By Boris Esono Nwenfor
The Nkafu Policy Institute, a think tank of the Denis and Lenora Foretia Foundation has made public research finding on the budget for the 2021 fiscal year in Cameroon. The findings were released during a press conference this November 24, 2021, at the Foundation’s Head office Simbock, Yaounde.
The panel was made up of Dr Jean Cedric Kouam, Deputy Director of the Economic Affairs Division, Nkafu Policy Institute; Dr Steve Tametong, Democracy and Governance Policy Analysts, Nkafu Policy Institute and Mr Bin Joachem Meh, Free Enterprise Associate, Nkafu Policy Institute and Moderated by Dr Vera Kum, Economic Research Fellow, and Economic Affairs Division of the Nkafu Policy Institute.
“This budget happened at a time when Cameroon faces several risks; in the North, we have Boko Haram, we have COVID-19, the Anglophone quest to have self-identity. All these have had an impact on companies in Cameroon; on citizens and the government. The government has taken steps to make sure that companies are not badly hit by COVID-19 because we had these huge lockdowns where people could not go to work, companies had to close…,” Henri Kouam, Economic Policy Analyst at the Nkafu Policy Institute said.
“… The borrowing was intended to pay the previous debts from 2014. However, borrowing forever is not going to improve our microeconomic situation. What we need is for our government is to improve transparency, accountability and governance in the execution of infrastructure projects. We equally need to ensure that Cameroonian companies are increasingly contracted to execute the infrastructural projects that we go into the international markets to learn for.”
Executive summary of the report
The 2021 Cameroon budget report, produced by the Nkafu Policy Institute, analyzes government revenues and expenditures for the 2021 fiscal year, focusing on public debt sustainability.
The data used come from the Republic of Cameroon’s Finance Laws, particularly those for 2021; from the Caisse Autonome d’Amortissement (CAA), as well as from the Ministry of the Economy, Planning and Land Management (MINEPAT). Using the framework for analyzing public debt sustainability defined jointly by the International Monetary Fund (IMF) and the World Bank in 2018, the findings show that Cameroon’s public debt, while still sustainable (estimated at 46.9% of Gross Domestic Product, thus remaining below the community threshold of 70%), poses a high risk of external debt distress on the economy.
This result means that, in the absence of concrete and radical actions by the government to reduce its rate of indebtedness, it will be difficult for the Cameroonian Treasury to honour all of the government’s financial commitments on the bond markets shortly, particularly concerning debt service payments. Moreover, Cameroon’s liquidity and solvency ratios correspond to a policy that can be improved. Some debt and debt service indicators are significantly above short-term benchmarks over the entire study period from 2021 to 2030.
Given this situation, the government must define and implement an effective and efficient fiscal policy capable of bringing Cameroon to the level of development hoped for by 2035. This requires, in particular, a more optimal reallocation of resources to guarantee productive investments and sustainable human development (Fambon, 2002). In this sense, this report emphasizes the need to guarantee the competitiveness of national enterprises, which includes the promotion of national private investment and the choice of loans at preferential rates that require the repurchase and/or cancellation of certain components of the country’s public debt. Thus, the study recommends several economic policy proposals to the Cameroonian government to reduce the debt burden.
Thus, the study recommends several economic policy proposals to the Cameroonian government to reduce the debt burden. These can be summarized in three main areas.
❖ Cameroon must further promote the competitiveness of its economy and greater diversification of its production. These options are now essential to prevent the external debt overhang that currently weighs on the country from affecting growth and investment. Given the budgets allocated to the ministerial departments in charge of promoting Cameroonian know-how and the competitiveness of national companies, it is clear that much efforts still need to be made by the government to enable local companies to be even more productive in the local market to be easily integrated into the continental value chains (African Continental Free Trade Area), mainly through the development of trade (exports and internationalization) and industrialization.
The emergence of national enterprises, by broadening the tax base, would allow the State to collect additional revenue from SMEs (taxes and duties) and reduce recourse to the national and international money market to finance the budget deficit. To succeed in strengthening the competitiveness of national enterprises, the Cameroonian government could draw inspiration from the UK government policy developed in 2001 for this purpose. This policy consists of concentrating its action on the following three priority areas: Culture and environment, including macroeconomic stability and the policy framework; improving the regulatory framework governing business activities; and supporting businesses at every stage of their life cycle, particularly in the areas of human resources, skills, advice, working conditions, information technology, finance, and international trade.
❖ Cameroon should favour concessional terms when it decides to borrow on the international market to finance its budget deficit, the challenge being to ensure regular payment of the corresponding debt service. Concessional loans refer to those where the interest rate prevailing at the time the external debt is contracted, is lower than the current market rate. As a rule, a loan is considered concessional if its grant element is at least 35%, but this threshold can be higher in some cases (IMF, 2010). The challenge for Cameroon is to support gradual fiscal consolidation while reducing the existing external debt burden.
The use of non-concessional loans for any financing should be exceptional. In addition to incorporating concessional conditions, public debt in Cameroon should make a significant contribution to economic development. To achieve this, priority should naturally be given to investment expenditure that serves production, to the detriment of recurrent expenditure. Such a strategy could allow the state to identify in advance the source of debt service repayment as well as the means to repay the principal when due.
❖ Strengthening the public-private partnership is also essential to avoid Cameroon’s external debt overload. The public-private partnership framework provides for entrusting to a private service provider the construction of public infrastructure, as well as the management of certain activities in the public domain for a determined period. The public-private partnership is, therefore, a method of financing whereby the public authority calls on private service providers to finance and manage a facility that provides or contributes to the public service.
The advantage of this system of financing is that it allows the State as well as citizens to benefit from innovations designed by private companies. The public-private partnership thus appears to be a more affordable alternative financing method for the public sector in the short term.
About the authors
Dr Jean Cedric Kouam
Dr Jean Cedric Kouam is the Deputy Director of Economic Affairs at the Nkafu Policy Institute. He holds a PhD in Economic Analysis and Policy (Monetary and Financial Macroeconomics) from the University of Dschang in Cameroon. He has taught courses in economics, finance and macroeconomic modelling in higher institutes in Cameroon since 2012. Member of various research groups and laboratories in Cameroon and abroad, his research field is related to the economic development of African countries, economic resilience in a monetary union, the effectiveness of cyclical and structural policies, the policy mix, and sustainable development.
Dr Kouam is a Former French government scholarship fellow (Doctoral research program) and has carried out a good part of his research in France. He holds two certificates in Sustainability and Public Debt Management in Low-Income Countries and Financial Programming and Policies and is an author of numerous articles and reports.
Mr Henri Kouam Tamto
Mr Henri Kouam Tamto is an Economic Policy Analyst at the Nkafu Policy Institute. He currently works as an economic consultant for a global expert network – Global Wonks. Before this, he was an economist and macroeconomic strategist at Roubini Global Economics, one of the leading economic research providers in London. As a Nordic Economist and commodity analyst at Continuum Economics, he employed machine learning as the leader of the global house price index and provided key commodities views for oil majors.
Henri worked as a business development specialist for one of the leading property start-ups in the World – Uniplaces- with markets across Europe and Asia. He completed his bachelor and Masters in Business Administration where he majored in Finance and has published a range of papers on economic policy, fiscal and monetary economics with an emphasis on econometrics and machine learning.
Mr Bin Joachem Meh
Mr Bin Joachem Meh is a Free Enterprise Associate in the Department of Economics Affair at the Nkafu Policy Institute. He is a PhD. Fellow in Labour and Development Economics at the University of Bamenda. He is multidisciplinary, as he holds a B.Sc. and M.Sc. in Economics and Financial Engineering from the University of Yaounde II Soa and an M.Sc. in Banking and Finance from the University Rennes 1 France. Bin, was the Project coordinator of Glorious Charity (GLOCINS) a Non-Governmental Organization in Yaounde and he is a lecturer in several higher private institutes in Cameroon. His research interests are in labour policies, industrial economics, Economics and monetary policies, Development Economics, Finance, agricultural economics as well as youth unemployment and migration, micro and macroeconomics, tax research and trade policies. He is also good in Statistical and Econometric modelling and Data analysis.
Ms Marlyse Noussi.
Mrs Marlyse Noussi is a former research assistant at the Nkafu Policy Institute.
About the Nkafu Policy Institute and the Denis & Lenora Foretia Foundation
The Denis & Lenora Foretia Foundation was created to catalyze Africa’s economic transformation by focusing on social entrepreneurship, science and technology, innovation, public health, and progressive policies that create and expand economic opportunities for all. The Nkafu Policy Institute is a Think Tank within the Foundation that focuses on using independent analysis to inform public debate. Its mission is to advance public policies that help all Africans prosper in free, fair, and democratic economies. The Institute has distinguished itself as a leading research centre in Cameroon, committed to promoting open debate that builds consensus toward a democratic future.
About the Economic Affairs Division of the Nkafu Policy Institute
The Economic Affairs Division of the Nkafu Policy Institute explores how free-market systems can help address a range of economic issues in Africa and Cameroon especially. It conducts in-depth research and provides cutting-edge economic analyses. The division also educates the public in the understanding of economic issues affecting their daily lives. Its policy prescriptions are clear, concise, simple, original and evidence-based. To achieve its mission, the division hosts experts of high-calibre carefully selected after a thorough recruitment process. These experts deliver ground-breaking and original works by making use of opinion pieces, policy briefs, full articles, reports and policy papers, just to name but a few.
As a result of its actions, the Economic Affairs Division helps policymakers to implement evidence-based and evidence-informed policies at the economic level. The division also promotes the values of free-market systems considered critical to the establishment of flourishing economies. Topics covered include among others:
- Tax and fiscal policy
- Trade and economic development
- Poverty and inequalities
- Financial intermediation and monetary policy
- Infrastructures and public debt
- Entrepreneurship, innovation and job creation
