Fitch Rates Republic of Congo at 'B+'

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

the WB.

- 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.

RATING SENSITIVITIES

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

collectively, are:

- 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

collectively, are:

-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

presidential election.

KEY ASSUMPTIONS

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.

Contact:

Primary Analyst

Arnaud Louis

Associate Director

+44 20 3530 1539

Fitch Ratings Limited

30 North Colonnade

London, E14 5GN

Secondary Analyst

Eric Paget-Blanc

Senior Director

+33 1 44 29 91 33

Committee Chairperson

Douglas Renwick

Senior Director

+44 20 3530 1045

Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:

peter.fitzpatrick@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable criteria, 'Sovereign Rating Criteria' dated 13 August 2012 and

'Country Ceilings' dated 09 August 2013, are available at www.fitchratings.com.

Applicable Criteria andALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS.

PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:

HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING

DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S

PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND

METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF

CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE

AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF

CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE

SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS

SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED

ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH

WEBSITE.