Moody’s Hardens Cameroon’s Credit Condition after Downgrading Ratings to Caa1 from B2

By Synthia Lateu

BUEA, August 3, 2023 - Cameroon has become a 'risky borrower ' following Moody's rating downgrade.  The U.S. rating agency, on July 27, 2023, published a rating action, lowering the Central African country’s rating by two notches from B2 to Caa1 indicating that the government was facing cash flow difficulties which led to delays in payment of external debt service in late 2022 and in 2023.

“Moody's considers the delayed payment to Deutsche Bank Spain, in particular, to be an incident of default,” The publication noted.

According to the Autonomous Sinking Fund (CAA), Deutsche Bank Spain is a private creditor whose outstanding to Cameroon is FCFA 20.75 billion at the end of June. "The missed payments came after a series of cash demands on the government, including higher fuel subsidies and increased off-budget spending for growing security needs," Moody's said while cutting both the country’s foreign-currency and local-currency ratings.

Moody's rating places Cameroon in the category of risky borrower, likely to default on international capital markets and implies that country will pay more expensive coupons on its Eurobonds and in the event of a new issue, the interest demanded by investors could be high.

This is a storm to the country which confirmed plans to raise CFAF200 billion on international markets to repay outstanding debts before the end of this year.

The poor borrowing profile could make   interest rate demanded by investors much higher than the 5.95% the country got for its 2021 operation, whose proceeds were to refinance its 2015 Eurobond. Officials then, considered the interest rate on 10-year securities a real feat because for the 2015 Eurobond (Cameroon’s first) the country secured funding at a 9.5% interest rate on the 10-year securities as reported by Business in Cameroon.

Cameroon had, according to Moody's, recorded at least one default in its history, that is, in 1983.

Moody's noted that, the persistent crisis experienced in the North-West, South-West and Far North regions of Cameroon, "create significant pressures on off-budget spending and weigh on the government's available liquid resources". , Moody's said and added that there was "very weak cash and debt management capacity."

The reaction of Cameroon's government to US rating agency's' present rating is still awaited. Observers suggest that the delay results from the absence of the Minister of Finance, Louis-Paul Motaze, who accompanied President Paul Biya to the Russia-Africa summit in Saint Petersburg.