OBG talks to Eric Paget-Blanc, Senior Director, Fitch France

Interview: Eric Paget-Blanc

What are the conclusions of Fitch’s latest report regarding Gabon’s economic outlook?

ERIC PAGET-BLANC: We have revised Gabon’s sovereign rating outlook to positive, affirming its BB- rating; this means that the rating could be upgraded in one or two years. We changed the outlook to positive following the political regime change, which has demonstrated a commitment to diversify the economy.

How resilient is Gabon’s economy to external shocks in the wake of Europe’s financial crisis?

PAGET-BLANC: Concerning external shocks, the European crisis will not have a direct impact, as Gabon invests very little in European banks and does not hold many bonds issued by these countries. Thus, there are not very many links to cause concern. Instead, the principal crisis transmission channel is the price of oil. If the oil price were to remain at $90-95 or less, this would reduce the budget surplus, and prices under $80 per barrel would bring the budget balance into the red zone. Our original hypothesis is of a price of $115 per barrel, but it is difficult to measure the impact of the drop in oil prices, as there is not enough data to conduct a stress test. Wood and mining prices have a much lower impact on budget balance; mining would be more important had the Belinga iron ore project been started. Other transmission channels, such as remittances and tourism receipts, are marginal. There is little domestic manufacturing, meaning that a drop in demand from export markets will have a limited impact.

To what extent is Gabon’s debt profile vulnerable to commodity volatility?

PAGET-BLANC: Fortunately, external public debt is low, below 19.6% of GDP, and given that this represents 66% of government revenue, it would be possible to reimburse in one year. The debt profile is favourable, with a marked decrease over the past few years. General government debt went from 39% of GDP in 2007 to 20.4% of GDP by 2011. This followed a renegotiation of bilateral debt in 2007 when the Paris Club countries agreed to a 15% discount, with France being even more generous. Gabon also launched a eurobond on the international market towards the end of 2007, and this proved a lot cheaper to reimburse than the bilateral debt contracted to Paris Club creditors. The eurobond was denominated in dollars, and while the interest rate was initially high, the yield has dropped as a result of the markets’ positive reaction and is now among the lowest yields on African sovereign debt on the international bond market.

What factors are contributing to Gabon becoming a net external creditor in 2012?

PAGET-BLANC: The current account surplus, driven by a trade surplus from oil revenues, is the main factor. Gabon’s external debt has diminished, and currency reserves and international assets are now worth more than this external debt. This is despite net capital outflows, though there is not much information available on this. We have noticed this outflow because Gabon’s international assets increase less rapidly than current foreign exchange receipts, meaning that a lot of that money leaves the country quickly.

How can Central African countries improve the accuracy of yield curves?

PAGET-BLANC: There are no yield curves for Central African countries as the debt market is underdeveloped. There have only been three sovereign bond offerings: Gabon in 2007, Chad in 2011 and Cameroon in 2012. As such, there is no benchmark issuer, such as the West African Development Bank on the West African market. The International Finance Corporation has a project to try to change this by launching a bond issue in CFA Francs. For Central Africa, the situation remains challenging, as there are two exchanges, each with a very limited number of bond issues. Gabon is awash in liquidity, and there is consequently no bond market, while banks remain very cautious as to loan disbursement.