Fitch Affirms Gabon at ‘B-‘ With Stable Outlook
Fitch Ratings has affirmed Gabon’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B-‘ with a stable outlook, according to the latest rating note on the sovereign following oil prices improvement that would help the nation’s fiscal position.
It said the ‘B-‘ rating balances Gabon’s high GDP per capita and improved near-term fiscal metrics due to higher oil prices against weak public finance management, recurring difficulties to secure expected funding and Gabon’s dependence on oil revenues.
Also, Fitch estimates the fiscal deficit narrowed to 0.6% of GDP in 2021 from 2.5% in 2020. It added that the 2022 budget forecasts the deficit at 0.7% of GDP, based on a USD60/barrel oil price. It projects stable spending and 18% higher revenue than the 2021 budget projections.
Fitch expects that the deficit will decline to 0.5% of GDP in 2022 and 0.2% in 2023, supported by higher oil revenues, IMF reforms and economic recovery. READ: Gabon’s IMF Deal to Ease Near-Term Debt Repayment Risks
“We expect capital expenditure to recover, but to a lower level than budgeted. A gradual reduction of tax exemptions, supported by the IMF programme will represent an important structural improvement”.
Gabon’s oil revenues, which represent 37% of government revenues (2016-2020 average), are expected to rise as OPEC eases production cuts, investments rise and the oil price increases to USD70/barrel in 2022 and USD60 in 2023, with large upside risk.
An increase of USD10/barrel would lead to a 1pp improvement in the fiscal balance. Non-oil revenues are also expected to improve, supported by non-oil sectors.
It noted that Gabon has faced recurring difficulties in obtaining planned funding from official creditors, highlighting public financial management weaknesses and limited financing flexibility.
In 2021, Gabon did not receive budgeted funding from the African Development Bank valued at USD72 million and the IMF’s disbursement of USD108 million represented half of the amount expected by the authorities.
These funds are expected to be disbursed in 2022. During 2021, Gabon failed to clear some arrears on its debt, which represented 0.7% of GDP or USD125 million, according to the rating note.
However, it was noted that the country’s fiscal financing needs have eased relative to recent years, although they remain important at 7.3% of GDP in 2022, and 4.8% in 2023.
In 2021, Gabon issued USD800 million (4.4% of GDP) Eurobonds to buy back Eurobonds amortising between 2022 and 2024 and bonds equivalent to 6% of GDP were issued on the regional market in 2021.
“We do not anticipate international market issuance in 2022 and 2023. Instead, the authorities plan to rely on domestic financing -about 3.4% of GDP- to make up part of the shortfall not covered by official external financing”.
“We estimate government debt/GDP decreased to 70% in 2021, from 77.4% in 2020, mainly due to higher nominal GDP. Our baseline assumption of low fiscal deficits and an improving macroeconomic backdrop point to government debt falling to 64.5% by end-2023, below the 2023 ‘B’ median forecast of 67.6%”, Fitch said.
After a sharp contraction in 2020, Fitch estimates GDP growth recovered by 1.6% in 2021, supported by non-oil growth. In 2022, the dynamism of agricultural and forestry output, manganese production, and the upturn in construction as infrastructure projects resume will support the recovery.
Fitch analysts project economic growth to reach 2.9% in 2022 before declining to 2.1% in 2023.
Over the medium term, Gabon’s growth will depend on export-oriented non-oil sectors, including mining, agrobusiness and forestry.
Growth will also be supported by investment in infrastructure, development of special economic zones and public-private partnerships. We forecast non-oil growth to average 2.9% in 2022-23.
In 2021 oil production decreased by 7.6%, as a result of the OPEC quota cuts, shutdowns and natural decline of fields. On average, Gabon produced 201,600 bpd in 2021, after 216,200 bpd in 2020.
Gabon’s oil production is structurally decreasing because most fields are ageing and require substantial investments to maintain productivity. We forecast projected investments will maintain production around 200,000 bpd over the medium term.
“We estimate the current account deficit (CAD) narrowed to 3.1% of GDP in 2021 from 6% in 2020, reflecting an increase of oil exports in value and of non-oil exports, while imports declined due to the reduction in investment activity”.
Fitch projects the CAD to moderate to 1.2% of GDP in 2022 thanks to oil price and production dynamics and gradual export diversification. However, as imports recover the rating firm projects the CAD will widen to 2.8% of GDP in 2023.
At the end of 2021, Central African Economic and Monetary Community’s (CEMAC) external position was fragile, with external reserves slightly above three months of imports. IMF involvement and official creditor disbursements to member countries will maintain a sufficient level of reserves.
In addition, the implementation of the foreign exchange regulation to extractive industries will support reserves accumulation. Extractive companies are required to repatriate in CEMAC 35% of FX generated by their activity. #Fitch Affirms Gabon at ‘B-‘ With Stable Outlook
