(The following statement was released by the rating agency)
LONDON, May 19 (Fitch) Fitch Ratings has affirmed Cameroon's
and Local-Currency Issuer Default Ratings (IDR) at 'B' with a
The issue ratings on Cameroon's senior unsecured
foreign-currency bonds and the
Short-Term Foreign- and Local-Currency IDRs have also been
affirmed at 'B'. The
Country Ceiling has been affirmed at 'BB+'.
KEY RATING DRIVERS
Cameroon's 'B' IDRs reflect the following key rating drivers:
Cameroon's 'B' ratings balance a low GDP per capita of USD1,225
governance indicators, against sustained economic growth and
stability provided by membership of the CEMAC franc zone, which
convertibility and reduces foreign exchange liquidity risks.
We expect Cameroon's fiscal deficit to narrow to 4.7% of GDP in
widening to 6.3% in 2016, and higher than the 'B' median of
4.2%. Last year's
deterioration stemmed from a sharp contraction in oil revenues,
lower growth and
rising public investments. Recovering oil prices, improved
non-oil receipts due
to better performances in the non-oil sector and a slower
increase in capital
expenditure will lead to a moderate narrowing of the fiscal
balance in 2017.
Fitch views public finance management as a key rating weakness.
routinely runs up arrears, notably to public companies, as a
form of financing.
The IMF estimates Cameroon's cash deficit (including arrears
suppliers) at about 7% of GDP in 2016. Fiscal management is also
hampered by the
weak quality and timeliness of data.
Fiscal buffers are declining and financing options are
narrowing. Deposits at
the central and commercial banks decreased sharply to 4.4% of
GDP at end-2016,
from 7.3% a year earlier following the full drawdown of the
proceeds of the 2015
eurobond, and advances from the central bank are unlikely to be
further as CEMAC governments are wary of putting pressure on the
CFA franc's peg
to the euro. We therefore expect Cameroon will meet its
needs by tapping the local market and increasing recourse to
borrowing, leading to a further rise in public debt/GDP.
General government debt is set to increase to 35.9% of GDP in
2017 and to 38.8%
in 2018, up from 22.0% in 2014, albeit still below the 'B'
median of 56.4%. The
interest burden more than doubled in 2016 to 5.1% of general
as fiscal receipts sharply contracted and interest payments
surged due to an
increase in non-concessional borrowing, including the eurobond
November 2015. Fitch forecasts this ratio will stabilise at
around 6% in
2017-2018 as public revenues recover.
Fitch expects that discussions initiated with the IMF earlier
this year will
lead to a financial support programme. IMF loans are likely to
financing pressures and IMF monitoring will encourage some
However, we believe it could prove difficult for the government
substantial fiscal tightening in the face of low GDP per capita,
high level of
income inequalities, high youth unemployment and ongoing social
unrest in the
English-speaking part of the country. A programme with the IMF
is likely to
entail some additional co-financing by other supranational and
further easing Cameroon's liquidity constraints.
International reserves within the CEMAC zone have been declining
at a fast pace
due to lower oil prices, dropping to USD4.7 billion at-end 2016
billion at end-2015 and USD15.3 billion at end-2014. Failure to
twin deficits in CEMAC members could lead to further falls in
monetary arrangement between France and CEMAC member countries
states that as a
last resort, the exchange rate between the CFA franc and the
euro can be
devalued to address imbalances (as occurred in 1994).
Devaluation would have a
significant impact on Cameroon's government debt metrics, with
77% of public
debt in foreign currency (39% in euro, 28% in USD).
However, in our view, pressures on the peg are easing as we
believe likely IMF
engagement in the zone will help correct imbalances and restore
external buffers. Implementation of a slightly more restrictive
with the BEAC hiking rates by 50bp in March 2017 and governments
of the zone
freezing BEAC statutory advances to the 2014 ceiling denotes
strong commitment towards the current peg.
Fitch forecast economic growth to decelerate further in 2017 to
slowing to 4.7% in 2016, from 5.8% in 2015. Contracting oil
the increase in capital expenditure and will weigh on growth
this year. Improved
agriculture output, supported by recovering commodity prices, an
public investment and completion of large infrastructure and
should push growth up to 4.6% in 2018.
The banking sector remains weak and concentrated with the five
accounting for more than 70% of total assets and deposits.
and capitalisation ratios remained above regulatory requirements
except for the three small troubled banks under provisional
government has already participated in the recapitalisation of
one of them, and
further support could imply additional cost of 0.5%-1% of GDP.
The current account deficit will progressively narrow in
2017-2018 to an average
3.5% of GDP from 3.9% in 2016. The pick-up in oil prices, the
start of gas
exports following the expected completion of the floating
liquefied natural gas
project in 2017 will likely offset rising interest payments and
investments. We expect increased recourse to external financing,
the IMF and an improved current account balance will limit
further decline in
reserves, which we forecast to stabilise at 3.4 months of
payments over 2017-2018.
Uncertainty surrounding the 84-year old President Biya's
succession is a
political risk. Presidential elections are set to take place in
2018 and our
base case is that Biya will name a successor of his own party to
help to achieve
a smooth transition. The constitutional process for succession
is untested and
risks exist due to different religious, ethnic and linguistic
security environment is unstable in the north due to the
activity of the Boko
Haram terrorist group. We believe current unrest in the
English-speaking part of
Cameroon might continue but will remain contained.
SOVEREIGN RATING MODEL (SRM) and QUALITATIVE OVERLAY (QO)
Fitch's proprietary SRM assigns Cameroon a score equivalent to a
rating of 'B'
on the Long-Term FC IDR scale.
Fitch's sovereign rating committee did not adjust the output
from the SRM to
arrive at the final LT FC IDR.
Fitch's SRM is the agency's proprietary multiple regression
rating model that
employs 18 variables based on three year centred averages,
including one year of
forecasts, to produce a score equivalent to a LT FC IDR. Fitch's
QO is a
forward-looking qualitative framework designed to allow for
adjustment to the
SRM output to assign the final rating, reflecting factors within
that are not fully quantifiable and/or not fully reflected in
The main risk factors that could, individually or collectively,
rating action are:
-Persistent large fiscal deficits that lead to a rapid increase
government debt/GDP ratio.
-A widening of the current account deficit, leading to growing
-Heightened political instability that adversely affects public
finances or the
economy, for example a disorderly succession to President Biya.
-A devaluation of the CFA franc against the euro.
The main factors that could, individually or collectively,
rating action are:
-A reduction in the budget deficit and the government debt/GDP
particularly if supported by improved management of public
-Improvement in the business climate and growth performance.
-An increase in hydrocarbons production related to new
on-stream, generating an additional source of income and
trajectory of depleting oil reserves.
Fitch does not expect the conflict with the Boko Haram terrorist
group to be
resolved soon, but at the same time it does not expect the
tensions to escalate
significantly. Security issues linked to the activity of the
terrorist group remain confined to the north of the country.
Fitch assumes no break-up of the CEMAC monetary arrangement.
Fitch assumes that the oil price (Brent) will be USD45.1/b in
2016, USD52.5/b in
2017 and USD55/b in 2018.
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Additional information is available on www.fitchratings.com
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