the Administrators of Credit who can thus place order to the supplier or the service provider. B. THE LIQUIDIDATION RECEPTION COMMITTEE6 9. Verifies the service provided or the supply of goods and gives a PV of receipt signed by all members. When the amount of the expense is lower to 200.000 FCFAF, the verification of the service made is made by the comptable matiere. 6o This committee consists of : (i) the beneficiary of the service/works or its representative as the President of the Committee; (ii) another member designated because of hidher competence; (iii) the provider of the service/works; and (iv) an assets accountant (comptable matieres) or contols engineer for the works and studies, as the rappoteur (secretary). Annex page 102

ADMINISTRATIVE SERVICES FC Commitment Accounting (Pool de saisie) Legal Service for Commitments CHIEF OF THE FC documentation mentioned above accompanied by a certificate o f delivery or the attestation of service made and the PV of receipt duly signed. 11. Transmits the file to the FC Collects the file of liquidation and transmits it to pool of computer entry 12. Collects the file and transmits it to the verifiers 13. Controls the regularity and the legality of the liquidation and transmits the file to the Chief of the FC. 14. Affix the seal" VALIDATED EXPENSES" on the TCC and transmits the file to the authorizing officer (ordonnateur) for authorization of payment. C. PAYMENT ORDER ADMINISTRATORS OF THE CREDITS CHIEF OF THE FC DIRECTION OF THE BUDGET DIRECTION OF THE TREASURE/PAYER GENERAL OF THE TREASURARY DIRECTION OF THE BUDGET MAIL DB / DDI 15. Signs the TCC 16. Registers the file of authorization, enters the information into the computer system and transmits this file to the financial controller. 17. Verifies the regularity and conformity of the file and transmits it to the Direction of the Budget. 18. Closes the liquidation: signs the BDE and the TCC to confirm liquidation and the due date of the credit. 19. Publishes the listings of payment from IBIS, the computer system, and transmits the file to the Directorate of the Treasury for payment. 20. Verifies the regularity of the expenditure (availability of the credits, absence of opposition, assignment of expenditure, presence of justifying documents and appropriateness of the accounts) and certifies the different documents. 2 1. Signs the warrants and statements of payment Transmits the file to the public accountant. 11. Accounting Phase D: THE PAYMENT DIRECTION OF THE TREASURY / PAYMASTER GENERAL OF THE TREASURARY(PGT) 22. Records the authorization (ordonnancement) in the computing application PATRIOT and makes the payment. Annex page 103

Annex 4: The Procurement Action Plan6' The action plan is articulated around the four pillars constituting the principal axes of the reform, with a series of actions to be carried out over the three years. At the time of the discussions of the priorities and the action plan in August 2005, an estimate of the costs of setting-in and implementation was prepared. The options of financing of the priority activities were also discussed with the Government and the development partners active in the country. PILLAR 1 : LEGAL FRAMEWORK AND REGULATION Equip Cameroun with a legal and regulatory framework in conformity with the international standards 1.1-1.2-1.3-1.4-1.5 Publish the circular on the application of the Code. Finalize and disseminate the manuals of procedures. X Ix I I l l Finalize the general administrative X conditions for contracting (CCAG) and put it in force. Adopt and disseminate the Ix 1 standard competitive bidding I I to complement the provisions of the Code relating to the delegation of procurement responsibilities to public services. End Dec 2005 End Mar 2006 End Dec 2005 (a> at the End Mar 2006 and (b) contin uous End Dec 2006 Applicability of the Public Procurement Code. Disseminate the standard documents. Disseminate the CCAG Disseminate the standard documents. Applicability of the Public Procurement Code. PM PM / ARMP PM I ARMP ARMP I Administration concerned I Consulting 6' Source: Banque Mondiale: Rapport Analytique du System de Passation de Marche Public (CPAR) au Cameroun; August 2005. (Translated from French) Annex page I04

Equip Cameroun with a legal and regulatory framework in conformity with the international standards Improve the programming the biding process, the follow-up of execution, and control of public procurement. A fvst-class and functional Agency of Regulation of Public Procurement (-1 Improve the collection of documentation 1.6 I Put in place regulations and procedures for prohibiting a firm or an individual indefinitely or for a given period fiom tendering to a public procurement if it is found by a sanctions committee or a legal apparatus that the firm or the individual directly or through an agent, has engaged in practices of corruption, of hud, physical collusion or threats in the hework of a public - procurement bidding process. 1.7 Undertake a study to speclfy the conditions for of use of national tenders andor of international tenders. - 1.8 Specify with a circdar the responsibilities of the contracting authority (Ma?& d Ouvrage (MO)) and the delegated contracting authority (MOD) for archiving and preserving of the original documents for the public procurement. - X JUn 2006 End JUn 2006 End Dec 2005 the practices of corruption, hud, collusion or of physical threats Applicability of the Public Procurement Code. PILIER 2 : The INSTITUTIONAL FRAMEWORK AND CAPACITY DEVELOPMENT - - 2.1 X - 2.2-2.3 Install an information processing system dedicated to the planning, implementation, monitoring and the control of public procurement and to make it available via the website of the ARMF. Ensure the effective payments by MO and MOD to the Special Account for the regulation of public procurement activities. Give instructions to the contracting entities to transmit to the ARMP all documentation relating to public procurement activities. delays in the procurement process. End Assured Nov financingofthe 2005 regulatory function. End Improvements Dec inthe 2005 collection and archiving of i om ti on. I CSE / MINJUSTI CE I CONSULT- ING PM ARMP / CONSULT- ING PM I MINEFI PM Annex page I05

Elaborate a national strategy of Training 2.4-2.5-2.6-2.7 Develop a national strategy for the reinforcement of the capacity for public procurement in the public sector as well as in the private sector. Define the role and the responsibilities of the ARMP as the authority on the training in public procurement (national strategy) and its relationships with the agencies responsible for assuring the execution of training. Give ARMP the responsibility for the conception and supervision of the procurement-related training schemes, as well as the monitoring and the evaluation of the programs offered by organizations specialized in related capacity building. Include public procurement in the core curriculum of the major schools of management and training for the administration's senior staff. X - X - X - X End JUn 2007 End JUn 2007 End JUn 2007 End JUn 2007 Bringing all the actors in the system of public procurement to the same level of knowledge. The development, with the assistance of specialized agencies in training, of national expertise on regulation, execution of public procurement, audits, controls ex-ante and expost, the handling of appeals and the application of sanctions. ARMPI CONSULT1 NG I MINESUP PMIARh4F I CONSULT- ING ARMPI MINESUP I Institutes of Training ARMPI MINESUP I Institutes of Training PILIER 3 : The OPERATIONS OF PUBLIC PROCUREMENT AND PRIVATE SECTOR PERFORMANCE - 3.1 X Professionnalize the system of making of the public procurement. Ensure an efficient management of the databases 3.2 Set-up objective criteria of selection of the personnel for public procurement in terms of training and experience. Validate and apply the results of the study on the harmonization of the procedures and the improvement of the performance in archiving at the national level and implement the results. - X (4 End Dec 2006 et (b) End Jan 2006 Qualified and skilled actors Useful databases to evaluate the performance of the actors and the management of public procurement. ARMP I CONSULT- ING ARMPI CONSULT- ING Annex page 106

Professionalize management contracts and the resolution of the 3.3 I Adopt the implementation texts relating to the procedures for amicable settlement envisaged in the Code. X I I I End I Applicabilityof Jun thepublic 2006 ProcurementCo de. I MTNJUSTI CE Program Reinforcement of the Capacities 3.4 ARMP technical assistance to the MOs and DMOs for the monitoring and execution of the procurement contracts. 3.5 Reinforce competences of the actors involved in the monitoring and execution of the contracts and the settlement of e litigations. 3.6 Develop centers of competence to support the action of those responsible for the monitoring and execution of contracts and settlement of litigations. Continuous. II Continuous. End Jun 2006 Practices in conformity with international Standards. Qualifiedand skilledactors ARMP ARMP I MINJUSTI CE I Institutes of Training ARMP I MO I MOD CONSULT- ING 3.7 Put in place programs of training and the reinforcement of capacities provided by the ARMP and other specialized training agencies. Mechanisms of control leading to effective sanctions. PILIER 4 : THE INTEGRITY OF THE PUBLIC PROCUREMENT SYSTEM - - 4.1 x - 4.2 4.3 Within the Wework of the study on sanctions, put in place provisions to ensure that contracts awarded in violation of the rules of good governance, trading of favors, conflict of interest or collusion, are cancelled. Ensure that the bidders and contractors that feel wronged in the procurement process or in the execution of a contract, have a right of recourse and to obtain appropriate compensation for damages. Continue the training of the new actors of the system and ensure the continual updates for those already trained. - x Cor inuous End Dec 2005 Ensured effective sanctions. End More precise Dec texts reducing 2005 the discretionary capacity of the Authority in charge of the public procurement. PMIARh4P PM I ARMP ARIm Annex page 107

Centralize the manage men t of mechanisms of recourse and to improve the decisionmaking which results from the process. Improve the diffusion of information relating to the actions of fight against corruption and sanctions in the public procurement field. Improve the diffusion of information relating to the actions of fight against corruption. 4.4 4.5 4.6-4.7-4.8 4.9-4.10 Finalize the internal procedures manual for the management and processing of the complaints by ARMP. Reinforce the procurement services of MO and MOD by providing them with the instruments for analysis, conservation of documents and the methods guaranteeing the respect of their obligations to transmit documents to the ARMP. Publish the complaints and the decisions in the (( Journal des Marchds Publics )) JDM and on internet site of the ARMP. Publishing in the JDM the decisionsin the infiingements of public procurement process Publish the list of hns prohibited fiom bidding for public tmcurement contracts. Ensure the access to information through the Information Education and Communications (IEC) campaigns. Within the Wework of the study on the sanctions, to envisage the constitution of a team that will receive and investigate all the complaints relating to infiingements of the regulations of the public procurement, and to undertake legal action against the people who, according to investigations', have contravened the regulations of the public procurement. This team would constitute the correspondent of the ARMP. x - - cor - X inuous Continuous Continuous Continuous - X End JUn 2006 -- End Dec 2006 End JUn 2006 An effective management of centralized complaints. Improvement of the performance of the procurement services. Improve the transparency of the decisions taken and ensure a broad diffusion of these. Complaints are effectively taken into account. PM/ARMP ARMP ARMP ARMP PM I MINJUSTI CE / ARMP Annex page I08

r 4.1 1 Design and organize training on the regulation of the public procurement for judges and magistrates. I x I Sept 2005 to End Dec 2006 effectively equipped to make decisions relating to public procurement and contracts. Annex page 109