Fitch Affirms Republic of Congo Substantial Credit Risk Rating
Fitch Ratings has affirmed the Republic of Congo’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘CCC+’. In a rating, Fitch said Republic of Congo ‘CCC+’ rating reflects high government debt, weak governance indicators, high oil dependence, and weak management of public finances with a recent history of defaults.
According to the rating note, current oil prices, fuel subsidy reform, and the IMF’s Extended Credit Facility (ECF) reduce immediate liquidity pressures and support fiscal and external metrics.
Congo has a record of weak public financial management (PFM), including two consecutive defaults on its sole Eurobond in 2016 and 2017, the restructuring of external commercial liabilities and a large stock of mostly domestic arrears.
The country’s domestic arrears accounted for 24% of GDP in 2023, the rating note said. Congo also incurred and subsequently resolved external arrears during 1H24 with official sector bilateral and multilateral creditors, with the exception of a minor portion to a bilateral creditor that is currently being processed. Congo is in a litigation process with former supplier Commisimpex.
The rating note explained that the country completed the fifth review of its IMF ECF programme, which partly focuses on PFM improvement.
In March, 2024 structural benchmark pertaining to the publication of quarterly debt bulletins was met, aiming to increase transparency of public sector liabilities.
Fitch said the reorganisation of the debt management office was completed, including the hiring of adequate staff and implementation of appropriate training procedures.
Congo’s government debt increased to 99.0% of GDP in 2023 – including 24% of GDP in arrears, largely domestic – from 92.5% in 2022, mostly reflecting the recognition of a significant amount of domestic arrears equalling 8.6% of GDP.
“We forecast the debt/GDP ratio to decline to 90.4% of GDP in 2024 and 86.1% in 2025, driven by the wide primary surpluses.
“Our figures imply that Congo’s government debt will remain well above the ‘B’/’C’/’D’ median of 70% we forecast for the same period. Our debt/GDP forecast trajectory is subject to uncertainties.
“The ongoing auditing of domestic arrears could lead to additional upward revisions of the stock. Conversely, authorities are implementing a restructuring programme for domestic commercial arrears that could translate into a reduction of the stock.
“The restructuring will likely involve haircuts to outstanding amounts that we anticipate will come into effect in 2025”, Fitch said.
The global rating agency understands that the stock of commercial domestic arrears does not include financial debt, so this would not be considered an IDR default under our criteria.
It stated that Congo’s performance under the IMF programme will support the country’s access to external concessional disbursements.
Fitch estimates Congo’s external amortisations will amount to 5.7% and 3.5% of GDP in 2024 and 2025, respectively, down from 6.4% in 2023. This decline will partly-reflect the lower debt servicing to oil traders, which is linked to oil prices.
“We expect the government to meet these financing needs through a combination of fiscal surpluses and disbursements from the IMF, the World Bank and France. We assume the government will maintain access to the regional CEMAC market, albeit at rising costs”.
Congo’s cash surplus narrowed to 0.6% of GDP in 2023 from 3.9% in 2022, reflecting a decline in oil revenue due to lower Brent prices and strong repayment of arrears (5.2% of GDP).
“We forecast cash surpluses of 2.3% of GDP in 2024 and 1.6% in 2025, as we expect the government to control spending and reduce the pace of arrears repayment to offset falling oil receipts and limit the exposure of public finances to rising regional borrowing costs”, Fitch said
It added that falling oil-related transfers will offset rising interest payments, assuming repayment of arrears. Fitch forecasts growth of 2.8% in 2024 and 2.9% in 2025, from 2.0% in 2023, driven by positive contributions from both the oil and non-oil sector.
“We expect oil production to increase to 98 million barrels per year in 2025 from 95 million in 2023, owing to improvements of the technical issues faced in 2023 and new production from fields such as Boatou and Holmini.
“The non-oil sector will remain supported by the government’s repayment of domestic arrears and improvements in power generation following shortages in 2023”.
Congo’s current account surplus narrowed to an estimated 6.4% of GDP in 2023, from 17.7% in 2022, mostly due to a decline in oil receipts amid falling global Brent prices. “We expect the surplus to narrow further, to 2.1% of GDP in 2024 and 0.2% in 2025, due to a widening deficit in the services balance and fall in Brent prices.”
Congo’s international reserves fell to USD845 million in 2023 from USD939 million in 2022 due to significant private and public debt repayments. Fitch forecasts Congo’s imputed international reserves to increase only marginally to USD905 million in 2024 and USD1.1 billion in 2025, owing to lower debt repayments and stronger FDI inflows.
This will translate into coverage of current external payments averaging 1.6 months over the period. The pooled reserves of the Bank of Central African States, the regional central bank, stood at USD 11.4 billion at end-2023. #Fitch Affirms Republic of Congo Substantial Credit Risk Rating Jaiz Bank Trades at 44% Discount to 52-Week High
