Moody’s – Coronavirus fallout poses long-lasting economic, financial and social threat to African sovereigns

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  • African sovereigns’ border closures and broader lockdown measures have significantly slowed small-scale trade across Africa, a crucial source of income and employment on the continent
  • Recovery will be slow and there is a risk of longer-term scarring from the crisis
  • Falling revenues from economic slowdown, spending on measures, and a rise in healthcare spending will widen fiscal deficits sharply and increase borrowing requirements
  • Oil-exporting economies like Angola, Nigeria, Gabon and Republic of the Congo have already seen a fall in revenue that will further aggravate their already weak fiscal metrics and lower the resources available to repay debt
  • Pressures on African sovereigns’ already weak fiscal positions will intensify
  • Immediate credit risks are elevated for those under financing or external stress

The coronavirus outbreak and its wider impact on global trade, commodity prices and financial markets present long-lasting and severe economic, financial and social challenges to many African sovereigns, Moody’s Investors Service said in a report yesterday.

The fall in revenue from the economic slowdown, spending on measures to support the economy, and a rise in healthcare spending will sharply widen fiscal deficits and increase borrowing requirements.

“Many African governments have limited financial and institutional capacity to absorb the current coronavirus shock,” said Kelvin Dalrymple, a Moody’s Vice President – Senior Credit Officer and the report’s author. “The longer-term negative effects on the region’s sovereign credit profiles will leave them with diminished capacity to absorb future shocks.”

Oil-exporting economies like Angola, Nigeria, Gabon and Republic of the Congo have already seen a fall in revenue that will further aggravate their already weak fiscal metrics and lower the resources available to repay debt.

Although international support, including the G-20 Debt Service Suspension Initiative (DSSI), will provide modest liquidity relief for some countries, those sovereigns with large borrowing requirements or weak revenue bases, like Mozambique, Zambia and Ghana, face the most severe liquidity stress.

If fiscal strength is not restored, sovereigns will be left with heightened vulnerability to a shift in private creditors’ sentiment and weaker capacity to absorb future shocks.

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