Moody’s Downgrades the Democratic Republic of Congo’s Rating to Caa1

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Friday, June 21, 2019   / 05:00PM / United Capital Research  / Header Image Credit: Shutterstock

 

Earlier this week, Moody’s took a rating action on the Democratic Republic of Congo (DRC) in a move that saw the Central African country move one notch deeper into the junk bond region. The credit rating agency moved the country from B3 to Caa1, effectively placing the country at par with Iraq, Lebanon, Gabon and Ukraine on the Caa1 scale.

A 2018 economic growth rate of 5.8% and a comfortable debt to GDP ratio of 14.0% were not enough to avert the rating downgrade which was triggered by concerns surrounding the capacity of the country's policymaking institutions and economy to respond to shocks to commodity prices.

The country’s weak infrastructure, over-dependence on the mining sector for public revenue, violent ethnic conflict and the lingering Ebola outbreak, are all factors that have dampened the outlook of the country.  Additionally, according to the rating report, FX reserves which is barely enough to cover  one month of imports further heighten the gloomy outlook for the nation, as this offer little room for significant financial and policy response to a currency crisis.

Although, a new administration sworn in Jan-19 to unseat an 18-year old tyrannical rule, raised hopes for some policy changes, the administration’s delay of major policy pronouncements (including a cabinet) have dwindled the outlook for the nation. No doubt, there is a need for the Felix Tshisekedi-led administration to swiftly swing into action and restore confidence in the economy. More importantly, we believe that in order to avoid a further downgrade and a possible economic landslide, the current administration need to effectively implement policies that would help shore up reserves, diversify the economic base and revenue sources. 

 

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