May 1, 2006
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The International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) have agreed that Cameroon has made sufficient progress and taken the necessary steps to reach its completion point under the Enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Cameroon becomes the 19th country to reach the completion point under HIPC.
Debt relief to Cameroon under HIPC will be approximately US$1.267 billion in 1999 NPV terms1, equivalent to a 27 percent NPV reduction of Cameroon's debt after traditional debt relief. This will reduce Cameroon's future debt service payments by about US$4.9 billion in nominal terms.
The US$1.267 billion in reduced debt is attributable to multilateral, bilateral, and commercial creditors. The breakdown of the Enhanced HIPC Initiative assistance is as follows (in NPV terms):
In reaching the HIPC completion point, Cameroon also becomes eligible for further debt relief from the IMF, IDA, and the African Development Fund (AfDF) under the Multilateral Debt Relief Initiative (MDRI). Debt relief provided under MDRI will amount to US$1.130 billion at the current exchange rate, in addition to US$202 million relief to be received from the three institutions under the HIPC Initiative. The IMF will provide 100 percent debt relief on all debt incurred by Cameroon to the IMF before January 1, 2005, that remains outstanding to date. This amounts to US$255 million, of which US$219 million financed by MDRI and US$35 million by HIPC. The IMF's MDRI relief will become effective immediately. The additional debt relief under the MDRI by IDA and the AfDF will amount to US$721 million and US$190 million, respectively, with implementation beginning after July 1, 2006.
To reach the completion point, Cameroon met a number of triggers involving macroeconomic stability, commitment to a poverty reduction strategy, investment in social services as well as progress in privatization and reform of the forestry and transport sectors. In addition, Cameroon took steps to improve governance and fight official corruption.
"In achieving the HIPC completion point, Cameroon significantly lowers its debt burden and effectively frees up resources to redeploy toward growth and poverty reduction," said Ali Khadr, World Bank Country Director for Cameroon. "To achieve optimum results, however, Cameroon must continue on a path of improved governance through greater transparency, resolve in fighting corruption, and strengthened accountability."
"Cameroon has made good progress toward securing macroeconomic stability and established a good track record of policy implementation in 2005, " said Dhaneshwar Ghura, IMF Mission Chief for Cameroon. "Looking forward, a key challenge is to raise investment and economic growth rates in order to further reduce poverty while maintaining macroeconomic stability and debt sustainability. Meeting this challenge will require maintaining the momentum for structural and governance reforms, including by further reinforcing public expenditure management, completing public enterprise restructuring, systematically applying anticorruption laws, and strengthening the judiciary. Debt relief at completion point under the enhanced HIPC Initiative and MDRI is an important milestone for Cameroon toward debt sustainability while providing more resources for poverty reduction and the attainment of the Millennium Development Goals."
Next Steps
The Bank's lending and technical assistance in Cameroon features a number of governance programs, with support for improved financial management and analysis of corruption. For its part, Cameroon has already established a National Financial Investigations Agency, along with a public contracts code and an audit unit of the Supreme Court. Information on national budgets and state-owned corporations are more often made public, and prosecutions for corruption and money-laundering have risen in the past two years. This year, the government plans to organize an independent anti-corruption commission, and will incorporate training on corruption into the national education curriculum.
The HIPC Initiative
In 1996, the World Bank and IMF launched the HIPC Initiative to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world's poorest and most heavily indebted countries, and thereby reduce the constraints on economic growth and poverty reduction imposed by the debt-service burdens in these countries. The Initiative was modified in 1999 to provide three key enhancements:
Deeper and Broader Relief. External debt thresholds were lowered from the original framework. As a result, more countries have become eligible for debt relief and some countries have become eligible for greater relief;
Faster Relief. A number of creditors began to provide interim debt relief immediately at the "decision point." Also, the new framework permitted countries to reach the "completion point" faster; and
Stronger Link Between Debt Relief and Poverty Reduction. Freed resources were to be used to support poverty reduction strategies developed by national governments through a broad consultative process.
To date, 29 HIPC countries have reached their decision points, of which 19 have reached completion point.
1 The Net Present Value (NPV) of debt is the discounted sum of all future debt service obligations (interest and principal). It is a measure that takes into account the borrowing terms of a country's debt stock. Whenever the interest rate on a loan is lower than the prevailing market rate, the resulting NPV of debt is smaller than its face value, with the difference reflecting the grant element. Nominal terms mean the actual dollar value of debt service forgiven over a period of time. The debt stock measure reflects 1999 NPV and includes the interim period between the decision point and completion point.
