Press Release No. 00/56

Press Release: Cameroon to Receive Around US$2 Billion in Debt Service Relief: The IMF and the World Bank Support Debt Relief for Cameroon Under the Enhanced HIPC Initiative

October 16, 2000

Under the enhanced HIPC Initiative, countries with a satisfactory track record of macroeconomic and structural policy implementation and a NPV of external debt exceeding 150 percent of exports are eligible to receive debt relief. With a debt NPV debt-to-export ratio of 205 percent at end-June 1999, debt relief equivalent to $1.26 billion in NPV terms will bring the ratio down to 150 percent, freeing up considerable resources for anti-poverty programs.

Bilateral creditors will provide for US$874 million in NPV terms (69 percent), while multilateral creditors will provide US$324 million (26 percent), and the remaining would be from the commercial bank creditors (US$62 million, or 5 percent). In particular, the World Bank Group (IDA and IBRD) will provide debt relief amounting to US$179 million in NPV terms over the next 12 years. The debt relief of US$37 million committed by the IMF will be delivered over a ten-year period, and will cover on average 23 percent of debt-service obligations to the Fund.

Cameroon will reach its completion point under the Initiative and receive the remainder of its debt relief from all creditors once it has achieved a number of actions designed to strengthen economic growth and reduce poverty. This includes the completion of a full Poverty Reduction Strategy Paper (PRSP), which will be elaborated in a broad consultative process with the civil society and the support of international partners, and at least one year implementation of the PRSP. The government of Cameroon expects to complete the full PRSP by end-November 2001.

Cameroon's eligibility for debt relief under the enhanced HIPC Initiative is a recognition by the international community of the progress made in implementing economic reforms and developing its poverty reduction strategy. Assistance provided under the enhanced HIPC Initiative will help Cameroon to advance its poverty reduction programs and stimulate equitable and sustainable economic development.

1. Cameroon's track record

Cameroon is drawing up satisfactory sectoral strategies for health, education and HIV/AIDS with World Bank assistance, and prepared an all-inclusive interim PRSP, in consultation with the civil society and support from the international partners. The PRSP places emphasis on the areas of health, education, basic social services, infrastructure, and rural development, as core elements in the fight against poverty. Also, a governance and anti-corruption strategy with an associated action plan have been adopted.

2. Reform steps to be taken before the completion point

The full debt reduction provided by the IMF, IDA and all other creditors will be delivered to Cameroon when the following conditions have been met, as part of an overall satisfactory effort on to reduce poverty:

· Poverty Reduction Strategy Paper: Completion of a full PRSP through a continued participatory process, and at least one annual implementation report of the paper, which will need broad endorsement by the Executive Boards of the IMF and the World Bank.

· Social Sectors: Implementing an ambitious education strategy, including building 2,500 new classrooms; and in the health sector, including raising significantly child immunization rates to 70 percent, and increasing education and access to mosquito nets to prevent the incidence of malaria.

· HIV/AIDS: Concrete progress in order to prioritize the fight against HIV/AIDS in the government's overall development agenda.

· Macroeconomic and Structural Reforms: Continued maintenance of a stable macroeconomic environment and satisfactory implementation of a new Poverty Reduction and Growth Facility (PRGF) program administered by the IMF; and assurances that budgetary savings from interim debt relief have been used in accordance with the criteria set forth at the decision point; and satisfactory implementation of an IDA-funded adjustment reform program.

· Governance and Anti-Corruption: The priority strategy and action plan for improving corruption and combating corruption attached to the I-PRSP have been satisfactorily implemented, including reform in the judiciary and public procurement, and in strengthening budgetary execution and service delivery.

3. HIPC background
The HIPC Initiative was launched by the IMF and the World Bank in 1996 as the first
comprehensive effort to eliminate unsustainable debt in the world's poorest, most heavily indebted countries. In October 1999, the international community agreed to make the Initiative broader, deeper and faster by increasing the number of eligible countries, raising the amount of debt relief each eligible country will receive, and speeding up its delivery. The enhanced Initiative aims, for most HIPCs, to reduce the NPV of debt at the decision point to a maximum of 150 percent of exports, and will be provided on top of traditional debt relief mechanisms (Paris Club debt rescheduling on Naples terms, involving 67 percent debt reduction in NPV terms and at least comparable action by other bilateral creditors).²

Eligible countries will qualify for debt relief in two stages. In the first stage, the debtor country will need to demonstrate the capacity to use prudently the assistance granted by establishing a satisfactory track record, normally of three years, under IMF- and IDA-supported programs. In the second stage, after reaching the decision point under the Initiative, the country will implement a full-fledged poverty reduction strategy, which has been prepared with broad participation of civil society, and an agreed set of measures aimed at enhancing economic growth. During this stage, the IMF and IDA grant interim relief, provided that the country stays on track with its IMF- and IDA-supported programs. In addition, Paris Club creditors, and possibly others, are expected to grant debt relief on highly concessional terms. At the end of the second stage, when the floating completion point has been reached, the IMF and IDA will provide the remainder of the committed debt relief, while Paris Club creditors will enter into a highly concessional stock-of-debt operation with the country involved. Other multilateral and bilateral creditors will need to contribute to the debt relief on comparable terms.

Some three-dozen HIPCs are expected to qualify for assistance under the enhanced HIPC Initiative, the great majority of which are sub-Saharan African countries. So far, 17 countries have been reviewed under the enhanced framework, for packages amounting to some $31 billion in debt service relief over time. Eleven countries have now reached their decision point under the enhanced framework (Cameroon joins Benin, Bolivia, Burkina Faso, Honduras, Mali, Mauritania, Mozambique, Senegal, Tanzania, and Uganda), with total committed assistance estimated at roughly $18 billion, representing an average NPV stock-of-debt reduction of about 45 percent on top of traditional debt relief mechanisms. Work is underway to have debt relief packages in place for some 20 countries by the end of the year.