Cameroon: Report for the 2021 Article IV Consultation and First Reviews Under the Extended Credit Facility and the Extended Fund Facility Arrangements and Requests for Waivers for Performance Criteria Applicability and Nonobservance and Modification of Performance Criterion—Debt Sustainability Analysis
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International Monetary Fund. African Dept.
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Publication Date:
11 Mar 2022
eISBN:
9798400203985
ISBN:
9798400203985
Language:
English
Keywords:
SOE debt; market financing shock; debt dynamics; service-to-exports ratio; sustainability framework; Debt sustainability analysis; Debt sustainability; Government debt management; Global
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CAMEROON

Abstract

CAMEROON

Title Page

CAMEROON

REPORT FOR THE 2021 ARTICLE IV CONSULTATION AND FIRST REVIEWS UNDER THE EXTENDED CREDIT FACILITY AND THE EXTENDED FUND FACILITY ARRANGEMENTS AND REQUESTS FOR WAIVERS FOR PERFORMANCE CRITERIA APPLICABILITY AND NONOBSERVANCE AND MODIFICATION OF PERFORMANCE CRITERION—DEBT SUSTAINABILITY ANALYSIS

February 10, 2022

Approved By

Vivek B. Arora, Geremia Palomba (IMF) and Marcello Estevão, Abebe Adugna Dadi (IDA)

Prepared by the staff of the International Monetary Fund (IMF) and the International Development Association (IDA).

Cameroon Joint Bank-Fund Debt Sustainability Analysis

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Cameroon is at high risk of external and overall public debt distress. Three out of four external debt indicators breach the thresholds under the baseline scenario, with a particularly large and sustained breach for the external debt service-to-exports ratio1. In addition to the signals from the external debt indicators, the PV of public debt-to-GDP ratio is also above the benchmark. However, Cameroon’s debt can be assessed as sustainable considering that its levels of debt and debt service indicators remain broadly unchanged compared to the previous DSA and are below those sustained in the previous year thanks to a successful issuance of the Eurobond and some progress in restructuring SONARA’s domestic debt. Debt dynamics will be further bolstered by the ongoing fiscal consolidation envisaged under the IMF supported program, as well as reforms to boost exports and output. The rating is vulnerable to downside risks including more protracted and severe disruptions due to the pandemic, unsuccessful restructuring of SONARA’s external debt, and resurgence of sociopolitical tensions.

On the other hand, stronger exports driven by rising international oil prices could reduce Cameroon’s debt service burden. Given the high risk of debt distress, policy measures to mitigate risks, including through a gradual fiscal consolidation in line with crisis mitigation efforts, limited reliance on non-concessional borrowing, further strengthening public debt management, and prudent management of SOEs remain critical.

Public Debt Coverage

1. Debt coverage has remained unchanged since the previous DSA (Text Table 1). Public debt coverage includes debt of the central government, expenditure floats and arrears, guarantees, debt of a public oil company SONARA2 and external arrears of other state-owned enterprises (SOEs)3. The DSA does not cover local government debt as local governments are not allowed to borrow from financial markets and most of their debt is on domestic suppliers including SOEs. Other elements in the general government such as social security funds or extra budgetary funds are not covered due to lack of data, but the authorities are considering enhancing data collection on these sectors.4 External debt is mainly defined based on currency but is adjusted for residency where data is available.5

Text Table 1.

Cameroon: Public Debt Coverage Under the Baseline Scenario

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2. Debt of SOEs not covered in the DSA owing to lack of comprehensive data on cross-debt holdings could be significant and will be clarified going forward. Total SOE debt was estimated at around 12.6 percent of GDP in the previous DSA (based on 2020 budget law annex). Considering that about 1.5 percent of GDP is owed to the government, and the DSA already includes SONARA’s debt that amounts to 3.0 percent of GDP as of end-2020, the remaining stock of SOE debt not accounted in the debt stock could amount to 8.1 percent of GDP. On the other hand, the authorities’ estimate of SOE debt not included in the DSA is about 1 percent of GDP (Text Table 3). The authorities are preparing an inventory of the cross-debts among SOEs and between SOEs and the state (structural benchmark for the IMF program). Based on the analysis, staff and the authorities will clarify the debt of SOEs and gradually expand the debt perimeter.

3. The contingent liability stress test accounts for vulnerabilities associated with SOE debt not included in the debt stock, as well as risks from Public-Private Partnerships (PPPs) and financial markets (Text Table 2). As discussed above, SOE debt not included in the debt stock is estimated at 8.1 percent of GDP as of end-2020. The capital stock of PPPs is about 7.0 percent of GDP, corresponding to a contingent liability of 2.4 percent of GDP (35 percent of the total PPP stock). Contingent liabilities from financial markets are set at the minimum value of 5 percent of GDP, which represents the average cost to the government of a financial crisis in a LIC since 1980. Estimates for other elements not covered are currently not available.

Text Table 2.

Cameroon: Coverage of the Contingent Liabilities’ Stress Test

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The default shock of 2% of GDP will be triggered for countries whose government-guaranteed debt is not fully captured under the country’s public debt definition (1.). If it is already included in the government debt (1.) a nd risks associated with SoE’s debt not guaranteed by the government is assessed to be negligible, a country team may reduce this to 0%.

Background

A. Evolution of Debt

4. Public debt has continued to grow over the past ten months, although at a somewhat slower pace (Text Table 3). Preliminary estimates by staff suggest that total public and publicly guaranteed (PPG) debt is around CFAF 11,366 billion (45.6 percent of GDP) as of end-October 2021. External debt stock was estimated at CFAF 7,845 billion (31.4 percent of GDP) and domestic debt at CFAF 3,520 billion (14.1 percent of GDP).

Text Table 3.

Cameroon: Evolution of Total PPG Debt

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Sources: Cameroonian authorities and IMF staff calculations.

Reflects rebasing of the national accounts from 2005 to 2016 as described in paragraph 11.

Staff estimate includes arrears, floats, and “floating” domestic debt at the Treasury as defined in the TMU, while authorities’ estimate only includes overdue payments of more than three months.

Authorities’ estimate of historical SONARA debt varys significantly with previous data. Staff maintains estimates in the previous DSAs until further clarification.

Difference in estimates is due to the scope of coverage as described in paragraph 2 and footnote 4.

5. The composition of external debt has changed moderately. The share of multilateral debt continued to increase, amounting to 40.6 percent of the total PPG external debt as of end-October 2021 (Text Table 4). In Cameroon’s bilateral debt, debt owed to China represents 62 percent of total bilateral debt. Commercial debt includes a newly issued Eurobond (CFAF 449 billion) as well as remaining Eurobond issued in 2015 (CFAF 93 billion). Around 40 percent of external debt is on concessional terms and 39 percent is denominated in Euros. Average maturity stood at 9.0 years for external debt (excluding SONARA’s debt), while the weighted average interest rate stood at 2.4 percent. Around 24 percent of external debt has a flexible interest rate.

Text Table 4.

Cameroon: External Debt Composition

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Sources: Cameroonian authorities, and IMF staff calculations.

6. The composition of domestic debt has shifted towards a larger share of government bonds (Text Figure 1). Government bonds issuance (including Bons du Trésor Assimilables (BTA) and Obligations du Trésor Assimilables (OTA)) continued to increase over the past ten months, driven by additional spending needs in response to the pandemic, reaching 35.0 percent of the total domestic public debt. The share of float and arrears has declined further from about 16.2 percent in end-2020 to 15.4 percent in end-October 2021. Average maturity of domestic debt (excluding the float and SONARA’s debt) stood at 4 years and the average weighted interest rate at 2.9 percent.

Text Figure 1.
Text Figure 1.

Cameroon: Domestic Public Debt Composition

Citation: IMF Staff Country Reports 2022, 075; 10.5089/9798400203985.002.A003

7. The stock of contracted-but-undisbursed debt (SENDs) has increased. The stock of SENDs as of end-October 2021 is estimated at CFAF 3,506 billion, 14.1 percent of GDP compared with 13.4 percent of GDP at end-2020 (Text Table 5). This includes domestic SENDs amounting CFAF 10.1 billion, which was disbursed in November 2021. The increase has been driven by new loan contracts signed with multilateral and commercial creditors. The share of multilateral SENDs is around 57 percent. Shares of bilateral and commercial SENDs stood at 23 percent and 20 percent respectively. China continues to be the largest creditor in bilateral SENDs, accounting for about 18 percent of the total SENDs stock. In recent years, the authorities have taken important steps to enhance monitoring and management of SENDs, resulting in a reduction of overall and problematic SENDs.6 However, the stock of SENDs remains substantial and further efforts are warranted to reassess and cancel SENDs associated with old and non-performing projects.

Text Table 5.

Cameroon: Stock of SENDs

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Reflects rebasing of the national accounts from 2005 to 2016 as described in paragraph 11.

Excludes budget support.

Sources: Cameroonian authorities, and IMF staff calculations.

8. No new sovereign external arrears were reported. The DSA includes external arrears of SONARA and other SOEs, estimated at CFAF 244.1 billion and CFAF 9 billion as of end-October 2021 respectively, but no sovereign external arrears7.

9. Cameroon’s capacity to monitor and manage public debt for the purposes of the IMF’s debt limits policy is adequate, but further improvements are needed. Cameroon’s public debt management has improved in recent years. All project financing proposals and projects financed through PPPs are examined by the National Public Debt Committee (CNDP) and signing of a new loan agreement is granted only when there is an unconditional approval. Procedures and responsibilities for loan operations and public debt management have been clarified in the manual published in 2019. However, CNDP’s engagement is oftentimes delayed until late in the debt contracting process, and Cameroon’s debt policy is yet to be firmly anchored by its medium-term debt management framework, resulting in significant discrepancies between announced plans and actual financing. Further efforts are warranted to strengthen active engagement of the CDNP and enhance the effectiveness of the medium-term public debt strategy (MTDS), including through improved estimates of financing needs, development of consistent annual borrowing plans, and an enhanced communication strategy to facilitate creditors’ understanding of the authorities’ debt management objectives.

10. External private sector debt has decreased. Private external debt has decreased to CFAF 413 billion as of end-2020. Most debt is in direct investments held by foreign parent companies and official institutions.

B. Macroeconomic Forecast

11. Sound macroeconomic policies supported the economic recovery from the 2014 oil crisis. Fiscal consolidation efforts and a tighter monetary stance at the CEMAC level contributed to a significant reduction in fiscal and external imbalances since the 2014 oil crisis. The government has engaged in consolidation efforts such as better control of expenditures on goods and services, decreases in non-priority public investments, recovery of tax arrears, reductions in tax expenditures, and improvements in tax and customs administration. As a result, the overall fiscal deficit narrowed to 2.8 percent of GDP (cash basis, including grants) in 2019. In the meantime, real GDP growth rate averaged 4.5 percent in 2014–19, supported by rapid expansion in services fueled by private consumption and investment. However, public debt level remains elevated with large exposure to external financing, and the poverty rate is high, with 37.5 percent of the population still living below the national poverty line.

12. The macroeconomic framework reflects recent economic developments as well as policies. The revised projections reflect the rebasing of Cameroon’s national accounts from 2005 to 2016, which resulted in an upward revision of 3.6 percent to nominal GDP in 2016.8 Relative to the previous DSA, real GDP growth for 2020 has been revised up from -1.5 percent to 0.5 percent, reflecting less than anticipated impact from the pandemic. Overall fiscal deficit (payment order basis, excluding grants) narrowed slightly from -3.4 percent to -3.3 percent of GDP, while the current account balance (including grants) remained unchanged at -3.7 percent of GDP. Baseline projection assumes implementation of the national vaccine deployment plan, which aims to cover 60 percent of the eligible population (+18 years old) by end-20239. It also incorporates policy parameters in the context of the IMF program, which focuses on (i) mitigating the impact of the pandemic; (ii) reinforcing good governance and strengthening transparency and anti-corruption; (iii) accelerating structural fiscal reforms; (iv) strengthening debt management; and (v) improving the business environment and accelerating private-sector-led economic diversification. The program envisages a gradual fiscal consolidation path reflecting revenue measures including strengthening tax and customs administrations, streamlining tax exemptions, and recovering tax arrears, and policies to contain current spending broadly at the current level and improve the efficiency of capital spending. These measures will create space to support spending with higher economic and social impact and strengthen public investment and social protection, which would result in a gradual recovery in the medium term, followed by a more benign growth outlook, higher export bases, stronger revenue mobilization in the long run (Box 1, Text Table 6).

Cameroon: Medium and Long-Term Macroeconomic Assumptions Medium Term, 2021–2025

  • Real GDP growth is projected to average 4.6 percent of GDP, slightly adjusted compared to 4.7 percent of GDP projected in the previous DSAs reflecting more gradual recovery from the pandemic. Annual inflation is projected to remain around 2.1 percent in the medium-term, below the CEMAC convergence criteria of 3 percent.

  • Overall fiscal deficit is projected to average -1.5 percent of GDP (payment order basis, excluding grants), significantly smaller than -2.4 percent of GDP projected in the previous DSA The projections are anchored on reduced current and capital expenditures, as well as continued improvements in non-oil revenue mobilization, allowing a gradual return to the fiscal consolidation path consistent with program objectives and CEMAC convergence criterion. The revenue-to-GDP ratio (excluding grants) is projected to rise to average 15.2 percent on the back of administration modernization and base-broadening measures including streamlining tax exemptions. The current account balance (including grants) is projected to improve, averaging -3.0 percent of GDP in the medium term, supported by continued fiscal consolidation and stronger oil exports driven by higher oil prices.

Long Term, 2026–2041

  • Real GDP growth is projected to average 5.4 percent in the long term, as structural reforms gain ground and private sector competitiveness and investment increase. Under their national development strategy, SND-30, the authorities are committed to take measures to boost growth, including accelerating the implementation of structural reforms, and strengthening SOE management and oversight, while promoting economic diversification. Simulations of policy reforms scenarios show sizeable positive implications on potential growth, including through greater economic diversification (domestic production and trade diversification), financial deepening, strengthened investment efficiency, and a gradual elimination of subsidies to SOEs and the removal of cross-sectoral distortions. The strategy also aims to finalize delayed infrastructure projects (Lom Pangar dam, the Memve’ele hydroelectric dam, and a drinking water supply projects), which are expected to boost production in key sectors (agriculture, manufacturing).

  • The revenue-to-GDP ratio (excluding grants) is projected to rise, and to average 17.1 percent over 2026–2041 supported by the ongoing structural fiscal reforms, including revenue mobilization measures. The outlook assumes a gradual fiscal consolidation will continue beyond the program horizon. The implementation of the Medium-Term Revenue Strategy (MTRS) would boost revenue mobilization. Gradual elimination of the subsidies to SOEs will reduce the fiscal deficit. Exports of goods and services are projected to decline as a share of GDP from an average of 17.4 percent of GDP in 2021–25 to around 14.8 percent of GDP in the long-term, reflecting falling oil production, with maturing fields). The current account is assumed to gradually improve as non-oil exports remain dynamic and imports grow at a lower rate. The strength of non-oil exports is predicated on the success of measures envisaged-under SND-30 and the African Continental Free Trade Area (AFCTA)—to diversify export products, including through a new agency dedicated to export.

Text Table 6.

Cameroon: Key Macroeconomic Assumptions

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Sources: Cameroonian authorities; IMF staff calculations.

Reflects rebasing of the national accounts from 2005 to 2016 as described in paragraph 11.

13. Financing assumptions have been updated based on the most recent data. Cameroon’s public gross financing needs over the 2021–2024 period is estimated at CFAF 6,901 billion (25.4 percent of GDP), of which average 65 percent is assumed to be financed externally.10 The DSA reflects debt service suspended of CFAF 290 billion (1.2 percent of GDP) from May 2020 to December 2021 from the G20 debt service suspension initiative (DSSI). The DSA includes the Eurobond issued in July (CFAF 449 billion)11. The DSA also reflects IMF financing of CFAF 375 billion (SDR 483 million, 175 percent of quota) and prospective budget support from doners amounting to CFAF 477 billion in 2021–2024. Cameroon received an SDR allocation of CFAF 208 billion of which the authorities plan to use CFAF 50 billion in 2021 and 70 billion in 2022. 12 These amounts have been reflected in domestic debt through the government finance statistics data. External project financing is projected based on the budget, and the mix of disbursements is assumed to follow the composition of SENDs as of end-2020. After 2023, the composition gradually shifts towards commercial borrowing, decreasing the grant element. Financing terms for new external debt is unchanged from the previous DSA. Domestic financing assumptions reflect a slightly larger share of longer maturity bonds following the authorities’ MTDS but adjusted given the lack of sufficient investor base for long-term bonds. Domestic financing (excluding the BEAC loan) is projected to shift progressively towards more medium-to-long-term borrowing.

14. Financing assumptions regarding SONARA reflect latest information on debt restructuring. Following a previous agreement in 2020, SONARA signed a revised agreement with the local banks in October 2021 to restructure its debt. Total amount owed to the bank is agreed at CFAF 261 billion, to be repaid over 10 years with an interest of 5.5 percent per year. The DSA reflects this revised repayment schedule, assuming that the difference between the restructured amount (CFAF 261 billion) and the end-2020 bank debt (CFAF 287 billion) has been repaid in 2021. As in previous DSA, letters of credit provided by domestic banks (CFAF 90.3 billion at end-2020) were excluded from SONARA’s debt stock, given the short-term revolving nature. Negotiations with external creditors are ongoing, with some early signs of progress which have not been confirmed.13 As such, restructuring of debt held by external creditors including oil traders is not assumed in the baseline. Also, in line with the previous DSA, short-term debt from external oil traders is classified as arrears.14 In addition, a portion of SONARA’s medium- and long-term external debt that was due for repayment in 2020 (estimated at around CFAF 31 billion) was classified as arrears. In terms of operation, SONARA is assumed to continue functioning as an importer of refined oil, while gradually recovering its production capacity starting from 2024 and reaching 60 percent of the pre-crisis level in 2027. Among SONARA’s revenue, only financing expenses (CFAF 20 billion per year) and net income are assumed to be used for debt service and accounted for as part of the fiscal revenue in DSA. The cost of potential reconstruction of the refinery operation is not incorporated in the baseline as it is still being assessed by the authorities and discussions with the insurance company are ongoing.

15. The realism tool highlights risks to the baseline projections (Figure 3). The projected 3-year fiscal adjustment is considered ambitious but achievable given distribution of LIC fiscal adjustments under the past IMF programs. The growth projection deviates from the path implied by the projected fiscal consolidation, but the impacts of the COVID-19 pandemic may not be well-captured by the exercise. Government investment is projected to recover gradually, although at a slightly slower pace compared to the previous DSA.

16. The forecast error tool indicates different debt dynamics compared to historical developments, suggesting potential challenges (Figure 4). Contribution of the current account and FDI is expected to be smaller than observed in the past, while real GDP growth and price and exchange rate is projected to further draw down external debt. Projected change in the public debt is driven by a smaller contribution of primary deficit and stronger contribution of real GDP growth. The forecast error is similar to the median of other LICs.

C. Country Classification and Determination of Scenario Stress Tests

17. Cameroon’s debt carrying capacity remains ‘weak’. The CI score based on the October 2021 WEO projections and the 2020 World Bank CPIA score is 2.70, higher than suggested by the previous DSA. This is driven by higher reserves and stronger domestic and world growth. Remittances have remained broadly the same as in the previous DSA15. Although the new CI score corresponds to a medium level debt-carrying capacity, Cameroon’s debt carrying capacity remains low, as two consecutive signals are required for a change in country classification (Text Table 7).

Text Table 7.

Cameroon: Calculation of the CI Index

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18. Stress tests follow standardized settings, with the addition of a market financing shock and a commodity price shock. The standardized stress tests apply the default settings, while the contingent liability stress test is based on the quantification of contingent liabilities discussed above. The tailored stress tests for Cameroon include a market financing shock and a commodity price shock due to an outstanding Eurobond and exports of fuel and other commodities making up more than 50 percent of total exports. For these shocks the standard scenario designs are applied.

Debt Sustainability

A. External Debt Sustainability

19. External risk of debt distress is assessed high as three indicators breach the thresholds under the baseline scenario (Table 3 and Figure 1). The external debt service-to exports ratio and the external debt service-to-revenue ratio breach their respective thresholds, with the former showing a large and sustained breach. Significant increases in debt service payments in 2021 are driven by the redemption of the maturing Eurobond. Meanwhile, the PV of external debt to-exports ratio shows a one-time marginal breach in 2021, before declining below the threshold afterward.

20. Under stress tests, thresholds for all four indicators are breached. Combined contingent liabilities shock is the most extreme shock scenario for the PV of debt-to-GDP, while Exports shock turns out to be the most extreme shock for the PV of debt-to-exports, and the debt service-to-exports ratios. Both the PV of debt-to-exports and the debt service-to-exports ratios show large breaches throughout the projection period. For the debt service-to-revenue ratio, the most extreme shock is a one-time 30 percent nominal depreciation. Historical scenarios point towards exploding PV of debt-to-GDP and PV of debt-to-exports ratios, which reflect large historical current account deficit. This differs from projections under the baseline, which assume a gradual improvement in the current account balance driven by dynamic non-oil exports and moderate imports growth supported by fiscal balance converging to the CEMAC criterion.

B. Public Debt Sustainability

21. Overall risk of public debt distress is assessed high as the PV of debt-to-GDP ratio breaches the benchmark under the baseline scenario. It is projected to decline gradually but to stay above the benchmark until 2022. The PV of debt-to-revenue ratio and the debt service-to-revenue ratio are also projected to decline gradually. The most extreme shock for all the indicators is the combined contingent liabilities, which is due to a significant size of SOE debt not captured in the debt stock. Barring this impact from SOE debt, the most extreme shock scenario for the PV of debt-to-revenue ratio and the Debt service-to-revenue ratio is the commodity shock.16 The historical scenario projects an explosive path for the PV of debt-to-revenue, which is mainly driven by large historical primary deficits compared to projections. As discussed above, baseline projections in this DSA are based on a somewhat more gradual adjustment towards the CEMAC convergence criteria.

C. Market Module

22. The market financing tool points to low risks associated with market financing pressures (Figure 5). Cameroon’s maximum three-year gross financing needs is estimated at 9 percent of GDP, which is lower than the suggested benchmark (14 percent). The latest available EMBI spread for Cameroon (306 as of July 28, 2021) is also below the benchmark (570). With neither indicator breaching thresholds, the module signals low market financing pressures.

D. Risk Rating and Vulnerabilities

23. Cameroon is at high risk of debt distress, but debt remains sustainable. The risk of external debt distress is high as three out of four indicators breach the thresholds under the baseline scenario. The external debt service-to-exports ratio particularly shows a large and sustained breach, indicating a fragile liquidity situation. In addition to the signals from the external debt indicators, the PV of public debt-to-GDP ratio is above the benchmark, suggesting a high risk of overall debt distress. However, Cameroon’s debt can be assessed sustainable as its levels of debt and debt service indicators are remain broadly unchanged compared to the previous DSA and are below those of the previous year. Efforts to restructure SONARA’s debt as well the Eurobond’s issuance have helped improve Cameroon’s debt profile. The authorities are also committed to continuing their active debt management.

24. This rating is vulnerable to a range of risks. Key downside risks include a more protracted and severe COVID-19 shock, less-than-expected exports, resurgence of socio-political tensions, and unsuccessful restructuring of SONARA’s debt. Other risks include realization of contingent liabilities from bank restructuring and from SOEs not included in the baseline of the DSA, and accelerations in disbursements due to the large stock of SENDs. On the other hand, stronger exports driven by rising international oil prices could reduce Cameroon’s debt service burden.

25. Significant efforts are warranted to ensure debt remains on a downward trajectory and sustainability is strengthened. A gradual fiscal consolidation in line with crisis mitigation efforts, a steadfast implementation of structural fiscal reforms, and a prudent borrowing policy skewed towards concessional loans remain essential to keeping public debt dynamics on a sustainable path. Allowing for new non-concessional borrowing would further weaken debt sustainability. Vulnerable debt indicators expressed as a proportion of exports point to the need for improving competitiveness and achieving economic diversification. SONARA’s debt restructuring efforts need to be strengthened while fundamentally building its financial viability. Finally, sound management of the SENDs needs to be maintained.

Authorities’ Views

26. The authorities agreed that reducing debt vulnerabilities is a key priority to support Cameroon’s economic development. They acknowledged that the risk of debt distress remains high and were committed to reducing debt vulnerability by slowing the pace of external debt growth, utilizing concessional financing where available, and limiting non-concessional borrowing only to high priority projects with proven socioeconomic and financial returns. The authorities also highlighted the positive potential implication of debt risk assessment of Cameroon’s continued active debt management and ongoing efforts to boost exports and revenue, and the possible reclassification of Cameroon’s composite indicator (CI) of debt carrying capacity as medium, which would depend mainly on global economic recovery and regional reserves accumulation.

Figure 1.
Figure 1.

Cameroon: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2021–2031

Citation: IMF Staff Country Reports 2022, 075; 10.5089/9798400203985.002.A003

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2031. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.2/ The magnitude of shocks used for the commodity price shock stress test are based on the commodity prices outlook prepared by the IMF research department.
Figure 2.
Figure 2.

Cameroon: Indicators of Public Debt under Alternative Scenarios, 2021–2031

Citation: IMF Staff Country Reports 2022, 075; 10.5089/9798400203985.002.A003

Sources: Country authorities; and staff estimates and projections.1/ The most extreme stress test is the test that yields the highest ratio in or before 2031. The stress test with a one-off breach is also presented (if any), while the one-off breach is deemed away for mechanical signals. When a stress test with a one-off breach happens to be the most exterme shock even after disregarding the one-off breach, only that stress test (with a one-off breach) would be presented.
Figure 3.
Figure 3.

Cameroon: Realism Tools

Citation: IMF Staff Country Reports 2022, 075; 10.5089/9798400203985.002.A003

Figure 4.
Figure 4.

Cameroon: Drivers of Debt Dynamics- Baseline Scenario

Citation: IMF Staff Country Reports 2022, 075; 10.5089/9798400203985.002.A003

1/ Difference between anticipated and actual contributions on debt ratios.2/ Distribution across LICs for which LIC DSAs w ere produced.3/ Given the relatively low private external debt for average low -income countries, a ppt change in PPG external debt should be largely explained by the drivers of the external debt dynamics equation.
Figure 5.
Figure 5.

Cameroon: Market- Financing Risk Indicators

Citation: IMF Staff Country Reports 2022, 075; 10.5089/9798400203985.002.A003

Sources: Country authorities; and staff estimates and projections.
Table 1.

Cameroon: External Debt Sustainability Framework, Baseline Scenario, 2018–2041

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Includes both public and private sector external debt. 2/ Derived as [r – g – ρ(1+g) + Ɛα (1+r)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, ρ = growth rate of GDP deflator in U.S. dollar terms, Ɛ=nominal appreciation of the local currency, and α= share of local currency-denominated external debt in total external debt 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Current-year interest payments divided by previous period debt stock. 5/ Defined as grants, concessional loans, and debt relief. 6/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 7/ Assumes that PV of private sector debt is equivalent to its face value. 8/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 2.

Cameroon: Public Sector Debt Sustainability Framework, Baseline Scenario, 2018–2 041

(In percent of GDP, unless otherwise indicated)

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Sources: Country authorities; and staff estimates and projections. 1/ Coverage of debt: The central government, central bank, government-guaranteed debt, non-guaranteed SOE debt . Definition of external debt is Residency-based. 2/ The underlying PV of external debt-to-GDP ratio under the public DSA differs from the external DSA with the size of differences depending on exchange rates projections. 3/ Debt service is defined as the sum of interest and amortization of medium and long-term, and short-term debt. 4/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period and other debt creating/reducing flows. 5/ Defined as a primary deficit minus a change in the public debt-to-GDP ratio ((-): a primary surplus), which would stabilizes the debt ratio only in the year in question. 6/ Historical averages are generally derived over the past 10 years, subject to data availability, whereas projections averages are over the first year of projection and the next 10 years.
Table 3.

Cameroon: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2021–2031

(In percent)

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the threshold.

Variables include real GDP growth, GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows.

Includes official and private transfers and FDI.

Table 4.

Cameroon: Sensitivity Analysis for Key Indicators of Public Debt, 2021–2031

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Sources: Country authorities; and staff estimates and projections.

A bold value indicates a breach of the benchmark.

Variables include real GDP growth, GDP deflator and primary deficit in percent of GDP.

Includes official and private transfers and FDI.

1

Cameroon’s Composite Indicator (CI) based on the October 2021 WEO and the 2020 World Bank CPIA data is 2.70, signaling a medium debt-carrying capacity. The country classification is maintained at weak level given the need of two consecutive signals for a classification change.

2

Excludes letters of credit provided by domestic banks amounting to CFAF 90.3 billion as of end-2020, given their short-term revolving nature.

3

These include a supplier credit to a SOE (Euro 8.9 million) and a compensation claim on a SOE for termination of contract (Euro 6.2 million) identified in the previous DSA.

4

For example, the authorities are preparing a diagnostic study of the public administration pension system in the context of the ongoing IMF program (structural benchmark).

5

This is mainly due to limited capacity in tracking debt holdings of non-residents. Debt with available data including borrowing from the Development Bank of the Central African States and treasury bills held by non-residents, both in CFAF (26.8 and 6.2 billion respectively as of end-2020) are classified as external debt.

6

SENDs were classified as problematic if they fulfilled at least one of six criteria: (i) the loan was signed before 2014, (ii) the loan’s disbursement was zero one year after signing, (iii) the loan has not come into effect six months after signing, (iv) the deadline for the loan’s disbursements has passed or has been extended at least once, (v) the deadline for the loan’s disbursement is close (less than one year) and the share that is disbursed is below 50 percent, (vi) the project has not disbursed for more than one year. Problematic SENDs are estimated at CFAF 1,926 billion as of end-2020.

7

The external arrears constitute non-payments to oil suppliers and do not reflect government insolvency and/or liquidity problems

8

The upward revision in nominal GDP is lower than that of the 2005 rebasing (8.6 percent) and those of the comparator countries in the region. The increase is driven by an increase of agriculture and industry contributions (3.3 and 0.9 percent respectively), while the tertiary sector contribution decreased.

9

Vaccination rates remain relatively low. As of January 19, 6.3 percent of the eligible population were fully vaccinated and 2.8 percent received one dose. The authorities have stressed their commitment to enhance the vaccine uptake including through intensifying public awareness, increasing the number of vaccination centers and the numbers of trained health workers.

10

The projection follows the budget. External financing shares in the authorities’ MTDS for the period 2022–2024 are 68%, 66%, 64% respectively.

11

The newly issued Eurobond is denominated in Euros (EUR 685 million), has 12 years of maturity and 5.95% coupon rate. The authorities have repurchased 79.42 percent of the outstanding old Eurobond (CFAF 357.7 billion) which was accounted as principal repayments. The remaining old Eurobond (estimated at CFAF 93 billion) is assumed to be repaid in equal tranches in 2023–2025.

12

The Cameroon government uses the allocated SDRs by ceding the SDRs to BEAC, which in turn makes CFAF equivalent amount of funds available to the Cameroon government. The Cameroon government remains responsible for the SDR interest payments to the Fund.

13

According to local news reports, among the 9 traders to whom SONARA owes CFAF 371 billion, 7 have reached a compromise and a draft repayment agreement is pending approval from the CNDP.

14

Partial clearance of these arrears through SONARA’s asset sales and conversion of the debt held by SNH (totaling CFAF 85 billion) is not reflected in the DSA as the transactions have not been confirmed.

15

Remittances inputs for the CI calculation are based on the Balance of Payment data.

16

This assumes SOE debt kept at 2 percent of GDP, in line with the LIC DSA default setting, which is based on the median SOE external liability identified by a Fund staff survey conducted in 2016.

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Cover IMF Staff Country Reports
Cameroon: 2021 Article IV Consultation and First Reviews Under the Extended Credit Facility and the Extended Fund Facility Arrangements and Requests for Waivers for Performance Criteria Applicability and Nonobservance and Modification Of Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for Cameroon
Author:
International Monetary Fund. African Dept.
Volume/Issue:
Volume 2022: Issue 075
Publisher:
International Monetary Fund
ISBN:
9798400203985
ISSN:
1934-7685
Pages:
148
DOI:
https://doi.org/10.5089/9798400203985.002
  • <sup><xref rid="RA003fig01" ref-type="fig">Text Figure 1.</xref></sup>
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    Text Figure 1.

    Cameroon: Domestic Public Debt Composition

  • <sup><xref rid="RA003fig02" ref-type="fig">Figure 1.</xref></sup>
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    Figure 1.

    Cameroon: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2021–2031

  • <sup>Figure 2.</sup>
    View in gallery
    Figure 2.

    Cameroon: Indicators of Public Debt under Alternative Scenarios, 2021–2031

  • <sup><xref rid="RA003fig04" ref-type="fig">Figure 3.</xref></sup>
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    Figure 3.

    Cameroon: Realism Tools

  • <sup><xref rid="RA003fig05" ref-type="fig">Figure 4.</xref></sup>
    View in gallery
    Figure 4.

    Cameroon: Drivers of Debt Dynamics- Baseline Scenario

  • <sup><xref rid="RA003fig06" ref-type="fig">Figure 5.</xref></sup>
    View in gallery
    Figure 5.

    Cameroon: Market- Financing Risk Indicators

Text Figure 1.

Cameroon: Domestic Public Debt Composition
Figure 1.

Cameroon: Indicators of Public and Publicly Guaranteed External Debt under Alternative Scenarios, 2021–2031
Figure 2.

Cameroon: Indicators of Public Debt under Alternative Scenarios, 2021–2031
Figure 3.

Cameroon: Realism Tools
Figure 4.

Cameroon: Drivers of Debt Dynamics- Baseline Scenario
Figure 5.

Cameroon: Market- Financing Risk Indicators