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Cameroon: How Covid-19 Sways Cash-Strapped Country Into Debt Relief

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Prior to the onset of the coronavirus pandemic, Cameroon, an oil exporter with a bloated bureaucracy, was still reeling from the 2014-2016 oil price collapse – one of the most significant oil price slumps in modern times.

The country had also increased security spending countering Boko Haram incursions in the north since 2014, while battling to quell an armed secessionist struggle in its English-speaking regions since 2017. The economic shock and insecurity were already a burden, but were compounded by necessary increases in humanitarian spending. Then, the coronavirus struck.

The economic shock and insecurity were already a burden, but were compounded by necessary increases in humanitarian spending. Then, the coronavirus struck.

In five months, following the outbreak of the coronavirus in Cameroon on 6 March, 2020, the government has spent slightly over 21.9 billion francs CFA (circa $54.1 million) in its response to the pandemic, according to a report on reliefweb on 29 July, 2020.

The money was used to construct isolation units, finance communication campaigns, purchase PPEs, rapid diagnostic kits and drugs for the management of patients, provide resources for the free treatment and management of patients, amongst others. The government would continue to spend “along these budget lines” while the virus pandemic continued.

The government has spent slightly over 21.9 billion francs CFA (circa $54.1 million) in its response to the pandemic.

As mentioned, the government was incurring this unforeseen expenditure at a time state revenue was shrinking. Now, the closure of borders and the introduction of restrictions on movement and other measures to slow down the spread of the coronavirus has meant a reduction in customs and tax revenues – two important income streams. In a 7 May interview with the state-owned Cameroon Tribune newspaper, Director General of Taxation Modeste Mopa Fatoing said it was certain the health crisis would mean the loss of a projected 2,103 billion francs CFA (circa $3.8 billion) in taxes this year.

Taxes are a prime source of revenue for the government and were projected to cover half of the 2020 state budget. By May, Cameroon had lost 22 billion francs CFA ($39.7 million) in projected customs duty and 92 billion francs CFA ($166 million) in tax revenue due to tax relief granted by the state to economic operators.

In the midst of the ravaging coronavirus, the World Bank’s Development Committee and the G20 finance ministers rolled out a Debt Service Suspension Initiative (DSSI) to help the governments of some of the world’s poor countries to free up financial resources they could use to respond to Covid-19. Cameroon was one of the countries that indicated it had a problem simultaneously managing its debt burden and the unprecedented health crisis. It applied for the debt relief, which has helped it mobilise 0.5% of GDP in DSSI savings.

Taxes are a prime source of revenue for the government and were projected to cover half of the 2020 state budget.

According to Misheck Mutize, a post-doctoral researcher at the Graduate School of Business, University of Cape Town, participating in the debt suspension comes at a cost. In a 28 july article in The Conversation, he argued that such countries could be viewed as defaulting, which might result in an investment rating downgrade. “A rating downgrade would erode the benefits accrued from the debt relief as countries would have to pay more interest on the same volume of debt,” Misheck posited.

Fiscal deficits caused by the need of governments to respond to the coronavirus have been a global phenomenon, according to Prof. Kelly Mua Kingsley, a Harvard-trained expert in financial engineering. He told Africa in Fact that the situation made it difficult for many countries, including Cameroon, to keep up with both internal and external debts.

“It was obvious for Cameroon to seek the debt relief in order to keep the economy going,” Kingsley said. Cameroon and other eligible countries have different options in negotiating their debt relief, varying from full cancellation of debt to rescheduling datelines for debt servicing, with or without additional interest paid, among others, according to Kingsley.

Participating in the debt suspension comes at a cost.

Despite the risk, Cameroon decided to take debt relief. And for the time being, it hasn’t suffered any ratings downgrade.

On 7 August, 2020, rating agency Moody’s confirmed Cameroon’s B2 (stable) rating, but expressed concerns that the country’s ongoing participation in the DSSI posed risks to private creditors. The rating agency said it would reflect any related changes in risk should the probability of losses to private sector creditors increase and become clearer.

“The stable outlook reflects Moody’s view that the pressures the sovereign faces in the wake of the coronavirus shock, and prospects for its credit metrics in general, are likely to remain consistent with the current rating level, given Cameroon’s comparatively more diversified economy relative to neighbours, the anticipated renewal of the IMF programme providing a backstop, and Cameroon’s membership of the Central African Economic and Monetary Union (CEMAC) attenuating external vulnerability risks,” Moody’s highlighted.

On 7 August, 2020, rating agency Moody’s confirmed Cameroon’s B2 (stable) rating.

While the government is said to be working on a comprehensive global response plan, a government official, who requested anonymity because he wasn’t mandated to talk to the press, said the government is also counting on response measures by the African Development Bank (AfDB), Central African Economic and Monetary Community (CEMAC), and other bodies.

The AfDB’s continent-wide approach is to provide monetary envelopes to fast-track budget support to ensure that countries are able to fund their response measures. It seeks to sustain growth, strengthen economic and financial governance, support policy and institutional reforms, mitigate the adverse impact of shocks, and contribute to the recovery, state building and arrears clearance in fragile states.

For its part, CEMAC’s Economic and Financial Reform Programme, which has been running since 2016, plans to “leverage industrialisation and economic diversification” for post-Covid-19 recovery in the sub-region. This follows the desire of the six heads of state of the membership-based CEMAC to have a common destiny for the sub-region.

“There is light at the end of the tunnel,” the government official said.

“There is light at the end of the tunnel,” the government official said.

With the coronavirus showing signs of lingering in Cameroon, people are beginning to integrate the virus into their way of life. More than five months into the pandemic, things have largely gone back to business as usual.

But other than applying for debt relief, the government does seem to have learned lessons from the pandemic. Cameroon is a country prone to floods, while climate change, with rising temperatures, is seriously threatening public health, agriculture and livestock production. These threats are well-known, and could significantly alter Cameroon’s growth prospects.

The country also suffers institutional challenges, corruption and public financial management key weaknesses, according to Worldwide Governance Indicators. Moreover, its internal stability is remains affected by the ongoing sectarian struggle in the north and a separatist conflict in the south-west, with continuing violence. Press freedom is also under attack. Clearly, the government is also returning to “business as usual”.

Amindeh Blaise Atabong is a Cameroonian freelance journalist. His interests include gender, human rights, climate change, environment, tech, conflict, peace-building and global development. In 2019, he was a finalist in the inaugural True Story Award, and also won a prestigious Kurt Schork Award in International Journalism.  His works have been published by independent regional and international outlets, including Quartz, Mail & Guardian, Reuters, Jeune Afrique, Epoch Times, African Arguments and Equal Times. 

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