Interview: Finance minister explains fuel subsidy cuts

First, it was the turn of Issa Tchiroma, Communications Minister. Now it appears to be that of Alamine Ousmane Mey, Finance Minister. Over the weekend, the minister made rounds to media houses essentially trying to explain to Cameroonians why they should not go on rampage after the regime reduced fuel subsidies and hiked prices of petroleum products.

Ousmane Mey, in interviews with state-run CRTV Radio English language magazine programme - Cameroon Calling and Cameroon Tribune, explained why it was necessary at this time for the gov’t to take off the subsidies which it has maintained for years in spite of pressure from the IMF and how the 5% pay raise for civil servants and the military should compensate for the rise in prices.

Read the full interview.

Mr. Minister, when will civil servants see the increase in their monthly salary following the presidential decree signed Monday?

We first of all have to be satisfied with this presidential decision that came through the decree of July 7, 2014 on the increase of the basic monthly salaries of civil servants and soldiers. This very great decision of the Head of State is a follow-up of the measures which were announced in the recent government communiqué during the readjustment of fuel prices in filling stations and of domestic gas of June 30. The accompanying measures as spelt out in the communiqué take effect as from July 1, 2014. Which simply means that when civil servants receive salaries at the end of this month of July, they will realize the increase - an increase of 5% of the basic salary.

The mass salary of the state will be a little heavier. How much was it and how much will it go up to on monthly basis?

I will use a term that truly corresponds to the situation. To say this will render the mass salary heavier would mean that we are not able to bear the burden. Rather, we will bear it very well for it was a decision that was taken by the head of state after considering the budgetary sustainability of our public treasury. Evidently, the 5% corresponds to an increase in absolute value of the mass salary on a year of 30 billion FCFA. Since the application of the presidential decree takes effect as from the month of July, it means making this presidential measure felt in the remaining semester. This will give rise to an increase of the mass salary by 15 billion FCFA, that is, half of 30 billion FCFA. When divided by the six remaining months of the year, this 15 billion FCFA reflects a minimum increase of 2.5 billion FCFA of the mass salary on a monthly basis.

It should be said here that it is a measure that somehow regularizes the situation of civil servants…with a well-structured and balanced adequacy between the new policy on fuel prices at filling stations and the level of the purchasing power of civil servants, while staying within the limits of the 2014 budget. We have to dip our hands into budget posts that could be saved for the increase to be realized, which increase is linked to the presidential decree which brought about an augmentation of the mass salary of 30 billion FCFA.

The head of state also signed an ordinance reducing the special tax on petroleum products and some taxes paid by public transporters. What deficit will this cause in relation to the income expected?

Globally, for the remaining period, it can be estimated according to the simulations that were done, that at the levels of the state and of decentralized territorial collectivities, there will be a deficit of close to 20 billion FCFA. That is, 15 billion FCFA at the level of the special tax on petroleum products and about 5 billion FCFA for the other operations. The 15 billion FCFA will require an increased effort at the level of the collection of fiscal revenue, and this is already being done since the beginning of the year.

Proof is that the performances of fiscal and customs administrations show a rate of 114% in relation to the assigned objectives. This means that a margin of maneuver at the level of the public treasury is available in order to catch up with what the state loses in the new policy.

All of this causes us to say that the management of public expenditure will be supervised more so that the margins of maneuver can be cleared and reallocated as decided by the head of state through different texts signed on July 7.

When we hear you speak, we have the feeling that allegations about tension in the treasury are not founded…?

We are focusing essentially on the realization of the budgetary objectives that have been decided for our country. We have begun reforms which are bearing fruit and which can go further if the investment level is improved.

This is the aim of the measures taken and the presidential instructions, that is, speed up the realization of big projects which will improve the investment framework and the creation of companies and riches. And it is those riches that can be better redistributed to workers globally such that they can see their purchasing power increase.

Everything has to do with the increase of our resources through the improvement of the fiscal dish, a vigorous fight against fraud and fiscal flight…

We take note that you intend to raise the level of economic performance so as to finance new projects. What areas of waste do you plan to address?

It is not necessarily a question of waste, but of priority which we should have in mind. Where we estimate that there can be efficiency and efficacy without engaging much state resources, we will try to bring back these resources as much as possible.

It should be said that the structural reform started since the application of the new financial regime of the state which resulted in the programme budget facilitates a better follow-up, a better evaluation of performances and a better allocation of resources. Like in all management, we can notice that there are excesses at certain levels. In this case, they need to be quickly corrected and budgetary discipline installed in a sustainable manner.

We think that this is already being put in place. The adhesion of the population to these new instruments of managing public finances deserves follow-up so that the desired goal, that is, the improvement of the living conditions of the population, can be a reality.

But Mr. Minister, what motivated the fuel price increase?

Cameroon is still continuing to subsidise fuel prices. People should not have the impression that the subsidy will be cancelled. There is a kind of adjustment at the level of the grant for subsidies which is given for fuel.

Why! Over the last six years, more than 1200 billion FCFA was spent to support price at the level of the national market which is to say that for a comparison purpose, roughly 36% of our budget for 2014 was allocated for fuel subsidies over this period. We also want to say that 120% of this year’s term of investment which stands at 1000 billion was being allocated to subsidies.

We can also compare these levels of subsidies to major investment which are ongoing in Cameroon. When we talk of energy, this is money which will have financed hydro-electricity power dams, similar to the one in Lom Pangar or manage dams, to improve our production of electricity. This is also an amount that could have contributed to the construction of five to six reference hospitals. Our country needed to readjust its policy, regarding certain activities.

It is something which is taking place all over the world, but the limit is where sustainability is ensured and that there are no projects which are definitely disqualified because of allocation of resources. This is going to happen if we continue in that sense. The reason why it is important that collective manner, in solidarity, all the stakeholders should contribute to supporting the prices of fuel.

We do believe that the consumer, the state and the marketers, SONARA Company, all those at the Douala Port, and others in this process should contribute in reducing the burden on the state budget which is going to open more possibilities for our country to realise some major investments, which are highly needed for the development of our nation.

Can we say government’s decision to increase fuel prices is some kind of bowing to mounting pressure from the IMF, which since 2008, has been on government’s neck to stop subsidizing fuel?

Cameroon is sovereign state and its sovereignty is expressed here in Yaounde and not in Washington DC. Cameroon is in a very good relationship with the International Monetary Fund (IMF), but it is not IMF which is giving instructions in terms of what to do and how to do it.

We highly- appreciate their comments and recommendations over the situation. But ultimately, it’s Cameroon, through the head of state and population who decide what to do. This is to tell you that it is a decision taken by the government and at the highest level.

Since 2008, prices of oil were frozen. Since that period, we have been subsidising health, education and other activities which is normal. The IMF will not support but they know the case of fuel, it’s just a matter of time and impact. If our budget is capable of doing what we want to do without jeopardising development process, then we are doing what we want to do based on the decision of the population.

We are not in a relation with the IMF in terms of programme, which could have been a reason to set conditionality. We don’t have it with them! It is based on Article 4 of the IMF status that we receive them on mission to access, evaluate and give us their recommendations, without giving us instruction on what to do. When you go to a doctor for checkup, it is up to you to decide what to do with the result.

Cameroon has decided to maintain its policy because it is important to the population. Cameroon has decided to adjust it because it important to take care of today and the future. The future is about investing for the development of our nation. We want to speed up our growth process. It is through investment and we have to realise first on the basis of our own resources. These resources we can collect them where there are not properly allocated. And one of the sectors is the oil sector which is going to see it level of subsidies reduced and we are going to allocate this money to other areas where it will be more efficient for development.

In May, the World Bank predicted that Cameroon was going to suffer a budget deficit of 5.5% this year and that in2015 it is going to worsen by 7.5%. Are you doing this to fill up the budgetary gap? Is there a gap in the budget?

A deficit in GDP of 5.5% is not a problem if your deficit is used toward investment. A deficit means the resources at your disposal are not sufficient to cover all your expenditure. We need to raise additional resources from elsewhere to fill the deficit. If it’s about investment, then there is no problem. It only becomes a critical issue if it concerns consumption.

This is the first point. One of the major expenditures that would contribute to this deficit as you have raised is fuel price subsidies. And it is important that these resources are allocated to investment rather than consumption.

That is why we have been analysing the situation over six years and we have come to the situation where it is important due to the size of this subsidy to address the question differently, not that we are cancelling it but we will do it in such a way that what will contribute to subsidies to a limit that is reasonable and the surplus amount will help us realise important investment as we look forward to do.

How much money is government going to raise from these price hikes?

We hope to raise on a yearly bases around 100billionFCFA which is to say the state will continue to support the sector in terms of subsidies. But 160 billionFCFA will permit our country to realise many activities in terms of investment. And it will also permit one of our important components not to be in a situation where certain amount will go to SONARA, impacting negatively our treasury. This is the major aspect that will ease the supply of fuel in our markets in the years to come.

Mr. Minister, Cameroonians are just surprised that the measure was taken without informing, educating and sensitising them. Was it not normal for government to have dialogued with trade unions before taking such a decision?

We have been in contact with different stakeholders, civil societies and the trade unions for years. Whenever we had a mission with the IMF, World Bank, African Development Bank and other partners, we always share out information through press conferences and seminars.

We even went further to look for experiences around Nigeria, Ivory Coast, and Senegal etc... We sampled all this information to make up our mind instead of taking a decision without making the necessary analyses. We were in total collaboration and discussion with the different stakeholders.

We are saying that this process will continue because dialogue is essential to the government and you may know that the Minister of Labour and Social Security is discussing with the different trade union workers and will continue. We took this decision to discuss because it is only through dialogue that one can understand what is expected from the population and for them to understand the rationale behind the policy of the government.

There are some leakages in the state budget that one would have expected the government to concentrate on. For example, how much does the state spend on free fuel coupons to ministers like you?

Before answering, the government is taking the necessary measures of looking into its expenditure to reduce the size in order to address the issue of fuel subsidies.

When you look at the measures that have been taken, the reduction of the special tax on petroleum products from 120 to 50 FCFA, it means that the government is not going to receive 40 FCFA per litre on this cost. Secondly, SONARA as well SCDP and Port Autonomme de Douala which are receiving part of the money through the structure of the cost will no longer receive it.

SONARA will lose around 10 billion FCFA, SCDP and the marketers will also loss the same amount. So it means that all stakeholders involve in the process are contributing. To come to your question on facilities offered to ministers by the state, I will say that the spirit of the reform which started since 2007 is to make sure that our public finance is managed properly and efficiently.

Efficiently to see that the resources which are allocated should be based on the programme, no more on the situation we knew in the past that led to the consumption of resources without impact. This is the reform which is taking place and it will help to reduce the losses and reduce expenditure without any impact on our economy. We hope that it will help the country to move boldly and faster than what is happening today and for it to become an emergent country by 2035.