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Cameroon readies IMF discussions amid strained debt metrics – Africa Weekly Comment

The Government of Cameroon’s debt metrics have come to the fore as it gears up to negotiate a new IMF-funded programme, market participants said.

Cameroon, which the IMF considers to be at high risk of debt distress, has requested a successor programme to the IMF Extended Credit Facility (ECF) that expired in 2020, and the Fund is preparing to begin negotiations with the authorities, an IMF spokesperson told Debtwire.

Cameroon’s IMF discussions are set to happen in coordination to those of fellow CEMAC member Gabon, and both are targeting getting the new loan by 2Q21, according to a sovereign debt analyst.

“Cameroon, unlike Gabon, is eligible and has participated in  the G20 Debt Service Suspension Initiative, and by implication, is eligible for G20 Common Framework (CF) debt treatment, with all the uncertainty this brings about  private sector debt relief,” said the analyst.

This is partly why Cameroon’s only Eurobond, a USD 750m 9.5% 2025 note, sold off sharply in early February, when Ethiopia’s request for CF debt treatment sparked fears that some of the more vulnerable African Eurobond issuers could follow suit.

While the IMF spokesperson noted that Cameroon’s new programme discussions are not contingent on a request for CF treatment, the country’s solvency challenges may require additional support beyond an IMF loan, Leeuwner Esterhuysen, an economist at NKC African Economics, told Debtwire.

“We consider poorer nations with a strong infrastructure focus, as is the case with Cameroon, to be at higher risk of requesting pre-emptive restructuring,” said Esterhuysen, emphasising the country’s public debt burden and weak scores on liquidity and fiscal metrics.

The coronavirus crisis hit the local economy hard, as the dual shock of the pandemic and commodity price slump resulted in a deterioration in virtually all economic markers, Esterhuysen said. Cameroon is the largest contributor to CEMAC nominal GDP and, until 2020, one of the few in the region consistently posting strong positive GDP growth figures, IMF data shows.

CEMAC GDP metrics

Source: IMF Staff report, January 2021

Continued conflict in Cameroon’s Anglophone region further shook the country, and although power is very much centralised in long-term President Biya, as soon as he dies, or is permanently incapacitated by a health issue, the situation is likely to become highly unstable, according to François Conradie, Lead Political Economist at NKC African Economics.

Still, according to NKC African Economics estimates, Cameroon is expected to grow 3.0% in 2021, a positive yet slower rebound than initially anticipated due to the persistence of the pandemic.

The IMF estimates that Cameroon’s total public debt will peak at 44.2% of GDP in 2021, from 41.7% in 2019.

Debt metrics

Among the key concerns on investors’ minds is Cameroon’s Chinese debt burden, which the country has sought to re-profile well before the coronavirus pandemic hit last year, an investor said. As early as 2018, Cameroon sought to renegotiate an Export-Import Bank of China loan, although the exact terms remain unknown.

Debt service due to Chinese entities accounted for approximately 45% of Cameroon’s total debt service in 2020, NKC’s Esterhuysen noted, making any debt relief it can secure, particularly through the Debt Service Suspension Initiative (DSSI), highly beneficial.

But a lack of transparency in the terms of the obligations, in addition to the fact that China considers its development banks to be commercial lenders, and hence outside of the scope of DSSI, could complicate things for Cameroon.

“This implies that Cameroon may not be able to get relief under the DSSI from a large portion of its debt profile should the country wish to restructure some of its debt, which raises the risk of default in the country,” Esterhuysen said.

Despite these concerns, Cameroon’s 2025s are quoted at 109.25-mid on IHS Markit, as the early February correction did not completely erase gains made in recent months amid voracious EM HY appetite, the investor said.

Cameroon 2025s mid cash price

Source: IHS Markit

Although Fitch calculates that 2025 Eurobond interest payments are small (0.2% of GDP per year) in 2021 and 2022, the notes amortise in three instalments between 2023 and 2025.

“This means it will begin to amortise within the life of the new IMF programme, so the Fund will want to see that they have a plan in place to repay it,” the investor highlighted. Fitch noted that there is uncertainty over the amount saved in an escrow account to cushion principal repayments and the future appetite from international capital markets for refinancing.

Should Cameroon fail to return to a sustainable fiscal consolidation path before the principal repayments of the Eurobond fall due over the 2023 to 2025 period, the country may struggle to absorb the added pressure of servicing this obligation, Esterhuysen said.

Although Cameroon’s previous IMF ECF expired last year, it received USD 382m across two instalments of emergency IMF funding in 2020 to address the impact of the coronavirus pandemic.

Cameroon is rated B- by S&P Global, B2 by Moody’s and B by Fitch.

Laura Gardner Cuesta Senior Reporter Debtwire CEEMEA

Laura is a sovereign debt senior reporter for Debtwire CEEMEA. She holds an MSc in Conflict Studies from the London School of Economics and a BA in Philosophy, Politics and Economics from the University of Exeter.

Laura Gardner Cuesta Senior Reporter Debtwire CEEMEA

Laura is a sovereign debt senior reporter for Debtwire CEEMEA. She holds an MSc in Conflict Studies from the London School of Economics and a BA in Philosophy, Politics and Economics from the University of Exeter.

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