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

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Annexes
But beginning in 1987 the economy shrank dramatically. Low prices for oil, coffee and
cocoa reduced Cameroon’s income from exports. Between 1985 and 1992 the external
terms of trade fell by more than 55 percent. In the 1980s oil output also began a steady
decline, falling from 9 million metric tons in 1986 to 5 million metric tons in 199795. As a
result of these developments, between 1986 and 1994 Cameroon’s real per capita GDP fell
by more than 40 percent. Agricultural value added was practically stagnant; industrial
value added continued to grow, but at an annual average growth rate of 7%, considerably
lower than in the preceding 15 years. Current account and fiscal deficits widened96, and
the percentage of the population living below the national poverty line increased from 40
per cent in 1984 to 53.3 per cent in 1996. In September 1988 Cameroun had to apply for
assistance from the IMF and in May 1989 it obtained a first debt rescheduling from the
Paris Club.
In 1993 the government decided to reduce wages in the public sector by up to 70 percent in
order to cut its expenditures. But the main policy measure to meet the crisis was the
devaluation of the Franc CFA. At the beginning of 1994 the value of the Franc CFA was
reduced from 50 to 100 FCFA for one French franc. Starting in 1996 the government also
tried to revive the economy by undertaking structural adjustments and economic reforms,
such as the strengthening of the government finances (especially by transferring the oil
revenues to the budget and by improving the control on expenditures), and the
implementation of structural reforms in the public enterprise and financial sectors. These
measures were taken in the framework of programs supported by the World Bank and the
International Monetary Fund. The country obtained Structural Adjustment Credits from the
World Bank in 1989, 1996 and 1998. The first three year arrangement with the IMF, the
Enhanced Structural Adjustment Facility (ESAF, later changed into the Poverty Reduction
and Growth Facility, PRGF), started in 1997.
The devaluation and the structural reforms had positive effects on economic activity. As
shown in figure 2 after 1994 exports increased drastically. The GDP growth rate became
positive again in 1995; over the period 1994-2000 the average annual growth rate of GDP
was 4.5% and from 1996 to 1998 it even exceeded 5%. But the devaluation’s effect on the
current account was very short lived: the current account was positive only in 1995, and
thereafter became negative as before 97 .
95 Before the devaluation of 1994, petroleum and petroleum products represented about 40% of exports,
lumber about 14%, coffee about 13% and cocoa about 12%. By 2000 the share of petroleum and
petroleum products had risen to 57% of exports, while those of lumber, cocoa and coffee had fallen to
respectively 9%, 6% and 4%.
96 The country has experienced a continuous fiscal deficit during the 90’s, with deficits over 200billion CFA
francs in 1993 and 1998 (equivalent to approximately 9% of GDP in 1993 and 5% of GDP in 1998).
97 One of the reasons why the positive effects of the devaluation didn’t fully materialize was that the
conventional agricultural export production was not able to respond immediately, because of the effects
of the economic crisis of the 1980s on the productivity of the sector.
Imports Current US Dollars
Coming to Terms with Reality
Figure 2 Exports, Imports and Current Account Balance, 1980 - 2000
3.500.000.000
3.000.000.000
2.500.000.000
2.000.000.000
1.500.000.000
1.000.000.000
500.000.000
0
-500.000.000
-1.000.000.000
-1.500.000.000
Source: WDI (2008)
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
Imports of goods, services and income (BoP, current US$)
Exports of goods, services and income (BoP, current US$)
Current account balance (BoP, current US$)
2.2 The evolution of the external debt
This economic crisis of the late 1980s and early 1990s obliged the state to seek external
financing, mainly from official creditors and at conditions close to those of the market.
Between 1987 and 1993, the share of concessional in total debt was on average around
30%, compared to the 50% average between 1994 and 2006). During this period, the
average annual interest rate paid on debt was around 5,5%, quite high compared to the
1994-2006 average interest rate of approximately 1,5%.
As shown in figure 3 from 1985 till 1995 Cameroon’s external debt increased more than
threefold, from 2,192 million US$ in 1985 to 9,300 million US$ in 1995. Over that period
Cameroon took up new loans and accumulated arrears, especially with non-Paris Club
countries and private creditors. Between July 1993 and July 1994, the total amount of
arrears (principal and interests, in US$ terms) increased by 57% (which means an increase
of around 200% in CFA terms); arrears with banks increased by 139%, representing 45%
of total arrears by July 1994.
After the devaluation, the debt service increased about 60% (this represents over 35% of
governments revenues), which increased the fiscal deficit. Because of this, and also
because of the accompanying macroeconomic and structural reforms set up after the
devaluation, new loans were made by Cameroon (especially from the IMF and the World
Bank). As we represented in figure 3, this situation led to a big increase in the debt stock.
Because the fiscal year went from July to the end of June of the following year the effect of
the devaluation of January 1994 already shows up in the figure of 1993. The ratio of public
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