Fitch Affirms Cameroon’s Foreign Currency Rating at “B”, Outlook Shifts to Negative

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Business in Cameroon | Fitch Ratings maintained Cameroon’s long-term foreign currency rating at “B” in its recent assessment published on May 17, 2024. This decision reflects a diversified regional economy and robust GDP growth. However, Fitch has downgraded the outlook from stable to negative.

The agency said the state debt of Cameroon, including guarantees, arrears, and debts of the National Refining Company (Sonara), is expected to decrease to 39.2% of GDP by 2025, down from 43.2% of GDP at the end of 2023. This performance, significantly below the median expected “B” rating of 52.3%, is attributed to robust nominal GDP growth and low fiscal deficits.

Despite these positive aspects, Fitch highlighted ongoing debt management issues. Cameroon temporarily accumulated a moderate amount of external arrears to the European Investment Bank (EIB) in August and September 2023, before settling all external arrears in a matter of days. This is a further non-compliance with the International Monetary Fund (IMF) target of no external arrears after 0.1% of GDP in 2022 and 0.2% of GDP in the first half of 2023, according to the agency.

Persistent weaknesses in public finance management are also underscored by Fitch, with poor cash management and underestimated expenditures, notably fuel subsidies and unplanned security expenses, leading to off-budget expenditures and the accumulation of previous arrears. Although the stock of domestic arrears decreased to 0.6% in 2023 from 0.7% of GDP in 2022, it increased to 1.6% by the end of March 2024.

Furthermore, Fitch noted that the government’s debt deficit narrowed to 0.6% in 2023 based on commitments, down from 1.1% of GDP in 2022, due to higher revenues, lower capital expenditure execution, and the deferral of fuel subsidies (0.4% of GDP) to 2024. On a cash basis, Fitch estimated that the deficit decreased to 0.4% of GDP in 2023 from 1.2% in 2022, with net arrears amounting to 0.2% of GDP.

The agency forecasted that Cameroon’s financing needs will rise to 5.2% of GDP in 2024 and 4.6% in 2025, up from 4.3% in 2023, due to higher cash deficits. External debt amortization will average 1.9% of GDP in 2024 and 2025, including an annual Eurobond payment of 0.1% of GDP. IMF programs will provide access to financing and support reform efforts. Fitch also forecasts that the current account deficit will average 3.9% of GDP in 2024, compared to an estimated 4.0% in 2023.

In political terms, the uncertainty surrounding the next presidential elections scheduled for 2025 contributes to the negative outlook. President Paul Biya, re-elected in 2018 for a seventh term, could run again, increasing political risk in an already tense political climate, according to the rating agency. Despite these challenges, Cameroon is showing resilient economic growth, with GDP growth forecasts of 3.9% in 2024 and 4.1% in 2025, driven by non-oil sectors such as agriculture, forestry, transport and energy infrastructure.

By maintaining Cameroon’s “B” rating with a negative outlook, Fitch Ratings acknowledged both the country’s strengths and challenges. This decision comes amid varied positions taken by other rating agencies. In a recent analysis, Moody’s decided to maintain a harsh rating (Caa) for Cameroon, despite projections of debt stability until 2027. On the other hand, Standard & Poor’s recently upgraded Cameroon’s rating from CCC+ (high risk) to B- (highly speculative) with stable outlooks.