construction of current and capital accounts of economic agents, along the lines of the prototype IMMPA framework (Agénor, Izquierdo and Fofack [2003]).

Cameroon reversed the trend of negative growth rates in 1995 when, at about 3%, GDP growth was positive for the first time in over 10 years (World Bank [1996]). The growth process continued in most of the second half of the 1990s. Between 1995 and 2001, Cameroon achieved average growth rates of about 4.7% (IMF [2002]). Annex I provides a summary of key economic and social indicators between 1981 and 2001. These indicators emphasize most notably national income growth, fiscal and external accounts. Despite the resumption of positive growth rates, Cameroon continues to face difficulties in its attempts to curb rising unemployment and poverty. Poverty remains widespread and unemployment has been growing with a rising trend: the latest estimates from government officials indicate an average unemployment rate of 17% by end-2001, representing a 13% increase since 1993 (Bamou [2002]).

Under this unfavorable trend in welfare, attaining the government’s objective of halving unemployment by 2010 may appear as a serious challenge, especially given the structure of the economy, which during the post-devaluation growth period has been skewed. Indeed, the post-devaluation growth period of the second half of the 1990s was largely driven by agricultural production and services. These sectors have low prospects for employment creation in the Cameroonian context, where subsistence agriculture, characterized by sizable home consumption of own production and an extremely low forward linkages index, continues to account for most of the rural production. This apparent trend in the growth process, with a shift toward primary and tertiary sector production and a decline in the secondary sector’s contribution is not consistent with the government’s poverty reduction strategy, which emphasizes industrial production as the engine of growth and employment creation (Cameroon [2003] and World Bank [2000a]).<sup>22</sup> The vulnerability of the Cameroonian economy, and particularly its external position, is further exacerbated by the fact that exports have remained concentrated in few commodities. Since 1995, timber, coffee, cocoa and oil exports have consistently accounted for over 73% of total export revenues, on average. In the absence of further diversification, negative terms of trade shocks from declines in commodity prices and/or falling volume of production could have devastating effects on growth and poverty, even with Cameroon’s access to relief under the HIPC initiative. Under these conditions, and in light of the consistently declining trade surplus observed during most of the post-devaluation growth period, it is highly likely that Cameroon will continue to rely on external financing.<sup>23</sup> In particular, the projections indicate that the net present value of total debt after assistance under the enhanced HIPC Initiative will remain high, with debt service-to-government-revenue ratio falling below 100 percent only after the year 2007, notwithstanding the declining trend (World Bank [2000b]).<sup>24</sup> The architecture of the proposed financial SAM emphasizes the external sector and real and

> 22 Between 1990 and 2000, the contribution of the secondary sector to aggregate output and GDP declined by 34%; it now represent about 21% of GDP, from 32% 10 years ago. At the same time, the contribution of the tertiary sector increased by 21.1%, from 46.9 to over 56.8%, owing mainly to the growing share of informal sector activities.

> 23 Since 1995, the trade surplus recorded in the post-devaluation export boom has been declining, and between 1995 and 2000, it fell to US$161.7 million from over US$667.2 million (Cameroon, DSCN [2000]).

> 24 The projections indicate that the net present value of total debt after assistance under the enhanced HIPC will decrease from about US$3.5 billion to US$2.7 billion between 2003 and 2008. During the same period, debt service-togovernment-revenue ratio will decrease from about 147% to 80%.

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