Gabon Ratings Affirmed at 'B/B' Then Withdrawn At Issuer's Request
OVERVIEW
- The lower-than-expected Brent oil price assumptions for 2016 and a slowdown in oil production in existing oil fields will impair Gabon's external and fiscal balances, as well as the country's economic growth prospects given its high dependence on oil.
- We are affirming our long-term sovereign credit ratings on Gabon at 'B'.
- We are also withdrawing the ratings at the issuer’s request.
- The outlook at the time of the withdrawal is stable.
RATING ACTION
On April 1, 2016, Standard & Poor's Ratings Services affirmed its long- and short-term foreign and local currency sovereign credit ratings on the Gabonese Republic at 'B/B'. The outlook at the time of the withdrawal was stable. We subsequently withdrew the ratings and T&C assessment at the issuer's request.
As a "sovereign rating" (as defined in EU CRA Regulation 1060/2009 "EU CRA Regulation"), the ratings on the Republic of Gabon are subject to certain publication restrictions set out in Art 8a of the EU CRA Regulation, including publication in accordance with a pre-established calendar (see "Calendar Of 2016 EMEA Sovereign, Regional, And Local Government Rating Publication Dates," published Dec. 22, 2015, on RatingsDirect). Under the EU CRA Regulation, deviations from the announced calendar are allowed only in limited circumstances and must be accompanied by a detailed explanation of the reasons for the deviation. In this case, the reason for the deviation is the issuer's request that the ratings be withdrawn.
RATIONALE
The Gabonese government requested us to withdraw our rating after our rating action on Jan. 29, 2016 (see “Republic of Gabon Ratings Lowered To 'B' From 'B+'; Outlook Stable”). Our lowering of our assumptions for average Brent oil by $15 to $20 across the forecast horizon motivated the downgrade. We think that the lower-than-previously-expected oil price and a slowdown in oil production in existing oil fields will impair Gabon's external and fiscal balances, as well as the country's economic growth prospects given the economy's heavy dependence on the oil sector.
Despite decades of oil production and several years of fiscal surpluses, fiscal buffers are low, as fiscal policy has been largely pro-cyclical. We understand that the government has cleared past arrears.
In 2015, the government announced a series of stabilization measures to deal with the lower oil price environment and adopted a supplementary budget based on a Brent oil price of $45/bbl.
We also expect the government will finance its deficits primarily by drawing down its deposits at the BEAC and commercial banks, and by tapping the regional bond market.
We expect Gabon's political environment under President Ali Bongo to remain stable through the August 2016 presidential election. We note, however, that occasionally violent opposition protests and oil sector strikes, which temporarily shut the country's main refinery in late 2014, point to increasing sociopolitical challenges.
Gabon's monetary flexibility is limited by the CFA franc's peg to the euro, as is the case with any pegged arrangement, and by being part of a broader monetary union.
OUTLOOK
The stable outlook at the time of the withdrawal reflected our view that Gabon’s weakening fiscal and external balances will nonetheless be consistent with a ‘B’ rating and that improved debt management will help avoid the recurrence of arrears.
KEY STATISTICS
Table 1
Republic of Gabon Selected Indicators | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|
2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | |
ECONOMIC INDICATORS (%) | ||||||||||
Nominal GDP (bil. LC) | 7,112 | 8,582 | 8,767 | 8,691 | 8,989 | 8,507 | 8,936 | 9,600 | 10,353 | 11,197 |
Nominal GDP (bil. $) | 14 | 18 | 17 | 18 | 18 | 14 | 15 | 16 | 17 | 18 |
GDP per capita (000s $) | 9.2 | 11.4 | 10.5 | 10.5 | 10.6 | 8.3 | 8.2 | 8.7 | 9.2 | 9.8 |
Real GDP growth | 9.6 | 7.1 | 5.3 | 5.6 | 4.3 | 4.0 | 4.0 | 4.3 | 4.7 | 5.0 |
Real GDP per capita growth | 7.0 | 4.6 | 2.8 | 3.2 | 1.9 | 2.5 | 2.5 | 2.8 | 3.2 | 3.4 |
Real investment growth | 33.8 | 15.1 | 21.0 | 2.1 | (0.8) | 3.0 | 3.2 | 5.0 | 5.0 | 5.0 |
Investment/GDP | 29.7 | 26.6 | 27.0 | 29.2 | 26.6 | 30.4 | 30.9 | 30.8 | 31.0 | 31.1 |
Savings/GDP | 39.0 | 43.8 | 41.4 | 42.2 | 34.3 | 27.4 | 27.2 | 27.0 | 27.4 | 27.6 |
Exports/GDP | 57.7 | 61.7 | 61.0 | 57.4 | 54.2 | 44.0 | 41.3 | 41.2 | 40.9 | 40.4 |
Real exports growth | 28.0 | 5.6 | (3.4) | (0.4) | (0.6) | (0.3) | (0.3) | 3.0 | 3.0 | 2.8 |
Unemployment rate | N/A | N/A | N/A | N/A | N/A | 20.0 | 20.0 | 20.0 | 20.0 | 20.0 |
EXTERNAL INDICATORS (%) | ||||||||||
Current account balance/GDP | 9.3 | 17.1 | 14.4 | 13.0 | 7.7 | (3.0) | (3.8) | (3.7) | (3.6) | (3.6) |
Current account balance/CARs | 17.5 | 27.9 | 22.6 | 22.0 | 14.5 | (7.0) | (9.4) | (9.3) | (9.0) | (9.0) |
Trade balance/GDP | 33.1 | 42.7 | 44.0 | 37.2 | 30.7 | 19.9 | 19.0 | 19.0 | 19.0 | 19.0 |
Net FDI/GDP | 4.8 | 4.7 | 4.8 | 5.2 | 4.6 | 3.0 | 3.0 | 3.5 | 4.0 | 4.0 |
Net portfolio equity inflow/GDP | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Gross external financing needs/CARs plus usable reserves | 77.0 | 71.1 | 74.8 | 75.7 | 87.5 | 100.3 | 109.7 | 116.8 | 123.0 | 136.2 |
Narrow net external debt/CARs | 16.2 | 12.2 | 13.3 | 36.8 | 39.3 | 79.8 | 100.4 | 111.6 | 125.5 | 134.1 |
Net external liabilities/CARs | 34.6 | 30.7 | 37.6 | 69.5 | 84.3 | 143.4 | 175.2 | 188.2 | 199.8 | 211.3 |
Short-term external debt by remaining maturity/CARs | 14.7 | 10.1 | 12.2 | 15.0 | 29.3 | 33.8 | 50.7 | 52.8 | 55.1 | 61.5 |
Reserves/CAPs (months) | 3.8 | 2.6 | 3.1 | 3.5 | 4.4 | 4.5 | 5.0 | 4.3 | 3.7 | 2.8 |
FISCAL INDICATORS (%, General government) | ||||||||||
Balance/GDP | 1.4 | 2.4 | 2.5 | 1.8 | (0.6) | (2.3) | (5.8) | (4.8) | (3.8) | (1.8) |
Change in debt/GDP | (1.1) | 1.9 | 0.4 | 9.2 | 3.9 | 7.1 | 6.0 | 6.6 | 5.8 | 3.8 |
Primary balance/GDP | 2.7 | 3.3 | 3.5 | 3.5 | 0.7 | (0.8) | (4.1) | (3.0) | (1.9) | 0.2 |
Revenue/GDP | 25.9 | 27.9 | 30.1 | 30.2 | 26.1 | 23.0 | 22.0 | 21.0 | 20.0 | 20.0 |
Expenditures/GDP | 24.5 | 25.5 | 27.6 | 28.4 | 26.7 | 25.3 | 27.8 | 25.8 | 23.8 | 21.8 |
Interest /revenues | 5.3 | 3.3 | 3.3 | 5.8 | 4.7 | 6.7 | 7.8 | 8.4 | 9.6 | 10.0 |
Debt/GDP | 18.2 | 16.9 | 16.9 | 26.3 | 29.3 | 38.0 | 42.2 | 45.8 | 48.3 | 48.5 |
Debt/Revenue | 70.2 | 60.6 | 56.3 | 87.1 | 112.0 | 165.2 | 191.7 | 218.3 | 241.5 | 242.3 |
Net debt/GDP | 13.5 | 12.3 | 12.6 | 16.2 | 19.8 | 26.3 | 33.8 | 37.5 | 40.6 | 41.3 |
Liquid assets/GDP | 4.6 | 4.6 | 4.3 | 10.0 | 9.4 | 11.8 | 8.4 | 8.3 | 7.7 | 7.1 |
MONETARY INDICATORS (%) | ||||||||||
CPI growth | 1.5 | 1.3 | 2.7 | 0.5 | 4.7 | 0.6 | 2.5 | 2.5 | 2.5 | 2.5 |
GDP deflator growth | 17.6 | 12.7 | (2.9) | (6.2) | (0.8) | (9.0) | 1.0 | 3.0 | 3.0 | 3.0 |
Exchange rate, year-end (LC/$) | 490.91 | 506.96 | 497.16 | 475.64 | 540.28 | 602.51 | 622.94 | 611.90 | 611.90 | 611.90 |
Banks' claims on resident non-gov't sector growth | 3.6 | 36.4 | 25.3 | 34.0 | (3.1) | 7.0 | 8.0 | 8.0 | 8.0 | 8.0 |
Banks' claims on resident non-gov't sector/GDP | 8.8 | 9.9 | 12.1 | 16.4 | 15.4 | 17.4 | 17.9 | 18.0 | 18.0 | 18.0 |
Foreign currency share of claims by banks on residents | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
Foreign currency share of residents' bank deposits | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A |
Real effective exchange rate growth | (3.8) | (1.4) | (2.2) | 1.9 | 4.6 | (3.3) | N/A | N/A | N/A | N/A |
Savings is defined as investment plus the current account surplus (deficit). Investment is defined as expenditure on capital goods, including plant, equipment, and housing, plus the change in inventories. Banks are other depository corporations other than the central bank, whose liabilities are included in the national definition of broad money. Gross external financing needs are defined as current account payments plus short-term external debt at the end of the prior year plus nonresident deposits at the end of the prior year plus long-term external debt maturing within the year. Narrow net external debt is defined as the stock of foreign and local currency public- and private- sector borrowings from nonresidents minus official reserves minus public-sector liquid assets held by nonresidents minus financial-sector loans to, deposits with, or investments in nonresident entities. A negative number indicates net external lending. LC--Local currency. CARs--Current account receipts. FDI--Foreign direct investment. CAPs--Current account payments. The data and ratios above result from Standard & Poor's own calculations, drawing on national as well as international sources, reflecting Standard & Poor's independent view on the timeliness, coverage, accuracy, credibility, and usability of available information. |
RATINGS SCORE SNAPSHOT
Table 2
Republic of Gabon Ratings Score Snapshot | |
---|---|
Key rating factors | |
Institutional assessment | Weakness |
Economic assessment | Weakness |
External assessment | Weakness |
Fiscal assessment: flexibility and performance | Weakness |
Fiscal assessment: debt burden | Neutral |
Monetary assessment | Weakness |
Standard & Poor's analysis of sovereign creditworthiness rests on its assessment and scoring of five key rating factors: (i) institutional assessment; (ii) economic assessment; (iii) external assessment; (iv) the average of fiscal flexibility and performance, and debt burden; and (v) monetary assessment. Each of the factors is assessed on a continuum spanning from 1 (strongest) to 6 (weakest). Section V.B of Standard & Poor's "Sovereign Rating Methodology," published on Dec. 23, 2014, summarizes how the various factors are combined to derive the sovereign foreign currency rating, while section V.C details how the scores are derived. The ratings score snapshot summarizes whether we consider that the individual rating factors listed in our methodology constitute a strength or a weakness to the sovereign credit profile, or whether we consider them to be neutral. The concepts of "strength", "neutral", or "weakness" are absolute, rather than in relation to sovereigns in a given rating category. Therefore, highly rated sovereigns will typically display more strengths, and lower rated sovereigns more weaknesses. In accordance with Standard & Poor's sovereign ratings methodology, a change in assessment of the aforementioned factors does not in all cases lead to a change in the rating, nor is a change in the rating necessarily predicated on changes in one or more of the assessments. |
RELATED CRITERIA AND RESEARCH
Related Criteria
- Criteria - Governments - Sovereigns: Sovereign Rating Methodology - December 23, 2014
- General Criteria: Methodology For Linking Short-Term And Long-Term Ratings For Corporate, Insurance, And Sovereign Issuers - May 07, 2013
- General Criteria: Methodology: Criteria For Determining Transfer And Convertibility Assessments - May 18, 2009
Related Research
- Default, Transition, and Recovery: 2014 Annual Sovereign Default Study AndRating Transitions - May 18, 2015
- Research Update: Republic of Gabon Ratings Lowered To 'B' From 'B+'; Outlook Stable - Jan. 29, 2016
In accordance with our relevant policies and procedures, the Rating Committee was composed of analysts that are qualified to vote in the committee, with sufficient experience to convey the appropriate level of knowledge and understanding of the methodology applicable (see 'Related Criteria And Research'). At the onset of the committee, the chair confirmed that the information provided to the Rating Committee by the primary analyst had been distributed in a timely manner and was sufficient for Committee members to make an informed decision.
After the primary analyst gave opening remarks and explained the recommendation, the Committee discussed key rating factors and critical issues in accordance with the relevant criteria. Qualitative and quantitative risk factors were considered and discussed, looking at track-record and forecasts.
The committee agreed that the fiscal assessment deteriorated and all other key rating factors were unchanged.
The chair ensured every voting member was given the opportunity to articulate his/her opinion. The chair or designee reviewed the draft report to ensure consistency with the Committee decision. The views and the decision of the rating committee are summarized in the above rationale and outlook. The weighting of all rating factors is described in the methodology used in this rating action (see 'Related Criteria and Research').
RATINGS LIST
Rating To From Gabon (Republic of) Sovereign Credit Rating Foreign and Local Currency B/Stable/B B/Stable/B Transfer & Convertibility Assessment BBB- BBB- Senior Unsecured Foreign Currency B B Ratings Subsequently Withdrawn Gabon (Republic of) Sovereign Credit Rating Foreign and Local Currency NR B/Stable/B Transfer & Convertibility Assessment NR BBB- Senior Unsecured Foreign Currency NR B NR--Not rated
Certain terms used in this report, particularly certain adjectives used to express our view on rating relevant factors, have specific meanings ascribed to them in our criteria, and should therefore be read in conjunction with such criteria. Please see Ratings Criteria at www.standardandpoors.com for further information.
Complete ratings information is available to subscribers of RatingsDirect at www.globalcreditportal.com and at spcapitaliq.com. All ratings affected by this rating action can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column. Alternatively, call one of the following Standard & Poor's numbers: Client Support Europe (44) 20-7176-7176; London Press Office (44) 20-7176-3605; Paris (33) 1-4420-6708; Frankfurt (49) 69-33-999-225; Stockholm (46) 8-440-5914; or Moscow 7 (495) 783-4009.
Primary Credit Analyst: | Nourredine Lafhel, Dubai (971) 4-372-7168; nourredine.lafhel@standardandpoors.com |
Secondary Credit Analyst: | Ekaterina Novikova, Moscow +7 495 783-4017; ekaterina.novikova@standardandpoors.com |
Research Contributor: | Ekta Bhayani, Mumbai (91) 22-4040-8476; ekta.bhayani@standardandpoors.com |
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