Rating Action: Moody's assigns B2 first-time issuer rating to the Republic of Cameroon with stable outlook Global Credit Research - 05 Aug 2016

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Rating Action: Moody's assigns B2 first-time issuer rating to the Republic of Cameroon with stable outlook Global Credit Research - 05 Aug 2016 New York, August 05, 2016 -- Moody's Investors Service ("Moody's") has today assigned first-time local and foreign-currency issuer ratings of B2 to the Government of Cameroon. The ratings carry a stable outlook. The rating assignment is based on the following key drivers: (1) Low (+) economic strength balancing the country's exposure to the oil shock albeit more contained than for regional peers and our expectation of a stronger potential growth outlook supported by the infrastructure investment strategy aimed at unlocking the country's vast resource potential. This assessment also takes into account the gradually slowing oil production outlook and the lower for longer commodity price environment which dampens incentives for the development of the country's significant natural gas resources; (2) Very low institutional strength, challenged in particular by weak control of corruption and public financial management, but supported by membership of the Central African Economic and Monetary Union (CEMAC) which affords a high degree of monetary policy credibility; (3) Moderate (+) fiscal strength constrained by the large, mostly externally funded public investment program over the next five years which contributes to the deterioration in the fiscal profile, although the debt burden and affordability metrics will remain consistent with B2 peers over the forecast horizon; (4) Moderate (+) susceptibility to event risk reflecting: credit strengths, such as CEMAC membership with a convertibility guarantee from the French Treasury providing a strong balance of payments backstop despite recurrent current account deficits; credit constraints, such as political succession risk, in addition to tightening funding conditions amid lower oil receipts and a profitable but thinly capitalized banking system with high concentration risk. Concurrent with the first-time rating assignment, Moody's has also assigned a Ba2 ceiling for local-currency bonds and deposits as well as for foreign-currency bonds and deposits. RATINGS RATIONALE --LOW (+) ECONOMIC STRENGTH REFLECTING INFRASTRUCTURE UPGRADE AND IMPROVED POTENTIAL GROWTH OUTLOOK Moody's assessment of the country's economic strength balances, on one side, the diminishing oil reserves, low income levels and lack of competitiveness, against ample but largely underdeveloped natural resources in the agriculture, natural gas, hydropower and minerals sectors. The country's Growth and Employment Strategy 2010-2020, the Vision 2035 Plan, and the Three Year 2015-17 Emergency Plan with a focus on addressing infrastructure bottlenecks in port, electricity and transport infrastructure supports the country's enhanced potential growth outlook, with real GDP growth projected to average about 5% over the next five years. Cameroon's oil production peaked in 1985 at over 180,000 barrels per day (bpd) and has been on a declining trend over the past decades due to depletion of mature oil fields, although new wells and recovery techniques for mature oil fields have temporarily boosted oil production, partially offsetting the impact of lower oil prices. The oil sector accounted for 7% of GDP in 2014, for 50% of total exports and for 23% of fiscal revenues. While Cameroon has the potential to develop estimated natural gas reserves of 5.4 trillion cubic feet, starting with the Golar floating LNG project with an annual production cap at 1.2 million tons of liquefied natural gas starting in the second half of 2017, the recent announcement by France's Engie that it will put on hold the onshore LNG project with a 3.5 million tons per year capacity represents a setback for Cameroon's investment and growth outlook. --VERY WEAK INSTITUTIONAL STRENGTH ESPECIALLY WITH REGARD TO CONTROL OF CORRUPTION

Similar to many oil-exporting countries in the region, Cameroon ranks very low on Worldwide Governance Indicators, facing a particular challenge in the domain of control of corruption. The track record of arrears accumulation also reflects governance challenges, as does the poor business environment where Cameroon ranks 172 out of 189 economies in 2016, according to the World Bank Doing Business survey. That said, Cameroon's membership of the Central African Economic and Monetary Community (CEMAC) and the CFA Franc zone with full euro convertibility guaranteed by the French Treasury, along with monetary policy set independently and competently by the Bank of Central African States (BEAC), is supportive of the country's relatively strong track record of price stability compared to the regional average. --MODERATE (+) FISCAL STRENGTH BALANCES STILL-LOW PUBLIC DEBT LEVELS AND WEAK NON- OIL REVENUES The moderate fiscal strength assessment reflects low, albeit rapidly rising, debt levels after the debt cancellation under the IMF and World Bank's Heavily Indebted Poor Countries (HIPC) Initiative in the previous decade. The rating agency expects public sector debt to increase to 34.3% of GDP in 2017, up from 22.3% in 2014 and 9.7% in 2008. Increasing public investment expenditures and subdued non-oil revenue generation capacity combine to reduce the fiscal space to absorb the negative shock to revenues from the oil sector. The deteriorating debt burden and affordability position reflects the country's weak non-oil revenue generation capacity to compensate for declining oil revenues, in addition to the rapid expansion of external borrowing at increasingly non-concessional terms to fund the public investment program. Despite the expected weakening, debt affordability will likely remain in line with that of its B2 peers. Fiscal strength is further challenged by the accumulation of arrears and contingent liabilities with respect to financially challenged state-owned enterprises in recent years, including the majority state-owned SONARA oil refinery. That said, the government's decision to increase fuel, diesel and gas prices in 2014 and to reduce subsidies will contribute to substantially reducing oil-subsidy expenditures over the forecast horizon and to cushion increased security-related expenditures. --MODERATE (+) SUSCEPTIBILITY TO EVENT RISK DRIVEN BY POLITICAL SUCCESSION RISK Cameroon's event risk is mainly driven by domestic political risk in relation to succession risk stemming from President Paul Biya's long tenure of more than 30 years. Our moderate political risk assessment takes into account the lack of a democratic power transition precedent in the wake of underlying ethnic and regional divisions. The incursions of Boko Haram in the northern part of the country add to political risk environment but are not the main driving factor. Event risk is also heightened by: (i) government liquidity risk which reflects tightening funding conditions in the wake of falling oil revenues, albeit mitigated by on-target revenue collection in the first half of this year and by recent bilateral funding agreements with China; and (ii) the thinly capitalized banking system with high concentration risk exposure to state-owned enterprises, notwithstanding the key exposure to the SONARA refinery has recently been mitigated; in addition to (iii) Cameroon's exposure to negative terms of trade shocks in the commodities sector and the country's low degree of trade openness which limits the capacity to earn foreign currency. Cameroon's CEMAC membership significantly alleviates the risk of balance of payment crises, as the CFA franc zone enjoys a full convertibility guarantee to the euro from the French Treasury at a fixed exchange rate. That said, Moody's expects a persisting current account deficit in the 5-5.5% of GDP range over the next few years to put pressure on foreign exchange reserves, albeit to a lesser degree than for oil-producing peers in CEMAC. This rating was initiated by Moody's and was not requested by the rated entity. Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. On this basis, the rated entity or its agent(s) is considered to be a nonparticipating entity. The rated entity or its agent(s) generally does not provide Moody's with information for the purposes of its ratings process. RATING OUTLOOK The stable outlook balances rapidly increasing public and external debt levels with the improved potential growth trajectory from upgraded infrastructure provision. Increased oil production since 2013 cushions the fiscal revenue impact of the oil price slump to some degree, as does the prospect of LNG production and exports starting in the second half of 2017, although Moody's expects the lower for longer commodity price

environment to dampen incentives for further large natural gas project developments in the medium term. Foreign exchange reserves were bolstered by the $750 million 10-year Eurobond issued in November 2015. WHAT COULD CHANGE THE RATING UP Upward rating pressure could arise from (i) greater than expected growth and revenue dividends from the government's Growth and Employment Strategy over the next few years, and (2) a slower pace of debt accumulation based on a gradual reduction in the non-oil primary balance. WHAT COULD CHANGE THE RATING DOWN Downward rating pressure could arise from (1) a more significant than anticipated deterioration in fiscal and debt metrics in response to expenditure overruns or to the materialization of contingent liabilities; and/or (2) negative terms of trade shocks that further erode competitiveness and lead to a significantly higher current account deficit than anticipated. A sharp deterioration in the domestic security environment could also exert downward pressure on the rating. GDP per capita (PPP basis, US$): 3,144 (Actual) (also known as Per Capita Income) Real GDP growth (% change): 5.9% (Actual) (also known as GDP Growth) Inflation Rate (CPI, % change Dec/Dec): 2.8% (2015 Actual) Gen. Gov. Financial Balance/GDP: -4.3% (2015 Estimate) (also known as Fiscal Balance) Current Account Balance/GDP: -5.5% (2015 Estimate) (also known as External Balance) External debt/gdp: 22.4% (2015 Estimate) Level of economic development: Low level of economic resilience Default history: At least one default event (on bonds and/or loans) has been recorded since 1983. On 3 August 2016, a rating committee was called to discuss the rating of the Government of Cameroon. The main points raised during the discussion were: the issuer's economic fundamentals, including its economic strength, institutional strength/framework; fiscal or financial strength, including its debt profile and susceptibility to event risk. This rating level was also considered relative to its peers. The principal methodology used in these ratings was Sovereign Bond Ratings published in December 2015. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology. The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable. REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

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