London, 27 May 2020 -- Moody's Investors Service ("Moody's") has today placed the Government
of Cameroon's B2 foreign and local currency issuer ratings on review
The decision to place Cameroon's ratings on review for downgrade
reflects Moody's assessment that the country's participation
in the G20 Debt Service Suspension Initiative (DSSI) raises the risk that
private sector creditors will incur losses. Suspension of debt
service obligations to official creditors alone would be unlikely to have
rating implications; it provides liquidity relief at a time when
Cameroon's external position is experiencing significant pressure
as a result of the global coronavirus shock and lower oil prices.
However, the G20's call on private sector creditors to participate
in that initiative on comparable terms raises the risk of default on privately-held
debt under Moody's definition.
The review period will allow Moody's to assess the significance of the
statement in the Debt Relief Term Sheet that private sector creditors
should participate on comparable terms. The review will assess
whether Cameroon's participation in that initiative will be implemented
with private sector participation and, if so, whether any
losses expected to arise from that participation would be consistent with
a lower rating.
The coronavirus outbreak, deteriorating global economic outlook,
falling oil prices, and financial market turmoil are creating a
severe and extensive economic and financial shock. Moody's regards
the coronavirus outbreak as a social risk under its ESG framework.
For Cameroon, this shock manifests mainly in lower growth,
government revenue and exports receipts given lower oil prices and pressure
on the foreign exchange reserves of the Central African Economic and Monetary
Union's (CEMAC) of which Cameroon is a member.
The foreign-currency and the local-currency bond and deposit
ceilings remain unchanged at Ba2.
RATINGS RATIONALE / FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE
OF THE RATINGS
REVIEW FOR DOWNGRADE WILL ASSESS CREDIT IMPLICATIONS OF ACCESSING G20
DEBT SERVICE SUSPENSION INITIATIVE
On 19 May, the Paris Club confirmed Cameroon's access to the
G20 Debt Service Suspension Initiative (DSSI) seeking official sector
debt service relief. Suspension of debt service obligations to
official creditors alone would be unlikely to have rating implications;
indeed, relief from official debt service obligations would allow
fiscal resources to be devoted to essential health efforts and social
spending, while also reducing external and government liquidity
pressures at a time when Cameroon is experiencing significant pressure
as a result of the steep decline in hydrocarbon revenues. Moody's
estimates that the DSSI will save about 1% of GDP in external debt
service payments for the remainder of the year.
However, the G20 has called on private sector creditors to participate
in that initiative on comparable terms. Moody's estimates
full-year government external debt service due to private creditors
in 2020 to be around 0.5% of GDP, including service
on Cameroon's sole international bond of $750 million issued
in 2015 and maturing in 2025. This excludes short-term external
commercial debt that has been contracted by the state-owned refinery,
SONARA, and that Moody's estimates to represent 1%-2%
of GDP in 2020.
While the details for implementing the DSSI are still being elaborated,
the G20's current debt relief terms as articulated in the term sheet
published on 15 April stipulate a call for private sector participation
on comparable terms.
The review period will allow Moody's to assess how the apparent tension
will be resolved between the government's participation in the DSSI,
potentially seeking relief from debt service owed to official sector creditors
only, and the G20's call for private sector creditors to participate.
It will assess whether Cameroon's participation in that initiative
will be implemented with private sector participation and, if so,
whether any losses expected to arise from that participation would be
consistent with a lower rating.
CORONAVIRUS SHOCK EXACTING SIGNIFICANT TOLL ON CAMEROON'S GROWTH,
FISCAL AND EXTERNAL POSITION; IMF SUPPORT ATTENUATES RISKS
While Cameroon has a more diversified economy than fellow Central African
Economic and Monetary Union (CEMAC) member countries, the significant
decline in oil prices associated with lower global demand in the wake
of the coronavirus shock is nevertheless transmitting significant pressure
on Cameroon's growth, fiscal and external position.
While the hydrocarbon sector directly represents approximately less than
5% of GDP, it is responsible for generating about 14%
of government revenues and 50% of exports receipts. Many
of Cameroon's other commodities have similarly suffered price declines,
weighing on growth, fiscal and external metrics.
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. As a result of lower hydrocarbon
revenues and broader revenue and spending consequences of the coronavirus
shock, 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. While the debt-to-GDP
ratio remains below the median of B-rated peers, Cameroon's
weak revenue generation capacity has resulted in a rising debt-to-revenue
burden, increasing by a third to around 350% in 2020,
that will be further exacerbated by rising gross borrowing requirements
and recent recourse to increasingly expensive external commercial financing
at a time of significantly tighter financial market conditions.
Moreover, diverting fiscal resources to health care spending that
results in lower government spending in the regions risks fueling social
unrest, already evident in the Anglophone regions where political
tensions continue to simmer.
Lower oil prices will also pressure the CEMAC region's external
position. Oil exports represent over 70% of the region's
total exports. Pooled foreign exchange reserves fell by about $5
billion in both 2015 and 2016 (i.e. $10 billion cumulative)
during the previous oil price shock. According to the central bank
of the CEMAC region (BEAC), the gross level of reserves stood at
$8.8 billion at 10 May, up from $7.4
billion recorded at the end-2019. Moody's expects
the level of CEMAC reserves to drop to $4 billion by the end of
the year. While Moody's does not anticipate an immediate
balance of payments crisis given the CFA franc peg to the euro benefits
from the French Treasury backstop, import cover would drop to 1.6
months, against 2.9 months for end-2019.
These challenges notwithstanding, Cameroon's credit profile
is supported by robust medium-term growth prospects, a degree
of enhanced macroeconomic stability afforded by CEMAC membership,
and the three-year IMF Extended Credit Facility (ECF) arrangement
which was approved in 2017 that helps to attenuate risks. Originally
in place to June 2020, it has been extended to end-September
2020, at the authorities request, to facilitate further IMF
support throughout the coronavirus shock . Progress on the initial
aims, to support the country's efforts to restore external
and fiscal sustainability and to lay the foundations for a more sustainable,
inclusive and private sector-led growth, have been satisfactory
and ongoing. With the onset of the coronavirus shock, Cameroon
received a disbursement of $226 million, or 60% of
quota, from the Rapid Credit Facility (RCF) to help meet the urgent
balance of payments needs stemming from the coronavirus shock.
The RCF will also boost CEMAC foreign reserve levels. Longer term
growth prospects are also supported by the government's ongoing
public infrastructure investment strategy to harness the ample agricultural,
mineral and hydropower resources.
FACTORS THAT COULD RESULT IN CONFIRMATION OF THE CURRENT RATING OR DOWNGRADE
OF THE RATING
The rating would likely be confirmed at its current level should Moody's
conclude that participation in DSSI would be unlikely to entail default
on private sector debt or, if it would, that any losses experienced
would be likely to be minimal and consistent with the current rating level.
Beside the considerations about losses to private sector creditors in
debt service relief measures, ongoing material pressure on Cameroon's
fiscal and external position could be consistent with a negative outlook
at B2, while prospects of a durable stabilisation in Cameroon's
fiscal and external position would likely be consistent with a stable
outlook at B2.
The rating would likely be downgraded should Moody's conclude that participation
in the G20 DSSI would probably entail default on private sector debt and
that losses experienced would be likely to exceed the threshold consistent
with a B2 rating.
Moreover, an intensification of fiscal and external pressure with
materially higher fiscal deficits, increasing debt, and wider
current account deficits than Moody's currently expects and/or inability
to secure sufficient external financing leading to a further marked erosion
of foreign exchange reserves would also likely lead to a downgrade.
Given that the Government of Cameroon is participating in the DSSI and
this initiative has the potential to inflict losses on private sector
creditors, this event prompted the publication of this credit rating
action 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%
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 26 May 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 increased. The issuer's susceptibility to event
risks has not materially changed.
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.
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
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issued on a support provider, this announcement provides certain
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provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
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VP - Senior Credit Officer
Sovereign Risk Group
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454
MD - Sovereign/Sub Sovereign
Sovereign Risk Group
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Client Service: 852 3551 3077
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454