Link to Fitch Ratings' Report: Republic of Congo - Rating Action ReportLONDON, October 11 (Fitch) Fitch Ratings has assigned the Republic of Congo
Long-term foreign and local currency Issuer Default Ratings (IDRs) of 'B+'. The
Outlooks on the ratings are Stable. Fitch has also assigned Congo a Short-term
foreign currency IDR of 'B' and a Country Ceiling of 'BBB-'.
KEY RATING DRIVERS
Congo's 'B+' IDRs reflect the following key rating drivers:
- Strong sovereign balance sheet.
Congo is the fourth largest oil producer in sub-Saharan Africa and has recorded
large oil-related fiscal surpluses (14% of GDP on average since 2005). The
sovereign has accumulated substantial buffers in the form of government deposits
(20% of GDP) and foreign reserves (six months of imports) at end-2012. Central
government debt was 31% of GDP at end-2012, versus 41% of GDP for the 'B' peers'
median, after extensive external debt cancellation under the Heavily Indebted
Poor Countries (HIPC) initiative in 2010.
- Continuing expected oil-related surplus.
Fitch expects oil production to rebound in 2014 after a gradual decline since
2011 thanks to new foreign investments. The budget surplus is forecast to
increase as a result to 12% of GDP by 2015 from 6% in 2012. Lower capital
expenditure, following the extra spending in 2012 related to the Mpila
ammunition depot explosion, and stronger non-oil fiscal receipts are also
expected to contribute. Government debt is set to decline to 26% of GDP by 2015
as domestic arrears of wages and pensions (the bulk of domestic debt) are
gradually paid back.
- Public finance management (PFM) weaknesses.
A third of total government debt (11% of GDP) was made up of arrears at end-2012
including unsettled external debt claims (5% of GDP in 2012), mainly originating
from unpaid suppliers in the 1990s, and domestic arrears (6% of GDP). PFM has
improved recently with no new arrears since HIPC completion, the recent
graduation to the Extractive Industries Transparency Initiative compliant
status, and the expected implementation of a fiscal rule to promote the control
of public spending.
- Low level of development and poor governance.
The UN Human Development Index is lower than the 'B' peers' median, reflecting
widespread poverty, limited availability of health services and the inadequate
education system. World Bank (WB) governance indicators are also much weaker
than peers reflecting the impact on the quality of institutions of the civil war
in the 1990s. Congo's Ease of Doing Business rank (183 out of 185 countries) is
particularly low but is expected to improve following an update of the survey by
- Sustained non-oil GDP growth.
Fitch expects non-oil GDP to grow at 8% on average up to 2015 after 7% since
2007. Growth will be driven by a large public investment plan primarily
targeting infrastructure in transport and energy. Continuing high foreign direct
investment, developments in iron mining, and the development of manufacturing
activities in Special Economic Zones, are also expected to support growth but
are contingent on the completion of appropriate infrastructure facilities. In
the absence of new discoveries, oil production is on a long-term declining
trend, but will rise temporarily from 2014.
- Membership of the CEMAC (Communaute Economique et Monetaire de l'Afrique
Centrale) which guarantees convertibility of the local currency into euros and
is backed by the French Treasury, is a long-established nominal anchor which has
delivered low and stable inflation.
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, individually or
- 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, in line with
Fitch forecasts, could significantly add to growth, FX and fiscal receipts.
- Continued building of fiscal and external buffers thanks to budget surpluses
supported by the implementation of the fiscal anchor rule.
The main factors that could lead to a negative rating action, individually or
-Failure to control the growth in current spending, following the marked
increase in 2012, which would weaken the budget surplus and affect Congo's
ability to build fiscal buffers.
-Any threat to political stability, especially in the run up to the 2016
Fitch assumes that world GDP growth will gradually accelerate, to 3.2% by 2015
from 2.4% in 2013, supporting demand for Congo's commodity exports.
Fitch assumes Brent oil prices will remain high, at USD100 per barrel by 2015
from USD105 in 2013.
Fitch assumes the monetary arrangement with France will keep supporting
macroeconomic stability and the fixed parity of the CFA franc against the euro
will remain unchanged.
The rating incorporates Fitch's assumptions that there will be no change in the
political regime in the coming years.
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Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and
'Country Ceilings' dated 09 August 2013, are available at www.fitchratings.com.
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