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Cameroon: Interest expenses will rise in the coming quarters, a BEAC study estimates

Cameroon: Interest expenses will rise in the coming quarters, a BEAC study estimates
  • Comments   -   Monday, 31 August 2020 10:29

(Business in Cameroon) - Cameroon’s interest expenses will rise in the coming quarters, according to a study on the impacts of the coronavirus pandemic on the country’s economy written by Francis Ghislain Ngomba Bodi, an official of the Bank of Central African States (BEAC).  

The study explains that the country's fiscal revenues will drop because of a reduction in companies’ turnover and the oil crisis. Meanwhile, the government will be compelled to increase its expenses, for health investment notably. Therefore, the combination of decreasing revenues and rising expenses will worsen the budget deficit, which was 2.6% of GDP in 2019.  

The study estimates that the deficit could rise three folds or even four this year and increase Cameroon’s debt and ultimately the debt burden. "Indeed, the rise in public deficit exacerbates the risks on public debts and increases the sovereign risk premium. This leads the market to demand higher interests on Treasury bills and bonds," the study explains.

To illustrate his point, Francis Ghislain Ngomba Bodi shows the example of the T-bonds operation carried out by the Cameroonian public treasury on April 29, 2020. That day, the country was out in the BEAC market to raise XAF50 billion via issuance of 2-year T-bonds remunerated with a 3.5% yearly interest rate. However, it received only XAF46 billion of subscriptions and raised XAF34 billion. This means that investors are requesting higher (over 3.5%) interest rates.  

Also, he informs, because of the appreciation of the US dollars (due notably to the drop in commodity prices), interest charges on the debt incurred towards China in the past eight years will increase as well.

Due to all of these factors, the government will be obliged to lower some expenditure items (in its consumption notably) and domestic payment arrears will accumulate. This deterioration of the country’s budget situation will affect companies’ cash flow and exacerbate the economic crisis, the study concludes.

S.A.

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