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

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4 Case study Cameroon Coming to Terms with Reality 4.1 Analysis of the effects of HIPC debt alleviation in Cameroon 4.1.1 Background Cameroon is an oil exporter. At the world level the country does not play a prominent role in the oil sector. But its oil exports are a major source of foreign exchange receipts and of public revenue. Because Cameroon’s oil output tends to slightly decrease over time, the receipts and revenue from oil depend foremost on the evolution of the international oil price. Because of the high oil price prevailing on international markets during the first half of the 1980s Cameroon continued to serve its debt obligations even when other developing countries had started defaulting. But when in 1986 the oil price collapsed and the prices of Cameroon’s main other exports, including cocoa and coffee, continued to fall, the country entered a period of deep crisis. Between 1986 and 1994 per capita GDP in real terms fell by more than 40 percent and the percentage of the population below the poverty line increased. Cameroon started experiencing debt service problems. In 1989 it requested for the first time a debt rescheduling in the framework of the Paris Club. After the devaluation of the CFA franc at the beginning of 1994 Cameroon’s economic situation improved. But fulfilling its international debt obligations remained problematic. In the course of the 1990s Cameroon had to apply four times for Paris Club debt rescheduling. Cameroon was not eligible for debt relief under the original HIPC Initiative (1996) because the ratio of the Net Present Value (NPV) of its foreign debt to the value of its exports was below the threshold of 250%. But when in 1999 under the Enhanced HIPC Initiative this threshold was lowered the country could apply for HIPC debt alleviation. Cameroon obtained Decision Point status in October 2000 and was expected to reach its Completion Point in 2004. But due to a slippage in its economic policy in that year the country failed to obtain Completion Point status. Supported by a new increase in petroleum prices the country continued to honour strictly its debt obligations and was given Completion Point status in April 2006. This resulted in a steep decline in its foreign debt stock due to bilateral as well as multilateral creditors. Starting in 2006 Cameroon’s interest payment on its foreign debt also started to decrease. 4.1.2 Management of the HIPC-funds Before analysing the effects of the debt relief it is important to consider briefly the structure set up in Cameroon to manage the additional funds resulting from the decrease in the debt service due to HIPC debt alleviation. One of the conditions to attain Completion Point status under the HIPC Initiative was to put in place a transparent system to enable good management, control and follow-up of the HIPC funds. To do so, the government agreed (i) to open an account at the Bank of Central African States (BEAC) and to transfer to this account the equivalent in CFA francs of the debt service saved under the HIPC Initiative, (ii) to create a consultative and follow-up committee to manage these funds (‘Comité Consultatif et de Suivi’, CCS), and (iii) to organise annual audits of the projects financed through the HIPC initiative. | 109 |
| 110 | Case study Cameroon The special account at the BEAC was opened in October 2000, and was credited each year by the Government of Cameroon with the savings of debt service resulting from debt alleviations under the HIPC Initiative. The account made it possible to separate the expenditures financed by debt service savings from the other budgetary operations, and facilitated their monitoring and audits. The CCS was created by decree on December 1, 2000. Its role was to make sure that the HIPC resources were used efficiently and equitably, and were invested in projects aimed at reducing poverty and improving governance, as specified in Cameroon’s PRSP. The president of the CCS is the Minister of Finance; the Vice-President is a representative of the civil society. The committee has 18 members, including six ministers, five representatives of bilateral and multilateral creditors, as well as representatives of the private sector, of religious groups and of the civil society. Public institutions as well as institutions of the civil society were eligible to submit projects for financing by HIPC funds. A technical monitoring committee (‘Comité Technique de Suivi’) composed of six experts and a Permanent Secretary, was responsible for submitting the projects for approval by the CCS and was also responsible for the audits and for statistics concerning the resources used under the initiative. After projects had been accepted by the CCS they had to be submitted to parliament for the final decision. The implementation of the projects was managed by the Ministries (especially health, education and infrastructure) or by the NGOs who had submitted them. This organisational set-up turned out to be cumbersome. The general opinion at the time at the end of 2008, when we visited Cameroon, was that the system was ineffective and lacked focus. The rate of disbursements of the funds was rather low. At the end of 2006 the cumulated expenses represented only about 40% of the amount committed. At the end of 2008 the account at the BEAC had a considerable positive balance. The CCS was supposed to meet at least once every three months. But when the country reached the Completion Point, it reduced the frequency of its meetings. Some of its members lost interest in the committee, as the Completion Point was seen as the end of the HIPC Initiative. Moreover the last audit was done in 2005. Most of our contact persons were in favour of a constructive exit plan for the special structure set up for the HIPC funds. But a number of them also favoured the existing practice of identifying in the budget the expenditures financed with resource set free under the HIPC Initiative 82 . 4.1.3 Debt relief under the HIPC Initiative In June 1999 the net present value (NPV) of Cameroon’s foreign debt was equal to 205% of the value of its exports. The purpose of the HIPC debt relief was to reduce this 82 A similar project was set up by the French Development Cooperation, funded by the equivalent of the cancelled debt service obligations on loans provided by France and not covered by the HIPC Initiative (Contrat de Désendettement en de Développement, C2D). This program has a firm decision structure and a focus on specific sectors including education and road infrastructure. At the end of 2008 it seemed to be on its way to a better performance than the management and decision structure for the HIPC funds discussed in the text. Coming to Terms with Reality percentage to 150%. At the time of the Decision Point it was estimated that to reach that goal, a reduction of the NPV of the foreign debt with 1.23 billion US$ (2 billion US$ in nominal value) was necessary. The nominal value of the debt involved in Paris Club debt relief at the Decision and the Completion Points (as well as the amounts involved in and the terms of earlier Paris Club debt treatments) are shown in table 4.1. Table 4.1 Treatment of Cameroon’s foreign debt at the Paris Club Date Terms of treatment Consolidated amount (in mio US$) Cancellation rate 1 24/05/1989 Classical 535 Rescheduling only 2 23/01/1992 Houston 960 Rescheduling only 3 25/03/1994 London 1,258 50% 4 16/11/1995 Naples 1,348 50% 5 24/10/1997 Naples 1,270 50% to 67% 6 24/01/2001 Cologne 1,300 90% 7 17/06/2006 HIPC Initiative exit 1,829 90-100% Source: Paris Club data To obtain Completion Point status, Cameroon had to satisfy a number of conditions in the fields of macroeconomic policy, structural reforms and governance (including laws on the ‘Chambre des Comptes’, the public procurement system, the implementation of the budget and public service delivery and regulatory agencies for key sectors) and in the education and health sectors. As stated in subsection 4.1.1 in 2004 the evaluation was that the country had not fulfilled these conditions. But from then on the government tried to improve the management of public expenditures and to raise the expenditures in the social sectors. In April 2006 the IMF and the International Development Association agreed that Cameroon had met the conditions for reaching the Completion Point. 4.1.4 Efficiency of debt relief To analyse the efficiency of the debt relief we consider the evolution of the foreign debt and of the debt service, as well as the balance of payments and the government accounts. Cameroon’s foreign debt decreased slightly in 2001, the year when it was given Decision Point status. In the two following years the stock of foreign debt increased again. But from 2004 it started decreasing, with a strong fall in 2006 when the country reached its HIPC Completion Point. The decrease preceding 2006 was probably due to the fact that Cameroon, supported by the increasing oil price, rigorously honoured its repayment obligations. The 2006 decrease was no doubt also due the debt relief upon reaching the Completion Point. Cameroon’s debt service decreased strongly in 2001, the Decision Point year. But in the following years it started rising again, with a peak in the debt service in 2005. In that year a large fraction of the debt service was for debt amortisation. In 2006 there was a strong decrease of the debt service, both of amortisation and of interest payments. | 111 |
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Main report Coming to Terms with Re
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| 2 | The Office of the Special Eva
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Published by: Kingdom of Belgium Fe
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