May 30, 2012 / 4:32 PM / 5 years ago

TEXT-Fitch affirms Cameroon's foreign currency IDR at 'B', raises local currency IDR

May 30 - Fitch Ratings has affirmed the Republic of Cameroon's Long-term
foreign currency Issuer Default Rating (IDR) at 'B' and Short-term foreign
currency IDR at 'B'. The agency has also upgraded the Long-term local currency
IDR to 'B' from 'B-'. The Outlooks are Stable. Fitch has also affirmed the
'BBB-' Country Ceilings for the Central African monetary zone (Communaute
Economique et Monetaire d'Afrique Centrale; CEMAC) and for the West African
monetary zone (Union Economique et Monetaire Ouest-Africaine; UEMOA).	
	
Cameroon's Long-term foreign currency IDR is supported by the economy's
continued recovery from the global financial crisis of 2008-09, helped by a
rebound in oil production and revenues and higher public investment. The upgrade
and alignment of the local currency IDR with the foreign currency IDR reflects
improvements in domestic debt management. Successful issuance of T-bills and
bonds in the domestic market since late 2010 and no recorded delays in interest
payments have begun to forge a track record of sounder sovereign debt service
following the default event in the early 2000s.	
	
Public debt is low compared to peers. This mainly reflects the substantial debt
alleviation Cameroon obtained in 2006, when it became eligible for debt
reduction schemes. Public debt was 16.6% of GDP at end-2011 and is expected to
moderately increase over the coming years, as a large share of public investment
will be debt financed. Despite the decrease in international assets in the past
two years, Cameroon remains a net external creditor and international liquidity
measures are well above peers.	
	
Due to insufficient investment in energy and transport infrastructure, economic
growth in Cameroon has historically been low compared to other Sub-Saharan
African (SSA) countries. However, it picked up to 4.2% in 2011, as several large
infrastructure projects were launched, resulting in a large increase in public
investments and the rise in oil prices partially offset the decline in
production. Growth is expected to reach 4.7% in 2012.	
	
The economy is largely informal and relies heavily on agriculture and
commodities. However, it is more diversified towards manufacturing than many SSA
countries. Oil production, which has been declining over the past decade,
represents 7.1% of GDP, but accounted for 35.8% of exports in 2011. Output is
expected to increase in 2012 (+16%) and this trend will continue in the coming
years.	
	
Fiscal performance has deteriorated over the past three years, with an estimated
budget deficit of 2.5% of GDP in 2011, largely attributable to sizeable oil
products subsidies. This resulted in an accumulation of arrears, mostly to the
national refining company, Sonara. In addition, restructuring of distressed
financial institutions and support for loss-making public enterprises could give
rise to contingent liabilities for the state.. However, in Fitch's view, these
liabilities should not be significant and in the case of the financial sector do
not constitute a systemic risk, as the banking system remains highly liquid
overall.	
	
President Paul Biya has been in power since 1982 and was re-elected for a
seven-year term in 2011. His longevity is due to his capacity to maintain a
balance of power between the different ethnic, religious and linguistic groups
in Cameroon, and also to divisions among the opposition parties and the lack of
credibility of his main opponents. The absence of a designated successor raises
questions about the issue of transition if Mr. Biya, 79, has to leave power
earlier than expected.	
	
Cameroon is a member of the CEMAC. Fitch maintains a Country Ceiling of 'BBB-'
on the CEMAC and the UEMOA monetary zones, based on the support provided to them
by France. It applies to all member countries including Cameroon. Any material
change in the monetary arrangements with France would result in a review of the
sovereign ceiling for the countries member of CEMAC and UEMOA.	
	
Cameroon's ratings would benefit from a longer track record of unblemished
sovereign debt service coupled with improved public financial management,
including the elimination of arrears. A prolonged increase in oil output and
greater investment in infrastructure would also be supportive of the ratings.
Conversely, a widening of budget deficits and accumulation of arrears,
associated with further increases in oil subsidies and/or support to ailing
banks, would have a negative effect on the ratings.	
	
	
Additional information is available at www.fitchratings.com. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.	
	
Applicable criteria, 'Sovereign Rating Methodology' dated 15 August 2011, are
available at www.fitchratings.com.	
	
Applicable Criteria and Related Research:	
Sovereign Rating Methodology

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