Gabon’s Debt Swap Constitutes Distressed Exchange—Moody’s

Gabon’s Debt Swap Constitutes Distressed Exchange—Moody’s

Gabon’s recent debt swap improved liquidity, but Moody’s Ratings agency said the exchange constituted a distressed exchange, which could impact the country’s credit ratings. On April 28, Gabon announced a voluntary debt swap with creditors to extend maturities of outstanding government securities issued on the regional Central African Economic and Monetary Community (CEMAC) market.

“The exchange will alleviate immediate debt repayment risks”, Moody’s said in a note. However, the ratings analysts said they consider the operation, which imposes a financial loss to investors and comes amid persistent funding constraints, a distressed exchange and therefore a default under its definition.

The ratings agency said the so-called “MOUELE” operation involved a maturity extension for CFA592 billion, which was about 4.7% of GDP of government treasuries, equivalent to around 34% of the outstanding regional market debt reported by the government.

The operation extended the average maturity of outstanding regional market debt to six years, more than twice its pre-exchange value of 2.3 years. Moody’s explained that this liability management was accompanied by the issuance of CFA338 billion in new short-term Treasury bills, as well as the conversion of CFA473 billion of banking sector loans into long-term government securities.

The re-profiling operation generated CFA494 billion in savings, according to the government. Moody’s said the exchange improves Gabon’s near-term liquidity by partly addressing the concentration in domestic debt service payments over 2025–27.

It was noted that before the operation, CFA1.7 trillion of domestic debt, or 13.5% of GDP, was due to mature over these three years.

Gabon also previously eased external debt servicing through a buyback of most of its $605 million June 2025 Eurobond at close to par, using accumulated proceeds from past regional market issuances and a 9.5% coupon four-year external private placement completed in February 2025.

Moody’s ratings analysts said despite these liability management operations, however, government liquidity risks are likely to remain elevated. The agency said an expansionary fiscal policy stance since the August 2023 coup has widened Gabon’s financing needs.

The transitional government spearheaded new social measures, an expanded public sector wage bill, significantly higher public investment, and a greater role for the state in the economy, including the acquisition of oil assets from Assala Energy and Tullow Oil plc.

Moderating oil prices are also likely to add to fiscal pressures, with 40%-50% of government revenue stemming from oil on average since 2020.

“We expect that oil prices will remain within our medium-term $55-$75/barrel price range in 2025-26 after hovering at levels above our range since 20222.

Outside the February private placement, the absence of an IMF programme and modest international financial support to date have constrained funding.

Conditions in the regional market have remained tight, as demonstrated by recurrent low subscription rates for treasury issuances in recent months.

In October 2024, regional banking regulator COBAC revised its application of risk weighting for new issuances of regional government securities, implying a shift to a 100% risk weight for Gabon, the highest across the CEMAC member states.

The shift has reduced regional banks’ appetite for Gabonese government securities and further restricted funding access.

These pressures contributed to new arrears accumulation, a recurrent credit challenge for Gabon, in the run-up to the MOUELE operation.

However, sustained progress toward a return to constitutional order could support renewed financial assistance from multilateral and official creditors, key to limiting dependence on the CEMAC regional market for financing and preserving regional pooled foreign exchange reserves.

In a key milestone for Gabon’s political transition, General Brice Oligui Nguema was sworn in as president on 3 May, having won 94.8% of the vote in a presidential election on 12 April under a new constitution and electoral code.

Progress in consolidating central government finances under the new government or improved access to funding would increase confidence in a sustained reduction in government liquidity risks and support creditworthiness, Moody’s said. FG Reforms to Drive Long-Term Economic Resilience – Edun