Outlook On The Gabonese Republic Revised To Negative On Weak Fiscal Management; Ratings Affirmed At 'BB-/B'
• We expect the Gabonese Republic's (Gabon) reported external and fiscal accounts to remain in surplus, as the country continues to benefit from favorable terms of trade owing to the current high oil prices.
• Gabon's authorities have recently informed Standard & Poor's that they hadn't paid amounts committed to the Eurobond sinking fund. We understand, though, that the government intends to pay the amounts due within the next few months and then adhere to the expected schedule.
• We are revising our outlook to negative from stable and affirming our 'BB-/B' long- and short-term foreign and local currency sovereign credit ratings on Gabon.
• The negative outlook reflects our view of the potential for a downgrade if Gabon's poor payment culture does not improve.
FRANKFURT (Standard & Poor's) Sept. 7, 2012--Standard & Poor's Ratings Services today said it revised its outlook on the Gabonese Republic (Gabon) to negative from stable. At the same time, we affirmed our 'BB-/B' long-term long- and short-term local and foreign currency sovereign credit ratings on the Gabonese Republic. The transfer & convertibility (T&C) assessment on Gabon remains at 'BBB-', the same as for all rated sovereigns belonging to the Economic and Monetary Community of Central Africa (CEMAC) zone. The '4' recovery rating on the 10-year, $1 billion 2017 Eurobond due in 2017 is unchanged, indicating our expectation of average (30%-50%) recovery in the event of a payment default.
The ratings on Gabon are constrained by our views of the government's poor track record in its fiscal and debt management and the country's limited experience with uncontroversial election processes, as well as its high economic dependence on oil revenue, and data gaps, particularly with regard to the country's external balance sheet. Rating support stems from strong reported external and fiscal performances, although these may be vulnerable over the next couple of years, and high GDP per capita for the rating category. The government's ambitious structural reform agenda also underpins the ratings.
Gabon's authorities have recently informed Standard & Poor's that they hadn't paid amounts committed to the Eurobond sinking fund. Consequently, we think that fiscal management has deteriorated in recent months. We understand, though, that the government intends to pay the amounts due within the next few months and then adhere to the expected schedule.
The government typically records fiscal surpluses. We note that it paid most of its supplier arrears to Gabonese enterprises by August 2012.
We anticipate Gabon's fiscal debt will represent 17% of GDP this year, illustrating substantial improvement since the early 2000s, when debt stood at 71% of GDP. In 2010 and 2011, the reported fiscal surpluses were lower than in earlier years because of capital expenditure related to the co-hosting of the African Cup of Nations. We believe capital spending will continue to hamper 2012 accounts as we understand the government continued to make some investments early this year 2012. The government has made available 2012 fiscal data, but with an unusually long delay. We expect the country's current account surplus to average just under 8% for 2012-15, despite the downward trend in oil volume. Oil production has accounted on average for about 51% of Gabon's nominal GDP, 87% of export income, and 58% of fiscal revenue in the past 10 years.
Gabon's economy will likely decelerate somewhat in 2012. We forecast GDP per capita for the year to be $11,500, following a 9% upward revision in official 2005-2010 GDP data based on better coverage of several sectors. Real GDP per capita growth should average 1.7% for 2012-2015, in our opinion. As part of the CEMAC zone, with its peg to the euro, Gabon's inflation (CPI) runs at a rate similar to that of the European Economic and Monetary Union.
The negative outlook reflects our view of the potential for a downgrade if Gabon's poor payment culture does not improve. For instance, an indication of this could be the government failing to catch up in the next few months with its payments to the sinking fund related to its 2017 Eurobond, or allowing new arrears to accumulate.
We could revise the outlook to stable if we see improvement in fiscal and debt management, particularly if it includes greater transparency.