Fitch Ratings – Hong Kong – 29 Oct 2020: Fitch Ratings has affirmed Cameroon’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B’ with a Negative Outlook.
KEY RATING DRIVERS
Cameroon’s ‘B’ ratings balance low GDP per capita and weak governance indicators against moderate government debt and low inflation supported by membership of the Central African Economic and Monetary Community (CEMAC). The Negative Outlook reflects Fitch’s expectation that the impact of the pandemic will increase budget deficits and government debt, raising medium-term debt service and financing risks.
Fitch expects GDP to contract by 3.2% in 2020 after 3.7% growth in 2019. Plummeting demand for Cameroon’s key exports and disruptions due to containment measures, will hit the services, agricultural and manufacturing sectors while the fall in oil prices, which we forecast to average 41USD/barrel in 2020, will exacerbate the weak outlook for the hydrocarbon sector (5% of GDP). In line with improved global prospects, we project GDP growth to recover to 3.0% in 2021 and 3.3% in 2022, constrained by scarce financing and credit retrenchments.
We forecast the fiscal deficit on a cash basis to widen to 5.3% of GDP in 2020 from 4.3% in 2019. The deterioration is moderate, despite the strong hit to tax collection and oil revenues (16% of government revenues), as tight financing conditions will constrain the government’s pandemic-related spending and lead to expenditure cuts to contain the deficit while lower oil prices will generate savings related to administrated fuel prices.
Cameroon will meet its fiscal financing needs in 2020, estimated at 8.5% of GDP, through a mix of official creditor support, including the debt service suspension initiative (DSSI) of the G20 (0.5% of GDP; 26% of 2020 debt service), and domestic issuances. We expect the government to cut capital expenditure if financing needs increase beyond current estimates or if delayed official creditor disbursements exacerbated financing constraints.
Under our baseline, Cameroon’s return to fiscal consolidation will be gradual, with the fiscal deficit on a cash basis narrowing to 4.4% of GDP in 2021 and 4.1% of GDP in 2022. Persisting economic disruptions will slow down the return to pre-pandemic tax collection levels, while the continued decline in oil production will partly offset the effect of higher oil prices on oil receipts and coronavirus-related spending may continue to push up overall expenditure in 2021.
Given scarce financing options and uncertainty regarding future access to international capital markets, we expect Cameroon to renew its medium-term IMF programme in 2021. It should catalyse additional official creditor support, easing financing conditions over the medium term. We assume the authorities will request an extension of the DSSI in 2021, but it would only slightly alleviate financing needs (6.8% of GDP) even if it covers the whole year (0.4% of GDP).
Risks are tilted to the downside as a more prolonged or sharper economic downturn could lower fiscal revenues beyond our current forecast in 2021. In addition, the magnitude of official creditor support remains uncertain and there are implementation risks to the IMF programme, especially as Cameroon’s past performance has been mixed. However, Eurobond interest payments are small (0.2% of GDP per year) in 2021 and 2022.