THE IMPACT OF RISING OIL PRICES ON PUBLIC EXPENDITURE, BUDGET BALANCE, CURRENT ACCOUNT BALANCE, INFLATION, GDP, AND OIL REVENUE IN CAMEROON

Abstract

This paper analyzes the impact of rising oil prices on the Cameroonian economy, focusing on public expenditure, the budget balance, the current account balance, inflation, real GDP, and oil revenues over the period 1985–2024. Using annual data and a Vector Autoregressive (VAR) model in first differences, the study examines the short-run dynamics generated by oil price shocks in a context characterized by structural constraints and data limitations. The results show that oil price increases lead to an immediate and significant rise in oil revenues, strengthening short-term public financing capacity, but these gains are not sustained and are accompanied by procyclical public spending that ultimately deteriorates the budget balance. The current account improves only temporarily before being offset by rising imports, consistent with Dutch disease effects, while real GDP responds weakly, reflecting limited transmission of oil rents to long-term growth. oil price shocks generate mild and short-lived inflationary pressures, reflecting limited pass-through to domestic prices. The forecast error variance decomposition further indicates that oil price shocks explain only a small share of fluctuations in most domestic macroeconomic variables, except for oil revenues, underscoring the dominant role of structural and institutional factors. Overall, the findings support the resource curse hypothesis and emphasize the need for countercyclical fiscal policies, effective oil revenue management, and economic diversification to reduce vulnerability to oil price volatility and promote sustainable economic growth in Cameroon.