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

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Case study Cameroon
The third area of enquiry is the evolution of the balance of payments. In 1996 debt service
payments were equal to 20% of exports. In subsequent years the figure decreased to reach
one percent by 2007. This fall was partly the result of the increase in value of Cameroon’s
exports, especially those of oil. Nevertheless the current account balance remained
negative until the year 2005. This was mainly due to the country’s increasing imports.
After 2005 the effect of the rising imports was more than counterbalanced by the decrease
of interest payment and by the rising value of exports, the latter linked to the increasing oil
price.
Finally we consider the evolution of the country’s fiscal situation. With the exception of
the year 2004, in each of the years from 2001 to 2008 Cameroon’s government accounts
were characterised by a positive balance. The size of this balance increased strongly in
2005 and in 2006. To some extent this positive balance was the result of the fall in interest
payments (on internal and external debt) and of the rising government revenue from oil.
After 2004 the second factor was dominating. In 2000 the oil revenues of the government
were equivalent to 22% of public expenditure; in 2007 the figure had increased to 35%.
We conclude that the HIPC debt relief did contribute to a decrease of Cameroon’s foreign
debt and of its foreign debt service. The country’s current account and fiscal balance also
improved, especially after 2004. But these improvements were due more to the increased
income from oil than to the decreasing debt service.
4.1.5 Effectiveness of debt relief
To analyse the effectiveness of the HIPC debt relief for Cameroon we use four indicators:
sustainability of the residual debt after the relief, credit ratings of Cameroon’s foreign debt,
the volume of total and private foreign investment and the evolution of poverty oriented
public expenditure.
Debt sustainability can be measured by relating debt to GDP, to exports and to government
revenue. In 2008 Cameroon’s foreign debt was equal to 9.5% of its GDP, 45% of its
exports and 52% of its government revenue. These figures are far below the maximal
values formulated in the framework of the HIPC Initiative (respectively 40%, 150% en
250%). The “debt sustainability analysis” published by the IMF in 2008 characterises the
risk of debt distress for Cameroon as “low”. This conclusion remains valid under the
hypothesis of a number of potential negative shocks.
The credit ratings of Cameroon’s foreign debt have hardly changed since they were first
published in 2003. Standard & Poor’s presently rates Cameroon’s short as well as long term
foreign debt as B, the same rating as in 2003. The rating by Fitch is also B, again for the short
term as well as for the long term debt. Again this is the same as Fitch’s initial rating in 2003.
At the end of 2004 – start of 2005 both rating agencies had lowered their ratings of
Cameroon’s foreign debt, but afterwards they restored the rating to the previous level.
Remark also that based on its corruption perception index Transparency International puts
Cameroon in 2009 at place 146 (the first ranked country is perceived as least corrupt)
together with counties like Ecuador, Russia and Zimbabwe, out of a total of 180 countries.
Coming to Terms with Reality
In 1998 en 1999 Cameroon had been classified as the most corrupt country. But the total
number of countries listed at the time had been only 85, respectively 99. Apparently the
process of debt alleviation has not contributed to an improvement of Cameroon’s
international creditworthiness, nor to the quality of its governance, at least in as far as the
latter can be measured by Transparency International’s corruption perception index.
Thirdly we observe that between 2000 and 2007 total investment in Cameroon has
increased. But the increase was concentrated in two years, 2001 en in 2004. After the
Completion Point was reached, total investment hardly changed. As between 2000 and 2007
GDP was rising, the ratio of investment to GDP did not show any trend. By far the most
important component of investment is private investment. It dominates the evolution of total
investment. Since the year 2000 private investment fluctuates around 10% of GDP. The absence
of institutional improvements, electricity shortages and poor domestic market integration are
mentioned as explanations for the relative stagnation of private investment. Public investment
had strongly increased in 2001. Afterwards it fluctuated around the level reached in that year.
Finally we consider the evolution of pro-poor public expenditure. There is only a limited
set of data on this topic. The International Development Association and the IMF estimate
that public pro-poor expenditures have increased from 17% of total public expenditure in
2000 to 33% in 2006, and from 3.1% of GDP in the first to 6.3% in the second year. Other
partial data also suggest an increase of the relative size of pro-poor public expenditure.
We conclude that HIPC debt alleviation has strongly contributed to the sustainability of
Cameroon’s foreign debt. But this is not reflected in an improvement of the country’s
foreign debt ratings since 2003. The perception of corruption as measured by Transparency
International has also hardly changed in recent years. Total and private investment in
Cameroon has increased, but the rise was discontinuous and limited to two years only.
Debt alleviation has not resulted in rising private investment relative to GDP. The
evolution of investment did not support an acceleration of economic growth. Finally after
the year 2000 the share of pro-poor expenditures in total public expenditure did increase.
This may be a result of the conditions for debt relief under the HIPC Initiative.
4.1.6 Relevance of debt relief
To analyse the relevance of the HIPC debt relief we consider the growth of GDP and the
evolution of poverty. But before starting the discussion we emphasise two points. First the
evolution of GDP and poverty is the result of many factors; debt alleviation may be one of
them. Second the impact of debt alleviation on economic growth and on poverty may
happen with a time lag. At the end of 2008, when our research for the Cameroon case
study was undertaken, most data were available only up to 2006 or 2007. The available
data should show some of the impact of reaching the Decision Point and of the expectation
of deeper debt alleviation, but not that of actually obtaining deep debt relief after reaching
the Completion Point in April 2006.
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