89198 INTERNATIONAL DEVELOPMENT ASSOCIATION INTERNATIONAL MONETARY FUND CAMEROON Joint Bank-Fund Debt Sustainability Analysis 2014 Update Prepared by the staffs of the International Development Association and the International Monetary Fund Approved by Jeffrey D. Lewis and Marcelo Giugale (IDA) and Anne-Marie Gulde-Wolf and Robert Traa (IMF) June 27, 2014 This debt sustainability analysis builds on the one conducted at the time of the 2013 Article IV Consultation. It finds that Cameroon’s external debt remains sustainable, with all external debt ratios staying below their respective thresholds. However, the risk of debt distress has increased from ”low” to “moderate,” as the external debt indicator for the net present value of debt over exports breaches the policy-dependent threshold under a classic shock to exports. The underlying macroeconomic assumptions in this analysis are comparable to those used in the previous one. However, the composition and terms of new external debt have been adjusted to reflect the large, undisbursed debt overhang contracted on nonconcessional terms to finance the country’s ambitious public investment program. Heavier external borrowing than projected could jeopardize debt sustainability over the long term and calls for a prudent approach regarding the terms of borrowing. Moreover, significant vulnerabilities related to a weak domestic debt policy, and a fiscal situation projected to become increasingly fragile, heighten the risk of overall debt distress. 2 I. BACKGROUND 1. This debt sustainability analysis (DSA) of Cameroon’s public debt was prepared jointly by the International Monetary Fund (IMF) and the World Bank. It updates the 2013 DSA (IMF Country Report No. 13/279).1 It uses the latest standard debt dynamic template for low-income countries,2 based on the most recent external debt data from the authorities, and the macroeconomic framework derived from the 2014 IMF Article IV consultation. Data are composed of external and domestic debt of the central government, as well as debt and guaranteed debt of public enterprises. As noted in the previous DSA, debt statistics could benefit from a more comprehensive coverage of contingent liabilities on financial institutions and liabilities of public enterprises and municipalities. 2. The enhanced Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiatives resulted in a significant decline in Cameroon’s public debt ratios, from more than 50 percent of GDP in 2005 to less than 10 percent of GDP in 2008. However, the public debt-to- GDP ratio has been steadily increasing since then, reaching 19.5 percent at end-2013. This increase mainly corresponds to a rise in public external debt, representing 63.4 percent of total public debt at end-2013 (Text Table 1). Bilateral loans from non-Paris club members have significantly grown, representing 30.7 percent of total public debt at end-2013, as opposed to only 4.3 percent at end-2008. This evolution reflects an increasing number of loans, with less favorable financing conditions, to finance the authorities’ ambitious public investment program. Although there was a fall in structured domestic debt in 2012, the overall stock of domestic debt has remained on a rapid growth path since 2011 (Text Table 2). Text table 1. Cameroon: Stock of Public Debt, 2006–13 2006 2007 2008 2009 2010 2011 2012 2013 (CFAF billions) Total public debt 1,489 1,171 1,015 1,114 1,349 1,662 2,085 2,772 External debt 603 562 578 574 725 927 1,197 1,757 Multilateral 206 230 289 377 460 577 632 901 Bilateral 316 289 288 196 222 304 470 989 Bilateral Paris Club 294 251 245 63 91 85 75 139 Bilateral non-Paris Club 22 38 43 133 132 219 395 851 Commercial debt 81 43 1 1 43 46 96 138 Domestic debt 887 608 437 540 623 734 888 1,014 (Percent of total) Total public debt 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 External debt 40.5 48.0 56.9 51.5 53.8 55.8 57.4 63.4 Multilateral 13.8 19.7 28.5 33.8 34.1 34.8 30.3 32.5 Bilateral 21.2 24.7 28.4 17.6 16.5 18.3 22.6 35.7 Bilateral Paris Club 19.7 21.4 24.2 5.7 6.7 5.1 3.6 5.0 Bilateral non-Paris Club 1.5 3.2 4.3 12.0 9.8 13.2 18.9 30.7 Commercial debt 5.4 3.7 0.1 0.1 3.2 2.8 4.6 5.0 Domestic debt 59.5 52.0 43.1 48.5 46.2 44.2 42.6 36.6 (Percent of GDP) Total public debt 15.9 12.0 9.7 10.1 11.5 13.2 15.6 19.5 External debt 6.4 5.7 5.5 5.2 6.2 7.4 9.0 12.5 Multilateral 2.2 2.4 2.8 3.4 3.9 4.6 4.7 6.4 Bilateral 3.4 2.9 2.8 1.8 1.9 2.4 3.5 7.0 Bilateral Paris Club 3.1 2.6 2.3 0.6 0.8 0.7 0.6 1.0 Bilateral non-Paris Club 0.2 0.4 0.4 1.2 1.1 1.7 2.9 6.0 Commercial debt 0.9 0.4 0.0 0.0 0.4 0.4 0.7 1.1 Domestic debt 9.4 6.2 4.2 4.9 5.3 5.9 6.6 7.0 Memorandum item: Nominal GDP 9,388 9,792 10,444 11,040 11,700 12,546 13,515 14,463 Sources: Cameroonian authorities; and IMF and World Bank staff estimates. 1 The draft DSA was discussed with the Cameroonian authorities in the course of the 2014 Article IV consultation. This DSA follows the IMF and World Bank Staff Guidance Note on the Application of the Joint IMF-World Bank Debt Sustainability Framework for Low-Income Countries, dated November 7, 2013 (SM/13/292). 2 The template was provided by the IMF’s Strategy and Policy Review Department. 3 Text Table 2. Cameroon: Domestic Debt Components, 2011–13 (CFAF billions; unless otherwise indicated) 2011 2012 2013 2013 Share in percent Total domestic debt 734 888 1,014 100 Structured debt 571 498 515 51 Banking 123 117 108 11 Non-banking 448 381 407 40 Non structured debt1 163 390 499 49 Sources: Cameroonian authorities; and IMF and World Bank staff estimates. 1 Includes financing gap. II. UNDERLYING ASSUMPTIONS 3. The new macroeconomic framework reflects limited adjustments to projections of key variables compared to the 2013 DSA framework. Oil revenue is somewhat lower, and growth and exports are assumed to be somewhat less buoyant in the medium term, but more resilient over the long term (Text Table 3 and Box 1). Oil revenue, as a percent of GDP, is expected to fall because increases in oil production are offset by a projected fall in international oil prices and rising production costs. Real GDP growth remained strong in 2013, thanks to better implementation of the public investment plan, and is expected to remain robust in the medium term, based on sustained domestic demand and the coming on stream of infrastructure projects. The volume of non-oil exports is projected to grow by around 9 percent a year, above real GDP growth. Imports are projected to grow by around 5 percent per year, broadly in line with GDP. Inflation is projected to remain well below the 3 percent convergence criterion of the Central African Economic and Monetary Community (CEMAC). Text Table 3. Cameroon: Key Macroeconomic Assumptions, 2013–34 1 2 3 2013-14 2015-19 2020-34 Real GDP growth (percent) DSA 2014 5.5 5.5 5.5 DSA 2013 4.6 5.1 4.8 4 Total revenue (percent of GDP) DSA 2014 18.3 17.7 16.4 DSA 2013 18.9 19.3 18.3 Exports of goods and services (percent of GDP) DSA 2014 27.1 25.5 24.2 DSA 2013 28.7 27.4 22.9 Oil price (US dollars per barrel) DSA 2014 108.0 93.3 91.7 DSA 2013 106.0 88.5 93.2 Sources: Cameroonian authorities; and IMF and World Bank staff estimates. 1 2013 DSA referred to periods 2012-13. 2 2013 DSA referred to periods 2014-17. 3 2013 DSA referred to periods 2018-33. 4 Total revenue, excluding grants. 4 4. However, some assumptions have been adjusted. The discount rate increased from 3 percent for the 2013 DSA to 5 percent, as approved by the IMF and World Bank Executive Boards in October 2013. The level of external public debt at end-2012 was adjusted upward to CFAF 1,197 billion from CFAF 1,127 billion, and again to CFAF 1,595 billion at end-2013. Finally, given new information of large as-yet-undisbursed debt contracted at nonconcessional rates (nearly CFAF 2,700 billion at end-2013 versus about CFAF 2,100 billion at end 2012; Text Table 4), the composition of debt by level of concessionality from 2013 forward was revised (Text Table 5). The DSA assigns a larger role to non-Paris Club bilateral creditors, whose loans are nonconcessional, especially in 2015 and 2016, given specific information on undisbursed loans. Their share of new external financing rises from 49.5 percent of all new debt accrued at end-2014, reaches a maximum of 51.2 percent by 2015, and falls to 36.9 percent from 2017 onward; the composition of new debt in the 2013 DSA was characterized by a slower increase in the share of non-Paris Club members (from 28.8 percent of the total in 2012 to 41.9 percent by end-2018). 5. Other important assumptions for the DSA remain unchanged, including the assumption of a limited overall amount of future external debt. The fiscal financing gap is assumed to lead to an accumulation of mostly domestic debt, which does not come into play when assessing the risk of external debt distress. Some contingent liabilities in state-owned enterprises (SOEs) have been left out, because although they may be sizable, their overall amount remains hard to quantify. 5 Box 1. Cameroon: Macroeconomic Assumptions for the Baseline Scenario1 Medium Term, 2015–19  Real GDP growth is projected to reach an average of 5.5 percent in the medium term, supported by a strong domestic demand, a rapid increase in oil production, and high public investments. Annual inflation is projected to remain low, at 2.2 percent, in line with historical trends and below the CEMAC convergence criterion.  The revenue-to-GDP ratio is projected to dip slightly over the medium term, from 17.7 percent of GDP in 2015 to 17.3 percent of GDP in 2019. Although oil prices are expected to ebb over the medium term, production of oil is assumed to be higher thanks to the recent discovery of an oil field and new technology to tap old wells. However, this technology is more expensive and will reduce oil revenue.  The external current account deficit is projected to grow from 4.3 percent of GDP in 2015 to 4.5 percent of GDP in 2019. The deficit is assumed to be driven by more imports, which in turn stem from real GDP growth and the need for imported equipment and intermediate goods for infrastructure projects. As before, the current account deficit is expected to be financed through foreign direct investment, external public borrowing, and other private capital inflows. Long Term, 2020–34  Real GDP growth is projected to average 5.5 percent. Long-term growth is driven by non-oil exports, domestic demand, and a sustained rate of private capital spending consistent with the advent of a more favorable business climate.  The revenue-to-GDP ratio is projected to decrease from 17.3 percent of GDP in 2020 to 15.3 percent of GDP in 2034. This trend assumes oil revenue will be decreasing with the depletion of oil reserves, while non-oil revenue is still sustained by further structural reforms to improve revenue collection and to usher in a more diversified economy.  The external current account deficit is projected to decline gradually to 3.5 percent of GDP in 2034, on account of a strong non-oil export growth facilitated by the coming onstream of new infrastructure, such as the Kribi deep-sea port, while oil exports become less important. ________________________________________ 1 The baseline scenario uses the latest IMF World Economic Outlook assumptions (March 2014). 6 Text Table 4. Cameroon: Committed but Non-Disbursed Loan Stocks by Category of Creditors, 2010–13 (CFAF billions) 2010 2011 2012 2013 Multilateral 613 630 727 826 Bilateral 156 697 1,286 1,807 Commercial … 94 83 85 Total 769 1,422 2,095 2,718 Source: Cameroonian authorities. Text Table 5. Cameroon: Allocation of New External Commitments by Concessionality Levels, 2013–34 (CFAF billions) Average Average 2013 2014 2017 2020 2025 2030 2034 2015-191 2020-342 New borrowing, 2013 DSA 265 348 462 491 559 616 … 420 564 Concessional 59 72 80 75 77 77 … 76 76 Percent of total 22 21 17 15 14 12 … 18 14 Nonconcessional 207 276 382 417 482 539 … 344 488 Percent of total 78 79 83 85 86 88 … 82 86 3 New borrowing, 2014 DSA 487 574 463 520 728 985 1,273 495 852 Concessional 147 170 211 234 321 423 538 201 370 Percent of total 30 30 46 45 44 43 42 41 43 Nonconcessional 340 404 252 286 407 561 734 295 482 Percent of total 70 70 54 55 56 57 58 59 56 Sources: IMF and World Bank staff estimates and projections. 1 2013 DSA referred to periods 2014-18. 2 2013 DSA referred to periods 2019-33. 3 Includes external borrowing by parastatals of 7 percent of public external borrowing in 2016 and 2017, peaking at 9 percent in 2028. III EXTERNAL DEBT SUSTAINABILITY ASSESSMENT 6. The Low Income Countries (LICs) debt sustainability framework is guided by country- specific indicative debt burden thresholds for external debt. These thresholds reflect the empirical findings that sustainable debt levels for a LIC increase with the quality of policies and institutions, which is measured by the World Bank’s Country Policy and Institutional Assessment (CPIA) index (Text Table 6). This DSA is informed by Cameroon’s CPIA score for 2012. The score of 3.23, on a scale of 1 to 6, has virtually not changed over the last five years and corresponds to an assessment of weak institutional capacity. Cameroon’s rank is better than the CEMAC average (2.9) and in line with the sub-Saharan African (SSA) average. The indicative external debt burden thresholds for countries in this category are (i) a present value (PV) of the 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-to-GDP ratio of 30 percent; and (iv) debt service-to-exports and revenue ratios of 15 percent and 18 percent, respectively. 7 Text Table 6. Cameroon: Country Policy and Institutional Assessment Ratings, 2008–121 2008 2009 2010 2011 2012 Cameroon 3.21 3.21 3.17 3.18 3.23 2 CEMAC 2.74 2.79 2.80 2.84 2.86 2 Sub-Saharan Africa 3.15 3.17 3.21 3.20 3.17 Source: World Bank, World Development Indicators (2013). 1 CPIA ratings measure the quality of a country's policies and institutions; they range from 1 (Low ) to 6 (High). 2 Poverty Reduction and Growth Trust (PRGT) eligible countries. 7. Cameroon’s external debt remains sustainable, with all external debt ratios staying below their respective thresholds (Text Table 7 and Figure 1). There is, however, an upward trend for all debt ratio indicators, before subsequently abating at the end of the projection period. This is due to the assumption that the large fiscal financing gaps in the macroeconomic framework are to be financed by domestic debt, while external debt accumulation remains on a more modest path by comparison. Moreover, the grant element of new external borrowing is on average lower than in the previous DSA, while other relevant variables do not change much. These developments lead to a bigger challenge to finance public investments sustainably. Text Table 7. Cameroon: Baseline Debt Ratios, 2014–34 (Percent) Medium term Long term Threshold 2014 2015-19 2020-34 Debt Sustainability Analysis, 2014 External debt PV of debt-to-GDP 30 10.2 12.9 13.5 PV of debt-to-exports 100 37.7 50.6 55.9 PV of debt-to-revenue 200 56.4 74.1 83.1 Debt service-to-exports 15 2.7 3.7 6.2 Debt service-to-revenue 18 4.0 5.5 9.2 Public debt PV of debt-to-GDP 19.5 29.0 50.9 PV of debt-to-revenue 105.1 164.3 313.6 Debt service-to-revenue 9.6 14.4 21.3 2013 2014-18 2019-33 Debt Sustainability Analysis, 2013 External debt PV of debt-to-GDP 30 7.7 11.1 14.7 PV of debt-to-exports 100 27 41 64.9 PV of debt-to-revenue 200 39.4 58 80.8 Debt service-to-exports 15 1.6 2.2 4 Debt service-to-revenue 18 2.4 3.1 5 Public debt PV of debt-to-GDP 17.2 25.9 44.5 PV of debt-to-revenue 86.5 132.7 244.8 Debt service-to-revenue 7.7 10.5 14.1 Sources: IMF and World Bank staff estimates and projections. 8 8. However, Cameroon’s risk of external debt distress, based on strenuous standard stress testing, has increased from “low” to “moderate.” A shock to exports causes the ratio of the PV of external debt to exports to exceed 100 percent by 2016 (Figure 1, panel c). This new development reflects the higher external debt stock in 2013, the magnitude of the standard stress test,3 and, to a lesser extent, the change toward less concessionality in the composition of new external debt. III. PUBLIC SECTOR DEBT SUSTAINABILITY ASSESSMENT 9. As in the previous DSA, the inclusion of domestic debt exacerbates the pace of accumulation of public debt, and shows a clear deterioration in the debt ratios. The stock of domestic debt is projected to increase faster than external debt over the medium term, as the projected fiscal financing gaps are rolled up into domestic debt, in the form of new government securities, more securitization of arrears, and the accumulation of further domestic arrears. Therefore, the PV of debt-to- GDP ratio is expected to reach higher levels than in the previous DSA, from 19.5 percent of GDP in 2014 to almost 50.9 percent of GDP in 2034, after breaching the indicative ceiling of 38 percent of GDP in 2021. The PV of debt-to-revenue and the PV of debt service-to-revenue show a similar upward trajectory. 10. The overall amount and the uncertain financing terms of the financing gaps, and the uncertain level of contingent liabilities add another element of risk. While Cameroon faces a moderate risk of debt distress based on an assessment of public external debt, it faces a higher overall risk of debt distress reflecting significant vulnerabilities related to its weak domestic debt policy, such as a roll-over risk. IV. CONCLUSION 11. This DSA also confirms the growing risk of an unsustainable accumulation of total public debt. Its mitigation requires a mix of a more conservative fiscal policy and more favorable debt terms. While Cameroon’s current debt burden remains low, both domestic and external borrowings have expanded at a rapid pace and at increasingly nonconcessional terms. Risks are growing because future financing needs remain unidentified and reasonable pricing and maturities need to be negotiated. 12. On the basis of this DSA, Cameroon’s external debt remains sustainable, but its risk of external debt distress has increased from “low” to “moderate.” All debt indicators trend below their policy-dependent thresholds, but a shock to exports causes the ratio of PV of external debt to exports to exceed 100 percent by 2016. This underscores Cameroon’s particular vulnerability to an oil price shock, or a more limited increase in oil production than currently foreseen. This result calls for the adoption of prudent debt policies favoring more concessional terms, and the importance of economic growth to help diversify the export base and generate additional revenue. Nonconcessional loans should 3 The relevant “most extreme” stress test is a growth rate of exports at its 10-year historical average minus one standard deviation applied over 2015 and 2016, resulting in a negative growth of exports of 7.1 percent each year (vs. a negative growth of 5.7 percent for two successive years in the 2013 DSA). A shock resulting in negative growth of exports of less than 5.8 percent for 2015 and 2016 would not cause a breach of the policy-dependent threshold, nor would any of the other standard stress tests. 9 only be considered in well-assessed, high-yield commercial or infrastructure projects that will generate sufficient government revenue to cover debt service related to the projects. Export growth will originate primarily from the private sector, which requires a more favorable business climate. 13. The rapid increase in external debt between the previous and this DSA points to significant risks related to insufficient data coverage, lags in communication with some creditors, and, to date, inoperative upstream controls on new debt contracting. Current project implementation arrangements allow for direct payments between foreign contractor and external lender, which needs to be reported without delay to the Government. The creation of the National Public Debt Committee (NPDC) has been a step in the right direction, but questions remain as to its effective role in the process of evaluating and contracting new debt. Given the rapid rise in external debt and the large undisbursed debt overhang, staffs recommend subjecting new disbursements of external debt to a prior approval by the NPDC. 14. The Cameroonian authorities have indicated their agreement with the analysis and conclusions reached in this DSA. They agreed that it is essential to maintain debt sustainability, and share the view that current debt trends, if left unaddressed, pose a risk to the country’s long-term fiscal stability. Staffs recommended to subject new loans to a review by the NPDC to ascertain their consistency with debt sustainability. The authorities noted that given the large financing needs in the near term, they may have to contract nonconcessional loans in the absence of available alternative concessional financing for projects with a high return. The authorities are working with the World Bank regarding the ceiling of contracted nonconcessional loans. 10 Figure 1. Cameroon: Indicators of Public and Publicly Guaranteed External Debt Under Alternatives Scenarios, 2014–341 a.Debt accumulation b.PV of debt-to GDP ratio 4.0 25 35 3.5 20 30 3.0 25 2.5 15 2.0 20 1.5 10 15 1.0 5 0.5 10 0.0 0 5 2014 2019 2024 2029 2034 Rate of debt accumulation 0 Grant-equivalent financing (% of GDP) 2014 2019 2024 2029 2034 Grant element of new borrowing (% right scale) c.PV of debt-to-exports ratio d.PV of debt-to-revenue ratio 120 250 100 200 80 150 60 100 40 50 20 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 e.Debt service-to-exports ratio 16 f .Debt service-to-revenue ratio 20 14 18 16 12 14 10 12 8 10 8 6 6 4 4 2 2 0 0 2014 2019 2024 2029 2034 2014 2019 2024 2029 2034 Baseline Threshold Most extreme shock Sources: Country authorities, and IMF and World Bank staff estimates and projections. 1 The most extreme stress test is the test that yields the highest ratio on or before 2024. In figures b, d and f, it corresponds to a non-debt flows shock; in figures c and e, it corresponds to an exports shock. 11 Figure 2. Cameroon: Indicators of Public Debt Under Alternative Scenarios, 2014–341 80 70 PV of debt-to-GDP ratio 60 50 40 30 20 10 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 500 2 450 PV of debt-to-revenue ratio 2 400 350 300 250 200 150 100 50 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 35 2 Debt service-to-revenue ratio 30 25 20 15 10 5 0 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2034 Sources: Country authorities; and IMF and World Bank staff estimates and projections. 1 The most extreme stress test is the test that yields the highest ratio on or before 2023. 2 Revenues are defined inclusive of grants. 12 Table 1. Cameroon: Public Sector Debt Sustainability, Baseline Scenario, 2011–34 (Percent of GDP, unless otherwise indicated) Actual Estimate Projections 5/ Standard 5/ 2014-19 2020-34 Average 2011 2012 2013 Deviation 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average Public sector debt 1/ 13.8 16.1 19.5 24.0 28.0 31.1 33.8 36.3 38.4 48.6 68.3 of which: foreign-currency denominated 7.7 9.3 12.5 14.7 16.4 17.2 17.7 17.8 17.8 18.0 15.8 Change in public sector debt 1.7 2.3 3.4 4.5 4.0 3.0 2.7 2.5 2.1 2.0 1.7 Identified debt-creating flows 1.8 1.2 2.1 4.0 3.7 2.8 2.5 2.2 1.9 1.8 1.7 Primary deficit 2.4 1.3 3.6 -3.7 10.8 5.1 5.1 4.3 4.1 4.0 3.7 4.4 3.8 4.6 4.1 Revenue and grants 18.7 18.8 18.1 18.6 18.2 17.7 17.6 17.5 17.5 17.0 15.3 of which: grants 0.5 0.4 0.3 0.5 0.5 0.3 0.3 0.2 0.2 0.1 0.0 Primary (noninterest) expenditure 21.2 20.1 21.8 23.6 23.3 22.0 21.7 21.4 21.2 20.8 19.9 Automatic debt dynamics -0.6 -0.6 -1.7 -1.1 -1.3 -1.5 -1.6 -1.7 -1.8 -2.0 -2.9 Contribution from interest rate/growth differential -0.5 -0.6 -0.9 -1.0 -1.1 -1.3 -1.4 -1.6 -1.6 -2.0 -2.9 of which: contribution from average real interest rate 0.0 0.0 -0.1 0.0 0.2 0.2 0.2 0.2 0.3 0.4 0.5 of which: contribution from real GDP growth -0.5 -0.6 -0.8 -1.0 -1.3 -1.5 -1.6 -1.8 -1.9 -2.4 -3.4 Contribution from real exchange rate depreciation -0.1 0.0 -0.8 -0.1 -0.2 -0.2 -0.2 -0.2 -0.2 ... ... Other identified debt-creating flows 0.0 0.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 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 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 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) 0.0 0.5 0.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Residual, including asset changes -0.1 1.1 1.3 0.5 0.3 0.3 0.3 0.2 0.2 0.2 0.0 Other Sustainability Indicators PV of public sector debt ... ... 14.7 19.5 23.3 26.4 29.3 31.9 34.2 44.7 64.8 50.9 of which: foreign-currency denominated ... ... 7.7 10.2 11.8 12.6 13.1 13.4 13.6 14.1 12.4 13.5 of which: external ... ... 7.7 10.2 11.8 12.6 13.1 13.4 13.6 14.1 12.4 13.5 PV of contingent liabilities (not included in public sector debt) ... ... ... ... ... ... ... ... ... ... ... Gross financing need 2/ 3.7 3.0 5.1 6.9 7.2 6.4 6.6 6.8 6.8 7.0 8.6 7.6 PV of public sector debt-to-revenue and grants ratio (in percent) … … 80.9 105.1 128.0 148.8 166.7 182.8 195.3 262.3 424.0 313.6 PV of public sector debt-to-revenue ratio (in percent) … … 82.4 108.2 131.6 151.3 169.1 185.0 197.3 263.9 425.1 315.1 of which: external 3/ … … 43.0 56.4 66.3 72.1 75.9 77.9 78.6 83.0 81.0 83.1 Debt service-to-revenue and grants ratio (in percent) 4/ 7.0 8.9 8.4 9.6 11.7 12.1 14.3 16.5 17.6 18.6 26.1 21.3 Debt service-to-revenue ratio (in percent) 4/ 7.2 9.1 8.5 9.9 12.0 12.3 14.5 16.7 17.8 18.7 26.1 21.4 Primary deficit that stabilizes the debt-to-GDP ratio 0.7 -1.0 0.2 0.6 1.1 1.2 1.4 1.5 1.6 1.8 2.9 2.1 Key macroeconomic and fiscal assumptions Real GDP growth (in percent) 4.1 4.6 5.2 3.5 1.0 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.4 5.5 Average nominal interest rate on forex debt (in percent) 2.8 2.4 3.2 1.8 0.7 1.9 2.3 2.4 2.6 2.7 2.8 2.5 3.1 3.3 3.2 Average real interest rate on domestic debt (in percent) -1.6 -0.3 -4.4 -1.0 2.5 -0.1 1.0 0.7 1.0 0.9 0.9 0.7 0.7 0.7 0.7 Real exchange rate depreciation (in percent, + indicates depreciation -1.2 -0.5 -8.7 -2.1 4.3 -1.0 ... ... ... ... ... ... ... ... ... Inflation rate (GDP deflator, in percent) 3.7 2.8 6.3 2.7 2.6 2.0 1.8 2.0 1.9 1.9 1.9 1.9 1.8 1.8 1.8 Growth of real primary spending (deflated by GDP deflator, in percen 19.5 -0.6 13.9 3.3 7.2 14.6 4.1 -0.2 3.8 4.2 4.6 5.2 5.2 5.0 5.1 Grant element of new external borrowing (in percent) ... ... ... … … 21.2 20.3 19.1 18.2 17.6 17.1 18.9 16.5 15.4 ... Sources: Country authorities; and staff estimates and projections. 1/ [Indicate coverage of public sector, e.g., general government or nonfinancial public sector. Also whether net or 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. 13 Table 2. Cameroon: Sensitivity Analysis for Key Indicators of Public Debt, 2014–34 Projections 2014 2015 2016 2017 2018 2019 2024 2025 2034 PV of debt-to-GDP ratio Baseline 19 23 26 29 32 34 45 47 65 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 19 18 16 14 13 11 3 2 -6 A2. Primary balance is unchanged from 2014 19 23 27 30 34 37 52 54 73 A3. Permanently lower GDP growth 1/ 19 23 27 30 32 35 47 49 72 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 19 24 29 33 36 39 53 56 78 B2. Primary balance is at historical average minus one standard deviations in 2015-201 19 25 30 32 35 37 47 49 66 B3. Combination of B1-B2 using one half standard deviation shocks 19 22 23 27 31 34 48 51 74 B4. One-time 30 percent real depreciation in 2015 19 27 30 32 35 37 46 48 66 B5. 10 percent of GDP increase in other debt-creating flows in 2015 19 30 33 36 38 40 49 51 68 PV of debt-to-revenue ratio 2 Baseline 105 128 149 167 183 195 262 279 424 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 105 97 90 81 73 64 18 10 -42 A2. Primary balance is unchanged from 2014 105 128 152 173 194 211 303 323 480 A3. Permanently lower GDP growth 1/ 105 128 150 169 186 199 275 294 468 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 105 134 164 187 207 224 313 333 511 B2. Primary balance is at historical average minus one standard deviations in 2015-201 105 136 167 184 200 211 276 292 433 B3. Combination of B1-B2 using one half standard deviation shocks 105 118 132 155 176 194 282 303 482 B4. One-time 30 percent real depreciation in 2015 105 149 168 184 198 209 272 288 432 B5. 10 percent of GDP increase in other debt-creating flows in 2015 105 166 186 202 217 228 290 305 442 Debt service-to-revenue ratio 2 Baseline 10 12 12 14 16 18 19 19 26 A. Alternative scenarios A1. Real GDP growth and primary balance are at historical averages 10 12 12 13 15 16 11 10 1 A2. Primary balance is unchanged from 2014 10 12 12 14 17 18 20 20 30 A3. Permanently lower GDP growth 1/ 10 12 12 14 17 18 19 20 28 B. Bound tests B1. Real GDP growth is at historical average minus one standard deviations in 2015-20 10 12 13 15 18 19 21 21 31 B2. Primary balance is at historical average minus one standard deviations in 2015-201 10 12 12 15 17 18 20 20 27 B3. Combination of B1-B2 using one half standard deviation shocks 10 12 12 14 17 18 19 19 29 B4. One-time 30 percent real depreciation in 2015 10 13 14 17 19 20 23 23 32 B5. 10 percent of GDP increase in other debt-creating flows in 2015 10 12 13 16 17 19 21 21 28 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. 14 Table 3.a. Cameroon: External Debt Sustainablity Framework, Baseline Scenario, 2010–34 (Percent of GDP, unless otherwise indicated) Actual Historical 6/ Standard 6/ Projections Average Deviation 2014-2019 2020-2034 2011 2012 2013 2014 2015 2016 2017 2018 2019 Average 2024 2034 Average External debt (nominal) 1/ 7.7 9.3 12.5 14.7 16.4 17.2 17.7 17.8 17.8 18.0 15.8 of which: public and publicly guaranteed (PPG) 7.7 9.3 12.5 14.7 16.4 17.2 17.7 17.8 17.8 18.0 15.8 Change in external debt 1.2 1.6 3.3 2.2 1.8 0.8 0.4 0.1 0.0 -0.1 -0.4 Identified net debt-creating flows 0.1 2.0 2.1 2.8 2.5 1.3 0.9 0.6 0.4 -0.5 -0.4 Non-interest current account deficit 2.8 3.8 3.8 1.6 1.5 3.6 3.9 4.0 4.0 4.1 4.0 3.6 3.0 3.6 Deficit in balance of goods and services 2.6 3.0 3.3 3.0 3.3 3.4 3.5 3.5 3.5 2.9 2.3 2.9 Exports 29.6 29.2 27.2 27.0 26.4 25.7 25.4 25.1 25.0 24.8 23.3 24.2 Imports 32.2 32.2 30.4 30.0 29.8 29.2 28.8 28.7 28.5 27.7 25.6 Net current transfers (negative = inflow) -1.0 -0.8 -1.1 -1.5 0.6 -1.1 -1.0 -1.0 -0.9 -0.9 -0.8 -0.6 -0.3 -0.5 of which: official -1.0 -0.9 -0.3 -0.3 -0.3 -0.3 -0.2 -0.2 -0.2 -0.2 -0.1 Other current account flows (negative = net inflow) 1.1 1.6 1.6 1.6 1.6 1.5 1.5 1.4 1.4 1.3 0.9 Net FDI (negative = inflow) -2.1 -2.1 -0.7 -4.2 7.9 -0.4 -1.0 -2.3 -2.6 -3.1 -3.1 -3.7 -3.1 -3.6 Endogenous debt dynamics 2/ -0.6 0.2 -1.0 -0.4 -0.4 -0.5 -0.5 -0.5 -0.4 -0.4 -0.3 Contribution from nominal interest rate 0.2 0.2 0.3 0.2 0.3 0.4 0.4 0.4 0.5 0.5 0.5 Contribution from real GDP growth -0.2 -0.4 -0.4 -0.6 -0.7 -0.8 -0.9 -0.9 -0.9 -0.9 -0.8 Contribution from price and exchange rate changes -0.5 0.4 -0.8 … … … … … … … … Residual (3-4) 3/ 1.1 -0.4 1.2 -0.6 -0.7 -0.5 -0.5 -0.4 -0.4 0.4 0.0 of which: exceptional financing -1.3 0.3 -0.3 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 0.0 PV of external debt 4/ ... ... 7.7 10.2 11.8 12.6 13.1 13.4 13.6 14.1 12.4 In percent of exports ... ... 28.2 37.7 44.4 48.9 51.8 53.5 54.3 56.6 53.1 PV of PPG external debt ... ... 7.7 10.2 11.8 12.6 13.1 13.4 13.6 14.1 12.4 In percent of exports ... ... 28.2 37.7 44.4 48.9 51.8 53.5 54.3 56.6 53.1 In percent of government revenues ... ... 43.0 56.4 66.3 72.1 75.9 77.9 78.6 83.0 81.0 Debt service-to-exports ratio (in percent) 1.1 1.7 1.9 2.7 3.1 3.3 3.6 4.3 4.5 5.9 6.6 PPG debt service-to-exports ratio (in percent) 1.1 1.7 1.9 2.7 3.1 3.3 3.6 4.3 4.5 5.9 6.6 6.2 PPG debt service-to-revenue ratio (in percent) 1.7 2.6 2.8 4.0 4.6 4.8 5.3 6.2 6.5 8.7 10.1 9.2 Total gross financing need (Billions of U.S. dollars) 0.3 0.6 1.0 1.3 1.3 1.0 1.0 1.0 1.0 1.0 2.2 1.3 Non-interest current account deficit that stabilizes debt ratio 1.6 2.3 0.5 1.4 2.1 3.2 3.6 4.0 3.9 3.6 3.3 3.7 Key macroeconomic assumptions Real GDP growth (in percent) 4.1 4.6 5.2 3.5 1.0 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.5 5.4 5.5 GDP deflator in US dollar terms (change in percent) 8.7 -5.0 9.8 4.6 7.4 5.1 3.7 3.2 3.5 3.3 3.3 3.7 1.8 1.8 1.8 Effective interest rate (percent) 5/ 2.8 2.4 3.2 1.8 0.7 1.9 2.3 2.4 2.6 2.7 2.8 2.5 3.1 3.3 3.2 Growth of exports of G&S (US dollar terms, in percent) 32.4 -2.0 7.6 10.9 18.0 10.0 7.3 6.0 7.7 7.9 8.8 7.9 6.7 7.2 6.9 Growth of imports of G&S (US dollar terms, in percent) 26.5 -0.7 9.2 11.8 14.8 9.3 8.6 6.7 7.9 8.4 8.5 8.2 6.5 6.5 6.7 Grant element of new public sector borrowing (in percent) ... ... ... ... ... 21.2 20.3 19.1 18.2 17.6 17.1 18.9 16.5 15.4 16.1 Government revenues (excluding grants, in percent of GDP) 18.2 18.3 17.8 18.0 17.7 17.5 17.3 17.2 17.3 16.9 15.3 16.3 Aid flows (in Billions of US dollars) 7/ 0.4 0.5 0.4 0.5 0.5 0.5 0.6 0.6 0.6 0.8 0.1 of which: Grants 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 of which: Concessional loans 0.2 0.4 0.3 0.4 0.4 0.4 0.5 0.5 0.5 0.7 0.0 Grant-equivalent financing (in percent of GDP) 8/ ... ... ... 1.3 1.2 0.8 0.7 0.6 0.6 0.5 0.3 0.4 Grant-equivalent financing (in percent of external financing) 8/ ... ... ... 31.2 30.2 27.3 26.0 24.8 23.4 20.5 17.2 19.3 Memorandum items: Nominal GDP (Billions of US dollars) 25.5 25.3 29.3 32.5 35.5 38.7 42.3 46.1 50.3 72.1 148.1 Nominal dollar GDP growth 13.2 -0.7 15.6 10.9 9.4 8.9 9.2 9.1 9.0 9.4 7.4 7.3 7.5 PV of PPG external debt (in Billions of US dollars) 2.3 3.3 4.2 4.9 5.6 6.2 6.9 10.2 18.4 (PVt-PVt-1)/GDPt-1 (in percent) 3.5 2.7 2.0 1.8 1.5 1.4 2.1 1.0 0.6 0.9 Gross workers' remittances (Billions of US dollars) 0.4 0.3 0.5 0.5 0.5 0.6 0.6 0.6 0.6 0.7 0.8 PV of PPG external debt (in percent of GDP + remittances) ... ... 7.5 10.0 11.6 12.4 13.0 13.3 13.4 13.9 12.3 PV of PPG external debt (in percent of exports + remittances) ... ... 26.5 35.6 42.0 46.3 49.2 50.8 51.8 54.5 51.9 Debt service of PPG external debt (in percent of exports + remittance ... ... 1.7 2.5 2.9 3.1 3.4 4.1 4.3 5.7 6.5 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 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). 15 Table 3.b. Cameroon: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014–34 (Percent) Projections 2014 2015 2016 2017 2018 2019 2024 2034 PV of debt-to GDP ratio Baseline 10 12 13 13 13 14 14 12 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 10 8 6 4 2 1 -5 -8 A2. New public sector loans on less favorable terms in 2014-2034 2 10 12 13 14 15 15 16 16 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 10 12 13 14 14 15 15 13 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 10 14 20 20 20 20 18 13 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 10 13 14 15 15 16 16 14 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 10 15 20 20 20 20 19 14 B5. Combination of B1-B4 using one-half standard deviation shocks 10 14 19 19 19 19 19 14 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 10 17 18 19 19 19 20 18 PV of debt-to-exports ratio Baseline 38 44 49 52 53 54 57 53 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 38 30 23 16 9 3 -21 -35 A2. New public sector loans on less favorable terms in 2014-2034 2 38 46 52 56 58 59 65 67 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 38 45 49 52 54 55 57 53 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 38 63 100 103 104 104 98 76 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 38 45 49 52 54 55 57 53 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 38 58 79 81 81 81 76 58 B5. Combination of B1-B4 using one-half standard deviation shocks 38 53 72 75 76 76 75 62 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 38 45 49 52 54 55 57 53 PV of debt-to-revenue ratio Baseline 56 66 72 76 78 79 83 81 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 56 45 35 24 14 4 -30 -54 A2. New public sector loans on less favorable terms in 2014-2034 2 56 69 77 82 84 86 95 102 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 56 69 77 81 83 84 89 86 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 56 81 112 114 115 113 109 88 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 56 71 82 87 89 90 95 92 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 56 86 116 118 118 117 112 89 B5. Combination of B1-B4 using one-half standard deviation shocks 56 79 108 111 112 111 110 95 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 56 94 102 108 110 111 118 115 16 Table 3b. Cameroon: Sensitivity Analysis for Key Indicators of Public and Publicly Guaranteed External Debt, 2014–34 (concluded) (Percent) Debt service-to-exports ratio Baseline 3 3 3 4 4 4 6 7 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 3 3 3 3 3 3 2 0 A2. New public sector loans on less favorable terms in 2014-2034 2 3 3 3 3 3 3 4 5 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 3 3 3 4 4 4 6 7 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 3 4 5 6 7 7 10 10 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 3 3 3 4 4 4 6 7 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 3 3 4 4 5 5 8 8 B5. Combination of B1-B4 using one-half standard deviation shocks 3 3 4 4 5 5 8 8 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 3 3 3 4 4 4 6 7 Debt service-to-revenue ratio Baseline 4 5 5 5 6 6 9 10 A. Alternative Scenarios A1. Key variables at their historical averages in 2014-2034 1/ 4 5 4 4 5 5 3 0 A2. New public sector loans on less favorable terms in 2014-2034 2 4 5 4 4 5 5 6 8 B. Bound Tests B1. Real GDP growth at historical average minus one standard deviation in 2015-2016 4 5 5 6 7 7 9 11 B2. Export value growth at historical average minus one standard deviation in 2015-2016 3/ 4 5 5 6 7 7 11 12 B3. US dollar GDP deflator at historical average minus one standard deviation in 2015-2016 4 5 5 6 7 7 10 11 B4. Net non-debt creating flows at historical average minus one standard deviation in 2015-2016 4/ 4 5 5 6 7 7 12 12 B5. Combination of B1-B4 using one-half standard deviation shocks 4 5 6 7 8 8 11 12 B6. One-time 30 percent nominal depreciation relative to the baseline in 2015 5/ 4 7 7 7 9 9 12 14 Memorandum item: Grant element assumed on residual financing (i.e., financing required above baseline) 6/ 29 29 29 29 29 29 29 29 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 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 th 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.