Professor Viviane Ondoua Biwole:
Increase in pump prices is a timely measure but will increase the level of inflation
For the expert in governance issues, it would not be surprising if other sectors were affected in the future by the end of state subsidies.
It is obvious that the announcement of the increase in fuel prices is a shock for Cameroonian households and businesses. More than a shock, this is bad news whose impacts will degrade purchasing power, already sufficiently damaged by current inflation. In such circumstances, the debates are very passionate between those who are “for” and “against” the measure. This atmosphere should not deprive us of the need to analyze this decision, its appropriateness and the conditions for its success.
The objective of my speech is to start a conversation around the desirability of the fuel increase. Opportunity in view of the current situation and long-term prospects. Speaking of the economic situation, it escapes no one that the State is facing serious financial constraints and the rationalization of its expenses constitutes a significant lever. Likewise, due to this situation and its deployment initiated since the 2000s following the great economic crisis which lasted 20 years (1980-2000), it appears that the State has promised to reduce its intervention directly through subsidies to encourage production through energy, mining and road infrastructure. It is then clear that the State aims to change the paradigm of intervention by reducing subsidies in various sectors: public entity sector with the 2017 laws and gradually reducing the subsidy of fuel prices, among others. It would not be surprising if other sectors were affected in the future.
It then seems essential to me to assess the opportunity of reducing fuel subsidies (I), to place greater emphasis on the conditions of viability of this decision (II) and the risks of social and political pressure (III).
- The opportunity of the increase in fuel prices
You will have understood my bias: it is not a question of trying to find out how we got here [1] but how this decision can help to break the current impasse characterized by the scarcity of resources and a strong state debt. In this context, the decision of the Cameroonian authorities to reduce the subsidy of petroleum products and consequently to increase prices at the pump was taken in an unfavorable economic context despite the resilience of the Cameroonian economy.
Indeed, for several years Cameroon has been facing significant macroeconomic imbalances. For illustration, statistics from the International Monetary Fund (IMF) and confirmed by the National Institute of Statistics (INS) reveal that the level of inflation in Cameroon is 7.7% [2] in 2023. This level of inflation is among the highest worldwide. In addition, the level of public debt hovers around 42% of GDP although this level is down compared to 2022 (45%); it remains high. Finally, the overall deficit is around 0.7% and the primary deficit excluding oil at 2.5%. If we can recognize that these indicators are in decline, resulting from the reforms undertaken by the public authorities, it must nevertheless be admitted that the budget is under pressure from various subsidies including those for fuel. In 2022, for example, the amount of the subsidy amounted to more than 900 billion FCFA [3] .
However, the development imperative to which the government has assigned itself through SND30 requires significant creation of wealth and resources available in the short term. Because the 4% growth recorded by Cameroon in 2023, and the reforms on broadening the tax base would not be enough on their own to achieve the objectives of SND 30. Furthermore, the weight of subsidies, would not facilitate the authorities’ desire to fill the observed infrastructure deficit.
The objective of the reduction in the subsidy is therefore the creation of budgetary space. This budgetary space is supposed to allow the authorities to have their own resources. Thus, the present reform aims to mobilize resources of approximately 200 billion FCFA in gross. This mobilized resource is likely to be subject to reallocation towards investment budgets, thus allowing the development, modernization or completion of structuring projects. Following the tightening of monetary policies on a global scale, the mobilization of such a resource would have generated costs linked to debt services.
However, although timely, the negative effects of such a measure are immediate. For illustration, this increase in prices at the pump is likely to increase the level of inflation which itself is already located at 7.7%. Because we will inevitably see an increase in transport costs which will have an impact on the prices of food. Consequently, a gradual deterioration in purchasing power will be observed. Also, although this inflation will not be monetary, the central bank could be called upon, at best, to maintain the key rate, or at worst, to increase the latter in order to reduce inflationary pressures. Such a measure could contribute to credit rationing. Given the weight of the Cameroonian economy in CEMAC, this generated inflation could be contagious on a regional scale.
Are these harmful effects of rising prices at the pump enough to compromise the effectiveness of such a reform? We wish this were not the case. Hence the interest in establishing the conditions for the viability of this measure.
- Conditions for the sustainability of the fuel increase: governance and the fight against poverty
Two conditions appear to be essential levers for the decision analyzed here: the need for better governance and the fight against corruption.
Regarding governance, three important conditions seem to be necessary if we want to benefit from the increase in fuel prices.
First, it is important to clearly indicate what the resources that will be mobilized thanks to this decision will be used for. It is true that certain mitigation measures have been announced and will require a small part of the resources released; the majority must therefore be clearly oriented towards the expected infrastructure. It is then a matter of ensuring that the projects concerned are executed properly; which is not completely assured when we know what grievances are regularly noted: slowness in the execution of work leading to the increase in the cost of equipment, incompetence in the implementation of certain complex projects, weak control and a laxity unsuited to the demands of this nature.
Then, we must considerably reduce the state’s lifestyle. This is a problem that has been underway for more than 20 years and whose impact remains awaited. It is no longer possible to escape it. Some also rightly think that with the reduction of the State’s lifestyle we can free up margins allowing us to continue to subsidize fuel and invest in infrastructure. The proposal formulated here is to courageously carry out a systematic, strategic, operational and technical audit of public administration to reduce unnecessary expenditure. Let’s take a few examples: the newly created MINDDEVEL has 8 directorates, is this really necessary, when we know that an old ministry whose scope of competence is important like MINAT only has 5 directorates? Likewise, the ministry in charge of public procurement has inherited a new organizational chart since the last ministerial reshuffle, its missions have been refocused around programming and control but continues to operate with the old organizational chart and the directions whose relevance is no longer proven.
From this perspective, we could question the size of government and the tendency to create public companies or agencies whose operating costs and management methods do not always guarantee efficiency. We could also question the existence of decentralized regional structures of certain regulatory agencies (such as the ART). I ignore inefficient spending on materials (vehicles, fuel, committees, missions). This is also an opportunity to revise downwards the allocations of the common chapters (lines 94, 65, among others which represent 10% of the budget and which could be reduced to 5% or even 3%).
Finally, the urgency of properly implementing public policies so that the effect of the increase in fuel and the consequent resources released can have a positive impact. At this level, nothing is really guaranteed. Let us take the example of reforms in the public entity sector which, despite the resources (subsidies) mobilized and the improved legal framework, the poor performance of companies remains chronic with budgetary risks regularly recalled. Likewise, structuring projects are not always executed on time and to the required quality conditions. It is then obvious that Cameroon has problems with its operational governance. Above all, human capital management remains an undeniable point of vigilance.
Furthermore, it will be appropriate to insist on the requirements of transparency and accountability as guarantees of the success of this measure. It is at these prices that the Cameroonian authorities could wrest the trust of the people whose support is a condition of success.
Regarding the fight against corruption, the recent cases of Glencore, the management of COVID-19 funds and the CAN in addition to the denunciations contained in the CONAC report are not likely to reassure regarding the management of corruption. funds generated by this measure. These fears are accentuated by risks of social and political pressure.
- Risks of social and political pressure
Social and political pressures are inevitable.
In terms of social pressure, it is obvious that the increase in fuel prices will have perverse effects in the short term. It will cause an increase in inflation and a surge in transport and food prices, leading to a drop in household purchasing power. For businesses, we must also fear significant negative consequences. This will therefore result in inevitable social pressure and vulnerabilities among poor and modest households. It is a context whose management will require constant monitoring on the ground to at least deal with urgent situations of various natures. The wives will then be asked to play an important role due to their local proximity. At the same time, regular communication regarding achievements and real hopes should serve as a lever to support this difficult period. We can already imagine consultations with the various local stakeholders and various corporations to identify the essential mitigation and calming measures.
Regarding political pressure, it is very real because the measure comes on the eve of the electoral year with the risk of diversion of saved resources towards electoral activities without real economic impact. Exceptional recruitments or social benefits of various kinds attributed to communities could prove to be economically unproductive. Likewise, to appease demands during this electoral period, the authorities would be tempted to allocate the resources generated by the measure of the reduction in subsidies to the resolution of social problems like the discontent of teachers to the detriment of the financing of infrastructure. We must therefore fear that the good intentions fueled by the increase in fuel prices will not be able to resist the electoral temptation and the satisfaction of social needs not directly linked to purely economic concerns.
More generally, in this context, the increase in fuel prices will have positive effects in the long term if and only if the discipline required by this type of decision is well respected. Thus, much more than in the past, we will need more assertive political leadership and managerial rigor that meets the challenges. This requires a fundamental review of the mode of governance, allocation of responsibilities and choice of investments. Two points of vigilance are required: limit debt and invest in structuring projects (energy and road infrastructure).
To conclude my point, the choice of increasing fuel prices is appropriate given the current conditions where the Government is at an impasse. However, this opportunity will only be viable if the conditions mentioned above are met and if the risks of social and political pressure are well contained. This is the minimum required, unfortunately, in the past, recent reports published on the management of funds in the face of crises reveal that efficiency has not always been ensured; which is likely to dampen the enthusiasm of the proclaimed opportunity.
Source: www.vivianeondouabiwole.com