Fitch places Gabon on ‘rating watch negative’ After Military coup

Fitch Ratings has placed Gabon’s ‘B-‘ Long-Term Foreign-Currency and Local-Currency Issuer Default Ratings (IDR) on Rating Watch Negative (RWN). The ‘B’ Short-Term Foreign- and Local-Currency IDRs and the ‘B-‘ issue ratings on Gabon’s long-term foreign-currency senior unsecured bonds have also been placed on RWN.

Under applicable credit rating agency (CRA) regulations, the publication of sovereign reviews is subject to restrictions and must take place according to a published schedule, except where it is necessary for CRAs to deviate from this schedule in order to comply with the CRAs’ obligation to issue credit ratings based on all available and relevant information and disclose credit ratings in a timely manner. Fitch interprets these provisions as allowing us to publish a rating review in situations where there is a material change in the creditworthiness of the issuer that we believe makes it inappropriate for us to wait until the next scheduled review date to update the rating or Outlook/Watch status. Currently, there is no scheduled review date for Fitch’s rating on Gabon, but Fitch believes that developments in the country warrant the publication of a sovereign review, and our rationale for this is set out in the first part (High weight factors) of the Key Rating Drivers section below.

KEY RATING DRIVERS

Military Coup: The RWN reflects high political uncertainty in Gabon following the military coup on 30 August 2023. While Gabon’s electoral commission declared President Ali Bongo Ondimba won re-election for a third term, military officers suspended the constitution and annulled the election. The putschists have formed a Committee for the Transition and Restoration of Institutions (CTRI) and its leader, General Brice Oligui Nguema, was sworn into office on 4 September as President of the Transition. Details of the transition process and timeframe remain unknown. The CTRI announced they will not hold elections in the near term.

Risk of Sanctions: The Economic and Monetary Community of Central Africa (CEMAC) and the Economic Community of Central African States (ECCAS) have no recent record of imposing sanctions that could affect debt payments (unlike the West African counterparts, WAEMU/ECOWAS). However, such measures cannot be excluded at this stage. Gabon’s deposits are partly held at the regional central bank (BEAC) and are therefore vulnerable to sanctions. Foreign military intervention is unlikely.

Capacity and Willingness to Pay: Although the CTRI declared it will respect Gabon’s domestic and external commitments and the transitional president has committed to settle domestic debt to the private sector, the willingness to pay is uncertain. In addition, the coup may have further weakened the operational capacity of the institutions responsible for treasury and debt management. In the near term, Eurobond payments appear manageable, with coupon payments of 0.1% of GDP due in November 2023, and 0.3% of GDP (principal and coupon) due in December. Eurobond repayment will amount to 0.8% of GDP in 2024, and 3.1% of GDP in 2025.

Financing Flexibility: Although fiscal surpluses have reduced fiscal financing needs, Gabon also depends on access to the regional debt market for financing, which may be affected by the coup and the political uncertainty. We assume Gabon will rely more on the regional market for financing at higher interest costs as the coup heightens the market’s nervousness. Support from other international institutions may also be affected, although given its relatively high per capita income, Gabon does not heavily rely on multilateral and bilateral development funding. The resumption of the IMF programme (expected to end June 2024) is now unlikely.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

-Structural and Public Finances: Continued political instability evidenced by administrative disruption or materialisation of sanctions leading to failure to service debt obligations in full and on time.

-Macro: Evidence that the political instability significantly impacts economic activity or other credit metrics.

actors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

-Public Finance: Improved confidence in the capacity and willingness to make timely payments of upcoming debt obligations, and no imposition of sanctions that impairs debt payments.

-Structural and Public Finance: Reduction of policy uncertainty, evidenced by a political transition plan, without a deterioration of international relations, nor adverse impact on the economy or other credit metrics.