Moody’s Downgrading Rating: Cameroon’s Borrowing Credibility At Stake

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Moody’s Downgrading Rating: Cameroon’s Borrowing Credibility At Stake

The downgrading rating is likely to affect the country’s borrowing capacity and high interest rates.

15 août 2023 23:44

On July 27, 2023, U.S. rating agency, Moody’s, published a rating action downgrading Cameroon’s foreign-currency and local-currency long-term issuer ratings, as well as its senior unsecured debt rating, to Caa1 from B2.” Moody’s justifies that rating decision by the country’s “delays in meeting a series of external debt service payments in late 2022 and into 2023.” “Moody’s considers the delayed payment to Deutsche Bank Spain, in particular, to be an incident of default,” it added. “Moody’s rating action reflects the emergence of cash management and liquidity challenges for the government,” the ratings agency said as it cut both the country’s foreign-currency and local-currency ratings. “The missed payments came after a series of liquidity demands on the government, including higher fuel subsidies and increased off-budget spending on growing security needs.” This rating is highly likely to affect the country’s borrowing capacities since it places Cameroon in the category of risky borrowers that are highly likely to default on international capital markets. The poor borrower profile usually leads investors to demand high-interest rates from the investees when they seek financing on capital markets. This scenario is likely to have a negative effect for Cameroon, which is currently planning a foreign-currency-denominated operation (according to the amended 2023 Finance Law). In its latest sectoral report, the National Sinking Fund (CAA) confirms that Cameroon plans to raise FCFA 200 billion on international markets to repay outstanding debts, therefore maintaining public debt to the “same level.” Henri Kouam, a Finance expert at Cameroon Economic Policy Institute (CEPI), Moody’s downgrade will increase the cost of borrowing for the Cameroonian government. To him, it will entail Cameroon spending a greater share of its taxes in repaying its debt burden as interest rates have risen. “Investors may be unlikely to invest in Cameroon as interest rates are rising in advanced economies and government bonds are becoming more attractive,” Kouam added while expressing optism a...