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

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Annexes
4.4 Implementation of the conditionalities:
Under the Enhanced HIPC Initiative a country normally needs three years after Decision
Point to reach Completion Point. Cameroon was expected to reach the Completion Point in
December 2004, but the country failed to fulfil the conditions set forward at the time of the
Decision Point. The first reason was that the country had failed to make sufficient efforts to
improve governance, and so was unable to fully implement the conditions of the PRGF
arrangement that expired in December 2004. Cameroon held presidential elections in
October 2004 and this had led to an important increase in Government expenditures. The
second reason was that the expenditures from debt service savings under the HIPC
Initiative were quite low, with a very low execution rate. The Government did not transfer
timely the debt service savings to the BEAC account. Finally, there were some problems
with the implementation of various privatisations. Moreover the implementation of the
PRSP, after it was completed in April 2003, had been less than comprehensive.
Starting in 2005 the Government then improved its management practices and set attaining
the Completion Point as a clear policy goal. The public expenditure management was
improved by the establishment of an integrated financial management system, even though
there was still work to be done in terms of transparency and traceability. The government
also established a number of committees to monitor the implementation of the PRSP and
the attainment of the HIPC Completion Point triggers, and increased the expenditures in
the social sectors and for the struggle against HIV/AIDS.
We conclude that especially after 2004 Cameroon tried to implement the conditions set
formulated at the time of the Decision Point. Implementing these conditions has
contributed to improvements in public management. But the improvements were uneven
and improving governance remains an ongoing task.
Coming to Terms with Reality
5 Effectiveness of the Debt Alleviation
In this section, we discuss the effectiveness of debt alleviation. Our starting point is that
the direct objectives of debt alleviation are to make debt sustainable, to make additional
resources available to the government, to strengthen the balance of payments, to improve
governance and to raise investment. These eventual effects in turn should contribute to the
ultimate objectives of higher economic growth and poverty alleviation, both discussed in
section 6. In the first and second subsection we analyse the effects of debt relief under the
HIPC Initiative on the debt stock and on debt service. In the third subsection we analyze
whether debt alleviation was additional to official development assistance (ODA). We then
turn to the effect of debt alleviation on the balance of payments and on public finance. Finally
we analyse the evolution of governance indicators for Cameroon and of investment.
5.1 External Debt Stock
As we have shown in subsection 4.1, Cameroon’s debt stock decreased substantially after
2004 and especially in 2006 when the country reached the HIPC Completion Point. In
table 5 we present the net present value (NPV) of the external debt stock as percentage of
exports of goods and services, of GDP and of Government revenues. The table also shows
the nominal total (external plus internal) debt stock as a percentage of GDP. The table
shows that the achievement of the Completion Point resulted in an important decrease in
all those indicators. The table also gives the sustainability thresholds for the first indicator
as defined by the HIPC Initiative (150% for the NPV of debt on exports ratio), for the first
three indicators as defined by the Debt Sustainability Framework (DSF) and for the fourth
indicator as defined by the CEMAC (or “Communauté Economique et Monétaire de
l’Afrique Centrale”). As shown in table 5, from 2006 onwards those ratios stay well below
the sustainability levels. The most important decreases are observed for the ratios
involving the NPV of external debt. Between 2005 and 2006 they decrease by two thirds or
more. In 2007 and 2008 all four ratios were fairly stable.
Table 5 External Debt Ratios, 2005 – 2008:
1999 Thresholds 2005 2006 2007 2008(e)
NPV of External Debt /
Export Good and
Services
192,00% 150% 149,60% 40,20% 44,43% 45,10%
NPV External Debt /
GDP
53,80% 40% 34,00% 10,20% 9,70% 9,50%
NPV External Debt /
Goverment Reveneus
280,60% 250% 192,10% 57,10% 50,30% 52,00%
Public Debt Stock /
GDP
N.A. 70% 55,70% 20,80% 17,20% 12,20%
Source: C.A.A. and IMF
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