THE IMPACT OF FISCAL POLICY ON THE ECONOMIC GROWTH OF CAMEROON
Abstract
Cameroon has experienced periods of economic growth and decline. During the growth period, public expenditures increased the size of the public sector. The decline period, which started in 1986, has been characterized by government expenditures that outstripped revenues. The government’s recovery programme has meant drastic reduction in public expenditures and desperate efforts to raise revenue. Since the programme started, Cameroon’s key macroeconomic indicators of performance have continued to show adverse trends.
This study analyses the relationship between private and public investment, stressing the crowding in or crowding out of private investment by public expenditures. Based on secondary data from the public sector, the results show that relevant factors have a positive effect on growth. The study concludes by recommending the reallocation of more resources to productive sectors and increasing and sustaining of spending on those productive sectors or those components of public expenditure that crowd in the private sector.
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Introduction
The study is structured in to five chapters: Chapter one is an introductory part covering the background of the study, statement of the problem, research objective, research questions, research hypothesis, and significance of the study, scope of the study and operational definition of terms. Chapter two concerns literature review of the study that is conceptual frame work on economic growth which includes the study of what other researchers have written in line with my topic, the theoretic and empirical literature. Chapter three is research design, population, area of study, sampling size, sampling procedures, and instruments of data collection and methods of data analysis. Chapter four is concerned with data analysis and presentation of data. Chapter five is concerned with discussion of findings, conclusions and recommendations. The background of the study aims to provide a comprehensive overview of the effect of fiscal policy on the economic growth of Cameroon, and potential policy implications.
1.2 Background of the Study
In every economy, the government major source of revenue is Tax and all the money gotten from there, is channelled to provide both social and economic infrastructure which includes; electricity, schools, pipe borne water, good roads, reduction in poverty rate to promote economic growth and development, the duty of funding these huge task is the major difficulties confronting the government. Several countries illustrate the role of fiscal policies in changing the pattern of growth. In china, the government mobilized public resources for massive investments- large dams, power generation systems etc. but it has been less successful in providing basic social services to rural and poor regions.
The country’s public spending on physical infrastructure has been among the highest in the world, which is good for growth. But the share of spending on education and health has been among the lowest. China is now reforming its transfers and subsidies (including cutting value added tax refunds to resourcing intensive exports) to promote more balanced growth (Hofman and Kuijs 2007). Subsidies to the state owned enterprises have been reduced and preferential taxes treatment to foreign investors was reformed and eliminated in 2008 (Wang 2007).
China system is still in the transition process, moving from planning model of financial industrialization to the market model of providing public goods and services, its fiscal stance has improved since the tax reform of 1994, with the fiscal envelope reaching nearly 25% of GDP ( Lopez and miller 2007a), including extra budgetary funds. Fiscal disparities among subnational government are large. The richest province has than eight times the per capita spending of the poorest provinces and the richest country has about 48 times more per capita spending than the poorest.
Investigating government expenditure in Africa, fiscal resources have increased since the heavily indebted countries initiative in the mid-1990s, and public spending in education, health, and water sanitation rose significantly, which improved development indicators, many challenges remain, however.
Government revenue as a share of GDP has remained flat for decades in each of the countries, art about 10-14% of GDP, despite several attempts to strengthen tax administrations. Revenue collection in other low income countries it is 330-40% of GDP. Low revenue collection constrains the government’s developmental role in improving the quality of life (Nallari 2007).
In Ghana, public spending on infrastructure construction has increased since the early 1990s, facilitating trade, growth, and informal sector development, access to electricity rose from 30% in 1991 to 50% by 2006, nut only 10% of the electricity subsidies reached the poor. About 20% of the poor now have access to electricity, far less than the 56% for the non-poor.
Poor related public spending has been high, at about 6% of GDP since 1992 (Lopez and Miller2007), but the pattern of public spending is heavily oriented toward the wage bill. Government employment is large, and wage awards to the public sector are frequent and large, especially around the time of elections. This pattern of government spending did not benefit the poor as much as it could have (Nallari 2007).
In Cameroon, in 1986, sustained a very high economic growth rate partly because of its rich diverse agricultural base coupled with petroleum production. The average annual growth rate of the gross domestic product (GDP). This permitted the country to maintain a high level of per capita income despite the high population growth rate. Cameroon was then classified as a middle income country.
However, since 1986 almost all the key economic indicators have been declining mainly due to the collapse of world commodity prices and internal (structural) problems. The major weaknesses of the economy of Cameroon were exposed, as the budget deficit increased despite many steps to reduce public expenditures with the hope of increasing revenue and reducing deficits.
These efforts seemed to yield few positive results, partly because there has been no serious attempt at systematically controlling the budget and using fiscal policy to promote sustained economic growth. Also, there seems to have been no attempt to examine the relationship between government spending and economic growth, so as to give better input for policy making, and there is lack of rigorous analysis as input into public decision-making processes.
The main purpose of this study is to examine the effects public spending and private investment as well as the effects of total investment on growth. The period 1960—1977 was characterized by high economic growth, with agriculture being the principal source of growth. Agriculture accounted for a yearly average of 34% of GDP (Amin, 1996), although agricultural output growth was mainly from land area expansion.
The discovery of offshore oil in 1975 produced a new primary export commodity by the late 1970s. And for the period 1978—1985, the high economic growth rate was sustained by oil, with agriculture’s share in GDP declining to less than 28% in the late 1970s and oil shooting to 17% of GDP (Amin,1996). For the period 1980—1985, in real terms, the economy grew at a rate of 8% propelled by the oil sector, with oil export reaching about two-thirds of the total exports by 1984. The investment growth rate was 7%, export was 16% and consumption was 3.3% (Amin 1989, 1991), and Cameroon had a high per capita income. This performance was maintained by Cameroon’s credit-worthiness and credibility abroad. (Based on IMF data)
The export growth of 1973 – 2022 provided Cameroon with considerable resources including an oil windfall that was partly kept out of the state budget. The huge foreign earnings greatly affected both domestic and external accounts. Since foreign reserve balances were increased it was easier to buy more imports, and also to increase foreign tax revenue. The oil boom helped the government to constantly run surpluses with foreign borrowing.
The government heavily depended on oil revenue without explicitly showing so since some oil revenue was spent from extra budgetary account. Although expenditures increased sharply, some financing expenditures were channelled through newly created public company subsidies, and transfers increased significantly with government financing some new investment projects. In 1986, the drop in export prices led by oil had serious negative effect on the economy. These terms of trade shocks coupled with a decline in oil production sharply reduced foreign exchange earnings. (Tshibaka (1996)).
The situation worsened by the appreciation of Cameroons real exchange rate, mainly because of the depreciation of the U.S dollar. Cameroons foreign exchange earnings were drastically reduced and the decline had great impact on the state budget. Budgetary revenues fell sharply while there were increases in public expenditures.
The budget deficit was therefore inevitable, and from 1986, Cameroon’s economy declined into a deep economic crisis. The structural problems including crisis in the public finance and overgrowth of public expenditures seemed to have aggravated the economic situation. In response to these structural problems, Cameroon signed a stand-by arrangement with the (International Monetary Fund (IMF) in September 1988) and a structural adjustment loan in June 1989. The structural adjustment programme (SAP) was to address the country’s structural problems and external shocks. The economy did not greatly improve despite reduction in public expenditure, restructuring and liquidation of some public companies and some institutional reforms.
Cameroon not only started spending foreign reserves but also began accumulating arrears to both internal and external creditors. At the same time the government started cutting back on expenditures. Initially the expenditure cut-back seemed mostly to affect public investment projects and the private sector, but it later cumulated into current expenditure cuts including civil servants’ salaries.
1.3 Statement of the Problem
In trying to reduce public expenditures, the Cameroon government started privatizing and liquidating some public companies that were absorbing public subventions or resources. There were across-the-board budgetary cuts including sharp salary cuts. The Cameroon currency (the CFA franc) was devalued, which triggered a series of price increases.
These measures on macroeconomic aggregate have not been analysed. Yet it is important to look at the periods of growth and decline, particularly the effects of the composition of expenditures on some macroeconomic aggregates, which may tell us what could properly be done.
The current economic programme is mainly of a fiscal nature of Cameroon’s current structural adjustment and stabilization programme, and fiscal policy is directly linked with macroeconomic aggregates. It is important for policy implications to see if there is a trade-off between cuts in government expenditures and deterioration in some sectors of the economy; for example, cuts in public infrastructure could have adverse growth effects.
More so as cuts are carried out across the board, it is important to have insight into which expenditures should be maintained and sustained and which components could be more severely affected and if possible by how much. Furthermore, by decomposing public expenditures into different components and examining their performance, we are able to gain better insight into the role of government in the process of growth.
1.4 Research Question
1.4.1 Main Research Question
What is the impact of fiscal policy on the economic growth of Cameroon?
1.4.2 Specific Questions
- How does total government expenditure affect the economic growth of Cameroon?
- How does private and public investment affect the economic growth of Cameroon?
Check out: Economics Project Topics with Materials
Project Details | |
Department | Economics |
Project ID | ECON0053 |
Price | Cameroonian: 5000 Frs |
International: $15 | |
No of pages | 51 |
Methodology | Descriptive |
Reference | yes |
Format | MS word & PDF |
Chapters | 1-5 |
Extra Content | table of content, questionnaire |
This is a premium project material, to get the complete research project make payment of 5,000FRS (for Cameroonian base clients) and $15 for international base clients. See details on payment page
NB: It’s advisable to contact us before making any form of payment
Our Fair use policy
Using our service is LEGAL and IS NOT prohibited by any university/college policies. For more details click here
We’ve been providing support to students, helping them make the most out of their academics, since 2014. The custom academic work that we provide is a powerful tool that will facilitate and boost your coursework, grades, and examination results. Professionalism is at the core of our dealings with clients.
For more project materials and info!
Contact us here
OR
Click on the WhatsApp Button at the bottom left
Email: info@project-house.net
THE IMPACT OF FISCAL POLICY ON THE ECONOMIC GROWTH OF CAMEROON
Project Details | |
Department | Economics |
Project ID | ECON0053 |
Price | Cameroonian: 5000 Frs |
International: $15 | |
No of pages | 51 |
Methodology | Descriptive |
Reference | yes |
Format | MS word & PDF |
Chapters | 1-5 |
Extra Content | table of content, questionnaire |
Abstract
Cameroon has experienced periods of economic growth and decline. During the growth period, public expenditures increased the size of the public sector. The decline period, which started in 1986, has been characterized by government expenditures that outstripped revenues. The government’s recovery programme has meant drastic reduction in public expenditures and desperate efforts to raise revenue. Since the programme started, Cameroon’s key macroeconomic indicators of performance have continued to show adverse trends.
This study analyses the relationship between private and public investment, stressing the crowding in or crowding out of private investment by public expenditures. Based on secondary data from the public sector, the results show that relevant factors have a positive effect on growth. The study concludes by recommending the reallocation of more resources to productive sectors and increasing and sustaining of spending on those productive sectors or those components of public expenditure that crowd in the private sector.
CHAPTER ONE
GENERAL INTRODUCTION
1.1 Introduction
The study is structured in to five chapters: Chapter one is an introductory part covering the background of the study, statement of the problem, research objective, research questions, research hypothesis, and significance of the study, scope of the study and operational definition of terms. Chapter two concerns literature review of the study that is conceptual frame work on economic growth which includes the study of what other researchers have written in line with my topic, the theoretic and empirical literature. Chapter three is research design, population, area of study, sampling size, sampling procedures, and instruments of data collection and methods of data analysis. Chapter four is concerned with data analysis and presentation of data. Chapter five is concerned with discussion of findings, conclusions and recommendations. The background of the study aims to provide a comprehensive overview of the effect of fiscal policy on the economic growth of Cameroon, and potential policy implications.
1.2 Background of the Study
In every economy, the government major source of revenue is Tax and all the money gotten from there, is channelled to provide both social and economic infrastructure which includes; electricity, schools, pipe borne water, good roads, reduction in poverty rate to promote economic growth and development, the duty of funding these huge task is the major difficulties confronting the government. Several countries illustrate the role of fiscal policies in changing the pattern of growth. In china, the government mobilized public resources for massive investments- large dams, power generation systems etc. but it has been less successful in providing basic social services to rural and poor regions.
The country’s public spending on physical infrastructure has been among the highest in the world, which is good for growth. But the share of spending on education and health has been among the lowest. China is now reforming its transfers and subsidies (including cutting value added tax refunds to resourcing intensive exports) to promote more balanced growth (Hofman and Kuijs 2007). Subsidies to the state owned enterprises have been reduced and preferential taxes treatment to foreign investors was reformed and eliminated in 2008 (Wang 2007).
China system is still in the transition process, moving from planning model of financial industrialization to the market model of providing public goods and services, its fiscal stance has improved since the tax reform of 1994, with the fiscal envelope reaching nearly 25% of GDP ( Lopez and miller 2007a), including extra budgetary funds. Fiscal disparities among subnational government are large. The richest province has than eight times the per capita spending of the poorest provinces and the richest country has about 48 times more per capita spending than the poorest.
Investigating government expenditure in Africa, fiscal resources have increased since the heavily indebted countries initiative in the mid-1990s, and public spending in education, health, and water sanitation rose significantly, which improved development indicators, many challenges remain, however.
Government revenue as a share of GDP has remained flat for decades in each of the countries, art about 10-14% of GDP, despite several attempts to strengthen tax administrations. Revenue collection in other low income countries it is 330-40% of GDP. Low revenue collection constrains the government’s developmental role in improving the quality of life (Nallari 2007).
In Ghana, public spending on infrastructure construction has increased since the early 1990s, facilitating trade, growth, and informal sector development, access to electricity rose from 30% in 1991 to 50% by 2006, nut only 10% of the electricity subsidies reached the poor. About 20% of the poor now have access to electricity, far less than the 56% for the non-poor.
Poor related public spending has been high, at about 6% of GDP since 1992 (Lopez and Miller2007), but the pattern of public spending is heavily oriented toward the wage bill. Government employment is large, and wage awards to the public sector are frequent and large, especially around the time of elections. This pattern of government spending did not benefit the poor as much as it could have (Nallari 2007).
In Cameroon, in 1986, sustained a very high economic growth rate partly because of its rich diverse agricultural base coupled with petroleum production. The average annual growth rate of the gross domestic product (GDP). This permitted the country to maintain a high level of per capita income despite the high population growth rate. Cameroon was then classified as a middle income country.
However, since 1986 almost all the key economic indicators have been declining mainly due to the collapse of world commodity prices and internal (structural) problems. The major weaknesses of the economy of Cameroon were exposed, as the budget deficit increased despite many steps to reduce public expenditures with the hope of increasing revenue and reducing deficits.
These efforts seemed to yield few positive results, partly because there has been no serious attempt at systematically controlling the budget and using fiscal policy to promote sustained economic growth. Also, there seems to have been no attempt to examine the relationship between government spending and economic growth, so as to give better input for policy making, and there is lack of rigorous analysis as input into public decision-making processes.
The main purpose of this study is to examine the effects public spending and private investment as well as the effects of total investment on growth. The period 1960—1977 was characterized by high economic growth, with agriculture being the principal source of growth. Agriculture accounted for a yearly average of 34% of GDP (Amin, 1996), although agricultural output growth was mainly from land area expansion.
The discovery of offshore oil in 1975 produced a new primary export commodity by the late 1970s. And for the period 1978—1985, the high economic growth rate was sustained by oil, with agriculture’s share in GDP declining to less than 28% in the late 1970s and oil shooting to 17% of GDP (Amin,1996). For the period 1980—1985, in real terms, the economy grew at a rate of 8% propelled by the oil sector, with oil export reaching about two-thirds of the total exports by 1984. The investment growth rate was 7%, export was 16% and consumption was 3.3% (Amin 1989, 1991), and Cameroon had a high per capita income. This performance was maintained by Cameroon’s credit-worthiness and credibility abroad. (Based on IMF data)
The export growth of 1973 – 2022 provided Cameroon with considerable resources including an oil windfall that was partly kept out of the state budget. The huge foreign earnings greatly affected both domestic and external accounts. Since foreign reserve balances were increased it was easier to buy more imports, and also to increase foreign tax revenue. The oil boom helped the government to constantly run surpluses with foreign borrowing.
The government heavily depended on oil revenue without explicitly showing so since some oil revenue was spent from extra budgetary account. Although expenditures increased sharply, some financing expenditures were channelled through newly created public company subsidies, and transfers increased significantly with government financing some new investment projects. In 1986, the drop in export prices led by oil had serious negative effect on the economy. These terms of trade shocks coupled with a decline in oil production sharply reduced foreign exchange earnings. (Tshibaka (1996)).
The situation worsened by the appreciation of Cameroons real exchange rate, mainly because of the depreciation of the U.S dollar. Cameroons foreign exchange earnings were drastically reduced and the decline had great impact on the state budget. Budgetary revenues fell sharply while there were increases in public expenditures.
The budget deficit was therefore inevitable, and from 1986, Cameroon’s economy declined into a deep economic crisis. The structural problems including crisis in the public finance and overgrowth of public expenditures seemed to have aggravated the economic situation. In response to these structural problems, Cameroon signed a stand-by arrangement with the (International Monetary Fund (IMF) in September 1988) and a structural adjustment loan in June 1989. The structural adjustment programme (SAP) was to address the country’s structural problems and external shocks. The economy did not greatly improve despite reduction in public expenditure, restructuring and liquidation of some public companies and some institutional reforms.
Cameroon not only started spending foreign reserves but also began accumulating arrears to both internal and external creditors. At the same time the government started cutting back on expenditures. Initially the expenditure cut-back seemed mostly to affect public investment projects and the private sector, but it later cumulated into current expenditure cuts including civil servants’ salaries.
1.3 Statement of the Problem
In trying to reduce public expenditures, the Cameroon government started privatizing and liquidating some public companies that were absorbing public subventions or resources. There were across-the-board budgetary cuts including sharp salary cuts. The Cameroon currency (the CFA franc) was devalued, which triggered a series of price increases.
These measures on macroeconomic aggregate have not been analysed. Yet it is important to look at the periods of growth and decline, particularly the effects of the composition of expenditures on some macroeconomic aggregates, which may tell us what could properly be done.
The current economic programme is mainly of a fiscal nature of Cameroon’s current structural adjustment and stabilization programme, and fiscal policy is directly linked with macroeconomic aggregates. It is important for policy implications to see if there is a trade-off between cuts in government expenditures and deterioration in some sectors of the economy; for example, cuts in public infrastructure could have adverse growth effects.
More so as cuts are carried out across the board, it is important to have insight into which expenditures should be maintained and sustained and which components could be more severely affected and if possible by how much. Furthermore, by decomposing public expenditures into different components and examining their performance, we are able to gain better insight into the role of government in the process of growth.
1.4 Research Question
1.4.1 Main Research Question
What is the impact of fiscal policy on the economic growth of Cameroon?
1.4.2 Specific Questions
- How does total government expenditure affect the economic growth of Cameroon?
- How does private and public investment affect the economic growth of Cameroon?
Check out: Economics Project Topics with Materials
This is a premium project material, to get the complete research project make payment of 5,000FRS (for Cameroonian base clients) and $15 for international base clients. See details on payment page
NB: It’s advisable to contact us before making any form of payment
Our Fair use policy
Using our service is LEGAL and IS NOT prohibited by any university/college policies. For more details click here
We’ve been providing support to students, helping them make the most out of their academics, since 2014. The custom academic work that we provide is a powerful tool that will facilitate and boost your coursework, grades, and examination results. Professionalism is at the core of our dealings with clients.
For more project materials and info!
Contact us here
OR
Click on the WhatsApp Button at the bottom left
Email: info@project-house.net