The Impact of the Liberalization of Petroleum Product Prices on the Economy of Cameroon

This paper addresses the issue of the impact of liberalization of petroleum product prices on Cameroon’s economy, particularly on its macroeconomic aggregates, public finances and people’s living standards. It uses a methodology based on a Computable General Equilibrium model constructed from the Social Accounting Matrix of 43 activity sectors and 43 products. The results of the study show that the oil refining industry is the main channel through which fluctuations in crude oil prices on the international market affect the economy of Cameroon. If the price of oil per barrel is high, it is preferable, both on the economic level (growth, employment and public revenues) and the social level to maintain a low level of subsidies below 15% and, as a matter of priority, to re-allocate the economies made on these subsidies to social transfer-payment schemes and to measures aimed at sustaining the middle class’s purchasing power. But if there is a sharp fall in crude oil prices (below US$ 50 per barrel), a liberalization of the retail petroleum product prices could have positive effects on economic growth, on labour supply and on poverty reduction. The paper recommends the following: (i) a reduction in the country’s dependence on imports of crude oil by restructuring the national refining company; (ii) restructuring of the petroleum product price subsidy policy by adopting an inclusive approach; (iii) a setting up of a special fund for re-allocating the economies made on subsidies to financing targeted social programmes; (iv) diversification of exports and; (v) a setting up of a strategic structure to monitor the trends in and the forecasts of the prices of Cameroon’s main exports on the international market.