Cameroon
Enhanced Heavily Indebted Poor Countries (HIPC) Initiative: Completion Point Document and Multilateral Debt Relief Initiative (MDRI)

This paper on Cameroon’s Enhanced Heavily Indebted Poor Countries (HIPC) Initiative explains implementation of the poverty reduction strategy and macroeconomic performance. Executive Directors agreed that Cameroon’s external public debt was above the HIPC Initiative sustainability threshold, and the country was eligible for assistance in the amount of US$1.26 billion in 1999. Assuming prudent fiscal policies and robust non-oil real GDP growth, Cameroon’s external public debt is expected to be sustainable over the long term.

Abstract

This paper on Cameroon’s Enhanced Heavily Indebted Poor Countries (HIPC) Initiative explains implementation of the poverty reduction strategy and macroeconomic performance. Executive Directors agreed that Cameroon’s external public debt was above the HIPC Initiative sustainability threshold, and the country was eligible for assistance in the amount of US$1.26 billion in 1999. Assuming prudent fiscal policies and robust non-oil real GDP growth, Cameroon’s external public debt is expected to be sustainable over the long term.

I. Introduction

1. In October 2000, the Board of Executive Directors of IDA and the IMF agreed that Cameroon had met the requirements for reaching the decision point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative.1 The amount of debt relief committed at the decision point was US$1,260 million in net present value (NPV) terms, calculated to bring the NPV of debt to the equivalent of 150 percent of exports on the basis of end-June 1999 data. This relief represents a reduction of 26.9 percent of the NPV of debt as of end-June 1999 after traditional debt relief and a reduction of 25 percent in the nominal value of the debt service over time. At the same time, the Boards of IDA and IMF agreed to provide Cameroon with interim debt relief until Cameroon reached the floating completion point. Interim assistance under the enhanced HIPC Initiative was also granted by the African Development Bank Group (AfDB), the European Union, and the Paris Club group of creditors (through flow rescheduling on Cologne terms).2 Executive Directors had determined that the completion point would be reached when Cameroon had complied with the triggers outlined in Box 7 of the decision point document.

2. This paper discusses progress on these triggers and recommends that Executive Directors of IDA and the IMF approve the completion point for Cameroon under the enhanced HIPC Initiative. A full Poverty Reduction Strategy Paper (PRSP) was completed in April 2003 and discussed by the Executive Boards of IDA and the IMF in July 2003. Since the decision point, the authorities have prepared three Annual Progress Reports (APR) of the PRSP. Reforms supported under IDA's Third Structural Adjustment Credit were satisfactorily implemented and the credit was closed in March 2004 after full disbursement of all tranches. The government program supported by the Fund's Poverty Reduction and Growth Facility (PRGF), however, was not fully implemented by 2004. In early 2005, the government adopted strong macroeconomic policy measures and a new arrangement under the PRGF was approved by the IMF Executive Board in October 2005; good performance has been registered under this program.

3. This paper is organized as follows: Section II assesses Cameroon's performance in meeting the requirements for reaching the completion point. Section III reviews the status of creditor participation and the delivery of debt relief to Cameroon under the enhanced HIPC and MDRI Initiatives and updates the debt sustainability analysis (DSA). Sections IV and V present the conclusions and issues for discussion.

II. Assessment of Requirements for Reaching the Completion Point

4. The completion point triggers were set out in the decision point document and are as follows: (i) preparation of a full PRSP and satisfactory implementation for at least one year; (ii) maintenance of a stable macroeconomic environment; (iii) satisfactory use of the budgetary savings from the interim debt service relief; (iv) conclusion and satisfactory implementation of structural reforms supported by the Third Structural Adjustment Credit (SACIII); (v) satisfactory implementation of governance and anticorruption measures, including in the areas of judicial and procurement reforms, budget execution, and the creation of regulatory agencies; and (vi) satisfactory implementation of key social reforms, including combating HIV/AIDS.3

5. In the view of the staffs of IDA and the IMF, Cameroon has made good progress in meeting the conditions for reaching the completion point (Box 1). This section assesses performance relative to these triggers.

Status of Triggers for Reaching the Floating Completion Point

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A. Implementation of the Poverty Reduction Strategy

6. In April 2003, Cameroon adopted a full PRSP covering the period 2003-15. The PRSP was prepared through intensive consultations with a broad range of stakeholders, including the poor, civil society, the private sector, and development partners. The PRSP document presents the government's vision and priority actions for fighting poverty in line with the Millennium Development Goals (MDGs) set for 2015. The strategic framework of the PRSP rests on seven pillars: (i) promoting a stable and growth-enhancing macroeconomic environment; (ii) strengthening growth through economic diversification; (iii) empowering the private sector as the main engine of growth and a partner in social services delivery; (iv) developing basic infrastructure and natural resources in an environmentally sustainable manner; (v) accelerating regional integration within the CEMAC framework; (vi) strengthening human resource development and bolstering social services; and (vii) improving governance, including in public administration and the legal and judicial system.

7. The PRSP was endorsed by the IDA and IMF Boards in July 2003 as a credible framework for concessional assistance. As noted in the Joint Staff Assessment (JSA), the PRSP contains several features that the staffs consider to be good practice, notably: (i) the breadth and depth of poverty analysis which indicate that the improved growth performance over 1996-2001 has translated into a 13 percentage point reduction in poverty incidence;4 (ii) clear linkages of PRSP targets to the MDGs; (iii) a comprehensive development framework for sustainable growth and poverty reduction; (iv) a careful identification of the main priorities of the regional integration agenda; and (v) an innovative approach for undertaking the costing of sector strategies, considering both the resource needs (the cost of reaching the sector/MDG) and resource availability (budgetary resource constraint coming from the macro framework).

8. The government has established the institutional framework for participatory monitoring and evaluation of PRSP implementation. Two committees were created in September 2003 for this purpose: an “Interministerial Committee” chaired by the Prime Minister; and a “Technical Committee,” composed of members from government, civil society and donor community. The mandate of the Technical Committee is to monitor the implementation of the PRSP with assistance from the National Statistical Institute and to produce regular reports on the implementation of the PRSP including the APRs. This committee has produced three annual PRSP progress reports so far.

9. While implementation of the PRSP got off to a slow start, it has since improved, as evidenced by the last two APRs and the accompanying JSANs. The first APR, covering April 2003-March 2004, and the accompanying Joint Staff Advisory Note (JSAN) were submitted to IDA and the IMF Boards in May 2005. The JSAN concluded that despite a record of continuing economic growth, low inflation and good external sector performance, there were risks that weak fiscal performance and the slow pace of improvements in the business climate, notably the restructuring and privatization of public enterprises, could undermine the implementation of the PRSP and the achievement of its goals. The second APR, covering the period January 2004-March 2005, was prepared through a participatory process and noted progress in a number of areas, namely fiscal policy, budget management, governance and social policies and outcomes. The accompanying JSAN, while in agreement with the report on progress in these areas, noted that the pace of structural and governance reforms needed to be accelerated and capital expenditure increased if the objectives of the PRSP were to be achieved.

10. The staffs consider that the implementation of the PRSP was satisfactory in 2005. The third APR covering 2005 and accompanying JSAN, was submitted to the IMF and IDA Boards in April 2006. This APR highlights progress in many areas including fiscal and budget management, governance and corruption, and in growth and diversification of the economy. Specifically, during 2005, fiscal policy implementation and performance strengthened substantially, accompanied by an increase in oil and non-oil revenues and control over current spending. The authorities accelerated the preparation of sector strategies in priority sectors5 and medium-term expenditure frameworks to further enhance the alignment of budget allocations with the PRSP priorities. The government also adopted an updated national program of governance as the framework for improving governance and fighting corruption,6 as well as taking actions to strengthen economic growth and diversification and further improve social outcomes. The staffs of IDA and the IMF have reviewed progress on each of the PRSP pillars and concluded that PRSP implementation and monitoring have been satisfactory over the past year. Policies in specific areas, underlying the implementation of the PRSP and related to the HIPC completion point triggers are reviewed in the remainder of Section II.

B. Macroeconomic Performance during 2001-05

11. Since reaching the decision point in October 2000, macroeconomic stability has been broadly maintained (Table 1). However, uneven policy implementation, particularly slippages in fiscal policy in 2004, posed risks for macroeconomic performance and fiscal sustainability. Consequently, Cameroon was unable to reach the completion point as originally envisaged under the second PRGF-supported program approved in October 2000. Macroeconomic policy implementation improved substantially in 2005, as evidenced by performance under the IMF Staff-Monitored Program (SMP) during the first half of 2005 and a new PRGF-supported program during the second half of 2005. Efforts made in 2005 to correct fiscal slippages contributed to restoring the conditions for macroeconomic stability and strengthening the foundations for sustained growth and poverty reduction.

Table 1.

Cameroon: Selected Macroeconomic Indicators, 1990-2005

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Sources: Cameroonian authorities and staff estimates and projections.

12. Economic growth in the non-oil sector, most closely related to reduction in the income-based measure of poverty, remained robust during 2001-05 following a similar trend during 1995-2000, accompanied by decelerating inflation (Table 1). Non-oil real GDP growth is estimated at about 4.9 percent per year on average during both these sub-periods, marking a significant turnaround from the negative growth trend registered in the first half of the 1990s. Growth during 2001-05 was driven primarily by a significant increase in tertiary sector activities as well as robust growth in both subsistence and cash-crop agriculture. Real GDP growth, however, is estimated at about 3.8 percent per year on average during 2001-05 owing to the large decline in oil production. The increase in growth was also accompanied by rising investment. The deceleration in inflation, observed in the second half of the 1990s, continued in the first half of the 2000s reflecting (i) efforts to improve the fiscal position—despite the uneven fiscal policy implementation (see below); and (ii) Cameroon's membership to the Central African Economic and Monetary Community (CEMAC) which fixes its nominal exchange rate vis-à-vis the euro.

13. Significant improvements were achieved in the fiscal position in 2005, in contrast with uneven budgetary performance during 2001-04 (Table 1 and Box 2).

  • The fiscal situation deteriorated significantly in 2004 due to slippages both in non-oil revenues and non-interest spending; both the overall budget balance and the non-oil primary fiscal balance deteriorated significantly. Under the second PRGF-supported program approved in October 2000, the mobilization of non-oil revenues was a key objective—in view of declining oil production—but the record was uneven.

  • The principal achievement of the authorities’ program in 2005 was the large fiscal adjustment, which allowed the government to start clearing domestic arrears and strengthen its position vis-à-vis the domestic banking system. The government exercised restraint on its non-interest and non-HIPC-related current spending, while also significantly improving non-oil revenue collection.

14. The external current account deficit (excluding grants) remained at a relatively low level, despite having deteriorated by about 1 percentage point of GDP per year on average during 2001-05 compared with 1995-2000 (Table 1). This deterioration was due mainly to (i) declining oil exports given the gradual depletion of Cameroon's reserves; (ii) a fall in coffee output, following the sharp decline in world prices; and (iii) the curtailment of lumber exports, following government actions to promote sustainable logging. The small appreciation of the real effective exchange rate may also have adversely affected the performance of the tradable goods sector. Nonetheless, the external current account position strengthened in 2005, reflecting an improvement in the terms of trade, although non-oil exports declined in volume terms primarily as a result of reduced lumber and coffee exports.

15. The staffs of IDA and the IMF conclude that Cameroon has met the trigger on the maintenance of macroeconomic stability and satisfactory implementation of the PRGF program. Macroeconomic stability has been broadly maintained throughout the interim period, as evidenced by robust non-oil real GDP growth and decelerating inflation. Although fiscal policy implementation was uneven during this period, significant strides were made in 2005 to improve the country's fiscal position. The reestablishment of fiscal discipline restored the conditions for macroeconomic stability. In the view of the staffs, Cameroon's performance under the PRGF-supported program provides a satisfactory track record of strong and sustainable policy performance.

Performance Under Fund-Supported Programs, 2001-05

Second PRGF-supported program. Following the successful completion of the first PRGF-supported program (PRGFI) in 2000, the IMF Executive Board approved in October 2000 a new three-year PRGF arrangement (PRGFII) covering the period 2000-03 (and later extended to 2004) concurrently with the decision point. The first three reviews under PRGFII were concluded as scheduled, but the fourth review was completed with a one-year delay in December 2003. The fifth review could not be concluded because: the quantitative performance criteria on the primary fiscal surplus and net bank credit to government were missed; eight out of ten quantitative benchmarks, largely in the fiscal area, were missed; and two structural performance criteria were not observed and the arrangement expired in December 2004. The program went off-track in 2004 owing primarily to fiscal slippages, including a significant decline in non-oil revenues and expenditure overruns, accompanied by unpaid bills by the government to utilities and suppliers. In addition, the financial situation of several public-owned enterprises, including the national airline (CAMAIR), deteriorated and adversely affected public finances.

Staff-monitored program. With the view of reestablishing the conditions for macroeconomic stability, along with sustained growth and poverty reduction, the government adopted a staff-monitored program (SMP) in early 2005. Public finances improved markedly in the first half of 2005, exceeding the SMP targets. This outcome reflected high oil prices and revenue, enhanced non-oil revenue collection, and improved expenditure control. Payments were made on domestic arrears, partly with the help of windfall oil revenue. At the same time, the composition of expenditure continued to be skewed towards current spending and investment execution remained low. Progress on structural reforms was mixed. The government improved its financial management substantially and enhanced transparency in the oil sector.

Third PRGF-supported program. Following satisfactory performance under the SMP during the first half of 2005, the IMF Executive Board approved a new three-year PRGF arrangement (PRGFIII) in October 2005. Under PRGFIII, policy implementation strengthened and all quantitative and structural performance criteria and benchmarks for the period July 2005-January 2006 were met. The overall fiscal position strengthened considerably in 2005 with the increase in non-oil revenues, reflecting strong improvement in tax administration and some progress in customs administration. Current spending and domestically-financed investment were in line with the program. The government continued clearing domestic arrears and replenishing the HIPC account. Progress was made in structural reforms. Privatization strategies for CAMAIR and CAMTEL were adopted. Significant strides were made in the areas of transparency and governance including: adoption of an updated National Governance Plan; progress towards implementing the EITI and publication of information on budget execution and oil sector data.

C. The Use of the Interim Debt Relief

16. HIPC debt relief grants were computed at the decision point assuming that Cameroon would reach the completion point by April 2003. As the interim period lasted three additional years, interim assistance from IDA ceased when the ceiling of interim relief of one third of expected total debt relief was reached. More specifically, IDA has delivered interim assistance in the amount of US$60 million in NPV terms through March 2003 and the IMF granted interim debt relief of US$14.6 million in NPV terms as of end 2005. Total assistance during the interim period amounted to US$201 million in NPV terms.

17. Interim debt relief assistance has been used in accordance with the criteria set forth at the decision point. This assessment takes into account, as noted below, the initial delays in the implementation of HIPC funded projects. To ensure the effective use of interim assistance for poverty reduction, at decision point, Cameroon agreed to: (i) establish a special Treasury account at the Bank of Central African States (BEAC) where the budgetary savings from HIPC relief would be deposited; (ii) establish a monitoring committee (HIPC Consultative Committee) consisting of representatives from the donor community and civil society; and (iii) undertake and disseminate technical and financial audits to ensure effective use of these resources in the form of the delivery of goods and services.

  • A special account was opened at the BEAC in October 2000 and the government started to make required deposits in this account including resources on account of HIPC Initiative debt service relief from official bilateral creditors. In 2003/2004, the government fell behind in depositing HIPC relief funds into the account but it is now up to date with the deposits and has cleared the arrears.

  • The HIPC Consultative Committee was established in October 2002 and initially provided guidance for the selection of good projects that could be eligible for the use of HIPC resources, including a percentage earmarked for civil society projects. Also, the government adopted in 2003 a budget nomenclature which allows the identification of poverty-related programs and projects. Delays had occurred in the implementation of HIPC-funded projects due to difficulties in putting the HIPC Consultative Committee in place, preparing high-quality projects and establishing transparent disbursement procedure. Execution rates of HIPC-financed projects were thus low in 2003 and 2004. The government has taken steps to improve the programming and execution of HIPC-financed projects including streamlining disbursement procedures, strengthening the capacity of the national consultative committee, and putting in place an information system for monitoring project implementation. As a result, the execution rate increased from 25 percent in 2003 to almost 100 percent in 2005. HIPC projects were targeted at improving public services delivery in areas ranging from education (construction and rehabilitation of schools, recruitment of temporary teachers), health care (including improving immunizations and combating malaria and HIV/AIDS), social development (including literacy projects), urban sanitation, rural development (including rural infrastructure), and justice.

  • Two technical and financial audit reports covering the use of HIPC resources respectively during July 2001–December 2003 and January-December 2004 have been produced, discussed with the Consultative Committee7 and made accessible to the public. The audits found that some projects were implemented without prior approval by the HIPC Consultative Committee and that part of the HIPC spending did not observe proper public procurement and execution procedures (e.g., spending without prior commitment orders). The government is implementing the recommendations of the audits focused on improving the management of HIPC resources by line ministries and on compliance with proper procurement and public spending procedures. The government has taken actions to address these problems. It has put emphasis on improving the procedures for preparing project proposals and established a control unit within the HIPC Consultative Committee to strengthen the monitoring of project implementation. In addition, special projects coordinators were designated in line ministries to supervise implementation of HIPC projects. The Consultative Committee is also encouraging the involvement of local communities and NGOs in the execution of HIPC projects. For example, 350 local associations and communities were involved in road maintenance projects. This package of measures has started to pay off and the execution rate for HIPC projects, including capital projects, has gradually picked up.

D. Reforms Under IDA's Third Structural Adjustment Credit (SACIII)

18. SACIII was concluded and the reforms were implemented in a satisfactory manner; therefore the related completion point trigger has been met. SACIII was closed in March 2004 after full disbursement of all tranches and the Bank's Implementation Completion Report (ICR) rated the implementation as satisfactory overall, a rating confirmed by the Bank's Independent Evaluation Group.8 The primary objective was to help improve Cameroon's competitiveness and thus to enhance economic growth, job creation and poverty reduction. Its components were (a) reforms of the financial sector; (b) restructuring/privatization of public enterprises, especially public utilities and agricultural parastatals; (c) reforms in the forestry sector, in order to enhance its sustainable development; and (d) reforms in the transport sector to improve the efficiency of transportation services.

19. SACIII was a politically and technically complex adjustment operation involving several components and sectors. The operation provided an umbrella for dialogue between the Bank and the government on structural/governance reforms and for building national ownership of the complex reform agenda. Although there was high level political support for the reforms, the commitment and technical capacity at the management level for the implementation of these measures were uneven and the reforms of SACIII were demanding on the national administrative apparatus. These factors, as well as a strong resistance to reforms by vested interests, particularly on the forestry, port and privatization areas, slowed the pace of reform. Nevertheless, SACIII achieved its development objectives in the financial, forestry and transport sectors and the privatization of agro-industries partially met its objectives. With the exception of the mobile telephone sub-sector, the privatization of utilities did not meet their development objectives although the actions taken on them met the credit requirements. Since the closing of SAC III, the government building on the experience under the credit, has continued its efforts to fully complete the privatizations. With assistance from the World Bank, it has prepared the water and telecom companies for privatization. In most cases, the process is now in advanced stages and the prequalification processes have indicated significant investor interest.

Financial sector

20. SACIII development objectives were achieved and all financial sector conditions linked to SACIII were satisfactorily implemented. The objectives of the reform program were to develop a stable, sound and efficient financial sector, boost public confidence in the financial system, and increase its capacity to finance productive economic activity. The banking and insurance systems were restructured. The state-owned commercial bank (BICEC) and insurance (SOCAR) were privatized, while the state-owned reinsurance company (CNR) was closed down. New banks have entered the market today and Cameroon has several banks that are solvent and profitable and meet international prudential standards.

Privatization of utilities and agro-industries

21. The objective of privatizing the utilities was to improve the availability and efficiency of services. The privatization of these utilities was politically sensitive, as these enterprises were not only among the largest employers in Cameroon, but also important instruments of political patronage. Progress in this area has differed across sectors. With respect to mobile telecommunications, the government opened the sector to competition by issuing two cellular licenses which has led to improved service and lower costs (particularly on international calls). The number of mobile subscribers (prepaid and postpaid subscriptions) now exceeds 2 million compared to less than 3,500 before the privatization began in 1997. The electricity company was also successfully privatized in 2001. However, while the fixed telecommunications (CAMTEL) and water (SNEC) companies were brought to the point of sale, fulfilling the requirements of the credit, the negotiations with the successful bidders were unsuccessful, the companies were not privatized9 and the development objective was not achieved. As noted earlier, the government has continued its efforts to privatize these utilities.

22. With regard to CAMTEL, the government has focused its efforts on establishing a policy, legal, and regulatory framework as well as strengthening of the incumbent operator, with the intention to re-launch the privatization process. For this purpose, in 2002, the government issued an interim concession to CAMTEL in 2002 with performance and minimum investments targets. A specialized international firm was recruited in 2003 to assist CAMTEL's management to prepare its privatization, repositioning the company to operate in a very competitive sector and enhancing its value. The management introduced new business practices and made some essential investments. In May 2005, the government hired a consortium, led by an investment bank, to re-launch the privatization in accordance with the new telecommunication and privatization strategies. The transaction envisages the sale of at least 51 percent of the company to a strategic partner with the fiber optic cable installed along the oil pipeline and SAT3 (the international submarine fiber optic cable laid between South Africa and Portugal and linking more than ten African countries) included in the privatization package. The pre-qualification process was launched in February 2006 and several international operators have expressed interest in bidding.

23. With regard to the water utility, the award of a concession for SNEC could not be completed because of limited investor interest. There was only one bid,10 and after a long negotiating process, the bidder notified the government in July 2003 that it was no longer willing to proceed within the agreed framework. The government appointed an interim administrator in March 2002 to manage SNEC and stem the deterioration of the company, which was on the verge of bankruptcy, while it considered its options for moving forward. The approach has met with some success. The new management team improved the operating performance and the financial position of SNEC—through strengthened billing and collection and made some essential investments. As a result, the “distribution ratio”11 significantly improved (reaching 77 percent in 2004) and the company enjoyed a slight positive surplus in 2003 and 2004. In 2004, the government decided to restructure SNEC as a public-private partnership (PPP). The government created the asset holding company CAMWATER that will carry the investment responsibilities, while the private partner will operate the facilities and deliver services under a lease contract. The prequalification process for the private partner was launched in January 2006 and several international operators expressed interest. The investment conference was organized in February 2006, and the invitation for bids is expected to be launched by mid-2006. Once a successful bidder is selected, the government and the operator will negotiate a lease contract, which will be one of the instruments of the regulatory framework for the sector (para. 40).

24. In agro-industries, the objective was to lift barriers to entry and attract new operators with capital, production and marketing know-how. This reform was to be completed through the sale of the four largest remaining public enterprises: Cameroon Development Corporation (CDC), Cameroon Palm Oil Company (SOCAPALM), Cotton Development Company (SODECOTON), and Cameroon Sugar Company (CAMSUCO) in order to mobilize the investments required to finance a large replanting and extension program. SOCAPALM and CAMSUCO were successfully privatized which has led to increases in planted surface and production. But the privatization of SODECOTON and the main agroindustrial complex CDC were unsuccessful. The sale of SODECOTON on a non-competitive basis prior to 1998 to a group of private investors was later cancelled by the government. The investors contested this action in court but the latter ruled in favor of the state in 2002, effectively nullifying the transaction. For CDC, the tea estates, a small part of its assets, were sold in October 2002. The three other crop units (palm oil, rubber, and bananas) received no bids. The government is working on a new strategy to ensure the successful privatization of SODECOTON and the palm oil and rubber plantations of CDC. The banana plantations have been under private management since 1987and will remain so until 2010.

Transport sector

25. In the transport sector, the objective was to ensure that the sector contributed to growth and poverty reduction through lower costs and more widely available, higher-quality services, both internationally and domestically. To this end, the SACIII called for regulatory, institutional, and management reforms in the port sector, maritime, rail and air transport and road maintenance.

26. For the port sector, institutional and regulatory reform, privatization of port activities, the rehabilitation of facilities, and the introduction of the single trade processing window made the port more efficient and operationally focused, and increase the availability and quality of port services. The Autonomous Port of Douala (PAD) is considered one of the principal gateways to West and Central Africa, and hence improvement in its operational efficiency was of major importance. The National Port Authority (APN) was created with responsibility for overall management and oversight of the four main ports including the PAD.12 Operations at each port were put under the management of autonomous teams and a consultative committee with private sector representation was created in the PAD. Commercial and industrial port activities of the PAD, including the container terminal, were privatized. The maintenance of the access channel, piers and basins was carried out through contracts awarded under competitive bidding processes. As a result, the maritime access to the PAD was improved and dwelling times were reduced, with the average stay in quay per ship reduced from 3.8 days to 1 day and the availability of navigation aids to the access channel improved. A single trade processing window was set up to expedite the services involved in the import/export of goods. A facilitation committee chaired by the private sector to closely monitor the efficiency of port and clearance operations, was established. As a result, clearance time has been shortened.

27. In the road sector, SACIII development objectives were achieved through a steady increase in the amount and quality of road maintenance financed by the Road Fund since its creation, which has led to a decrease in transportation costs. The reforms reorganized the Ministry of Public Works and established an autonomous Road Fund and made it operational. The government took actions to: (i) strengthen the planning and programming capacity of the Ministry of Public Works; (ii) ensure the adequacy and timely disbursement of the funds for road maintenance activities; and (iii) train private contractors and communities to incorporate environmental considerations into road maintenance. The Road Fund has improved the programming of road maintenance operations, revitalized private civil engineering and construction firms and reduced delays in payments to private contractors. Recently, the government has enlarged the mandate of the Road Fund to include rehabilitation work.

28. In the railways sector, a concessionaire, CAMRAIL, was selected in 1999, and has proved successful in raising the traffic level, while eliminating the need for government financial support to the sector. This concession is progressing well. CAMRAIL's operational performance13 has improved while CAMRAIL's financial performance in 2005 was the best since 1999, with a total turnover of CFAF48.4 billion and net profit of about CFAF2 billion. The rail sector has become a net income provider to the government (through tax and duty payments), which more than offset the remaining subsidies for passenger services. In 2005, the concession was amended (as per the conditions of the initial concession agreement) to clarify the respective responsibilities of the government and the concessionaire for investments and passenger services. Investments will be needed to expand overall traffic volume and improve service reliability, and this is currently under discussions between the government and lenders.

29. In the air transport sector, reforms aimed at improving competition and efficiency, are still under implementation. Key actions included: (i) revision of the civil aviation code to enforce competition in the sector and increase security in air transport; (ii) auction to private sector of the traffic rights to the twenty-seven international and regional routes not being operated; and (iii) privatization of the airline company (CAMAIR). Only the first objective was achieved. The financial losses at CAMAIR continued to increase and in 2004, the government decided to privatize the airline through a process wherein CAMAIR would be liquidated with the government settling all its debts, and a new private airline would inherit its route rights. In January 2006, the government accepted the recommendations of the team of advisers from the International Finance Corporation and the transaction has now moved into the implementation phase, commencing with the prequalification of potential airline partners. In March 2006, the government pre-selected four international airline companies. The process for orderly liquidation of CAMAIR has begun and will require the government to make the requisite funds available in a timely fashion.

Forestry sector

30. Reforms in the forestry sector were to promote sustainable exploitation of Cameroon’s forests and contribute to economic growth and poverty reduction. Specifically, these reforms focused on: (i) preservation of ecological stability; (ii) promotion of economically efficient, high value-added, unsubsidized processing industries; and (iii) encouraging participation of all stakeholders in forest conservation and management. The main actions included: adoption of new legislation on community forests, the environment, social and environmental impacts, and a new approach for managing protected areas; demarcation of the permanent forest estate into commercial, protected, and community and communal zones; suspension of all unmonitorable logging permits and the introduction of competitive bidding for all harvesting rights; the award of longer and more predictable concession contracts; definition of forest management requirements with clarity and the enforcement of the obligation to design and implement forest management plans; use of public information and independent observers to ensure transparency in forest allocation and law enforcement in a weak institutional environment; adoption of new forest taxation structure and revenue recovery system; and obligation to hold bank guarantees to facilitate compliance with fiscal and environmental regulations.

31. Overall, the forestry sector has been reformed in fundamental ways. These reforms have introduced and institutionalized new approaches to forest governance, brought transparency in awarding concessions, and led to the distribution of public forest revenues between local and national governments. Revenues from forestry to the state and local communities increased substantially. Access to “production” forests has become competitive, and a functioning market for forestry operations emerged for the first time. The forest industry has been restructured significantly; volumes harvested have declined; a number of companies have sold their activities to new investors and new firms have been established. New investments, focused on advanced processing, have resulted in strong employment growth in the sector.

32. Nonetheless, there is need for continuing vigilance to ensure that the gains of the reform are enhanced and preserved and that the sector adapts to evolving challenges. The strides made against illegal logging in Cameroon's formal sector show little parallel results in the informal sector. While the establishment of community forests addresses the imbalance between corporate and local stakeholders, the capacity of forest dependent communities to utilize the resources newly available to them remains weak. Capacity building for government ministries and agencies therefore needs to be extended downwards to support forest communities and local municipalities. A recently-approved IDA Forestry Development Policy operation is part of these on-going efforts to further strengthen forestry management.14

E. Governance

33. In June 2000, the government adopted the five-year (2000-05) National Governance Program (PNG), a comprehensive package of measures aimed at improving governance, which includes: fighting corruption, strengthening public financial management, transparency, accountability and participation in public affairs, and improving justice and human rights. In addition, a subset of priority actions from the PNG was attached to the I-PRSP as a Priority Action Plan (PAP) for improving governance.15 The adoption of the PNG and the preparation of the priority action plan reflected acknowledgements of Cameroon's poor record of governance at the time of the decision point. In 2000, Transparency International's Corruption Perception Index for Cameroon was 2.0 (on a scale of 0 to 10, with a higher number indicating better governance), and Cameroon was 84th out of 90 countries ranked. As a result of the reforms under the PNG in the last five years, including on public procurement and financial management, and the participation of the civil society in public affairs, there have been gains in governance and some improvements in governance rankings. Nevertheless, the challenges to improving governance remain significant and, with the institutional frameworks in place in many areas, sustained emphasis on implementation is required to progressively achieve concrete results. On balance, the staffs’ judgment is that progress has been made in the area of governance, including fulfilling the specific triggers of the enhanced HIPC Completion Point and that prospects for further improvement are good.

Enhanced HIPC Triggers

34. The actions have been implemented satisfactorily and the completion point triggers have been met. The enhanced HIPC triggers, a sub-set of the PAP are the: (i) creation of the Chambre des Comptes(Audit Chamber) of the Supreme Court and the Constitutional Council called for by the 1996 Constitution; (ii) reform of the public procurement system; (iii) completion of budget tracking and beneficiary assessments for education and health; and (iv) establishment of autonomous regulatory agencies for key sectors (including water, electricity and telecommunications).

35. The Chambre des Comptes has been created. The law specifying the responsibilities, organization, and functioning of the Chambre des Comptes was adopted by the National Assembly in March 2003, promulgated by the Head of State on April 21, 2003. In October 2003, the authorities set up an ad-hoc committee to prepare and implement a plan to make the Chamber operational. The Committee was charged inter alia with the (i) preparation of the content and format of the administrative and management accounts; (ii) preparation of the text defining the statutes of its members; (iii) preparation of the budget; (iv) recruitment of financial magistrates and support staff; and (v) development of training modules. Twenty two magistrates were recruited in late 2005, and the Chambre des Comptes became operational in January 2006 and started examination of the 2004 financial accounts.

36. The Constitutional Council has been created. The enabling legislation for its establishment was adopted by the National Assembly in March 2004 and promulgated on April 21, 2004. In June 2005, the President signed the decree 2005/250 on the organization of the Secretariat of the Constitutional Council. The related secretariat is expected to be in place by August 2006, paving the way for making the Council fully operational by 2007.

37. The public procurement system has been reformed. The centerpiece of the reforms was a new Procurement Code of 2004, which has a legal and regulatory framework that conforms to international standards and is characterized by respect for competition, transparency, efficiency and economy. A regulatory authority (ARMP) to oversee the public procurement function was created in February 2001. Procurement committees have been set up in agencies at national and local level and independent observers have been appointed to these committees. Annual audits of public procurement contracts have been conducted by an independent consulting firm for the period July 2000-June 2001, July 2001-December 2002, January-December 2003, and January-December 2004. On the basis of the conclusions of the audit reports and an evaluation of the first years of the reform, in 2004 the government organized a round table in 2004 with private partners, donors and government officials and discussed the progress and obstacles in the implementation of the reforms and made recommendations for strengthening implementation including:

  • Sanctions: In line with the identified need for systematic sanctions on violations of the procurement rules, the ARMP has conducted a study to develop a framework for the application of sanctions and prepared a manual of procedures. With regard to the dissemination of information on non-compliance, the government has published all sanctions taken since 2004. It is now enforcing the statute barring any enterprise that has violated the procurement rules from bidding for contracts and all enterprises are now required to provide a certificate of “non exclusion” from the ARMP in order to compete.

  • Addenda and slicing of contracts: The legal position on contract addenda (additional work to an existing contract) and the slicing of contracts to fall below the threshold requiring public tender have been addressed in the Procurement Code. Furthermore, to discourage slicing, the payment of registry fees has been made mandatory for all contracts.

  • Operational manuals: To facilitate the implementation of the reforms, the ARMP has prepared and published several operational manuals, including a user's guide, a draft manual of procedures for executing agencies, and a draft General Conditions of Contracts, as well as draft models of tender documents.

38. In 2005, the government and the World Bank, in collaboration with the civil society, the private sector and other donors, carried out a country procurement assessment review (CPAR). Following this, a procurement improvement action plan for the period 2006-2008 was adopted and is now under implementation. The CPAR, which used the baseline indicators developed by OECD-DAC,16 concluded that significant progress had been made over the last five years and that the foundations of the national procurement system are in place, with a score of 69 on a scale of 100. The authorities have also agreed to make the CPAR public.

39. In 2003-2005, the government carried out budget tracking and beneficiary assessment surveys in the health and education sectors. These surveys found a number of problems related to omission of some facilities from the budget, lack of timely information of facilities on amounts of budget allocations, and poor record keeping on finances at the facility level. The findings and recommendations of the surveys have been disseminated and actions have since been taken to deal with the bottlenecks. There are ongoing efforts by the government to use (i) the media to keep the public informed of the progress in the preparation of the budget and its approval by the legislature, and (ii) the participatory PRSP monitoring system to disseminate information on the budget and assess performance. Civil society organizations have become engaged in budget monitoring, independent of the government.

40. Autonomous regulatory agencies have been established for key sectors. The agencies for the electricity and telecommunications sectors are in place and are operating satisfactorily. For the water sector, following the advice of World Bank staff, a simplified regulatory framework that does not involve a self-standing agency has been adopted.

  • In the telecommunications sector, an autonomous and independent regulatory telecoms agency (ART) has been established and is developing its capacity as a regulator. ART has tackled several key regulatory issues with the advent of competition in the sector such as issuance and monitoring of licenses and authorizations, and tariff and interconnection regulation. The government and ART are currently reviewing the mobilization of the Universal Access Fund and its allocation mechanisms in order to start investing in selected areas.

  • In the power sector, an independent electricity regulatory agency (ARSEL) was created and began operating in 2001. It is not financed by the government but draws its resources from a surcharge on power tariffs collected by the power company, AES Sonel. ARSEL, which started exercising its mandate effectively in 2004, is fully operational and compares well with regulators in neighboring countries. It reviews and authorizes changes of power tariffs requested by AES Sonel, assesses the business plan of the utility and its long-term investment plan, monitors the process for the granting of licenses, and participates in power sector planning. In addition, it has coordinated the preparation of the complex studies for the Lom Pangar dam project. It is therefore active in the key functions of power sector regulation. The government and ARSEL have prepared, with the support of the World Bank, a plan for the reinforcement of the capacity of ARSEL.

  • In the water sector, following the advice of World Bank staff, the authorities decided that the framework for the regulation of the sector should be through the provisions of the lease contract between the government and the lessee company rather than through the creation of a water regulatory agency. Such a framework is more efficient for regulating a single provider. The regulatory framework is in place and will be operational once the operator is selected and the lease signed, a process that is underway (para. 23). The framework consists of (i) a lease contract provisions that set up performance incentives and penalties for the private operator; (ii) a performance contract between the government and the public assetholding company; (iii) the use of a sectoral financial model to set tariffs and investments; and (iv) a Technical Monitoring Committee to monitor both the lease contract and the performance contract and propose the tariff revisions on the basis of the outcomes of the sectoral financial model. The financial model was completed by end-November 2005 and was presented and discussed at the private investor conference in February 2006.

Progress on Governance and anti-Corruption Reforms

41. Since reaching the Decision Point, Cameroon has carried out a range of reforms under the PNG, focusing on those actions in the PAP. Actions have been taken to improve public financial management, enhance the transparency of petroleum sector operations, strengthen the judicial sector, and enhance the participation of civil society in public affairs and their access to public information. Furthermore, the structural reforms undertaken in forestry (para. 30-32), transport (para. 25-29), social sectors (para. 52), and procurement (para. 37) have stressed transparency, accountability and participation and thus contributed to better governance. Box 3 provides a summary of the actions in the areas of governance and anti-corruption reforms. Although the implementation of these reforms began slowly, its pace and scope has picked up in the last two years. As a result of the reform efforts, Cameroon's rankings on corruption, such as those from Transparency International's Corruption Perception Index (from 2.0 in 2000 to 2.2 in 2005) and the Governance Research Indicator Country Snapshot (GRICS) indices of governance and control of corruption compiled by WBI, have been improving. In the latter, Cameroon's index on control of corruption has consistently improved since 2000 with the percentile rank rising from 7.5 in 2000 to 25 in 2004. With the essential elements of the legal and institutional framework for improving governance and combating corruption in place, the challenge going forward is to put emphasis on and sustain implementation

Cameroon: Summary of Actions to Improve Governance and Reduce Corruption

The government, concerned about the adverse impact of poor governance and corruption on socio-economic development, adopted the National Governance Program (PNG) in 2000 to support sustainable growth, poverty reduction, and social inclusion. It established anti-corruption institutions such as the National Anti-Corruption Observatory (under the leadership of the Prime Minister), a permanent watchdog body in the education sector; anticorruption units in all ministries and some public agencies, and positions of inspector-general in ministries to liaise with the anti-corruption units in fighting corruption. It also adopted and is implementing a new public procurement code; established a regulatory agency to oversee public procurement; and has imposed and published sanctions for violations of public procurement rules in the Public Procurement Journal. To improve public financial management, it implemented reforms in budget preparation and execution, and strengthened budget management information systems (Box 4). Together with reforms in the forestry, maritime, air and road transport sectors, these measures represent a major departure from the earlier decades. The reforms under the PNG have also resulted in more openness in the economy and, inspired by the PRSP, a greater participation of the civil society in public affairs.

Following the elections in 2004 and the appointment of a new government in November, the authorities have stepped up the pace of implementation of fiscal, structural and governance reforms. Since then, Cameroon has moved expeditiously on governance related actions to: (i) improve budget reporting and transparency; (ii) establish and make operational the Audit Chamber (Chambre des Comptes); (iii) adhere to and implement the EITI; (iv) apply sanctions for violations of procurement rules; (iv) sensitize the population on corruption; (v) publish in local newspapers the names of more than 70 top civil servants accused of embezzling public funds; and (vi) dismiss and arrest a number of top public officials including ministers suspected of corruption. A revised national governance program was adopted in November 2005 and is under implementation.

42. Progress has been made in improving public finance management (PFM). While the PFM system still faces many challenges, the reforms undertaken over the years with the support of the World Bank, the IMF and other donors, have resulted in systemic improvements. In the HIPC AAP reviews, Cameroon has progressed from satisfactory ratings in 4 out of 15 areas in 2001 to 7 out of 16 areas in 2004. Box 4 contains an assessment of the Cameroonian budget management system, based on the HIPC monitoring framework.17 Budget allocations to the priority sectors of the PRSP, particularly education, health and infrastructure, have progressively increased since 2000. An integrated public finance information system (SIGEFI) is in place and functioning and has improved the monitoring of the flow of resources and the timeliness of fiscal reporting. As noted earlier, a supreme audit body (the Chambre des Comptes) has become operational. The government intends to expand the mandate of the Chamber to conform to the norms of the International Organization of Supreme Audit Institutions (INTOSAI) after two years of operations within its current mandate and once the appropriate capacity has had a chance to develop.18 The foundations for the introduction of the MTEF approach to budget management are in place, with the development of sector strategies and expenditure plans consistent with the strategies. Indeed, the government has defined several criteria to guide resource trade-offs in budget allocation and is revising the budget preparation calendar to make the MTEF the cornerstone of budget preparation. The staffs estimate that Cameroon is now ready to use its global MTEF to prepare the 2007 budget.19

Progress in Public Finance Management Since Reaching the Decision Point

Budget formulation

  • The budget is now more comprehensive as it incorporates central government operations, the road fund, and more recently the integration into the budget framework spending that used to be financed directly through national oil company (SNH).

  • The budget preparation process now involves pre-budget and budget conferences to strengthen involvement of line ministries and allow sufficient prior detailed discussion of their proposals.

  • The budget nomenclature adopted in 2003 allows expenditure classification on an administrative, economic and detailed functional basis. The functional nomenclature permits the tracking of expenditures devoted to the fight against poverty. The new nomenclature is detailed and comprehensive but lacks program and output/results codes. Further work will be needed to simplify it and provide for program classification.

  • Sector strategies and MTEFs have been developed, with World Bank support, for the ministries of education, health, rural development and public work to support budget preparation and align the budget to its strategic priorities. The preparation of sector strategies and MTEFs for a number of other ministries (including justice, telecommunications, and social development) is underway.

  • Budget allocations to the priority sectors of the PRSP, particularly education, health and infrastructure, have been progressively increased since 2000.

Budget execution

  • An integrated public finance information system (SIGEFI) was introduced. It has improved the tracking of the flow of resources through the budget execution chain, facilitated the preparation of budget execution reports and the regular reconciliation of receipts and payments, and improved the transparency of budget management.

  • Budget execution management improved through (i) computerizing budget transactions; (ii) discontinuing the use of special procedures that bypass the expenditure chain in January 2006; (iii) payment of domestic debt and arrears according to a multi-year payment plan adopted in 2000; and (iv) regular payment by the government of its quarterly bills to public utilities (water, telecommunications, electricity, and transport services) and the monitoring of public enterprises, including their external debts.

  • Procurement reforms have included (i) the decentralization of procurement responsibility by individual ministries, with oversight by a regulatory agency; (ii) the appointment of independent observers in the deliberation of all public procurement committees; (iii) annual independent audits of public procurement since 2001; and (iv) posting of prices for various services provided by the government to reduce the scope for corruption.

  • An internal control system exists but remains weak due in part to the lack of clarity of the mandates of the various control units and some difficulties caused by the transition from manual data to computerized information systems.

  • The payroll management is being decentralized in order to make line ministries accountable to the daily management of their personnel. This program is now operational within several pilot ministries—primary and secondary education, health, finance and civil service. A computer management information system (SIGIPES) has been introduced to facilitate and coordinate this decentralization. In 2005, the government updated the personnel file, which led to the elimination of about 3,000 so-called “ghost” employees. The authorities are now tightening the security of the payroll management system against fraud and mismanagement before extending this decentralization process to other ministries.

  • Treasury and debt management: The majority of government accounts held in commercial banks have been closed and their balances transferred to the single treasury account at the BEAC. Procedures have been adopted to centralize cash management through the creation of a permanent committee in charge of managing the treasury. An independent audit of domestic debt was undertaken and a new debt service schedule for 2006 and beyond is being implemented.

  • The quality and timeliness of fiscal reporting have improved. Monthly fiscal data are now available within one month of the reporting period and are consistent on a commitment and cash basis. The government has begun publishing monthly budget execution monitoring documents on a regular basis since mid-2005. The accounting nomenclature has been adapted and harmonized with the budget nomenclature, thus facilitating the preparation of financial accounts. The Audit Chamber became operational in the beginning of 2006.

43. The task now facing the authorities is to build on the past reforms to progressively enhance the effectiveness of the financial management system. The Donor Public Finance Platform has recently been organized to assist the government in a coordinated manner in this task. In this context, discussions have been held with the government on a multi-year plan for improving the PFM and provide the basis for government reform actions and coordinated donor support. A number of tasks are underway to support the preparation of this plan. In the meantime, the government is revising the Public Finance Act (which dated from 1962) to: (i) improve the accountability of public managers and the management of appropriations; (ii) streamline public finance procedures and simplify the accounting system to further improve transparency; and (iii) introduce performance-based multi-year budgeting system anchored on programs with monitorable indicators. This will facilitate the implementation of the mediumterm expenditure framework (MTEF) that is critical for aligning the budget with the PRSP.

44. In the oil sector, the government has adhered to the Extractive Industries Transparency Initiative (EITI) and has moved rapidly to the implementation phase. In 2005, past audits of the national oil company (SNH), certified by a public accounting firm, were made public and subsequently, SNH published production, sales and revenue data for the first half of 2005 and pledged to update this information quarterly.20 In October 2005, a multistakeholder EITI Committee was created with the mandate to formulate an action plan to implement the EITI. Prior to its adoption on January 16, 2006, this plan was published in major newspapers and discussed with the civil society and oil companies. Civil society and other stakeholders have since then been increasingly involved in the efforts to increase transparency in the oil sector. In particular, the authorities approached oil companies to agree to publish key parameters of production sharing. The government has created a technical EITI Secretariat, established a steering committee and is recruiting a qualified independent conciliator to collect and reconcile data on petroleum production, payments made by the companies to the government and the corresponding receipts by the government for 2001-2004 and 2005. The first EITI report is expected to be available by July 2006. This report will consist of a compilation and analysis of production and financial data of the oil companies, including payments made to the government and its agencies, and the payments received and recorded by the government and its agencies.

45. Some progress has been made in strengthening the judicial sector. The government conducted a technical diagnostic study in 2002 that identified the causes of poor performance of the Cameroon justice system. The study recommended actions to improve the operations of the courts and the application of judicial procedures, improvements in remuneration of judges and other justice staff, capacity building renovation and expansion of facilities, and the reforms of judicial organization and procedures. Consequently, a new penal code was approved in June 2005 and promulgated in July 2005. A priority action plan to reform the judicial sector is under implementation. This plan aims to (i) consolidate judicial independence; (ii) step up the anticorruption drive in the judicial system; and (iii) improve the application of laws, court decisions and penalties. To help reduce bottlenecks in the system, the Ministry of Justice has been recruiting and training magistrates. The government also ratified the UN Convention against cross border crime.

46. Since the decision point, the participation of the civil society in public affairs has been strengthened. Some examples already include the presence of independent observers in procurement committees, the establishment of a facilitation committee chaired by the private sector in the Port of Douala, the presence of independent observers in bidding process for forestry allocations and in monitoring the implementation of forestry management plan, and the participation of the civil society in the EITI process. The authorities have also institutionalized stakeholder participation in the implementation and monitoring of the PRSP. This arrangement was recognized as good practice in a World Bank comparative assessment of PRS processes.21 In particular, the government has made significant efforts to strengthen transparency through the regular publication of: budget execution reports, accounts of the SNH, various audits reports (e.g., execution of HIPC expenditure, compliance with forestry rules22) as well as sanctions (e.g., for violating procurement or forestry rules), and the use of the media to publicize government policies and other activities.

47. In November 2005, the government adopted an updated PNG (PNGII) and its priority action plan, with emphasis on high-impact results to be measured through monitorable performance indicators. This PNG covers democratic, administrative and economic governance, with a specific subcomponent on the fight against corruption. The government intends to sustain the recent accelerated pace of reforms in 2006 and beyond to underpin its efforts to accelerate economic growth and meet the ambitious targets of the PRSP. It has launched the implementation of PNG with two important actions: (i) establishing an independent agency to spearhead the anti-corruption drive; and (ii) presenting a draft bill to the 2006 parliamentary session that would require asset declaration by public officials, including the President, the Prime Minister, other ministers, high officials in government and public enterprises and members of the National Assembly.

48. The progress on governance reforms since the Decision Point, and especially in the past two years, provides the basis for belief that the government will sustain the pace of implementation of these reforms, with continued improvements in governance trends. Apart from the commitment of the government to these reforms and the involvement and support of other domestic stakeholders, the continued support of Cameroon's main development partners will be crucial for sustaining the momentum of the implementation of the reforms. The government has worked closely with the development partners in finalizing the PNGII and is seeking donor support in its implementation. The Donor Platform for public finance, created initially to support the government on improving public financial management, will also work with the authorities to provide coordinated support for the broader governance agenda of the PNGII.

F. Social Sector Policies

Education sector

49. The staffs have concluded that the government has met the triggers for education. In 2000, the government launched reforms of the education system based on the sectoral strategy prepared with the participation of major stakeholders. This has resulted in significant progress in enrollment as well as gender and regional equity in primary and secondary education. Recent statistics show that the admission rate of six year-old children into grade one has reached 95 percent, the gender parity index 85 percent and the gross enrollment rate 101 percent in primary education, compared with significantly lower rates a few years before. However, progress in the quality of education has been relatively modest, and efficiency rates remain low. In particular, only six children out of ten currently complete their primary education and repetition rates in primary and secondary education remain at about 25 percent. Recognizing the ineffectiveness of current assessment practices and their adverse impact on repetition rates, the Ministry of Basic Education (MINEDUB) has introduced modern assessment methods and is retraining all teachers in their use. At the same time, administrative measures23 have been introduced to curb the higher-grade repetition in primary education. The government completed an in-depth review of its education system in 2004 (Country Status Report, 2004) and is currently updating the 2000 strategy to address shortcomings in quality and efficiency, explore long-term financing options, and prepare an action plan for universal basic education by 2015.

50. With regard to school construction, by November 2005, the MINEDUB completed the construction of 3,768 new classrooms. Given the inadequate supply of classroom and the expected growth of enrollment, this effort would need to continue while rationalizing the distribution of new classrooms among provinces to reduce current disparities.

51. Regarding teacher statutes and the decentralization of teacher management, new teacher statutes were adopted in December 2000 and the decentralization of the management of teachers started in 2001. For the implementation of decentralization policy, the Ministry of Basic and Secondary Education have adopted the SIGIPES software as a centerpiece of its teacher management system. The system is currently implemented at the central government level and its deployment in the ten provinces is planned over the next few years. Provincial decentralization needs further empowerment to take teacher assignment decisions that are necessary to reduce disparities among schools.

52. The Ministry of Education has confronted corruption by encouraging the audit of schools and administrative entities by a permanent regulatory body (Observatoire de la Gouvernance). The members of the Observatoire comprise prominent and independent-minded citizens, and report directly to the Minister of Education. The Observatoire’s missions are to: (i) monitor the administration of the education system; (ii) signal cases of dysfunctional activities and practices; and (iii) propose corrective measures. Since its establishment three years ago the Observatoire has been documenting and reporting corruption cases, and has triggered a number of sanctions on corrupt public officials.

Health sector

53. The staffs have concluded that the government has met the triggers for the health sector. The Health Sector Strategy, prepared through extensive consultations with key stakeholders, was issued in July 2002. Its main goals were to: (i) decentralize health services, promote partnerships and improve transparency and efficiency in public resource management; (ii) clarify roles and responsibilities of all stakeholders in the provision and financing of health services; and (iii) prepare sub-sectoral strategies for addressing priority public health issues (e.g., HIV/AIDS, malaria, children's’ health, reproductive and maternal health) and for improving access to basic health services. Implementation has been satisfactory. The Ministry of Health has been restructured and a number of the major public health programs (e.g., immunization, malaria, HIV/AIDS) have been revamped. The government has also tackled the issue of human resources that is central to improving access to health services. In 2001, new legal statutes were adopted, to allow salary supplements for work in underserved areas, lay out rules on staff conduct, and assign personnel management responsibilities previously handled centrally to the Ministry of Health. The ministry is putting in place a computerized personnel management information system and a human resource plan that deals with, inter alia, performance incentives, deployment of personnel and the recruitment of contractual staff for underserved areas on a competitive basis.24

54. Progress on immunization coverage has been excellent with the narrowing of differentials between the poor and non-poor. The coverage rate for DPT3 (diphtheria, pertussis, tetanus) increased from 43 percent in 1998 to 76 percent in 2005. While in 1998 coverage rates for children in the highest wealth quintile were 2.2 times higher than in the lowest, by 2004 this differential was narrowed to 1.5. These improvements were achieved through the introduction of important organizational, financial, and programmatic measures. The national program has adopted the “Reach Every District” strategy to address inequality in coverage rates by focusing on poorly performing districts. The program has begun contracting health districts and making them accountable for results. In parallel, financing of immunization services has also received a major boost from HIPC resources particularly in the acquisition of vaccines and equipment. Specific efforts are also being made to monitor individual children and program performance through the reintroduction of vaccination cards.

55. Progress has been made on restructuring, reinforcing and implementing the malaria program.25 The World Bank estimates that roughly 69 percent of pregnant women received impregnated bed nets.26 This demonstrates considerable progress compared to the situation prevailing at the decision point where the use of impregnated bed nets was close to zero. HIPC resources and resources from the Global Fund were instrumental in the distribution of free impregnated bed nets to pregnant women and children under five through the establishment of 10 NGO-run provincial impregnation centers. In addition, over 300,000 bed nets were distributed to children under five through the Global Fund executed grant. This progress has resulted from the government's implementation of a national Malaria Strategic Plan, in line with the Roll Back Malaria (RBM) initiative. A RBM committee has been established, and technical groups were formed and training provided at central and provincial levels, and an excellent national communications plan was launched with some 100,000 fliers distributed in 2005.

HIV/AIDS

56. Cameroon has satisfactorily implemented the measures to fulfill the triggers on HIV/AIDS. The government has made the fight against HIV/AIDS a priority in its development agenda. The 2000-05 HIV/AIDS strategic plan provided a sound framework for the multisectoral and decentralized approach to combating the HIV/AIDS epidemic. According to the 2004 Demographic and Health Survey (DHS), the HIV infection rate is estimated at 5.5 percent with substantially higher rates for females (6.8 percent) than males (4.1 percent). Notable progress has been made in increasing the availability of condoms (i.e., 37 million distributed in 2005), carrying out mass media campaigns with special actions targeted at high risk groups, rapidly scaling up and implementing the prevention of Mother to Child Transmission Program through the establishment of some 420 sites nationwide, expanding access to voluntary counseling and testing through the establishment of nationwide network of 19 sites which have tested over 53,000 persons, providing care to those living with HIV/AIDS, and expanding access to treatment through the decentralization of the 21 accredited treatment centers to an additional 30 sites to bring services closer to those in need and facilitate follow up.

  • Condom use: Condom use has improved substantially. The 2004 DHS survey indicated that 54.7 percent of men and 40.5 percent of women who had high risk sexual relations used condoms. A 2004 study in 2004 found that 78 percent of commercial sex workers use condoms.

  • Communication campaign: The DHS survey indicates that (i) 97.8 percent of women and 99.2 percent of men are aware of HIV/AIDS; and (ii) 68.7 percent of women and 82 percent of men are aware that using condoms or limiting sexual relations with one partner, help to reduce the risk of contamination.

  • The Prevention of Mother to Child Transmission program: In total, about 80,000 pregnant women or 13 percent of all pregnant women attending antenatal clinics are covered through the program.

  • ARV treatment: Cameroon has also made good progress in scaling up access to treatment for people living with AIDS. As of the end of 2005, roughly 18,000 people are estimated to benefit from the government's subsidized anti-retroviral therapy program. The cost of treatment for AIDS patients has been reduced in 2005 (i.e., from CFAF 16,000 to CFAF 3,000) to cover exams in addition to the drugs.

G. Staff Assessment

57. The staffs recommend a waiver for the nonobservance of the completion point trigger related to the establishment of a regulatory agency in the water sector. In the case of the water regulatory agency, the authorities decided, following advice by World Bank staff, that the sector should be regulated through the provision of a lease contract between the government and the lessee company, rather than through the creation of a water regulatory agency. The regulatory framework is already in place and will become operational as soon as the lessee company will be recruited. Given the satisfactory implementation of the reform in the water sector, staffs are of the view that a waiver be granted.

III. Debt Sustainability Analysis Update

A. Updated Data Reconciliation and Revision of Assistance

58. Staffs of IDA and the IMF, together with the Cameroonian authorities, have reviewed the stock of debt at end-June 1999 against creditor statements. Nominal stock of debt at end-June 1999 has increased by US$17 million to US$7,819 million and the NPV of debt after the delivery of traditional debt relief increases by US$2 million to US$4,693 million (Table 2). Revisions to debt and export data27 result in an increase of HIPC assistance estimated at decision point from US$1,260 million in NPV terms to US$1,267 million. As Cameroon's decision point was reached prior to the approval of the new information reporting decision by the Boards, the country qualifies for an upwards revision of assistance.28 Accordingly, the NPV of debt of each creditor will be reduced by 27.0 percent, after the application of traditional debt relief, instead of 26.9 percent determined at the decision point (Table 3).

Table 2.

Cameroon: Revised Nominal Stocks and Net Present Value of Debt at Decision Point by Creditor Groups as of end-June, 1999 1/

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Sources: Cameroonian authorities and staff estimates

Information based on latest data available at completion point.

Stock of debt operation on Naples terms from official bilateral and commercial creditors.

Table 3.

Cameroon: Estimated Assistance at Decision Point (Amended) 1/

(In millions of U.S. dollars in end-June 1999 NPV terms, unless otherwise indicated)2/

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Source: Cameroonian authorities; and staff estimates and projections.

Assumes proportional burden-sharing as described in “HIPC Initiative: Estimated Costs and Burden-Sharing Approaches” IDA/SEC M97-306;7/7/97), that is, after full application of traditional debt relief mechanisms.

Using six-month backward-looking discount rates at end-June 1999 and end-June 1999 exchange rates.

Each creditor’s NPV reduction at the decision point in percent of its exposure at the decision point.

Applies a hypothetical stock-of-debt operation on Naples terms for data at end-June 1999.

Based on revised data at end-June 1999 after full application of traditional debt-relief mechanisms.

Uses the latest annual data at the completion point on the three-year average of exports of goods and nonfactor services.

59. The somewhat higher stock of debt outstanding at the time of the decision point reflects new information pertaining to the debt of state-owned enterprises (SOEs) and revisions in the outstanding stock of debt at the time of the decision point. In particular, the newly reconciled stock of debt at end-June 1999 includes US$19 million in loans contracted by SOEs, not considered at the time of the decision point. Discrepancies with the decision point data were noted during consultations with creditors after the decision point document was published. The main data revisions are as follows:

  • Multilateral Creditors. The NPV of debt to IDA was revised downwards from US$359 million to US$345 million as a result of revised debt service projections.29 Similarly, a revision of repayment terms lowered the NPV of debt to the African Development Fund (AfDF) from US$30.3 million to US$29.7 million. The NPV of debt of the Islamic Development Bank (IsDB) was revised downwards from US$7.3 million to US$6.0 million to account for lower arrears than considered at the time of the decision point. Finally, the NPV of debt owed to the Central African States Development Bank (BDEAC) was revised upwards from US$2.7 million to US$6.2 million to account for a loan to a SOE not included in the stock of debt at the time of the decision point.

  • Bilateral creditors. The NPV of debt to Austria and France after delivery of traditional debt relief was revised upwards by US$0.9 million and US$2.6 million respectively. The NPV of debt to Germany after traditional debt relief was revised downwards by US$1.4 million.30

  • Commercial creditors. The NPV of Cameroon's commercial debt after delivery of traditional debt relief was revised upwards by US$12 million.31

B. Status of Creditor Participation in the Enhanced HIPC Initiative

60. Cameroon has received financing assurances of participation in the enhanced HIPC Initiative from creditors representing 94 percent of the NPV of HIPC assistance estimated at the decision point. Most multilateral and Paris Club creditors have confirmed their participation in the HIPC Initiative and the authorities are working towards reaching agreements with all remaining creditors (Table 4).

Table 4.

Cameroon: Status of Creditor Participation Under the Enhanced HIPC Initiative

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Sources: Cameroonian authorities, and staff estimates. Interim assistance is being provided through Cologne flow, and some creditors have cancelled 100% of flow during interim period. Stock of debt operation under cologne terms (90 percent in NPV reduction) is expected at completion point

Multilateral creditors

61. The amount of HIPC assistance from multilateral creditors totals US$322 million in NPV terms or 25 percent of total HIPC assistance (Table 3). IDA, the IMF, the AfDB, and the European Union, have provided interim assistance.32 All creditors, with the exception of BDEAC have committed to provide the required assistance once Cameroon reaches the completion point.33

62. The IMF. Enhanced HIPC assistance from the IMF amounts to SDR28.6 million (US$37.0 million) in NPV terms at decision point. Of this amount, the IMF has already disbursed as of end-2005 SDR11.3 million (US$14.6 million) in the form of interim assistance.34 At completion point, the IMF will provide the remaining amount of HIPC assistance totaling SDR22.3 million (equivalent to US$28.8 million).35 IMF assistance is estimated at SDR35.0 million (US$ 45.3 million) in nominal terms and represents a reduction in debt service of 21 percent on average over the period 2000-10, excluding the year of suspension (Table 5).

Table 5.

Cameroon: Delivery of IMF Assistance under the Enhanced HIPC Initiative and the MDRI, 2000-2010 1/

(In millions of SDRs, unless otherwise indicated)

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Source: IMF, Finance Department and staff estimates.

Total IMF assistance under the HIPC Initiative is SDR 28.62 million calculated on the basis of data available at the decision point, excluding interest earned on Cameroon’s account and on committed but undisbursed amounts, as described in footnote 5. The amount of IMF assistance committed at the decision point is adjusted upwards from SDR 28.51 million to SDR 28.62 million owing to data revisions.

Reflects the projected delivery of HIPC assistance in the absence of MDRI decision.

Forthcoming obligations estimated based on rates and principal schedules in effect as of December 1999. Interest obligations include net SDR charges and assessments.

A final disbursement of SDR 17.37 million assumed to be deposited into Cameroon’s Umbrella Account at the completion point in April 2006.

Includes estimated interest earnings on: (1) amounts held in Cameroon’s account; and (2) up to the completion point, amounts committed but not yet disbursed. The projected interest earnings are estimated based on assumed interest rates which are gradually increasing to 5 percent in 2010; actual interest earnings may be higher or lower. Interest accrued on (1) during a calendar year will be used toward the first principal repayment obligation(s) falling due in the following calendar year except in the final year, when it will be used toward payment of the final obligation(s) falling due in that year. Interest accrued on (2) during the interim period will be used toward principal repayment obligations falling due during the three years after the completion point.

This proportion for 2005 will apply only to eligible repayment obligations falling due from November to the end of 2005.

Associated with disbursements made prior to December 31, 2004.

Credit outstanding at end-2004 that has not been repaid by the member or with HIPC assistance at the completion point and is not scheduled to be repaid by HIPC assistance, as defined in the MDRI-II Trust Instrument.

As of end-February 2006; reflecting obligations associated with disbursements made after January 1, 2005.

63. The World Bank. Debt relief from the World Bank amounts to US$176 million in NPV terms at decision point (Table 4). Of this amount, IDA has delivered US$60 million in NPV terms (US$64 million in nominal terms) as interim relief36 through IDA grants providing a reduction of 45 percent of IBRD debt service falling due from September 2000 to March 2003.37 At the decision point, Executive Directors agreed that IDA would provide the remaining debt relief at completion point through (i) a supplemental IDA HIPC debt relief credit to repay outstanding IBRD debt; and (ii) a reduction of IDA debt service falling due after completion point. Following the adoption of the IDA14 grant allocation framework, countries are eligible for IDA financing through credits or grants according to their risk of debt distress.38 Under this framework, Cameroon is eligible for 100 percent grant financing from IDA in fiscal year 2006. It is therefore proposed that the remaining debt relief be provided through (i) an IDA grant to prepay US$26 million of IBRD debt outstanding at completion point, corresponding to a reduction of US$20 million in NPV terms at decision point; and (ii) a reduction of 57 percent of debt service on IDA debt disbursed before end-June 1999 for the period May 2006–June 2020, resulting in a reduction of US$97 million in NPV terms at decision point (Table 6). Executive Directors of IBRD will need to decide whether to grant a waiver of the IBRD prepayment penalty that would normally be applied. The nominal assistance is estimated at US$94 million from 2000 to 2011 in respect of debt to IBRD and US$204 million for debt to IDA from 2006 to 2020, amounting to a total of US$298 million in nominal debt relief in respect of debt to the World Bank.

Table 6.

Cameroon: Delivery of World Bank HIPC Assistance and MDRI, 2000 to 2045

(In millions of SDRs, unless otherwise indicated)

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Sources: IDA staff estimates.

Debt service and debt relief is estimated on debt outstanding as of June 30, 1999. Debt service denominalted in SDRs is converted into U.S. dollars by applying the end-June 1999 exchange rate.

Translates into US$176.1 million in NPV terms, using updated discount and exchange rates.

Stock of debt and debt service denominated in SDRs are converted into U.S. dollar by applying the end-2005 exchange rate.

Stock of debt outstanding on June 30, 2006.

Debt disbursed as of December 31, 2003 and still outstanding at the end of FY06.

HIPC relief is assumed to proportionally reduce repayments of principal and charges on IDA credits disbursed as of June 30, 1999 and still outstanding at June 30, 2006.

It is assumed that IDA would provide a single supplemental HIPC debt relief credit to repay the amount of IBRD debt outstanding required to achieve the remaining NPV of relief to be provided on World Bank group debt.

In net present value (NPV) terms.

Projected debt service due on debt outstanding at end-2005.

For SDR-denominated IDA credits, debt relief under the MDRI is estimated as 100 percent of SDR-based debt service minus USD-based debt relief under the Enhanced HIPC Initiative. HIPC debt relief is converted into SDR equivalent amounts as follows: (i) for costs during FY07 and FY08, by applying the foreign exchange rate of 1.5104 resulting from the hedging of donor contributions to cover HIPC costs during IDA14; (ii) for costs from FY09 onwards, by applying the foreign exchange reference rate of 1.47738 agreed by donors under the latest regular IDA replenishment. For USD-denominated IDA credits. Debt relief under the MDRI i s estimated as 100 percent of USD-based debt service minus USD-based debt relief under the Enhanced HIPC Initiative. The resulting MDRI debt relief amounts are converted into SDR equivalent amounts by applying the foreign exchange reference rates agreed by donors under the latest regular IDA replenishment.

64. The African Development Bank (AfDB). Debt relief from the AfDB amounts to US$79 million in NPV terms (Table 4). Of this amount, the AfDB has already provided US$38 million as interim relief.39 At completion point, the AfDB is assumed to provide the remaining amount of relief through an 80 percent reduction of debt service on debt outstanding at end-June 1999, applied from July 2006 through to June 2009.

65. The European Commission (EC) and the EIB. Combined debt relief from the EC/EIB amounts to US$18 million in NPV terms (Table 4). Interim relief amounted to US$7.4 million in NPV terms (US$8.8 million in nominal terms) and was delivered through a cancellation of debt service falling due over the period from July 2002 to April 2006 on selected loans. At completion point, remaining relief will be provided through cancellation of debt service on selected EC loans from July 2006 to October 2018.

66. Other multilateral creditors. The modalities of assistance for all other multilateral creditors are summarized in Table 4.

Bilateral and commercial creditors

67. Paris Club creditors have agreed in principle to provide their share of assistance under the enhanced HIPC Initiative (US$866 million in NPV terms) (Tables 4 and 7). Interim assistance has been provided through a flow treatment under Cologne terms, as agreed on January 24, 2001. In the corresponding agreed minute, participating Paris Club creditors declared their readiness in principle to provide their full share of assistance through a stock of debt operation at the completion point, provided Cameroon maintained satisfactory relations with the participating creditor countries. Bilateral agreements following the extension of the consolidation period to end-March 2006 have been signed with most Paris Club creditors with the exception of Belgium, Denmark, Germany, Italy, and United Kingdom, with whom Cameroon has exchanged draft agreements.40 Most creditors have also indicated that they would provide additional assistance beyond HIPC relief, estimated at about US$1,010 million in end-2005 NPV terms.

Table 7.

Paris Club Creditors’ Delivery of Debt Relief Under Bilateral Initiatives Beyond the HIPC Initiative 1/

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Source: Paris Club Secretariat.

Columns (1) to (7) describe the additional debt relief provided following a specific methodology under bilateral initiatives and need to be read as a whole for each creditor. In column (1), “HIPCs” stands for eligible countries effectively qualifying for the HIPC process. A “100 percent” mention in the table indicates that the debt relief provided under the enhanced HIPC Initiative framework will be topped up to 100 percent through a bilateral initiative.

Australia: post-cutoff date non-ODA relief to apply to debts incurred before a date to be finalized; timing details for both flow and stock relief are to be finalized.

Canada: including Bangladesh. Canada has granted a moratorium of debt service as of January 2001 on all debt disbursed before end-March 1999 for 13 out of 17 HIPCs with debt service due to Canada. Eligible countries are Benin, Bolivia, Cameroon, Dem. Rep. Of Congo, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Rwanda, Senegal, Tanzania, and Zambia. 100% cancellation will be granted at completion point. As of July 2004, Canada has provided completion point stock of debt cancellation for Benin, Bolivia, Guyana, Senegal and Tanzania.

100 percent of ODA claims have already been cancelled on HIPCs, with the exception of Myanmar’s debt to Canada.

Denmark provides 100 percent cancellation of ODA loans and non-ODA credits contracted and disbursed before September 27, 1999.

France: cancellation of 100 percent of debt service on pre-cutoff date commercial claims on the government as they fall due starting at the decision point. Once countries have reached their completion point, debt relief on ODA claims on the government will go to a special account and will be used for specific development projects.

Finland: no post-COD claims

Germany proposes to cancel all debts incurred before June 20, 1999 depending on a consensus within Paris Club creditors

Italy: cancellation of 100 percent of all debts (pre- and post-cutoff date, ODA and non-ODA) incurred before June 20, 1999 (the Cologne Summit). At decision point, cancellation of the related amounts falling due in the interim period. At completion point, cancellation of the stock of remaining debt.

The Netherlands: 100 percent ODA (pre- and post-cutoff date debt will be cancelled at decision point); for non-ODA: in some particular cases (Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Mali, Mozambique, Nicaragua, Rwanda, Tanzania, Uganda and Zambia), the Netherlands will write off 100 percent of the consolidated amounts on the flow at decision point; all other HIPCs will receive interim relief up to 90 percent reduction of the consolidated amounts. At completion point, all HIPCs will receive 100 per cent cancellation of the remaining stock of the pre-cutoff date debt

Norway has cancelled all ODA claims.

Due to the current World Bank/IMF methodology for recalculating debt reduction needs at HIPC completion point, Norway has postponed the decisions on whether or not to grant 100% debt reduction until after the completion point.

Sweden has no ODA claims.

Switzerland: In principle 100 percent cancellation of Pre-cutoff date non-ODA debt. However, Switzerland claims the right at the decision point to forgive only 90 percent in case of major political and/or political weaknesses.

United Kingdom: “beyond 100 percent” full write-off of all debts of HIPCs as of their decision points, and reimbursement at the decision point of any debt service paid before the decision point.

United States: 100 percent post-cutoff date non-ODA treated on debt assumed prior to June 20, 1999 (the Cologne Summit).