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.
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. This 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 play out for Cameroon, which is currently planning a foreign-currency-denominated operation (according to the amended 2023 financial act). In its latest sectoral report, the national sinking fund (CAA) confirms that Cameroon plans to raise FCFA200 billion on international markets to repay outstanding debts, therefore maintaining public debt to the “same level.”
The rating will make the financing costlier for Cameroon. The interest rate demanded by investors will surely be much higher than the 5.95% the country got for its 2021 operation, whose proceeds were to refinance its 2015 Eurobond. At the time, officials 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.
Sub-regional market
As a result of the downgrading, Cameroon’s forthcoming FCFA200 billion operation may come with one of the highest interest rates paid by Sub-Saharan African countries on the international market in 2015. The rate may even go higher as international credit conditions have worsened since the start of the Russia-Ukraine conflict (In February 2022).
Moody’s decision is also likely to impact the country’s issues on the sub-regional capital market, where it is already struggling, since January 2023 with the central bank (BEAC)’s restrictive monetary policy sending interest rates higher. Indeed, the downgrading of Cameroon’s sovereign rating could lead intermediaries operating in this market, virtually all of whom are subsidiaries of financial multinationals, to be even more demanding regarding the interest rates on Cameroon’s public securities issues.
Such demand would compel the country to agree to higher interests than the 4.67% and 5.82% average rates respectively on its treasury bills and bonds (in the public securities market of the central bank BEAC) in June 2023.
Brice R. Mbodiam