Moody’s: Cameroon’s credit profile supported by diversified economy

YAOUNDE (Capital Markets in Africa) – Moody’s Investors Service says that while Government of Cameroon’s (B2 stable) credit profile is supported by a diversified economy that has limited the impact of the oil price shock, the country still faces challenges from its weak institutional environment and rising public sector debt.

The annual report, “Government of Cameroon — B2 Stable, Annual credit analysis”, is now available on www.moodys.com. Moody’s subscribers can access this report via the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

“Cameroon’s strong growth potential is underpinned by its significant infrastructure investment programme in the port, energy and transport sectors,” said Elisa Parisi-Capone, a Moody’s Vice President — Senior Analyst and co-author of the report, adding that “the development of natural gas reserves also offers the potential to compensate for gradually declining oil production”. At the same time, the report notes that Cameroon’s credit profile remains constrained by the country’s weak institutional environment, particularly in the areas of control of corruption and public financial management, as well as by rising public and external debt levels.

Cameroon’s low economic strength balances economic diversification and a stable growth outlook with the economy’s small size, low per capita income and weak global competitiveness indicators.

Moody’s expects Cameroon’s growth to slow to 4.2% in 2017 from an average of 5.3% over the past five years, mostly due to lower oil production and the government’s fiscal consolidation efforts. From 2018, completed infrastructure projects are expected to improve the country’s growth performance to 4.5%.

Cameroon’s very low institutional strength reflects the country’s record on controlling corruption and managing the public finances. However, membership of the Central African Economic and Monetary Union (CEMAC) provides a degree of monetary policy credibility and supports Cameroon’s institutional strength.

Cameroon’s fiscal strength is mainly constrained by the large foreign currency share – over 75% – in the country’s central government debt, although the depreciation risk is mitigated by the CFA Franc arrangement.

A surge in public investment spending in late 2016 has driven the cash deficit to an estimated 4.7% of GDP on a cash basis from 2.7% in 2015.

Looking forward, Moody’s expects the fiscal deficit to gradually decline to 4.2% of GDP in 2018, followed by 3.9% under the three-year Extended Credit Facility (ECF) program concluded with the International Monetary Fund in July 2017. The main fiscal adjustment over the remainder of 2017 will stem from a reduction in public investment expenditures from a budgeted 8.7% of GDP to 7.3% under the program terms.

The country’s main event risk centres on the succession of President Paul Biya, who has been in power since 1982.

Upward pressure on the rating could arise from stronger than expected growth and revenue dividends from the government’s “Growth and Employment Strategy” over the next few years. By contrast, a worse than anticipated performance in fiscal and debt metrics would be credit negative.