Despite debt relief, Cameroon faces a new debt trap

The Paris Club of bilateral debtors cancelled $874 million of Cameroon's debts at a meeting on 24 January. This is only 16 per cent of Cameroon's bilateral debt and it does not end Cameroon's debt crisis. The country will still pay more this year in debt service than for health and education combined, and will need to borrow money even to deal with its AIDS epidemic.

Cameroon reached "decision point" in October 2000, when the IMF and World Bank agreed a programme by which creditors will cancel $2 billion of Cameroon's $7.8 billion debt. The reduction is real - debt service in 1998 was $533 million. After HIPC, debt service will fall to $312 mn this year (2000/2001). In addition, the Paris Club has "rescheduled" some of the repayments due next year and the year after - this money must still be repaid, but repayment is deferred.

Thus debt service will fall to $226 mn next year. But this is very temporary. Cameroon will be forced to borrow more than $300 mn per year, according to World Bank estimates, and debt service will rise to $328 million in 2004/5. In effect, each year Cameroon will borrow about the same amount it must repay that year, and each year it will sink deeper in debt.

On 11 January, the World Bank announced a new $50 mn loan to Cameroon as part of its HIV/AIDS programme. The Ministry of Health estimates the number of person who are living with HIV as 937,000. One out of nine sexually active Cameroonians is infected with the HIV virus. Because Cameroon is paying so much in debt service payments to the World Bank and other creditors, it is being forced to borrow yet more money the deal with the AIDS crisis.

"The HIPC Initiative is insufficient and very weak. It will not reduce poverty in a context where debt has reached an unprecedented level despite 12-years of structural adjustment programmes. This result is also very far from the objectives announced by the G7 in Cologne," said Géorgine Kengne Djeutane of Cameroon's Jubilee 2000 movement and the Ecumenical Service for Peace. "Once more, the IMF and the World Bank are relentlessly avoiding the real problems, trying to divert us and implementing their unjust policy of exploitation."

According to the World Bank's own data, Cameroon spends about $210 million per year on education and $80 million per year on health. This is less than the $312 million it will spend this year on debt service. Aid grants (that is, money the government can actually use) in 1998 were $ 278 mn, according to the World Bank. That means all of the aid to Cameroon immediately goes out again to repay debts, so Cameroon must borrow more for health and education. This leads to a new debt trap.

Yet even the World Bank admits that the health and education systems are collapsing. The Bank's "Cameroon Country Assistance Strategy Progress Report" of November 21, 2000 says there has been "little progress" in reducing poverty and, "in particular both the coverage and the quality of the education and health systems remain poor. Cameroon has significantly lower life expectancy, primary school enrolment ratios, and access to safe water than the average low income country … Education quality and enrolment rates have deteriorated to such an extent that the decline is virtually unique for a country that has not experienced civil war or other severe social conflict. After coming close to universal primary education in the late 1980s, enrolment rates have fallen to only 65 percent of the relevant age group in primary education and to less than 50 percent in secondary education. … Similarly, sharp cuts in government spending in the health sector and the decline in household incomes led to reductions in the accessibility, quality, and utilization of health services. A 1998 demographic and health survey found that the chronic malnutrition (stunting) rate of children increased from 23 percent in 1991 to 29 percent in 1998."

Nevertheless, the World Bank and IMF say that Cameroon can spend more on debt service than on health and education - and borrow more money to deal with HIV/AIDS.

Cameroon may receive some additional debt cancellation. The two largest creditors are France ($2 bn before the Paris club cancelled 16 per cent of bilateral debt) and Germany ($1.4 bn). During the 21st French Africa summit on 17-19 January, France announced the "immediate and total cancellation" of the commercial debt dealt with by the Paris Club. This covered 19 countries, including Cameroon. So far there has been no formal action on this announcement.

Indeed, in the Paris Club debt cancellation was calculated without taking into account any possible French cancellation. This works to the advantage of the Cameroon, because it means that if France actually does give the promised cancellation, it will be in addition to maximum HIPC debt relief. If France and Germany did cancel their debts, it would made a significant difference, saving Cameroon more than $100 million a year in debt service payments.

But it seems hard to argue that Cameroon can afford to pay any debt service. Clearly, the entire debt should just be cancelled.

According to the World Bank, Cameroon's debt, at the end of June 1999 (and thus before HIPC cancellation), was:

Multilateral

World Bank	1023
ADB	304
IMF	176
EU	94
Other	46
Total multilateral	1642

Paris Club bilateral

France	1955
Germany	1410
Austria	512
Canada	309
UK	209
Belgium	206
Italy	199
Sweden	124
Denmark	118
Spain	100
Other	222
Total Paris Club	5365
Non-Paris club bilateral	99
Commercial	696
TOTAL DEBT	7802

The "other" Paris Club countries, all with debts less than $100 mn, are Finland, Japan, Netherlands, Switzerland, and the United States. The non-Paris Club creditors are China, Kuwait and Saudi Arabia.

Of the bilateral debt, $1.3 billion is post-cut-off date (that is, after 13 December 1988), meaning it is not dealt with under HIPC, $0.9 bn is aid (ODA) debt which should already have been cancelled under promises made by the G7, and $3.3 mn is pre-cut-off commercial debt on which Cameroon has defaulted and which has been nationalised by creditor country governments.

The World Bank also estimates that in 2000/2001 post-HIPC debt service payments of $312 mn will be divided as:

Multilateral	122
IMF	7
World Bank	58
Africa Dev Bank	39
Others	18
Bilateral	188:
Paris Club	178
non Paris Club	4
Commercial	2
New debt	4

Two key reports are available on the World Bank website:

HIPC Decision point document, 15 Sept 2000 http://www.worldbank.org/hipc/country-cases/cameroon/cameroon_DP.pdf

Report No.: 21072, CAMEROON Country Assistance Strategy Progress Report, November 21, 2000 http://www-wds.worldbank.org/cgi-bin/cqcgi/@production.env?CQ_SESSION_KEY=ATCJGKBNGTGA&CQ_MULTI_PAGE=YES&CQ_SAVE[Doc_ID]=00009494600102111464437&CQ_SAVE[QSTR]=&CQ_SAVE[RPTNO]=21072&CQ_SAVE[VOLNO]=1&CQ_QUERY_HANDLE=137008

This article by Michela Telatin and Joseph Hanlon, Jubilee Plus, 2 February 2001.