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Fitch retains Cameroun’s credit rating at ‘B’

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Fitch Ratings has affirmed Cameroon’s Long-term foreign and local currency Issuer Default Ratings (IDR) at ‘B’.

The Outlooks are Stable. The issue rating on Cameroon’s senior unsecured foreign currency bond has also been affirmed at ‘B’.

The Short-term foreign currency IDR has been affirmed at ‘B’. Fitch has also affirmed the Country Ceiling for Cameroon at ‘BBB-’, in line with the Country Ceiling for the Communaute Economique et Monetaire d’Afrique Centrale (CEMAC).

Cameroon’s ‘B’ ratings balance low GDP per capita at USD1,200, less than half that of the ‘B’ median, and structural weaknesses (including governance and political), against sustained economic growth and macroeconomic stability provided by membership of the franc zone of the CEMAC.

This assures currency convertibility and reduces foreign exchange liquidity risks. Cameroon has proved more resilient to the sharp decline in oil prices than its oil-producing peers.

This is due to its more diversified economy, with the oil sector accounting for less than 10 per cent of GDP.

Economic growth remained robust in 2015 at 5.9 per cent, boosted by a 25 per cent increase in oil production and we forecast the economy to grow at 5.5 per cent in 2016-2017, as the non-oil sector benefits from public spending on infrastructure.

However, the collapse in oil prices has adversely affected Cameroon’s public finances and external position as oil revenues represent 20 per cent of government revenues and more than 40 per cent of exports.

Fitch has revised its average oil price forecasts to USD35 per barrel for 2016 and USD45 per barrel for 2017, down from USD60 and USD70 respectively at its previous rating review in November 2015.

We, therefore, expect Cameroon’s fiscal deficit to widen in 2016 to 4.6 per cent of GDP from a better-than expected 3.1 per cent of GDP deficit in 2015.

The lower 2015 deficit relative to our forecast (of over 5 per cent of GDP) was due, on the spending side, to lower than budgeted capital expenditure and large savings in oil subsidy spending, and on the revenue side, to higher non-oil revenues reflecting earlier measures taken to broaden the VAT tax base and introduce a new excise duty.

Subdued oil price forecasts for 2016-2017 should alleviate some pressure on the budget due to lower oil subsidies, but this will be insufficient to offset the 30 per cent expected decline in oil revenues and the increase in capital spending.

Fitch forecasts the budget deficit to remain broadly flat at 4.5 per cent in 2017, supported by recovering oil prices, robust economic growth, and the developing non-oil sector.

Fitch expects government debt to reach 30 per cent of GDP by 2017, on the back of the wider fiscal deficits. Although still well below the B median of 54 per cent of GDP, Cameroon’s large financing needs have led to a rapid increase in the debt to GDP ratio from just 13 per cent in 2008.

The shallow local capital market has forced the government to increasingly turn to non-concessional and external borrowing, leading to a more-than-doubling of forecast interest expenditure by 2017 (5.1 per cent of government revenues).

A shift in the debt profile from low-cost and concessional to higher-cost at market terms weakens financing flexibility and debt sustainability.

Public finance management remains a key rating weakness. The government routinely runs up arrears, notably to public companies, as a form of financing.

In addition, contingent liabilities related to state-owned enterprises are estimated by the IMF at around 15 per cent of GDP at-end 2013 and represent an additional risk to debt sustainability.



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