Moody's: CEMAC countries increasingly likely to seek IMF program support amid dwindling policy and financing options

Member countries of the Economic and Monetary Community of Central Africa (CEMAC) face dwindling financing options as they struggle to adjust to the ongoing impact of lower oil prices and are increasingly likely to turn to an IMF program, which would anchor reform and offer liquidity relief, Moody's Investors Service said in a report today.

The report, "Sovereigns -- Sub-Saharan Africa: IMF Programs Offer Prospect of Liquidity Relief to CEMAC Countries, But Will Face Implementation Challenges", is available on www.moodys.com. Moody's subscribers can access the report using the link at the end of this press release. The research is an update to the markets and does not constitute a rating action.

"The oil price shock has caused a marked drop in the government revenues of CEMAC countries, resulting in large fiscal deficits that will persist at least until 2018," said Lucie Villa, a Moody's Vice President -- Senior Analyst and co-author of the report. "CEMAC governments' financing needs are large relative to traditional financing options, which are almost exhausted. Lower oil prices have also led to an historical drop of 76% in CEMAC's foreign exchange reserves, aggravating external liquidity pressures."

The Moody's report - a follow-up to research published last September -- analyses the credit profiles of Moody's-rated Cameroon, Gabon and the Republic of the Congo (ROC).

Among these sovereigns, ROC is one of the most reliant on oil for revenues and has limited budget flexibility. As a result, it has been hit hardest by the drop in oil prices and also faces the greatest challenges in correcting imbalances. ROC's financing needs will stand at an expected 10%-15% of GDP in 2017. For Gabon and Cameroon, financing needs will be in single-digits in 2017, but nevertheless present a challenge as traditional financing options near exhaustion.

As CEMAC countries attempt to overcome these challenges, debt restructuring is seen as unlikely and economic diversification will take time to bear fruit. A devaluation of the CFA franc currency is also unlikely in the foreseeable future as it would come with few gains and substantial costs as well as require consensus among CEMAC members and France.

International Monetary Fund programs, which are increasingly likely, would anchor reform and offer liquidity relief. Negotiations between Cameroon and the IMF are most advanced, with Gabon also in discussions. However, agreement on any IMF program content will be challenging, as will the implementation of reforms given institutional weaknesses.