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

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Annexes
4 Efficiency of the Debt Alleviation
In this section, we analyze the efficiency of debt alleviation operations. By efficiency we
mean the link between debt alleviation and the evolution of debt indicators. More
specifically we analyze the effects of the application of the HIPC Initiative on the debt
stock (in nominal and in NPV terms), on the debt service and on the arrears. Finally we
discuss briefly whether the conditions in the framework of the HIPC Initiative have
contributed to an improvement of policies and governance.
4.1 The Evolution of the Debt Stock
Cameroon’s nominal debt stock decreased slightly after the Decision Point, but it increased
again in 2002 and 2003. Both bilateral and multilateral debt contributed to this increase,
which was only partly offset by the decrease in the private external debt resulting from the
buy-back in 2003 discussed in subsection 3.2.
As shown by figure 11 the nominal debt stock decreased strongly in 2005 and 2006. In
2005, the debt relief represented about 2,680 billion US$, of which 94% was granted by
the bilateral creditors 100 . The decrease in debt represented in this figure is also due to a
series of debt repayments made by Cameroon between 2003 and 2005. In 2006, the year in
which Cameroon reached its HIPC Completion Point and benefited from substantial debt
cancellation, external debt declined by approximately 5 billion US$. For the year 2006, the
debt relief represented 3,846 billion US$, of which 71% were granted by the bilateral
creditors. The debt relief coming from the multilateral creditors represented approximately
6% and 28% of total relief in 2005 and 2006 respectively.
Figure 11 Public and Publicly Guaranteed debt (PPG), between 1998 and 2007, in
millions of US Dollars:
Millions of US $
10.000
9.000
8.000
7.000
6.000
5.000
4.000
3.000
2.000
1.000
0
1998
Source: GDF 2008
1999
2000
2001
PPG, total (DOD, millions of US $)
2002
100 This information is to be taken with some caution, as the decrease in debt in 2005 in the data we were
given in Cameroon was smaller than presented here.
2003
2004
2005
2006
2007
Coming to Terms with Reality
The net present value of external debt also decreased substantially following the debt relief
under the HIPC and MDRI Initiatives and the additional debt cancellation by Paris Club
countries. Figure 12 shows the NPV of external debt as a percentage of exports. For the
sake of comparison we also show the NPV of external debt as projected in the Debt
Sustainability Analysis (DSA) made by the IMF in 1998. This projection was made
without integrating the debt relief under the HIPC Initiative, but incorporating the results
of debt relief operations granted to Cameroon before 1998.
At the time of the Decision Point, the NPV of external debt represented 198% of exports.
The figure fell to 40% in 2006, at Completion Point, and stayed below 45% the following
year. Figure 12 also suggests that in 2006 the country would have had a NPV of external
debt below the 150% of exports threshold, even in the absence of HIPC debt relief. During
the Interim Period oil revenues (and exports in general) have risen much more than
projected in 1998. As a result the denominator of the NPV of debt –export ratio increased.
Thus ex post it turns out that the country could have achieved a “sustainable” debt level
even in the absence of the HIPC Initiative.
We conclude that during the HIPC interim period the effects of the debt relief on total debt
in nominal terms were not quite clear. The nominal amount of debt increased in 2002 and
2003 when debt relief was granted, but decreased in 2004 and 2005, after Cameroon had
failed to fulfil the conditions for the Completion Point. But the data show very clearly the
impact of debt cancellation on the nominal value of debt upon reaching the Completion
Point. But we do observe a steady decline of the NPV of external debt as a percentage of
exports after 2000 and 2005. This resulted from a slight decrease in the numerator and a
stronger increase in the denominator of the ratio. Finally the effect of debt cancellation
upon reaching the Completion Point in 2006 is again clear from the data.
Figure 12 NPV of eternal public debt, as a share of exports, between 1996 and 2007:
% of Exports
300
250
200
150
100
50
0
1996
1997
1998
NPV of external public debt in % of exports
NPV of external public debt in % of exports (1998 estimates)
Source: GDF 2008, Caisse Autonome d’Amortissements (C.A.A)
1999
2000
2001
2002
2003
2004
2005
2006
Treshold HIPC-1
Treshold HIPC-2
2007
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