This report does not constitute a rating action.
The eroding external funding for members of the Economic and Monetary Community of Central Africa (CEMAC) could prompt the governments to increase regional market issuance. CEMAC sovereigns are facing uncertain official creditor funding and limited international market access. As a result, they will likely intensify domestic currency financing on an already-saturated regional market. Subscription rates are low, and banks' exposure to sovereigns are high. Member states' ability to meet financing needs has therefore decreased.
What's Happening
On Jan. 13, 2025, the World Bank suspended its disbursements to Gabon (not rated) after the country accumulated arrears worth Central African franc (XAF) 17 billion ($27 million) to the institution. In addition, Gabon does not have an extended credit facility (ECF) with the IMF, while Congo-Brazzaville's (CCC+/Stable/C) program ends in April. The program for Cameroon (B-/Stable/B), the zone's largest economy, ends in July and uncertainty remains on whether the IMF will extend it. Chad (B-/Stable/B) is expected to negotiate a program but uncertainty remains, and Equatorial Guinea (not rated) does not have a program. The final CEMAC member, the Central African Republic (not rated), has an IMF ECF program, but its size is negligible in a regional context.
Why It Matters
CEMAC sovereigns have large external refinancing needs. Given the lack of a liquid and developed regional market, these sovereigns have typically relied on external funding, especially official funding, to finance deficits and infrastructure projects. External debt (excluding that contracted with the IMF) reached 64% of the total public debt stock in 2023. While mostly concessional with long maturities, amortizing this external debt represents 3% of its GDP annually. Therefore, the uncertain funding from the IMF, given expiring programs with Cameroon and Congo-Brazzaville ($280 million disbursements in total for 2024), amidst suspension of disbursements from the World Bank to Gabon, will force governments to rely more on domestic funding to refinance external debt.
Higher regional issuance will intensify liquidity pressure. In recent years, CEMAC members have markedly increased their reliance on domestic financing, which constituted over 20% of their total debt stock in 2023, up from only 8% in 2017. This reliance could intensify if governments cannot secure enough external funding. In parallel, demand for sovereign debt has struggled to match supply and subscription rates plummeted to 44% in October 2024, from 201% in June 2018. The banking sector's exposure to sovereign debt reached 28% of total banking sector assets in 2024, up from 14% in 2017. We expect Cameroon's, Chad's, and Congo's refinancing needs to reach 4.1% of GDP in 2025, with the sovereigns continuing to post small fiscal deficits (0.6% of GDP).
What Comes Next
Gabon is negotiating with the IMF to secure funding this year and disbursements from the World Bank could resume once the country settles its arrears to the institution. Additionally, the IMF program with Congo-Brazzaville is set to conclude in April 2025 and Cameroon's in July, and we expect authorities will seek additional IMF funding. We also expect Chad to negotiate a new program. Securing IMF funding would provide external financing with favorable borrowing conditions and spur support from other international institutions, easing liquidity pressure in CEMAC, and averting additional pressure on a saturated regional market.
Related Research
- Congo-Brazzaville, Jan. 27, 2025
- Republic of Chad Assigned 'B-/B' Sovereign Ratings; Outlook Stable, Oct. 28, 2024
- Cameroon, Sept. 23, 2024
| Primary Credit Analyst: | Hugo Soubrier, Paris +33 1 40 75 25 79; hugo.soubrier@spglobal.com |
| Secondary Contact: | Sebastien Boreux, Paris + 33 14 075 2598; sebastien.boreux@spglobal.com |
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