A year ago, Cameroon received debt relief under two major international initiatives, clearing the way for a write-down of its external debt from about 40 percent of GDP in 2005 to 5 percent of GDP in 2006.
As reported by the Imf.com, Cameroon is now poised to make faster progress toward improving living conditions and reducing poverty. But how is this resource-rich African country making use of the breathing space created by debt relief, and can it get onto a higher growth trajectory that would edge it closer to achieving the Millennium Development Goals (MDGs)?
Since 1994, Cameroon’s economic growth has picked up, although it remains lower than required to make a significant dent in poverty. The devaluation of the CFA franc in 1994 and the accompanying macroeconomic and structural reforms since then contributed to a reversal of Cameroon’s declining output.
Oil revenues have helped, but the country’s crude reserves are dwindling, and economic activity is hampered by weak infrastructure, limited financial intermediation, uneven implementation of structural reforms, and, more generally, an unfavorable business environment. As a result, per capita real GDP has not kept pace with that in comparator countries and progress in improving social indicators has been mixed.

Debt Cancellation
Cameroon’s debt declined under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative and the Multilateral Debt Relief Initiative (MDRI). HIPC debt relief cut Cameroon’s debt by about $1.3 billion in net present value terms, reducing future debt service payments by about $4.9 billion.
Debt relief under the MDRI amounts to a further $1.1 billion in nominal terms. The IMF provided 100 percent debt cancellation on all debt incurred before January 1, 2005, resulting in the cancellation of $255 million of its claims on Cameroon.
Debt relief has opened up new opportunities. Cameroon is using the freed-up resources to increase priority spending, including on health, education, agriculture, infrastructure development, and institution building.
Although Cameroon’s overall budgetary position has strengthened over the past two years, the underlying fiscal situation is less favorable. Aided by large oil revenue inflows and improved budget management, the overall fiscal balance has been in surplus.
But the non-oil primary balance has deteriorated over the past decade because domestically financed primary spending has expanded faster than non-oil revenues, partly reflecting an increase in debt relief-financed priority outlays. The fiscal space provided through debt relief should therefore be used prudently. How can Cameroon achieve that?
First, it needs to mobilize additional non-oil revenues over the medium term, which will be critical for preserving fiscal sustainability, given the expected decline in oil reserves and prospects for trade liberalization. But, with tax rates already high, additional revenues would need to come from a broadening of the tax base through policy and administrative measures.
Second, Cameroon should devote a larger part of public expenditures to priority outlays, taking into account its absorptive capacity. Its efforts would need to be accompanied by reforms in public expenditure management to ensure that the resources are used effectively.

Reducing Subsidies
Measures that reduce subsidies to public enterprises and redirect those resources toward education, health, and infrastructure would also help boost the quality of spending.
Finally, to preserve its hard-won debt reduction, Cameroon needs to strengthen debt management. It should rely primarily on grants and concessional loans for the next few years to cover its financing requirements and avoid a rapid accumulation of new debt. It will need to monitor debt sustainability indicators closely to avoid a recurrence of past debt problems.
Improved access to finance would help Cameroon diversify its economic base and achieve the more rapid sustainable growth it needs to reduce poverty. However, the country’s financial system is dominated by banks that appear vulnerable to credit and interest rate shocks.

New research by the World Bank shows that migration from parts of South Asia boosts girls’ education and healthcare back home--for example, in Pakistan migration increases girls’ school enrolment by as much as 54 percent compared with just 7 percent for boys.
Researchers say this is because boys’ essential needs are usually met from basic household income in societies favoring sons. Similar findings are obtained in a study focusing on parts of Central America.
International Migration, Economic Development, and Policy also confirms that migration reduces extreme poverty in developing countries, by as much as 35 percent in migrant households in Mexico.
In a groundbreaking finding, the book shows that migration to Europe is associated with lowered fertility rates in Morocco and Turkey; and that migrants can command higher wages in their home country than workers with no international exposure.
“Migration can help to achieve the Millennium Development Goals for poverty reduction, education, health, and women’s empowerment in several ways--e.g. by raising family incomes, helping the accumulation of capital and skills, and enlarging commercial networks,“ said L. Alan Winters, Director of the World Bank’s Development Research Group. “With its considerable development impact in sending countries, migration must remain high on the global policy agenda.“
Drawing on a new migration database covering 226 countries presented by Parsons, Skeldon, Walmsley and Winters, the book shows that there is significant migration between developing countries, with more than 42 million migrants--one fourth of the world’s migrant population--having moved “South-South“ rather than “South-North“ from developing to developed countries.
“Comparable cross-country data on migration is of great importance to policymakers,“ said economist Caglar Ozden, co-editor of the book. “Patterns in the new data reported in this book confirm, for instance, that migration is heavily influenced by a common language in the host and receiving countries, distance that migrants have to travel from home, and expectation of increased income upon migration.“
Research demonstrates a strong association between migration and fertility rates through the transmission of ideas and modes of behavior from host to source countries. For instance, migration to Europe from Morocco and Turkey has led to a decline in fertility, while migration from Egypt to more traditional societies in oil-rich Persian Gulf countries has delayed the decline in fertility rates.
“As this study shows, the impact of migration on development goes well beyond the impact of remittances,“ said Maurice Schiff, Lead Economist and co-editor of the book. “Understanding these additional is essential for the design of effective migration policies and has acquired increased urgency at a time when many host countries are considering reforming their immigration policies.“
For the first time, strong evidence has been obtained that temporary migration abroad results in a large wage premium upon migrants’ return to their country of origin.
On average, migrants returning to Egypt earn about 38 percent more than non-migrants with similar profiles. This result lends support to policies favoring temporary overseas migration, which could also help prevent the so-called “brain drain“ in countries of origin.
Host country regulations can affect the type of migrants seeking entry in unexpected ways. Gibson and McKenzie’s study of migrants entering New Zealand shows that the host country policy of only allowing entry if migrants already have a job offer does not necessarily ensure entry of the best human capital.
Migrants with job offers in hand often get these jobs through the existing migrant network rather than based on their unique qualifications.

Local tax authorities in Beijing have decided to suspend the vehicle and vessel tax originally scheduled to begin July 1.
As reported by Xinhua.com, this move is remarkable because it displays the policymakers’ willingness to listen to public opinion. More important, it gives local tax authorities the opportunity to better align their policy with the national strategy of conserving energy and protecting the environment.
China began to enforce the Interim Regulations on Vehicle and Vessel Tax on January 1. The interim regulations replaced the vehicle and ship license plate tax and vehicle and vessel use tax collected for decades.
The Beijing municipal government spent half a year developing detailed rules on implementing the country’s interim regulations on vehicle and vessel tax. Yet, when recently released, the draft rules drew strong public opposition for raising the tax on all sedan cars from 200 yuan ($26) to 480 yuan ($63) a year.
The new vehicle and vessel tax was raised, according to the State Administration of Taxation, to help implement the State’s policies on energy saving and environmental protection.
As the nation accelerates its pace to go mobile, the growth in the number of privately owned vehicles has led to an increase in emission discharges and put heavy pressure on China’s energy supply and the environment.
A hike in the vehicle and vessel tax is highly recommended since it can help raise public awareness of the increasing environmental cost the country is paying.
Opposition by some car-owners to a hike in the vehicle tax might be dismissed as just a selfish reaction. But the suggestion by many people that small and energy-efficient cars should be taxed less than big oil-guzzling cars does justify serious consideration by tax authorities. A greener tax policy is needed to reward energy-saving consumers.
The country has drawn up a series of plans to raise energy efficiency and cut polluting emissions. The success of these plans, to a large extent, depends on aggressive local implementation.
The new vehicle and vessel tax may not be a big issue in terms of the amount of the tax, but local tax authorities can seize the chance to make taxation polices greener.

India has wasted three years debating a modest proposal for diverting some of its foreign reserves to plugging the country’s abysmal infrastructure deficit.
It’s only now when China is all set to carve out $200 billion from its reserves into a sovereign wealth fund that India is hastening to reach a decision on what to do with its own low-yielding cache.
According to Bloomberg.com, India urgently needs to boost investments in roads, ports, airports, power stations and railways. The latest official estimate puts the amount of funds required in these areas at a massive $475 billion over five years.
Those who oppose using reserves for infrastructure investments highlight two key risks: The economy may overheat because of additional domestic liquidity, and the country may lose hard-currency cover in the event of a run on the rupee. Neither of these arguments holds much water.
After four years of 8.5 percent compounded annual growth in gross domestic product, there is a danger that the economy is exhausting its productive capacity.

Supply Crunch
Bloated order books bear testimony to serious supply constraints. Bharat Heavy Electricals Ltd., India’s biggest maker of power equipment, has a three-year order backlog. Pakistan’s cement makers are hoping to benefit from a shortage of building materials in India.
All of this provides a perfect setting for spending a few billion dollars from foreign reserves to import turbines, railway coaches, port equipment and air-traffic control systems.
With adequate leverage, even $5 billion can have an amplified impact on a $1 trillion economy. India Infrastructure Finance Co., the special-purpose vehicle, can then have a significant corpus to provide credit lines to companies that will import capital goods.
So while spending foreign reserves at home may shore up domestic liquidity and inflation, utilizing the funds overseas will help the economy achieve a better balance between strong demand and tepid supply. At $65 billion, the annual trade deficit is both large and widening. However, that shouldn’t deter the country from accelerated machinery imports.
India’s basic balance of payments, or the sum of net exports of goods and services and foreign direct investment, is quite healthy. The minuscule $1.2 billion shortfall in the year ended March 31 was only a third as large as in the previous year.

Poor Returns
The Reserve Bank of India recently issued three-month treasury bills at a 7.2 percent yield to mop up some of the excess local liquidity created by its purchase of US dollars.
The central bank is buying dollars to stem the pace of appreciation in the currency, Asia’s second-best-performing this year after the Thai baht. However, it isn’t making much on the assets it’s acquiring with those dollars. In the year ended June 2006, the Reserve Bank earned 3.9 percent on its reserves.
The domestic economy promises significantly higher returns. NTPC Ltd., the country’s biggest power producer, sold a 10-year dollar bond last year, paying a coupon rate of about 5.9 percent.