Cameroon and the IMF
Heavily Indebted Poor Countries -- A Factsheet
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Cameroon to Receive Around US$2 Billion in Debt Service Relief: The IMF and the World Bank Support Debt Relief for Cameroon Under the Enhanced HIPC Initiative
The International Monetary Fund (IMF) and the World Bank Group's International Development Association (IDA) agreed to support a comprehensive debt reduction package for Cameroon under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Total debt relief from all of Cameroon's creditors is worth around US$2 billion in nominal terms. This is equivalent to about US$1.26 billion in net present value (NPV) terms,1 or approximately 27 percent of the total NPV of debt outstanding at end-June 1999 after the full use of traditional debt relief mechanisms. The Fund and IDA will start providing interim debt relief soon after the decision point.
The debt relief under the enhanced HIPC framework reduces significantly Cameroon's annual debt service obligations, and immediately frees about $100 million per year for the next three years for expenditures on health care, primary education HIV/AIDS prevention, and other critical social services. The overall impact on Cameroon's budget is substantial. Debt service as a percentage of government revenue will be reduced from more than 23 percent today to12 percent in 2001 and under 10 percent by 2008. It slashes debt service as a percentage of export revenue from nearly 14 percent today to 8 percent in 2002, and the ratio of the total NPV of debt to exports from nearly 200 percent today to under 120 percent in 2001 and under 100 percent by 2007.
Under the enhanced HIPC Initiative, countries with a satisfactory track record of macroeconomic and structural policy implementation and a NPV of external debt exceeding 150 percent of exports are eligible to receive debt relief. With a debt NPV debt-to-export ratio of 205 percent at end-June 1999, debt relief equivalent to $1.26 billion in NPV terms will bring the ratio down to 150 percent, freeing up considerable resources for anti-poverty programs.
Bilateral creditors will provide for US$874 million in NPV terms (69 percent), while multilateral creditors will provide US$324 million (26 percent), and the remaining would be from the commercial bank creditors (US$62 million, or 5 percent). In particular, the World Bank Group (IDA and IBRD) will provide debt relief amounting to US$179 million in NPV terms over the next 12 years. The debt relief of US$37 million committed by the IMF will be delivered over a ten-year period, and will cover on average 23 percent of debt-service obligations to the Fund.
Cameroon will reach its completion point under the Initiative and receive the remainder of its debt relief from all creditors once it has achieved a number of actions designed to strengthen economic growth and reduce poverty. This includes the completion of a full Poverty Reduction Strategy Paper (PRSP), which will be elaborated in a broad consultative process with the civil society and the support of international partners, and at least one year implementation of the PRSP. The government of Cameroon expects to complete the full PRSP by end-November 2001.
Cameroon's eligibility for debt relief under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing economic reforms and developing its poverty reduction strategy. Assistance provided under the enhanced HIPC Initiative will help Cameroon to advance its poverty reduction programs and stimulate equitable and sustainable economic development.
1. Cameroon's track record
Cameroon has made substantial progress in implementing an economic reform program supported by the Fund under the Poverty Reduction and Growth Facility (PRGF) and the Bank through the Third Structural Adjustment Credit (SAC III). Macroeconomic performance has improved markedly and significant progress has been made in the structural area. Over the past four years, real GDP growth averaged 4½ percent. Average consumer price inflation was lowered to less than 1 percent by 1999/2000; the external current account deficit (including grants) is estimated to have narrowed from 4.3 percent of GDP in 1998/99 to 1.6 percent of GDP in 1999/2000. Progress has been made toward fiscal sustainability, as the mobilization of both oil and non-oil revenue has been considerably strengthened. Domestic arrears were audited and a multiyear plan for their clearance was adopted. Relations with the external official creditors have been normalized. In the structural area, important reforms were launched, including a large-scale privatization of the public enterprise sector and the liberalization of the energy and transport sectors.
Cameroon is drawing up satisfactory sectoral strategies for health, education and HIV/AIDS with World Bank assistance, and prepared an all-inclusive interim PRSP, in consultation with the civil society and support from the international partners. The PRSP places emphasis on the areas of health, education, basic social services, infrastructure, and rural development, as core elements in the fight against poverty. Also, a governance and anti-corruption strategy with an associated action plan have been adopted.
2. Reform steps to be taken before the completion point
The full debt reduction provided by the IMF, IDA and all other creditors will be delivered to Cameroon when the following conditions have been met, as part of an overall satisfactory effort on to reduce poverty:
· Poverty Reduction Strategy Paper: Completion of a full PRSP through a continued participatory process, and at least one annual implementation report of the paper, which will need broad endorsement by the Executive Boards of the IMF and the World Bank.
· Social Sectors: Implementing an ambitious education strategy, including building 2,500 new classrooms; and in the health sector, including raising significantly child immunization rates to 70 percent, and increasing education and access to mosquito nets to prevent the incidence of malaria.
· HIV/AIDS: Concrete progress in order to prioritize the fight against HIV/AIDS in the government's overall development agenda.
· Macroeconomic and Structural Reforms: Continued maintenance of a stable macroeconomic environment and satisfactory implementation of a new Poverty Reduction and Growth Facility (PRGF) program administered by the IMF; and assurances that budgetary savings from interim debt relief have been used in accordance with the criteria set forth at the decision point; and satisfactory implementation of an IDA-funded adjustment reform program.
· Governance and Anti-Corruption: The priority strategy and action plan for improving corruption and combating corruption attached to the I-PRSP have been satisfactorily implemented, including reform in the judiciary and public procurement, and in strengthening budgetary execution and service delivery.
3. HIPC background
The HIPC Initiative was launched by the IMF and the World Bank in 1996 as the first
comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to make the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery. The enhanced Initiative aims, for most HIPCs, to reduce the NPV of debt at the decision point to a maximum of 150 percent of exports, and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).2
Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record, normally of three years, under IMF- and IDA-supported programs. In the second stage, after reaching the decision point under the Initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society, and an agreed set of measures aimed at enhancing economic growth. During this stage, the IMF and IDA grant interim relief, provided that the country stays on track with its IMF- and IDA-supported programs. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At the end of the second stage, when the floating completion point has been reached, the IMF and IDA will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.
Some three-dozen HIPCs are expected to qualify for assistance under the enhanced HIPC Initiative, the great majority of which are sub-Saharan African countries. So far, 17 countries have been reviewed under the enhanced framework, for packages amounting to some $31 billion in debt service relief over time. Eleven countries have now reached their decision point under the enhanced framework (Cameroon joins Benin, Bolivia, Burkina Faso, Honduras, Mali, Mauritania, Mozambique, Senegal, Tanzania, and Uganda), with total committed assistance estimated at roughly $18 billion, representing an average NPV stock-of-debt reduction of about 45 percent on top of traditional debt relief mechanisms. Work is underway to have debt relief packages in place for some 20 countries by the end of the year.
1 Net Present Value (NPV) of debt is the discounted sum of all future debt-service obligations (interest and principal) on existing debt. The NPV of debt is a measure that takes into account the degree of concessionality. It is defined as the sum of all future debt-service obligations (interest and principal) on existing debt, discounted, under the HIPC Initiative, at the market interest rate. Whenever the interest rate on a loan is lower than the market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element.
2 For very open economies where the exclusive reliance on external indicators may not adequately reflect the fiscal burden of external debt: an NPV debt-to-export target below 150 percent can be recommended if the country concerned meets two criteria at the decision point: an export-to-GDP ratio of at least 30 percent and a minimum threshold of fiscal revenue in relation to GDP of 15 percent. For countries meeting these thresholds, the NP debt-to-export target will be set at a level which achieves a 250 percent of the NPV debt-to-revenue ratio at the completion point. Côte d'Ivoire and Guyana qualified under this criteria under the initial framework.
IMF EXTERNAL RELATIONS DEPARTMENT