(The following statement was released by the rating agency)
LONDON, April 03 (Fitch) Fitch Ratings has affirmed the Republic
Long-term foreign and local currency Issuer Default Ratings
(IDR) at 'B+'. The
Outlooks are Stable. Fitch has also affirmed the Short-term
foreign currency IDR
at 'B' and the Country Ceiling for the Communaute Economique et
d'Afrique Centrale (CEMAC) and the Union Economique et Monetaire
(UEMOA) at 'BBB-'.
KEY RATING DRIVERS
The Republic of Congo's 'B+' IDRs reflect the following key
The sovereign balance sheet has benefited from recent external
debt relief and
rapid build-up in deposits (19% of GDP in October 2013) thanks
oil-related budget surpluses (14% of GDP on average since 2005).
the budget surplus will be 9% of GDP in 2014 and 11% in 2015 (9%
in 2013) as the
rebound in oil output partly offsets lower oil prices (USD105
per barrel for the
Brent in 2014 and USD100 in 2015 from USD109 in 2013).
Government debt was 32%
of GDP at end-2013 (versus 42% for the 'B' peers' median). Fitch
expects debt to
decline in the medium term.
Non-oil GDP growth is rapid, as authorities are using oil
receipts to finance
large infrastructure projects including building roads to
connect the country
and preparing the 11th African games, which Congo will host in
expects non-oil growth will remain above 7% in 2014 and 2015
after 8.2% in 2013
Services are growing fast (+8% in 2013) supported by public
spending and bank
credit to the private sector (+20% in 2013). From 2015, the
start of iron mining
is expected to add to growth. Given the government reliance on
oil receipts (80%
of revenues), the key risk is a lower than expected oil price.
Membership of CEMAC guarantees convertibility of the local
currency into euros
and is backed by the French Treasury. This is a long-established
which has delivered low and stable inflation.
There are public finance management (PFM) weaknesses. One-third
government debt (11% of GDP) is made up of unsettled external
debt claims (5% of
GDP at-end 2013), mainly originating from unpaid suppliers in
the 1990s, and
domestic arrears (6% of GDP). PFM has improved recently with no
since the Heavily Indebted Poor Country initiative completion in
recent graduation to the Extractive Industries Transparency
status, gradual repayment of domestic arrears and the expected
a fiscal rule to promote the control of public spending.
A Congolese Sovereign Wealth Fund will be started in 2014. Fitch
that initial transfer to the new Fonds Congolais
d'Investissement will be USD1bn
(7% of GDP) coming from the Congolese account at the Exim bank
of China. Congo
follows other African oil exporters (e.g. Nigeria, Angola,
Gabon) that have
recently started sovereign funds to invest abundant FX
liquidity. At-end 2013,
Congo's official FX reserves were USD5.2bn (six months of
payments). Fitch expects the current account surplus will
average 5% of GDP over
2013-2015, further supporting FX inflows.
After a rebound from 2014, oil output is expected to reach a
peak in 2017, at
140m barrels per annum (from 88m in 2013) primarily thanks to
investment by French oil company, Total (USD10bn over several
beyond 2017 and in the absence of new investment or discovery,
oil production is
set to gradually decline, highlighting the need for
diversification of the
The rating is constrained by severe structural weaknesses. World
indicators are much weaker than for 'B' peers, reflecting the
impact of the
civil war at the end of the 1990s on the quality of
institutions. Congo's Ease
of Doing Business rank (185 out of 189 countries in 2014) is
but could improve following an expected update of the survey.
The economy is
highly dependent on oil (70% of GDP, 80% of government revenues,
85% of current
account receipts). The low level of infrastructure constrains
The Stable Outlook reflects Fitch's assessment that upside and
downside risks to
the rating are currently well balanced.
The main factors that could lead to a positive rating action,
- The resolution of unsettled external debt claims with
bilateral and commercial
creditors and the clearing of domestic arrears.
- Continuing high non-oil GDP growth and an improved business
climate that would
support economic diversification. The start of mining production
significantly add to growth, FX and fiscal receipts.
- Continued building of fiscal and external buffers thanks to
Regular investment into the new sovereign wealth fund in a
that would promote savings of oil receipts and strengthen fiscal
benefit the rating.
The main factors that could lead to a negative rating action,
-Excessive growth in current public spending, which would weaken
surplus and affect Congo's ability to build fiscal buffers.
-Any threat to political stability, especially in the run up to
Fitch assumes that world GDP growth will gradually accelerate,
to 3.2% by 2015
from 2.3% in
2013, supporting demand for Congo's commodity exports.
Fitch assumes Brent oil prices will remain high, at USD100 per
barrel by 2015
from USD108.8 in 2013.
Fitch assumes the monetary arrangement with France will keep
macroeconomic stability and the fixed parity of the CFA franc
against the euro
will remain unchanged.
Fitch assumes that there will be no change in the political
regime in the coming
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Applicable criteria, 'Sovereign Rating Criteria' dated 13 August
'Country Ceilings' dated 09 August 2013, are available at
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