Fitch Ratings classifies Cameroon economic outlook at a stable ‘B’
International ratings agency, Fitch has affirmed Cameroon’s long term foreign and local currency issuer default ratings (IDRs) at ‘B’ with a Stable Outlook. 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 downgraded to ‘BB+’ from ‘BBB-‘. Cameroon’s ‘B’ ratings balance a low GDP per capita of $1,300, less than half that of the ‘B’ median, and weak governance indicators, against sustained economic growth and macroeconomic stability provided by membership of the franc zone of the CEMAC. This ensures currency convertibility and reduces foreign exchange liquidity risks.
“We forecast GDP growth to outperform rated peers, at 4.8 per cent in 2016 compared with 4.1 per cent for the ‘B’ median. This forecast is lower than the 5.5per cent from our last review, as we now expect oil output to stabilize in 2016, after a one-off jump in 2015.
Declining Chinese demand, underperformance of the mining and agricultural sectors compared with 2015, and devaluation in neighbouring Nigeria will weigh on growth. Growth will slow to 4.2 per cent in 2017 as capital spending eases after a significant boost in 2016,” read a statement from Fitch.
Fitch expects the general government deficit to widen in 2016 to an estimated 5 per cent of GDP, from 2.5 per cent in 2015, and compared with a ‘B’ median of 4.2 per cent, 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 per cent of GDP in 2018 from 27 percent in 2015 as a result of deficit financing. Although the level is still well below the ‘B’ median of 52 per cent of GDP, the pace of increase has been rapid since 2008.
An increase in non-concessional financing has pushed up Cameroon’s interest burden, which is set to rise to 8 per cent of government revenues at end-2016 following the Eurobond issuance in November 2015 (compared with 2.3% at end-2015),” the statement further read.
The government routinely runs up arrears, notably to public companies, as a form of financing. Fiscal management is hampered by the weak quality and timeliness of data.
Weak commodity prices and large import-intensive investments will widen the current account deficit to a forecast 4.9 per cent of GDP in 2016 from 4.5 per cent in 2015. Increased interest payments of the sovereign will weigh on the income balance and further contribute to a deterioration of the external position.
