Rpt - Fitch affirms Cameroon's ratings

Mon Dec 16, 2013 11:38am EST

Dec 16 - Fitch Ratings has affirmed Cameroon's Long-term foreign and local
currency Issuer Default Ratings (IDR) at 'B'. The Outlooks are Stable. The
Short-term foreign currency IDR has been affirmed at 'B'. Fitch has also
affirmed the Country Ceilings for the Communaute Economique et Monetaire
d'Afrique Centrale (CEMAC) and the Union Economique et Monetaire 
Ouest-Africaine (UEMOA) at 'BBB-'.

KEY RATING DRIVERS 

The affirmation of Cameroon's sovereign ratings reflects the following key 
rating drivers:

Fitch expects steady growth of the Cameroon economy, with an estimated growth 
rate of 4.7% in 2013 compared with 4.5% in 2012. Growth is expected to reach 5% 
in 2014, due to the acceleration in oil output, which was boosted in 2013 by the
start of production in two fields discovered in 2011.  

To resolve infrastructure bottlenecks, especially in energy and transportation, 
the government has launched a large public investment programme. There have been
delays in 2013, due to the creation of a public procurement ministry, which has
lengthened the administrative process. The acceleration of this programme in
2014 will boost the economy, and favourably impact manufacturing over time,
especially the aluminium sector, which currently uses 40% of the country's power
resources.

Despite the reduction in public capital expenditure due to the under-completion 
of public investments, the fiscal deficit is expected to widen in 2013 to an 
above target 3.2% of GDP (2.0% in 2012). The government overestimated revenues 
and did not fully budget for fuel subsidies, which cost 3.2% of GDP, distributed
by the national refinery, Sonara. The state refunded Sonara through the
cancellation of its tax bill and via securitisation. Total arrears of the state
to commercial and public entities rose to an estimated 4.7% of GDP at end-2012.

Public debt remains low, estimated by Fitch at 19.1% of GDP at end-2013. 
However, it is steadily growing and could reach 30% in 2017. The increasing 
share of non-concessional financing is also becoming a concern. Budget slippages
have been funded by an increasing recourse to domestic debt (37% of total in
2013), part of which now takes the form of treasury bills and bonds.  

Thanks to the rebound of oil exports, the deterioration of the current account 
deficit was halted in 2012 (-3.7% of GDP). Foreign direct investments are 
expected to increase in 2013 and 2014, due to investment in the oil industry. 
International assets should stabilise at USD3.3bn, although they are slightly 
declining relative to current external payments (4.3x expected for end-2013).  

The business climate remains weak. Cameroon ranked 168th in the last World Bank 
'Doing Business' survey (from 161st last year). Pressure on tax collection, 
increases in state arrears to suppliers and delays in the repayment of VAT are 
quoted as the main sources of concern for private enterprises. This translates 
into a deterioration of companies' balance-sheets and has affected the overall 
quality of Cameroon banks' assets. Three banks have been in difficulties in 
2013.     

RATING SENSITIVITIES 

The Stable Outlook reflects Fitch's assessment that upside and downside risks to
the rating are currently well balanced. 

The main risk factors that, individually or collectively, could trigger a 
positive action are:

- An improvement in the management of public finances, which would translate 
into a reduction of arrears to public enterprises, restore budget balance and 
improve debt dynamics.

- Improvement in the business climate, which would stimulate non-oil sector 
growth.

The main risk factors that, individually or collectively, could trigger negative
rating action are:

- Political risk in the succession of President Biya, 81, should he die or 
resign. This could break the balance of power between the different religious, 
ethnic and linguistic groups in Cameroon. The election of the Senate has partly 
resolved the issue of political transition, as the senate president would assume
power in the interim. 

- Further budget slippages, due to a lack of control of oil subsidies or a rapid
increase in public investment, which would lead to a rapid increase in 
indebtedness. 

KEY ASSUMPTIONS

Fitch assumes that the budget deficit will stabilise in 2014 /15 at 4% of GDP

Fitch assumes no break-up of the CEMAC monetary arrangement in the foreseeable 
future

Fitch's current assumption for Cameroon's medium term growth is 5%

Fitch assumes that the oil price (Brent) will average USD100 per barrel in 2014 
and 2015
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