yahoo! | Rating Action: Moody’s confirms Cameroon’s rating, outlook stable
Global Credit Research – 07 Aug 2020
London, 07 August 2020 — Moody’s Investors Service (“Moody’s”) has today confirmed the B2 local and foreign long-term issuer ratings of the Government of Cameroon, with a stable outlook. This concludes the review for downgrade initiated on 27 May 2020.
The review for downgrade reflected Moody’s assessment that the country’s participation in the G20 Debt Service Suspension Initiative (DSSI) raised the risk that private sector creditors would incur losses. In the last few weeks, Moody’s has considered the evidence of implementation of DSSI for a range of rated sovereigns, and statements by G20 officials. While Moody’s continues to believe that the ongoing implementation of DSSI poses risks to private creditors, the decision to conclude the review and confirm the rating reflects Moody’s assessment that, at this stage, for Cameroon, Moody’s considers those risks are adequately reflected in the current B2 rating.
It remains unclear what influence is being applied to Cameroon and to other participating sovereigns to treat private creditors in a comparable manner to official sector creditors. However, a number of elements suggest that the probability of broad-ranging private sector involvement has diminished. These include the apparent absence of progress in discussions about how private sector involvement (‘PSI’) would be effected in DSSI in general; indications by the G20 that PSI would require the support of the borrowing government; the government of Cameroon’s continued assertion that PSI is not contemplated; and evidence of some debt payments being made to private sector creditors under a DSSI regime.
The risks that remain relate to the possibility that in particular cases DSSI is implemented with private sector creditors also being drawn in to provide debt service relief and incurring losses in doing so. Should the probability of losses to private sector creditors increase as implementation of DSSI for Cameroon becomes clearer, Moody’s would reflect any related changes in risks to private creditors in further rating announcements.
The stable outlook reflects Moody’s view that the pressures the sovereign faces in the wake of the coronavirus shock and prospects for its credit metrics in general are likely to remain consistent with the current rating level, given Cameroon’s comparatively more diversified economy relative to neighbours, the anticipated renewal of the IMF programme providing a backstop, and Cameroon’s membership of the Central African Economic and Monetary Union (CEMAC) attenuating external vulnerability risks. In addition, the credit is broadly resilient to pressures on the government’s finances, exacerbated by the coronavirus shock, constrained debt financing options and continued, but moderating, political unrest in the Anglophone region.
The foreign-currency and the local-currency bond and deposit ceilings remain unchanged at Ba2.
RATIONALE FOR CONFIRMING THE B2 RATING
Moody’s initiated a review for downgrade for Cameroon’s rating following the country’s participation in DSSI to reflect the potential for private sector losses given the call in the G20’s 15 April term sheet for private creditors to participate in debt service relief on comparable terms to official creditors. The review for downgrade reflected the tension evident between participating governments’ stated intention not to seek relief from private sector debt service obligations, and the clearly-stated view of the key sponsors of the DSSI, specifically the IMF and World Bank, that private creditors should participate in the DSSI on comparable terms. Private sector losses incurred as part of the DSSI would likely constitute a default under Moody’s definition.
There remains considerable uncertainty regarding the treatment of private sector creditors of the sovereigns which choose to participate in DSSI, including Cameroon. Recent statements by the Institute of International Finance (IIF) suggest that some DSSI participants have had informal discussions with private sector creditors regarding deferral of interest payments.
However, the risk of broad-ranging involvement of private sector creditors in many or most DSSI cases appears to have diminished. There has not been any material progress in clarifying where and how private sector creditors would be asked to provide debt service relief. While the most recent communique issued by the G20 Finance Ministers and Central Bank Governors on 18 July reiterated that sponsors continue to “strongly encourage private creditors to participate in the DSSI on comparable terms” the clarifying language “when requested by eligible countries”  seems to acknowledge the need for support from the borrower for that to happen. Participating governments including Cameroon have continued to assert that they do not wish to engage with private sector creditors. And a number of DSSI-participating governments have continued to make interest and coupon payments to private creditors as they fall due.