DRC’s Moody’s credit rating and market update

DRC enters the game…

On September the 6th, Moody’s Investors Services assigned Congo a B3 ranking with a stable outlook. This is two levels below Ghana, Kenya, Senegal and Zambia and three steps below Nigeria and Angola, according to Bloomberg. 

This is a very important step for the country as it will increase the visibility of the rising economy and boost investment according to Michel Losembe, president of the Congolese Banking Association. He added that: “it may enable the country to sell debt abroad and set a benchmark for companies seeking to tap international financing. The private sector will be able to access more funds for projects because you can use the rating in risk models. The rating allows Congo to be on the map of the economic decision makers of the world”

 “If the government can get its act together, why not raise funds from financial markets rather than wait for donors or make agreements, like the one with the Chinese, that are questioned,” Losembe said. 

This is indeed a good news for the country. let's see how the authorities take advantage of the country new status (still considered as speculative but still better than not being rated)  

full article: http://www.bloomberg.com/news/2013-09-09/democratic-republic-of-congo-s-credit-rating-to-boost-investment.html 

Market update (quick one) 

The macroeconomic situation remains stable (it does help for the ranking :) ) with a year on year inflation rate of 0.88% at the end of August 2013 and an annualized rate of 1%. This is an incredible performance from the authorities! 

However, I can’t stop thinking about the fact that the situation would have been completely different if the government had respected its commitment to its local creditors. Indeed, according to its own budget, the government has only honored 14% of what it intended to pay to its creditors. If I am not mistaken, there is a link between public expenditures and inflation… but I may be wrong…

As a result, the government has a fiscal surplus but I argue that it is a little easy not to pay your debts and say you have excess liquidities…

On the foreign exchange market, the local currency remains stable too although there is a growing pressure on the Congolese Franc due to a shortage of USD. The market is really dry and banks are expecting a Central Bank intervention, although unlikely due to the low level of its international reserves. The VAT payment of the 15th should help reduce this pressure. Indeed, major corporations will reduce their demand for USD (and not necessarily sell the USD they don’t have) to face their taxes obligations. 

A suivre…