Fitch Ratings has affirmed Gabon's Long-term foreign and local currency Issuer Default Ratings (IDR) at 'B+' with Stable Outlooks. The issue ratings on Gabon's senior unsecured foreign bonds have also been affirmed at 'B+'. The Country Ceiling has been affirmed at 'BBB-', in line with the Country Ceiling for the Communaute Economique et Monetaire d'Afrique Centrale (CEMAC), and the Short-Term foreign currency IDR at 'B'.
KEY RATING DRIVERS
Gabon's 'B+' ratings balance a high level of GDP per capita and relatively favourable government and external metrics against weak economic development indicators. The recent fall in oil prices has highlighted the country's high exposure to oil (38% of nominal GDP, 44% of government revenues and 79% of exported goods in 2014) and led to a switch of the budget and current accounts to deficits from surpluses.
Gabon's 'B+' IDRs also reflect the following key rating drivers:
Oil-related receipts fell sharply to 7.4% of GDP in 2015 from 15.5% in 2013. In response, the sovereign has markedly cut capital expenditure to 6.5% of GDP in 2015 from 10.6% in 2013, and made reforms to limit the cost of oil subsidies. Despite this adjustment, Fitch expects the budget will be in deficit in 2015, at -2.1% of GDP, from a surplus averaging 2.3% in 2010-2013. The agency forecasts the deficit will reduce to -0.6% by 2017, consistent with a gradual recovery in oil prices. VAT arrears repayment worth 2.3% of GDP over 2015-2017 means that the cash deficit could be about 0.7% of GDP higher over the period.
Fitch expects government debt will reach 40% of GDP at end-2015, from 28% in 2013. The debt ratio has been primarily driven up by increased debt issuance on international and local markets and advances from the central bank. The oil-related fall in nominal GDP (-5.4% y/y in 2015) and the depreciation of the currency against the USD (-9% in 2015), in which 48% of government debt is denominated, have also contributed. Fitch expects debt will peak in 2015 and start declining thereafter, to 37% by 2017. A lower than expected oil price is the main downside risk.
Fitch expects GDP growth will slow to 4.1% in 2015, from 4.3% in 2014, and 6.4% on average in 2010-2013. The deceleration reflects the impact of a cut in government spending on domestic demand. Oil output is declining (-0.7% in 2015) due to the maturation of existing fields and Fitch expects this trend to continue in the medium term. The agency forecasts GDP growth will be 4.6% by 2017, supported by some recovery in the price of oil.
Fitch expects the current account to be in deficit, at -4% of GDP in 2015, for the first time since 1998. The fall in oil receipts will be only partially offset by lower imports related to capital expenditure and increase in non-oil exports. The current account deficit will be more than financed by external debt and foreign investment, ensuring foreign reserves at the central bank remains fairly high (3.7 months of current account payments at end-2015).
Franc-zone membership has underpinned a supportive macro environment, including a stable currency and low inflation. The monetary arrangement is backed by foreign reserves pooled at the central bank and the French guarantee on currency convertibility, thereby effectively reducing foreign currency liquidity risks.
Levels of human development and governance are low and the business climate is weak according to indicators from the World Bank. Income inequality is high.
Presidential elections will take place in 2016. Gabon has long benefited from a stable domestic political climate but several episodes of social unrest have taken place since early 2015. These events illustrate the growing tensions ahead of the general elections. The President has recently reshuffled the cabinet to include opposition figures as ministers.
The Stable Outlook reflects Fitch's assessment that upside and downside risks to the ratings are currently well balanced. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a high likelihood of leading to a rating change.
The main factor that could lead to negative rating action is a further deterioration in fiscal balance and a worsening of public and external debt dynamics. For example, this could occur if oil prices fail to recover in line with our expectations.
The main factors that could lead to positive rating action are:
- Improvement in the sovereign balance sheet, such as a marked decline in government debt to GDP ratio, higher deposits at the central bank and building up of the stabilisation fund, which would improve the sovereign's resilience to oil price volatility.
- Successful diversification of the economy and fiscal revenues away from oil.
Fitch assumes a gradual reduction in Gabonese oil output over the medium to long term.
Fitch assumes that oil price (Brent) will average USD55 per barrel in 2015, USD60 per barrel in 2016 and USD70 in 2017 after USD99 in 2014.
Fitch assumes no break-up of the CEMAC monetary zone in the foreseeable future.
The agency assumes broad political and social stability is maintained, including around the 2016 elections.