Congo Default on Regional Debt Highlights Risks for CEMAC Market – Fitch
Congo’s default on its local-currency regional market debt in October 2024 is partly the result of market trends that have reduced liquidity and investor appetite, along with Congo’s oversized share of outstanding regional debt, lumpy debt maturities, and weak public finances management, Fitch Ratings says in a report.
Economic and Monetary Community of Central Africa, CEMAC, sovereign issuances on the regional market have surged since 2018 on ample liquidity, greater participation from institutional investors, and a rising volume of secondary transactions.
However, the increase in bank exposure to the sovereigns outpaced the expansion of banks’ balance sheets. The sovereign exposure now accounts for 31% of their book compared to 10% in 2015.
This, combined with tightening of monetary policy since 2021, has led to a weakening of market appetite for sovereign issuances with rising interest rates for Cameroon and a drop in subscription rates for all CEMAC countries.
Fitch expects liquidity on the regional bond market to remain tight over the next two years despite a loosening of monetary policy with a resumption of liquidity injections since June 2024. Regional market roll-over needs will rise and reach 36% of the outstanding debt in 2026.
Congo, particularly after its distressed debt exchange, and Gabon appear the most exposed, with large funding needs in addition to regional refinancing needs. Congo, Gabon and Chad are also vulnerable to oil price shocks.
Access to external funding sources is likely to be a key component of CEMAC funding plans, but will face significant challenges.
IMF programmes have ended or are set to end in 2025 in Fitch-rated CEMAC countries. New programmes would provide policy anchors that could help attract new funding and support credit profiles. #Congo Default on Regional Debt Highlights Risks for CEMAC Market – Fitch Interbank Rates Slow as Remita, FAAC Credits Boost Liquidity
