Cameroon on edge of debt distress but loans keep flowing!.

Various international lenders like the African Development Bank, AfDB, World Bank and International Monetary Fund, IMF, have in recent times been sounding warning alarms about Cameroon being "at high risk of debt distress". Ironically, the loans keep flowing in.

The Executive Board of the International Monetary Fund, IMF, last week concluded its fourth review mission on Cameroon and approved a loan of some 44.5 billion FCFA. That brings the total disbursements under the arrangements to 493.6 million US dollars (over 298.8 billion FCFA).

Kenji Okamura, Deputy Managing Director and Acting Chair of IMF, in a statement after granting the loan, said: “Cameroon’s performance under the programme is mixed. The quantitative performance criterion on the accumulation of external arrears experienced further minor and temporary breaches in early 2023, and three of five indicative targets under the programme have been repeatedly missed".

He added that while structural reforms continue to be slow, the authorities have made welcome progress in some key areas, including governance and revenue administration. Okamura noted that continued implementation of corrective measures to address missed targets and accelerate reforms will be crucial.

“The authorities are committed to maintaining a fiscal consolidation path consistent with programme objectives. Additional room for productive investment and social spending can be created through efforts to increase domestic non-oil revenue mobilisation, enhance investment efficiency, improve public financial management, and gradually phase out fuel subsidies, while mitigating the impact on the vulnerable,” he said. 

“The authorities are also committed to limiting non-concessional financing and preventing accumulation of external and domestic arrears. Improving cash management and limiting spending through exceptional procedures will be important in this regard," Okamura added.

To succeed, he recommended that: “Reforms need to be accelerated. Steps to boost private sector-led growth, including the launch of the financial inclusion strategy, as well as recent steps to strengthen governance, especially the launch of a broad diagnostic of economic governance and plans to strengthen the Supreme Court’s Audit Bench, are welcome.

“However, further measures are needed to improve the business climate, including by strengthening financial sector stability and inclusion. These should be accompanied by actions to strengthen governance and transparency, as well as the anti-corruption framework," he stated.

The IMF boss is right to say Cameroon has enormous potentials. It is because of those natural resources that loans continue to flow in to the point in one of his speeches President Paul Biya boasted of the "recognition of Cameron's signature" in global finance.

That recognition of the natural resources saw the public debt of Cameroon estimated at 12.203 billion FCFA over the first three months of this year. Compared to the same period last year, the amount is up 5.2%, and represents 43.7% of the country’s GDP, according to data published by the Autonomous Sinking Fund, CAA.

According to government sources, the debt level remains bearable and in line with the government's 2023-2025 strategy, which aims to keep it below 50% of GDP, the threshold for the CEMAC region being 70% of GDP.

Most of the outstanding public debt during the period under review was incurred by the central government. The outstanding direct debt of the central government grew by 5.6% over the period to 11,314 billion FCFA, representing 40.5% of GDP.

"The direct debt of public enterprises and entities, at the end of March 2023, is estimated at 879 billion FCFA, or 3.1% of GDP,” according to CAA.

At the same time, the outstanding debt of decentralised local authorities reached about 10.2 billion FCFA in the first quarter of this year owed mainly by the Douala City Council. 

"Work to evaluate this category of debt is ongoing, in collaboration with the Ministry of Finance and the Ministry of Decentralisation and Local Development," CAA noted.

The Cameroon government’s domestic debt at the end of March 2023, stood at 3,046 billion FCFA, according to a recent report by CAA

This amount, which represents the debt of the central administration only, is up 5.6% year-on-year and more than 70% of it is owed to commercial banks and some public companies, the major lenders to the State.

During the period under review, the outstanding loan portfolio of commercial banks to the government amounted to 383.5 billion FCFA. The largest, Banque Atlantique, to which the government owed 211 billion FCFA as at March 31, 2023 while the second largest financier, Société Générale Cameroun, is owed 67.8 billion FCFA.

Commercial banks have also been very dynamic on the BEAC public securities market where they operate as primary dealers and the regional financial market BVMAC, where they act as intermediaries. On these two markets, CAA disclosed that Yaounde secured a total of 1,560.6 billion FCFA. This is 51.2% of the government's domestic debt.

Such statistics give room for alarm, especially as the debts do not make for a feel good effect such as in the areas of electricity, water, roads, health and educational infrastructure when some children still learn under shades!

Loans flow with promises of ameliorated governance, yet corruption remains pervasive and endemic in the absence of declaration of assets by top government officials.

In his research work titled: “How Does Excessive Debt Hurt an Economy?’, Michael Petits notes that: "The problem is more concerning when debt rises faster than the country’s real debt-servicing capacity." 

And when warnings of sliding into the nadir of debt distress continue to sound, chances are that the debts are hurting the economy. The borrowers most use the loans judiciously for productive purposes, not luxury or defence or unfinished infrastructure.