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The Nkafu Policy Institute  in Yaounde has released Cameroon’s 2021 budget report. The report was presented to the public and the media during a Press Conference.  This Press Conference organized under the theme: “An Analysis of the Sustainability of the Public Debt in Cameroon”  took  place  Wednesday, 24th November 2021, at the Headquarters of the Denis & Lenora Foretia Foundation in Yaounde.

The main objective of the press conference the institute said  was  to disseminate the findings of the 2021 Cameroon Budget Report written by the Nkafu Policy Institute. More specifically,  presenting  the 2021 State budget with emphasis on the amounts allocated to the ministerial departments in charge of promoting free enterprise; Cameroon’s budget deficit and how it is financed; the structure of public debt in Cameroon; the determinants of public debt in Cameroon; and an analysis of the sustainability of the public debt.

While releasing the report Wednesday, the CEO of the Denis and Lenora Foretia Foundation Dr Fri Asanga refereed to the finance  law No. 2020/018 to enact the Finance Law of the Republic of Cameroon for Fiscal Year 2021 (LF2021)  promulgated by the President of the Republic, Head of State, on December 17, 2020. It comes in a context marked on the one hand by the COVID-19 pandemic and on the other by socio-political crises in the North- West and South-West regions and security in the Far North and East of the country. Despite these challenges, Cameroon’s general budget, which is included in the 2021 Finance Law, has increased by about 16% year on year, rising from CFAF 4 409 billion in 2020 to CFAF 5 235.2 billion in 2021. This budget is balanced in resources and uses at CFAF 5 480.4 billion, of which CFAF 5 235.2 billion is for the general budget and CFAF 245.2 billion for the special accounts.

The increase in Cameroon’s state budget is favored by the rise in oil prices on the world markets after the sharp drop recorded in 2020, and a certain number of actions implemented by the government, notably the increase in the stamp duty on national passports (which, since July 1, 2021, has risen from CFAF 75 000 to CFAF 110 000, that is, an increase of about 47%). However, as the budget voted remains insufficient to cover all the state’s financial commitments, the government resorted to the international market in June 2021 to obtain a new Eurobond.

According to Cameroon’s Finance Minister, Louis-Paul Motaze, this new Eurobond, which the government sought and obtained in June 2021, would make it possible to refinance all or part of the 2015 Eurobond, whose repayment dates are between 2021 and 2024. It thus offers the government the possibility of reorienting its financing priorities by adapting them to the prevailing socio-economic context.  While it is true that this new government borrowing does not affect the current level of public debt, the fact remains that the pace of Cameroon’s indebtedness is now a matter of some concern.

The 2021 Cameroon budget report, produced by the Nkafu Policy Institute, thus  analyzes government revenues and expenditures for the 2021 fiscal year, focusing on public debt sustainability. The data used come from the Republic of Cameroon’s Finance Laws, particularly those for 2021; from the Autonomous Sinking Fund;  , as well as from the Ministry of the Economy, Planning and Land Management (MINEPAT). Using the framework for analyzing public debt sustainability defined jointly by the International Monetary Fund (IMF) and the World Bank in 2018, the findings show that Cameroon’s public debt, while still sustainable (estimated at 46.9% of Gross Domestic Product, thus remaining below the community threshold of 70%), poses a high risk of external debt distress on the economy. This result means that, in the absence of concrete and radical actions by the government to reduce its rate of indebtedness, it will be difficult for the Cameroonian Treasury to honour all of the government’s financial commitments on the bond markets in the near future, particularly with respect to debt service payments. Moreover, Cameroon’s liquidity and solvency ratios correspond to a policy that can be improved. Some debt and debt service indicators are significantly above short-term benchmarks over the entire study period from 2021 to 2030. Given this situation, it is urgent that the government define and implement an effective and efficient fiscal policy capable of bringing Cameroon to the level of development hoped for by 2035. This requires, in particular, a more optimal reallocation of resources to guarantee productive investments and sustainable human development (Fambon, 2002). In this sense, this report emphasizes the need to guarantee the competitiveness of national enterprises, which includes the promotion of national private investment and the choice of loans at preferential rates that require the repurchase and/or cancellation of certain components of the country’s public debt. Thus, the study recommends a number of economic policy proposals to the Cameroonian government in order to reduce the debt burden.

Panel members discussing the findings of the Cameroon 2021 Budget Report done by the Nkafu Policy Institute

Panel members discussing the findings of the Cameroon 2021 Budget Report done by the Nkafu Policy Institute

Thus, the study recommends a number of economic policy proposals to the Cameroonian government to reduce the debt burden. These can be summarized in three main areas.

Cameroon must further promote the competitiveness of its economy and greater diversification of its production. These options are now essential to prevent the external debt overhang that currently weighs on the country from affecting growth and In view of the budgets allocated to the ministerial departments in charge of promoting Cameroonian know-how and the competitiveness of national companies, it is clear that much efforts still need to be made by the government to enable local companies to be even more productive in the local market so as to be easily integrated into the continental value chains (African Continental Free Trade Area), mainly through the development of trade (exports and internationalization) and industrialization. The emergence of national enterprises, by broadening the tax base, would allow the State to collect additional revenue from SMEs (taxes and duties) and reduce recourse to the national and international money market to finance the budget deficit. To succeed in strengthening the competitiveness of national enterprises, the Cameroonian government could draw inspiration from the UK government policy developed in 2001 for this purpose. This policy consists of concentrating its action on the following three priority areas: Culture and environment, including macroeconomic stability and the policy framework; improving the regulatory framework governing business activities; and supporting businesses at every stage of their life cycle, particularly in the areas of human resources, skills, advice, working conditions, information technology, Finance, and international trade.

  • Cameroon should favour concessional terms when it decides to borrow on the international market to finance its budget deficit, the challenge being to ensure regular payment of the corresponding debt service. Concessional loans refer to those where the interest rate prevailing at the time the external debt is contracted, is lower than the current market As a rule, a loan is considered concessional if its grant element is at least 35%, but this threshold can be higher in some cases (IMF, 2010). The challenge for Cameroon is to support gradual fiscal consolidation while reducing the existing external debt burden. The use of non-concessional loans for any financing should be clearly exceptional. In addition to incorporating concessional conditions, public debt in Cameroon should make a significant contribution to economic development. In order to achieve this, priority should naturally be given to investment expenditure that serves production, to the detriment of recurrent expenditure. Such a strategy could allow the state to identify in advance the source of debt service repayment as well as the means to repay the principal when due.
  • Strengthening the public-private partnership is also essential to avoid Cameroon’s external debt overload. The public-private partnership framework provides for entrusting to a private service provider the construction of public infrastructure, as well as the management of certain activities in the public domain for a determined The public- private partnership is, therefore, a method of financing whereby the public authority calls on private service providers to finance and manage a facility that provides or contributes to the public service. The advantage of this system of financing is that it allows the State as well as citizens to benefit from innovations designed by private companies. The public- private partnership thus appears to be a more affordable alternative financing method for the public sector in the short term.

On December 17, 2020, the President of the Republic of Cameroon promulgated Law No. 2020/018 to establish the Finance Law of the Republic of Cameroon for the financial year 2021. This law defines the conditions of the national budgetary and financial balance, determines the State budget, and  sets the amount and allocation of expenses and resources. In a way, it directs the economic activity of a government. In 2020, the Republic of Cameroon’s finance law was adopted in a difficult context marked by security and humanitarian crises. According to Louis Paul Motaze, Cameroon’s Minister of Finance, it reflected ‘the government’s desire to consolidate economic growth  to make it strong, sustainable and inclusive. Because of the country’s major challenges, namely the maintenance of territorial integrity, the finalization of infrastructure projects (in the energy, road, and public works sectors), the organization of the African Nations Championship, the finalization of work on the African Nations Cup, legislative and municipal elections, the implementation of the conclusions of the Major National Dialogue, etc. culminating in the reconstruction of the North-West and South-West regions; the general State budget stood at CFAF 4 951.7 billion, a drop of 5% compared to 2019, a first after the uninterrupted increase observed since 2008.

However, the global health crisis caused by the COVID-19 pandemic led the Head of State to create a special allocation account of CFAF 180 billion for the fight against the coronavirus and its economic and social repercussions, thereby revising the general budget by setting it at CFAF 4 409 billion, a 12% drop compared to the initial budget.

For the 2021 fiscal year,3 the President of the Republic has placed government action in a resolutely optimistic perspective. This is based on the resumption of economic growth to put the country back on the path to emergence by curbing the harmful effects of the COVID-19 pandemic through the structural transformation of the economy. The priority action levers selected are, in fact, in line with the modernization of agriculture and industrialization.

However, the government remains cautious about proceeding with a budgetary revival, mainly because of its commitments to the Economic and Monetary Community of Central Africa and the International Monetary Fund. The state budget has been set at CFAF 5,235.2 billion (Ministry of Finance, 2021), an increase of around 16% compared to 2020. This budget aims to improve the business climate, strengthen local taxation, promote import substitution, broaden the tax base, and secure revenue; the context remains marked by the completion of major infrastructure projects and the Covid-19 pandemic.

In view of the budgetary situation in Cameroon, it is appropriate to address the major factors likely to reduce the resilience of national fiscal policy. These factors are essentially of three kinds: The multiple crises (security, socio-political and humanitarian), the major infrastructure projects of the National Development Strategy 2020-2030, which naturally lead to the thorny issue of debt.

This Report reflects the product of a study conducted by a team from the Nkafu Policy Institute, under the leadership of its management, and the Denis & Lenora Foretia Foundation, which made the work possible and facilitated its conduct.

The actual writing of the report was led by Dr. Jean Cédric Kouam, Deputy Director of Economic Affairs at the Nkafu Policy Institute. The drafting team also included:
· M. Henri Kouam Tamto, Economic Policy Analyst at the Nkafu Policy Institute; · M. Bin Joachem Meh, Free Enterprise Associate at the Nkafu Policy Institute; · Mme Marlyse Noussi, Research Assistant at the Nkafu Policy Institute.
Professor Robert Nantchouang kindly provided the editorial review of the draft of this Report.
The Denis & Lenora Foretia Foundation expresses its gratitude to the authorities of the Ministry of Finance, the Autonomous Sinking Fund, and the Ministry of the Economy, Planning, and Land Management for making the statistical data available on their various sites and in their various reports.

If you need the full report, click here

The Denis & Lenora Foretia Foundation was established to catalyze Africa›s economic transformation by focusing on social entrepreneurship, science and technology, innovation, public health, and progressive policies that create and expand economic opportunities for all.
The Nkafu Policy Institute is an African research center (Think Tank) within the Denis & Lenora Foretia Foundation. Founded in 2012, its mission is to advance public policies that enable Africans to thrive in free, fair, and democratic economies. The Institute has distinguished itself as a leading research center in Cameroon, committed to promoting open debate that builds consensus toward a democratic future.

Source: Bantu Voices

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