Document of The World Bank FOR OFFICIAL USE ONLY Report No: PGD30 INTERNATIONAL DEVELOPMENT ASSOCIATION PROGRAM DOCUMENT FOR A PROPOSED DEVELOPMENT POLICY CREDIT IN THE AMOUNT OF EUR 179.5 MILLION (EQUIVALENT TO US$200.0 MILLION) TO THE REPUBLIC OF CAMEROON FOR A SECOND FISCAL CONSOLIDATION AND INCLUSIVE GROWTH POLICY FINANCING August 1, 2019 Macroeconomics, Trade and Investment Global Practice Africa Region . This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Republic of Cameroon GOVERNMENT FISCAL YEAR January 1 – December 31 CURRENCY EQUIVALENTS (Exchange Rate Effective as of May 31st, 2019) Currency Unit = Central African Franc (CFAF) US$1.00 = CFAF (588.51) US$1.00 = EUR (0.89718300) ABBREVIATIONS AND ACRONYMS AFD French Development Agency (Agence Française de Développement) AfDB African Development Bank ARSEL Electricity Sector Regulatory Agency (Agence de Régulation du Secteur de l'Electricité) BEAC Bank of Central African States (Banque des Etats d'Afrique Centrale) CAMTEL Cameroon Telecommunications CAMWATER Cameroon Water Corporation CAN Africa Cup of Nations CAR Central African Republic CDE Cameroon Waters (Camerounaise des Eaux) CEMAC Central African Economic and Monetary Community (Communauté Economique des Etats d'Afrique Centrale) CENAME National Center for Provision and Medicines and Essential Medicines and Medical Consumables (Centre d'Approvisionnement en Médicaments et Consommables Médicaux Essentiels) CNAMSMD National Council for the Monitoring and the Evaluation of the National Textbook Policy (Conseil National d'Agrément des Manuels Scolaires et des Matériels Didactiques) CONAFE National Trade Facilitation Committee (Coordonnateur du Secrétariat Technique du Comité National de Facilitation des Echanges) CPF Country Partnership Framework DPF Development Policy Financing DSA Debt Sustainability Analysis DSCE Growth and Employment Strategy Paper (Document de Stratégie pour la Croissance et l'Emploi) ECF Extended Credit Facility ENEO Cameroonian Energy Company EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product GOC Government of Cameroon GRS Grievance Redress Service GUCE Single Window for Foreign Trade Operations (Guichet Unique des Opérations du Commerce Exterieur) HCI Human Capital Index HRM Human Resources Management IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IFRS International Financial Reporting Standards IMF International Monetary Fund MFD Maximizing Finance for Development MINEPAT Ministry of Economy, Planning, and Regional Development (Ministère de l’Economie, de la Planification et de l’Aménagement du Territoire) MINFI Ministry of Finance (Ministère des Finances) MINFOPRA Ministry of Public Service and Administrative Reform (Ministère de la Fonction Publique et de la Réforme Administrative) MINMAP Ministry of Public Contracts (Ministère des Marchés Publics) MINSANTE Ministry of Public Health (Ministère de la Santé Publique) MINSEC Ministry of Secondary Education (Ministère des Enseignements Secondaires) MINT Ministry of Transports (Ministère des Transports) MINTP Ministry of Public Works (Ministère des Travaux Publics) MTEF Medium-term Expenditure Framework OHADA Organization for the Harmonization of Business Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) OPBC Output- and Performance-based Contract PBF Performance-based Financing PEFA Public Expenditure and Financial Assessment PER Public Expenditure Review PFM Public Financial Management PLANUT Three-Year Emergency Plan for Accelerating Growth (Plan d’Urgence Triennal pour l’ Acceleration de la Croissance) SCD Systematic Country Diagnostic SIGIPES II Integrated Human Resources and Payroll Management System (Système Informatique de Gestion Intégré des Personnels de l'Etat et de la Solde) SMEs Small and Medium Enterprises SOE State-owned Enterprise SONARA National Refining Company (Société National de Raffinage) TA Technical Assistance UNHCR United Nations Hight Commissioner for Refugees VAT Value Added Tax . Regional Vice President: Hafez Ghanem Country Director: Abdoulaye Seck Global Director: Marcello Estevao Practice Managers: Francisco Galrao Carneiro, Manuel Vargas Task Team Leaders: Rick Emery Tsouck Ibounde, Kjetil Hansen REPUBLIC OF CAMEROON SECOND FISCAL CONSOLIDATION AND INCLUSIVE GROWTH DEVELOPMENT FINANCING TABLE OF CONTENTS SUMMARY OF PROPOSED FINANCING AND PROGRAM .......................................................................1 1. INTRODUCTION AND COUNTRY CONTEXT .......................................................................................3 2. THE MACROECONOMIC POLICY FRAMEWORK.................................................................................6 2.1. RECENT ECONOMIC DEVELOPMENTS ....................................................................................6 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY ....................................................9 2.3. IMF RELATIONS..................................................................................................................15 3. THE GOVERNMENT’S PROGRAM ...................................................................................................15 4. THE PROPOSED OPERATION .........................................................................................................16 4.1. LINKS TO THE GOVERNMENT’S PROGRAM AND OPERATION DESCRIPTION.......................... 16 4.2. PRIOR ACTIONS, RESULTS, AND ANALYTICAL UNDERPINNINGS ........................................... 18 4.3. LINKS TO THE CPF, OTHER BANK OPERATIONS, AND THE WBG STRATEGY ........................... 36 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS .......................... 37 5. OTHER DESIGN AND APPRAISAL ISSUES ........................................................................................38 5.1. POVERTY AND SOCIAL IMPACT ........................................................................................... 38 5.2. ENVIRONMENTAL ASPECTS ................................................................................................ 39 5.3. PFM, DISBURSEMENT, AND AUDITING................................................................................ 41 5.4. MONITORING, EVALUATION, AND ACCOUNTABILITY .......................................................... 43 6. SUMMARY OF RISKS AND MITIGATION .........................................................................................43 ANNEX 1: POLICY AND RESULTS MATRIX ..........................................................................................46 ANNEX 2: FUND RELATIONS ANNEX ..................................................................................................53 ANNEX 3: LETTER OF DEVELOPMENT POLICY.....................................................................................57 ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE ...................................................76 ANNEX 5: STATUS OF PRIOR ACTIONS AND CHANGES RELATIVE TO INDICATIVE TRIGGERS................. 82 The Cameroon Second Fiscal Consolidation and Inclusive Growth DPF was prepared by an IDA team led by Rick Emery Tsouck Ibounde (Senior Economist, EA2M2) and Kjetil Hansen (Senior Public Sector Specialist,ELCG2) and comprising Shiho Nagaki (Senior Public Sector Specialist, ELCG2); Leif Jensen (Senior Economist, EA1M1); Alassane Agalassou (Senior Energy Specialist, IAFE4); Alphonse Soh (Senior Transport Specialist, IAFT3); Peter Ngwa Taniform (Senior Transport Specialist, IAFT1); Yohana Dukhan (Senior Health Specialist,HAFH3); Jean Claude Taptue Fotso (Health Specialist, HAFH3); Vincent Perrot (Senior Education Specialist,HAFE3 ); Rebekka E. Grun (Senior Economist, HAFS2); Cyrille Valence Ngouana Kengne (Senior Environmental Specialist,SAFE1 ); Nadia Belhaj Hassine Belghith (Senior Economist, EA2PV ), Alvin Etang Ndip (Senior Economist, EA2PV); Yele Maweki Batana (Senior Economist, EA2PV); Celestin Adjalou Niamien (Senior Financial Management Specialist, EA2G2); Monique Ndome Didiba (Procurement Specialist, EA2RU); Ibrah Rahamane Sanoussi (Senior Procurement Specialist, EA2RU); Nicolas Jean Marie Sans (Senior Hydropower Specialist, EA2RU); Stephanie Gil (Lead Energy Specialist, EA2RU); Dimitris Mavridis (Young Professional, HAFS2); Sameena Dost (Senior Counsel, LEGAM); Cyril Fiat (Counsel, LEGFI); Faly Diallo (Finance Officer, WFACS); Chimene Diane Djapou Fouthe (Consultant, EA2M2); Olivier Maxime Nkounga Kouam (Consultant, SAFS4); Pierre Jean-Claude Mandon (Consultant, EA2M2); Karen Stephanie Coulibaly (Consultant, EA2M2), Silvia Gulino (Operations Analyst, EA2M2); Claudia Rocio Manrique (Program assistant, EA2M2); Irene Sitienei (Program assistant, EA2M2) and Salome Nadege Abomo Amougou (Team Assistant, AFCC1). The team was supported by Mazen Bouri (Program Leader, AFCC1); Issa Diaw (Program Leader, AFCC1); Carine Clert (Program Leader, AFCC1) and Norbert M. Fiess (Lead Economist, EA2M2). The operation benefited from the guidance of Abdoulaye Seck (Country Director, AFCC1); Elisabeth Huybens (Regional Director, EA2DR); Francisco Galrao Carneiro (Practice Manager, EA2M2); Manuel Vargas (Practice Manager, EA2G2) and Angelique dePlaa (Acting Country Program Coordinator, AFCC1). The peer reviewers are Fernando Andres Blanco Cossio (Lead Economist, CCECE); Sophie Naudeau (Program Leader, HAFD2); Sunil W. Mathrani (Program Leader, IAFDR) and Ragnvald Michel Maellberg (Senior Public Sector Specialist, EA2G1. The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) SUMMARY OF PROPOSED FINANCING AND PROGRAM BASIC INFORMATION Project ID Programmatic If programmatic, position in series P166694 Yes 2nd in a series of 3 Proposed Development Objective(s) The Operation will support Government efforts to (i) improve fiscal sustainability and public sector management: (ii) enhance competitiveness; and (iii) improve social services and scale up social protection. Organizations Borrower: MINISTRY OF ECONOMY, PLANNING AND REGIONAL DEVELOPMENT Implementing Agency: MINISTRY OF FINANCE PROJECT FINANCING DATA (US$, Millions) SUMMARY Total Financing 200.00 DETAILS International Development Association (IDA) 200.00 IDA Credit 200.00 INSTITUTIONAL DATA Climate Change and Disaster Screening This operation has been screened for short and long-term climate change and disaster risks Overall Risk Rating High . . Page 1 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Results Indicator Name Baseline Target Enhanced revenue mobilization through base broadening and in CFAF 0 (2016) CFAF 130 billion (2020) tax expenditure suppression (in CFAF Billion). For contracts under the MINMAP threshold (2016): 90 days (2020) 128 days Average time between the issuance of tender documents and the signing of the respective contracts. For contracts above the MINMAP threshold (2016): 150 days (2020) 225 days Percentage of irregular/invalid human resource and payment 0 percent (2018) 80 percent (2020) cases eliminated from the SIGIPES. The 10 largest public Number of SOEs publishing their audited annual financial reports enterprises and the 10 0 (2016) within the prescribed deadlines. largest public agencies (2020) CFAF 54 billion in central- Government arrears CFAF 0 in both central- Elimination of arrears owed by the central Government and (September 2017) and Government and SOE major SOEs (CAMTEL, CDE, and CAMWATER) to ENEO Cameroon. 11.25 billion in SOE arrears arrears (2020) (March 2018) Average time required for the Road Fund to pay invoices to 150 days (2016) 40 days (2020) service providers. Average length of stay for a container at the Port of Douala. 19 days (2017) 11 days (2020) Share of births attended by skilled health care professionals in 37.6 percent (2016) 42 percent (2020) the three northern regions. Number of textbooks per student in primary school. 1:14 (2016) 1:2 (2020) Number of textbooks per student in high school. 1:3 (2016) 1:1.5 (2020) Number of households covered by the social protection safety 40,000 (2016) 100,000 (2020) nets program. . Page 2 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) IDA PROGRAM DOCUMENT FOR A PROPOSED CREDIT TO THE REPUBLIC OF CAMEROON 1. INTRODUCTION AND COUNTRY CONTEXT 1. The proposed Second Fiscal Consolidation and Inclusive Growth Development Policy Financing (DPF2) supports the Government of Cameroon (GOC) as it implements structural reforms designed to ensure long-term fiscal sustainability, enhance competitiveness, and reinforce economic stability. The proposed operation, in the amount of EUR 179.5 million (US$200 million equivalent), is the second in a programmatic series of one International Bank for Reconstruction and Development (IBRD) loan and two IDA credits. The proposed operation is aligned with the Government’s economic growth, poverty reduction, and structural reform priorities as set forth in its long-term development agenda, Vision 2035, and other key strategic documents, including the Three-Year Emergency Plan for Accelerating Growth (Plan d’Urgence Triennal pour l’Acceleration de la Croissance, PLANUT) and the recently updated Growth and Employment Strategy Paper (Document de Stratégie pour la Croissance et l’Emploi, DSCE). 2. The proposed operation is part of a coordinated effort by Cameroon’s development partners to support a region-wide economic recovery. Cameroon and the other Central African Economic and Monetary Community (Communauté Economique et Monétaire de l’Afrique Centrale, CEMAC) member states were hit hard by the 2014-15 oil-price shock. Between 2014 and 2015, oil exports fell by 33 percent, and oil revenue declined by two-thirds. Contracting revenues caused CEMAC member states to make sharp budget cuts, which negatively impacted their nonoil sectors. The regional economic growth rate slowed to -1 percent in 2016, its lowest level in 20 years, and foreign-exchange reserves at the Bank of Central African States (Banque des Etats de l’Afrique Centrale, BEAC) declined to two months of imports in December 2016. In a crisis meeting in Yaoundé, CEMAC heads of state affirmed their commitment to safeguard the fixed exchange rate between the CFA franc and the euro, develop a coordinated policy response, 1 and seek support from the International Monetary Fund (IMF), the World Bank, the African Development Bank (AfDB), and the French Development Agency (Agence Française de Développement, AFD) for the region’s economic recovery. The heads of the CEMAC member states reaffirmed this commitment at an October 2018 summit in N’Djamena. The regional support strategy has helped avert an immediate crisis but has not yet fully achieved its objectives, as non-oil growth continues to be too low and financial sector vulnerabilities persist. The region’s slow and fragile recovery is further complicated by rising levels of conflict and displacement. 3. Cameroon is the largest economy in CEMAC and restoring its fiscal stability will be critical to the region’s economic recovery. Cameroon is a lower-middle-income country. It accounts for 41 percent of the CEMAC member states’ total gross domestic product (GDP) and contributes 57 percent of the BEAC’s reserves. However, public expenditure growth in Cameroon has outpaced total revenue growth over the past decade. Tax expenditures have eroded the tax base and oil production has declined, weakening the Government’s fiscal position and threatening debt sustainability. Meanwhile, ongoing violence by Boko Haram in the country’s far north and a severe secession crisis in the North West and South West regions has spurred a sharp increase in security spending. 1 The regional strategy focused on (a) fiscal adjustment; (b) a return to sound monetary policy; (c) structural reforms to support economic diversification; and (d) measures to strengthen the financial sector. Following the December 2016 meeting, the strategy was formalized in a regional policy compact, the CEMAC Economic and Financial Reforms Program (PREF-CEMAC). Page 3 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 4. While the authorities have implemented a set of short- and medium-term fiscal adjustment measures, restoring long-term fiscal stability will require permanent improvements in public expenditure efficiency combined with increased revenue mobilization. More effective public administration will be vital to enable the Government to advance its policy objectives in a context of tight budget constraints. Reforming the management of state-owned enterprises (SOEs) will be necessary to ensure macro-fiscal stability by limiting the fiscal risks arising from contingent liabilities. A more robust public investment cycle underpinned by sound technical feasibility studies, effective costing, and a competitive bidding process will help improve infrastructure quality while easing pressure on public expenditures. 5. Greater competitiveness and an enhanced business environment will be crucial to facilitate economic diversification and mitigate Cameroon’s vulnerability to commodity-price shocks. While Vision 2035 and the Document de Stratégie pour la Croissance et l’Emploi (DSCE) both stress the importance of a strong, diversified economy, Cameroon ranked 166th out of 190 countries in the 2019 Doing Business Index, with particularly weak indicators for trading across borders, registering property, and paying taxes. Cameroon also performed poorly on the 2017-18 Global Competitiveness Index, especially on indicators related to economic infrastructure. Bottlenecks in the transportation sector have prevented Cameroon from leveraging its geographic advantages as a potential hub for international trade in Central Africa. The 2016 Cameroon Systematic Country Diagnostic (SCD) 2 detailed the economic costs imposed by unreliable electricity, high transportation costs, inadequate telecommunications services, and a poor overall business environment. To address some of Cameroon’s most pressing challenges, the Government has prioritized infrastructure investment. New ports were built in Kribi and Limbe, the 120 MW Lom Pangar Hydropower Dam has been completed, and the construction of a 420-MW hydroelectric power plant in Nachtigal, on the Sanaga River, is expected to increase Cameroon’s total installed electricity generation capacity by over 30 percent. While these investments are an important step, complementary policy and institutional reforms will be necessary to improve the provision of essential economic services and enhance the country’s domestic and external competitiveness. 6. Improving Cameroon’s human development outcomes and addressing its high levels of inequality will require improvements in the efficiency of social service delivery and measures to safeguard the poor and vulnerable from the impact of the fiscal adjustment. Cameroon ranked 133rd out of 157 countries on the 2018 Human Capital Index (HCI), and the country’s aggregate HCI score declined from 0.41 in 2012 to 0.39 in 2017. While Cameroon is classified as a lower-middle-income country, its health and education indicators are closer to those of low-income countries, with deep regional and rural- urban disparities. Educational outcomes among students in the three northern regions and in public schools in the Anglophone regions are below the national average. Life expectancy is low by the standards of comparable countries, and while infant and maternal mortality rates have declined over the past 10 years, both remain extremely high. The poverty headcount rate fell marginally from 40.2 percent in 2001 to 37.5 percent in 2014. Approximately 90 percent of the poor live in rural areas, and 56 percent live in the Far North and North Regions. Due to rapid population growth, the total number of poor Cameroonians increased by 12 percent between 2007 and 2014 to 8.1 million people, and the poor population in the North and the Far North Regions more than doubled between 2001 and 2014, from 2.1 million people to 4.5 million. The Gini coefficient was high at 44.0 in 2014, the latest year for which data are available. The unemployment rate rose from 3.8 percent in 2007 to 4.3 percent in 2014, driven by rising unemployment 2 Report no. 103098-CM. Page 4 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) among young people and rural workers, while the underemployment rate increased from 68.7 percent in 2010 to 77 percent in 2014. About 90 percent of employed workers are in the informal sector. 7. Cameroon is increasingly vulnerable to instability and violence. In 2014, a jihadist terrorist group known as Boko Haram began waging a low-intensity war in the Far North Region, and this conflict has displaced at least 227,581 people. While the security situation in the Far North Region has improved considerably, risks remain elevated due to the continued presence of several Boko Haram factions, combined with persistently high poverty rates and a weak economic recovery in neighboring Nigeria. Piracy in the Gulf of Guinea also poses a serious security challenge, as does the ongoing crisis in Central African Republic (CAR), and the Adamawa and East Regions continue to host about 234,000 Central African refugees. In late 2016, a violent secessionist conflict broke out in the Anglophone South-West and North- West Regions, affecting about 17 percent of the population. According to the Office of the United Nations Hight Commissioner for Refugees (UNHCR), at least 500,000 people have been internally displaced, while over 32,000 have been registered as refugees in Nigeria since the beginning of the crisis. 3 8. Cameroon is particularly exposed to the effects of climate change. The Sodano Sahelian zone is at the highest risk for drought mortality rates and includes the hardest hit provinces during the 2012 drought. Floods are a recurring natural hazard in Cameroon and the coastal regions have the highest risk of flood mortality especially in the city of Douala. Sea level rise poses great risks and increases the vulnerability of Cameroonians living along the coast. Some 580,300 people could be displaced, and 39,000 homes destroyed from sea level rise by the year 2100. A decrease in water availability, combined with increased water demand would further exacerbate the ongoing water crisis in many rural areas of the north. Cameroon has outlined its priorities to reduce greenhouse gas emissions and build resilience to climate risks. In its Nationally Determined Contribution (NDC) which stipulates that with international support, the country commits to reducing greenhouse gas emissions by 32 percent by 2035. Cameroon’s National Adaptation Plan (NAP) aims at: “reducing its vulnerability, and even turning the climate change problem into a solution/opportunity for development.” 9. Policy reforms supported by the previous operation (DPF1) contributed to significant improvements in the quality of governance in Cameroon. The policy dialogue initiated under the DPF1 has catalyzed advances in macro-fiscal management and accelerated institutional reforms designed to enhance the efficiency of social services. The DPF1 supported reforms to increase transparency in tax administration and the development of an action plan to rationalize tax expenditures. The DPF1 also supported the adoption of a new legal and regulatory framework that streamlined procurement procedures for SOEs, enhancing their financial and operational efficiency. The education reforms supported in DPF1, which included the official adoption of new guiding principles for the national textbook policy, catalyzed a politically sensitive reform effort that had been pursued with limited success for over a decade. The supported reforms decreased textbook prices and improved both their quality and distributional equity. Health sector reforms supported by the DPF1 facilitated a transition from input- based to performance-based budgeting in health facilities while helping policymakers dismantle a public monopoly on the distribution of generic drugs in health facilities. Across sectors, the reforms supported by the DPF1 enhanced the efficiency of public spending and improved the effectiveness of the public administration. 3 UNHCR, October 2018. Page 5 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 10. The proposed operation builds on these achievements and advances the development objectives of its predecessor by maintaining a focus on the quality of governance mechanisms. The operation is organized around three pillars: (a) improving fiscal sustainability and public sector management by rationalizing and reducing tax expenditures and broadening the nonoil tax base, increasing the efficiency of the institutional framework for public procurement, improving the civil-service compensation and human resources management (HRM) systems, and strengthening the management and oversight of SOEs; (b) enhancing competitiveness by achieving financial sustainability in the energy sector, improving road maintenance, strengthening the road network’s resilience to climate change, and increasing the efficiency of the Port of Douala; and (c) improving social services and expanding social protection by improving the quality of healthcare services, increasing access to textbooks in primary and secondary schools, and expanding poverty-targeted social protection programs. 11. The overall risk rating for this operation is high. While the Government’s commitment to the supported reforms and its lead role in the implementation of the CEMAC regional fiscal-adjustment strategy reduce political and governance risks, significant macroeconomic and social risks could negatively affect the proposed operation. The ongoing secessionist conflict in the two Anglophone regions and the worsening displacement situation in the far north could delay the economic recovery and hamper the implementation of the policy reforms supported by the DPF2. A failure to appropriately prioritize the public investment program and an excessive reliance on non-concessional resources could also negatively affect the operation. Weakening global growth, a sustained decline in oil prices, and/or tightening global financial conditions could undermine the Government’s fiscal position and potentially slow key elements of the reform program. Finally, uneven progress among other CEMAC countries in implementing the regional fiscal-adjustment strategy could delay the accumulation of international reserves at the BEAC, which would pose a major risk to the reform program. However, close monitoring and continued support by the World Bank through the DPF series, by the IMF through its Extended Credit Facility (ECF) arrangement, and by other development partners through their closely coordinated engagement in Cameroon will help to mitigate these risks. 2. THE MACROECONOMIC POLICY FRAMEWORK 2.1. RECENT ECONOMIC DEVELOPMENTS Recent Developments in the CEMAC Region 12. The outlook for the CEMAC region remains challenging, as oil prices are becoming increasingly volatile, and the recovery of growth in the nonoil sectors has been slower than anticipated. Over the past four years, regional growth has proven highly sensitive to the volatility of crude-oil prices, which dropped from US$96.2 per barrel (bbl) in 2014 to a low of US$42.8/bbl in 2016, before partially rebounding to US$68.3/bbl in 2018. Oil prices are now projected to fall to an average of US$59.2/bbl in 2019 and US$59/bbl in 2020. 4 The CEMAC region’s aggregate nonoil GDP growth rate declined from 2.4 percent in 2017 to an estimated 1.8 percent in 2018. However, due to a larger-than-expected rebound in oil sector growth, the region’s overall economic growth rate rose from 1 percent in 2017 to 2.5 percent in 2018 and is projected to reach 3.4 percent in 2019. 4 April IMF World Economic Outlook. Page 6 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 13. The regional fiscal-adjustment strategy has helped improve the fiscal and external positions of CEMAC member states, but the region’s macroeconomic situation remains fragile, and the accumulation of reserves at the BEAC has been slower than expected. Fiscal consolidation, tighter regional monetary policies, and stricter enforcement of foreign-exchange regulations helped reduce the CEMAC region’s fiscal and external imbalances in 2018. The BEAC has modernized its monetary framework by eliminating statutory advances, establishing an emergency liquidity-assistance system, and providing refinancing through competitive auctions. CAR, Cameroon and Chad continued to pursue fiscal consolidations programs while Gabon continued to accumulate external arrears. Congo and Equatorial are expected to conclude programs with the IMF by July and December 2019, respectively. The regional current-account deficit declined from 4.4 percent of GDP in 2017 to an estimated 2.3 percent in 2018 due to rising oil and nonoil exports and declining imports. Gross regional reserves recovered from US$5,807 billion in December 2017 to US$6,554 in December 2018 due largely to enhanced repatriation of foreign exchange by commercial banks. BEAC reserves remained at an estimated 2.6 months of regional imports at end-2018. 14. The medium-term regional outlook is improving gradually but remains vulnerable to downside risks. The economic and financial situation of CEMAC member states is projected to gradually improve, assuming regional Governments and the BEAC fully implement their policy commitments, which include: (a) fiscal consolidation; (b) improved competitiveness and diversification; and (c) the protection of poor households. This projection also assumes that fiscal-consolidation efforts will focus on postponing the implementation of low-priority public investment projects across the region, that national Governments will progressively repay domestic arrears, and that nonoil fiscal revenues will gradually increase. The 2019–2021 strategic plan of the Central African Banking Commission (Commission Bancaire de l’Afrique Centrale) should aim to strengthen risk-based supervision and reinforce the financial system and banking institutions. Downside risks to this outlook are substantial and include (a) a prolonged decline in oil prices; (b) tightening global financial conditions; (c) further delays in the adoption of new IMF arrangements with Equatorial Guinea and the Republic of Congo; and (d) deterioration of the security situation. Recent Developments in Cameroon 15. After slowing for the past two years, Cameroon’s GDP growth rate rebounded to 4 percent in 2018. The country’s growth momentum has been driven by public works in preparation for the 2021 Africa Cup of Nations (CAN), combined with an increase in gas production, rising investment in the oil and gas sectors, higher levels of private consumption, and the strong performance of financial services. However, the secessionist conflict in the North-West and South-West Regions reduced the GDP growth rate by an estimated 0.5 percentage points in 2017 and 0.3 percentage points in 2018, due primarily to declining production in the agriculture, agroindustry, and service sectors. The inflation rate rose from 0.6 percent in 2017 to 1.1 percent in 2018 but remained well below the regional ceiling of 3 percent. 16. The fiscal consolidation continued in 2018 despite increasing expenditure pressures generated by the deteriorating security situation. The overall fiscal deficit 5 narrowed from 5.1 percent of GDP to 2.5 percent, while the nonoil primary deficit shrank from 5.9 percent of GDP to 3.9 percent. Reduced spending on public sector wages following an audit of public employees, a slowdown in goods and services spending partially mitigated higher than expected subsidies and capital expenditure. Total public spending declined 5 These estimates include grants and are made on a payment-order basis. Page 7 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) from 19.8 percent of GDP in 2017 to 18.6 percent in 2018, while total public revenue rose from 15 percent of GDP to 16.1 percent, as higher oil prices compensated for the decline in oil production, and improvements in tax administration helped boost nonoil revenue. 17. Despite higher oil prices and a significant increase in gas exports, the external current-account deficit widened in 2018. Increased imports of supplies for public works and additional imports of oil products boosted total imports, while the worsening security situation in the Anglophone regions reduced cocoa and coffee exports. As a result, the external current-account deficit widened from 2.7 percent of GDP at end-December 2017 to 3.7 percent at end-December 2018. 18. Tighter BEAC monetary policies designed to limited capital outflows from the CEMAC region have helped stabilize foreign-exchange reserves. In October 2018, the BEAC raised its policy rate by 55 basis points to 3.50 percent, after the accumulation of reserves fell short of its target. The BEAC has also taken measures to enforce its foreign-exchange regulations and ensure adequate repatriation of export proceeds. Cameroon’s imputed foreign-exchange reserves rose from EUR 2.4 billion in December 2017 to EUR 2.9 billion in December 2018, as the increasing repatriation of private capital inflows offset a reduction in Government deposits at the BEAC due to the clearance of arrears accumulated in correspondent accounts. 6 The broad money supply increased to 9.8 percent at end-December 2018, driven by credit to the central Government and SOEs. The growth rate of credit to the private sector was 2.3 percent, year-on-year, at end-December 2017 reached 4.6 percent, year-on-year, at end-December 2018. 19. While Cameroon’s banking system has remained resilient overall, risks to the financial sector persist, as some banks are undercapitalized, and several small banks remain insolvent. Key risks to financial sector stability include deteriorating asset quality, the continued insolvency of four banks, 7 the concentration of the banking portfolio, and an elevated level of sovereign risk, including exposure to other CEMAC countries. Private credit stagnated at 13.3 percent of GDP at end-2018, and the low level of credit relative to bank resources reflects: (a) limited economic activity in the nonoil sector, which reduces lending opportunities; (b) the prohibitive cost of credit, due in part to limited competition among banks; and (c) burdensome legal and judicial procedures, which complicate bank efforts to recover delinquent loans and foreclose on collateral. Because these conditions make banks reluctant to extend long-term loans, short-term loans account for the bulk of lending. 20. The public debt stock increased from 37.6 percent of GDP in 2017 to 39.3 percent in 2018, largely due to due to valuation effects on external debt and the accelerated disbursement of project loans. After increasing to CFAF 7,643 billion at end-2017, the public debt stock, including debts owed by the National Refining Company (Société National de Raffinage, SONARA) to crude-oil suppliers, rose to around CFAF 8,403 billion in December 2018. The stock of committed but undisbursed loans (soldes engagés non décaissés, SENDs) declined from 21.7 percent of GDP in 2017 to 18.9 percent due to the Government’s efforts to reduce nonperforming SENDs. The Government has also been discussing the possibility of rescheduling CFAF 187 billion in debt to China EximBank in 2019-2022. 6 Treasury subaccounts intended to manage the resources of autonomous public entities and municipalities. 7 One of these banks was nationalized, and its impaired assets were transferred to the Debt-Collection Company of Cameroon (Société de Recouvrement des Créances du Cameroun, SRC). Page 8 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 2.2. MACROECONOMIC OUTLOOK AND DEBT SUSTAINABILITY 21. Cameroon’s medium-term economic prospects are favorable, and its GDP growth rate is expected to reach an average of 4.5 percent over 2019–2021. Several major public infrastructure assets, including the Port of Kribi, the Memve’ele Hydroelectric Dam, and several road projects are slated to become operational over the period, which—along with start of construction of a private 420-MW hydroelectric dam in Nachtigal—is expected to increase private investment. Overall, private investment is expected to rebound from 19.5 percent of GDP in 2017 to 22.7 percent in 2021. Meanwhile, the continued construction of public works in preparation for the 2021 CAN should help stabilize public investment at about 6.3 percent of GDP in 2020–2021 (Table 1). Table 1. Cameroon: General Government Macroeconomic Indicators, 2014–2021 2014 2015 2016 2017 2018e 2019e 2020p 2021p Real Economy (Annual percentage change, unless otherwise indicated) Nominal GDP (CFAF, 17,276 18,285 19,345 20,328 21,382 22,538 23,864 25,363 billions) Real GDP 5.9 5.7 4.6 3.5 4 4.2 4.5 4.8 Per capita GDP (in US$ 1,428 1,470 1,497.6 1,510.4 1,531.3 1,555.4 1,583.6 1,615.5 at constant prices) Per capita GDP 3.1 2.9 1.9 0.9 1.4 1.6 1.8 2.0 Imports 15 −5.0 −5.9 −4.8 7 −0.1 2.5 20.0 Exports 20.9 14.6 −4 −1.3 -0.9 4 4.9 5.4 GDP deflator 2.1 0.2 1.1 1.5 1.1 1.2 1.3 1.4 Consumer price index 2.6 1.5 0.3 0.8 2.0 2.3 2.2 2.0 (eop) Oil price (US$ per bbl, 96.2 50.8 42.8 52.8 68.3 59.2 59 58.1 brent) Fiscal Accounts (% of GDP) Total expenditure 20.8 20.9 20.9 19.8 18.6 18.2 17.8 17.8 Total revenue 16.6 16.5 14.8 14.8 16.1 16.2 16.3 16.3 General Government −4.2 −4.4 −6.1 −5.1 −2.5 −2 −1.5 −1.5 balancea Public and publicly 21.5 30.9 32.8 37.6 39.3 39.5 39.0 38.3 guaranteed debt (eop) Selected Monetary (Annual % change unless otherwise indicated) Accounts Credit to the economy 14.4 11.4 7.2 2.3 4.6 6.1 6.7 7.1 Broad money 10.8 9.2 5.5 5.9 9.8 6.1 5.9 6.4 External Accounts (% of GDP unless otherwise indicated) Current-account balance −4.0 −3.8 −3.2 −2.7 −3.7 −3.4 −3.3 −3.2 Imports of goods and −27.7 −25.2 −21.7 −20.6 −21.7 −19.4 −20.2 19.4 services Exports of goods and 24.6 21.6 19.2 18.7 19 18.1 17.6 16.6 services Foreign direct 2.6 1.9 1.1 2.3 1.8 1.8 2 2.1 investment (FDI) Page 9 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 2014 2015 2016 2017 2018e 2019e 2020p 2021p Imputed gross official 3.2 3.5 2.3 3.2 3.2 3.3 3.3 3.4 reserves (US$ billions, eop) External debt 14.6 19.8 22.4 24.9 28.7 30.1 29.7 29.1 Terms of trade −9.9 −11.4 0.2 −1.7 −0.2 −4.3 −2.9 −8.5 Source: National authorities, IMF, World Bank. Note: bbl = barrel; e = estimate; eop = end of period; p = projections. a. Payment order basis, including grants. 22. Fiscal policy for 2019-2021 remains focused on fiscal consolidation. The 2019 budget adopted by the National Assembly in early December 2018 is in line with the planned medium-term fiscal adjustment. Its overall fiscal deficit target of 2 percent of GDP in 2019 implies a fiscal adjustment of 0.3 percent of GDP between 2018 and 2019. This adjustment will be driven by an increase in nonoil revenue mobilization equal to 0.3 percentage points of GDP, combined with reductions in expenditures and arrears equal to 0.6 and 0.5 percentage points of GDP, respectively. The draft revised 2019 Budget submitted to Parliament on May 2019, includes measures to further boost domestic revenue mobilization while securing adequate resources to finance fuel subsidies, the organization of legislative, municipal, and regional elections, and expenditures paid directly by the National Hydrocarbons Corporation (Société Nationale des Hydrocarbures, SNH)— without crowding out spending on critical development priorities. In 2020, the fiscal deficit is expected to narrow further to 1.5 percent of GDP. 23. The Government’s strategy for increasing nonoil revenue mobilization is based on three pillars. First, the implementation of measures detailed in the Government’s action plan will progressively reduce tax expenditures, which is expected to yield at least 0.1 percent of GDP in additional revenues in 2019. These measures include reducing value added tax (VAT) exemptions for life and health insurance contracts and commissions, limiting VAT exemptions to households with moderate levels of consumption, curbing VAT exemptions for local timber processing, and lowering the discounted tax base for duties on beer from 25 percent to 10 percent. Second, the authorities will increase nonoil revenue by implementing a set of administrative reforms, including further joint tax and customs controls, improvements to the taxpayer database, the cross-checking of customs and tax data, and the requirement that business taxpayers be registered in the tax administration’s database to clear goods through customs. Third, efforts to accelerate the clearance of tax arrears will further bolster nonoil revenue, which is expected to rise from 13.4 percent of GDP in 2018 to 14 percent in 2020. 24. The authorities are rationalizing recurrent expenditures to create space for increased social spending. The Government is purging ghost workers from the public payroll and reducing expenditures on goods and services by curtailing mission allowances. Meanwhile, better prioritization of domestically financed capital spending and tighter monitoring of externally financed projects are enhancing the efficiency of the investment budget. These measures are expected to yield 0.7 percent of GDP in savings between 2018 and 2020 (Table 2), a portion of which will be used to expand poverty-targeted social protection programs and increase the resources allocated to the health and education sectors. Page 10 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Table 2. Cameroon General Government Key Fiscal Indicators, 2014–2021 (% of GDP) 2014 2015 2016 2017 2018e 2019e 2020p 2021p Overall balancea −4.2 −4.4 −6.1 −5.1 −2.5 −2 −1.5 −1.5 Primary balance −3.8 −4.0 −5.3 -3.9 −1.6 −1.1 −0.5 −0.6 Primary nonoil balance −7.7 −7.1 −7.5 −5.9 −3.9 −3.4 −2.5 −2.3 Total revenue and grants 16.6 16.5 14.8 15 16.1 16.2 16.3 16.3 Oil revenue 3.9 3 2.1 1.9 2.3 2.2 2.0 1.8 Non-oil revenue 12.4 13.4 12.3 12.7 13.4 13.5 13.8 14.1 Tax revenues Direct taxes 3.6 3.7 3.5 2.8 3.0 3.1 3.2 3.3 Taxes on goods and 6.1 6.2 6 6.6 7 7 7.2 7.4 services Taxes on international 2.1 1.8 1.8 2.0 1.9 1.9 1.9 1.8 trade Non-tax revenues 0.7 0.8 0.8 0.7 0.9 0.9 0.9 0.9 Grants 0.3 0.1 0.3 0.3 0.4 0.4 0.4 0.4 Total expenditure 20.8 20.9 20.9 19.8 18.7 18.2 17.8 17.8 Current expenditure 13.2 13.3 12.4 11.2 11.6 11.8 11.5 11.5 Wages and salaries 4.9 5 4.9 4.9 4.7 4.6 4.4 4.4 Goods and services 4.4 4.6 4.3 3.7 3.4 3.6 3.4 3.5 Interest payments 0.4 0.4 0.7 0.9 0.9 0.9 1.0 1.0 Transfers and subsidies 3.5 3.3 2.5 1.8 2.6 2.7 2.6 2.6 Capital expenditure 7.6 7.6 8.3 8.6 6.9 6.6 6.3 6.3 Foreign financed 3.8 2.9 2.5 3.8 3.5 3.4 3.3 3.3 Domestically financed 3.6 4.4 5.5 4.7 3.2 2.9 2.8 2.8 General Government 4.3 2.5 5.1 4.5 3 1.2 1.9 1.5 financing Foreign borrowing (net) 3.4 4.8 1.8 3.9 3.9 1.6 1.6 1.5 Domestic borrowing 0.8 −2.3 3 0.6 −0.9 −0.4 0.3 0.0 (net) Note: e = estimate; p = projections. a. Payment order basis, including grants. 25. The current-account deficit is expected to stabilize at about 4 percent of GDP between 2019 and 2021, and reserves are expected to reach roughly five months of import coverage. As capital expenditures level off, declining imports are expected to help stabilize the current account. 26. Cameroon’s external financing requirements are projected to reach CFAF 3.7 trillion between 2019 and 2021. While FDI and other debt sources will cover a large share of these financing needs, Cameroon will still require CFAF 419 trillion in balance-of-payments financing over the program period (Table 3). IMF financing and multilateral and bilateral budget support, including resources provided via the proposed DPF2, are expected to fully cover the balance of payments. Page 11 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Table 3. Balance of Payments, 2016–2021 (CFAF, billions) 2016 2017 2018e 2019e 2020p 2021p Total financing requirements 28.4 1,055.60 1,252.20 1,221.30 1,178.20 1,286.40 Current-account deficit 613.0 541.3 792.2 774.9 777.6 814.4 Debt amortization 112.9 134.5 210.4 380.6 390.9 418.5 Repayment to the fund 17.7 16.7 15.4 15.0 0.0 0.0 Change in gross reserves –715.2 363.2 234.2 50.9 9.7 53.5 Financing sources 28.4 1055.6 1252.2 1221.3 1178.2 1286.4 FDI and portfolio investments 337.0 472.4 388.2 416.9 488.6 536.3 (net) Capital transfers 36.3 64.8 85.9 27.7 29.4 31.4 IMF ECF financing 167.1 85.2 88.0 43.4 0.0 Expected budget support 201.5 298.2 268.9 0.0 0.0 Other debt financing –344.9 169.6 394.7 419.8 616.8 718.7 Errors and omissions 0.0 –19.8 0.0 0.0 0.0 0.0 Memorandum item: Financing for the Fiscal Adjustment Program (US$, millions) IMF financing 287.0 145.8 147.5 74.3 0.0 Other development partners 346.1 507.6 459.0 0.0 0.0 Source: National authorities, IMF, World Bank. Note: e = estimate; p = projections. 27. Cameroon’s risk of external debt distress remains high despite improvements in its debt- carrying capacity. According to the new low-income country debt sustainability analysis (DSA) framework, 8 Cameroon’s debt-carrying capacity has improved from low to medium, implying an increase in the thresholds for the present value of external debt relative to exports and the present value of total public debt. The ratios for debt service remain unchanged. Meanwhile, Cameroon’s debt-stock coverage has been broadened to include the central Government, the expenditure float, external guarantees, and the balances of SONARA, including the debt of its suppliers. Nevertheless, Cameroon’s risk of debt distress remains high because the debt service-to-revenue ratio breaches its applicable threshold during the first two years of the forecast and the debt-service-to exports ratio breaches its threshold from 2018 to 2022 and stay at the threshold from 2023 to 2025. The trajectories of the two debt-service ratios are both highly sensitive to assumptions regarding SONARA’s rollover of short-term supplier debt (Figure 1). Fiscal consolidation and the reforms supported by the DPF2, coupled with an increasing share of concessional borrowing, are expected to improve the debt profile over time. However, this projection hinges on: (a) continued fiscal consolidation; (b) the anticipated increase in the share of concessional borrowing; (c) enhanced controls on externally financed investment projects at all levels of Government; (d) the implementation of policies to boost growth and nonoil exports; (e) the restoration of SONARA’s financial viability; and (f) stronger public debt management, including the management of SENDs (Table 4). 8 The LIC DSA now uses a composite index (CI) in lieu of the country policy and institutional assessment (CPIA) score. The CI index include new variables (real GDP growth, remittances, reserves and world growth) that outweigh the CPIA score. Page 12 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 28. Cameroon’s debt management capacity has significantly improved in recent years. The legal framework for public borrowing is clearly defined, the Autonomous Amortization Office (Caisse Autonome d’Amortissement, CAA) is now equipped with a procedural manual for project managers and a code of ethics, and the processing time for special-account replenishment has been substantially reduced. The Government has formulated a medium-term strategy for managing central Government debt, a DSA has been produced and annexed to the annual budget legislation each year since 2010, as required by the CEMAC guidelines, and Parliament votes on annual borrowing as part of the budget process. The information system has been upgraded to facilitate analysis of the debt portfolio under various financing scenarios. Data on central Government debt by stock, flow, creditor, and currency are published regularly, and a quarterly report on the country’s debt situation is available on the CAA website. In May 2018, the Cameroonian authorities completed an evaluation of its large stock of SENDs, which had reached 18.9 percent of GDP. Given the large share of problematic SENDs classified for continued disbursement, the recent acceleration of foreign-financed spending, and the high risk of debt distress, the authorities finalized in May 2019 a disbursement plan for 2019-2020 line with the medium-term fiscal framework. 29. Further extending the coverage of domestic public debt would enhance debt transparency. Data on domestic data are not exhaustive because unstructured domestic debt has not yet stabilized. The quarterly economic report on debt management does not include information on publicly guaranteed debt, and data on SOEs are not routinely produced. Furthermore, the CAA’s database of public debt and its various reports do not include information on debts held by public institutions and agencies. The proposed operation would support improvements in debt transparency though reforms to SOE management, which include the issuance of a circular defining standards for presenting and publishing SOE financial and operational information. The circular will also mandate the publication of audited annual financial reports, increasing the availability of SOE performance data. The World Bank team and the CAA have initiated discussions with the IMF and the Government on measures to reduce the country’s large stock of nonperforming loans, and the proposed operation supports the creation of a mechanism to avoid the accumulation of domestic arrears by SOEs. A World bank mission carried out a Debt Management Performance Assessment (DeMPA) in May 2019. The mission noted considerable progress has been accomplished since the first DeMPA in 2009, in particular on debt reporting, thanks to the numerous publications and analytical exercises covering public and publicly guaranteed debt. However, debt transparency may be strengthened further by extending the coverage to include all non-financial SOEs’ debt (currently the only SOE covered by the DSA is the national oil company SONARA). Further support could include technical assistance (TA) to the Government to improve the coverage of its domestic debt, strengthen the management of fiscal risks, enhance the prioritization of concessional loans, and encourage the use of public-private partnerships to finance large infrastructure programs designed to advance the objectives of Vision 2025. Table 4. The Composition of Gross Public Debt, December 2018 (% of GDP) Total public debt and publicly guaranteed debt 39.3 External debt 28.7 Domestic debt 10.6 SONARA debt 2.8 Expenditure float 2.7 External claims to SOEs (excluding SONARA) 0.0 Public debt contracted and disbursed 33.8 Page 13 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) (% of GDP) Memorandum item Stock of contracted but undisbursed debts (SENDs) 18.9 Source: Cameroonian authorities, IMF. Figure 1. Debt Sustainability Analysis Debt service-to-exports ratio Debt service-to-revenue 35 30 30 25 25 20 20 15 15 10 10 5 Most extreme shock is One-time 5 Most extreme shock is Exports depreciation 0 0 2018 2020 2022 2024 2026 2028 2018 2020 2022 2024 2026 2028 Source: IMF and World Bank staff calculations. 30. The risks to the economic outlook are tilted to the downside. The conflict in the South-West and North-West Regions is a major domestic source of social and economic risk. Other domestic risks to growth and debt dynamics include a potential failure to appropriately prioritize the public investment program, an excessive reliance on non-concessional resources, fiscal slippages caused by increased security spending, and the delayed implementation of structural reforms due to the 2019 legislative and municipal elections. A deteriorating regional security situation could destabilize border areas and cause a new influx of refugees or internally displaced persons, intensifying fiscal pressures and potentially derailing the economic recovery. Regional risks are inherently difficult to mitigate and require sustained coordination among CEMAC members states, as well as support from the international community. External risks to the medium-term outlook include weaker-than-expected global growth, a sustained decline in oil prices, and tightening global financial conditions, which could increase fiscal pressure and narrow the Government’s options for contingency financing to ease domestic liquidity constraints. Sustained structural reform efforts focused on strengthening macroeconomic resilience and improve the Government’s creditworthiness would help mitigate external risks. 31. Overall, Cameroon’s macroeconomic framework is assessed as adequate for the proposed operation. Growth accelerated in 2018, and medium-term growth prospects are favorable. The GDP growth rate is expected to reach 4.2 percent in 2019 and 4.5 percent in 2020, boosted by major public infrastructure investments, including the Port of Kribi and other energy and road projects. Rising natural gas production is expected to enhance the electricity supply, which should benefit the manufacturing, agribusiness, and construction sectors. The 2019 budget is in line with the objectives of the medium-term fiscal adjustment; it targets a reduction in the fiscal deficit from 2.5 percent of GDP in 2018 to 2 percent Page 14 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) in 2019, and the fiscal deficit is expected to narrow further to 1.5 percent of GDP in 2020. The program negotiated with the IMF and Cameroon’s other development partners, including the World Bank, will provide adequate financing to meet the Government’s needs for 2019. 2.3. IMF RELATIONS 32. The fourth review of the IMF ECF Program was completed on July 17, 2019 9. The completion of the fourth review enabled the disbursement of SDR 55.2 million (about US$76.2 million), bringing total disbursements under the arrangement to SDR 372.6 million (about US$ 514.5 million). IMF Board members welcomed Cameroon’s improved performance under the ECF program, as well as its leadership role in the rebuilding of CEMAC’s fiscal and external buffers. The IMF Board recommended to the Government of Cameroon to enhance fiscal discipline; including by reducing recourse to exceptional spending procedures; completing the Treasury Single Account reform; improving cash management and the transparency of budget execution and improving the financial viability of public enterprises. The Board also recommended to preserve debt sustainability by refraining from new non-concessional borrowing; strictly adhering to the disbursement plan for contracted but undisbursed loans and improving public investment efficiency. The Board also stressed the need for further efforts to promote private sector- led growth by enhancing financial inclusion, improving the business climate, and strengthening EITI compliance and the AML/CFT framework. 3. THE GOVERNMENT’S PROGRAM 33. Cameroon’s overarching development agenda is articulated in the county’s Vision 2035, which targets Cameroon’s transformation into an emerging economy by 2035. Vision 2035 includes medium- term objectives focused on alleviating poverty, accelerating industrialization, and consolidating democracy and national unity while respecting the country’s diversity. To operationalize this vision, Cameroon adopted the DSCE in 2010, which established a framework for implementing the first phase of Vision 2035 over the 2010–2020 period. DSCE priority areas include: (a) infrastructure development; (b) the modernization of production; (c) regional integration and trade; (d) credit to the economy; (e) social development; (f) labor-market regulatory reform; and (g) improved public sector management. The strategy aims to address infrastructure bottlenecks, foster economic diversification, boost the annual economic growth rate to 5.5 percent, reduce the underemployment rate from 75 percent to 50 percent, and lower the poverty rate from 39.9 percent to 28.7 percent by 2020. 34. As growth slowed in 2017, higher-than-projected underemployment levels and limited progress in reducing poverty prompted the Government to adopt an updated DSCE for 2018–2020. The revised strategy aims to maintain a stable macroeconomic framework by consolidating public investment projects launched since 2010 and enhancing their impact on private sector development, while also implementing 9 On June 26, 2017, the Executive Board of the IMF approved a US$666.2 million package under the Extended Credit facility for 2017-2020. The program includes three pillars: i) frontloaded fiscal consolidation to strengthen fiscal and external buffers, while protecting social spending; ii) structural fiscal reforms to expand the non-oil revenue base, improve the efficiency of public investment and the quality of budgetary system, and mitigate fiscal risks from contingent liabilities; and iii) reforms to accelerate private sector-led economic diversification and to boost the resilience of the financial sector. The IMF program is well coordinated with the World Bank DPF series and other DPs, with a high degree of collaboration among DPs. Page 15 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) urgent social programs and poverty-reduction policies. The priority sectors defined in the updated DSCE remain unchanged from the 2010–2020 version. 4. THE PROPOSED OPERATION 4.1. LINKS TO THE GOVERNMENT’S PROGRAM AND OPERATION DESCRIPTION 35. The proposed operation is closely aligned with the objectives of Vision 2035 and the priorities of the updated 2018–2020 DSCE. Four out of the seven policy areas of the updated DSCE overlap with the reform areas supported by this programmatic series. These include (a) improved public sector management, (b) infrastructure development, (c) regional integration and trade, and (d) social development. 36. The proposed second operation in the programmatic series will continue to focus on the development objectives and policy areas supported by the first operation. The proposed operation will build on the success of its predecessor by supporting the implementation of structural reforms designed to ensure long-term fiscal sustainability, boost competitiveness, and mitigate economic vulnerabilities. Good governance is central to the proposed operation, and its three pillars address critical challenges in the areas of fiscal policy and public administration, infrastructure investment and the management of public assets, and social protection and social services. 37. The first pillar supports the Government’s efforts to build a strong foundation for long-term fiscal sustainability and enhanced public sector management. The pillar focuses on reforms designed to: (a) increase revenue mobilization by rationalizing tax expenditures, broadening the tax base, and strengthening tax administration; (b) enhance public-investment management and reduce procurement delays by implementing a more efficient institutional framework for public procurement; (c) tighten control over the wage bill and improve HRM; and (d) strengthen the administration and oversight of SOEs. 38. Building on ongoing World Bank programming and a robust dialogue with authorities, the second pillar focuses on reforms to improve infrastructure quality, address critical competitiveness challenges, and foster private sector development. Measures supported under this pillar aim to: (a) achieve financial sustainability in the energy sector; (b) improve road maintenance and strengthen the road network’s resilience to climate change; and (c) increase efficiency at the Port of Douala and enhance the performance of logistics platforms and supply chains. These reforms will strengthen the financial viability of Cameroon’s core infrastructure, creating the necessary conditions for greater private infrastructure financing. 39. The third pillar supports measures to improve social services and scale up social protection. Policy actions under this pillar focus on: (a) improving the performance of public health facilities and enhancing the quality of healthcare services; (b) increasing access to textbooks in primary and secondary schools, which research has shown to be a critical determinant of educational outcomes in Cameroon; and (c) expanding social safety-net programs. 40. The selectivity principle underpins the design of the proposed operation. The following criteria guided the choice of pillars, prior actions, and triggers: (a) the necessity of reform; (b) the empirical foundation for the supported actions; (c) the strength of the relevant implementation arrangements; and Page 16 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) (d) the commitment demonstrated by the Government. This application of the selectivity principle reflects the World Bank Group’s extensive experience preparing DPFs, as well as lessons learned from years of engagement with the GOC and from the implementation of the DPF1. 41. The proposed operation is also consistent with the World Bank Group’s approach to Maximizing Finance for Development (MFD). 10 The operation is classified as “MFD-enabling,” because the actions supported under Pillar II will eliminate obstacles to private investment, and a significant increase in private financing for key development priorities is anticipated within three years of the program’s closing date. Reforms that strengthen the financial viability of the public electric utilities will be critical to engage the private sector in implementing independent power projects and other sectoral investments. Reestablishing the creditworthiness of the electric utilities will be necessary to enable the formation of independent power partnerships, smooth the execution of public-private partnership contracts and encourage private investment in distribution. The unbundling of the utilities and the adoption of transparent pricing mechanisms will also facilitate private investment and promote competition. Meanwhile, the improvements in road and port infrastructure supported by the proposed operation will enable complementary private investments in transportation and logistics services, which will help increase productive efficiency and lower consumer prices. Lessons Learned 42. The design of the proposed operation is informed by lessons learned from the World Bank’s latest SCD for Cameroon, 11 the 2017–2021 Country Partnership Framework (CPF), 12 recent World Bank operations, including the first DPF of the series, and the ongoing policy dialogue with authorities. In Cameroon, as in other countries, World Bank operations have the greatest impact when they (a) leverage the strengths of the entire World Bank Group and coordinate with other development partners; (b) build on the World Bank’s comparative advantages, as revealed by past experience and client feedback; (c) align closely with the Government’s self-defined development program and requests for World Bank Group support; (d) draw on the knowledge generated by ongoing investment projects; and (e) provide integrated multisector development solutions. 43. The implementation of the DPF1 yielded three key lessons: (a) The first lesson is that the process of designing and implementing the DPF forged a more robust policy dialogue with the Government and enabled progress on several difficult governance-related issues. For example, the policy dialogue around health sector reforms supported by the DPF1 has accelerated the transformation of the health sector’s institutional framework via the extension of the performance-based financing (PBF) program and the breakup of a public monopoly on the distribution of generic drugs in health facilities. 10 See Joint Ministerial Committee of the Boards of Governors of the Bank and the Fund on the Transfer of Real Resources to Developing Countries. https://worldbankgroup.sharepoint.com/sites/MFD/Document/MFD%20Approach/Maximizing%20Finance%20for%20Develop ment%20- %20Leveraging%20the%20Private%20Sector%20for%20Growth%20and%20Sustainable%20Development.pdf?source=https://w orldbankgroup.sharepoint.com/sites/MFD/ 11 SCD Report No 103098-CM. 12 CPF Report No 107897-CM. Page 17 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) These reforms have significantly improved expenditure efficiency in the health sector and advanced the Government’s goal of achieving universal health coverage. Similarly, changes to textbook policies supported under the DPF1 catalyzed reform in a politically sensitive area in which limited progress had been made over the previous decade. The actions supported by the DPF1 transformed textbook policy and reduced textbook prices, leading to significant improvements in the distributional equity of educational materials. The new textbook policy also complements the Education Reform Support Project launched in January 2019. The project includes a US$20 million results-based investment dedicated to increasing the availability of textbooks, which is expected to enhance both the quality and equity of education services. (b) The second lesson is that the provision of analytical and advisory services (ASA) has complemented and advanced the policy dialogue. The Cameroon DPF series is informed by a complementary series of ASA and TA projects, including a public expenditure review, an analysis of the public sector wage bill and HRM practices, and a review of the corporate governance and financial performance of SOEs. (c) The third lesson is that close coordination with other development partners is vital to the success of the structural reform agenda. The World Bank Group and other key development partners have generally succeeded in harmonizing their overall approach to supporting Cameroon and other CEMAC countries as they contended with the impact of the oil price decline. However, there is still scope to improve coordination on the content, prioritization, and sequencing of structural reform measures. 4.2. PRIOR ACTIONS, RESULTS, AND ANALYTICAL UNDERPINNINGS Pillar 1: Improving Fiscal Sustainability and Public Sector Management Domestic Revenue Mobilization Completed DPF1 Prior Action #1: To improve revenue mobilization, the Ministry of Finance has: (i) included an assessment of tax expenditures from indirect taxes as an annex to the draft 2018 Finance Law, submitted for parliamentary approval; and (ii) implemented the first phase of a program of joint audits between tax and customs authorities of the cement, forestry, and telecommunications sectors. DPF2 Prior Action #1: To improve revenue mobilization, the 2019 Finance Bill submitted to Parliament for approval includes: (i) specific measures to eliminate tax incentives and exemptions from indirect taxes; (ii) other specific measures to broaden the non-oil tax base and address negative externalities related to tobacco, soft drinks consumption and the level of pollution of imported vehicles; and (iii) the 2017 tax expenditures report covering all tax sources, and assessing tax expenditures related to the 2013 Investment Promotion Act. DPF3 Trigger #1: To improve revenue mobilization, the 2020 Finance Bill submitted to Parliament includes: (i) specific measures aimed at eliminating tax incentives and exemptions for indirect and direct taxes; (ii) an annex presenting the 2018 tax-expenditure report, which covers both direct and indirect taxes; and (iii) other specific measures to broaden the nonoil tax base. Results Indicator #1: Enhanced revenue mobilization through base broadening and in tax expenditure suppression (in CFAF Billion). Baseline (2016): 0 CFAF; Target (2020): CFAF 130 billion. Page 18 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 44. Rationale for the reform. The extensive use of tax expenditures is a major cause of Cameroon’s poor revenue performance. Tax expenditures reduced fiscal revenue by an estimated 3.1 percent of GDP in 2017, or 24 percent of actual nonoil revenue. About two-thirds of all tax expenditures go to the private sector, and the Government’s own analysis indicates that their benefits in terms of investment and economic growth are difficult to substantiate. The number of tax expenditures provided to the private sector has increased in recent years, and many are granted outside the general tax code. Support to households’ accounts for about one-third of the cost of tax expenditures, and targeting mechanisms are very poor. Subsidies for basic foods and nonalcoholic beverages account for around 46 percent of VAT expenditures, but only an estimated 6 percent reaches the poorest households, while 41 percent goes to the richest households. To ensure long-term fiscal sustainability, the Government will need to increase nonoil revenues. At 12.3 percent of GDP in 2016, Cameroon’s nonoil revenues are below the levels of comparable countries, including those with a greater degree of oil dependence. The DPF series supports the Government’s efforts to increase domestic resource mobilization to meet its 2020 revenue target. The supported interventions aim to strengthen the link between economic growth and revenue generation by rationalizing tax expenditures, broadening the excise tax base, and enhancing tax administration. A staggered and programmatic reform program focusing on institutional capacity-building and underpinned by an assessment of the level and composition of tax expenditures is being implemented over the course of the three-year DPF period. The prior actions for the DPF1 supported an assessment of tax expenditures on indirect taxes, which was included as an annex to the 2018 Finance Law, as well as the implementation of the first phase of a program of joint audits between the tax and customs authorities in the cement, forestry, and telecommunications sectors. The report provided an action plan for rationalizing tax expenditures with a medium-term target of CFAF 314 billion; the 2019 Finance Law includes measures expected to generate CFAF 20–25 billion (Prior Action 1), while further reforms included in the 2020 Finance Law are expected to raise another CFAF 30-35 billion (Trigger 1). To date, the joint audits supported by the DPF1 have yielded an estimated CFAF 2.6 billion in additional revenue gains, and the program was expanded in 2018. 45. Substance. The DPF2 supports the implementation of the Government’s action plan to reduce tax expenditures on indirect taxes via reforms introduced in the 2019 Finance Law. These reforms will target policies that the Government has identified as inefficient: they will eliminate VAT expenditures on life- insurance contracts and certain wood-processing operations and reduce VAT expenditures on certain types of beer. To broaden the tax base and address negative externalities, the DPF2 also supports improvements in excise taxes levied on tobacco and soft drinks, as well as the application of differential tariffs designed to encourage imports of less-polluting vehicles. Finally, the DPF2 supports the publication of an assessment of tax expenditures on all tax sources in 2017 as an annex to the 2019 Finance Law. The World Bank team is providing specific guidance to the Government on tax expenditures that could be eliminated or revised to improve efficiency, as well as measures to enhance the targeting of subsidies to the poorest households. The reforms supported by this operation are aligned with the IMF program, which supports efforts to improve tax design and build administrative capacity. 46. Trigger(s) for the DPF3. The DPF3 trigger is designed to support further reductions in tax expenditures on both direct and indirect taxes, including customs, VAT, and corporate income tax exemptions. The supported reforms will be included in the 2020 Finance Law and are expected to increase revenue by CFAF 65 billion. Page 19 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 47. Expected Results. Measures supported under this policy area are designed to reduce tax expenditures by CFAF 130 in 2020. To improve its precision, the results indicator established in the DPF1 has been modified for the proposed operation. Instead of a percentage of GDP, the anticipated revenue increase is now expressed in CFAF. Improving Public Investment Management and Reducing Procurement Delays by Implementing a More Efficient Institutional Framework for Public Procurement DPF2 Prior Action #2: To improve public procurement processes (notably for investment projects), increase accountability, ensure better value for money, and improve the quality of public investment projects, (i) the President has issued a new Public Procurement Code in the form of a decree clarifying the responsibilities of stakeholders, the independence of the grievance mechanism, and the separation of regulatory, oversight, and administrative responsibilities in public procurement processes; and (ii) the Minister of Public Contracts has issued an order defining a new performance based method of remuneration for participation in public procurement boards. DPF3 Trigger #2: To expedite public procurement processes (particularly for investment projects), increase accountability, ensure better value for money, and improve the quality of public investment projects, the Government has (i) issued all the relevant new Public Procurement Code implementing texts (list to be defined); and (ii) set up a paperless electronic system for public procurement. Results Indicator #2: Average time between tender issuance and contract signing. For contracts under the MINMAP threshold: Baseline (2016): 128 days; Target (2020): 90 days. For contracts above the MINMAP threshold: Baseline (2016): 225 days; Target (2020): 150 days. 48. Rationale for the reform. The 2018 World Bank Public Expenditure Review and previous assessments by other development partners have identified Cameroon’s complex and lengthy public procurement process as a key weakness in its PFM system. Long procurement delays adversely affect budget execution and contribute to the low execution rate of capital expenditures and the high share of single-source contracting. The 2011 reforms that created the Ministry of Public Procurement (Ministère des Marchés Publics, MINMAP) were intended to improve project prioritization and enhance transparency. However, inadequate accountability mechanisms and overlapping mandates led to confusion regarding institutional roles, and procurement delays remain common. As of 2015, the procurement process (from tender issuance to contract signing) took an estimated average of 128 days for smaller projects that fell below the threshold for MINMAP involvement and 225 days for larger projects processed by MINMAP. To cope with the low capital-budget execution rate—estimated at 40 percent in 2016—the Government resorted to exceptional procedures, which increased the share of projects using single-source procurement, further reducing transparency in the procurement process and creating opportunities for fraud and corruption. The reforms supported by the DPF series aim to improve the procurement process by increasing accountability, ensuring value for money, and enhancing project quality. 49. Substance. The DPF2 supports the adoption of a new Public Procurement Code that clearly defines the roles and responsibilities of various stakeholders involved in public procurement, reducing the time required to complete the process while enhancing its transparency. The new Public Procurement Code separates the functions of the contracting authority, the supervisory body, and the regulatory body. The code gives sector ministries greater responsibility over contract awards and execution while limiting MINMAP’s role to prior review. The body tasked with addressing complaints has also been transferred to the Public Contracts Regulatory Agency. The operation supports the rationalization of the tender board Page 20 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) and the introduction of a performance-based payment system, which is designed to reduce processing time. A decree (arrêté) has been issued defining a new remuneration method for participants on public contracts commissions, which bases compensation on deliverables produced rather than on the number of sessions attended—eliminating a perverse incentive to delay the decision-making process. The procurement reforms supported by the DPF2 will be complemented by two other projects: (a) the Strengthening Public Sector Effectiveness and Statistical Capacity Project (P151155), which includes a public procurement component to be jointly implemented by MINMAP that is aimed at building human capital in the procurement process, strengthening the capacity of the relevant institutions, and enhancing performance monitoring; and (b) a procurement analysis using the Methodology for Assessing Procurement Systems (P165996) designed to inform future public procurement reforms. 50. Trigger(s) for the DPF3. The DPF3 will support the implementation of the new procurement code via the adoption of its implementing regulations and the operationalization of the advertising, bid- submission, and contract-award stages of the electronic system for public procurement. 51. Expected results. The reforms supported by the DPF2 are expected to reduce the average time necessary to complete the procurement process for public investment projects from tender issuance to contact signing. For projects below the MINMAP thresholds, the average time is expected to be shortened from 128 days in 2016 to 90 days by 2020. For projects above the MINMAP thresholds, the average time is expected to be shortened from 225 days in 2016 to 150 days by 2020. Improving the Civil Service Payroll and Human Resources Management System to Enhance Productivity and Efficiency in the Public Sector Completed DPF1 Prior Action #2: To improve the payroll and human resources management (HRM), the Ministry of Public Service and Administrative Reform has initiated disciplinary proceedings before the Permanent Disciplinary Council of the Civil Service of irregular public officials identified through the 2016 civil service census. DPF2 Prior Action #3: To improve the productivity and efficiency of public service delivery, the Prime Minister has issued an order establishing and specifying the terms of reference of an inter-ministerial committee for civil service pay reform to gradually remove disparities in the pay system and develop a new base pay scale to be approved by the Council of Ministers. DPF3 Trigger # 3: To improve the productivity of the public sector, especially in terms of education services, the Government has implemented the first phase of reforms to the pay structure and the human resources management system, via: (i) the Prime Minister’s adoption of an action plan for compensation reform and issuance of a first revised base pay scale for civil servants; and (ii) MINFI and MINFOPRA’s introduction of a Human Resources Information Management System (SIGIPES II) in all ministries and the integration of all human resources and payroll records into SIGIPES II. Results Indicator (#3): Percentage of irregular/invalid human resource and payment cases eliminated from the SIGIPES. Baseline (2016): 0; Target (2020): 80. Note: MINFI = Ministry of Finance (Ministère des Finances); MINFOPRA = Ministry of Public Service and Administrative Reform (Ministère de la Fonction Publique et de la Réforme Administrative). 52. Rationale for the reform. The goal of the supported reforms is to gradually eliminate distortions in the remuneration system and reintroduce a transparent and equitable payroll and HRM policy that incentivizes performance. Cameroon’s relatively low public sector wage bill (4.4 percent of GDP in 2017) reflects decades of real wage cuts. Real base wages for permanent civil servants are currently just 23 to Page 21 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 36 percent of their 1985 level, and wages are especially low for contract employees and teachers, who represent one-third of the civil service. Previous attempts to manage the growth of the civil service wage bill created perverse incentives: the Government promoted staff on a massive scale to increase their base pay, creating an inverted pyramid in the civil service structure, and contract positions proliferated; the authorities also introduced a complex allowance system to supplement base pay, including extensive nonwage compensation for participating in commissions, committees, and working groups (CCWGs). Payments for participating in CCWGs are provided in cash on a per-meeting basis and are not recorded in the treasury system. This system has incentivized the creation of unproductive and often redundant CCWGs while weakening expenditure controls. A recent World Bank study 13 estimates that expenditures on CCWG-related compensation equals at least 0.27 percent of GDP, or CFA 56.5 billion. Moreover, access to this form of nonwage compensation is skewed toward higher administrative levels, and CCWG allowances may equal as much as 350 percent of the base salary of management-level staff. The CCWG compensation system is inequitable, opaque, and demoralizing, and it fosters a rent-seeking culture in which remuneration is unrelated to performance. The education sector also suffers from high levels of compensation inequality and distortions in the management system: one-third of teachers are paid outside the formal Government wage system and are directly supported by households through Parent- Teacher Associations. Acknowledging the urgent need for structural pay reform, the Prime Minister signed two legal decrees in November 2018 and February 2019. The first clarified the criteria and principles for the creation and management of CCWGs within the public administration and mandated their conversion to a traceable, output-based payment system. The second established a new allowance scale for inter- ministerial and ministerial CCWG members based on a lower lumpsum amount. A series of policy reforms, including the elimination of about 1,200 irregular staff cases identified in the 2016 census—a measure supported by the DPF1—has been informed by extensive World Bank analytical, policy, and technical work. 53. Substance. The DPF2 supports the creation of an inter-ministerial committee tasked with initiating the structural reform of the civil service pay system, including teacher compensation. This committee will design an action plan for consolidating ad hoc payments into base pay. The compensation reform process supported by the DPF2 will be complemented by the payroll-management subcomponent of the Strengthening Public Sector Effectiveness and Statistical Capacity Project, which will support the deployment of the integrated human resources and payroll management system (Système Informatique de Gestion Intégré des Personnels de l'Etat et de la Solde, SIGIPES II) in the Ministry of Secondary Education (Ministère des Enseignements Secondaires,MINESEC) and the Ministry of Public Health (Ministère de la Santé Publique, MINSANTE) and promote the use of SIGIPES II for human-resources analysis and strategic planning. 54. Trigger(s) for the DPF3. The DPF3 will support the second phase of the structural reform process for the pay system, which includes: (a) the adoption of the action plan for consolidating ad hoc compensation into base pay and (b) the creation of an initial revised pay scale for civil servants which will be subject to further updates through an ongoing revision process. This process will be strengthened by the continuing rollout of the SIGIPES II system. 55. Expected results. The measures supported by the DPF series are expected to help build a transparent and equitable compensation system for all civil servants, including teachers, in compliance 13 Wage bill and human resources management in Cameroon, World Bank, 2018. Page 22 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) with CEMAC PFM guidelines. The results will be measured by the number of irregular/invalid human resource and payment cases eliminated from the SIGIPES II. The target is to have at least 80 percent of such cases eliminated by 2020, keeping in mind that some cases may need a more protracted resolution. Strengthening the Management and Oversight of State-Owned Enterprises Completed DPF1 Prior Action #3: To improve corporate governance and management of public enterprises, the President of Cameroon has promulgated two laws detailing the responsibilities, monitoring, and control of public enterprises and agencies in compliance with OHADA. DPF2 Prior Action # 4: To improve the corporate governance and management of state-owned enterprises (SOEs), the Recipient has issued decrees setting: (i) criteria for the selection, remuneration and evaluation of SOE senior management and board members; and (ii) standards for the presentation and publication of SOE financial and operational information. DPF3 Trigger # 4: To improve the corporate governance and management of SOEs and reduce the fiscal risks associated with the SOE sector, the Government has signed reform and restructuring plans and/or performance- based contracts with at least four SOEs deemed to represent a high budgetary risk. Results Indicator (#4): Number of SOEs publishing their audited annual financial reports within the prescribed deadlines. Baseline (2016): 0; Target (2020): the 10 largest public enterprises and the 10 largest public agencies. Note: OHADA = Organization for the Harmonization of Business Law in Africa (Organisation pour l’Harmonisation en Afrique du Droit des Affaires). 56. Rationale for the reform. Cameroon’s large SOE sector plays an important role in the economy, but its poor performance creates significant fiscal risks. SOEs employed 16 percent of the public sector workforce in 2015, and the combined annual revenue of the country’s commercial SOEs averaged 18 percent of GDP over the 2011–2015 period, above the Sub-Saharan African average of 14 percent. However, the financial performance of SOEs deteriorated in 2014 and 2015, creating substantial fiscal risks. Government subsidies to commercial SOEs increased from CFAF 114 billion in 2014 to CFAF 222 billion in 2016, equal to 9 percent of nonoil revenue. The total debt of Cameroonian SOEs averaged 12 percent of GDP between 2010 and 2015, approximately half of which is explicitly guaranteed by the Government. Many SOEs also have significant debts, outstanding claims, and accounts receivable from the Government and other SOEs. Improving SOE management and reducing SOE-related fiscal risks is crucial to ensure fiscal sustainability and public sector efficiency. The reforms supported by the DPF series aim to enhance SOE transparency by strengthening reporting and disclosure requirements. Establishing a clear legal framework is a necessary first step but enforcing that framework will be equally important. The DPF1 prior action supported reforms to the legal framework for SOEs. In June 2017, the Government passed two new framework laws, replacing the previous law from 1999. The 2017 framework laws separated commercial enterprises from public agencies with social objectives. They also lifted the requirement that SOEs follow public procurement procedures, which was hampering SOE efficiency. The proposed DPF2 would further strengthen the SOE regulatory framework by supporting complementary legislation on two issues of critical importance: (a) SOE board and management remuneration and (b) SOE transparency and reporting. These measures are expected to greatly reduce the fiscal risk posed by SOEs. 57. Substance. The indicative trigger for the DPF2 included the preparation of a set of implementing texts, decrees, or regulations for the SOE framework laws. The authorities had the discretion to determine the type of official documents used and the order in which the various topics would be covered, as both Page 23 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) depend on various technical and domestic political factors over which development partners have limited control. The DPF2 has refined this trigger to specify that the implementing documents will include two decrees and a circular and will focus on critical issues related to SOE transparency and management. 58. Trigger(s) for the DPF3. The DPF3 will support the preparation of reform and restructuring plans and/or performance-based agreements of four structurally important, high-risk SOEs. These plans and/or agreements will be designed to reduce the fiscal risks arising from contingent liabilities, arrears, and public financial support to SOEs. 59. Expected results. The supported reforms are expected to improve transparency and increase the availability of SOE performance data, as the 10 largest SOEs are expected to publish audited annual financial reports within the prescribed deadlines. Pillar 2: Enhancing Competitiveness Reinforcing Financial Sustainability in the Energy Sector Completed DPF1 Prior Action #4: To improve the financial sustainability of the energy sector and enhance private sector confidence, the Ministry of Finance has: (a) concluded with ENEO the 11th amendment to the 2005 debt repayment agreement to clear arrears of XAF 54 billion in electricity bills and compensation subsidies accumulated between the Government and ENEO as of August 31, 2017; (b) prepared a payment plan with a clear timetable for the payment of said arrears; and (c) included in the draft 2018 Finance Law submitted for parliamentary approval, (i) a portion of the arrears to be paid in FY2018 as specified in the payment plan referred to in (b) above and (ii) the compensatory subsidy to be paid to ENEO in FY2018. DPF2 Prior Action #5: To improve the financial sustainability of the energy sector: (i) the Recipient and key stakeholders have developed and begun implementing a quarterly mechanism to process the payment of the central administration’s electricity bills to ENEO, based on quarterly reconciled assessments by the Recipient and ENEO of electricity consumed and payments due; and (ii) ARSEL has issued a regulatory decision re-adjusting the public electricity tariff schedule, stipulating that the electricity rates are as of June 28, 2018, calculated on a quarterly basis with annual consolidation and adjustment of data at the end of the year. DPF3 Trigger #5: To reinforce the financial sustainability of the energy sector and to monitor public-lighting costs, the Ministry of Finance has: (i) by December 2019, developed and begun implementing a mechanism to process the central Government’s electricity payments to ENEO Cameroon on a monthly basis; and (ii) by September 2019, introduced a public-lighting tax to customer bills and reached an agreement with ENEO Cameroon regarding the schedule for installing meters for all public lighting. Results Indicator (#5): Elimination of arrears owed by the central Government and major SOEs (CAMTEL, CDE, and CAMWATER) to ENEO Cameroon. Baseline: CFAF 54 billion in central-Government arrears (September 2017) and CFAF 11.25 billion in SOE arrears (March 2018); Target (2020): CFAF 0 in both central-Government and SOE arrears. Note: ARSEL = Electricity Sector Regulatory Agency (Agence de Régulation du Secteur de l'Electricité). 60. Rationale for the reform. Cameroonian Energy Company (ENEO) Cameroon is majority-owned by the London-based private equity firm Actis, but the Cameroonian Government holds a large minority share. The utility’s weak financial performance undermines investor confidence and poses serious fiscal risks, which are magnified by ENEO Cameroon’s status as the off-taker for the country’s independent power producers. At an average of US$0.16 per kilowatt hour (kwh), electricity tariffs in Cameroon are higher than the regional average (US$0.10/kwh), yet they remain insufficient to achieve cost recovery. Page 24 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) The central Government and several major SOEs are in arrears to ENEO Cameroon, threatening its financial viability, and inadequate liquidity compels the utility to delay maintenance and rely on costly short-term borrowing to finance its operations. Financial constraints have ramifications across the value chain. In 2018, payment delays caused independent power producers to reduce generation, increasing load-shedding and prompting ENEO Cameroon to employ expensive diesel engines to partially fill the gap. Industries and services impacted by load-shedding also resort to costly generators, undermining their competitiveness. Delayed network maintenance and investment further weaken the reliability of electricity services, with especially negative impacts on new market entrants. The Government has formulated a least-cost development plan for energy investments but implementing it will require attracting sufficient investment capital while reducing energy tariffs. To achieve this, the Government must (a) ensure financial viability across the electricity sector’s value chain and (b) successfully advance the ongoing unbundling of the electricity sector. By supporting the implementation of a sustainable mechanism to avoid payment delays and ease liquidity constraints on ENEO Cameroon, the DPF2 contributes to the long-term sustainability of independent power producers developed with World Bank financial support (see Section 4.3). 61. Substance. The DPF1 supported the implementation of the Government’s plan to clear CFAF 54 billion in arrears to ENEO Cameroon, and the DPF2 supports the Government and key stakeholders in implementing measures to avoid the accumulation of new arrears. The reforms supported by the proposed operation include (a) the establishment of a mechanism to ensure the regular payment of energy bills by the central Government, as well as the timely payment of past arrears and tariff compensation; (b) the clearance of arrears accumulated by major SOEs in the water and telecommunications sectors, including Cameroon Water Corporation (CAMWATER), Cameroon Waters (Camerounaise des Eaux, CDE), and Cameroon Telecommunications (CAMTEL); and (c) the adoption of a methodology for calculating the tariff profile on a quarterly basis and estimating the corresponding compensatory subsidy. 62. Trigger(s) for the DPF3. The DPF3 trigger will be the implementation of a mechanism to process the central Government’s payments to ENEO Cameroon on a monthly basis, as well as the introduction of a public-lighting tax in customer bills and the installation of meters for all public lighting. 63. Expected results. The implementation of regular payment mechanisms by the central Government and the clearance of arrears by SOEs are expected to substantially boost the liquidity of ENEO Cameroon while mitigating the risk of a renewed buildup of arrears, reinforcing the long-term financial viability of the energy sector. Page 25 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Improving and Expediting Road Maintenance and Strengthening the Road Network’s Resilience to Climate Change Completed DPF1 Prior Action #5: To improve road maintenance, the management of road assets, and the climate resiliency of roads, (a) the Ministry of Finance has included in the draft 2018 Finance Law submitted for parliamentary approval, an allocation of CFAF 56 billion to be transferred to the Road Fund; and (b) the Ministry of Public Works has adopted a list of selected routes to be maintained in accordance with the GENiS Agreements. DPF2 Prior Action #6: To improve road maintenance and increase the road network’s resilience to climate change: (i) the Minister of Finance and the National Director of the BEAC have signed an amendment to the convention governing the dedicated account of the Road Fund at the BEAC, establishing an automatic debiting mechanism of the single Treasury account for the benefit of said dedicated account for in an amount of at least CFAF 5 billion per month to ensure the regular payment of (priority) road maintenance expenses; and (ii) the Minister of Public Contracts has issued an implementing order adopting the Standard Bidding Documents for road maintenance and management programs (OPBCs). DPF3 Trigger #6: To improve road maintenance, the management of road assets, and road resiliency to climate change: (i) the Ministry of Public Works (MINTP) has completed an audit of the MINTP road maintenance programming system and an audit of its axle load system, and implemented the action plan for the extension and implementation of its policy to control axle loads on extended tarred roads; (ii) the Ministry of Finance (MINFI)/FER has completed the technical and operational audit of the Road Fund (period: 2002–2017); and (iii) the Government has launched the tender for the first the Output- and Performance-Based Road Contract (OPBC). Results Indicator (#6): Average time required for the Road Fund to pay invoices to service providers. Baseline (2016): 150 days. Target (2020): 40 days. 64. Rationale for the reform. Inadequate road maintenance is a major challenge in Cameroon. The Government began implementing major institutional reforms in the road sector during the 1990s, but this process has stalled, and some reforms have been reversed. Weak sectoral governance, a lack of investment planning, political interference, and poor project management led to a large backlog of road- construction and maintenance projects. The reversal of the road-maintenance financing policy in 2007 disrupted the supply of funding for road maintenance, contributing to the rapid depreciation of the asset base and undermining the safety and reliability of road transportation. In addition, unenforced axle-load controls pose a serious threat to road assets. The Road Fund cannot mobilize sufficient resources to cover its obligations, and the average time required for the Road Fund to pay contractors rose from an average of seven days in 2008 to 120–180 days in 2016. Many road contactors are small and medium enterprises (SMEs), for which payment delays can create severe liquidity problems. Relatedly, the banking sector is reluctant to support the local construction industry by providing guarantees and pre-financing required under road contracts. The cost of road transportation in Cameroon averages US$0.13 per ton/km, far above the average of US$0.04 per ton/km in much of the developing world. Road-transportation costs greatly impact economic competitiveness, and poorly maintained roads lengthen travel times and accelerate the depreciation of vehicles that use them. The international evidence indicates that road maintenance generates the highest rate of economic return in the road sector. The DPF1 supported the Government’s efforts to ensure that sufficient funding for road maintenance was allocated in the annual budget and to develop a multi-year priority road maintenance program based on output- and performance-based contracts (OPBCs). The DPF2 builds on these measures by supporting reforms designed to ensure a steady flow of resources into the Road Fund and operationalize the OPBCs tender process. Page 26 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 65. A changing climate reinforces and increases the returns to optimal maintenance. Ensuring adequate road maintenance has been identified as the most critical and effective building block for creating a system resilience to the impact of climate change. Roads are vulnerable to climate stressors such as increased temperature, precipitation, and flooding. Studies show that Cameroon is particularly vulnerable and even moderate changes in the climate will induce significant precipitation-related disruption. The effects of climate change are likely to lead to higher maintenance and rehabilitation costs, shortened road rehabilitation life-cycle, and large increases in the disruption time of the network. As an indication, in the worst scenarios, stress imposed on the roads by precipitation could lead to rehabilitation costs 10 times higher, while stress imposed by flooding could lead to costs 17 times higher. The operation aims to ensure that road maintenance remains adequately resourced in the face of anticipated growing climatic variability, thereby helping to improve the resiliency of the road network. Given the impacts of climate change are likely to be even more severe in the absence of a robust maintenance regime, the incremental costs of inaction are expected to continue to grow. Maintenance would be prioritized by considering the vulnerability and risks of the road to the impacts of climate change. The operation is in line with ongoing World Bank interventions which are addressing other measures to strengthen climate resiliency such as improved pavement design standards and development of a climate resilience and adaptation strategy for land transport (P150999). The operation is also aligned with the Government’s overall objectives on climate adaptation, as stated in the Intended Nationally Determined Contribution submitted to the United Nations Framework Convention on Climate Change (2015). 66. Substance. The DPF2 supports the MINFI’s adoption of a disbursement schedule designed to ensure the regular transfer of resources into the Road Fund’s dedicated account at the BEAC, as well as the development of standard biding documents for the OPBCs. Regular transfers to finance the 2018– 2019 priority road maintenance program established by the Ministry of Public Works (Ministère des Travaux Publics, MINTP) are expected to ease liquidity constraints and shorten the time required to pay road sector contractors. Meanwhile, the use of multiyear OPBCs for road maintenance is expected to streamline the procurement process. 67. Trigger(s) for the DPF3. The triggers for the DPF3 support the Government’s efforts to evaluate the functioning of the road sector. These include an audit by the MINTP of its road-maintenance programming system and its axle-load system, along with the implementation of an action plan for controlling axle loads on extended tarred roads, and a technical and operational audit of the Road Fund by the MINFI covering the 2002–2017 period. The DPF3 triggers also support the start of the tender for process for OPBCs. 68. Expected results. The supported reforms are expected to enhance the road-maintenance programming system used by the MINTP and ensure the timely payment of contractors. The average time required to pay contractors is expected to decline from 150 days in 2016 to 40 days in 2020, and the Government is expected to publish its audit of the axle-load system and the associated action plan. Page 27 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Improving the Efficiency of the Port of Douala and Strengthening the Performance of Logistics Platforms and Supply Chains. Completed DPF1 Prior Action #6: To reduce the length of stay and transit time in the Port of Douala: (i) the Director General of Customs, in his capacity as the president of the Single Window for Foreign Trade Operations, has extended the single form of foreign trade operations to all phases of the international logistics chain (that is, pre-clearance, take-over, clearance, removal); and (ii) the National Port Authority has approved the revised current port tariffs to increase the storage levy at the Port of Douala. DPF2 Prior Action #7: To improve the efficiency of the Port of Douala and the performance of logistics platforms and supply chains, the GUCE has set up an electronic payment platform for all trade-related fees, duties, and taxes. DPF3 Trigger #7: To improve the competitiveness of ports and the performance of logistics platforms and supply chains: (i) the National Trade Facilitation Committee (CONAFE) has implemented a three-year strategic plan detailing specific annual measures to reduce transit time at the Port of Douala and increased the number of computerized clearance procedures; and (ii) MINT has carried out the assessment and revision of the 1998 texts on port reform. Results Indicator (# 7): Average length of stay for a container at the Port of Douala. Baseline (2017): 19 days; Target (2020): 11 days. Note: GUCE = Single Window for Foreign Trade Operations (Guichet Unique des Opérations du Commerce Exterieur). 69. Rationale for the reform. The recently adopted National Port Master Plan recognizes that inefficiencies at the Port of Douala impose a major constraint on economic growth in Cameroon. About 95 percent of the country’s exports and imports transit through the Port of Douala, and its location makes it a natural trade hub for the Central Africa region. To achieve its goal of transforming the port into a modern logistics center, the Government must improve its efficiency. The global length of stay for cargo at the Port of Douala was 19 days in 2017, almost four times as long as at the Port of Mombasa and about eight times as long as at the Port of Durban. DPF1 Prior Action 6 supported an increase in storage fees to discourage the use of the port as a storage facility and the extension of the single form for trade operations to all phases of the international logistics chain (that is, pre-clearance, takeover, clearance, removal). 70. Substance. Prior Action 7 supports the operationalization of the electronic payment platform for all trade-related fees, duties, and taxes at the GUCE, which is among the reforms included in the second year of the 2017–2019 strategic plan being implemented by the National Trade Facilitation Committee (Coordonnateur du Secrétariat Technique du Comité National de Facilitation des Echanges, CONAFE). 71. Trigger(s) for the DPF3. The triggers for the DPF3 support the full implementation of CONAFE’s three-year plan, as well as the revision of the 1998 texts on port reform. The latter is especially urgent, given the construction of the Ports of Limbe and Kribi, and the National Port Authority will integrate changes and recommendations made during the revision process. 72. Expected results. The supported reforms are expected to increase port efficiency, and the average length of stay for a container at the Port of Douala is expected to decline from 19 days in 2017 to 11 days in 2020. Page 28 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Pillar 3: Improving Social Services and Scaling-Up Social Protection Enhancing the Performance of Public Health Facilities and the Quality of Healthcare Services Completed DPF1 Prior Action #7: To increase the level of funding and management capacity of health facilities and improve the availability of essential medicines in health regions and districts covered by PBF: (i) the Ministry of Public Health and Ministry of Finance have issued a joint circulaire allowing all health facilities under the PBF program to benefit from special fiduciary arrangements specified in the national PBF manual; and (ii) the Ministry of Public Health has issued a circular allowing Regional Health Promotion Funds to purchase pharmaceutical products from accredited public or private wholesalers through simplified procedures. Completed DPF1 Prior Action #8: To improve efficiency of health sector spending, the Ministry of Public Health has expanded the administrative coverage of the PBF program by introducing at least four additional performance contracts at the central level of the Ministry of Public Health. DPF2 Prior Action #8: To improve the performance of the public health sector and enhance the quality of care in public health facilities: (i) the Ministry of Finance has disbursed 100 percent of the allocations to PBF subprogram health units under the PBF mechanism; and (ii) the Minister of Public Health has signed an order allowing all public and private health facilities in Cameroon to buy medicines and medical devices from approved public and private suppliers other than CENAME and the Regional Health Funds, and establishing simplified procedures for acquiring these medicines and medical devices that favors high-quality generics offered at a low cost from approved suppliers. DPF3 Trigger #8: To improve the performance and the quality of care in public health facilities, the Ministry of Public Health has (i) allocated 100 percent of the budgets of all health facilities, all regional and district level regulatory structures, and 50 percent of the budgets of all central-level directorates of the Ministry of Public Health according to a funding mechanism based on performance; and (ii) allowed new public health professionals to be recruited and managed at the regional level through a competitive application process, with the allocation of new positions based on the population’s health needs. Results Indicator (#8): Share of births attended by skilled health care professionals in the three northern regions. Baseline (2016): 37.6 percent; Target (2020): 42 percent. Note: CENAME = National Center for Provision and Medicines and Essential Medicines and Medical Consumables (Centre d'Approvisionnement en Médicaments et Consommables Médicaux Essentiels). 73. Rationale. Malnutrition is highly prevalent in Cameroon, and its maternal mortality rate is more than twice the average for lower-middle-income countries. Cameroon’s poor health outcomes are driven by deep regional disparities in service quality. The Far North, North, Adamaoua, and East Regions consistently experience the worst outcomes for nearly all infant and child mortality and nutrition indicators. For example, the under-five mortality rate in the North (173 deaths per 1,000 live births) is more than four times the rate in Yaoundé (42 deaths per 1,000 live births), and the incidence of acute malnutrition is 11 times higher in the Far North than it is in the West. The northern regions also have the lowest coverage rates for child immunization, antenatal care, assisted deliveries, and modern family planning: the coverage rate for assisted deliveries is approximately three times higher in the West, North West, Yaoundé, and Douala than it is in the North and Far North. The latest Public Expenditure Review finds that most of Cameroon’s public health budget is allocated to the central administration, with little funding going to the regional and local levels; budget allocations do not reflect regional health needs; and the performance of the public system for distributing pharmaceuticals and medical supplies is unsatisfactory. Meanwhile, an inadequate pool of trained health care workers and centralized HRM create serious supply-side bottlenecks in Cameroon’s health system. A recent PBF pilot program has demonstrated the model’s considerable potential to improve the quality and efficiency of health services, Page 29 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) especially in underserved areas. The PBF model is based on a contractual relationship between the different actors in the health system. Healthcare providers and sector regulators receive funding based on performance, which is measured against predetermined targets. The PBF model aims to increase providers’ accountability while giving them the necessary autonomy, empowerment, and financial incentives to achieve performance targets. DPF1 Prior Actions 7 and 8 supported reforms to improve service delivery in the health sector by expanding the administrative coverage of the PBF program and allowing all health facilities in districts covered by the PBF program to benefit from special fiduciary arrangements and funds to purchase pharmaceutical products. However, the positive impact of the PBF model on the quality and utilization of health services remains constrained by institutional and operational issues. The proposed DPF targets these constraints and supports reforms designed to facilitate the implementation of PBF and improve its impact on the performance of the health system as an incremental step toward achieving universal health coverage. 74. Substance. The triggers included in the DPF1 have been modified as Prior Action 8 of the DPF2. Because the Government has already adopted the PBF model and is in the process of expanding the use of PBF contracts, there is no need to include those measures as elements of a DPF prior action. Instead, Prior Action 8 focuses on ensuring that the PBF mechanism reliably transfers public funds to health facilities to sustain the PBF model and prevent shortages of medicines and medical supplies. 75. Trigger(s) for the DPF3. The triggers for DPF3 will focus on (a) expanding the PBF model to cover 100 percent of resources to at least 75 percent of health facilities, including 50 percent of the budget for all directorates of the Ministry of Public Health and (b) decentralizing recruitment by allowing new public health professionals to be recruited at the regional level through a competitive application process according to the population’s health needs. 76. Expected results. The reforms supported by the proposed operation are expected to help ensure adequate resources are available for health facilities while expanding and sustaining the successful PBF program. These measures should gradually improve health indicators, including the share of births attended by a skilled healthcare professional in the three northern regions and the share of PBF facilities with high-quality generic medicines and medical supplies. Results monitoring will focus on health facilities in the 78 districts covered by the PBF program in October 2017. Page 30 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Improving Access to Textbooks in Primary and Secondary Schools Completed DPF1 Prior Action 9 : To increase accessibility to textbooks in primary and secondary school, the Prime Minister has issued (i) a Circular on the principles guiding the new school textbook policy to reduce the cost of books and increase their availability and (ii) a Decret reorganizing the Conseil National d’Agrément des Manuels Scolaires et des Matériels Didactiques, (CNAMSMD) and setting up the national commission to streamline the development cycle of textbooks. DPF2 Prior Action #9: To make textbooks more accessible and available: (i) the Recipient has published the official list of textbooks to be used in primary and secondary schools as of school year 2018/2019, in accordance with the principles set out in the Prime Minister's November 2017 circular; and (ii) the Recipient has adopted an orientation document and a detailed calendar for the development of a new textbook policy for preschool, primary, and secondary education, to be implemented at the beginning of the 2019/2020 school year, based on goals validated in 2017. DPF3 Trigger #9: To expand the availability of textbooks, the new textbook policy for preschool, primary, and secondary education is implemented, starting in the 2019/20 school year. Results Indicator (#9): Number of textbooks per student in primary school. Baseline (2016): 1:14; Target (2020): 1:2. Results indicator (#10): Number of textbooks per student in high school. Baseline (2016): 1:3; Target (2020): 1:1.5. 77. Rationale for the reform. The poor performance of Cameroonian students on international standardized tests underscores the negative impact of an inadequately resourced education system on the development of the country’s human capital. In addition to critical reforms related to teacher recruitment and training, the proposed operation would support revisions to the national textbook policy designed to increase the quality and availability of textbooks in primary and secondary schools. The international literature confirms the central role that an adequate supply of textbooks plays in improving student performance, especially in developing countries and underserved regions, as good-quality textbooks can mitigate the impact of poorly trained teachers and inadequate school facilities. While many Sub-Saharan African countries have difficulty maintaining an adequate supply of affordable, good-quality textbooks, this challenge is particularly acute in Cameroon, where textbook-to-student ratios are among the lowest in the world, averaging 1:14 nationally and reaching as high as 1:30 in some regions. In most comparable countries, textbooks are available to students at a unit price of about US$1–US$3, but in Cameroon the unit price for a primary-level textbook typically US$5.5–US$9. The reforms supported by the proposed operation include the free provision by the state of key primary-level textbooks, which will help mitigate the inequitable distribution of textbooks in rural areas. The DPF1 supported the adoption of reforms to the policy and institutional framework for textbook selection and provision designed to address the high costs, poor quality, and low availability of textbooks, especially in poor communities and rural areas. To operationalize the regulations adopted in 2017 before the 2019/20 school year, the authorities have established the National Council for the Accreditation of Textbooks and Teaching Materials (Conseil National d’Agrément des Manuels Scolaires et des Matériels Didactiques, CNAMSMD) by nominating its president and a permanent secretary. The CNAMSMD has completed an initial textbook evaluation and published a complete list of approved textbooks. The unit price of textbooks declined significantly from the previous year, but a delay in the publication of the official list from April to June made it difficult for publishers and distributors to ensure that all textbooks were available for purchase at the start of the school year. This experience will inform the preparation of the textbook policy. The next step will be to Page 31 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) ensure that the permanent secretariat tasked with implementing the reform has a qualified staff, a suitable workspace, and an adequate budget to fulfill its mandate. 78. Substance. The proposed operation will support the adoption and publication of an official list of textbooks for pre-primary, primary, and secondary education for the 2018/19 academic year that reflects the guiding principles of the new textbook policy set forth by the Prime Minister in November 2017. The DPF2 will also support CNAMSMD’s approval of a preliminary document describing the key features of the forthcoming textbook policy, along with a schedule for its finalization and formal approval. Although the approval of the textbook policy was initially defined as a prior action, the Government requires additional time to complete the consultation and validation process. The preliminary document will confirm the key principles set forth by the prime minister in 2017, which include (a) the free provision of essential textbooks in public primary schools, (b) the approval of textbooks for six consecutive years, and (c) the goal of one-textbook-per-student-per-level. 79. Trigger(s) for the DPF3. The trigger for the DPF3 will be the full implementation of the new textbook policy for pre-primary, primary, and secondary education, starting in the 2019/20 school year. 80. Expected results. The reforms to textbook policy supported by the DPF2 are expected to increase the textbook-to-student ratio from 1:14 in 2016 to 1:2 in 2020 at the primary level and from 1:3 in 2016 to 1:1.5 in 2020 at the secondary level. Expanding the Social Safety Net DPF2 Prior Action #10: The President has issued a circular setting out instructions for the preparation of the 2019 Finance Law, stipulating that the Government will make sufficient provision for the extension of poverty-targeted social protection safety net programs to at least 11,250 beneficiary households in 2019. DPF3 Trigger #10: The Government provides sufficient funding to extend poverty-targeted social protection programs to cover at least 22,500 additional beneficiary households by 2020, with a substantial share of beneficiaries being displaced persons. Results Indicator (#11): Number of households covered by poverty-targeted social protection programs. Baseline (2016): 40,000; Target (2020): 100,000. 81. Rationale for the reform. The proposed operation will support the expansion of Cameroon’s poverty-targeted social protection programs and facilitate a gradual shift from donor funding to domestic funding. A social protection strategy was launched in December 2017, but it lacks clear expenditure prioritization. Poverty-targeted programs cover only 1 percent of the population, far below the Sub- Saharan African average of about 14 percent. 14 Moreover, many social protection programs do not effectively alleviate household poverty and vulnerability. The Government’s capacity to effectively plan and deliver emergency aid is also limited, and the slow response to the displacement of an estimated 200,000 people in the northern part of the country underscores the need to strengthen the Government’s ability to (a) plan for, and respond to, emergency situations; (c) coordinate the donor response; and (c) monitor and evaluate the impact of interventions. The Ministry of Economy, Planning, and Regional Development (Ministère de l’Economie, de la Planification et de l’Aménagement du Territoire, MINEPAT) 14ASPIRE data, available at http://datatopics.worldbank.org/aspire/region/sub-saharan-africa and http://datatopics.worldbank.org/aspire/income-group-comparison/. Page 32 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) has led a dialogue on creating a national social protection strategy and expanding the social safety net, but permanent directives will be necessary to establish an effective policy framework for social protection. 82. Substance. The proposed operation will support the Government’s efforts to extend the coverage of poverty-targeted social protection programs to an additional 11,500 households in 2019. 15 It addresses climate-related vulnerabilities through public works that are designed as a type of climate-insurance. They are implemented only in the driest period of the year, when agricultural work is not needed, and often finance irrigation and water management of local public goods. One of the project’s components is emergency cash transfers, which are triggered when there are surges in refugees’ arrivals. The components of the project are targeted to those most likely to be affected by climate shocks, those working in rural areas and living of agricultural labor. The Government has developed the foundation for a comprehensive and well-targeted program that includes targeted cash transfers and public works projects designed to reach the country’s poorest households. This program, known as the Social Safety Nets (Filets Sociaux), focuses on productivity to address the country’s pervasive challenges with underemployment. An impact evaluation of the cash-transfer pilot showed promising results, revealing that the program increased incomes and asset accumulation, reduced food insecurity, improved school attendance, increased visits to healthcare facilities, had a positive overall economic impact on local communities, and contributed to a significant reduction in multidimensional poverty. However, the program is largely funded by IDA, and scaling it up nationally—with the necessary support to provide equitable access to services among displaced communities in conflict-affected regions—will require mobilizing domestic budgetary resources. 83. Trigger(s) for the DPF3. The trigger for the DPF3 will be the provision of sufficient funding to extend the coverage of the Social Safety Nets program by an additional 22,500 households, a substantial share of which will be displaced households. The World Bank will work with the authorities to ensure sustainable domestic funding for the expanded program. 84. Expected results. The increase in funding is expected to expand the coverage of the Social Safety Nets program from 40,000 households in 2016 to 100,000 households by 2020. Table 5. DPF2 Prior Actions and Analytical Underpinnings Prior Actions Analytical Underpinnings Pillar 1: Improving fiscal sustainability and public sector management Prior Action #1 • Tax Administration Diagnostic Assessment To improve revenue mobilization, the 2019 Finance Bill Tool (World Bank and IMF, 2017) submitted to Parliament for approval includes: (i) specific • Diagnostique de la politique fiscale au measures to eliminate tax incentives and exemptions from Cameroun (IMF, 2014) indirect taxes; (ii) other specific measures to broaden the non- • Dépenses fiscales de TVA au Cameroun oil tax base and address negative externalities related to (GTZ, 2016) tobacco, soft drinks consumption and the level of pollution of • Rapports sur les dépenses fiscales de (i) imported vehicles; and (iii) the 2017 tax expenditures report l’Exercice 2016, et (ii) l’Exercice 2017 covering all tax sources, and assessing tax expenditures related (Ministère des Finances, 2017-2018) to the 2013 Investment Promotion Act. • Cameroon Public Expenditure Review (World Bank, 2018) 15 The fiscal cost of expanding the coverage of the Social Safety Nets program by 11,500 beneficiaries is estimated at CFAF 4.5 billion and is reflected in the 2019–2020 fiscal framework. Page 33 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Prior Actions Analytical Underpinnings Prior Action #2 • Country Economic Memorandum, Chapter To improve public procurement processes (notably for 4: Institution (World Bank, 2016) investment projects), increase accountability, ensure better • Cameroon Public Expenditure Review value for money, and improve the quality of public investment (World Bank, 2018) projects, (i) the President has issued a new Public Procurement Code in the form of a decree clarifying the responsibilities of stakeholders, the independence of the grievance mechanism, and the separation of regulatory, oversight, and administrative responsibilities in public procurement processes; and (ii) the Minister of Public Contracts has issued an order defining a new performance based method of remuneration for participation in public procurement boards. Prior Action #3 • Cameroon Public Expenditure Review, To improve the productivity and efficiency of public service (World Bank, 2018) delivery, the Prime Minister has issued an order establishing • Wage bill and human resources and specifying the terms of reference of an inter-ministerial management in Cameroon. (World Bank, committee for civil service pay reform to gradually remove 2018) disparities in the pay system and develop a new base pay scale to be approved by the Council of Ministers. Prior Action #4 • Corporate Governance and Financial To improve the corporate governance and management of Performance of SOEs in Cameroon, state-owned enterprises (SOEs), the Recipient has issued (World Bank, 2018) decrees setting: (i) criteria for the selection, remuneration, • Cameroon Public Expenditure Review, and evaluation of SOE senior management and board (World Bank, 2018) members; and (ii) standards for the presentation and • Livre Vert (MINFI, Cameroon, 2018) publication of SOE financial and operational information. • Plan Stratégique Pour le Suivi et d’accompagnement des Etablissements et Enterprises Publics, 2019–2021 (MINFI, 2018) • Cameroon: Selected Issues (IMF, 2016) Operation Pillar 2: Enhancing competitiveness Prior Action #5 • Financial Analysis of Energy Sector, and To improve the financial sustainability of the energy sector: (i) Energy Policy Note (World Bank, 2016) the Recipient and key stakeholders have developed and begun implementing a quarterly mechanism to process the payment of the central administration’s electricity bills to ENEO, based on quarterly reconciled assessments by the Recipient and ENEO of electricity consumed and payments due; and (ii) ARSEL has issued a regulatory decision re- adjusting the public electricity tariff schedule, stipulating that the electricity rates are as of June 28, 2018, calculated on a quarterly basis with annual consolidation and adjustment of data at the end of the year. Prior Action #6 • Cameroon: Transport Policy Note (World To improve road maintenance and increase the road Bank, 2017) network’s resilience to climate change: (i) the Minister of Finance and the National Director of the BEAC have signed an amendment to the convention governing the dedicated Page 34 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Prior Actions Analytical Underpinnings account of the Road Fund at the BEAC, establishing an automatic debiting mechanism of the single Treasury account for the benefit of said dedicated account for in an amount of at least CFAF 5 billion per month to ensure the regular payment of (priority) road maintenance expenses; and (ii) the Minister of Public Contracts has issued an implementing order adopting the Standard Bidding Documents for road maintenance and management programs (OPBCs). Prior Action #7 • Cameroon: Transport Policy Note (World To improve the efficiency of the Port of Douala and the Bank, 2017) performance of logistics platforms and supply chains, the GUCE • Cameroon Economic Update (World Bank, has set up an electronic payment platform for all trade-related 2015) fees, duties, and taxes. Operation Pillar 3: Improving social services and scaling-up social protection Prior Action #8 • Cameroon Public Expenditure Review To improve the performance of the public health sector and (World Bank, 2018) enhance the quality of care in public health facilities: (i) the • Cameroon PBF Impact Evaluation Report Ministry of Finance has disbursed 100 percent of the (World Bank, 2017) allocations to PBF subprogram health units under the PBF • Cameroon Global Financing Facility mechanism; and (ii) the Minister of Public Health has signed Investment Case (World Bank, 2017) an order allowing all public and private health facilities in • Cameroon Health Financing Strategy, Cameroon to buy medicines and medical devices from Diagnostic Chapter (World Bank 2017) approved public and private suppliers other than CENAME • Cameroon Health Country Status Report and the Regional Health Funds, and establishing simplified (World Bank 2013) procedures for acquiring these medicines and medical devices • Cameroon SCD (World Bank 2016) that favors high-quality generics offered at a low cost from approved suppliers. Prior Action #9 • Cameroon Public Expenditure Review To make textbooks more accessible and available: (i) the (World Bank 2018) Recipient has published the official list of textbooks to be • Education and Training Sector Strategy used in primary and secondary schools as of school year Paper, 2013–2020 (Republic of Cameroon 2018/2019, in accordance with the principles set out in the 2013) Prime Minister's November 2017 circular; and (ii) the • Policy Note on Improving Textbooks Recipient has adopted an orientation document and a Availability and Accessibility in Cameroon detailed calendar for the development of a new textbook (World Bank 2016) policy for preschool, primary, and secondary education, to be implemented at the beginning of the 2019/2020 school year, based on goals validated in 2017. Prior Action #10 • Cameroon Social Protection Public The President has issued a circular setting out instructions for Expenditure Review (World Bank 2018) the preparation of the 2019 Finance Law, stipulating that the • Cameroon Public Expenditure Review Government will make sufficient provision for the extension (World Bank 2018) of poverty-targeted social protection safety net programs to at least 11,250 beneficiary households in 2019. Page 35 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 4.3. LINKS TO THE CPF, OTHER BANK OPERATIONS, AND THE WBG STRATEGY 85. The proposed DPF is fully consistent with the World Bank Group’s FY2017–2021 CPF for Cameroon. 16 The CPF draws on a comprehensive SCD completed during FY16, which identified constraints to achieving the World Bank Group’s twin goals of eliminating poverty and fostering shared prosperity in a socially and environmentally sustainable manner. The SCD identified three especially critical constraints to robust and sustainable development in Cameroon: (a) low rural productivity, particularly in the northern regions; (b) a business environment that not conducive to private sector-led growth; and (c) fragility and poor governance. The CPF is, accordingly, structured around three focus areas: (a) addressing poverty traps in rural areas, with a focus on the northern regions; (b) supporting infrastructure investment and private sector development; and (c) improving governance. The proposed operation is closely aligned with these focus areas, as well as the Government’s stated development objectives. The reforms supported by the DPF2 will directly contribute to the objectives for public sector management, infrastructure development, regional integration, international trade, and poverty reduction articulated in Vision 2035, PLANUT, and the updated DSCE. 86. The proposed operation will directly complement a range of ongoing World Bank programs in Cameroon. DPF-supported reforms in the energy, road transportation, health, education, and social protection sectors are informed by multiple TA and investment projects, while reforms targeting procurement, the civil-service wage bill, and SOE management are underpinned by World Bank analytical work. The close complementarity between the DPF series and other World Bank programs has already facilitated the implementation of numerous reforms and justifies the ambitious objectives of the proposed operation. In particular, the reforms supported under Prior Actions 5-10 are very closely aligned with recent and ongoing World Bank programs in the energy, transportation, and education sectors. 87. The reforms supported under Prior Action 5 directly complement several World Bank Group programs in the energy sector. These include the Energy Sector Development Project (ESDP) (P104456), which provided assistance to update the sector framework and supported rural electrification; the Lom Pangar Hydropower Project (P114077), which supports the construction of a regulating dam to reduce seasonal water variability in the Sanaga Basin; the Electricity Transmission and Reform Project (P152755), which supports improvements in the capacity, efficiency, and reliability of the national transmission network; and the Hydropower Development on the Sanaga River Basin Technical Assistance Project (P157733), which supports the sharing of technical and regulatory knowledge. The World Bank Group has also actively supported private sector-led generation and distribution activities in Cameroon. IBRD, the Multilateral Investment Guarantee Agency (MIGA), and the International Finance Corporation (IFC) have provided guarantees, political risk insurance, and syndicated loans, respectively, to the Kribi Gas Power Project (P110077), while the IFC provided technical and financial support for the privatization of the distribution company AES SONEL, and MIGA provided guarantees to Actis against key risks covering project agreements relating to its investment in AES SONEL. In addition, the IFC and MIGA provided financing and guarantees to the Dibamba Project, an 88 MW heavy fuel oil plant commissioned in 2009. Finally, the World Bank Group has been instrumental in securing private finance for the Nachtigal Hydropower Project, which is one of the few public-private partnerships in hydropower in Sub-Saharan Africa and positive example of the principles of MFD. 16 Report number 107896-CM. Page 36 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 88. The measures supported under Prior Actions 6 and 7 (RF and Port reform) are closely aligned with several ongoing World Bank transportation sector programs. The reforms supported under Prior Action 6 complement an investment program under the CEMAC Transit and Facilitation Project (P079736) and the Cameroon Multimodal Transport Project (P143801) designed to enhance the efficiency of selected regional transportation corridors and reduce vehicle operating costs and transportation times. The measures supported under Prior Action 7 complement the World Bank-financed Cameroon-Chad Transport Corridor Project (P167798), which is designed to enhance transportation efficiency by reducing transit time along the Douala-N’Djamena corridor. 89. The reforms to textbook policy supported under Prior Action 9 complement the Cameroon Education Reform Support Project (P160926), which takes a holistic approach to improving the quality of public education in Cameroon. The project, which was declared effective in January 2019, includes a US$20 million results-based investment component dedicated to textbooks. The project is expected to improve the availability of textbooks, which in turn is expected to enhance the quality of public education and the equity of service delivery. 90. Finally, the expansion of the Social Safety Nets supported under Prior Action 10 complement the Scaling up the Safety Net to Respond to Crises Project (P165705). This project provides TA to support the design and implementation of scalable, disaster-responsive social protection programs. 4.4. CONSULTATIONS AND COLLABORATION WITH DEVELOPMENT PARTNERS 91. This operation was prepared in close collaboration with the Government. The reforms supported by the DPF series are monitored by an inter-ministerial committee that includes representatives of 18 sectoral ministries as well as the donor community. The Secretary General of MINEPAT chairs the committee, and MINEPAT’s Director General of the Economy is its technical secretary. The committee actively contributed to the preparation of the proposed DPF2 and will continue to work closely with the World Bank team for the duration of the programmatic DPF series. 92. This operation was also informed by consultations with the IMF, AfDB, AFD, and the European Union (EU) as part of a broader CEMAC coordination effort. Development partners in Cameroon closely coordinate their programs by focusing on areas in which they have a comparative advantage to maximize complementarities and minimize the Government’s administrative burden. The IMF’s ECF program focuses on fiscal consolidation, structural fiscal reforms, private sector-led economic diversification, and financial sector reforms. The AfDB supports actions to improve public-expenditure efficiency and enhance governance and competitiveness in key productive sectors. AFD is supporting PFM reforms and the development of the water and agricultural sectors. The EU also supports measures targeting PFM, as well as agriculture, livestock, rural development, and rural road infrastructure. Cameroon’s major development partners meet frequently to exchange information, and they participate in joint missions, including the preparatory missions for the proposed DPF2. Page 37 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 5. OTHER DESIGN AND APPRAISAL ISSUES 5.1. POVERTY AND SOCIAL IMPACT 93. The proposed DPF is expected to have a positive social impact and contribute to poverty reduction. While most of its effects on poverty reduction will likely be indirect through the development of markets and an increase in private investment, direct effects on poverty alleviation will come from improving social services and expanding social protection programs. 94. The prior actions focusing on improving fiscal sustainability and public sector management are expected to have both direct and indirect effects on poverty. The expected increase in public revenue would create more fiscal space in the short term for social programs aimed at poor households, provided that funds are redistributed to social sectors. There may also be long-term indirect effects on poverty reduction if additional public revenue is used to create favorable conditions for the development of markets and the private sector (for example, through infrastructure development). However, the poverty- reducing effects of revenue-mobilization reforms may be tempered by various challenges facing policymakers in Cameroon. For example, the country’s public administration suffers from poor governance, which can be mitigated by the successful implementation of prior actions aimed at improving transparency and efficiency through public procurement and civil service reforms, as well as by improving the performance of SOEs that manage public utilities. 95. Some prior actions aimed at enhancing economic competitiveness are also expected to have an overall positive social impact and contribute to poverty reduction, as they can lead to job creation and improved earnings. Competitiveness and economic growth are often positively correlated. Increasing competitiveness, through the development of infrastructure services (including energy), may accelerate private sector development, economic growth, job creation, and possibly poverty reduction. However, energy sector reforms in African countries often lead to an increase in utility prices, which may negatively affect poor households. This can be offset by improving the efficiency and financial soundness of the energy sector by using additional public revenue from tariff increases to develop and expand electricity networks, which would benefit the poor. The successful implementation of this DPF’s proposed energy reforms would improve access to and the quality of electricity, which would benefit Cameroonians across the country, including poor households. For instance, better access to electricity would result in the increased performance and earnings of home-based enterprises and small businesses, which would also benefit the poor. Additionally, efforts to improve road maintenance and resilience to climate change are expected to reduce travel times and transport costs, potentially contributing to poverty reduction through increased job creation. For example, an improved road network would reduce the transport costs of agricultural products, increasing the income of farmers. Lastly, reforms aimed at improving the clearance process at the country’s ports are expected to result in cheaper imported products, which would benefit consumers from poor households. 96. Finally, prior actions to improve social services and expand the country’s social programs are expected to have a significant positive social impact. These reforms aim to directly benefit the country’s most disadvantaged population groups. They are estimated to increase the number of beneficiary households covered by social protection programs by 150 percent, from 40,000 households in 2016 to 100,000 households by 2020. However, this will require a better method to target beneficiaries. Authorities also need to prioritize efforts to reduce the price of textbooks in the education sector, as Page 38 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) their cost is high in Cameroon, ranging between US$5.5 and US$9 per book in primary schools, compared to an average of US$1-3 in most other countries. This places a burden on especially poor Cameroonian families. The implementation of the Government’s new textbook policy is expected to reduce the cost of textbooks and improve educational outcomes for students from low-income households. Moreover, improving the performance and the quality of public health facilities will directly impact the poor, given the importance of health in human capital development, labor productivity, and overall wellbeing. For instance, the expected increase in births attended by skilled professionals in the three northern regions will reduce inequality in access to quality health services and child mortality, especially among poor households. 97. Reforms supported under the DPF series’ third pillar are expected to reduce gender disparities in Cameroon. For example, education reforms aimed at making textbooks more affordable and available will have a positive impact on completion rates for girls in primary and secondary schools, and the extension of the Health PFF will likely reduce the country’s maternal mortality rate. Similarly, the expansion of the Government’s social safety net program that provides cash transfers to women will contribute to the economic empowerment of women. The reforms supported under the other two pillars of the DPF series are not expected to have significant positive or negative gender impacts. However, a significant gender gap remains in Cameroon, despite Government efforts to promote gender equality. The Gender Development Index (GDI) ratio in Cameroon (0.866) in the same as the average of least developed countries (0.868) but lower than the average of countries in Sub-Sahara Africa (0.893). Additionally, Cameroon ranked 141st out of 160 countries on the Gender Inequality Index in 2017 (with a score of 0.569). Only 32.5 percent of adult women in Cameroon have at least a secondary level education, compared to 39.2 percent of their male counterparts. Furthermore, the country’s maternal mortality rate has been increasing, from 511 women dying from pregnancy-related causes for every 100,000 live births to 782 deaths in 2011. Also, the adolescent birth rate is 105.8 births per 1,000 women aged 15-19, and the female participation rate in the labor market is 71.2 percent, compared to 81.2 percent for men. Women and men are equally protected by the country’s constitution and laws, although the enforcement of rights remains a challenge. The Convention on the Elimination of All Forms of Discrimination Against Women, which Cameroon ratified in 1994, allows women to request a divorce and obtain a national identity card or passport. Moreover, Cameroon’s new penal code was promulgated on July 12th, 2016 and improved the rights of women. For instance, it made sexual harassment prohibited by law, traditional marriage ceremonies legal, and the punishment for adultery the same for men and women. There is also more equal representation in the new Parliament, with 27.1 percent of seats held by women—up from 13.8 percent in the previous Parliament and almost twice the average of 14.8 percent in low-income countries. The World Bank supports Cameroon’s efforts to reduce the country’s gender gap through its Strengthening the Capacity of Regional Financial Institutions in the CEMAC Region Project (P161368), which includes a gender subcomponent to track the credit registry’s coverage of the female population. Future World bank assistance could include the completion of a comprehensive gender profile that would help identify policy actions to be included in future DPFs and/or Investment projects. 5.2. ENVIRONMENTAL ASPECTS 98. Cameroon has an elaborate superstructure of constitutional rights; sectoral laws with environmental provisions; environmental policies; and various other regulations and laws that should mitigate any negative impact from the DPF2. However, there is limited regulatory oversight and enforcement in the country, and operating procedures do not typically meet international environmental, Page 39 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) social, health, and safety standards. Therefore, this DPF analyzed the potential environmental effects of its prior actions, along with their proposed management measures, to ensure these challenges were addressed (annex 4). The Government is currently strengthening its capacity to mitigate environmental risks. For example, it has created a regional brigade for environmental inspection and control in each region, and on August 8, 2018, the Ministry of Environment sanctioned and publicized a list of 395 companies that were violating environmental laws and regulations. In addition, Ministerial Order No 0010/MINEP of April 3, 2013, provided each divisional administrative unit with a committee for the technical and administrative supervision of an environmental and social management plan. These committees supervise and enforce the environmental and social aspects of initiatives subject to environmental assessments. Furthermore, environmental and social safeguards at the project implementation units are adequate to ensure adherence to environmental and social policies. 99. Prior Action #1 involving the differentiation of vehicle tariffs to encourage the importation of cleaner vehicles will entail a positive climate co-benefit. Cameroon adopted the World Health Organization’s air quality standards, Section 1, Chapter III of Law No. 96/12 of August 5, 1996, on the Framework Law on the Environmental Management deals entirely on atmospheric pollution and Decree No. 2011/2582/PM of August 23, 2011, laying down conditions for protection of the atmosphere in Cameroon equally spells out clearly the necessary measures that must be taken to ensure good air quality in Cameroon. In addition, Cameroon launched its Compliance Inspection Before Shipment Program on August 31, 2016, and a consortium of Swiss Outfit SGS and British Intertek International was contracted to implement the program. SGS uses high throughput scanning equipment to ensure all imports, exports, and transits at Douala International Terminal (DIT) are fully inspected. 100. Prior Action #6 and Trigger #6 relate to climate-resilient road designs and maintenance standards. Authorities need to not only evaluate the impact of road investment projects on infrastructure, economic growth, and fuel consumption, but also their effect on the environment and climate resilience. Road designs and maintenance plans should include climate-risk screening to ensure they do not contribute to climate change. However, these provisions typically increase the costs of new construction projects, which is a challenge for Cameroon’s limited public resources. At a minimum, OPBCs and public bidding documents in the construction industry should include provisions and guidelines pertinent to environmental and social due diligence requirements. 101. Nevertheless, there are potentially negative environmental effects associated with improving social services and expanding health and education programs. For example, reforms in the health sector are likely to lead to an increase in healthcare waste. To ensure that the authorities continuously monitor and encourage the adoption of efficient waste-management practices, waste management will be included and enforced in the PBF and quality-of-care checklist, and the World Bank’s Health System Performance Reinforcement Project (P156679) in Cameroon is recruiting two environmental and social safeguard specialists. Moreover, the increased availability of textbooks could have a small negative environmental impact by increasing the number of books produced, and the Government’s new textbook policy will include a nonmandatory quality assurance mechanism for potential vendors (that is, publishers, printers, pulp, and paper product importers). In addition, prior actions related to improving fiscal sustainability and public sector management are expected to lead to an increase in investment projects, with their associated environmental impacts and occupational safety risks. To mitigate these risks, this DPF has adopted an approach that integrates general environmental requirements into the procurement Page 40 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) process. Finally, new vehicle tariffs will be based on the age and size of vehicles’ engines, which could have a positive effect on climate change if it results in a rise in the import of less polluting vehicles. 102. The process of acquiring goods, works, and services will also affect the environment. Improving fiscal sustainability and enhancing the efficiency of the public procurement process will likely lead to more waste and the emission of carbon dioxide and other greenhouse gases; have a negative impact on labor conditions and biodiversity; and result in more water and energy consumption and pollution. Since the value-for-money provision in the World Bank’s procurement rules does not exclude environmental considerations, the new procurement code issued on June 20, 2018 dedicates its sub-section III to general environmental, social, and occupational health and safety requirements. Still, Cameroon’s MINMAP and its Ministry of Environment need to adopt robust measures to ensure that environmental and social due- diligence requirements are enforced, especially in relation to large-scale public and private investment projects (for example, transport and hydropower projects). Stakeholder consultations at different stages of the project cycle will also be critical for the overall sustainability of investment spending. 5.3. PFM, DISBURSEMENT, AND AUDITING 103. Fiduciary risks remain high in Cameroon despite a strong political will to advance the Government’s PFM reform agenda. The new PFM Act of 2007 (Nouveau Régime Financier de l’Etat) introduced program-based budgeting (PBB) for all line ministries, which significantly improved PFM. While the public budget has been approved on a programmatic basis during the last decade, the intended benefits of PBB have not yet materialized because institutional arrangements and implementation efforts have not yet adapted to results-based management, and there are persistent weaknesses in the PFM system. As a result, the 2016 Public Expenditure and Financial Accountability (PEFA) assessment revealed that Cameroon’s PFM system suffers from low budget-execution rates, inadequate internal controls, and an inefficient procurement process. Therefore, authorities need to strengthen the link between the Medium-term Budgetary Framework, the Medium-term Expenditure Framework (MTEF), sector MTEFs, ministries’ program budgets, and local development plans. Despite progress in making budget documents clearer and more comprehensive, access to and the use of budget information is limited. Additionally, the country’s inefficient and ineffective public procurement system continues to affect public investment spending, despite the adoption of major reforms in 2011, including the creation of MINMAP. The implementation of the New Public Procurement Code that separates the functions of the contracting authority, the supervisory body, and the regulatory body is expected to improve the effectiveness of public investment spending. 104. The GOC has demonstrated its commitment to address weaknesses in PFM, and it is receiving support from the World Bank—through this DPF series—the IMF, and other international donors. In September 2016, the prime minister informed its ministers of the Government’s PFM priorities, including (a) completing the transcription of the CEMAC PFM Directives (which is a key result under the ongoing IMF program); (b) reinforcing the links between sector policies and PBB (for example, by including investment and salary appropriations in ministries’ programs); (c) improving budget procedures for multiyear budget management (for example, preparation of public investment projects, the scope/design of investment programs, and year-end budget procedures); (d) strengthening accounting procedures and practices; (e) implementing a change-management process in the public administration; and (f) upgrading the integrated financial management information system. The Government’s 2016-18 PFM action plan builds on the observations and recommendations included in the 2016 PEFA. Moreover, the ongoing IMF Page 41 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) program provides budget support designed to restore sustainable fiscal and external balances. While the authorities are still developing a comprehensive PFM action plan for the 2019–2021 period, they have a decree related to the maturation process of investments projects; adopted a new public procurement code; recorded PFM improvements in the Medium-term Budgetary Framework, MTEF, and budget procedures; and have transposed two of the six CEMAC directives into national laws (that is,, the Transparency and Good Governance Code and the directive related to finance laws), with a deadline of December 2019 for the other four. 105. Progress has also been made in strengthening the BEAC’s safeguards framework since 2009. The BEAC has improved its governance and control environment, and it has established an organizational structure for its internal audit department. A risk-based auditing approach was also implemented, and the scope of external audits was widened to include activities carried out by the national directorates and other agencies. The BEAC now publishes a full set of audited financial statements, and external auditors expressed unqualified (‘clean’) opinions on all its financial statements between 2012 and 2017. BEAC authorities have demonstrated their commitment to revise the BEAC’s article of agreement to reinforce its independence and move toward adopting International Financial Reporting Standards (IFRS). With support from the World Bank’s Strengthening Financial Regional Institutions in the CEMAC Region Project, the objective is to have the financial statements prepared according to the IFRS starting in 2019. 106. Disbursement and accounting. The Recipient of the loan is the GOC, represented by MINEPAT. The loan in the amount of EUR 176 million (equivalent to US$200 million) will be released in a single tranche during the first year upon effectiveness, provided that the World Bank is satisfied that (a) the program is being carried out by the Recipient; and (b) the Recipient’s macroeconomic policy framework is adequate. The proposed operation will follow the World Bank’s standard disbursement procedures for DPFs. Upon approval of the operation and effectiveness of the Financing Agreement, the proceeds of the loan will be disbursed by the World Bank into a dedicated account at the BEAC that has been designated by the GOC for budget support, and the funds will form part of the country’s foreign-exchange reserves. The Recipient shall ensure that upon the deposit of the loan, an equivalent amount is credited in the Recipient’s budget management system in a manner acceptable to the World Bank. The Recipient will also report to the World Bank on the amounts deposited in the foreign currency account and credited in local currency (CFAF) to the budget management system. If the withdrawal request is in foreign currency, the equivalent amount in CFAF reported in the budgetary system will be based on the market rate effective on the transfer date. The Recipient will promptly notify the World Bank within thirty days of the transfer by fax or email that the transfer has taken place and the proceeds have been credited in a manner satisfactory to the World Bank. 107. Audit. The Recipient shall (a) report the exact sum received into the dedicated account; and (b) ensure that all withdrawals from the dedicated account are for budgeted public expenditures, except for items on the World Bank’s negative list (that is, items excluded under the financing agreement). The World Bank reserves the right to seek an audit of the dedicated account by independent auditors acceptable to the World Bank. If, after being deposited in the dedicated account, the proceeds are used for excluded expenditures, as defined in the Financing Agreement, the World Bank will require the Recipient to promptly, upon notice, refund directly to the World Bank an amount equal to the payment. Payments refunded to the World Bank will be credited to the loan account and cancelled. Page 42 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) 5.4. MONITORING, EVALUATION, AND ACCOUNTABILITY 108. MINEPAT remains responsible for the overall implementation of the proposed operation. The inter-ministerial committee in charge of monitoring the structural reforms will continue to coordinate actions under the DPF2 program and report progress to all relevant stakeholders. The Results Framework includes indicators for which data are mostly available, and the close involvement of World Bank sectoral teams, through investment project financing and TA, will help to ensure there is regular monitoring of the operation. Most program indicators are already regularly estimated by relevant Government agencies, reflected in administrative data releases, and included in ministries’ sector plans and budget programs. Performance on other indicators will be monitored and reported through the multisectoral steering committee, which will help coordinate DPF2 team data requests across the various sectors involved in the operation. The full results matrix and progress on program implementation will be discussed in committee sessions, and remedial actions will be agreed upon in coordination with the World Bank DPF2 team. 109. Grievance redress. Communities and individuals who believe that they are adversely affected by specific country policies supported as prior actions or tranche release conditions under a World Bank DPF may submit complaints to the responsible country authorities, appropriate local or national grievance redress mechanisms, or the World Bank’s Grievance Redress Service (GRS). The GRS ensures that complaints are promptly reviewed, and pertinent concerns addressed. Affected communities and individuals may submit their complaints to the World Bank’s independent Inspection Panel, which determines whether harm occurred, or could occur, as a result of non-compliance with the World Bank’s policies and procedures. Complaints may be submitted at any time after concerns have been brought directly to the attention of the World Bank and its management has been given an opportunity to respond. For information on how to submit complaints to the World Bank’s corporate GRS, please visit http://www.worldbank.org/GRS. For information on how to submit complaints to the World Bank Inspection Panel, please visit www.inspectionpanel.org. 6. SUMMARY OF RISKS AND MITIGATION 110. The DPF2’s overall risk rating is High. The rating reflects political and governance, macroeconomic, institutional, and fiduciary risks that may impact the Government’s capacity to successfully implement the proposed operation. 111. Political and governance risks are rated High. There are several significant risks to peace and political stability in Cameroon. These include (a) the violent secessionist conflict in the two Anglophone regions of South West and North West; (b) continued attacks by Boko Haram in the Far-North region; (c) worsening regional security and displacement of affected persons, which could put additional pressure on Cameroon’s fragile fiscal position and potentially derail its recovery; and (d) the upcoming legislative and municipals elections, which also pose a serious fiscal risk and may exacerbate secessionist tensions. These risks are mitigated by the implementation of practical measures and reforms that address the critical needs of the population, including road connectivity, the availability of textbooks, and access to medicines. 112. Macroeconomic risks are also rated High. External macroeconomic risks that could affect the proposed reform program include weaker global economic growth, a sustained decline in oil prices, and tighter global financial conditions. These risks could generate additional fiscal pressure and divert Page 43 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Government fiscal consolidation efforts. Domestic risks include continued conflict and violence in Anglophone regions and Far North, the failure to prioritize the public investment program, an excessive reliance on non-concessional resources, and delayed implementation of structural reforms due to the upcoming legislative and municipals elections. While these risks cannot be fully mitigated, fiscal risks have been partially mitigated by the issuance of a Circular that limits derogatory spending, as well as the transposition of CEMAC Directives on SOE governance and PFM into national law. Other mitigating measures include fiscal consolidation under the IMF’s ECF-supported reforms, budget support from the World Bank and other donors, and the effective implementation of the regional adjustment strategy. 113. Institutional capacity risks are rated Substantial. There is often too much time between program decision and execution. Executive power is highly centralized in the presidency, which delays the decision- making process, as decisions need to go through the prime minister’s office before reaching the president or an appropriate representative. Cabinet decisions or ministerial policy announcements are also often dropped, not implemented, or reversed because of a lack of follow-up or resources. To mitigate these risks, the DPF2 team engaged high-level authorities, including the prime minister, key ministers, and the Office of the President, at the beginning of the project and plans to keep them regularly informed on the program’s development to ensure their buy-in and willingness to champion DPF2-supported measures. 114. Finally, fiduciary risks are rated High. The BEAC has strong and transparent accounting, risk- management, and information systems, and recent audits have confirmed that there are no major foreign- exchange risks within the CEMAC region. With technical support from the World bank, the BEAC plans to improve its reporting system and transition to IFRS in 2019. At the national Government level, significant progress has recently been made to lower fiduciary risks, although there are still institutional weaknesses that could adversely affect the program. In 2018, the Government issued a new Circular to limit derogatory spending and transposed two CEMAC’s directives (one on the financial regime of SOEs and another on the transparency and governance in PFM) into national legislation—measures that are expected to strengthen fiscal discipline and improve the appropriation of funds. Also, more coordination between the Treasury and the General Directorate of Budget in the monitoring of cash advances is likely to significantly reduce blind allocations at the end of year. Moreover, the adoption of a New Procurement Code that clarifies roles and responsibilities in public procurement (that is, between the contracting authority, the supervisory body, and the regulatory body) is expected to improve the effectiveness of public investment spending. However, despite progress, the management of fiscal risks is still weak due to a lack of supervision and follow-up from central, local, and regional authorities. Persistent weaknesses in internal control, budget execution, and reporting systems, as well as the weak link between the MTEF and ministries’ program budgets, lead to expenditure overruns. Fiduciary risks will be addressed through the implementation of the World Bank’s Strengthening Public Sector Effectiveness and Statistical Capacity Project. Page 44 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Table 6. Summary of Risk Ratings Risk Categories Rating 1. Political and Governance  High 2. Macroeconomic  High 3. Sector Strategies and Policies  Moderate 4. Technical Design of Project or Program  Moderate 5. Institutional Capacity for Implementation and Sustainability  Substantial 6. Fiduciary  High 7. Environment and Social  Moderate 8. Stakeholders  Moderate 9. Other Overall  High Page 45 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) ANNEX 1: POLICY AND RESULTS MATRIX Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) Pillar 1: Improving fiscal sustainability and public sector management Policy Area: Domestic Revenue Mobilization Prior Action #1 Prior Action #1 Trigger #1 Result Indicator To improve revenue mobilization, the To improve revenue mobilization, the 2019 To improve revenue mobilization, the #1: Enhanced Ministry of Finance has (i) included an Finance Bill submitted to Parliament for approval 2020 Finance Bill submitted to revenue assessment of tax expenditures from includes: (i) specific measures to eliminate tax Parliament includes: (i) specific mobilization indirect taxes as an annex to the draft incentives and exemptions from indirect taxes; (ii) measures aimed at eliminating tax through base 2018 Finance Law, submitted for other specific measures to broaden the non-oil tax incentives and exemptions for broadening and in parliamentary approval; and (ii) base and address negative externalities related to indirect and direct taxes; (ii) an annex tax expenditure implemented the first phase of a tobacco, soft drinks consumption and the level of presenting the 2018 tax-expenditure suppression (in program of joint audits between tax and pollution of imported vehicles; and (iii) the 2017 report, which covers both direct and CFAF Billion) customs authorities of the cement, tax expenditures report covering all tax sources, indirect taxes; and (iii) other specific forestry, and telecommunications and assessing tax expenditures related to the 2013 measures to broaden the nonoil tax Baseline (2016): 0 sectors. Investment Promotion Act. base. CFAF Target (2020): CFAF 130 billion Policy Area: Public Procurement Reform Prior Action #2 Trigger #2 Results Indicator To improve public procurement processes (notably To expedite public procurement #2 for investment projects), increase accountability, processes (particularly for Average time ensure better value for money, and improve the investment projects), increase between the quality of public investment projects, (i) the accountability, ensure better value issuance of tender President has issued a new Public Procurement for money, and improve the quality documents and the Code in the form of a decree clarifying the of public investment projects, the signing of the responsibilities of stakeholders, the independence Government has (i) issued all the respective of the grievance mechanism, and the separation of relevant new Public Procurement contracts. For regulatory, oversight, and administrative Code implementing texts (list to be contracts under responsibilities in public procurement processes; defined); and (ii) set up a paperless the MINMAP and (ii) the Minister of Public Contracts has issued electronic system for public threshold, baseline an order defining a new performance based procurement. (2016): 128 days; method of remuneration for participation in public Target (2020): 90 procurement boards. days. Page 46 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) For contracts above the MINMAP threshold, Baseline (2016): 225 days Target (2020): 150 days Policy Area: Civil Service Reform Prior Action #2 Prior Action #3 Trigger #3 Result Indicator #3 To improve the payroll and human To improve the productivity and efficiency of To improve the productivity of the Percentage of resources management, the Ministry of public service delivery, the Prime Minister has public sector, especially in terms of irregular/invalid Public Service and Administrative issued an order establishing and specifying the education services, the Government human resource Reform has initiated disciplinary terms of reference of an inter-ministerial has implemented the first phase of and payment cases proceedings before the Permanent committee for civil service pay reform to gradually reforms to the pay structure and the eliminated from Disciplinary Council of the civil service of remove disparities in the pay system and develop a human resources management the SIGIPES. irregular public officials identified new base pay scale to be approved by the Council system, via: (i) the Prime Minister’s Baseline (2016): 0; through the 2016 civil service census. of Ministers. adoption of an action plan for Target (2020): 80. compensation reform and issuance of a first revised base pay scale for civil servants; and (ii) MINFI and MINFOPRA’s introduction of a Human Resources Information Management System (SIGIPES II) in all ministries and the integration of all human resources and payroll records into SIGIPES II. Policy Area: State-Owned Enterprise Management Prior Action #3 Trigger #4 Result Indicator #4 Prior Action #4 To improve the corporate governance To improve the corporate Number of SOEs To improve the corporate governance and and management of public enterprises, governance and management of publishing their management of state-owned enterprises (SOEs), the President of Cameroon has SOEs and reduce the fiscal risks audited annual the Recipient has issued decrees setting: (i) criteria promulgated two laws detailing the associated with the SOE sector, the financial reports for the selection, remuneration, and evaluation of responsibilities, monitoring, and control Government has signed reform and within the SOE senior management and board members; and restructuring plans and/or Page 47 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) of public enterprises and agencies in (ii) standards for the presentation and publication performance-based contracts with at prescribed compliance with OHADA. of SOE financial and operational information. least four SOEs deemed to represent deadlines. a high budgetary risk. Baseline (2016): 0; Target (2020): the 10 largest public enterprises and the 10 largest public agencies. Pillar 2: Enhancing Competitiveness Policy Area: Energy Sector Reform Prior Action #4 Prior Action #5 Trigger #5 Result Indicator #5 To improve the financial sustainability of To improve the financial sustainability of the To reinforce the financial Elimination of the energy sector and enhance private energy sector: (i) the Recipient and key sustainability of the energy sector arrears owed by sector confidence, the Ministry of stakeholders have developed and begun and to monitor public-lighting costs, the central Finance has (a) concluded with ENEO the implementing a quarterly mechanism to process the Ministry of Finance has: (i) by XX Government and 11th amendment to the 2005 debt the payment of the central administration’s 2019, developed and begun major SOEs repayment agreement to clear arrears of electricity bills to ENEO, based on quarterly implementing a mechanism to (CAMTEL, CDE, and CFAF 54 billion in electricity bills and reconciled assessments by the Recipient and ENEO process the central Government’s CAMWATER) to compensation subsidies accumulated of electricity consumed and payments due; and (ii) electricity payments to ENEO ENEO Cameroon. between the Government and ENEO as ARSEL has issued a regulatory decision re-adjusting Cameroon on a monthly basis; and Baseline: of August 31, 2017; (b) prepared a the public electricity tariff schedule, stipulating (ii) by September 2019, introduced a CFAF 54 billion in payment plan with a clear timetable for that the electricity rates are as of June 28, 2018, public-lighting tax to customer bills central- the payment of said arrears; and (c) calculated on a quarterly basis with annual and reached an agreement with Government included in the draft 2018 Finance Law consolidation and adjustment of data at the end of ENEO Cameroon regarding the arrears (September submitted for parliamentary approval, (i) the year. schedule for installing meters for all 2017) and 11.25 a portion of the arrears to be paid in public lighting billion in SOE FY2018 as specified in the payment plan arrears (March referred to in (b) above, and (ii) the 2018) compensatory subsidy to be paid to ENEO in FY2018. Target: CFAF 0 in both central- Government and SOE arrears (2020) Page 48 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) Policy Area: Transport Sector Reform Prior Action #5 Prior Action #6 Trigger #6 Result Indicator #6 To improve road maintenance, To improve road maintenance and increase the To improve road maintenance, the Average time management of road assets and climate road network’s resilience to climate change: (i) the management of road assets, and required for the resiliency of roads, (a) the Ministry of Minister of Finance and the National Director of road resiliency to climate change: (i) Road Fund to pay Finance has included in the draft 2018 the BEAC have signed an amendment to the the Ministry of Public Works (MINTP) invoices to service Finance Law submitted for convention governing the dedicated account of the has completed an audit of the MINTP providers parliamentary approval, an allocation of Road Fund at the BEAC, establishing an automatic road maintenance programming Baseline (2016): CFAF 56 billion to be transferred to the debiting mechanism of the single Treasury account system and an audit of its axle load 150 days; Road Fund; and (b) the Ministry of Public for the benefit of said dedicated account for in an system, and implemented the action Target (2020): 40 Works has adopted a list of selected amount of at least CFAF 5 billion per month to plan for the extension and days. routes to be maintained in accordance in ensure the regular payment of (priority) road implementation of its policy to accordance with the GENiS Agreements. maintenance expenses; and (ii) the Minister of control axle loads on extended tarred Public Contracts has issued an implementing order roads; (ii) the Ministry of Finance adopting the Standard Bidding Documents for road (MINFI)/FER has completed the maintenance and management programs (OPBCs). technical and operational audit of the Road Fund (period: 2002–2017); and (iii) the Government has launched the tender for the first the Output- and Performance-Based Road Contract (OPBC). Policy Area: Port Sector Reform Prior Action #6 Prior Action #7 Trigger #7 Result Indicator #7 To reduce length of stay and transit time To improve the efficiency of the Port of Douala and To improve the competitiveness of in in the Port of Douala, (i) the Director the performance of logistics platforms and supply ports and the performance of Average length of General of Customs, in his capacity as chains, the GUCE has set up an electronic payment logistics platforms and supply chains, stay of a container the President of the Single Window for platform for all trade-related fees, duties, and (i) the National Trade Facilitation at the port of Foreign Trade Operations, has extended taxes. Committee (CONAFE) has Douala the single form of foreign trade implemented the three-year strategic operations to all phases of the plan detailing specific annual Baseline (2017): 19 international logistics chain (pre- measures to reduce the transit time days Page 49 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) clearance, take-over, clearance, at the Port of Douala and has Target (2020) : 11 removal); and (ii) the National Port increased the number of days Authority has approved the revised computerized clearance procedures, current port tariffs to increase the and (ii) MINT has carried out the storage levy at the Port of Douala. assessment and revision of the 1998 texts on port reform. Pillar 3: Improving social services and scaling-up social protection Policy Area: Health Sector Reform Prior Action #7 Prior Action #8 Trigger #8 Result Indicator #8 To increase the level of funding and To improve the performance of the public health To improve the performance and the Share of births management capacity of health facilities sector and enhance the quality of care in public quality of care in public health attended by skilled and improve the availability of essential health facilities: (i) the Ministry of Finance has facilities, the Ministry of Public health care medicines in health regions and districts disbursed 100 percent of the allocations to PBF Health has (i) allocated 100 percent professionals in the covered by PBF, (i) the Ministry of Public subprogram health units under the PBF of the budgets of all health facilities, three northern Health and Ministry of Finance have mechanism; and (ii) the Minister of Public Health all regional and district level regions issued a joint circular allowing all health has signed an order allowing all public and private regulatory structures, and 50 percent Baseline (2016): facilities under the PBF program to health facilities in Cameroon to buy medicines and of the budgets of all central-level 37.6 percent benefit from special fiduciary medical devices from approved public and private directorates of the Ministry of Public Target (2020): 42 arrangements specified in the national suppliers other than CENAME and the Regional Health according to a funding percent PBF manual; and (ii) the Ministry of Health Funds, and establishing simplified mechanism based on performance; Public Health has issued a circular procedures for acquiring these medicines and and (ii) allowed new public health allowing Regional Health Promotion medical devices that favors high-quality generics professionals to be recruited and Funds to purchase pharmaceutical offered at a low cost from approved suppliers. managed at the regional level products from accredited public or through a competitive application private wholesalers through simplified process, with the allocation of new procedures. positions based on the population’s health needs. Page 50 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) Prior Action #8 To improve efficiency of health sector spending, the Ministry of Public Health has expanded the administrative coverage of the PBF program by introducing at least four additional performance contracts at the central level of the Ministry of Public Health. Policy Area: Education Reform Prior Action #9 Prior Action #9 Trigger #9 Result Indicator #9 To increase accessibility to textbooks in To make textbooks more accessible and available: To expand the availability of Number of primary and secondary school, the Prime (i) the Recipient has published the official list of textbooks, the new textbook policy textbooks per Minister has issued (i) a Circular on the textbooks to be used in primary and secondary for preschool, primary, and student in primary principles guiding the new school schools as of school year 2018/2019, in accordance secondary education is implemented, school. textbook policy to reduce the cost of with the principles set out in the Prime Minister's starting in the 2019/20 school year. Baseline (2016): books and increase their availability; and November 2017 circular; and (ii) the Recipient has 1/14 (ii) a Decree reorganizing the National adopted an orientation document and a detailed Target (2020): 1/2 Commission for the Monitoring and the calendar for the development of a new textbook Evaluation of the National Textbook policy for preschool, primary, and secondary Result Indicator Policy (Conseil National d’Agrément des education, to be implemented at the beginning of #10 Manuels Scolaires et des Matériels the 2019/2020 school year, based on goals Number of Didactiques, CNAMSMD) validated in 2017. textbooks per student in high school. Baseline (2016): 1/3 Target (2021): 1/1.5 Policy Area: Social Protection Prior Action #10 Trigger #10 Result Indicator The President has issued a circular setting out The Government provides sufficient #11 instructions for the preparation of the 2019 funding to extend poverty-targeted Number of Finance Law, stipulating that the Government will social protection programs to cover households make sufficient provision for the extension of at least 22,500 additional beneficiary covered by the Page 51 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2(P166694) Prior Actions for DPF1 Prior Actions for DPF2 Triggers for DPF3 Results (2020) poverty-targeted social protection safety net households by 2020, with a social safety nets programs to at least 11,250 beneficiary substantial share of beneficiaries program households in 2019. being displaced persons. Baseline (2016): 40,000 Target (2020): 100,000 Page 52 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) ANNEX 2: FUND RELATIONS ANNEX IMF Executive Board Approves US$666.2 Million Arrangement Under the Extended Credit Facility for Cameroon June 26, 2017 • Executive Board decision allows an immediate disbursement of SDR 124.2 million (about US$171.3 million) to Cameroon. • Cameroon’s ECF-supported program aims to restore the country’s fiscal and external sustainability and unlock job-rich, private sector-driven growth. • Reforms to maintain financial stability and boost financial inclusion, and address structural obstacles to competitiveness and economic diversification, will be key in accelerating private sector-led diversification. On June 26, 2017, the Executive Board of the International Monetary Fund (IMF) approved a three-year arrangement under the Extended Credit Facility (ECF) with Cameroon for SDR 483 million (about US$666.2 million, or 175 percent of Cameroon’s quota) to support the country’s economic and financial reform program. The ECF-supported program is expected to help Cameroon restore external and fiscal sustainability and lay the foundations for sustainable, private sector-led growth. An amount of SDR 124.2 million (about US$171.3 million) will be immediately made available to Cameroon, further to the approval of the arrangement. The remaining amount will be phased in over the duration of the program, subject to semi-annual program reviews. Following the Executive Board discussion on Cameroon, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, said: “Cameroon has been hit hard by the twin oil price and security shocks which have affected the CEMAC region since 2014 and led to a sharp drop in the pooled international reserves. Having initially shown resilience owing to its greater diversification, the Cameroonian economy is now facing decelerating growth, declining fiscal and external buffers, and rapidly-rising public debt. The authorities’ Fund-supported program appropriately aims at addressing Cameroon’s large balance of payments need and restoring fiscal and external sustainability, while also contributing to the collective effort to rebuild regional reserves. The Cameroonian authorities’ Page 53 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) leadership has been instrumental in spearheading the coordinated regional response to maintain the integrity of the CEMAC’s monetary arrangement. “Addressing the rising fiscal and external imbalances requires a sustained and balanced fiscal consolidation based on expanding the non-oil revenue base, prioritizing public investment projects with demonstrated growth dividends, and rationalizing recurrent expenditure, while protecting social spending. The authorities’ fiscal program is supported by comprehensive structural reforms in revenue mobilization and public financial management to further boost non-oil revenue collection, improve spending efficiency, and contain fiscal risks. “The authorities are committed to enhance Cameroon’s competitiveness and medium-term growth potential, in line with their strategy to reach emerging economy status by 2035. The completion of large energy and transport public infrastructure projects will help boost private sector investment, job creation and further diversification, and is supported by complementary reforms to maintain financial stability, expand access to financial services and improve the business environment. “The success of Cameroon’s program will also depend on the implementation of supportive policies and reforms by the regional institutions.” Page 54 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Appendix to Annex 3 Recent Economic Developments Cameroon, the largest economy in the Central African Economic and Monetary Union (CEMAC), has been hit hard since 2014 by shocks caused by a slump in oil prices and increased security threats. Oil revenue declined and security and humanitarian spending increased, while needed infrastructure programs continued, leading to widening fiscal and current account deficits as well as a rapid accumulation of external debt. After showing initial resilience to the shocks, growth weakened to 4.7 percent in 2016, from 5.8 percent in 2015 and 5.9 percent in 2014. Inflation declined to 0.3 percent at end 2016 and remained low at 0.4 percent in March 2017. It is expected to stay below the CEMAC convergence criterion of 3 percent in the medium-term. The fiscal deficit rose to 6.5 percent in 2016, from 2 percent of GDP in 2015, largely driven by a surge in capital spending and a decline in revenues. Program Summary Cameroon’s reform strategy is embedded in the coordinated regional approach outlined at the Yaoundé Heads of States summit in December 2016, during which the Cameroonian authorities spearheaded a coordinated response to maintain regional external stability as well as the integrity of the monetary arrangement. In that context, Cameroon’s ECF-supported program aims to restore the country’s fiscal and external sustainability and unlock job-rich, private sector-driven growth. The program rests on three main pillars: i) frontloaded fiscal consolidation to strengthen fiscal and external buffers, while protecting social spending and social safety nets; ii) structural fiscal reforms to expand the non-oil revenue base, improve the efficiency of public investment and the quality of budgetary system, and mitigate fiscal risks from contingent liabilities; iii) reforms to accelerate private sector-led economic diversification and boost the resilience of the financial sector. The fiscal objectives of the program will be achieved through a better prioritization of public investment, focusing on infrastructure projects essential to further economic diversification, and a rationalization of the Government’s spending on goods and services, while supporting an expansion of essential social expenditure and safety nets. In addition, with oil revenue declining over time, further expanding the non-oil revenue base and enhancing spending efficiency are key to maintaining the fiscal space needed for infrastructure investment and other priority areas. Page 55 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) To address the remaining weaknesses in public financial management, the authorities plan to enhance the budget credibility and transparency, including through the publication of regular reports on budget execution; strengthen treasury management, strictly limit and eventually eliminate the resort to exceptional procedures, and improve the efficiency in planning, executing and monitoring public investment projects. Public debt management will focus on reducing the pace of debt accumulation in line with the program’s fiscal deficit objectives, tilting the composition of new borrowing towards more concessional financing, and closely monitoring contingent liabilities. Reforms to maintain financial stability and boost financial inclusion, and address structural obstacles to competitiveness and economic diversification, will be key in accelerating private sector-led diversification. Background Cameroon, which became member of the IMF on July 10, 1963, has an IMF quota of SDR 276 million. For additional information on the IMF and Cameroon, see: http://www.imf.org/external/country/CMR/index.htm Page 56 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) ANNEX 3: LETTER OF DEVELOPMENT POLICY Page 57 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 58 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 59 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 60 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 61 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 62 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 63 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 64 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 65 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Page 66 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Indicative Translation – for information only REPUBLIQUE DU CAMEROUN REPUBLIC OF CAMEROON Paix – Travail – Patrie Peace – Work – Fatherland MINISTÈRE DE L’ÉCONOMIE, DE LA MINISTRY OF ECONOMY, PLANNING [Coat of Arms] PLANIFICATION AND REGIONAL DEVELOPMENT ET DE L’AMÉNAGEMENT DU TERRITOIRE N° 0000000003 L/MINEPAT/SG Yaoundé, June 24 2019 The Minister, To: The President, The World Bank, 1818 H Street NW, Washington, DC 20433 United States of America Topic: Letter of development policy with reference to fiscal support for the Republic of Cameroon Mr. President, This letter of development policy, which underpins your institution’s budget support for the Republic of Cameroon, falls within the framework of the Fiscal consolidation and inclusive growth operation. It describes recent macroeconomic performance and details the Government’s program and medium-term structural reforms, which aims to improve fiscal viability and private sector management, strengthen the economy’s competitiveness, improve social services, and broaden social protection with a view to reducing the vulnerability of the poor. 1. Recent macroeconomic performance Cameroon’s real GDP growth bounced back in 2018, estimated at 4%, or 0.5 points higher than in 2017, thanks to the implementation of fiscal consolidation policies and structural reforms. This outcome results from the implementation of actions designed to increase the diversification of national production, the expansion of the construction activity, and increased private investments, especially in the agribusiness and natural gas processing sectors. Inflation has remained under control, leveling off at an average of 1.1% in 2018 compared to 0.6 % in 2017. Prospects related to diversification in the hydrocarbon sector are encouraging in conjunction with the start-up of a new offshore liquefied natural gas (LNG) platform. Budget execution in 2018 was in line with the objectives of the fiscal consolidation program. The overall fiscal deficit narrowed to 2.5% in 2018 from 5.1% in 2017, following a marked improvement in oil and non-oil revenue. This improvement in revenues combined with the reduction in the wage bill induced by the operation of physical counting of civil servants and a better management of goods and services allowed to mitigate overruns in subsidies and capital expenditures. Total public spending decreased from 19.8 percent of GDP in 2017 to 18.6 percent in 2018, while total Government revenue grew from 15 Page 67 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) percent of GDP to 16.1 percent. This performance in revenue mobilization was due to improved tax administration and higher oil prices that offset the decline in oil production. Despite rising oil prices and a sharp increase in gas exports, the external current account deficit widened in 2018 as imports of petroleum products, intermediate goods and supplies needed for infrastructure projects increased. In addition, the deterioration of the security situation in the North West and South West regions led to a reduction in cocoa and coffee exports. This contributed to the widening of the external deficit which went from 2.7% of GDP at the end of December 2017 to 3.7% at the end of December 2018. Cameroon's foreign exchange reserves rose from € 2.4 billion in December 2017 to € 2.9 billion in December 2018, following a more rigorous application of CEMAC legislation, in repatriation of foreign currencies. The money supply increased by 9.8% at the end of December 2018. The growth rate of credit to the private sector, which stood at 2.3% at the end of December 2017, reached 4.6% at the end of December 2018. The stock of public debt increased from 36.7% of GDP in 2017 to 39% in 2018, reflecting mainly the valuation effects on external debt and the accelerated disbursement of project loans required for the increasing infrastructure of the country. Cameroon's medium-term economic outlook is favorable and GDP growth is expected to reach 4.5 percent on average over the 2019-21 period. The macroeconomic policy program remains focus on fiscal consolidation. The 2019 budget adopted by the National Assembly in early December 2018 targets an overall deficit of 2% of GDP, and additional 0.5% fiscal adjustment between 2018 and 2019. The revised budget law, submitted for ratification to the Parliament in June 2019, keep the same objective of deficit. While preserving social spending, the revised budget law takes into account additional domestic revenue mobilization measures to absorb a higher level than anticipated, of subsidies to refined oil product prices, and additional expenses for electoral consultations including the parliamentary and municipal elections. 2. Government Program The Government remains committed to pursue the implementation and the achievement of the goals of its 2019-2021 development program with the support of the technical and financial partners. The Government’s medium-term economic and financial reforms aim at making sure that these goals are met. It seeks to promote: (i) consolidation of economic growth; (ii) complete the reform of public finance and procurement; (iii) improve the competitiveness of the economy, the public administration, and the governance of SOEs; and (iv) strengthen social protection and reduce the vulnerability of the disadvantaged. In this context, the Development support program envisioned with the World Bank is structured around improving fiscal viability and public sector management (Pillar 1); strengthening the competitiveness of the economy (Pillar 2); and improving social services and social protection (Pillar 3). Page 68 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Pillar 1: Improving fiscal viability and public sector management Pillar 1 supports fiscal viability and public sector management, with actions in four areas aiming to: (i) increase revenue mobilization by rationalizing tax expenditure and strengthening the tax authorities; (ii) improve public investment management and especially reduce delays in procurement by establishing a more effective institutional procurement framework; (iii) strengthen control over salary costs and improve human resources management; and (iv) strengthen the management and monitoring of SOEs. Non-petroleum revenue mobilization The Government’s interventions aim to rationalize tax expenditure and strengthen the tax authorities. The purpose of the reform is to broaden the tax base and to link economic growth more closely to income generation. To this end, the implementation of a program of sequenced reforms focused on strengthening institutional capacities was initiated in 2017, with an assessment of tax expenditures on indirect taxes. A report on tax expenditures on indirect taxes, including a specific action plan aiming to rationalize tax expenditures, which should gradually be implemented during FYs 2019 and 2020, was annexed to the 2018 finance law. Moreover, a program of joint audits between the tax and customs authorities in the cement and telecommunications sectors was initiated. Results from these audits show revenue gains of approximately CFAF 2.6 billion. In 2018, the assessment of the level and composition of tax expenditures continued, with the completion of a new, more comprehensive report on tax expenditures that was annexed to the 2019 finance law. This assessment report shows a loss in revenue of CFAF 600 billion. It assesses the efficiency and fairness of the total of tax expenditure and provides guidance on exemptions that could be removed or revised. Starting in 2019, the Government plans to implement the action plan with a view to reducing tax expenditure on indirect taxation. Measures designed to reduce tax expenditure in 2019 include removing VAT exemptions deemed inefficient (life insurance contracts, certain operations linked to local wood processing) and reducing a tax base exemption for certain types of beers. Other measures designed to broaden the tax base relate to increasing excise duty on tobacco and non-alcoholic beverages as well as on polluting vehicles. Procurement reform The Government remains determined to pursuing reform in public procurement. Reforms in this area aims to reduce the average time required to award public contracts for public investment projects (that is, time elapsing between issuing a call for tenders and signing of contracts). To achieve this goal, on June 20, 2018, the President of the Republic signed a decree to enact a new procurement code. This new code clearly defines the roles and responsibilities of all stakeholders. Among other things, it ensures the independence of the complaint management mechanism and the separation between the responsibilities of procurement, control and regulation of public contracts. Furthermore, the Minister of Public contracts has issued an order defining new performance-based modalities of remuneration for participation in procurement commissions. In 2019, the Government also plan to set up an electronic monitoring system for public procurement. Page 69 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Reform of the civil service and SOEs management The Government will prioritize the improvement of the management of the civil service and payroll management and SOEs. Actions implemented in 2018 included: (i) the issuance of a decree by the Prime minister rationalizing non-salary compensation, clarifying criteria and principles for the creation and functioning of commissions, committees, and ad hoc working groups (CCGTs) within the public administration; removing the session allowances system and setting up a performance-based system; and (ii) the setting up of an interministerial committee to work on a new payment system for civil servants. The decree on the rationalization of non-salary compensation defines the new, performance-based payment modalities for the participation to CCGT participants, ends payments in cash, establishes payment by bank transfer, and the recording of these expenditures as “other staff costs”. The decree therefore abolishes the circular No. 006/CAB/PM of May 27, 2010 and put an end to the current practice of payment based on the number of working sessions. Furthermore, the circular signed by the President, setting out instructions for the preparation of the 2019 finance law, states that a census of ad hoc committees, committees and working groups currently existing within the public administration will be carried out in 2019, in order to dissolve those whose existence is no longer justified. All of these measures will help rationalize the compensation system, introduce good compensation practices in public finance management, and provide transparent and equitable financial incentives for civil servants. An assessment of the savings generated by these measures will make it possible to consider improving formal compensations for civil servants. In addition, in 2018, the Government carried out a physical counting of civil servants, which resulted in a fiscal saving of 35 billion CFA francs (0.2% of GDP). Regarding the management of public enterprises, the reform will focus on the most critical issues, namely the transparency and publication of the data of these companies, the selection and management, as well as the remuneration of the management and board members. As such, the Government has signed two decrees setting out the categories, remuneration and benefits of the heads of public establishments and public enterprises, and a decree specifying the implementation modalities of some provisions of the laws No. 2017/010 and 2017/011 of July 12, 2017 on the general status of public establishments and public companies, the publication of financial and operational information, and modalities of the supervision of public enterprises and recruitment, and remuneration of staff, managers, and board members. These reforms are aims to improve transparency and increase the availability of data on the performance for these companies and at reduce fiscal risks associated with public enterprises. Greater transparency is expected to improve the financial and operational performance of these companies, as well as administration and corporate governance. Pillar 2: Strengthening the competitiveness of the economy This pillar focuses on reform in three areas: (i) financial viability in the energy sector; (ii) acceleration of road maintenance and strengthening of road network resilience to climate change; and (iii) improving the efficiency of the port of Douala and strengthening the performance of logistics platforms and supply chains. One of the main objectives of these reforms is to improve the viability of the infrastructure sector in Cameroon in order to attract more private investment. Page 70 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Energy sector reform The Government reaffirms its determination to ensure the financial viability of all actors in the electricity value chain. In the short term, the Government intends to reduce its arrears as well as those of the main SOEs to the national electricity company (ENEO) and to establish a robust mechanism to avoid new arrears accumulations. The measures implemented in 2018 included: (i) the setting up of a mechanism to ensure regular payment of electricity bills by the Government and timely payment of arrears and price compensation; and (ii) clearance of accumulated arrears of the main SOEs in the water and telecommunications sectors. In the medium term, the Government intends to adopt and begin the implementation of a monthly payment mechanism to ENEO based on reconciled quarterly Government and ENEO balance sheets on electricity usage and payments due; and to facilitate the convergence of electricity tariffs to strengthen the sector’s financial viability. Transport sector reform The Government’s actions in this sector aim to improve port activity and the planning of road maintenance by guaranteeing its regular financing. Concerning road maintenance, the goal is to increase the resilience of the road network to climate change through regular financing and improved planning. To achieve this, the Minister of Finance and the BEAC signed an agreement on an automatic debiting mechanism from the single treasury account to a special Road Fund account for an amount of at least CFAF 5 billion per month earmarked for the road maintenance program, including contracts for road management and maintenance by level of service (GENiS). In addition, the Government has introduced a performance-based approach to road maintenance with a decree implementing the Call for Tenders Document (DAO) model for multiannual procurement contracts for works and management services and for road maintenance by level of service (GENiS). About improving the efficiency of the port network and strengthening the performance of logistics platforms and supply chains, the Government has implemented an electronic payment platform to cover trade-related costs, duties, and taxes. It is also implementing the reforms planned for the second year of the triennial strategic plan of CONAFE over 2017-2019. Considering the evolution of Cameroon's port sector and its implications for the concession agreement of the Port of Douala, the 1998 texts on the port reform will also be revised at by the Ministry of Transports (Ministère des Transports, MINT), in collaboration with the Ports of Douala, Limbe and Kribi and the National Port Authority. These reforms are expected to increase the efficiency of the port of Douala by reducing the average time required for the throughput of import goods at the port of Douala from 11 to 7.5 days. Pillar 3: Improving social services and social protection The Government intends to improve the financing and the execution of public social expenditures, especially in the health, education, and social protection sectors with a view to reduce the vulnerability of the poor. Health sector reform The Government has adopted PBF as a national program in order to advance the goal of universal health coverage, and the process of expanding PBF is under way. The next step of the reform aims to ensure Page 71 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) that the PBF mechanism reliably transfers public funds to health providers so that the model is sustainable and able to prevent shortages of drugs and medical devices. In this regard, the measures implemented in 2018 included : (i) the disbursement of 100% of the allocations to PBF sub-program health units and ; (iii) the Signature of a decree authorizing all public and private health providers to receive drugs and medical devices from authorized public and private suppliers, except for CENAME and regional health agencies, and setting up simplified procedures for acquiring drugs and medical devices to promote high-quality generics offered at low prices by authorized providers Education sector reform The Government actively supports the codification of the new guidelines for a comprehensive textbook policy, which will be implemented during the 2018-2019 academic year. The goal is to make school textbooks more accessible by raising the number of textbooks per student currently at 1 per 14 students’ ratio in the primary education and 1 per 3 students in secondary education to 1 per 2 students in primary education and 1 per 1.5 students in secondary education by 2020. To this end and in compliance with the Prime Minister’s circular signed in November 2017, the Government has adopted and made public the official list of textbooks for all educational levels along with the price grid for primary and secondary education, which will take effect from the start of the 2018-2019 academic year. Furthermore, the National Council for the Monitoring and the Evaluation of the National Textbook Policy (CNAMSMD) has adopted the orientation document for preparing implementation of the new preschool, primary, and secondary textbook policy at the start of the 2019-2020 academic year. Social protection system reform The Government’s efforts aim to extend the social safety net coverage provided by the national program to at least 11,500 additional households. The Government has developed the basis for a national program of full and closely targeted social protection. Known as the Social Safety Net Project, the program includes targeted monetary transfers and public works programs designed for the country’s poorest households. Results from an impact assessment of the pilot project for fund transfers have been promising in terms of increased revenue and asset accumulation, reduced food insecurity, increased school attendance, more frequent visits to health providers, and a positive overall economic impact. As an illustration, multidimensional poverty has fallen by nearly 1 point on a scale of 0.5 to 4.5, the number of households with a toilet has risen by 14% in the group receiving transfers, and food insecurity has been reduced by almost half. The proposed program of reforms is also expected to increase the number of households covered by the social protection program, from 40,000 households in 2016 to 100,000 households in 2020. This program is largely financed by the International Development Association (IDA). The Government is aware that the program will require additional mobilization of national budget resources to be extended at national level and accompanied by the necessary support if it provides fair access to services among displaced communities in the areas affected by the conflicts. Please find in the Annex the list of reforms for which the GOC is requesting the second budget support from the World Bank. Page 72 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Mr. President, I thank you for the varied assistances the World Bank unfailingly provides for Cameroon’s development efforts. Very sincerely yours, Copy: • World Bank Director responsible for Cameroon PJ: 1 Page 73 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Annex: The list of Reforms for which the GOC is requesting budget support from the World Bank in 2019 Tax reform • Adoption of a list of specific measures aimed at abolishing tax incentives and exemptions in terms of indirect taxes and other measures in order to broaden the tax base to an overall amount of CFAF 70 billion. Procurement reform • Issuance of a new procurement code in the form of a decree clarifying stakeholder responsibilities, independence of the grievance procedure, and separation of responsibilities in terms of regulation, monitoring, and the procurement process; • Issuance of an order defining a new method for performance-based compensation for procurement commission participation and repeal of the current decree, which compensates basing on the number of working sessions. Civil service reform • Issuance of an order creating an inter-ministerial committee to reform the compensation system for state officials. State enterprise management • Issuance of two decrees setting out categories, compensations, and benefits for directors of state institutions and enterprises; • Issuance of a decree specifying the terms and conditions of application of certain provisions of laws N° 2017/010 and 2017/011 of 12 July 2017 on the general status of public establishments and public companies, and the publication of financial information and the procedures for the supervision, recruitment, and remuneration of staff, officers, and members of Board of Directors. Energy sector reform • Adoption and start of implementation from January 2018 of a quarterly mechanism for budget commitment to ENEO for the payment of bills for the central administration’s electricity usage following a quarterly reading agreed between the Government and ENEO; • Issuance by the Electricity Sector Regulatory Agency of a regulatory decision on readjusting the tariff schedule for the public electricity service, stipulating that electricity tariffs should begin from June 28, 2018, calculated on a quarterly basis, with annual consolidation and adjustments of end-of-financial year data; • Signature of two debt subrogation agreements for the main debtor state enterprises to ENEO (CAMTEL, CAMWATER) accumulated as of March 31, 2018. Road transport sector reform • Signature of an amendment to the agreement governing the Road Fund special account at BEAC instituting an automatic debit mechanism from the single treasury account to this special account for a sum of at least CFAF 5 billion per month to ensure regular payment of expenses related to the adjusted road maintenance program and the first GENiS program; • Issuance and publication of a decree putting into effect the Call for Tenders Document (DAO) model to be used in multiannual procurement contracts for management and road maintenance works and services by level of service (GENiS). Port sector reform • Establishment of an electronic payment platform to cover all trade-related costs, duties, and taxes. Health sector reform • Disbursement of 100% of the allocations to performance-based financing (PBF) sub-program health units and; • Signature of a decree authorizing all public and private health providers to receive drugs and medical devices from authorized public and private suppliers, except for CENAME and regional health agencies, Page 74 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) and setting up simplified procedures for acquiring drugs and medical devices to promote high-quality generics offered at low prices by authorized providers. Education sector reform • Adoption and publication of the official list of school textbooks for general and professional education to be used in public, private, and denominational institutions for primary and secondary education, starting at the beginning of the 2018-2019 academic year in compliance with the principles guiding the new policy for textbooks stipulated in the Prime Minister’s circular of November 2017; • Adoption of the orientation document for preparing the new policy on school textbooks for preschool, primary, and secondary education to be implemented at the beginning of the 2019–2020 academic year and a preparatory and ratification schedule for the new policy for textbooks based on the principles approved in 2017. Social protection system reform • Allocation in the 2019 budget of adequate resources for extending coverage of the national social safety net program to at least 11,500 additional households, to be integrated into the program according to selection and management rules defined in the operation manual of the Social Safety Net Project. Page 75 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) ANNEX 4: ENVIRONMENT AND POVERTY/SOCIAL ANALYSIS TABLE Significant Positive or Negative Significant Poverty, Social, or Prior Actions Environment Distributional Effects Positive or Effects Negative (yes/no/to be determined) (yes/no/to be determined) Pillar 1: Improving fiscal sustainability and public sector management Prior Action #1: To improve revenue mobilization, the 2019 Finance Bill submitted to To be determined The poverty and social impact may be Parliament for approval includes: (i) specific measures to eliminate tax incentives and both direct and indirect. These strongly exemptions from indirect taxes; (ii) other specific measures to broaden the non-oil tax hinge on the way additional revenues are base and address negative externalities related to tobacco, soft drinks consumption and allocated on the expenditure side of the the level of pollution of imported vehicles; and (iii) the 2017 tax expenditures report budget. covering all tax sources, and assessing tax expenditures related to the 2013 Investment Promotion Act. Prior Action #2: To improve public procurement processes (notably for investment Negative effects No poverty and social impact expected projects), increase accountability, ensure better value for money, and improve the from this policy action. quality of public investment projects, (i) the President has issued a new Public Procurement Code in the form of a decree clarifying the responsibilities of stakeholders, the independence of the grievance mechanism, and the separation of regulatory, oversight, and administrative responsibilities in public procurement processes; and (ii) the Minister of Public Contracts has issued an order defining a new performance based method of remuneration for participation in public procurement boards. Prior Action #3: To improve the productivity and efficiency of public service delivery, To be determined No poverty and social impact expected the Prime Minister has issued an order establishing and specifying the terms of from the proposed reform of the civil reference of an inter-ministerial committee for civil service pay reform to gradually service. remove disparities in the pay system and develop a new base pay scale to be approved by the Council of Ministers. Prior Action #4: To improve the corporate governance and management of state- To be determined No. It is not easy to say something very owned enterprises (SOEs), the Recipient has issued decrees setting: (i) criteria for the specific about the potential social impact selection, remuneration and evaluation of SOE senior management and board of the SOE laws. Theoretically speaking, members; and (ii) standards for the presentation and publication of SOE financial and making the SOEs more competitive and operational information. increasing the monitoring of SOEs could Page 76 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Significant Positive or Negative Significant Poverty, Social, or Prior Actions Environment Distributional Effects Positive or Effects Negative (yes/no/to be determined) (yes/no/to be determined) eventually lead to a reduction in their weight on the budget and therefore, increasing fiscal space for other investments. Also, increasing performance monitoring could lead to an improvement of the public services provided by the SOEs and public agencies. However, at the moment, it is impossible to quantify these. Pillar 2: Enhancing Competitiveness Prior Action #5: To improve the financial sustainability of the energy sector: (i) the Both positive and Yes, this has potential positive social and Recipient and key stakeholders have developed and begun implementing a quarterly negative effects poverty impact. In 2015, about 48 percent mechanism to process the payment of the central administration’s electricity bills to of the Cameroonian population had access ENEO, based on quarterly reconciled assessments by the Recipient and ENEO of to electricity, and 74 percent of the electricity consumed and payments due; and (ii) ARSEL has issued a regulatory decision population lived in localities connected to re-adjusting the public electricity tariff schedule, stipulating that the electricity rates are electricity. Since ENEO collects the as of June 28, 2018, calculated on a quarterly basis with annual consolidation and revenues for the entire power sector, the adjustment of data at the end of the year. financial health of the whole sector is subject to ENEO being able to collect enough revenue for all market players. Therefore, financial sustainability of ENEO may be expected to lead to improved access to electricity and good quality service (low power outages). Studies in Africa have shown a strong relationship between power outages and poverty, especially for SMEs that depend on electricity to operate. Page 77 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Significant Positive or Negative Significant Poverty, Social, or Prior Actions Environment Distributional Effects Positive or Effects Negative (yes/no/to be determined) (yes/no/to be determined) Also, reforms to enhance private sector confidence would help establish a predictable environment for future growth and competitiveness of Cameroon’s economy, which in turn, will be essential for creating jobs and poverty reduction. Prior Action #6: To improve road maintenance and increase the road network’s Positive and Yes, this has potential positive social and resilience to climate change: (i) the Minister of Finance and the National Director of the negative effects poverty impact. Allocating funding for BEAC have signed an amendment to the convention governing the dedicated account of maintenance of key road infrastructure the Road Fund at the BEAC, establishing an automatic debiting mechanism of the single identified by the MINTP can have positive Treasury account for the benefit of said dedicated account for in an amount of at least poverty and social impact though better CFAF 5 billion per month to ensure the regular payment of (priority) road maintenance connectivity to markets. Further, poor expenses; and (ii) the Minister of Public Contracts has issued an implementing order road maintenance has been cited as one adopting the Standard Bidding Documents for road maintenance and management of the main reasons for high transport programs (OPBCs) costs in Cameroon. In this regard, an improvement on road maintenance involving fast disbursement of funds can lead to reduced transport cost, and this will have a positive social and poverty impact for many Cameroonians. Prior Action #7: To improve the efficiency of the Port of Douala and the performance Positive effect No. There is no distributional impact of of logistics platforms and supply chains, the GUCE has set up an electronic payment this reform. One might expect a negative platform for all trade-related fees, duties, and taxes. social and poverty impact if by increasing the storage levy at the Port of Douala, the costs will be passed on to the poor. But this may not be the case because the goods that stay longer at the port are may Page 78 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Significant Positive or Negative Significant Poverty, Social, or Prior Actions Environment Distributional Effects Positive or Effects Negative (yes/no/to be determined) (yes/no/to be determined) not be afforded by the poor (for example, used cars). Also, the Port of Douala is also used by neighboring countries. So, it is unclear if goods that stay longer at the port are on transit to these countries. Pillar 3: Improving social services and scaling up social protection Prior Action #8: To improve the performance of the public health sector and enhance Negative effect Yes, the proposed reform is expected to the quality of care in public health facilities: (i) the Ministry of Finance has disbursed have positive social and poverty impacts. 100 percent of the allocations to PBF subprogram health units under the PBF Basic measures of health across regions of mechanism; and (ii) the Minister of Public Health has signed an order allowing all Cameroon broadly mirrors poverty levels. public and private health facilities in Cameroon to buy medicines and medical devices Under-five mortality rates, for example, from approved public and private suppliers other than CENAME and the Regional are 173 per 100,000 live births in the Health Funds, and establishing simplified procedures for acquiring these medicines North and 154 in the Far North, compared and medical devices that favors high-quality generics offered at a low cost from with 84 in the Littoral and 78 in the South approved suppliers. West regions. Improving funding for health facilities is expected to lead to increased access to primary health care, which will benefit the poor. Similarly, improved financial access will lead to better quality health services and improved availability of drugs and overall improvements in quality. The PBF has multiple economic effects on the local community. Service delivery outcomes (and health centers governance) are expected to improve. Prior Action #9: To make textbooks more accessible and available: (i) the Recipient has Negative effect Yes, this reform may lead to positive social published the official list of textbooks to be used in primary and secondary schools as of and poverty impact as expected. While Page 79 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Significant Positive or Negative Significant Poverty, Social, or Prior Actions Environment Distributional Effects Positive or Effects Negative (yes/no/to be determined) (yes/no/to be determined) school year 2018/2019, in accordance with the principles set out in the Prime Minister's most African countries make books November 2017 circular; and (ii) the Recipient has adopted an orientation document available to students at a unit price of less and a detailed calendar for the development of a new textbook policy for preschool, than US$1–US$3, the cost of textbooks in primary, and secondary education, to be implemented at the beginning of the Cameroon ranges between US$5.5–US$9 2019/2020 school year, based on goals validated in 2017. in primary schools. It is difficult for most households to afford to buy the entire set of books required for a school year. Data from the last household survey (ECAM 2014) 17 show that levels of education are significantly worse in regions where poverty is widespread than they are in better off regions. The textbook reform is therefore expected to both lower the cost of textbooks and increase their availability and accessibility for lower-income families, with therefore clearly positive impacts in terms of poverty and broader welfare. Free access to textbooks may also improve educational outcomes for children from poor households with long- term implications for poverty reduction. The reform will also result in a positive impact on regional equity by ensuring better access to textbooks in classrooms for students from rural and/or disadvantaged areas. 17 Enquête Camerounaise Auprès des Ménages (ECAM 4). Page 80 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Significant Positive or Negative Significant Poverty, Social, or Prior Actions Environment Distributional Effects Positive or Effects Negative (yes/no/to be determined) (yes/no/to be determined) Prior Action #10: The President has issued a circular setting out instructions for the Yes, positively by increasing the number of preparation of the 2019 Finance Law, stipulating that the Government will make beneficiaries. Allocating CFAF 4.5 billion in sufficient provision for the extension of poverty-targeted social protection safety net the 2019 budget will allow to expand programs to at least 11,250 beneficiary households in 2019. coverage of the social safety nets program, resulting in a 150 percent increase in the number of beneficiary households (households covered by the social protection program). Reference (2016): 100,000 households by 2020 compared to 40,000 households in 2016. However, such positive impact will not be realized if there is mistargeting (reaching the rich households instead of poor and vulnerable ones). Page 81 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) ANNEX 5: STATUS OF PRIOR ACTIONS AND CHANGES RELATIVE TO INDICATIVE TRIGGERS Status of Prior Actions for Trigger for DPF2 Prior Actions for DPF2 Reason for Change DPF2 Trigger #1: Prior Action #1: Revenue mobilization Trigger #1 was revised to account Met. The 2019 Finance law To improve revenue mobilization, the To improve revenue mobilization, the 2019 of the fact that the Government was adopted by the Government has Finance Bill submitted to Parliament for now wants to sequence the work Parliament on December (i) Prepared an assessment of tax approval includes: (i) specific measures to more prudently and with a lower 2018. expenditures in direct taxes, annexed eliminate tax incentives and exemptions from level than in the trigger and the Legal evidence has been to the 2019 Finance Law, including indirect taxes; (ii) other specific measures to Government needs more time to reviewed by country lawyer specific measures to reduce tax broaden the non-oil tax base and address consider the action plan, before expenditures by 0.2–0.3 to GDP for negative externalities related to tobacco, soft specific measures are being taken 2019; drinks consumption and the level of pollution on action plan on reducing tax (ii) Implemented action plan on of imported vehicles; and (iii) the 2017 tax expenditures on indirect taxation. reducing tax expenditures on indirect expenditures report covering all tax sources, taxation by 0.8 percent to GDP for and assessing tax expenditures related to the The result indicators in the DPF2 2019; and 2013 Investment Promotion Act. represent an improved revenue (iii) Completed an evaluation of the generation compared to DPF1, by 2013 Investment Law on incentives now targeting CFAF 130 billion on for private investment, with specific tax expenditures being suppressed measures on rationalizing tax and new measures on excise taxes incentives over 2019–2020. over 2019–2020. It is found more prudent to measure the absolute amount of tax expenditures being suppressed, rather than to continue to use the relative expression of ratio to GDP. Trigger #2: Prior Action #2: Public procurement reforms The content of Trigger #2 was Met. The New To improve the effectiveness of the To improve public procurement processes reformulated more precisely. Procurement Code was public procurement process, (notably for investment projects), increase issued on June 20, 2018. (i) the President has issued a new accountability, ensure better value for money, The circular defining a new procurement code in the form of and improve the quality of public investment remuneration method for decree, which clarifies, among projects, (i) the President has issued a new participation in public others, responsibilities of the Public Procurement Code in the form of a procurement commission stakeholders, the independence of decree clarifying the responsibilities of was signed on September the complaint mechanism, and the stakeholders, the independence of the 27, 2018. Page 82 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Status of Prior Actions for Trigger for DPF2 Prior Actions for DPF2 Reason for Change DPF2 separation of three roles in public grievance mechanism, and the separation of procurement: the regulatory, the regulatory, oversight, and administrative Legal evidences have been control, and the process; and responsibilities in public procurement reviewed by country lawyer (ii) MINEPAT and MINMAP have processes; and (ii) the Minister of Public issued a joint arrêté stipulating the Contracts has issued an order defining a new new performance pay based on the performance based method of remuneration completion of review process at the for participation in public procurement boards. tender board/procurement sub commissions and repealing the current arrêté on remuneration based on payment for attendance. Trigger #3: Prior Action #3: Reform of the Civil Service At the request of the ROC Decision Met. The decree To improve payroll management and To improve the productivity and efficiency of meeting, the content of Trigger #3 establishing and specifying control the wage bill, the Prime public service delivery, the Prime Minister has was revised to focus on the the terms of reference of Minister has issued a decree defining issued an order establishing and specifying the structural pay reform. an interministerial criteria for creation of committees, terms of reference of an inter-ministerial committee for civil service its operational practice including committee for civil service pay reform to pay reform was signed by limitation of the number of sessions, gradually remove disparities in the pay system the Prime Minister on members, and remuneration policy. and develop a new base pay scale to be November 30, 2018. approved by the Council of Ministers. Legal evidence has been reviewed by country lawyer Trigger #4: Prior Action #4: Management of State-owned The content of the prior action has Met. To improve corporate governance companies been defined more precisely. During the appraisal, the and management of public To improve the corporate governance and team noted that the enterprises, the Government has management of state-owned enterprises decrees issued by the issued an implementing decree to (SOEs), the Recipient has issued decrees Government doesn’t operationalize the new framework setting: (i) criteria for the selection, address the matter of laws detailing: remuneration, and evaluation of SOE senior replacement of SOE senior (i) presentation and publication of management and board members; and (ii) management and board financial and operational data; standards for the presentation and publication members. Their selection, (ii) criteria for selection, of SOE financial and operational information. remuneration, and remuneration, evaluation and evaluation had, however, replacement of managers and board been adequately Page 83 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Status of Prior Actions for Trigger for DPF2 Prior Actions for DPF2 Reason for Change DPF2 members; addressed, and the team (iii) financial audits; and considered that the (iv) level of approval on operational decrees do serve to achieve and strategic issues of the enterprise the objective of this prior and Government oversight action. arrangements. The team requested to the ROC, the authorization to limit the prior action to the matters of selection, remuneration, and evaluation, and reformulated it to drop the matter of replacement. Also, the Government has, through the new decrees, required SOEs to issue instruments setting forth criteria for the replacement of senior management and board members. The ROC authorized the revision. Trigger #5: Prior Action #5: Reform of the Energy Sector The content of Trigger #5 was Met. As of June 6,2018, the To improve financial sustainability To improve the financial sustainability of the defined more precisely. mechanism for regular and ensure the payment of energy energy sector: (i) the Recipient and key payment of energy bills is in bills of the public sector, the Ministry stakeholders have developed and begun place with the first of Finance has developed a robust implementing a quarterly mechanism to payment made in May 2, and reliable mechanism for the process the payment of the central 2018. payment of electricity bills for administration’s electricity bills to ENEO, based parastatals. on quarterly reconciled assessments by the The regulatory Decision Recipient and ENEO of electricity consumed was signed by the Director and payments due; and (ii) ARSEL has issued a General of ARSEL on June regulatory decision re-adjusting the public 28, 2018. electricity tariff schedule, stipulating that the Legal evidences have been electricity rates are as of June 28, 2018, reviewed by country lawyer Page 84 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Status of Prior Actions for Trigger for DPF2 Prior Actions for DPF2 Reason for Change DPF2 calculated on a quarterly basis with annual consolidation and adjustment of data at the end of the year. Trigger #6: Prior Action #6: Transport Sector Reform Trigger #6 was reformulated at the Met. The agreement on the To improve road maintenance, To improve road maintenance and increase the request of the authorities to focus financing of the Road Fund management of road assets, and road network’s resilience to climate change: (i) on current most critical issues. was signed on August 13, climate resiliency of roads: the Minister of Finance and the National 2018 and the Standard (i) The Minister of Public Works Director of the BEAC have signed an Bidding Document for the (MINTP) has adopted through a amendment to the convention governing the OPBCs was issued on ministerial decision and factored in dedicated account of the Road Fund at the August 28, 2018. its 2018/2019 budget and road BEAC, establishing an automatic debiting maintenance program, the use mechanism of the single Treasury account for Legal evidences have been multiyear OPBC contracts for road the benefit of said dedicated account for in an reviewed by country lawyer maintenance of major road corridors; amount of at least CFAF 5 billion per month to (ii) MINTP has established an action ensure the regular payment of (priority) road plan for the extension and maintenance expenses; and (ii) the Minister of implementation of its policy of Public Contracts has issued an implementing control of axle loads on extended order adopting the Standard Bidding tarred roads other than the recently Documents for road maintenance and rehabilitated roads which are management programs (OPBCs). systematically taken into account. Trigger #7: Prior Action #7: Reform of the Port Sector An indicator has been added to Met. The completion To improve the competitiveness of To improve the efficiency of the Port of Douala measure the impact of Trigger #6 report was received by the ports and the performance of and the performance of logistics platforms and (iii) about axle loads. Bank on January 4, 2019. platforms and logistics chains, supply chains, the GUCE has set up an CONAFE has made effective the electronic payment platform for all trade- Legal evidence has been electronic payment platform to cover related fees, duties, and taxes. reviewed by country lawyer all fees, duties, and taxes. Trigger #8: Prior Action #8: Health sector Triggers #8 and #9 were merged Met. The order allowing all To increase the level of funding and To improve the performance of the public into the prior actions reviewed and public and private health management capacity of health health sector and enhance the quality of care adapted to have prior action of facilities in Cameroon to facilities and improve the availability in public health facilities: (i) the Ministry of DPF2. Since the GOC has already obtain medicines and of essential medicines in health Finance has disbursed 100 percent of the adopted PBF as a national program medical devices from regions and districts covered by PBF, allocations to PBF subprogram health units to contribute to the universal approved public and Page 85 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Status of Prior Actions for Trigger for DPF2 Prior Actions for DPF2 Reason for Change DPF2 (i) The 2018 public health budget under the PBF mechanism; and (ii) the health coverage, the scaling-up private suppliers other than increases the minimum allocation to Minister of Public Health has signed an order process is ongoing and there is no CENAME was signed on primary and secondary care facilities allowing all public and private health facilities more need to put it as DPF prior December 5, 2018. and regulators to at least 15 percent in Cameroon to buy medicines and medical action. The challenge remaining is of the public budget and uses devices from approved public and private the using of PBF mechanism to Accounting documents performance-based flexible suppliers other than CENAME and the allocate Government Funds to confirming that credits to payments in health regions and Regional Health Funds, and establishing health facilities to ensure the health units were disbursed districts covered by PBF; and simplified procedures for acquiring these sustainability of PBF in Cameroon was received by the Bank (ii) The Ministry of Public Health has medicines and medical devices that favors and frequent stock out of drugs on May 17, 2019. signed an official document that high-quality generics offered at a low cost faced by health facilities and the allows health facilities to buy from approved suppliers. population, due to the lack of Legal evidences have been pharmaceuticals and other medical drugs at CENAME and Regional reviewed by country lawyer supplies directly from licensed Funds where public health facilities suppliers (public or private). must purchase drugs. To improve efficiency of health Two indicators were added to services, the Ministry of Public Health measure the proportion of PBF has expanded the administrative facilities with essential drugs coverage of the PBF program by available and the proportion of introducing at least 8 performance health facilities that will receive contracts at the central level of the 100 percent of their budget Ministry of Public Health. through PBF mechanism at the end Trigger #9 of the program. To improve efficiency of health services, the Ministry of Public Health has expanded the administrative coverage of the PBF program by introducing at least eight performance contracts at the central level of the Ministry of Public Health. Trigger #10: Prior Action #9: Trigger #10 has been revised to Met. The list of textbooks To make textbook provision more To make textbooks more accessible and account for the fact that the was published in June accessible, available: (i) the Recipient has published the Government need to complete 2018, and the orientation (i) the technical unit responsible for official list of textbooks to be used in primary preparatory works before the document was transmitted streamlining the textbook and secondary schools as of school year adoption of the new textbook to the Bank in October Page 86 The World Bank Second Fiscal Consolidation and Inclusive Growth DPF2 (P166694) Status of Prior Actions for Trigger for DPF2 Prior Actions for DPF2 Reason for Change DPF2 development cycle is fully staffed; 2018/2019, in accordance with the principles policy. The DPF2 Trigger #9 focuses 2018. and, set out in the Prime Minister's November 2017 on the milestone that the Legal evidences have been (ii) the Government has adopted a circular; and (ii) the Recipient has adopted an Government will achieve in 2019. reviewed by country lawyer new schoolbook policy for orientation document and a detailed calendar kindergarten, primary and secondary for the development of a new textbook policy education, and the Ministries of Basic for preschool, primary, and secondary Education and Secondary Education education, to be implemented at the beginning are implementing it at the beginning of the 2019/2020 school year, based on goals of school year 2018–2019. validated in 2017. Trigger #11: Prior Action #10: The President has issued a The prior action was reformulated Met. The circular issuing To increase the level of funding of circular setting out instructions for the to consider comments of OPCS on instructions for the safety nets the Government has preparation of the 2019 Finance Law, the fact DPF cannot have budget preparation of the 2019 established a budget line in the 2019 stipulating that the Government will make allocation as an action. The Finance Law was signed on Finance Law, with a budget of CFAF sufficient provision for the extension of reformulated action refers to the June 20, 2018. 4.5 billion, corresponding to a poverty-targeted social protection safety net improved policy change which is coverage of 11,250 households. programs to at least 11,250 beneficiary twofold: (a) extension of coverage; Legal evidence has been households in 2019. and (b) rules-based incorporation reviewed by country lawyer (versus clientelisms and so on) Page 87