INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND CAMEROON Joint Bank-Fund Debt Sustainability Analysis – 2018 Update Prepared jointly by the staffs of the International Development Association (IDA) and the International Monetary Fund (IMF) Approved by Paloma Anos-Casero (IDA) and Mary Goodman (IMF) Cameroon’s risk of external debt distress remains high. Fiscal consolidation and the Fund- supported envisaged reforms, coupled with the increasing share of concessional new borrowing, would improve the debt profile over time. However, at present, Cameroon’s external debt remains highly vulnerable to exogenous shocks: the policy-dependent threshold for the present value of debt to exports and debt service to exports are breached in the baseline program scenario as well as under standard stress tests. Mitigating risks to public debt thus requires a number of policy actions including: (i) a resolute and effective fiscal consolidation; (ii) a shift in the composition of new borrowing towards concessional loans; (iii) enhanced controls on externally-financed investment projects at all levels of government; (iv) implementation of policies to boost growth and non-oil exports; and (iv) a strengthening of public debt management. BACKGROUND Text Table 1. Cameroon: Public and Publicly 1. Public debt increased Guaranteed Debt, 2016–17 to 38.2 percent of GDP in 2017, a full (percent of GDP) 2016 2016 2017 5 percent higher than what was reported at First Revised Est. the time of the 1st ECF Review (Text Table 1, Review perimeter Public debt contracted and 27.9 27.4 31.6 Text Figure 1). The increase can be explained External debt 20.7 20.7 23.4 Domestic Debt 5.6 5.1 8.0 by two factors: (i) a broadening of the BEAC statutory advances 1.2 1.2 … definition of public debt to include all Publicly guaranteed debt 0.4 0.4 0.3 SONARA debt due to third parties SONARA debt 0.4 2.8 3.0 o/w external … 1.5 1.9 (1.8 percent); and (ii) a larger-than-expected Expenditure float 3.2 3.1 3.6 fiscal deficit at end-2017, financed by higher Total PPG debt 31.5 33.3 38.2 Domestic 10.4 10.7 12.6 external disbursement and higher expenditure External 21.1 22.7 25.6 float. As a result, total public and publicly Memo: guaranteed debt (external plus domestic) Stock of contracted but undisbursed debt 20.1 20.1 21.9 Domestic 1.3 1.3 0.9 increased from a revised 33.3 percent of GDP External 18.8 18.8 21.0 in 2016 to 38.2 percent in 2017.1 2. The stock of contracted-but-undisbursed debt also increased. A 2017 study by the National Debt Committee (CNDP) found that the large stock of undisbursed loans reflects a number of factors, including (i) normal project execution lags; (ii) delays in large infrastructure projects; (iii) non- performing projects with very low or nil disbursements, owing to lack of maturation or lack of available counterpart funds. This stock reached CFAF 4.5 trillion or 23 percent of GDP, up from 20 percent of GDP at end-2016. China’s share in undisbursed loans is still the largest but dropped from 36 percent at end-2016 to 28 percent at end-2017, as new borrowing agreements were signed mostly with multilateral creditors, which now account for over 40 percent of undisbursed debt. Commercial loans account for 15.6 percent of the undisbursed amount. 1 In line with the previous DSA, the figures reported in the current DSA are higher than those reported by the authorities (and reported in the accompanying Policy Note), because of SONARA debt (see paragraph 6). 2 3. The share of external concessional and semi- Table 2. Cameroon: Composition of External concessional debt has increased, in line with the Debt by Creditor, 2016–17 (percent of GDP) objectives of the ECF-supported program. Multilateral 2016 2017 and Paris Club (PC) debt represented almost half of total Multilateral 6.0 7.3 debt. Bilateral non-PC debt is dominated by China, while Bilateral PC 3.2 3.7 commercial debt mostly reflects a $750 million Eurobond Bilateral non-PC 7.2 7.9 issued in 2015 (Text Table 2). Commercial 5.9 6.4 o/w SONARA 1.5 1.9 n/a (guaranteed) 0.4 0.3 4. Domestic2 bank debt remains low at 8 percent of Total 22.7 25.6 GDP in 2017. The composition of bank debt remained tilted towards the long term, with T-bills only accounting for 20 percent of domestic debt. Text Figure 1. Cameroon: Public Debt Cameroon: Evolution of Public Debt, 2016–17 Cameroon: Composition of Public Debt, 2017 (billion CFAF) (percent) Cameroon: Evolution of Public Debt, 2016-17 Cameroon: Composition of Public Debt, 2017 (billion CFAF) (percent) 2500 9% 2016 2017 22% 2000 23% 1500 1000 500 13% 33% 0 External Multilateral External Bilateral External External External Domestic Guarantees, External Commerical Domestic Multilateral Bilateral Commerical arrears, SOE labilities Guarantees, arrears, SOE labilities Sources: Cameroonian authorities; IMF staff calculations. 5. The coverage of public debt for the purposes of this DSA has expanded compared to the 2016 DSA. Specifically, the entire debt to the private sector of the oil refinery SONARA, estimated at 3 percent of GDP, is included. As in the previous DSA, other liabilities linked to other SOEs are small and limited to their external debt (0.1 percent of GDP). 6. However, the debt of State-Owned Enterprises (SOEs) not yet covered by the DSA remains significant. According to a recent report by the authorities, SOE debt stood at 12.5 percent of GDP at end-2016 (see Box 1). For most of SOEs, data for 2017 is not available and further work is needed to clarify the nature of certain liabilities. Staff has agreed with authorities not to include SOEs ex-SONARA in the debt definition, but to work towards expanding it in the future to include all non- 2Domestic and external debt are defined on a currency-basis. Preliminary data shared by the authorities show that changing the definition to a residency basis would not materially change the split between domestic and external debt. 3 financial SOEs. Given that SONARA’s debt (4 percent of GDP) is already included in the DSA analysis, and the significant cross-debts between SOEs and the state and across SOEs, the existing stock of SOE debt not included in this DSA (about 8.5 percent of GDP) could give rise to much lower contingent liabilities. 7. Cameroon’s capacity to monitor and manage public debt for the purposes of IMF’s debt limit policy is adequate and is improving, but further improvements are needed. Discrepancies in reporting persist between the ministry of finance and the debt agency. While progress has been made in making the approval of National Public Debt Committee (CNDP) a requirement for all externally financed projects, some proposals still move forward to relatively advanced stages without preliminary authorization by the CNDP. The tracking of project loan disbursements remains inadequate, often leading to significant ex-post revisions in external debt data. Rapid and concrete actions to reduce the SENDs, particularly those related to loans signed over four years ago and that have very low or zero disbursement rates, is needed to provide a clearer picture of the existing commitments’ overhang and space for new borrowing. On the other hand, progress has been made in the monitoring of SOE debt and other contingent liabilities (see Box 1). 4 Box 1. Public Debt and State-Owned Enterprises Improved monitoring. The authorities took a decisive step in improving monitoring of SOEs by publishing, at the end of 2017, a “livre vert” listing all companies where the state or public entity is a shareholder, and all Public Establishments with an Industrial or Commercial Character (EPIC), which are legally distinct from SOEs but imply the same modalities of operation and state control. It is expected that the livre vert will be updated and published yearly. Text Table. A census of public enterprises Coverage. This analysis employs data from SOEs with a state Financial data participation above 50 percent and the EPICs for which reliable Livre Vert available financial data are available. Financial companies (such as SOEs 38 26 public banks) are excluded. Development companies 2 1 EPIC 17 10 SOE gross debt is sizeable. Total SOE debt reached Total 57 37 12.5 percent of GDP in 2016, up from 11.7 percent in 2014. Over two thirds of outstanding SOE debt is financial (banks, securitized debt and other Text Table: SOEs and EPIC debt, 2014-16 loans) and suppliers’ debt. (percent of GDP) 2014 2015 2016 Cross-debts with the central government are Dividends 0.0 0.0 0.0 significant. Anecdotal evidence suggests Subsidies 0.7 1.0 1.2 liabilities across SOEs are significant. A Claims on the state 1.5 1.3 0.3 substantial portion of gross SOE debt, Financial Debt 4.5 5.1 6.4 exceeding 2 percent of GDP, is owed to the Suppliers 4.0 3.2 2.6 state. At the same time SOE claims on the state Tax debt 1.8 2.6 2.3 declined to 0.3 percent of GDP at end-2016, Social debt 0.2 0.2 0.3 Other 1.3 1.2 0.9 (1.5 percent in 2014). Total debt 11.7 12.4 12.5 The public oil refinery SONARA is a concern. Total SONARA debt reached 5 percent of GDP in 2014, before gradually declining to 4 percent of GDP at end-2017, as lower oil prices triggered higher-than-expected profits. However, the increase in international oil prices has already started to strain SONARA’s finances again in 2018. At end-2017, reported state debt vis-à-vis the refinery stood at 0.5 percent of GDP; the refinery’s debt to the state, mainly in the form of tax and customs arrears, stood at 1.2 percent of GDP. SONARA DEBT In percent of GDP 2014 2015 2016 2017 Financial 0.6 0.6 0.6 0.8 Suppliers 3.1 2.1 1.6 1.7 Tax 1.1 1.7 1.6 1.2 Social security 0.0 0.0 0.0 … Other 0.2 0.2 0.4 0.3 Total debt 5.0 4.5 4.2 4.0 5 ASSUMPTIONS 8. The macroeconomic framework reflects recent economic developments and the policies underpinning the ECF-supported program. Text Table 3. Cameroon: Key Macroeconomic The baseline scenario is predicated on full Assumptions, 2016–38 implementation of program consolidation and 1/ 2/ 3/ 2016–17 2018–22 2023–38 reforms, as well as completion of ongoing Real GDP growth (percent) infrastructure projects, which should lead to DSA 2017 3.8 4.4 5.1 higher FDI and exports. Compared to the 2016 DSA 2016 5.2 4.9 5.5 DSA 2015 5.9 5.2 4.8 DSA, growth is projected to be lower in 2017 Total revenue excluding grants (percent of GDP) and 2018 following a slower-than-expected DSA 2017 15.0 16.0 17.2 recovery and declining oil production; economic DSA 2016 16.9 17.1 18.1 DSA 2015 17.7 16.6 15.6 activity is expected to gradually pick up and growth to average 4.4 percent in 2018–22. Exports of goods and services (percent of GDP) DSA 2017 18.9 16.1 14.6 Higher-than expected spending weakened fiscal DSA 2016 22.5 22.3 21.9 DSA 2015 25.6 21.7 15.8 consolidation in 2017; corrective measures should ensure more tightening in 2018, but Oil price (US dollars per barrel) DSA 2017 47.8 56.7 53.6 revenues are projected to be on average DSA 2016 46.8 54.6 55.2 DSA 2015 69.2 56.3 61.1 1 percent of GDP lower than in the 2016 DSA over the long term due to more conservative 1/ 2015 DSA referred to 2014–15 and 2016 DSA referred to 2015–16. 2/ 2015 DSA referred to 2016–20 and 2016 DSA referred to 2017–21. assumptions about organic revenue growth. 3/ 2015 DSA referred to 2021–35 and 2016 DSA referred to 2022–36 Non-oil exports are projected to remain dynamic and support the current account even as oil exports decline (Text Table 3). 9. The financing assumptions have been adjusted to reflect a higher concessionality than in the 2016 DSA. The financing gap during 2018–20 is assumed to be fully covered by IMF financing and budget support from donors. In line with 2017 disbursements and the government’s intention to shift the composition of new project borrowing towards concessional loans, the projected new debt will be skewed towards multilaterals creditors and the grant element of new borrowing is assumed to remain relatively high through the projection horizon. EXTERNAL DEBT SUSTAINABILITY 10. Cameroon is classified in the category of weak policy performers based on the World Bank Country Policy and Institutional Assessment (CPIA). With a three-year average CPIA score of 3.2 on a scale of 1 (low) to 6 (high), Cameroon falls within the range of 1 to 3.25 for weak policy performers. However, Cameroon fares better than the average of CEMAC countries (2.9) and its score is comparable to the SSA average. The policy-dependent thresholds applicable to this category are the following: (i) a present value (PV) of debt-to-exports ratio of 100 percent; (ii) a PV of the debt-to- revenue ratio of 200 percent; (iii) a PV of the debt service-to-exports ratio of 30 percent; (iv) a debt service-to-exports ratio of 15 percent; and (v) a debt service-to-revenue ratio of 18 percent. 6 11. The PV of external PPG debt-to-exports breaches its threshold for a prolonged period of time under the baseline scenario. The PV of debt-to exports ratio—which is the most critical ratio for Cameroon—reached 103 percent in 2017, breaching its policy dependent threshold, and would remain above it until 2035. Its average deviation to the threshold is about 16 percent throughout the period. The path has further deteriorated compared to that projected in the 2016 DSA, reflecting recent export trends and more conservative projections over the medium term, in spite of the fact that the baseline trajectory rests on the assumption of continued access to highly concessional financing and limited use of non-concessional loans.3 12. Other debt stock indicators remain well below their thresholds. The PV of external debt stood at 19.8 percent of GDP and 132 percent of government revenues (excluding grants) at end-2017. After peaking in 2019, ratios are expected to decline steadily during the projected period. The PV of debt-to-GDP ratios has declined by about 15 percent compared to the 2016 DSA reflecting the rebasing of the GDP that occurred in July 2017. These ratios remain well below their thresholds throughout the horizon under the baseline. 13. Debt service payment increase substantially in 2023–25, and liquidity ratios need to be monitored carefully. The external debt service to export ratio remains comfortably below the threshold over the program horizon, but rises to 15.4 percent, slightly above its threshold, in 2023–25 due to the repayment (in three yearly instalments) of the US$750 million 2015 Eurobond. It then quickly declines after the last installment of the Eurobond is repaid in 2025. Despite an increase in 2023–25, The PV of external debt service to revenue remains below its threshold through the projection horizon. 14. Standard stress tests underline the broad scope of risks to the debt outlook. The ratios of PV of debt-to-exports exports breaches threshold under all eight standardized stress tests, while debt- service-to-exports breaches under four of eight tests. The most severe of these shocks are those that diminish export growth for a short interval (figure 1). Under the combined scenario, the PV of debt-to- GDP ratio briefly and marginally breaches its threshold, and the PV of debt to revenue ratio approaches it (without breaching it) in 2020, before declining. The debt-service-to-revenue ratio marginally breaches its threshold in 2019-2025 under the scenario of 30 percent nominal depreciation. PUBLIC SECTOR DEBT SUSTAINABILITY 15. Public debt is projected to lie on a downward trajectory in the medium to long term. Public debt is projected to peak at 38.7 percent of GDP in 2018 and gradually decline to below 30 percent of GDP by 2030. The incidence of public external debt would increase temporarily as the government relies on external financing to support key infrastructure and pro-poor projects. In the baseline scenario, the PV of total public-sector debt as a share of GDP is expected to reach 33 percent in 2018, close to the DSF benchmark level of 38 percent of GDP associated with heightened public 3The large residual over the projection horizon reported in Table 1 is due to the gradually improving current account, which would turn positive over the medium term, buoyed by dynamic non-oil exports. 7 debt vulnerabilities for weak policy performers but is then expected to decline steadily over time to 15 percent of GDP in the long term. Enhanced revenue mobilization would also help reduce the PV of total public debt as a share of revenue from 216 percent in 2017 to 169 percent in 2023 and 91 percent in the long term. 16. The threshold for the PV of debt to GDP ratio would be breached under the real depreciation and contingent liabilities scenario. A 30-percent real depreciation would push the PV of public debt to 40 percent of GDP (the policy threshold) next year, before declining steadily. The same results are obtained under a 10 percent contingent liabilities shock (however, this shock is larger than the total stock of SOE debt not included in the DSA plus the realization of existing contingent liabilities on existing PPPs). CONCLUSION 17. The assessed risk of debt distress remains high. The present value (PV) of debt-to exports ratio and debt-service-to-exports ratio breach the policy dependent thresholds over several years. This results in the categorization of risk of debt distress as “high”. Steadfast implementation of ambitious fiscal and structural reforms supported by the IMF program is crucial to mitigate risks. The weaknesses presented in all debt burden indicators which are expressed as a proportion to exports points to the need for deep structural reforms to improve competitiveness and achieve economic diversification, while fiscal consolidation and a prudent borrowing policy, skewed towards concessional loans, remain crucial to keep public debt dynamics on a sustainable path and rebuild buffers ahead of upcoming high debt repayments. 18. Authorities’ view. The authorities noted that large infrastructure needs, including for the upcoming African Cup of Nations (CAN) are an exceptional factor driving the recent increase in debt. As several large projects come to fruition in the coming months, the upward pressure on debt would start easing. They were also confident that steady improvements in non-oil exports and higher growth in the medium term would ensure external sustainability over the projection horizon. Going forward, the authorities also plan to continue prioritizing concessional loans and contract new debt only to fund critical projects with proven strong growth or social potential. The authorities also maintain that only a fraction of SONARA’s debt to the private sector (that came under distress following the refinery’s losses due to the fixed pump prices) should be included in the definition of public debt. 8 Figure 1. Cameroon: Indicators of Public and Publicly Guaranteed External Debt under Figure 1. Cameroon: Indicators of Public Alternative and2018 Scenarios, Publicly –38 /1 Guaranteed External Debt under Alternatives Scenarios, 2018-2038 1/ a. Debt Accumulation b.PV of debt-to GDP ratio 3 36 80 35 70 3 35 60 2 34 34 50 2 33 40 1 33 30 32 1 20 32 0 31 10 2018 2023 2028 2033 2038 0 Rate of Debt Accumulation 2018 2023 2028 2033 2038 Grant-equivalent financing (% of GDP) Grant element of new borrowing (% right scale) c.PV of debt-to-exports ratio d.PV of debt-to-revenue ratio 500 600 500 400 400 300 300 200 200 100 100 0 0 -100 -100 2018 2023 2028 2033 2038 2018 2023 2028 2033 2038 e.Debt service-to-exports ratio f.Debt service-to-revenue ratio 35 40 30 35 30 25 25 20 20 15 15 10 10 5 5 0 0 2018 2023 2028 2033 2038 2018 2023 2028 2033 2038 Baseline Historical scenario Most extreme shock 1/ Threshold Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2028. In figure b. it corresponds to a Combination shock; in c. to a Exports shock; in d. to a Combination shock; in e. to a Exports shock and in figure f. to a One-time depreciation shock 9 Figure 2. Cameroon: Indicators of Public Debt Under Alternative Scenarios, 2018–38 /1 Most extreme shock One-time depreciation Baseline Fix Primary Balance Most extreme shock 1/ Historical scenario Public debt benchmark 45 40 PV of Debt-to-GDP Ratio 35 30 25 20 15 10 5 0 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 300 PV of Debt-to-Revenue Ratio 2/ 250 200 150 100 50 0 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 25 Debt Service-to-Revenue Ratio 2/ 20 15 10 5 0 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 Sources: Country authorities; and staff estimates and projections. 1/ The most extreme stress test is the test that yields the highest ratio on or before 2028. 2/ Revenues are defined inclusive of grants. 10 Table 1. Cameroon: External Debt Sustainability Framework, Baseline Scenario, 2015–38 (percent of GDP, unless otherwise indicated) 6/ Actual Historical Standard 6/ Projections Average Deviation 2018-2023 2024-2038 2015 2016 2017 2018 2019 2020 2021 2022 2023 Average 2028 2038 Average External debt (nominal) 1/ 21.6 25.4 28.2 28.9 29.9 29.5 29.0 28.5 27.8 25.0 23.0 of which: public and publicly guaranteed (PPG) 19.9 22.6 25.6 26.3 27.3 27.0 26.4 25.9 25.2 22.4 20.4 Change in external debt 7.0 3.7 2.9 0.6 1.0 -0.4 -0.5 -0.5 -0.7 -0.2 -0.2 Identified net debt-creating flows 3.8 -0.6 -4.9 -1.9 -1.8 -2.0 -2.1 -2.1 -1.9 -4.3 -9.4 Non-interest current account deficit 3.5 2.5 2.0 2.6 0.8 2.0 2.0 1.9 1.9 1.9 2.0 -0.3 -7.1 -2.3 Deficit in balance of goods and services 3.4 2.6 2.0 2.7 2.9 3.0 3.2 3.3 3.2 0.7 -6.3 Exports 21.8 19.4 19.2 18.0 17.0 16.1 15.4 14.8 14.3 13.4 15.4 Imports 25.2 22.0 21.2 20.8 19.8 19.1 18.6 18.1 17.5 14.1 9.1 Net current transfers (negative = inflow) -1.0 -1.1 -1.2 -1.2 0.5 -1.3 -1.3 -1.3 -1.2 -1.2 -1.2 -1.1 -0.9 -1.0 of which: official -0.2 -0.2 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.2 -0.2 Other current account flows (negative = net inflow) 1.1 1.0 1.2 0.5 0.4 0.1 -0.1 -0.1 0.1 0.0 0.1 Net FDI (negative = inflow) -1.9 -3.0 -6.3 -2.6 1.4 -3.9 -3.5 -3.5 -3.5 -3.6 -3.3 -3.4 -1.8 -2.7 Endogenous debt dynamics 2/ 2.2 -0.2 -0.6 0.0 -0.3 -0.3 -0.5 -0.5 -0.6 -0.6 -0.5 Contribution from nominal interest rate 0.3 0.7 0.8 1.0 0.9 1.0 0.9 0.9 0.8 0.7 0.7 Contribution from real GDP growth -0.9 -0.9 -0.8 -1.0 -1.2 -1.3 -1.4 -1.4 -1.4 -1.3 -1.2 Contribution from price and exchange rate changes 2.9 0.1 -0.6 … … … … … … … … Residual (3-4) 3/ 3.2 4.3 7.8 2.6 2.8 1.6 1.5 1.7 1.2 4.0 9.2 of which: exceptional financing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 PV of external debt 4/ ... ... 22.5 22.9 23.4 23.0 22.5 21.8 21.0 18.2 16.9 In percent of exports ... ... 117.5 127.3 137.7 143.1 145.6 147.5 147.1 136.0 109.6 PV of PPG external debt ... ... 19.8 20.4 20.8 20.5 19.9 19.3 18.5 15.7 14.3 In percent of exports ... ... 103.5 113.0 122.6 127.2 129.0 130.2 129.2 116.9 93.0 In percent of government revenues ... ... 132.0 131.4 133.3 131.5 126.6 121.5 116.3 96.9 84.2 Debt service-to-exports ratio (in percent) 3.4 9.4 11.0 16.2 16.4 16.5 16.7 17.4 19.3 13.7 12.6 PPG debt service-to-exports ratio (in percent) 3.4 6.6 7.1 9.8 12.1 12.5 13.1 13.6 15.4 9.5 8.9 PPG debt service-to-revenue ratio (in percent) 4.5 8.7 9.1 11.3 13.2 12.9 12.9 12.6 13.8 7.8 8.1 Total gross financing need (Billions of U.S. dollars) 0.7 0.4 -0.8 0.4 0.6 0.5 0.5 0.5 0.8 -1.5 -11.1 Non-interest current account deficit that stabilizes debt ratio -3.5 -1.2 -0.9 1.3 1.0 2.2 2.4 2.4 2.8 -0.1 -6.9 Key macroeconomic assumptions Real GDP growth (in percent) 5.7 4.5 3.2 4.2 1.2 4.0 4.5 4.8 5.0 5.2 5.4 4.8 5.4 5.5 5.4 GDP deflator in US dollar terms (change in percent) -16.3 -0.2 2.4 0.4 8.3 10.3 2.4 2.7 2.2 2.3 2.1 3.7 1.7 1.8 1.8 Effective interest rate (percent) 5/ 1.8 3.4 3.4 2.9 0.5 4.0 3.3 3.5 3.4 3.5 3.1 3.5 2.9 3.1 3.0 Growth of exports of G&S (US dollar terms, in percent) -21.7 -7.1 4.3 1.8 17.8 7.9 0.9 1.9 3.0 3.3 3.9 3.5 7.6 8.9 7.8 Growth of imports of G&S (US dollar terms, in percent) -19.5 -9.1 2.0 3.1 17.0 12.4 2.2 3.8 4.6 4.6 3.8 5.2 3.1 2.3 2.7 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 35.0 34.9 32.5 32.6 32.6 32.6 33.3 32.6 32.6 32.6 Government revenues (excluding grants, in percent of GDP) 16.4 14.7 15.0 15.5 15.6 15.6 15.7 15.9 15.9 16.2 17.0 16.6 Aid flows (in Billions of US dollars) 7/ 1614.8 3.1 4.0 1.1 1.1 0.6 0.7 0.7 0.8 0.9 1.9 of which: Grants 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.2 of which: Concessional loans 1614.7 3.0 3.9 0.9 1.0 0.5 0.6 0.6 0.7 0.8 1.6 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 1.8 1.7 1.2 1.1 1.1 1.1 0.9 0.9 0.9 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 39.4 38.4 37.4 37.4 37.1 36.9 37.1 36.5 36.9 Memorandum items: Nominal GDP (Billions of US dollars) 30.9 32.2 34.1 39.1 41.9 45.0 48.4 52.1 56.0 79.2 160.8 Nominal dollar GDP growth -11.6 4.2 5.7 14.8 7.1 7.6 7.4 7.7 7.6 8.7 7.2 7.4 7.3 PV of PPG external debt (in Billions of US dollars) 7.1 8.0 8.8 9.2 9.7 10.1 10.4 12.4 23.1 (PVt-PVt-1)/GDPt-1 (in percent) 2.7 1.9 1.1 0.9 0.8 0.6 1.4 0.9 0.9 0.8 Gross workers' remittances (Billions of US dollars) 0.5 0.5 0.6 0.7 0.7 0.8 0.8 0.8 0.9 1.1 1.8 PV of PPG external debt (in percent of GDP + remittances) ... ... 19.5 20.0 20.5 20.1 19.6 19.0 18.2 15.5 14.2 PV of PPG external debt (in percent of exports + remittances) ... ... 95.1 102.8 111.2 115.1 116.6 117.4 116.3 105.7 86.5 Debt service of PPG external debt (in percent of exports + remittances) ... ... 6.6 8.9 11.0 11.3 11.9 12.2 13.8 8.5 8.3 Sources: Country authorities; and staff estimates and projections. 0 1/ Includes both public and private sector external debt. 2/ Derived as [r - g - ρ(1+g)]/(1+g+ρ+gρ) times previous period debt ratio, with r = nominal interest rate; g = real GDP growth rate, and ρ = growth rate of GDP deflator in U.S. dollar terms. 3/ Includes exceptional financing (i.e., changes in arrears and debt relief); changes in gross foreign assets; and valuation adjustments. For projections also includes contribution from price and exchange rate changes. 4/ Assumes that PV of private sector debt is equivalent to its face value. 5/ Current-year interest payments divided by previous period debt stock. 6/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 7/ Defined as grants, concessional loans, and debt relief. 8/ Grant-equivalent financing includes grants provided directly to the government and through new borrowing (difference between the face value and the PV of new debt). 11 Table 2. Cameroon: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2018–38 (percent) Projections 2018 2019 2020 2021 2022 2023 2028 2038 PV of debt-to GDP ratio Baseline 20 21 20 20 19 18 16 14 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 1/ 20 22 24 25 26 27 34 72 A2. New public sector loans on less favorable terms in 2018-2038 2 20 22 22 22 22 22 22 24 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2019-2020 20 21 21 21 20 19 16 15 B2. Export value growth at historical average minus one standard deviation in 2019-2020 3/ 20 23 26 25 25 24 20 15 B3. US dollar GDP deflator at historical average minus one standard deviation in 2019-2020 20 23 25 25 24 23 20 18 B4. Net non-debt creating flows at historical average minus one standard deviation in 2019-2020 4/ 20 23 24 24 23 22 19 15 B5. Combination of B1-B4 using one-half standard deviation shocks 20 25 31 30 29 28 23 17 B6. One-time 30 percent nominal depreciation relative to the baseline in 2019 5/ 20 30 29 28 27 26 22 20 PV of debt-to-exports ratio Baseline 113 123 127 129 130 129 117 93 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 1/ 113 132 148 161 176 186 254 469 A2. New public sector loans on less favorable terms in 2018-2038 2 113 129 138 144 150 154 161 154 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2019-2020 113 123 128 130 131 130 117 93 B2. Export value growth at historical average minus one standard deviation in 2019-2020 3/ 113 163 237 240 242 241 214 143 B3. US dollar GDP deflator at historical average minus one standard deviation in 2019-2020 113 123 128 130 131 130 117 93 B4. Net non-debt creating flows at historical average minus one standard deviation in 2019-2020 4/ 113 135 152 154 156 155 138 96 B5. Combination of B1-B4 using one-half standard deviation shocks 113 150 195 198 200 199 177 117 B6. One-time 30 percent nominal depreciation relative to the baseline in 2019 5/ 113 123 128 130 131 130 117 93 PV of debt-to-revenue ratio Baseline 131 133 131 127 122 116 97 84 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 1/ 131 143 153 158 164 167 211 425 A2. New public sector loans on less favorable terms in 2018-2038 2 131 140 142 142 140 139 134 140 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2019-2020 131 136 136 131 126 120 100 87 B2. Export value growth at historical average minus one standard deviation in 2019-2020 3/ 131 147 168 162 155 149 122 89 B3. US dollar GDP deflator at historical average minus one standard deviation in 2019-2020 131 149 164 158 151 145 121 105 B4. Net non-debt creating flows at historical average minus one standard deviation in 2019-2020 4/ 131 147 157 152 145 139 114 87 B5. Combination of B1-B4 using one-half standard deviation shocks 131 161 196 189 181 174 142 103 B6. One-time 30 percent nominal depreciation relative to the baseline in 2019 5/ 131 190 187 180 172 165 137 119 12 Table 2. Cameroon: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2018–38 (concluded) (percent) Projections 2018 2019 2020 2021 2022 2023 2028 2038 Debt service-to-exports ratio Baseline 10 12 13 13 14 15 9 9 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 1/ 10 12 13 15 16 18 16 31 A2. New public sector loans on less favorable terms in 2018-2038 2 10 12 12 13 13 15 12 13 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2019-2020 10 12 13 13 14 15 9 9 B2. Export value growth at historical average minus one standard deviation in 2019-2020 3/ 10 15 19 21 21 24 19 15 B3. US dollar GDP deflator at historical average minus one standard deviation in 2019-2020 10 12 13 13 14 15 9 9 B4. Net non-debt creating flows at historical average minus one standard deviation in 2019-2020 4/ 10 12 13 14 14 16 12 10 B5. Combination of B1-B4 using one-half standard deviation shocks 10 13 15 17 17 20 15 12 B6. One-time 30 percent nominal depreciation relative to the baseline in 2019 5/ 10 12 13 13 14 15 9 9 Debt service-to-revenue ratio Baseline 11 13 13 13 13 14 8 8 A. Alternative Scenarios A1. Key variables at their historical averages in 2018-2038 1/ 11 13 14 14 15 17 13 28 A2. New public sector loans on less favorable terms in 2018-2038 2 11 13 12 12 12 13 10 11 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2019-2020 11 13 13 13 13 14 8 8 B2. Export value growth at historical average minus one standard deviation in 2019-2020 3/ 11 13 13 14 14 15 11 9 B3. US dollar GDP deflator at historical average minus one standard deviation in 2019-2020 11 15 16 16 16 17 10 10 B4. Net non-debt creating flows at historical average minus one standard deviation in 2019-2020 4/ 11 13 13 14 13 14 10 9 B5. Combination of B1-B4 using one-half standard deviation shocks 11 14 15 16 16 17 12 11 B6. One-time 30 percent nominal depreciation relative to the baseline in 2019 5/ 11 19 18 18 18 20 11 11 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 28 28 28 28 28 28 28 28 Sources: Country authorities; and staff estimates and projections. 1/ Variables include real GDP growth, growth of GDP deflator (in U.S. dollar terms), non-interest current account in percent of GDP, and non-debt creating flows. 2/ Assumes that the interest rate on new borrowing is by 2 percentage points higher than in the baseline., while grace and maturity periods are the same as in the baseline. 3/ Exports values are assumed to remain permanently at the lower level, but the current account as a share of GDP is assumed to return to its baseline level after the shock (implicitly assuming an offsetting adjustment in import levels). 4/ Includes official and private transfers and FDI. 5/ Depreciation is defined as percentage decline in dollar/local currency rate, such that it never exceeds 100 percent. 6/ Applies to all stress scenarios except for A2 (less favorable financing) in which the terms on all new financing are as specified in footnote 2. 13 Table 3. Cameroon: Public Sector Debt Sustainability Framework Baseline Scenario, 2015–38 (percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ Standard 5/ 2018-23 2024-38 Average 2015 2016 2017 Deviation 2018 2019 2020 2021 2022 2023 Average 2028 2038 Average Public sector debt 1/ 32.0 33.3 38.2 38.7 38.6 37.9 36.6 35.1 33.6 27.3 21.6 of which: foreign-currency denominated 19.9 22.6 25.6 26.3 27.3 27.0 26.4 25.9 25.2 22.4 20.4 Change in public sector debt 10.4 1.4 4.9 0.4 -0.1 -0.7 -1.4 -1.5 -1.5 -1.1 -0.3 Identified debt-creating flows 10.4 6.7 3.2 0.4 0.2 -0.5 0.0 -0.1 -0.1 -0.5 0.1 Primary deficit 4.0 5.3 4.1 2.2 2.3 1.8 1.2 0.7 0.7 0.7 0.8 1.0 1.0 1.2 1.1 Revenue and grants 16.5 15.0 15.4 15.8 15.8 15.8 15.9 16.1 16.1 16.3 17.1 of which: grants 0.1 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2 0.2 0.1 Primary (noninterest) expenditure 20.5 20.3 19.5 17.6 17.0 16.5 16.7 16.8 16.9 17.4 18.4 Automatic debt dynamics 1.0 0.1 -2.6 -2.0 -1.5 -1.6 -1.7 -1.7 -1.8 -1.5 -1.1 Contribution from interest rate/growth differential -1.3 -1.1 -0.6 -1.0 -1.3 -1.4 -1.6 -1.6 -1.7 -1.6 -1.1 of which: contribution from average real interest rate -0.1 0.2 0.5 0.5 0.3 0.3 0.2 0.2 0.1 -0.1 0.0 of which: contribution from real GDP growth -1.2 -1.4 -1.0 -1.5 -1.7 -1.8 -1.8 -1.8 -1.8 -1.5 -1.1 Contribution from real exchange rate depreciation 2.3 1.2 -2.0 -1.0 -0.1 -0.1 -0.1 -0.1 0.0 ... ... Other identified debt-creating flows 5.4 1.3 1.7 0.5 0.5 0.4 0.9 0.9 0.8 0.0 0.0 Privatization receipts (negative) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognition of implicit or contingent liabilities 2.1 1.3 1.1 1.0 1.0 1.0 0.9 0.9 0.8 0.0 0.0 Debt relief (HIPC and other) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Other (specify, e.g. bank recapitalization) 3.3 0.0 0.6 -0.5 -0.5 -0.5 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes 0.0 -5.3 1.6 0.1 -0.3 -0.2 -1.3 -1.4 -1.4 -0.6 -0.4 Other Sustainability Indicators PV of public sector debt ... ... 32.5 32.7 32.1 31.4 30.1 28.4 26.9 20.5 15.5 of which: foreign-currency denominated ... ... 19.8 20.4 20.8 20.5 19.9 19.3 18.5 15.7 14.3 of which: external ... ... 19.8 20.4 20.8 20.5 19.9 19.3 18.5 15.7 14.3 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 5.5 7.8 5.9 4.3 3.7 3.1 3.1 3.0 3.2 2.3 2.6 PV of public sector debt-to-revenue and grants ratio (in percent) … … 211.6 206.8 202.4 199.2 188.6 177.0 167.1 125.5 90.3 PV of public sector debt-to-revenue ratio (in percent) … … 216.2 210.9 205.5 202.1 191.1 179.2 169.1 126.7 91.1 of which: external 3/ … … 132.0 131.4 133.3 131.5 126.6 121.5 116.3 96.9 84.2 Debt service-to-revenue and grants ratio (in percent) 4/ 8.7 17.2 11.3 15.7 16.1 15.1 14.5 14.2 15.0 7.8 8.3 Debt service-to-revenue ratio (in percent) 4/ 8.7 17.6 11.6 16.1 16.3 15.3 14.7 14.3 15.2 7.9 8.3 Primary deficit that stabilizes the debt-to-GDP ratio -6.4 3.9 -0.8 1.4 1.2 1.3 2.1 2.2 2.3 2.1 1.5 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 5.7 4.5 3.2 4.2 1.2 4.0 4.5 4.8 5.0 5.2 5.4 4.8 5.4 5.5 5.4 Average nominal interest rate on forex debt (in percent) 1.8 3.6 3.4 3.0 0.5 2.4 2.5 2.4 2.4 2.4 2.1 2.4 1.7 1.8 1.7 Average real interest rate on domestic debt (in percent) 1.3 1.1 2.8 -0.5 2.2 2.6 1.4 1.7 0.7 0.8 0.3 1.2 -1.5 4.7 0.5 Real exchange rate depreciation (in percent, + indicates depreciation) 16.8 6.4 -9.0 2.7 8.6 -4.0 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 0.2 0.0 0.4 2.0 1.9 0.5 1.3 1.5 1.5 1.6 1.6 1.3 1.7 1.8 1.8 Growth of real primary spending (deflated by GDP deflator, in percent) 6.4 3.1 -0.7 0.9 2.2 -6.0 0.9 1.4 6.5 5.8 6.2 2.5 5.7 4.8 6.0 Grant element of new external borrowing (in percent) ... ... ... … … 35.0 34.9 32.5 32.6 32.6 32.6 33.3 32.6 32.6 ... Sources: Country authorities; and staff estimates and projections. 1/Coverage includes the central government and certain SOEs. Gross debt is used. 2/ Gross financing need is defined as the primary deficit plus debt service plus the stock of short-term debt at the end of the last period. 3/ Revenues excluding grants. 4/ Debt service is defined as the sum of interest and amortization of medium and long-term debt. 5/ Historical averages and standard deviations are generally derived over the past 10 years, subject to data availability. 14 Table 4. Cameroon: Sensitivity Analysis for Key Indicators of Public Debt, 2018–38 Projections 2018 2019 2020 2021 2022 2023 2028 2038 PV of Debt-to-GDP Ratio Baseline 33 32 31 30 28 27 21 15 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 33 33 33 33 33 32 30 30 A2. Primary balance is unchanged from 2018 33 32 32 32 31 30 26 23 A3. Permanently lower GDP growth 1/ 33 32 31 30 29 27 22 21 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2019-2020 33 33 33 32 30 29 24 21 B2. Primary balance is at historical average minus one standard deviations in 2019-2020 33 34 36 35 33 31 24 18 B3. Combination of B1-B2 using one half standard deviation shocks 33 34 35 34 32 31 25 20 B4. One-time 30 percent real depreciation in 2019 33 40 38 36 34 32 24 17 B5. 10 percent of GDP increase in other debt-creating flows in 2019 33 39 38 37 35 33 26 18 PV of Debt-to-Revenue Ratio 2/ Baseline 207 202 199 189 177 167 125 90 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 207 207 211 207 203 200 183 178 A2. Primary balance is unchanged from 2018 207 205 206 199 192 186 156 135 A3. Permanently lower GDP growth 1/ 207 202 199 189 179 170 135 123 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2019-2020 207 206 207 198 188 179 145 121 B2. Primary balance is at historical average minus one standard deviations in 2019-2020 207 217 230 218 205 194 148 102 B3. Combination of B1-B2 using one half standard deviation shocks 207 213 223 213 201 191 152 117 B4. One-time 30 percent real depreciation in 2019 207 252 244 228 212 198 144 98 B5. 10 percent of GDP increase in other debt-creating flows in 2019 207 248 243 230 217 205 156 107 Debt Service-to-Revenue Ratio 2/ Baseline 16 16 15 15 14 15 8 8 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 16 16 15 15 15 16 10 15 A2. Primary balance is unchanged from 2018 16 16 15 15 15 16 9 11 A3. Permanently lower GDP growth 1/ 16 16 15 15 14 15 8 10 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2019-2020 16 16 16 15 15 16 9 10 B2. Primary balance is at historical average minus one standard deviations in 2019-2020 16 16 16 16 15 16 9 10 B3. Combination of B1-B2 using one half standard deviation shocks 16 16 16 16 15 16 9 10 B4. One-time 30 percent real depreciation in 2019 16 19 21 20 20 21 12 14 B5. 10 percent of GDP increase in other debt-creating flows in 2019 16 16 16 17 15 16 11 10 Sources: Country authorities; and staff estimates and projections. 1/ Assumes that real GDP growth is at baseline minus one standard deviation divided by the square root of the length of the projection period. 2/ Revenues are defined inclusive of grants. 15