(The following statement was released by the rating agency)
LONDON, December 09 (Fitch) This commentary replaces the version
published on 25
November 2016 to correct the international reserves figures.
Fitch Ratings has affirmed Cameroon's Long-Term Foreign and
Issuer Default Ratings (IDRs) at 'B' with a Stable Outlook. The
issue ratings on
Cameroon's senior unsecured foreign- currency bonds and the
and Local Currency IDRs have also been affirmed at 'B'. The
Country Ceiling has
been downgraded to 'BB+' from 'BBB-'.
KEY RATING DRIVERS
Cameroon's 'B' ratings balance a low GDP per capita of USD1,300,
less than half
that of the 'B' median, and weak governance indicators, against
economic growth and macroeconomic stability provided by
membership of the franc
zone of the CEMAC. This ensures currency convertibility and
exchange liquidity risks.
We forecast GDP growth to outperform rated peers, at 4.8% in
2016 compared with
4.1% for the 'B' median. This forecast is lower than the 5.5%
from our last
review, as we now expect oil output to stabilise in 2016, after
a one-off jump
in 2015. Declining Chinese demand, underperformance of the
agricultural sectors compared with 2015, and devaluation in
will weigh on growth. Growth will slow to 4.2% in 2017 as
capital spending eases
after a significant boost in 2016.
Fitch expects the general government deficit to widen in 2016 to
an estimated 5%
of GDP, from 2.5% in 2015, and compared with a 'B' median of
4.2%, due to lower
oil prices, a jump in capital expenditure and higher security
spending. The free
trade agreement with the EU will also hit revenues as imported
EU goods will be
progressively exempt from tariffs. The fiscal deficit is
forecast to narrow in
2017 and 2018 as oil prices rise.
We expect public debt to increase to 36% of GDP in 2018 from 27%
in 2015 as a
result of deficit financing. Although the level is still well
below the 'B'
median of 52% of GDP, the pace of increase has been rapid since
increase in non-concessional financing has pushed up Cameroon's
which is set to rise to 8% of government revenues at end-2016
Eurobond issuance in November 2015 (compared with 2.3% at
Cameroon is under less financing strain than other countries in
of the 2015 Eurobond have not fully been drawn and deposits at
the central bank
are forecast at 2.6% of GDP at end-2016, down from 4.3% at-end
2015. The country
has still some headroom to use central bank statutory advances,
as only 25% had
been used in 2015. Fitch views public finance management a key
The government routinely runs up arrears, notably to public
companies, as a form
of financing. Fiscal management is hampered by the weak quality
Weak commodity prices and large import-intensive investments
will widen the
current account deficit to a forecast 4.9% of GDP in 2016 from
4.5% in 2015.
Increased interest payments of the sovereign will weigh on the
and further contribute to a deterioration of the external
Stabilisation of public capital expenditure, recovering oil
prices and the start
of gas exports will support a narrowing of the current account
deficit in 2017.
Public external borrowing and foreign direct investment will
finance the deficit
and we forecast import cover to stay at around four months of
payments over 2016-2018, in line with the peer median.
Pressure on the CFA franc's peg to the euro has increased.
reserves within the CEMAC zone have been declining at a fast
pace due to lower
oil prices, dropping to XAF4,940bn at-end May 2016 from
XAF6,238bn at end-2015
and XAF8,417bn at end-2014. Import cover is set to decline to
2.7 months for the
zone in 2016 from five months at end-2015.
Failure to tackle large twin deficits in CEMAC members could
lead to further
falls in reserves. The rules of the monetary zone state that, as
a last resort,
the exchange rate can be devalued to address imbalances (as
happened in 1994).
Devaluation would have a significant impact on Cameroon's
metrics, with 77% of public debt (accounting for 24% of GDP) in
(39% in euro, 28% in USD).
The banking sector remains weak and largely concentrated. The
five largest banks
account for three quarters of total assets and deposits.
Domestic credit to the
economy increased 3.3% during 9M16, but this was mostly driven
by credit to
private companies implementing public projects. Non-performing
17.2% y-o-y in September 2016 to 14.3% of total loans from 12.6%
a year ago,
partly driven by one-off factors. Three troubled public banks
provisional administration. The government has already
participated in the
recapitalisation of one of them, and further support could imply
of 0.5%-1% of GDP.
Succession to President Biya, aged 83, is a political risk. The
process for succession is untested and risks exist due to
ethnic and linguistic groups. The security environment is
unstable in the north
due to the activity of the Boko Haram terrorist group. Spending
related to the
fight against Boko Haram and the refugee influx at the border
African Republic is impacting the budget and constraining public
The downgrade of Cameroon's Country Ceiling to 'BB+' reflects
the following key
Fitch has revised its Country Ceiling criteria in August 2016.
Fitch is now of
the opinion that transfer and convertibility risk can differ
among CEMAC member
countries based on their individual risk of exit from the union
imposition of sector-wide bank closures. Cameroon's Country
Ceiling is four
notches higher than the sovereign's Long-Term Foreign-Currency
the strength of support provided by France under the monetary
CEMAC with the risk of capital control imposition in Cameroon.
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 Foreign Currency IDR scale.
Fitch's sovereign rating committee did not adjust the output
from the SRM to
arrive at the final Long-Term Foreign Currency 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 Long-Term Foreign
Fitch's QO is a forward-looking qualitative framework designed
to allow for
adjustment to the SRM output to assign the final rating,
within our criteria that are not fully quantifiable or not fully
The main risk factors that could, individually or collectively,
rating action are:
- A devaluation of the CFA franc against the euro.
- Further large budget slippages or a prolonged slowdown in GDP
accelerates the accumulation of public debt.
- A widening of the current account deficit, leading to growing
- Political events triggered at the time of the succession to
President Biya or
an intensification of Boko Haram terrorist activity.
The main factors that could, individually or collectively,
rating action are:
- Improved management of public finances leading to a reduction
in arrears to
public enterprises and state suppliers, and a reduction of the
- Effective measures to improve the business climate and growth.
- 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 USD42/b in
2016, USD45/b in
2017 and USD55/b in 2018.
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Additional information is available on www.fitchratings.com
Country Ceilings (pub. 16 Aug 2016)
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