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

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| 216 | Annexes 8 Conclusions Cameroon is a potentially rich country. It is endowed with a wealth of natural resources and it has a favorable location within Central Africa. But natural resource wealth can also have negative effects. When international commodity prices are rising, increasing public revenues and foreign exchange receipts allow the government to postpone structural reforms, including the strengthening of institutions. When commodity prices fall the government is faced with falling export and public revenue; at such times structural weaknesses show up. The latter occurred in Cameroon in the second half of the 1980s. The falling oil price combined with declining coffee and cocoa prices caused a deep economic downfall. Between 1986 and 1994 Cameroon’s real per capita GDP fell by more than 40 percent and the percentage of people living below the poverty line increased. Another result of the falling export prices was that Cameroon’s external debt became unsustainable. In 1989 the country applied for the first time to the Paris Club for a rescheduling of its debt obligations. After the devaluation of the CFA franc Cameroon’s economic conditions improved. But serving its external debt continued to be a problem. In the course of 1990s four more Paris Club debt rescheduling agreements were to follow. In 1999 the country became eligible for debt reduction under the Enhanced HIPC Initiative. (Cameroon did not qualify for debt relief under the original HIPC Initiative because its NPV of debt – export ratio was lower than 250%.) Cameroun was given Decision Point status in October 2000. Subsequently due to a slippage of policies it “missed” its Completion Point expected for 2004. But the country continued to serve its external debt and reached its HIPC Completion Point in April 2006. This entailed a steep decrease of its external debt stock, due to a substantial cancellation of bilateral as well as multilateral debts, the latter under the Multilateral Debt Relief Initiative. Also in 2006 interest payments on external debt started falling. From the Decision Point onwards the CFA francs equivalent of savings on external debt service under HIPC debt relief was transferred by the government on a special account at the Bank of Central African States (BEAC). The balance on this account could be used for a diversity of projects under a special decision structure in which Government and civil society as well as foreign creditors intervened. This is called the CCS – HIPC system. It is quite generally agreed that the program missed focus and that its decision structure was cumbersome. As a result the rate of disbursement was rather low and there were a number of operational shortcomings. At the time of our visit (first week of December 2008) there remained a substantial balance on the account. In addition no recent audits of the expenditures had been made, the last audit being for the year 2005. A similar program called C2D, set up by France when, like other Paris Club members, it cancelled all debts remaining after HIPC debt relief, is more focused and on its way to a better performance. Most of the persons we contacted were in favor of elaborating a constructive exit plan for the CCS – HIPC system. This does not mean that the current practice of identifying in the budget the funds set free as a result of the HIPC Initiative should be discontinued. Coming to Terms with Reality In the first years after the HIPC Decision Point, Cameroon’s external debt did not decrease. But after the policy slippage in 2004 external debt decreased substantially, initially probably because the country repaid punctually its debts on schedule and after Completion Point as a result of massive cancellation of bilateral and foreign debt. After 2005 debt service also started falling. Furthermore in 1997 and 1998 arrears on debt service were consolidated, so that the statistics show a substantial decrease. A further fall of arrears occurred between 2000 and 2003, probably linked to the HIPC Initiative. Finally, as discussed above, the HIPC arrangement for Cameroon did not induce a continuous improvement of policies and governance. But after the policy slippage in 2004, the Government started improving the management of public expenditures and raising expenditures in social sectors. The effectiveness of the debt relief obtained by Cameroon can be analyzed in terms of the sustainability of the remaining debt, the effects on public finance and on the balance of payments and the changes in governance and in investment. The HIPC debt relief, especially after the Completion Point was reached, and the accompanying cancellation of bilateral debts by Paris Club member and of multilateral debts under the MDRI have resulted in improvements in the ratio of the stock of external debt to GDP and to exports and on the ratio of debt service to exports. In this sense the external debt has become sustainable. The effects on public finance and on the current account have also been positive. But both for public finance and for the balance of payments the effects of debt relief have been overshadowed by the increased revenue from oil resulting from the rising oil price. It is doubtful whether debt relief has had an effect on investment. Public investment has increased less than government revenues. The ratio of private investment to GDP has remained more or less stable. The apparent absence of an effect of debt relief on private investment can be linked to fact that we fail to find an improvement of governance. Indeed over the period 2000-2006 most indicators of governance have remained more or less stable. As improvements in external debt sustainability, public finance and the current account were not linked to increasing private investment, there is no strong a priori regarding the impact of debt relief on welfare in terms of economic growth and poverty alleviation. The available data do not show an acceleration of economic growth after 2001, rather the opposite. If debt alleviation had a positive effect on economic growth, it must have been weak and swamped by other developments negatively impacting on growth. A similar observation applies to the evolution of the poverty head count ratio. Between 2001 and 2007 the percentage of people living in households with an average income below the poverty line was more or less stable, whereas it had decreased between 1996 and 2001. Considering other indicators of poverty we observe in recent years a slight decrease of infant and child mortality and a stabilization of life expectancy after the latter has substantially decreased in previous years. These favorable evolutions were possibly linked to policies promoted by the conditions set for reaching the HIPC Completion Point. In the field of education school attendance of youngsters and adult literacy continue to rise. This | 217 |
| 218 | Annexes evolution is in line with earlier trends. The contribution of debt alleviation to this evolution is not clear. Overall it seems fair to state that the data available at the time of our study, hardly suggest any impact of debt relief on economic growth or on poverty. In order to raise the effects of the improved debt sustainability, the Government should continue its efforts to increase the transparency of its expenditures under the fiscal reform it has set up. The Government should also increase its efforts aimed at the diversification and the enlargement of the tax base. This should reduce its dependency on oil revenues. The ultimate success of the debt relief on economic growth and poverty will depend on raising investment. Increasing public investment could positively impact on private investment including FDI. Moreover the Government should take measures to improve the general business environment. Coming to Terms with Reality Persons Contacted: • Mr. Emile JEANNEE: Chef des Opérations de Coopération à la Délégation de la Commission Européenne à Yaoundé • Mme. Caroline MOUCHART : Consule Belge à Yaoundé • Mr. J-P BARRIER : European Commission, Working at the Ministry of Finance (MINFI) • S.E. Mr. Essimi MENYE : Ministre des Finances • S.E. Mr. Louis Paul MOTAZE : Ministre de l’Economie, de la Planification et de l’Aménagement du Territoire • Mr. Gilbert Didier EDOA : Directeur Général du Budget • Mr. Laurent KOUO NGANGUE : Secrétaire Permanent du Comité Consultatif de Suivi et de Gestion des Ressources PPTE (CCS/PPTE) • Mme Malangu KABEDI-MBUYI Resident Representative du Fond Monétaire International (FMI) à Yaoundé • Mr. Abdoulaye SECK : Economiste Principal à la Banque Mondiale (BM) • Mr. Racine KANE : Banque Africaine de Développement (AfDB) • Mr. Samuel Serge ZANGA : Chargé de Programme, Unité Pauvreté (PNUD : Programme des Nations Unies pour le Développement) • Mr. Julien GONTA : Directeur Général Adjoint de la Caisse Autonome d’Amortissement (CAA) • Mme Line ENANGA : Directrice des Opérations de la Dette à la Caisse Autonome d’Amortissement (CAA) • Mr. NEPETSOUN : Sous Directeur de la Comptabilité Nationale et des Synthèses Statistiques à l’Institut National de Statistiques (INS) • Mr. Jean Marc BIKOKO : Président de la Centrale Syndicale du Secteur Public du Cameroun • Mr. Joël NGUETTI : Analyste Economique et Financier, Secteur Publique (Société Civile) • Mr. Yvon ALAIN : Directeur de la Coopération Française à Yaoundé • Mr. Jacky AMPROU : Chargé de Mission à l’Agence Française de Développement (AFD) • Mme Justine DONGMO : Coordinatrice du Secrétariat Technique d’Appui et d’Exécution du programme C2D • Mr. Geerd WURTHMANN : Conseiller et Chef de la Coopération Allemande à l’Ambassade de la République Fédérale d’Allemagne • Mr. Guy MERCIER : Conseiller et Chef de la Coopération Canadienne | 219 |
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