incidence. It also exhibits a number of structural rigidities, including credit rationing. Section III provides a detailed discussion of the architecture of the Cameroonian financial SAM, following the IMMPA analytical framework and structure. Section IV gives an overview of a financial SAM-based methodology for inference under fixed-prices multipliers assumptions. Section V focuses on intra- and inter-sectoral linkages analysis using fixed-prices multipliers, and simulations of policy experiments assessing the income and growth effects of increased public investment. Section VI provides some concluding remarks.

# **II. Some Key Features and Characteristics of the Cameroonian Economy**

In addition to its PRSP status and the scope of its external debt, which provided the basis for its eligibility to relief under the Enhanced HIPC initiative, the Cameroonian economy exhibited a number of structural features and distortions in the 1980s and most of the 1990s. These features, most of which are of special interest to macroeconomist modelers and development economists, include: labor market segmentation and growing size of informal sector employment, chronic fiscal deficits, unsustainable external debt and accumulation of arrears, and persistence of urban-rural bias in the scope of poverty.<sup>8</sup> The accumulation of sizable amount of arrears to private suppliers by the government is believed to have compounded and exacerbated the massive accumulation of nonperforming loans in the banking sector. Though a wide range of economic reforms were initiated in the late 1990s, notably in the area of banking and finance, public expenditure management and debt, macroeconomic stability remains at the core of the government’s policy agenda, and will continue to be so in the post-HIPC era.

In the past, some of these structural features were singled out to partly explain the relatively poor performance of the Cameroonian economy in the decade preceding the 1994 devaluation. That decade was characterized as a lost one, as Cameroon recorded negative growth rates over most of the period, and witnessed a significant deterioration of living standards and general increase of poverty. The cycle of negative growth rates and falling output, including in the coffee, cocoa and oil sub-sectors, the key export products and sources of foreign exchange, resulted in a major deterioration of Cameroon’s balance of payments and a large accumulation of external debt and domestic arrears during most of the 1980s period and after. The GDP declined by over 6% per annum between 1986 and 1993, producing a 50% fall in per capita income (World Bank [1996]).

With a rapidly falling per capita income, increased rates of poverty and deterioration of living standards followed. The headcount index increased from 40 to over 50.5% between 1984 and 1996. Poverty, which was already profound, continues to be widespread in rural areas, where the headcount index averaged over 68% in 1996 (World Bank [1998], Fambon et al. [2001]). Across socioeconomic groups, the deterioration of living standards observed at the national level has persisted. The increase of poverty was more rapid among informal sector workers (essentially self-employed independent workers) in the 1990s, despite the persistence of

> 8 Indeed, despite rapid increase of the headcount index in urban areas in the late 1980s and early 1990s, following economic contraction and record of successive negative growth rates, poverty remains largely a rural phenomenon, with rural areas accounting for over 75 percent of national poverty.

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