Report on the 2021 Budget of Cameroon: An Analysis of the Sustainability of the Public Debt

Report on the 2021 Budget of the State of Cameroon:
An Analysis of The Sustainability of the Public Debt

(Download the full report – Pdf version)

Download the full report – Pdf Version

The purpose of this report is to analyze the 2021 budget of the State of Cameroon, examining the sustainability of public debt. We use data extracted from the Republic of Cameroon’s Finance Laws, notably those for 2021; available public debt data from the Autonomous Sinking Fund; as well as
forecasts made by the Ministry of the Economy, Planning, and Regional Development in the New National Development Strategy 2020-2030. Using the framework for analyzing public debt sustainability defined jointly by the International Monetary Fund and the World Bank in 2018, we 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%), still poses a high risk of external debt distress on the Cameroonian 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 honor all the government’s financial
commitments on the bond markets in the near future, particularly with respect to debt service payments.

We show that 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 a more optimal reallocation of resources in order 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 several economic policy proposals to the Cameroonian government to reduce the debt burden. These are summarized in three main points as follow:

• Further Promote the Competitiveness of the Economy and Greater Diversification of Production: These options are now essential to prevent the external debt overhang currently weighing on the country from affecting growth and investment.
• Favor Concessional Terms, Especially for Borrowing on the International Market to Finance its Budget Deficit: This would allow it to ensure regular payment of the corresponding debt service.
• Strengthen the Public-Private Partnership: This method of financing will allow the State to finance part of its projects with the support of the private sector. The public-private partnership is thus an alternative mode of financing that is more affordable in the short term for the public sector.