Cameroon’s Credit Rating Sinks as Ambazonia Independence Struggle Drags On

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Author: Louis Ashu

The Standard & Poor’s (S&P) has dropped Cameroun’s credit rating from B to B-, with B- being the most highly speculative, negative outlook rating as Cameroun’s economy continuous to decline. This follows the ongoing self-determation cause in the western part of the current country that advocates of its independence and sovereignty call “Ambazonia”. An armed liberation struggle has engulfed the territory with systematic guerilla warfare economic sabotage that is sinking Cameroun’s economy.

On August 5, 2016, Moody’s assigned the B2 first-time issuer rating to the Republic of Cameroun with a stable outlook. The Moody’s B-2 rating is the equivalence of the S&P B rating. At that time in 2016, Moody’s Moderate (+) susceptibility event risk classification was based on the political succession uncertainty risk in Cameroun as its President, Paul Biya, has been in power for over four decades and democratic power transition framework is lacking amidst strong underlying ethnic and regional divisions in the country. In the event of Biya’s demise, the northerners who believe the Bulus and other tribesmen in the south and east regions “stole their precedency” from former president Ahmadou Ahidjo, a northerner, will likely engage in a scramble for the Presidency.

As street protest led by trade unions intensified in the now named Ambazonia territory with ghost towns on Mondays that began crippling the economy, Moody’s on March 13, 2017 still remained optimistic and maintained the B2 rating as Cameroun negotiated a credit-supportive three year program from the IMF. This optimism continued on November 7, 2017 when Moody’s rendered its regular update on Cameroun.

Three weeks after the credit outlook update from Moody’s, however, Biya, standing on the tar mark of the Nsimaleen airport in the nation’s capital, Yaoundé, declared war on the people in the Ambazonia territory as the streets protest that had been on-going for over intensified into an external self-determination struggle. Following the war declaration, the people of Ambazonia escalated resistance against Cameroun’s political administration of the territory and targeted businesses such as the Cameroon Development Cooperation (CDC) and timber companies operating in the area, which they believed were providing revenue to the Cameroun State to sustain its war against Ambazonia. The CDC is the second largest employer after the state.

Moody’s alerted Cameroun on February 19, 2018 that the “escalating political tension in Cameroon’s Anglophone regions” was driving the country’s credit rating down a cliff.  This alert followed the intensification of economic sabotage and the spiral of violence that both poses substantial risk to foreign investors and is progressively emptying Cameroun’s treasury, making it hard for the country to pay its sovereign debt. Cameroun rather intensified its war operation in Ambazonia, thus forcing the Ambazonia Defense Forces to fight back with targeted sabotage of the nation’s economic fabric.

Historically, Cameroun’s credit rating has been most dependent on political stability and oil reserves. Most of the discovered oil reserves in the country are in the Rio del Rey, which falls in the Ambazonia territory. Over half of the discovered oil reserves have been depleted. With the ongoing war of independence in Ambazonia, Cameroun is suffering from low economic competitiveness and low per capita income. Despite efforts by the International Monetary Fund (IMF), governance institutions remain weak under the oppressive and autocratic nature of the Cameroun state. The debt burden is deteriorating. The public debt was 34.5% of GDP in 2018

As a result of the widespread politically ungovernable situation of Ambazonia territory by Cameroun and the deepening deterioration of the economic situation, Moody on June 7, 2018 effectively downgraded the government of Cameroun’s local and foreign currency ratings from stable to negative, while still affirming the B2 rating.

In October 2016, about the same time that the trade unions took to the streets in protest of systematic oppression, S&P Global Ratings projected that “Cameroon’s real economic growth will remain robust, averaging 5.3% from 2016 to 2019” and affirmed a B/B sovereign credit rating for the country. S&P had not foreseen that Biya will declare a war on the Ambazonian territory within a month of their credit affirmation. On April 12, 2019, however, S&P followed the review trends of Moody’s and gave Cameroun a B negative outlook credit rating.

Sovereign wealth funds, pension funds and many global investors rely on the credit rating of nations to determine the credit worthiness of a country. These ratings have huge impact on nation’s borrowing costs. World Bank loans on which most of the country’s infrastructure construction depends decreased from US $517million in 2017 to US $200million in 2018 as the humanitarian catastrophe war in Ambazonia drags on.  The World Bank has only disbursed US $262,049,543.31 of the original principal US $717,000,000 loan approved to the country in the last year. Only 38.42% of the original IDA principal credit of US $1.569 Billion has been disbursed as of May 10, 2019 as multilateral institutions are becoming weary of the country’s economic strength.

Addressing the root causes of the Ambazonia Revolt shall be critical in improving Cameroun’s credit rating. The longer the liberation struggle last, the more likely the country’s credit rating will decline from the current Highly Speculative grade into Extremely Speculative. With this decline, economic hardship, decrease GDP, increase cost of living, increase dilapidated infrastructure and very high unemployment rate will likely engulf the entire nation, thus, plunging the country into an economic depression. The consequences of this decline will extend into the entire Central African Region and negatively impact the value of the regional CFA currency as the economy of the region depends significantly on peace, stability and economic growth of Cameroun.