London, 07 August 2020 -- Moody's Investors Service ("Moody's") has today confirmed the B2 local
and foreign long-term issuer ratings of the Government of Cameroon,
with a stable outlook. This concludes the review for downgrade
initiated on 27 May 2020.
The review for downgrade reflected Moody's assessment that the country's
participation in the G20 Debt Service Suspension Initiative (DSSI) raised
the risk that private sector creditors would incur losses. In the
last few weeks, Moody's has considered the evidence of implementation
of DSSI for a range of rated sovereigns, and statements by G20 officials.
While Moody's continues to believe that the ongoing implementation
of DSSI poses risks to private creditors, the decision to conclude
the review and confirm the rating reflects Moody's assessment that,
at this stage, for Cameroon, Moody's considers those
risks are adequately reflected in the current B2 rating.
It remains unclear what influence is being applied to Cameroon and to
other participating sovereigns to treat private creditors in a comparable
manner to official sector creditors. However, a number of
elements suggest that the probability of broad-ranging private
sector involvement has diminished. These include the apparent absence
of progress in discussions about how private sector involvement ('PSI')
would be effected in DSSI in general; indications by the G20 that
PSI would require the support of the borrowing government; the government
of Cameroon's continued assertion that PSI is not contemplated;
and evidence of some debt payments being made to private sector creditors
under a DSSI regime.
The risks that remain relate to the possibility that in particular cases
DSSI is implemented with private sector creditors also being drawn in
to provide debt service relief and incurring losses in doing so.
Should the probability of losses to private sector creditors increase
as implementation of DSSI for Cameroon becomes clearer, Moody's
would reflect any related changes in risks to private creditors in further
rating announcements.
The stable outlook reflects Moody's view that the pressures the
sovereign faces in the wake of the coronavirus shock and prospects for
its credit metrics in general are likely to remain consistent with the
current rating level, given Cameroon's comparatively more diversified
economy relative to neighbours, the anticipated renewal of the IMF
programme providing a backstop, and Cameroon's membership
of the Central African Economic and Monetary Union (CEMAC) attenuating
external vulnerability risks. In addition, the credit is
broadly resilient to pressures on the government's finances, exacerbated
by the coronavirus shock, constrained debt financing options and
continued, but moderating, political unrest in the Anglophone
region.
The foreign-currency and the local-currency bond and deposit
ceilings remain unchanged at Ba2.
RATINGS RATIONALE
RATIONALE FOR CONFIRMING THE B2 RATING
Moody's initiated a review for downgrade for Cameroon's rating
following the country's participation in DSSI to reflect the potential
for private sector losses given the call in the G20's 15 April term
sheet for private creditors to participate in debt service relief on comparable
terms to official creditors. The review for downgrade reflected
the tension evident between participating governments' stated intention
not to seek relief from private sector debt service obligations,
and the clearly-stated view of the key sponsors of the DSSI,
specifically the IMF and World Bank, that private creditors should
participate in the DSSI on comparable terms. Private sector losses
incurred as part of the DSSI would likely constitute a default under Moody's
definition.
There remains considerable uncertainty regarding the treatment of private
sector creditors of the sovereigns which choose to participate in DSSI,
including Cameroon. Recent statements by the Institute of International
Finance (IIF) suggest that some DSSI participants have had informal discussions
with private sector creditors regarding deferral of interest payments.
However, the risk of broad-ranging involvement of private
sector creditors in many or most DSSI cases appears to have diminished.
There has not been any material progress in clarifying where and how private
sector creditors would be asked to provide debt service relief.
While the most recent communique issued by the G20 Finance Ministers and
Central Bank Governors on 18 July reiterated that sponsors continue to
"strongly encourage private creditors to participate in the DSSI
on comparable terms" the clarifying language "when requested
by eligible countries" [1] seems to acknowledge the need for
support from the borrower for that to happen. Participating governments
including Cameroon have continued to assert that they do not wish to engage
with private sector creditors. And a number of DSSI-participating
governments have continued to make interest and coupon payments to private
creditors as they fall due.
The risks that prompted the initiation of the review for downgrade for
Cameroon have not disappeared and there has been limited additional clarification
since the initial DSSI terms were announced. However, the
risks have become more specific to each DSSI implementation case and at
this stage, Moody's assesses the probability that private
sector creditors of Cameroon incur losses through DSSI to be captured
in the B2 rating. Should the probability of losses to private sector
creditors increase as implementation of DSSI for Cameroon becomes clearer,
Moody's would reflect any related changes in risks to private creditors
in further rating announcements.
RATIONALE FOR THE STABLE OUTLOOK
Cameroon's B2 rating balances a weak institutional framework,
rising external debt with weak foreign-revenue generation capacity,
state-owned enterprise (SOE) contingent liability risks and elevated
domestic political risks with credit supports such as high debt affordability
and the economy's diversification which helps mitigate the impact of shocks
in the oil and gas sector. The stable outlook underpins Moody's
view that, despite continuing pressures on the government's
fiscal and external positions, exacerbated by the coronavirus shock,
a marked deterioration in credit metrics is unlikely and Cameroon's
credit metrics are likely remain consistent with a B2 rating.
In the wake of the coronavirus shock, Moody's expects Cameroon's
economy to contract by 1% in 2020, while the anticipated
recovery in 2021 will still see GDP growth remain below the 4-5%
average growth rate of the last decade. On account of lower hydrocarbon
revenues, Moody's anticipates the fiscal deficit will increase
to 4.5% of GDP in 2020, leading to the debt burden
increasing to more than 45% of GDP. However, government
liquidity risk will remain contained. Moody's estimates Cameroon's
gross financing needs to peak at 7.8% of GDP in 2020,
up from 6.4% in 2019, before dropping to 6.7%
in 2021, comparing favorably to peers.
Since the start of the coronavirus shock, the government has successfully
secured 1.7% of GDP in new exceptional financing from development
finance institutions. These correspond to additional financing
above the 0.9% of GDP that is part of the current IMF Extended
Credit Facility (ECF) programme. This includes 0.6%
of GDP in Rapid Credit Facility (RCF) financing from the IMF, 0.5%
of GDP in DSSI savings as well as 0.3% from the African
Development Bank. Together with an increase in domestic bond issuances
by 0.2% of GDP, this will likely be sufficient to
meet the increase in gross financing needs. In addition,
Moody's also expects the authorities to request a second tranche
from the RCF from the IMF during 2021, with the country also likely
to seek to renew the IMF-ECF programme ending in September.
ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONS
Cameroon is significantly exposed to environmental risks, with the
country's coastal regions facing the world's highest risks
of flood related mortality as a result of steadily rising sea levels.
In addition, very high and rising temperatures pose a threat to
public health sector and also to agricultural crops and livestock,
which employ more than 60% of the country's population.
This means that the severity and frequency of extreme weather events can
significantly influence Cameroon's key credit metrics, such
as GDP growth volatility, household incomes and agricultural export
earnings. That is why Moody's has identified Cameroon as
one of the countries whose credit profiles are most susceptible to climate
change.
Social risks also inform Cameroon's credit profile: the unrest
in the country's Anglophone regions and the presence of other key
ingredients of social unrest (low wealth levels, income disparity,
low voice and accountability) add to the downside pressures in Moody's
political risk assessment. Moody's regards the coronavirus
outbreak as a social risk under Moody's ESG framework, given
the substantial implications for public health and safety.
In terms of governance, Cameroon scores poorly on institutional
factors, as measured by the Worldwide Governance Indicators,
with control of corruption and public financial management representing
particular challenges.
Given the outstanding review for downgrade initiated on 27 May,
the publication of this credit rating action concluding the review for
downgrade occurs on a date that deviates from the previously scheduled
release date in the sovereign release calendar, published on www.moodys.com
GDP per capita (PPP basis, US$): 3,955 (2019
Actual) (also known as Per Capita Income)
Real GDP growth (% change): 3.9% (2019 Actual)
(also known as GDP Growth)
Inflation Rate (CPI, % change Dec/Dec): 2.4%
(2018 Actual)
Gen. Gov. Financial Balance/GDP: -2.3%
(2019 Actual) (also known as Fiscal Balance)
Current Account Balance/GDP: -3.7% (2019 Actual)
(also known as External Balance)
External debt/GDP: 30.9% (2019 Estimate)
Level of economic development: b2
Default history: At least one default event (on bonds and/or loans)
has been recorded since 1983.
On 3 August 2020, a rating committee was called to discuss the rating
of the Government of Cameroon. The main points raised during the
discussion were: The issuer's economic fundamentals, including
its economic strength, have not materially changed. The issuer's
institutional strength/ framework, have not materially changed.
The issuer's governance and/or management, have not materially changed.
The issuer's fiscal or financial strength, including its debt profile,
has not materially changed. The issuer's susceptibility to event
risks has not materially changed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Prospects of a durable improvement in Cameroon's fiscal and external
position could warrant upward rating migration. Moody's would likely
upgrade the rating if fiscal consolidation were to become entrenched,
largely independent of cyclical and one-off factors, reflected
in lasting fiscal discipline and institutional strength. Significant
progress in settlement of the Anglophone political crisis which preserves
peace of the region and removes the threat of negative economic spillovers
on the economy would be supportive to the credit profile.
An intensification of fiscal pressure with materially higher fiscal deficits
and debt than Moody's currently expects and/or inability to secure
external financing on a timely basis and at stable costs would likely
lead to a downgrade. Furthermore, a rising probability of
private sector participation in DSSI would likely point to a lower rating,
commensurate with the potential losses to be incurred.
The principal methodology used in these ratings was Sovereign Ratings
Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1158631.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
The weighting of all rating factors is described in the methodology used
in this credit rating action, if applicable.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
The ratings have been disclosed to the rated entity or its designated
agent(s) and issued with no amendment resulting from that disclosure.
These ratings are unsolicited.
a.With Rated Entity or Related Third Party Participation:
NO
b.With Access to Internal Documents: NO
c.With Access to Management: NO
For additional information, please refer to Moody's Policy for Designating
and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Moody's general principles for assessing environmental, social and
governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
Items color coded in purple in this Press Release relate to unsolicited
ratings for a rated entity which is non-participating.
REFERENCES/CITATIONS
[1] G20 communique
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Kelvin Dalrymple
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Marie Diron
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
