Chad: Enhanced Heavily Indebted Poor Countries Initiative: Completion Point Document And Multilateral Debt Relief Initiative

Abstract

The staffs of IDA and the IMF are of the view that Cameroon has met the requirements for reaching the completion point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. Most completion point triggers have been met, including satisfactory implementation of the poverty reduction strategy, maintenance of macroeconomic stability, social sector and structural reforms, and actions to improve governance and reduce corruption. Nevertheless, the trigger related to making the regulatory framework in the water sector operational has not been fully implemented. On this trigger, the government decided, following advice from World Bank staff, that the sector should be regulated through a lease contract between the government and the private operator that will manage the provision of water rather than through the creation of a water agency. The regulatory framework is in place and will be operational once the operator is selected and the lease signed. The staffs recommend a waiver of the trigger related to the water sector regulatory agency. • In October 2000, Executive Directors agreed that Cameroon’s external public debt was above the HIPC Initiative sustainability threshold and the country was eligible for assistance in the amount of US$1.26 billion in 1999 NPV terms, after the full use of traditional debt relief mechanisms. Full delivery of this amount of assistance was to reduce the net present value (NPV) of debt-to-exports ratio to 150 percent as of end-June 1999. The total amount of IDA and IMF assistance in NPV terms was determined to be US$179 million and US$36.9 million respectively. • The debt reconciliation exercise undertaken at the completion point shows that the end-June 1999 stock of debt in NPV terms has been revised upwards by US$2 million. Revisions to debt and export data result in an increase of HIPC assistance estimated at decision point from US$1,260 million in NPV terms to US$1,267 million. As Cameroon’s decision point was reached prior to the approval of the new information reporting decision by the Boards, the country qualifies for an upwards revision of assistance. Accordingly, the NPV of debt of each creditor will be reduced by 27.0 percent, after the application of traditional debt relief, instead of 26.9 percent determined at the decision point. • An updated Debt Sustainability Analysis (DSA) shows that Cameroon’s external public debt is sustainable after HIPC and MDRI debt relief. Assuming prudent fiscal policies, and robust non-oil real GDP growth, Cameroon’s external public debt is expected to be sustainable over the long term. The NPV of debt-to-exports ratio is expected to increase gradually over the next twenty years but will remain much below the HIPC threshold of 150 percent. The accompanying sensitivity analysis shows that in the presence of large adverse shocks (lower export prices and lower real GDP growth), Cameroon’s external debt could become unsustainable in the long run, highlighting the need for continued fiscal prudence and policies in support of export diversification. • Financing assurances on the provision of assistance under the enhanced HIPC Initiative have been obtained from creditors representing 94 percent of Cameroon’s total debt in NPV terms. Despite the government’s continued efforts, some non-Paris Club bilateral creditors and a few commercial creditors that did not participate in the London Club buy-back operation have not yet agreed to provide their share of HIPC assistance.