Gabon’s Ba3 rating balances wealth and sound public finances with risks stemming from low oil prices

Gabon’s Ba3 rating is supported by its oil- wealth, relatively sound public finances and membership of the Franc Zone, Moody’s Investors Service says in its latest Credit Analysis for the country published recently. However, a relatively undiversified economy and the government’s reliance on oil-derived revenue are among the factors which constrain its rating.

“The key challenge for Gabon’s government is to stick to its plan to diversify the economy, while maintaining sound public finances at a time of lower oil prices,” says Lucie Villa, Assistant Vice President — Analyst and primary author of the report.

Oil makes up around a third of Gabon’s GDP and half of the government’s total revenue. Gabon’s government has cut its budgeted oil price forecasts from $80 per barrel to $40 and has built fiscal buffers into a new budgetary law passed by the Council of Ministers on 10 April. If oil prices fall substantially below forecast levels, the government could still make further cuts to discretionary capital spending.

Furthermore,  the Moody’s report says that Gabon’s membership of the Franc Zone largely shields its economy and the government from external imbalance pressures, compared with other oil-producing nations outside the currency bloc.

Although Moody’s expects the government to post a fiscal deficit in 2015 – with its debt peaking at 39% of GDP in 2015 on a gross basis, or 26% on a net basis – these figures remain in line with Gabon’s peers.

In addition, the report says oil production in Gabon is expected to continue to decline, while the growing exploitation of other natural resources will help to compensate in part the effects of that trend. Gabon’s reserves of manganese, magnesium, iron ore and timber support the economic outlook.

While the government’s plan to broaden the economy and improve infrastructures, particularly in transport and energy, is positive, the report says full economic diversification will take time to achieve.

With presidential elections due in 2016, political risk remains moderate, despite expectations that a unified opposition will challenge the incumbent President Ali Bongo.

Downward pressure on Gabon’s rating could stem from the government having difficulty in implementing the promised spending adjustments or receiving lower than expected revenues. Upward pressure on the rating could come from accelerated economic diversification or a decline in domestic political risk.

The Credit Analysis assesses Gabon’s credit profile in terms of Economic Strength, Institutional Strength, Fiscal Strength and Susceptibility to Event Risk, which are the four main analytic factors in Moody’s Sovereign Bond Rating Methodology.

For more information, Moody’s research subscribers can access this report at http://www.moodys.com/viewresearchdoc.aspx?docid=PBC_180673