Coming to Terms with Reality. Evaluation of the Belgian Debt Relief ...

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Annexes
6 Impact on Economic Growth and Poverty
In this section we analyze the effects of debt relief obtained by Cameroon on two basic
measures of wellbeing, i.e. economic growth and the evolution of poverty. From the outset
we should emphasize that it is not evident to make definitive statements on the issue. First
it is too early to observe the impact of debt forgiveness: the bulk of the debt cancellation
was realized when Cameroon reached its Completion Point in 2006, and its effects may be
spread over several years. Our most recent data are for 2007. Second the data on growth
and poverty we observe are the result of a number of variables, debt forgiveness being one
of them. So it is difficult, if not impossible, to single out the effect of one individual
variable. Therefore we analyze whether the data on growth and poverty we observe
between 2000 and 2006 or 2007 are compatible with a positive impact of the debt
forgiveness that occurred over this period and of the expectation in the years prior to 2006
of a wider debt relief when the country would reach its Completion Point.
Before starting our analysis, it is worthwhile to mention that the Interim PRSP, published
in August 2000 and whose final version was accepted by the IMF in 2003, defined the
major challenges for the country as the need to “diversify its economy, consolidate growth,
and improve the standard of living of its population”. The document did specify the
weaknesses of the educational system (a relatively low access and completion rate for the
primary education, coupled with a low transition rate between primary and secondary
education) and the deterioration of health conditions (increasing child mortality, the
persistence of malaria, meningitis and viral hepatitis, and the alarming climb in the rate of
HIV/AIDS infection). But apart from mentioning the Millennium Development Goals, the
Interim PRSP did not set any specific short term objectives.
6.1 Impact on economic growth
We first compare data on economic growth over the period 2000-2006 with those of the
preceding six years. The former period covers more or less the Interim Period between
Cameroon’s Decision and Completion Point, and the latter starts after the devaluation of
the CFA franc in January 1994. The first row of table 7 shows quite clearly that over the
period 2000-2006 the growth performance of Cameroon has deteriorated compared to the
previous six years. In each of the years 2001-2003 Cameroon’s growth rate of GDP was
4% or higher, in line with the previous six years. But from 2004 onwards the GDP growth
rate was lower than 4% with a particularly poor performance in 2005 (2.3%). In 2007, in
line with the previous three years, the growth rate was 3.4%. Remark that the international
economic climate over the period under consideration, especially in the years after 2003,
was quite favorable for Cameroon, with the increase of the oil price and favorable prices of
primary commodities.
Table 7 also shows that Cameroon’s growth performance was weak relative to that of
comparable groups of countries, such as Sub Saharan Africa and the low and lower middle
income countries. Over the years 1994-2000 Cameroon outperformed these three groups of
Coming to Terms with Reality
countries (if we exclude fast growing India and China from respectively the low and the
lower middle income groups), but between 2000 and 2006 Cameroon’s growth rate was a
full 1% lower than the average of Sub Saharan Africa and of the lower middle income
countries (excluding China) and more than 1.5% below that of the low income countries
(excluding India).
Table 7 GDP average annual growth rates, Cameroon and groups of comparable countries (%):
1994-2000 2000-2006
Cameroon 4.5 3.7
Sub Saharan Africa 3.5 4.7
Low income countries 5.2 6.5
Low income countries excluding India 4.2 5.4
Lower middle income countries 5.9 7.5
Lower middle income countries excl. China 3.1 4.8
Source: World Development Indicators (2008)
Table 8 shows that agriculture did perform strongly over the period 1994-2000. Thereafter
its growth rate remained a full percentage point in excess of population growth. The
problem sector after 2000 has been industry with a growth rate hardly exceeding that of
population. Remark that in a developing economy the growth rate of industry is expected
to exceed that of agriculture. The best performer after 2000 was the service sector.
Table 8 Growth rates of value added by sector (%):
1994-2000 2000-06
Agriculture 7.0 3.8
Industry 4.7 2.9
Services 0.7 6.9
Source: World Development Indicators (2008)
It is not easy to identify the causes of Cameroon’s poor growth performance after the
country reached its HIPC Decision Point in 2000. It is possible that debt alleviation during
the Interim period and the expectation of more substantial debt relief at the Completion
Point had a positive, but weak effect on economic growth. But if there was such an effect,
it was swamped by other negatively impacting variables. In this context we should repeat
that the amount of debt relief during the Interim Period was rather limited and that a strong
effect could only have resulted from the expectation of more debt relief to come.
We may get an idea of the other variables that may have impacted on growth when we
reconsider investment, which we discussed in the previous section. Between 2000 and
2004, public investment as a fraction of GDP increased from 2.1% to 2.6%, but over the
three following years it fell back to 2.3%. In other words there are no indications of a
drastic and sustained increase in public investment. The problem was not so much a lack of
funds, but difficulties of executing the public investment budget. This was true not only for
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