Moody’s – Negative outlook for sub-Saharan African sovereigns as debt costs will intensify post pandemic

  • Higher debt levels, weaker debt affordability, and low buffers pose significant challenges, given limited institutional capacity
  • Growth recovery will vary throughout the region
  • Tourism-dependent economies like Kenya, Mauritius and Tanzania will particularly see a slow recovery
  • Low domestic revenue mobilisation will continue to plague SSA sovereigns; particularly Nigeria, Ethiopia and Ghana
  • Shock to export and foreign exchange generating sectors will continue to weigh on current account imbalances
  • External vulnerability stress will rise as foreign reserves decline, further exacerbating economic challenges

The negative 2021 outlook for sub-Saharan African (SSA) sovereigns reflects the severe economic challenges the region will grapple with in the fallout from coronavirus shock, Moody’s Investors Service said in a report published today.

SSA sovereigns’ growth recovery will be slow, with far-reaching implications for already weak revenue generation. Lower overall economic growth and revenue, coupled with higher government expenditure, will also lead to wider fiscal deficits and higher debt for the region.

“Most sub-Saharan African governments’ debt burdens will stabilise at materially higher levels in 2021, with the average debt burden for the region at around 64% of GDP in the near to medium term,” says Kelvin Dalrymple, Vice President – Senior Credit Officer at Moody’s Investors Service. “We do not expect debt burdens to come down in the foreseeable future, as revenue generation capacity remains weak. Higher debt loads, lower government revenue, and higher interest costs will increasingly challenge debt affordability. Contingent liabilities from state-owned enterprises also pose an additional risk.”

Sub-Saharan African sovereigns also face a wide range of institutional and governance challenges, limiting their ability to deal with the coronavirus shock. The pandemic’s effects that have triggered higher unemployment and income inequality – along with latent or rising domestic political risks, will likely increase social risks across several countries.

Growth recovery will vary across sub-Saharan Africa, with concentrated and energy exporting economies expected to recover at a slower rate due to low energy prices. Non-energy commodity exporters in East Africa and West Africa will remain the most dynamic economies, with growth driven by domestic demand and high public investment rates. On the other hand, tourism-dependent economies will recover slowly – with lower than historical growth forecast for Kenya, Tanzania and Namibia

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